-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SCzMygu4WyA/HmroFwzThj0Dw65kEbmOdB/Rz/mhc36vCpW4yHjy6mWLtHUDFzy4 uXYhantpXww9ZvdfQE7zgw== 0001047469-04-019604.txt : 20040607 0001047469-04-019604.hdr.sgml : 20040607 20040607172843 ACCESSION NUMBER: 0001047469-04-019604 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040607 EFFECTIVENESS DATE: 20040607 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA FUNDS TRUST II CENTRAL INDEX KEY: 0000315665 IRS NUMBER: 046452949 FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-03009 FILM NUMBER: 04852494 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CENTER CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6174263750 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY FUNDS TRUST II DATE OF NAME CHANGE: 19991015 FORMER COMPANY: FORMER CONFORMED NAME: COLONIAL TRUST II / DATE OF NAME CHANGE: 19950926 FORMER COMPANY: FORMER CONFORMED NAME: COLONIAL MONEY MARKET FUND DATE OF NAME CHANGE: 19920703 N-CSR 1 a2137590zn-csr.txt N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-3009 --------------------------------------------- Columbia Funds Trust II - ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) One Financial Center, Boston, Massachusetts 02111 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Vincent Pietropaolo, Esq. Columbia Management Group, Inc. One Financial Center Boston, MA 02111 - ------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 1-617-772-3698 ---------------------------- Date of fiscal year end: March 31, 2004 -------------------------- Date of reporting period: March 31, 2004 ------------------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. ITEM 1. REPORTS TO STOCKHOLDERS. [GRAPHIC] COLUMBIA MONEY MARKET FUND ANNUAL REPORT MARCH 31, 2004 [COLUMBIAFUNDS(R) LOGO] A MEMBER OF COLUMBIA MANAGEMENT GROUP TABLE OF CONTENTS Fund Profile 1 Economic Update 2 Portfolio Manager's Report 3 Financial Statements 4 Investment Portfolio 5 Statement of Assets and Liabilities 10 Statement of Operations 11 Statements of Changes in Net Assets 12 Notes to Financial Statements 13 Financial Highlights 18 Report of Independent Registered Public Accounting Firm 22 Unaudited Information 23 Trustees 24 Officers 26 Important Information About This Report 27
Economic and market conditions change frequently. There is no assurance that the trends described in this report will continue or commence. NOT FDIC MAY LOSE VALUE INSURED ----------------- NO BANK GUARANTEE TO OUR FELLOW SHAREHOLDERS COLUMBIA MONEY MARKET FUND DEAR SHAREHOLDER: We are pleased to let you know that FleetBoston Financial Corporation and Bank of America Corporation have merged, effective April 1, 2004. As a result of the merger, Columbia Management Group became part of the Bank of America family of companies. Looking ahead, we believe this merger will be a real benefit to our shareholders. Preserving and leveraging our strengths, the combined organization intends to deliver additional research and management capabilities, as well as new products to you. There are no immediate changes planned for fund names or customer service contacts. As always, we will provide you with updates at www.columbiafunds.com or through other communications, such as newsletters and shareholder reports. As you might know, on March 15, 2004, FleetBoston Financial announced an agreement in principle with the staff of the Securities and Exchange Commission ("SEC") and the New York Attorney General to settle charges involving market timing in Columbia Management mutual funds. (Bank of America came to a similar settlement in principle at the same time.) The agreement requires the final approval of the SEC. This action reflects our full cooperation with the investigation and our strong wish to put this regrettable situation behind us. Columbia Management has taken and will continue to take steps to strengthen policies, procedures and oversight to curb frequent trading of Columbia fund shares. We want you to know that all of the members of your fund's Board of Trustees are independent of the fund's advisor and its affiliates. In addition, the board has been energetic over the past year in strengthening its capacity to oversee the Columbia funds. Recently, the Board of Trustees: - - APPOINTED A CHIEF COMPLIANCE OFFICER OF THE COLUMBIA FUNDS, WHO REPORTS DIRECTLY TO EACH FUND'S AUDIT COMMITTEE. TRUSTEES WERE ALSO ASSIGNED TO FOUR SEPARATE INVESTMENT OVERSIGHT COMMITTEES, EACH DEDICATED TO MONITORING PERFORMANCE OF INDIVIDUAL FUNDS. - - VOTED TO DOUBLE THE REQUIRED INVESTMENT BY EACH TRUSTEE IN THE COLUMBIA FUNDS -- TO FURTHER ALIGN THE INTERESTS OF THE TRUSTEES WITH THOSE OF OUR FUND SHAREHOLDERS. AT THE SAME TIME, NEW POLICIES WERE INSTITUTED REQUIRING ALL INVESTMENT PERSONNEL AND TRUSTEES TO HOLD THEIR COLUMBIA FUND SHARES FOR A MINIMUM OF ONE YEAR (UNLESS EXTRAORDINARY CIRCUMSTANCES WARRANT AN EXCEPTION TO BE GRANTED BY SENIOR EXECUTIVES OF THE ADVISOR FOR INVESTMENT PERSONNEL AND BY A DESIGNATED COMMITTEE FOR THE BOARD). Both your fund's trustees and Columbia Management are committed to serving the interests of our shareholders, and we will continue to work hard to help you achieve your financial goals. In the pages that follow, you'll find valuable information about the economic environment during the period and the performance of your Columbia fund. These discussions are followed by financial statements for your fund. We hope that you will take time to read this report and discuss it with your financial advisor if you have any questions. As always, thank you for choosing Columbia funds. It is a privilege to play a role in your financial future. Sincerely, /s/ Thomas C. Theobald /s/ J. Kevin Connaughton Thomas C. Theobald J. Kevin Connaughton Chairman, Board of Trustees President, Columbia Funds J. Kevin Connaughton was named president of Columbia Funds on February 27, 2004. FUND PROFILE COLUMBIA MONEY MARKET FUND The information below gives you a snapshot of your fund at the end of the reporting period. Your fund is actively managed and the composition of its portfolio will change over time. PORTFOLIO BREAKDOWN AS OF 03/31/04 (%) US government agency obligations 34.8 Corporate bonds 21.5 Commercial paper 17.5 Municipal bonds 17.0 Certificates of deposit 6.1 Bank notes 4.4 Short term obigation 0.0
PORTFOLIO MATURITY AS OF 03/31/04 (%) 1-4 days 6.1 5-14 days 35.2 15-29 days 23.4 30-59 days 11.2 More than 59 days 24.1
Portfolio breakdown is calculated as a percentage of net assets. Portfolio maturity is calculated as a percentage of total investments. [SIDENOTE] SUMMARY - - FOR THE NINE-MONTH PERIOD ENDED MARCH 31, 2004, THE FUND'S CLASS A SHARES RETURNED 0.22% WITHOUT SALES CHARGE. - - THE FUND'S RETURN WAS IN LINE WITH THE AVERAGE RETURN OF ITS PEER GROUP, THE LIPPER MONEY MARKET FUNDS CATEGORY, WHICH WAS 0.26%. CLASS A SHARES 0.22% LIPPER MONEY MARKET FUNDS CATEGORY 0.26%
OBJECTIVE Seeks maximum current income consistent with capital perservation and the maintenance of liquidity. TOTAL NET ASSETS $574.8 million 1 ECONOMIC UPDATE COLUMBIA MONEY MARKET FUND The US economy moved ahead at a strong but uneven pace during the nine-month period that began July 1, 2003 and ended March 31, 2004. Annualized GDP for the third quarter of 2003 was an impressive 8.2%. For the fourth quarter, the pace of growth slowed to 4.1%, yet comfortably above the economy's long-term average growth rate of 3.0%. GDP growth for first quarter of 2004 was 4.2%. Although job growth was slow to catch on, the economy showed signs of improvement on all fronts. Consumer spending rose as a sizeable package of tax cuts, implemented in 2003, gave disposable income a boost. Low interest rates fueled another round of mortgage refinancing late in the period, which further enhanced household income. Early in 2004, consumer confidence slipped as the labor market continued to cloud the outlook despite a pick-up in the number of new jobs added in March. Nevertheless, housing and retail sales showed steady gains throughout the period. After two years of holding back, the business sector began to show signs of improvement late in 2003. Industrial production registered steady gains. Business spending on technology rose. And late in the period, spending on capital equipment also picked up. BONDS DELIVERED SOLID GAINS Despite concerns that a stronger economy would translate into higher interest rates--and lower bond prices--the US bond market continued to deliver respectable gains during the nine-month period. However, July and August were volatile months as the yield on the 10-year US Treasury bond spiked above 4.6% on the heels of strong economic data, then dropped to 3.8% by the end of the period. High-yield bonds were the top performers in the fixed income markets, but their performance slipped in the final quarter of the period. Treasury bonds, which are more sensitive to changing interest rates, were the primary beneficiaries of falling interest rates. The Merrill Lynch US High Yield, Cash Pay Index returned 10.94% for the nine-month period covered by this report, while the Lehman Brothers Aggregate Bond Index gained 2.83%. Money market fund yields remained below 1%, as the Federal Reserve Board kept short-term interest rates at their historical lows. US STOCKS HEADED HIGHER The US stock market snapped a three-year losing streak in 2003. However, its rate of return slowed in the final months of the period as mixed economic and profit data and renewed fears about terrorism gave investors pause. The S&P 500 Index returned 17.09% for this nine-month period. Small company stocks outperformed large company stocks, as evidenced by the 32.74% return of the Russell 2000 Index, a measure of the performance of 2,000 small company stocks. [SIDENOTE] SUMMARY FOR THE NINE-MONTH PERIOD ENDED MARCH 31, 2004 - - A STRENGTHENING ECONOMY ACCOUNTED FOR CONTINUED STRONG GAINS FROM HIGH-YIELD BONDS, AS EVIDENCED BY THE DOUBLE-DIGIT RETURN OF THE MERRILL LYNCH US HIGH YIELD, CASH PAY INDEX. OVERALL, DECLINING INTEREST RATES AND THE FED'S COMMITMENT TO HOLD THE LINE ON SHORT-TERM INTEREST RATES TRANSLATED INTO RESPECTABLE RETURNS FOR THE LEHMAN BROTHERS AGGREGATE BOND INDEX. MERRILL LYNCH INDEX 10.94% LEHMAN INDEX 2.83%
- - THE US STOCK MARKET GAINED GROUND AS THE ECONOMY STRENGTHENED AND CORPORATE PROFITS ROSE. SMALL CAP STOCKS LED THE WAY. THE S&P 500 INDEX RETURNED 17.09%. THE RUSSELL 2000 INDEX GAINED 32.74%. S&P 500 INDEX 17.09% RUSSELL 2000 INDEX 32.74%
The Merrill Lynch US High Yield, Cash Pay Index is an unmanaged index that tracks the performance of non-investment-grade corporate bonds. The Lehman Brothers Aggregate Bond Index is a market value-weighted index that tracks fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues. The S&P 500 Index is an unmanaged index that tracks the performance of 500 widely held, large capitalization US stocks. The Russell 2000 Index is an unmanaged index that tracks the performance of 2,000 small US companies based on total market capitalizations. 2 PORTFOLIO MANAGER'S REPORT COLUMBIA MONEY MARKET FUND The Board of Trustees for Columbia Money Market Fund has approved the change of the fund's fiscal year end from June 30 to March 31. As a result, this report covers the nine-month period since the last annual report. The next report you receive will be for the six-month period ending September 30, 2004. For the nine-month period ended March 31, 2004, Columbia Money Market Fund class A shares returned 0.22%. The fund's return was slightly lower than the average return of its peer group, the Lipper Money Market Funds Category, which returned 0.26% for the same period.(1) OPERATING IN A LOW YIELD ENVIRONMENT The weighted average maturity of our peer group was longer than that of the fund, which may have contributed to the slight yield advantage for the peer group during the period. Yields on short-term fixed-income obligations were held back over the past year, as short-term interest rates remained at historical lows. These historically low rates combined with mixed expectations for the Fed's next move made for a challenging period for managing the fund. The fund's weighted average maturity at the end of the period was approximately 50 days. MAINTAINED EMPHASIS ON FLOATING RATE SECURITIES The fund invested about 35% of its assets in US government agency debt. These securities, both floating and fixed rate, enabled the fund to pick up some additional yield without taking on any significant credit risk at the long end of our maturity spectrum. Additionally, more than half of the fund's assets were invested in floating rate securities. We continued to add to these positions during the period. Yields on floating-rate notes are generally higher than those of comparable fixed-rate securities. The yields on the floating rate securities owned by the fund are pegged to the London Interbank Offering Rate (LIBOR), a feature that ensures that the interest rates earned are market rates. Although we cannot predict when the Federal Reserve Board will revise its policy and raise short-term interest rates, we believe our emphasis on floating-rate notes will position the fund well in anticipation of higher rates. [PHOTO OF KAREN M. ARNEIL] Karen Arneil, CFA, has managed Columbia Money Market Fund since July 2002 and has been with the advisor and its predecessors since 1996. /s/ Karen M. Arneil (1) Lipper Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as those of the fund. [SIDENOTE] DISTRIBUTIONS DECLARED PER SHARE 07/01/03 - 03/31/04 ($) Class A 0.002 Class B 0.001 Class C 0.001 Class Z 0.002
7-DAY YIELDS ON 03/31/04 (%) Class A 0.46 Class B 0.10 Class C 0.10 Class Z 0.46
30-day yields on 03/31/04 (%) Class A 0.45 Class B 0.10 Class C 0.10 Class Z 0.45
The 30-day SEC yields reflect the portfolios earning power, net of expenses, expressed as an annualized percentage of the public offering price at the end of the period. PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE INVESTMENT RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THE SHARES MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. PLEASE VISIT www.columbiafunds.com FOR DAILY AND MOST RECENT MONTH-END PERFORMANCE UPDATES. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. 3 FINANCIAL STATEMENTS MARCH 31, 2004 COLUMBIA MONEY MARKET FUND A GUIDE TO UNDERSTANDING YOUR FUND'S FINANCIAL STATEMENTS INVESTMENT PORTFOLIO The investment portfolio details all of the fund's holdings and their market value as of the last day of the reporting period. Portfolio holdings are organized by type of asset, industry, country or geographic region (if applicable) to demonstrate areas of concentration and diversification. STATEMENT OF ASSETS AND LIABILITIES This statement details the fund's assets, liabilities, net assets and share price for each share class as of the last day of the reporting period. Net assets are calculated by subtracting all the fund's liabilities (including any unpaid expenses) from the total of the fund's investment and non-investment assets. The share price for each class is calculated by dividing net assets for that class by the number of shares outstanding in that class as of the last day of the reporting period. STATEMENT OF OPERATIONS This statement details income earned by the fund and the expenses accrued by the fund during the reporting period. The Statement of Operations also shows any net gain or loss the fund realized on the sales of its holdings during the period, as well as any unrealized gains or losses recognized over the period. The total of these results represents the fund's net increase or decrease in net assets from operations. STATEMENT OF CHANGES IN NET ASSETS This statement demonstrates how the fund's net assets were affected by its operating results, distributions to shareholders and shareholder transactions (e.g., subscriptions, redemptions and dividend reinvestments) during the reporting period. The Statement of Changes in Net Assets also details changes in the number of shares outstanding. NOTES TO FINANCIAL STATEMENTS These notes disclose the organizational background of the fund, its significant accounting policies (including those surrounding security valuation, income recognition and distributions to shareholders), federal tax information, fees and compensation paid to affiliates and significant risks and contingencies. FINANCIAL HIGHLIGHTS The financial highlights demonstrate how the fund's net asset value per share was affected by the fund's operating results. The financial highlights table also discloses the classes' performance and certain key ratios (e.g., class expenses and net investment income as a percentage of average net assets). 4 INVESTMENT PORTFOLIO MARCH 31, 2004 COLUMBIA MONEY MARKET FUND
PAR ($) VALUE ($) - ----------------------------------------------------------------------------------------------------------------------------- BANK NOTES - 4.4% Bank One NA, 1.170% 04/13/04 (a) 25,000,000 25,000,701 Total Bank Notes (cost of $25,000,701) 25,000,701 CERTIFICATES OF DEPOSIT - 6.1% Canadian Imperial Bank of Commerce, 1.140% 03/15/08 (a) 20,000,000 20,000,000 Rabobank Nederland NY, 1.330% 04/19/04 15,000,000 15,000,000 Total Certificates of Deposit (cost of $35,000,000) 35,000,000 COMMERCIAL PAPER - 17.5% Falcon Asset Securitization Corp., 1.020% 04/05/04 (b) 10,000,000 9,998,867 Goldman Sachs Group LP, 1.170% 05/28/04 15,000,000 14,972,213 Govco, Inc., 1.030% 05/24/04 (b) 10,000,000 9,984,836 Greenwich Capital Holdings Funding, 1.040% 05/11/04 15,000,000 14,982,667 Iowa Student Loan, (SPA: Lloyds TSB Bank PLC) 1.040% 04/27/04 10,010,000 10,002,481 Long Island College Hospital NY, (LOC: Landesbank Hessen-Thurigen GZ) 1.050% 04/08/04 5,700,000 5,698,836 UBS Financial Delaware LLC, 1.060% 04/01/04 25,000,000 25,000,000 Windmill Funding Corp., 1.020% 04/20/04 (b) 10,000,000 9,994,617 Total Commercial Paper (cost of $100,634,517) 100,634,517 CORPORATE BONDS - 21.5% Abbott Laboratories, 5.125% 07/01/04 2,300,000 2,321,643 American Express Credit Corp.: 1.150% 03/05/08 (a) 13,000,000 13,000,000 1.110% 07/19/04 (a)(c) 12,000,000 12,000,000 American Honda Finance Corp.: 1.270% 07/15/04 (a)(c) 12,000,000 12,006,671 1.300% 10/07/04 (a)(c) 5,000,000 5,004,929 Autumn House at Powder Mill, Inc., (LOC: SunTrust Bank) 1.120% 02/01/28 (a) 3,860,000 3,860,000 Best One Tire & Services LLC, (LOC: Fifth Third Bank) 1.120% 02/01/18 (a) 7,095,000 7,095,000 Chargin Valley Partners LLC, (LOC: Fifth Third Bank) 1.120% 11/01/13 (a) 1,180,000 1,180,000
See notes to investment portfolio. 5
PAR ($) VALUE ($) - ----------------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS - (CONTINUED) Congregation Mkor Shalom, (LOC: Fifth Third Bank) 1.160% 06/01/23 (a) 2,320,000 2,320,000 Connecticut Water Co., (LOC: Royal Bank of Scotland) 1.100% 01/04/29 (a) 4,500,000 4,500,000 Crescent Paper Tube Co., (LOC: Fifth Third Bank) 1.120% 08/01/22 (a) 2,240,000 2,240,000 Crestmont Nursing Home, (LOC: Fifth Third Bank) 1.070% 03/01/24 (a) 1,000,000 1,000,000 Crestmont Realty Corp., (LOC: Fifth Third Bank) 1.120% 11/01/22 (a) 4,185,000 4,185,000 Dominican Sisters, (LOC: Fifth Third Bank) 1.120% 10/01/23 (a) 3,450,000 3,450,000 General Electric Capital Corp.: 1.170% 09/16/04 (a) 13,000,000 13,007,459 7.250% 05/03/04 9,390,000 9,438,407 Michigan Equity Group, (LOC: Fifth Third Bank) 1.120% 09/01/51 (a) 2,080,000 2,080,000 Morgan Stanley Dean Witter & Co., 1.100% 12/29/04 (a) 12,000,000 12,000,000 PCP Investors LLC, (LOC: Wells Fargo Bank) 1.150% 01/01/24 (a) 2,000,000 2,000,000 Precision Radiotherapy LLC, (LOC: Fifth Third Bank) 1.120% 08/01/18 (a) 2,430,000 2,430,000 PS Greetings, Inc., (LOC: LaSalle Bank) 1.210% 12/01/33 (a) 1,080,000 1,080,000 Shephard Capital LLC, (LOC: Wachovia Bank) 1.210% 03/15/49 (a) 2,070,000 2,070,000 Skeletal Properties LLC, (LOC: Fifth Third Bank) 1.120% 11/01/14 (a) 2,000,000 2,000,000 Titan Holdings Group LLC, (LOC: Fifth Third Bank) 1.120% 05/01/12 (a) 1,000,000 1,000,000 Young Men's Christian Association, (LOC: Wachovia Bank) 1.090% 02/01/24 (a) 2,490,000 2,490,000 Total Corporate Bonds (cost of $123,759,109) 123,759,109 MUNICIPAL BONDS - 17.0% Abag Finance Authority for Nonprofit Corps., California Multifamily Revenue: Bachenheimer Building Apartments, (Credit Support: FNMA) 1.080% 07/15/32 (a) 2,100,000 2,100,000
See notes to investment portfolio. 6
PAR ($) VALUE ($) - ----------------------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS - (CONTINUED) Darling Florist Building Apartments, (Credit Support: FNMA) 1.080% 07/15/35 (a) 1,500,000 1,500,000 Fine Arts Building Apartments, (Credit Support: FNMA) 1.080% 07/15/35 (a) 3,800,000 3,800,000 Breckinridge County KY Lease Program Revenue, Kentucky Association of Counties Leasing Trust, (LOC: Bank One N.A.) 1.120% 02/01/32 (a) 3,600,000 3,600,000 California Statewide Communities Development Authority, Vineyard Creek Apartments, (LOC: FHLB) 1.100% 12/01/36 (a) 3,700,000 3,700,000 City of Baltimore MD, (FSA INS)/(SPA: Bank of America) 1.100% 10/15/22 (a) 4,000,000 4,000,000 First Pentecostal Church, Inc., Noblesville, IN, (LOC: Bank One N.A.) 1.110% 11/01/26 (a) 1,660,000 1,660,000 Iowa Finance Authority, Health Care Facilities Revenue, St. Luke's Health System, (LOC: GE Capital Corp.) 1.080% 03/01/18 (a) 2,850,000 2,850,000 Jackson County MI Economic Development Corp, Vista Grande Villa, (LOC: LaSalle Bank) 1.100% 11/01/31 (a) 10,100,000 10,100,000 Michigan State University Revenue, (SPA: Landesbank Hessen-Thurigen GZ) 1.090% 02/15/33 (a) 9,850,000 9,850,000 Missouri Development Finance Board, Cultural Facilities Revenue, Nelson Gallery Foundation, (Credit Support: MBIA INS) (SPA: JP Morgan Chase Bank) 1.120% 12/01/31 (a) 11,500,000 11,500,000 New Jersey Economic Development Authority State Pension Funding, (FSA INS)/(SPA: Dexia Credit Local de France) 1.090% 02/15/29 (a) 19,000,000 19,000,000 San Antonio Educational Facilities Revenue Corp., St. Anthony Catholic High School, (LOC: Bank One N.A.) 1.140% 12/01/23 (a) 1,070,000 1,070,000 Texas State Public Finance Authority, 1.080% 06/01/04 23,000,000 23,000,000 Total Municipal Bonds (cost of $97,730,000) 97,730,000
See notes to investment portfolio. 7
PAR ($) VALUE ($) - ----------------------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY OBLIGATIONS - 34.8% Federal Home Loan Bank: 1.010% 04/25/05 (a) 7,000,000 6,996,998 1.040% 04/19/05 (a) 15,000,000 14,995,300 1.350% 04/15/05 6,000,000 6,000,000 1.350% 04/29/05 7,000,000 7,000,000 3.375% 06/15/04 20,000,000 20,091,728 4.875% 04/16/04 10,000,000 10,014,404 Federal Home Loan Mortgage Corp.: 1.040% 05/20/04 (d) 4,800,000 4,793,205 1.040% 05/28/04 (d) 3,000,000 2,995,060 1.085% 11/07/05 (a) 8,000,000 8,000,000 1.110% 10/07/05 (a) 30,000,000 30,000,000 1.145% 04/02/04 (d) 7,655,000 7,654,757 1.180% 06/21/04 (d) 8,700,000 8,676,901 1.270% 07/23/04 (d) 7,712,000 7,681,257 1.290% 08/12/04 (d) 15,000,000 14,928,512 3.000% 07/15/04 10,000,000 10,054,245 Federal National Mortgage Association: 1.040% 03/23/05 (d) 25,000,000 24,995,098 1.610% 12/30/04 15,000,000 15,000,000 Total U.S. Government Agency Obligations (cost of $199,877,465) 199,877,465 SHORT-TERM OBLIGATION - 0.0% Repurchase agreement with State Street Bank Trust & Co., dated 03/31/04, due 04/01/04 at 1.010%, collateralized by a U.S. Government Agency Obligation maturing 06/17/05, market value $145,620 (repurchase proceeds $138,004) (cost of $138,000) 138,000 138,000 TOTAL INVESTMENTS - 101.3% (COST OF $582,139,792) (e) 582,139,792 OTHER ASSETS & LIABILITIES, NET - (1.3)% (7,335,239) NET ASSETS - 100.0% 574,804,553
NOTES TO INVESTMENT PORTFOLIO: (a) Floating rate note whose interest rate is reset periodically based on an index. The rate shown reflects the rate in effect at March 31, 2004. (b) Represents private placement securities exempt from registration by Section 4(2) of the Securities Act of 1933. These securities generally are issued to investors who agree that they are purchasing the securities for investments and not for public distribution. Any resale by the Fund must be in an exempt transaction, normally to other institutional investors. At March 31, 2004, the aggregate amortized cost of the Fund's private placement securities were $29,978,320 which represents 5.2% of net assets. None of these securities were deemed illiquid. See notes to financial statements. 8 (c) This security is exempt from registration under Rule 144A of the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2003, the value of these securities amounted to $29,011,600 which represents 5.0% of net assets. (d) These issuers show the rate of discount at time of purchase. (e) Cost for both financial statement and federal income tax purposes is the same.
ACRONYM NAME Abag Association of Bay Area Government FHLB Federal Home Loan Bank FNMA Federal National Mortgage Association FSA Financial Security Assurance INS Insured LOC Letter of Credit/Line of Credit MBIA Municipal Bond Insurance Association SPA Stand-by Purchase Agreement
See notes to financial statements. 9 STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2004 COLUMBIA MONEY MARKET FUND
($) - ----------------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at cost 582,139,792 ------------ Investments, at value 582,139,792 Cash 11,532 Receivable for: Fund shares sold 549,588 Interest 1,503,301 Expense reimbursement due from Investment Advisor 56,345 Deferred Trustees' compensation plan 20,919 ------------ Total Assets 584,281,477 LIABILITIES Payable for: Investments purchased 7,000,000 Fund shares repurchased 1,830,775 Distributions 5,947 Investment advisory fee 116,174 Administration fee 121,327 Transfer agent fee 211,013 Pricing and bookkeeping fees 21,466 Trustees' fees 853 Custody fee 1,508 Distribution and service fees 75,676 Deferred Trustees' fees 20,919 Other liabilities 71,266 ------------ Total Liabilities 9,476,924 NET ASSETS 574,804,553 COMPOSITION OF NET ASSETS Paid-in capital 574,841,746 Overdistributed net investment income (30,652) Accumulated net realized loss (6,541) NET ASSETS 574,804,553 CLASS A Net assets 228,749,537 Shares outstanding 228,802,720 Net asset value and offering price per share 1.00(a) CLASS B Net assets 82,338,097 Shares outstanding 82,370,247 Net asset value and offering price per share 1.00(a) CLASS C Net assets 15,392,864 Shares outstanding 15,397,862 Net asset value and offering price per share 1.00(a) CLASS Z Net assets 248,324,055 Shares outstanding 248,576,032 Net asset value and offering price per share 1.00
(a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. See notes to financial statements. 10 STATEMENT OF OPERATIONS MARCH 31, 2004 COLUMBIA MONEY MARKET FUND
FOR THE PERIOD FOR THE YEAR ENDED MARCH 31, ENDED JUNE 30, 2004(a)($) 2003($) - ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Interest 5,071,862 10,356,589 EXPENSES Expenses allocated from Portfolio -- 62,591 Investment advisory fee 1,089,504 1,604,484 Administration fee 1,072,804 1,618,442 Distribution fee: Class B 552,648 935,260 Class C 86,813 149,072 Service fee: Class B 184,216 311,753 Class C 28,955 49,713 Transfer agent fee 1,516,303 2,361,034 Pricing and bookkeeping fees 112,053 248,577 Trustees' fees 20,155 24,509 Custody fee 15,120 16,583 Merger expense -- 39,150 Other expenses 228,050 232,322 --------------------------------- Total Expenses 4,906,621 7,653,490 Fees and expenses waived by Investment Advisor (173,055) -- Distribution and service fees reimbursed by Investment Advisor: Class B (601,801) (700,271) Class C (25,058) (12,527) Fees waived by Distributor - Class C (69,440) (119,245) Custody earnings credit (1,009) (3,126) --------------------------------- Net Expenses 4,036,258 6,818,321 --------------------------------- Net Investment Income 1,035,604 3,538,268 NET REALIZED GAIN (LOSS) ON Net realized loss on investments (149) -- INVESTMENTS --------------------------------- Net Increase in Net Assets from Operations 1,035,455 3,538,268
(a) The Fund changed its fiscal year end from June 30 to March 31. See notes to financial statements. 11 STATEMENTS OF CHANGES IN NET ASSETS MARCH 31, 2004 COLUMBIA MONEY MARKET FUND
PERIOD ENDED YEAR ENDED YEAR ENDED MARCH 31, JUNE 30, JUNE 30, INCREASE (DECREASE) IN NET ASSETS: 2004(a)($) 2003(b)($) 2002 ($) - ----------------------------------------------------------------------------------------------------------------------------- OPERATIONS Net investment income 1,035,604 3,538,268 3,766,522 Net realized loss on investments (149) -- -- --------------------------------------------------- Net Increase from Operations 1,035,455 3,538,268 3,766,522 DISTRIBUTIONS DECLARED TO From net investment income: SHAREHOLDERS Class A (441,305) (1,493,624) (2,973,519) Class B (73,946) (208,504) (644,928) Class C (12,956) (55,169) (156,549) Class Z (588,244) (1,763,556) -- --------------------------------------------------- Total Distributions Declared to Shareholders (1,116,451) (3,520,853) (3,774,996) SHARE TRANSACTIONS Class A: Subscriptions 271,755,492 910,150,826 863,868,895 Distributions reinvested 412,583 1,302,088 2,488,176 Redemptions (309,985,945) (855,426,770) (845,560,093) --------------------------------------------------- Net Increase (Decrease) (37,817,870) 56,026,144 20,796,978 Class B: Subscriptions 54,247,449 155,689,122 133,987,302 Distributions reinvested 64,742 158,062 555,248 Redemptions (82,734,676) (141,953,170) (118,589,391) --------------------------------------------------- Net Increase (Decrease) (28,422,485) 13,894,014 15,953,159 Class C: Subscriptions 33,670,794 120,063,340 106,686,947 Distributions reinvested 10,662 45,279 128,677 Redemptions (35,609,703) (123,559,631) (96,052,718) --------------------------------------------------- Net Increase (Decrease) (1,928,247) (3,451,012) 10,762,906 Class Z: Subscriptions 167,190,771 262,511,827 -- Proceeds received in connection with merger -- 338,355,029 -- Distributions reinvested 565,585 1,710,449 -- Redemptions (208,829,522) (313,151,895) -- --------------------------------------------------- Net Increase (Decrease) (41,073,166) 289,425,410 -- Net Increase (Decrease) from Share Transactions (109,241,768) 355,894,556 47,513,043 --------------------------------------------------- Total Increase (Decrease) in Net Assets (109,322,764) 355,911,971 47,504,569 NET ASSETS Beginning of period 684,127,317 328,215,346 280,710,777 End of period 574,804,553 684,127,317 328,215,346 Undistributed (overdistributed) net investment income at end of period (30,652) 42,533 (14,032) CHANGES IN SHARES Class A: Subscriptions 271,755,491 910,150,825 863,870,771 Issued for distributions reinvested 412,582 1,302,088 2,488,176 Redemptions (309,985,944) (855,426,769) (845,563,936) --------------------------------------------------- Net Increase (Decrease) (37,817,871) 56,026,144 20,795,011 Class B: Subscriptions 54,247,449 155,689,123 133,987,311 Issued for distributions reinvested 64,742 158,062 555,248 Redemptions (82,734,670) (141,953,166) (118,589,191) --------------------------------------------------- Net Increase (Decrease) (28,422,479) 13,894,019 15,953,368 Class C: Subscriptions 33,670,794 120,063,342 106,687,018 Issued for distributions reinvested 10,662 45,279 128,677 Redemptions (35,609,703) (123,559,630) (96,052,717) --------------------------------------------------- Net Increase (Decrease) (1,928,247) (3,451,009) 10,762,978 Class Z: Subscriptions 167,190,771 262,735,612 -- Issued in connection with merger -- 338,355,029 -- Issued for distributions reinvested 565,585 1,710,449 -- Redemptions (208,829,520) (313,151,894) -- --------------------------------------------------- Net Increase (Decrease) (41,073,164) 289,649,196 --
(a) The Fund changed its fiscal year end from June 30 to March 31. (b) Class Z shares commenced operations on July 29, 2002. See notes to financial statements. 12 NOTES TO FINANCIAL STATEMENTS MARCH 31, 2004 COLUMBIA MONEY MARKET FUND NOTE 1. ORGANIZATION Columbia Money Market Fund (the "Fund"), a series of Columbia Funds Trust II (the "Trust"), is a diversified portfolio. The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end management investment company. INVESTMENT GOAL The Fund seeks maximum current income consistent with capital preservation and the maintenance of liquidity. FUND SHARES The Fund may issue an unlimited number of shares, and offers four classes of shares: Class A, Class B, Class C and Class Z. Each share class has its own sales charge and expense structure. Class A shares are sold at net asset value. Class A shares are subject to a 1.00% contingent deferred sales charge ("CDSC") on shares sold within eighteen months on an original purchase of $1 million to $25 million. When exchanged for Class A shares in another Columbia Fund, a sales charge may be imposed. Class B shares are subject to a maximum CDSC of 5.00% based upon the holding period after purchase. Class B shares will convert to Class A shares in a certain number of years after purchase, depending on the program under which shares were purchased. Class C shares are subject to a 1.00% CDSC on shares sold within one year after purchase. Class Z shares are offered continuously at net asset value. There are certain restrictions on the purchase of Class Z shares, as described in the Fund's prospectus. On October 13, 2003, the Liberty Money Market Fund was renamed Columbia Money Market Fund. Also on this date, the Liberty Funds Trust II was renamed Columbia Funds Trust II. The fiscal year end of the Fund was changed from June 30 to March 31. Accordingly, the Fund's fiscal year ended on March 31, 2004. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. SECURITY VALUATION Securities in the Fund are valued utilizing the amortized cost valuation method permitted in accordance with Rule 2a-7 under the 1940 Act provided certain conditions are met. This method involves valuing a portfolio security initially at its cost and thereafter assuming a constant amortization to maturity of any discount or premium. SECURITY TRANSACTIONS Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes. REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions with institutions that the Fund's investment advisor has determined are creditworthy. The Fund, through its custodian, receives delivery of underlying securities collateralizing a repurchase agreement. Collateral is at least equal, at all times, to the value of the repurchase obligation including interest. A repurchase agreement transaction involves certain risks in the event of default or insolvency of the counterparty. These risks include possible delays or restrictions upon the Fund's ability to dispose of the underlying securities and a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights. INCOME RECOGNITION Interest income is recorded on the accrual basis. Premium and discount are amortized and accreted, respectively, on all debt securities. 13 DETERMINATION OF CLASS NET ASSET VALUES All income, expenses (other than class-specific expenses, as shown on the Statement of Operations) and realized and unrealized gains (losses) are allocated to each class of the Fund on a daily basis for purposes of determining the net asset value of each class. Income and expenses are allocated to each class based on the settled shares method, while realized and unrealized gains (losses) are allocated based on the relative net assets of each class. FEDERAL INCOME TAX STATUS The Fund intends to qualify each year as a "regulated investment company" under Subchapter M of the Internal Revenue Code, as amended, and will distribute substantially all of its taxable income, if any, for its tax year, and as such will not be subject to federal income taxes. In addition, by distributing in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, the Fund will not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded. DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income are declared daily and paid monthly. Net realized capital gains, if any, are distributed at least annually. NOTE 3. FEDERAL TAX INFORMATION The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund's capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations. For the period ended March 31, 2004, permanent differences resulting primarily from differing treatments for return of capital distributions were identified and reclassified among the components of the Fund's net assets as follows:
OVERDISTRIBUTED ACCUMULATED NET INVESTMENT NET REALIZED PAID-IN INCOME LOSS CAPITAL --------------------------------------------- $ 7,662 $ (2) $ (7,660)
Net investment income and net realized gains (losses), as disclosed on the Statement of Operations, and net assets were not affected by this reclassification. The tax character of distributions paid during the period ended and the year ended March 31, 2004 and June 30, 2003, respectively, was as follows:
MARCH 31, 2004 JUNE 30, 2003 - -------------------------------------------------------------------- Distributions paid from: Ordinary Income* $ 1,116,451 $ 3,520,853
* For tax purposes short-term capital gains distributions, if any, are considered ordinary income distributions. The following capital loss carryforwards may be available to reduce taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code:
YEAR OF EXPIRATION CAPITAL LOSS CARRYFORWARD -------------------------------------------------------- 2005 $ 266 2006 2,756 2007 1,437 2008 1,578 2009 355 2012 149 -------- Total $ 6,541
Of the capital loss carryforwards attributable to the Fund, $4,030 ($266 will expire March 31, 2005, $2,756 will expire March 31, 2006, $13 will expire March 31, 2007 and $995 will expire March 31, 2008) was obtained in the merger with Stein Roe Cash Reserves Fund. NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES INVESTMENT ADVISORY FEE Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004, FleetBoston was acquired by Bank of America Corporation ("BOA"). Columbia receives a monthly investment advisory fee based on the Fund's average daily net assets as follows:
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE ------------------------------------------------- First $500 million 0.250% Next $500 million 0.225% Over $1 billion 0.200%
14 For the period July 1, 2003 through October 31, 2003, Columbia voluntarily waived its investment advisory fee by 0.08% annually of the Fund's average daily net assets. For the period ended March 31, 2004 and the year ended June 30, 2003, the Fund's annualized effective investment advisory fee rates were 0.21% and 0.24%, respectively. ADMINISTRATION FEE Columbia provides accounting and other services for a monthly administration fee based on the Fund's average daily net assets as follows:
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE -------------------------------------------------- First $500 million 0.250% Next $500 million 0.200% Over $1 billion 0.150%
For the period ended March 31, 2004 and the year ended June 30, 2003, the Fund's annualized effective administration fee rates were 0.24% and 0.24%, respectively. PRICING AND BOOKKEEPING FEES Columbia is responsible for providing pricing and bookkeeping services to the Fund under a pricing and bookkeeping agreement. Under a separate agreement (the "Outsourcing Agreement"), Columbia has delegated those functions to State Street Corporation ("State Street"). Columbia pays the total fees collected to State Street under the Outsourcing Agreement. Under its pricing and bookkeeping agreement with the Fund, Columbia receives from the Fund an annual flat fee of $10,000 paid monthly, and in any month that the Fund's average daily net assets exceed $50 million, an additional monthly fee. The additional fee rate is calculated by taking into account the fees payable to State Street under the Outsourcing Agreement. This rate is applied to the average daily net assets of the Fund for that month. The Fund also pays additional fees for pricing services. For the period ended March 31, 2004 and the year ended June 30, 2003, the Fund's annualized effective pricing and bookkeeping fee rates were 0.025% and 0.036%, respectively. TRANSFER AGENT FEE Columbia Funds Services, Inc. (the "Transfer Agent"), formerly Liberty Funds Services, Inc., an indirect, wholly owned subsidiary of BOA, provides shareholder services to the Fund. For such services, the Transfer Agent receives a fee, paid monthly, at the annual rate of $33.50 per open account. The Transfer Agent also receives reimbursement for certain out-of-pocket expenses. Prior to November 1, 2003, the Transfer Agent was entitled to receive a monthly transfer agent fee at the annual rate of 0.06% of the Fund's average daily net assets plus flat-rate charges based on the number of shareholder accounts and transactions. The Transfer Agent was also entitled to receive reimbursement for certain out-of-pocket expenses. For the period ended March 31, 2004 and the year ended June 30, 2003, the Fund's annualized effective transfer agent fee rates, inclusive of out-of-pocket fees, were 0.34% and 0.34%, respectively. UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES Columbia Funds Distributor, Inc. (the "Distributor"), formerly Liberty Funds Distributor, Inc., an indirect, wholly owned subsidiary of BOA, is the principal underwriter of the Fund. For the period ended March 31, 2004, the Distributor has received CDSC fees of $91,751, $544,399 and $14,171 on Class A, Class B and Class C share redemptions, respectively. For the year ended June 30, 2003, the Distributor has received CDSC fees of $270,386, $1,224,387 and $104,612 on Class A, Class B and Class C share redemptions, respectively. The Fund has adopted a 12b-1 plan (the "Plan") which requires the payment of a monthly service fee to the Distributor at the annual rate of 0.25% of the average daily net assets attributable to Class B and Class C shares of the Fund. The Plan also requires the payment of a monthly distribution fee to the Distributor at the annual rate of 0.75% of the average daily net assets attributable to Class B and Class C shares only. The Distributor has voluntarily agreed to waive a portion of the Class C share distribution fee so that it will not exceed 0.15% annually of Class C average daily net assets. In addition, Columbia has voluntarily agreed to reimburse a portion of the Class B and Class C share distribution and service fees. The CDSC and the fees received from the Plan are used principally as repayment to the Distributor for amounts paid by the Distributor to dealers who sold such shares. 15 CUSTODY CREDITS The Fund has an agreement with its custodian bank under which custody fees may be reduced by balance credits. The Fund could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement. FEES PAID TO OFFICERS AND TRUSTEES The Fund pays no compensation to its officers, all of whom are employees of Columbia or its affiliates. The Fund's Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund's assets. NOTE 5. LINE OF CREDIT The Fund and other affiliated funds participate in a $350,000,000 credit facility, which is used for temporary or emergency purposes to facilitate portfolio liquidity. Interest is charged to the Fund based on its borrowings. In addition, the Fund has agreed to pay commitment fees on its pro-rata portion of the unutilized line of credit. The commitment fee is included in "Other expenses" on the Statement of Operations. Prior to April 26, 2003, the Fund participated in a separate credit agreement with similar terms to its existing agreement. For the period ended March 31, 2004 and the year ended June 30, 2003, the Fund did not borrow under these arrangements. NOTE 6. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES LEGAL PROCEEDINGS Columbia, the Distributor, and certain of their affiliates (collectively, "The Columbia Group") have received information requests and subpoenas from various regulatory and law enforcement authorities in connection with their investigations of late trading and market timing in mutual funds. The Columbia Group has not uncovered any instances where Columbia or the Distributor were knowingly involved in late trading of mutual fund shares. On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a civil complaint in the United States District Court for the District of Massachusetts against Columbia and the Distributor, alleging that they had violated certain provisions of the federal securities laws in connection with trading activity in mutual fund shares. Also on February 24, 2004, the New York Attorney General ("NYAG") filed a civil complaint in New York Supreme Court, County of New York against Columbia and the Distributor alleging that Columbia and the Distributor had violated certain New York anti-fraud statutes. If either Columbia or the Distributor is unsuccessful in its defense of these proceedings, it could be barred from serving as an investment advisor or distributor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could prevent Columbia, the Distributor or any company that is an affiliated person of Columbia and the Distributor from serving as an investment advisor or distributor for any registered investment company, including your fund. Your fund has been informed by Columbia and the Distributor that, if these results occur, they will seek exemptive relief from the SEC to permit them to continue to serve as your fund's investment advisor and distributor. There is no assurance that such exemptive relief will be granted. On March 15, 2004, Columbia and the Distributor entered into agreements in principle with the SEC Division of Enforcement and NYAG in settlement of the charges. Under the agreements, Columbia and the Distributor agreed, inter alia, to the following conditions: payment of $70 million in disgorgement; payment of $70 million in civil penalties; an order requiring Columbia and the Distributor to cease and desist from violations of the antifraud provisions and other provisions of the federal securities laws; governance changes designed to maintain the independence of the mutual fund boards of trustees and ensure compliance with securities laws and their fiduciary duties; and retention of an independent consultant to review Columbia's and the Distributor's compliance policies and procedures. The agreement requires the final approval of the SEC. In a separate agreement with the NYAG, the Columbia Group has agreed to reduce mutual fund fees by $80 million over a five-year period. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds. 16 NOTE 7. SUBSEQUENT EVENT On April 1, 2004, FleetBoston, including the Fund's investment advisor and distributor, was acquired by BOA. The merger did not change the way the Fund is managed, the investment personnel assigned to manage the Fund or the fees paid by the Fund. NOTE 8. BUSINESS COMBINATIONS AND MERGERS As of the end of business on July 26, 2002, the net assets of Stein Roe Cash Reserves Fund were transferred to the Fund in a tax-free exchange and shareholders of Stein Roe Cash Reserves Fund received shares of the Fund in exchange for their shares as follows:
NET ASSETS OF THE STEIN ROE CASH SHARES ISSUED RESERVES FUND RECEIVED --------------------------------------------------------- 338,355,029 $ 338,355,029
NET ASSETS OF NET ASSETS STEIN ROE CASH NET ASSETS OF OF THE RESERVES FUND THE FUND FUND PRIOR IMMEDIATELY PRIOR IMMEDIATELY TO COMBINATION TO COMBINATION AFTER COMBINATION ------------------------------------------------------------- $ 354,468,496 $ 338,355,029 $ 692,823,525
PORTFOLIO STRUCTURE Prior to July 29, 2002, the Fund invested substantially all of its assets in the SR&F Cash Reserves Portfolio (the "Portfolio") as part of a master/feeder structure. The Portfolio allocated income, expenses, realized and unrealized gains (losses) to each investor on a daily basis, based on methods in compliance with the Internal Revenue Service. Prior to the reorganization described above, the Fund's pro-rata share of the net assets of the Portfolio were distributed to the Fund based on allocation methods in compliance with the Internal Revenue Service. 17 FINANCIAL HIGHLIGHTS COLUMBIA MONEY MARKET FUND SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD ENDED MARCH 31, YEAR ENDED JUNE 30, CLASS A SHARES 2004(a) 2003(b) 2002(b) 2001(b) 2000(b) 1999(b) - --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.002(c) 0.006(c) 0.015 0.052 0.052 0.046 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.002) (0.006) (0.015) (0.052) (0.052) (0.046) - --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 Total return (d) 0.22%(e)(f) 0.60% 1.56% 5.34%(f) 5.26%(f) 4.70%(f) - --------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Expenses 0.88%(g)(h) 0.89%(g) 1.01% 0.70% 0.65%(g) 0.68%(g) Net investment income 0.27%(g)(h) 0.61%(g) 1.54% 5.31% 5.13%(g) 4.61%(g) Waiver/reimbursement 0.04%(h) -- -- 0.19% 0.19% 0.19% Net assets, end of period (000's) $ 228,750 $ 266,602 $ 210,616 $ 189,822 $ 178,678 $ 157,790 - ---------------------------------------------------------------------------------------------------------------------------
(a) The Fund changed its fiscal year end from June 30 to March 31. (b) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the SR&F Cash Reserves Portfolio, prior to the merger. (c) Per share data was calculated using average shares outstanding during the period. (d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (e) Not annualized. (f) Had the Investment Advisor, Administrator and/or Distributor not waived a portion of expenses, total return would have been reduced. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. 18
PERIOD ENDED MARCH 31, YEAR ENDED JUNE 30, CLASS B SHARES 2004(a) 2003(b) 2002(b) 2001(b) 2000(b) 1999(b) - --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.001(c) 0.002(c) 0.007 0.042 0.041 0.036 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.001) (0.002) (0.007) (0.042) (0.041) (0.036) - --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 Total return (d)(e) 0.08%(f) 0.17% 0.73% 4.31% 3.99% 3.68% - --------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Expenses 1.06%(g)(h) 1.41%(g) 1.84% 1.70% 1.65%(g) 1.68%(g) Net investment income 0.09%(g)(h) 0.10%(g) 0.71% 4.31% 4.13%(g) 3.61%(g) Waiver/reimbursement 0.86%(h) 0.56% 0.17% 0.19% 0.19% 0.19% Net assets, end of period (000's) $ 82,338 $ 110,776 $ 96,827 $ 80,879 $ 69,214 $ 93,821 - ---------------------------------------------------------------------------------------------------------------------------
(a) The Fund changed its fiscal year end from June 30 to March 31. (b) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the SR&F Cash Reserves Portfolio, prior to the merger. (c) Per share data was calculated using average shares outstanding for the period. (d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (e) Had the Investment Advisor, Administrator and/or Distributor not waived a portion of expenses, total return would have been reduced. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. 19
PERIOD ENDED MARCH 31, YEAR ENDED JUNE 30, CLASS C SHARES 2004(a) 2003(b) 2002(b) 2001(b) 2000(b) 1999(b) - --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.001(c) 0.003(c) 0.011 0.048 0.048 0.042 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.001) (0.003) (0.011) (0.048) (0.048) (0.042) - --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 Total return (d)(e) 0.08%(f) 0.27% 1.16% 4.93% 4.71% 4.30% - --------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Expenses 1.06%(g)(h) 1.23%(g) 1.41% 1.10% 1.05%(g) 1.08%(g) Net investment income 0.10%(g)(h) 0.30%(g) 1.14% 4.91% 4.73%(g) 4.21%(g) Waiver/reimbursement 0.86%(h) 0.66% 0.60% 0.79% 0.79% 0.79% Net assets, end of period (000's) $ 15,393 $ 17,324 $ 20,772 $ 10,010 $ 3,950 $ 2,194 - ---------------------------------------------------------------------------------------------------------------------------
(a) The Fund changed its fiscal year end from June 30 to March 31. (b) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the SR&F Cash Reserves Portfolio, prior to the merger. (c) Per share data was calculated using average shares outstanding for the period. (d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (e) Had the Investment Advisor, Administrator and/or Distributor not waived a portion of expenses, total return would have been reduced. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. 20
PERIOD ENDED PERIOD ENDED MARCH 31, JUNE 30, CLASS Z SHARES 2004(a) 2003(b) - ---------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 - ---------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (c) 0.002 0.006 - ---------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.002) (0.006) - ---------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 Total return (d)(e) 0.22%(f) 0.55% - ---------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Expenses (g)(h) 0.88% 0.89% Net investment income (g)(h) 0.27% 0.61% Waiver/reimbursement (h) 0.04% -- Net assets, end of period (000's) $ 248,324 $ 289,425 - ----------------------------------------------------------------------------
(a) The Fund changed its fiscal year end from June 30 to March 31. (b) Class Z shares were initially offered on July 29, 2002. Per share data and total return reflect activity from that date. (c) Per share data was calculated using average shares outstanding during the period. (d) Total return at net asset value assuming all distributions reinvested. (e) Not annualized. (f) Had the Investment Advisor and/or Administrator not waived a portion of expenses, total return would have been reduced. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. 21 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM COLUMBIA MONEY MARKET FUND TO THE TRUSTEES OF COLUMBIA FUNDS TRUST II AND THE SHAREHOLDERS OF COLUMBIA MONEY MARKET FUND In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Columbia Money Market Fund (the "Fund") (a series of Columbia Funds Trust II) at March 31, 2004, and the results of its operations, the changes in its net assets and the financial highlights for the nine month period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States), which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at March 31, 2004 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The financial statements of the Fund as of June 30, 2003 and for the five years in the period then ended were audited by other independent accountants whose report dated August 19, 2003 expressed an unqualified opinion on those statements. PricewaterhouseCoopers LLP Boston, Massachusetts May 19, 2004 22 UNAUDITED INFORMATION COLUMBIA MONEY MARKET FUND CHANGE IN INDEPENDENT AUDITORS On March 1, 2004, Ernst & Young LLP ("E&Y") resigned as the Fund's independent auditors. During the two most recent fiscal years, E&Y's audit reports contained no adverse opinion or disclaimer of opinion; nor were its reports qualified or modified as to uncertainty, audit scope, or accounting principle. Further, in connection with its audits for the two most recent fiscal years and through March 1, 2004, there were no disagreements between the Fund and E&Y on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which if not resolved to the satisfaction of E&Y would have caused it to make reference to the disagreement in its report on the financial statements for such years. Effective March 1, 2004, PricewaterhouseCoopers LLP was appointed as the independent auditors of the Fund for the fiscal year ended March 31, 2004. 23 TRUSTEES COLUMBIA MONEY MARKET FUND Effective October 8, 2003, Patrick J. Simpson and Richard L. Woolworth were appointed to the Board of Trustees of the Fund. Messrs. Simpson and Woolworth had been directors of 15 Columbia Funds and 20 funds in the CMG Fund Trust. Also effective October 8, 2003, the incumbent trustees of the Fund were elected as directors of the 15 Columbia Funds and as trustees of the 20 funds in the CMG Fund Trust. The new combined Board of Trustees/Directors of the Fund now oversees 118 funds in the Columbia Funds Complex (including the former Liberty Funds, former Stein Roe Funds, Columbia Funds and CMG Funds). Several of these trustees/directors also serve on the Boards of other funds in the Columbia Funds Complex. The Trustees/Directors serve terms of indefinite duration. The names, addresses and ages of the Trustees/Directors and officers of the Funds in the Columbia Funds complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee/Director and other directorships they hold are shown below. Each officer listed below serves as an officer of each Fund in the Columbia Funds Complex.
NAME, ADDRESS AND AGE, POSITION WITH FUNDS, PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN COLUMBIA FUNDS YEAR FIRST ELECTED OR APPOINTED TO OFFICE(1) COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD DISINTERESTED TRUSTEES DOUGLAS A. HACKER (age 48) Executive Vice President-Strategy of United Airlines (airline) since December 2002 P.O. Box 66100 (formerly President of UAL Loyalty Services (airline) from September 2001 to December Chicago, IL 60666 2002; Executive Vice President and Chief Financial Officer of United Airlines from Trustee (since 1996) July 1999 to September 2001; Senior Vice President-Finance from March 1993 to July 1999). Oversees 118, Orbitz (online travel company) JANET LANGFORD KELLY (age 46) Private Investor since March 2004 (formerly Chief Administrative Officer and Senior 9534 W. Gull Lake Drive Vice President, Kmart Holding Corporation (consumer goods) from September 2003 to Richland, MI 49083-8530 March 2004; Executive Vice President-Corporate Development and Administration, Trusttee (since 1996) General Counsel and Secretary, Kellogg Company (food manufacturer), from September 1999 to August 2003; Senior Vice President, Secretary and General Counsel, Sara Lee Corporation (branded, packaged, consumer-products manufacturer) from January 1995 to September 1999). Oversees 118, None RICHARD W. LOWRY (age 68) Private Investor since August 1987 (formerly Chairman and Chief Executive Officer, 10701 Charleston Drive U.S. Plywood Corporation (building products manufacturer). Oversees 120(3), None Vero Beach, FL 32963 Trustee (since 1995) CHARLES R. NELSON (age 61) Professor of Economics, University of Washington, since January 1976; Ford and Louisa Department of Economics Van Voorhis Professor of Political Economy, University of Washington, since September University of Washington 1993; (formerly Director, Institute for Economic Research, University of Washington Seattle, WA 98195 from September 2001 to June 2003) Adjunct Professor of Statistics, University of Trustee (since 1981) Washington, since September 1980; Associate Editor, Journal of Money Credit and Banking, since September 1993; consultant on econometric and statistical matters. Oversees 118, None
(1) In December 2000, the boards of each of the former Liberty Funds and former Stein Roe Funds were combined into one board of trustees responsible for the oversight of both fund groups (collectively, the "Liberty Board"). In October 2003, the trustees on the Liberty Board were elected to the boards of the Columbia Funds (the "Columbia Board") and of the CMG Fund Trust (the "CMG Funds Board"); simultaneous with that election, Patrick J. Simpson and Richard L. Woolworth, who had been directors on the Columbia Board and trustees on the CMG Funds Board, were appointed to serve as trustees of the Liberty Board. The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Columbia Funds complex. 24
NAME, ADDRESS AND AGE, POSITION WITH FUNDS, PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN COLUMBIA FUNDS YEAR FIRST ELECTED OR APPOINTED TO OFFICE(1) COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD DISINTERESTED TRUSTEES JOHN J. NEUHAUSER (age 61) Academic Vice President and Dean of Faculties since August 1999, Boston College 84 College Road (formerly Dean, Boston College School of Management from September 1977 to September Chestnut Hill, MA 02467-3838 1999). Oversees 121(3),(4), Saucony, Inc. (athletic footwear) Trustee (since 1985) PATRICK J. SIMPSON (age 59) Partner, Perkins Coie L.L.P. (law firm). Oversees 118, None 1120 N.W. Couch Street Tenth Floor Portland, OR 97209-4128 Trustee (since 2000) THOMAS E. STITZEL (age 68) Business Consultant since 1999 (formerly Professor of Finance from 1975 to 1999, 2208 Tawny Woods Place College of Business, Boise State University); Chartered Financial Analyst. Oversees Boise, ID 83706 118, None Trustee (since 1998) THOMAS C. THEOBALD (age 67) Managing Director, William Blair Capital Partners (private equity investing) since 227 West Monroe Street, September 1994. Oversees 118, Anixter International (network support equipment Suite 3500 distributor), Jones Lang LaSalle (real estate management services), MONY Group (life Chicago, IL 60606 insurance) and Ventas, Inc (real estate investment trust) Trustee and Chairman of the Board(5) (since 1996) ANNE-LEE VERVILLE (age 58) Retired since 1997 (formerly General Manager, Global Education Industry, IBM 359 Stickney Hill Road Corporation (computer and technology) from 1994 to 1997). Oversees 119(4), Chairman Hopkinton, NH 03229 of the Board of Directors, Enesco Group, Inc. (designer, importer and distributor of Trustee (since 1998) giftware and collectibles) RICHARD L. WOOLWORTH (age 63) Retired since December 2003 (formerly Chairman and Chief Executive Officer, The 100 S.W. Market Street #1500 Regence Group (regional health insurer); Chairman and Chief Executive Officer, Portland, OR 97207 BlueCross BlueShield of Oregon; Certified Public Accountant, Arthur Young & Company). Trustee (since 1991) Oversees 118, Northwest Natural Gas Co. (natural gas service provider) INTERESTED TRUSTEES WILLIAM E. MAYER(2) (age 64) Managing Partner, Park Avenue Equity Partners (private equity) since February 1999 399 Park Avenue (formerly Founding Partner, Development Capital LLC from November 1996 to February Suite 3204 1999). Oversees 120(3), Lee Enterprises (print media), WR Hambrecht + Co. (financial New York, NY 10022 service provider), First Health (healthcare), Reader's Digest (publishing) and Trustee (since 1994) OPENFIELD Solutions (retail industry technology provider)
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co. (3) Messrs. Lowry, Neuhauser and Mayer each also serve as a director/trustee of the All-Star Funds, currently consisting of 2 funds, which are advised by an affiliate of the Advisor. (4) Mr. Neuhauser and Ms. Verville also serve as disinterested directors of Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor. (5) Mr. Theobald was appointed as Chairman of the Board effective December 10, 2003. 25 OFFICERS COLUMBIA MONEY MARKET FUND
NAME, ADDRESS AND AGE, POSITION WITH COLUMBIA FUNDS, YEAR FIRST ELECTED OR APPOINTED TO OFFICE PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS VICKI L. BENJAMIN (age 42) Chief Accounting Officer of the Columbia Funds and Liberty All-Star Funds One Financial Center since June 2001 (formerly Controller of the Columbia Funds and of the Liberty Boston, MA 02111 All-Star Funds from May 2002 to May 2004); Controller and Chief Accounting Chief Accounting Officer (since 2001) Officer of the Galaxy Funds since September 2002 (formerly Vice President, Corporate Audit, State Street Bank and Trust Company from May 1998 to April 2001). MICHAEL CLARKE (age 34) Controller of the Columbia Funds and of the Liberty All-Star Funds since 2004 One Financial Center (formerly Assistant Treasurer from June 2002 to May 2004; Vice President, Boston, MA 02111 Product Strategy & Development of Liberty Funds Group from February 2001 to Controller (since 2004) June 2002; Assistant Treasurer of the Liberty Funds and of the Liberty All-Star Funds from August 1999 to February 2001; Audit Manager at Deloitte & Touche LLP from May 1997 to August 1999). J. KEVIN CONNAUGHTON (age 39) President of the Columbia Funds since February 27, 2004; Treasurer of the One Financial Center Columbia Funds and of the Liberty All-Star Funds since December 2000; Vice Boston, MA 02111 President of the Advisor since April 2003 (formerly Chief Accounting Officer Treasurer (since 2000) and and Controller of the Liberty Funds and Liberty All-Star Funds from February President (since 2004) 1998 to October 2000); Treasurer of the Galaxy Funds since September 2002; Treasurer, Columbia Management Multi-Strategy Hedge Fund, LLC since December 2002 (formerly Vice President of Colonial from February 1998 to October 2000). DAVID A. ROZENSON (age 49) Secretary of the Columbia Funds and of the Liberty All-Star Funds since One Financial Center December 2003; Senior Counsel, Fleet Boston Financial Corporation since Boston, MA 02111 January 1996; Associate General Counsel, Columbia Management Group since Secretary (since 2003) November 2002.
26 IMPORTANT INFORMATION ABOUT THIS REPORT COLUMBIA MONEY MARKET FUND TRANSFER AGENT Columbia Funds Services, Inc. P.O. Box 8081 Boston MA 02266-8081 800.345.6611 DISTRIBUTOR Columbia Funds Distributor, Inc. One Financial Center Boston MA 02111 INVESTMENT ADVISOR Columbia Management Advisors, Inc. 100 Federal Street Boston MA 02110 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 125 High Street Boston MA 02110 The fund mails one shareholder report to each shareholder address. If you would like more than one report, please call shareholder services at 800-345-6611 and additional reports will be sent to you. This report has been prepared for shareholders of Columbia Money Market Fund. This report may also be used as sales literature when preceded or accompanied by the current prospectus which provides details of sales charges, investment objectives and operating policies of the fund and with the most recent copy of the Columbia Funds Performance Update. A description of the policies and procedures that the fund uses to determine how to vote proxies relating to its portfolio securities is available (i) without charge, upon request, by calling 800-345-6611 and (ii) on the Securities and Exchange Commission's website at http://www.sec.gov. 27 COLUMBIA FUNDS COLUMBIA MONEY MARKET FUND LARGE GROWTH Columbia Common Stock Columbia Growth Columbia Growth Stock Columbia Large Cap Growth Columbia Tax-Managed Growth Columbia Tax-Managed Growth II Columbia Young Investor LARGE VALUE Columbia Disciplined Value Columbia Growth & Income Columbia Large Cap Core Columbia Tax-Managed Value MIDCAP GROWTH Columbia Acorn Select Columbia Mid Cap Growth Columbia Tax-Managed Aggressive Growth MIDCAP VALUE Columbia Dividend Income Columbia Mid Cap Columbia Strategic Investor SMALL GROWTH Columbia Acorn Columbia Acorn USA Columbia Small Company Equity SMALL VALUE Columbia Small Cap Columbia Small-Cap Value BALANCED Columbia Asset Allocation Columbia Balanced Columbia Liberty Fund SPECIALTY Columbia Real Estate Equity Columbia Technology Columbia Utilities TAXABLE FIXED-INCOME Columbia Contrarian Income Columbia Corporate Bond Columbia Federal Securities Columbia Fixed Income Securities Columbia High Yield Columbia High Yield Opportunities Columbia Income Columbia Intermediate Bond Columbia Intermediate Government Income Columbia Quality Plus Bond Columbia Short Term Bond Columbia Strategic Income FLOATING RATE Columbia Floating Rate Columbia Floating Rate Advantage TAX EXEMPT Columbia High Yield Municipal Columbia Intermediate Tax-Exempt Bond Columbia Managed Municipals Columbia National Municipal Bond Columbia Tax-Exempt Columbia Tax-Exempt Insured 28 SINGLE STATE TAX EXEMPT Columbia California Tax-Exempt Columbia Connecticut Intermediate Municipal Bond Columbia Connecticut Tax-Exempt Columbia Florida Intermediate Municipal Bond Columbia Massachusetts Intermediate Municipal Bond Columbia Massachusetts Tax-Exempt Columbia New Jersey Intermediate Municipal Bond Columbia New York Intermediate Municipal Bond Columbia New York Tax-Exempt Columbia Oregon Municipal Bond Columbia Pennsylvania Intermediate Municipal Bond Columbia Rhode Island Intermediate Municipal Bond MONEY MARKET Columbia Money Market Columbia Municipal Money Market INTERNATIONAL/GLOBAL Columbia Acorn International Columbia Acorn International Select Columbia Europe Columbia Global Equity Columbia International Stock Columbia Newport Asia Pacific Columbia Newport Greater China Columbia Newport Tiger INDEX Columbia Large Company Index Columbia Small Company Index Columbia U.S. Treasury Index PLEASE CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF A MUTUAL FUND CAREFULLY BEFORE INVESTING. CONTACT US AT 800-345-6611 FOR A PROSPECTUS WHICH CONTAINS THIS AND OTHER IMPORTANT INFORMATION ABOUT THE FUND. READ IT CAREFULLY BEFORE YOU INVEST. For complete product information on any Columbia fund, visit our website at www.columbiafunds.com. Columbia Management Group and Columbia Management refer collectively to the various investment advisory subsidiaries of Columbia Management Group, including Columbia Management Advisors, Inc., the registered investment advisor, and Columbia Funds Distributor, Inc. 29 [GRAPHIC] eDelivery Help your fund reduce printing and postage costs! Elect to get your shareholder reports by electronic delivery. With Columbia's eDelivery program, you receive an e-mail message when your shareholder report becomes available online. If your fund account is registered with Columbia Funds, you can sign up quickly and easily on our website at www.columbiafunds.com. Please note -- if you own your fund shares through a financial institution, contact the institution to see if it offers electronic delivery. If you own your fund shares through a retirement plan, electronic delivery may not be available to you. COLUMBIA MONEY MARKET FUND ANNUAL REPORT, MARCH 31, 2004 PRSRT STD U.S. POSTAGE PAID HOLLISTON, MA PERMIT NO. 20 [COLUMBIAFUNDS(R) LOGO] A MEMBER OF COLUMBIA MANAGEMENT GROUP (C) 2004 COLUMBIA FUNDS DISTRIBUTOR, INC. ONE FINANCIAL CENTER, BOSTON, MA 02111-2621 800.345.6611 www.columbiafunds.com 757-02/628R-0304 (05/04) 04/1079 ITEM 2. CODE OF ETHICS. (a) The registrant has, as of the end of the period covered by this report, adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. (b) During the period covered by this report, there were not any amendments to a provision of the code of ethics adopted in 2(a) above. (c) During the period covered by this report, there were not any waivers or implicit waivers to a provision of the code of ethics adopted in 2(a) above. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's Board of Trustees has determined that Douglas A. Hacker, Thomas E. Stitzel, Anne-Lee Verville and Richard L. Woolworth, each of whom are members of the registrant's Board of Trustees and Audit Committee, each qualify as an audit committee financial expert. Mr. Hacker, Mr. Stitzel, Ms. Verville and Mr. Woolworth are each independent trustees, as defined in paragraph (a)(2) of this item's instructions and collectively constitute the entire Audit Committee. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Fee information below is disclosed in aggregate for the series of the registrant whose reports to stockholders are included in this annual filing. Effective in 2004, the series included in this filing changed its fiscal year-end to March 31 from June 30. Also, effective March 1, 2004, the registrant engaged new independent accountants. Unless otherwise noted, fees disclosed below represent fees paid or accrued to the current and predecessor principal accountants while each was engaged by the registrant. (a) Aggregate Audit Fees billed by the principal accountant for professional services rendered during the fiscal years ended March 31, 2004 and June 30, 2003 are as follows: 2004 2003 $20,460 $22,500 Audit Fees include amounts related to the audit of the fund's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. (b) Aggregate Audit-Related Fees billed by the principal accountant for professional services rendered during the fiscal years ended March 31, 2004 and June 30, 2003 are as follows: 2004 2003 $4,000 $9,500 Audit-Related Fees include amounts for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported in Audit Fees above. In both fiscal years 2004 and 2003, Audit-Related Fees include certain agreed-upon procedures performed for semi-annual shareholder reports. In fiscal year 2003, Audit-Related Fees also include certain agreed-upon procedures performed: (1) during the conversion of the fund's accounting system, and (2) relating to fund mergers. The "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. For the fund, the percentage of Audit-Related services that were approved under the "de minimis" exception during the fiscal years ended March 31, 2004 and June 30, 2003 were zero. The pre-approval requirements for services to the investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. During the fiscal years ended March 31, 2004 and June 30, 2003, there were no Audit-Related Fees that were approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. The percentage of Audit-Related fees required to be approved under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X that were approved under the "de minimis" exception during the fiscal years ended March 31, 2004 and June 30, 2003 were zero. (c) Aggregate Tax Fees billed by the principal accountant for professional services rendered during the fiscal years ended March 31, 2004 and June 30, 2003 are as follows: 2004 2003 $1,400 $1,200 Tax Fees include amounts for professional services by the principal accountant for tax compliance, tax advice and tax planning. Tax Fees in both fiscal years 2004 and 2003 are primarily for the review of annual tax returns. The "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. For the fund, the percentage of Tax services that were approved under the "de minimis" exception during the fiscal years ended March 31, 2004 and June 30, 2003 were zero. The pre-approval requirements for services to the investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. During the fiscal years ended March 31, 2004 and June 30, 2003, there were no Tax Fees that were approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. The percentage of Tax fees required to be approved under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X that were approved under the "de minimis" exception during the fiscal years ended March 31, 2004 and June 30, 2003 were zero. (d) Aggregate All Other Fees billed by the principal accountant for professional services rendered during the fiscal years ended March 31, 2004 and June 30, 2003 are as follows: 2004 2003 $0 $0 All Other Fees include amounts for products and services provided by the principal accountant, other than the services reported in (a)-(c) above. The "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. For the fund, the percentage of All Other Fees that were approved under the "de minimis" exception during the fiscal years ended March 31, 2004 and June 30, 2003 were zero. The pre-approval requirements for services to the investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. During the fiscal year ended March 31, 2004, All Other Fees that were approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X were approximately $95,000 (note that fees were paid to the current principal accountant). During the fiscal year ended June 30, 2003, All Other Fees that would have been subject to pre-approval had paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X been applicable at the time the services were provided, were approximately $95,000 (note that fees were paid to the current principal accountant). For both fiscal years, All Other Fees relate to internal controls reviews of the fund's transfer agent. The percentage of All Other Fees required to be approved under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X that were approved under the "de minimis" exception during the fiscal years ended March 31, 2004 and June 30, 2003 were zero. (e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES I. GENERAL OVERVIEW The Audit Committee of the registrant has adopted a formal policy (the "Policy") which sets forth the procedures and the conditions pursuant to which the Audit Committee will pre-approve (i) all audit and non-audit (including audit related, tax and all other) services provided by the registrant's independent auditor to the registrant and individual funds (collectively "Fund Services"), and (ii) all non-audit services provided by the registrant's independent auditor to the funds' adviser or a control affiliate of the adviser, that relate directly to the funds' operations and financial reporting (collectively "Fund-related Adviser Services"). A "control affiliate" is an entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the funds, and the term "adviser" is deemed to exclude any unaffiliated sub-adviser whose role is primarily portfolio management and is sub-contracted or overseen by another investment adviser. The adviser and control affiliates are collectively referred to as "Adviser Entities." The Audit Committee uses a combination of specific (on a case-by-case basis as potential services are contemplated) and general (pre-determined list of permitted services) pre-approvals. Unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee if it is to be provided by the independent auditor. The Policy does not delegate the Audit Committee's responsibilities to pre-approve services performed by the independent auditor to management. II. GENERAL PROCEDURES On an annual basis, the Fund Treasurer and/or Director of Trustee Administration shall submit to the Audit Committee a schedule of the types of Fund Services and Fund-related Adviser Services that are subject to general pre-approval. These schedules will provide a description of each type of service that is subject to general pre-approval and, where possible, will provide estimated fees for each instance of providing each service. This general pre-approval and related fees (where provided) will generally cover a one-year period (for example, from July 1 through June 30 of the following year). The Audit Committee will review and approve the types of services and review the projected fees for the next one-year period and may add to, or subtract from, the list of general pre-approved services from time to time, based on subsequent determinations. This approval acknowledges that the Audit Committee is in agreement with the specific types of services that the independent auditor will be permitted to perform. The fee amounts will be updated to the extent necessary at other regularly scheduled meetings of the Audit Committee. In addition to the fees for each individual service, the Audit Committee has the authority to implement a fee cap on the aggregate amount of non-audit services provided to an individual fund. If, subsequent to general pre-approval, a fund, its investment adviser or a control affiliate determines that it would like to engage the independent auditor to perform a service that requires pre-approval and that is not included in the general pre-approval list, the specific pre-approval procedure shall be as follows: - A brief written request shall be prepared by management detailing the proposed engagement with explanation as to why the work is proposed to be performed by the independent auditor; - The request should be addressed to the Audit Committee with copies to the Fund Treasurer and/or Director of Trustee Administration; - The Fund Treasurer and/or Director of Trustee Administration will arrange for a discussion of the service to be included on the agenda for the next regularly scheduled Audit Committee meeting, when the Committee will discuss the proposed engagement and approve or deny the request. - If the timing of the project is critical and the project needs to commence before the next regularly scheduled meeting, the Chairperson of the Audit Committee may approve or deny the request on behalf of the Audit Committee, or, in the Chairperson's discretion, determine to call a special meeting of the Audit Committee for the purpose of considering the proposal. Should the Chairperson of the Audit Committee be unavailable, any other member of the Audit Committee may serve as an alternate for the purpose of approving or denying the request. Discussion with the Chairperson (or alternate, if necessary) will be arranged by the Fund Treasurer and/or Director of Trustee Administration. The independent auditor will not commence any such project unless and until specific approval has been given. III. CERTAIN OTHER SERVICES PROVIDED TO ADVISER ENTITIES The Audit Committee recognizes that there are cases where services proposed to be provided by the independent auditor to the adviser or control affiliates are not Fund-related Adviser Services within the meaning of the Policy, but nonetheless may be relevant to the Audit Committee's ongoing evaluation of the auditor's independence and objectivity with respect to its audit services to the funds. As a result, in all cases where an Adviser Entity engages the independent auditor to provide audit or non-audit services that are not Fund Services or Fund-related Adviser Services, were not subject to pre-approval by the Audit Committee, and the projected fees for any such engagement (or the aggregate of all such engagements during the period covered by the Policy) exceeds a pre-determined threshold established by the Audit Committee; the independent auditor, Fund Treasurer and/or Director of Trustee Administration will notify the Audit Committee not later than its next meeting. Such notification shall include a general description of the services provided, the entity that is to be the recipient of such services, the timing of the engagement, the entity's reasons for selecting the independent auditor, and the projected fees. Such information will allow the Audit Committee to consider whether non-audit services provided to the adviser and Adviser Entities, which were not subject to Audit Committee pre-approval, are compatible with maintaining the auditor's independence with respect to the Funds. IV. REPORTING TO THE AUDIT COMMITTEE The Fund Treasurer or Director of Trustee Administration shall report to the Audit Committee at each of its regular meetings regarding all Fund Services or Fund-related Adviser Services initiated since the last such report was rendered, including: - A general description of the services, and - Actual billed and projected fees, and - The means by which such Fund Services or Fund-related Adviser Services were pre-approved by the Audit Committee. In addition, the independent auditor shall report to the Audit Committee annually, and no more than 90 days prior to the filing of audit reports with the SEC, all non-audit services provided to entities in the funds' "investment company complex," as defined by SEC rules, that did not require pre-approval under the Policy. V. AMENDMENTS; ANNUAL APPROVAL BY AUDIT COMMITTEE The Policy may be amended from time to time by the Audit Committee. Prompt notice of any amendments will be provided to the independent auditor, Fund Treasurer and Director of Trustee Administration. The Policy shall be reviewed and approved at least annually by the Audit Committee. ***** (e)(2) This information has been included in items (b)-(d) above. (f) Not applicable. (g) All non-audit fees billed by the registrant's accountant for services rendered to the registrant for the fiscal years ended March 31, 2004 and June 30, 2003 are disclosed in (b)-(d) above. All non-audit fees billed by the registrant's accountant for services rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for the fiscal years ended March 31, 2004 and June 30, 2003 are also disclosed in (b)-(d) above. Such fees were approximately $95,000 and $95,000, respectively. (h) The registrant's Audit Committee of the Board of Directors has considered whether the provision of non-audit services that were rendered to the registrant's adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, is compatible with maintaining the principal accountant's independence. The Audit Committee determined that the provision of such services is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS Not applicable at this time. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The registrant has not filed Schedule 14A subsequent to the effective date of that Schedule's Item 7(d)(2)(ii)(G). However, it is the registrant's policy to consider candidates for the Board of Trustees/Directors who are recommend by shareholders. A Fund shareholder who wishes to nominate a candidate to the Board may send information regarding prospective candidates to the Fund's Governance Committee, care of the Fund's Secretary. The information should include evidence of the shareholder's Fund ownership, a full listing of the proposed candidate's education, experience, current employment, date of birth, names and addresses of at least three professional references, information as to whether the candidate is not an "interested person" under the 1940 Act and "independent" under NYSE Listing Standards in relation to the Fund, and such other information as may be helpful to the independent trustees/directors in evaluating the candidate. All satisfactorily completed information packages regarding a candidate will be forwarded to an independent trustee/director for consideration. ITEM 10. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer, based on his evaluation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing of this report, has concluded that such controls and procedures are adequately designed to ensure that information required to be disclosed by the registrant in Form N-CSR is accumulated and communicated to the registrant's management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 11. EXHIBITS. (a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR attached hereto as Exhibit 99.CODE ETH. (a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT. (a)(3) Not applicable. (b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (registrant) Columbia Funds Trust II ---------------------------------------------------------------- By (Signature and Title) /s/ J. Kevin Connaughton ---------------------------------------------------- J. Kevin Connaughton, President and Treasurer Date June 7, 2004 ------------------------------------------------------------------------ Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title) /s/ J. Kevin Connaughton ---------------------------------------------------- J. Kevin Connaughton, President and Treasurer Date June 7, 2004 ------------------------------------------------------------------------ EX-99.CODEETH 2 a2137590zex-99_codeeth.txt EX 99.CODEETH Exhibit 99.Code Eth COLUMBIA MANAGEMENT GROUP FAMILY OF FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. COVERED OFFICERS/PURPOSE OF THE CODE This Code of Ethics (the "Code") for the investment companies within the Columbia Management Group fund complex (collectively the "Funds" and each, a "Fund") applies to the Funds' Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, and Director of Trustee Administration (the "Covered Officers") for the purpose of promoting: - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; - full, fair, accurate, timely and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission ("SEC"), and in other public communications made by a Fund; - compliance with applicable laws and governmental rules and regulations; - the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and - accountability for adherence to the Code. Each Covered Officer shall adhere to a high standard of business ethics and shall be sensitive to situations that may give rise to actual or apparent conflicts of interest. II. ADMINISTRATION OF THE CODE . The Boards of Trustees and Boards of Directors of the Funds (collectively, the "Board") shall designate an individual to be primarily responsible for the administration of the Code (the "Code Officer"). The Code shall be administered by the Columbia Management Group Compliance Department. In the absence of the Code Officer, his or her designee shall serve as the Code Officer, but only on a temporary basis. Each Fund has designated a chief legal officer (the "Chief Legal Officer") for purposes of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. The Chief Legal Officer of a Fund shall assist the Fund's Code Officer in administration of this Code. The Chief Legal Officer shall be responsible for applying this Code to specific situations in which questions are presented under it (in consultation with Fund counsel, where appropriate) and has the authority to interpret this Code in any particular situation. However, any waivers sought by a Covered Officer must be approved by each Audit Committee of the Funds (collectively, the "Audit Committee"). III. MANAGING CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his/her service to, a Fund. For example, a conflict of interest would arise if a Covered Officer, or a family member, receives improper personal benefits as a result of the Covered Officer's position with a Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and a Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 (the "Company Act") and the Investment Advisers Act of 1940 (the "Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with a Fund because of their status as "affiliated persons" of the Fund. A Fund's and its investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of those provisions. This Code does not, and is not intended to, repeat or replace those programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between a Fund and its investment adviser, administrator, principal underwriter, pricing and bookkeeping agent and/or transfer agent (each, a "Service Provider") of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for a Fund or for a Service Provider, or for both), be involved in establishing policies and implementing decisions that will have different effects on the Service Provider and a Fund. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the Service Provider and is consistent with the performance by the Covered Officers of their duties as officers of a Fund. In addition, it is recognized by the Board that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions of the Company Act and the Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of a Fund. Each Covered Officer must: - not use personal influence or personal relationships improperly to influence investment decisions or financial reporting by a Fund whereby the Covered Officer or an immediate family member would benefit personally to the detriment of a Fund; and - not cause a Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer or an immediate family member rather than the benefit of the Fund.(1). There are some conflict of interest situations that must be approved by the Code Officer, after consultation with the Chief Legal Officer. Those situations include, but are not limited to,: - service as director on the board of any public or private company; - the receipt of any gifts in excess of $100 in the aggregate from a third party that does or seeks to do business with the Funds during any 12-month period; - the receipt of any entertainment from any company with which a Fund has current or prospective business dealings, unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; - any material ownership interest in, or any consulting or employment relationship with, any Fund service providers, other than its investment adviser, principal underwriter, administrator or any affiliated person thereof; - a direct or indirect material financial interest in commissions, transaction charges or spreads paid by a Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. IV. DISCLOSURE AND COMPLIANCE Each Covered Officer shall: - be familiar with the disclosure requirements generally applicable to the Funds; - ---------- (1) For purposes of this Code, personal trading activity of the Covered Officers shall be monitored in accordance with the Columbia Management Group Code of Ethics. Each Covered Officer shall be considered an "Access Person" under such Code. The term "immediate family" shall have the same meaning as provided in such Code. - not knowingly misrepresent, or cause others to misrepresent, facts about any Fund to others, whether within or outside the Fund, including to the Fund's trustees and auditors, and to governmental regulators and self-regulatory organizations; - to the extent appropriate within his/her area of responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and - promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. V. REPORTING AND ACCOUNTABILITY Each Covered Officer must: - upon adoption of the Code (or after becoming a Covered Officer), affirm in writing to the Board that he/she has received, read and understands the Code; - annually affirm to the Board compliance with the requirements of the Code; - not retaliate against any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; - notify the Chief Legal Officer and the Code Officer promptly if he/she knows of any violation of this Code; and - respond to the trustee and officer questionnaires circulated periodically in connection with the preparation of disclosure documents for the Funds. The Code Officer shall maintain records of all activities related to this Code. The Funds will follow the procedures set forth below in investigating and enforcing this Code: - The Chief Legal Officer and/or the Code Officer will take all appropriate action to investigate any potential violation reported to him/her; - If, after such investigation, the Chief Legal Officer and the Code Officer believes that no violation has occurred, the Code Officer will notify the person(s) reporting the potential violation, and no further action is required; - Any matter that the Chief Legal Officer and/or the Code Officer believes is a violation will be reported to the Audit Committee; - If the Audit Committee concurs that a violation has occurred, it will inform and make a recommendation to the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to the Chief Executive Officer of Columbia Management Group; or a recommendation to sanction or dismiss the Covered Officer; - The Audit Committee will be responsible for granting waivers in its sole discretion; - Any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. The Chief Legal Officer shall: - report to the Audit Committee quarterly any approvals provided in accordance with Section III of this Code; and - report to the Audit Committee quarterly any violations of, or material issues arising under, this Code. VI. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for the purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other polices or procedures of the Funds or the Funds' Service Providers govern or purport to govern the behavior or activities (including, but not limited to, personal trading activities) of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds' and their investment advisers' and principal underwriter's codes of ethics under Rule 17j-1 under the Company Act and any policies and procedures of the Service Providers are separate requirements applicable to the Covered Officers and are not part of this Code. VII. AMENDMENTS All material amendments to this Code must be approved or ratified by the Board, including a majority of independent directors. VIII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Board, the Covered Officers, the Chief Legal Officer, the Code Officer, outside audit firms and legal counsel to the Funds, and senior management of Columbia Management Group. IX. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion. EX-99.CERT 3 a2137590zex-99_cert.txt EX 99.CERT Exhibit 99.CERT I, J. Kevin Connaughton, certify that: 1. I have reviewed this report on Form N-CSR of Columbia Funds Trust II; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 7, 2004 /s/ J. Kevin Connaughton --------------------------------------------- J. Kevin Connaughton, President and Treasurer EX-99.906CERT 4 a2137590zex-99_906cert.txt EX 99.906CERT Exhibit 99.906CERT CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Certified Shareholder Report of Columbia Funds Trust II (the "Trust") on Form N-CSR for the period ending March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof ("the Report"), the undersigned hereby certifies that, to his knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Trust. Date: June 7, 2004 /s/ J. Kevin Connaughton --------------------------------------------- J. Kevin Connaughton, President and Treasurer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission (the "Commission") or its staff upon request. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----