-----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, Q0y8RVwEoudLVTZ/FNJOG+4yNhERpI+y4Qwi2lcw7CohW7+GX3Eo0/HSdzhkcjNL jSsxplYq8Um+e7tsI2//vg== 0001047469-04-019605.txt : 20040608 0001047469-04-019605.hdr.sgml : 20040608 20040607173317 ACCESSION NUMBER: 0001047469-04-019605 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040608 EFFECTIVENESS DATE: 20040608 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA FUNDS TRUST VIII CENTRAL INDEX KEY: 0000787491 IRS NUMBER: 366830365 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-04552 FILM NUMBER: 04852525 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CENTER STREET 2: 11TH FLOOR CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 8003382550 MAIL ADDRESS: STREET 1: ONE FINANCIAL CENTER CITY: BOSTON STATE: MA ZIP: 02111 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY STEIN ROE FUNDS INCOME TRUST DATE OF NAME CHANGE: 19991025 FORMER COMPANY: FORMER CONFORMED NAME: STEINROE INCOME TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: STEINROE HIGH YIELD BONDS DATE OF NAME CHANGE: 19880121 N-CSR 1 a2137588zn-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 811-4552 --------------------------------------------- Columbia Funds Trust VIII - ------------------------------------------------------------------------------- (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 INCOME FUND ANNUAL REPORT MARCH 31, 2004 [COLUMBIAFUNDS(R) LOGO] A MEMBER OF COLUMBIA MANAGEMENT GROUP TABLE OF CONTENTS Fund Profile 1 Performance Information 2 Economic Update 3 Portfolio Managers' Report 4 Financial Statements 6 Investment Portfolio 7 Statement of Assets and Liabilities 18 Statement of Operations 19 Statement of Changes in Net Assets 20 Notes to Financial Statements 22 Financial Highlights 28 Report of Independent Registered Public Accounting Firm 32 Unaudited Information 33 Trustees 34 Officers 36 Important Information About This Report 37
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 INCOME 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 INCOME 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 STRUCTURE AS OF 03/31/04 (%) Corporate fixed-income bonds & notes 93.7 Cash equivalents, net other assets & liabilities 5.1 Government agencies & obligations 1.2
QUALITY BREAKDOWN AS OF 03/31/04 (%) AAA 5.4 AA 7.7 A 25.0 BBB 32.4 BB 17.0 B 10.8 B & lower 1.3 Non-rated 0.4
[CHART] MATURITY BREAKDOWN AS OF 03/31/04 (%) 0-1 year 6.7% 1-5 years 35.6% 5-10 years 39.4% 10-20 years 8.8% Over 20 years 9.5%
Portfolio structure is calculated as a percentage of net assets. Quality and maturity breakdowns are calculated as a percentage of total investments. Ratings shown in the quality breakdown represent the highest rating assigned to a particular bond by one of the following respected rating agencies. Standard & Poor's, Moody's or Fitch Investors Service, Inc. Maturity breakdown is based on each security's effective maturity, which reflects pre-refundings, mandatory puts and other conditions that affect a bonds maturity. (C)2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. The Morningstar Style Box(TM) reveals a fund's investment strategy. For equity funds the vertical axis shows the market capitalization of the stocks owned and the horizontal axis shows investment style (value, blend or growth). For fixed-income funds the vertical axis shows the average credit quality of the bonds owned, and the horizontal axis shows interest rate sensitivity as measured by a bond's duration (short, intermediate or long). All of these numbers are drawn from the data most recently provided by the fund and entered into Morningstar's database as of month-end. Although the data are gathered from reliable sources, Morningstar cannot guarantee completeness and accuracy. As of 03/31/2004. [SIDENOTE] SUMMARY - - FOR THE NINE-MONTH PERIOD ENDED MARCH 31, 2004, THE FUND'S CLASS A SHARES RETURNED 5.50% WITHOUT SALES CHARGE. - - THE FUND'S RETURN WAS BETTER THAN BOTH ITS BENCHMARK AND THE AVERAGE RETURN OF ITS PEER GROUP, THE LIPPER CORPORATE BBB RATED DEBT FUND CATEGORY. - - THE FUND'S COMMITMENT TO BBB AND LOWER-RATED ISSUES WAS THE PRIMARY REASON FOR ITS STRONG PERFORMANCE. [CHART] CLASS A SHARES 5.50% LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CREDIT BOND INDEX 2.52%
OBJECTIVE Seeks total return by investing for a high level of current income and opportunities for capital appreciation TOTAL NET ASSETS $556.2 million MORNINGSTAR STYLE BOX [GRAPHIC] 1 PERFORMANCE INFORMATION COLUMBIA INCOME FUND [CHART] VALUE OF A $10,000 INVESTMENT 04/01/94 - 03/31/04
CLASS A SHARES CLASS A SHARES LEHMAN BROTHERS INTERMEDIATE LEHMAN BROTHERS INTERMEDIATE WITHOUT SALES CHARGE WITH SALES CHARGE GOVERNMENT/CREDIT BOND INDEX CREDIT BOND INDEX 4/1/94 $ 10,000 $ 9,525 $ 10,000 $ 10,000 4/30/94 $ 9,893 $ 9,423 $ 9,919 $ 9,917 5/31/94 $ 9,890 $ 9,420 $ 9,924 $ 9,899 6/30/94 $ 9,874 $ 9,405 $ 9,923 $ 9,876 7/31/94 $ 10,023 $ 9,547 $ 10,116 $ 10,074 8/31/94 $ 10,077 $ 9,599 $ 10,158 $ 10,078 9/30/94 $ 9,958 $ 9,485 $ 10,026 $ 9,926 10/31/94 $ 9,946 $ 9,473 $ 10,011 $ 9,915 11/30/94 $ 9,889 $ 9,419 $ 9,962 $ 9,897 12/31/94 $ 9,932 $ 9,461 $ 10,010 $ 9,962 1/31/95 $ 10,097 $ 9,618 $ 10,202 $ 10,154 2/28/95 $ 10,368 $ 9,875 $ 10,474 $ 10,389 3/31/95 $ 10,457 $ 9,960 $ 10,543 $ 10,459 4/30/95 $ 10,622 $ 10,118 $ 10,706 $ 10,605 5/31/95 $ 11,039 $ 10,514 $ 11,115 $ 11,050 6/30/95 $ 11,139 $ 10,610 $ 11,205 $ 11,138 7/31/95 $ 11,142 $ 10,613 $ 11,191 $ 11,095 8/31/95 $ 11,272 $ 10,736 $ 11,330 $ 11,237 9/30/95 $ 11,396 $ 10,854 $ 11,435 $ 11,351 10/31/95 $ 11,535 $ 10,987 $ 11,570 $ 11,518 11/30/95 $ 11,719 $ 11,163 $ 11,764 $ 11,708 12/31/95 $ 11,896 $ 11,331 $ 11,913 $ 11,880 1/31/96 $ 12,015 $ 11,444 $ 12,024 $ 11,954 2/29/96 $ 11,831 $ 11,269 $ 11,831 $ 11,700 3/31/96 $ 11,724 $ 11,167 $ 11,746 $ 11,602 4/30/96 $ 11,662 $ 11,108 $ 11,679 $ 11,522 5/31/96 $ 11,649 $ 11,095 $ 11,661 $ 11,502 6/30/96 $ 11,780 $ 11,221 $ 11,804 $ 11,655 7/31/96 $ 11,805 $ 11,244 $ 11,833 $ 11,682 8/31/96 $ 11,819 $ 11,258 $ 11,828 $ 11,653 9/30/96 $ 12,039 $ 11,467 $ 12,033 $ 11,860 10/31/96 $ 12,300 $ 11,716 $ 12,299 $ 12,137 11/30/96 $ 12,559 $ 11,962 $ 12,508 $ 12,360 12/31/96 $ 12,473 $ 11,881 $ 12,386 $ 12,223 1/31/97 $ 12,537 $ 11,941 $ 12,437 $ 12,238 2/28/97 $ 12,632 $ 12,032 $ 12,471 $ 12,263 3/31/97 $ 12,467 $ 11,875 $ 12,335 $ 12,117 4/30/97 $ 12,608 $ 12,009 $ 12,499 $ 12,294 5/31/97 $ 12,803 $ 12,195 $ 12,626 $ 12,409 6/30/97 $ 12,996 $ 12,379 $ 12,765 $ 12,558 7/31/97 $ 13,402 $ 12,765 $ 13,103 $ 12,942 8/31/97 $ 13,242 $ 12,613 $ 12,988 $ 12,797 9/30/97 $ 13,436 $ 12,797 $ 13,169 $ 12,998 10/31/97 $ 13,473 $ 12,833 $ 13,292 $ 13,206 11/30/97 $ 13,535 $ 12,892 $ 13,322 $ 13,276 12/31/97 $ 13,669 $ 13,020 $ 13,424 $ 13,415 1/31/98 $ 13,821 $ 13,164 $ 13,602 $ 13,604 2/28/98 $ 13,854 $ 13,196 $ 13,604 $ 13,577 3/31/98 $ 13,934 $ 13,273 $ 13,651 $ 13,619 4/30/98 $ 14,011 $ 13,346 $ 13,729 $ 13,687 5/31/98 $ 14,092 $ 13,423 $ 13,847 $ 13,834 6/30/98 $ 14,129 $ 13,458 $ 13,923 $ 13,975 7/31/98 $ 14,184 $ 13,510 $ 13,959 $ 13,986 8/31/98 $ 13,881 $ 13,221 $ 14,059 $ 14,259 9/30/98 $ 14,173 $ 13,500 $ 14,479 $ 14,666 10/31/98 $ 13,880 $ 13,221 $ 14,363 $ 14,562 11/30/98 $ 14,131 $ 13,460 $ 14,475 $ 14,650 12/31/98 $ 14,215 $ 13,539 $ 14,537 $ 14,686 1/31/99 $ 14,334 $ 13,653 $ 14,654 $ 14,791 2/28/99 $ 14,118 $ 13,447 $ 14,405 $ 14,439 3/31/99 $ 14,277 $ 13,599 $ 14,539 $ 14,511 4/30/99 $ 14,404 $ 13,720 $ 14,595 $ 14,547 5/31/99 $ 14,254 $ 13,577 $ 14,433 $ 14,397 6/30/99 $ 14,202 $ 13,527 $ 14,420 $ 14,353 7/31/99 $ 14,156 $ 13,484 $ 14,374 $ 14,312 8/31/99 $ 14,127 $ 13,455 $ 14,364 $ 14,301 9/30/99 $ 14,269 $ 13,591 $ 14,522 $ 14,430 10/31/99 $ 14,309 $ 13,629 $ 14,577 $ 14,467 11/30/99 $ 14,395 $ 13,711 $ 14,612 $ 14,459 12/31/99 $ 14,391 $ 13,707 $ 14,561 $ 14,370 1/31/2000 $ 14,425 $ 13,740 $ 14,498 $ 14,366 2/29/2000 $ 14,584 $ 13,891 $ 14,617 $ 14,546 3/31/2000 $ 14,749 $ 14,048 $ 14,742 $ 14,756 4/30/2000 $ 14,589 $ 13,896 $ 14,656 $ 14,684 5/31/2000 $ 14,519 $ 13,830 $ 14,649 $ 14,671 6/30/2000 $ 14,904 $ 14,196 $ 14,953 $ 14,970 7/31/2000 $ 15,101 $ 14,384 $ 15,091 $ 15,129 8/31/2000 $ 15,332 $ 14,604 $ 15,284 $ 15,342 9/30/2000 $ 15,393 $ 14,662 $ 15,432 $ 15,401 10/31/2000 $ 15,322 $ 14,595 $ 15,446 $ 15,498 11/30/2000 $ 15,465 $ 14,730 $ 15,630 $ 15,763 12/31/2000 $ 15,797 $ 15,047 $ 15,936 $ 16,073 1/31/2001 $ 16,162 $ 15,395 $ 16,273 $ 16,343 2/28/2001 $ 16,384 $ 15,606 $ 16,432 $ 16,511 3/31/2001 $ 16,459 $ 15,677 $ 16,569 $ 16,587 4/30/2001 $ 16,444 $ 15,663 $ 16,537 $ 16,463 5/31/2001 $ 16,624 $ 15,834 $ 16,663 $ 16,559 6/30/2001 $ 16,672 $ 15,880 $ 16,736 $ 16,638 7/31/2001 $ 17,035 $ 16,226 $ 17,128 $ 17,052 8/31/2001 $ 17,243 $ 16,424 $ 17,323 $ 17,271 9/30/2001 $ 16,926 $ 16,122 $ 17,430 $ 17,429 10/31/2001 $ 17,193 $ 16,377 $ 17,741 $ 17,872 11/30/2001 $ 17,212 $ 16,395 $ 17,604 $ 17,579 12/31/2001 $ 17,119 $ 16,306 $ 17,491 $ 17,440 1/31/2002 $ 17,251 $ 16,432 $ 17,602 $ 17,567 2/28/2002 $ 17,311 $ 16,489 $ 17,735 $ 17,717 3/31/2002 $ 17,225 $ 16,407 $ 17,462 $ 17,357 4/30/2002 $ 17,574 $ 16,740 $ 17,705 $ 17,694 5/31/2002 $ 17,682 $ 16,842 $ 17,946 $ 17,857 6/30/2002 $ 17,595 $ 16,759 $ 18,016 $ 18,008 7/31/2002 $ 17,489 $ 16,659 $ 18,075 $ 18,225 8/31/2002 $ 17,741 $ 16,899 $ 18,424 $ 18,633 9/30/2002 $ 17,938 $ 17,086 $ 18,770 $ 19,033 10/31/2002 $ 17,569 $ 16,734 $ 18,620 $ 18,851 11/30/2002 $ 17,948 $ 17,096 $ 18,775 $ 18,862 12/31/2002 $ 18,348 $ 17,477 $ 19,265 $ 19,362 1/31/2003 $ 18,462 $ 17,585 $ 19,319 $ 19,362 2/28/2003 $ 18,783 $ 17,891 $ 19,659 $ 19,706 3/31/2003 $ 18,793 $ 17,900 $ 19,700 $ 19,681 4/30/2003 $ 19,265 $ 18,349 $ 19,970 $ 19,891 5/31/2003 $ 19,777 $ 18,838 $ 20,479 $ 20,456 6/30/2003 $ 19,917 $ 18,971 $ 20,489 $ 20,375 7/31/2003 $ 19,310 $ 18,393 $ 19,860 $ 19,521 8/31/2003 $ 19,374 $ 18,453 $ 19,920 $ 19,650 9/30/2003 $ 19,978 $ 19,029 $ 20,514 $ 20,273 10/31/2003 $ 20,036 $ 19,084 $ 20,331 $ 20,015 11/30/2003 $ 20,190 $ 19,231 $ 20,392 $ 20,069 12/31/2003 $ 20,467 $ 19,495 $ 20,594 $ 20,268 1/31/2004 $ 20,704 $ 19,721 $ 20,759 $ 20,452 2/29/2004 $ 20,841 $ 19,851 $ 20,989 $ 20,702 3/31/2004 $ 20,995 $ 20,000 $ 21,169 $ 19,870
The graph and table do not reflect the deductions of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Lehman Brothers Intermediate Government/Credit Bond Index is an unmanaged index that tracks the performance of intermediate term US government and corporate bonds. The Lehman Brothers Intermediate Credit Bond Index is an unmanaged index that tracks the performance of a selection of US government and investment grade corporate bonds. This index is the fund's secondary benchmark. Unlike the fund, indices are not investments, do not incur fees or expenses and are not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in the index. AVERAGE ANNUAL TOTAL RETURN AS OF 03/31/04 (%)
SHARE CLASS A B C Z - ------------------------------------------------------------------------------------------------- INCEPTION 07/31/00 07/15/02 07/15/02 03/05/86 - ------------------------------------------------------------------------------------------------- SALES CHARGE WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT - ------------------------------------------------------------------------------------------------- 9-month (cumulative) 5.50 0.52 4.91 -0.09 5.03 4.03 5.80 1-year 11.80 6.51 10.98 5.98 11.14 10.14 12.24 5-year 8.03 6.98 7.75 7.45 7.80 7.80 8.29 10-year 7.70 7.18 7.56 7.56 7.59 7.59 7.83
All results shown assume reinvestment of distributions. The "with sales charge" returns include the maximum 4.75% charge for class A shares, the appropriate class B contingent deferred sales charge for the holding period after purchase as follows: through first year--5%, second year--4%, third year--3%, fourth year--3%, fifth year--2%, sixth year--1%, thereafter--0%, and the class C contingent deferred sales charge of 1% for the first year only. Performance for different share classes will vary based on differences in sales charges and fees associated with each class. Performance results reflect any voluntary waivers or reimbursement of fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. The performance information for class A, B and C shares (newer class shares) includes returns of the fund's class Z shares (the oldest existing fund class) for periods prior to the inception date of the newer share classes. These class Z share returns were not restated to reflect any expense differential (e.g., Rule 12b-1 fees) between class Z shares and the newer class shares. Had the expense differential been reflected, the returns for the periods prior to the inception of the newer class shares would have been lower. [SIDENOTE] PERFORMANCE OF A $10,000 INVESTMENT 04/01/94 - 03/31/04 ($)
SALES CHARGE: WITHOUT WITH - ------------------------------------------- Class A 20,995 20,000 Class B 20,722 20,722 Class C 20,775 20,775 Class Z 21,250 n/a
Performance data quoted represents past performance and current performance may be lower or higher. Past performance is no guarantee of future results. The investment return and principal value will fluctuate so that 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. 2 ECONOMIC UPDATE COLUMBIA INCOME 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. [CHART] 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%. [CHART] 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. 3 PORTFOLIO MANAGERS' REPORT COLUMBIA INCOME FUND The Board of Trustees for Columbia Income 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 Income Fund's class A shares returned 5.50% without sales charge. The fund performed better than its benchmark, the Lehman Brothers Intermediate Government/Credit Bond Index, which returned 2.52% for the same period. The fund's peer group, the Lipper Corporate BBB Rated Debt Fund Category, averaged 3.93% for the nine-month period.(1) CORPORATE ISSUES EXTENDED THEIR GAINS Spurred by tax cuts and low interest rates, the US economy continued to gather strength during the nine-month period covered by this report. Business conditions and a favorable environment prevailed for corporate bonds. High-yield issues enjoyed especially vigorous returns. The fund's solid position in investment grade bonds--especially BBB-rated holdings--and high yield corporate issues during a period of strong market performance contributed significantly to the fund's return. COMEBACKS FOR UTILITIES, TELECOM AND CABLE Electric utility companies benefited from easier access to capital, which enabled them to replace high-cost debt with less expensive borrowings. Cable and telecom companies enjoyed the same improved conditions, and the savings helped foster growth in all three industries. Bonds of Edison Mission Energy, a California utility, and MidAmerican Energy Holdings rebounded along with the economy. Bonds of Ohio-based FirstEnergy recovered as repairs to its Davis Besse nuclear plant neared completion. Bonds of Nextel Communications, which provides wireless communications services, rose in response to improved operating results. And Canadian cell-phone operator Rogers Cantel bolstered its finances and enjoyed solid growth. These strong performers provided a boost to performance during the period. AUTO AND AIRLINE ISSUES BOOSTED RETURNS Our timely purchase of Ford Motor Credit bonds was rewarded when restructuring and cost-cutting initiatives began to pay off and the bonds rose. Dana, a maker of auto and truck parts, enjoyed a strong turnaround in operating profit by cutting overhead and streamlining its business. Bonds backed by commercial aircraft strengthened with increased travel volumes and better cost control on the part of the airlines, including American Airlines. (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] NET ASSET VALUE PER SHARE AS OF 03/31/04 ($) Class A 10.21 Class B 10.21 Class C 10.21 Class Z 10.21
DISTRIBUTIONS DECLARED PER SHARE 07/01/03 - 03/31/04 ($) Class A 0.43 Class B 0.37 Class C 0.38 Class Z 0.46
SEC YIELDS ON 03/31/04 (%) Class A 3.53 Class B 3.02 Class C 3.27 Class Z 4.18
The 30-day SEC yields reflect the portfolio's earning power net of expenses, expressed as an annualized percentage of the public offering price at the end of the period. HOLDINGS DISCUSSED IN THIS REPORT AS OF 03/31/04 (%) Edison Mission Energy 0.5 MidAmerican Energy Holdings 1.4 FirstEnergy 0.8 Nextel Communications 0.8 Rogers Cantel 0.5 Ford Motor Credit 1.6 Dana 0.5 American Airlines 0.8 Tenet Healthcare 0.5
Your fund is actively managed and the composition of its portfolio will change over time. Information provided is calculated as a percentage of net assets. 4 GROCERY, CHEMICAL AND HEALTH CARE BONDS DETRACTED FROM RETURN We eliminated bonds of Winn Dixie, a grocery chain based in the southeast, when efforts to reposition stores in competition with Wal-Mart and other superstores were unsuccessful. (Wal-Mart is not in the portfolio.) We also sold bonds of Rhodia, a French chemical company. Rhodia was unable to offset the rising cost of oil, a key feedstock, reducing margins and cutting into sales volume. And although Tenet Healthcare's bonds remained under pressure due to Medicaid funding and other concerns, we remain optimistic about this operator of for-profit healthcare facilities. ADJUSTING TO A CHANGED ENVIRONMENT We believe continued economic expansion will bring more good news for corporate bonds, but this year's returns are unlikely to match those of last year. After their steep rise, high-yield issues are less attractive than they were a year ago. As a result, we cut back somewhat on the fund's high-yield exposure near the end of the period. We added to investment-grade holdings in order to reduce risk. And, as always, we continue to seek the most attractive values for the fund regardless of market conditions. During this reporting period Columbia Income Fund was managed by Michael T. Kennedy, Kevin L. Cronk and Thomas LaPointe. Effective May 14, 2004, Kevin L. Cronk, Thomas LaPointe, Mark Newlin and Steven Luetger became the fund's co-managers. Investing in high yield bonds involves greater credit and other risks not associated with investing in higher-quality bonds. Bond investing also involves interest rate risk, which means that bond prices may change as interest rates increase or decrease. Foreign investments involve market, political, accounting and currency risks not associated with other investments. [SIDENOTE] WE BELIEVE CONTINUED EXPANSION WILL BRING MORE GOOD NEWS FOR CORPORATE BONDS, BUT THIS YEAR'S RETURNS ARE UNLIKELY TO MATCH THOSE OF LAST YEAR. 5 FINANCIAL STATEMENTS MARCH 31, 2004 COLUMBIA INCOME 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). 6 INVESTMENT PORTFOLIO MARCH 31, 2004 COLUMBIA INCOME FUND
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - 93.7% AGRICULTURE, FORESTRY & FISHING - 0.6% AGRICULTURAL SERVICES - 0.3% BUNGE LTD. FINANCE CORP. 4.375% 12/15/08 (a) 1,400,000 1,449,182 Agricultural Services Total 1,449,182 FORESTRY - 0.3% TEMBEC INDUSTRIES, INC. 8.500% 02/01/11 1,650,000 1,641,750 Forestry Total 1,641,750 ---------- AGRICULTURE, FORESTRY & FISHING TOTAL 3,090,932 CONSTRUCTION - 1.2% BUILDING CONSTRUCTION - 1.2% D.R. HORTON, INC. 9.750% 09/15/10 1,500,000 1,837,500 K. HOVNANIAN ENTERPRISES, INC. 7.750% 05/15/13 2,000,000 2,145,000 STANDARD-PACIFIC CORP. 9.250% 04/15/12 2,500,000 2,937,500 Building Construction Total 6,920,000 ---------- CONSTRUCTION TOTAL 6,920,000 FINANCE, INSURANCE & REAL ESTATE - 27.8% DEPOSITORY INSTITUTIONS - 5.2% BANK ONE CORP. 6.500% 02/01/06 7,060,000 7,656,429 BARCLAYS BANK PLC 7.375% 06/15/49 (a) (b) 2,500,000 2,931,625 NORTH FORK BANCORPORATION, INC. 5.875% 08/15/12 4,000,000 4,388,640 POPULAR, INC. 6.125% 10/15/06 6,000,000 6,475,740 RABOBANK CAPITAL FUNDING II 5.260% 12/31/13 (a) 5,100,000 5,294,106 WESTERN FINANCIAL BANK 9.625% 05/15/12 2,000,000 2,280,000 Depository Institutions Total 29,026,540 FINANCIAL SERVICES - 4.5% CAPITAL ONE BANK 5.125% 02/15/14 3,350,000 3,405,878 CITIGROUP, INC. 5.750% 05/10/06 7,000,000 7,542,920 INTERNATIONAL LEASE FINANCE CORP. 6.375% 03/15/09 5,000,000 5,638,950 PF EXEMPT RECEIVABLES MASTER TRUST 3.748% 06/01/13 (a) 1,750,000 1,743,420 6.436% 06/01/15 (a) 1,385,455 1,420,645 TEXTRON FINANCIAL CORP. 2.750% 06/01/06 5,000,000 5,052,700 Financial Services Total 24,804,513
See notes to investment portfolio. 7
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) FINANCE, INSURANCE & REAL ESTATE - (CONTINUED) HOLDING & OTHER INVESTMENT OFFICES - 1.1% HSBC CAPITAL FUNDING L.P. 9.547% 12/31/49 (a) (b) 4,500,000 5,841,742 Holding & Other Investment Offices Total 5,841,742 INSURANCE CARRIERS - 3.3% ALLSTATE CORP. 7.875% 05/01/05 6,000,000 6,411,060 FLORIDA WINDSTORM UNDERWRITING ASSOCIATION 7.125% 02/25/19 (a) 2,000,000 2,447,480 FUND AMERICAN COMPANIES, INC. 5.875% 05/15/13 2,500,000 2,632,450 LIBERTY MUTUAL GROUP, INC. 7.000% 03/15/34 (a) 3,000,000 2,971,200 PRUDENTIAL INSURANCE CO. OF AMERICA 7.650% 07/01/07 (a) 1,500,000 1,711,470 TRAVELERS PROPERTY CASUALTY CORP. 3.750% 03/15/08 2,250,000 2,305,148 Insurance Carriers Total 18,478,808 NON-DEPOSITORY CREDIT INSTITUTIONS - 5.1% COUNTRYWIDE HOME LOANS, INC. 5.250% 06/15/04 3,000,000 3,023,700 5.500% 08/01/06 4,000,000 4,294,880 FORD MOTOR CREDIT CO. 5.800% 01/12/09 2,350,000 2,423,202 6.875% 02/01/06 4,000,000 4,258,560 7.000% 10/01/13 2,000,000 2,113,660 GENERAL MOTORS ACCEPTANCE CORP. 6.125% 01/22/08 2,500,000 2,690,300 7.250% 03/02/11 2,000,000 2,212,240 HOUSEHOLD FINANCE CORP. 5.750% 01/30/07 3,000,000 3,265,740 IBM CANADA CREDIT SERVICES CO. 3.750% 11/30/07 (a) 4,000,000 4,088,360 Non-Depository Credit Institutions Total 28,370,642 REAL ESTATE - 4.7% FOREST CITY ENTERPRISES, INC. 7.625% 06/01/15 1,000,000 1,080,000 HOST MARRIOTT L.P. 9.500% 01/15/07 1,000,000 1,117,500 iSTAR FINANCIAL, INC. 8.750% 08/15/08 3,209,000 3,638,204 PROPERTY TRUST OF AMERICA 6.875% 02/15/08 1,000,000 1,110,700 PRUDENTIAL PROPERTY INVESTMENT MANAGERS LTD. 6.625% 04/01/09 (a) 3,000,000 3,297,384 7.125% 07/01/07 (a) 4,000,000 4,527,400 SPIEKER PROPERTIES L.P. 6.875% 02/01/05 6,750,000 7,021,080 THORNBURG MORTGAGE, INC. 8.000% 05/15/13 2,000,000 2,110,000 VENTAS REALTY L.P. 9.000% 05/01/12 2,000,000 2,310,000 Real Estate Total 26,212,268
See notes to investment portfolio. 8
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) FINANCE, INSURANCE & REAL ESTATE - (CONTINUED) SECURITY BROKERS & DEALERS - 3.9% BEAR STEARNS COMPANIES, INC. 4.000% 01/31/08 6,000,000 6,230,820 CREDIT SUISSE FIRST BOSTON, INC. 7.125% 07/15/32 2,500,000 2,966,300 7.900% 05/29/49 (a) (b) 3,500,000 3,994,788 JEFFERIES GROUP, INC. 7.750% 03/15/12 2,750,000 3,278,798 MORGAN STANLEY 4.750% 04/01/14 1,000,000 980,630 SPEAR LEEDS & KELLOGG L.P. 8.250% 08/15/05 (a) 4,000,000 4,359,920 Security Brokers & Dealers Total 21,811,256 ----------- FINANCE, INSURANCE & REAL ESTATE TOTAL 154,545,769 MANUFACTURING - 12.5% AUTO PARTS & ACCESSORIES - 0.5% DANA CORP. 9.000% 08/15/11 1,100,000 1,325,500 10.125% 03/15/10 1,500,000 1,732,500 Auto Parts & Accessories Total 3,058,000 CHEMICALS & ALLIED PRODUCTS - 3.7% DOW CHEMICAL CO. 5.750% 11/15/09 4,500,000 4,939,290 EASTMAN CHEMICAL CO. 3.250% 06/15/08 1,150,000 1,136,418 6.300% 11/15/18 4,500,000 4,839,840 EQUISTAR CHEMICAL L.P. 10.125% 09/01/08 2,000,000 2,150,000 FMC CORP. 10.250% 11/01/09 920,000 1,085,600 LYONDELL CHEMICAL CO. 9.625% 05/01/07 2,000,000 2,065,000 MACDERMID, INC. 9.125% 07/15/11 1,000,000 1,125,000 NOVA CHEMICALS LTD. 6.500% 01/15/12 (a) 1,000,000 1,038,280 PROCTER & GAMBLE Co. 5.500% 02/01/34 2,000,000 2,021,120 Chemicals & Allied Products Total 20,400,548 ELECTRONIC & ELECTRICAL EQUIPMENT - 0.4% THOMAS & BETTS CORP. 7.250% 06/01/13 2,000,000 2,210,000 Electronic & Electrical Equipment Total 2,210,000 FOOD & KINDRED PRODUCTS - 2.2% BOTTLING GROUP LLC 2.450% 10/16/06 7,000,000 7,043,610 CADBURY-SCHWEPPES PLC 5.125% 10/01/13 (a) 1,750,000 1,810,655 CONSTELLATION BRANDS, INC. 8.125% 01/15/12 1,000,000 1,105,000 DOLE FOOD CO., INC. 8.625% 05/01/09 (b) 2,000,000 2,155,000 Food & Kindred Products Total 12,114,265
See notes to investment portfolio. 9
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) MANUFACTURING - (CONTINUED) MACHINERY & COMPUTER EQUIPMENT - 0.7% BRIGGS & STRATTON CORP. 8.875% 03/15/11 1,400,000 1,715,000 CASE NEW HOLLAND, INC. 9.250% 08/01/11 (a) 2,000,000 2,260,000 Machinery & Computer Equipment Total 3,975,000 MISCELLANEOUS MANUFACTURING - 1.6% HUTCHISON WHAMPOA INTERNATIONAL LTD. 6.250% 01/24/14 (a) 1,000,000 1,038,420 6.500% 02/13/13 (a) 4,950,000 5,254,227 SPX CORP. 7.500% 01/01/13 2,000,000 2,160,000 TEMPUR-PEDIC, INC. 10.250% 08/15/10 (a) 176,000 201,520 TRINITY INDUSTRIES, INC. 6.500% 03/15/14 (a) 550,000 550,000 Miscellaneous Manufacturing Total 9,204,167 PAPER PRODUCTS - 1.5% CASCADES, INC. 7.250% 02/15/13 3,500,000 3,666,250 MEADWESTVACO CORP. 8.200% 01/15/30 3,820,000 4,683,396 Paper Products Total 8,349,646 PETROLEUM REFINING - 0.5% PHILLIPS PETROLEUM CO. 9.375% 02/15/11 2,000,000 2,579,660 Petroleum Refining Total 2,579,660 PRINTING & PUBLISHING - 0.4% DEX MEDIA WEST LLC 9.875% 08/15/13 (a) 2,000,000 2,220,000 Printing & Publishing Total 2,220,000 STONE, CLAY, GLASS & CONCRETE - 0.6% OWENS-BROCKWAY GLASS CONTAINER, INC. 8.875% 02/15/09 3,000,000 3,240,000 Stone, Clay, Glass & Concrete Total 3,240,000 TRANSPORTATION EQUIPMENT - 0.4% SHIP FINANCE INTERNATIONAL LTD. 8.500% 12/15/13 (a) 2,000,000 2,010,240 Transportation Equipment Total 2,010,240 -------------- MANUFACTURING TOTAL 69,361,526 MINING & ENERGY - 7.2% METALS & MINING - 0.2% NEWMONT MINING CORP. 8.625% 05/15/11 1,000,000 1,242,480 Metals & Mining Total 1,242,480
See notes to investment portfolio. 10
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) MINING & ENERGY - (CONTINUED) OIL & GAS EXTRACTION - 4.9% AMERADA HESS CORP. 7.300% 08/15/31 3,000,000 3,232,950 COASTAL CORP. 7.750% 06/15/10 2,000,000 1,730,000 FOREST OIL CORP. 8.000% 06/15/08 2,000,000 2,200,000 MURPHY OIL CORP. 6.375% 05/01/12 2,250,000 2,550,960 NEWFIELD EXPLORATION CO. 7.450% 10/15/07 1,500,000 1,657,500 NEXEN, INC. 7.875% 03/15/32 3,500,000 4,424,980 NOBLE DRILLING CORP. 7.500% 03/15/19 3,500,000 4,090,135 PEMEX PROJECT FUNDING MASTER TRUST 7.875% 02/01/09 2,000,000 2,300,000 9.125% 10/13/10 750,000 917,625 RAS LAFFAN LIQUEFIED NATURAL GAS CO., LTD. 3.437% 09/15/09 (a) 4,500,000 4,443,750 Oil & Gas Extraction Total 27,547,900 OIL & GAS FIELD SERVICES - 2.1% DEVON FINANCING CORP. 7.875% 09/30/31 2,600,000 3,220,620 PDVSA FINANCE LTD. 7.400% 08/15/16 2,500,000 2,112,500 PETROBRAS INTERNATIONAL FINANCE CO. 9.750% 07/06/11 1,500,000 1,695,000 PREMCOR REFINING GROUP, INC. 7.500% 06/15/15 4,000,000 4,400,000 Oil & Gas Field Services Total 11,428,120 -------------- MINING & ENERGY TOTAL 40,218,500 RETAIL TRADE - 1.2% DEPARTMENT STORES - 0.3% SAKS, INC. 7.000% 12/01/13 (a) 1,500,000 1,575,000 Department Stores Total 1,575,000 FOOD STORES - 0.4% DELHAIZE AMERICA, INC. 8.125% 04/15/11 2,000,000 2,310,300 Food Stores Total 2,310,300 GENERAL MERCHANDISE STORES - 0.3% OFFICE DEPOT, INC. 6.250% 08/15/13 1,655,000 1,796,618 General Merchandise Stores Total 1,796,618 RESTAURANTS - 0.2% YUM! BRANDS, INC. 7.700% 07/01/12 1,000,000 1,192,500 Restaurants Total 1,192,500 -------------- RETAIL TRADE TOTAL 6,874,418
See notes to investment portfolio. 11
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) SERVICES - 14.9% AMUSEMENT & RECREATION - 3.4% HARD ROCK HOTEL, INC. 8.875% 06/01/13 1,200,000 1,284,000 HARRAH'S OPERATING CO., INC. 7.125% 06/01/07 3,750,000 4,199,737 7.875% 12/15/05 500,000 540,000 MOHEGAN TRIBAL GAMING AUTHORITY 8.375% 07/01/11 3,000,000 3,315,000 PARK PLACE ENTERTAINMENT CORP. 9.375% 02/15/07 2,500,000 2,812,500 SIX FLAGS, INC. 9.500% 02/01/09 2,000,000 2,110,000 STATION CASINOS, INC. 6.000% 04/01/12 (a) 1,000,000 1,030,000 6.875% 03/01/16 (a) 1,500,000 1,535,625 STEINWAY MUSICAL INSTRUMENTS, INC. 8.750% 04/15/11 2,000,000 2,165,000 Amusement & Recreation Total 18,991,862 AUTO EQUIPMENT & RENTAL SERVICES - 1.8% DURA OPERATING CORP. 9.000% 05/01/09 2,000,000 2,020,000 ERAC USA FINANCE CO. 8.000% 01/15/11 (a) 3,000,000 3,658,440 9.125% 12/15/04 (a) 2,000,000 2,099,840 NATIONSRENT, INC. 9.500% 10/15/10 (a) 2,000,000 2,155,000 Auto Equipment & Rental Services Total 9,933,280 BUSINESS SERVICES - 1.1% FEDEX CORP. 2.650% 04/01/07 (a) 5,000,000 4,991,950 9.650% 06/15/12 1,000,000 1,339,900 Business Services Total 6,331,850 HEALTH SERVICES - 6.7% AMERISOURCEBERGEN CORP. 8.125% 09/01/08 3,000,000 3,345,000 BIO-RAD LABORATORIES, INC. 7.500% 08/15/13 2,000,000 2,210,000 BRISTOL-MYERS SQUIBB CO. 4.750% 10/01/06 6,000,000 6,357,120 COVENTRY HEALTH CARE, INC. 8.125% 02/15/12 1,000,000 1,140,000 GLAXOSMITHKLINE CAPITAL PLC 2.375% 04/16/07 5,000,000 5,010,850 HCA, INC. 6.950% 05/01/12 1,500,000 1,631,145 7.125% 06/01/06 3,250,000 3,514,420 7.875% 02/01/11 2,167,000 2,457,725 MEDCO HEALTH SOLUTIONS, INC. 7.250% 08/15/13 1,000,000 1,130,640 MEDQUEST, INC. 11.875% 08/15/12 2,000,000 2,260,000
See notes to investment portfolio. 12
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) SERVICES - (CONTINUED) HEALTH SERVICES - (CONTINUED) PACIFICARE HEALTH SYSTEMS, INC. 10.750% 06/01/09 1,300,000 1,527,500 TENET HEALTHCARE CORP. 5.375% 11/15/06 2,000,000 1,890,000 7.375% 02/01/13 1,000,000 905,000 WYETH 6.450% 02/01/24 1,075,000 1,130,685 6.500% 02/01/34 2,500,000 2,647,575 Health Services Total 37,157,660 HOTELS, CAMPS & LODGING - 1.9% HYATT EQUITIES LLC 6.875% 06/15/07 (a) 2,000,000 2,176,700 MARRIOTT INTERNATIONAL, INC. 6.875% 11/15/05 5,000,000 5,361,450 MEDITRUST COMPANIES 7.620% 09/13/05 2,200,000 2,304,500 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. 7.875% 05/01/12 500,000 563,750 Hotels, Camps & Lodging Total 10,406,400 -------------- SERVICES TOTAL 82,821,052 TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 27.9% AEROSPACE - 1.8% RAYTHEON CO. 4.850% 01/15/11 1,000,000 1,032,520 5.500% 11/15/12 5,000,000 5,299,000 SYSTEMS 2001 ASSET TRUST 6.664% 09/15/13 (a) 1,295,035 1,454,635 7.156% 12/15/11 (a) 2,064,907 2,301,111 Aerospace Total 10,087,266 AIR TRANSPORTATION - 3.0% AIR 2 US 8.027% 10/01/19 (a) 2,272,631 2,045,368 AMERICAN AIRLINES, INC. 7.024% 10/15/09 3,029,000 3,059,290 9.710% 01/02/07 1,380,933 1,301,530 CONTINENTAL AIRLINES, INC. 7.461% 04/01/15 3,076,001 3,014,481 7.875% 07/02/18 2,125,000 2,103,750 DELTA AIR LINES, INC. 7.779% 11/18/05 2,000,000 1,620,000 SOUTHWEST AIRLINES CO. 5.496% 11/01/06 3,000,000 3,226,680 Air Transportation Total 16,371,099 BROADCASTING - 3.7% LIBERTY MEDIA CORP. 2.670% 09/17/06 (b) 4,000,000 4,059,080 SINCLAIR BROADCAST GROUP, INC. 8.750% 12/15/11 2,000,000 2,200,000
See notes to investment portfolio. 13
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - (CONTINUED) BROADCASTING - (CONTINUED) TV AZTECA SA DE CV 10.500% 02/15/07 2,000,000 2,060,000 VIACOM, INC. 7.750% 06/01/05 5,000,000 5,362,950 VIDEOTRON LTEE 6.875% 01/15/14 220,000 231,000 WALT DISNEY CO. 5.500% 12/29/06 6,000,000 6,464,940 Broadcasting Total 20,377,970 CABLE - 1.7% CHARTER COMMUNICATIONS HOLDINGS II 10.250% 09/15/10 (a) 1,000,000 1,035,000 COMCAST CORP. 5.850% 01/15/10 2,500,000 2,716,375 6.500% 01/15/15 2,000,000 2,210,760 CSC HOLDINGS, INC. 6.750% 04/15/12 (a) 500,000 505,000 8.125% 07/15/09 1,500,000 1,623,750 ECHOSTAR DBS CORP. 6.375% 10/01/11 (a) 1,500,000 1,593,750 Cable Total 9,684,635 ELECTRIC SERVICES - 11.5% AES CORP. 8.750% 06/15/08 986,000 1,036,533 ALABAMA POWER CO. 5.490% 11/01/05 1,000,000 1,056,830 CALPINE CORP. 8.500% 07/15/10 (a) 2,500,000 2,268,750 CENTERPOINT ENERGY HOUSTON ELECTRIC LLC 6.950% 03/15/33 1,750,000 2,009,542 CONSTELLATION ENERGY GROUP, INC. 6.125% 09/01/09 2,500,000 2,790,450 CONSUMERS ENERGY CO. 6.000% 02/15/14 2,000,000 2,139,754 DOMINION RESOURCES, INC. 8.125% 06/15/10 2,000,000 2,440,260 EDISON MISSION ENERGY 9.875% 04/15/11 2,500,000 2,625,000 FIRSTENERGY CORP. 5.500% 11/15/06 2,000,000 2,126,920 6.450% 11/15/11 2,250,000 2,461,927 FPL ENERGY AMERICAN WIND LLC 6.639% 06/20/23 (a) 2,550,000 2,725,618 GULFTERRA ENERGY PARTNERS L.P. 8.500% 06/01/10 1,700,000 1,955,000 MIDAMERICAN ENERGY HOLDINGS CO. 5.875% 10/01/12 7,000,000 7,574,910 MSW ENERGY HOLDINGS LLC 8.500% 09/01/10 2,000,000 2,190,000 NEVADA POWER CO. 9.000% 08/15/13 (a) 2,000,000 2,265,000
See notes to investment portfolio. 14
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - (CONTINUED) ELECTRIC SERVICES - (CONTINUED) Northern States Power Co. 8.000% 08/28/12 1,750,000 2,196,810 Oncor Electric Delivery Co. 7.250% 01/15/33 3,000,000 3,563,160 Orion Power Holdings, Inc. 12.000% 05/01/10 1,000,000 1,242,500 Pacific Gas & Electric Co. 6.050% 03/01/34 3,125,000 3,156,469 PSEG Power LLC 5.500% 12/01/15 3,560,000 3,640,136 7.750% 04/15/11 2,000,000 2,393,400 South Point Energy Center LLC 8.400% 05/30/12 (a) 719,912 672,218 Southern Power Co. 6.250% 07/15/12 2,000,000 2,219,280 Tenaska Alabama 6.125% 03/30/23 (a) 1,966,813 2,068,458 United Utilities PLC 6.250% 08/15/05 4,988,000 5,286,133 Electric Services Total 64,105,058 PIPELINES - 0.4% Williams Companies, Inc. 8.125% 03/15/12 2,000,000 2,205,000 Pipelines Total 2,205,000 RAILROADS - 0.8% Burlington Northern Railroad Co. 9.250% 10/01/06 2,000,000 2,318,220 Kansas City Southern Railway 7.500% 6/15/09 2,000,000 2,055,000 Railroads Total 4,373,220 SANITARY SERVICES - 0.4% Allied Waste North America, Inc. 6.500% 11/15/10 (a) 500,000 507,500 7.625% 01/01/06 500,000 532,500 8.500% 12/01/08 500,000 558,750 8.875% 04/01/08 500,000 558,750 Sanitary Services Total 2,157,500 TELECOMMUNICATIONS - 4.6% America Movil SA de CV 5.500% 03/01/14 (a) 1,300,000 1,296,001 Comtel Brasileira Ltd. 10.750% 09/26/04 (a) 2,000,000 2,070,000 Insight Midwest L.P. 9.750% 10/01/09 3,000,000 3,142,500 News America Holdings, Inc. 9.250% 02/01/13 2,000,000 2,632,320 Nextel Communications, Inc. 7.375% 08/01/15 4,000,000 4,325,000 Rogers Cantel, Inc. 9.750% 06/01/16 2,000,000 2,505,000
See notes to investment portfolio. 15
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - (CONTINUED) TELECOMMUNICATIONS - (CONTINUED) SPRINT CORP. 6.125% 11/15/08 2,500,000 2,756,825 TELEFONOS DE MEXICO SA DE CV 4.500% 11/19/08 (a) 3,250,000 3,306,453 VERIZON WIRELESS, INC. 7.750% 12/01/30 3,000,000 3,621,450 Telecommunications Total 25,655,549 -------------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES TOTAL 155,017,297 WHOLESALE TRADE - 0.4% NON-DURABLE GOODS - 0.4% LILLY DEL MAR, INC. 7.717% 08/01/29 (a) (b) 2,250,000 2,285,098 Non-Durable Goods Total 2,285,098 -------------- WHOLESALE TRADE TOTAL 2,285,098 CORPORATE FIXED-INCOME BONDS & NOTES TOTAL (cost of $491,663,720) 521,134,592 GOVERNMENT AGENCIES & OBLIGATIONS - 1.2% FOREIGN GOVERNMENT BOND - 0.7% STATE OF QATAR 9.750% 06/15/30 (a) 2,750,000 3,960,000 FOREIGN GOVERNMENT BOND TOTAL 3,960,000 U.S. GOVERNMENT AGENCIES & OBLIGATIONS - 0.5% FEDERAL NATIONAL MORTGAGE ASSOCIATION 9.000% 07/01/19-06/01/20 98,772 108,813 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 10.000% 10/15/17-01/15/19 5,974 6,742 10.500% 01/15/16-05/15/20 56,121 63,798 11.500% 05/15/13 11,137 12,795 12.500% 11/15/10-12/15/13 36,402 41,983 13.000% 04/15/11 4,264 4,951 14.000% 08/15/11 2,785 3,279 133,548 U.S. TREASURY NOTE 4.000% 02/15/14 2,245,000 2,274,466 U.S. GOVERNMENT AGENCIES & OBLIGATIONS TOTAL 2,516,827 GOVERNMENT AGENCIES & OBLIGATIONS TOTAL (COST OF $5,203,889) 6,476,827
See notes to investment portfolio. 16
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------- SHORT-TERM OBLIGATION - 5.2% Repurchase agreement with State Street Bank & Trust Co., dated 03/31/04, due 04/01/04 at 0.960%, collateralized by a U.S. Treasury Bond maturing 02/15/20, market value $29,815,487 (repurchase proceeds $29,224,779) (cost of $29,224,000) 29,224,000 29,224,000 TOTAL INVESTMENTS - 100.1% (COST OF $526,091,609)(c) 556,835,419 OTHER ASSETS & LIABILITIES, NET - (0.1)% (660,900) NET ASSETS - 100.0% 556,174,519
NOTES TO INVESTMENT PORTFOLIO: (a) 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, 2004, the value of these securities amounted to $118,488,329, which represents 21.3% of net assets. (b) Interest rates on variable rate securities change periodically. The rate listed is as of March 31, 2004. (c) Cost for federal income tax purposes is $528,407,742. See notes to financial statements. 17 STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2004 COLUMBIA INCOME FUND
($) - --------------------------------------------------------------------------------------------------------- ASSETS Investments, at cost 526,091,609 ---------------- Investments, at value 556,835,419 Cash 1,080,659 Receivable for: Investments sold 6,839,778 Fund shares sold 1,345,770 Interest 8,419,538 Deferred Trustees' compensation plan 12,331 ---------------- Total Assets 574,533,495 LIABILITIES Payable for: Investments purchased 17,106,528 Fund shares repurchased 319,587 Distributions 291,678 Investment advisory fee 221,470 Administration fee 59,839 Transfer agent fee 216,662 Pricing and bookkeeping fees 17,097 Trustees' fees 853 Custody fee 3,703 Distribution and service fees 51,215 Deferred Trustees' fees 12,331 Other liabilities 58,013 ---------------- Total Liabilities 18,358,976 NET ASSETS 556,174,519 COMPOSITION OF NET ASSETS Paid-in capital 551,516,986 Overdistributed net investment income (2,468,472) Accumulated net realized loss (23,617,805) Net unrealized appreciation on investments 30,743,810 ---------------- NET ASSETS 556,174,519 CLASS A Net assets 92,053,481 Shares outstanding 9,015,815 Net asset value per share 10.21(a) Maximum offering price per share ($10.21/0.9525) 10.72(b) CLASS B Net assets 29,534,411 Shares outstanding 2,892,545 Net asset value and offering price per share 10.21(a) CLASS C Net assets 9,184,618 Shares outstanding 899,554 Net asset value and offering price per share 10.21(a) CLASS Z Net assets 425,402,009 Shares outstanding 41,666,725 Net asset value, offering and redemption price per share 10.21
(a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. (b) On sales of $50,000 or more the offering price is reduced. See notes to financial statements. 18 STATEMENT OF OPERATIONS COLUMBIA INCOME FUND
PERIOD ENDED YEAR ENDED MARCH 31, 2004 (a)($) JUNE 30, 2003 ($) - ----------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Interest 24,503,277 30,799,067 EXPENSES Expenses allocated from Portfolio -- 66,898 Investment advisory fee 1,874,041 2,263,883 Administration fee 507,010 631,184 Distribution fee: Class B 167,965 234,129 Class C 38,442 32,871 Service fee: Class A 165,479 213,879 Class B 55,988 78,797 Class C 12,774 10,936 Transfer agent fee: Class A 146,176 279,968 Class B 50,263 122,841 Class C 10,525 16,165 Class Z 409,552 510,392 Pricing and bookkeeping fees 119,591 185,586 Trustees' fees 14,418 19,492 Custody fee 26,699 19,270 Other expenses 155,996 202,679 Non-recurring costs (See Note 7) 3,727 -- Costs assumed by Investment Advisor (See Note 7) (3,727) -- ----------------------------------- Total Operating Expenses 3,754,919 4,888,970 Fees and expenses waived by Investment Advisor (85,976) -- Transfer agent fees reimbursed by Investment Advisor: Class A (8,361) (39,479) Class B (2,950) (34,918) Class C (532) (3,568) Fees waived by Distributor - Class C (7,785) (6,411) Custody earnings credit (260) (1,040) ----------------------------------- Net Operating Expenses 3,649,055 4,803,554 Interest expense 43 -- ----------------------------------- Net Expenses 3,649,098 4,803,554 ----------------------------------- Net Investment Income 20,854,179 25,995,513 NET REALIZED AND UNREALIZED Net realized gain on: GAIN (LOSS) ON INVESTMENTS Investments 9,142,243 3,417,955 AND FOREIGN CURRENCY Foreign currency transactions -- 9,655 ----------------------------------- Net realized gain 9,142,243 3,427,610 Net change in unrealized appreciation/ depreciation on investments (2,136,105) 33,226,182 ----------------------------------- Net Gain 7,006,138 36,653,792 ----------------------------------- Net Increase in Net Assets from Operations 27,860,317 62,649,305
(a) The Fund changed its fiscal year end from June 30 to March 31. See notes to financial statements. 19 STATEMENT OF CHANGES IN NET ASSETS COLUMBIA INCOME FUND
PERIOD ENDED YEAR ENDED YEAR ENDED MARCH 31, JUNE 30, JUNE 30, INCREASE (DECREASE) IN NET ASSETS: 2004 (a)(b)($) 2003 (c)(d)($) 2002 ($) - ----------------------------------------------------------------------------------------------------------------------------------- OPERATIONS Net investment income 20,854,179 25,995,513 18,767,145 Net realized gain (loss) on investments and foreign currency transactions 9,142,243 3,427,610 (2,281,856) Net change in unrealized appreciation/ depreciation on investments (2,136,105) 33,226,182 (1,393,561) --------------------------------------------------- Net Increase from Operations 27,860,317 62,649,305 15,091,728 DISTRIBUTIONS DECLARED TO From net investment income: SHAREHOLDERS Class A (3,767,366) (4,851,795) (336) Class B (1,104,196) (1,525,173) -- Class C (260,133) (220,682) -- Class Z (18,030,708) (21,848,537) (19,104,757) Return of capital: Class A -- -- (1) Class Z -- -- (35,938) --------------------------------------------------- Total Distributions Declared to Shareholders (23,162,403) (28,446,187) (19,141,032) SHARE TRANSACTIONS Class A: Subscriptions 11,896,879 13,307,884 408,267 Proceeds received in connection with merger -- 92,697,100 -- Distributions reinvested 2,226,081 2,836,832 168 Redemptions (12,719,120) (24,933,740) (204,204) --------------------------------------------------- Net Increase 1,403,840 83,908,076 204,231 Class B: Subscriptions 5,143,365 7,355,762 -- Proceeds received in connection with merger -- 32,521,573 -- Distributions reinvested 676,743 951,704 -- Redemptions (8,955,692) (10,486,433) -- --------------------------------------------------- Net Increase (Decrease) (3,135,584) 30,342,606 -- Class C: Subscriptions 4,978,358 2,990,400 -- Proceeds received in connection with merger -- 3,795,846 -- Distributions reinvested 145,525 132,549 -- Redemptions (1,569,954) (1,717,380) -- --------------------------------------------------- Net Increase 3,553,929 5,201,415 -- Class Z: Subscriptions 87,808,248 140,602,354 129,053,213 Distributions reinvested 17,198,335 20,689,189 17,598,485 Redemptions (111,003,329) (86,620,640) (81,573,998) --------------------------------------------------- Net Increase (Decrease) (5,996,746) 74,670,903 65,077,700 Net Increase (Decrease) from Share Transactions (4,174,561) 194,123,000 65,281,931 --------------------------------------------------- Total Increase in Net Assets 523,353 228,326,118 61,232,627 NET ASSETS Beginning of period 555,651,166 327,325,048 266,092,421 End of period 556,174,519 555,651,166 327,325,048 Overdistributed net investment income at end of period (2,468,472) (1,216,871) (420,053)
See notes to financial statements. 20 STATEMENT OF CHANGES IN NET ASSETS COLUMBIA INCOME FUND
PERIOD ENDED YEAR ENDED YEAR ENDED MARCH 31, JUNE 30, JUNE 30, 2004 (a)(b) 2003 (c)(d) 2002 - -------------------------------------------------------------------------------------------------------------------------- CHANGES IN SHARES Class A: Subscriptions 1,180,862 1,404,563 42,979 Issued in connection with merger -- 9,788,501 -- Issued for distributions reinvested 222,302 295,360 18 Redemptions (1,274,508) (2,622,883) (21,498) ---------------------------------------------------- Net Increase 128,656 8,865,541 21,499 Class B: Subscriptions 511,389 772,472 -- Issued in connection with merger -- 3,434,168 -- Issued for distributions reinvested 67,614 99,099 -- Redemptions (896,625) (1,095,572) -- ---------------------------------------------------- Net Increase (Decrease) (317,622) 3,210,167 -- Class C: Subscriptions 495,828 311,006 -- Issued in connection with merger -- 400,829 -- Issued for distributions reinvested 14,500 13,770 -- Redemptions (157,399) (178,980) -- ---------------------------------------------------- Net Increase 352,929 546,625 -- Class Z: Subscriptions 8,734,872 14,613,670 13,516,324 Issued for distributions reinvested 1,717,623 2,140,928 1,844,361 Redemptions (11,147,023) (9,059,989) (8,576,296) ---------------------------------------------------- Net Increase (Decrease) (694,528) 7,694,609 6,784,389
(a) On October 13, 2003, the Liberty Income Fund was renamed Columbia Income Fund. (b) The Fund changed its fiscal year end from June 30 to March 31. (c) Class B and Class C shares commenced operations on July 15, 2002. (d) Effective July 15, 2002, Stein Roe Income Fund Class S shares were redesignated Liberty Income Fund Class Z shares. See notes to financial statements. 21 NOTES TO FINANCIAL STATEMENTS MARCH 31, 2004 COLUMBIA INCOME FUND NOTE 1. ORGANIZATION Columbia Income Fund (the "Fund"), a series of Columbia Funds Trust VIII (the "Trust"), is a diversified portfolio. The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. INVESTMENT GOAL The Fund seeks total return by investing for a high level of current income and opportunities for capital appreciation. 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 subject to a maximum front-end sales charge of 4.75% based on the amount of initial investment. Class A shares purchased without an initial sales charge are subject to a 1.00% contingent deferred sales charge ("CDSC") on shares sold within eighteen months on an original purchase of $1 million to $25 million. Class B shares are subject to a maximum CDSC of 5.00% based upon the holding period after purchase. Class B shares will convert to Class A shares in a certain number of years after purchase, depending on the program under which shares were purchased. Class C shares are subject to a 1.00% CDSC on shares sold within one year after purchase. Class Z shares are offered continuously at net asset value. There are certain restrictions on the purchase of Class Z shares, as described in the Fund's prospectus. On October 13, 2003, the Liberty Income Fund was renamed Columbia Income Fund. Also on this date, the Liberty-Stein Roe Funds Income Trust was renamed Columbia Funds Trust VIII. The fiscal year end of the Fund was changed from June 30 to March 31. Accordingly, the Fund's 2004 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 Debt securities generally are valued by a pricing service approved by the Fund's Board of Trustees, based upon market transactions for normal, institutional-size trading units of similar securities. The services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes. Debt securities for which quotations are readily available are valued at an over-the-counter or exchange bid quotation. Certain debt securities, which tend to be more thinly traded and of lesser quality, are priced based on fundamental analysis of the financial condition of the issuer and the estimated value of any collateral. Valuations developed through pricing techniques may vary from the actual amounts realized upon sale of the securities, and the potential variation may be greater for those securities valued using fundamental analysis. Short-term debt obligations maturing within 60 days are valued at amortized cost, which approximates market value. Foreign securities are generally valued at the closing price on the foreign exchange or market on which they trade. If any foreign share prices are not readily available as a result of limited share activity, the securities are valued at the last sale price of the local shares in the principal market in which such securities are normally traded. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange ("NYSE"). The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are generally determined at 2:00 p.m. Eastern (U.S.) time. Occasionally, events affecting the values of such foreign securities and such exchange rates may occur between 22 the times at which they are determined and the close of the customary trading session of the NYSE, which would not be reflected in the computation of the Fund's net asset value. If events materially affecting the values of such foreign securities occur and it is determined that market quotations are not reliable, then these foreign securities will be valued at their fair value using procedures approved by the Board of Trustees. Investments for which market quotations are not readily available, or quotations which management believes are not appropriate, are valued at fair value under procedures approved by the Board of Trustees. SECURITY TRANSACTIONS Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes. REPURCHASE AGREEMENTS 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. DELAYED DELIVERY SECURITIES The Fund may trade securities on other than normal settlement terms, including securities purchased or sold on a "when-issued" basis. This may increase the risk if the other party to the transaction fails to deliver and causes the Fund to subsequently invest at less advantageous prices. The Fund identifies cash or liquid portfolio securities as segregated with the custodian in an amount equal to the delayed delivery commitment. INCOME RECOGNITION Interest income is recorded on the accrual basis. Premium and discount are amortized and accreted, respectively, on all debt securities. FOREIGN CURRENCY TRANSACTIONS The values of all assets and liabilities quoted in foreign currencies are translated into U.S. dollars at that day's exchange rates. Net realized and unrealized gains (losses) on foreign currency transactions include gains (losses) arising from the fluctuation in exchange rates between trade and settlement dates on securities transactions, gains (losses) arising from the disposition of foreign currency and currency gains (losses) between the accrual and payment dates on dividends, interest income and foreign withholding taxes. For financial statement purposes, the Fund does not distinguish that portion of gains (losses) on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the net realized and unrealized gains (losses) on investments. 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. 23 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 amortization/accretion adjustments, market discount reclassification adjustments and paydown reclassifications 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 - ---------------------------------------------------- $ 1,056,623 $ (1,056,610) $ (13)
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 March 31, 2004, and the years ended June 30, 2003 and June 30, 2002 was as follows:
MARCH 31, JUNE 30, JUNE 30, 2004 2003 2002 - ----------------------------------------------------------------------------------- Distributions paid from: Ordinary income* $ 23,162,403 $ 28,446,187 $ 19,105,093 Tax return of capital -- -- 35,939
* For tax purposes short-term capital gains distributions, if any, are considered ordinary income distributions. As of March 31, 2004, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ORDINARY LONG-TERM NET UNREALIZED INCOME CAPITAL GAINS APPRECIATION* - --------------------------------------------------------- $ 39,515 $ -- $ 28,427,677
* The differences between book-basis and tax-basis net unrealized appreciation are primarily due to discount accretion/premium amortization on debt securities and deferral of losses from wash sales. Unrealized appreciation and depreciation at March 31, 2004, based on cost of investments for federal income tax purposes was: Unrealized appreciation $ 31,482,800 Unrealized depreciation (3,055,123) ------------- Net unrealized appreciation $ 28,427,677
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 - --------------------------------------------------------- 2008 $ 10,505,238 2009 8,620,038 2010 1,393,345 2011 2,985,140 ------------- $ 23,503,761
Capital loss carryforwards of $7,979,870 were utilized and/or expired during the period ended March 31, 2004 for the Fund. Expired capital loss carryforwards are recorded as a reduction of paid-in capital. 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 $100 million 0.500% Next $900 million 0.475% Over $1 billion 0.450%
Prior to November 1, 2003, Columbia was entitled to receive a monthly investment advisory fee based on the Fund's average daily net assets as follows:
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE - ------------------------------------------------------ First $100 million 0.500% Over $100 million 0.475%
Prior to July 12, 2002, the management fee was paid by the SR&F Income Portfolio (the "Portfolio") at the same rate. For the period July 1, 2003 through October 31, 2003, Columbia voluntarily waived its investment advisory fee by 0.05% annually of the Fund's average daily net assets. 24 For the period ended March 31, 2004 and the year ended June 30, 2003, the Fund's annualized effective investment advisory fee rates were 0.46% and 0.48%, respectively. ADMINISTRATION FEE Columbia provides accounting and other services to the Fund for a monthly administration fee based on the Fund's average daily net assets as follows:
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE - ------------------------------------------------------ First $100 million 0.150% Next $900 million 0.125% Over $1 billion 0.100%
Prior to November 1, 2003, Columbia was entitled to receive a monthly administration fee based on the Fund's average daily net assets as follows:
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE - ------------------------------------------------------ First $100 million 0.150% Over $100 million 0.125%
For the period ended March 31, 2004 and the year ended June 30, 2003, the Fund's annualized effective administration fee rates were 0.13% and 0.13%, 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 0.031% and 0.038%, respectively. Prior to July 12, 2002, Columbia received from the Fund an annual flat fee of $5,000. 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 $34.00 per open account. The Transfer Agent also receives reimbursement for certain out-of-pocket expenses. Columbia has voluntarily agreed to reimburse the Fund for a portion of the transfer agent expenses so that transfer agent expenses (excluding out-of-pocket expenses) would not exceed 0.23% annually of the Fund's average daily net assets. Columbia, at its discretion, may revise or discontinue this arrangement any time. 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. Additionally, prior to November 1, 2003, Columbia voluntarily reimbursed the Fund for transfer agency fees so that Class A, Class B and Class C transfer agent expenses (excluding out-of-pocket expenses) did not exceed 0.23%. For the period ended March 31, 2004, the Fund's annualized effective transfer agent fee rates, inclusive of out-of-pocket fees, were 0.23%, 0.23%, 0.23% and 0.16% for Class A, Class B, Class C and Class Z shares, respectively. For the year ended June 30, 2003, the Fund's effective transfer agent fee rates, inclusive of out-of-pocket fees, were 0.29%, 0.29%, 0.29% and 0.14% for Class A, Class B, Class C and Class Z shares, 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 and the year ended June 30, 2003, the Distributor has retained net underwriting discounts on sales of the Fund's Class A shares of $15,842 and $1,040, respectively. For the period ended March 31, 2004, the Distributor has received CDSC fees of $909, $63,301 and $1,566 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 $29,457, $91,600 and $902 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 25 Distributor at the annual rate of 0.25% of the average daily net assets attributable to Class A, 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 0.60% annually of Class C average daily net assets. 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. 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. PORTFOLIO INFORMATION PURCHASES AND SALES OF SECURITIES For the period ended March 31, 2004, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $468,461,658 and $480,747,430, respectively, of which $92,394,860 and $113,741,743, respectively, were U.S. Government securities. NOTE 6. 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, the average daily loan balance outstanding on days where borrowings existed was $1,000,000 at a weighted average interest rate of 1.56%. For the year ended June 30, 2003, there were no borrowings under these agreements. NOTE 7. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES HIGH-YIELD SECURITIES Investing in high-yield securities may involve greater credit risk and considerations not typically associated with investing in U.S. Government bonds and other higher quality fixed income securities. These securities are non-investment grade securities, often referred to as "junk bonds." Economic downturns may disrupt the high-yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations. Moreover, high-yield securities may be less liquid due to the extent that there is no established retail secondary market and because of a decline in the value of such securities. INDUSTRY FOCUS The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified. 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 26 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. For the period ended March 31, 2004, Columbia has assumed $3,727 of legal, consulting services and Trustees' fees incurred by the Fund in connection with these matters. NOTE 8. 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 9. BUSINESS COMBINATIONS AND MERGERS FUND MERGERS As of the end of business on July 12, 2002, the Stein Roe Income Fund acquired all the net assets of Liberty Income Fund pursuant to a plan of reorganization approved by Liberty Income Fund shareholders on June 28, 2002. All assets of Liberty Income Fund were transferred to the Stein Roe Income Fund in a tax-free exchange and shareholders of Liberty Income Fund received shares of the Stein Roe Income Fund in exchange for their shares as follows:
STEIN ROE INCOME FUND LIBERTY INCOME FUND UNREALIZED SHARES ISSUED NET ASSETS RECEIVED DEPRECIATION(1) -------------------------------------------------------- 13,623,498 $ 129,014,519 $ (883,393)
(1) Unrealized depreciation is included in the Net Assets Received amount shown above.
NET ASSETS NET ASSETS OF THE STEIN ROE NET ASSETS OF OF THE STEIN ROE INCOME FUND LIBERTY INCOME FUND INCOME FUND PRIOR TO IMMEDIATELY PRIOR TO IMMEDIATELY AFTER COMBINATION COMBINATION COMBINATION - ------------------------------------------------------------------- $ 327,547,213 $ 129,014,519 $ 456,561,732
Effective July 15, 2002, Stein Roe Income Fund was renamed Liberty Income Fund (currently known as Columbia Income Fund) and began offering Class B and Class C shares. The Class S shares were subsequently redesignated as Class Z shares. CHANGE IN FUND STRUCTURE Prior to July 13, 2002, the Fund invested substantially all of its assets in the SR&F Income Portfolio (the "Portfolio"), as part of a master/feeder structure. The Portfolio allocated income, expenses, realized and unrealized gains (losses) to its investors 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 Portfolio were distributed to the Fund based on allocation methods in compliance with the Internal Revenue Service. 27 FINANCIAL HIGHLIGHTS COLUMBIA INCOME FUND SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD PERIOD ENDED ENDED MARCH 31, YEAR ENDED JUNE 30, JUNE 30, CLASS A SHARES 2004(a)(b) 2003(c) 2002(c) 2001(c)(d) - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.10 $ 9.44 $ 9.54 $ 9.21 INCOME FROM INVESTMENT OPERATIONS: Net investment income (e) 0.39 0.45 0.60(f) 0.61 Net realized and unrealized gain (loss) on investments and foreign currency 0.15 0.75 (0.08)(f) 0.32 ------------ ------------ ------------ ------------ Total from Investment Operations 0.54 1.20 0.52 0.93 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.43) (0.54) (0.62) (0.60) Return of capital -- -- --(g) -- ------------ ------------ ------------ ------------ Total Distributions Declared to Shareholders (0.43) (0.54) (0.62) (0.60) NET ASSET VALUE, END OF PERIOD $ 10.21 $ 10.10 $ 9.44 $ 9.54 Total return (h) 5.50%(i)(j) 13.18%(i) 5.53% 10.41%(j) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Operating expenses (k) 1.14%(l) 1.23% 1.10% 1.12%(l) Interest expense --%(l)(m) -- -- -- Expenses (k) 1.14%(l) 1.23% 1.10% 1.12%(l) Net investment income (k) 5.20%(l) 5.12% 6.32%(f) 7.08%(l) Waiver/reimbursement 0.03%(l) 0.05% -- -- Portfolio turnover rate 93%(j) 96% 136%(n) 128%(n) Net assets, end of period (000's) $ 92,053 $ 89,740 $ 204 $ 1
(a) On October 13, 2003, the Liberty Income Fund was renamed Columbia Income Fund. (b) The Fund changed its fiscal year end from June 30 to March 31. (c) Per share data and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of income and expenses of the SR&F Income Portfolio, prior to the portfolio liquidation. (d) Class A shares were initially offered on July 31, 2000. Per share data and total return reflect activity from that date. (e) Per share data was calculated using average shares outstanding during the period. (f) Effective July 1, 2001, the SR&F Income Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to decrease net investment income per share by $0.01, decrease net realized and unrealized loss per share by $0.01 and decrease the ratio of net investment income to average net assets from 6.40% to 6.32%. Per share data and ratios for the period prior to June 30, 2002 have not been restated to reflect this change in presentation. (g) Rounds to less than $0.01 per share. (h) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (i) Had the Investment Advisor not reimbursed a portion of expenses, total return would have been reduced. (j) Not annualized. (k) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (l) Annualized. (m) Rounds to less than 0.01%. (n) Portfolio turnover disclosed is for the SR&F Income Portfolio. 28 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD PERIOD ENDED ENDED MARCH 31, JUNE 30, CLASS B SHARES 2004(a)(b) 2003(c)(d) - ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.10 $ 9.47 INCOME FROM INVESTMENT OPERATIONS: Net investment income (e) 0.33 0.40 Net realized and unrealized gain on investments and foreign currency 0.15 0.68 ------------ ------------ Total from Investment Operations 0.48 1.08 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.37) (0.45) NET ASSET VALUE, END OF PERIOD $ 10.21 $ 10.10 Total return (f) (g) (h) 4.91% 11.78% RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Operating expenses (i) (j) 1.89% 1.99% Interest expense --%(j)(k) -- Expenses (i) (j) 1.89% 1.99% Net investment income (i) (j) 4.46% 4.39% Waiver/reimbursement (j) 0.03% 0.11% Portfolio turnover rate 93%(h) 96% Net assets, end of period (000's) $ 29,534 $ 32,430
(a) On October 13, 2003, the Liberty Income Fund was renamed Columbia Income Fund. (b) The Fund changed its fiscal year end from June 30 to March 31. (c) Class B shares were initially offered on July 15, 2002. Per share data and total return reflect activity from that date. (d) Per share data and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of income and expenses of the SR&F Income Portfolio, prior to the portfolio liquidation. (e) Per share data was calculated using average shares outstanding during the period. (f) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (g) Had the Investment Advisor not reimbursed a portion of expenses, total return would have been reduced. (h) Not annualized. (i) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (j) Annualized. (k) Rounds to less than 0.01%. 29 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD PERIOD ENDED ENDED MARCH 31, JUNE 30, CLASS C SHARES 2004 (a)(b) 2003 (c)(d) - ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.10 $ 9.47 INCOME FROM INVESTMENT OPERATIONS: Net investment income (e) 0.34 0.42 Net realized and unrealized gain on investments and foreign currency 0.15 0.68 ------------ ------------ Total from Investment Operations 0.49 1.10 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.38) (0.47) NET ASSET VALUE, END OF PERIOD $ 10.21 $ 10.10 Total return (f) (g) (h) 5.03% 11.94% RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Operating expenses (i) (j) 1.74% 1.84% Interest expense --%(j)(k) -- Expenses (i) (j) 1.74% 1.84% Net investment income (i) (j) 4.52% 4.51% Waiver/reimbursement (j) 0.18% 0.23% Portfolio turnover rate 93%(h) 96% Net assets, end of period (000's) $ 9,185 $ 5,522
(a) On October 13, 2003, the Liberty Income Fund was renamed Columbia Income Fund. (b) The Fund changed its fiscal year end from June 30 to March 31. (c) Class C shares were initially offered on July 15, 2002. Per share data and total return reflect activity from that date. (d) Per share data and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of income and expenses of the SR&F Income Portfolio, prior to the portfolio liquidation. (e) Per share data was calculated using average shares outstanding during the period. (f) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (g) Had the Investment Advisor/Distributor not reimbursed a portion of expenses, total return would have been reduced. (h) Not annualized. (i) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (j) Annualized. (k) Rounds to less than 0.01%. 30 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD ENDED MARCH 31, YEAR ENDED JUNE 30, CLASS Z SHARES 2004(a)(b) 2003(c)(d) 2002(d) 2001(d) 2000(d) 1999(d) - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.10 $ 9.44 $ 9.54 $ 9.15 $ 9.41 $ 10.03 INCOME FROM INVESTMENT OPERATIONS: Net investment income (e) 0.41 0.53 0.63(f) 0.69 0.70 0.67 Net realized and unrealized gain (loss) on investments and foreign currency 0.16 0.71 (0.09)(f) 0.39 (0.26) (0.62) ---------- ---------- ---------- ---------- ---------- ---------- Total from Investment Operations 0.57 1.24 0.54 1.08 0.44 0.05 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.46) (0.58) (0.64) (0.69) (0.70) (0.67) Return of capital -- -- --(g) -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions Declared to Shareholders (0.46) (0.58) (0.64) (0.69) (0.70) (0.67) NET ASSET VALUE, END OF PERIOD $ 10.21 $ 10.10 $ 9.44 $ 9.54 $ 9.15 $ 9.41 Total return (h) 5.80%(i)(j) 13.61% 5.80% 12.20% 4.92% 0.52% RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Operating expenses (k) 0.82%(l) 0.84% 0.85% 0.86% 0.86% 0.84% Interest expense --%(l)(m) -- -- -- -- -- Expenses (k) 0.82%(l) 0.84% 0.85% 0.86% 0.86% 0.84% Net investment income (k) 5.46%(l) 5.51% 6.57%(f) 7.32% 7.58% 6.91% Waiver/reimbursement 0.02%(l) -- -- -- -- -- Portfolio turnover rate 93%(j) 96% 136%(n) 128%(n) 205%(n) 203%(n) Net assets, end of period (000's) $ 425,402 $ 427,959 $ 327,121 $ 266,091 $ 227,090 $ 294,640
(a) On October 13, 2003, the Liberty Income Fund was renamed Columbia Income Fund. (b) The Fund changed its fiscal year end from June 30 to March 31. (c) Effective July 15, 2002, the Stein Roe Income Fund's Class S shares were redesignated Liberty Income Fund Class Z shares. (d) Per share data and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of income and expenses of the SR&F Income Portfolio, prior to the portfolio liquidation. (e) Per share data was calculated using average shares outstanding during the period. (f) Effective July 1, 2001, the SR&F Income Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to decrease net investment income per share by $0.01, decrease net realized and unrealized loss per share by $0.01 and decrease the ratio of net investment income to average net assets from 6.65% to 6.57%. Per share data and ratios for periods prior to June 30, 2002 have not been restated to reflect this change in presentation. (g) Rounds to less than $0.01 per share. (h) Total return at net asset value assuming all distributions reinvested. (i) Had the Investment Advisor not reimbursed a portion of expenses, total return would have been reduced. (j) Not annualized. (k) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (l) Annualized. (m) Rounds to less than 0.01%. (n) Portfolio turnover disclosed is for the SR&F Income Portfolio. 31 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM COLUMBIA INCOME FUND TO THE TRUSTEES OF COLUMBIA FUNDS TRUST VIII AND THE SHAREHOLDERS OF COLUMBIA INCOME 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 Income Fund (the "Fund") (a series of Columbia Funds Trust VIII) 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 32 UNAUDITED INFORMATION COLUMBIA INCOME 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. 33 TRUSTEES COLUMBIA INCOME 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 YEAR FIRST ELECTED OR APPOINTED TO OFFICE(1) FUNDS 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. 34
NAME, ADDRESS AND AGE, POSITION WITH FUNDS, PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN COLUMBIA YEAR FIRST ELECTED OR APPOINTED TO OFFICE(1) FUNDS 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 Suite 3204 February1999).Oversees 120(3), Lee Enterprises (print media), WR Hambrecht + Co. New York, NY 10022 (financial service provider), First Health (healthcare), Reader's Digest (publishing) Trustee (since 1994) and 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. 35 OFFICERS COLUMBIA INCOME 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 since One Financial Center June 2001 (formerly Controller of the Columbia Funds and of the Liberty All-Star Boston, MA 02111 Funds from May 2002 to May 2004); Controller and Chief Accounting Officer of the Chief Accounting Officer (since 2001) 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, Product Boston, MA 02111 Strategy & Development of Liberty Funds Group from February 2001 to June 2002; Controller (since 2004) 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 Columbia One Financial Center Funds and of the Liberty All-Star Funds since December 2000; Vice President of the Boston, MA 02111 Advisor since April 2003 (formerly Chief Accounting Officer and Controller of the Treasurer (since 2000) and Liberty Funds and Liberty All-Star Funds from February 1998 to October 2000); President (since 2004) 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 December One Financial Center 2003; Senior Counsel, Fleet Boston Financial Corporation since January 1996; Boston, MA 02111 Associate General Counsel, Columbia Management Group since November 2002. Secretary (since 2003)
36 IMPORTANT INFORMATION ABOUT THIS REPORT COLUMBIA INCOME 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 Income 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. 37 [GRAPHIC] 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 INCOME 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 751-02/630R-0304 (05/04) 04/1094 [GRAPHIC] COLUMBIA INTERMEDIATE BOND FUND ANNUAL REPORT MARCH 31, 2004 [COLUMBIAFUNDS(R) LOGO] A MEMBER OF COLUMBIA MANAGEMENT GROUP TABLE OF CONTENTS Fund Profile 1 Performance Information 2 Economic Update 3 Portfolio Managers' Report 4 Financial Statements 6 Investment Portfolio 6 Statement of Assets and Liabilities 16 Statement of Operations 17 Statement of Changes in Net Assets 18 Notes to Financial Statements 20 Financial Highlights 26 Report of Independent Registered Public Accounting Firm 30 Unaudited Information 31 Trustees 32 Officers 34 Important Information About This Report 35 Columbia Funds 36
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 INTERMEDIATE BOND 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 INTERMEDIATE BOND 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 STRUCTURE AS OF 03/31/04 (%) Corporate fixed-income bonds & notes 63.8 Government agencies & obligations 20.3 Asset-backed & non-agency mortgage-backed securities 11.9 Cash equivalents, net other assets & liabilities 4.0
QUALITY BREAKDOWN AS OF 03/31/04 (%) AAA 35.8 AA 7.5 A 23.8 BBB 21.6 BB 8.2 B and lower 3.1
[CHART] MATURITY BREAKDOWN AS OF 03/31/04 (%) 0-1 YEAR 5.0% 1-5 YEARS 55.2% 5-10 YEARS 28.8% 10-20 YEARS 5.7% 20+ YEARS 5.3%
Portfolio structure is calculated as a percentage of net assets. Quality and maturity breakdowns are calculated as a percentage of total investments. Ratings shown in the quality breakdown represent the highest rating assigned to a particular bond by one of the following respected rating agencies: Standard & Poor's, Moody's or Fitch Investors Service, Inc. Maturity breakdown is based on each security's effective maturity and other conditions that affect a bond's maturity. (C)2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. The Morningstar Style Box(TM) reveals a fund's investment strategy. For equity funds the vertical axis shows the market capitalization of the stocks owned and the horizontal axis shows investment style (value, blend or growth). For fixed-income funds the vertical axis shows the average credit quality of the bonds owned, and the horizontal axis shows interest rate sensitivity as measured by a bond's duration (short, intermediate or long). All of these numbers are drawn from the data most recently provided by the fund and entered into Morningstar's database as of month-end. Although the data are gathered from reliable sources, Morningstar cannot guarantee completeness and accuracy. As of 03/31/2004. [SIDENOTE] SUMMARY - - FOR THE NINE-MONTH PERIOD ENDED MARCH 31, 2004, THE FUND'S CLASS A SHARES RETURNED 4.59% WITHOUT SALES CHARGE. - - THE FUND'S RETURN WAS BETTER THAN THE RETURN OF ITS BENCHMARK AND THE AVERAGE RETURN OF ITS PEER GROUP, THE LIPPER INTERMEDIATE INVESTMENT GRADE BOND CATEGORY. - - SIGNIFICANT POSITIONS IN INVESTMENT GRADE AND HIGH-YIELD CORPORATE BONDS WERE KEY TO THE FUND'S STRONG PERFORMANCE. [CHART] CLASS A SHARES 4.59% LEHMAN BROTHERS AGGREGATE BOND INDEX 2.83%
OBJECTIVE Seeks total return by investing for a high level of current income and opportunities for capital appreciation TOTAL NET ASSETS $1,103.9 million MORNINGSTAR STYLE BOX [GRAPHIC] 1 PERFORMANCE INFORMATION COLUMBIA INTERMEDIATE BOND FUND [CHART] VALUE OF A $10,000 INVESTMENT 04/01/94 - 03/31/04
CLASS A SHARES WITHOUT CLASS A SHARES LEHMAN BROTHERS AGGREGATE SALES CHARGE WITH SALES CHARGE BOND INDEX 4/1/1994 $ 10,000 $ 9,525 $ 10,000 4/30/1994 $ 9,938 $ 9,466 $ 9,920 5/31/1994 $ 9,912 $ 9,441 $ 9,919 6/30/1994 $ 9,921 $ 9,450 $ 9,897 7/31/1994 $ 10,070 $ 9,592 $ 10,094 8/31/1994 $ 10,103 $ 9,623 $ 10,106 9/30/1994 $ 9,992 $ 9,517 $ 9,958 10/31/1994 $ 9,977 $ 9,503 $ 9,949 11/30/1994 $ 9,914 $ 9,443 $ 9,927 12/31/1994 $ 9,964 $ 9,490 $ 9,995 1/31/1995 $ 10,111 $ 9,631 $ 10,193 2/28/1995 $ 10,316 $ 9,826 $ 10,436 3/31/1995 $ 10,380 $ 9,887 $ 10,500 4/30/1995 $ 10,529 $ 10,029 $ 10,646 5/31/1995 $ 10,842 $ 10,327 $ 11,059 6/30/1995 $ 10,925 $ 10,406 $ 11,139 7/31/1995 $ 10,923 $ 10,404 $ 11,115 8/31/1995 $ 11,074 $ 10,548 $ 11,249 9/30/1995 $ 11,172 $ 10,641 $ 11,358 10/31/1995 $ 11,298 $ 10,762 $ 11,506 11/30/1995 $ 11,477 $ 10,932 $ 11,679 12/31/1995 $ 11,644 $ 11,091 $ 11,842 1/31/1996 $ 11,761 $ 11,202 $ 11,920 2/29/1996 $ 11,575 $ 11,025 $ 11,713 3/31/1996 $ 11,495 $ 10,949 $ 11,631 4/30/1996 $ 11,426 $ 10,883 $ 11,566 5/31/1996 $ 11,426 $ 10,883 $ 11,543 6/30/1996 $ 11,559 $ 11,010 $ 11,697 7/31/1996 $ 11,612 $ 11,060 $ 11,729 8/31/1996 $ 11,608 $ 11,057 $ 11,709 9/30/1996 $ 11,798 $ 11,237 $ 11,913 10/31/1996 $ 12,032 $ 11,461 $ 12,177 11/30/1996 $ 12,265 $ 11,682 $ 12,385 12/31/1996 $ 12,171 $ 11,593 $ 12,270 1/31/1997 $ 12,245 $ 11,663 $ 12,308 2/28/1997 $ 12,284 $ 11,700 $ 12,339 3/31/1997 $ 12,144 $ 11,567 $ 12,202 4/30/1997 $ 12,329 $ 11,744 $ 12,385 5/31/1997 $ 12,461 $ 11,869 $ 12,503 6/30/1997 $ 12,636 $ 12,036 $ 12,651 7/31/1997 $ 12,995 $ 12,377 $ 12,993 8/31/1997 $ 12,860 $ 12,249 $ 12,883 9/30/1997 $ 13,041 $ 12,421 $ 13,072 10/31/1997 $ 13,169 $ 12,543 $ 13,262 11/30/1997 $ 13,220 $ 12,592 $ 13,323 12/31/1997 $ 13,306 $ 12,674 $ 13,457 1/31/1998 $ 13,480 $ 12,840 $ 13,629 2/28/1998 $ 13,506 $ 12,864 $ 13,618 3/31/1998 $ 13,579 $ 12,934 $ 13,665 4/30/1998 $ 13,649 $ 13,001 $ 13,736 5/31/1998 $ 13,768 $ 13,114 $ 13,866 6/30/1998 $ 13,840 $ 13,182 $ 13,984 7/31/1998 $ 13,872 $ 13,213 $ 14,014 8/31/1998 $ 13,805 $ 13,149 $ 14,242 9/30/1998 $ 14,095 $ 13,425 $ 14,575 10/31/1998 $ 13,871 $ 13,212 $ 14,498 11/30/1998 $ 14,084 $ 13,415 $ 14,581 12/31/1998 $ 14,160 $ 13,488 $ 14,624 1/31/1999 $ 14,308 $ 13,628 $ 14,728 2/28/1999 $ 14,123 $ 13,452 $ 14,470 3/31/1999 $ 14,283 $ 13,604 $ 14,550 4/30/1999 $ 14,344 $ 13,663 $ 14,597 5/31/1999 $ 14,247 $ 13,570 $ 14,468 6/30/1999 $ 14,200 $ 13,525 $ 14,422 7/31/1999 $ 14,201 $ 13,526 $ 14,360 8/31/1999 $ 14,197 $ 13,522 $ 14,353 9/30/1999 $ 14,340 $ 13,659 $ 14,519 10/31/1999 $ 14,357 $ 13,675 $ 14,573 11/30/1999 $ 14,389 $ 13,705 $ 14,571 12/31/1999 $ 14,340 $ 13,659 $ 14,501 1/31/2000 $ 14,370 $ 13,688 $ 14,454 2/29/2000 $ 14,518 $ 13,829 $ 14,628 3/31/2000 $ 14,665 $ 13,968 $ 14,822 4/30/2000 $ 14,575 $ 13,883 $ 14,779 5/31/2000 $ 14,494 $ 13,805 $ 14,771 6/30/2000 $ 14,856 $ 14,150 $ 15,078 7/31/2000 $ 15,018 $ 14,305 $ 15,216 8/31/2000 $ 15,254 $ 14,529 $ 15,436 9/30/2000 $ 15,399 $ 14,667 $ 15,534 10/31/2000 $ 15,420 $ 14,688 $ 15,636 11/30/2000 $ 15,582 $ 14,842 $ 15,892 12/31/2000 $ 15,861 $ 15,108 $ 16,188 1/31/2001 $ 16,243 $ 15,472 $ 16,454 2/28/2001 $ 16,438 $ 15,657 $ 16,597 3/31/2001 $ 16,548 $ 15,762 $ 16,680 4/30/2001 $ 16,505 $ 15,721 $ 16,610 5/31/2001 $ 16,708 $ 15,915 $ 16,709 6/30/2001 $ 16,718 $ 15,924 $ 16,773 7/31/2001 $ 17,108 $ 16,295 $ 17,148 8/31/2001 $ 17,329 $ 16,506 $ 17,346 9/30/2001 $ 17,148 $ 16,334 $ 17,549 10/31/2001 $ 17,390 $ 16,564 $ 17,915 11/30/2001 $ 17,382 $ 16,556 $ 17,668 12/31/2001 $ 17,295 $ 16,473 $ 17,555 1/31/2002 $ 17,428 $ 16,600 $ 17,697 2/28/2002 $ 17,522 $ 16,690 $ 17,869 3/31/2002 $ 17,399 $ 16,573 $ 17,572 4/30/2002 $ 17,554 $ 16,720 $ 17,913 5/31/2002 $ 17,724 $ 16,882 $ 18,065 6/30/2002 $ 17,570 $ 16,736 $ 18,221 7/31/2002 $ 17,435 $ 16,607 $ 18,441 8/31/2002 $ 17,705 $ 16,864 $ 18,753 9/30/2002 $ 17,788 $ 16,943 $ 19,057 10/31/2002 $ 17,566 $ 16,732 $ 18,969 11/30/2002 $ 17,835 $ 16,988 $ 18,963 12/31/2002 $ 18,227 $ 17,361 $ 19,356 1/31/2003 $ 18,311 $ 17,441 $ 19,373 2/28/2003 $ 18,578 $ 17,696 $ 19,641 3/31/2003 $ 18,638 $ 17,752 $ 19,625 4/30/2003 $ 18,969 $ 18,068 $ 19,788 5/31/2003 $ 19,429 $ 18,506 $ 20,156 6/30/2003 $ 19,510 $ 18,583 $ 20,116 7/31/2003 $ 19,034 $ 18,130 $ 19,440 8/31/2003 $ 19,089 $ 18,183 $ 19,568 9/30/2003 $ 19,637 $ 18,704 $ 20,087 10/31/2003 $ 19,606 $ 18,674 $ 19,900 11/30/2003 $ 19,704 $ 18,768 $ 19,948 12/31/2003 $ 19,911 $ 18,965 $ 20,151 1/31/2004 $ 20,118 $ 19,162 $ 20,312 2/29/2004 $ 20,261 $ 19,298 $ 20,532 3/31/2004 $ 20,389 $ 19,423 $ 20,689
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares. The Lehman Brothers Aggregate Bond Index is a market value-weighted index that tracks fixed-rate, publicly placed, dollar-dominated, and non-convertible investment grade debt issues. Unlike the fund, indices are not investments, do not incur fees or expenses and are not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in an index. AVERAGE ANNUAL TOTAL RETURN AS OF 03/31/04 (%)
SHARE CLASS A B C Z - ----------------------------------------------------------------------------------------------- INCEPTION 07/31/00 02/01/02 02/01/02 12/05/78 - ----------------------------------------------------------------------------------------------- SALES CHARGE WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT - ----------------------------------------------------------------------------------------------- 9-month (cumulative) 4.59 -0.40 4.00 -1.00 4.12 3.12 4.78 1-year 9.48 4.31 8.67 3.67 8.83 7.83 9.76 5-year 7.39 6.35 7.04 6.74 7.11 7.11 7.60 10-year 7.38 6.86 7.21 7.21 7.25 7.25 7.49
All results shown assume reinvestment of distributions. The "with sales charge" returns include the maximum 4.75% charge for class A shares, the appropriate class B contingent deferred sales charge for the holding period after purchase as follows: through first year--5%, second year--4%, third year--3%, fourth year--3%, fifth year--2%, sixth year--1%, thereafter--0%, and the class C contingent deferred sales charge of 1% for the first year only. Performance for different share classes will vary based on differences in sales charges and fees associated with each class. Performance results reflect any voluntary waivers or reimbursement of fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. The performance information for class A, B and C shares (newer class shares) includes returns of the fund's class Z shares (the oldest existing fund class) for periods prior to the inception date of the newer share classes. These class Z share returns were not restated to reflect any expense differential (e.g., Rule 12b-1 fees) between class Z shares and the newer class shares. Had the expense differential been reflected, the returns for the periods prior to the inception of the newer class shares would have been lower. [SIDENOTE] PERFORMANCE OF A $10,000 INVESTMENT 04/01/94 - 03/31/04 ($)
SALES CHARGE: WITHOUT WITH - ------------------------------------------------------------- Class A 20,389 19,423 Class B 20,062 20,062 Class C 20,127 20,127 Class Z 20,590 n/a
Performance data quoted represents past performance and current performance may be lower or higher. Past performance is no guarantee of future results. The investment return and principal value will fluctuate so that 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. 2 ECONOMIC UPDATE COLUMBIA INTERMEDIATE BOND 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 the 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. [CHART] 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%. [CHART] 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. 3 PORTFOLIO MANAGERS' REPORT COLUMBIA INTERMEDIATE BOND FUND The Board of Trustees for Columbia Intermediate Bond 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, class A shares of Columbia Intermediate Bond Fund returned 4.59% without sales charge. The fund outperformed its benchmark, the Lehman Brothers Aggregate Bond Index, which posted a total return of 2.83% for the same period. The fund also beat its peer group, the Lipper Intermediate Investment Grade Bond Category average, which returned 2.62% for the period.(1) FURTHER GAINS FOR CORPORATE BONDS Low interest rates and lower taxes helped to extend the US economic expansion into 2004. The expansion has been beneficial for corporate profits, which have risen strongly over the past year, and attracted investors who were ready to assume more risk. The fund's substantial commitment to lower quality investment grade bonds--especially BBB-rated issues--and high-yield corporate bonds during a period of high investor demand accounted for the majority of the fund's strong return relative to its benchmark. UTILITIES AND TELECOM BOUNCED BACK Utility and telecommunications companies took advantage of improving business conditions, lower interest rates and easier access to the capital markets to refinance high-coupon debt. These savings led to higher profits, making bonds in both industries more attractive. California-based Edison Mission Energy and Iowa's MidAmerican Energy Holdings got a boost from the growing economy. Bonds of Ohio-based FirstEnergy recovered as the company's Davis Besse nuclear plant's restart date approached. The bonds had fallen when the plant went off-line. Bonds of Canadian cell-phone operator Rogers Cantel rose in value. The company increased its customer base and revenues after shoring up its finances. These strong performers boosted the fund's return during the period. STRONG RETURNS FROM AUTOS AND AIRLINES We bought bonds of Ford Motor Credit when the possibility of a ratings downgrade drove off investors. Our view was more positive, and this timely purchase was rewarded when the bonds rose in response to Ford's restructuring initiatives. Similarly, Dana, a supplier of truck and automobile parts, improved its bottom line by streamlining operations and cutting costs. Increased travel volumes and cost reductions boosted profits Fundat Continental Airlines, Delta Air Lines and American Airlines and bonds collateralized by their aircraft recovered in response. (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] NET ASSET VALUE PER SHARE AS OF 03/31/04 ($) Class A 9.27 Class B 9.27 Class C 9.27 Class Z 9.27
DISTRIBUTIONS DECLARED PER SHARE 07/01/03 - 03/31/04 ($) Class A 0.32 Class B 0.27 Class C 0.28 Class Z 0.34
SEC YIELDS AS OF 03/31/04 (%) Class A 3.56 Class B 2.99 Class C 3.14 Class Z 3.99
The 30-day SEC yields reflect the portfolio's earning power net of expenses, expressed as an annualized percentage of the public offering price at the end of the period. HOLDINGS DISCUSSED IN THIS REPORT AS OF 03/31/04 (%) Edison Mission Energy 0.1 MidAmerican Energy Holdings 1.6 FirstEnergy 0.9 Rogers Cantel 0.2 Ford Motor Credit 1.7 Dana 0.5 Continental Airlines 0.9 Delta Air Lines 0.6 American Airlines 0.6 Tenet Healthcare 0.6
Your fund is actively managed and the composition of its portfolio will change over time. Information provided is calculated as a percentage of net assets. 4 SUPERMARKET, CHEMICAL AND HEALTHCARE HURT RESULTS We eliminated Winn Dixie Stores whose bonds declined as the company struggled against the entry of Wal-Mart (not in the portfolio) and other superstores into its market area. We also sold France's Rhodia when this chemical company's margins were pinched by the rising cost of oil. But we remain optimistic about Tenet Healthcare, an operator of for-profit hospitals and related heath care facilities whose bonds fell amid questions about Medicaid funding and related pressure on operating margins. ADJUSTMENTS FOR THE MONTHS AHEAD We believe continued economic growth could boost corporate bonds further, but returns are unlikely to match recent gains and interest rates are likely to rise. Therefore, we have taken steps to increase portfolio quality and reduce interest rate risk. We have reduced our exposure to high-yield and investment grade corporate bonds, and made modest additions to Treasuries, mortgage-backed and other asset-backed securities. During this reporting period Columbia Intermediate Bond Fund was managed by Michael T. Kennedy and Thomas LaPointe. Effective May 14, 2004, Thomas LaPointe, Mark Newlin and Steven Luetger became the fund's co-managers. Investing in high-yield bonds involves greater credit and other risks not associated with investing in higher-quality bonds. Bond investing also involves interest rate risk, which means that bond prices may change as interest rates increase or decrease. Foreign investments involve market, political, accounting and currency risks not associated with other investments. [SIDENOTE] RETURNS ARE UNLIKELY TO MATCH RECENT GAINS AND INTEREST RATES ARE LIKELY TO RISE. THEREFORE, WE HAVE TAKEN STEPS TO INCREASE PORTFOLIO QUALITY AND REDUCE INTEREST RATE RISK. 5 INVESTMENT PORTFOLIO MARCH 31, 2004 COLUMBIA INTERMEDIATE BOND FUND
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - 63.8% AGRICULTURE, FORESTRY & FISHING - 0.3% AGRICULTURAL SERVICES - 0.2% BUNGE LTD. FINANCE CORP. 4.375% 12/15/08 (a) 2,600,000 2,691,338 Agricultural Services Total 2,691,338 FORESTRY - 0.1% TEMBEC INDUSTRIES, INC. 8.500% 02/01/11 550,000 547,250 Forestry Total 547,250 AGRICULTURE, FORESTRY & FISHING TOTAL 3,238,588 CONSTRUCTION - 0.3% BUILDING CONSTRUCTION - 0.3% D.R. HORTON, INC. 9.750% 09/15/10 1,000,000 1,225,000 STANDARD-PACIFIC CORP. 9.250% 04/15/12 2,000,000 2,350,000 Building Construction Total 3,575,000 CONSTRUCTION TOTAL 3,575,000 FINANCE, INSURANCE & REAL ESTATE - 26.2% DEPOSITORY INSTITUTIONS - 5.6% BANK ONE CORP. 6.000% 08/01/08 (b) 11,888,000 13,403,958 BARCLAYS BANK PLC 7.375% 06/15/49 (a)(c) 5,000,000 5,863,250 FIRST MASSACHUSETTS BANK 7.625% 06/15/11 5,500,000 6,561,280 POPULAR, INC. 6.125% 10/15/06 8,250,000 8,904,142 RABOBANK CAPITAL FUNDING II 5.260% 12/31/13 (a) 9,500,000 9,861,570 WELLS FARGO FINANCIAL, INC. 4.875% 06/12/07 14,300,000 15,381,223 WESTERN FINANCIAL BANK 9.625% 05/15/12 2,000,000 2,280,000 Depository Institutions Total 62,255,423 FINANCIAL SERVICES - 5.5% CAPITAL ONE BANK 5.125% 02/15/14 6,650,000 6,760,922 CITICORP, INC. 8.040% 12/15/19 (a) 12,075,000 14,614,372 GENERAL ELECTRIC CAPITAL CORP. 5.375% 03/15/07 10,000,000 10,838,900 HARTFORD FINANCIAL SERVICES GROUP 4.700% 09/01/07 4,000,000 4,255,320 INTERNATIONAL LEASE FINANCE CORP. 6.375% 03/15/09 9,000,000 10,150,110 JOHN DEERE CAPITAL CORP. 7.000% 03/15/12 9,000,000 10,634,670 PF EXPORT RECEIVABLES MASTER TRUST 3.748% 06/01/13 (a) 3,250,000 3,237,780 Financial Services Total 60,492,074
See notes to investment portfolio. 6
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) FINANCE, INSURANCE & REAL ESTATE - (CONTINUED) HOLDING & OTHER INVESTMENT OFFICES - 1.2% HSBC CAPITAL FUNDING L.P. 9.547% 12/31/49 (a)(c) 10,500,000 13,630,732 Holding & Other Investment Offices Total 13,630,732 INSURANCE CARRIERS - 3.0% FLORIDA WINDSTORM UNDERWRITING ASSOCIATION 7.125% 02/25/19 (a) 4,425,000 5,415,050 FUND AMERICAN COMPANIES, INC. 5.875% 05/15/13 4,250,000 4,475,165 LIBERTY MUTUAL GROUP, INC. 5.750% 03/15/14 (a) 6,200,000 6,168,194 PRUDENTIAL INSURANCE CO. OF AMERICA 7.650% 07/01/07 (a) 10,105,000 11,529,603 TRAVELERS PROPERTY CASUALTY CORP. 3.750% 03/15/08 4,750,000 4,866,422 Insurance Carriers Total 32,454,434 NON-DEPOSITORY CREDIT INSTITUTIONS - 4.6% COUNTRYWIDE HOME LOANS, INC. 5.500% 08/01/06 7,500,000 8,052,900 FORD MOTOR CREDIT CO. 5.800% 01/12/09 4,650,000 4,794,848 7.000% 10/01/13 5,500,000 5,812,565 7.375% 10/28/09 7,000,000 7,638,330 GENERAL MOTORS ACCEPTANCE CORP. 6.125% 01/22/08 3,500,000 3,766,420 6.150% 04/05/07 5,000,000 5,385,150 HOUSEHOLD FINANCE CORP. 5.875% 02/01/09 8,200,000 9,089,536 IBM CANADA CREDIT SERVICES CO. 3.750% 11/30/07 (a) 6,000,000 6,132,540 Non-Depository Credit Institutions Total 50,672,289 REAL ESTATE - 2.5% EOP OPERATING L.P. 8.375% 03/15/06 11,000,000 12,300,860 FOREST CITY ENTERPRISES, INC. 7.625% 06/01/15 1,000,000 1,080,000 iSTAR FINANCIAL, INC. 8.750% 08/15/08 4,800,000 5,442,000 PRUDENTIAL PROPERTY INVESTMENT MANAGERS LTD. 7.125% 07/01/07 (a) 5,300,000 5,998,805 THORNBURG MORTGAGE, INC. 8.000% 05/15/13 2,500,000 2,637,500 Real Estate Total 27,459,165 SECURITY BROKERS & DEALERS - 3.8% BEAR STEARNS COMPANIES, INC. 4.000% 01/31/08 10,000,000 10,384,700 CREDIT SUISSE FIRST BOSTON, INC. 4.625% 01/15/08 5,000,000 5,299,900 5.875% 08/01/06 7,750,000 8,388,057 JEFFERIES GROUP, INC. 7.750% 03/15/12 7,250,000 8,644,102
See notes to investment portfolio. 7
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) FINANCE, INSURANCE & REAL ESTATE - (CONTINUED) SECURITY BROKERS & DEALERS - (CONTINUED) J.P. MORGAN & CO. 6.000% 01/15/09 1,748,000 1,957,008 MORGAN STANLEY 4.750% 04/01/14 2,000,000 1,961,260 6.100% 04/15/06 5,000,000 5,407,300 Security Brokers & Dealers Total 42,042,327 FINANCE, INSURANCE & REAL ESTATE TOTAL 289,006,444 MANUFACTURING - 7.1% APPAREL - 0.8% CINTAS CORP. 5.125% 06/01/07 5,315,000 5,726,594 6.000% 06/01/12 3,250,000 3,631,550 Apparel Total 9,358,144 AUTO PARTS & ACCESSORIES - 0.5% DANA CORP. 9.000% 08/15/11 3,200,000 3,856,000 10.125% 03/15/10 1,000,000 1,155,000 Auto Parts & Accessories Total 5,011,000 CHEMICALS & ALLIED PRODUCTS - 2.0% DOW CHEMICAL CO. 5.750% 11/15/09 6,000,000 6,585,720 EASTMAN CHEMICAL CO. 3.250% 06/15/08 2,750,000 2,717,523 6.300% 11/15/18 7,500,000 8,066,400 FMC CORP. 10.250% 11/01/09 920,000 1,085,600 LYONDELL CHEMICAL CO. 9.625% 05/01/07 2,000,000 2,065,000 NOVA CHEMICALS LTD. 6.500% 01/15/12 (a) 1,000,000 1,038,280 Chemicals & Allied Products Total 21,558,523 ELECTRONIC & ELECTRICAL EQUIPMENT - 0.2% THOMAS & BETTS CORP. 7.250% 06/01/13 2,000,000 2,210,000 Electronic & Electrical Equipment Total 2,210,000 FOOD & KINDRED PRODUCTS - 0.6% CADBURY-SCHWEPPES PLC 3.875% 10/01/08 (a) 7,000,000 7,144,690 Food & Kindred Products Total 7,144,690 LUMBER & WOOD PRODUCTS - 0.3% GEORGIA-PACIFIC CORP. 7.500% 05/15/06 3,000,000 3,232,500 Lumber & Wood Products Total 3,232,500 MACHINERY & COMPUTER EQUIPMENT - 0.2% BRIGGS & STRATTON CORP. 8.875% 03/15/11 1,375,000 1,684,375 Machinery & Computer Equipment Total 1,684,375
See notes to investment portfolio. 8
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) MANUFACTURING - (CONTINUED) MISCELLANEOUS MANUFACTURING - 1.4% HUTCHISON WHAMPOA INTERNATIONAL LTD. 6.250% 01/24/14 (a) 1,500,000 1,557,630 6.500% 02/13/13 (a) 10,500,000 11,145,330 SPX CORP. 7.500% 01/01/13 2,000,000 2,160,000 TEMPUR-PEDIC, INC. 10.250% 08/15/10 (a) 117,000 133,965 TRINITY INDUSTRIES, INC. 6.500% 03/15/14 (a) 550,000 550,000 Miscellaneous Manufacturing Total 15,546,925 PAPER PRODUCTS - 1.0% CASCADES, INC. 7.250% 02/15/13 6,000,000 6,285,000 MEADWESTVACO CORP. 8.200% 01/15/30 4,000,000 4,904,080 Paper Products Total 11,189,080 STONE, CLAY, GLASS & CONCRETE - 0.1% OWENS-BROCKWAY GLASS CONTAINER, INC. 8.875% 02/15/09 1,000,000 1,080,000 Stone, Clay, Glass & Concrete Total 1,080,000 MANUFACTURING TOTAL 78,015,237 MINING & ENERGY - 4.8% METALS & MINING - 0.5% ALCOA, INC. 6.000% 01/15/12 5,000,000 5,585,000 Metals & Mining Total 5,585,000 OIL & GAS EXTRACTION - 3.5% AMERADA HESS CORP. 7.300% 08/15/31 5,250,000 5,657,663 COASTAL CORP. 7.750% 06/15/10 1,500,000 1,297,500 FOREST OIL CORP. 8.000% 06/15/08 2,000,000 2,200,000 NEWFIELD EXPLORATION CO. 7.450% 10/15/07 1,500,000 1,657,500 NEXEN, INC. 7.875% 03/15/32 5,250,000 6,637,470 NOBLE DRILLING CORP. 7.500% 03/15/19 4,245,000 4,960,749 PEMEX PROJECT FUNDING MASTER TRUST 7.875% 02/01/09 6,000,000 6,900,000 RAS LAFFAN LIQUEFIED NATURAL GAS CO., LTD. 3.437% 09/15/09 (a) 9,000,000 8,887,500 Oil & Gas Extraction Total 38,198,382 OIL & GAS FIELD SERVICES - 0.8% PDVSA FINANCE LTD. 7.400% 08/15/16 2,500,000 2,112,500
See notes to investment portfolio. 9
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) MINING & ENERGY - (CONTINUED) OIL & GAS FIELD SERVICES - (CONTINUED) PETROBRAS INTERNATIONAL FINANCE CO. 9.125% 02/01/07 3,000,000 3,345,000 9.750% 07/06/11 3,500,000 3,955,000 Oil & Gas Field Services Total 9,412,500 MINING & ENERGY TOTAL 53,195,882 RETAIL TRADE - 1.5% AUTO DEALERS & GAS STATIONS - 0.8% DAIMLERCHRYSLER AG 6.900% 09/01/04 8,706,000 8,891,177 Auto Dealers & Gas Stations Total 8,891,177 DEPARTMENT STORES - 0.2% SAKS, INC. 7.000% 12/01/13 (a) 1,594,000 1,673,700 Department Stores Total 1,673,700 FOOD STORES - 0.2% DELHAIZE AMERICA, INC. 8.125% 04/15/11 2,000,000 2,310,300 Food Stores Total 2,310,300 RESTAURANTS - 0.3% YUM! BRANDS, INC. 7.700% 07/01/12 2,850,000 3,398,625 Restaurants Total 3,398,625 RETAIL TRADE TOTAL 16,273,802 SERVICES - 4.4% AMUSEMENT & RECREATION - 1.0% MGM MIRAGE, INC. 8.375% 02/01/11 1,500,000 1,732,500 MOHEGAN TRIBAL GAMING AUTHORITY 8.375% 07/01/11 2,000,000 2,210,000 PARK PLACE ENTERTAINMENT CORP. 8.125% 05/15/11 2,000,000 2,285,000 STATION CASINOS, INC. 6.000% 04/01/12 (a) 1,000,000 1,030,000 6.875% 03/01/16 (a) 1,500,000 1,535,625 STEINWAY MUSICAL INSTRUMENTS, INC. 8.750% 04/15/11 2,000,000 2,165,000 Amusement & Recreation Total 10,958,125 BUSINESS SERVICES - 0.1% FEDEX CORP. 7.530% 09/23/06 1,064,005 1,155,967 Business Services Total 1,155,967 HEALTH SERVICES - 2.8% HCA, INC. 6.950% 05/01/12 3,000,000 3,262,290 7.125% 06/01/06 5,000,000 5,406,800 7.875% 02/01/11 5,015,000 5,687,812
See notes to investment portfolio. 10
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) SERVICES - (CONTINUED) HEALTH SERVICES - (CONTINUED) PACIFICARE HEALTH SYSTEMS, INC. 10.750% 06/01/09 2,275,000 2,673,125 TENET HEALTHCARE CORP. 5.375% 11/15/06 7,250,000 6,851,250 WYETH 6.450% 02/01/24 2,400,000 2,524,320 6.500% 02/01/34 5,000,000 5,295,150 Health Services Total 31,700,747 HOTELS, CAMPS & LODGING - 0.5% HYATT EQUITIES LLC 6.875% 06/15/07 (a) 5,000,000 5,441,750 Hotels, Camps & Lodging Total 5,441,750 SERVICES TOTAL 49,256,589 TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 18.8% AEROSPACE - 1.5% RAYTHEON CO. 8.300% 03/01/10 7,000,000 8,540,700 SYSTEMS 2001 ASSET TRUST 6.664% 09/15/13 (a) 2,405,065 2,701,465 7.156% 12/15/11 (a) 4,359,247 4,857,900 Aerospace Total 16,100,065 AIR TRANSPORTATION - 3.6% AIR 2 US 8.027% 10/01/19 (a) 5,950,161 5,355,145 AMERICAN AIRLINES, INC. 7.024% 10/15/09 7,000,000 7,070,000 CONTINENTAL AIRLINES, INC. 6.940% 10/15/13 1,423,333 1,380,633 7.461% 04/01/15 4,077,780 3,996,224 7.875% 07/02/18 4,250,000 4,207,500 DELTA AIR LINES, INC. 7.570% 11/18/10 4,250,000 4,207,500 7.779% 11/18/05 3,000,000 2,430,000 SOUTHWEST AIRLINES CO. 5.496% 11/01/06 7,000,000 7,528,920 UNITED AIRLINES, INC. 7.783% 01/01/14 (d) 2,843,628 2,559,265 9.200% 03/22/08 (e) 2,399,897 1,055,955 Air Transportation Total 39,791,142 BROADCASTING - 2.2% LIBERTY MEDIA CORP. 2.670% 09/17/06 (c) 11,000,000 11,162,470 VIACOM, INC. 7.700% 07/30/10 6,500,000 7,843,940 7.750% 06/01/05 5,000,000 5,362,950 Broadcasting Total 24,369,360
See notes to investment portfolio. 11
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - (CONTINUED) CABLE - 1.3% AT&T BROADBAND CORP. 8.375% 03/15/13 7,214,000 8,941,392 CSC HOLDINGS, INC. 6.750% 04/15/12 (a) 500,000 505,000 7.875% 02/15/18 1,250,000 1,350,000 8.125% 07/15/09 1,500,000 1,623,750 ECHOSTAR DBS CORP. 6.375% 10/01/11 (a) 1,500,000 1,593,750 Cable Total 14,013,892 ELECTRIC SERVICES - 7.1% CALPINE CORP. 8.500% 07/15/10 (a) 2,500,000 2,268,750 EDISON MISSION ENERGY 9.875% 04/15/11 1,100,000 1,155,000 FIRSTENERGY CORP. 5.500% 11/15/06 5,000,000 5,317,300 6.450% 11/15/11 4,500,000 4,923,855 FPL ENERGY AMERICAN WIND LLC 6.639% 06/20/23 (a) 4,670,000 4,991,623 KANSAS CITY POWER & LIGHT 6.000% 03/15/07 10,000,000 10,875,700 MIDAMERICAN ENERGY HOLDINGS CO. 3.500% 05/15/08 5,310,000 5,329,116 4.625% 10/01/07 5,000,000 5,245,650 5.875% 10/01/12 7,000,000 7,574,910 MSW ENERGY HOLDINGS LLC 8.500% 09/01/10 2,000,000 2,190,000 NEVADA POWER CO. 9.000% 08/15/13 (a) 2,000,000 2,265,000 NIAGARA MOHAWK POWER CORP. 8.875% 05/15/07 5,500,000 6,486,370 NORTHERN STATES POWER CO. 8.000% 08/28/12 3,750,000 4,707,450 OGLETHORPE POWER CORP. 6.974% 06/30/11 2,724,000 3,001,004 PACIFIC GAS & ELECTRIC CO. 6.050% 03/01/34 6,250,000 6,312,938 SOUTH POINT ENERGY CENTER LLC 8.400% 05/30/12 (a) 1,799,780 1,680,545 TENASKA ALABAMA 6.125% 03/30/23 (a) 3,441,923 3,619,802 Electric Services Total 77,945,013 PIPELINES - 0.4% SOUTHERN NATIONAL GAS 8.875% 03/15/10 2,000,000 2,225,000 WILLIAMS COMPANIES, INC. 8.125% 03/15/12 2,000,000 2,205,000 Pipelines Total 4,430,000
See notes to investment portfolio. 12
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - (CONTINUED) RAILROADS - 0.2% KANSAS CITY SOUTHERN RAILWAY 7.500% 06/15/09 2,000,000 2,055,000 Railroads Total 2,055,000 SANITARY SERVICES - 0.5% ALLIED WASTE NORTH AMERICA, INC. 8.875% 04/01/08 5,500,000 6,146,250 Sanitary Services Total 6,146,250 TELECOMMUNICATIONS - 2.0% AMERICA MOVIL SA DE CV 5.500% 03/01/14 (a) 3,000,000 2,990,772 ROGERS CANTEL, INC. 9.750% 06/01/16 2,000,000 2,505,000 SPRINT CORP. 6.125% 11/15/08 3,800,000 4,190,374 8.750% 03/15/32 1,500,000 1,891,185 TELEFONOS DE MEXICO SA DE CV 4.500% 11/19/08 (a) 6,000,000 6,104,220 TPSA FINANCE BV 7.750% 12/10/08 (a) 3,000,000 3,363,270 WORLDCOM, INC. 8.250% 05/15/31 (e) 4,000,000 1,360,000 Telecommunications Total 22,404,821 -------------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES TOTAL 207,255,543 WHOLESALE TRADE - 0.4% NON-DURABLE GOODS - 0.4% LILLY DEL MAR, INC. 7.717% 08/01/29 (a)(c) 4,155,000 4,219,814 Non-Durable Goods Total 4,219,814 -------------- WHOLESALE TRADE TOTAL 4,219,814 CORPORATE FIXED-INCOME BONDS & NOTES TOTAL (COST OF $677,192,301) 704,036,899 GOVERNMENT AGENCIES & OBLIGATIONS - 20.3% FOREIGN GOVERNMENT BOND - 0.7% STATE OF QATAR 9.750% 06/15/30 (a) 5,000,000 7,200,000 FOREIGN GOVERNMENT BOND TOTAL 7,200,000 U.S. GOVERNMENT AGENCIES & OBLIGATIONS - 19.6% FEDERAL HOME LOAN MORTGAGE CORPORATION 4.500% 09/01/18 9,614,245 9,750,960 12.000% 07/01/20 417,966 475,220 To Be Announced: 4.500% 04/20/19 (f) 20,000,000 20,250,000 5.000% 04/15/34 (f) 10,000,000 10,046,880 -------------- 40,523,060
See notes to investment portfolio. 13
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------------- GOVERNMENT AGENCIES & OBLIGATIONS - (CONTINUED) U.S. GOVERNMENT AGENCIES & OBLIGATIONS - (CONTINUED) FEDERAL NATIONAL MORTGAGE ASSOCIATION 4.500% 07/01/18 - 02/01/19 60,445,920 61,274,790 5.000% 07/25/15 - 06/01/18 57,351,457 59,162,378 5.500% 12/01/17 8,910,153 9,292,332 6.000% 04/01/09 - 03/01/24 4,302,681 4,535,656 6.500% 10/01/28 - 12/01/31 5,030,097 5,287,726 9.250% 03/25/18 315,839 348,292 -------------- 139,901,174 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 4.750% 07/20/25 (c) 212,790 218,162 8.000% 01/15/08 - 07/15/08 508,302 544,618 9.000% 06/15/16 - 10/15/16 36,623 40,985 -------------- 803,765 U.S. TREASURY BONDS AND NOTES 3.375% 11/15/08 4,500,000 4,636,760 4.000% 02/15/14 - 11/15/14 7,310,000 7,433,409 4.250% 08/15/13 1,650,000 1,709,812 5.375% 02/15/31 17,430,000 18,998,700 5.750% 08/15/10 2,385,000 2,738,278 -------------- 35,516,959 U.S. GOVERNMENT AGENCIES & OBLIGATIONS TOTAL 216,744,958 GOVERNMENT AGENCIES & OBLIGATIONS TOTAL (COST OF $203,519,279) 223,944,958 ASSET-BACKED & NON-AGENCY MORTGAGE-BACKED SECURITIES - 11.9% AMERICAN MORTGAGE TRUST 8.445% 09/27/22 36,106 32,496 BANK ONE ISSUANCE TRUST 3.590% 05/17/10 5,000,000 5,165,550 4.160% 01/15/08 13,000,000 13,391,690 CALIFORNIA INFRASTRUCTURE 6.420% 12/26/09 10,000,000 11,150,800 CAPITAL AUTO RECEIVABLES ASSET TRUST 2.000% 11/15/07 5,600,000 5,623,695 CAPITAL ONE MULTI-ASSET EXECUTION TRUST 3.650% 07/15/11 16,000,000 16,457,600 CIGNA CBO LTD. 6.460% 11/15/08 (a) 4,007,994 4,168,314 CITIBANK CREDIT CARD ISSUANCE TRUST 2.500% 04/07/08 11,290,000 11,417,464 4.950% 02/09/09 5,000,000 5,349,800 DIVERSIFIED REIT TRUST 6.780% 03/18/11 (a)(c) 5,000,000 5,624,562 FIRST UNION NATIONAL BANK 5.585% 02/12/34 5,785,781 6,285,824 6.141% 02/12/34 8,000,000 9,045,892 GS MORTGAGE SECURITIES CORP. 7.750% 09/19/27 (a) 2,217,113 2,414,788 LB-UBS COMMERCIAL MORTGAGE TRUST 6.510% 12/15/26 5,000,000 5,749,478
See notes to investment portfolio. 14
PAR ($) VALUE ($) - ---------------------------------------------------------------------------------------------------------------------------------- ASSET-BACKED & NON-AGENCY MORTGAGE-BACKED SECURITIES - (CONTINUED) MBNA MASTER CREDIT CARD TRUST 7.350% 07/16/07 10,000,000 10,496,800 MERRILL LYNCH MORTGAGE INVESTORS, INC. 7.123% 12/26/25 (c) 480,317 487,857 NOMURA ASSET SECURITIES CORP. 7.120% 04/13/39 6,255,000 6,810,747 STRUCTURED ASSET SECURITIES CORP. 1.934% 02/25/28 (c)(g) 9,362,491 738,971 WACHOVIA BANK COMMERCIAL MORTGAGE TRUST 3.989% 06/15/35 11,930,000 11,691,877 ASSET-BACKED & NON-AGENCY MORTGAGE-BACKED SECURITIES TOTAL (COST OF $128,572,292) 132,104,205 SHORT-TERM OBLIGATION - 5.7% Repurchase agreement with State Street Bank & Trust Co., dated 03/31/04, due 04/01/04 at 0.960%, collateralized by a U.S. Treasury Bill maturing 08/19/04, market value $63,919,400 (repurchase proceeds $62,663,671) (cost of $62,662,000) 62,662,000 62,662,000 TOTAL INVESTMENTS - 101.7% (COST OF $1,071,945,872) (h) 1,122,748,062 OTHER ASSETS & LIABILITIES, NET - (1.7)% (18,848,785) NET ASSETS - 100.0% 1,103,899,277
NOTES TO INVESTMENT PORTFOLIO: (a) 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, 2004, the value of these securities amounted to $191,206,424, which represents 17.3% of net assets. (b) This security, or a portion thereof with a market value of $2,026,153, is being used to collateralize open futures contracts. (c) Interest rates on variable rate securities change periodically. The rate listed is as of March 31, 2004. (d) As of March 31, 2004, the Fund held a security of this issuer that has filed for bankruptcy protection under Chapter 11, representing 0.2% of net assets. This issuer is in default of certain debt covenants, however, income is being fully accrued. (e) As of March 31, 2004, the Fund held securities of these issuers that have filed for bankruptcy protection under Chapter 11, representing 0.2% of net assets. These issuers are in default of certain debt covenants. Income is not being accrued. (f) This security has been purchased on a delayed delivery basis whereby the terms that are fixed are the purchase price, interest rate and settlement date. The exact quantity purchased may be slightly more or less than the amount shown. (g) Accrued interest accumulates in the value of this security and is payable at redemption. (h) Cost for federal income tax purposes is $1,076,618,223. Short futures contracts open at March 31, 2004:
PAR VALUE UNREALIZED COVERED BY EXPIRATION DEPRECIATION TYPE CONTRACTS DATE AT 03/31/04 - --------------------------------------------------------------------------------------------- 5 Year U.S. Treasury Note $ 21,000,000 Jun-2004 $ (271,858) 10 Year U.S. Treasury Note 13,200,000 Jun-2004 (277,101) 30 Year U.S. Treasury Bond 26,500,000 Jun-2004 (454,848) ------------- $ (1,003,807) -------------
See notes to financial statements. 15 STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2004 COLUMBIA INTERMEDIATE BOND FUND
($) - --------------------------------------------------------------------------------------------------------------- ASSETS Investments, at cost 1,071,945,872 ---------------- Investments, at value 1,122,748,062 Cash 420 Receivable for: Investments sold 7,124,240 Fund shares sold 5,251,372 Interest 11,474,274 Deferred Trustees' compensation plan 9,973 ---------------- Total Assets 1,146,608,341 LIABILITIES Payable for: Investments purchased 9,339,314 Investments purchased on a delayed delivery basis 30,342,578 Fund shares repurchased 1,089,496 Futures variation margin 338,469 Distributions 572,111 Investment advisory fee 321,238 Administration fee 138,449 Transfer agent fee 268,613 Pricing and bookkeeping fees 23,133 Trustees' fees 1,353 Custody fee 5,641 Distribution and service fees 186,862 Deferred Trustees' fees 9,973 Other liabilities 71,834 ---------------- Total Liabilities 42,709,064 NET ASSETS 1,103,899,277 COMPOSITION OF NET ASSETS Paid-in capital 1,066,007,304 Overdistributed net investment income (2,995,178) Accumulated net realized loss (8,911,232) Net unrealized appreciation (depreciation) on: Investments 50,802,190 Futures contracts (1,003,807) ---------------- NET ASSETS 1,103,899,277 CLASS A Net assets 146,709,008 Shares outstanding 15,822,855 Net asset value per share 9.27(a) Maximum offering price per share ($9.27/0.9525) 9.73(b) CLASS B Net assets 104,704,231 Shares outstanding 11,292,549 Net asset value and offering price per share 9.27(a) CLASS C Net assets 59,009,011 Shares outstanding 6,364,253 Net asset value and offering price per share 9.27(a) CLASS Z Net assets 793,477,027 Shares outstanding 85,578,000 Net asset value, offering and redemption price per share 9.27
(a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. (b) On sales of $50,000 or more the offering price is reduced. See notes to financial statements. 16 STATEMENTS OF OPERATIONS MARCH 31, 2004 COLUMBIA INTERMEDIATE BOND FUND
PERIOD ENDED YEAR ENDED MARCH 31, 2004(a) ($) JUNE 30, 2003 ($) - --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Interest 39,971,333 55,777,640 EXPENSES Expenses allocated from Portfolio -- 619,612 Investment advisory fee 2,625,831 2,515,761 Administration fee 1,127,243 1,331,433 Distribution fee: Class A 87,140 64,939 Class B 583,250 561,827 Class C 308,118 246,000 Service fee: Class A 217,359 161,861 Class B 194,417 187,275 Class C 102,614 81,617 Transfer agent fee 1,307,940 1,997,159 Pricing and bookkeeping fees 200,918 331,790 Trustees' fees 21,481 25,889 Custody fee 42,810 28,890 Other expenses 230,828 268,316 Non-recurring costs (See Note 7) 7,471 -- Costs assumed by Investment Advisor (See Note 7) (7,471) -- ------------------------------ Total Operating Expenses 7,049,949 8,422,369 Fees waived by Distributor: Class A (87,140) (64,939) Class C (61,845) (50,123) Custody earnings credit (205) (2,583) ------------------------------ Net Operating Expenses 6,900,759 8,304,724 Interest expense -- 1,830 ------------------------------ Net Expenses 6,900,759 8,306,554 ------------------------------ Net Investment Income 33,070,574 47,471,086 NET REALIZED AND UNREALIZED GAIN (LOSS) ON Net realized gain (loss) on: INVESTMENTS AND FUTURES CONTRACTS Investments 8,774,489 16,149,207 Futures contracts 3,658,435 (17,991,728) ------------------------------ Net realized gain (loss) 12,432,924 (1,842,521) Net change in unrealized appreciation/depreciation on: Investments 3,777,125 47,404,056 Futures contracts (2,825,587) 2,989,426 ------------------------------ Net change in unrealized appreciation/depreciation 951,538 50,393,482 ------------------------------ Net Gain 13,384,462 48,550,961 ------------------------------ Net Increase in Net Assets from Operations 46,455,036 96,022,047
(a) The Fund changed its fiscal year end from June 30 to March 31. See notes to financial statements. 17 STATEMENTS OF CHANGES IN NET ASSETS MARCH 31, 2004 COLUMBIA INTERMEDIATE BOND FUND
PERIOD ENDED YEAR ENDED YEAR ENDED MARCH 31, JUNE 30, JUNE 30, INCREASE (DECREASE) IN NET ASSETS: 2004 (a)(b) ($) 2003 (c) ($) 2002 (d) ($) - -------------------------------------------------------------------------------------------------------------------------------- OPERATIONS Net investment income 33,070,574 47,471,086 40,582,815 Net realized gain (loss) on investments and futures contracts 12,432,924 (1,842,521) (3,112,703) Net change in unrealized appreciation/depreciation on investments and futures contracts 951,538 50,393,482 (6,652,968) --------------------------------------------- Net Increase from Operations 46,455,036 96,022,047 30,817,144 DISTRIBUTIONS DECLARED TO SHAREHOLDERS From net investment income: Class A (4,074,020) (3,487,025) (980,531) Class B (3,054,628) (3,467,410) (221,915) Class C (1,672,747) (1,549,430) (79,287) Class Z (26,871,410) (40,839,542) (40,976,904) Return of capital: Class A -- -- (4,063) Class B -- -- (919) Class C -- -- (329) Class Z -- -- (169,791) --------------------------------------------- Total Distributions Declared to Shareholders (35,672,805) (49,343,407) (42,433,739) SHARE TRANSACTIONS Class A: Subscriptions 82,402,961 93,406,890 26,788,516 Distributions reinvested 3,517,373 2,883,981 925,567 Redemptions (33,954,472) (40,046,836) (7,089,601) --------------------------------------------- Net Increase 51,965,862 56,244,035 20,624,482 Class B: Subscriptions 18,062,576 83,003,613 29,577,438 Distributions reinvested 2,126,834 2,442,195 157,274 Redemptions (20,373,050) (15,335,796) (668,496) --------------------------------------------- Net Increase (Decrease) (183,640) 70,110,012 29,066,216 Class C: Subscriptions 20,227,688 48,689,817 12,356,180 Distributions reinvested 1,011,442 974,767 59,464 Redemptions (14,503,875) (11,862,809) (636,168) --------------------------------------------- Net Increase 6,735,255 37,801,775 11,779,476 Class Z: Subscriptions 234,474,636 269,095,613 486,288,652 Distributions reinvested 23,876,353 35,988,674 36,918,397 Redemptions (190,223,570) (351,929,592) (296,924,898) --------------------------------------------- Net Increase (Decrease) 68,127,419 (46,845,305) 226,282,151 Net Increase from Share Transactions 126,644,896 117,310,517 287,752,325 --------------------------------------------- Total Increase in Net Assets 137,427,127 163,989,157 276,135,730 NET ASSETS Beginning of period 966,472,150 802,482,993 526,347,263 End of period 1,103,899,277 966,472,150 802,482,993 Overdistributed net investment income at end of period (2,995,178) (2,007,917) (1,514,400)
See notes to financial statements. 18
PERIOD ENDED YEAR ENDED YEAR ENDED MARCH 31, JUNE 30, JUNE 30, 2004 (a)(b) 2003 (c) 2002 (d) - -------------------------------------------------------------------------------------------------------------------------------- CHANGES IN SHARES Class A: Subscriptions 9,023,912 10,637,329 3,030,795 Issued for distributions reinvested 385,364 325,300 104,218 Redemptions (3,713,540) (4,558,154) (800,927) --------------------------------------------- Net Increase 5,695,736 6,404,475 2,334,086 Class B: Subscriptions 1,985,472 9,478,046 3,352,832 Issued for distributions reinvested 233,459 275,656 17,903 Redemptions (2,239,392) (1,735,505) (75,922) --------------------------------------------- Net Increase (Decrease) (20,461) 8,018,197 3,294,813 Class C: Subscriptions 2,219,854 5,533,514 1,400,267 Issued for distributions reinvested 110,951 109,962 6,772 Redemptions (1,594,157) (1,350,773) (72,137) --------------------------------------------- Net Increase 736,648 4,292,703 1,334,902 Class Z: Subscriptions 25,666,393 30,633,958 54,642,619 Issued for distributions reinvested 2,620,156 4,081,323 4,156,784 Redemptions (20,891,749) (40,109,913) (33,398,899) --------------------------------------------- Net Increase (Decrease) 7,394,800 (5,394,632) 25,400,504
(a) On October 13, 2003, the Liberty Intermediate Bond Fund was renamed Columbia Intermediate Bond Fund. (b) The Fund changed its fiscal year end from June 30 to March 31. (c) Effective July 29, 2002, Stein Roe Intermediate Bond Fund Class S shares were redesignated Liberty Intermediate Bond Fund Class Z shares. (d) Class B and Class C shares were initially offered on February 1, 2002, at which time Stein Roe Intermediate Bond Fund was renamed Liberty Intermediate Bond Fund with Class S shares renamed as Stein Roe Intermediate Bond Fund, Class S. See notes to financial statements. 19 NOTES TO FINANCIAL STATEMENTS MARCH 31, 2004 COLUMBIA INTERMEDIATE BOND FUND NOTE 1. ORGANIZATION Columbia Intermediate Bond Fund (the "Fund"), a series of Columbia Funds Trust VIII (the "Trust"), is a diversified portfolio. The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. INVESTMENT GOAL The Fund seeks total return by investing for a high level of current income and opportunities for capital appreciation. 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 subject to a maximum front-end sales charge of 4.75% based on the amount of initial investment. Class A shares purchased without an initial sales charge are subject to a 1.00% contingent deferred sales charge ("CDSC") on shares sold within eighteen months on an original purchase of $1 million to $25 million. Class B shares are subject to a maximum CDSC of 5.00% based upon the holding period after purchase. Class B shares will convert to Class A shares in a certain number of years after purchase, depending on the program under which shares were purchased. Class C shares are subject to a 1.00% CDSC on shares sold within one year after purchase. Class Z shares are offered continuously at net asset value. There are certain restrictions on the purchase of Class Z shares, as described in the Fund's prospectus. On October 13, 2003, the Liberty Intermediate Bond Fund was renamed Columbia Intermediate Bond Fund. Also on this date, the Liberty-Stein Roe Funds Income Trust was renamed Columbia Funds Trust VIII. The fiscal year end of the Fund was changed from June 30 to March 31. Accordingly, the Fund's 2004 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 Debt securities generally are valued by a pricing service approved by the Fund's Board of Trustees, based upon market transactions for normal, institutional-size trading units of similar securities. The services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes. Debt securities for which quotations are readily available are valued at an over-the-counter or exchange bid quotation. Certain debt securities, which tend to be more thinly traded and of lesser quality, are priced based on fundamental analysis of the financial condition of the issuer and the estimated value of any collateral. Valuations developed through pricing techniques may vary from the actual amounts realized upon sale of the securities, and the potential variation may be greater for those securities valued using fundamental analysis. Short-term debt obligations maturing within 60 days are valued at amortized cost, which approximates market value. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Investments for which market quotations are not readily available, or quotations which management believes are not appropriate, are valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. SECURITY TRANSACTIONS Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes. 20 FUTURES CONTRACTS The Fund may invest in municipal and U.S. Treasury futures contracts. The Fund will invest in these instruments to hedge against the effects of changes in the value of portfolio securities due to anticipated changes in interest rates and/or market conditions, for duration management, or when the transactions are economically appropriate to the reduction of risk inherent in the management of the Fund and not for trading purposes. The use of futures contracts involves certain risks, which include: (1) imperfect correlation between the price movement of the instruments and the underlying securities, (2) inability to close out positions due to differing trading hours, or the temporary absence of a liquid market, for either the instrument or the underlying securities, or (3) an inaccurate prediction by Columbia Management Advisors, Inc. of the future direction of interest rates. Any of these risks may involve amounts exceeding the variation margin recorded in the Fund's Statement of Assets and Liabilities at any given time. Upon entering into a futures contract, the Fund deposits cash or securities with the broker in an amount sufficient to meet the initial margin requirement. Subsequent payments are made or received by the Fund equal to the daily change in the contract value and are recorded as variation margin payable or receivable and offset in unrealized gains or losses. The Fund also identifies portfolio securities as segregated with the custodian in a separate account in an amount equal to the futures contract. The Fund recognizes a realized gain or loss when the contract is closed or expires. 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. DELAYED DELIVERY SECURITIES The Fund may trade securities on other than normal settlement terms, including securities purchased or sold on a "when-issued" basis. This may increase the risk if the other party to the transaction fails to deliver and causes the Fund to subsequently invest at less advantageous prices. The Fund identifies cash or liquid portfolio securities as segregated with the custodian in an amount equal to the delayed delivery commitment. INCOME RECOGNITION Interest income is recorded on the accrual basis. Premium and discount are amortized and accreted, respectively, on all debt securities. 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. 21 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 amortization/accretion adjustments and paydown reclassifications 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 - ------------------------------------------------- $ 1,614,970 $ (1,606,484) $ (8,486)
Net investment income and net realized gains (losses), as disclosed on the Statements of Operations, and net assets were not affected by this reclassification. The tax character of distributions paid during the period ended March 31, 2004, and the years ended June 30, 2003 and June 30, 2002 was as follows:
MARCH 31, JUNE 30, JUNE 30, 2004 2003 2002 - ------------------------------------------------------------------------------ Distributions paid from: Ordinary income* $ 35,672,805 $ 49,343,407 $ 42,258,637 Tax return of capital -- -- 175,102
* For tax purposes short-term capital gains distributions, if any, are considered ordinary income distributions. As of March 31, 2004, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ORDINARY LONG-TERM NET UNREALIZED INCOME CAPITAL GAINS APPRECIATION* - ---------------------------------------------------- $ 2,520,415 $ 1,148,237 $ 46,129,839
* The differences between book-basis and tax-basis net unrealized appreciation are primarily due to discount accretion/premium amortization on debt securities and deferral of losses from wash sales. Unrealized appreciation and depreciation at March 31, 2004, based on cost of investments for federal income tax purposes was: Unrealized appreciation $ 55,604,328 Unrealized depreciation (9,474,489) ------------- Net unrealized appreciation $ 46,129,839
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. As of March 31, 2004, the Fund had no capital loss carryforwards. Capital loss carryforwards of $7,778,990 were utilized and/or expired during the period ended March 31, 2004 for the Fund. Expired capital loss carryforwards are recorded as a reduction of paid-in capital. Under current tax rules, certain capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of March 31, 2004, post-October capital losses of $1,727,579 attributed to security transactions were deferred to April 1, 2004. 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 $1 billion 0.35% Over $1 billion 0.30%
Prior to November 1, 2003, Columbia was entitled to receive a monthly investment advisory fee at the annual rate of 0.35% of the Fund's average daily net assets. Prior to September 13, 2002, the management fee was paid by the SR&F Intermediate Bond Portfolio (the "Portfolio") at the same rate. For the period ended March 31, 2004 and the year ended June 30, 2003, the Fund's annualized effective investment advisory fee rates were 0.35% and 0.35%, respectively. ADMINISTRATION FEE Columbia provides accounting and other services to the Fund for a monthly administration fee at the annual rate of 0.15% of the Fund's average daily net assets. 22 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 0.027% and 0.037%, respectively. Prior to September 13, 2002, Columbia received from the Fund an annual flat fee of $5,000. 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 $34.00 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 0.17% and 0.22%, 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 and the year ended June 30, 2003, the Distributor has retained net underwriting discounts on sales of the Fund's Class A shares of $60,584 and $16,209, respectively. For the period ended March 31, 2004, the Distributor has received CDSC fees of $272,194 and $18,373 on Class B and Class C share redemptions, respectively. For the year ended June 30, 2003, the Distributor has received CDSC fees of $1,635, $226,760 and $19,450 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 A, 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 rates of 0.10%, 0.75% and 0.75% of the average daily net assets attributable to Class A, Class B and Class C shares of the Fund, respectively. The Distributor has voluntarily agreed to waive the Class A share distribution fee and a portion of the Class C share distribution fee so that it will not exceed 0.60% annually of Class C average daily net assets. 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. 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. 23 NOTE 5. PORTFOLIO INFORMATION PURCHASES AND SALES OF SECURITIES For the period ended March 31, 2004, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $1,044,443,729 and $924,449,382, respectively, of which $484,096,815 and $419,001,140, respectively, were U.S. Government securities. NOTE 6. 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, the Fund did not borrow under this arrangement. For the year ended June 30, 2003, the average daily loan balance outstanding on days where borrowings existed was $2,224,399 at a dollar weighted average interest rate of 2.28%. NOTE 7. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES HIGH-YIELD SECURITIES Investing in high-yield securities may involve greater credit risk and considerations not typically associated with investing in U.S. Government bonds and other higher quality fixed income securities. These securities are non-investment grade securities, often referred to as "junk bonds." Economic downturns may disrupt the high-yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations. Moreover, high-yield securities may be less liquid due to the extent that there is no established retail secondary market and because of a decline in the value of such securities. INDUSTRY FOCUS The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified. 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 24 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. For the period ended March 31, 2004, Columbia has assumed $7,471 of legal, consulting services and Trustees' fees incurred by the Fund in connection with these matters. NOTE 8. 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 9. BUSINESS COMBINATIONS AND MERGERS CHANGE IN FUND STRUCTURE Effective July 29, 2002, Stein Roe Intermediate Bond Fund's Class S shares were redesignated Liberty Intermediate Bond Fund (currently known as Columbia Intermediate Bond Fund) Class Z shares. Prior to September 13, 2002, the Fund invested substantially all of its assets in the Portfolio as part of a master/feeder structure. As of the close of business on September 12, 2002, the Portfolio distributed all of its net assets to the Fund in exchange for the Fund's interest in the Portfolio in complete liquidation of the Portfolio. The Portfolio allocated income, expenses, realized and unrealized gains (losses) to its investors on a daily basis, based on methods approved by the Internal Revenue Service. 25 FINANCIAL HIGHLIGHTS COLUMBIA INTERMEDIATE BOND FUND SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD PERIOD ENDED ENDED MARCH 31, YEAR ENDED JUNE 30, JUNE 30, CLASS A SHARES 2004(a)(b) 2003(c) 2002(c) 2001(c)(d) - ------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 9.18 $ 8.73 $ 8.84 $ 8.46 INCOME FROM INVESTMENT OPERATIONS: Net investment income (e) 0.30 0.45 0.53(f) 0.56 Net realized and unrealized gain (loss) on investments and futures contracts 0.11 0.48 (0.08)(f) 0.36 ---------- ---------- ---------- ---------- Total from Investment Operations 0.41 0.93 0.45 0.92 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.32) (0.48) (0.56) (0.54) Return of capital -- -- --(g) -- ---------- ---------- ---------- ---------- Total Distributions Declared to Shareholders (0.32) (0.48) (0.56) (0.54) NET ASSET VALUE, END OF PERIOD $ 9.27 $ 9.18 $ 8.73 $ 8.84 Total return (h) 4.59%(i)(j) 11.03%(i) 5.10%(i) 11.19%(j) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Operating expenses (k) 0.99%(l) 1.05% 1.04% 0.96%(l) Interest expense -- --%(m) -- -- Expenses (k) 0.99%(l) 1.05% 1.04% 0.96%(l) Net investment income (k) 4.31%(l) 5.13% 5.94%(f) 6.90%(l) Waiver/reimbursement 0.10%(l) 0.10% 0.10% -- Portfolio turnover 96%(j) 114% 179%(n) 254%(n) Net assets, end of period (000's) $ 146,709 $ 92,993 $ 32,493 $ 12,279
(a) On October 13, 2003, the Liberty Intermediate Bond Fund was renamed Columbia Intermediate Bond Fund. (b) The Fund changed its fiscal year end from June 30 to March 31. (c) Per share data and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of income and expenses of the SR&F Intermediate Bond Portfolio, prior to the portfolio liquidation. (d) Class A shares were initially offered on July 31, 2000. Per share data and total return reflect activity from that date. (e) Per share data was calculated using average shares outstanding during the period. (f) Effective July 1, 2001, the SR&F Intermediate Bond Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to decrease net investment income per share by $0.01, decrease net realized and unrealized loss per share by $0.01 and decrease the ratio of net investment income to average net assets from 6.10% to 5.94%. Per share data and ratios for the period prior to June 30, 2002 have not been restated to reflect this change in presentation. (g) Rounds to less than $0.01 per share. (h) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (i) Had the Distributor not waived a portion of expenses, total return would have been reduced. (j) Not annualized. (k) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (l) Annualized. (m) Rounds to less than 0.01%. (n) Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio. 26
PERIOD YEAR PERIOD ENDED ENDED ENDED MARCH 31, JUNE 30, JUNE 30, CLASS B SHARES 2004(a)(b) 2003(c) 2002(c)(d) - ---------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.18 $ 8.73 $ 8.89 INCOME FROM INVESTMENT OPERATIONS: Net investment income (e) 0.25 0.39 0.18(f) Net realized and unrealized gain (loss) on investments and futures contracts 0.11 0.47 (0.13)(f) ---------- ---------- ---------- Total from Investment Operations 0.36 0.86 0.05 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.27) (0.41) (0.21) Return of capital -- -- --(g) ---------- ---------- ---------- Total Distributions Declared to Shareholders (0.27) (0.41) (0.21) NET ASSET VALUE, END OF PERIOD $ 9.27 $ 9.18 $ 8.73 Total return (h) 4.00%(i) 10.21% 0.51%(i) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Operating expenses (j) 1.74%(k) 1.80% 1.83%(k) Interest expense -- --%(l) -- Expenses (j) 1.74%(k) 1.80% 1.83%(k) Net investment income (j) 3.58%(k) 4.38% 5.04%(f)(k) Portfolio turnover 96%(i) 114% 179%(m) Net assets, end of period (000's) $ 104,704 $ 103,880 $ 28,758
(a) On October 13, 2003, the Liberty Intermediate Bond Fund was renamed Columbia Intermediate Bond Fund. (b) The Fund changed its fiscal year end from June 30 to March 31. (c) Per share data and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of income and expenses of the SR&F Intermediate Bond Portfolio, prior to the portfolio liquidation. (d) Class B shares were initially offered on February 1, 2002. Per share data and total return reflect activity from that date. (e) Per share data was calculated using average shares outstanding during the period. (f) Effective July 1, 2001, the SR&F Intermediate Bond Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to decrease net investment income per share by $0.01, decrease net realized and unrealized loss per share by $0.01 and decrease the ratio of net investment income to average net assets from 5.19% to 5.04%. (g) Rounds to less than $0.01 per share. (h) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (i) Not annualized. (j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (k) Annualized. (l) Rounds to less than 0.01%. (m) Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio. 27
PERIOD YEAR PERIOD ENDED ENDED ENDED MARCH 31, JUNE 30, JUNE 30, CLASS C SHARES 2004(a)(b) 2003(c) 2002(c)(d) - ---------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.18 $ 8.73 $ 8.89 INCOME FROM INVESTMENT OPERATIONS: Net investment income (e) 0.26 0.40 0.19(f) Net realized and unrealized gain (loss) on investments and futures contracts 0.11 0.48 (0.14)(f) ---------- ---------- ---------- Total from Investment Operations 0.37 0.88 0.05 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.28) (0.43) (0.21) Return of capital -- -- --(g) ---------- ---------- ---------- Total Distributions Declared to Shareholders (0.28) (0.43) (0.21) NET ASSET VALUE, END OF PERIOD $ 9.27 $ 9.18 $ 8.73 Total return (h) (i) 4.12%(j) 10.37% 0.58%(j) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Operating expenses (k) 1.59%(l) 1.65% 1.68%(l) Interest expense -- --%(m) -- Expenses (k) 1.59%(l) 1.65% 1.68%(l) Net investment income (k) 3.72%(l) 4.50% 5.19%(f)(l) Waiver/reimbursement 0.15%(l) 0.15% 0.15%(l) Portfolio turnover 96%(j) 114% 179%(n) Net assets, end of period (000's) $ 59,009 $ 51,676 $ 11,651
(a) On October 13, 2003, the Liberty Intermediate Bond Fund was renamed Columbia Intermediate Bond Fund. (b) The Fund changed its fiscal year end from June 30 to March 31. (c) Per share data and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of income and expenses of the SR&F Intermediate Bond Portfolio, prior to the portfolio liquidation. (d) Class C shares were initially offered on February 1, 2002. Per share data and total return reflect activity from that date. (e) Per share data was calculated using average shares outstanding during the period. (f) Effective July 1, 2001, the SR&F Intermediate Bond Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to decrease net investment income per share by $0.01, decrease net realized and unrealized loss per share by $0.01 and decrease the ratio of net investment income to average net assets from 5.34% to 5.19%. (g) Rounds to less than $0.01 per share. (h) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (i) Had the Distributor not reimbursed a portion of expenses, total return would have been reduced. (j) Not annualized. (k) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (l) Annualized. (m) Rounds to less than 0.01%. (n) Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio. 28
PERIOD ENDED MARCH 31, YEAR ENDED JUNE 30, CLASS Z SHARES 2004(a)(b) 2003(c)(d) 2002(c) - ---------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.18 $ 8.73 $ 8.84 INCOME FROM INVESTMENT OPERATIONS: Net investment income (e) 0.31 0.49 0.55(f) Net realized and unrealized gain (loss) on investments and futures contracts 0.12 0.46 (0.08)(f) ---------- ---------- ---------- Total from Investment Operations 0.43 0.95 0.47 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.34) (0.50) (0.58) Return of capital -- -- --(g) ---------- ---------- ---------- Total Distributions Declared to Shareholders (0.34) (0.50) (0.58) NET ASSET VALUE, END OF PERIOD $ 9.27 $ 9.18 $ 8.73 Total return (h) 4.78%(i) 11.30% 5.36% RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Operating expenses (j) 0.74%(k) 0.80% 0.79% Interest expense -- --%(l) -- Expenses (j) 0.74%(k) 0.80% 0.79% Net investment income (j) 4.58%(k) 5.51% 6.22%(f) Portfolio turnover 96%(i) 114% 179%(m) Net assets, end of period (000's) $ 793,477 $ 717,923 $ 729,580 YEAR ENDED JUNE 30, CLASS Z SHARES 2001(c) 2000(c) 1999(c) - ------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 8.41 $ 8.63 $ 8.97 INCOME FROM INVESTMENT OPERATIONS: Net investment income (e) 0.62 0.60 0.56 Net realized and unrealized gain (loss) on investments and futures contracts 0.43 (0.22) (0.33) ---------- ---------- ---------- Total from Investment Operations 1.05 0.38 0.23 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.62) (0.60) (0.57) Return of capital -- -- -- ---------- ---------- ---------- Total Distributions Declared to Shareholders (0.62) (0.60) (0.57) NET ASSET VALUE, END OF PERIOD $ 8.84 $ 8.41 $ 8.63 Total return (h) 12.86% 4.62% 2.60% RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Operating expenses (j) 0.72% 0.72% 0.72% Interest expense -- -- -- Expenses (j) 0.72% 0.72% 0.72% Net investment income (j) 7.14% 7.16% 6.31% Portfolio turnover 254%(m) 356%(m) 253%(m) Net assets, end of period (000's) $ 514,068 $ 406,216 $ 431,123
(a) On October 13, 2003, the Liberty Intermediate Bond Fund was renamed Columbia Intermediate Bond Fund. (b) The Fund changed its fiscal year end from June 30 to March 31. (c) Per share data and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of income and expenses of the SR&F Intermediate Bond Portfolio, prior to the portfolio liquidation. (d) Effective July 29, 2002, the Stein Roe Intermediate Bond Fund's Class S shares were redesignated Liberty Intermediate Bond Fund Class Z shares. (e) Per share data was calculated using average shares outstanding during the period. (f) Effective July 1, 2001, the SR&F Intermediate Bond Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to decrease net investment income per share by $0.02, decrease net realized and unrealized loss per share by $0.02 and decrease the ratio of net investment income to average net assets from 6.38% to 6.22%. Per share data and ratios for periods prior to June 30, 2002 have not been restated to reflect this change in presentation. (g) Rounds to less than $0.01 per share. (h) Total return at net asset value assuming all distributions reinvested. (i) Not annualized. (j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (k) Annualized. (l) Rounds to less than 0.01%. (m) Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio. 29 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM COLUMBIA INTERMEDIATE BOND FUND TO THE TRUSTEES OF COLUMBIA FUNDS TRUST VIII AND THE SHAREHOLDERS OF COLUMBIA INTERMEDIATE BOND 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 Intermediate Bond Fund (the "Fund") (a series of Columbia Funds Trust VIII) 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 30 UNAUDITED INFORMATION COLUMBIA INTERMEDIATE BOND FUND FEDERAL INCOME TAX INFORMATION For the fiscal year ended March 31, 2004, the Fund designates long-term capital gains of $1,148,237. 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. 31 TRUSTEES COLUMBIA INTERMEDIATE BOND 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 YEAR FIRST ELECTED OR APPOINTED TO OFFICE(1) COLUMBIA FUNDS COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD DISINTERESTED TRUSTEES DOUGLAS A. HACKER (age 48) Executive Vice President-Strategy of United Airlines (airline) since P.O.Box 66100 December 2002 (formerly President of UAL Loyalty Services (airline) from Chicago, IL 60666 September 2001 to December 2002; Executive Vice President and Chief Financial Trustee (since 1996) Officer of United Airlines from July 1999 to September 2001; Senior Vice President-Finance from March1993 to July 1999). Oversees 118, Orbitz (online travel company) JANET LANGFORD KELLY (age 46) Private Investor since March 2004 (formerly Chief Administrative Officer and 9534 W.Gull Lake Drive Senior Vice President, Kmart Holding Corporation (consumer goods) from Richland,MI 49083-8530 September 2003 to March 2004; Executive Vice President-Corporate Development Trusttee (since 1996) and Administration, General Counsel and Secretary, Kellogg Company (food manufacturer), from September 1999 to August 2003; Senior Vice President, Secretary and General Counsel, Sara Lee Corporation (branded, packaged, consumer-products manufacturer) from January 1995 to September 1999). Oversees 118, None RICHARD W. LOWRY (age 68) Private Investor since August 1987 (formerly Chairman and Chief Executive 10701 Charleston Drive Officer, U.S. plywood Corporation (building products manufacturer). Oversees Vero Beach, FL 32963 120(3), None Trustee (since 1995) CHARLES R. NELSON (age 61) Professor of Economics, University of Washington, since January 1976; Ford and Department of Economics Louisa Van Voorhis Professor of Political Economy, University of University of Washington Washington, since September 1993; (formerly Director, Institute for Economic Seattle, WA 98195 Research, University of Washington from September 2001 to June 2003) Adjunct Trustee (since 1981) Professor of Statistics, University of Washington, since September 1980; Associate Editor, Journal of Money Credit and Banking, since September 1993; consultant on econometric and statistical matters. 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. 32
NAME, ADDRESS AND AGE, POSITION WITH FUNDS, PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN YEAR FIRST ELECTED OR APPOINTED TO OFFICE(1) COLUMBIA FUNDS 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 84 College Road College (formerly Dean, Boston College School of Management from Chestnut Hill, MA 02467-3838 September 1977 to September 1999). Oversees 121(3),(4), Saucony, Inc. (athletic Trustee (since 1985) footwear) 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 2208 Tawny Woods Place 1999, College of Business, Boise State University); Chartered Financial Boise, ID 83706 Analyst. Oversees 118, None Trustee (since 1998) THOMAS C. THEOBALD (age 67) Managing Director, William Blair Capital Partners (private equity investing) 227 West Monroe Street, since September 1994. Oversees 118, Anixter International (network support Suite 3500 equipment distributor), Jones Lang LaSalle (real estate management Chicago, IL 60606 services), MONY Group (life insurance) and Ventas, Inc (real estate Trustee and Chairman of the Board(5) investment trust) (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 Hopkinton, NH 03229 119(4), Chairman of the Board of Directors, Enesco Trustee (since 1998) Group, Inc.(designer, importer and distributor of giftware and collectibles) RICHARD L. WOOLWORTH (age 63) Retired since December 2003 (formerly Chairman and Chief Executive 100 S.W.Market Street #1500 Officer, The Regence Group (regional health insurer); Chairman and Chief Portland, OR 97207 Executive Officer, BlueCross BlueShield of Oregon; Certified Public Trustee (since 1991) Accountant, Arthur Young & Company). 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 399 Park Avenue February 1999 (formerly Founding Partner, Development Capital LLC from Suite3204 November 1996 to February 1999). Oversees 120(3), Lee Enterprises (print New York, NY 10022 media), WR Hambrecht + Co. (financial service provider), First Health Trustee (since 1994) (healthcare), Reader's Digest (publishing) and 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. 33 OFFICERS COLUMBIA INTERMEDIATE BOND 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 Boston, MA 02111 Liberty All-Star Funds from May 2002 to May 2004);Controller and Chief Chief Accounting Officer (since 2001) Accounting 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 One Financial Center 2004 (formerly Assistant Treasurer from June 2002 to May 2004; Vice Boston, MA 02111 President, Product Strategy& Development of Liberty Funds Group from Controller (since 2004) February 2001 to 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 President (since 2004) February 1998 to October 2000);Treasurer of the Galaxy Funds since September 2002; Treasurer, Columbia Management Multi-Strategy Hedge Fund, LLC since December 2002 (formerly 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, FleetBoston Financial Corporation since Boston, MA 02111 January 1996; Associate General Counsel, Columbia Management Group since Secretary (since 2003) November 2002.
34 IMPORTANT INFORMATION ABOUT THIS REPORT COLUMBIA INTERMEDIATE BOND 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 Intermediate Bond 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. 35 COLUMBIA FUNDS COLUMBIA INTERMEDIATE BOND 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 36 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. 37 [GRAPHIC] 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 INTERMEDIATE BOND 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 713-02/629R-0304 (05/04) 04/1023 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 their fiscal year-end to March 31 from June 30. Also, effective March 1, 2004, the series of 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 $ 51,700 $ 49,500
Audit Fees include amounts related to the audit of the registrant'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 $ 8,000 $ 15,500
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 registrant'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 registrant, 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 $ 5,000 $ 6,700
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 include the review of annual tax returns, while fiscal year 2003 also includes the review of calculations of required shareholder distributions. 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 registrant, 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 registrant, 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 registrant'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 VIII ---------------------------------------------------------------- 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 a2137588zex-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 a2137588zex-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 VIII; 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 a2137588zex-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 VIII (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-----