COLUMBIA SPECIAL FUND INC, 497, 1998-03-03

COLUMBIA SPECIAL FUND INC
497, 1998-03-03

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<PAGE>

RULE 497(E)
REG. NOS. 02-99207/811-4362

[LOGO]

COLUMBIA FUNDS
PROSPECTUS AND 1997 ANNUAL REPORT
February 23, 1998

COLUMBIA SPECIAL FUND
<PAGE>
COLUMBIA
SPECIAL FUND, INC.
-------------------------------
PROSPECTUS -- FEBRUARY 23, 1998
----------------------------------------------

This Prospectus contains information relating to Columbia Special Fund, Inc.
(the "Fund"), a mutual fund managed by Columbia Funds Management Company (the
"Advisor"). The Fund seeks significant capital appreciation by investing in
securities, primarily common stocks the Advisor considers more volatile and
carry a greater degree of risk than the market as a whole (as measured by the
Standard & Poor's 500 Index). Because the Fund is no-load, you pay no sales
charges to invest in it.

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 February 23, 1998 has been filed with the
Securities and Exchange Commission and is available along with other related
materials on the SEC's Internet Web site (www.sec.gov). For a printed copy of
the Statement of Additional Information, please call the Fund at 1-800-547-1707.
The Statement of Additional Information is legally a part of (incorporated by
reference into) this Prospectus.

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.

SHARES OF THE FUND ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, THE ADVISOR,
OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY, GUARANTEED
BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENTAL AGENCY. INVESTMENT IN THE FUND INVOLVES INVESTMENT RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.

LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION ("SEC"), NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

TABLE OF CONTENTS
-------------------------

FUND EXPENSES..................................................................1

FINANCIAL HIGHLIGHTS...........................................................1

FUND DESCRIPTION...............................................................2

RISK FACTORS...................................................................4

PERFORMANCE....................................................................6

FUND MANAGEMENT................................................................7

Board of Directors...........................................................7

Investment Advisor...........................................................7

Investment Team..............................................................8

Personal Trading.............................................................8

Other Service Providers......................................................8

Other Information............................................................9

INVESTOR SERVICES.............................................................10

How to Open a New Account...................................................10

How to Purchase Shares......................................................10

Paying for Your Shares......................................................11

How to Redeem (Sell) Shares.................................................11

Payment of Redemption Proceeds..............................................13

How to Exchange Shares......................................................13

Processing Your Order.......................................................13

Determining Your Share Price................................................13

Investor Inquiries..........................................................14

Account Privileges..........................................................14

IRAs and Retirement Plans...................................................16

Private Management Accounts.................................................16

DISTRIBUTIONS AND TAXES.......................................................17

ADDITIONAL INFORMATION........................................................18

1997 ANNUAL REPORT............................................................21
FOR FURTHER INFORMATION OR ASSISTANCE IN
OPENING AN ACCOUNT, PLEASE CALL:
222-3606 IN PORTLAND OR
1-800-547-1707 NATIONWIDE.
YOU MAY ALSO VISIT THE FUND'S WEB SITE AT WWW.COLUMBIAFUNDS.COM.
<PAGE>
FUND EXPENSES
-----------------------------------------------------------------

The following information is provided to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. "Annual Fund Operating Expenses" are the expenses incurred by the
Fund for 1997. Expenses paid by the Fund include management fees as well as
audit, transfer agent, custodian and legal fees and other business operating
expenses. For more information about Fund expenses, see "Fund Description -- No
Sales Load or 12b-1 Fees" and "Fund Management."

-- SHAREHOLDER TRANSACTION COSTS --

<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....................... 0.84%
12B-1 FEES............................ NONE
OTHER OPERATING EXPENSES.............. 0.14%
TOTAL FUND OPERATING EXPENSES....... 0.98%
</TABLE>

<TABLE>
<S> <C> <C> <C>
Based on the expense ratio above, you
would pay the following expenses on a
$1,000 investment (assuming a 5% annual
return and redemption at the end of each
time period).
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------- --------- --------- ---------
$10 $31 $54 $120
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>

FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------
The table below provides information for a share of the Fund outstanding
throughout the periods presented and has been audited by Coopers & Lybrand
L.L.P., independent accountants, as stated in their report on page 34 of this
Prospectus and Annual Report. Additional information about the performance of
the Fund for 1997, including a discussion by the investment advisor to the Fund,
is contained on page 23.

- ---- ----

-- COLUMBIA SPECIAL FUND, INC. (1) --
-------------------------------------

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 19.85 $ 21.44 $ 18.69 $ 19.51 $ 18.79 $ 17.45 $ 12.12 $13.85 $11.32 $9.26
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss)................ .01 (.06) .03 .08 .01 (.03) (.01) .01 .07 .03
Net realized and
unrealized gains
(losses) on
investments........... 2.50 2.85 5.45 .36 4.04 2.41 6.11 (1.72) 3.52 3.90
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations.......... 2.51 2.79 5.48 .44 4.05 2.38 6.10 (1.71) 3.59 3.93
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends (from net
investment income).... (.02) (.07) (.02) (.01)
Dividends (in excess of
net investment
income)............... (.01)
Distributions (from
capital gains)........ (2.10) (4.38) (2.68) (1.16) (3.32) (1.04) (.77) (1.05) (1.87)
Distributions (in
excess of capital
gains)................ (.03) (.03)
- -----------------------------------------------------------------------------------------------------------------------------------
Total
distributions....... (2.10) (4.38) (2.73) (1.26) (3.33) (1.04) (.77) (.02) (1.06) (1.87)
NET ASSET VALUE, END OF
PERIOD $ 20.26 $ 19.85 $ 21.44 $ 18.69 $ 19.51 $ 18.79 $ 17.45 $12.12 $13.85 $11.32
TOTAL RETURN............. 12.64% 13.07% 29.53% 2.29% 21.68% 13.70% 50.46% -12.39% 31.92% 42.55%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands).......... $1,249,718 $1,585,284 $1,384,415 $889,526 $772,741 $470,663 $264,358 $121,592 $95,939 $30,471
Ratio of expenses to
average net assets...... 0.98% 0.94% 0.98% 1.05% 1.12% 1.19% 1.22% 1.32% 1.35% 1.38%
Ratio of net investment
income (loss) to average
net assets.............. 0.04% (0.29)% 0.16% 0.40% 0.01% (0.25)% (0.16)% 0.05% 0.18% 0.06%
Portfolio turnover
rate.................... 166.46% 150.07% 182.99% 178.91% 154.68% 116.75% 114.53% 147.04% 124.29% 244.36%
Average commission rate
paid on portfolio
transactions (2)........ $0.0585 $0.0553
</TABLE>

(1) As of December 31, 1991, historical per share data has been restated to
reflect a 3 for 1 stock split to shareholders of record on January 31,
1992.
(2) The average commission rate paid by the Fund is computed by dividing the
dollar amount of commissions paid during the period by the total number of
shares purchased and sold during the period for which commissions were
charged.

- --------------------------------------------------------------------------------

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1
<PAGE>
FUND DESCRIPTION
-----------------------------------------------------------------

The Fund is an open-end, diversified management investment company (that is, a
"mutual fund") and 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.
-- A TEAM APPROACH TO INVESTING --

The Fund is managed by the Advisor using a team approach (please see "Fund
Management"). Stocks are selected using a "top down, sector rotation" emphasis
supplemented by a bottoms up, company analysis. The top down analysis begins
with an overall evaluation of the investment environment before focusing on
individual security selection. As part of this review, the investment team
considers such broad indicators as:

- - economic growth, because industries and asset classes behave differently at
various stages of a business cycle

- - inflation, which is a major factor in determining the price investors are
willing to pay for a given level of earnings (price/earnings ratio)

- - interest rates, which provide information about the cost of money and the
attractiveness of different asset classes

- - Federal Reserve policy, which controls the availability of money to help
regulate the economy

- - corporate profits, which indicate the overall health and prosperity of
companies whose stock is publicly traded

- - demographics, which refer to the characteristics and dynamics of the
population

- - money flows, which refer to the current and expected level of equity
investments by major classes of investors

To ensure depth and breadth of analysis, each Columbia investment team member
has responsibility for analyzing and researching specific market sectors or
industries and bringing their findings to team meetings for review and
discussion. Once individual sectors are identified for emphasis, securities
within the targeted sectors are recommended based on fundamental and technical
analysis.
"S ECTOR ROTATION" REFERS TO THE DYNAMIC PROCESS OF
EMPHASIZING OR DE-EMPHASIZING INVESTMENT IN INDUSTRY GROUPS OR ASSET
CLASSES BASED ON THEIR RELATIVE ATTRACTIVENESS.

Fundamental analysis employed for security selection is based on a thorough
review of individual companies, including such factors as:

- - financial condition

- - quality of management

- - industry dynamics

- - 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 in research and development

Top down, sector rotation emphasis is intended to give the investment team a
better understanding of the long-term prospects of a particular security, based
on the characteristics of the existing economy and investor temperament. In this
way, Columbia's investment team is better able to anticipate and act upon market
change, understand its effect on the risk and rewards of fund securities, and
thereby generate consistent, competitive results over the long term.

-
2
<PAGE>
FUND DESCRIPTION
-----------------------------------------------------------------

While top down, sector rotation is an important element of the Advisor's
investment process, identifying individual companies with growth potential using
fundamental analysis is also important to the process, especially when the Fund
is researching investment in small to mid-size companies.

Although the Fund will generally emphasize investments for long-term capital
appreciation, the Fund may invest for short-term capital appreciation when
management believes it 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.

-- COLUMBIA SPECIAL FUND --
-------------------------------

The Fund was incorporated on July 18, 1985 under Oregon law and began offering
shares to the public on November 20, 1985.

-- INVESTMENT OBJECTIVE --

The investment objective of the Fund is to achieve capital appreciation for
shareholders by investing in securities the Advisor believes are considered more
volatile than the market as a whole (as measured by the S&P 500 Stock Index) and
therefore carry more risk than the market as a whole. This objective may be
changed by the Board of Directors without shareholder approval upon 30 days
written notice. In the unlikely event the Fund changes its investment objective,
shareholders should consider whether the Fund remains an appropriate investment.

The Fund intends to invest primarily in small to mid-size companies (for
example, companies with capitalizations that are less than the average for the
companies included in the S&P 500 Stock Index). However, the Fund may invest in
larger companies when the Advisor believes they offer comparable capital
appreciation opportunities or to stabilize the Fund's portfolio. Management
reserves the right to determine the percentage of the Fund's assets that will be
invested in smaller companies.

The Fund may also invest in special situations such as new issues; companies
that may benefit from technological or product developments or new management;
and companies involved in tender offers, leveraged buy-outs, or mergers. Up to
one-third of the Fund's assets may be invested in foreign securities.

The Fund may also invest in securities convertible into or exercisable for
common stock (including preferred stock, warrants, and debentures), restricted
securities, repurchase agreements, and certain options and financial futures
contracts.

-- INVESTMENT RESTRICTIONS --

Investments in unseasoned companies and special situations may involve greater
risks than more traditional equity investments because the securities may be
more likely to experience unexpected fluctuations in price. For this reason, the
Fund should only be used as part of a balanced investment portfolio. The Fund is
designed for that portion of an investor's funds that can be appropriately
invested in securities with greater risk but also greater potential for
appreciation.

For information about the risks of investing in the Fund, including portfolio
turnover and the risks of investing in smaller companies and foreign securities,
please see "Risk Factors." For information on the investment by the Fund in
repurchase agreements, illiquid securities, when-issued securities, options, and
temporary investments, please see "Additional Information." A description of
other investment restrictions and certain investment practices of the Fund is
included in the Statement of Additional Information.

-
3
<PAGE>
RISK FACTORS
-----------------------------------------------------------------

An investment in any mutual fund, including the Fund, involves certain risks,
some of which are explained under "Fund Description." 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.

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."
A LTHOUGH 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.

PORTFOLIO TURNOVER. Because the Fund focuses on the performance of its
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 higher portfolio
turnover rate and increase the Fund's transaction costs, including brokerage
commissions. To the extent short-term trades result in gains on securities held
eighteen months or less, shareholders will be subject to taxes at ordinary
income rates or at the higher of the two capital gains rates. See "Distributions
and Taxes." Historical portfolio turnover rates for the Fund are shown in the
"Financial Highlights" section.

FOREIGN SECURITIES. Foreign securities, which are generally denominated in
foreign currencies, and forward currency exchange contracts 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 fluctuations in price than
domestic securities. There may be less publicly available information about a
foreign company than about a domestic company. Foreign companies generally are
not subject to uniform accounting, auditing, and financial reporting standards
comparable to those of domestic companies.

There is generally less government regulation of stock exchanges, brokers, and
listed companies abroad than in the United States. In addition, with respect to
certain foreign countries, there is a possibility of the adoption of a policy to
withhold dividends at the source, or of expropriation, nationalization,
confiscatory taxation, or diplomatic developments that could affect investments
in those countries. Finally, in the event of default on a foreign debt
obligation, it may be more difficult for the Fund to obtain or enforce a
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 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.

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4
<PAGE>
RISK FACTORS
-----------------------------------------------------------------

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.

SPECIAL SITUATIONS. Special situations are those in which the Advisor expects a
substantial change in the market value of a company's securities due to a new
development. An example would be a small company expected to emerge as a leader
in a new business area. Other special situations include acquisitions, mergers,
reorganizations, management changes, product developments, and the awarding of
large contracts. Because these types of situations may involve major corporate
changes and a high degree of uncertainty as to market effects, investments in
special situations are characterized by higher risk as well as the potential for
higher returns.

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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." For
additional information on total return calculations for the Fund, see the
Statement of Additional Information.

-- 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.

The average annual returns for the Fund for the following periods ended December
31, 1997 were: 12.64% for one year, 15.48% for five years, 19.19% for 10 years
and 18.38% since inception of the Fund on November 20, 1985.

-- 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 S&P 500 Stock Index, the Russell
2000 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.
P ERFORMANCE INFORMATION ON THE FUND DOES NOT
GUARANTEE FUTURE RESULTS. SHARE PRICE AND RETURNS WILL FLUCTUATE, AND YOU MAY
HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES.

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6
<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 of Directors of the Fund 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, subject to general
oversight responsibility of the Fund's Board of Directors, is responsible for
the overall management of the Fund's business affairs. The Advisor or its
predecessor has acted in this capacity since 1967, and also provides investment
management services to each of the following Columbia Funds: Columbia Common
Stock Fund, Columbia International Stock Fund, Columbia Growth Fund, Columbia
Small Cap 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. The Advisor is an indirect wholly owned subsidiary of
Fleet Financial Group, Inc. ("Fleet"), a publicly owned multibank holding
company registered under the Bank Holding Company Act of 1956 with total assets
of approximately $85 billion at December 31, 1997. 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).

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 up to $500,000,000 and 0.75 of 1% of daily net assets in excess of
$500,000,000. 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. For the year ended December
31, 1997, the investment advisory fee incurred by the Fund, expressed as a
percentage of average net assets, was 0.84%.

The Advisor has entered into an agreement with Columbia Management Co. ("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. 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. CMC is an indirect wholly owned
subsidiary of Fleet.

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.

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7
<PAGE>
FUND MANAGEMENT
-----------------------------------------------------------------

Information on the Fund's expenses, as a percentage of its average net assets,
is located under "Fund Expenses" and "Financial Highlights."

The Advisor may use its broker-dealer affiliates and other firms that sell the
Fund's shares to carry out the Fund's brokerage transactions, provided that the
Fund receives brokerage services and commission rates comparable to other
broker-dealers.

Third-party administrators of tax-qualified retirement plans and other financial
institutions ("Financial Intermediaries") may establish omnibus accounts with
the Fund and provide sub-transfer agency, recordkeeping, or other services to
participants and beneficial owners in the omnibus accounts. In recognition that
these arrangements reduce or eliminate the need for the Fund's transfer agent to
provide such services, the Fund and the Advisor may pay the Financial
Intermediary a sub-transfer agent or recordkeeping fee. All Financial
Intermediaries enter into an agreement with the Fund that authorizes them to
accept purchase and redemption orders on behalf of the Fund. The Fund will be
deemed to have received a purchase or redemption order when an authorized
Financial Intermediary or its delegate accepts the order. The order will be
priced at the Fund's net asset value next computed after it is accepted by the
Financial Intermediary or its delegate.

-- COLUMBIA INVESTMENT TEAM --

The Advisor uses an investment team approach to analyze investment themes and
strategies for the Fund. Thomas L. Thomsen, President, Chief Investment Officer
and Director of the Advisor, supervises the Investment Team in establishing
these broad investment strategies and determining portfolio guidelines for the
Fund. Prior to joining the Investment Team in 1978, Mr. Thomsen was a Senior
Investment Officer for the Treasury Department of the State of Oregon
(1974-1978) and a Fixed Income Portfolio Manager for First National Bank of
Oregon (1969-1973).

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. See "Fund
Description -- A Team Approach to Investing."

Investment decisions for the Fund are then made by the Investment Team and Alan
J. Folkman, the portfolio manager who has been responsible for investment
decisions on behalf of the Fund since 1997. Mr. Folkman, a Senior Vice
President, joined the Advisor in 1975 and has over 30 years of investment
management experience.

-- PERSONAL TRADING --

Members of the Investment Team and other personnel of the Fund or the Advisor
are permitted to trade securities for their own or family accounts, subject to
the rules of the Code of Ethics adopted by the Fund and the Advisor.
T HE RULES THAT GOVERN PERSONAL TRADING BY
INVESTMENT PERSONNEL ARE BASED ON THE PRINCIPLE 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, see 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 transfer agent is an indirect wholly owned
subsidiary of Fleet.

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DISTRIBUTOR. Provident Distributors, Inc. ("PDI") is the principal underwriter
of the Fund's shares. PDI's address is Four Falls Corporate Center, 6th Floor,
West Conshohocken, PA 19428-2961. Columbia Financial Center Incorporated
("Columbia Financial"), an indirect wholly owned subsidiary of Fleet, has
entered into a Broker-Dealer Agreement with PDI to sell shares of the Fund. You
may invest money or redeem shares in the Fund through Columbia Financial. Its
address is 1301 S.W. Fifth Avenue, P.O. Box 1350, Portland, Oregon 97207-1350.
PDI and Columbia Financial do not charge any fees or commissions to investors or
the Fund for the sale of shares of the Fund.

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 extent the Fund holds foreign securities.

-- 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 of the Fund will be assisted in communications with other
shareholders of the Fund.

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This section is designed to provide you with information about opening an
account and conducting transactions directly with the Fund. In addition,
information is provided on the different types of accounts and services offered
by the Fund as well as the policies relating to those services.

If you are investing in the Fund through your employer's retirement plan, your
plan administrator or employee benefits office can provide you with information
about how to invest in the Fund.

-- 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
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 (normally 4 p.m., New York time) 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 that the New York Stock Exchange (NYSE) is open for business.

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
P.O. Box 1350
Portland, Oregon 97207-1350
Attn.: Investments

BY WIRE: You may have your bank wire federal funds. 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 request a Televest form. 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 INITIAL INVESTMENT REQUIREMENT OF $2,000. THIS MINIMUM
IS WAIVED FOR ACCOUNTS USING THE AUTOMATIC INVESTMENT PLAN. SUBSEQUENT
INVESTMENTS (OTHER THAN THROUGH THE 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), FOR INDIVIDUAL RETIREMENT PLANS OR
IN OTHER CIRCUMSTANCES.

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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 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 or a separate AIP
form 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 Shares."

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 assisting in 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 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, however, 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 that the NYSE is open for business. All redemptions of shares of the Fund
will be at the share price (NAV) computed after receipt of a valid redemption
request. 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 and properly endorsed before a redemption of these shares 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:

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IN WRITING: You may redeem shares of the Fund by providing a written
instruction to the Fund at the address shown below. A signature guarantee may be
required. Please see "Signature Requirements."

Columbia Financial Center
P.O. Box 1350
Portland, Oregon 97207-1350
Attn.: Redemptions

SIGNATURE REQUIREMENTS: Redemption requests must be signed by each shareholder
required to sign on the account. Accounts in the names of corporations,
fiduciaries, and institutions may require additional documentation. Please
contact the Fund if your account falls into one of these categories.

To protect you and the Fund against fraud, a SIGNATURE GUARANTEE is also
required in any of the following situations:

- - The redemption request exceeds $50,000

- - You request a check made payable to anyone other than the shareholder(s) of
record or other predesignated party

- - You request that proceeds be sent to an address other than the address of
record or an account other than a previously designated bank account

- - You would like the check mailed to an address that has changed in the last 10
days

- - You wish to transfer or change ownership of the account

The Fund reserves the right to require a signature guarantee in other
circumstances or to reject an order for certain legal reasons. You may obtain a
signature guarantee from an eligible guarantor institution such as a bank,
broker-dealer, credit union, savings and loan association, national securities
exchange or trust company. A notary public cannot provide a signature guarantee.

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 with an identical account number. 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:

- - Income earned; you may elect to receive any dividends or capital gains
distributions on your shares, provided such dividends and distributions exceed
$25

- - Fixed amount; you may elect to receive a monthly or quarterly fixed amount of
$50 or more

Automatic withdrawals will be made within seven days after the end of the month
or quarter to which they 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

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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. Proceeds transmitted over the Automated Clearing House (ACH) system
are usually credited to a shareholder's account on the second business day
following the redemption request. 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 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 other Columbia Funds 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 or Funds
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 a 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

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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, may be
the last sale price, or in the absence of any recorded sales, the closing bid
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 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
Portland, Oregon 97201
www.columbiafunds.com

-- 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

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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.

INVOLUNTARY REDEMPTIONS. Upon 60 days prior written notice, the Fund may redeem
all of your shares without your consent if:

- - Your account balance falls below $500. 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 required minimum, or (ii) establish an Automatic
Investment Plan with a minimum monthly investment of $50.

- - You are a U.S. shareholder and fail to provide the Fund with a certified
taxpayer identification number.

- - You are a foreign shareholder and fail to provide the Fund with a current Form
W-8, "Certificate of Foreign Status."

The Fund also reserves the right to close a shareholder's account if the
shareholder's actions are deemed to be detrimental to the Fund or its
shareholders. 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
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 eliminate duplicate enclosures
for statements mailed 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.

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-- IRAS AND RETIREMENT PLANS --

Investors may invest in the Fund through Columbia's Traditional, Roth,
Education, SIMPLE, or SEP IRA programs, or Columbia's 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% on the first $500,000

- - .50% on the next $500,000

- - .25% on assets over $1 million

The minimum fee for this service is $1,000 and the maximum fee is $15,000. These
fees are in addition to investment advisory fees paid by the Fund and other
Columbia Funds to the Advisor. For additional information, please call Columbia
Trust Company at 503-222-3600.

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-- 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 in additional shares at a price equal to the NAV at
the close of business on the reinvestment date. You may elect at any time, by
notifying the Fund, to receive your distributions in cash or to reinvest them in
another Columbia Fund. If you elect to receive dividends and/or capital gains
distributions in cash and such dividend or capital gains distribution is
returned to the Fund as undeliverable to your address of record, your
distribution option shall be converted to having all dividends and capital gains
distributions reinvested in additional shares. No interest will accrue on any
dividend or capital gains distribution returned to the Fund as undeliverable.

-- 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 provides 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 at the
applicable long-term capital gains rate, 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.

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-- REPURCHASE AGREEMENTS --

The Fund may use repurchase agreements to invest cash, generally on a short-term
basis. Repurchase agreements involve the purchase of a security by the Fund and
a simultaneous agreement by the seller (generally a bank or dealer) to
repurchase the security from the Fund at a specified date or upon demand. These
securities involve the risk that the seller will fail to repurchase the
security, as agreed. In that case, the Fund will bear the risk of market value
fluctuations until the security can be sold and may encounter delays and incur
costs in liquidating the security. 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 purchase, more than 10% 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

- - any other securities in which a Fund may invest that are not readily
marketable

-- 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 on securities or securities indices
that are covered. A call option on a security is covered if written on a
security the Fund owns or if the Fund has an absolute and immediate right to
acquire that security without additional cash consideration upon conversion or
exchange of other securities held by the Fund. If additional cash consideration
is required, that amount will be held in a segregated account by the Fund's
custodian bank. A call option on a securities index is covered if the Fund owns
securities whose price changes, in the opinion of the Advisor, are expected to
be substantially similar to those of the index. Call options may also be covered
in any other manner in accordance with the rules of the exchange upon which the
option is traded and applicable laws and regulations. The Fund may write such
options on up to 25% of its net 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

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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 its securities 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.

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 advisor

- - 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

-- 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.

-
19
<PAGE>
ADDITIONAL INFORMATION
-----------------------------------------------------------------

-- WHEN-ISSUED SECURITIES --

When-issued, delayed delivery and forward transactions generally involve the
purchase of a security with payment and delivery at some time in the future
(i.e., beyond normal settlement). The Fund does not earn interest on such
securities until settlement and bears the risk of market value fluctuations in
between the purchase and settlement dates. New issues of stocks and bonds,
private placements and U.S. government securities may be sold in this manner. To
the extent the Fund engages in when-issued and delayed-delivery transactions, it
will do so to acquire portfolio securities consistent with its investment
objectives and policies and not for investment leverage. The Fund may use spot
and forward foreign currency exchange transactions to reduce the risk associated
with fluctuations in exchange rates when securities are purchased or sold on a
when-issued or delayed-delivery basis.

-
20
<PAGE>
1997 ANNUAL REPORT
---------------------------------------------------------
An Overview of the Markets

A LOOK BACK AT 1997

The year was ushered in with favorable economic conditions. While the GDP
exceeded expectations in the first quarter, it was not accompanied by higher
inflation. The Fed, nevertheless, responded to the quickly growing economy by
raising short-term interest rates .25% at the end of March. This action set the
tone for a dramatic increase in stock market volatility in the second quarter
that continued throughout much of the year. Immediately after the rate hike,
both the S&P 500 and NASDAQ gave up most of their year-to-date gains, only to
have investors bid prices right back up. By the end of the second quarter, the
S&P 500 had gained 20.59%, led by a narrow group of large company stocks.

GROSS DOMESTIC PRODUCT
VS. INFLATION IN 1997

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
GROSS DOMESTIC PRODUST VS. INFLATION IN
1997
GDP INFLATION
(SEASONALLY ADJUSTED
ANNUAL RATE)
<S> <C> <C>
1QTR 4.90%
2QTR 3.30%
3QTR 3.10%
4QTR 4.30%
</TABLE>

In the third quarter, the market began to broaden as investors gained confidence
about continued moderate economic growth and low inflation. Investors moved away
from large capitalization stocks to seek values in smaller cap companies and
issues overseas. Meanwhile, continuing earnings growth, expanding profit
margins, subdued inflation and low interest rates all suggested that the stock
market would prolong its historic bull run for a 13th consecutive year. Although
it appeared that the economy was approaching full utilization, there were no
signs of excess or imbalance that suggested the Fed might tighten rates in the
near term.

30-YEAR TREASURY YIELDS
OVER THE LAST SIX YEARS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

In the fourth quarter, currency devaluations in Southeast Asia rocked investment
communities worldwide and market volatility picked up dramatically in late
October. The financial crisis in Asian markets was aggravated by overlending and
the large amount of debt held by many private companies. At the same time,
Japan, which represents a significant percentage of the world markets, showed
renewed signs of a slowdown and this created little relief for international
investors.

As a result of this turbulence, a flight to safety prompted investors to migrate
back to more liquid, large capitalization stocks and to U.S. Treasuries, pushing
the yield of the long bond below 6% for the first time in almost two years.

MARKET OUTLOOK

The U.S. equity markets continue to trade at valuation levels that are
historically high, but many positive factors support these valuations. The Fed
remains vigilant, poised to tighten if economic growth or inflation heat up, but
ready to provide liquidity if the economy slows or international concerns
intensify. The current scenario -- expectations for modest increases in
corporate profits, low inflation and declining interest rates -- is generally
positive for the stock market.

21
<PAGE>
AN OVERVIEW OF THE MARKETS
-----------------------------------------------------------------

At this point, however, we believe that some caution is warranted. Increased
risk in the equity markets is evidenced by continued higher volatility and a
preference for greater liquidity. Concerns are growing that 1998 earnings may
not rise sufficiently to justify current prices. The potential for much slower
growth in emerging countries (particularly in Southeast Asia and Latin America)
is dimming earnings prospects for many multinational companies.

INVESTMENT STRATEGY

We have positioned our equity portfolios to favor domestic growth over cyclical
issues. Areas that merit particular emphasis, we believe, include retail issues,
health care and consumer staple stocks. Continuing strength in consumer
confidence and the low level of inflation support an overweighting in these
issues in spite of somewhat high valuations. We have increased utility stock
holdings to take advantage of their stable relative earnings and high dividend
yields. Energy issues have been deemphasized because of slowing world growth and
falling commodity prices.

CONSUMER CONFIDENCE

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

REIT valuations remain attractive relative to the broader market, and
expectations for double-digit total returns are not unreasonable, with lower
volatility than the S&P.

As we look to the year ahead, we continue to believe that economic indicators
support prospects for a healthy economy. However, peaking profit margins and
slowing world growth should, we believe, lead to moderating corporate earnings
growth. We anticipate the recent high level of market volatility to continue, so
we remain focused on companies that are expected to maintain competitive
strength in their industries and deliver dependable earnings growth.

So that you may evaluate how the Fund performed given this economic and
financial market backdrop, the following page contains a discussion of the
Fund's investment activity during 1997, along with a graph illustrating the
growth of $10,000 over ten years. The Fund compares its performance to a
relevant benchmark. Unlike the Fund, however, this benchmark index is not
actively managed and has no operating expenses, portfolio transaction costs or
cash flows.

We hope that you find this information useful, and we look forward to helping
you meet your investment goals and needs in the years to come.

THE INVESTMENT TEAM
COLUMBIA FUNDS MANAGEMENT COMPANY
FEBRUARY 1998

22
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------

- ---- ----

-- COLUMBIA SPECIAL FUND --
---------------------------

The Special Fund generated a total return of 12.64% for the 1997 year. During
the fourth quarter, small- and mid-cap stocks underperformed the large-cap S&P
500 Stock Index. This came after an unusually strong third quarter of
outperformance, which was fueled by a market rotation away from highly valued
large cap stocks.

The Fund's performance was adversely affected during the year by an early
emphasis in the paper and metal sectors. We believed that these economically
sensitive industries would offer value by benefiting from stronger than expected
economic growth. In addition, we chose to de-emphasize finance stocks throughout
the year in anticipation that these fully priced securities would disappoint if
interest rates increased due to the strong

TOP TEN HOLDINGS

<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
American Stores Co. 3.3
Safeway, Inc. 3.0
Kroger, Co. 3.0
Meyer (Fred), Inc. 2.9
Nordstrom, Inc. 2.5
Service Corp, International 2.4
ESC Medical Systems Ltd. 2.2
FIserv, Inc. 2.2
Quality Food Centers, Inc. 2.1
Abercrombie & Fitch Co. (Class A) 2.0
</TABLE>

[AS OF DECEMBER 31, 1997]

world economic growth. The demand for basic materials was reduced by the
international slowdown, and this prompted a decline in domestic and foreign
interest rates. In turn, investors fled from companies with less predictable
earnings to those with more consistent growth.

As the year came to a close, we sharply reduced our weightings in paper, metals
and machinery from a total of 24% of the portfolio to 7%. We increased areas of
steady growth like business and consumer services, consumer staples and health
care from 30% of the portfolio to 46%. We also added to REITs and are currently
maintaining a below-market weighting in technology.

The long-term strategy of the Special Fund has always been to maintain a core of
growth stocks while anticipating and recognizing changes in the market. This has
enabled us to invest in sectors and themes that benefit from these changes. As
we begin 1998, we are emphasizing consistent growth stocks, domestic companies,
and risk management. This supports our outlook for low inflation, a reduced rate
of corporate profit growth and the likelihood of greater stock market
volatility.
SECTORS OF EMPHASIS

<TABLE>
<CAPTION>
% of Net Assets
<S> <C>
Consumer Non-Durables 25.0
Consumer Staples 16.3
Business & Consumer Services 15.7
Health Care 14.0
</TABLE>

[AS OF DECEMBER 31, 1997]
GROWTH OF $10,000 OVER 10 YEARS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
COLUMBIA

<S> <C> <C> <C>
Special
Fund S&P 500 Russell 2000
12/31/87 $10,000 $10,000 $10,000
12/31/88 $14,255 $11,655 $12,502
12/31/89 $18,805 $15,339 $14,535
12/31/90 $16,475 $14,871 $11,699
12/31/91 $24,789 $19,403 $17,094
12/31/92 $28,185 $20,881 $20,240
12/31/93 $34,295 $22,986 $24,062
12/31/94 $35,080 $23,289 $23,624
12/31/95 $45,440 $32,041 $30,345
12/31/96 $51,379 $39,398 $35,349
12/31/97 $57,879 $52,533 $43,254
Average Annual Total Returns
As of December 31, 1997
CSF S&P 500 Russell 2000
1 Year 12.64% 33.36% 22.36%
5 Years 15.48% 20.27% 16.40%
Since Inception 19.19% 18.04% 15.77%
Past Performance is not predictive of future
performance.
</TABLE>

23
<PAGE>
SCHEDULE OF INVESTMENTS
-----------------------------------------------------------------

[LOGO]
- -------------------------- --------------------------

-- COLUMBIA SPECIAL FUND, INC. --
--------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
December 31, 1997 AMOUNT VALUE(1)
------------- --------------
<S> <C> <C>
COMMON STOCKS (97.5%)
BUILDING & FORESTRY PRODUCTS (2.1%)
Longview Fibre Co. ................................................................... 815,000 $ 12,377,812
Willamette Industries, Inc. .......................................................... 420,500 13,534,844
--------------
25,912,656
--------------
BUSINESS & CONSUMER SERVICES (15.7%)
*AccuStaff, Inc. ..................................................................... 400,000 9,200,000
*Corrections Corporation of America................................................... 450,000 16,678,125
DENTSPLY International, Inc. ......................................................... 550,000 16,775,000
*Dollar Thrifty Automotive Group, Inc. ............................................... 500,000 10,250,000
*FIserv, Inc. ........................................................................ 555,000 27,264,375
Hertz Corp. (Class A)................................................................. 484,000 19,481,000
McKesson Corp. ....................................................................... 174,100 18,835,444
*NovaCare Employee Services, Inc. .................................................... 450,000 3,600,000
*Romac International, Inc. ........................................................... 465,000 11,363,437
Service Corporation Int'l. ........................................................... 800,000 29,550,000
ServiceMaster Co. .................................................................... 450,000 13,162,500
*StaffMark, Inc. ..................................................................... 337,500 10,673,438
Unitog Co. ........................................................................... 415,000 9,233,750
--------------
196,067,069
--------------
CHEMICAL (0.8%)
IMC Global, Inc. ..................................................................... 300,000 9,825,000
--------------
CONSUMER DURABLE (1.4%)
*Furniture Brands International, Inc. ................................................ 850,000 17,425,000
--------------
CONSUMER NON-DURABLE (25.0%)
+*Abercrombie & Fitch Co. (Class A)................................................... 800,000 25,000,000
*AnnTaylor Stores Corp. .............................................................. 1,240,000 16,585,000
*Consolidated Stores Corp. ........................................................... 450,000 19,771,875
+*Gadzooks, Inc. ..................................................................... 700,000 14,700,000
*Helen of Troy Ltd. .................................................................. 1,010,000 16,286,250
*Landry's Seafood Restaurants, Inc. .................................................. 1,000,000 24,000,000
Liz Claiborne, Inc. .................................................................. 450,000 18,815,625
*Meyer (Fred), Inc. .................................................................. 1,000,000 36,375,000
Nordstrom, Inc. ...................................................................... 525,000 31,696,875
*Papa John's International, Inc. ..................................................... 600,000 20,925,000
*Planet Hollywood International, Inc. (Class A)....................................... 1,375,000 18,218,750
*Polo Ralph Lauren Corp. (Class A).................................................... 600,000 14,587,500
St. John Knits, Inc. ................................................................. 600,000 24,000,000
+*Vans, Inc. ......................................................................... 860,000 13,007,500
*Zale Corp. .......................................................................... 790,000 18,170,000
--------------
312,139,375
--------------
CONSUMER STAPLES (16.3%)
American Stores Co. .................................................................. 2,015,000 41,433,437

<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE(1)
------------- --------------
<S> <C> <C>
<S> <C> <C>
Hannaford Brothers Co. ............................................................... 200,000 $ 8,687,500
*Kroger Co. .......................................................................... 1,000,000 36,937,500
Libbey, Inc. ......................................................................... 350,000 13,256,250
Newell Co. ........................................................................... 400,000 17,000,000
*Quality Food Centers, Inc. .......................................................... 400,000 26,800,000
*Safeway, Inc. ....................................................................... 600,000 37,950,000
Sunbeam Corp. ........................................................................ 400,000 16,850,000
*Whole Foods Market, Inc. ............................................................ 100,000 5,112,500
--------------
204,027,187
--------------
HEALTH (14.0%)
*American Oncology Resources, Inc. ................................................... 600,000 9,600,000
*ATL Ultrasound, Inc. ................................................................ 100,000 4,600,000
*Dura Pharmaceuticals, Inc. .......................................................... 213,000 9,771,375
*Elan Corp. plc ADR................................................................... 150,000 7,678,125
*ESC Medical Systems Ltd. ............................................................ 706,500 27,376,875
*Inhale Therapeutic Systems........................................................... 100,000 2,600,000
*MedPartners, Inc. ................................................................... 50,000 1,118,750
Mentor Corp. ......................................................................... 600,000 21,900,000
Omnicare, Inc. ....................................................................... 300,000 9,300,000
*PAREXEL International Corp. ......................................................... 230,000 8,510,000
*PhyCor, Inc. ........................................................................ 300,000 8,100,000
+*ResMed, Inc. ....................................................................... 500,000 14,062,500
*Serologicals Corp. .................................................................. 500,000 13,000,000
*Sofamor Danek Group, Inc. ........................................................... 200,000 13,012,500
*Transkaryotic Therapies, Inc. ....................................................... 155,000 5,444,375
*Watson Pharmaceuticals, Inc. ........................................................ 600,000 19,462,500
--------------
175,537,000
--------------
MACHINERY & CAPITAL SPENDING (1.9%)
Applied Power, Inc. (Class A)......................................................... 134,500 9,280,500
General Cable Corp. .................................................................. 100,000 3,618,750
Parker-Hannifin Corp. ................................................................ 250,000 11,468,750
--------------
24,368,000
--------------
METAL MINING & STEEL (2.8%)
*Getchell Gold Corp. ................................................................. 800,000 19,200,000
+Schnitzer Steel Industries, Inc. (Class A)........................................... 550,000 15,434,375
--------------
34,634,375
--------------
POLLUTION CONTROL (3.9%)
*Air & Water Technologies Corp. (Class A)............................................. 1,200,100 1,350,112
*Culligan Water Technologies, Inc. ................................................... 400,000 20,100,000
*Ionics, Inc. ........................................................................ 343,000 13,419,875
+*Osmonics, Inc. ..................................................................... 869,000 13,741,063
--------------
48,611,050
--------------
</TABLE>

24
<PAGE>
SCHEDULE OF INVESTMENTS
-----------------------------------------------------------------

[LOGO]
- -------------------------- --------------------------

-- COLUMBIA SPECIAL FUND, INC. --
--------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE(1)
------------- --------------
<S> <C> <C>
</TABLE>

COMMON STOCKS (CONTINUED)
<TABLE>
<S> <C> <C>
REAL ESTATE SECURITIES (6.5%)
Apartment Investment & Management Co. (Class A)....................................... 114,000 $ 4,189,500
Colonial Properties Trust............................................................. 135,000 4,066,875
Equity Office Properties Trust........................................................ 123,000 3,882,187
Equity Residential Properties Trust................................................... 80,000 4,045,000
First Industrial Realty Trust, Inc. .................................................. 115,000 4,154,375
General Growth Properties, Inc. ...................................................... 111,000 4,009,875
Liberty Property Trust................................................................ 153,000 4,370,063
Macerich Co. ......................................................................... 150,000 4,275,000
Mack-Cali Realty Corp. ............................................................... 101,000 4,141,000
Manufactured Home Communities, Inc. .................................................. 150,000 4,050,000
Public Storage, Inc. ................................................................. 145,000 4,259,375
*Security Capital Group, Inc. (Class B)............................................... 350,000 11,375,000
Security Capital Industrial Trust..................................................... 163,000 4,054,625
Security Capital Pacific Trust........................................................ 160,000 3,880,000
Simon DeBartolo Group, Inc. .......................................................... 122,000 3,987,875
Spieker Properties, Inc. ............................................................. 100,000 4,287,500
*Trammell Crow Co. ................................................................... 24,000 618,000
TriNet Corporate Realty Trust, Inc. .................................................. 105,000 4,062,188
Vornado Realty Trust.................................................................. 90,000 4,224,375
--------------
81,932,813
--------------
TECHNOLOGY (4.6%)
*Apple Computer, Inc. ................................................................ 1,000,000 13,125,000
*FlexiInternational Software, Inc. ................................................... 25,000 387,500
*FORE Systems, Inc. .................................................................. 600,000 9,150,000
+*Integrated Measurement Systems, Inc. ............................................... 300,000 5,137,500
*Loral Space & Communications Corp. .................................................. 650,000 13,934,375
*VIASOFT, Inc. ....................................................................... 360,000 15,210,000
--------------
56,944,375
--------------
TRANSPORTATION (1.6%)
+*Celadon Group, Inc. ................................................................ 500,000 6,750,000
*Trans World Airlines, Inc. .......................................................... 1,300,000 13,162,500
--------------
19,912,500
--------------
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE(1)
------------- --------------
<S> <C> <C>
<S> <C> <C>
UTILITIES/ELECTRIC/GAS (0.9%)
United Water Resources, Inc. ......................................................... 575,000 $ 11,248,438
--------------
Total Common Stocks
(Cost $1,080,385,133) ............................................................... 1,218,584,838
--------------
REPURCHASE AGREEMENTS (7.4%)
Goldman Sachs Corp.
6.337% dated 12/31/1997,
due 01/02/1998 in the
amount of $65,646,574.
Collateralized by U.S. Treasury Notes
5.875% due 08/31/1999................................................................ $ 65,623,788 65,623,788
J.P. Morgan Securities, Inc.
6.521% dated 12/31/1997,
due 01/02/1998 in the
amount of $27,009,648.
Collateralized by U.S. Treasury Notes
3.625% to 7.500%
due 08/31/2000 to 02/15/2005......................................................... 27,000,000 27,000,000
--------------
Total Repurchase Agreements
(Cost $92,623,788) .................................................................. 92,623,788
--------------
TOTAL INVESTMENTS (104.9%)
(Cost $1,173,008,921).................................................................... 1,311,208,626
RECEIVABLES LESS LIABILITIES (-4.9%)...................................................... (61,490,829)
--------------
NET ASSETS (100.0%)....................................................................... $1,249,717,797
--------------
--------------
</TABLE>

(1) See Note 1 of Notes to Financial Statements.

* Non-income producing.

+ Affiliated issuers (Note 1)

The accompanying notes are an integral part
of the financial statements.

25
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------------------------------------

<TABLE>
<CAPTION>
COLUMBIA
SPECIAL
December 31, 1997 FUND, INC.
------------
<S> <C>
ASSETS:
Investments at identified cost............................ $1,080,385,133
- ------------------------------------------------------------ ------------
Investments at value (Notes 1 and 2)...................... $1,218,584,838
Temporary cash investments, at cost (Note 1).............. 92,623,788
Receivable for:
Interest................................................ 539,653
Dividends............................................... 812,476
Investments sold........................................ 140,743
Capital stock sold...................................... 1,600,359
------------
Total assets.............................................. 1,314,301,857
------------
LIABILITIES:
Payable for:
Capital stock redeemed.................................. 54,827,406
Dividends and distributions............................. 5,565,501
Investments purchased................................... 2,906,000
Investment management fee (Note 4)...................... 954,989
Accrued expenses........................................ 330,164
------------
Total liabilities......................................... 64,584,060
------------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES................. $1,249,717,797
------------
------------
Net assets consist of:
Undistributed net investment income....................... $ 360,073
Unrealized appreciation on investments.................... 138,199,705
Undistributed net realized loss from investments.......... (812,034)
Capital shares (Note 3)................................... 616,718
Capital paid in (Note 3).................................. 1,111,353,335
------------
$1,249,717,797
------------
------------
SHARES OF CAPITAL STOCK OUTSTANDING (NOTE 3)................ 61,671,768
------------
------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(1)........................................................ $ 20.26
------------
------------
</TABLE>

(1) The net asset value per share is computed by dividing net assets applicable
to outstanding shares by shares of capital stock outstanding.

The accompanying notes are an integral part of the financial statements.

26
<PAGE>
STATEMENT OF OPERATIONS
-----------------------------------------------------------------

<TABLE>
<CAPTION>
COLUMBIA
SPECIAL
Year Ended December 31, 1997 FUND, INC.
------------
<S> <C>
INVESTMENT INCOME:
Income:
Interest........................................... $ 5,470,977
Dividends.......................................... 9,434,285
------------
Total income..................................... 14,905,262
------------
Expenses:
Investment management fees (Note 4)................ 12,373,140
Shareholder servicing costs (Note 4)............... 1,402,637
Reports to shareholders............................ 297,099
Accounting expense................................. 45,504
Financial information and subscriptions............ 26,041
Custodian fees..................................... 58,659
Bank transaction and checking fees................. 50,531
Registration fees.................................. 55,075
Legal, insurance and auditing fees................. 54,489
Other.............................................. 10,314
------------
Total expenses................................... 14,373,489
------------
Net investment income (Note 1)....................... 531,773
------------
REALIZED GAIN AND UNREALIZED APPRECIATION FROM
INVESTMENT TRANSACTIONS:
Net realized gain from investments (Note 2)(1)....... 122,678,842
Net unrealized appreciation on investments during the
period (Note 1)..................................... 49,916,627
------------
Net gain on investments (Note 1)..................... 172,595,469
------------
Net increase in net assets resulting from
operations.......................................... $173,127,242
------------
------------
</TABLE>

(1) The net realized gain includes $7,023,101 loss from affiliated issuers.
(Note 1)

The accompanying notes are an integral part of the financial statements.

27
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------------------------------------

<TABLE>
<CAPTION>
COLUMBIA
SPECIAL
Years Ended December 31, FUND, INC.
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income
(loss)................... $ 531,773 $ (4,487,503)
Net realized gain from
investments (Note 2)..... 122,678,842 295,204,950
Change in net unrealized
appreciation
(depreciation) on
investments.............. 49,916,627 (112,950,905)
-------------- --------------
Net increase in net assets
resulting from
operations............... 173,127,242 177,766,542
Distributions to
shareholders:
From net realized gain
from investment
transactions............. (122,678,842) (289,460,071)
In excess of net realized
gain from investment
transactions............. (154,157)*
Capital share transactions,
net (Note 3)............... (385,860,660) 312,562,708
-------------- --------------
Net increase (decrease) in
net assets............... (335,566,417) 200,869,179

NET ASSETS:
Beginning of period......... 1,585,284,214 1,384,415,035
-------------- --------------
End of period (1)........... $1,249,717,797 $1,585,284,214
-------------- --------------
-------------- --------------
- ------------------------------
-------------- --------------
</TABLE>

<TABLE>
<S> <C> <C>
(1) Includes undistributed net
investment income of: $ 360,073 $ --
* On a tax basis, there was no return of capital.
</TABLE>

The accompanying notes are an integral part of the financial statements.

28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------------------

-- 1. SIGNIFICANT ACCOUNTING POLICIES --

Columbia Special Fund, Inc. (CSF) is an open-end, diversified investment company
registered under the Investment Company Act of 1940, as amended. The policies
described below are consistently followed by CSF in the preparation of its
financial statements in conformity with generally accepted accounting
principles.

INVESTMENT VALUATION. The values of CSF equity investments are based on the
last sale prices reported by the principal securities exchanges on which the
investments are traded, or, in the absence of recorded sales, at the closing bid
prices on such exchanges or over-the-counter markets. Temporary cash investments
in short-term securities (principally repurchase agreements) are valued at cost,
which approximates market.

AFFILIATED ISSUERS. Under the Investment Company Act of 1940, as amended, an
issuer is an "affiliated issuer" of CSF if CSF holds 5% or more of that issuer's
outstanding voting securities. CSF had investments in such affiliated issuers at
December 31, 1997 as follows:

<TABLE>
<CAPTION>
DIVIDEND
INCOME
BALANCE OF JANUARY 1,
BALANCE OF GROSS SHARES HELD VALUE 1997-
SHARES HELD PURCHASES GROSS DECEMBER DECEMBER DECEMBER
DECEMBER 31, & SALES & 31, 31, 31,
NAME OF ISSUER 1996 ADDITIONS REDUCTIONS 1997 1997 1997
- ----------------------------------- ------------ --------- ---------- ----------- ----------- ----------
Abercrombie & Fitch Co............. -- 800,000 800,000 $25,000,000
<S> <C> <C> <C> <C> <C> <C>
Celadon Group, Inc................. 580,000 80,000 500,000 6,750,000
Gadzooks, Inc...................... -- 700,000 700,000 14,700,000
Harmonic Lightwaves, Inc........... 540,000 540,000 -- --
Integrated Measurement Syst........ 170,000 290,000 160,000 300,000 5,137,500
Osmonics, Inc...................... 400,000 469,000 869,000 13,741,063
Resmed, Inc........................ 605,000 105,000 500,000 14,062,500
Schnitzer Steel Industries......... 500,000 50,000 550,000 15,434,375 $107,500
United Dental Care................. 487,500 487,500 -- --
Vans, Inc.......................... -- 860,000 860,000 13,007,500
----------- ----------
$107,832,938 $107,500
----------- ----------
----------- ----------
</TABLE>

INTEREST AND DIVIDEND INCOME. Interest income is recorded on the accrual basis
and dividend income is recorded on the ex-dividend date.

SHAREHOLDER DISTRIBUTIONS. CSF distributes net investment income and any net
realized gains annually. Distributions to shareholders are recorded on the
ex-dividend date. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for deferral of losses from wash sales and return of capital received
from Real Estate Investment Trusts.

29
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

-- 1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED --

USE OF ESTIMATES. The preparation of the financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

FEDERAL INCOME TAXES. CSF has made no provision for federal income taxes on net
investment income or net realized gains from sales of securities, since it is
the intention of CSF to comply with the provisions of the Internal Revenue Code
available to certain investment companies, and to make distributions of income
and security profits sufficient to relieve it from substantially all federal
income taxes.

OTHER. Investment transactions are accounted for on the date the investments
are purchased or sold. The cost of investments sold is determined by the use of
the specific identification method for both financial reporting and income tax
purposes. Realized gains and losses from investment transactions and unrealized
appreciation or depreciation of investments are reported on the basis of
identified costs.

CSF, through its custodian, receives delivery of underlying securities
collateralizing repurchase agreements (included in temporary cash investments).
Market values of these securities are required to be at least 100% of the cost
of the repurchase agreements. CSF's investment advisor determines that the value
of the underlying securities is at all times at least equal to the resale price.
In the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to legal
proceedings.

30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

-- 2. INVESTMENT TRANSACTIONS --

Aggregate purchases and sales, net realized gain and unrealized appreciation
(depreciation) of investments, excluding temporary cash investments, as of and
for the period ended December 31, 1997, were as follows:

<TABLE>
<CAPTION>
COLUMBIA
SPECIAL
FUND, INC.
(CSF)
--------------
PURCHASES:
<S> <C>
Investment securities other than U.S.
Government obligations............... $2,285,721,068
--------------
--------------
SALES:
Investment securities other than U.S.
Government obligations............... $2,727,547,308
--------------
--------------
NET REALIZED GAIN:
Investment securities other than U.S.
Government obligations............... $ 122,678,842
--------------
--------------
UNREALIZED APPRECIATION (DEPRECIATION)
AS OF DECEMBER 31, 1997:
Appreciation.......................... $ 199,310,779
Depreciation.......................... (61,111,074 )
--------------
Net unrealized appreciation......... $ 138,199,705
--------------
--------------
UNREALIZED APPRECIATION (DEPRECIATION)
FOR FEDERAL INCOME TAX PURPOSES AS OF
DECEMBER 31, 1997:
Appreciation.......................... $ 199,396,129
Depreciation.......................... (62,132,757 )
--------------
Net unrealized appreciation......... $ 137,263,372
--------------
--------------
For federal income tax purposes, the
cost of investments owned at December
31, 1997............................... $1,081,321,466
--------------
--------------
</TABLE>

- --------------------------------------------------------------------------------
The net realized gain includes proceeds of $672,539 from shareholder class
action suits related to securities held.

31
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------------------

-- 3. CAPITAL STOCK --

<TABLE>
<CAPTION>
COLUMBIA
SPECIAL
FUND, INC. (CSF)
----------------------------
1997 1996
------------- -------------
SHARES:
<S> <C> <C>
Shares sold.............................................................. 17,301,738 25,624,116
Shares issued for reinvestment of dividends.............................. 5,787,116 13,826,136
------------- -------------
23,088,854 39,450,252
Less shares redeemed..................................................... (41,278,382) (24,162,690)
------------- -------------
Net increase (decrease) in shares........................................ (18,189,528) 15,287,562
------------- -------------
------------- -------------
AMOUNTS:
Sales.................................................................... $ 365,659,534 $ 593,195,434
Reinvestment of dividends................................................ 117,246,979 273,619,242
------------- -------------
482,906,513 866,814,676
Less redemptions......................................................... (868,767,173) (554,251,968)
------------- -------------
Net increase (decrease).................................................. $(385,860,660) $ 312,562,708
------------- -------------
------------- -------------
Capital stock authorized (shares)........................................ 100,000,000
Par Value................................................................ $.01
</TABLE>

32
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

-- 4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES --

<TABLE>
<CAPTION>
COLUMBIA
SPECIAL
FUND, INC.
(CSF)
----------
<S> <C>
Investment management fees incurred..... $12,373,140
Investment management fee computation
basis (percentage of daily net assets
per annum)............................. 1% to
$500,000,000
daily net
assets;
0.75 of 1%
in excess
of
$500,000,000

Transfer agent fee (included in
shareholder servicing costs)........... $979,562
Fees earned by directors not affiliated
with the Fund's investment advisor,
transfer agent, or Columbia Management
Co..................................... $14,774
Value of investments held at December
31, 1997 by:
Columbia Management Co................ $2,232,560
Columbia Funds Management Company..... $769,764
</TABLE>

The investment advisor of CSF is Columbia Funds Management Company (CFMC). The
transfer agent for CSF is Columbia Trust Company (CTC), a majority owned
subsidiary of CFMC. The transfer agent is compensated based on a per account
fee.

On December 10, 1997, CFMC, CTC and Columbia Management Company (CMC), an
affiliated company, became indirect subsidiaries of Fleet Financial Group, Inc.
(Fleet), a publicly owned multi-bank holding company registered under the Bank
Holding Company Act of 1956. Prior to that date, certain officers and directors
of CSF were also officers and directors of CFMC, CTC and CMC. Those individuals
did not receive any compensation or other payment from CSF. As a result of
federal banking regulations, no officers or directors of CSF are officers or
directors of CFMC, CTC or CMC following the transaction with Fleet. J. Jerry
Inskeep, Jr., an officer and director of CSF, is affiliated with Fleet, but
receives no compensation or other payment from CSF.

As a result of the transaction with Fleet, directors of CSF were required to
approve new contracts for investment advisory and transfer agent services
between CSF and CFMC and CTC, respectively. The new contracts are the same in
all material respects to the corresponding previous contracts. Shareholders of
CSF were required to approve the new investment advisory contract. The proxy
voting results of the contract's approval by shareholders of CSF is set forth at
the end of this 1997 Annual Report.

33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
-----------------------------------------------------------------

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS,
COLUMBIA SPECIAL FUND, INC. (CSF)

We have audited the accompanying statement of assets and liabilities of CSF,
including the schedule of investments, as of December 31, 1997, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of CSF's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of CSF as
of December 31, 1997, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the periods indicated therein, in
conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.
Portland, Oregon
February 12, 1998

34
<PAGE>
PROXY VOTING RESULTS
-----------------------------------------------------------------

On December 4, 1997, CSF held a Special Meeting of Shareholders to approve a new
investment advisory contract with the Advisor. The need to approve a new
investment advisory contract was caused by the change in control of the Advisor
resulting from the acquisition of the Advisor by Fleet Financial Group, Inc. A
new investment advisory contract was approved by CSF as shown below:

TOTAL
OUTSTANDING FOR AGAINST ABSTENTION
------------ --------- ---------- -----------
<S> <C> <C> <C> <C>
Columbia Special Fund.............. 66,728,987 35,764,587 603,044 1,097,275
</TABLE>
<PAGE>
NOTES
<PAGE>
COLUMBIA FUNDS

-- 1301 S.W. Fifth Avenue, Portland, Oregon 97201 --
-- DIRECTORS --
-------------------------------------------
JAMES C. GEORGE
J. JERRY INSKEEP, JR.
THOMAS R. MACKENZIE
RICHARD L. WOOLWORTH
-- 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 97201
-- AUDITORS --
-------------------------------------------
COOPERS & LYBRAND L.L.P.
1300 S.W. FIFTH AVENUE, SUITE 2700
PORTLAND, OREGON 97201
-- TRANSFER AGENT --
-------------------------------------------
COLUMBIA TRUST COMPANY
1301 S.W. FIFTH AVENUE
PORTLAND, OREGON 97201
THIS INFORMATION MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
THE MANAGERS' VIEWS CONTAINED IN THIS REPORT ARE SUBJECT TO CHANGE AT ANY TIME,
BASED ON MARKET AND OTHER CONSIDERATIONS.
PORTFOLIO CHANGES SHOULD NOT BE CONSIDERED RECOMMENDATIONS FOR ACTION BY
INDIVIDUAL INVESTORS.
THE FUND IS DISTRIBUTED BY PROVIDENT DISTRIBUTORS, INC.