497 1 b54202lre497.txt STRATEGIC INCOME ABC SHARES PROSPECTUS COLUMBIA STRATEGIC INCOME FUND Prospectus, September 26, 2005 CLASS A, B AND C SHARES Advised by Columbia Management Advisors, Inc. -------------------------------------------------------------------------------- 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............................... 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.................................... 21 OTHER INVESTMENT STRATEGIES AND RISKS 23 --------------------------------------------------------- FINANCIAL HIGHLIGHTS 24 --------------------------------------------------------- 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 INVESTMENT GOALS -------------------------------------------------------------------------------- The Fund seeks current income consistent with prudent risk. The Fund also seeks maximum total return. PRINCIPAL INVESTMENT STRATEGIES -------------------------------------------------------------------------------- The Fund seeks to achieve its goals by investing primarily in: - debt securities issued by the U.S. government, including mortgage-backed securities issued by U.S. government agencies; - debt securities issued by foreign governments and foreign companies, including securities issued in emerging market countries; and - lower-rated corporate debt securities. The Fund's investment advisor allocates the Fund's investments among these types of securities at any given time based on its estimate of the expected performance and risk of each type of investment. The Fund pursues its investment goals by investing a portion of its assets in lower-rated corporate debt securities. These securities are: - 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 advisor to be comparable in quality. 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. 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. Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS -------------------------------------------------------------------------------- The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goals. You may lose money by investing in 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. ---- 2 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. 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. 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 ---- 3 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. 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. 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. PERFORMANCE HISTORY -------------------------------------------------------------------------------- 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. All information in this prospectus relating to the Fund for periods prior to September 26, 2005, including the performance information shown below, is that of Columbia Strategic Income Fund, a series of Columbia Funds Trust I, 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. 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. ---- 4 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 Lehman Brothers Government/Credit Bond Index ("Lehman Index"), an unmanaged index that tracks the performance of U.S. government and U.S. corporate bonds. 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-Sector Income 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) (BAR CHART) 20.18% 10.25% 8.62% 5.17% 1.28% -0.68% 3.07% 7.97% 19.29% 10.04% 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 +0.21% Best quarter: 2nd quarter 2003, +7.54% Worst quarter: 2nd quarter 2004, -2.17%
---- 5 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 4.81 6.67 7.79 Return After Taxes on Distributions 2.05 3.47 4.44 Return After Taxes on Distributions and Sale of Fund Shares 3.03 3.64 4.52 -------------------------------------------------------------------------------------------------------- Class B (%) Return Before Taxes 4.06 6.59 7.49 Return After Taxes on Distributions 1.45 3.63 4.45 Return After Taxes on Distributions and Sale of Fund Shares 2.56 3.73 4.48 -------------------------------------------------------------------------------------------------------- Class C (%) Return Before Taxes 8.39 7.07 7.63(1) Return After Taxes on Distributions 5.72 4.09 4.54(1) Return After Taxes on Distributions and Sale of Fund Shares 5.36 4.14 4.57(1) -------------------------------------------------------------------------------------------------------- Lehman Index (%) 4.19 8.00 7.80 -------------------------------------------------------------------------------------------------------- Lipper Average (%) 8.35 7.21 7.53
(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 April 21, 1977, Class B shares were initially offered on May 15, 1992, and Class C shares were initially offered on July 1, 1997. ---- 6 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 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 - 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. ---- 7 THE FUND ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C Management fee(1) (%) 0.56 0.56 0.56 ------------------------------------------------------------------------------------------------------- Distribution and service (12b-1) fees(2) (%) 0.24 0.99 0.99(3) ------------------------------------------------------------------------------------------------------- Other expenses (%) 0.26 0.26 0.26 ------------------------------------------------------------------------------------------------------- Total annual fund operating expenses (%) 1.06 1.81 1.81(3)
(1) Management fee has been restated to reflect contractual changes effective November 1, 2004. (2) 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 January 1, 1993 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. (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 0.84% and total annual fund operating expenses for Class C shares would be 1.66%. 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 $578 $796 $1,032 $1,708 ------------------------------------------------------------------------------------------------------------------------ Class B: did not sell your shares $184 $569 $ 980 $1,930 sold all your shares at the end of the period $684 $869 $1,180 $1,930 ------------------------------------------------------------------------------------------------------------------------ Class C: did not sell your shares $184 $569 $ 980 $2,127 sold all your shares at the end of the period $284 $569 $ 980 $2,127
See Appendix A for additional hypothetical investment and expense information. ---- 8 YOUR ACCOUNT HOW TO BUY SHARES -------------------------------------------------------------------------------- Your financial advisor can help you establish an appropriate investment portfolio, buy shares and monitor your investments. When the Fund receives your purchase request in "good form," your shares will be bought at the next calculated public offering price. "Good form" means that 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. ----------------------------------------------------------------------------------- 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.
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 ---- 9 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. SALES CHARGES -------------------------------------------------------------------------------- You may be subject to an initial sales charge when you purchase, or a contingent deferred sales charge (CDSC) when you sell, shares of the Fund. These sales charges are described below. In certain circumstances, the sales charge may be reduced or waived, as described below and in the Statement of Additional Information. ------------------------------------------------------------------- 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 offers an additional class of shares, Class J shares, which are made available only to residents or citizens of Japan through a separate prospectus. 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 2.25 ------------------------------------------------------------------------------------------------------------------- $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
---- 10 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. ---- 11 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 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. ---- 12 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 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. 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
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
---- 13 YOUR ACCOUNT HOW TO EXCHANGE SHARES -------------------------------------------------------------------------------- You may exchange your shares for shares of the same share 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. HOW TO SELL SHARES -------------------------------------------------------------------------------- Your financial advisor can help you determine if and when you should sell your shares. You may sell shares of the Fund on any regular business day that the NYSE is open. When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that 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. ---- 14 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 semiannual 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.
FUND POLICY ON TRADING OF FUND SHARES -------------------------------------------------------------------------------- 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 ---- 15 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. DISTRIBUTION AND SERVICE FEES -------------------------------------------------------------------------------- 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 and C shares and certain services provided to you by your financial advisor. The annual service fee is calculated by adding (1) 0.15% on net assets attributable to shares issued prior to January 1, 1993 and (2) 0.25% on net assets attributable to shares issued thereafter. This arrangement results in a rate of service fee payable by the Fund that is a blend between the 0.15% and 0.25% rates. For the fiscal year ended May 31, 2005, the combined service fee was 0.24% of the Fund's average net assets. 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 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 ---- 16 YOUR ACCOUNT 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. OTHER INFORMATION ABOUT YOUR ACCOUNT -------------------------------------------------------------------------------- HOW THE FUND'S SHARE PRICE IS DETERMINED The price of each class of the Fund's shares is based on its net asset value. The net asset value is determined at the close of regular trading on the NYSE, usually 4:00 p.m. Eastern time, on each business day that the NYSE is open for trading (typically Monday through Friday). 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 ---- 17 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. 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 monthly 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. ---- 18 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. ---- 19 MANAGING THE FUND INVESTMENT ADVISOR -------------------------------------------------------------------------------- Effective September 30, 2005, Columbia Management Advisors, LLC ("Columbia Advisors"), located at 100 Federal Street, Boston, Massachusetts 02110, will become the Fund's investment advisor. Columbia Advisors will be responsible for the Fund's management, subject to oversight by the Fund's Board of Trustees. In its duties as investment advisor, Columbia Advisors will run 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"), an affiliate of Columbia Advisors with offices at the same location, will merge into Columbia Advisors. Columbia Management will be the investment advisor to the Fund until September 30, 2005. As a result of the merger, Columbia Advisors will become the investment advisor to the Fund. For the 2004 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. 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. PORTFOLIO MANAGERS -------------------------------------------------------------------------------- LAURA A. OSTRANDER, a senior vice president of Columbia Management, is the lead manager for the Fund and managed or co-managed the Fund since September, 2000. Ms. Ostrander has been associated with Columbia Management or its predecessors since December, 1996. THOMAS A. LAPOINTE, a senior vice president of Columbia Management, is a co-manager for the Fund and has co-managed the Fund since June, 2005. Mr. LaPointe has been associated with Columbia Management or its predecessors since February, 1999. KEVIN L. CRONK, a senior vice president of Columbia Management, is a co-manager for the Fund and co-managed the Fund since June, 2005. Mr. Cronk has been associated with Columbia Management or its predecessors since August, 1999. The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund. ---- 20 MANAGING THE FUND LEGAL PROCEEDINGS -------------------------------------------------------------------------------- On February 9, 2005, Columbia Management and Columbia Management Distributors, Inc. ("CMD," formerly named Columbia Funds Distributor, Inc.) (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. ---- 21 MANAGING THE FUND 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. 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. ---- 22 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. WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DOLLAR ROLLS -------------------------------------------------------------------------------- When-issued securities and forward commitments are securities that are purchased prior to the date they are actually issued or delivered. These securities involve the risk that they may fall in value by the time they are actually issued or that the other party may fail to honor the contract terms. In a dollar roll, the Fund sells a security and simultaneously enters into a commitment to purchase a similar security at a later date. Dollar rolls also involve the risk that the other party may not honor the contract terms. ZERO COUPON BONDS -------------------------------------------------------------------------------- Zero coupon bonds do not pay interest in cash on a current basis, but instead accrue interest over the life of the bond. As a result, these securities are issued at a discount. The value of these securities may fluctuate more than the value of similar securities that pay interest periodically. Although these securities pay no interest to holders prior to maturity, interest accrued on these securities is reported as income to the Fund and distributed to its shareholders. PORTFOLIO TURNOVER -------------------------------------------------------------------------------- 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. TEMPORARY DEFENSIVE STRATEGIES -------------------------------------------------------------------------------- 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 goals. ---- 23 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 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
YEAR ENDED PERIOD ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, 2005 2004 2003(A) 2002 2001 2000 Class A Class A Class A Class A Class A Class A ------- ------- ------- ------- ------- ------- NET ASSET VALUE -- BEGINNING OF PERIOD ($) 6.02 6.09 5.63 5.64 6.00 6.62 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS ($): Net investment income 0.36(b) 0.36(b) 0.16(b) 0.38(b) 0.48(b)(c) 0.58(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.25 0.01 0.46 0.05 (0.30)(c) (0.62) --------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 0.61 0.37 0.62 0.43 0.18 (0.04) --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($): From net investment income (0.48) (0.44) (0.16) (0.42) (0.50) (0.53) Return of capital -- -- -- (0.02) (0.04) (0.05) --------------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.48) (0.44) (0.16) (0.44) (0.54) (0.58) --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE -- END OF PERIOD ($) 6.15 6.02 6.09 5.63 5.64 6.00 --------------------------------------------------------------------------------------------------------------------------------- Total return (%)(e) 10.37 6.21 11.10(f) 7.97 3.07 (0.68) --------------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%): Expenses(g) 1.09 1.17 1.27(h) 1.23 1.21 1.17 Net investment income(g) 5.81 5.90 6.52(h) 6.75 8.22(c) 9.12 Portfolio turnover rate (%) 57 68 59(f) 62 106 35 Net assets, end of period (000's) ($) 615,772 566,269 595,223 552,737 575,791 536,481
(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 decrease net investment income per share by $0.02, increase net realized and unrealized loss per share by $0.02 and decrease the ratio of net investment income to average net assets from 8.60% to 8.22%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (d) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (e) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. ---- 24 FINANCIAL HIGHLIGHTS THE FUND
YEAR ENDED PERIOD ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, 2005 2004 2003(A) 2002 2001 2000 Class B Class B Class B Class B Class B Class B ------- ------- ------- ------- ------- ------- NET ASSET VALUE -- BEGINNING OF PERIOD ($) 6.02 6.09 5.62 5.63 6.00 6.62 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS ($): Net investment income 0.32(b) 0.32(b) 0.14(b) 0.34(b) 0.44(b)(c) 0.53(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.25 0.01 0.47 0.04 (0.32)(c) (0.62) --------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 0.57 0.33 0.61 0.38 0.12 (0.09) --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($): From net investment income (0.44) (0.40) (0.14) (0.37) (0.45) (0.48) Return of capital -- -- -- (0.02) (0.04) (0.05) --------------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.44) (0.40) (0.14) (0.39) (0.49) (0.53) --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE -- END OF PERIOD ($) 6.15 6.02 6.09 5.62 5.63 6.00 --------------------------------------------------------------------------------------------------------------------------------- Total return (%)(e) 9.55 5.42 10.95(f) 7.17 2.12 (1.41) --------------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%): Expenses(g) 1.84 1.92 2.02(h) 1.98 1.96 1.92 Net investment income(g) 5.06 5.15 5.77(h) 6.00 7.47(c) 8.37 Portfolio turnover rate (%) 57 68 59(f) 62 106 35 Net assets, end of period (000's) ($) 349,975 408,345 484,540 456,563 533,406 693,733
(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 decrease net investment income per share by $0.02, increase net realized and unrealized loss per share by $0.02 and decrease the ratio of net investment income to average net assets from 7.85% to 7.47%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (d) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. ---- 25 FINANCIAL HIGHLIGHTS THE FUND
YEAR ENDED PERIOD ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, 2005 2004 2003(A) 2002 2001 2000 Class C Class C Class C Class C Class C Class C ------ ------ ------ ------ ------ ------ NET ASSET VALUE -- BEGINNING OF PERIOD ($) 6.02 6.09 5.63 5.64 6.00 6.62 --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS ($): Net investment income 0.32(b) 0.33(b) 0.14(b) 0.35(b) 0.45(b)(c) 0.54(d)(e) Net realized and unrealized gain (loss) on investments and foreign currency 0.26 0.01 0.46 0.04 (0.31)(c) (0.62) --------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 0.58 0.34 0.60 0.39 0.14 (0.08) --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($): From net investment income (0.45) (0.41) (0.14) (0.38) (0.46) (0.49) Return of capital -- -- -- (0.02) (0.04) (0.05) --------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.45) (0.41) (0.14) (0.40) (0.50) (0.54) --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE -- END OF PERIOD ($) 6.15 6.02 6.09 5.63 5.64 6.00 --------------------------------------------------------------------------------------------------------------------------- Total return (%)(f) 9.71(g) 5.57(g) 10.82(g)(h) 7.32(g) 2.45 (1.26)(g) --------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%): Expenses(i) 1.69 1.77 1.87(j) 1.83 1.81 1.77(d) Net investment income(i) 5.21 5.31 5.92(j) 6.15 7.62(c) 8.52(d) Waiver/reimbursement 0.15 0.15 0.15(j) 0.15 -- 0.15 Portfolio turnover rate (%) 57 68 59(h) 62 106 35 Net assets, end of period (000's) ($) 51,488 41,520 45,572 38,923 42,906 43,538
(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 decrease net investment income per share by $0.02, increase net realized and unrealized loss per share by $0.02 and decrease the ratio of net investment income to average net assets from 8.00% to 7.62%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (d) Net of fees waived by the distributor which amounted to $0.02 per share and 0.15% for the year ended December 31, 2000. (e) The per share net investment income amount does not reflect the period's reclassifications of differences between book and tax basis net investment income. (f) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (g) Had the distributor 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. ---- 26 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 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% $10,001.25 3.94% $ 9,900.29 $ 577.95 2 10.25% $10,501.31 8.04% $10,290.36 $ 107.01 3 15.76% $11,026.38 12.29% $10,695.80 $ 111.23 4 21.55% $11,577.70 16.72% $11,117.21 $ 115.61 5 27.63% $12,156.58 21.31% $11,555.23 $ 120.16 6 34.01% $12,764.41 26.09% $12,010.50 $ 124.90 7 40.71% $13,402.63 31.06% $12,483.72 $ 129.82 8 47.75% $14,072.76 36.23% $12,975.58 $ 134.93 9 55.13% $14,776.40 41.59% $13,486.81 $ 140.25 10 62.89% $15,515.22 47.17% $14,018.20 $ 145.78 Total Gain Before Fees & Expenses $ 5,990.22 Total Gain After Fees & Expenses $ 4,493.20 ------------------------------------------------------------------------- Total Annual Fees & Expenses Paid $1,707.64
(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. ---- 27 APPENDIX A CLASS B SHARES
ANNUAL INITIAL HYPOTHETICAL ASSUMED RATE EXPENSE RATIO INVESTMENT AMOUNT OF RETURN 1.81% $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 3.19% $10,319.00 $ 183.89 2 10.25% $11,025.00 6.48% $10,648.18 $ 189.75 3 15.76% $11,576.25 9.88% $10,987.85 $ 195.81 4 21.55% $12,155.06 13.38% $11,338.37 $ 202.05 5 27.63% $12,762.82 17.00% $11,700.06 $ 208.50 6 34.01% $13,400.96 20.73% $12,073.29 $ 215.15 7 40.71% $14,071.00 24.58% $12,458.43 $ 222.01 8 47.75% $14,774.55 28.56% $12,855.85 $ 229.09 9 55.13% $15,513.28 33.62% $13,362.37 $ 138.96 10 62.89% $16,288.95 38.89% $13,888.85 $ 144.43 Total Gain Before Fees & Expenses $ 6,288.95 Total Gain After Fees & Expenses $ 3,888.65 ------------------------------------------------------------------------- Total Annual Fees & Expenses Paid $1,929.64
CLASS C SHARES
ANNUAL INITIAL HYPOTHETICAL ASSUMED RATE EXPENSE RATIO INVESTMENT AMOUNT OF RETURN 1.81% $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 3.19% $10,319.00 $ 183.89 2 10.25% $11,025.00 6.48% $10,648.18 $ 189.75 3 15.76% $11,576.25 9.88% $10,987.85 $ 195.81 4 21.55% $12,155.06 13.38% $11,338.37 $ 202.05 5 27.63% $12,762.82 17.00% $11,700.06 $ 208.50 6 34.01% $13,400.96 20.73% $12,073.29 $ 215.15 7 40.71% $14,071.00 24.58% $12,458.43 $ 222.01 8 47.75% $14,774.55 28.56% $12,855.85 $ 229.09 9 55.13% $15,513.28 32.66% $13,265.95 $ 236.40 10 62.89% $16,288.95 36.89% $13,689.14 $ 243.94 Total Gain Before Fees & Expenses $ 6,288.95 Total Gain After Fees & Expenses $ 3,689.14 ------------------------------------------------------------------------- Total Annual Fees & Expenses Paid $2,126.60
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-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ---- 31 FOR MORE INFORMATION -------------------------------------------------------------------------------- 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 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 as Columbia Funds Trust IX): 811-04367 - Columbia Strategic Income 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-36/90480-0905