-----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, F49UTVbj6GCIkM3l40Hhx2MdeHSPMLvLg448DwGS2hwb2vYpXElfeUF02suS5pgD mrOdYJVu9CcpiH2TGhnv5Q== 0001193125-05-123813.txt : 20050610 0001193125-05-123813.hdr.sgml : 20050610 20050610165917 ACCESSION NUMBER: 0001193125-05-123813 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050610 DATE AS OF CHANGE: 20050610 EFFECTIVENESS DATE: 20050610 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: 05890552 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 dncsr.txt COLUMBIA FUNDS TRUST VIII 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: 03/31/05 Date of reporting period: 03/31/05 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, 2005 PRESIDENT'S MESSAGE -------------------------- Columbia Income Fund Table of Contents Fund Profile...................................... 1 Performance Information........................... 2 Understanding Your Expenses....................... 3 Economic Update................................... 4 Portfolio Managers' Report........................ 5 Investment Portfolio............................ 8
Statement of Assets and Liabilities............. 20 Statement of Operations......................... 21 Statement of Changes in Net Assets.............. 22 Notes to Financial Statements................... 24 Financial Highlights............................ 30 Report of Independent Registered Public Accounting Firm................. 34 Trustees.......................................... 35 Officers.......................................... 37 Board Consideration and Approval of Investment Advisory Agreement................................ 38 Important Information About This Report........... 41
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 - -----------------
[PHOTO] Dear Shareholder: In 2004, Columbia Funds became part of the Bank of America family, one of the largest, most respected financial institutions in the United States. As a direct result of this merger, a number of changes are in the works that we believe may offer significant benefits for our shareholders. Plans are underway to combine various Nations Funds and Columbia Funds together to form a single fund family that covers a wide range of markets, sectors and asset classes under the management of talented, seasoned investment professionals. As a result, some funds will be merged in order to eliminate redundancies and fund management teams will be aligned to help maximize performance potential. You will receive more detailed information about these proposed mergers, and you will be asked to vote on certain fund changes that may affect you and your account. In this matter, your timely response will help us to implement the changes in 2005. The increased efficiencies we expect from a more streamlined offering of funds may help us reduce fees charged to the funds, because larger funds often benefit from size and scale of operations. For example, significant savings for the combined complex may result from the consolidation of certain vendor agreements. In fact, we recently announced plans to consolidate the transfer agency of all of our funds and consolidate custodial services, each under a single vendor. We have also reduced management fees for many funds as part of our settlement agreement (See Note 7 in the Notes to Financial Statements) with the New York Attorney General. As a result of these changes, we believe we will offer shareholders an even stronger lineup of investment options, with management expenses that continue to be competitive and fair. What will not change as we enter this next phase of consolidation is our commitment to the highest standards of performance and our dedication to superior service. Change for the better has another name: it's called improvement. It helps move us forward, and we believe that it represents progress for all our shareholders in their quest for long-term financial success. In the pages that follow, you'll find a discussion of the economic environment during the period followed by a detailed report from the fund's manager or managers on key factors that influenced performance. We hope that you will read the manager reports carefully and discuss any questions you might have with your financial advisor. As always, we thank you for choosing Columbia Funds. We appreciate your continued confidence. And, we look forward to helping you keep your long-term financial goals on target in the years to come. Sincerely, /s/ Christopher Wilson Head of Mutual Funds, Columbia Management Christopher Wilson is Head of Mutual Funds for Columbia Management, responsible for the day-to-day delivery of mutual fund services to the firm's investors. With the exception of distribution, Chris oversees all aspects of the mutual fund services operation, including treasury, investment accounting and shareholder and broker services. Chris serves as Columbia Management's liaison to the mutual fund boards of trustees. Chris joined Bank of America in August 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 03/31/05 (%) Corporate fixed-income bonds & notes 83.2 ---------------------------------------- Government agencies & obligations 6.3 ---------------------------------------- Mortgage-backed securities 3.7 ---------------------------------------- Asset-backed securities 1.9 ---------------------------------------- Collateralized mortgage obligations 1.5 ---------------------------------------- Cash equivalents, net other assets & liabilities 3.4 ----------------------------------------
Quality breakdown as of 03/31/05 (%) Aaa 6.9 ------------- Aa 4.3 ------------- A 20.4 ------------- Baa 32.9 ------------- Other 27.3 ------------- Treasury 4.8 ------------- Agency 3.4 -------------
Maturity breakdown as of 03/31/05 (%) [CHART] 0-1 year 9.1 1-5 years 38.8 5-10 years 34.8 10-20 years 6.8 Over 20 years 10.5 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 rating assigned to a particular bond by one of the following nationally recognized rating agencies: Standard & Poor's Corporation, Moody's Investors Service, Inc. or Fitch Ratings Ltd. Management Style is determined by Columbia Management and is based on the investment strategy and process as outlined in the fund's prospectus. Summary .. For the 12-month period ended March 31, 2005, the fund's class A shares returned 2.00% without sales charge. .. The fund outperformed both of its benchmarks, the Lehman Brothers Intermediate Credit Bond Index and the Lehman Brothers Intermediate Government/Credit Bond Index. Its return was also higher than the average for its peer group, the Lipper Corporate Debt Funds BBB Rated Category. .. We believe the fund's strong showing relative to its benchmarks and its peers was primarily due to its substantial exposure to corporate bonds, which outpaced Treasuries and other fixed income instruments during the period. [FLOW CHART] Class A Shares 2.00% Lehman Brothers Intermediate Government/Credit Bond Index -0.32% Objective Seeks its total return by investing for a high level of current income and, to a lesser extent, capital appreciation. Total net assets $666.8 million Management style LOGO 1 PERFORMANCE INFORMATION ---------------------------- Columbia Income Fund Performance of a $10,000 investment 04/01/95 - 03/31/05 ($)
sales charge: without with ---------------------------- Class A 20,482 19,502 ---------------------------- Class B 20,065 20,065 ---------------------------- Class C 20,146 20,146 ---------------------------- Class Z 20,797 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, when redeemed, may be worth more or less than the original cost. Please visit www.columbiafunds.com for daily and most recent month-end performance updates. Value of a $10,000 investment 04/01/95 - 03/31/05 [CHART] Columbia Columbia Lehman Lehman Income Fund Income Fund Brother Brother - Class A - Class A Government Intermediate Without With /Credit Bond Credit Bond Sales Charge Index Index ----- ------ ----- ----- 10000 9525 10000 10000 04/30/1995 10158 9675 10123 10154 05/31/1995 10556 10055 10429 10542 06/30/1995 10652 10146 10499 10627 07/31/1995 10655 10149 10500 10615 08/31/1995 10779 10267 10595 10746 09/30/1995 10898 10380 10671 10846 10/31/1995 11031 10507 10790 10974 11/30/1995 11207 10675 10931 11157 12/31/1995 11376 10836 11046 11299 01/31/1996 11490 10944 11141 11404 02/29/1996 11314 10777 11011 11222 03/31/1996 11211 10679 10955 11141 04/30/1996 11152 10622 10916 11077 05/31/1996 11140 10610 10907 11060 06/30/1996 11265 10730 11023 11196 07/31/1996 11289 10753 11056 11224 08/31/1996 11303 10766 11065 11218 09/30/1996 11513 10966 11219 11413 10/31/1996 11763 11204 11417 11665 11/30/1996 12010 11439 11568 11864 12/31/1996 11928 11362 11494 11748 01/31/1997 11989 11419 11539 11796 02/28/1997 12080 11506 11561 11829 03/31/1997 11922 11356 11481 11700 04/30/1997 12057 11484 11615 11855 05/31/1997 12243 11662 11712 11975 06/30/1997 12428 11838 11818 12107 07/31/1997 12816 12207 12058 12428 08/31/1997 12664 12062 11998 12318 09/30/1997 12848 12238 12137 12491 10/31/1997 12884 12272 12272 12607 11/30/1997 12944 12329 12299 12636 12/31/1997 13072 12451 12397 12732 01/31/1998 13217 12589 12560 12901 02/28/1998 13249 12619 12550 12903 03/31/1998 13325 12692 12590 12948 04/30/1998 13399 12762 12653 13022 05/31/1998 13476 12836 12745 13134 06/30/1998 13511 12870 12827 13206 07/31/1998 13564 12920 12872 13240 08/31/1998 13274 12643 13074 13334 09/30/1998 13554 12910 13402 13733 10/31/1998 13273 12643 13388 13623 11/30/1998 13514 12872 13387 13729 12/31/1998 13593 12948 13441 13788 01/31/1999 13708 13056 13515 13899 02/28/1999 13501 12859 13316 13662 03/31/1999 13653 13005 13416 13789 04/30/1999 13775 13120 13457 13843 05/31/1999 13631 12984 13354 13689 06/30/1999 13581 12936 13363 13677 07/31/1999 13538 12894 13351 13633 08/31/1999 13509 12867 13362 13624 09/30/1999 13646 12997 13486 13774 10/31/1999 13684 13034 13521 13826 11/30/1999 13766 13112 13537 13859 12/31/1999 13762 13108 13493 13811 01/31/2000 13795 13139 13443 13751 02/29/2000 13946 13284 13553 13864 03/31/2000 14104 13434 13694 13982 04/30/2000 13952 13289 13662 13901 05/31/2000 13885 13225 13684 13894 06/30/2000 14253 13576 13925 14183 07/31/2000 14441 13755 14031 14313 08/31/2000 14662 13965 14196 14497 09/30/2000 14720 14021 14326 14637 10/31/2000 14653 13957 14391 14650 11/30/2000 14789 14087 14587 14825 12/31/2000 15107 14389 14856 15115 01/31/2001 15456 14722 15099 15434 02/28/2001 15668 14923 15241 15585 03/31/2001 15740 14992 15359 15715 04/30/2001 15726 14979 15319 15685 05/31/2001 15897 15142 15404 15804 06/30/2001 15943 15186 15461 15874 07/31/2001 16291 15517 15783 16245 08/31/2001 16489 15706 15941 16430 09/30/2001 16186 15417 16174 16532 10/31/2001 16442 15661 16442 16826 11/30/2001 16460 15678 16278 16697 12/31/2001 16371 15593 16188 16590 01/31/2002 16497 15713 16272 16695 02/28/2002 16555 15768 16401 16821 03/31/2002 16472 15690 16152 16562 04/30/2002 16806 16008 16418 16793 05/31/2002 16909 16106 16582 17021 06/30/2002 16826 16027 16725 17087 07/31/2002 16725 15931 16922 17144 08/31/2002 16966 16160 17174 17475 09/30/2002 17154 16339 17482 17803 10/31/2002 16801 16003 17414 17661 11/30/2002 17164 16348 17398 17807 12/31/2002 17547 16713 17777 18272 01/31/2003 17655 16817 17777 18323 02/28/2003 17963 17109 18028 18646 03/31/2003 17971 17118 18046 18685 04/30/2003 18423 17548 18183 18941 05/31/2003 18913 18014 18548 19424 06/30/2003 19047 18142 18535 19434 07/31/2003 18466 17589 18031 18837 08/31/2003 18527 17647 18075 18893 09/30/2003 19105 18197 18532 19456 10/31/2003 19160 18250 18358 19283 11/30/2003 19308 18391 18383 19341 12/31/2003 19572 18643 18543 19533 01/31/2004 19799 18859 18666 19689 02/29/2004 19930 18983 18856 19907 03/31/2004 20096 19141 19003 20083 04/30/2004 19690 18754 18553 19571 05/31/2004 19475 18550 18469 19447 06/30/2004 19598 18667 18525 19517 07/31/2004 19821 18880 18680 19716 08/31/2004 20186 19227 18992 20099 09/30/2004 20309 19344 19025 20173 10/31/2004 20540 19565 19152 20326 11/30/2004 20467 19494 18978 20148 12/31/2004 20679 19697 19107 20327 01/31/2005 20789 19801 19143 20386 02/28/2005 20779 19792 19038 20276 03/31/2005 20482 19502 18954 20091 The graph and table do not reflect the deduction 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 the intermediate component of the U.S. Credit Index. The U.S. Credit Index includes publicly issued US corporate and foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements. 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 03/31/05 (%)
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 -------------------------------------------------------------- 1-year 2.00 -2.85 1.25 -3.60 1.40 0.43 2.33 -------------------------------------------------------------- 5-year 7.76 6.72 7.32 7.01 7.40 7.40 8.09 -------------------------------------------------------------- 10-year 7.43 6.91 7.21 7.21 7.26 7.26 7.60 --------------------------------------------------------------
THE "WITH SALES CHARGE" RETURNS INCLUDE THE MAXIMUM INITIAL SALES CHARGE OF 4.75% FOR CLASS A SHARES, MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.00% FOR CLASS B SHARES AND 1.00% FOR CLASS C SHARES FOR THE FIRST YEAR ONLY. THE "WITHOUT SALES CHARGE" RETURNS DO NOT INCLUDE THE EFFECT OF SALES CHARGES. IF THEY HAD, RETURNS WOULD BE LOWER. ALL RESULTS SHOWN ASSUME REINVESTMENT OF DISTRIBUTIONS. CLASS Z SHARES ARE SOLD AT NET ASSET VALUE WITH NO RULE 12B-1 FEES. 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. Class A, class B and class C are newer classes of shares. Class A performance information includes returns of the fund's class Z shares (the oldest existing fund class) for periods prior to its inception. Class B and class C performance information includes returns of the fund's class A shares for the period from July 31, 2000 through July 15, 2002 and for periods prior thereto, the fund's class Z shares (the oldest existing fund class). These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower, since the newer classes of shares are subject to a Rule 12b-1 fee. Class A shares were initially offered on July 31, 2000, class B and class C shares were initially offered on July 15, 2002, and class Z shares were initially offered on March 5, 1986. 2 UNDERSTANDING YOUR EXPENSES ---------------------------------- Columbia Income Fund Estimating your actual expenses To estimate the expenses that you paid over the period, first you will need your account balance at the end of the period: .. For shareholders who receive their account statements from Columbia Funds Services, Inc., your account balance is available online at www.columbiafunds.com or by calling Shareholder Services at 800-345-6611 .. For shareholders who receive their account statements from their brokerage firm, contact your brokerage firm to obtain your account balance 1.Divide your ending account balance by $1,000. For example, if an account balance was $8,600 at the end of the period, the result would be 8.6 2.In the section of the table below titled "Expenses paid during the period," locate the amount for your share class. You will find this number is in the column labeled "actual." Multiply this number by the result from step 1. Your answer is an estimate of the expenses you paid on your account during the period As a fund shareholder, you incur two types of costs. There are transaction costs, which generally include sales charges on purchases and may include redemption or exchange fees. There are also continuing costs, which generally include investment advisory fees, Rule 12b-1 fees and other fund expenses. The information on this page is intended to help you understand your ongoing costs of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. Analyzing your fund's expenses by share class To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors in each share class during the reporting period. The information in the following table is based on an initial investment of $1,000, which is invested at the beginning of the reporting period and held for the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the "actual" column is calculated using the fund's actual operating expenses and total return for the period. The amount listed in the "hypothetical" column for each share class assumes that the return each year is 5% before expenses and includes the fund's actual expense ratio. You should not use the hypothetical account values and expenses to estimate either your actual account balance at the end of the period or the expenses you paid during this reporting period. 10/01/04 - 03/31/05
Account value at the Account value at the Expenses paid Fund's annualized beginning of the period ($) end of the period ($) during the period ($) expense ratio (%) - ------------------------------------------------------------------------------------------------- Actual Hypothetical Actual Hypothetical Actual Hypothetical - ------------------------------------------------------------------------------------------------- Class A 1,000.00 1,000.00 1,009.27 1,020.19 4.76 4.78 0.95 - ------------------------------------------------------------------------------------------------- Class B 1,000.00 1,000.00 1,005.53 1,016.45 8.50 8.55 1.70 - ------------------------------------------------------------------------------------------------- Class C 1,000.00 1,000.00 1,006.23 1,017.20 7.75 7.80 1.55 - ------------------------------------------------------------------------------------------------- Class Z 1,000.00 1,000.00 1,010.52 1,021.44 3.51 3.53 0.70 - -------------------------------------------------------------------------------------------------
Expenses paid during the period are equal to the annualized expense ratio for the share class, multiplied by the average account value over the period, then multiplied by the number of days in the fund's most recent fiscal half-year and divided by 365. Had the Distributor not waived a portion of class C shares' expenses, class C shares' total return would have been reduced. It is important to note that the expense amounts shown in the table are meant to highlight only ongoing costs of investing in the fund and do not reflect any transactional costs, such as sales charges, redemption or exchange fees. Therefore, the hypothetical examples provided may not help you determine the relative total costs of owning shares of different funds. If these transactional costs were included, your costs would have been higher. Compare with other funds Since all mutual fund companies are required to include the same hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the fund with other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. As you compare hypothetical examples of other funds, it is important to note that hypothetical examples are meant to highlight the continuing cost of investing in a fund and do not reflect any transactional costs, such as sales charges or redemption or exchange fees. 3 ECONOMIC UPDATE ----------------------------- Columbia Income Fund The US economy moved ahead at a healthy pace during the 12-month period that began April 1, 2004 and ended March 31, 2005. Gross domestic product (GDP) expanded at an estimated annualized rate of 3.5% as job growth helped buoy consumer spending and rising profits boosted business spending. Higher energy prices put something of a damper on growth as the period wore on -- enough to slow the pace of growth to 3.1% in the first quarter of 2005. Job growth dominated the economic news and drove consumer confidence ratings which moved up and down, depending on the number of new jobs reported. Overall, consumers remained significantly more optimistic about the prospects for the economy and about their own employment than they were a year ago. Consumer spending grew during the period, as retail sales and the housing market remained strong. The business sector also contributed to the economy's solid pace. Yet, business spending was not as robust as expected, given a maturing economic cycle, two straight years of double-digit profit growth and a significant build-up of cash on corporate balance sheets. Bonds deliver modest gains The US bond market delivered a positive return despite rising interest rates in the final six weeks of the period. The yield on the 10-year Treasury note, a bellwether for the bond market, rose above 4.5%, and sent bond prices down. However, it settled just below 4.5% at the end of the period. In this environment, the Lehman Brothers Aggregate Bond Index returned 1.15% for the 12-month period. Municipal bonds did even better than investment-grade taxable bonds as state revenues strengthened and fiscal constraints helped many states balance their budgets. The Lehman Municipal Bond Index returned 2.67%. High-yield bonds led the fixed-income markets, as a stronger economy resulted in improved credit ratings, stronger balance sheets and higher profits for many companies in the high-yield universe. The Merrill Lynch US High Yield, Cash Pay Index returned 6.79%. However, the riskiest bonds were the hardest hit when the bond market pulled back, and high-yield bonds gave back some of their gains in the final months of the period. After a year of the lowest short-term interest rates in recent history, the Federal Reserve (the Fed) raised the federal funds rate, a key short-term rate, from 1.00% to 2.75% in seven one-quarter percentage point steps during the period./1/ The Fed indicated early on that it would continue to raise short-term interest rates at a "measured pace," in an attempt to balance economic growth against inflationary pressures. So far, it has kept its word. However, the Fed left the door open for more aggressive action in remarks made on the economy and inflation when it met in March. Stocks outperformed bonds Buoyed by strong gains in the fourth quarter of 2004, the S&P 500 Index returned 6.69% for the period. Returns were lackluster throughout most of 2004, but most segments of the stock market bounced back after the presidential election was settled in November. However, stocks retreated early in 2005 as rising energy prices and higher interest rates turned investors cautious once again. Small and mid-cap stocks did significantly better than large-cap stocks, and value stocks led growth stocks by a significant margin. Energy and utilities were the best performing sectors. /1/On May 3, 2005, the federal funds rate was raised to 3.00% Summary For the 12-month period ended March 31, 2005 .. Bonds chalked up modest gains as measured by the Lehman Brothers Aggregate Bond Index. High-yield bonds led the fixed income markets, as measured by the Merrill Lynch US High Yield, Cash Pay Index. However, they gave back some of their return in the last months of the period. [GRAPHIC] Lehman Index 1.15 Merrill Lynch Index 6.79 .. Stocks outperformed bonds, as measured by the S&P 500 Index. Most of the period's gains were generated during a fourth-quarter rally in 2004. [GRAPHIC] S&P 500 Index 6.69% The Lehman Brothers Aggregate Bond Index is a market value-weighted index that tracks the daily price, coupon, pay-downs and total return performance of fixed-rate, publicly placed, dollar-denominated, non-convertible investment grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity. The Merrill Lynch US High Yield, Cash Pay Index is an unmanaged index that tracks the performance of non-investment-grade corporate bonds. The S&P 500 Index is an unmanaged index that tracks the performance of 500 widely held, large capitalization US stocks. 4 PORTFOLIO MANAGERS' REPORT -------------------------- Columbia Income Fund For the 12-month period ended March 31, 2005, Columbia Income Fund's class A shares returned 2.00% without sales charge. The fund performed better than its benchmarks, the Lehman Brothers Intermediate Government/Credit Bond Index and the Lehman Brothers Intermediate Credit Bond Index, which returned -0.32% and 0.04%, respectively, for the same period. The fund also bested the Lipper Corporate BBB Rated Debt Fund Category average, which was 1.57% for the 12-month period./1/ The fund's performance was aided by its substantial position in corporate bonds. Approximately 25% of the fund's assets were invested in high-yield bonds, and the strong performance of this sector also helped the fund's return. In March 2005, the fund's management team changed. Marie Schofield and Carl Pappo joined Thomas LaPointe and Kevin Cronk as co-managers of the fund. Corporate issues outperformed Solid economic trends provided a positive backdrop for corporate securities over the 12-month period. Despite pressure on the bond market from the Federal Reserve's current cycle of short-term interest-rate increases, returns on investment-grade corporate debt and high-yield bonds outpaced other fixed-income alternatives. Generally low rates drove bond investors seeking income toward lower quality issues, including emerging market and international securities. Because of this trend, the fund's light exposure to high quality foreign debt was a benefit, as was its limited exposure to higher quality sectors of the domestic corporate market, including financials. Utility, energy bonds enhanced returns As the business environment improved, utility bonds were strong performers. This benefited the fund, as its significant holdings in this area, particularly in electric utilities, turned in strong results. Sustained high oil prices drove the performance of energy bonds during the period, and the fund's investments in oil refining bonds also contributed to its strong performance. Despite recent poor performance, we continue to hold bonds in the airline sector. Historically airlines have held up well when interest rates have risen because the stakeholders' ultimate credit is the value of the airplanes. /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. Net asset value per share as of 03/31/05 ($) Class A 9.89 ------------ Class B 9.89 ------------ Class C 9.89 ------------ Class Z 9.89
Distributions declared per share 04/01/04 - 03/31/05 ($) Class A 0.52 ------------ Class B 0.44 ------------ Class C 0.46 ------------ Class Z 0.55
SEC yields as of 03/31/05 (%) Class A 3.85 ------------ Class B 3.33 ------------ Class C 3.48 ------------ Class Z 4.34
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 03/31/05 (%) Federal National Mortgage Assn. 4.9 ------------------------------------ Federal Home Loan Mortgage Corp. 1.8 ------------------------------------ Sanmina-SCI 0.2 ------------------------------------ Abitibi-Consolidated 0.1
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. 5 - -------------------------------------------------------------------------------- Columbia Income Fund Trimmed corporate holdings, added to agencies We trimmed the fund's exposure to investment-grade corporate issues in some of the best-performing areas of the corporate sector, including utilities and industrials. We used the proceeds to increase holdings in government agency debt and agency mortgage-backed issues. The government agency mortgage market has been largely unaffected by regulatory scrutiny of the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, and we believe these areas offer some of the best relative values. This strategy began to produce results towards the end of the period, with strong performance relative to other investment-grade sectors. Among the fund's high-yield holdings, we reduced exposure to auto parts manufacturers and realized profits from sales of these securities, including Dana Corp. and SPX. During the period, we also sold several of the fund's holdings in the leisure sector. We eliminated Six Flags because the company's credit quality deteriorated, and we sold Host Marriott because we believed the bonds had reached fair value. We used proceeds of these sales to add exposure to cyclical sectors, such as information technology and forest products, which we believe have the potential to benefit from continued economic strength. Sanmina-SCI, an electronics manufacturer, and Abitibi-Consolidated, a newsprint producer, are two of the fund's new holdings in these areas. Rising rates could dampen economy While inflation remains in check, rising interest rates and escalating costs of doing business are not favorable developments for corporate bonds. A slowing of economic growth is the inevitable result of rising interest rates, which is likely to be a major factor influencing corporate performance. As a result, we have scaled back the fund's exposure to corporate bonds, particularly to investment-grade issues. We also limited the fund's Treasury holdings, because real interest rates are at unattractive levels. We continue to seek areas that offer compelling valuations and that are less vulnerable to rising interest rates. Kevin L. Cronk has co-managed the Columbia Income Fund since March 2003 and has been with the advisor or its predecessors or affiliate organizations since 1999. /s/ Thomas A. LaPointe has co-managed the fund since March 2003 and has been with the advisor or its predecessors or affiliate organizations since 1999. /s/ We have scaled back the fund's exposure to corporate bonds, particularly investment grade issues, and continue to seek areas that offer compelling valuations and that are less vulnerable to rising interest rates. 6 - -------------------------------------------------------------------------------- Columbia Income Fund Marie M. Schofield has co-managed the fund since March 2005 and has been with the advisor or its predecessors or affiliate organizations since 1990. /s/ Marie M. Schofield Carl W. Pappo has co-managed the fund since March 2005 and has been with the advisor or its predecessors or affiliate organizations since 1993. /s/ Carl Pappo Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yield and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa. Investing in high-yield securities (commonly known as "junk bonds") offers the potential for high current income and attractive total return but involves certain risks. Changes in economic conditions or other circumstances may adversely affect a junk bond issuer's ability to make principal and interest payments. Rising interest rates tend to lower the value of all bonds. High-yield bonds issued by foreign entities have greater potential risks, including less regulation, currency fluctuations, economic instability and political developments. 7 INVESTMENT PORTFOLIO ----------------------- March 31, 2005 Columbia Income Fund
Corporate Fixed-Income Bonds & Notes - 83.2% BASIC MATERIALS - 3.9% Chemicals - 2.3% Par ($) Value ($) - -------------------------------------- ------------------- --------- ---------- Dow Chemical Co. 5.750% 11/15/09 4,500,000 4,693,725 ------------------- --------- ---------- Eastman Chemical Co. 3.250% 06/15/08 1,150,000 1,103,678 6.300% 11/15/18 4,500,000 4,802,400 ------------------- --------- ---------- EquiStar Chemicals LP 10.625% 05/01/11 2,000,000 2,255,000 ------------------- --------- ---------- NOVA Chemicals Corp. 6.500% 01/15/12 2,000,000 2,050,000 ------------------- --------- ---------- Chemicals Total 14,904,803 Forest Products & Paper - 1.6% ------------------- --------- ---------- Abitibi-Consolidated, Inc. 8.375% 04/01/15 500,000 485,000 ------------------- --------- ---------- Cascades, Inc. 7.250% 02/15/13 3,500,000 3,570,000 ------------------- --------- ---------- Norske Skog Canada Ltd. 7.375% 03/01/14 2,000,000 1,920,000 ------------------- --------- ---------- Westvaco Corp. 8.200% 01/15/30 3,820,000 4,754,296 ------------------- --------- ---------- Forest Products & Paper Total 10,729,296 ---------- BASIC MATERIALS TOTAL 25,634,099 COMMUNICATIONS - 9.3% Media - 5.9% ------------------- --------- ---------- Charter Communications Holdings II LLC 10.250% 09/15/10 1,000,000 1,027,500 ------------------- --------- ---------- Comcast Corp. 5.850% 01/15/10 4,000,000 4,151,280 6.500% 01/15/15 2,000,000 2,145,160 ------------------- --------- ---------- CSC Holdings, Inc. 6.750% 04/15/12 (a) 500,000 497,500 7.625% 04/01/11 1,500,000 1,556,250 ------------------- --------- ---------- Dex Media West LLC 9.875% 08/15/13 1,953,000 2,182,477 ------------------- --------- ---------- DirecTV Holdings LLC 8.375% 03/15/13 500,000 538,750 ------------------- --------- ---------- Echostar DBS Corp. 6.375% 10/01/11 1,500,000 1,473,750 ------------------- --------- ---------- Insight Midwest LP 9.750% 10/01/09 3,000,000 3,120,000 ------------------- --------- ---------- Liberty Media Corp. 4.510% 09/17/06 (b) 4,000,000 4,053,400 ------------------- --------- ---------- News America Holdings, Inc. 9.250% 02/01/13 2,000,000 2,497,700 ------------------- --------- ---------- Sinclair Broadcast Group, Inc. 8.750% 12/15/11 2,000,000 2,112,500 ------------------- --------- ---------- Viacom, Inc. 7.750% 06/01/05 6,500,000 6,543,745 ------------------- --------- ---------- Videotron Ltee 6.875% 01/15/14 220,000 222,200 ------------------- --------- ---------- Walt Disney Co. 5.500% 12/29/06 7,000,000 7,147,000 ------------------- --------- ---------- Media Total 39,269,212
See Accompanying Notes to Financial Statements. 8 - -------------------------------------------------------------------------------- March 31, 2005 Columbia Income Fund
Corporate Fixed-Income Bonds & Notes - (continued) COMMUNICATIONS - (continued) Telecommunication Services - 3.4% Par ($) Value ($) ---------------------------------- --------------------- ---------- ---------- Nextel Communications, Inc. 7.375% 08/01/15 3,095,000 3,265,225 --------------------- ---------- ---------- Qwest Corp. 9.125% 03/15/12 (a) 500,000 545,000 --------------------- ---------- ---------- Qwest Services Corp. 13.500% 12/15/10 (a) 1,500,000 1,732,500 --------------------- ---------- ---------- Rogers Cantel, Inc. 9.750% 06/01/16 2,000,000 2,380,000 --------------------- ---------- ---------- Sprint Capital Corp. 6.125% 11/15/08 4,500,000 4,712,490 --------------------- ---------- ---------- Telefonos de Mexico SA de CV 4.500% 11/19/08 5,250,000 5,156,288 4.750% 01/27/10 (a) 975,000 949,835 --------------------- ---------- ---------- Verizon Global Funding Corp. 7.750% 12/01/30 3,000,000 3,608,160 --------------------- ---------- ---------- Telecommunication Services Total 22,349,498 ---------- COMMUNICATIONS TOTAL 61,618,710 CONSUMER CYCLICAL - 9.9% Airlines - 1.5% --------------------- ---------- ---------- American Airlines, Inc. 7.024% 10/15/09 3,029,000 3,059,290 9.710% 01/02/07 996,660 928,140 --------------------- ---------- ---------- Continental Airlines, Inc. 7.461% 04/01/15 2,997,066 2,787,271 --------------------- ---------- ---------- Southwest Airlines Co. 5.496% 11/01/06 3,000,000 3,059,700 --------------------- ---------- ---------- Airlines Total 9,834,401 Apparel - 0.5% --------------------- ---------- ---------- Jones Apparel Group, Inc. 6.125% 11/15/34 (a) 1,730,000 1,620,232 --------------------- ---------- ---------- Phillips-Van Heusen Corp. 7.250% 02/15/11 2,000,000 2,010,000 --------------------- ---------- ---------- Apparel Total 3,630,232 Auto Manufacturers - 0.8% --------------------- ---------- ---------- DaimlerChrysler NA Holding Corp. 6.400% 05/15/06 4,000,000 4,100,240 --------------------- ---------- ---------- Navistar International Corp. 7.500% 06/15/11 1,500,000 1,515,000 --------------------- ---------- ---------- Auto Manufacturers Total 5,615,240 Entertainment - 0.2% --------------------- ---------- ---------- Steinway Musical Instruments, Inc. 8.750% 04/15/11 1,000,000 1,065,000 --------------------- ---------- ---------- Entertainment Total 1,065,000 Home Builders - 1.0% --------------------- ---------- ---------- D.R. Horton, Inc. 9.750% 09/15/10 1,500,000 1,732,500 --------------------- ---------- ---------- K. Hovnanian Enterprises, Inc. 7.750% 05/15/13 2,000,000 2,060,000 --------------------- ---------- ---------- Standard-Pacific Corp. 9.250% 04/15/12 2,500,000 2,850,000 --------------------- ---------- ---------- Home Builders Total 6,642,500
See Accompanying Notes to Financial Statements. 9 - -------------------------------------------------------------------------------- March 31, 2005 Columbia Income Fund
Corporate Fixed-Income Bonds & Notes - (continued) CONSUMER CYCLICAL - (continued) Leisure Time - 0.2% Par ($) Value ($) ------------------------------- ------------------- --------- ---------- K2, Inc. 7.375% 07/01/14 1,250,000 1,293,750 ------------------- --------- ---------- Leisure Time Total 1,293,750 Lodging - 3.9% ------------------- --------- ---------- Hard Rock Hotel, Inc. 8.875% 06/01/13 1,200,000 1,290,000 ------------------- --------- ---------- Harrah's Operating Co., Inc. 7.125% 06/01/07 3,750,000 3,946,875 7.875% 12/15/05 500,000 511,875 ------------------- --------- ---------- Hyatt Equities LLC 6.875% 06/15/07 (a) 2,525,000 2,632,313 ------------------- --------- ---------- La Quinta Corp. 7.620% 09/13/05 2,200,000 2,211,000 ------------------- --------- ---------- Marriott International, Inc. 6.875% 11/15/05 5,000,000 5,088,400 ------------------- --------- ---------- MGM Mirage 6.750% 09/01/12 1,000,000 1,010,000 ------------------- --------- ---------- Mohegan Tribal Gaming Authority 6.125% 02/15/13 (a) 2,250,000 2,216,250 ------------------- --------- ---------- Park Place Entertainment Corp. 9.375% 02/15/07 2,500,000 2,668,750 ------------------- --------- ---------- Seneca Gaming Corp. 7.250% 05/01/12 830,000 830,000 ------------------- --------- ---------- Station Casinos, Inc. 6.000% 04/01/12 1,000,000 992,500 6.875% 03/01/16 1,500,000 1,496,250 ------------------- --------- ---------- Wynn Las Vegas LLC 6.625% 12/01/14 (a) 1,000,000 950,000 ------------------- --------- ---------- Lodging Total 25,844,213 Retail - 1.8% ------------------- --------- ---------- CVS Corp. 5.298% 01/11/27 (a) 1,859,131 1,859,800 ------------------- --------- ---------- Ferrellgas Partners LP 8.750% 06/15/12 1,160,000 1,206,400 ------------------- --------- ---------- Finlay Fine Jewelry Corp. 8.375% 06/01/12 1,000,000 925,000 ------------------- --------- ---------- Kohl's Corp. 6.700% 02/01/06 4,355,000 4,450,462 ------------------- --------- ---------- Office Depot, Inc. 6.250% 08/15/13 1,655,000 1,732,917 ------------------- --------- ---------- Rite Aid Corp. 7.500% 01/15/15 (a) 160,000 153,600 ------------------- --------- ---------- Saks, Inc. 7.000% 12/01/13 1,500,000 1,380,000 ------------------- --------- ---------- Tempur-Pedic, Inc. 10.250% 08/15/10 426,000 473,925 ------------------- --------- ---------- Retail Total 12,182,104 ---------- CONSUMER CYCLICAL TOTAL 66,107,440 CONSUMER NON-CYCLICAL - 9.9% Beverages - 1.4% ------------------- --------- ---------- Bottling Group LLC 2.450% 10/16/06 7,000,000 6,839,700
See Accompanying Notes to Financial Statements. 10 - -------------------------------------------------------------------------------- March 31, 2005 Columbia Income Fund
Corporate Fixed-Income Bonds & Notes - (continued) CONSUMER NON-CYCLICAL - (continued) Beverages - (continued) Par ($) Value ($) ----------------------------------- ------------------- --------- ---------- Constellation Brands, Inc. 8.125% 01/15/12 2,183,000 2,324,895 ------------------- --------- ---------- Beverages Total 9,164,595 Biotechnology - 0.3% ------------------- --------- ---------- Bio-Rad Laboratories, Inc. 7.500% 08/15/13 2,000,000 2,100,000 ------------------- --------- ---------- Biotechnology Total 2,100,000 Commercial Services - 1.6% ------------------- --------- ---------- Erac USA Finance Co. 6.750% 05/15/07 (a) 3,000,000 3,145,020 8.000% 01/15/11 (a) 3,000,000 3,411,510 ------------------- --------- ---------- NationsRent, Inc. 9.500% 10/15/10 2,000,000 2,180,000 ------------------- --------- ---------- Service Corp. International 7.700% 04/15/09 2,005,000 2,080,188 ------------------- --------- ---------- Commercial Services Total 10,816,718 Cosmetics/Personal Care - 0.1% ------------------- --------- ---------- Procter & Gamble Co. 5.500% 02/01/34 1,000,000 1,001,980 ------------------- --------- ---------- Cosmetics/Personal Care Total 1,001,980 Food - 0.9% ------------------- --------- ---------- Cadbury-Schweppes PLC 5.125% 10/01/13 (a) 1,750,000 1,735,440 ------------------- --------- ---------- Delhaize America, Inc. 8.125% 04/15/11 1,000,000 1,115,920 ------------------- --------- ---------- Dole Food Co., Inc. 8.625% 05/01/09 2,000,000 2,100,000 ------------------- --------- ---------- Stater Brothers Holdings, Inc. 8.125% 06/15/12 1,150,000 1,115,500 ------------------- --------- ---------- Food Total 6,066,860 Healthcare Services - 2.7% ------------------- --------- ---------- Coventry Health Care, Inc. 8.125% 02/15/12 800,000 870,000 ------------------- --------- ---------- HCA, Inc. 6.950% 05/01/12 1,500,000 1,556,790 7.125% 06/01/06 3,250,000 3,348,573 7.875% 02/01/11 2,167,000 2,364,262 ------------------- --------- ---------- MedQuest, Inc. 11.875% 08/15/12 2,000,000 1,980,000 ------------------- --------- ---------- Tenet Healthcare Corp. 9.875% 07/01/14 3,050,000 3,164,375 ------------------- --------- ---------- UnitedHealth Group, Inc. 3.300% 01/30/08 4,750,000 4,604,555 ------------------- --------- ---------- Healthcare Services Total 17,888,555 Pharmaceuticals - 2.9% ------------------- --------- ---------- AmerisourceBergen Corp. 8.125% 09/01/08 3,000,000 3,217,500 ------------------- --------- ---------- Bristol-Myers Squibb Co. 4.750% 10/01/06 6,000,000 6,079,140 ------------------- --------- ---------- GlaxoSmithKline Capital PLC 2.375% 04/16/07 5,000,000 4,845,200 ------------------- --------- ---------- Medco Health Solutions, Inc. 7.250% 08/15/13 1,000,000 1,106,930
See Accompanying Notes to Financial Statements. 11 - -------------------------------------------------------------------------------- March 31, 2005 Columbia Income Fund
Corporate Fixed-Income Bonds & Notes - (continued) CONSUMER NON-CYCLICAL - (continued) Pharmaceuticals - (continued) Par ($) Value ($) - ------------------------------------------ ------------------- --------- ---------- Wyeth 6.450% 02/01/24 1,075,000 1,173,018 6.500% 02/01/34 2,500,000 2,748,750 ------------------- --------- ---------- Pharmaceuticals Total 19,170,538 ---------- CONSUMER NON-CYCLICAL TOTAL 66,209,246 DIVERSIFIED - 0.9% Holding Companies - 0.9% ------------------- --------- ---------- Hutchison Whampoa International Ltd. 6.250% 01/24/14 (a) 6,000,000 6,247,380 ------------------- --------- ---------- Holding Companies Total 6,247,380 ---------- DIVERSIFIED TOTAL 6,247,380 ENERGY - 6.9% Oil & Gas - 6.4% ------------------- --------- ---------- Amerada Hess Corp. 7.300% 08/15/31 4,250,000 4,777,340 ------------------- --------- ---------- Chesapeake Energy Corp. 6.375% 06/15/15 (a) 500,000 500,000 7.500% 06/15/14 1,210,000 1,285,625 ------------------- --------- ---------- ConocoPhillips 9.375% 02/15/11 2,000,000 2,447,920 ------------------- --------- ---------- Devon Financing Corp. 7.875% 09/30/31 2,600,000 3,269,006 ------------------- --------- ---------- Gazprom International SA 7.201% 02/01/20 (a) 4,700,000 4,794,000 ------------------- --------- ---------- Murphy Oil Corp. 6.375% 05/01/12 2,250,000 2,432,610 ------------------- --------- ---------- Nexen, Inc. 7.875% 03/15/32 3,500,000 4,308,010 ------------------- --------- ---------- Noble Drilling Corp. 7.500% 03/15/19 3,500,000 3,991,960 ------------------- --------- ---------- Pemex Project Funding Master Trust 7.875% 02/01/09 2,000,000 2,155,000 9.125% 10/13/10 750,000 865,313 ------------------- --------- ---------- Petrobras International Finance Co. 9.750% 07/06/11 1,500,000 1,725,000 ------------------- --------- ---------- Premcor Refining Group, Inc. 7.500% 06/15/15 4,000,000 4,180,000 ------------------- --------- ---------- Pride International, Inc. 7.375% 07/15/14 2,000,000 2,140,000 ------------------- --------- ---------- Ras Laffan Liquefied Natural Gas Co., Ltd. 3.437% 09/15/09 (a) 3,739,500 3,528,031 ------------------- --------- ---------- Oil & Gas Total 42,399,815 Pipelines - 0.5% ------------------- --------- ---------- Coastal Corp. 7.750% 06/15/10 2,000,000 2,000,000 ------------------- --------- ---------- Williams Companies, Inc. 8.125% 03/15/12 1,500,000 1,635,000 ------------------- --------- ---------- Pipelines Total 3,635,000 ---------- ENERGY TOTAL 46,034,815
See Accompanying Notes to Financial Statements. 12 - -------------------------------------------------------------------------------- March 31, 2005 Columbia Income Fund
Corporate Fixed-Income Bonds & Notes - (continued) FINANCIALS - 24.3% Banks - 5.8% Par ($) Value ($) - -------------------------------------- ---------------------- --------- ---------- Bank One Corp. 6.500% 02/01/06 7,060,000 7,209,813 ---------------------- --------- ---------- Barclays Bank PLC 7.375% 06/15/49 (a)(c) 4,000,000 4,441,280 ---------------------- --------- ---------- Chinatrust Commercial Bank 5.625% 12/29/49 (a)(c) 1,325,000 1,295,280 ---------------------- --------- ---------- Credit Suisse First Boston USA, Inc. 7.900% 05/01/07 (a)(c) 3,500,000 3,730,755 ---------------------- --------- ---------- HSBC Capital Funding LP 9.547% 12/31/49 (a)(c) 4,500,000 5,410,665 ---------------------- --------- ---------- North Fork Bancorporation, Inc. 5.875% 08/15/12 4,000,000 4,216,160 ---------------------- --------- ---------- Popular North America, Inc. 6.125% 10/15/06 6,000,000 6,162,480 ---------------------- --------- ---------- Rabobank Capital Funding II 5.260% 12/31/49 (a)(c) 6,100,000 6,276,778 ---------------------- --------- ---------- Banks Total 38,743,211 Diversified Financial Services - 12.2% ---------------------- --------- ---------- Air 2 US 8.027% 10/01/19 (a) 1,507,094 1,311,172 ---------------------- --------- ---------- Bear Stearns Companies, Inc. 4.000% 01/31/08 6,000,000 5,924,040 ---------------------- --------- ---------- Capital One Bank 5.125% 02/15/14 3,350,000 3,297,673 ---------------------- --------- ---------- Citigroup, Inc. 5.750% 05/10/06 7,000,000 7,127,400 ---------------------- --------- ---------- Countrywide Home Loans, Inc. 5.500% 08/01/06 4,000,000 4,070,240 ---------------------- --------- ---------- E*Trade Financial Corp. 8.000% 06/15/11 2,025,000 2,106,000 ---------------------- --------- ---------- Ford Motor Credit Co. 5.700% 01/15/10 1,000,000 943,510 5.800% 01/12/09 2,350,000 2,259,220 7.375% 10/28/09 4,000,000 4,032,800 7.375% 02/01/11 2,650,000 2,639,400 ---------------------- --------- ---------- Fund American Companies, Inc. 5.875% 05/15/13 2,657,000 2,688,804 ---------------------- --------- ---------- General Motors Acceptance Corp. 6.125% 01/22/08 2,500,000 2,406,075 7.250% 03/02/11 2,000,000 1,859,480 ---------------------- --------- ---------- Household Finance Corp. 4.625% 01/15/08 3,000,000 3,010,560 ---------------------- --------- ---------- International Lease Finance Corp. 6.375% 03/15/09 5,000,000 5,278,050 ---------------------- --------- ---------- Jefferies Group, Inc. 7.750% 03/15/12 2,750,000 3,123,807 ---------------------- --------- ---------- LaBranche & Co., Inc. 11.000% 05/15/12 2,000,000 2,110,000 ---------------------- --------- ---------- Merrill Lynch & Co., Inc. 3.700% 04/21/08 4,000,000 3,915,800 4.250% 02/08/10 6,700,000 6,551,997
See Accompanying Notes to Financial Statements. 13 - -------------------------------------------------------------------------------- March 31, 2005 Columbia Income Fund
Corporate Fixed-Income Bonds & Notes - (continued) FINANCIALS - (continued) Diversified Financial Services - (continued) Par ($) Value ($) - -------------------------------------------- ----------------------- ------------ ----------- Morgan Stanley 4.750% 04/01/14 1,000,000 955,030 ----------------------- ------------ ----------- PF Export Receivables Master Trust 3.748% 06/01/13 (a) 1,629,250 1,538,452 ----------------------- ------------ ----------- Spear Leeds & Kellogg LP 8.250% 08/15/05 (a) 4,000,000 4,071,200 ----------------------- ------------ ----------- Textron Financial Corp. 2.750% 06/01/06 5,000,000 4,935,350 5.875% 06/01/07 1,990,000 2,054,297 ----------------------- ------------ ----------- UFJ Finance Aruba AEC 6.750% 07/15/13 2,985,000 3,230,606 ----------------------- ------------ ----------- Diversified Financial Services Total 81,440,963 Insurance - 3.1% ----------------------- ------------ ----------- Allstate Corp. 7.875% 05/01/05 6,000,000 6,020,100 ----------------------- ------------ ----------- Florida Windstorm Underwriting Association 7.125% 02/25/19 (a) 2,000,000 2,240,500 ----------------------- ------------ ----------- Hartford Financial Services Group, Inc. 4.700% 09/01/07 3,800,000 3,819,000 ----------------------- ------------ ----------- Prudential Insurance Co. of America 7.650% 07/01/07 (a) 6,100,000 6,503,393 ----------------------- ------------ ----------- Travelers Property Casualty Corp. 3.750% 03/15/08 2,250,000 2,192,625 ----------------------- ------------ ----------- Insurance Total 20,775,618 Real Estate - 1.3% ----------------------- ------------ ----------- Forest City Enterprises, Inc. 7.625% 06/01/15 1,000,000 1,070,000 ----------------------- ------------ ----------- Prudential Property 6.625% 04/01/09 (a) 3,000,000 3,179,940 7.125% 07/01/07 (a) 4,000,000 4,209,840 ----------------------- ------------ ----------- Real Estate Total 8,459,780 Real Estate Investment Trusts - 1.6% ----------------------- ------------ ----------- Archstone-Smith Trust 6.875% 02/15/08 750,000 782,130 ----------------------- ------------ ----------- iStar Financial, Inc. 5.125% 04/01/11 1,350,000 1,325,849 8.750% 08/15/08 3,209,000 3,569,788 ----------------------- ------------ ----------- La Quinta Properties, Inc. 7.000% 08/15/12 500,000 506,250 ----------------------- ------------ ----------- Thornburg Mortgage, Inc. 8.000% 05/15/13 2,000,000 2,050,000 ----------------------- ------------ ----------- Ventas Realty LP 9.000% 05/01/12 2,000,000 2,280,000 ----------------------- ------------ ----------- Real Estate Investment Trusts Total 10,514,017 Savings & Loans - 0.3% ----------------------- ------------ ----------- Western Financial Bank 9.625% 05/15/12 2,000,000 2,175,000 ----------------------- ------------ ----------- Savings & Loans Total 2,175,000 ----------- FINANCIALS TOTAL 162,108,589
See Accompanying Notes to Financial Statements. 14 - -------------------------------------------------------------------------------- March 31, 2005 Columbia Income Fund
Corporate Fixed-Income Bonds & Notes - (continued) INDUSTRIALS - 5.7% Aerospace & Defense - 1.3% Par ($) Value ($) - ------------------------------------ -------------------- ------------- --------- Raytheon Co. 4.850% 01/15/11 1,000,000 997,970 5.500% 11/15/12 5,000,000 5,147,550 -------------------- ------------- --------- Sequa Corp. 8.875% 04/01/08 715,000 757,900 9.000% 08/01/09 285,000 306,375 -------------------- ------------- --------- Systems 2001 Asset Trust 6.664% 09/15/13 (a) 1,138,213 1,224,854 -------------------- ------------- --------- Aerospace & Defense Total 8,434,649 Electronics - 0.7% -------------------- ------------- --------- Flextronics International Ltd. 6.250% 11/15/14 1,475,000 1,404,937 -------------------- ------------- --------- Sanmina-SCI Corp. 6.750% 03/01/13 (a) 1,500,000 1,406,250 -------------------- ------------- --------- Thomas & Betts Corp. 7.250% 06/01/13 2,000,000 2,137,500 -------------------- ------------- --------- Electronics Total 4,948,687 Environmental Control - 0.2% -------------------- ------------- --------- Allied Waste North America, Inc. 7.875% 04/15/13 400,000 396,500 8.500% 12/01/08 250,000 258,750 8.875% 04/01/08 500,000 518,750 -------------------- ------------- --------- Environmental Control Total 1,174,000 Machinery Diversified - 0.2% -------------------- ------------- --------- Briggs & Stratton Corp. 8.875% 03/15/11 1,400,000 1,620,500 -------------------- ------------- --------- Machinery Diversified Total 1,620,500 Metal Fabricate/Hardware - 0.2% -------------------- ------------- --------- FastenTech, Inc. 12.500% 05/01/11 (a) 250,000 268,750 -------------------- ------------- --------- Valmont Industries, Inc. 6.875% 05/01/14 1,000,000 971,250 -------------------- ------------- --------- Metal Fabricate/Hardware Total 1,240,000 Miscellaneous Manufacturing - 0.4% -------------------- ------------- --------- Bombardier, Inc. 6.300% 05/01/14 (a) 1,500,000 1,267,500 -------------------- ------------- --------- Trinity Industries, Inc. 6.500% 03/15/14 1,550,000 1,488,000 -------------------- ------------- --------- Miscellaneous Manufacturing Total 2,755,500 Packaging & Containers - 0.8% -------------------- ------------- --------- Crown European Holdings SA 10.875% 03/01/13 1,000,000 1,152,500 -------------------- ------------- --------- Jefferson Smurfit Corp. 11.500% 10/01/15 EUR 1,000,000 1,205,791 -------------------- ------------- --------- Owens-Brockway Glass Container, Inc. 8.875% 02/15/09 USD 3,000,000 3,195,000 -------------------- ------------- --------- Packaging & Containers Total 5,553,291 Transportation - 1.9% -------------------- ------------- --------- Burlington Northern Railroad Co. 9.250% 10/01/06 2,035,000 2,181,296 -------------------- ------------- --------- CHC Helicopter Corp. 7.375% 05/01/14 1,000,000 973,750
See Accompanying Notes to Financial Statements. 15 - -------------------------------------------------------------------------------- March 31, 2005 Columbia Income Fund
Corporate Fixed-Income Bonds & Notes - (continued) INDUSTRIALS - (continued) Transportation - (continued) Par ($) Value ($) - --------------------------------------- ------------------- --------- ---------- FedEx Corp. 2.650% 04/01/07 5,000,000 4,842,800 9.650% 06/15/12 1,000,000 1,278,130 ------------------- --------- ---------- Ship Finance International Ltd. 8.500% 12/15/13 2,000,000 1,982,500 ------------------- --------- ---------- Stena AB 7.500% 11/01/13 1,200,000 1,224,000 ------------------- --------- ---------- Transportation Total 12,482,476 ---------- INDUSTRIALS TOTAL 38,209,103 TECHNOLOGY - 0.9% Computers - 0.9% ------------------- --------- ---------- Hewlett-Packard Co. 3.625% 03/15/08 2,000,000 1,953,460 ------------------- --------- ---------- IBM Canada Credit Services Co. 3.750% 11/30/07 (a) 4,000,000 3,923,000 ------------------- --------- ---------- Computers Total 5,876,460 ---------- TECHNOLOGY TOTAL 5,876,460 UTILITIES - 11.5% Electric - 10.7% ------------------- --------- ---------- AES Corp. 8.750% 06/15/08 986,000 1,040,230 ------------------- --------- ---------- Alabama Power Co. 5.490% 11/01/05 1,000,000 1,009,800 ------------------- --------- ---------- Calpine Corp. 8.500% 07/15/10 (a) 2,500,000 1,937,500 ------------------- --------- ---------- CenterPoint Energy Houston Electric LLC 6.950% 03/15/33 1,750,000 2,063,355 ------------------- --------- ---------- Consumers Energy Co. 6.000% 02/15/14 2,000,000 2,115,560 ------------------- --------- ---------- Dominion Resources, Inc. 8.125% 06/15/10 4,000,000 4,569,240 ------------------- --------- ---------- Edison Mission Energy 9.875% 04/15/11 2,500,000 2,875,000 ------------------- --------- ---------- FirstEnergy Corp. 5.500% 11/15/06 2,000,000 2,037,920 6.450% 11/15/11 2,250,000 2,373,638 ------------------- --------- ---------- FPL Energy American Wind LLC 6.639% 06/20/23 (a) 2,422,500 2,516,905 ------------------- --------- ---------- FPL Energy National Wind 5.608% 03/10/24 (a) 395,000 390,462 ------------------- --------- ---------- Kiowa Power Partners LLC 5.737% 03/30/21 (a) 1,990,000 1,962,140 ------------------- --------- ---------- MidAmerican Energy Holdings Co. 5.875% 10/01/12 8,000,000 8,281,040 ------------------- --------- ---------- MSW Energy Holdings LLC 8.500% 09/01/10 2,000,000 2,110,000 ------------------- --------- ---------- Nevada Power Co. 9.000% 08/15/13 2,000,000 2,245,000 ------------------- --------- ---------- Northern States Power Co. 8.000% 08/28/12 1,750,000 2,077,005 ------------------- --------- ---------- Oncor Electric Delivery Co. 7.250% 01/15/33 3,000,000 3,636,630
See Accompanying Notes to Financial Statements. 16 - -------------------------------------------------------------------------------- March 31, 2005 Columbia Income Fund
Corporate Fixed-Income Bonds & Notes - (continued) UTILITIES - (continued) Electric - (continued) Par ($) Value ($) - ---------------------------------- --------------------------------------- ---------- ----------- Orion Power Holdings, Inc. 12.000% 05/01/10 1,000,000 1,212,500 --------------------------------------- ---------- ----------- Pacific Gas & Electric Co. 6.050% 03/01/34 3,125,000 3,204,531 --------------------------------------- ---------- ----------- PSEG Energy Holdings LLC 8.625% 02/15/08 2,000,000 2,100,000 --------------------------------------- ---------- ----------- PSEG Power LLC 5.500% 12/01/15 3,560,000 3,609,128 7.750% 04/15/11 2,000,000 2,294,620 --------------------------------------- ---------- ----------- South Point Energy Center LLC 8.400% 05/30/12 (a) 618,042 573,234 --------------------------------------- ---------- ----------- Southern Power Co. 6.250% 07/15/12 3,870,000 4,174,530 --------------------------------------- ---------- ----------- Tenaska Alabama II Partners LP 6.125% 03/30/23 (a) 1,902,954 1,936,008 --------------------------------------- ---------- ----------- Texas Genco LLC 6.875% 12/15/14 (a) 1,290,000 1,290,000 --------------------------------------- ---------- ----------- TXU Corp. 5.550% 11/15/14 (a) 2,950,000 2,833,623 6.550% 11/15/34 (a) 5,100,000 5,023,806 --------------------------------------- ---------- ----------- Electric Total 71,493,405 Water - 0.8% --------------------------------------- ---------- ----------- United Utilities PLC 6.250% 08/15/05 4,988,000 5,034,937 --------------------------------------- ---------- ----------- Water Total 5,034,937 ----------- UTILITIES TOTAL 76,528,342 Total Corporate Fixed-Income Bonds & Notes (cost of $544,733,692) 554,574,184 Government Agencies & Obligations - 6.3% FOREIGN GOVERNMENT BONDS - 1.6% - ---------------------------------- --------------------------------------- ---------- ----------- Export-Import Bank of Korea 4.625% 03/16/10 2,650,000 2,624,056 --------------------------------------- ---------- ----------- State of Qatar 9.750% 06/15/30 (a) 2,750,000 4,001,992 --------------------------------------- ---------- ----------- United Mexican States 6.750% 09/27/34 4,000,000 3,896,000 --------------------------------------- ---------- ----------- FOREIGN GOVERNMENT BONDS TOTAL 10,522,048 U.S. GOVERNMENT OBLIGATIONS - 4.7% - ---------------------------------- --------------------------------------- ---------- ----------- U.S. Treasury Bond 5.375% 02/15/31 13,535,000 14,751,567 --------------------------------------- ---------- ----------- U.S. Treasury Note 2.875% 11/30/06 6,000,000 5,918,436 3.375% 11/15/08 2,000,000 1,955,156 4.250% 08/15/14 - 11/15/14 9,015,000 8,833,889 --------------------------------------- ---------- ----------- U.S. GOVERNMENT OBLIGATIONS TOTAL 31,459,048 Total Government Agencies & Obligations (cost of $40,644,629) 41,981,096
See Accompanying Notes to Financial Statements. 17 - -------------------------------------------------------------------------------- March 31, 2005 Columbia Income Fund
Mortgage-Backed Securities - 3.7% Par ($) Value ($) - ----------------------------------------------------------------------------------- ---------- ---------- Federal National Mortgage Association 9.000% 07/01/19 - 06/01/20 75,336 81,299 TBA 6.000% 04/13/35 (d) 6,000,000 6,131,250 6.500% 04/13/35 (d) 16,000,000 16,600,000 ----------------------------------------- ---------- ---------- Government National Mortgage Association 4.954% 05/16/31 2,265,000 2,211,442 10.000% 10/15/17 - 01/15/19 5,674 6,366 10.500% 01/15/16 - 05/15/20 25,478 28,859 11.500% 05/15/13 - 05/15/13 9,770 10,896 12.500% 11/15/10 - 12/15/13 29,255 32,728 13.000% 04/15/11 130 147 14.000% 08/15/11 2,538 2,894 ----------------------------------------- ---------- ---------- Total Mortgage-Backed Securities (cost of $25,219,000) 25,105,881 Asset-Backed Securities - 1.9% - ----------------------------------------- ----------------------------------------- ---------- ---------- AmeriCredit Automobile Receivables Trust 3.930% 10/06/11 4,500,000 4,392,090 ----------------------------------------- ---------- ---------- Green Tree Financial Corp. 6.870% 01/15/29 1,615,538 1,696,138 ----------------------------------------- ---------- ---------- PG&E Energy Recovery Funding LLC 3.870% 06/25/11 5,580,000 5,514,546 ----------------------------------------- ---------- ---------- Providian Gateway Master Trust 3.350% 09/15/11 (a) 1,000,000 976,120 ----------------------------------------- ---------- ---------- Total Asset-Backed Securities (cost of $12,813,539) 12,578,894 Collateralized Mortgage Obligations -1.5% - ----------------------------------------- ----------------------------------------- ---------- ---------- Countrywide Alternative Loan Trust 5.000% 03/25/20 9,850,286 9,779,659 ----------------------------------------- ---------- ---------- Total Collateralized Mortgage Obligations (cost of $9,874,912) 9,779,659 Short-Term Obligations - 6.1% U.S. GOVERNMENT AGENCIES - 3.3% - ----------------------------------------- ----------------------------------------- ---------- ---------- Federal Home Loan Mortgage Corp. 2.680% 04/12/05 (e) 12,000,000 11,990,174 ----------------------------------------- ---------- ---------- Federal National Mortgage Association 2.600% 04/13/05 (e) 10,000,000 9,991,333 ----------------------------------------- ---------- ---------- U.S. GOVERNMENT AGENCIES TOTAL 21,981,507
See Accompanying Notes to Financial Statements. 18 - -------------------------------------------------------------------------------- March 31, 2005 Columbia Income Fund
Short-Term Obligations (continued) Repurchase Agreement - 2.8% Par ($) Value ($) - ---------------------------------------------------------------------------------------------- ---------- ----------- Repurchase agreement with State Street Bank & Trust Co., dated 03/31/05, due 04/01/05 at 2.450%, collateralized by a U.S. Treasury Bond maturing 05/15/17, market value of $19,023,700 (repurchase proceeds $18,651,269) 18,650,000 18,650,000 Total Short-Term Obligations (cost of $40,631,507) 40,631,507 Total Investments - 102.7% (cost of $673,917,279) (f) 684,651,221 Other Assets & Liabilities, Net - (2.7)% (17,847,772) Net Assets - 100.0% 666,803,449
NOTES TO INVESTMENT PORTFOLIO: (a)Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2005, these securities amounted to $112,259,810, which represents 16.8% of net assets. (b)Floating rate note. The interest rate shown reflects the rate as of March 31, 2005. (c)Variable rate security. The interest rate shown reflects the rate as of March 31, 2005. (d)Security purchased on a delayed delivery basis. (e)The rate shown represents the annualized yield at the date of purchase. (f)Cost for federal income tax purposes is $678,801,441. At March 31, 2005, the Fund held investments in the following sectors:
SECTOR % OF NET ASSETS ---------------------------------------------------- Corporate Fixed-Income Bonds & Notes 83.2% Government Agencies & Obligations 6.3 Mortgage-Backed Securities 3.7 Asset-Backed Securities 1.9 Collateralized Mortgage Obligations 1.5 Short-Term Obligations 6.1 Other Assets & Liabilities, Net (2.7) ----- 100.0% -----
As of March 31, 2005, the Fund had entered into the following forward currency exchange contracts:
Forward Currency Aggregate Settlement Unrealized Contracts to Sell Value Face Value Date Appreciation --------------------------------------------------------------- EUR $1,284,064 $1,309,810 04/18/05 $25,746
ACRONYM NAME ------- ---- EUR Euro TBA To Be Announced USD United States Dollar
See Accompanying Notes to Financial Statements. 19 STATEMENT OF ASSETS AND LIABILITIES ----------------------- March 31, 2005 Columbia Income Fund
($) - ------------------------- ----------------------------------------------------------------- ----------- Assets Investments, at cost 673,917,279 ----------- Investments, at value 684,651,221 Cash 40,929 Net unrealized appreciation on foreign forward currency contracts 25,746 Receivable for: Investments sold 106,703 Fund shares sold 2,986,655 Interest 9,902,980 Deferred Trustees' compensation plan 16,369 ----------- Total Assets 697,730,603 ----------------------------------------------------------------- ----------- Liabilities Payable for: Investments purchased 5,978,852 Investments purchased on a delayed delivery basis 22,800,000 Fund shares repurchased 1,185,005 Distributions 437,796 Investment advisory fee 230,078 Administration fee 71,823 Transfer agent fee 79,380 Pricing and bookkeeping fees 19,245 Trustees' fees 584 Custody fee 2,524 Distribution and service fees 51,160 Deferred Trustees' fees 16,369 Other liabilities 54,338 ----------- Total Liabilities 30,927,154 Net Assets 666,803,449 ----------------------------------------------------------------- ----------- Composition of Net Assets Paid-in capital 681,595,182 Overdistributed net investment income (4,538,371) Accumulated net realized loss (21,012,547) Net unrealized appreciation on: Investments 10,733,942 Foreign currency translations 25,243 ----------- Net Assets 666,803,449 ----------------------------------------------------------------- ----------- Class A Net assets 96,567,726 Shares outstanding 9,759,784 Net asset value per share 9.89(a) Maximum offering price per share ($9.89/0.9525) 10.38(b) ----------------------------------------------------------------- ----------- Class B Net assets 25,374,937 Shares outstanding 2,564,565 Net asset value and offering price per share 9.89(a) ----------------------------------------------------------------- ----------- Class C Net assets 10,895,349 Shares outstanding 1,101,163 Net asset value and offering price per share 9.89(a) ----------------------------------------------------------------- ----------- Class Z Net assets 533,965,437 Shares outstanding 53,966,809 Net asset value, offering and redemption price per share 9.89
(a)Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. (b)On sales of $50,000 or more the offering price is reduced. See Accompanying Notes to Financial Statements. 20 STATEMENT OF OPERATIONS ----------------------- For the Year Ended March 31, 2005 Columbia Income Fund
($) - --------------------------------------- -------------------------------------------------------------- ----------- Investment Income Interest (net of foreign taxes withheld of $1,313) 32,751,938 ----------- -------------------------------------------------------------- ----------- Expenses Investment advisory fee 2,609,611 Administration fee 750,870 Distribution fee: Class B 201,642 Class C 74,687 Service fee: Class A 233,525 Class B 67,214 Class C 24,878 Transfer agent fee 374,834 Pricing and bookkeeping fees 183,183 Trustees' fees 18,522 Custody fee 23,640 Non-recurring costs (See Note 7) 28,581 Other expenses 246,306 ----------- Total Expenses 4,837,493 Fees waived by Distributor - Class C (14,979) Non-recurring costs assumed by Investment Advisor (See Note 7) (28,581) Custody earnings credit (4,380) ----------- Net Expenses 4,789,553 ----------- Net Investment Income 27,962,385 -------------------------------------------------------------- ----------- Net Realized and Unrealized Gain (Loss) Net realized gain on: on Investments and Foreign Currency Investments 3,839,140 Foreign currency transactions 14 ----------- Net realized gain 3,839,154 Net change in unrealized appreciation (depreciation) on: Investments (20,009,868) Foreign currency translations 25,243 ----------- Net change in unrealized appreciation (depreciation) (19,984,625) ----------- Net Loss (16,145,471) ----------- Net Increase in Net Assets from Operations 11,816,914
See Accompanying Notes to Financial Statements. 21 STATEMENT OF CHANGES IN NET ASSETS ----------------------- Columbia Income Fund
Year Period Year Ended Ended Ended March 31, March 31, June 30, Increase (Decrease) in Net Assets: 2005 ($) 2004 (a)(b)($) 2003 (c)(d)($) - --------------------------------------- ------------------------------------- ----------- -------------- -------------- Operations Net investment income 27,962,385 20,854,179 25,995,513 Net realized gain on investments and foreign currency transactions 3,839,154 9,142,243 3,427,610 Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions (19,984,625) (2,136,105) 33,226,182 ----------- -------------- -------------- Net Increase from Operations 11,816,914 27,860,317 62,649,305 ------------------------------------- ----------- -------------- -------------- Distributions Declared to Shareholders: From net investment income: Class A (4,837,026) (3,767,366) (4,851,795) Class B (1,190,350) (1,104,196) (1,525,173) Class C (455,166) (260,133) (220,682) Class Z (24,783,638) (18,030,708) (21,848,537) ----------- -------------- -------------- Total Distributions Declared to Shareholders (31,266,180) (23,162,403) (28,446,187) ------------------------------------- ----------- -------------- -------------- Share Transactions Class A: Subscriptions 22,118,982 11,896,879 13,307,884 Proceeds received in connection with merger -- -- 92,697,100 Distributions reinvested 3,052,637 2,226,081 2,836,832 Redemptions (17,715,241) (12,719,120) (24,933,740) ----------- -------------- -------------- Net Increase 7,456,378 1,403,840 83,908,076 Class B: Subscriptions 5,175,588 5,143,365 7,355,762 Proceeds received in connection with merger -- -- 32,521,573 Distributions reinvested 758,498 676,743 951,704 Redemptions (9,171,814) (8,955,692) (10,486,433) ----------- -------------- -------------- Net Increase (Decrease) (3,237,728) (3,135,584) 30,342,606 Class C: Subscriptions 4,394,155 4,978,358 2,990,400 Proceeds received in connection with merger -- -- 3,795,846 Distributions reinvested 259,231 145,525 132,549 Redemptions (2,630,256) (1,569,954) (1,717,380) ----------- -------------- -------------- Net Increase 2,023,130 3,553,929 5,201,415 Class Z: Subscriptions 196,815,905 87,808,248 140,602,354 Distributions reinvested 23,192,465 17,198,335 20,689,189 Redemptions (96,171,954) (111,003,329) (86,620,640) ----------- -------------- -------------- Net Increase (Decrease) 123,836,416 (5,996,746) 74,670,903 Net Increase (Decrease) from Share Transactions 130,078,196 (4,174,561) 194,123,000 ----------- -------------- -------------- Total Increase in Net Assets 110,628,930 523,353 228,326,118 ------------------------------------- ----------- -------------- -------------- Net Assets Beginning of period 556,174,519 555,651,166 327,325,048 End of period 666,803,449 556,174,519 555,651,166 Overdistributed net investment income at end of period (4,538,371) (2,468,472) (1,216,871)
(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, effective March 31, 2004. (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 Accompanying Notes to Financial Statements. 22 - -------------------------------------------------------------------------------- Columbia Income Fund
Year Period Year Ended Ended Ended March 31, March 31, June 30, 2005 2004 (a)(b) 2003 (c)(d) - ----------------- ------------------------------------- ---------- ----------- ----------- Changes in Shares Class A: Subscriptions 2,210,083 1,180,862 1,404,563 Issued in connection with merger -- -- 9,788,501 Issued for distributions reinvested 305,231 222,302 295,360 Redemptions (1,771,345) (1,274,508) (2,622,883) ---------- ----------- ----------- Net Increase 743,969 128,656 8,865,541 Class B: Subscriptions 516,497 511,389 772,472 Issued in connection with merger -- -- 3,434,168 Issued for distributions reinvested 75,869 67,614 99,099 Redemptions (920,346) (896,625) (1,095,572) ---------- ----------- ----------- Net Increase (Decrease) (327,980) (317,622) 3,210,167 Class C: Subscriptions 438,903 495,828 311,006 Issued in connection with merger -- -- 400,829 Issued for distributions reinvested 25,925 14,500 13,770 Redemptions (263,219) (157,399) (178,980) ---------- ----------- ----------- Net Increase 201,609 352,929 546,625 Class Z: Subscriptions 19,613,104 8,734,872 14,613,670 Issued for distributions reinvested 2,319,241 1,717,623 2,140,928 Redemptions (9,632,261) (11,147,023) (9,059,989) ---------- ----------- ----------- Net Increase (Decrease) 12,300,084 (694,528) 7,694,609
(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, effective March 31, 2004. (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 Accompanying Notes to Financial Statements. 23 NOTES TO FINANCIAL STATEMENTS ----------------------- March 31, 2005 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 its total return by investing for a high level of current income and, to a lesser extent, 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. 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 pricing services 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 last sale 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. Events affecting the values of such foreign securities and such exchange rates may occur between 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. 24 - -------------------------------------------------------------------------------- March 31, 2005 Columbia Income Fund 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 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, the Fund intends to distribute in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded. Distributions to Shareholders Dividends from net investment income are declared daily and paid monthly. Net realized capital gains, if any, are distributed at least annually. Note 3. Federal Tax Information The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund's capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations. For the year ended March 31, 2005, permanent book and tax basis differences resulting primarily from 25 - -------------------------------------------------------------------------------- March 31, 2005 Columbia Income Fund differing treatments for discount accretion/premium amortization on debt securities, paydown reclassifications, market discount reclassifications and foreign currency transactions 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 ------------------------------------ $1,233,896 $(1,233,896) $-- ------------------------------------
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 year ended March 31, 2005, the period ended March 31, 2004 and the year ended June 30, 2003 was as follows:
March 31, March 31, June 30, 2005 2004 2003 ------------------------------------------------------------ Distributions paid from: ------------------------------------------------------------ Ordinary Income $31,266,180 $23,162,403 $28,446,187 ------------------------------------------------------------ Long-Term Capital Gains -- -- -- ------------------------------------------------------------
As of March 31, 2005, the components of distributable earnings on a tax basis were as follows:
Undistributed Undistributed Ordinary Long-Term Net Unrealized Income Capital Gains Appreciation* ------------------------------------------ $745,193 $-- $5,824,034 ------------------------------------------
*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, 2005, based on cost of investments for federal income tax purposes and excluding any unrealized appreciation and depreciation from changes in the value of other assets and liabilities resulting from changes in exchange rates, was: Unrealized appreciation $ 18,051,239 Unrealized depreciation (12,201,459) ------------ Net unrealized appreciation $ 5,849,780 ------------------------------------------
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 Capital Loss Expiration Carryforward ----------------------- 2008 $ 7,932,135 2009 8,620,038 2010 1,393,345 2011 2,985,140 ------------ $20,930,658 -----------------------
Of the capital loss carryforwards attributable to the Fund, $10,086,973 ($4,838,296 will expire March 31, 2008, $3,855,332 will expire March 31, 2009 and $1,393,345 will expire March 31, 2010) was obtained in the merger with the Liberty Income Fund. Capital loss carryforwards of $2,573,103 were utilized during the year ended March 31, 2005. Note 4. Fees and Compensation Paid to Affiliates Investment Advisory Fee Columbia Management Advisors, Inc. ("Columbia"), an indirect wholly owned subsidiary of Bank of America Corporation ("BOA"), is the investment advisor to the Fund and receives a monthly investment advisory fee based on the Fund's average daily net assets at the following annual rates:
Average Daily Net Assets Annual Fee Rate ------------------------------------------ First $500 million 0.420% ------------------------------------------ $500 million to $1 billion 0.375% ------------------------------------------ $1 billion to $1.5 billion 0.370% ------------------------------------------ $1.5 billion to $3 billion 0.340% ------------------------------------------ $3 billion to $6 billion 0.330% ------------------------------------------ Over $6 billion 0.320% ------------------------------------------
Prior to November 1, 2004, Columbia received 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% ------------------------------------------ $100 million to $1 billion 0.475% ------------------------------------------ Over $1 billion 0.450% ------------------------------------------
For the year ended March 31, 2005, the Fund's effective investment advisory fee rate was 0.45%. 26 - -------------------------------------------------------------------------------- March 31, 2005 Columbia Income Fund Administration Fee Columbia provides administrative and other services to the Fund for a monthly administration fee based on the Fund's average daily net assets at the following annual rates:
Average Daily Net Assets Annual Fee Rate ------------------------------------------ First $100 million 0.150% ------------------------------------------ $100 million to $1 billion 0.125% ------------------------------------------ Over $1 billion 0.100% ------------------------------------------
For the year ended March 31, 2005, the Fund's effective administration fee rate was 0.13%. 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"). As a result, 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 based on the number of securities held by the Fund. For the year ended March 31, 2005, the effective pricing and bookkeeping fee rate for the Fund, inclusive of out-of-pocket expenses, was 0.032%. Transfer Agent Fee Columbia Funds Services, Inc. (the "Transfer Agent"), an affiliate of Columbia, provides shareholder services to the Fund and has subcontracted with Boston Financial Data Services ("BFDS") to serve as sub-transfer agent. 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 fees (exclusive of 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. For the year ended March 31, 2005, the Fund's effective transfer agent fee rate, inclusive of out-of-pocket expenses, was 0.06%. Underwriting Discounts, Service and Distribution Fees Columbia Funds Distributor, Inc. (the "Distributor"), an affiliate of Columbia, is the principal underwriter of the Fund. For the year ended March 31, 2005, the Distributor has retained net underwriting discounts of $15,660 on sales of the Fund's Class A shares and net CDSC fees of $124, $78,301 and $6,264 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 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. These credits are recorded as a reduction of total expenses on the Statement of Operations. 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. 27 - -------------------------------------------------------------------------------- March 31, 2005 Columbia Income Fund Fees Paid to Officers and Trustees With the exception of one officer, all officers of the Fund are employees of Columbia or its affiliates and receive no compensation from the Fund. Effective August 23, 2004, the Board of Trustees appointed a Chief Compliance Officer to the Fund in accordance with federal securities regulations. The Fund, along with other affiliated funds, will pay its pro-rata share of the expenses associated with the Office of the Chief Compliance Officer. The Fund's fee for the Office of the Chief Compliance Officer will not exceed $15,000 per year. 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. Other Columbia provides certain services to the Fund related to Sarbanes-Oxley compliance. For the year ended March 31, 2005, the Fund paid $2,103 to Columbia for such services. This amount is included in "Other expenses" on the Statement of Operations. Note 5. Portfolio Information For the year ended March 31, 2005, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $337,759,492 and $201,903,114, respectively, of which $100,869,959 and $46,804,544, respectively, were U.S. Government securities. Note 6. Line of Credit The Fund and other affiliated funds participate in a $350,000,000 committed unsecured revolving line of credit provided by State Street Bank and Trust Company. Borrowings are used for temporary or emergency purposes to facilitate portfolio liquidity. Interest is charged to each participating fund based on its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50%. In addition, a commitment fee of 0.10% per annum is accrued and apportioned among the participating funds based on their pro-rata portion of the unutilized line of credit. The commitment fee is included in "Other expenses" on the Statement of Operations. For the year ended March 31, 2005, the Fund did not borrow under this arrangement. 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 to the extent that there is no established secondary market. 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 On February 9, 2005, Columbia and the Distributor (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004. Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also undertaken to implement certain governance measures designed to maintain the 28 - -------------------------------------------------------------------------------- March 31, 2005 Columbia Income Fund independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions. Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the Fund's independent trustees and not unacceptable to the staff of the SEC. 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. A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the Fund and Columbia. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the Fund and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions. In 2004, certain Columbia funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs are expected to file a consolidated amended complaint in June 2005. The Fund and the other defendants to these actions, including Columbia and various of its affiliates, certain other mutual funds advised by Columbia and its affiliates, and various directors of such funds, have denied these allegations and are contesting the plaintiffs' claims. These proceedings are ongoing, however, based on currently available information, Columbia believes that these lawsuits are without merit, that the likelihood they will have a material adverse impact on any fund is remote, and that the lawsuits are not likely to materially affect its ability to provide investment management services to its clients, including the Fund. In connection with events described in detail above, various parties have filed suit against certain funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has conditionally ordered its transfer to the MDL. The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any Fund, if any, can not currently be made. For the year ended March 31, 2005, Columbia has assumed $28,581 of legal, consulting services and Trustees' fees incurred by the Fund in connection with these matters. 29 FINANCIAL HIGHLIGHTS ----------------------- Columbia Income Fund Selected data for a share outstanding throughout each period is as follows:
Year Period Period Ended Ended Ended March 31, March 31, Year Ended June 30, June 30, Class A Shares 2005 2004(a)(b) 2003(c) 2002(c) 2001(c)(d) - ---------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 10.21 $ 10.10 $ 9.44 $ 9.54 $ 9.21 - ---------------------------------------------------------------------------------------------------------------------- Income from Investment Operations: Net investment income (e) 0.47 0.39 0.45 0.60(f) 0.61 Net realized and unrealized gain (loss) on investments and foreign currency (0.27) 0.15 0.75 (0.08)(f) 0.32 --------- ---------- ------- ------- ---------- Total from Investment Operations 0.20 0.54 1.20 0.52 0.93 - ---------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders: From net investment income (0.52) (0.43) (0.54) (0.62) (0.60) Return of capital -- -- -- -- (g) -- --------- ---------- ------- ------- ---------- Total Distributions Declared to Shareholders (0.52) (0.43) (0.54) (0.62) (0.60) - ---------------------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $ 9.89 $ 10.21 $ 10.10 $ 9.44 $ 9.54 Total return (h) 2.00% 5.50%(i)(j) 13.18%(j) 5.53% 10.41%(i) - ---------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: Operating expenses (k) 0.97% 1.14%(l) 1.23% 1.10% 1.12%(l) Interest expense -- --%(l)(m) -- -- -- Expenses (k) 0.97% 1.14%(l) 1.23% 1.10% 1.12%(l) Net investment income (k) 4.66% 5.20%(l) 5.12% 6.32%(f) 7.08%(l) Waiver/reimbursement -- 0.03%(l) 0.05% -- -- Portfolio turnover rate 36% 93%(i) 96% 136%(n) 128%(n) Net assets, end of period (000's) $96,568 $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, effective March 31, 2004. (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)Not annualized. (j)Had the Investment Advisor not reimbursed a portion of expenses, total return would have been reduced. (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. 30 - -------------------------------------------------------------------------------- Columbia Income Fund Selected data for a share outstanding throughout each period is as follows:
Period Period Year Ended Ended Ended March 31, March 31, June 30, Class B Shares 2005 2004(a)(b) 2003(c)(d) - ---------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 10.21 $ 10.10 $ 9.47 - ---------------------------------------------------------------------------------------------- Income from Investment Operations: Net investment income (e) 0.39 0.33 0.40 Net realized and unrealized gain (loss) on investments and foreign currency (0.27) 0.15 0.68 ---------- ---------- ---------- Total from Investment Operations 0.12 0.48 1.08 - ---------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders: From net investment income (0.44) (0.37) (0.45) - ---------------------------------------------------------------------------------------------- Net Asset Value, End of Period $ 9.89 $ 10.21 $ 10.10 Total return (f) 1.25% 4.91%(g)(h) 11.78%(g)(h) - ---------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: Operating expenses (i) 1.72% 1.89%/(j)/ 1.99%(j) Interest expense -- --%(j)(k) -- Expenses (i) 1.72% 1.89%(j) 1.99%(j) Net investment income (i) 3.91% 4.46%(j) 4.39%(j) Waiver/reimbursement -- 0.03%(j) 0.11%(j) Portfolio turnover rate 36% 93%(g) 96% Net assets, end of period (000's) $25,375 $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, effective March 31, 2004. (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 B shares were initially offered on July 15, 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)Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (g)Not annualized. (h)Had the Investment Advisor not reimbursed a portion of expenses, total return would have been reduced. (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%. 31 - -------------------------------------------------------------------------------- Columbia Income Fund Selected data for a share outstanding throughout each period is as follows:
Year Period Period Ended Ended Ended March 31, March 31, June 30, Class C Shares 2005 2004(a)(b) 2003(c)(d) - ------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 10.21 $ 10.10 $ 9.47 - ------------------------------------------------------------------------------------------ Income from Investment Operations: Net investment income (e) 0.41 0.34 0.42 Net realized and unrealized gain (loss) on investments and foreign currency (0.27) 0.15 0.68 --------- ---------- ---------- Total from Investment Operations 0.14 0.49 1.10 - ------------------------------------------------------------------------------------------ Less Distributions Declared to Shareholders: From net investment income (0.46) (0.38) (0.47) - ------------------------------------------------------------------------------------------ Net Asset Value, End of Period $ 9.89 $ 10.21 $ 10.10 Total return (f)(g) 1.40% 5.03%(h) 11.94%(h) - ------------------------------------------------------------------------------------------ Ratios to Average Net Assets/Supplemental Data: Operating expenses (i) 1.57% 1.74%(j) 1.84%(j) Interest expense -- --%(j)(k) -- Expenses (i) 1.57% 1.74%(j) 1.84%(j) Net investment income (i) 4.06% 4.52%(j) 4.51%(j) Waiver/reimbursement 0.15% 0.18%(j) 0.23%(j) Portfolio turnover rate 36% 93%(h) 96% Net assets, end of period (000's) $10,895 $ 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, effective March 31, 2004. (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 C shares were initially offered on July 15, 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)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%. 32 - -------------------------------------------------------------------------------- Columbia Income Fund Selected data for a share outstanding throughout each period is as follows:
Year Period Ended Ended March 31, March 31, Year Ended June 30, Class Z Shares 2005 2004(a)(b) 2003(c)(d) 2002(d) 2001(d) - --------------------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 10.21 $ 10.10 $ 9.44 $ 9.54 $ 9.15 - --------------------------------------------------------------------------------------------------------------------------- Income from Investment Operations: Net investment income (e) 0.49 0.41 0.53 0.63(f) 0.69 Net realized and unrealized gain (loss) on investments and foreign currency (0.26) 0.16 0.71 (0.09)(f) 0.39 --------- ---------- ---------- -------- -------- Total from Investment Operations 0.23 0.57 1.24 0.54 1.08 - --------------------------------------------------------------------------------------------------------------------------- Less Distributions Declared to Shareholders: From net investment income (0.55) (0.46) (0.58) (0.64) (0.69) Return of capital -- -- -- --(g) -- --------- ---------- ---------- -------- -------- Total Distributions Declared to Shareholders (0.55) (0.46) (0.58) (0.64) (0.69) - --------------------------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $ 9.89 $ 10.21 $ 10.10 $ 9.44 $ 9.54 Total return (h) 2.33% 5.80%(i)(j) 13.61% 5.80% 12.20% - --------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/Supplemental Data: Operating expenses (k) 0.72% 0.82%(l) 0.84% 0.85% 0.86% Interest expense -- --%(l)(m) -- -- -- Expenses (k) 0.72% 0.82%(l) 0.84% 0.85% 0.86% Net investment income (k) 4.91% 5.46%(l) 5.51% 6.57%(f) 7.32% Waiver/reimbursement -- 0.02%(l) -- -- -- Portfolio turnover rate 36% 93%(i) 96% 136%(n) 128%(n) Net assets, end of period (000's) $533,965 $425,402 $427,959 $327,121 $266,091 - ---------------------------------------------------------------------------------------------------------------------------
Class Z Shares 2000(d) - ------------------------------------------------------------ Net Asset Value, Beginning of Period $ 9.41 - ------------------------------------------------------------ Income from Investment Operations: Net investment income (e) 0.70 Net realized and unrealized gain (loss) on investments and foreign currency (0.26) -------- Total from Investment Operations 0.44 - ------------------------------------------------------------ Less Distributions Declared to Shareholders: From net investment income (0.70) Return of capital -- -------- Total Distributions Declared to Shareholders (0.70) - ------------------------------------------------------------ Net Asset Value, End of Period $ 9.15 Total return (h) 4.92% - ------------------------------------------------------------ Ratios to Average Net Assets/Supplemental Data: Operating expenses (k) 0.86% Interest expense -- Expenses (k) 0.86% Net investment income (k) 7.58% Waiver/reimbursement -- Portfolio turnover rate 205%(n) Net assets, end of period (000's) $227,090 - ------------------------------------------------------------
(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, effective March 31, 2004. (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)Not annualized. (j)Had the Investment Advisor not reimbursed a portion of expenses, total return would have been reduced. (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. 33 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, 2005, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated 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, 2005 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The financial statements and financial highlights of the Fund for periods prior to July 1, 2003 were audited by another independent registered public accounting firm whose report dated August 19, 2003 expressed an unqualified opinion on those statements. PricewaterhouseCoopers LLP Boston, Massachusetts May 20, 2005 34 TRUSTEES ----------------------- Columbia Income Fund The Trustrees/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 49) 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 Trustee (since 1996) Financial Officer of United Airlines from July, 1999 to September, 2001; Senior Vice President-Finance from March, 1993 to July, 1999). Oversees 104, None --------------------------------------------------------------------------- JANET LANGFORD KELLY (Age 47) Partner, Zelle, Hofmann, Voelbel, Mason & Gette LLP (law firm); Adjunct 9534 W. Gull Lake Drive Professor of Law, Northwestern University, since September, 2004 (formerly Richland, MI 49083-8530 Chief Administrative Officer and Senior Vice President, Kmart Holding Trustee (since 1996) Corporation (consumer goods), from September, 2003 to March, 2004; Executive Vice President-Corporate Development 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 104, None --------------------------------------------------------------------------- RICHARD W. LOWRY (Age 69) Private Investor since August, 1987 (formerly Chairman and Chief Executive 10701 Charleston Drive Officer, U.S. Plywood Corporation (building products manufacturer)). Vero Beach, FL 32963 Oversees 1063, None Trustee (since 1995) --------------------------------------------------------------------------- CHARLES R. NELSON (Age 62) Professor of Economics, University of Washington, since January, 1976; Department of Economics Ford and Louisa Van Voorhis Professor of Political Economy, University of University of Washington Washington, since September, 1993 (formerly Director, Institute for Seattle, WA 98195 Economic Research, University of Washington from September, 2001 to June, Trustee (since 1981) 2003) Adjunct 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 104, None --------------------------------------------------------------------------- JOHN J. NEUHAUSER (Age 62) 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 August, 1999). Oversees 1063, Saucony, Inc. (athletic Trustee (since 1985) footwear) ---------------------------------------------------------------------------
/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. 35 - -------------------------------------------------------------------------------- Columbia Income Fund 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 PATRICK J. SIMPSON (Age 61) Partner, Perkins Coie L.L.P. (law firm). Oversees 104, None 1120 N.W. Couch Street Tenth Floor Portland, OR 97209-4128 Trustee (since 2000) --------------------------------------------------------------------------- THOMAS E. STITZEL (Age 69) 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 104, None Trustee (since 1998) --------------------------------------------------------------------------- THOMAS C. THEOBALD (Age 68) Partner and Senior Advisor, Chicago Growth Partners (private equity 8 Sound Shore Drive, investing) since September, 2004 (formerly Managing Director, William Suite 285 Blair Capital Partners (private equity investing) from September, 1994 to Greenwich, CT 06830 September, 2004). Oversees 104, Anixter International (network support Trustee and Chairman of the Board/4/ (since 1996) equipment distributor); Ventas, Inc. (real estate investment trust); Jones Lang LaSalle (real estate management services) and Ambac Financial Group (financial guaranty insurance) --------------------------------------------------------------------------- ANNE-LEE VERVILLE (Age 59) Retired since 1997 (formerly General Manager, Global Education Industry, 359 Stickney Hill Road IBM Corporation (computer and technology) from 1994 to 1997). Oversees Hopkinton, NH 03229 104, Chairman of the Board of Directors, Enesco Group, Inc. (designer, Trustee (since 1998) importer and distributor of giftware and collectibles) --------------------------------------------------------------------------- RICHARD L. WOOLWORTH (Age 64) Retired since December 2003 (formerly Chairman and Chief Executive 100 S.W. Market Street Officer, The Regence Group (regional health insurer); Chairman and Chief #1500 Executive Officer, BlueCross BlueShield of Oregon; Certified Public Portland, OR 97207 Accountant, Arthur Young & Company). Oversees 104, Northwest Natural Gas Trustee (since 1991) Co. (natural gas service provider) --------------------------------------------------------------------------- Interested Trustee WILLIAM E. MAYER/2/ (Age 65) Partner, Park Avenue Equity Partners (private equity) since February, 1999 399 Park Avenue (formerly Partner, Development Capital LLC from November 1996 to February, Suite 3204 1999). Oversees 106/3/, Lee Enterprises (print media), WR Hambrecht + Co. New York, NY 10022 (financial service provider); Reader's Digest (publishing); OPENFIELD Trustee (since 1994) 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 also serve as directors/trustees of the Liberty All-Star Funds, currently consisting of 2 funds, which are advised by an affiliate of the Advisor. /4/Mr. Theobald was appointed as Chairman of the Board effective December 10, 2003. TheStatement of Additional Information Includes additional information about the Trustees of the Fundsand is available, without charge, upon request by calling 800-426-3750. 36 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 CHRISTOPHER L. WILSON (Age 47) Head of Mutual Funds since August, 2004 and Senior Vice President of the One Financial Center Advisor since January, 2005; President of the Columbia Funds, Liberty Boston, MA 02111 Funds and Stein Roe Funds since October, 2004; President and Chief President (since 2004) Executive Officer of the Nations Funds since January, 2005; President of the Galaxy Funds since April 2005; Director of Bank of America Global Liquidity Funds, plc since May 2005; Director of Banc of America Capital Management (Ireland), Limited since May 2005; Senior Vice President of BACAP Distributors LLC since January, 2005; Director of FIM Funding, Inc. since January, 2005; Senior Vice President of Columbia Funds Distributor, Inc. since January, 2005; Director of Columbia Funds Services, Inc. since January, 2005 (formerly President and Chief Executive Officer, CDC IXIS Asset Management Services, Inc. from September, 1998 to August, 2004). --------------------------------------------------------------------------- J. KEVIN CONNAUGHTON (Age 40) Treasurer of the Columbia Funds since October, 2003 and of the Liberty One Financial Center Funds, Stein Roe Funds and All-Star Funds since December, 2000; Vice Boston, MA 02111 President of the Advisor since April, 2003 (formerly President of the Treasurer (since 2000) Columbia Funds, Liberty Funds and Stein Roe Funds from February, 2004 to October, 2004; Chief Accounting Officer and Controller of the Liberty Funds and All-Star Funds from February, 1998 to October, 2000); Treasurer of the Galaxy Funds since September, 2002 (formerly Treasurer from December, 2002 to December, 2004 and President from February, 2004 to December, 2004 of the Columbia Management Multi-Strategy Hedge Fund, LLC; Vice President of Colonial Management Associates, Inc. from February, 1998 to October, 2000). --------------------------------------------------------------------------- MARY JOAN HOENE (Age 54) Senior Vice President and Chief Compliance Officer of the Columbia Funds, 40 West 57th Street Liberty Funds, Stein Roe Funds and All-Star Funds since August, 2004 New York, NY 10005 (formerly Partner, Carter, Ledyard & Milburn LLP from January, 2001 to Senior Vice President and August, 2004; Counsel, Carter, Ledyard & Milburn LLP from November, 1999 Chief Compliance Officer (since 2004) to December, 2000; Vice President and Counsel, Equitable Life Assurance Society of the United States from April, 1998 to November, 1999). --------------------------------------------------------------------------- MICHAEL G. CLARKE (Age 35) Chief Accounting Officer of the Columbia Funds, Liberty Funds, Stein Roe One Financial Center Funds and All-Star Funds since October, 2004 (formerly Controller of the Boston, MA 02111 Columbia Funds, Liberty Funds, Stein Roe Funds and All-Star Funds from Chief Accounting Officer (since 2004) May, 2004 to October, 2004; Assistant Treasurer from June, 2002 to May, 2004; Vice President, Product Strategy & Development of the Liberty Funds and Stein Roe Funds from February, 2001 to June, 2002; Assistant Treasurer of the Liberty Funds, Stein Roe Funds and the All-Star Funds from August, 1999 to February, 2001; Audit Manager, Deloitte & Touche LLP from May, 1997 to August, 1999). --------------------------------------------------------------------------- JEFFREY R. COLEMAN (Age 35) Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and One Financial Center All-Star Funds since October, 2004 (formerly Vice President of CDC IXIS Boston, MA 02111 Asset Management Services, Inc. and Deputy Treasurer of the CDC Nvest Controller (since 2004) Funds and Loomis Sayles Funds from February, 2003 to September, 2004; Assistant Vice President of CDC IXIS Asset Management Services, Inc. and Assistant Treasurer of the CDC Nvest Funds from August, 2000 to February, 2003; Tax Manager of PFPC, Inc. from November, 1996 to August, 2000). --------------------------------------------------------------------------- R. SCOTT HENDERSON (Age 45) Secretary of the Columbia Funds, Liberty Funds and Stein Roe Funds since One Financial Center December, 2004 (formerly Of Counsel, Bingham McCutchen from April, 2001 to Boston, MA 02111 September, 2004; Executive Director and General Counsel, Massachusetts Secretary (since 2004) Pension Reserves Investment Management Board from September, 1997 to March, 2001). ---------------------------------------------------------------------------
37 BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENT ----------------------- Columbia Income Fund
Section 15(c) of the Investment Company Act of 1940 (the "1940 Act") requires that the Board of Trustees/Directors (the "Board") of the Columbia Funds ("the Funds"), including a majority of the Trustees and Directors (collectively, the "Trustees") who are not "interested persons" of the Trusts, as defined in the 1940 Act (the "Independent Trustees"), annually review and approve the terms of the Funds' investment advisory agreements. During the most recent six months covered by this report, the Board reviewed and approved the management contracts ("Advisory Agreements") with Columbia Management Advisors, Inc. ("CMA") for the Fund. At meetings held on September 23, 2004 and October 12, 2004, the Advisory Fees and Expenses Committee (the "Committee") of the Board considered the factors described below relating to the selection of CMA and the approval of the Advisory Agreement. At a meeting held on October 13, 2004, the Board, including the Independent Trustees (who were advised by their independent legal counsel), considered these factors and reached the conclusions described below. Nature, Extent and Quality of Services The Board considered information regarding the nature, extent and quality of services that CMA provides to the Fund under the Advisory Agreement. CMA provided the most recent investment adviser registration form ("Form ADV") and code of ethics for CMA to the Board. The Board reviewed information on the status of Securities and Exchange Commission ("SEC") and New York Attorney General ("NYAG") proceedings against CMA and certain of its affiliates, including the agreement in principle entered into with the SEC and the NYAG on March 15, 2004 to settle civil complaints filed by the SEC and the NYAG relating to trading activity in mutual fund shares./1/ The Board evaluated the ability of CMA, including its resources, reputation and other attributes, to attract and retain highly qualified research, advisory and supervisory investment professionals. The Board considered information regarding CMA's compensation program for its personnel involved in the management of the Fund. Based on these considerations and other factors, including those referenced below, the Board concluded that they were generally satisfied with the nature, extent and quality of the investment advisory services provided to the Fund by CMA. Fund Performance and Expenses CMA provided the Board with relative performance and expense information for the Fund in a report prepared by Lipper Inc. ("Lipper") an independent provider of investment company data. The Board considered the total return performance information, which included the ranking of the Fund within a performance universe made up of funds with the same Lipper investment classification and objective (the "Performance Universe") by total return for one-year, three-year, five-year, ten-year or life of fund periods, as applicable. They also considered the Fund's performance in comparison to the performance results of a group (the "Performance Peer Group") of funds selected by Lipper based on similarities in fund type (e.g. open-end), investment classification and objective, asset size, load type and 12b-1/service fees and other expense features, and to the performance results of the Fund's benchmark index. The Board reviewed a description of Lipper's methodology for selecting the mutual funds in the Fund's Performance Peer Group and Performance Universe. The Board considered statistical information regarding the Fund's total expenses and certain components thereof, including management fees (both actual management fees based on expenses for advisory and administrative fees including any reductions for fee waivers and expense reimbursements as well as contractual management fees that are computed for a hypothetical level of assets), actual non-management expenses, and fee waivers/caps and expense reimbursements. They also considered comparisons of these expenses to the expense information for funds within a group (the "Expense Peer Group") selected by Lipper based on similarities in fund type (e.g. open-end), investment classification and objective, asset size, load type and 12b-1/service fees and other expense features (but which, unlike the Performance Peer Group, may include funds with several different investment classifications and objectives) and an expense universe ("Expense Universe") selected by Lipper based on the criteria for determining the Expense Peer Group other than asset size. The expense information in the Lipper report took into account all /1/On February 9, 2005, CMA and its affiliate, Columbia Funds Distributor, Inc., entered into settlement agreements with the SEC and the NYAG that contain substantially the terms outlined in the agreements in principle. 38 - -------------------------------------------------------------------------------- Columbia Income Fund existing fee waivers and expense reimbursements as well as all voluntary advisory fee reductions applicable to certain Funds that were being proposed by management in order to reduce the aggregate advisory fees received from mutual funds advised by CMA and Banc of America Capital Management, LLC ("BACAP") by $32 million per year for five years as contemplated by the agreement in principle with the NYAG. The Committee also considered the projected impact on expenses of these Funds resulting from the overall cost reductions that management anticipated would result from the proposed shift to a common group of service providers for transfer agency, fund accounting and custody services for mutual funds advised by Bank of America affiliates. The Boards also considered information is the Lipper report that ranked each Fund based on (i) each Fund's one-year performance and actual advisory fees, (ii) each Fund's one-year performance and total expenses and (iii) each Fund's 3-year performance and total expenses. Based on these comparisons and expense and performance rankings of the Fund in the Lipper Report, CMA determined an overall score for the Fund. The Committee and the Board also considered projected savings to the Fund that would result from certain modifications in soft dollar arrangements. The Board also considered more detailed information relating to certain Funds that were highlighted for additional review based upon the fact that they ranked poorly in terms of overall expense or management fees, maintained poor performance or demonstrated a combination of below average to poor performance while maintaining below average or poor expense rankings. At its September 23, 2004 meeting, the Committee discussed these Funds with management and in executive session. The Committee requested additional information from management regarding the cause(s) of the below-average relative performance of these Funds, any remedial actions management recommended to improve performance and the general standards for review of portfolio manager performance. At its October 12, 2004 meeting, the Committee considered additional information provided by management regarding these Funds. The Board also considered management's proposal to merge or liquidate some of these Funds. Based on these considerations and other factors, the Board concluded that the overall performance and expense results supported by the approval of the Advisory Agreements for each Fund. Investment Advisory Fee Rates The Board reviewed and considered the proposed contractual investment advisory fee rates (the "Advisory Agreement Rates") payable by the Funds to CMA for investment advisory services. In addition, the Board reviewed and considered the existing and proposed fee waiver and reimbursement arrangements applicable to the Advisory Agreement Rates and considered the Advisory Agreement Rates after taking the fee waivers and reimbursements into account (the "Net Advisory Rates"). At previous meetings, the Committee had separately considered management's proposal to reduce annual investment advisory fees for certain Funds under the NYAG agreement in principle and the impact of these reductions on each affected Fund. Additionally, the Board considered information comparing the Advisory Agreement Rates and Net Advisory Rates (both on a stand-alone basis and on a combined basis with the Funds' administration fee rates) with those of the other funds in the Expense Peer Group. The Board concluded that the Advisory Agreement Rates and Net Advisory Rates represented reasonable compensation to CMA, in light of the nature, extent and quality of the services provided to the Funds, the fees paid and expenses borne by comparable funds and the costs that CMA incurs in providing these services to the Funds. Profitability The Board considered a detailed profitability analysis of CMA based on 2003 financial statements, adjusted to take into account advisory fee reductions implemented in November 2003 and proposed reductions under the NYAG proposed settlement. The Board concluded that, in light of the costs of providing investment management and other services to the Funds, the profits and other ancillary benefits that CMA and its affiliates received for providing these services to the Funds were not unreasonable. Economies of Scale In evaluating potential economies of scale, the Board considered CMA's proposal to implement a standardized breakpoint schedule for combined advisory and administrative fees for the majority of the funds of the same general asset type within the 39 - -------------------------------------------------------------------------------- Columbia Income Fund Columbia Funds complex (other than index and closed-end funds). The Board noted that the standardization of the breakpoints would not result in a fee increase for any Fund. The Board concluded that any actual or potential economies of scale are, or will be, shared fairly with Fund shareholders, including most particularly through Advisory Agreement Rate breakpoints at current and reasonably foreseeable asset levels. Information about Services to Other Clients In evaluating the proposed fee reductions under the NYAG agreement in principle, the Board considered information regarding the advisory fee rates charged by BACAP for the Nations Funds. Members of the Committee and the Board had also separately reviewed advisory fee rates for variable insurance product funds advised by CMA. This information assisted the Board in assessing the reasonableness of fees paid under the Advisory Agreements in light of the nature, extent and quality of services provided under those agreements. Other Benefits to CMA The Board considered information regarding potential "fall-out" or ancillary benefits received by CMA and its affiliates as a result of their relationship with the Funds. These benefits could include benefits directly attributable to the relationship of CMA with the Funds (such as soft dollar credits) and benefits potentially derived from an increase in the business of CMA as a result of their relationship with the Funds (such as the ability to market to shareholders other financial products offered by CMA and its affiliates). Other Factors and Broader Review The Board reviews detailed materials provided by CMA annually as part of the approval process under Section 15(c) of the 1940 Act. The Board also regularly reviews and assesses the quality of the services that the Funds receive throughout the year. In this regard, the Board reviews information provided by CMA at their regular meetings, including, among other things, a detailed portfolio review, and detailed fund performance reports. In addition, the Board interviews the heads of each investment area at each regular meeting of the Board and selected portfolio managers of the Funds at various times throughout the year. After considering the above-described factors and based on the deliberations and their evaluation of the information provided to them, the Board concluded that re-approval of the Advisory Agreements for each of the Funds was in the best interest of the Funds and their shareholders. Accordingly, the Board unanimously approved the Advisory Agreements. 40 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 and a copy of the fund's voting record are available (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov, and (iii) without charge, upon request, by calling 800-368-0346. Information regarding how the fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2004 is available from the SEC's website. Information regarding how the fund voted proxies relating to portfolio securities is also available from the fund's website. The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Columbia Management is the primary investment management division of Bank of America Corporation. Columbia Management entities furnish investment management services and advise institutional and mutual fund portfolios. 41 [GRAPHIC APPEARS HERE] 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 accounts 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 eDelivery available to you. Columbia Income Fund Annual Report, March 31, 2005 PRSRT STD U.S. Postage PAID Holliston, MA Permit NO. 20 Columbia Management(R) (C)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.345.6611 www.columbiafunds.com [GRAPHIC APPEARS HERE] COLUMBIA INTERMEDIATE BOND FUND ANNUAL REPORT MARCH 31, 2005 TABLE OF CONTENTS Fund Profile .............................................................1 Performance Information ..................................................2 Understanding Your Expenses ..............................................3 Economic Update ..........................................................4 Portfolio Managers' Report ...............................................5 Financial Statements .....................................................7 Investment Portfolio ..................................................8 Statement of Assets and Liabilities ..................................20 Statement of Operations ..............................................21 Statement of Changes in Net Assets ...................................22 Notes to Financial Statements ........................................24 Financial Highlights .................................................30 Report of Independent Registered Public Accounting Firm .................34 Trustees ................................................................35 Officers ................................................................37 Board Consideration and Approval of Investment Advisory Agreement .......38 Important Information About This Report .................................41 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 PRESIDENT'S MESSAGE COLUMBIA INTERMEDIATE BOND FUND [PHOTO OF CHRISTOPHER WILSON] DEAR SHAREHOLDER: In 2004, Columbia Funds became part of the Bank of America family, one of the largest, most respected financial institutions in the United States. As a direct result of this merger, a number of changes are in the works that we believe may offer significant benefits for our shareholders. Plans are underway to combine various Nations Funds and Columbia Funds together to form a single fund family that covers a wide range of markets, sectors and asset classes under the management of talented, seasoned investment professionals. As a result, some funds will be merged in order to eliminate redundancies and fund management teams will be aligned to help maximize performance potential. You will receive more detailed information about these proposed mergers, and you will be asked to vote on certain fund changes that may affect you and your account. In this matter, your timely response will help us to implement the changes in 2005. The increased efficiencies we expect from a more streamlined offering of funds may help us reduce fees charged to the funds, because larger funds often benefit from size and scale of operations. For example, significant savings for the combined complex may result from the consolidation of certain vendor agreements. In fact, we recently announced plans to consolidate the transfer agency of all of our funds and consolidate custodial services, each under a single vendor. We have also reduced management fees for many funds as part of our settlement agreement (See Note 7 in the Notes to Financial Statements) with the New York Attorney General. As a result of these changes, we believe we will offer shareholders an even stronger lineup of investment options, with management expenses that continue to be competitive and fair. What will not change as we enter this next phase of consolidation is our commitment to the highest standards of performance and our dedication to superior service. Change for the better has another name: it's called improvement. It helps move us forward, and we believe that it represents progress for all our shareholders in their quest for long-term financial success. In the pages that follow, you'll find a discussion of the economic environment during the period followed by a detailed report from the fund's manager or managers on key factors that influenced performance. We hope that you will read the manager reports carefully and discuss any questions you might have with your financial advisor. As always, we thank you for choosing Columbia Funds. We appreciate your continued confidence. And, we look forward to helping you keep your long-term financial goals on target in the years to come. Sincerely, /s/ Christopher Wilson Christopher Wilson HEAD OF MUTUAL FUNDS, COLUMBIA MANAGEMENT Christopher Wilson is Head of Mutual Funds for Columbia Management, responsible for the day-to-day delivery of mutual fund services to the firm's investors. With the exception of distribution, Chris oversees all aspects of the mutual fund services operation, including treasury, investment accounting and shareholder and broker services. Chris serves as Columbia Management's liaison to the mutual fund boards of trustees. Chris joined Bank of America in August 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 03/31/05 (%) Corporate fixed-income bonds & notes 57.8 Mortgage-backed securities 19.8 Asset-backed securities 8.1 Collateralized mortgage obligations 5.0 Government agencies & obligations 4.3 Cash equivalents, net other assets & liabilities 5.0 QUALITY BREAKDOWN AS OF 03/31/05 (%) Aaa 19.8 Aa 2.3 A 17.4 Baa 23.7 Other 13.8 Treasury 2.8 Agency 20.2 [CHART] MATURITY BREAKDOWN AS OF 03/31/05 (%) 0-1 year 8.2 1-5 years 48.8 5-10 years 28.9 10-20 years 6.6 Over 20 years 7.5 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 rating assigned to a particular bond by one of the following nationally-recognized rating agencies: Standard & Poor's Corporation, Moody's Investors Service, Inc. or Fitch Ratings Ltd. Management style is determined by Columbia Management and is based on the investment strategy and process as outlined in the fund's prospectus. [SIDENOTE] SUMMARY - - FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2005, THE FUND'S CLASS A SHARES RETURNED 1.55% WITHOUT SALES CHARGE. - - THE FUND OUTPERFORMED BOTH ITS BENCHMARK, THE LEHMAN BROTHERS AGGREGATE BOND INDEX, AND ITS PEER GROUP, THE LIPPER INTERMEDIATE INVESTMENT GRADE DEBT CATEGORY AVERAGE. - - THE FUND HAD A MORE SUBSTANTIAL POSITION IN INVESTMENT-GRADE CORPORATE BONDS THAN ITS BENCHMARK, AND ALSO, WE BELIEVE, THAN ITS PEER GROUP, WHICH ACCOUNTED FOR ITS STRONG RELATIVE PERFORMANCE. INVESTMENTS IN HIGH-YIELD BONDS, ASSET-BACKED SECURITIES AND MORTGAGES ALSO AIDED PERFORMANCE, AS DID AN UNDERWEIGHT POSITION IN TREASURIES, WHICH WERE AMONG THE PERIOD'S WEAKEST PERFORMERS. CLASS A SHARES 1.55% LEHMAN BROTHERS AGGREGATE BOND INDEX 1.15% OBJECTIVE Seeks total return by investing for a high level of current income and opportunities for capital appreciation TOTAL NET ASSETS $1,181.7 million MANAGEMENT STYLE [GRAPHIC APPEARS HERE] 1 PERFORMANCE INFORMATION -------------------------------------------------------- COLUMBIA INTERMEDIATE BOND FUND [CHART] VALUE OF A $10,000 INVESTMENT 04/01/95 - 03/31/05 CLASS A SHARES CLASS A SHARES LEHMAN BROTHERS AGGREGATE WITHOUT SALES CHARGE WITH SALES CHARGE BOND INDEX 04/1/1995 $ 10,000 $ 9,525 $ 10,000 5/1/1995 $ 10,143 $ 9,661 $ 10,140 6/1/1995 $ 10,444 $ 9,948 $ 10,532 7/1/1995 $ 10,525 $ 10,025 $ 10,609 8/1/1995 $ 10,523 $ 10,023 $ 10,586 9/1/1995 $ 10,668 $ 10,161 $ 10,714 10/1/1995 $ 10,763 $ 10,251 $ 10,818 11/1/1995 $ 10,884 $ 10,367 $ 10,959 12/1/1995 $ 11,056 $ 10,531 $ 11,123 1/1/1996 $ 11,218 $ 10,685 $ 11,279 2/1/1996 $ 11,330 $ 10,792 $ 11,353 3/1/1996 $ 11,151 $ 10,621 $ 11,156 4/1/1996 $ 11,074 $ 10,548 $ 11,078 5/1/1996 $ 11,008 $ 10,485 $ 11,015 6/1/1996 $ 11,008 $ 10,485 $ 10,993 7/1/1996 $ 11,135 $ 10,606 $ 11,141 8/1/1996 $ 11,186 $ 10,655 $ 11,171 9/1/1996 $ 11,183 $ 10,652 $ 11,152 10/1/1996 $ 11,365 $ 10,825 $ 11,346 11/1/1996 $ 11,592 $ 11,041 $ 11,598 12/1/1996 $ 11,815 $ 11,254 $ 11,796 1/1/1997 $ 11,725 $ 11,168 $ 11,686 2/1/1997 $ 11,796 $ 11,235 $ 11,723 3/1/1997 $ 11,834 $ 11,271 $ 11,752 4/1/1997 $ 11,699 $ 11,143 $ 11,621 5/1/1997 $ 11,878 $ 11,313 $ 11,796 6/1/1997 $ 12,005 $ 11,434 $ 11,908 7/1/1997 $ 12,173 $ 11,595 $ 12,050 8/1/1997 $ 12,518 $ 11,924 $ 12,375 9/1/1997 $ 12,388 $ 11,800 $ 12,270 10/1/1997 $ 12,563 $ 11,966 $ 12,450 11/1/1997 $ 12,686 $ 12,083 $ 12,631 12/1/1997 $ 12,736 $ 12,131 $ 12,689 1/1/1998 $ 12,818 $ 12,209 $ 12,817 2/1/1998 $ 12,986 $ 12,369 $ 12,981 3/1/1998 $ 13,011 $ 12,393 $ 12,971 4/1/1998 $ 13,081 $ 12,460 $ 13,015 5/1/1998 $ 13,149 $ 12,525 $ 13,082 6/1/1998 $ 13,264 $ 12,634 $ 13,207 7/1/1998 $ 13,333 $ 12,699 $ 13,319 8/1/1998 $ 13,363 $ 12,728 $ 13,347 9/1/1998 $ 13,299 $ 12,667 $ 13,564 10/1/1998 $ 13,578 $ 12,933 $ 13,882 11/1/1998 $ 13,362 $ 12,728 $ 13,808 12/1/1998 $ 13,568 $ 12,924 $ 13,887 1/1/1999 $ 13,642 $ 12,994 $ 13,929 2/1/1999 $ 13,783 $ 13,129 $ 14,027 3/1/1999 $ 13,606 $ 12,959 $ 13,782 4/1/1999 $ 13,759 $ 13,106 $ 13,858 5/1/1999 $ 13,819 $ 13,162 $ 13,902 6/1/1999 $ 13,725 $ 13,073 $ 13,780 7/1/1999 $ 13,679 $ 13,029 $ 13,736 8/1/1999 $ 13,681 $ 13,031 $ 13,677 9/1/1999 $ 13,677 $ 13,027 $ 13,670 10/1/1999 $ 13,815 $ 13,158 $ 13,828 11/1/1999 $ 13,831 $ 13,174 $ 13,880 12/1/1999 $ 13,862 $ 13,203 $ 13,878 1/1/2000 $ 13,815 $ 13,158 $ 13,812 2/1/2000 $ 13,844 $ 13,186 $ 13,766 3/1/2000 $ 13,986 $ 13,322 $ 13,933 4/1/2000 $ 14,127 $ 13,456 $ 14,116 5/1/2000 $ 14,041 $ 13,374 $ 14,075 6/1/2000 $ 13,963 $ 13,299 $ 14,068 7/1/2000 $ 14,312 $ 13,632 $ 14,361 8/1/2000 $ 14,468 $ 13,780 $ 14,492 9/1/2000 $ 14,695 $ 13,997 $ 14,702 10/1/2000 $ 14,834 $ 14,130 $ 14,795 11/1/2000 $ 14,855 $ 14,150 $ 14,892 12/1/2000 $ 15,011 $ 14,298 $ 15,136 1/1/2001 $ 15,280 $ 14,554 $ 15,418 2/1/2001 $ 15,648 $ 14,905 $ 15,671 3/1/2001 $ 15,836 $ 15,084 $ 15,807 4/1/2001 $ 15,942 $ 15,185 $ 15,886 5/1/2001 $ 15,901 $ 15,145 $ 15,819 6/1/2001 $ 16,096 $ 15,332 $ 15,914 7/1/2001 $ 16,106 $ 15,341 $ 15,975 8/1/2001 $ 16,481 $ 15,698 $ 16,333 9/1/2001 $ 16,694 $ 15,901 $ 16,520 10/1/2001 $ 16,520 $ 15,735 $ 16,714 11/1/2001 $ 16,753 $ 15,957 $ 17,063 12/1/2001 $ 16,745 $ 15,949 $ 16,828 1/1/2002 $ 16,661 $ 15,869 $ 16,720 2/1/2002 $ 16,789 $ 15,992 $ 16,855 3/1/2002 $ 16,880 $ 16,078 $ 17,019 4/1/2002 $ 16,762 $ 15,965 $ 16,736 5/1/2002 $ 16,911 $ 16,108 $ 17,061 6/1/2002 $ 17,075 $ 16,264 $ 17,206 7/1/2002 $ 16,926 $ 16,122 $ 17,354 8/1/2002 $ 16,796 $ 15,998 $ 17,564 9/1/2002 $ 17,056 $ 16,246 $ 17,861 10/1/2002 $ 17,136 $ 16,322 $ 18,150 11/1/2002 $ 16,922 $ 16,118 $ 18,067 12/1/2002 $ 17,181 $ 16,365 $ 18,061 1/1/2003 $ 17,559 $ 16,725 $ 18,435 2/1/2003 $ 17,640 $ 16,802 $ 18,452 3/1/2003 $ 17,897 $ 17,047 $ 18,706 4/1/2003 $ 17,955 $ 17,102 $ 18,691 5/1/2003 $ 18,274 $ 17,406 $ 18,847 6/1/2003 $ 18,717 $ 17,828 $ 19,197 7/1/2003 $ 18,795 $ 17,902 $ 19,159 8/1/2003 $ 18,337 $ 17,466 $ 18,515 9/1/2003 $ 18,390 $ 17,516 $ 18,637 10/1/2003 $ 18,918 $ 18,019 $ 19,131 11/1/2003 $ 18,887 $ 17,990 $ 18,953 12/1/2003 $ 18,982 $ 18,080 $ 18,999 1/1/2004 $ 19,181 $ 18,270 $ 19,192 2/1/2004 $ 19,380 $ 18,460 $ 19,346 3/1/2004 $ 19,518 $ 18,591 $ 19,555 4/1/2004 $ 19,657 $ 18,723 $ 19,702 5/1/2004 $ 19,244 $ 18,330 $ 19,189 6/1/2004 $ 19,086 $ 18,179 $ 19,113 7/1/2004 $ 19,183 $ 18,272 $ 19,221 8/1/2004 $ 19,368 $ 18,448 $ 19,412 9/1/2004 $ 19,724 $ 18,787 $ 19,783 10/1/2004 $ 19,795 $ 18,855 $ 19,836 11/1/2004 $ 19,981 $ 19,032 $ 20,003 12/1/2004 $ 19,885 $ 18,941 $ 19,843 1/1/2005 $ 20,066 $ 19,113 $ 20,025 2/1/2005 $ 20,164 $ 19,207 $ 20,151 3/1/2005 $ 20,132 $ 19,176 $ 20,032 03/31/2005 $ 19,932 $ 18,997 $ 19,949 The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Lehman Brothers Aggregate Bond Index is a market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, non-convertible investment grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity. 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 03/31/05 (%)
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 - -------------------------------------------------------------------------------------- 1-YEAR 1.55 -3.25 0.80 -4.04 0.95 -0.02 1.80 5-YEAR 7.16 6.12 6.65 6.34 6.75 6.75 7.42 10-YEAR 7.15 6.63 6.90 6.90 6.95 6.95 7.28
THE "WITH SALES CHARGE" RETURNS INCLUDE THE MAXIMUM INITIAL SALES CHARGE OF 4.75% FOR CLASS A SHARES, MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.00% FOR CLASS B SHARES AND 1.00% FOR CLASS C SHARES FOR THE FIRST YEAR ONLY. THE "WITHOUT SALES CHARGE" RETURNS DO NOT INCLUDE THE EFFECT OF SALES CHARGES. IF THEY HAD, RETURNS WOULD BE LOWER. ALL RESULTS SHOWN ASSUME REINVESTMENT OF DISTRIBUTIONS. CLASS Z SHARES ARE SOLD AT NET ASSET VALUE WITH NO RULE 12b-1 FEES. 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. Class A, class B and class C are newer classes of shares. Class A performance information includes returns of the fund's class Z shares (the oldest existing fund class) for periods prior to its inception. Class B and class C performance information includes returns of the fund's class A shares for the period from July 31, 2000 through February 1, 2002 and for periods prior thereto, the fund's class Z shares (the oldest existing fund class). These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower, since the newer classes of shares are subject to a Rule 12b-1 fee. Class A shares were initially offered on July 31, 2000, class B and class C shares were initially offered on February 1, 2002, and class Z shares were initially offered on December 5, 1978. [SIDENOTE] PERFORMANCE OF A $10,000 INVESTMENT 04/01/95 - 03/31/05 ($) SALES CHARGE: WITHOUT WITH ------------------------------------------- Class A 19,949 18,997 Class B 19,484 19,484 Class C 19,577 19,577 Class Z 20,196 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, when redeemed, 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 UNDERSTANDING YOUR EXPENSES ---------------------------------------------------- COLUMBIA INTERMEDIATE BOND FUND As a fund shareholder, you incur two types of costs. There are transaction costs, which generally include sales charges on purchases and may include redemption or exchange fees. There are also ongoing costs, which generally include investment advisory, Rule 12b-1 fees, and other fund expenses. The information on this page is intended to help you understand your ongoing costs of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. ANALYZING YOUR FUND'S EXPENSES BY SHARE CLASS To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors in each share class during the reporting period. The information in the following table is based on an initial investment of $1,000, which is invested at the beginning of the reporting period and held for the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the "actual" column is calculated using the fund's actual operating expenses and total return for the period. The amount listed in the "hypothetical" column for each share class assumes that the return each year is 5% before expenses and includes the fund's actual expense ratio. You should not use the hypothetical account values and expenses to estimate either your actual account balance at the end of the period or the expenses you paid during this reporting period. 10/01/04 - 03/31/05
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%) ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL CLASS A 1,000.00 1,000.00 1,008.33 1,020.14 4.81 4.84 0.96 CLASS B 1,000.00 1,000.00 1,004.64 1,016.40 8.55 8.60 1.71 CLASS C 1,000.00 1,000.00 1,005.39 1,017.15 7.80 7.85 1.56 CLASS Z 1,000.00 1,000.00 1,009.57 1,021.39 3.56 3.58 0.71
Expenses paid during the period are equal to the annualized expense ratio for the share class, multiplied by the average account value over the period, then multiplied by the number of days in the fund's most recent fiscal half-year and divided by 365. Had the distributor not waived a portion of class A and class C shares' expenses, class A and class C shares' total return would have been reduced. It is important to note that the expense amounts shown in the table are meant to highlight only ongoing costs of investing in the fund and do not reflect any transactional costs, such as sales charges, redemption or exchange fees. Therefore, the hypothetical examples provided will not help you determine the relative total costs of owning shares of different funds. If these transactional costs were included, your costs would have been higher. COMPARE WITH OTHER FUNDS Since all mutual fund companies are required to include the same hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the fund with other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. As you compare hypothetical examples of other fund companies, it is important to note that hypothetical examples are meant to highlight the continuing cost of investing in a fund and do not reflect any transactional costs, such as sales charges or redemption or exchange fees. [SIDENOTE] ESTIMATING YOUR ACTUAL EXPENSES To estimate the expenses that you paid over the period, first you will need your account balance at the end of the period: - - FOR SHAREHOLDERS WHO RECEIVE THEIR ACCOUNT STATEMENTS FROM COLUMBIA FUNDS SERVICES, INC., YOUR ACCOUNT BALANCE IS AVAILABLE ONLINE AT www.columbiafunds.com OR BY CALLING SHAREHOLDER SERVICES AT 800-345-6611 - - FOR SHAREHOLDERS WHO RECEIVE THEIR ACCOUNT STATEMENTS FROM THEIR BROKERAGE FIRM, CONTACT YOUR BROKERAGE FIRM TO OBTAIN YOUR ACCOUNT BALANCE 1. DIVIDE YOUR ENDING ACCOUNT BALANCE BY $1,000. FOR EXAMPLE, IF AN ACCOUNT BALANCE WAS $8,600 AT THE END OF THE PERIOD, THE RESULT WOULD BE 8.6 2. IN THE SECTION OF THE TABLE BELOW TITLED "EXPENSES PAID DURING THE PERIOD," LOCATE THE AMOUNT FOR YOUR SHARE CLASS. YOU WILL FIND THIS NUMBER IS IN THE COLUMN LABELED "ACTUAL." MULTIPLY THIS NUMBER BY THE RESULT FROM STEP 1. YOUR ANSWER IS AN ESTIMATE OF THE EXPENSES YOU PAID ON YOUR ACCOUNT DURING THE PERIOD 3 ECONOMIC UPDATE ---------------------------------------------------------------- COLUMBIA INTERMEDIATE BOND FUND The US economy moved ahead at a healthy pace during the 12-month period that began April 1, 2004 and ended March 31, 2005. Gross domestic product (GDP) expanded at an estimated annualized rate of 3.5% as job growth helped buoy consumer spending and rising profits boosted business spending. Higher energy prices put something of a damper on growth as the period wore on-enough to slow the pace of growth to 3.1% in the first quarter of 2005. Job growth dominated the economic news and drove consumer confidence ratings that moved up and down, depending on the number of new jobs reported. Overall, consumers remained significantly more optimistic about the prospects for the economy and about their own employment than they were a year ago. Consumer spending grew during the period, as retail sales and the housing market remained strong. The business sector also contributed to the economy's solid pace. Yet, business spending was not as robust as expected, given a maturing economic cycle, two straight years of double-digit profit growth and a significant build-up of cash on corporate balance sheets. BONDS DELIVER MODEST GAINS The US bond market delivered a positive return despite rising interest rates in the final six weeks of the period. The yield on the 10-year Treasury note, a bellwether for the bond market, rose above 4.5%, and sent bond prices down. However, it settled just below 4.5% at the end of the period. In this environment, the Lehman Brothers Aggregate Bond Index returned 1.15% for the 12-month period. Municipal bonds did even better than investment-grade taxable bonds as state revenues strengthened and fiscal constraints helped many states balance their budgets. The Lehman Municipal Bond Index returned 2.67%. High-yield bonds led the fixed income markets, as a stronger economy resulted in improved credit ratings, stronger balance sheets and higher profits for many companies in the high-yield universe. The Merrill Lynch US High Yield, Cash Pay Index returned 6.79%. However, the riskiest bonds were the hardest hit when the bond market pulled back, and high-yield bonds gave back some of their gains in the final months of the period. After a year of the lowest short-term interest rates in recent history, the Federal Reserve (the Fed) raised the federal funds rate, a key short-term rate, from 1.00% to 2.75% in seven one-quarter percentage point steps during the period.(1) The Fed indicated early on that it would continue to raise short-term interest rates at a "measured pace," in an attempt to balance economic growth against inflationary pressures. So far, it has kept its word. However, the Fed left the door open for more aggressive action in remarks made on the economy and inflation when it met in March. STOCKS OUTPERFORMED BONDS Buoyed by strong gains in the fourth quarter of 2004, the S&P 500 Index returned 6.69% for the period. Returns were lackluster throughout most of 2004, but most segments of the stock market bounced back after the presidential election was settled in November. Stocks retreated early in 2005 as rising energy prices and higher interest rates turned investors cautious once again. Small and mid-cap stocks did significantly better than large cap stocks, and value stocks led growth stocks by a significant margin. Energy and utilities were the best performing sectors. (1) On May 3, 2005, the federal funds rate was raised to 3.00%. [SIDENOTE] SUMMARY FOR THE 12-MONTH PERIOD ENDED MARCH 31, 2005 - - BONDS CHALKED UP MODEST GAINS AS MEASURED BY THE LEHMAN BROTHERS AGGREGATE BOND INDEX. HIGH-YIELD BONDS LED THE FIXED INCOME MARKETS, AS MEASURED BY THE MERRILL LYNCH US HIGH YIELD, CASH PAY INDEX. HOWEVER, THEY GAVE BACK SOME OF THEIR RETURN IN THE LAST MONTHS OF THE PERIOD. LEHMAN INDEX 1.15% MERRILL LYNCH INDEX 6.79% - - STOCKS OUTPERFORMED BONDS, AS MEASURED BY THE S&P 500 INDEX AND THE RUSSELL 3000 INDEX. MOST OF THE PERIOD'S GAINS WERE GENERATED DURING A FOURTH-QUARTER RALLY IN 2004. S&P 500 INDEX 6.69% RUSSELL 3000 INDEX 7.09% The Lehman Brothers Aggregate Bond Index is a market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, non-convertible investment-grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity. The Merrill Lynch US High Yield, Cash Pay Index is an unmanaged index that tracks the performance of non-investment-grade corporate bonds. The S&P 500 Index is an unmanaged index that tracks the performance of 500 widely held, large capitalization US stocks. The Russell 3000 Index is an unmanaged index that tracks the performance of 3000 of the largest US companies, based on market capitalization. 4 PORTFOLIO MANAGERS' REPORT ----------------------------------------------------- COLUMBIA INTERMEDIATE BOND FUND For the 12-month period ended March 31, 2005, class A shares of Columbia Intermediate Bond Fund returned 1.55% without sales charge. The fund outperformed its benchmark, the Lehman Brothers Aggregate Bond Index, which posted a total return of 1.15% for the same period. The fund also topped its peer group, the Lipper Intermediate Investment Grade Bond Category, which averaged 0.81% for the period.(1) In March 2005, the fund's management team changed. Ann Peterson, Marie Schofield and Carl Pappo joined Thomas LaPointe as co-managers of the fund. We believe the fund's substantial position in corporate bonds, relative to its peer group and the benchmark, was the main reason it outperformed. Good returns from the high yield, mortgage- and asset-backed sectors of the bond market also helped performance. ECONOMIC GROWTH ENHANCED CORPORATE RETURNS An environment of solid economic growth bolstered the performance of corporate securities over the past 12 months. The mid-2004 decision by the Federal Reserve to begin increasing a key short-term interest rate dampened returns across the bond market. Against this backdrop, corporate bonds, including investment grade and high yield issues, beat out most other debt alternatives. Lower quality issues, including emerging market and non-sovereign international debt, benefited as investors sought to preserve value in an environment of rising interest rates. In light of this trend, the fund's exposure to sovereign debt, although small, helped performance, as did its limited allocation to some of the higher-quality domestic sectors, such as financials. UTILITY AND ENERGY BONDS BOOSTED RESULTS Within the corporate sector, utility bonds exhibited strong performance during the 12-month period. Business conditions improved for utility companies, and the fund's holdings, particularly in electric utilities, benefited from this trend. Exposure to oil refining companies also helped the fund as high oil prices drove the performance of the energy sector. While the airline sector detracted from performance over the period, we remain confident about the fund's airline holdings because, historically, airline bonds have benefited during periods of rising interest rates. SCALED BACK CORPORATE HOLDINGS, ADDED TO AGENCY ISSUES We scaled back the fund's exposure to investment-grade corporate bonds in some of the areas that performed best over an extended period, including utility and industrial companies. Taking profits from these areas allowed us to add to the fund's holdings in government agency and mortgage-backed debt. Regulatory scrutiny of the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation has not affected the government agency mortgage market, and we believe these areas offer some of the best relative values at this time. Toward the end of the period, strong performance in mortgages relative to other investment-grade sectors confirmed our view. We also trimmed the fund's holdings in high-yield debt issued by auto parts manufacturers including Dana Corp. and SPX. Sales of these securities realized profits for the fund. We also sold gaming and leisure (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 03/31/05 ($) Class A 8.96 Class B 8.96 Class C 8.96 Class Z 8.96 DISTRIBUTIONS DECLARED PER SHARE 04/01/04 - 03/31/05 ($) Class A 0.45 Class B 0.38 Class C 0.39 Class Z 0.47 SEC YIELDS AS OF 03/31/05 (%) Class A 3.84 Class B 3.30 Class C 3.47 Class Z 4.28 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 03/31/05 (%) Federal National Mortgage Assn. 11.5 Federal Home Loan Mortgage Corp. 10.4 Bombardier 0.0* Abitibi-Consolidated 0.0* * Bombardier and Abitibi each accounted for 0.04% of net assets. 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. 5 issues as this sector became fully valued. We used the proceeds from these sales to increase the fund's exposure to cyclical sectors, which we believed were attractively valued. We believe that continued economic strength has the potential to bolster issues in these sectors. In this regard, we bought bonds of transportation equipment-maker Bombardier and Abitibi-Consolidated, a newsprint producer. PREPARING FOR SLOWER ECONOMIC GROWTH With the economy exhibiting slower growth, the inevitable result of a combination of higher short-term interest rates and rising business costs, we have chosen to reduce the fund's corporate holdings, chiefly among investment-grade bonds. With real interest rates at unappealing low levels, we also plan to continue to de-emphasize Treasuries in the fund. Going forward, we plan to seek out areas of the fixed income markets that we believe offer lower vulnerability to rising interest rates as well as compelling value. Ann T. Peterson is the lead manager for the fund. She has co-managed the fund since March 2005 and has been with the advisor or its predecessors or affiliate organizations since 1993. /s/ Ann T. Peterson Thomas LaPointe has co-managed the fund since March 2003 and has been with the advisor or its predecessors or affiliate organizations since 1999. /s/ Thomas LaPointe Marie M. Schofield has co-managed the fund since March 2005 and has been with the advisor or its predecessors or affiliate organizations since 1990. /s/ Marie M. Schofield Carl W. Pappo has co-managed the fund since March 2005 and has been with the advisor or its predecessors or affiliate organizations since 1993. /s/ Carl W. Pappo Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yield and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa. Investing in high yield securities (commonly known as "junk bonds") offers the potential for high current income and attractive total return but involves certain risks. Changes in economic conditions or other circumstances may adversely affect a junk bond issuer's ability to make principal and interest payments. Rising interest rates tend to lower the value of all bonds. High yield bonds issued by foreign entities have greater potential risks, including less regulation, currency fluctuations, economic instability and political developments. [SIDENOTE] WE HAVE REDUCED THE FUND'S INVESTMENT GRADE CORPORATE HOLDINGS AND PLAN TO SEEK AREAS OF THE FIXED INCOME MARKET THAT OFFER LOWER VULNERABILITY TO RISING INTEREST RATES AS WELL AS COMPELLING VALUE. 6 FINANCIAL STATEMENTS ----------------------------------------------------------- MARCH 31, 2005 COLUMBIA INTERMEDIATE BOND 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). 7 INVESTMENT PORTFOLIO ----------------------------------------------------------- MARCH 31, 2005 COLUMBIA INTERMEDIATE BOND FUND
CORPORATE FIXED-INCOME BONDS & NOTES - 57.8% BASIC MATERIALS - 2.8% CHEMICALS - 1.5% PAR ($) VALUE ($) - ------------------------------------------- ------------------------------------------------------------------------------------- Dow Chemical Co. 5.750% 11/15/09 6,000,000 6,258,300 ------------------------------------------------------------------------------------- Eastman Chemical Co. 3.250% 06/15/08 2,750,000 2,639,230 6.300% 11/15/18 6,000,000 6,403,200 ------------------------------------------------------------------------------------- NOVA Chemicals Corp. 6.500% 01/15/12 2,000,000 2,050,000 ------------------------------------------------------------------------------------- Chemicals Total 17,350,730 FOREST PRODUCTS & PAPER - 0.9% - ------------------------------------------- ------------------------------------------------------------------------------------- Abitibi-Consolidated, Inc. 8.375% 04/01/15 500,000 485,000 ------------------------------------------------------------------------------------- Cascades, Inc. 7.250% 02/15/13 6,000,000 6,120,000 ------------------------------------------------------------------------------------- Georgia-Pacific Corp. 7.500% 05/15/06 3,000,000 3,075,000 ------------------------------------------------------------------------------------- Norske Skog Canada Ltd. 7.375% 03/01/14 1,000,000 960,000 ------------------------------------------------------------------------------------- Forest Products & Paper Total 10,640,000 METALS & MINING - 0.4% - ------------------------------------------- ------------------------------------------------------------------------------------- Alcoa, Inc. 6.000% 01/15/12 5,000,000 5,290,600 ------------------------------------------------------------------------------------- Metals & Mining Total 5,290,600 --------------- BASIC MATERIALS TOTAL 33,281,330 COMMUNICATIONS - 4.5% MEDIA - 2.8% - ------------------------------------------- ------------------------------------------------------------------------------------- Comcast Cable Communications Holdings, Inc. 8.375% 03/15/13 8,500,000 10,092,900 ------------------------------------------------------------------------------------- CSC Holdings, Inc. 6.750% 04/15/12 (a) 500,000 497,500 7.625% 04/01/11 1,500,000 1,556,250 7.875% 02/15/18 1,250,000 1,328,125 ------------------------------------------------------------------------------------- Echostar DBS Corp. 6.375% 10/01/11 1,500,000 1,473,750 ------------------------------------------------------------------------------------- Liberty Media Corp. 4.510% 09/17/06 (b) 11,000,000 11,146,850 ------------------------------------------------------------------------------------- Viacom, Inc. 7.700% 07/30/10 6,500,000 7,220,720 ------------------------------------------------------------------------------------- Media Total 33,316,095 TELECOMMUNICATION SERVICES - 1.7% - ------------------------------------------- ------------------------------------------------------------------------------------- Nextel Communications, Inc. 7.375% 08/01/15 1,545,000 1,629,975 ------------------------------------------------------------------------------------- Qwest Corp. 9.125% 03/15/12 (a) 2,500,000 2,725,000 ------------------------------------------------------------------------------------- Rogers Cantel, Inc. 9.750% 06/01/16 2,000,000 2,380,000 ------------------------------------------------------------------------------------- Sprint Capital Corp. 6.125% 11/15/08 3,800,000 3,979,436 8.750% 03/15/32 1,500,000 1,941,435 -------------------------------------------------------------------------------------
See Accompanying Notes to Financials Statements. 8
CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) COMMUNICATIONS - (CONTINUED) TELECOMMUNICATION SERVICES - (CONTINUED) PAR ($) VALUE ($) - ------------------------------------------- ------------------------------------------------------------------------------------- Telefonos de Mexico SA de CV 4.500% 11/19/08 6,000,000 5,892,900 4.750% 01/27/10 (a) 1,800,000 1,753,542 ------------------------------------------------------------------------------------- Telecommunication Services Total 20,302,288 --------------- COMMUNICATIONS TOTAL 53,618,383 CONSUMER CYCLICAL - 6.5% AIRLINES - 2.2% - ------------------------------------------- ------------------------------------------------------------------------------------- American Airlines, Inc. 7.024% 10/15/09 7,000,000 7,070,000 ------------------------------------------------------------------------------------- Continental Airlines, Inc. 6.940% 10/15/13 1,276,618 1,174,488 7.461% 04/01/15 3,973,138 3,695,018 ------------------------------------------------------------------------------------- Southwest Airlines Co. 5.496% 11/01/06 7,000,000 7,139,300 ------------------------------------------------------------------------------------- United Airlines, Inc. 7.186% 04/01/11 (c) 3,926,307 3,661,281 7.783% 01/01/14 (c) 2,843,628 2,623,247 9.200% 03/22/08 (d) 2,399,897 1,103,953 ------------------------------------------------------------------------------------- Airlines Total 26,467,287 APPAREL - 0.4% - ------------------------------------------- ------------------------------------------------------------------------------------- Jones Apparel Group, Inc. 6.125% 11/15/34 (a) 3,520,000 3,296,656 ------------------------------------------------------------------------------------- Phillips-Van Heusen Corp. 7.250% 02/15/11 1,000,000 1,005,000 ------------------------------------------------------------------------------------- Apparel Total 4,301,656 AUTO MANUFACTURERS - 0.9% - ------------------------------------------- ------------------------------------------------------------------------------------- DaimlerChrysler NA Holding Corp. 6.400% 05/15/06 8,000,000 8,200,480 ------------------------------------------------------------------------------------- Navistar International Corp. 7.500% 06/15/11 2,000,000 2,020,000 ------------------------------------------------------------------------------------- Auto Manufacturers Total 10,220,480 ENTERTAINMENT - 0.1% - ------------------------------------------- ------------------------------------------------------------------------------------- Steinway Musical Instruments, Inc. 8.750% 04/15/11 1,000,000 1,065,000 ------------------------------------------------------------------------------------- Entertainment Total 1,065,000 HOME BUILDERS - 0.3% - ------------------------------------------- ------------------------------------------------------------------------------------- D.R. Horton, Inc. 9.750% 09/15/10 1,000,000 1,155,000 ------------------------------------------------------------------------------------- Standard-Pacific Corp. 9.250% 04/15/12 2,000,000 2,280,000 ------------------------------------------------------------------------------------- Home Builders Total 3,435,000 LEISURE TIME - 0.1% - ------------------------------------------- ------------------------------------------------------------------------------------- K2, Inc. 7.375% 07/01/14 1,250,000 1,293,750 ------------------------------------------------------------------------------------- Leisure Time Total 1,293,750
See Accompanying Notes to Financials Statements. 9
CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER CYCLICAL - (CONTINUED) LODGING - 0.9% PAR ($) VALUE ($) - ------------------------------------------- ------------------------------------------------------------------------------------- Hyatt Equities LLC 6.875% 06/15/07 (a) 5,000,000 5,212,500 ------------------------------------------------------------------------------------- MGM Mirage 6.750% 09/01/12 1,500,000 1,515,000 ------------------------------------------------------------------------------------- Mohegan Tribal Gaming Authority 6.125% 02/15/13 (a) 1,125,000 1,108,125 ------------------------------------------------------------------------------------- Seneca Gaming Corp. 7.250% 05/01/12 830,000 830,000 ------------------------------------------------------------------------------------- Station Casinos, Inc. 6.000% 04/01/12 1,000,000 992,500 6.875% 03/01/16 1,500,000 1,496,250 ------------------------------------------------------------------------------------- Lodging Total 11,154,375 RETAIL - 0.8% - ------------------------------------------- ------------------------------------------------------------------------------------- CVS Corp. 5.298% 01/11/27 (a) 3,410,064 3,411,291 ------------------------------------------------------------------------------------- Ferrellgas LP 6.750% 05/01/14 1,500,000 1,462,500 ------------------------------------------------------------------------------------- Kohl's Corp. 6.700% 02/01/06 2,462,000 2,515,967 ------------------------------------------------------------------------------------- Rite Aid Corp. 7.500% 01/15/15 (a) 130,000 124,800 ------------------------------------------------------------------------------------- Saks, Inc. 7.000% 12/01/13 1,594,000 1,466,480 ------------------------------------------------------------------------------------- Tempur-Pedic, Inc. 10.250% 08/15/10 317,000 352,663 ------------------------------------------------------------------------------------- Retail Total 9,333,701 TEXTILES - 0.8% - ------------------------------------------- ------------------------------------------------------------------------------------- Cintas Corp. 5.125% 06/01/07 5,315,000 5,410,989 6.000% 06/01/12 3,250,000 3,443,700 ------------------------------------------------------------------------------------- Textiles Total 8,854,689 --------------- CONSUMER CYCLICAL TOTAL 76,125,938 CONSUMER NON-CYCLICAL - 3.9% BEVERAGES - 0.1% - ------------------------------------------- ------------------------------------------------------------------------------------- Constellation Brands, Inc. 8.125% 01/15/12 1,545,000 1,645,425 ------------------------------------------------------------------------------------- Beverages Total 1,645,425 BIOTECHNOLOGY - 0.2% - ------------------------------------------- ------------------------------------------------------------------------------------- Bio-Rad Laboratories, Inc. 7.500% 08/15/13 2,000,000 2,100,000 ------------------------------------------------------------------------------------- Biotechnology Total 2,100,000 COMMERCIAL SERVICES - 0.2% - ------------------------------------------- ------------------------------------------------------------------------------------- Service Corp. International 7.700% 04/15/09 2,000,000 2,075,000 ------------------------------------------------------------------------------------- Commercial Services Total 2,075,000
See Accompanying Notes to Financials Statements. 10
CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER NON-CYCLICAL - (CONTINUED) FOOD - 0.8% PAR ($) VALUE ($) - ------------------------------------------- ------------------------------------------------------------------------------------- Cadbury-Schweppes PLC 3.875% 10/01/08 (a) 7,000,000 6,825,070 ------------------------------------------------------------------------------------- Delhaize America, Inc. 8.125% 04/15/11 1,000,000 1,115,920 ------------------------------------------------------------------------------------- Stater Brothers Holdings, Inc. 8.125% 06/15/12 1,000,000 970,000 ------------------------------------------------------------------------------------- Food Total 8,910,990 HEALTHCARE SERVICES - 1.9% - ------------------------------------------- ------------------------------------------------------------------------------------- HCA, Inc. 6.950% 05/01/12 3,000,000 3,113,580 7.125% 06/01/06 2,500,000 2,575,825 7.875% 02/01/11 5,015,000 5,471,515 ------------------------------------------------------------------------------------- Tenet Healthcare Corp. 9.875% 07/01/14 3,250,000 3,371,875 ------------------------------------------------------------------------------------- UnitedHealth Group, Inc. 3.300% 01/30/08 8,250,000 7,997,385 ------------------------------------------------------------------------------------- Healthcare Services Total 22,530,180 PHARMACEUTICALS - 0.7% - ------------------------------------------- ------------------------------------------------------------------------------------- Wyeth 6.450% 02/01/24 2,400,000 2,618,832 6.500% 02/01/34 5,000,000 5,497,500 ------------------------------------------------------------------------------------- Pharmaceuticals Total 8,116,332 --------------- CONSUMER NON-CYCLICAL TOTAL 45,377,927 DIVERSIFIED - 0.9% HOLDING COMPANIES - 0.9% - ------------------------------------------- ------------------------------------------------------------------------------------- Hutchison Whampoa International Ltd. 6.250% 01/24/14 (a) 10,500,000 10,932,915 ------------------------------------------------------------------------------------- Holding Companies Total 10,932,915 --------------- DIVERSIFIED TOTAL 10,932,915 ENERGY - 4.6% OIL & GAS - 4.3% - ------------------------------------------- ------------------------------------------------------------------------------------- Amerada Hess Corp. 7.300% 08/15/31 7,500,000 8,430,600 ------------------------------------------------------------------------------------- Chesapeake Energy Corp. 6.375% 06/15/15 (a) 500,000 500,000 7.500% 06/15/14 1,160,000 1,232,500 ------------------------------------------------------------------------------------- Gazprom International SA 7.201% 02/01/20 (a) 9,000,000 9,180,000 ------------------------------------------------------------------------------------- Nexen, Inc. 7.875% 03/15/32 5,250,000 6,462,015 ------------------------------------------------------------------------------------- Noble Drilling Corp. 7.500% 03/15/19 4,813,000 5,489,515 ------------------------------------------------------------------------------------- Pemex Project Funding Master Trust 7.875% 02/01/09 6,000,000 6,465,000 ------------------------------------------------------------------------------------- Petrobras International Finance Co. 9.750% 07/06/11 3,500,000 4,025,000 ------------------------------------------------------------------------------------- Pride International, Inc. 7.375% 07/15/14 1,500,000 1,605,000 -------------------------------------------------------------------------------------
See Accompanying Notes to Financials Statements. 11
CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) ENERGY - (CONTINUED) OIL & GAS - (CONTINUED) PAR ($) VALUE ($) - ------------------------------------------- ------------------------------------------------------------------------------------- Ras Laffan Liquefied Natural Gas Co., Ltd. 3.437% 09/15/09 (a) 7,479,000 7,056,063 ------------------------------------------------------------------------------------- Oil & Gas Total 50,445,693 PIPELINES - 0.3% - ------------------------------------------- ------------------------------------------------------------------------------------- Southern Natural Gas Co. 8.875% 03/15/10 2,000,000 2,157,500 ------------------------------------------------------------------------------------- Williams Companies, Inc. 8.125% 03/15/12 1,500,000 1,635,000 ------------------------------------------------------------------------------------- Pipelines Total 3,792,500 --------------- ENERGY TOTAL 54,238,193 FINANCIALS - 23.5% BANKS - 4.5% - ------------------------------------------- ------------------------------------------------------------------------------------- Bank One Corp. 6.000% 08/01/08 (e) 11,888,000 12,454,820 ------------------------------------------------------------------------------------- Barclays Bank PLC 7.375% 06/15/49 (a)(f) 5,000,000 5,551,600 ------------------------------------------------------------------------------------- Chinatrust Commercial Bank 5.625% 12/29/49 (a)(f) 2,350,000 2,297,290 ------------------------------------------------------------------------------------- HSBC Capital Funding LP 9.547% 12/31/49 (a)(f) 10,500,000 12,624,885 ------------------------------------------------------------------------------------- Popular North America, Inc. 6.125% 10/15/06 8,250,000 8,473,410 ------------------------------------------------------------------------------------- Rabobank Capital Funding II 5.260% 12/31/49 (a)(f) 11,500,000 11,833,270 ------------------------------------------------------------------------------------- Banks Total 53,235,275 DIVERSIFIED FINANCIAL SERVICES - 12.6% - ------------------------------------------- ------------------------------------------------------------------------------------- Air 2 US 8.027% 10/01/19 (a) 4,198,334 3,652,551 ------------------------------------------------------------------------------------- Bear Stearns Companies, Inc. 4.000% 01/31/08 10,000,000 9,873,400 ------------------------------------------------------------------------------------- Capital One Bank 5.125% 02/15/14 6,650,000 6,546,127 ------------------------------------------------------------------------------------- Citicorp 8.040% 12/15/19 (a) 12,075,000 14,879,660 ------------------------------------------------------------------------------------- Countrywide Home Loans, Inc. 5.500% 08/01/06 7,500,000 7,631,700 ------------------------------------------------------------------------------------- Ford Motor Credit Co. 5.700% 01/15/10 2,000,000 1,887,020 5.800% 01/12/09 4,650,000 4,470,371 7.375% 02/01/11 8,850,000 8,814,600 ------------------------------------------------------------------------------------- Fund American Companies, Inc. 5.875% 05/15/13 4,535,000 4,589,284 ------------------------------------------------------------------------------------- General Electric Capital Corp. 5.375% 03/15/07 10,000,000 10,219,400 ------------------------------------------------------------------------------------- General Motors Acceptance Corp. 6.125% 01/22/08 3,500,000 3,368,505 6.150% 04/05/07 5,000,000 4,913,150 ------------------------------------------------------------------------------------- Household Finance Corp. 5.875% 02/01/09 8,200,000 8,518,570 ------------------------------------------------------------------------------------- International Lease Finance Corp. 6.375% 03/15/09 9,000,000 9,500,490 -------------------------------------------------------------------------------------
See Accompanying Notes to Financials Statements. 12
CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) FINANCIALS - (CONTINUED) DIVERSIFIED FINANCIAL SERVICES - (CONTINUED) PAR ($) VALUE ($) - ------------------------------------------- ------------------------------------------------------------------------------------- Jefferies Group, Inc. 7.750% 03/15/12 7,250,000 8,235,492 ------------------------------------------------------------------------------------- John Deere Capital Corp. 7.000% 03/15/12 9,000,000 10,085,310 ------------------------------------------------------------------------------------- LaBranche & Co., Inc. 11.000% 05/15/12 2,000,000 2,110,000 ------------------------------------------------------------------------------------- Merrill Lynch & Co. 4.250% 02/08/10 11,400,000 11,148,174 ------------------------------------------------------------------------------------- Morgan Stanley 6.100% 04/15/06 10,000,000 10,221,900 ------------------------------------------------------------------------------------- PF Export Receivables Master Trust 3.748% 06/01/13 (a) 3,025,750 2,857,125 ------------------------------------------------------------------------------------- UFJ Finance Aruba AEC 6.750% 07/15/13 5,150,000 5,573,742 ------------------------------------------------------------------------------------- Diversified Financial Services Total 149,096,571 INSURANCE - 2.5% - ------------------------------------------- ------------------------------------------------------------------------------------- Berkshire Hathaway Finance Corp. 4.850% 01/15/15 (a) 5,000,000 4,863,900 ------------------------------------------------------------------------------------- Florida Windstorm Underwriting Association 7.125% 02/25/19 (a) 4,425,000 4,957,106 ------------------------------------------------------------------------------------- Hartford Financial Services Group, Inc. 4.700% 09/01/07 4,000,000 4,020,000 ------------------------------------------------------------------------------------- Prudential Insurance Co. of America 7.650% 07/01/07 (a) 10,105,000 10,773,244 ------------------------------------------------------------------------------------- Travelers Property Casualty Corp. 3.750% 03/15/08 4,750,000 4,628,875 ------------------------------------------------------------------------------------- Insurance Total 29,243,125 INVESTMENT COMPANIES - 0.8% - ------------------------------------------- ------------------------------------------------------------------------------------- Credit Suisse First Boston USA, Inc. 4.625% 01/15/08 9,750,000 9,801,967 ------------------------------------------------------------------------------------- Investment Companies Total 9,801,967 REAL ESTATE - 1.5% - ------------------------------------------- ------------------------------------------------------------------------------------- EOP Operating LP 8.375% 03/15/06 11,000,000 11,432,410 ------------------------------------------------------------------------------------- Forest City Enterprises, Inc. 7.625% 06/01/15 1,000,000 1,070,000 ------------------------------------------------------------------------------------- Prudential Property 7.125% 07/01/07 (a) 5,300,000 5,578,038 ------------------------------------------------------------------------------------- Real Estate Total 18,080,448 REAL ESTATE INVESTMENT TRUSTS - 0.9% - ------------------------------------------- ------------------------------------------------------------------------------------- iStar Financial, Inc. 5.125% 04/01/11 2,400,000 2,357,064 8.750% 08/15/08 4,800,000 5,339,664 ------------------------------------------------------------------------------------- La Quinta Properties, Inc. 7.000% 08/15/12 500,000 506,250 ------------------------------------------------------------------------------------- Thornburg Mortgage, Inc. 8.000% 05/15/13 2,500,000 2,562,500 ------------------------------------------------------------------------------------- Real Estate Investment Trusts Total 10,765,478 -------------------------------------------------------------------------------------
See Accompanying Notes to Financials Statements. 13
CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) FINANCIALS - (CONTINUED) SAVINGS & LOANS - 0.7% PAR ($) VALUE ($) - ------------------------------------------- ------------------------------------------------------------------------------------- Washington Mutual Bank 6.875% 06/15/11 5,200,000 5,736,848 ------------------------------------------------------------------------------------- Western Financial Bank 9.625% 05/15/12 2,000,000 2,175,000 ------------------------------------------------------------------------------------- Savings & Loans Total 7,911,848 --------------- FINANCIALS TOTAL 278,134,712 INDUSTRIALS - 2.2% AEROSPACE & DEFENSE - 0.9% - ------------------------------------------- ------------------------------------------------------------------------------------- Raytheon Co. 8.300% 03/01/10 7,000,000 8,023,120 ------------------------------------------------------------------------------------- Systems 2001 Asset Trust 6.664% 09/15/13 (a) 2,113,824 2,274,729 ------------------------------------------------------------------------------------- Aerospace & Defense Total 10,297,849 ELECTRONICS - 0.3% - ------------------------------------------- ------------------------------------------------------------------------------------- Flextronics International Ltd. 6.250% 11/15/14 1,000,000 952,500 ------------------------------------------------------------------------------------- Thomas & Betts Corp. 7.250% 06/01/13 2,000,000 2,137,500 ------------------------------------------------------------------------------------- Electronics Total 3,090,000 ENVIRONMENTAL CONTROL - 0.5% - ------------------------------------------- ------------------------------------------------------------------------------------- Allied Waste North America, Inc. 8.875% 04/01/08 5,500,000 5,706,250 ------------------------------------------------------------------------------------- Environmental Control Total 5,706,250 MACHINERY DIVERSIFIED - 0.1% - ------------------------------------------- ------------------------------------------------------------------------------------- Briggs & Stratton Corp. 8.875% 03/15/11 1,375,000 1,591,562 ------------------------------------------------------------------------------------- Machinery Diversified Total 1,591,562 METAL FABRICATE/HARDWARE - 0.0% - ------------------------------------------- ------------------------------------------------------------------------------------- Valmont Industries, Inc. 6.875% 05/01/14 500,000 485,625 ------------------------------------------------------------------------------------- Metal Fabricate/Hardware Total 485,625 MISCELLANEOUS MANUFACTURING - 0.2% - ------------------------------------------- ------------------------------------------------------------------------------------- Bombardier, Inc. 6.300% 05/01/14 (a) 500,000 422,500 ------------------------------------------------------------------------------------- Trinity Industries, Inc. 6.500% 03/15/14 1,550,000 1,488,000 ------------------------------------------------------------------------------------- Miscellaneous Manufacturing Total 1,910,500 PACKAGING & CONTAINERS - 0.1% - ------------------------------------------- ------------------------------------------------------------------------------------- Owens-Brockway Glass Container, Inc. 8.875% 02/15/09 1,000,000 1,065,000 ------------------------------------------------------------------------------------- Packaging & Containers Total 1,065,000
See Accompanying Notes to Financials Statements. 14
CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) INDUSTRIALS - (CONTINUED) TRANSPORTATION - 0.1% PAR ($) VALUE ($) - ------------------------------------------- ------------------------------------------------------------------------------------- FedEx Corp. 7.530% 09/23/06 487,799 504,462 ------------------------------------------------------------------------------------- Stena AB 7.500% 11/01/13 1,200,000 1,224,000 ------------------------------------------------------------------------------------- Transportation Total 1,728,462 --------------- INDUSTRIALS TOTAL 25,875,248 TECHNOLOGY - 0.5% COMPUTERS - 0.5% - ------------------------------------------- ------------------------------------------------------------------------------------- IBM Canada Credit Services Co. 3.750% 11/30/07 (a) 6,000,000 5,884,500 ------------------------------------------------------------------------------------- Computers Total 5,884,500 --------------- TECHNOLOGY TOTAL 5,884,500 UTILITIES - 8.4% ELECTRIC - 8.4% - ------------------------------------------- ------------------------------------------------------------------------------------- Edison Mission Energy 9.875% 04/15/11 1,100,000 1,265,000 ------------------------------------------------------------------------------------- FirstEnergy Corp. 5.500% 11/15/06 5,000,000 5,094,800 6.450% 11/15/11 4,500,000 4,747,275 ------------------------------------------------------------------------------------- FPL Energy American Wind LLC 6.639% 06/20/23 (a) 4,436,500 4,609,390 ------------------------------------------------------------------------------------- FPL Energy National Wind 5.608% 03/10/24 (a) 800,000 790,808 ------------------------------------------------------------------------------------- Kansas City Power & Light Co. 6.000% 03/15/07 10,000,000 10,242,900 ------------------------------------------------------------------------------------- Kiowa Power Partners LLC 5.737% 03/30/21 (a) 3,550,000 3,500,300 ------------------------------------------------------------------------------------- MidAmerican Energy Co. 6.375% 06/15/06 409,000 420,256 ------------------------------------------------------------------------------------- MidAmerican Energy Holdings Co. 3.500% 05/15/08 5,310,000 5,121,920 4.625% 10/01/07 5,000,000 5,017,800 5.875% 10/01/12 7,000,000 7,245,910 ------------------------------------------------------------------------------------- MSW Energy Holdings LLC 8.500% 09/01/10 2,000,000 2,110,000 ------------------------------------------------------------------------------------- Nevada Power Co. 9.000% 08/15/13 2,000,000 2,245,000 ------------------------------------------------------------------------------------- Niagara Mohawk Power Corp. 8.875% 05/15/07 6,200,000 6,783,668 ------------------------------------------------------------------------------------- Northern States Power Co. 8.000% 08/28/12 3,750,000 4,450,725 ------------------------------------------------------------------------------------- Oglethorpe Power Corp. 6.974% 06/30/11 2,418,000 2,530,219 ------------------------------------------------------------------------------------- Pacific Gas & Electric Co. 6.050% 03/01/34 6,250,000 6,409,063 ------------------------------------------------------------------------------------- PSE&G Energy Holdings LLC 8.625% 02/15/08 2,000,000 2,100,000 ------------------------------------------------------------------------------------- South Point Energy Center LLC 8.400% 05/30/12 (a) 1,545,105 1,433,084 ------------------------------------------------------------------------------------- Southern Power Co. 6.250% 07/15/12 4,790,000 5,166,925 -------------------------------------------------------------------------------------
See Accompanying Notes to Financials Statements. 15
CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) UTILITIES - (CONTINUED) ELECTRIC - (CONTINUED) PAR ($) VALUE ($) - ------------------------------------------- ------------------------------------------------------------------------------------- Tenaska Alabama II Partners LP 6.125% 03/30/23 (a) 3,330,169 3,388,015 ------------------------------------------------------------------------------------- TXU Corp. 5.550% 11/15/14 (a) 5,300,000 5,090,915 6.550% 11/15/34 (a) 9,400,000 9,259,564 ------------------------------------------------------------------------------------- Electric Total 99,023,537 --------------- UTILITIES TOTAL 99,023,537 TOTAL CORPORATE FIXED-INCOME BONDS & NOTES (COST OF $665,666,075) 682,492,683 MORTGAGE-BACKED SECURITIES - 19.8% - ------------------------------------------- ------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp. 4.000% 03/15/19 7,075,000 6,406,539 4.500% 09/01/18 - 05/01/34 38,468,548 37,345,531 4.750% 07/15/24 15,000,000 15,045,936 5.000% 03/15/28 - 01/01/35 34,410,562 33,999,463 12.000% 07/01/20 293,672 324,303 ------------------------------------------------------------------------------------- Federal National Mortgage Association 4.500% 07/01/18 - 02/01/19 51,824,835 50,764,670 5.000% 07/25/15 - 06/01/18 50,075,056 50,179,914 5.500% 12/01/17 6,271,837 6,397,785 6.000% 04/01/09 - 03/01/24 2,999,704 3,085,820 6.500% 10/01/28 - 12/01/31 3,041,134 3,165,146 9.250% 03/25/18 232,250 250,101 TBA 6.000% 04/13/35 (g) 22,000,000 22,481,250 ------------------------------------------------------------------------------------- Government National Mortgage Association 3.750% 07/20/25 (b) 155,588 157,737 4.954% 05/16/31 4,300,000 4,198,324 8.000% 01/15/08 - 07/15/08 246,098 257,299 9.000% 06/15/16 - 10/15/16 23,031 25,103 ------------------------------------------------------------------------------------- TOTAL MORTGAGE-BACKED SECURITIES (COST OF $237,741,545) 234,084,921 ASSET-BACKED SECURITIES - 8.1% - ------------------------------------------- ------------------------------------------------------------------------------------- AmeriCredit Automobile Receivables Trust 3.930% 10/06/11 6,000,000 5,856,120 ------------------------------------------------------------------------------------- Bank One Issuance Trust 3.590% 05/17/10 5,000,000 4,929,850 4.160% 01/15/08 10,000,000 10,015,000 ------------------------------------------------------------------------------------- California Infrastructure 6.420% 12/26/09 10,000,000 10,458,300 ------------------------------------------------------------------------------------- Capital Auto Receivables Asset Trust 2.000% 11/15/07 5,600,000 5,501,243 -------------------------------------------------------------------------------------
See Accompanying Notes to Financials Statements. 16
ASSET-BACKED SECURITIES - (CONTINUED) PAR ($) VALUE ($) - ------------------------------------------- ------------------------------------------------------------------------------------- Capital One Multi-Asset Execution Trust 3.650% 07/15/11 16,000,000 15,616,960 ------------------------------------------------------------------------------------- Cigno CBO Ltd. 6.460% 11/15/08 (a) 3,411,264 3,513,602 ------------------------------------------------------------------------------------- Citibank Credit Card Issuance Trust 2.500% 04/07/08 11,290,000 11,126,634 ------------------------------------------------------------------------------------- Diversified REIT Trust 6.780% 03/18/11 (a)(f) 5,000,000 5,263,761 ------------------------------------------------------------------------------------- Green Tree Financial Corp. 6.870% 01/15/29 2,692,564 2,826,896 ------------------------------------------------------------------------------------- Honda Auto Receivables Owner Trust 1.680% 11/21/06 7,074,906 7,045,403 ------------------------------------------------------------------------------------- Origen Manufactured Housing 3.790% 12/15/17 2,700,000 2,633,634 ------------------------------------------------------------------------------------- PG&E Energy Recovery Funding LLC 3.870% 06/25/11 10,060,000 9,941,996 ------------------------------------------------------------------------------------- Providian Gateway Master Trust 3.350% 09/15/11 (a) 1,500,000 1,464,180 TOTAL ASSET-BACKED SECURITIES (COST OF $98,457,599) 96,193,579 COLLATERALIZED MORTGAGE OBLIGATIONS - 5.0% COLLATERALIZED MORTGAGE OBLIGATIONS - 1.8% - ------------------------------------------- ------------------------------------------------------------------------------------- American Mortgage Trust 8.445% 09/27/22 32,685 29,417 ------------------------------------------------------------------------------------- Countrywide Alternative Loan Trust 5.000% 03/25/20 19,700,572 19,559,319 ------------------------------------------------------------------------------------- GSMPS Mortgage Loan Trust 7.750% 09/19/27 (a) 1,599,748 1,701,074 --------------- COLLATERALIZED MORTGAGE OBLIGATIONS TOTAL 21,289,810 COMMERICAL MORTGAGE-BACKED SECURITIES - 3.2% - ------------------------------------------- ------------------------------------------------------------------------------------- First Union National Bank Commercial 5.585% 02/12/34 5,055,305 5,154,642 Mortgage Trust 6.141% 02/12/34 8,000,000 8,466,400 ------------------------------------------------------------------------------------- LB-UBS Commercial Mortgage Trust 6.510% 12/15/26 5,000,000 5,365,600 ------------------------------------------------------------------------------------- Nomura Asset Securities Corp. 7.120% 04/13/39 6,255,000 6,419,194 ------------------------------------------------------------------------------------- Structured Asset Securities Corp. 2.065% 02/25/28 (f)(h) 6,758,253 597,700 ------------------------------------------------------------------------------------- Wachovia Bank Commercial Mortgage Trust 3.989% 06/15/35 11,930,000 11,112,198 --------------- COMMERCIAL MORTGAGE-BACKED SECURITIES TOTAL 37,115,734 TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST OF $58,501,325) 58,405,544
See Accompanying Notes to Financials Statements. 17
GOVERNMENT AGENCIES & OBLIGATIONS - 4.3% FOREIGN GOVERNMENT BONDS - 1.7% PAR ($) VALUE ($) - ------------------------------------------- ------------------------------------------------------------------------------------- Export-Import Bank of Korea 4.625% 03/16/10 4,700,000 4,653,987 ------------------------------------------------------------------------------------- State of Qatar 9.750% 06/15/30 (a) 5,000,000 7,276,350 ------------------------------------------------------------------------------------- United Mexican States 6.750% 09/27/34 8,000,000 7,792,000 --------------- FOREIGN GOVERNMENT BONDS TOTAL 19,722,337 U.S. GOVERNMENT AGENCY & OBLIGATION - 2.6% - ------------------------------------------- ------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp. 4.625% 10/15/14 8,391,000 8,214,596 ------------------------------------------------------------------------------------- U.S. Treasury Bond 5.375% 02/15/31 21,225,000 23,132,767 --------------- U.S. GOVERNMENT AGENCY & OBLIGATION TOTAL 31,347,363 TOTAL GOVERNMENT AGENCIES & OBLIGATIONS (COST OF $47,197,512) 51,069,700 SHORT-TERM OBLIGATIONS - 6.0% U.S. GOVERNMENT AGENCY - 1.8% - ------------------------------------------- ------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp. 2.680% 04/12/05 (i) 22,000,000 21,981,984 REPURCHASE AGREEMENT - 4.2% - ------------------------------------------- ------------------------------------------------------------------------------------- Repurchase agreement with State Street Bank & Trust Co., dated 03/31/05, due 04/01/05 at 2.450%, collateralized by a U.S. Treasury Bill maturing 05/19/05, market value of $50,407,560 (repurchase proceeds $49,422,363) 49,419,000 49,419,000 TOTAL SHORT-TERM OBLIGATIONS (COST OF $71,400,984) 71,400,984 TOTAL INVESTMENTS - 101.0% (COST OF $1,178,965,040) (j) 1,193,647,411 OTHER ASSETS & LIABILITIES, NET - (1.0)% (11,983,546) NET ASSETS - 100.0% 1,181,663,865
NOTES TO INVESTMENT PORTFOLIO: (a) Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2005, these securities amounted to $188,364,903, which represents 15.9% of net assets. (b) Floating rate note. The interest rate shown reflects the rate as of March 31, 2005. See Accompanying Notes to Financials Statements. 18 (c) The issuer has filed for bankruptcy protection under Chapter 11, and is in default of certain debt covenants. Income is being accrued. As of March 31, 2005, the value of these securities amounted to $6,284,528, which represents 0.5% of net assets. (d) The issuer has filed for bankruptcy protection under Chapter 11, and is in default of certain debt covenants. Income is not being accrued. As of March 31, 2005, the value of this security represents 0.1% of net assets. (e) A portion of the security with a market value of $1,882,681 is pledged as collateral for open futures contracts. (f) Variable rate security. The interest rate shown reflects the rate as of March 31, 2005. (g) Security purchased on a delayed delivery basis. (h) Accrued interest accumulates in the value of this security and is payable at redemption. (i) The rate shown represents the annualized yield at the date of purchase. (j) Cost for federal income tax purposes is $1,183,948,639. At March 31, 2005, the Fund held investments in the following sectors: SECTOR % OF NET ASSETS -------------------------------------------------------------------------- Corporate Fixed-Income Bonds & Notes 57.8% Mortgage-Backed Securities 19.8 Asset-Backed Securities 8.1 Collateralized Mortgage Obligations 5.0 Government Agencies & Obligations 4.3 Short-Term Obligations 6.0 Other Assets & Liabilities, Net (1.0) ----- 100.0% ===== ACRONYM NAME TBA To Be Announced At March 31, 2005, the Fund held the following open short futures contracts:
NUMBER OF AGGREGATE EXPIRATION UNREALIZED TYPE CONTRACTS VALUE FACE VALUE DATE APPRECIATION ------------------------------------------------------------------------------------------------- 5-Year U.S. Treasury Notes 210 $ 22,489,688 $ 22,567,283 Jun-2005 $ 77,595 10-Year U.S. Treasury Notes 132 14,423,063 14,480,087 Jun-2005 57,024 ------------ $ 134,619 ------------
See Accompanying Notes to Financials Statements. 19 STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------- MARCH 31, 2005 COLUMBIA INTERMEDIATE BOND FUND
($) - ------------------------------------------ ---------------------------------------------------------------------------- ASSETS Investments, at cost 1,178,965,040 ------------- Investments, at value 1,193,647,411 Cash 70,349 Receivable for: Fund shares sold 2,088,100 Interest 11,853,874 Deferred Trustees' compensation plan 15,387 ------------- Total Assets 1,207,675,121 ---------------------------------------------------------------------------- LIABILITIES Payable for: Investments purchased on a delayed delivery basis 22,594,000 Fund shares repurchased 1,533,803 Futures variation margin 153,375 Distributions 753,970 Investment advisory fee 341,021 Administration fee 149,283 Transfer agent fee 177,392 Pricing and bookkeeping fees 25,860 Trustees' fees 314 Custody fee 3,073 Distribution and service fees 169,345 Deferred Trustees' fees 15,387 Other liabilities 94,433 ------------- Total Liabilities 26,011,256 ------------- NET ASSETS 1,181,663,865 ---------------------------------------------------------------------------- COMPOSITION OF NET ASSETS Paid-in capital 1,184,029,119 Overdistributed net investment income (4,458,991) Accumulated net realized loss (12,723,253) Net unrealized appreciation on: Investments 14,682,371 Futures contracts 134,619 ------------- NET ASSETS 1,181,663,865 ---------------------------------------------------------------------------- CLASS A Net assets 168,213,320 Shares outstanding 18,783,371 Net asset value per share 8.96(a) Maximum offering price per share ($8.96/0.9525) 9.41(b) ---------------------------------------------------------------------------- CLASS B Net assets 89,563,998 Shares outstanding 10,001,004 Net asset value and offering price per share 8.96(a) ---------------------------------------------------------------------------- CLASS C Net assets 46,693,444 Shares outstanding 5,213,934 Net asset value and offering price per share 8.96(a) ---------------------------------------------------------------------------- CLASS Z Net assets 877,193,103 Shares outstanding 97,950,583 Net asset value, offering and redemption price per share 8.96
(a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. (b) On sales of $50,000 or more the offering price is reduced. See Accompanying Notes to Financial Statements. 20 STATEMENT OF OPERATIONS -------------------------------------------------------- FOR THE YEAR ENDED MARCH 31, 2005 COLUMBIA INTERMEDIATE BOND FUND
($) - ------------------------------------------ ---------------------------------------------------------------------------- INVESTMENT INCOME Interest (net of foreign taxes withheld of $3,281) 57,425,348 ---------------------------------------------------------------------------- EXPENSES Investment advisory fee 3,779,947 Administration fee 1,640,974 Distribution fee: Class A 155,944 Class B 723,208 Class C 379,541 Service fee: Class A 389,683 Class B 240,403 Class C 126,124 Transfer agent fee 1,293,178 Pricing and bookkeeping fees 311,382 Trustees' fees 29,368 Custody fee 42,673 Non-recurring costs (See Note 7) 55,774 Other expenses 502,542 ----------- Total Expenses 9,670,741 Fees waived by Distributor: Class A (155,944) Class C (76,643) Non-recurring costs assumed by Investment Advisor (See Note 7) (55,774) Custody earnings credit (3,443) ----------- Net Expenses 9,378,937 ----------- Net Investment Income 48,046,411 ---------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON Net realized gain on: INVESTMENTS AND FUTURES CONTRACTS Investments 234,626 Futures contracts 1,438,278 ----------- Net realized gain 1,672,904 Net change in unrealized appreciation (depreciation) on: Investments (36,119,819) Futures contracts 1,138,426 ----------- Net change in unrealized appreciation (depreciation) (34,981,393) ----------- Net Loss (33,308,489) ----------- Net Increase in Net Assets from Operations 14,737,922
See Accompanying Notes to Financial Statements. 21 STATEMENT OF CHANGES IN NET ASSETS --------------------------------------------- COLUMBIA INTERMEDIATE BOND FUND
YEAR ENDED PERIOD ENDED YEAR ENDED MARCH 31, MARCH 31, JUNE 30, INCREASE (DECREASE) IN NET ASSETS: 2005 ($) 2004 (a)(b)($) 2003 (c)($) - ------------------------------------------ --------------------------------------------------------------------------------- OPERATIONS Net investment income 48,046,411 33,070,574 47,471,086 Net realized gain (loss) on investments and futures contracts 1,672,904 12,432,924 (1,842,521) Net change in unrealized appreciation (depreciation) on investments and futures contracts (34,981,393) 951,538 50,393,482 --------------------------------------------- Net Increase from Operations 14,737,922 46,455,036 96,022,047 --------------------------------------------------------------------------------- DISTRIBUTIONS DECLARED TO SHAREHOLDERS From net investment income: Class A (7,237,510) (4,074,020) (3,487,025) Class B (3,766,396) (3,054,628) (3,467,410) Class C (2,052,627) (1,672,747) (1,549,430) Class Z (38,682,066) (26,871,410) (40,839,542) From net realized gains: Class A (470,098) -- -- Class B (284,878) -- -- Class C (146,761) -- -- Class Z (2,354,812) -- -- --------------------------------------------- Total Distributions Declared to Shareholders (54,995,148) (35,672,805) (49,343,407) --------------------------------------------------------------------------------- SHARE TRANSACTIONS Class A: Subscriptions 81,826,437 82,402,961 93,406,890 Distributions reinvested 7,001,846 3,517,373 2,883,981 Redemptions (61,931,472) (33,954,472) (40,046,836) --------------------------------------------- Net Increase 26,896,811 51,965,862 56,244,035 Class B: Subscriptions 8,692,611 18,062,576 83,003,613 Distributions reinvested 2,962,492 2,126,834 2,442,195 Redemptions (23,338,504) (20,373,050) (15,335,796) --------------------------------------------- Net Increase (Decrease) (11,683,401) (183,640) 70,110,012 Class C: Subscriptions 8,760,722 20,227,688 48,689,817 Distributions reinvested 1,460,047 1,011,442 974,767 Redemptions (20,556,079) (14,503,875) (11,862,809) --------------------------------------------- Net Increase (Decrease) (10,335,310) 6,735,255 37,801,775 Class Z: Subscriptions 347,273,902 234,474,636 269,095,613 Distributions reinvested 35,087,203 23,876,353 35,988,674 Redemptions (269,217,391) (190,223,570) (351,929,592) --------------------------------------------- Net Increase (Decrease) 113,143,714 68,127,419 (46,845,305) Net Increase from Share Transactions 118,021,814 126,644,896 117,310,517 --------------------------------------------- Total Increase in Net Assets 77,764,588 137,427,127 163,989,157 --------------------------------------------------------------------------------- NET ASSETS Beginning of period 1,103,899,277 966,472,150 802,482,993 End of period 1,181,663,865 1,103,899,277 966,472,150 Overdistributed net investment income at end of period (4,458,991) (2,995,178) (2,007,917)
(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, effective March 31, 2004. (c) Effective July 29, 2002, Stein Roe Intermediate Bond Fund Class S shares were redesignated Liberty Intermediate Bond Fund Class Z shares. See Accompanying Notes to Financial Statements. 22
YEAR ENDED PERIOD ENDED YEAR ENDED MARCH 31, MARCH 31, JUNE 30, 2005 2004 (a)(b) 2003 (c) - ------------------------------------------ --------------------------------------------------------------------------------- CHANGES IN SHARES Class A: Subscriptions 9,019,523 9,023,912 10,637,329 Issued for distributions reinvested 772,793 385,364 325,300 Redemptions (6,831,800) (3,713,540) (4,558,154) --------------------------------------------- Net Increase 2,960,516 5,695,736 6,404,475 Class B: Subscriptions 960,378 1,985,472 9,478,046 Issued for distributions reinvested 326,979 233,459 275,656 Redemptions (2,578,902) (2,239,392) (1,735,505) --------------------------------------------- Net Increase (Decrease) (1,291,545) (20,461) 8,018,197 Class C: Subscriptions 965,944 2,219,854 5,533,514 Issued for distributions reinvested 161,152 110,951 109,962 Redemptions (2,277,415) (1,594,157) (1,350,773) --------------------------------------------- Net Increase (Decrease) (1,150,319) 736,648 4,292,703 Class Z: Subscriptions 38,284,212 25,666,393 30,633,958 Issued for distributions reinvested 3,873,719 2,620,156 4,081,323 Redemptions (29,785,348) (20,891,749) (40,109,913) --------------------------------------------- Net Increase (Decrease) 12,372,583 7,394,800 (5,394,632)
(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, effective March 31, 2004. (c) Effective July 29, 2002, Stein Roe Intermediate Bond Fund Class S shares were redesignated Liberty Intermediate Bond Fund Class Z shares. See Accompanying Notes to Financial Statements. 23 NOTES TO FINANCIAL STATEMENTS -------------------------------------------------- MARCH 31, 2005 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. 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 pricing services 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. 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 24 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 receivable or payable 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 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, the Fund intends to distribute in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded. DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income are declared daily and paid monthly. Net realized capital gains, if any, are distributed at least annually. NOTE 3. FEDERAL TAX INFORMATION The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund's capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations. 25 For the year ended March 31, 2005, permanent book and tax basis differences resulting primarily from differing treatments for discount accretion/premium amortization on debt securities, paydown reclassifications and distribution 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 ----------------------------------------------------- $ 2,228,375 $ (2,228,376) $ 1 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 year ended March 31, 2005, the period ended March 31, 2004 and the year ended June 30, 2003 was as follows: MARCH 31, MARCH 31, JUNE 30, 2005 2004 2003 - --------------------------------------------------------------------- Distributions paid from: Ordinary Income* $ 53,846,911 $ 35,672,804 $ 49,343,407 Long-Term Capital Gains 1,148,237 -- -- * For tax purposes short-term capital gains distributions, if any, are considered ordinary income distributions. As of March 31, 2005, the components of distributable earnings on a tax basis were as follows: UNDISTRIBUTED UNDISTRIBUTED ORDINARY LONG-TERM NET UNREALIZED INCOME CAPITAL GAINS APPRECIATION* --------------------------------------------------------- $ 1,020,779 $ -- $ 9,698,772 * 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, 2005, based on cost of investments for federal income tax purposes and excluding any unrealized appreciation and depreciation from changes in the value of other assets and liabilities resulting from changes in exchange rates, was: Unrealized appreciation $ 30,683,634 Unrealized depreciation (20,984,862) ------------- Net unrealized appreciation $ 9,698,772 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 CAPITAL LOSS EXPIRATION CARRYFORWARD -------------------------------------- 2013 $ 6,075,470 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, 2005, post-October capital losses of $1,674,498 attributed to security transactions were deferred to April 1, 2005. NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES INVESTMENT ADVISORY FEE Columbia Management Advisors, Inc. ("Columbia"), an indirect wholly owned subsidiary of Bank of America Corporation ("BOA"), is the investment advisor to the Fund and receives a monthly investment advisory fee based on the Fund's average daily net assets at the following annual rates: AVERAGE DAILY NET ASSETS ANNUAL FEE RATE ------------------------------------------------ First $500 million 0.35% $500 million to $1 billion 0.35% $1 billion to $1.5 billion 0.30% $1.5 billion to $3 billion 0.29% $3 billion to $6 billion 0.28% Over $6 billion 0.27% Prior to November 1, 2004, Columbia received 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% For the year ended March 31, 2005, the Fund's effective investment advisory fee rate was 0.35%. ADMINISTRATION FEE Columbia provides administrative 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. 26 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"). As a result, 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 based on the number of securities held by the Fund. For the year ended March 31, 2005, the effective pricing and bookkeeping fee rate for the Fund, inclusive of out-of-pocket expenses, was 0.028%. TRANSFER AGENT FEE Columbia Funds Services, Inc. (the "Transfer Agent"), an affiliate of Columbia, provides shareholder services to the Fund and has subcontracted with Boston Financial Data Services ("BFDS") to serve as sub-transfer agent. 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. For the year ended March 31, 2005, the Fund's effective transfer agent fee rate, inclusive of out-of-pocket expenses, was 0.12%. UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES Columbia Funds Distributor, Inc. (the "Distributor"), an affiliate of Columbia, is the principal underwriter of the Fund. For the year ended March 31, 2005, the Distributor has retained net underwriting discounts of $38,847 on sales of the Fund's Class A shares and net CDSC fees of $5,283, $362,338 and $10,713 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, respectively. The Distributor has voluntarily agreed to waive the Class A share distribution fee. The Distributor has also 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. These credits are recorded as a reduction of total expenses on the Statement of Operations. 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 With the exception of one officer, all officers of the Fund are employees of Columbia or its affiliates and receive no compensation from the Fund. Effective August 23, 2004, the Board of Trustees appointed a Chief Compliance Officer to the Fund in accordance with federal securities regulations. The Fund, along with other affiliated funds, will pay its pro-rata share of the expenses associated with the Office of the Chief Compliance Officer. The Fund's fee for the Office of the Chief Compliance Officer will not exceed $15,000 per year. 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. OTHER Columbia provides certain services to the Fund related to Sarbanes-Oxley compliance. For the year ended March 31, 2005, the Fund paid $2,602 to Columbia for 27 such services. This amount is included in "Other expenses" on the Statement of Operations. NOTE 5. PORTFOLIO INFORMATION For the year ended March 31, 2005, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $524,341,524 and $422,745,986 respectively, of which $211,225,118 and $160,459,143, respectively, were U.S. Government securities. NOTE 6. LINE OF CREDIT The Fund and other affiliated funds participate in a $350,000,000 committed unsecured revolving line of credit provided by State Street Bank and Trust Company. Borrowings are used for temporary or emergency purposes to facilitate portfolio liquidity. Interest is charged to each participating fund based on its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50%. In addition, a commitment fee of 0.10% per annum is accrued and apportioned among the participating funds based on their pro-rata portion of the unutilized line of credit. The commitment fee is included in "Other expenses" on the Statement of Operations. For the year ended March 31, 2005, the Fund did not borrow under this arrangement. 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 to the extent that there is no established secondary market. 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 On February 9, 2005, Columbia and the Distributor (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004. Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions. Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the Fund's independent trustees and not 28 unacceptable to the staff of the SEC. "At this time, the distribution plan is still under development. As such, any gain to the fund or its shareholders can not currently be determined." As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds. A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the Fund and Columbia. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the Fund and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions. In 2004, certain Columbia funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs are expected to file a consolidated amended complaint in June 2005. The Fund and the other defendants to these actions, including Columbia and various of its affiliates, certain other mutual funds advised by Columbia and its affiliates, and various directors of such funds, have denied these allegations and are contesting the plaintiffs' claims. These proceedings are ongoing, however, based on currently available information, Columbia believes that these lawsuits are without merit, that the likelihood they will have a material adverse impact on any fund is remote, and that the lawsuits are not likely to materially affect its ability to provide investment management services to its clients, including the Fund. In connection with events described in detail above, various parties have filed suit against certain funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has conditionally ordered its transfer to the MDL. The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any Fund, if any, can not currently be made. For the year ended March 31, 2005, Columbia has assumed $55,774 of legal, consulting services and Trustees' fees incurred by the Fund in connection with these matters. 29 FINANCIAL HIGHLIGHTS ----------------------------------------------------------- COLUMBIA INTERMEDIATE BOND FUND SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD PERIOD YEAR ENDED ENDED ENDED MARCH 31, MARCH 31, YEAR ENDED JUNE 30, JUNE 30, CLASS A SHARES 2005 2004(a)(b) 2003(c) 2002(c) 2001(c)(d) - ------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.27 $ 9.18 $ 8.73 $ 8.84 $ 8.46 - ------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (e) 0.39 0.30 0.45 0.53(f) 0.56 Net realized and unrealized gain (loss) on investments and futures contracts (0.25) 0.11 0.48 (0.08)(f) 0.36 ----------- ----------- ----------- ----------- ----------- Total from Investment Operations 0.14 0.41 0.93 0.45 0.92 - ------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.42) (0.32) (0.48) (0.56) (0.54) From net realized gains (0.03) -- -- -- -- Return of capital -- -- -- --(g) -- ----------- ----------- ----------- ----------- ----------- Total Distributions Declared to Shareholders (0.45) (0.32) (0.48) (0.56) (0.54) - ------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 8.96 $ 9.27 $ 9.18 $ 8.73 $ 8.84 Total return (h) 1.55%(i) 4.59%(i)(j) 11.03%(i) 5.10%(i) 11.19%(j) - ------------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Operating expenses (k) 0.94% 0.99%(l) 1.05% 1.04% 0.96%(l) Interest expense -- -- --%(m) -- -- Expenses (k) 0.94% 0.99%(l) 1.05% 1.04% 0.96%(l) Net investment income (k) 4.31% 4.31%(l) 5.13% 5.94%(f) 6.90%(l) Waiver/reimbursement 0.10% 0.10%(l) 0.10% 0.10% -- Portfolio turnover rate 40% 96%(j) 114% 179%(n) 254%(n) Net assets, end of period (000's) $ 168,213 $ 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, effective March 31, 2004. (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. 30 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
YEAR PERIOD YEAR PERIOD ENDED ENDED ENDED ENDED MARCH 31, MARCH 31, JUNE 30, JUNE 30, CLASS B SHARES 2005 2004(a)(b) 2003(c) 2002(c)(d) - --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.27 $ 9.18 $ 8.73 $ 8.89 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (e) 0.32 0.25 0.39 0.18(f) Net realized and unrealized gain (loss) on investments and futures contracts (0.25) 0.11 0.47 (0.13)(f) ------------- ------------- ------------- ------------- Total from Investment Operations 0.07 0.36 0.86 0.05 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.35) (0.27) (0.41) (0.21) From net realized gains (0.03) -- -- -- Return of capital -- -- -- --(g) ------------- ------------- ------------- ------------- Total Distributions Declared to Shareholders (0.38) (0.27) (0.41) (0.21) - --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 8.96 $ 9.27 $ 9.18 $ 8.73 Total return (h) 0.80% 4.00%(i) 10.21% 0.51%(i) - --------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Operating expenses (j) 1.69% 1.74%(k) 1.80% 1.83%(k) Interest expense -- -- --%(l) -- Expenses (j) 1.69% 1.74%(k) 1.80% 1.83%(k) Net investment income (j) 3.56% 3.58%(k) 4.38% 5.04%(f)(k) Portfolio turnover rate 40% 96%(i) 114% 179%(m) Net assets, end of period (000's) $ 89,564 $ 104,700 $ 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, effective March 31, 2004. (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. 31 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
YEAR PERIOD YEAR PERIOD ENDED ENDED ENDED ENDED MARCH 31, MARCH 31, JUNE 30, JUNE 30, CLASS C SHARES 2005 2004(a)(b) 2003(c) 2002(c)(d) - --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.27 $ 9.18 $ 8.73 $ 8.89 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (e) 0.34 0.26 0.40 0.19(f) Net realized and unrealized gain (loss) on investments and futures contracts (0.26) 0.11 0.48 (0.14)(f) ------------- ------------- ------------- ------------- Total from Investment Operations 0.08 0.37 0.88 0.05 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.36) (0.28) (0.43) (0.21) From net realized gains (0.03) -- -- -- Return of capital -- -- -- --(g) ------------- ------------- ------------- ------------- Total Distributions Declared to Shareholders (0.39) (0.28) (0.43) (0.21) - --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 8.96 $ 9.27 $ 9.18 $ 8.73 Total return (h)(i) 0.95% 4.12%(j) 10.37% 0.58%(j) - --------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Operating expenses (k) 1.54% 1.59%(l) 1.65% 1.68%(l) Interest expense -- -- --%(m) -- Expenses (k) 1.54% 1.59%(l) 1.65% 1.68%(l) Net investment income (k) 3.71% 3.72%(l) 4.50% 5.19%(f)(l) Waiver/reimbursement 0.15% 0.15%(l) 0.15% 0.15%(l) Portfolio turnover rate 40% 96%(j) 114% 179%(n) Net assets, end of period (000's) $ 46,693 $ 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, effective March 31, 2004. (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. 32 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
YEAR PERIOD ENDED ENDED MARCH 31, MARCH 31, YEAR ENDED JUNE 30, CLASS Z SHARES 2005 2004(a)(b) 2003(c)(d) 2002(d) 2001(d) 2000(d) - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 9.27 $ 9.18 $ 8.73 $ 8.84 $ 8.41 $ 8.63 - ------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (e) 0.41 0.31 0.49 0.55(f) 0.62 0.60 Net realized and unrealized gain (loss) on investments and futures contracts (0.25) 0.12 0.46 (0.08)(f) 0.43 (0.22) ---------- ---------- ---------- ---------- ---------- ---------- Total from Investment Operations 0.16 0.43 0.95 0.47 1.05 0.38 - ------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.44) (0.34) (0.50) (0.58) (0.62) (0.60) From net realized gains (0.03) -- -- -- -- -- Return of capital -- -- -- --(g) -- -- ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions Declared to Shareholders (0.47) (0.34) (0.50) (0.58) (0.62) (0.60) - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 8.96 $ 9.27 $ 9.18 $ 8.73 $ 8.84 $ 8.41 Total return (h) 1.80% 4.78%(i) 11.30% 5.36% 12.86% 4.62% - ------------------------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Operating expenses (j) 0.69% 0.74%(k) 0.80% 0.79% 0.72% 0.72% Interest expense -- -- --%(l) -- -- -- Expenses (j) 0.69% 0.74%(k) 0.80% 0.79% 0.72% 0.72% Net investment income (j) 4.56% 4.58%(k) 5.51% 6.22%(f) 7.14% 7.16% Portfolio turnover rate 40% 96%(i) 114% 179%(m) 254%(m) 356%(m) Net assets, end of period (000's) $ 877,193 $ 793,477 $ 717,923 $ 729,580 $ 514,068 $ 406,216 - ------------------------------------------------------------------------------------------------------------------------------
(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, effective March 31, 2004. (c) Effective July 29, 2002, the Stein Roe Intermediate Bond Fund's Class S shares were redesignated Liberty Intermediate Bond 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 Intermediate Bond 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 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. 33 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, 2005, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, 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, 2005 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The financial statements and financial highlights of the Fund for the periods prior to July 1, 2003 were audited by another independent registered public accounting firm whose report dated August 19, 2003 expressed an unqualified opinion on those statements. PricewaterhouseCoopers LLP Boston,Massachusetts May 20, 2005 34 TRUSTEES ----------------------------------------------------------------------- COLUMBIA INTERMEDIATE BOND FUND The Trustrees/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 49) Executive Vice President-Strategy of United Airlines (airline) since December, P.O. Box 66100 2002 (formerly President of UAL Loyalty Services (airline) from September, 2001 Chicago, IL 60666 to December, 2002; Executive Vice President and Chief Financial Officer of Trustee (since 1996) United Airlines from July, 1999 to September, 2001; Senior Vice President-Finance from March, 1993 to July, 1999). Oversees 104, None --------------------------------------------------------------------------------- JANET LANGFORD KELLY (age 47) Partner, Zelle, Hofmann,Voelbel,Mason & Gette LLP (law firm); Adjunct Professor 9534 W. Gull Lake Drive of Law, Northwestern University, since September, 2004 (formerly Chief Richland, MI 49083-8530 Administrative Officer and Senior Vice President, Kmart Holding Corporation Trustee (since 1996) (consumer goods), from September, 2003 to March, 2004; Executive Vice President-Corporate Development 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 104, None --------------------------------------------------------------------------------- RICHARD W. LOWRY (age 69) 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 106(3), None Trustee (since 1995) --------------------------------------------------------------------------------- CHARLES R.NELSON (age 62) Professor of Economics, University of Washington, since January, 1976; Ford and Department of Economics Louisa Van Voorhis Professor of Political Economy, University of Washington, University of Washington since September, 1993 (formerly Director, Institute for Economic Research, Seattle,WA 98195 University of Washington from September, 2001 to June, 2003) Adjunct Professor Trustee (since 1981) 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 104, None --------------------------------------------------------------------------------- JOHN J.NEUHAUSER (age 62) 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 Chestnut Hill, MA 02467-3838 August, 1999). Oversees 1063, Saucony, Inc. (athletic footwear) Trustee (since 1985) --------------------------------------------------------------------------------- PATRICK J. SIMPSON (age 61) Partner, Perkins Coie L.L.P. (law firm). Oversees 104, None 1120 N.W. Couch Street Tenth Floor Portland, OR 97209-4128 Trustee (since 2000)
35
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 THOMAS E. STITZEL (age 69) 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. Boise, ID 83706 Oversees 104, None Trustee (since 1998) --------------------------------------------------------------------------------- THOMAS C. THEOBALD (age 68) Partner and Senior Advisor, Chicago Growth Partners (private equity investing) 8 Sound Shore Drive, since September, 2004 (formerly Managing Director, William Blair Capital Partners Suite 285 (private equity investing) from September, 1994 to September, 2004). Oversees Greenwich, CT 06830 104, Anixter International (network support equipment distributor); Ventas, Inc. Trustee and Chairman of the Board4 (since 1996) (real estate investment trust); Jones Lang LaSalle (real estate management services) and Ambac Financial Group (financial guaranty insurance) --------------------------------------------------------------------------------- ANNE-LEE VERVILLE (age 59) Retired since 1997 (formerly General Manager, Global Education Industry, IBM 359 Stickney Hill Road Corporation (computer and technology) from 1994 to 1997). Oversees 104, Chairman Hopkinton, NH 03229 of the Board of Directors, Enesco Group, Inc. (designer, importer and Trustee (since 1998) distributor of giftware and collectibles) --------------------------------------------------------------------------------- RICHARD L.WOOLWORTH (age 64) Retired since December 2003 (formerly Chairman and Chief Executive Officer, The 100 S.W.Market Street Regence Group (regional health insurer); Chairman and Chief Executive Officer, #1500 BlueCross BlueShield of Oregon; Certified Public Accountant, Arthur Young & Portland, OR 97207 Company). Oversees 104, Northwest Natural Gas Co. (natural gas service provider) Trustee (since 1991) --------------------------------------------------------------------------------- INTERESTED TRUSTEE WILLIAM E.MAYER(2) (age 65) Partner, Park Avenue Equity Partners (private equity) since February, 1999 399 Park Avenue (formerly Partner, Development Capital LLC from November 1996 to February, Suite 3204 1999). Oversees 106(3), Lee Enterprises (print media), WR Hambrecht + Co. New York, NY 10022 (financial service provider); Reader's Digest (publishing); OPENFIELD Solutions Trustee (since 1994) (retail industry technology provider) ---------------------------------------------------------------------------------
(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. (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 also serve as directors/trustees of the Liberty All-Star Funds, currently consisting of 2 funds, which are advised by an affiliate of the Advisor. (4) Mr. Theobald was appointed as Chairman of the Board effective December 10, 2003. The Statement of Additional Information Includes additional information about the Trustees of the Funds and is available, without charge, upon request by calling 800-426-3750. 36 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 CHRISTOPHER L. WILSON (age 47) Head of Mutual Funds since August, 2004 and Senior Vice President of the Advisor One Financial Center since January, 2005; President of the Columbia Funds, Liberty Funds and Stein Boston, MA 02111 Roe Funds since October, 2004; President and Chief Executive Officer of the President (since 2004) Nations Funds since January, 2005; President of the Galaxy Funds since April 2005; Director of Bank of America Global Liquidity Funds, plc since May 2005; Director of Banc of America Capital Management (Ireland), Limited since May 2005; Senior Vice President of BACAP Distributors LLC since January, 2005; Director of FIM Funding, Inc. since January, 2005; Senior Vice President of Columbia Funds Distributor, Inc. since January, 2005; Director of Columbia Funds Services, Inc. since January, 2005 (formerly President and Chief Executive Officer, CDC IXIS Asset Management Services, Inc. from September, 1998 to August, 2004). --------------------------------------------------------------------------------- J. KEVIN CONNAUGHTON (age 40) Treasurer of the Columbia Funds since October, 2003 and of the Liberty Funds, One Financial Center Stein Roe Funds and All-Star Funds since December, 2000; Vice President of the Boston, MA 02111 Advisor since April, 2003 (formerly President of the Columbia Funds, Liberty Treasurer (since 2000) Funds and Stein Roe Funds from February, 2004 to October, 2004; Chief Accounting Officer and Controller of the Liberty Funds and All-Star Funds from February, 1998 to October, 2000); Treasurer of the Galaxy Funds since September, 2002 (formerly Treasurer from December, 2002 to December, 2004 and President from February, 2004 to December, 2004 of the Columbia Management Multi-Strategy Hedge Fund, LLC; Vice President of Colonial Management Associates, Inc. from February, 1998 to October, 2000). --------------------------------------------------------------------------------- MARY JOAN HOENE (age 54) Senior Vice President and Chief Compliance Officer of the Columbia Funds, 40 West 57th Street Liberty Funds, Stein Roe Funds and All-Star Funds since August, 2004 (formerly New York, NY 10005 Partner, Carter, Ledyard & Milburn LLP from January, 2001 to August, 2004; Senior Vice President and Chief Compliance Counsel, Carter, Ledyard & Milburn LLP from November, 1999 to December, 2000; Officer (since 2004) Vice President and Counsel, Equitable Life Assurance Society of the United States from April, 1998 to November, 1999). --------------------------------------------------------------------------------- MICHAEL G. CLARKE (age 35) Chief Accounting Officer of the Columbia Funds, Liberty Funds, Stein Roe Funds One Financial Center and All-Star Funds since October, 2004 (formerly Controller of the Columbia Boston, MA 02111 Funds, Liberty Funds, Stein Roe Funds and All-Star Funds from May, 2004 to Chief Accounting Officer (since 2004) October, 2004; Assistant Treasurer from June, 2002 to May, 2004; Vice President, Product Strategy & Development of the Liberty Funds and Stein Roe Funds from February, 2001 to June, 2002; Assistant Treasurer of the Liberty Funds, Stein Roe Funds and the All-Star Funds from August, 1999 to February, 2001; Audit Manager, Deloitte & Touche LLP from May, 1997 to August, 1999). --------------------------------------------------------------------------------- JEFFREY R. COLEMAN (age 35) Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and All-Star One Financial Center Funds since October, 2004 (formerly Vice President of CDC IXIS Asset Management Boston, MA 02111 Services, Inc. and Deputy Treasurer of the CDC Nvest Funds and Loomis Sayles Controller (since 2004) Funds from February, 2003 to September, 2004; Assistant Vice President of CDC IXIS Asset Management Services, Inc. and Assistant Treasurer of the CDC Nvest Funds from August, 2000 to February, 2003; Tax Manager of PFPC, Inc. from November, 1996 to August, 2000). --------------------------------------------------------------------------------- R. SCOTT HENDERSON (age 45) Secretary of the Columbia Funds, Liberty Funds and Stein Roe Funds since One Financial Center December, 2004 (formerly Of Counsel, Bingham McCutchen from April, 2001 to Boston, MA 02111 September, 2004; Executive Director and General Counsel,Massachusetts Pension Secretary (since 2004) Reserves Investment Management Board from September, 1997 to March, 2001). ---------------------------------------------------------------------------------
37 BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENT -------------- COLUMBIA INTERMEDIATE BOND FUND Section 15(c) of the Investment Company Act of 1940 (the "1940 Act") requires that the Board of Trustees/Directors (the "Board") of the Columbia Funds (the "Funds"), including a majority of the Trustees and Directors (collectively, the "Trustees") who are not "interested persons" of the Trusts, as defined in the 1940 Act (the "Independent Trustees"), annually review and approve the terms of the Funds' investment advisory agreements. During the most recent six months covered by this report, the Board reviewed and approved the management contracts ("Advisory Agreements") with Columbia Management Advisors, Inc. ("CMA") for the Fund. At meetings held on September 23, 2004 and October 12, 2004, the Advisory Fees and Expenses Committee (the "Committee") of the Board considered the factors described below relating to the selection of CMA and the approval of the Advisory Agreement. At a meeting held on October 13, 2004, the Board, including the Independent Trustees (who were advised by their independent legal counsel), considered these factors and reached the conclusions described below. NATURE, EXTENT AND QUALITY OF SERVICES The Board considered information regarding the nature, extent and quality of services that CMA provides to the Fund under the Advisory Agreement. CMA provided the most recent investment adviser registration form ("Form ADV") and code of ethics for CMA to the Board. The Board reviewed information on the status of Securities and Exchange Commission ("SEC") and New York Attorney General ("NYAG") proceedings against CMA and certain of its affiliates, including the agreement in principle entered into with the SEC and the NYAG on March 15, 2004 to settle civil complaints filed by the SEC and the NYAG relating to trading activity in mutual fund shares.(1) The Board evaluated the ability of CMA, including its resources, reputation and other attributes, to attract and retain highly qualified research, advisory and supervisory investment professionals. The Board considered information regarding CMA's compensation program for its personnel involved in the management of the Fund. Based on these considerations and other factors, including those referenced below, the Board concluded that they were generally satisfied with the nature, extent and quality of the investment advisory services provided to the Fund by CMA. FUND PERFORMANCE AND EXPENSES CMA provided the Board with relative performance and expense information for the Fund in a report prepared by Lipper Inc. ("Lipper") an independent provider of investment company data. The Board considered the total return performance information, which included the ranking of the Fund within a performance universe made up of funds with the same Lipper investment classification and objective (the "Performance Universe") by total return for one-year, three-year, five-year, ten-year or life of fund periods, as applicable. They also considered the Fund's performance in comparison to the performance results of a group (the "Performance Peer Group") of funds selected by Lipper based on similarities in fund type (e.g. open-end), investment classification and objective, asset size, load type and 12b-1/service fees and other expense features, and to the performance results of the Fund's benchmark index. The Board reviewed a description of Lipper's methodology for selecting the mutual funds in the Fund's Performance Peer Group and Performance Universe. The Board considered statistical information regarding the Fund's total expenses and certain components thereof, including management fees (both actual management fees based on expenses for advisory and administrative fees including any reductions for fee waivers and expense reimbursements as well as contractual management fees that are computed for a hypothetical level of assets), actual non-management expenses, and fee waivers/caps and expense reimbursements. They also considered comparisons of these expenses to the expense information for funds within a group (the "Expense Peer Group") selected by Lipper based on similarities in fund type (e.g. open-end), investment classification and objective, asset size, load type and 12b-1/service fees and other expense features (but which, unlike the Performance Peer Group, may include funds with several different investment classifications and objectives) and an expense universe ("Expense Universe") selected by Lipper based on the criteria for determining the Expense Peer Group other than asset size. The expense (1) On February 9, 2005, CMA and its affiliate, Columbia Funds Distributor, Inc., entered into settlement agreements with the SEC and the NYAG that contain substantially the terms outlined in the agreements in principle. 38 information in the Lipper report took into account all existing fee waivers and expense reimbursements as well as all voluntary advisory fee reductions applicable to certain Funds that were being proposed by management in order to reduce the aggregate advisory fees received from mutual funds advised by CMA and Banc of America Capital Management, LLC ("BACAP") by $32 million per year for five years as contemplated by the agreement in principle with the NYAG. The Committee also considered the projected impact on expenses of these Funds resulting from the overall cost reductions that management anticipated would result from the proposed shift to a common group of service providers for transfer agency, fund accounting and custody services for mutual funds advised by Bank of America affiliates. The Boards also considered information is the Lipper report that ranked each Fund based on (i) each Fund's one-year performance and actual advisory fees, (ii) each Fund's one-year performance and total expenses and (iii) each Fund's 3-year performance and total expenses. Based on these comparisons and expense and performance rankings of the Fund in the Lipper Report, CMA determined an overall score for the Fund. The Committee and the Board also considered projected savings to the Fund that would result from certain modifications in soft dollar arrangements. The Committee also considered more detailed information relating to certain Funds that were highlighted for additional review based upon the fact that they ranked poorly in terms of overall expense or management fees, maintained poor performance or demonstrated a combination of below average to poor performance while maintaining below average or poor expense rankings. At its September 23, 2004 meeting, the Committee discussed these Funds with management and in executive session. The Committee requested additional information from management regarding the cause(s) of the below-average relative performance of these Funds, any remedial actions management recommended to improve performance and the general standards for review of portfolio manager performance. At its October 12, 2004 meeting, the Committee considered additional information provided by management regarding these Funds. The Board also considered management's proposal to merge or liquidate some of these Funds. Based on these considerations and other factors, the Board concluded that the overall performance and expense results supported by the approval of the Advisory Agreements for each Fund. INVESTMENT ADVISORY FEE RATES The Board reviewed and considered the proposed contractual investment advisory fee rates (the "Advisory Agreement Rates") payable by the Funds to CMA for investment advisory services. In addition, the Board reviewed and considered the existing and proposed fee waiver and reimbursement arrangements applicable to the Advisory Agreement Rates and considered the Advisory Agreement Rates after taking the fee waivers and reimbursements into account (the "Net Advisory Rates"). At previous meetings, the Committee had separately considered management's proposal to reduce annual investment advisory fees for certain Funds under the NYAG agreement in principle and the impact of these reductions on each affected Fund. Additionally, the Board considered information comparing the Advisory Agreement Rates and Net Advisory Rates (both on a stand-alone basis and on a combined basis with the Funds' administration fee rates) with those of the other funds in the Expense Peer Group. The Board concluded that the Advisory Agreement Rates and Net Advisory Rates represented reasonable compensation to CMA, in light of the nature, extent and quality of the services provided to the Funds, the fees paid and expenses borne by comparable funds and the costs that CMA incurs in providing these services to the Funds. PROFITABILITY The Board considered a detailed profitability analysis of CMA based on 2003 financial statements, adjusted to take into account advisory fee reductions implemented in November 2003 and proposed reductions under the NYAG proposed settlement. The Board concluded that, in light of the costs of providing investment management and other services to the Funds, the profits and other ancillary benefits that CMA and its affiliates received for providing these services to the Funds were not unreasonable. 39 ECONOMIES OF SCALE In evaluating potential economies of scale, the Board considered CMA's proposal to implement a standardized breakpoint schedule for combined advisory and administrative fees for the majority of the funds of the same general asset type within the Columbia Funds complex (other than index and closed-end funds). The Board noted that the standardization of the breakpoints would not result in a fee increase for any Fund. The Board concluded that any actual or potential economies of scale are, or will be, shared fairly with Fund shareholders, including most particularly through Advisory Agreement Rate breakpoints at current and reasonably foreseeable asset levels. INFORMATION ABOUT SERVICES TO OTHER CLIENTS In evaluating the proposed fee reductions under the NYAG agreement in principle, the Board considered information regarding the advisory fee rates charged by BACAP for the Nations Funds. Members of the Committee and the Board had also separately reviewed advisory fee rates for variable insurance product funds advised by CMA. This information assisted the Board in assessing the reasonableness of fees paid under the Advisory Agreements in light of the nature, extent and quality of services provided under those agreements. OTHER BENEFITS TO CMA The Board considered information regarding potential "fall-out" or ancillary benefits received by CMA and its affiliates as a result of their relationship with the Funds. These benefits could include benefits directly attributable to the relationship of CMA with the Funds (such as soft dollar credits) and benefits potentially derived from an increase in the business of CMA as a result of their relationship with the Funds (such as the ability to market to shareholders other financial products offered by CMA and its affiliates). OTHER FACTORS AND BROADER REVIEW The Board reviews detailed materials provided by CMA annually as part of the approval process under Section 15(c) of the 1940 Act. The Board also regularly reviews and assesses the quality of the services that the Funds receive throughout the year. In this regard, the Board reviews information provided by CMA at their regular meetings, including, among other things, a detailed portfolio review, and detailed fund performance reports. In addition, the Board interviews the heads of each investment area at each regular meeting of the Board and selected portfolio managers of the Funds at various times throughout the year. After considering the above-described factors and based on the deliberations and their evaluation of the information provided to them, the Board concluded that re-approval of the Advisory Agreements for each of the Funds was in the best interest of the Funds and their shareholders. Accordingly, the Board unanimously approved the Advisory Agreements. 40 IMPORTANT INFORMATION ABOUT THIS REPORT ---------------------------------------- COLUMBIA INTERMEDIATE BOND FUND TRANSFER AGENT 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 Columbia Funds Services, Inc. additional reports will be sent to you. P.O. Box 8081 Boston MA 02266-8081 This report has been prepared for shareholders of Columbia Intermediate Bond 800-345-6611 Fund. This report may also be used as sales literature when preceded or accompanied by the current prospectus which provides details of sales charges, DISTRIBUTOR investment objectives and operating policies of the fund and with the most recent copy of the Columbia Funds Performance Update. Columbia Funds Distributor, Inc. One Financial Center A description of the policies and procedures that the fund uses to determine how Boston MA 02111 to vote proxies and a copy of the fund's voting record are available (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's INVESTMENT ADVISOR website at www.sec.gov, and (iii) without charge, upon request, by calling 800-368-0346. Information regarding how the fund voted proxies relating to Columbia Management Advisors, Inc. portfolio securities during the 12-month period ended June 30, 2004 is available 100 Federal Street from the SEC's website. Information regarding how the fund voted proxies Boston MA 02110 relating to portfolio securities is also available from the fund's website. INDEPENDENT REGISTERED PUBLIC The fund files a complete schedule of portfolio holdings with the SEC for the ACCOUNTING FIRM first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be reviewed and copied at PricewaterhouseCoopers LLP the SEC's Public Reference Room in Washington, DC. Information on the operation 125 High Street of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Boston, MA 02110
Columbia Management is the primary investment management division of Bank of America Corporation. Columbia Management entities furnish investment management services and advise institutional and mutual fund portfolios. 41 [GRAPHIC APPEARS HERE] Help your fund reduce printing and postage costs! Elect to get your shareholder reports by eletronic 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, 2005 PRSRT STD U.S. Postage PAID Holliston, MA Permit NO. 20 [COLUMBIA MANAGEMENT(R) LOGO] (C) 2005 COLUMBIA FUNDS DISTRIBUTOR, INC. ONE FINANCIAL CENTER, BOSTON, MA 02111-2621 800.345.6611 www.columbiafunds.com 713-02/039V-0405 (05/05) 05/5541 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 two series of the registrant whose reports to stockholders are included in this annual filing. (a) Aggregate Audit Fees billed by the principal accountant for professional services rendered during the fiscal years ended March 31, 2005 and March 31, 2004 are approximately as follows: 2005 2004 - ------- ------- $54,300 $51,700 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, 2005 and March 31, 2004 are approximately as follows: 2005 2004 - ------ ------ $7,400 $8,000 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 2005 and 2004, Audit-Related Fees include certain agreed-upon procedures performed for semi-annual shareholder reports. (c) Aggregate Tax Fees billed by the principal accountant for professional services rendered during the fiscal years ended March 31, 2005 and March 31, 2004 are approximately as follows: 2005 2004 - ------ ------ $7,100 $5,000 Tax Fees in both fiscal years 2005 and 2004 consist primarily of the review of annual tax returns and include amounts for professional services by the principal accountant for tax compliance, tax advice and tax planning. (d) Aggregate All Other Fees billed by the principal accountant for professional services rendered during the fiscal years ended March 31, 2005 and March 31, 2004 are approximately as follows: 2005 2004 - ---- ---- $0 $0 All Other Fees include amounts for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) above. None of the amounts described in paragraphs (a) through (d) above were approved pursuant to the "de minimus" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (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 June 1 through May 31 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) The percentage of services described in paragraphs (b) through (d) of this Item approved pursuant to the "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X during both fiscal years ended March 31, 2005 and March 31, 2004 was zero. (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, 2005 and March 31, 2004 are disclosed in (b) through (d) of this Item. During the fiscal years ended March 31, 2005 and March 31, 2004, there were no Audit-Related Fees or Tax Fees that were approved 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. During the fiscal years ended March 31, 2005 and 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 $93,500 and $95,000, respectively. For both fiscal years, All Other Fees relate to internal controls reviews of the registrant's transfer agent. The percentage of Audit-Related Fees, Tax Fees and 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 both fiscal years ended March 31, 2005 and March 31, 2004 was zero. (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 The registrant's "Schedule I - Investments in securities of unaffiliated issuers" (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of Matters to a Vote of Security Holders. There have not been any material changes to the procedures by which shareholders may recommend nominees to the registrant's board of directors, since those procedures were last disclosed in response to requirements of Item 7(d)(2)(ii)(G) of Schedule 14A or this Item. Item 11. Controls and Procedures. (a) The registrant's principal executive officer and principal financial officers, based on their 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 second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. 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/ Christopher L. Wilson --------------------------------------- Christopher L. Wilson, President Date May 27, 2005 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/ Christopher L. Wilson --------------------------------------- Christopher L. Wilson, President Date May 27, 2005 By (Signature and Title) /S/ J. Kevin Connaughton --------------------------------------- J. Kevin Connaughton, Treasurer Date May 27, 2005 EX-99.CODE 2 dex99code.txt CODE OF ETHICS 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 dex99cert.txt CERTIFICATION 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) and internal control over financial reporting (as defined in Rule 30a-3(d) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's second fiscal quarter of the period covered by this 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 officer(s) 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: May 27, 2005 /S/ J. Kevin Connaughton ----------------------------------------- J. Kevin Connaughton, Treasurer I, Christopher L. Wilson, 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) and internal control over financial reporting (as defined in Rule 30a-3(d) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's second fiscal quarter of the period covered by this 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 officer(s) 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: May 27, 2005 /S/ Christopher L. Wilson ----------------------------------------- Christopher L. Wilson, President EX-99.906CT 4 dex99906ct.txt CERTIFICATION PURSUANT TO RULE 906 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, 2005, 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: May 27, 2005 /S/ Christopher L. Wilson ---------------------------------------- Christopher L. Wilson, President Date: May 27, 2005 /S/ J. Kevin Connaughton ---------------------------------------- J. Kevin Connaughton, 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. (S) 1350 and is not being filed as part of the Form N-CSR with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----