<PAGE>
Registration Nos. 333-5863/ 811-7671
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 2 [X]
Post-Effective Amendment No._ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. 2 [X]
(Check appropriate box or boxes.)
COLUMBIA SMALL CAP FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1301 SW Fifth Avenue, PO Box 1350, Portland, Oregon 97207
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (503) 222-3600
John A. Kemp
1301 SW Fifth Avenue, PO Box 1350, Portland, Oregon 97207
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
It is proposed that this filing will become effective (Check appropriate box)
immediately upon filing pursuant to paragraph (b)
---
on _______________ pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)(i)
---
on _______________ pursuant to paragraph (a)(i)
---
75 days after filing pursuant to paragraph (a)(ii)
---
on _________________ pursuant to paragraph (a)(ii) of Rule 485
---
If appropriate, check the following box:
this post-effective amendment designates a new effective date for
--- a previously filed post-effective amendment.
Please forward copies of communications to:
Robert J. Moorman
Stoel Rives L.L.P.
900 SW Fifth Avenue, Suite 2300
Portland, Oregon 97204
------------------------------
An indefinite number of shares of Common Stock is being registered under the
Securities Act of 1933 by the Registrant. The Rule 24f-2 Notice for the year
ending December 31, 1996 will be filed on or before February 28, 1997.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
COLUMBIA SMALL CAP FUND, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Location in
Part A - INFORMATION REQUIRED IN A PROSPECTUS Prospectus
-----------
<S> <C>
Item 1. Cover Page . . . . . . . . . . . Cover
Item 2. Synopsis . . . . . . . . . . . . "Fund Expenses"
Item 3. Condensed Financial
Information. . . . . . . . . . . Not applicable
Item 4. General Description of
Registrant . . . . . . . . . . . "Fund Description" and
"Additional Information"
Item 5. Management of the Fund . . . . . "Fund Management"
Item 5A. Management's Discussion of
Fund Performance . . . . . . . . Not applicable
Item 6. Capital Stock and Other
Securities . . . . . . . . . . . "Fund Management";
"Distributions and Taxes";
"Investor Services"; "Fund
Description"; and Cover
Item 7. Purchase of Securities Being
Offered. . . . . . . . . . . . . "Investor Services"; "Fund
Description" and "Fund
Management"
Item 8. Redemption or Repurchase . . . . "Investor Services"
Item 9. Pending Legal Proceedings. . . . Not applicable
Part B - INFORMATION REQUIRED IN A STATEMENT Statement of Additional
OF ADDITIONAL INFORMATION . . . . . . Information
-----------------------
Item 10. Cover Page . . . . . . . . . . . Cover
Item 11. Table of Contents. . . . . . . . "Table of Contents"
Item 12. General Information and
History. . . . . . . . . . . . Not applicable
Item 13. Investment Objectives and
Policies . . . . . . . . . . . "Investment Restrictions"; and
"Additional Information Regarding
Certain Investments by the Fund."
Additional information is in Prospectus
under "Fund Description" and "Additional
Information."
Item 14. Management of the Fund . . . . . "Management"
2
<PAGE>
Item 15. Control Persons and Principal
Holders of Securities. . . . . . "Management"
Item 16. Investment Advisory and
Other Services . . . . . . . . . "Investment Advisory and other
Fees Paid to Affiliates" and
"Custodians." Additional
information is in Prospectus
under "Fund Management."
Item 17. Brokerage Allocation and Other
Practices. . . . . . . . . . . . "Portfolio Transactions"
Item 18. Capital Stock and Other
Securities . . . . . . . . . . . All required information is
in Prospectus under "Fund
Management."
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered. . . . . . . . . . "Redemptions." Additional
information is in Prospectus
under "Investor Services."
Item 20. Tax Status . . . . . . . . . . . "Taxes." Additional
information is in Prospectus
under "Distributions and
Taxes."
Item 21. Underwriters . . . . . . . . . . "Management"
Item 22. Calculation of Performance
Data . . . . . . . . . . . . . . "Performance"
Item 23. Financial Statements . . . . . . "Financial Statements"
</TABLE>
3
<PAGE>
[LOGO]
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COLUMBIA FUNDS
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PROSPECTUS
OCTOBER 1, 1996
------------------------------------
COLUMBIA
SMALL CAP
FUND
------------------------------------
<PAGE>
COLUMBIA SMALL CAP
FUND, INC.
-- PROSPECTUS -- OCTOBER 1, 1996 --
This Prospectus contains information relating to Columbia Small Cap Fund, Inc.
(the "Fund"), a mutual fund managed by Columbia Funds Management Company (the
"Advisor"). The Fund seeks significant capital appreciation by investing
primarily in common stocks of smaller companies ("small cap"). A company is
considered small cap if it has a market capitalization of less than $1 billion.
Investing in small cap companies may offer greater potential for capital growth,
but is generally riskier than an investment in larger, more established
companies. See "Fund Description -- Risk Factors."
This Prospectus contains information you should know about the Fund before
investing. Please keep it for future reference. A Statement of Additional
Information about the Fund dated October 1, 1996 has been filed with the
Securities and Exchange Commission and is available without charge upon written
request to the Fund or by calling 1-800-547-1707. The Statement of Additional
Information is legally a part of (incorporated by reference into) this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE FUND CHARGES NO SALES LOAD. SHARES OF THE FUND ARE SOLD AND REDEEMED AT
THEIR NET ASSET VALUE.
THIS PROSPECTUS CONSTITUTES AN OFFER TO SELL SECURITIES OF THE FUND ONLY IN
THOSE STATES WHERE THE FUND'S SHARES HAVE BEEN REGISTERED FOR SALE. THE FUND
WILL NOT ACCEPT APPLICATIONS FROM PERSONS RESIDING IN STATES WHERE THE FUND'S
SHARES ARE NOT REGISTERED.
TABLE OF CONTENTS
-------------------------
FUND EXPENSES..................................................................1
FUND DESCRIPTION...............................................................2
PERFORMANCE....................................................................5
FUND MANAGEMENT................................................................6
Board of Directors...........................................................6
Investment Advisor...........................................................6
A Team Approach to Investing.................................................7
Personal Trading.............................................................7
Other Service Providers......................................................7
Other Information............................................................8
MUTUAL FUND FEATURES...........................................................9
INVESTOR SERVICES.............................................................10
How to Open a New Account...................................................10
How to Purchase Shares......................................................10
Minimum Investments.........................................................10
Paying for Your Shares......................................................11
How to Redeem (Sell) Shares.................................................11
Signature Policy............................................................12
Payment of Redemption Proceeds..............................................12
How to Exchange Shares......................................................13
Processing Your Order.......................................................13
Determining Your Share Price................................................13
Investor Inquiries..........................................................14
Account Privileges..........................................................14
IRAs, SEP IRAs, and Retirement Plans........................................15
Private Management Accounts.................................................15
DISTRIBUTIONS AND TAXES.......................................................16
ADDITIONAL INFORMATION........................................................17
FOR FURTHER INFORMATION OR
ASSISTANCE IN OPENING
AN ACCOUNT, PLEASE CALL:
222-3606 IN PORTLAND
OR 1-800-547-1707 NATIONWIDE
<PAGE>
FUND EXPENSES
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The following information is provided to assist you in understanding the various
costs and estimated expenses that an investor in the Fund will bear directly or
indirectly. The Fund is new, so the Annual Fund Operating Expenses are based on
estimates for the current fiscal year of the Fund. In the future, the amount of
expenses will depend on the annual average net assets of the Fund and a number
of other factors. Estimated expenses paid by the Fund include management fees as
well as audit, transfer agent, custodian and legal fees, and other business
operating expenses but exclude extraordinary expenses. For more information,
please see "Fund Description -- No Sales Load or 12b-1 Fees," "Fund Management,"
and "Investor Services -- How to Redeem (Sell) Shares."
-- SHAREHOLDER TRANSACTION EXPENSES --
<TABLE>
<S> <C>
SALES LOAD IMPOSED ON PURCHASES...... NONE
SALES LOAD IMPOSED ON REINVESTED
DIVIDENDS.......................... NONE
REDEMPTION FEES*..................... NONE
EXCHANGE FEES........................ NONE
*WIRE REDEMPTIONS MAY BE SUBJECT TO A FEE OF UP
TO $5, IN ADDITION TO ANY CHARGES BY YOUR
BANK.
</TABLE>
-- ANNUAL FUND OPERATING EXPENSES --
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
MANAGEMENT FEES....................... 1.00%
12B-1 FEES............................ NONE
OTHER OPERATING EXPENSES.............. .37%
TOTAL FUND OPERATING EXPENSES....... 1.37%
</TABLE>
<TABLE>
<S> <C> <C> <C>
Assume that you have $1,000 to invest, the
Fund has a hypothetical return of 5%
annually, and the above expense ratio
remains the same. This table shows the
total expenses that you would pay
indirectly if you closed your account
after each time period shown:
</TABLE>
<TABLE>
<S> <C>
1 YEAR 3 YEARS
- --------- ---------
$14 $43
</TABLE>
<TABLE>
<S> <C> <C> <C>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES
OR PERFORMANCE; ACTUAL EXPENSES AND
PERFORMANCE MAY BE GREATER OR LESS THAN
THOSE SHOWN.
</TABLE>
1
<PAGE>
FUND DESCRIPTION
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The Fund is an open-end, diversified management investment company (that is, a
"mutual fund"). The Fund is managed by Columbia Funds Management Company (the
"Advisor").
-- NO SALES LOAD OR 12B-1 FEES --
MANY MUTUAL FUNDS CHARGE FEES TO COMPENSATE SALES REPRESENTATIVES FOR
PROMOTING AND SELLING THEIR FUNDS. THERE ARE FUNDS, HOWEVER, THAT CHARGE NO
SALES FEES WHEN YOU BUY SHARES. WITH THESE FUNDS, ALL OF YOUR MONEY, INSTEAD
OF JUST A PORTION, IS INVESTED. IN ADDITION, SOME "NO-LOAD" MUTUAL FUNDS
CHARGE AN ANNUAL 12B-1 FEE AGAINST FUND ASSETS TO HELP PAY FOR THE SALE OF
FUND SHARES. THE FUND IS SOLD WITHOUT SALES LOADS OR 12B-1 FEES; ALL THE MONEY
YOU PAY TO BUY SHARES IS INVESTED IN THE FUND.
-- COLUMBIA'S INVESTMENT APPROACH --
The Fund is managed by the Advisor using a team approach (please see "Fund
Management"). The investment team generally selects portfolio securities for the
Fund based on a fundamental analysis of individual companies, including:
- - financial condition
- - quality of management
- - dynamics of the relevant industry
- - earnings growth and profit margins
- - sales trends
- - potential for new product development
- - dividend payment history and potential
- - financial ratios -- including price/earnings and
price/book ratios
- - investment for the future in research and facilities
The investment team also employs a "top-down, sector rotating" analysis, in
which the investment environment is reviewed in terms of economic policy, trends
in monetary and fiscal policy, investor sentiment, the supply and demand for
credit, and market momentum. This top-down perspective helps identify attractive
market sectors and industries for emphasis by the Fund.
The team continuously adapts its investment strategies to changing market
conditions. Although the Fund will generally emphasize investments for long-term
capital appreciation, it may invest for short-term capital appreciation when
management believes such action is consistent with sound investment practices
and the Fund's overall objective. These determinations will be made without a
vote of the shareholders of the Fund. There is no assurance that the Fund will
achieve its investment objective.
2
<PAGE>
FUND DESCRIPTION
- --------------------------------------------------------------------------------
- ---- ----
-- COLUMBIA SMALL CAP FUND --
-----------------------------
The Fund was incorporated on May 31, 1996 under Oregon law and began offering
shares to the public on October 1, 1996.
-- INVESTMENT OBJECTIVE --
The investment objective of the Fund is to achieve capital appreciation by
investing, in normal circumstances, at least 65 percent of the value of the
Fund's total assets in common stocks, or securities convertible into common
stocks, of "small cap" companies. As of the date of this Prospectus, a company
is considered small cap if it has an aggregate market capitalization of less
than $1 billion. Upon notice to shareholders, the definition of small cap may
change in the future if the Advisor determines, based on changes in market
levels and accepted industry definitions, that a different market capitalization
is more appropriate. There is no minimum aggregate market capitalization for a
company to be considered an appropriate investment for the Fund. The Fund may,
however, invest from time to time up to 35 percent of the value of its total
assets in the securities of larger, more established companies when the Advisor
believes they offer capital appreciation potential that is generally comparable
to small cap securities. The Fund's investment objective may not be changed
without shareholder approval.
Investments in small cap companies may involve greater risks than investments in
larger companies, with a corresponding effect on the Fund's net asset value. For
this reason, the Fund is not intended to be used as the sole investment in your
portfolio. The Fund is designed for that portion of a portfolio that can
appropriately be invested in securities with greater risk but also greater
potential for appreciation.
The Fund may also invest in debt securities or preferred stock that is
convertible into or exchangeable for small cap stocks. Convertible debt
securities, typically unsecured, are interest bearing and represent a claim to
the corporation's earnings and assets before common and preferred stock owners,
generally on par with unsecured creditors. Convertible preferred stocks are
securities that represent a claim to the corporation's earnings and assets
before common stock owners but after bond owners. Investments by the Fund in
convertible debt or preferred stock could be a substitute for an investment in
the underlying common stock in circumstances where only the convertible security
is available in quantities necessary to satisfy the Fund's investment needs (for
example, in the case of a new issuance of convertible securities). In addition,
such securities may be purchased if the conversion price of the convertible
security is comparable to the price of the underlying common stock. In this
case, a preferred position with respect to the corporation's earnings and assets
may be preferable to holding common stock.
The Fund may invest up to 25% of its total assets in foreign securities or
American Depository Receipts ("ADRs") for foreign securities. Subject to that
limitation, the Fund may invest in companies located anywhere in the world but
expects to invest principally in the following foreign countries: Argentina,
Australia, Brazil, Canada, Chile, China, Hong Kong, Indonesia, Japan, Malaysia,
Mexico, New Zealand, Singapore, and any country in Western Europe. For a
discussion of the special risks involved with investing in foreign securities,
see "Risk Factors -- Foreign Securities."
Because the Fund focuses on the performance of the portfolio as a whole,
individual security positions may be sold without regard to the length of time
they have been held. This may result in a relatively high rate of portfolio
turnover. High portfolio turnover increases the Fund's transaction costs,
including brokerage commissions. Under normal market conditions, the Adviser
expects that the Fund's annual portfolio turnover rate will not exceed 125%. To
the extent short-term trades result in gains on securities held one year or
less, shareholders will be subject to taxes at ordinary income rates. See
"Distributions and Taxes."
-- INVESTMENT RESTRICTIONS --
For information on the investment by the Fund in repurchase agreements, illiquid
securities, when-issued securities, options, and temporary investments, please
see "Additional
3
<PAGE>
FUND DESCRIPTION
- --------------------------------------------------------------------------------
Information." A description of other investment restrictions and certain
investment practices of the Fund is included in the Statement of Additional
Information.
-- RISK FACTORS --
An investment in any mutual fund, including the Fund, involves certain risks.
General market risk and other specific risks associated with different types of
securities used by the Fund, including foreign securities and stocks of small
companies, are discussed below and under "Additional Information."
STOCK MARKET RISK. The principal risk associated with a stock mutual fund is
that the stocks held by the fund will decline in value. Stock values may
fluctuate in response to the activities and financial prospects of an individual
company or in response to general market and economic conditions. Investments in
smaller or unseasoned companies may be both more volatile and more speculative.
See "Investments in Small and Unseasoned Companies."
- --------------------------------------------------------------------------------
Although common stocks have historically provided long-term returns that are
greater than other types of investments, stock returns have also been more
volatile over shorter periods of time. [LOGO]
- --------------------------------------------------------------------------------
INVESTMENTS IN SMALL AND UNSEASONED COMPANIES. Investments by the Fund in small
or unseasoned companies may be regarded as speculative. These companies may have
limited or unprofitable operating histories, limited financial resources, and
inexperienced management. In addition, they often face competition from larger
or more established firms that have greater resources. Securities of small and
young companies are frequently traded in the over-the-counter market or on
regional exchanges where low trading volumes may result in erratic or abrupt
price movements. To dispose of these securities, the Fund may have to sell them
over an extended period of time or below the original purchase price. Because of
these factors, an investment in the Fund may be subject to greater price
fluctuations than an investment in a fund that invests primarily in larger, more
established companies.
FOREIGN SECURITIES. Foreign securities, which are generally denominated in
foreign currencies, involve risks not typically associated with investing in
domestic securities. The value of the Fund's portfolio will be affected by
changes in currency exchange rates and in currency exchange regulations to the
extent the Fund holds foreign securities. Foreign securities may be subject to
foreign taxes that would reduce their effective yield. Certain foreign
governments levy withholding taxes against dividend and interest income.
Although in some countries a portion of these taxes is recoverable, the
unrecovered portion of any foreign withholding taxes would reduce the income the
Fund receives from its foreign investments.
Foreign investments involve certain other risks, including possible political or
economic instability of the country of the issuer, the difficulty of predicting
international trade patterns, and the possibility of currency exchange controls.
Foreign securities may also be subject to greater price fluctuations than
domestic securi-
ties. There may be less publicly available information about a foreign company
than about a domestic company. Foreign companies generally are not subject to
uniform accounting, auditing, and financial reporting standards comparable to
those of domestic companies. There is generally less government regulation of
stock exchanges, brokers, and listed companies abroad than in the United States.
In addition, with respect to certain foreign countries, there is a possibility
of the adoption of a policy to withhold dividends at the source, or of
expropriation, nationalization, confiscatory taxation, or diplomatic
developments that could affect investments in those countries. Finally, in the
event of default on a foreign debt obligation, it may be more difficult for the
Fund to obtain or enforce a judgment against the issuers of the obligation. The
Fund will normally execute its portfolio securities transactions on the
principal stock exchange on which the security is traded.
Additional costs may be incurred in connection with the Fund's foreign
investments. Foreign brokerage commissions are generally higher than those in
the United
4
<PAGE>
FUND DESCRIPTION
- --------------------------------------------------------------------------------
States. Expenses may also be incurred on currency conversions when the Fund
moves investments from one country to another. Increased custodian costs as well
as administrative difficulties may be experienced in connection with maintaining
assets in foreign jurisdictions.
5
<PAGE>
PERFORMANCE
-----------------------------------------------------------------
This section is designed to help you understand terms used to describe Fund
performance, such as "total return" and "average annual total return."
-- UNDERSTANDING "RETURN" --
"TOTAL RETURN" REFERS TO THE CHANGE IN VALUE OF AN INVESTMENT IN THE FUND OVER
A STATED PERIOD, ASSUMING THE REINVESTMENT OF ANY DIVIDENDS AND CAPITAL GAINS.
"AVERAGE ANNUAL TOTAL RETURN" IS A HYPOTHETICAL RATE OF RETURN THAT, IF
ACHIEVED ANNUALLY, WOULD HAVE PRODUCED THE SAME TOTAL RETURN IF PERFORMANCE
HAD BEEN CONSTANT OVER THE ENTIRE PERIOD. AVERAGE ANNUAL TOTAL RETURNS SMOOTH
OUT THE VARIATIONS IN PERFORMANCE BUT ARE NOT THE SAME AS ACTUAL ANNUAL
RESULTS.
For more information on total return calculations for the Fund, please see the
Statement of Additional Information.
-- PERFORMANCE COMPARISONS --
The Fund may compare its performance to other mutual funds and to the mutual
fund industry as a whole, as quoted by ranking services such as Lipper
Analytical Services, Inc., or Morningstar, Inc., or as reported in financial
publications such as BARRON'S, BUSINESS WEEK, FORBES, MONEY MAGAZINE, and THE
WALL STREET JOURNAL. The Fund may also compare its performance to that of a
recognized stock or bond index, such as the Russell 2000 Stock Index, the S&P
500 Stock Index, the Lehman Aggregate Bond Index, and other relevant indices.
Unmanaged indices may assume the reinvestment of dividends, but generally do not
reflect deductions for administrative and management costs and expenses.
- --------------------------------------------------------------------------------
Performance information on the Fund is historical data and is not intended to
indicate future performance. Investment returns and net asset values will
fluctuate so that your shares when redeemed may be worth more or less than their
original cost. [LOGO]
- --------------------------------------------------------------------------------
5
<PAGE>
FUND MANAGEMENT
- --------------------------------------------------------------------------------
-- BOARD OF DIRECTORS --
The Fund is managed under the supervision of its Board of Directors, which has
responsibility for overseeing decisions relating to the investment policies and
objectives of the Fund. The Board meets quarterly to review the Fund's
investment policies, performance, expenses, and other business matters.
-- INVESTMENT ADVISOR --
The Fund has contracted with Columbia Funds Management Company (the "Advisor")
to provide investment advisory services. The Advisor has acted as an investment
advisor since 1982, and also provides investment management services to each of
the following Columbia Funds: Columbia Common Stock Fund, Columbia International
Stock Fund, Columbia Special Fund, Columbia Growth Fund, Columbia Real Estate
Equity Fund, Columbia Balanced Fund, Columbia Daily Income Company, Columbia
U.S. Government Securities Fund, Columbia Fixed Income Securities Fund, Columbia
Municipal Bond Fund, and Columbia High Yield Fund. Until December 1985, the
Advisor was a wholly-owned subsidiary of Columbia Management Co. ("CMC"), which
was organized in 1969 and acts as investment manager for approximately $12
billion of assets of other institutions. In December 1985, CMC and its
subsidiaries were reorganized, and the Advisor is now owned principally by its
employees, including J. Jerry Inskeep, Jr. and James F. Rippey, who are also
principal shareholders of CMC. The address of the Advisor is 1300 S.W. Sixth
Avenue, P.O. Box 1350, Portland, Oregon 97207-1350.
Under the investment advisory contract with the Fund, the Advisor provides
research, advice, and supervision with respect to investment matters and
determines what securities to purchase or sell and what portion of the Fund's
assets to invest. The Advisor provides office space and pays all executive
salaries and expenses and ordinary office expenses of the Fund (other than the
expenses of clerical services relating to the administration of the Fund).
Certain employees of the Advisor are also officers of the Fund and, subject to
the authority of the Fund's Board of Directors, are responsible for the overall
management of the Fund's business affairs.
The investment advisory fee of the Fund is accrued daily and paid monthly. The
investment advisory fee of the Fund equals the annual rate of 1% of daily net
assets. While comparable to the advisory fees paid by other mutual funds with a
similar investment objective, the advisory fee paid by the Fund is higher than
the advisory fees paid by most mutual funds.
The Advisor has entered into an agreement with CMC under which CMC provides the
Advisor with statistical and other factual information, advice regarding
economic factors and trends, and advice as to occasional transactions in
specific securities. CMC, upon receipt of specific instructions from the
Advisor, also contacts brokerage firms to conduct securities transactions for
the Fund. The Advisor pays CMC a fee for these services. The Fund's expenses are
not increased by this arrangement, and no amounts are paid by the Fund to CMC
under this agreement.
The Fund assumes the following costs and expenses: costs relating to corporate
matters; cost of services to shareholders; transfer and dividend paying agent
fees; custodian fees; legal, auditing, and accounting expenses; disinterested
directors' fees; taxes and governmental fees; interest; brokers' commissions;
transaction expenses; cost of stock certificates and any other expenses
(including clerical expenses) of issue, sale, repurchase, or redemption of its
shares; expenses of registering or qualifying its shares for sale; transfer
taxes; all expenses of preparing its registration statements, prospectuses, and
reports; and the cost of printing and delivering to shareholders its
prospectuses and reports. Third-party administrators of tax-qualified retirement
plans and other entities may establish omnibus accounts with the Fund and
provide sub-transfer agency, recordkeeping, or other services to participants in
the
6
<PAGE>
FUND MANAGEMENT
- --------------------------------------------------------------------------------
omnibus accounts. In recognition that these arrangements reduce or eliminate the
need for the Fund's transfer agent to provide such services, the Fund may pay
the administrator or entity a sub-transfer agent or recordkeeping fee.
-- A TEAM APPROACH TO INVESTING --
The Advisor uses a team approach to analyze investment themes and strategies for
the Fund. Alan J. Folkman, a Senior Vice President and director of the Advisor,
is the Chief Investment Officer of the Investment Team. With over 29 years of
investment management experience, Mr. Folkman supervises the Investment Team in
establishing broad investment strategies and determining portfolio guidelines
for the Fund.
Members of the Investment Team are responsible for the analysis of particular
industries or types of fixed income securities and for recommendations on
individual securities within those industries or asset categories. Investment
decisions for the Fund are then made by the Investment Team and Richard J.
Johnson, the portfolio manager who has principal management responsibility for
investment decisions on behalf of the Fund. Mr. Johnson, a Vice President of the
Advisor and a Chartered Financial Analyst, joined the Columbia organization in
1994. Mr. Johnson is also the portfolio manager for CMC Small Cap Fund, a mutual
fund managed by CMC, and CTC Small Stock Fund, an investment fund managed by
Columbia Trust Company. Prior to joining the Investment Team, Mr. Johnson was a
Portfolio Manager and Analyst with Provident Investment Counsel (1990-1994). He
received a Masters of Business Administration from the Anderson Graduate School
of Management at UCLA in 1990.
-- PERSONAL TRADING --
Members of the Investment Team and other personnel of the Fund or the Advisor
are permitted to trade securi-
ties for their own or family accounts, subject to the rules of the Code of
Ethics adopted by the Fund and the Advisor. The rules that govern personal
trading by investment personnel are based on the principal that employees owe a
fiduciary duty to conduct their trades in a manner that is not detrimental to
the Fund or its shareholders. The Fund has adopted the recommendations of the
Investment Company Institute, an organization composed of members of the mutual
fund industry, relating to restrictions on personal trading. For more
information on the Code of Ethics and specific trading restrictions, please
refer to the Statement of Additional Information.
-- OTHER SERVICE PROVIDERS --
TRANSFER AGENT. Columbia Trust Company acts as transfer agent and dividend
paying agent for the Fund. Its address is 1301 S.W. Fifth Avenue, P.O. Box 1350,
Portland, Oregon 97207-1350. The Advisor is the principal shareholder, and
certain officers of the Fund are minority shareholders, of Columbia Trust
Company.
COLUMBIA FINANCIAL CENTER INCORPORATED. Columbia Financial Center Incorporated
("Columbia Financial"), a registered securities broker and a member of the
National Association of Securities Dealers, Inc., acts as a distributor of
shares of the Fund. Its address is 1301 S.W. Fifth Avenue, P.O. Box 1350,
Portland, Oregon 97207-1350. You may invest or redeem your investment in the
Fund through Columbia Financial, which will not charge a commission for handling
your order. J. Jerry Inskeep, Jr., director and chairman of the Fund, and James
F. Rippey, director of the Fund, are the principal shareholders of Columbia
Financial.
CUSTODIANS. United States National Bank of Oregon, 321 S.W. Sixth Avenue,
Portland, Oregon 97208, serves as general custodian for the Fund. Morgan Stanley
Trust Company, One Pierrepont Plaza, Brooklyn, New York, NY 11201, provides
custody services to the Fund to the extent it holds foreign securities.
7
<PAGE>
FUND MANAGEMENT
- --------------------------------------------------------------------------------
-- OTHER INFORMATION --
VOTING RIGHTS. The Fund is a separate corporation. All shares of the Fund have
equal voting, redemption, dividend, and liquidation rights. All issued and
outstanding shares of the Fund are fully paid and nonassessable. Shares have no
preemptive or conversion rights. Fractional shares have the same rights
proportionately as full shares. The shares of the Fund do not have cumulative
voting rights, which means that holders of more than 50 percent of the shares of
the Fund voting for the election of directors can elect all of the directors.
SHAREHOLDER MEETINGS. The Fund is not required to hold annual shareholder
meetings. Special meetings may be called, however, as required or deemed
desirable for purposes such as electing directors, changing fundamental
investment policies, or approving an investment management agreement. The
holders of not less than 10% of the shares of the Fund may request in writing
that a special meeting be called for a specified purpose. If such a special
meeting is called to vote on the removal of one or more directors of the Fund,
shareholders will be assisted in communications with other shareholders of the
Fund.
8
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MUTUAL FUND FEATURES
- --------------------------------------------------------------------------------
ALTHOUGH THERE ARE RISKS THAT CANNOT BE ELIMINATED IN OWNING SECURITIES, A
MUTUAL FUND OFFERS MANY ADVANTAGES THAT ITS SHAREHOLDERS WOULD FIND HARD TO
OBTAIN AS INDIVIDUAL INVESTORS. THE CHIEF ADVANTAGES INCLUDE:
-- CONTINUOUS PROFESSIONAL --
MANAGEMENT
By sharing the cost of hiring experienced money managers, individual investors
receive professional financial management of their investments.
-- DIVERSIFICATION --
The investment portfolio of the Fund is "diversified" under the Investment
Company Act, which tends to reduce investment risks. However, diversification
does not ensure a gain or eliminate the risk of loss.
-- CONVENIENCE --
Compared to owning many individual issues, the problems of recordkeeping, tax
calculation, liquidity, and dividends may be greatly simplified by investing in
a mutual fund.
Suppose, for example, you have $1,000 to invest but don't have the time or
training necessary to monitor securities markets, select securities, maintain
investment records, or keep track of tax information. One possible solution
would be to find a professional money manager to make these decisions for you
and provide full-time supervision of your investment. You could say, "Look, I
have $1,000 I want you to supervise for me, following trends in the economy and
the securities markets, making necessary investment decisions, and trying to
make this money worth more to me or earn income for me. I want you to give my
money the same continuous supervision and care you might give to someone who
invests $100,000 or even $1,000,000. But for that management service, I cannot
afford to pay you more than $15 each year."
As you might expect, it is not likely that the investment manager could accept
your proposal, for its costs would be many times your fee. But it might suggest
that if you could find another thousand investors like yourself, willing to
combine their funds with yours and willing to pay the same amount for continuous
supervision and control, then it might agree to work for you.
This is much like the agreement upon which mutual funds operate. By combining
the capital of many investors into one large account, it is possible to offer
all the shareholders who make up a mutual fund the kind of professional
investment supervision they desire, at a cost each can afford.
Despite the advantages of mutual funds, investing in them involves certain
risks. Some of these risks are described under "Fund Description" and
"Additional Information." As a prospective investor, you are encouraged to read
the entire Prospectus before investing in the Fund.
- --------------------------------------------------------------------------------
By combining the capital of many investors into one large account, it is
possible to offer all the shareholders who make up a mutual fund the kind of
professional investment supervision they desire, at a cost each can
afford. [LOGO]
- --------------------------------------------------------------------------------
9
<PAGE>
INVESTOR SERVICES
- --------------------------------------------------------------------------------
This section is designed to provide you with information on opening an account
and conducting transactions with the Fund. In addition, information is provided
on the different types of accounts and services offered by the Fund and the
policies relating to those services.
-- HOW TO OPEN A NEW ACCOUNT --
Please complete and sign a Fund application and make your check payable to the
Fund for the minimum required investment. See "Minimum Investments." Please be
sure to include a tax identification number on your application or it may be
rejected and returned to you. The completed application and a check should be
mailed to:
Columbia Financial Center
1301 S.W. Fifth Avenue
P.O. Box 1350
Portland, Oregon 97207-1350
Attn.: New Accounts
-- HOW TO PURCHASE SHARES --
Shares of the Fund are offered at the share price, or net asset value ("NAV"),
next determined after an order is accepted. See "Processing Your Order" and
"Determining Your Share Price." Shares can be purchased in the following ways:
IN PERSON: Investments can be made in person by visiting the Fund at 1301 S.W.
Fifth Avenue, Portland, Oregon between 7:30 a.m. and 5:00 p.m. on any business
day.
BY MAIL: Send a check, with either a completed Investment Slip from the bottom
of a confirmation statement, or a letter indicating the account number and
registration, to:
Columbia Financial Center
1301 S.W. Fifth Avenue
P.O. Box 1350
Portland, Oregon 97207-1350
Attn.: Investments
BY WIRE: You may have your bank wire federal funds. Be sure to call the Fund
for instructions and notification that money is being wired:
Portland area 222-3606
Nationwide (toll-free)
1-800-547-1707
BY TELEPHONE: You may make additional investments in the Fund by telephone from
a predesignated bank account ("Televest"). The minimum investment that can be
made by Televest is $100. Shareholders must complete the appropriate sections of
the application or call the Fund to have the Televest application sent to you.
An investment using Televest is processed on the day the Fund receives your
investment from your bank, usually the business day following the day of your
telephone call.
-- MINIMUM INVESTMENTS --
THE FUND HAS A MINIMUM INVESTMENT REQUIREMENT OF $2,000. THIS REQUIREMENT IS
WAIVED, HOWEVER, FOR ACCOUNTS USING THE AUTOMATIC INVESTMENT PLAN, WHERE THE
MINIMUM INVESTMENT IS $50 MONTH. SUBSEQUENT INVESTMENTS (OTHER THAN THROUGH AN
AUTOMATIC INVESTMENT PLAN) MUST BE AT LEAST $100 AND SHOULD ALWAYS IDENTIFY
YOUR NAME, THE FUND'S NAME, AND YOUR ACCOUNT NUMBER. MANAGEMENT OF THE FUND
MAY, AT ITS SOLE DISCRETION, WAIVE THE MINIMUM PURCHASE AND ACCOUNT SIZE
REQUIREMENTS FOR CERTAIN GROUP PLANS OR ACCOUNTS OPENED BY AGENTS OR
FIDUCIARIES (SUCH AS A BANK TRUST DEPARTMENT, INVESTMENT ADVISOR, OR
SECURITIES BROKER) OR IN OTHER CIRCUMSTANCES.
BY AUTOMATIC INVESTMENT: Investments in the Fund may be made automatically from
your bank under Columbia's Automatic Investment Plan ("AIP"). Shareholders whose
bank is a member of the National Automated Clearing House Association may choose
to have amounts of $50 or more automatically transferred
10
<PAGE>
INVESTOR SERVICES
- --------------------------------------------------------------------------------
from a bank checking account to the Fund on or about the 5th or 20th, or both,
of each month. Shareholders must complete the AIP section of the application to
participate in the AIP. If you stop investing in the Fund using an AIP, your
account may be closed if you fail to reach or maintain a minimum account
balance. See "Account Privileges -- Involuntary Redemptions."
BY EXCHANGE: You may purchase shares of the Fund with the proceeds from a
redemption of shares of any other Columbia Fund with the same account number.
See "How to Exchange" below.
THROUGH YOUR BROKER-DEALER OR BANK: You may purchase or redeem shares of the
Fund through your broker, bank, or other financial institution, which may charge
a commission or fee for handling your order and which may be required to be
registered as a broker or dealer under federal or state securities laws.
CLOSING THE FUND TO NEW INVESTORS: The Advisor to the Fund reserves the right
at its discretion to close the Fund to new investors. A number of factors may be
considered in making such a decision, including the total assets and flow of new
investments into the Fund. If the Fund is closed, shareholders who maintain open
accounts with the Fund may make additional investments in the Fund. Once a
shareholder's account in the Fund is closed, additional investments may not be
possible.
-- PAYING FOR YOUR SHARES --
Payment for Fund shares is subject to the following policies:
- - Checks should be drawn on U.S. banks and made payable to the Fund.
- - Never send cash or cash equivalents; the Fund will not accept responsibility
for their receipt.
- - The Fund reserves the right to reject any order.
- - If your order is canceled because your check did not clear the bank or the
Fund was unable to debit your predesignated bank account, you will be
responsible for any losses or fees imposed by your bank or attributable to a
loss in value of the shares purchased.
- - The Fund may reject any third party checks used to make an investment or open
a new account.
-- HOW TO REDEEM (SELL) SHARES --
You may redeem all or a portion of your investment in the Fund on any business
day. All redemptions of shares of the Fund will be at the share price (NAV)
computed after receipt of a valid redemption request, in whatever form, on days
when the NYSE is open for business. In every case, sufficient full and
fractional shares will be redeemed to cover the amount of the redemption
request.
If certificates for Fund shares have been issued to you, they must be returned
to the Fund, properly endorsed, before any redemption request may be processed.
Redemptions from a Columbia-sponsored IRA or retirement plan require the
completion of certain additional forms to ensure compliance with IRS
regulations. If a redemption request cannot be processed for any of these
reasons, the redemption request will be returned to you and no redemption will
be made until a valid request is submitted. Shares can be redeemed in the
following ways:
IN WRITING: You may redeem shares of the Fund by providing a written
instruction to the Fund either in person or by mail to:
1301 S.W. Fifth Avenue
P.O. Box 1350
Portland, Oregon 97207-1350
Attn.: Redemptions
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<PAGE>
INVESTOR SERVICES
- --------------------------------------------------------------------------------
-- SIGNATURE POLICY --
SIGNATURES ON THE REQUEST MUST CORRESPOND EXACTLY WITH THOSE ON THE ACCOUNT.
ACCOUNTS IN THE NAMES OF CORPORATIONS, FIDUCIARIES, AND INSTITUTIONS MAY REQUIRE
ADDITIONAL DOCUMENTS. PLEASE CONTACT THE FUND IF YOUR ACCOUNT FALLS INTO ONE OF
THESE CATEGORIES.
A WRITTEN REDEMPTION REQUEST, WHETHER IN PERSON OR BY MAIL, IS NOT VALID UNLESS
THE SIGNATURE OR SIGNATURES ON THE REQUEST CORRESPOND EXACTLY WITH THOSE ON YOUR
ACCOUNT. THE FUND NORMALLY REQUIRES THAT SIGNATURES ON WRITTEN REDEMPTION,
TRANSFER, AND EXCHANGE REQUESTS BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION, SUCH AS A
BANK, BROKER-DEALER, CREDIT UNION, NATIONAL SECURITIES EXCHANGE, REGISTERED
SECURITIES EXCHANGE, CLEARING AGENCY, OR SAVINGS ASSOCIATION.
BY TELEPHONE: You may redeem shares by telephone unless you decline this
service by checking the appropriate box on the application. Proceeds from
telephone redemptions may be mailed only to the registered name and address on
your account or transferred to the bank designated on the application or to
another Columbia Fund. A maximum of $50,000 may be redeemed by telephone and
mailed to your registered address. There is no such limitation on telephone
redemptions transferred to your bank. Telephone redemptions may be made by
calling the Fund between 7:30 a.m. and 5:00 p.m., Pacific Time, at:
Portland area 222-3606
Nationwide (toll-free)
1-800-547-1707
You may experience some difficulty in implementing a telephone redemption during
periods of drastic economic or financial market changes. Telephone redemption
privileges may be modified or terminated at any time without notice to
shareholders. Please see "Account Privileges -- Telephone Redemptions."
BY AUTOMATIC WITHDRAWAL: If your account value in the Fund is $5,000 or more,
you may elect to receive automatic cash withdrawals of $50 or more from the Fund
in accordance with either of the following withdrawal options:
1. Income earned. You may elect to receive any dividends or capital gains
distributions on your shares, provided such dividends and distributions
exceed $25.
2. Fixed amount. You may elect to receive a monthly or quarterly fixed amount
of $50 or more.
Automatic withdrawals will be made within seven days after the end of the month
or quarter to which they relate.
To the extent redemptions for automatic withdrawals exceed dividends declared on
shares in your account, the number of shares in your account will be reduced. If
the value of your account falls below the Fund minimum, your account is subject
to being closed on 60 days written notice. The minimum withdrawal amount has
been established for administrative convenience and should not be considered as
recommended for all investors. For tax reporting, a capital gain or loss may be
realized on each fixed-amount withdrawal.
An automatic withdrawal plan may be modified or terminated at any time upon
prior notice by the Fund or the shareholder.
-- PAYMENT OF REDEMPTION PROCEEDS --
Redemption proceeds are normally transmitted in the manner specified in the
redemption request on the business day following the effective date of the
redemption. Except as provided by rules of the Securities and Exchange
Commission, redemption proceeds must be transmitted to you within seven days of
the redemption date.
REDEMPTION OF RECENTLY PURCHASED SHARES. Although you may redeem shares of the
Fund that you have recently purchased by check, the Fund may hold the redemption
proceeds until payment for the purchase
12
<PAGE>
INVESTOR SERVICES
- --------------------------------------------------------------------------------
of such shares has cleared, which may take up to 15 days from the date of
purchase. No interest is paid on the redemption proceeds after the redemption
date and before the proceeds are sent to you. This holding period does not apply
to the redemption of shares purchased by bank wire or with a cashiers or
certified check.
There is no charge for redemption payments that are mailed. Amounts transferred
by wire must be at least $1,000, and the bank wire cost for each redemption will
be charged against your account. Your bank may also impose an incoming wire
charge.
-- HOW TO EXCHANGE SHARES --
You may use proceeds from the redemption of shares of the Fund to purchase
shares of any other Columbia Fund offering shares for sale in your state of
residence. There is no charge for this exchange privilege. Before making an
exchange, you should read the Prospectus relating to the Columbia Fund into
which the shares are to be exchanged. The shares of the Columbia Fund to be
acquired will be purchased at the NAV next determined after acceptance of the
purchase order by that fund in accordance with its policy for accepting
investments. The exchange of shares of the Fund for shares of another Columbia
Fund is treated, for federal income tax purposes, as a sale on which you may
realize taxable gain or loss. Certain restrictions may apply to exchange
transactions. See "Account Privileges -- Exchange Privilege."
-- PROCESSING YOUR ORDER --
Orders received by the Fund will be processed the day they are received. Orders
received before the close of regular trading on the NYSE (normally 4 p.m. New
York time) will be entered at the Fund's share price computed that day. Orders
received after the close of regular trading on the NYSE will be entered at the
Fund's share price next determined. All investments will be credited to your
account in full and fractional shares computed to the third decimal place. The
Fund reserves the right to reject any order.
Shares purchased will be credited to your account on the record books of the
Fund. The Fund will not issue share certificates except on request. Certificates
for fractional shares will not be issued.
-- DETERMINING YOUR SHARE PRICE --
The share price, or NAV, of the Fund is determined by the Advisor, under
procedures approved by the Fund's Board of Directors, as of the close of regular
trading (normally 4 p.m. New York time) on each day the NYSE is open for
business and at other times determined by the Board of Directors. The NAV is
computed by dividing the value of all assets of the Fund, less its liabilities,
by the number of shares outstanding.
Portfolio securities will be valued according to the market value obtained from
the broadest and most representative markets. These market quotations, depending
on local convention or regulation, may be the last sale price, last bid or asked
price, or the mean between the last bid and asked price as of, in each case, the
close of the applicable exchange or other designated time. Securities for which
market quotations are not readily available and other assets will be valued at
fair value as determined in good faith under procedures established by and under
the general supervision of the Board of Directors of the Fund. These procedures
may include valuing portfolio securities by reference to other securities with
comparable ratings, interest rates, and maturities and by using pricing
services. Fair value for debt securities for which market quotations are not
readily available and with remaining maturities of less than 60 days is based on
cost adjusted for amortization of discount or premium and accrued interest
(unless the Board of Directors believes unusual circumstances indicate another
method of determining fair value should be used).
Trading in securities on many foreign securities exchanges and over-the-counter
markets is completed at various times before the close of the NYSE. In addition,
trading of these foreign securities may not take place on all NYSE business
days. Trading may take place in various foreign markets on Saturday or on other
days the NYSE is not open for business and on which the
13
<PAGE>
INVESTOR SERVICES
- --------------------------------------------------------------------------------
Fund's NAV is therefore not calculated. The calculation of the Fund's NAV may
not take place contemporaneously with the determination of the prices of the
Fund's portfolio foreign securities. Events affecting the values of portfolio
foreign securities that occur between the time the prices are determined and the
close of the NYSE will not be reflected in the Fund's calculation of NAV unless
the Board of Directors determines that the event would materially affect the
NAV. Assets of foreign securities are translated from the local currency into
U.S. dollars at the prevailing exchange rates.
-- INVESTOR INQUIRIES --
If you have any questions about this Prospectus, the Fund or your account,
please call the Fund at:
Portland area 222-3606
Nationwide (toll-free) 1-800-547-1707
or write or visit the Fund at:
Columbia Financial Center
1301 S.W. Fifth Avenue
P.O. Box 1350
Portland, Oregon 97207-1350
-- ACCOUNT PRIVILEGES --
EXCHANGE PRIVILEGE. Telephone exchange privileges are available to you
automatically unless you decline this service by checking the appropriate box on
the application. Telephone exchanges may be made from the Fund into another
Columbia Fund only within the same account number. To prevent the abuse of the
exchange privilege to the disadvantage of other shareholders, the Fund reserves
the right to terminate the exchange privilege of any shareholder who makes more
than four exchanges out of the Fund during the calendar year. The exchange
privilege may be modified or terminated at any time, and the Fund may
discontinue offering its shares generally or in any particular state without
notice to shareholders.
TELEPHONE REDEMPTIONS. The Fund does not accept responsibility for the
authenticity of telephone instructions, and, accordingly, shareholders who have
approved telephone redemptions assume the risk of any losses due to fraudulent
telephone instructions that the Fund reasonably believes to be genuine. The Fund
employs certain procedures to determine whether telephone instructions are
genuine, including requesting personal shareholder information prior to acting
on telephone instructions, providing written confirmations of each telephone
transaction, and recording all telephone instructions. The Fund may be liable
for losses due to fraudulent telephone instructions if it fails to follow these
procedures. For your protection, the ability to redeem by telephone and have the
proceeds mailed to your registered address may be suspended for up to 30 days
following an account address change. This suspension period will not apply to
redemptions by mail, which can be made at any time. See "How to Redeem (Sell)
Shares."
INVOLUNTARY REDEMPTIONS. Upon 60 days prior written notice, the Fund may redeem
all of your shares without your consent if:
1. Your account balance falls below the minimum account requirement. However,
if you wish to maintain the account, you may during the 60-day notice period
either (i) add to your account to bring it to the $2,000 minimum, or (ii)
establish an Automatic Investment Plan with a minimum monthly investment of
$50.
2. You are a U.S. shareholder and fail to provide the Fund with a certified
taxpayer identification number.
3. You are a foreign shareholder and fail to provide the Fund with a current
Form W-8, "Certificate of Foreign Status."
If the Fund redeems shares, payment will be made promptly at the current net
asset value. A redemption may result in a realized capital gain or loss.
TAXPAYER IDENTIFICATION NUMBER. Federal law requires the Fund to withhold 31%
of dividends and redemption proceeds paid to certain shareholders who have not
complied with certain tax regulations. The Fund will generally not accept an
investment to establish a new account that does not comply with these
14
<PAGE>
INVESTOR SERVICES
- --------------------------------------------------------------------------------
regulations. You will be asked to certify on your account application that the
social security number or tax identification number provided is correct and that
you are not subject to 31% backup withholding for previous underreporting of
income to the Internal Revenue Service.
SHAREHOLDER STATEMENTS AND REPORTS. The Fund will send a separate confirmation
of each nonroutine transaction that affects your account balance or
registration. Routine, pre-authorized transactions are confirmed in the monthly
or quarterly account statements provided to shareholders. The types of
pre-authorized transactions that will be confirmed on your account statement
include:
- - Periodic share purchases through an Automatic Investment Plan
- - Reinvestment of dividends and capital gains distributions
- - Automatic withdrawals or exchanges between the Fund and another Columbia Fund
The Fund will mail to its shareholders on or before January 31 of each year a
summary of the federal income tax status of the Fund's distributions for the
preceding year.
Financial reports on the Fund, which include a listing of the Fund's portfolio
securities, are mailed semiannually to shareholders. To reduce Fund expenses,
only one such report and the annually updated prospectus will be mailed to
accounts with the same Tax Identification Number. In addition, shareholders or
multiple accounts at the same mailing address can elect to eliminate duplicate
mailings to that address by filing a SAVMAIL form with the Fund. For a SAVMAIL
form or to receive additional copies of any shareholder report or prospectus,
please call an Investor Services Representative at 1-800-547-1707.
-- IRAS, SEP IRAS, AND --
RETIREMENT PLANS
Investors may invest in the Fund through the Columbia IRA and the Columbia
Prototype Money Purchase Pension and Profit Sharing Plan. Please contact the
Fund for further information and application forms. Investments may also be made
in the Fund in connection with established retirement plans.
-- PRIVATE MANAGEMENT ACCOUNTS --
Columbia Trust Company offers Private Management Accounts that provide
investment management tailored to the specific investment objectives of
individuals, institutions, trusts, and estates, using the Fund and other
Columbia Funds as investment vehicles. The annual fee for this service is .75 of
1% of net assets ($1,000 minimum fee) and is in addition to investment advisory
fees paid by the Fund and other Columbia Funds to the Advisor. For additional
information, call Columbia Trust Company at 503-222-3600.
15
<PAGE>
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
-- DISTRIBUTIONS --
The Fund is required to distribute to shareholders each year all of its net
investment income and any net realized capital gains. Net investment income
(income from dividends, interest and any net realized short-term capital gains)
is distributed by the Fund as a dividend. Any net long-term capital gains
realized on the sale of portfolio securities by the Fund are distributed as
capital gains distributions. Dividends and capital gains distributions are
declared and paid in December.
-- DISTRIBUTION OPTIONS --
Unless you select a different option, all dividends and capital gains
distributions are reinvested on the record date in additional shares at a
reinvestment price equal to the NAV at the close of business on that day minus
the amount of the distribution. You may elect on your account application, or at
any other time by notifying the Fund, to receive your distributions in cash or
to reinvest them in the Fund.
-- TAXATION OF DISTRIBUTIONS --
The tax character of distributions from the Fund is the same whether they are
paid in cash or reinvested in additional shares. Dividends declared in October,
November, or December to shareholders of record as of a date in one of those
months and paid the following January will be reportable as if received by the
shareholders on December 31. This section is only a brief summary of the major
tax considerations affecting the Fund and its shareholders and is not a complete
or detailed explanation of tax matters. Investors should consult their tax
advisors concerning the tax consequences of investing in the Fund.
FEDERAL INCOME TAXES. Distributions from the Fund of net investment income or
net realized short-term capital gains are generally taxable to shareholders as
ordinary income. Distributions designated as the excess of net long-term capital
gain over net short-term capital loss are taxable to shareholders as long-term
capital gain, regardless of the length of time the shareholder held the Fund's
shares. A portion of any dividends received from the Fund may be eligible for
the dividends received deduction available to corporate shareholders.
Information on the tax status of distributions by the Fund is mailed to
shareholders each year on or before January 31.
STATE INCOME TAXES. In addition to federal taxes, shareholders of the Fund may
be subject to state and local taxes on distributions from the Fund. Shareholders
should consult with their tax advisors concerning state and local tax
consequences of investing in the Fund.
"BUYING A DIVIDEND." If you buy shares of the Fund before it pays a
distribution, you will pay the full price of the shares and receive a portion of
the purchase price back in the form of a taxable distribution. The Fund's NAV
and your cost basis in the purchased shares is reduced by the amount of the
distribution. The impact of this tax result is most significant when shares are
purchased shortly before an annual distribution of capital gains or other
earnings.
-- TAXATION OF THE FUND --
The Fund intends to qualify as a regulated investment company under the Internal
Revenue Code. By qualifying and meeting certain other requirements, the Fund
generally will not be subject to federal income taxes to the extent it
distributes to its shareholders its net investment income and realized capital
gains. The Fund intends to make sufficient distributions to relieve itself from
liability for federal income taxes.
16
<PAGE>
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
-- REPURCHASE AGREEMENTS --
The Fund may enter into repurchase agreements, which are agreements where the
Fund purchases a security and simultaneously commits to resell that security to
the seller (a commercial bank or recognized securities dealer) at a stated price
within a number of days (usually not more than seven) from the date of purchase.
The resale price reflects the purchase price plus a rate of interest which is
unrelated to the coupon rate or maturity of the purchased security. Repurchase
agreements may be considered loans by the Fund collateralized by the underlying
security. The obligation of the seller to pay the stated price is in effect
secured by the underlying security. The seller will be required to maintain the
value of the collateral underlying any repurchase agreement at a level at least
equal to the repurchase agreement. In the case of default by the seller, the
Fund could incur a loss. In the event of a bankruptcy proceeding against the
seller, the Fund may incur costs and delays in realizing upon the collateral.
The Fund will enter into repurchase agreements only with those banks or
securities dealers who are deemed creditworthy based on criteria adopted by its
Board of Directors. There is no limit on the portion of the Fund's assets that
may be invested in repurchase agreements with maturities of seven days or less.
-- ILLIQUID SECURITIES --
No illiquid securities will be acquired if upon the purchase more than 10% of
the value of the Fund's net assets would consist of these securities. "Illiquid
securities" are securities that may not be sold or disposed of in the ordinary
course of business within seven days at approximately the price used to
determine the Fund's net asset value.
Under current interpretations of the Staff of the Securities and Exchange
Commission, the following securities in which the Fund may invest will be
considered illiquid:
- - repurchase agreements maturing in more than seven days;
- - restricted securities (securities whose public resale is subject to legal
restrictions);
- - options, with respect to specific securities, not traded on a national
securities exchange that are not readily marketable; and
- - any other securities in which the Fund may invest that are not readily
marketable.
The Fund may purchase without limit, however, certain restricted securities that
can be resold to qualifying institutions pursuant to a regulatory exemption
under SEC Rule 144A ("Rule 144A securities"). If a dealer or institutional
trading market exists for Rule 144A securities, such securities may be deemed to
be liquid and thus treated as exempt from the Fund's restrictions on illiquid
securities. Under the supervision of the Board of Directors of the Fund, the
Advisor determines the liquidity of Rule 144A securities and, through reports
from the Advisor, the Board of Directors monitors trading activity in these
securities. In reaching liquidity decisions, the Advisor will consider, among
other things, the following factors:
- - the frequency of trades and price quotes for the security;
- - the number of dealers willing to purchase or sell the security and the number
of other potential purchasers;
- - dealer undertakings to make a market in the security; and
- - the nature of the security and the marketplace trades (e.g., the time needed
to dispose of the security, the method of soliciting offers, and the
procedures for the transfer).
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ADDITIONAL INFORMATION
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Because institutional trading in Rule 144A securities is relatively new, it is
difficult to predict accurately how these markets will develop. If institutional
trading in Rule 144A securities declines, the Fund's liquidity could be
adversely affected to the extent it is invested in such securities.
-- OPTIONS AND FINANCIAL --
FUTURES TRANSACTIONS
The Fund may invest up to 5% of its net assets in premiums on put and call
exchange-traded options. A call option gives the holder (buyer) the right to
purchase a security at a specified price (the exercise price) at any time until
a certain date (the expiration date). A put option gives the buyer the right to
sell a security at the exercise price at any time until the expiration date. The
Fund may also purchase options on securities indices and foreign currencies.
Options on securities indices are similar to options on a security except that,
rather than the right to take or make delivery of a security at a specified
price, an option on a securities index gives the holder the right to receive, on
exercise of the option, an amount of cash if the closing level of the securities
index on which the option is based is greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option. The Fund may
enter into closing transactions, exercise its options, or permit the options to
expire. The Fund may only write call options that are covered. A call option is
covered if written on a security that the Fund already owns. The Fund may write
such options on up to 25% of its assets.
The Fund may also engage in financial futures transactions, including foreign
currency financial futures transactions. Financial futures contracts are
commodity contracts that obligate the long or short holder to take or make
delivery of a specified quantity of a financial instrument, such as a security,
or the cash value of a securities index, during a specified future period at a
specified price. The Fund's investment restrictions do not limit the percentage
of the Fund's assets that may be invested in financial futures transactions. The
Fund, however, does not intend to enter into financial futures transactions for
which the aggregate initial margin exceeds 5% of the net assets of the Fund
after taking into account unrealized profits and unrealized losses on any such
transactions it has entered into. The Fund may engage in futures transactions
only on commodities exchanges or boards of trade.
The Fund will not engage in transactions in index options, financial futures
contracts, or related options for speculation, but only as an attempt to hedge
against market conditions affecting the values of securities that the Fund owns
or intends to purchase. When the Fund purchases a put on a stock index or on a
stock index future not held by the Fund, the put protects the Fund against a
decline in the value of all securities held by it to the extent that the stock
index moves in a similar pattern to the prices of the securities held. The
correlation, however, between stock indices and price movements of the stocks in
which the Fund will generally invest may be imperfect. The Fund expects,
nonetheless, that the use of put options that relate to such indices will, in
certain circumstances, protect against declines in values of specific portfolio
securities or the Fund's portfolio generally. Although the purchase of a put
option may partially protect the Fund from a decline in the value of a
particular security or its portfolio generally, the cost of a put will reduce
the potential return on the security or the portfolio if either increases in
value.
Upon entering into a futures contract, the Fund would be required to deposit
with its custodian in a segregated account cash or certain U.S. Government
securities in an amount known as the "initial margin." This amount, which is
subject to change, is in the nature of a performance bond or a good faith
deposit on the contract and would be returned to the Fund upon termination of
the futures contract, assuming all contractual obligations have been satisfied.
18
<PAGE>
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The principal risks of options and futures transactions are:
- - imperfect correlation between movements in the prices of options, currencies,
or futures contracts and movements in the prices of the securities or
currencies hedged or used for cover;
- - lack of assurance that a liquid secondary market will exist for any particular
option, futures, or foreign currency contract at any particular time;
- - the need for additional skills and techniques beyond those required for normal
portfolio management;
- - losses on futures contracts resulting from market movements not anticipated by
the investment adviser; and
- - possible need to defer closing out certain options or futures contracts in
order to continue to qualify for beneficial tax treatment afforded "regulated
investment companies" under the Internal Revenue Code of 1986, as amended.
-- TEMPORARY INVESTMENTS --
When, as a result of market conditions, the Fund determines that a temporary
defensive position is warranted to help preserve capital, the Fund may without
limit temporarily retain cash or invest in prime commercial paper, high-grade
debt securities, securities of the U.S. Government and its agencies and
instrumentalities, and high-quality money market instruments, including
repurchase agreements. When the Fund assumes a temporary defensive position, it
is not invested in securities designed to achieve its stated investment
objective.
-- WHEN-ISSUED SECURITIES --
Delayed-delivery or when-issued transactions arise when securities are purchased
or sold by the Fund, with payment and delivery taking place in the future, to
secure what is considered to be an advantageous price and yield to the Fund at
the time of the transaction. When-issued securities are subject to market
fluctuations, and no interest accrues to the Fund until delivery. The value of
the securities may be less at the time of delivery than it was when the
commitment was made. When the Fund engages in when-issued and delayed-delivery
transactions, the Fund relies on the buyer or seller, as the case may be, to
complete the sale. Failure to do so may result in the Fund missing the
opportunity to obtain a price or yield considered to be advantageous.
When-issued and delayed-delivery transactions typically occur approximately 30
days or more before delivery is due. However, no payment or delivery is made by
the Fund until it receives payment or delivery from the other party to the
transaction. A separate account of liquid assets consisting of cash, U.S.
Government securities, or other high-grade debt obligations and equal to the
value of such purchase commitments will be maintained by the Fund's custodian
until payment is made. To the extent the Fund engages in when-issued and
delayed-delivery transactions, it will do so to acquire portfolio securities
consistent with its investment objectives and policies and not for investment
leverage.
19
<PAGE>
[LOGO]
COLUMBIA FUNDS
1301 S.W. FIFTH AVENUE, PORTLAND, OREGON 97201
DIRECTORS
------------------------------------
JAMES C. GEORGE
J. JERRY INSKEEP, JR.
JOHN A. KEMP
THOMAS A. MACKENZIE
JAMES F. RIPPEY
RICHARD L. WOOLWORTH
OFFICERS
------------------------------------
J. JERRY INSKEEP, JR., CHAIRMAN
JOHN A. KEMP, PRESIDENT
GEORGE L. HANSETH, SENIOR VICE PRESIDENT
ALBERT D. CORRADO, VICE PRESIDENT
LAWRENCE S. VIEHL, VICE PRESIDENT
JEFF B. CURTIS, SECRETARY
INVESTMENT ADVISOR
------------------------------------
COLUMBIA FUNDS MANAGEMENT COMPANY
1300 S.W. SIXTH AVENUE
PORTLAND, OREGON 97201
LEGAL COUNSEL
------------------------------------
STOEL RIVES L.L.P.
900 S.W. FIFTH AVENUE, SUITE 2300
PORTLAND, OREGON 97204-1268
AUDITORS
------------------------------------
COOPERS & LYBRAND L.L.P.
2700 FIRST INTERSTATE TOWER
PORTLAND, OREGON 97201
TRANSFER AGENT
------------------------------------
COLUMBIA TRUST COMPANY
1301 S.W. FIFTH AVENUE
PORTLAND, OREGON 97201
FUNDS DISTRIBUTED BY COLUMBIA FINANCIAL CENTER INCORPORATED, MEMBER NASD.
<PAGE>
Part B
Reg. Nos. 333-5863/811-7671
------------------------------------------------------------------------------
COLUMBIA SMALL CAP FUND, INC.
------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
Columbia Financial Center
1301 S.W. Fifth Avenue
P.O. Box 1350
Portland, Oregon 97207
1-800-547-1707
This Statement of Additional Information contains information relating to
Columbia Small Cap Fund, Inc. (the "Fund"), an open-end, diversified investment
company of the management type. The Fund is an Oregon corporation and has a
specific investment objective.
This Statement of Additional Information is not a Prospectus. It relates
to a Prospectus dated October 1, 1996 (the "Prospectus") and should be read
in conjunction with the Prospectus. Copies of the Prospectus are available
without charge upon written request to the Fund or by calling 1-800-547-1707.
------------------------------------------------------------------------------
TABLE OF CONTENTS
------------------------------------------------------------------------------
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Advisory and Other Fees Paid to Affiliates. . . . . . . . 3
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . 4
Redemptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Custodians . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Accounting Services . . . . . . . . . . . . . . . . . . . . . . . . 6
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . 10
Additional Information Regarding Certain
Investments by the Fund. . . . . . . . . . . . . . . . . . . . . . 12
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 13
October 1, 1996
1
<PAGE>
------------------------------------------------------------------------------
MANAGEMENT
------------------------------------------------------------------------------
The directors and officers of the Fund are listed below, together with
their principal business occupations. All principal business occupations
have been held for more than five years, except that positions with Columbia
International Stock Fund, Inc., Columbia High Yield Fund, Inc., and Columbia
Real Estate Equity Fund, Inc. have been held since July 1992, July 1993, and
January 1994, respectively, and except as otherwise indicated. The term
"Columbia Funds" refers to Columbia Common Stock Fund, Inc., Columbia Growth
Fund, Inc., Columbia Real Estate Equity Fund, Inc., Columbia International
Stock Fund, Inc., Columbia Special Fund, Inc., Columbia High Yield Fund,
Inc., Columbia Balanced Fund, Inc., Columbia Daily Income Company, Columbia
Municipal Bond Fund, Inc., Columbia U.S. Government Securities Fund, Inc.,
and Columbia Fixed Income Securities Fund, Inc.
J. JERRY INSKEEP, JR.,*+ Chairman and Director of the Fund and each of the
Columbia Funds; Chairman, Director, and a principal shareholder of Columbia
Funds Management Company (the "Advisor") and Columbia Management Co.; Chairman
and Director of Columbia Trust Company (the "Trust Company"); Director of
Columbia Financial Center Incorporated ("Columbia Financial"); Chairman and
Trustee of CMC Fund Trust ("CMC Trust").
JAMES F. RIPPEY,*+ Director of the Fund and each of the Columbia Funds;
President, Director, and a principal shareholder of the Advisor and Columbia
Management Co.; President and Director of the Trust Company; President and
Trustee of CMC Trust.
JAMES C. GEORGE, Director of the Fund and each of the Columbia Funds (since June
1994). Mr. George, the former Investment Manager of the Oregon State Treasury
(1962-1992), is an investment consultant; 1001 S.W. Fifth Avenue, Portland,
Oregon 97204.
JOHN A. KEMP,* Director (since June 1994) and President of the Fund and each of
the Columbia Funds; Senior Vice President and Director of the Advisor, Columbia
Management Co., and the Trust Company; Senior Vice President, Treasurer, and
Director of Columbia Financial; Vice President and Trustee of CMC Trust.
THOMAS R. MACKENZIE, Director of the Fund and each of the Columbia Funds.
Mr. Mackenzie is Chairman of the Board of Directors of Mackenzie Engineering
Incorporated, consulting engineers, 0690 S.W. Bancroft Street, Portland, Oregon
97201.
RICHARD L. WOOLWORTH,+ Director of the Fund and each of the Columbia Funds
(since January 1992). Mr. Woolworth is Chairman, President, and Chief Executive
Officer of The Benchmark Group, health insurers, 100 S.W. Market Street,
Portland, Oregon 97201.
GEORGE L. HANSETH,* Senior Vice President and Treasurer of the Fund and each of
the Columbia Funds; Vice President and Director of the Advisor, Columbia
Management Co., and the Trust Company; President and Director of Columbia
Financial; Vice President and Trustee of CMC Trust.
ALBERT D. CORRADO,* Vice President of the Fund and each of the Columbia Funds;
Vice President of the Advisor and the Trust Company.
LAWRENCE S. VIEHL,* Vice President of the Fund, each of the Columbia Funds, the
Advisor, Columbia Management Co., the Trust Company, and CMC Trust.
JEFF B. CURTIS,* Secretary of the Fund, each of the Columbia Funds, and CMC
Trust (since April 1994); General Counsel, Vice President and Secretary of the
Advisor, Columbia Management Co., the Trust Company, and Columbia Financial
(since March 1993). Attorney with Stoel Rives (1986-1993), a law firm in
Portland, Oregon.
2
<PAGE>
*These officers and directors are "interested persons" as defined by the
Investment Company Act of 1940 and receive no directors fees or salaries from
the Fund. Their business address is 1300 S.W. Sixth Avenue, P.O. Box 1350,
Portland, Oregon 97207.
+Members of the Executive Committee. The Executive Committee has all
powers of the Board of Directors when the Board is not in session, except as
limited by law.
Columbia Financial, a registered securities broker and a member of the
National Association of Securities Dealers, Inc., is authorized under a
distribution agreement with the Fund to sell shares of the Fund. Columbia
Financial does not charge any fees or commissions to investors or the Fund for
the sale of shares of the Fund.
At September 12, 1996, officers and directors of the Fund, in the
aggregate, owned of record or beneficially 41,666.667 shares of the Fund (100%
of the total outstanding shares).
------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER FEES
PAID TO AFFILIATES
------------------------------------------------------------------
Information regarding services performed by the Advisor for the Fund and
the formula for calculating the fees are set forth in the Prospectus under "Fund
Management."
The Advisor has entered into an agreement with Columbia Management Co.
pursuant to which Columbia Management Co. provides the Advisor with statistical
and other factual information, advice regarding economic factors and trends, and
advice as to occasional transactions in specific securities. Columbia
Management Co., upon receipt of specific instructions from the Advisor, contacts
brokerage firms to effect securities transactions for the Fund. The Advisor
pays Columbia Management Co. a fee for this service. No amounts are paid by the
Fund to Columbia Management Co. pursuant to the agreement, and Fund expenses are
not increased as a result of this agreement.
The Trust Company, of which the Advisor is a principal shareholder and
certain officers of the Fund are minority shareholders, acts as custodian of
certain Individual Retirement Accounts (IRAs) and sponsor of Prototype Money
Purchase Pension and Profit Sharing Plans that invest in the Fund. The Trust
Company charges account holders an annual fee of $25 per IRA account (fee is
waived for accounts over $25,000) and a retirement plan setup fee of $100 and an
annual fee of $50.
The Trust Company also acts as transfer agent and dividend crediting
agent for the Fund. Its address is 1301 S.W. Fifth Avenue, P.O. Box 1350,
Portland, Oregon 97207. It issues certificates for shares of the Fund upon
request and records and disburses dividends. The Fund pays the Trust Company a
per-account fee of $1.00 per month for each shareholder account existing at any
time during the month. In addition, the Fund pays the Trust Company for extra
administrative services performed at cost in accordance with a schedule set
forth in the agreement and reimburses the Trust Company for certain
out-of-pocket expenses incurred in carrying out its duties under the agreement.
3
<PAGE>
------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
------------------------------------------------------------------------------
The Fund will not generally invest in securities for short-term capital
appreciation but, when business and economic conditions, market prices, or the
Fund's investment policy warrant, individual security positions may be sold
without regard to the length of time they have been held. The Fund is new and
without historical portfolio turnover information but expects that its portfolio
turnover rate will generally not exceed 125%.
Securities owned by the Fund may be purchased with brokerage commissions
or on a principal basis without brokerage commissions. The Fund may also
purchase securities from underwriters, the price of which will include a
commission or concession paid by the issuer to the underwriter. The purchase
price of securities purchased from dealers serving as market makers will include
the spread between the bid and asked prices. Brokerage transactions involving
securities of companies domiciled in countries other than the United States will
normally be conducted on the principal stock exchanges of those countries. In
most international markets, commission rates are not negotiable and may be
higher than negotiated commission rates available in the United States. There
is generally less government supervision and regulation of foreign stock
exchanges and broker-dealers than in the United States.
Prompt execution of orders at the most favorable price will be the
primary consideration of the Fund in transactions where brokerage fees are
involved. Research, statistical, and other services also may be taken into
consideration in selecting broker-dealers. These services may include: advice
concerning the value of securities, the advisability of investing in,
purchasing, or selling securities, and the availability of securities or the
purchasers or sellers of securities; and furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategies, and performance of accounts. While the Fund has no
arrangements or formulas as to either the allocation of brokerage transactions
or commission rates paid thereon, a commission in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction may be paid by the Fund if management of the Fund determines in good
faith that the commission is reasonable in relation to the value of the
brokerage and research services provided, viewed in terms of either that
particular transaction or management's overall responsibilities with respect to
the Fund.
Allocation of transactions to obtain research services for the Advisor
enables the Advisor to supplement its own research and analysis with the
statistics, information, and views of others. While it is not possible to place
a dollar value on these services, it is the opinion of the Advisor that the
receipt of such services will not reduce the overall expenses for its research
or those of its affiliated companies. The fees paid to the Advisor by the Fund
would not be reduced as a result of the receipt of such information and services
by the Fund. The receipt of research services from brokers or dealers might be
useful to the Advisor and its affiliates in rendering investment management
services to the Fund or other clients; and, conversely, information provided by
brokers or dealers who have executed orders on behalf of other clients might be
useful to the Advisor in carrying out its obligations to the Fund.
The Board of Directors of the Fund will from time to time review whether
the recapture for the benefit of the Fund of some portion of the brokerage
commissions or similar fees paid by the Fund on portfolio transactions is
legally permissible and, if so, determine, in the exercise of its business
judgment, whether it would be advisable for the Fund to seek such recapture.
Although the officers and directors of the Fund and each of the Columbia
Funds are the same, investment decisions for the Fund are made independently
from those of the other Columbia Funds or accounts managed by Columbia
Management Co. The same security is sometimes held in the portfolio of more
than one fund or account. Simultaneous transactions are inevitable when
several funds or accounts are managed by the same investment advisor,
particularly when the same security is suitable for the investment objective of
more than one fund or account. In the event of simultaneous transactions,
allocations among the Fund, the Columbia Funds, or accounts will be made on an
equitable basis.
4
<PAGE>
Since 1967, the Advisor and the Funds have had a Code of Ethics (the
"Code") that sets forth general and specific standards relating to the
securities trading activities of all employees of the Advisor and the Funds.
The purpose of the Code is to ensure that all employees conduct their personal
transactions in a manner that does not interfere with the portfolio transactions
of the Funds or take unfair advantage of their relationship with the Advisor or
the Funds. The specific standards included in the Code (as amended) include,
among others, a requirement that all employee trades be pre-cleared; a
prohibition on investing in initial public offerings; required pre-approval on
private placements; a prohibition on portfolio managers trading in a security
seven days before or after a trade in the same security by a Fund over which the
manager exercises investment discretion; and a prohibition on realizing any
profit on the trading of a security held less than 60 days. Certain securities
and transactions, such as mutual fund shares or U. S. Treasuries and purchases
of options on securities indexes or securities under an automatic dividend
reinvestment plan, are exempt from the restrictions in the Code because they
present little or no potential for abuse. Certain transactions involving the
stocks of large capitalization companies are exempt from the seven day black-out
period and short-term trading prohibitions because such transactions are highly
unlikely to affect the price of these stocks. In addition to the trading
restrictions, the Code contains reporting obligations that are designed to
ensure compliance and allow the Advisor's Ethics Committee to monitor that
compliance.
The Advisor and the Funds have also adopted a Policy and Procedures
Designed to Detect and Prevent Insider Trading (the "Insider Trading Policy").
The Insider Trading Policy prohibits any employee of the Advisor or the Funds
from trading, either personally or on behalf of others (including the Funds), on
material nonpublic information. All employees are required to certify each year
that they have read and complied with the provisions of the Code and the Insider
Trading Policy.
------------------------------------------------------------------------------
REDEMPTIONS
------------------------------------------------------------------------------
Information regarding redemptions is set forth in the Prospectus under
"Investor Services -- How to Redeem (Sell) Shares." As discussed under "Investor
Services -- Account Privileges -- Telephone Redemptions" in the Prospectus, the
Fund does not accept responsibility for the authenticity of telephone
instructions relating to redemptions and, accordingly, shareholders who have
approved telephone redemption assume the risk of any losses due to fraudulent
telephone instructions that the Fund reasonably believes to be genuine. The
Fund employs certain procedures to determine if telephone instructions are
genuine, including requesting personal shareholder information prior to acting
on telephone instructions, providing written confirmations of each telephone
transaction, and recording all telephone instructions. The Fund may be liable
for losses due to fraudulent telephone instructions if it fails to follow these
procedures.
The Fund may suspend the determination of net asset value and the right
of redemption for any period (1) when the New York Stock Exchange is closed,
other than customary weekend and holiday closings, (2) when trading on the New
York Stock Exchange is restricted, (3) when an emergency exists as a result of
which disposal of securities owned by the Fund is not reasonably practicable or
it is not reasonably practicable for the Fund to determine the value of its net
assets, or (4) as the Securities and Exchange Commission may by order permit for
the protection of security holders, provided that applicable rules and
regulations of the Securities and Exchange Commission which govern as to whether
the conditions prescribed in (2) or (3) exist are complied with. The New York
Stock Exchange observes the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and
Christmas. In the case of suspension of the right to redeem, shareholders may
withdraw their redemption request or receive payment based upon the net asset
value computed upon the termination of the suspension.
5
<PAGE>
------------------------------------------------------------------------------
CUSTODIANS
------------------------------------------------------------------------------
United States National Bank of Oregon, 321 S.W. Sixth Avenue, Portland,
Oregon 97208, acts as Custodian for the Fund. Morgan Stanley Trust Company
("Morgan Stanley" or "Custodian"), One Pierrepont Plaza, Brooklyn, New York
11201 has entered into a custodian agreement with the Fund with respect to the
purchase of foreign securities by the Fund. The Custodians hold all securities
and cash of the Fund, receive and pay for securities purchased, deliver against
payment securities sold, receive and collect income from investments, make all
payments covering expenses of the Fund, and perform other administrative duties,
all as directed by authorized officers of the Fund. The Custodians do not
exercise any supervisory function in the purchase and sale of portfolio
securities or payment of dividends.
Portfolio securities purchased in the United States are maintained in the
custody of the Fund's Custodian. Portfolio securities purchased outside the
United States are maintained in the custody of foreign banks, trust companies,
or depositories that have sub-custodian arrangements with Morgan Stanley (the
"foreign sub-custodians"). Each of the domestic and foreign custodial
institutions holding portfolio securities of the Fund has been approved by the
Board of Directors of the Fund in accordance with regulations under the
Investment Company Act of 1940.
The Board of Directors reviews, at least annually, whether it is in the
best interest of the Fund and its shareholders to maintain Fund assets, in each
of the countries (if any) in which the Fund invests, with particular foreign
sub-custodians in those countries, pursuant to contracts between the foreign
sub-custodians and Morgan Stanley. The review includes an assessment of the
risk of holding Fund assets in that country (including risks of expropriation or
imposition of exchange controls), the operational capability and reliability of
the foreign sub-custodian, and the impact of local laws on the custody
arrangement. The Board of Directors of the Fund is aided in its review by
Morgan Stanley, which has assembled the network of foreign sub-custodians used
by the Fund, as well as by the Advisor and counsel. With respect to foreign
sub-custodians, however, there can be no assurance that the Fund, and the value
of their shares, will not be adversely affected by acts of foreign governments,
financial or operational difficulties of the foreign sub-custodians,
difficulties and costs of obtaining jurisdiction over, or enforcing judgments
against, the foreign sub-custodians, or the application of foreign law to the
Fund's foreign sub-custodial arrangement. Accordingly, an investor should
recognize that the administrative risks involved in holding assets abroad are
greater than those associated with investing in the United States.
------------------------------------------------------------------------------
ACCOUNTING SERVICES
------------------------------------------------------------------------------
The statement of assets and liabilities of the Fund at September 11,
1996, has been included in this Statement of Additional Information in reliance
on the report of the Fund's independent accountants, Coopers & Lybrand L.L.P.,
2700 First Interstate Tower, Portland, Oregon 97201. Coopers & Lybrand L.L.P.,
in addition to examining the financial statements of the Fund, assists in the
preparation of the tax returns of the Fund and in certain other matters.
6
<PAGE>
------------------------------------------------------------------------------
TAXES
------------------------------------------------------------------------------
FEDERAL INCOME TAXES
The Fund intends and expects to meet continuously the tests for
qualification as a regulated investment company under Part I of Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"). The Fund believes
it satisfies the tests to qualify as a regulated investment company.
To qualify as a regulated investment company for any taxable year, the
Fund must, among other things:
(a) derive at least 90 percent of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities, or foreign currencies, or other income
(including but not limited to gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities, or
currencies (the "90 Percent Test");
(b) derive less than 30 percent of its gross income from the sale or
other disposition of any of the following, if held for less than three months:
stock, securities, foreign currencies (or options, futures, or forward contracts
on foreign currencies) that are not directly related to the Fund's principal
business of investing in stocks or securities (or options and futures with
respect to stocks or securities), or certain other assets (the "30 Percent
Test"); and
(c) diversify its holdings so that, at the end of each quarter, (i) 50
percent or more of the value of the assets of the Fund is represented by cash,
government securities, and other securities limited, in respect of any one
issuer of such other securities, to an amount not greater than 5 percent of the
value of the assets of the Fund and 10 percent of the outstanding voting
securities of such issuer, and (ii) not more than 25 percent of the value of the
assets of the Fund is invested in the securities (other than government
securities) of any one issuer or of two or more issuers that the Fund "controls"
within the meaning of Section 851 of the Code and that meet certain requirements
(the "Diversification Test"). In addition, the Fund must file, or have filed, a
proper election with the Internal Revenue Service.
Part I of Subchapter M of the Code will apply to the Fund during a
taxable year only if it meets certain additional requirements. Among other
things, the Fund must: (a) have a deduction for dividends paid (without regard
to capital gain dividends) at least equal to the sum of 90 percent of its
investment company taxable income (computed without any deduction for dividends
paid) and 90 percent of its tax-exempt interest in excess of certain disallowed
deductions (unless the Internal Revenue Service waives this requirement), and
(b) either (i) have been subject to Part I of Subchapter M for all taxable years
ending after November 8, 1983 or (ii) as of the close of the taxable year have
no earnings and profits accumulated in any taxable year to which Part I of
Subchapter M did not apply.
A regulated investment company that meets the requirements described
above is taxed only on its "investment company taxable income," which generally
equals the undistributed portion of its ordinary net income and any excess of
net short-term capital gain over net long-term capital loss. In addition, any
excess of net long-term capital gain over net short-term capital loss that is
not distributed is taxed to the Fund at corporate capital gain tax rates. The
policy of the Fund is to apply capital loss carry-forwards as a deduction
against future capital gains before making a capital gain distribution to
shareholders. Under rules that are beyond the scope of this discussion, certain
capital losses and certain net foreign currency losses resulting from
transactions occurring in November and December of a taxable year may be taken
into account either in that taxable year or in the following taxable year.
If any net long-term capital gains in excess of net short-term capital
losses are retained by the Fund, requiring federal income taxes to be paid
thereon by the Fund, the Fund may elect to
7
<PAGE>
treat such capital gains as having been distributed to shareholders. In the
case of such an election, shareholders will be taxed on such amounts as
long-term capital gains, will be able to claim their proportional share of the
federal income taxes paid by the Fund on such gains as credits against their own
federal income tax liabilities, and generally will be entitled to increase the
adjusted tax basis of their shares in the Fund by the differences between their
pro rata shares of such gains and their tax credits.
Shareholders of the Fund are taxed on distributions of net investment
income, or of any excess of net short-term capital gain over net long-term
capital loss, as ordinary income. Income distributions to corporate
shareholders from the Fund may qualify, in whole or part, for the federal income
tax dividends-received deduction, depending on the amount of qualifying
dividends received by the Fund. Qualifying dividends may include those paid to
the Fund by domestic corporations but do not include those paid by foreign
corporations. The dividends-received deduction equals 70 percent of eligible
dividends received from the Fund by a shareholder. Distributions of any excess
of net long-term capital gain over net short-term capital loss from the Fund are
ineligible for the dividends-received deduction.
Distributions properly designated by the Fund as representing the excess
of net long-term capital gain over net short-term capital loss are taxable to
shareholders as long-term capital gain, regardless of the length of time the
shares of the Fund have been held by shareholders. For noncorporate taxpayers,
the highest rate that applies to long-term capital gains is lower than the
highest rate that applies to ordinary income. Any loss that is realized and
allowed on redemption of shares of the Fund less than 6 months from the date of
purchase of the shares and following the receipt of a capital gain dividend will
be treated as a long-term capital loss to the extent of the capital gain
dividend. For this purpose, Section 852(b)(4) of the Code contains special
rules on the computation of a shareholder's holding period.
Distributions of taxable net investment income and net realized capital
gains will be taxable as described above, whether paid in shares or in cash.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. Within 60 days after the close of each calendar
year, the Fund issues to each shareholder a statement of the federal income tax
status of all distributions, including a statement of the prior calendar year's
distributions which the Fund has designated to be treated as long-term capital
gain.
A distribution may be taxable to a shareholder even if the distribution
reduces the net asset value of the shares held below their cost (and is in an
economic sense a return of the shareholder's capital). This tax result is most
likely when shares are purchased shortly before an annual distribution of
capital gains or other earnings.
The Fund is generally required to obtain from its shareholders a
certification of the shareholder's taxpayer identification number and certain
other information. The Fund generally will not accept an investment to
establish a new account that does not comply with this requirement. If a
shareholder fails to certify such number and other information, or upon receipt
of certain notices from the Internal Revenue Service, the Fund may be required
to withhold 31 percent of any reportable interest or dividends, or redemption
proceeds, payable to the shareholder, and to remit such sum to the Internal
Revenue Service, for credit toward the shareholder's federal income taxes. A
shareholder's failure to provide a social security number or other tax
identification number may subject the shareholder to a penalty of $50 imposed by
the Internal Revenue Service. In addition, that failure may subject the Fund to
a separate penalty of $50. This penalty will be charged against the
shareholder's account, which will be closed. Closure of the account may result
in a capital gain or loss.
If the Fund declares a dividend in October, November, or December payable
to shareholders of record on a certain date in such a month and pays the
dividend during January of the following year, the shareholders will be taxed as
if they had received the dividend on December 31 of the year in which the
dividend was declared. Thus, a shareholder may be taxed on the dividend in a
taxable year prior to the year of actual receipt.
A special tax may apply to the Fund if it fails to make enough
distributions during the calendar year. The required distributions for each
calendar year generally equal the sum of
8
<PAGE>
(a) 98 percent of the ordinary income for the calendar year plus (b) 98
percent of the capital gain net income for the one-year period that ends on
October 31 during the calendar year (or for the calendar year itself if the Fund
so elects), plus (c) an adjustment relating to any shortfall for the prior
taxable year. If the actual distributions are less than the required
distributions, a tax of 4 percent applies to the shortfall.
The Code allows the deduction by certain individuals, trusts, and estates
of "miscellaneous itemized deductions" only to the extent that such deductions
exceed 2 percent of adjusted gross income. The limit on miscellaneous itemized
deductions will NOT apply, however, with respect to the expenses incurred by any
"publicly offered regulated investment company." The Fund believes that it is a
publicly offered regulated investment company because its shares are
continuously offered pursuant to a public offering (within the meaning of
Section 4 of the Securities Act of 1933, as amended). Therefore, the limit on
miscellaneous itemized deductions should not apply to expenses incurred by the
Fund.
STATE INCOME TAXES
The state tax consequences of investments in the Fund are beyond the
scope of the tax discussions in the Prospectus and this Statement of Additional
Information.
ADDITIONAL INFORMATION
The foregoing summary and the summary included in the Prospectus under
"Taxes" of tax consequences of investment in the Fund are necessarily general
and abbreviated. No attempt has been made to present a complete or detailed
explanation of tax matters. Furthermore, the provisions of the statutes and
regulations on which they are based are subject to change by legislative or
administrative action. Local taxes are beyond the scope of this discussion.
Prospective investors in the Fund are urged to consult their own tax advisors
regarding specific questions as to federal, state, or local taxes.
This discussion applies only to general U.S. shareholders. Foreign
investors and U.S. shareholders with particular tax issues or statuses should
consult their own tax advisors regarding the special rules that may apply to
them.
------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------
The Fund will from time to time advertise or quote its total return
performance. These figures represent historical data and are calculated
according to Securities and Exchange Commission ("SEC") rules standardizing such
computations. The investment return and principal value will fluctuate so that
shares when redeemed may be worth more or less than their original cost.
The Fund may publish average annual total return quotations for recent 1,
5, and 10-year periods (or a fractional portion thereof) computed by finding the
average annual compounded rates of return over the 1, 5, and 10-year periods
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)to the nth power = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
9
<PAGE>
ERV = ending redeemable value of a hypothetical $1000 payment made at
the beginning of the 1, 5, and 10-year periods (or fractional
portion thereof)
Total return figures may also be published for recent 1, 5, and 10-year
periods where the total return figures represent the percentage return for the
1, 5, and 10-year periods that would equate the initial amount invested to the
ending redeemable value.
If the Fund's registration statement under the Investment Company Act of
1940 has been in effect less than 1, 5, or 10 years, the time period during
which the registration statement has been in effect will be substituted for the
periods stated.
The Fund may compare its performance to other mutual funds with similar
investment objectives and to the mutual fund industry as a whole, as quoted by
ranking services and publications of general interest. For example, these
services or publications may include Lipper Analytical Services, Inc.,
Schabacker's Total Investment Service, Barron's, Business Week, Changing Times,
The Financial Times, Financial World, Forbes, Investor's Daily, Money,
Morningstar, Inc., Personal Investor, The Economist, The Wall Street Journal,
and USA Today. These ranking services and publications rank the performance of
the Fund against all other funds over specified periods and against funds in
specified categories.
The Fund may also compare its performance to that of a recognized stock
or bond index including the Standard & Poor's 500, Dow Jones, Russell, and
Nasdaq stock indices, the NAREIT Equity Index, and the Shearson Lehman and
Salomon bond indices. The comparative material found in advertisements, sales
literature, or in reports to shareholders may contain past or present
performance ratings. This is not to be considered representative or indicative
of future results or future performance. Unmanaged indices may assume the
reinvestment of dividends, but generally do not reflect deductions for
administrative and management costs and expenses.
------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
------------------------------------------------------------------------------
The Prospectus sets forth the investment objectives and certain
restrictions applicable to the Fund. The following is a list of investment
restrictions applicable to the Fund. If a percentage limitation is adhered to
at the time of an investment by the Fund, a later increase or decrease in
percentage resulting from any change in value or net assets will not result in a
violation of the restriction. The Fund may not change these restrictions
without the approval of a majority of its shareholders, which means the vote at
any meeting of shareholders of the Fund of (i) 67 percent or more of the shares
present or represented by proxy at the meeting (if the holders of more than 50
percent of the outstanding shares are present or represented by proxy) or
(ii) more than 50 percent of the outstanding shares, whichever is less.
The Fund may not:
1. Buy or sell commodities. However, the Fund may invest in futures
contracts relating to broadly based stock indices, subject to the restrictions
in paragraph 15.
2. Concentrate investments in any industry. However, the Fund may
(a) invest up to 25 percent of the value of the total assets in any one industry
and (b) invest for temporary defensive purposes up to 100 percent of the value
of the total assets in securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities.
3. Buy or sell real estate. However, the Fund may purchase or hold
readily marketable securities issued by companies such as real estate investment
trusts, which operate in real estate or interests therein.
4. Make loans to other persons (except by purchase of short-term
commercial paper, bonds, debentures, or other debt securities constituting part
of an issue).
10
<PAGE>
5. The Fund may not purchase a repurchase agreement with a maturity
greater than seven days or a security that is subject to legal or contractual
restrictions on resale or for which there are no readily available market
quotations if, as a result of such purchase, more than 10 percent of the assets
of the Fund (taken at current value) is invested in such securities.
6. Purchase the securities of any issuer if the purchase, at the time
thereof, would cause more than 10 percent of the outstanding voting securities
of that issuer to be held in the Fund.
7. Purchase the securities of any issuer if the purchase, at the time
thereof, would cause more than 5 percent of the value of the total assets of the
Fund at market value to be invested in the securities of that issuer (other than
obligations of the U.S. Government and its agencies and instrumentalities), with
reference to 75 percent of the assets of the Fund.
8. Purchase securities of other open-end investment companies.
9. Issue senior securities, bonds, or debentures.
10. Underwrite securities of other issuers, except that the Fund may
acquire portfolio securities under circumstances where, if the securities are
later publicly offered or sold by the Fund, it might be deemed to be an
underwriter for purposes of the Securities Act of 1933.
11. Borrow money in excess of 5 percent of its net asset value. Any
borrowing must only be temporarily from banks and for extraordinary or emergency
purposes.
12. Invest its funds in the securities of any company if the purchase,
at the time thereof, would cause more than 10 percent of the value of the Fund's
total assets to be invested in companies which, including predecessors and
parents, have a record of less than three years' continuous operation.
13. Invest in companies for the purpose of exercising control or
management.
14. Engage in short sales of securities except to the extent that it
owns an equal amount of the securities sold short or other securities
convertible into an equivalent amount of such securities ("short sales against
the box"). Such transactions may only be made to protect a profit in or to
attempt to minimize a loss with respect to securities held by the Fund. In any
event, no more than 10 percent of the value of the Fund's net assets taken at
market may, at any time, be held as collateral for such sales.
15. Buy and sell puts and calls as securities, stock index futures or
options on stock index futures, or financial futures or options on financial
futures, unless such options or futures are offered through the facilities of a
national securities association or are listed on a national securities or
commodities exchange. The Fund may write call options that are covered in
accordance with rules established by the Securities and Exchange Commission.
16. Invest directly in oil, gas, or other mineral development or
exploration programs or leases; although, the Fund may own securities of
companies engaged in those businesses.
Some of the policies described above prohibit particular practices.
Other policies (paragraphs 5, 11, 12, and 14) permit specified practices but
limit the portion of the Fund's assets that may be so invested. Subject to the
investment restriction, the Fund expects to engage in the practices described in
paragraph 12. The Fund has no current intention of engaging in the other
permitted practices in the foreseeable future.
OTHER RESTRICTIONS
To permit the sale of shares of the Fund in certain states, the Fund may
make commitments more restrictive than the fundamental restrictions described
above. If the Board of Directors of the Fund determines that a commitment is no
longer in the best interests of the Fund and its shareholders, it will revoke
the commitment, terminate sales of its shares in the state(s) involved, and
notify the affected shareholders.
11
<PAGE>
------------------------------------------------------------------
ADDITIONAL INFORMATION REGARDING CERTAIN
INVESTMENTS BY THE FUND
------------------------------------------------------------------
WARRANTS
Warrants are in effect longer-term call options. They give the holder
the right to purchase a given number of shares of a particular company at
specified prices within certain periods of time. The purchaser of a warrant
expects that the market price of the security will exceed the purchase price of
the warrant plus the exercise price of the warrant, thus giving him a profit.
Since the market price may never exceed the exercise price before the expiration
date of the warrant, the purchaser of the warrant risks the loss of the purchase
price of the warrant. Warrants generally trade in the open market and may be
sold rather than exercised. Warrants are sometimes sold in unit form with other
securities of an issuer. Units of warrants and common stock may be employed in
financing young, unseasoned companies. The purchase price of a warrant varies
with the exercise price of the warrant, the current market value of the
underlying security, the life of the warrant, and various other investment
factors. The Fund's investment restrictions do not limit the percentage of the
Fund's assets that may be invested in warrants, but the Fund does not intend to
invest more than 5 percent of its assets in warrants or more than 2 percent of
its assets in warrants that are not listed on the New York Stock Exchange or
American Stock Exchange.
12
<PAGE>
COLUMBIA SMALL CAP FUND, INC.
Statement of Assets and Liabilities
September 11, 1996
ASSETS:
U.S. Treasury Bill, 4.910% due 09/26/1996, at cost $498,977
Repurchase Agreement
Goldman Sachs Corp. 5.323% dated 09/11/1996,
due 09/12/1996 in the amount of $1,023. Collateralized
by U.S. Treasury Note 5.125% due 12/31/1998, and
U.S. Treasury Bonds 8.875% to 9.125% due 05/15/2009 to
02/15/2019. $1,023
Net assets $500,000
Shares of capital stock outstanding 41,667
Net asset value, offering and redemption price per share $12.00
NOTES TO FINANCIAL STATEMENT:
1. Columbia Small Cap Fund, Inc. was organized as an Oregon corporation on May
31, 1996. On September 11, 1996, the fund sold 41,667 shares of its common stock
to certain directors and an officer of the Fund for proceeds of $500,000. The
Fund has had no other transactions to date except for those relating to
organizational matters. The Fund has 100,000,000 shares of no par value stock
authorized. The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end diversified investment company.
2. The Fund is managed by Columbia Funds Management Company; Certain officers
and directors of the Fund are also officers and directors of Columbia Funds
Management Company.
3. Temporary cash investments in short-term securities (Principally repurchase
agreements and the U.S. Treasury bill) are valued at cost, which approximates
market.
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of Columbia Small Cap Fund, Inc.
We have audited the accompanying statement of assets and liabilities of Columbia
Small Cap Fund, Inc. as of September 11, 1996. This financial statement is the
responsibility of the Fund's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. Our procedures included confirmation of investments and cash held
by the custodian as of September 11, 1996, and confirmation by correspondence
with brokers as to securities purchased at that date. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the statement of
assets and liabilities. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Columbia
Small Cap Fund Inc. as of September 11, 1996 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND
Portland, Oregon
September 12, 1996
<PAGE>
COLUMBIA SMALL CAP FUND, INC.
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
The Statement of Assets and Liabilities and Report of Independent
Accountants will be included in a pre-effective amendment to the
Registration Statement.
(b) Exhibits:
(1) Registrant's Articles of Incorporation.*
(2) Registrant's Bylaws.*
(4A) Specimen Stock Certificate.*
(4B) Application.
(5) Investment Advisory Contract.*
(6) Distribution Agreement.*
(8A) Custodian Contract between the Registrant and United States
National Bank of Oregon.*
(8B) Custodian Contract between the Registrant and Morgan Stanley Trust
Company.
(9) Transfer Agent Agreement.*
(10) Opinion of Counsel.
(11) Consent of Accountants.
(12) See paragraph (a) of Item 24.
(14) IRA and Money Purchase Pension and Profit Sharing Plan booklets.*
(17) Powers of Attorney.*
* Previously filed.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The Registrant, Columbia Balanced Fund, Inc., Columbia Common Stock Fund,
Inc., Columbia Fixed Income Securities Fund, Inc., Columbia Growth Fund, Inc.,
Columbia International Stock Fund, Inc., Columbia Daily Income Company, Columbia
Special Fund, Inc., Columbia Municipal Bond Fund, Inc., Columbia U.S. Government
Securities Fund, Inc., Columbia Real Estate Equity Fund, Inc., and Columbia High
Yield Fund, Inc., each an Oregon corporation (the "Columbia Funds"), have
investment advisory contracts with Columbia Funds Management Company (the
"Advisor"), an Oregon corporation. Columbia Trust Company, an Oregon
corporation, is 79% owned by the Advisor. J. Jerry Inskeep, Jr. and James F.
Rippey own 14.9% and 27.2%, respectively, of
C-1
<PAGE>
the voting securities of the Advisor; 32.3% each of the voting securities of
Columbia Financial Center Incorporated, an Oregon corporation; 41.1% each of the
voting securities of Columbia Management Co., an Oregon corporation; and 3.7%
and 1.2%, respectively, of the voting securities of Columbia Trust Company. CMC
Fund Trust, an Oregon business trust, has an investment advisory contract with
Columbia Management Co. See "Management" in Part B. The Registrant does not
have any subsidiaries.
Item 26. NUMBER OF HOLDERS OF SECURITIES
At the commencement of the offering of the Registrant's shares of Common
Stock to the public, all outstanding shares will be held by certain officers of
the Advisor or Columbia Management Co.
Item 27. INDEMNIFICATION
The articles of incorporation and bylaws of the Registrant provide that any
director or officer of the Registrant shall be indemnified by the Registrant
against all expenses incurred by him in connection with any claim, action, suit,
or proceeding, civil or criminal, by reason of his being an officer, director,
employee, or agent of the Registrant to the fullest extent not prohibited by the
Oregon Business Corporation Act and the Investment Company Act of 1940 and
related regulations and interpretations of the Securities and Exchange
Commission.
Insofar as reimbursement or indemnification for expenses incurred by a
director or officer in legal proceedings arising under the Securities Act of
1933 may be permitted by the above provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
reimbursement or indemnification is against public policy as expressed in the
Act and therefore unenforceable. In the event that any claim for
indemnification under the above provisions is asserted by an officer or director
in connection with the securities being registered, the Registrant, unless in
the opinion of its counsel the matter has already been settled by controlling
precedent, will (except insofar as such claim seeks reimbursement of expenses
paid or incurred by an officer or director in the successful defense of any such
action, suit or proceeding or claim, issue, or matter therein) submit to a court
of appropriate jurisdiction the question whether indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrant's directors and officers are also named insureds under an
insurance policy issued by ICI Mutual Insurance Company.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
Information regarding the businesses of the Advisor and its officers and
directors is set forth under "Fund Management" in the Prospectus and under
"Management" and "Investment Advisory and Other Fees Paid to Affiliates" in the
Statement of Additional Information and is incorporated herein by reference.
Columbia Trust Company also acts as trustee and/or agent for the investment of
the assets of pension and profit sharing plans in pooled accounts.
C-2
<PAGE>
Item 29. PRINCIPAL UNDERWRITERS
Pursuant to a distribution agreement with each of the Columbia Funds,
including the Registrant, Columbia Financial is authorized to sell shares of
each fund to the public. No commission or other compensation is received by
Columbia Financial in connection with the sale of shares of the Columbia Funds.
Certain information on each director and officer of Columbia Financial is set
forth below:
Name and Principal Positions with
Business Address Columbia Financial Positions with Registrant
- ------------------ ------------------ -------------------------
J. Jerry Inskeep, Jr. Director Chairman and Director
1301 SW Fifth Ave
Portland, OR 97207
George L. Hanseth President and Director Senior Vice President
1301 SW Fifth Ave and Treasurer
Portland, OR 97207
John A. Kemp Senior Vice President, President and Director
1301 SW Fifth Ave Treasurer and Director
Portland, OR 97207
Jeff B. Curtis General Counsel, Vice Secretary
1301 SW Fifth Avenue President and Secretary
Portland, OR 97201
Item 30. LOCATION OF ACCOUNTS AND RECORDS
The records required to be maintained under Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder are maintained by the
Registrant, Columbia Funds Management Company, and Columbia Trust Company at
1301 SW Fifth Avenue, Portland, Oregon 97201. Records relating to the
Registrant's portfolio securities are also maintained by United States National
Bank of Oregon and Morgan Stanley Trust Company.
Item 31. MANAGEMENT SERVICES
Not applicable.
Item 32. UNDERTAKINGS
(a) The Registrant hereby undertakes to file a post-effective amendment, using
reasonably current unaudited financial statements, within four to six months
from the effective date of this Registration Statement, subject to the
instructions set forth in Item 32 of Form N-1A.
(b) The Registrant hereby undertakes to promptly call a meeting of the
shareholders of the Registrant for the purpose of voting on the removal of any
director of the Registrant when requested in writing by shareholders of at least
10 percent of the outstanding shares of Common Stock of the Registrant. The
Registrant undertakes to assist its shareholders in communicating with other
shareholders of the Registrant to the extent required by Section 16 of the
Investment Company Act of 1940 or any regulations promulgated thereunder.
(c) The Registrant hereby undertakes, upon request and without charge, to
furnish a copy of the Registrant's annual report to shareholders to each person
to whom a prospectus is delivered.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Portland and State of Oregon on the 18th day of
September, 1996.
COLUMBIA SMALL CAP FUND, INC.
By JOHN A KEMP
--------------------------------
John A. Kemp, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 18th day of
September, 1996 by the following persons in the capacities indicated.
(i) Principal executive officer:
JOHN A. KEMP President and Director
- -----------------------------------
John A. Kemp
(ii) Principal accounting and
financial officer:
GEORGE L. HANSETH Senior Vice President
- -----------------------------------
George L. Hanseth
(iii) Directors:
* J. JERRY INSKEEP, JR. Chairman of the Board and Director
- -----------------------------------
J. Jerry Inskeep, Jr.
* JAMES C. GEORGE Director
- -----------------------------------
James C. George
* THOMAS R. MACKENZIE Director
- -----------------------------------
Thomas R. Mackenzie
* JAMES F. RIPPEY Director
- -----------------------------------
James F. Rippey
* RICHARD L. WOOLWORTH Director
- -----------------------------------
Richard L. Woolworth
* JOHN A. KEMP
- -----------------------------------
John A. Kemp
as Attorney-in-fact
C-4
<PAGE>
COLUMBIA SMALL CAP FUND, INC.
EXHIBIT INDEX
Exhibit No. Sequential Page No.
- ----------- -------------------
(1) Registrant's Articles of Incorporation.*
(2) Registrant's Bylaws.*
(4A) Specimen Stock Certificate.*
(4B) Application.
(5) Investment Advisory Contract.*
(6) Distribution Agreement.*
(8A) Custodian Contract between the Registrant and United
States National Bank of Oregon.*
(8B) Custodian Contract between the Registrant and Morgan
Stanley Trust Company.
(9) Transfer Agent Agreement.*
(10) Opinion of Counsel.
(11) Consent of Accountants.
(12) See paragraph (a) of Item 24.
(14) IRA and Money Purchase Pension and Profit Sharing Plan booklets.*
(17) Powers of Attorney.*
* Previously filed
C-5
<PAGE>
COLUMBIA FUNDS
It's easy to open an account with Columbia. Whether you invest in one or
several Columbia Funds using this application, each will be linked to a single
account number and reported to you on a single statement. This application also
enables you to establish a number of different investment privileges on your
account-- all at no charge. And, because Columbia Funds are truly no-load,
there are no sales charges or 12b-1 fees to pay. If you need assistance
completing this form, please call us at 1-800-547-1707, and one of our Investor
Services Representatives will be happy to assist you.
Account Application
IF YOU WISH TO OPEN AN IRA, PLEASE CONTACT US FOR A SEPARATE APPLICATION, 1-800-
547-1707.
IF YOU ARE AN INDIVIDUAL INVESTOR, PLEASE COMPLETE REQUIRED SECTIONS 1, 2, 3, 10
& INDIVIDUAL'S SIGNATURE CARD ( SECTIONS 4, 5, 7, 8 & 9 ARE OPTIONAL)
IF YOU ARE ESTABLISHING A TRUST ACCOUNT, PLEASE COMPLETE REQUIRED SECTIONS 1, 2,
3, 10, 11 & THE SIGNATURE CARD FOR ORGANIZATIONS (SECTIONS 4, 5, 7, 8 & 9 ARE
OPTIONAL)
IF YOU REPRESENT A CORPORATION OR OTHER ENTITY, PLEASE COMPLETE REQUIRED
SECTIONS 1, 2, 3, 10, 11 & CORPORATE SIGNATURE CARD ( SECTIONS 4, 5, 7, 8 & 9
ARE OPTIONAL)
1. REGISTRATION
[ ] Individual or [ ] Joint* Account
_____________________________________________________
Owner Name (FIRST, MIDDLE, LAST)
__________________________________________________________
Social Security Number of Owner
__________________________________________________________
Joint Owner Name, if applicable (FIRST, MIDDLE, LAST)
*JOINT TENANTS WITH RIGHT OF SURVIVORSHIP, UNLESS OTHERWISE INDICATED
[ ] Gift or Transfer to Minors (UGMA/UTMA)
__________________________________________________________
Custodian Name (one name only please)
__________________________________________________________
Minor's Name (one child only please) State of Residence
__________________________________________________________
Minor's Social Security Number
[ ] Trust (including corporate pensions plans)
Please indicate type of trustee [ ] Person as trustee
[ ] Organization as trustee
__________________________________________________________
Name of Trustee (Individual or Organization)
__________________________________________________________
Co-Trustee, if applicable
__________________________________________________________
<PAGE>
Name of Trust
__________________________________________________________
For the Benefit of
__________________________________________________________
Social Security Number or Tax Identification Number
__________________________________________________________
Trust's Tax Payer Identification Number Date of Trust
[ ] Corporation, or other Entity (please also attach your Corporate Resolution
or complete Section 11)
Check one [ ] Corporation [ ] Partnership [ ] Other (nonprofit,
sole proprietorship,
investment club,
etc.)
__________________________________________________________
Name of Corporation or Entity
__________________________________________________________
Contact Name at Corporation Phone Number
__________________________________________________________
Social Security Number or Tax Identification Number
[ ] This application amends previous registration of Columbia Funds Account
#_________
2. MAILING ADDRESS
__________________________________________________________
Street (include apartment or P.O. Box)
__________________________________________________________
__________________________________________________________
City
__________________________________________________________
State Zip
__________________________________________________________
Daytime Phone
__________________________________________________________
Evening Phone
[ ] U.S. Citizen or Resident Alien
[ ] Nonresident Alien PLEASE INCLUDE COUNTRY OF TAX RESIDENCY________________,
and attach a completed IRS Form W-8
3. INITIAL INVESTMENT
All Funds have a minimum $1,000 investment requirement, except for Columbia
Small Cap Fund and Columbia Special Fund, which have a $2,000 minimum. You can
start smaller by establishing an Automatic Investment Plan in Section 4.
STOCK FUNDS
$_____________________Columbia Small Cap Fund
<PAGE>
$_____________________Columbia Special Fund
$_____________________Columbia International Stock Fund
$_____________________Columbia Growth Fund
$_____________________Columbia Common Stock Fund
$_____________________Columbia Real Estate Equity Fund
BALANCED FUND
$_____________________Columbia Balanced Fund
BOND FUNDS
$_____________________Columbia High Yield Fund
$_____________________Columbia Municipal Bond Fund
$_____________________Columbia Fixed Income Securities Fund
$_____________________Columbia U.S. Government Securities Fund
MONEY MARKET FUND
$____________________Columbia Daily Income Company
$____________________ TOTAL INVESTMENT AMOUNT
PLEASE MAKE YOUR CHECK PAYABLE TO "COLUMBIA FUNDS."
4. AUTOMATIC INVESTMENT PLAN/INVEST BY PHONE
Transferring money automatically from your bank to Columbia Funds provides a
convenient and disciplined way to build assets for the future. By establishing
this feature on your account, you can authorize investments to be drawn
automatically from your bank to Columbia Funds. Establishing AIP on your account
automatically sets up "Televest", which is ability to initiate an investment by
telephone from your bank to Columbia. With both features, you authorize Columbia
Trust Company to act as your agent to draw funds from or transfer funds to your
bank checking account for investment in the designated Columbia Fund(s). You
acknowledge that this service is subject to the rules of your bank, the National
Automated Clearing House Association (NACHA) and Columbia Funds. You agree that
Columbia Trust Company may correct any transfer error by debit or credit to your
bank account and/or Columbia Funds account. Your bank must be a member of NACHA.
Please allow two to six weeks for this service to begin.
Please withdraw from my bank (indicated in Section 5) the following automatic
investment(s):
$_________ on the [ ]5th and/or [ ] 20th of each month to ___________________
($50 MINIMUM) (FUND NAME)
$_________ on the [ ]5th and/or [ ] 20th of each month to ___________________
($50 MINIMUM) (FUND NAME)
<PAGE>
$_________ on the [ ]5th and/or [ ] 20th of each month to ___________________
($50 MINIMUM) (FUND NAME)
[ ] I do not want the Televest (Invest By Phone) feature.
[ ] Please add the Televest (Invest by Phone) feature to my account.
5. BANK INFORMATION
Complete this section to establish an Automatic Investment Plan, the Televest
(Invest by Phone)or Redemption by Telephone on your account. Be sure to attach
a voided check.
_______________________________________________________________
Name of Bank (include Branch if applicable)
_______________________________________________________________
Name on Bank Account (if other than your own)
_______________________________________________________________
Bank Checking Account Number
_______________________________________________________________
Bank Street Address
_______________________________________________________________
City State Zip
_______________________________________________________________
Branch Phone Number
_______________________________________________________________
Signatures of all Bank Account Owners (IF OTHER THAN FUND
ACCOUNT OWNER)
_______________________________________________________________
Signatures of all Bank Account Owners (IF OTHER THAN FUND
ACCOUNT OWNER)
-------------------------
ATTACH VOIDED CHECK HERE
-------------------------
6. DRAFTWRITING PRIVILEGE (Columbia Daily Income Company only)
THIS PRIVILEGE LETS YOU WRITE CHECK DRAFTS OF AT LEAST $500 AGAINST THE MONEY
MARKET FUND BALANCE IN YOUR ACCOUNT. BE SURE TO ALSO SIGN THE SIGNATURE CARD.
.
I authorize Columbia Daily Income Company (CDIC) to redeem shares from my
account, upon the presentation of drafts signed by the individuals listed on the
signature card below. I agree to the rules and regulations pertaining to draft
accounts of any bank so designated by CDIC and as described in the current
prospectus as amended from time to time. I understand that all canceled drafts
will be sent to me.
perforate off near the CDIC redemption section:
<PAGE>
- --------------------------------------------------------------------------------
SIGNATURE CARD
For Individuals with draftwriting Privileges on Columbia Daily Income Company
Account Number: _________________
(To Be Completed by Columbia Funds)
____________________________________ ______________________________
Signature Print Name
____________________________________ ______________________________
Signature Print Name
____________________________________ ______________________________
Signature Print Name
____________________________________ ______________________________
Signature Print Name
[ ] Check here if all signatures above are required on check drafts. If not
checked, only one signature will be required.
Reverse
SIGNATURE CARD FOR CORPORATE AND TRUST ACCOUNTS
Account Number: _________________ (To Be Completed by Columbia Funds)
____________________________________ _____________________________
Name of Organization Type of organization
____________________________________ _____________________________
Signature Print Name Title
____________________________________ _____________________________
Signature Print Name Title
____________________________________ _____________________________
Signature Print Name Title
____________________________________ _____________________________
Signature Print Name Title
Written redemption requests, account registration changes and any other
amendments to the account on behalf of your organization must be signed by
______(enter number) of the individuals shown here. If not completed, only one
signature will be required.
7. TELEPHONE EXCHANGE AND REDEMPTION PRIVILEGES
Most shareholders appreciate the convenience of requesting exchanges and
redemptions over the phone. These privileges will be automatically added to
your account unless you check the boxes below.
I authorize the Columbia organization to act upon telephone instructions from
any authorized person to redeem shares of any Columbia Fund in my account at my
request to:(1) purchase shares of another Columbia Fund with the same account
number, (2) mail the proceeds to the registered name and address on my account
<PAGE>
(maximum of $50,000), or (3) deposit the proceeds in the bank account designated
in Section 5.
I DO NOT WANT
[ ] Exchanges by Telephone
[ ] Redemptions by Phone sent to address of record
[ ] Redemptions by Phone sent to the bank listed in Section 5
8. AUTOMATIC EXCHANGES
With this privilege, you can authorize regular, automatic exchanges from one
Columbia Fund to another.
Redeem $____________ from _______________on the last day of each [ ]month or
($50 MINIMUM) (FUND NAME)
[ ]quarter and use the proceeds to purchase shares in ___________________.
(FUND NAME)
Redeem $____________ from _______________on the last day of each [ ]month or
($50 MINIMUM) (FUND NAME)
[ ] quarter and use the proceeds to purchase shares in ___________________.
(FUND NAME)
9. DISTRIBUTIONS
All Fund distributions will be reinvested automatically, unless you specify
redemptions below:
Please pay out the following distributions:
[ ] Income dividends from all funds [ ] Capital gains from all funds
SEND ALL DISTRIBUTIONS TO:
[ ] Registered name and address on account [ ] Bank indicated in Section 5
10. ACCOUNT AGREEMENT
I certify that I am of legal age and have full right, power, authority, and
legal capacity to invest in Columbia Funds. I have received a current
prospectus and agree to its terms and conditions. I understand that my
authorization of the Telephone Exchange, Telephone Redemption, Automatic
Investment, and Televest (Invest by Phone) privileges are subject to the
conditions and limitations outlined in this application and the prospectus. I
agree that Columbia Funds, its transfer agent or distribution shall not be held
responsible for the authenticity of telephone instructions or liable for any
loss, expense or costs arising out of telephone instructions believed to be
genuine. Certain procedures are employed to determine whether telephone
instructions are genuine, including the request of personal shareholder
information prior to acting on telephone instructions, providing written
confirmations of each telephone transaction, and recording all telephone
instructions. A Fund may be liable
<PAGE>
for losses due to fraudulent telephone instructions if it fails to follow these
procedures. I ALSO CERTIFY, UNDER THE PENALTIES OF PERJURY, THAT (1) CITIZENSHIP
INFORMATION PROVIDED IN SECTION 2 IS CORRECT AND APPLICABLE TO U.S. RESIDENTS
UNTIL U.S. RESIDENCE IS ABANDONED, (2) THE SOCIAL SECURITY OR TAX IDENTIFICATION
NUMBER PROVIDED IN SECTION 1 IS TRUE, CORRECT AND COMPLETE, AND (3) I AM NOT
SUBJECT TO BACKUP WITHHOLDING BECAUSE (A) I HAVE NOT BEEN NOTIFIED THAT I AM
SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF FAILURE TO REPORT ALL INTEREST AND
DIVIDENDS, OR (B) THE IRS HAS NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP
WITHHOLDING. (IF YOU ARE SUBJECT TO BACKUP WITHHOLDING, CROSS OUT ITEM (3) IN
THE PREVIOUS SENTENCE. I understand that this Account Agreement shall be
governed by the laws of the State of Oregon.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
___________________________________________________________ ___________________
Signature of Owner/General Partner/Trustee/Coporate Officer Title Date
___________________________________________________________ ___________________
Signature of Owner/General Partner/Trustee/Coporate Officer Title Date
___________________________________________________________ ___________________
Signature of Owner/General Partner/Trustee/Coporate Officer Title Date
___________________________________________________________ ___________________
Signature of Owner/General Partner/Trustee/Coporate Officer Title Date
At the bottom of the app, print:
THANK YOU FOR YOUR INVESTMENT IN COLUMBIA FUNDS.
Please use the enclosed postage-paid envelope to mail your investment. Or, use
this address;
Columbia Funds
P. O. Box 1350
Portland, OR 97207-1350
11. CERTIFICATION FOR ORGANIZATIONS
Please indicate type of organization:
[ ] Corporation/Incorporated Association [ ] Trust (please provide date of
Trust)____________
[ ] Partnership [ ] Other, (nonprofit
organization, investment
club, religious organization,
etc.)
This organization is authorized to establish accounts with Columbia Funds as
specified in this Application and agrees to the terms and conditions outlined in
the prospectus. The officers, trustees, partners or other signatories of this
organization whose names, titles and signatures appear on the Signature Card for
Organizations [below] are authorized under the applicable governing document of
this organization to act with full power to purchase, sell, assign and transfer
shares of the Columbia Funds registered in the name of this organization, and
that until notified in writing to the contrary, Columbia Funds and its transfer
agent and distributor are authorized to accept and act upon the signatures of
such Authorized Persons without any obligation of inquiry regarding their
continuing authority to act on behalf of this organization.
Please sign below, as appropriate
CORPORATIONS/INCORPORATION ASSOCIATIONS
<PAGE>
I,________________________________-Secretary of ______________________________,
incorporated or organized under the laws of the State of _____________________,
hereby certify that resolutions were duly adopted, which are in full force and
effect and in accordance with this organization's charter and bylaws, that (1)
authorize the establishment of accounts with Columbia Funds, (2) empowered the
Authorized Persons to effect securities transactions for this organization on
the terms described in this Application and in the prospectus, (3) authorized
the secretary of this organization to certify, from time to time, the names and
titles of the Authorized Persons and to notify its agents when changes occur,
and (4) authorized the secretary to certify that such resolutions have been duly
adopted and will remain in full force and effect until Columbia Funds receive a
duly executed amendment to this Certification Form.
____________________________________________
Secretary's Signature Date
____________________________________________
Second Officer's Signature Date
(required if secretary is an Authorized Person named [below])
SIGNATURE OF ALL OTHER ORGANIZATIONS
_______________________________________________- ______________________________
Certifying Trustee(s)/General Partner(s)/Others Certifying Trustee(s)/General
Partner(s)/Others
<PAGE>
CUSTODY AGREEMENT
This Custody Agreement is dated September 5, 1996 between MORGAN
STANLEY TRUST COMPANY. a New York State chartered trust company (the
"Custodian"), and COLUMBIA SMALL CAP FUND, INC., an Oregon corporation
(the "Client").
1. APPOINTMENT AND ACCEPTANCE: ACCOUNTS. (a) The Client
hereby appoints the Custodian as a custodian of Property (as defined below)
owned or under the control of the Client that are delivered to the Custodian, or
any Subcustodian as appointed below, from time to time to be held in custody for
the benefit of the Client.
(b) Prior to the delivery of any Property by the Client to the
Custodian, the Client shall deliver to the Custodian each document and other
item listed in Appendix 1. In addition, the Client shall deliver to the
Custodian any additional documents or items as the Custodian may deem necessary
for the performance of its duties under this Agreement.
(c) The Client instructs the Custodian to establish on the
books and records of the Custodian the accounts listed in Appendix 2 (the
"Accounts") in the name of the Client. Upon receipt of Authorized Instructions
(as defined below) and appropriate documentation, the Custodian shall open
additional Accounts for the Client. Upon the Custodian's confirmation to the
Client of the opening of such additional Accounts, or of the closing of
Accounts, Appendix 2 shall be deemed automatically amended or supplemented
accordingly. The Custodian shall record in the Accounts and shall have general
responsibility for the safekeeping of all securities ("Securities"), cash, cash
equivalents and other property (all such Securities, cash, cash equivalents and
other property being collectively the "Property") of the Client that are
delivered to the Custodian for custody.
(d) The procedures the Custodian and the Client will use in
performing activities in connection with this Agreement are set forth in a
client services guide provided to the Client by the Custodian, as such guide
may be amended from time to time by the Custodian by written notice to the
Client (the "Client Services Guide").
2. SUBCUSTODIANS. The Property may be held in custody and
deposit accounts that have been established by the Custodian with one or more
domestic or foreign banks or other institutions that are "Eligible Foreign
Custodians" (as such term is defined in Rule 17f-5(c)(2) of Investment
Company Act of 1940) as listed on Exhibit A (the "Subcustodians"), as such
Exhibit may be amended from time to time by the Custodian by written notice
to the Client, or through the facilities of one or more securities
depositories of clearing agencies. The Custodian shall hold Property through
a Subcustodian, securities depository or clearing agency only if (a) such
Subcustodian and any securities depository or clearing agency in which such
Subcustodian or the Custodian holds Property, or any of their creditors, may
not assert any right, charge, security interest, lien,
1
<PAGE>
encumbrance or other claim of any kind to such Property except a claim of
payment for its safe custody or administration and (b) beneficial ownership of
such Property may be freely transferred without the payment of money or value
other than for safe custody or administration. Any Subcustodian may hold
Property in a securities depository and may utilize a clearing agency.
The Custodian shall furnish annually to the Client:
(i) information concerning the Subcustodians employed by the Custodian on
behalf of the Client, such information to be similar in kind and scope to that
furnished to the Client initially by the Custodian as of the date of this
Agreement and (ii) any other information the Custodian possesses relating to
the Subcustodian that the Client may reasonably request from time to time.
3. RECORDS. With respect to Property held by a Subcustodian:
(a) The Custodian may hold Property for all of its customers
with a Subcustodian in a single account identified as belonging to the
Custodian for the benefit of its customers:
(b) The Custodian shall identify on its books as belonging to
the Client any Property held by a Subcustodian for the Custodian's
account:
(c) The Custodian shall require that Property held by the
Subcustodian for the Custodian's account be identified on the
Subcustodian's books as separate from any other property held by the
Subcustodian other than property of the Custodian's customers held solely
for the benefit of customers of the Custodian; and
(d) In the event the Subcustodian holds Property in a
securities depository or clearing agency, such Subcustodian shall be
required by its agreement with the Custodian to identify on its books
such Property as being held for the account of the Custodian as custodian
for its customers or in such other manner as is required by local law or
market practice.
4. ACCESS TO RECORDS. The Custodian shall allow the Client's
accountants reasonable access to the Custodian's records relating to the
Property held by the Custodian as such accountants may reasonably require in
connection with their examination of the Client's affairs. The Custodian shall
also obtain from any Subcustodian (and shall require each Subcustodian to use
reasonable efforts to obtain from any securities depositary or clearing agency
in which it deposits Property) an undertaking, to the extent consistent with
local practice and the laws of the jurisdiction or jurisdictions to which such
Subcustodian, securities depositors, or clearing agency is subject, to permit
independent public accountants such reasonable access to the records of such
Subcustodian, securities depository or clearing agency as may be reasonably
required in connection with the examination of the Client's affairs or to take
such other action as the Custodian in its judgment may deem sufficient to ensure
such reasonable access.
5. REPORTS. The Custodian shall provide such reports and
other information to the Client and to such persons as the Client directs as the
Custodian and the Client may agree from time to time.
6. PAYMENT OF MONIES. The Custodian shall make, or cause any
Subcustodian to make, payment from monies being held in the Accounts only in
accordance with Authorized Instructions or as provided in Sections 9, 13 and 17.
2
<PAGE>
exchange transactions at such rates as are agreed from time to time between the
Client and the Custodian.
7. TRANSFER OF SECURITIES. The Custodian shall make, or cause
any Subcustodian to make, transfers, exchanges or deliveries of Securities only
in accordance with Authorized Instructions or as provided in Sections 9, 13 and
17.
8. CORPORATE ACTION. (a) The Custodian shall notify the Client
of details of all corporate actions affecting the Client's Securities promptly
upon its receipt of such information.
(b) The Custodian shall take, or cause any Subcustodian to
take, such corporate action only in accordance with Authorized Instructions or
as provided in this Section 8 or Section 9.
(c) In the event the Client does not provide timely Authorized
Instructions to the Custodian, the Custodian shall act in accordance with the
default option provided by local market practice and/or the issuer of the
Securities.
(d) Fractional shares resulting from corporate action activity
shall be treated in accordance with local market practices.
9. GENERAL AUTHORITY. In the absence of Authorized
Instructions to the contrary, the Custodian may, and may authorize any
Subcustodian to:
(a) make payments to itself or others for expenses of handling
Property or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to the
Client;
(b) receive and collect all income and principal with respect
to Securities and to credit cash receipts to the Accounts;
(c) exchange Securities when the exchange is purely ministerial
(including, without limitation, the exchange of interim receipts or
temporary securities for securities in definitive form and the exchange
of warrants, or other documents of entitlement to securities, for the
securities themselves);
(d) surrender Securities at maturity or when called for
redemption upon receiving payment therefor;
(e) execute in the Client's name such ownership and other
certificates as may be required to obtain the payment of income from
Securities;
3
<PAGE>
(f) pay or cause to be paid, from the Accounts, any and all
taxes and levies in the nature of taxes imposed on Property by any
governmental authority in connection with custody of and transactions in
such Property;
(g) endorse for collection, in the name of the Client, checks,
drafts and other negotiable instruments;
(h) take non-discretionary action on mandatory corporate
actions; and
(i) in general, attend to all nondiscretionary details in
connection with the custody, sale, purchase, transfer and other dealings
with the Property.
10. AUTHORIZED INSTRUCTIONS; AUTHORIZED PERSONS: (a) Except
as otherwise provided in Sections 6 through 9, 13 and 17, all payments of
monies, all transfers, exchanges or deliveries of Property and all responses to
corporate actions shall be made or taken only upon receipt by the Custodian of
Authorized Instructions; PROVIDED that such Authorized Instructions are timely
received by the Custodian. "AUTHORIZED INSTRUCTIONS" of the Client means
instructions from an Authorized Person received by telecopy, tested telex,
electronic link or other electronic means or by such other means as may be
agreed in writing between the Client and the Custodian.
(b) "AUTHORIZED PERSON" means each of the persons or entities
identified on Appendix 3 as amended form time to time by written notice from
the Client to the Custodian. The Client represents and warrants to the
Custodian that each Authorized Person listed in Appendix 3, as amended from
time to time, is authorized to issue Authorized Instructions on behalf of the
Client. Prior to the delivery of the Property to the Custodian, the
Custodian shall provide a list of designated system user ID numbers and
passwords that the Client shall be responsible for assigning to Authorized
Persons. The Custodian shall assume that an electronic transmission received
and identified by a system user ID number and password was sent by an
Authorized Person. The Custodian agrees to provide additional designated
system user ID numbers and passwords as needed by the Client. The Client
authorizes the Custodian to issue new system user ID numbers upon the request
of a previously existing Authorized Person. Upon the issuance of additional
system user ID numbers by the Custodian to the Client, Appendix 3 shall be
deemed automatically amended accordingly. The Client authorizes the
Custodian to receive, act and rely upon any Authorized Instructions received
by the Custodian which have been issued, or purport to have been issued, by
an Authorized Person.
(c) Any Authorized Person may cancel/correct or otherwise amend
any Authorized Instruction received by the Custodian, but the Client agrees to
indemnify the Custodian for any liability, loss or expense incurred by the
Custodian and its Subcustodians as a result of their having relied upon or acted
on any prior Authorized Instruction. An amendment or cancellation of an
Authorized Instruction to deliver or receive any security or funds in connection
with a trade will not be processed once the trade has settled.
11. REGISTRATION OF SECURITIES. (a) In the absence of
Authorized Instructions to the contrary, Securities which must be held in
registered form shall be registered in the name of
4
<PAGE>
the Custodian or the custodian's nominee or, in the case of Securities in the
custody of an entity other than the Custodian, in the name of the Custodian, its
Subcustodian or any such entity's nominee. The Custodian may, without notice to
the Client, cause any Securities to be registered or re-registered in the name
of the Client.
(b) Where the Custodian has been instructed by the Client to hold any
Securities in the name of any person or entity other than the Custodian, its
Subcustodian or any such entity's nominee, the Custodian shall not be
responsible for any failure to collect such dividends or other income or
participate in any such corporate action with respect to such Securities.
12. DEPOSIT ACCOUNTS. All cash received by the Custodian for the
Accounts shall be held by the Custodian as a short-term credit balance in favor
of the Client and, if the Custodian and the Client have agreed in writing in
advance that such credit balances shall bear interest, the Client shall earn
interest at the rates and times as agreed between the Custodian and the Client.
The Client acknowledges that any such credit balances shall not be accompanied
by the benefit of any governmental insurance.
13. SHORT-TERM CREDIT EXTENSIONS. (a) From time to time, the
Custodian may extend or arrange short-term credit for the Client which is (i)
necessary in connection with payment and clearance of securities and foreign
exchange transactions or (ii) pursuant to an agreed schedule, as and if set
forth in the Client Services Guide, of credits for dividends and interest
payments on Securities. All such extensions of credit shall be repayable by
the Client on demand.
(b) The Custodian shall be entitled to charge the Client interest for
any such credit extension at rates to be agreed upon from time to time or, if
such credit is arranged by the Custodian with a third party on behalf of the
Client, the Client shall reimburse the Custodian for any interest charge. In
addition to any other remedies available, the Custodian shall be entitled to a
right of set-off against the Property to satisfy the repayment of such credit
extensions and the payment of, or reimbursement for, accrued interest thereon.
14. REPRESENTATIONS AND WARRANTIES. (a) The Client represents and
warrants that (i) the execution, delivery and performance of this Agreement
(including, without limitation, the ability to obtain the short-term extensions
of credit in accordance with Section 13) are within the Client's power and
authority and have been duly authorized by all requisite action (corporate or
otherwise) of the Client and of the beneficial owner of the Property, if other
than the Client. and (ii) this Agreement (including, without each extension of
short-term credit extended to or arranged for the benefit of the Client in
accordance with Section 13) shall at all times constitute a legal, valid and
binding obligation of the Client enforceable against the Client in accordance
with its terms, except as may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights in general and
subject to the effect of general principles of equity (regardless of whether
considered in a proceeding in equity or at law).
(b) The Custodian represents and warrants that (i) the execution,
delivery and performance of this Agreement are within the Custodian's power and
authority and have been
5
<PAGE>
duly authorized by all requisite action (corporate or otherwise) of the
Custodian and (ii) this Agreement constitutes the legal, valid and binding
obligation of the Custodian enforceable against the Custodian in accordance with
its terms, except as may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights in general and subject to
the effect of general principles of equity (regardless of whether considered in
a proceeding in equity or at law).
15. STANDARD OF CARE; INDEMNIFICATION. (a) The Custodian shall be
responsible for the performance of only such duties as are set forth in this
Agreement or contained in Authorized Instructions given to the Custodian which
are not contrary to the provisions of any relevant law or regulation. The
Custodian shall be liable to the Client for any loss, liability or expense
incurred by the Client in connection with this Agreement to the extent that any
such loss, liability or expense results from the negligence or willful
misconduct of the Custodian or any Subcustodian; PROVIDED, HOWEVER that neither
the Custodian nor any Subcustodian shall be liable to the Client for any
indirect, special or consequential damages.
(b) The Client acknowledges that the Property may be physically held
outside the United States. The Custodian shall not be liable for any loss,
liability or expense resulting from events beyond the reasonable control of the
Custodian, including, but not limited to, FORCE MAJEURE.
(c) In addition, the Client shall indemnify the Custodian and
Subcustodians and any nominee for, and hold each of them harmless from, any
liability, loss or expense (including attorneys' fees and disbursements)
incurred in connection with this Agreement, including without limitation, (i) as
a result of the Custodian having acted or relied upon any Authorized
Instructions or (ii) arising out of any such person acting as a nominee or
holder of record of Securities.
16. FEES; LIENS. The Client shall pay to the Custodian from time to
time such compensation for its services pursuant to this Agreement as may be
mutually agreed upon as well as the Custodian's out-of-pocket and incidental
expenses. The Client shall hold the Custodian harmless from any liability or
loss resulting from any taxes or other governmental charges, and any expenses
related thereto, which may be imposed or assessed with respect to the Accounts
or any Property held therein. The Custodian is, and any Subcustodians are,
authorized to charge the Accounts for such items and the Custodian shall have a
lien, charge and security interest on any and all Property for any amount owing
to the Custodian from time to time under this Agreement.
17. TERMINATION. This Agreement may be terminated by the Client or
the Custodian by 60 days written notice to the other, sent by registered mail.
If notice of termination is given, the Client shall, within 30 days following
the giving of such notice, deliver to the Custodian a statement in writing
specifying the successor custodian or other person to whom the Custodian shall
transfer the Property. In either event, the Custodian, subject to the
satisfaction of any lien it may have, shall transfer the Property to the person
so specified. If the Custodian does not receive such statement the Custodian,
at its election, may transfer the Property to a bank or trust company
established under the laws of the United States or any state thereof to be held
and
6
<PAGE>
disposed of pursuant to the provisions of this Agreement or may continue to
hold the Property until such a statement is delivered to the Custodian. In
such event the Custodian shall be entitled to fair compensation for its
services during such period as the Custodian remains in possession of any
Property and the provisions of this Agreement relating to the duties and
obligations of the Custodian shall remain in full force and effect; provided,
however, that the Custodian shall have no obligation to settle any
transactions in Securities for the Accounts. The provisions of Sections 15
and 16 shall survive termination of this Agreement.
18. INVESTMENT ADVICE. The Custodian shall not supervise, recommend
or advise the Client relative to the investment, purchase, sale, retention or
other disposition of any Property held under this Agreement.
19. CONFIDENTIALITY. (a) The Custodian, its agents and employees
shall maintain the confidentiality of information concerning the Property
held in the Client's account, including in dealings with affiliates of the
Custodian. In the event the Custodian or any Subcustodian is requested or
required to disclose any confidential information concerning the Property,
the Custodian shall, to the extent practicable and legally permissible,
promptly notify the Client of such request or requirement so that the Client
may seek a protective order or waive any objection to the Custodian's or such
Subcustodian's compliance with this Section 19. In the absence of such a
waiver, if the Custodian or such Subcustodian is compelled, in the opinion of
its counsel, to disclose any confidential information, the Custodian or such
Subcustodian may disclose such information to such persons as, in the opinion
of counsel, is so required.
(b) The Client shall maintain the confidentiality of, and not
provide to any third parties absent the written permission of the Custodian, any
computer software, hardware or communications facilities made available to the
Client or its agents by the Custodian.
20. NOTICES. Any notice or other communication from the Client to
the Custodian, unless otherwise provided by this Agreement or the Client
Services Guide, shall be sent by certified or registered mail to Morgan Stanley
Trust Company, One Pierrepont Plaza, Brooklyn, New York, 11201, Attention:
President, and any notice from the Custodian to the Client is to be mailed
postage prepaid, addressed to the Client at the address appearing below, or as
it may hereafter be changed on the Custodian's records in accordance with
written notice from the Client.
21. ASSIGNMENT. This contract may not be assigned by either party
without the prior written approval of the other.
22. MISCELLANEOUS. (a) This Agreement shall bind the successors and
assigns of the Client and the Custodian.
(b) This Agreement shall be governed by and construed in accordance
with the Internal Laws of the State of New York without regard to its conflicts
of law rules and to the extent not preempted by federal law. The Custodian and
the Client hereby irrevocably submit to the exclusive jurisdiction of any New
York State court or any United States District Court
7
<PAGE>
located in the State of New York in any action or proceeding arising out of this
Agreement and hereby irrevocably waive any objection to the venue of any such
action or proceeding brought in any such court or any defense of an inconvenient
forum.
In witness whereof, the parties hereto have set their hands as of the
date first above written.
COLUMBIA SMALL CAP FUND, INC.
By /s/ George L. Hanseth
---------------------------------
Name: George L. Hanseth
Title: Senior Vice President
Address for record: 1301 S.W. Fifth Avenue
Portland, Oregon 97207
Accepted:
MORGAN STANLEY TRUST COMPANY
By
-----------------------
Authorized Signature
8
<PAGE>
APPENDIX 1
Account Documentation
REQUIRED DOCUMENTATION FOR CORE CUSTODIAL SERVICES (INCLUDING TAX RECLAIMS):
CUSTODY AGREEMENT
CLIENT SERVICES GUIDE (INCLUDING APPENDICES)
FEE SCHEDULE / BILLING GUIDE
GENERAL ACCOUNT INFORMATION
US TAX AUTHORITY DOCUMENTATION
LOCAL TAX OFFICE LETTER / APPLICATION LETTER
(NON-UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
FORM 6166 / REQUEST FOR FOREIGN CERTIFICATION FORM
(UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
CERTIFICATION OF BENEFICIAL OWNERSHIP, LEGAL NAME, LEGAL
RESIDENCY, TAX STATUS AND TAX IDS
TAX RECLAIM POWER OF ATTORNEY
PREVIOUS TAX RECLAIM FILING INFORMATION
(PREVIOUS FILERS, ONLY)
UK TAX AUTHORITY DOCUMENTATION
SOPHISTICATED INVESTOR (ACCREDITED INVESTOR) LETTER
(UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
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DOCUMENTATION THAT IS REQUIRED FROM AN ENTITY CLASSIFIED AS TAX-EXEMPT BY ITS
LOCAL TAX AUTHORITY:
UK FORM 4338
(EXEMPT NON-UNITED KINGDOM-RESIDENT BENEFICIAL OWNERS, ONLY)
UK FORM 309A
(EXEMPT UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
FOREIGN EXEMPTION LETTERS / APPLICATION FOR AUSTRALIAN EXEMPTION LETTER
(EXEMPT BENEFICIAL OWNERS, ONLY)
DOCUMENTATION THAT IS REQUIRED ONLY IF YOU WILL USE THE PROXY VOTING SERVICE:
VOTING POWER OF ATTORNEY
DOCUMENTATION THAT IS REQUIRED ONLY IF YOU WILL DEAL IN CERTAIN SECURITIES:
JGB INDEMNIFICATION LETTER
KOREAN SECURITIES POWER OF ATTORNEY
NEW ZEALAND 'APPROVED ISSUER LEVY' LETTER
SPANISH POWER OF ATTORNEY WITH APOSTILE
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APPENDIX 2
Client Accounts
Account Name Account Number Account Mnemonic
- ------------ -------------- ----------------
1. Columbia Small Cap 42578 COSC
2.
3.
4.
5.
6.
7.
8.
9.
10.
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APPENDIX 3
Part I - Authorized Signatures
The Custodian is directed to accept and act upon Authorized Instructions
received from any of the following persons or entities:
Telephone/ Authorized
Name Organization Title Fax Signature
- ------ ------------ ----- --------- ---------
Authorized by:
--------------------------
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Part II - System User ID numbers
The Custodian is directed to accept and act upon Authorized Instructions
transmitted electronically and identified with the following mnemonics and
system user ID numbers for the following activities:
Work Station Account Workstation Sessions
User ID. Mnemonic Number TE TCC SL FE CM MA TD
- -------- -------- ------ -- --- -- -- -- -- --
COSC 42578 X X X X X
EXCC 403
EXCC 624
EXCC 729
WORKSTATION SESSION CODES
TE Trade Entry
TCC Trade Cancel/Correct
SL Securities Lending
FE Foreign Exchange
CM Cash Movement
MA Mass Authorization
TD Time Deposit
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EXHIBIT A
Subcustodians
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STOEL RIVES LLP
Attorneys
Standard Insurance Center
900 SW Fifth Avenue, Suite 2300
Portland, Oregon 97204-1268
Phone (503) 224-3380 Fax (503) 220-2480
TDD (503) 221-1045
Internet: www.stoel.com
September 12, 1996
Board of Directors
Columbia Small Cap Fund, Inc.
1301 SW Fifth Avenue
PO Box 1350
Portland, OR 97207-1350
We have acted as counsel to Columbia Funds Management company (the "Advisor"),
the investment adviser to Columbia Small Cap Fund, Inc. (the "Fund"), in
connection with the preparation and filing of the Fund's Registration Statement
on Form N-1A (the "Registration Statement") under the Securities Act of 1933,
as amended, covering an indefinite number of shares of Common Stock of the Fund
(the "Shares") pursuant to Rule 24f-2. We have reviewed the corporate action of
the Fund in connection with this matter and have examined those documents,
corporate records and other instruments we deemed necessary for purposes of this
opinion.
Based upon the foregoing, it is our opinion that:
1. The fund has been duly organized and is validly existing as a corporation
under the laws of the State of Oregon;
2. 100,000 Shares of the Fund have been duly authorized; and
3. Shares of the Fund, when issued and sold in the manner described in the
Prospectus included in the Registration Statement and in accordance with
resolutions adopted by the Board of Directors of the Fund, and when payment
therefor shall have been received by the Fund, will be legally issued, fully
paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
STOEL RIVES LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Pre-Effective Amendment No. 2 to the Registration
Statement No. 333-5863/811-7671 on Form N-1A of Columbia Small Cap Fund, Inc. of
our report dated September 12, 1996, on our audit of the statement of assets and
liabilities of Columbia Small Cap Fund, Inc. which is included in the Statement
of Additional Information. We also consent to the reference to our Firm under
the caption "Accounting Services" in the Statement of Additional Information in
this Pre-Effective Amendment.
COOPERS & LYBRAND
Portland, Oregon
September 12, 1996
