-----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, ESXE8a+D+ZnwqjkRnhBcb1ZpUVnS9WfTMiR+MPYbaUSF3ARFJ51IfGs837MBr8We kyLmuGojh6+ZKUV1k4t1nA== 0000891804-04-002554.txt : 20041105 0000891804-04-002554.hdr.sgml : 20041105 20041105172040 ACCESSION NUMBER: 0000891804-04-002554 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040831 FILED AS OF DATE: 20041105 DATE AS OF CHANGE: 20041105 EFFECTIVENESS DATE: 20041105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA FUNDS TRUST VII CENTRAL INDEX KEY: 0000876980 IRS NUMBER: 541503200 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-06347 FILM NUMBER: 041123646 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CENTER CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6174263750 MAIL ADDRESS: STREET 1: ONE FINANCIAL CENTER CITY: BOSTON STATE: MA ZIP: 02111 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY FUNDS TRUST VII DATE OF NAME CHANGE: 19990422 FORMER COMPANY: FORMER CONFORMED NAME: COLONIAL TRUST VII DATE OF NAME CHANGE: 19950406 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY FINANCIAL TRUST DATE OF NAME CHANGE: 19930311 N-CSR 1 file001.txt COLUMBIA FUNDS TRUST VII 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 811-6347 --------------------- Columbia Funds Trust VII ------------------------------------------------------------------------------ (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: 08/31/2004 ------------------ Date of reporting period: 08/31/2004 ----------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORTS TO STOCKHOLDERS. Columbia Newport Tiger Fund Annual Report August 31, 2004 Logo: Columbia Funds A Member of Columbia Management Group Table of Contents Fund Profile .................... 1 Performance Information ......... 2 Understanding Your Expenses ..... 3 Economic Update ................. 4 Portfolio Manager's Report ...... 5 Investment Portfolio ............ 7 Statement of Assets and Liabilities ............... 11 Statement of Operations ......... 12 Statement of Changes in Net Assets .................... 13 Notes to Financial Statements ... 15 Financial Highlights ............ 21 Report of Independent Registered Public Accounting Firm ................. 26 Unaudited Information ........... 27 Trustees ........................ 28 Officers ........................ 30 Columbia Funds .................. 31 Important Information About This Report ............... 33 Economic and market conditions change frequently. There is no assurance that the trends described in this report will continue or commence. - ----------------- Not FDIC Insured May Lose Value No Bank Guarantee - ----------------- TO OUR FELLOW SHAREHOLDERS ------------------------------------------------------ Columbia Newport Tiger Fund Dear Shareholder: We are pleased to let you know that FleetBoston Financial Corporation and Bank of America Corporation have merged, effective April 1, 2004. As a result of the merger, Columbia Management Group became part of the Bank of America family of companies. Looking ahead, we believe this merger will be a real benefit to our shareholders. Preserving and leveraging our strengths, the combined organization intends to deliver additional research and management capabilities, as well as new products to you. There are no immediate changes planned for fund names or customer service contacts. As you might know, on March 15, 2004, FleetBoston Financial announced an agreement in principle between Columbia Management Advisors, Inc. and Columbia Funds Distributor, Inc. (collectively "Columbia Management") with the staff of the Securities and Exchange Commission ("SEC") and the New York Attorney General ("NYAG") to settle charges involving market timing in Columbia Management mutual funds. (Bank of America came to a similar settlement in principle at the same time.) Under the agreements Columbia Management agreed, among other things, to pay $70 million in disgorgement and $70 million in civil penalties. In a separate agreement with the NYAG, the Columbia Group and its affiliate Bank of America Capital Management, LLC have agreed to collectively reduce mutual fund fees by $160 million over a five-year period. Please rest assured that the settlement and all associated legal fees will be paid by Columbia Management; not by the affected funds or their shareholders. The agreement requires the final approval of the SEC and the NYAG. You should know that your fund's Board of Trustees has taken another important step to strengthen its capacity to oversee your fund. Recently, the Board of Trustees appointed Mary Joan Hoene as Chief Compliance Officer of Columbia funds. In this role, Ms. Hoene will work with the Board of Trustees, particularly focused on the overall compliance program of the funds and the responsibility and performance of the funds' service providers. Ms. Hoene will report directly to the Board of Trustees and will work closely with senior leadership of Columbia Management, the investment arm of Bank of America, and with Bank of America's principal compliance executives. Prior to her appointment, Ms. Hoene was a partner in the law firm of Carter, Ledyard & Milburn, LLP. Among the firm's clients were investment advisors and independent directors of mutual funds. Ms. Hoene has also worked for the Securities and Exchange Commission as associate director and deputy director for the Division of Investment Management. She has also been an active advisor to several fund boards in developing independent board practices. The Board is pleased that it has appointed Ms. Hoene with her broad and extensive experience to this important new position. Both your fund's trustees and Columbia Management are committed to serving the interests of our shareholders, and we will continue to work hard to help you achieve your financial goals. In the pages that follow, you'll find valuable information about the economic environment during the period and the performance of your Columbia fund. These discussions are followed by financial statements for your fund. We hope that you will take time to read this report and discuss it with your financial advisor if you have any questions. As always, thank you for choosing Columbia funds. It is a privilege to play a role in your financial future. Sincerely, /s/ Thomas C. Theobald /s/ J. Kevin Connaughton Thomas C. Theobald J. Kevin Connaughton Chairman, Board of Trustees President, Columbia Funds J. Kevin Connaughton was named president of Columbia Funds on February 27, 2004. FUND PROFILE -------------------------------------------------------------------- Columbia Newport Tiger Fund Summary [] For the 12-month period ended August 31, 2004, the fund's class A shares returned 11.27% without sales charge. [] In an environment that was generally favorable for Asian stock markets, the fund, its benchmark and peer group all generated double-digit returns. [] The fund trailed its benchmark and peer group, primarily because it did not have heavy exposure to the lower quality stocks that led the market. However, in the second half of the period these stocks began to lose ground to the higher quality stocks that the fund favors. [Graphic: Arrow going up] Class A shares 11.27% [Graphic: Arrow going up] MSCI All Country Asia ex Japan Index 14.92% Objective Seeks capital appreciation by investing primarily in equity securities of companies located in the Tiger countries of Asia. Total net assets $313.2 million Morningstar style box Style: Growth Size: Large 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. Top 5 countries as of 08/31/04 (%) Hong Kong 24.0 Taiwan 15.9 South Korea 15.9 Singapore 10.6 India 10.2 Top 5 sectors as of 08/31/04 (%) Financials 39.0 Information technology 24.3 Consumer discretionary 14.0 Telecommunication services 7.3 Utilities 4.2 Top 10 holdings as of 08/31/04 (%) Samsung Electronics 7.7 Sun Hung Kai Properties 5.3 Taiwan Semiconductor Manufacturing 4.4 China Mobile 4.0 Housing Development Finance 3.3 Infosys Technologies 3.0 Li & Fung 2.8 Singapore Press Holdings 2.6 United Overseas Bank 2.5 Kookmin Bank 2.4 Country breakdowns, sector and portfolio holdings are calculated as a percentage of net assets. (C)2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. The Morningstar Style BoxTM reveals a fund's investment strategy. For equity funds the vertical axis shows the market capitalization of the stocks owned and the horizontal axis shows investment style (value, blend or growth). For fixed-income funds the vertical axis shows the average credit quality of the bonds owned, and the horizontal axis shows interest rate sensitivity as measured by a bond's duration (short, intermediate or long). All of these numbers are drawn from the data most recently provided by the fund and entered into Morningstar's database as of month-end. Although the data are gathered from reliable sources, Morningstar cannot guarantee completeness and accuracy. As of 08/31/2004. 1 PERFORMANCE INFORMATION --------------------------------------------------------- Columbia Newport Tiger Fund Performance of a $10,000 investment 09/01/94 - 08/31/04 ($) sales charge: without with Class A 10,188 9,602 Class B 9,479 9,479 Class C 9,481 9,481 Class T 10,404 9,806 Class Z 10,378 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 Line Chart: Class A shares Class A shares MSCI All Country Asia without sales charge with sales charge ex Japan Index Sep-1994 10000 9425 10000 9941 9369 9806 10066 9487 9959 9263 8730 9080 9164 8637 8825 8256 7781 7918 9028 8509 8579 9223 8692 8574 9239 8708 8456 10326 9732 9407 10189 9604 9260 10436 9836 9434 10087 9507 9000 10274 9683 9107 10206 9619 8950 10232 9643 8747 10652 10040 9179 11678 11007 9892 11678 11007 10000 11593 10926 10073 11550 10886 10436 11490 10829 10319 11234 10588 10165 10601 9992 9415 10986 10354 9699 11311 10661 9866 11234 10588 9678 11824 11144 10135 11818 11139 10100 11741 11066 10309 11724 11050 10396 11002 10369 9809 10804 10182 9663 11766 11090 10100 12258 11553 10469 12448 11732 10557 10318 9725 8685 10714 10098 8646 8102 7636 6724 7887 7433 6263 7804 7355 6029 6540 6164 5508 7934 7477 6676 7856 7404 6577 7138 6727 6001 6056 5708 5085 5399 5089 4515 5018 4730 4400 4229 3986 3767 4983 4697 4140 6552 6175 5040 6864 6469 5447 6861 6467 5560 6438 6068 5472 6411 6043 5365 7020 6616 6008 8572 8079 7107 8060 7597 6953 9031 8511 8040 9022 8503 7863 9075 8553 8057 8696 8196 7493 9154 8628 7735 10415 9816 8470 11880 11197 9156 11280 10631 9112 11659 10988 8921 12171 11471 9131 11288 10639 8293 10521 9916 7572 11667 10996 7972 11677 11005 7631 11677 11005 7574 10830 10207 6706 10292 9700 6178 9763 9201 5939 10001 9426 5930 10715 10099 6693 10080 9500 6378 8836 8328 5656 9365 8827 5664 9145 8619 5656 8889 8378 5520 8651 8153 5311 8077 7613 5228 6843 6450 4406 7081 6674 4644 7928 7472 5265 8346 7866 5702 8462 7975 5930 8417 7933 5974 8906 8394 6374 8995 8478 6440 8764 8260 6294 8301 7824 5981 7847 7396 5755 7660 7220 5653 6976 6574 5030 7287 6868 5286 7714 7270 5567 7275 6856 5228 7230 6815 5270 6989 6587 5058 6703 6318 4821 6810 6419 4973 7329 6907 5402 7812 7362 5743 8446 7960 6232 9152 8626 6711 9349 8811 6762 10028 9452 7341 9885 9317 7251 10517 9912 7684 10939 10310 8152 11182 10539 8428 10850 10226 8287 10382 9785 7832 10185 9599 7570 9978 9405 7503 9781 9218 7353 Aug-2004 10188 9602 7713
Average annual total return as of 08/31/04 (%) Share class A B C T Z Inception 04/01/95 04/01/95 04/01/95 05/31/89 05/31/89 Sales charge without with without with without with without with without 1-year 11.27 4.88 10.38 5.38 10.37 9.37 11.50 5.09 11.53 5-year 2.33 1.13 1.57 1.19 1.57 1.57 2.57 1.36 2.54 10-year 0.19 -0.41 -0.53 -0.53 -0.53 -0.53 0.40 -0.20 0.37 Average annual total return as of 06/30/04 (%) Share class A B C T Z Sales charge without with without with without with without with without 1-year 27.72 20.38 26.81 21.81 26.78 25.78 28.04 20.68 27.99 5-year 2.01 0.81 1.27 0.89 1.25 1.25 2.27 1.07 2.22 10-year 1.06 0.47 0.36 0.36 0.36 0.36 1.28 0.68 1.25
THE "WITH SALES CHARGE" RETURNS INCLUDE THE MAXIMUM INITIAL SALES CHARGE OF 5.75% FOR CLASS A AND T 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. 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. The fund was originally introduced on 5/31/89 and became Colonial Newport Tiger Fund on 4/1/95 when class A, B, and D (since designated C) shares were offered. On 4/30/98, the fund was renamed Newport Tiger Fund. The fund was renamed Liberty Newport Tiger Fund on July 14, 2000. Please see the fund's prospectus for additional details. Class A, B and C share performance information includes returns of the fund's class T shares for periods prior to the inception dates of those classes. Class T share returns are not restated to reflect any expense differential, e.g., Rule 12b-1 fees, between class T shares and class A, B, and C shares. Had expense differentials been reflected, returns for the periods prior to the inception date of the class A, B and C shares would have been lower. 2 UNDERSTANDING YOUR EXPENSES ----------------------------------------------------- Columbia Newport Tiger 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 ongoing costs, which generally include investment advisory fees, and/or 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 $1,000, which is invested at the beginning of the reporting period and held for the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the "actual" column is calculated using the fund's actual operating expenses and total return for the period. The amount listed in the "hypothetical" column for each share class assumes that the return each year is 5% before expenses and includes the fund's actual expense ratio. You should not use the hypothetical account values and expenses to estimate either your actual account balance at the end of the period or the expenses you paid during this reporting period. March 1, 2004 - August 31, 2004
Account value at the Account value at the Expenses paid Fund's annualized beginning of the period ($) end of the period ($) during the period ($) expense ratio (%) Actual Hypothetical Actual Hypothetical Actual Hypothetical Class A 1,000.00 1,000.00 913.43 1,016.09 8.66 9.12 1.80 Class B 1,000.00 1,000.00 909.31 1,012.32 12.24 12.90 2.55 Class C 1,000.00 1,000.00 909.41 1,012.32 12.24 12.90 2.55 Class T 1,000.00 1,000.00 914.03 1,017.34 7.46 7.86 1.55 Class Z 1,000.00 1,000.00 914.54 1,017.34 7.46 7.86 1.55
Expenses paid during the period are equal to the fund's annualized expense ratio, 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 366. Had the Investment Advisor not waived or reimbursed a portion of expenses, 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 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, redemption or exchange fees. 3 ECONOMIC UPDATE ----------------------------------------------------------------- Columbia Newport Tiger Fund Summary: For the 12-month period ended August 31, 2004 [] Emerging stock markets of Asia benefited from continued economic growth. The MSCI AC Asia ex Japan Index returned 14.92%. [] Hong Kong and Taiwan got a lift from export growth in the first half of the period. Domestic spending increased in the second half. [] An orchestrated slowdown of China's economy poses a challenge to the region going forward. [Graphic: Arrow going up] MSCI AC Asia ex Japan Index 14.92% The MSCI AC Asia ex Japan Index is an unmanaged index that tracks the performance of equity securities in eleven countries in Asia, excluding Japan, and takes into account local market restrictions on share ownership by foreigners. During the period that began September 1, 2003 and ended August 31, 2004, economic growth picked up among the developing economies of Asia, with the exception of China. In China, the government waged a concerted campaign to slow the red hot pace of growth that has prevailed for more than a year. Overall economic growth was helped by an increase in consumer and business spending as well as government spending on the building of infrastructure. Exporting countries, such as Singapore and Taiwan, also benefited from a worldwide increase in demand for products manufactured in Asia. However, as the period wore on, export growth and industrial production slowed somewhat in key areas, such as Korea and Taiwan, reflecting a pullback in technology shipments and higher energy prices. China and India both bucked that trend. Hong Kong and Taiwan benefit from higher growth The pace of growth picked up considerably for Hong Kong and Taiwan, which benefited from a worldwide increase in demand for manufactured products and also from an increase in domestic spending. A healthy tourist industry helped buoy retail sales in Hong Kong, which continues to thrive as visitors pour in from mainland China. The Chinese government has recently eased travel restrictions, making it easier for mainland travelers to enter Hong Kong. In Taiwan, the economic situation has improved markedly. Unemployment is low and exports are still very strong. Even if global growth weakens, we believe Taiwan's domestic sector could be resilient enough to maintain steady economic growth for some time. Mainland China engineers a soft landing for economy In China, the good news was a slowdown, rather than a pick-up, in economic growth. In 2003, merchandise exports and imports soared as a thriving manufacturing sector required raw materials and capital goods to meet demand. Consumer and business spending increased and government spending on infrastructure building rose. Concerned that expansion was proceeding too rapidly, the Chinese government took steps (through the People's Bank of China) to restrain the availability of credit in order to slow the wheels of growth. So far, their intervention appears to have accomplished its goal--an orderly slowdown without any significant interruption to the nation's increased prosperity. In 2003, China's gross domestic product was estimated at between 9.5% and 10.0%. Morgan Stanley estimates that growth has slowed to 9.0% in 2004, with expectations for 7.5% growth in 2005. Yet, many economists think that China needs to go further and adopt sweeping reforms that would lead to more effective, market-driven controls on the economy. It could also be advantageous for China to adopt a more flexible currency policy in order to regulate economic growth more effectively. Currently, the Chinese currency--the yuan--is pegged to the US dollar. Stock markets lifted by favorable economic news Across the board, the stock markets of the developing markets of Asia benefited from stronger economic growth. In general, stocks tied to domestic consumption, business expansion and construction spending were market leaders. However, some of the strongest performing markets in 2003 pulled back in 2004. Thailand, for example, gave back a portion of the outsized gains it logged in 2003. In Malaysia and Indonesia, performance remained positive, but slowed considerably. For the 12-month reporting period, the MSCI AC Asia ex Japan Index returned 14.92%. Risks, opportunities ahead Going forward, all eyes are on China, mindful that the slowdown it has engineered is likely to ripple through other developing Asian countries. However, the effects may not be felt until well into 2005. Inflation is another indicator that bears watching. India has already experienced a spike in inflation, and inflationary pressures appear to be building in Thailand. However, policy makers appear to be committed to adjusting monetary policy--but gradually. Some central banks have already raised interest rates in an effort to meet inflation head on. Others are poised to do so. 4 PORTFOLIO MANAGER'S REPORT ------------------------------------------------------ Columbia Newport Tiger Fund Net asset value per share as of 08/31/04 ($) Class A 11.33 Class B 10.92 Class C 10.93 Class T 11.39 Class Z 11.36 Distributions declared per share 09/01/03 - 08/31/04 ($) Class A 0.06 Class B 0.01 Class C 0.01 Class T 0.08 Class Z 0.08 Holdings discussed in this report as of 08/31/04 (%) Xinao Gas Holdings 0.8% People's Food Holdings 0.7% Dr. Reddy's Laboratories 1.1% Infosys Technologies 3.0% Land & Houses Public 1.4% Kookmin Bank 2.4% Samsung Fire & Marine Insurance 1.6% Your fund is actively managed and the composition of its portfolio will change over time. Information provided is calculated as a percentage of net assets. For the 12-month period ended August 31, 2004, Columbia Newport Tiger Fund class A shares returned 11.27% without sales charge. This was less than the 14.92% return of the MSCI AC Asia ex Japan Index and the 13.93% average return of its peer group, the Lipper Pacific ex Japan Category.1 Most of the fund's underperformance occurred during the first half of the fiscal year when investors favored lower quality stocks over higher quality stocks. However, the performance gap began to close in the second half of the period as investors began to focus on companies with strong balance sheets and solid prospects for long-term growth. These are the types of companies in which the fund invests. China's economic policy appears to be on track Early in the period we cut back our allocation to China, as the government instituted policies designed to slow the country's robust economic growth. The underweight in China relative to the benchmark aided performance. When it became apparent that the government's efforts to cool the economy were meeting with success, we added to our China position. We focused on companies that we believe have the potential to benefit from the build-out of the infrastructure and the rise in domestic consumption. Two such companies are Xinao Gas Holdings, a gas distributor, and People's Food Holdings, which sells pork throughout the country. Xinao Gas Holdings made a positive contribution to return while People's Food Holdings lost ground. Domestic events affected market results Our investment themes of infrastructure development and consumer spending remained intact in India and Thailand. We built up allocations in both countries early in the fiscal year and maintained most of our positions during the remainder of the period despite disappointing performance. While some individual stocks performed well, these stock markets suffered because of internal problems. In India, for example, a surprise victory by the Congress Party in national elections was seen as a negative, because the Congress Party is thought by some to be unfriendly toward business. Indian generic drug maker Dr. Reddy's Laboratories, declined when big pharmaceutical companies began introducing their own generic drugs. By contrast, Infosys Technologies continued to benefit from the outsourcing trend. In Thailand, long-term holding Land & Houses Public detracted from results. The stock remains in the portfolio, because we believe the property market has the potential to pick up later in 2004 and Thailand's growth and demographics bode well for the property sector. We added investments in Taiwan on the belief that corporate profits would rise on the strength of a recovering economy. While the economy remained poised for growth, the stock market was hurt by uncertainty over Taiwan's Presidential election and a downturn in the US technology sector. 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. 5 - -------------------------------------------------------------------------------- Columbia Newport Tiger Fund Sidebar text: With these factors in mind, we have positioned the portfolio to benefit from Asia's many infrastructure development projects and from the potential emergence of a consumer society. The fund benefited from our decision to remain underweight in Korea, which underperformed other Asian markets. Korea's domestic economy remains stalled, and investors fear that a slowdown in the US economy could reduce exports. In Korea, Kookmin Bank was one of the biggest disappointments. We plan to maintain the position in the portfolio until it reaches a more attractive valuation. On a more positive note, we found opportunity in the market downturn. We added Samsung Fire & Marine Insurance, Korea's largest insurance company, because we believed they were attractively valued. Looking inward for opportunity We see both positive factors and potential impediments to growth in Asia. On the positive side, we believe that deflation has ended and that interest rates and inflation could remain low. The economic expansion in China should be helpful to its neighbors. However, higher oil prices and a slower US economy are potential impediments to growth. With these factors in mind, we have positioned the portfolio to benefit from Asia's many infrastructure development projects and from the potential emergence of a consumer society. Photo of: Eric Sandlund Eric Sandlund has managed or co-managed the fund since August 2002. He has been the sole manager of the fund since March 2004. He joined the advisor and its predecessors in June 2002. /s/ Eric Sandlund Eric Sandlund There are specific risks involved when investing in foreign stocks, such as currency exchange rate fluctuations, economic change, instability of emerging countries and political developments. In addition, concentration of investments in a single region or country may result in greater volatility. A concentration of investments in a specific sector, such as technology, may cause a fund to experience increased volatility. 6 INVESTMENT PORTFOLIO ------------------------------------------------------------ August 31, 2004 Columbia Newport Tiger Fund
Common Stocks - 98.2% CONSUMER DISCRETIONARY - 14.0% Shares Value ($) - ------------------------------------------ ----------------------------------------------------------------------------- Automobiles - 4.9% Bajaj Auto Ltd. 44,107 888,249 Hyundai Motor Co. 165,840 7,180,805 Maruti Udyog Ltd. 403,329 3,324,829 PT Astra International 5,721,500 3,882,173 Automobiles Total 15,276,056 ----------------------------------------------------------------------------- Distributors - 2.8% Li & Fung Ltd. 6,650,000 8,607,075 Distributors Total 8,607,075 ----------------------------------------------------------------------------- Hotels, Restaurants & Leisure - 1.3% Genting Berhad 947,000 3,961,790 Hotels, Restaurants & Leisure Total 3,961,790 ----------------------------------------------------------------------------- Media - 3.2% Singapore Press Holdings Ltd. 3,159,700 7,992,959 Television Broadcasts Ltd. 523,000 2,168,745 Media Total 10,161,704 ----------------------------------------------------------------------------- Specialty Retail - 1.8% Esprit Holdings Ltd. 1,191,500 5,756,273 Specialty Retail Total 5,756,273 ----------- CONSUMER DISCRETIONARY TOTAL 43,762,898 CONSUMER STAPLES - 1.5% - ------------------------------------------ ----------------------------------------------------------------------------- Food Products - 1.5% People's Food Holdings Ltd. 3,570,000 2,235,807 Thai Union Frozen Products Public Co., Ltd. 4,026,300 2,324,104 Food Products Total 4,559,911 ----------- CONSUMER STAPLES TOTAL 4,559,911 FINANCIALS - 38.9% - ------------------------------------------ ----------------------------------------------------------------------------- Commercial Banks - 18.8% Bangkok Bank Public Co., Ltd., NVDR (a) 3,083,800 6,891,587 Bank Rakyat Indonesia 20,372,000 3,764,760 Chinatrust Financial Holding Co., Ltd. 6,317,111 6,709,183 Dah Sing Financial Group 245,200 1,762,144 Hong Leong Bank Berhad 4,423,800 5,796,915 Kasikornbank Public Co., Ltd., NVDR 4,885,200 5,488,000 Kookmin Bank (a) 238,705 7,673,283 Oversea-Chinese Banking Corp., Ltd. 456,000 3,551,323 Public Bank Berhad 2,779,756 4,973,176 Standard Chartered PLC (a) 262,051 4,468,752 United Overseas Bank Ltd. 1,014,000 7,899,813 Commercial Banks Total 58,978,936 ----------------------------------------------------------------------------- Diversified Financial Services - 3.6% Hong Leong Credit Berhad 734,800 812,029 Housing Development Finance Corp., Ltd. 863,134 10,367,450 Diversified Financial Services Total 11,179,479 ----------------------------------------------------------------------------- Insurance - 2.7% Cathay Financial Holding Co., Ltd. 2,047,000 3,607,565 Samsung Fire & Marine Insurance Co., Ltd. 81,690 4,890,552 Insurance Total 8,498,117 ----------------------------------------------------------------------------- See Accompany Notes to Financial Statements. 7 - -------------------------------------------------------------------------------- August 31, 2004 Columbia Newport Tiger Fund Common Stocks - (continued) FINANCIALS - (continued) Shares Value ($) - ------------------------------------------ ----------------------------------------------------------------------------- Real Estate - 13.8% City Developments Ltd. 1,791,500 6,674,693 Henderson Land Development Co., Ltd. 1,499,000 7,354,959 Land and Houses Public Co., Ltd., NVDR 20,586,900 4,501,761 SM Prime Holdings, Inc. 29,321,000 2,978,574 Sun Hung Kai Properties Ltd. 1,770,000 16,527,487 Swire Pacific Ltd., Class A 714,500 5,068,608 Real Estate Total 43,106,082 ----------- FINANCIALS TOTAL 121,762,614 HEALTH CARE - 2.3% - ------------------------------------------ ----------------------------------------------------------------------------- Health Care Equipment & Supplies - 0.2% Pihsiang Machinery Manufacturing Co., Ltd. 388,825 769,412 Health Care Equipment & Supplies Total 769,412 ----------------------------------------------------------------------------- Pharmaceuticals - 2.1% Dr. Reddy's Laboratories Ltd., ADR 216,400 3,419,120 Ranbaxy Laboratories Ltd. 153,818 3,181,481 Pharmaceuticals Total 6,600,601 ----------- HEALTH CARE TOTAL 7,370,013 INDUSTRIALS - 3.5% - ------------------------------------------ ----------------------------------------------------------------------------- Industrial Conglomerates - 2.4% China Merchants Holdings International Co., Ltd. 2,446,000 3,710,431 Hutchison Whampoa Ltd. 471,100 3,713,933 Industrial Conglomerates Total 7,424,364 ----------------------------------------------------------------------------- Machinery - 0.4% Bharat Forge Ltd. 75,678 1,196,805 Machinery Total 1,196,805 ----------------------------------------------------------------------------- Transportation Infrastructure - 0.7% Zhejiang Expressway Co., Ltd., Class H 3,334,000 2,274,542 Transportation Infrastructure Total 2,274,542 ----------- INDUSTRIALS TOTAL 10,895,711 INFORMATION TECHNOLOGY - 24.3% - ------------------------------------------ ----------------------------------------------------------------------------- Computers & Peripherals - 2.4% Acer, Inc. 2,313,836 3,093,324 Lite-On Technology Corp. 4,633,200 4,361,308 Computers & Peripherals Total 7,454,632 ----------------------------------------------------------------------------- Electronic Equipment & Instruments - 4.9% Hon Hai Precision Industry Co., Ltd. 2,050,206 6,762,920 Interflex Co., Ltd. 75,189 1,661,778 MFS Technology Ltd. 3,268,500 1,446,383 Synnex Technology International Corp. 1,582,900 2,369,238 Venture Corp., Ltd. 317,000 3,156,507 Electronic Equipment & Instruments Total 15,396,826 ----------------------------------------------------------------------------- Internet Software & Services - 1.3% NCSoft Corp. (a) 55,690 4,041,120 Internet Software & Services Total 4,041,120 ----------------------------------------------------------------------------- IT Services - 3.0% Infosys Technologies Ltd. 279,618 9,508,587 IT Services Total 9,508,587 ----------------------------------------------------------------------------- Semiconductors & Semiconductor Equipment - 12.7% MediaTek, Inc. 225,565 1,595,871 Samsung Electronics Co., Ltd. 61,420 24,242,402 Taiwan Semiconductor Manufacturing Co., Ltd. 9,913,390 13,778,810 Semiconductors & Semiconductor Equipment Total 39,617,083 ----------- INFORMATION TECHNOLOGY TOTAL 76,018,248 See Accompany Notes to Financial Statements. 8 - -------------------------------------------------------------------------------- August 31, 2004 Columbia Newport Tiger Fund Common Stocks - (continued) MATERIALS - 2.2% Shares Value ($) - ------------------------------------------ ----------------------------------------------------------------------------- Construction Materials - 2.2% Siam Cement Public Co., Ltd., NVDR 1,271,900 6,968,478 Construction Materials Total 6,968,478 ----------- MATERIALS TOTAL 6,968,478 TELECOMMUNICATION SERVICES - 7.3% - ------------------------------------------ ----------------------------------------------------------------------------- Diversified Telecommunication Services - 1.1% PT Telekomunikasi 4,473,000 3,648,136 Diversified Telecommunication Services Total 3,648,136 ----------------------------------------------------------------------------- Wireless Telecommunication Services - 6.2% China Mobile Ltd. 4,290,500 12,539,499 Taiwan Cellular Corp. 7,218,000 6,816,827 Wireless Telecommunication Services Total 19,356,326 ----------- TELECOMMUNICATION SERVICES TOTAL 23,004,462 UTILITIES - 4.2% - ------------------------------------------ ----------------------------------------------------------------------------- Electric Utilities - 1.6% Datang International Power Generation Co., Ltd., Class H3,032,000 2,357,656 Huaneng Power International, Inc., Class H 3,776,000 2,814,879 Electric Utilities Total 5,172,535 ----------------------------------------------------------------------------- Gas Utilities - 2.6% Hong Kong & China Gas Co., Ltd. 3,111,908 5,592,497 Xinao Gas Holdings Ltd. (a) 4,806,000 2,401,067 Gas Utilities Total 7,993,564 ----------- UTILITIES TOTAL 13,166,099 ----------- TOTAL COMMON STOCKS (Cost of $274,892,523) 307,508,434 Warrants - 0.1% FINANCIALS - 0.1% - ------------------------------------------ ----------------------------------------------------------------------------- Real Estate - 0.1% City Developments Ltd. (a) 161,039 359,779 Real Estate Total 359,779 ----------- FINANCIALS TOTAL 359,779 ----------- TOTAL WARRANTS (Cost of $0) 359,779 Rights - 0.0% INDUSTRIALS - 0.0% - ------------------------------------------ ----------------------------------------------------------------------------- Machinery - 0.0% Bharat Forge Ltd. (a) 3,784 14,089 Machinery Total 14,089 ----------- INDUSTRIAL TOTAL 14,089 ----------- TOTAL RIGHTS (Total cost $0) 14,089 See Accompany Notes to Financial Statements. 9 - -------------------------------------------------------------------------------- August 31, 2004 Columbia Newport Tiger Fund Short-Term Obligation - 0.8% - ------------------------------------------ ----------------------------------------------------------------------------- Par ($) Value ($) Repurchase agreement with State Street Bank & Trust Co., dated 08/31/04, due 09/01/04 at 1.490%, collateralized by U.S. Treasury Notes with maturities to 02/15/10, market value $2,403,500 (repurchase proceeds $2,356,098) 2,356,000 2,356,000 ----------- TOTAL SHORT-TERM OBLIGATION (Cost of $2,356,000) 2,356,000 Total Investments - 99.1% (cost of $277,248,523) (b) 310,238,302 Other Assets & Liabilities, Net - 0.9% 2,957,485 Net Assets - 100.0% 313,195,787
NOTES TO INVESTMENT PORTFOLIO: (a) Non-income producing security. (b) Cost for federal income tax purposes is $277,250,621. ACRONYM NAME ------- ---- ADR American Depositary Receipt NVDR Non-Voting Depositary Receipt Summary of Securities % of Total by Country (unaudited) Value ($) Investments ---------------------- ------------ ----------- Hong Kong 75,202,719 24.3 Taiwan 49,864,457 16.1 South Korea 49,689,940 16.0 Singapore 33,317,264 10.7 India 31,900,611 10.3 Thailand 26,173,929 8.4 Malaysia 15,543,909 5.0 Indonesia 11,295,069 3.6 China 7,447,077 2.4 United Kingdom 4,468,753 1.4 Philippines 2,978,574 1.0 United States* 2,356,000 0.8 ------------ ------- 310,238,302 100.0 ------------ ------- * Represents short-term obligation. Certain securities are listed by country of underlying exposure but may trade predominantly on other exchanges. See Accompany Notes to Financial Statements. 10 STATEMENT OF ASSETS AND LIABILITIES --------------------------------------------- August 31, 2004 Columbia Newport Tiger Fund
($) - ------------------------------------------ ----------------------------------------------------------------------------- Assets Investments, at cost 277,248,523 ----------- Investments, at value 310,238,302 Cash 78 Foreign currency (cost of $3,451,963) 3,449,438 Receivable for: Investments sold 5,847,535 Fund shares sold 100,274 Interest 98 Dividends 974,415 Expense reimbursement due from Investment Advisor 63,688 Deferred Trustees' compensation plan 22,933 ----------- Total Assets 320,696,761 ----------------------------------------------------------------------------- Liabilities Payable for: Investments purchased 3,398,050 Fund shares repurchased 369,570 Investment advisory fee 225,379 Administration fee 70,025 Transfer agent fee 167,099 Pricing and bookkeeping fees 19,017 Trustees' fees 218 Custody fee 84,794 Distribution and service fees 100,298 Deferred Trustees' fees 22,933 Foreign capital gains tax payable 2,962,044 Other liabilities 81,547 ----------- Total Liabilities 7,500,974 Net Assets 313,195,787 ----------------------------------------------------------------------------- Composition of Net Assets Paid-in capital 448,011,478 Undistributed net investment income 1,154,750 Accumulated net realized loss (165,993,502) Net unrealized appreciation (depreciation) on: Investments 32,989,779 Foreign currency translations (4,674) Foreign capital gains tax (2,962,044) ----------- Net Assets 313,195,787 ----------------------------------------------------------------------------- Class A Net assets 159,488,820 Shares outstanding 14,076,212 Net asset value per share 11.33(a) Maximum offering price per share ($11.33/0.9425) 12.02(b) ----------------------------------------------------------------------------- Class B Net assets 75,472,777 Shares outstanding 6,911,378 Net asset value and offering price per share 10.92(a) ----------------------------------------------------------------------------- Class C Net assets 25,233,810 Shares outstanding 2,307,714 Net asset value and offering price per share 10.93(a) ----------------------------------------------------------------------------- Class T Net assets 26,614,950 Shares outstanding 2,336,133 Net asset value per share 11.39(a) Maximum offering price per share ($11.39/0.9425) 12.08(b) ----------------------------------------------------------------------------- Class Z Net assets 26,385,430 Shares outstanding 2,321,892 Net asset value, offering and redemption price per share 11.36(c)
(a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. (b) On sales of $50,000 or more the offering price is reduced. (c) Redemption price per share is equal to net asset value less any applicable redemption fee. See Accompany Notes to Financial Statements. 11 STATEMENT OF OPERATIONS --------------------------------------------------------- For the Year Ended August 31, 2004 Columbia Newport Tiger Fund
($) - ------------------------------------------ ----------------------------------------------------------------------------- Investment Income Dividends 9,963,418 Interest 39,946 ------------ Total Investment Income (net of foreign taxes withheld of $1,182,588) 10,003,364 ----------------------------------------------------------------------------- Expenses Investment advisory fee 2,942,853 Administration fee 897,618 Distribution fee: Class B 797,061 Class C 197,314 Service fee: Class A 388,008 Class B 265,687 Class C 65,805 Transfer agent fee 1,168,816 Pricing and bookkeeping fees 110,438 Trustees' fees 16,062 Custody fee 535,638 Non-recurring costs (See Note 8) 15,871 Other expenses 344,846 ------------ Total Operating Expenses 7,746,017 ------------ Interest expense 254 Total Gross Expenses 7,746,271 ------------ Fees and expenses waived or reimbursed by Investment Advisor (451,052) Custody earnings credit (81) Non-recurring cost assumed by Investment Advisor (See Note 8) (15,871) ------------ Net Expenses 7,279,267 ------------ Net Investment Income 2,724,097 ----------------------------------------------------------------------------- Net Realized and Unrealized Net realized gain (loss) on: Gain (Loss) on Investments, Investments 53,988,729 Foreign Currency and Foreign currency transactions (357,485) Foreign capital gains tax Foreign capital gains tax (1,175,173) ------------ Net realized gain 52,456,071 Net change in unrealized appreciation/depreciation on: Investments (12,964,498) Foreign currency translations (5,911) Foreign capital gains tax (711,775) ------------ Net change in unrealized appreciation/depreciation (13,682,184) Net Gain 38,773,887 ------------ Net Increase in Net Assets from Operations 41,497,984
See Accompany Notes to Financial Statements. 12 STATEMENT OF CHANGES IN NET ASSETS ---------------------------------------------- August 31, 2004 Columbia Newport Tiger Fund
Year Ended Period Ended Year Ended August 31, August 31, December 31, Increase (Decrease) in Net Assets 2004 ($) 2003 ($)(a) 2002 ($) - ------------------------------------------ ---------------------------------------------------------------------------------- Operations Net investment income 2,724,097 2,072,212 1,589,130 Net realized gain on investments, foreign currency transactions and foreign capital gains tax 52,456,071 176,561 12,769,984 Net change in unrealized appreciation/ depreciation on investments, foreign currency translations and foreign capital gains tax (13,682,184) 71,941,084 (61,471,644) -------------------------------------------- Net Increase (Decrease) from Operations 41,497,984 74,189,857 (47,112,530) ---------------------------------------------------------------------------------- Distributions Declared to Shareholders From net investment income: Class A (831,594) -- (522,787) Class B (88,934) -- -- Class C (19,088) -- -- Class T (212,355) -- (179,551) Class Z (507,109) -- (667,756) -------------------------------------------- Total Distributions Declared to Shareholders (1,659,080) -- (1,370,094) ---------------------------------------------------------------------------------- Share Transactions Class A: Subscriptions 76,583,422 131,510,550 643,189,834 Distributions reinvested 736,922 -- 463,247 Redemptions (63,211,242) (135,540,145) (698,824,493) -------------------------------------------- Net Increase (Decrease) 14,109,102 (4,029,595) (55,171,412) Class B: Subscriptions 7,826,538 3,837,634 9,920,631 Distributions reinvested 73,423 -- -- Redemptions (64,347,868) (22,251,418) (42,924,609) -------------------------------------------- Net Decrease (56,447,907) (18,413,784) (33,003,978) Class C: Subscriptions 8,349,434 9,575,621 43,515,160 Distributions reinvested 14,267 -- -- Redemptions (8,061,406) (11,445,140) (48,691,339) -------------------------------------------- Net Increase (Decrease) 302,295 (1,869,519) (5,176,179) Class T: Subscriptions 278,751 58,308 234,399 Distributions reinvested 188,281 -- 157,730 Redemptions (4,334,649) (2,469,957) (4,265,132) -------------------------------------------- Net Decrease (3,867,617) (2,411,649) (3,873,003) Class Z: Subscriptions 5,844,590 59,682,091 586,858,953 Distributions reinvested 470,180 -- 575,242 Redemptions (52,802,123) (83,864,261) (623,845,867) -------------------------------------------- Net Decrease (46,487,353) (24,182,170) (36,411,672) Net Decrease from Share Transactions (92,391,480) (50,906,717) (133,636,244) -------------------------------------------- Redemption fees 1,780 9,941 -- Total Increase (Decrease) in Net Assets (52,550,796) 23,293,081 (182,118,868) (a) The Fund has changed its fiscal year from December 31 to August 31.
See Accompany Notes to Financial Statements. 13 - -------------------------------------------------------------------------------- August 31, 2004 Columbia Newport Tiger Fund
Year Ended Period Ended Year Ended August 31, August 31, December 31, 2004 2003 (a) 2002 - ------------------------------------------ ---------------------------------------------------------------------------------- Net Assets Beginning of period $365,746,583 $342,453,502 $524,572,370 End of period (including undistributed (overdistributed) net investment income of $1,154,750, $1,662,391 and $(234,686), respectively) $313,195,787 $365,746,583 $342,453,502 Changes in Shares Class A: Subscriptions 6,737,793 15,939,086 71,066,481 Issued for distributions reinvested 65,914 -- 54,370 Redemptions (5,611,266) (16,360,254) (76,814,494) -------------------------------------------- Net Increase (Decrease) 1,192,441 (421,168) (5,693,643) Class B: Subscriptions 703,687 478,874 1,116,852 Issued for distributions reinvested 6,780 -- -- Redemptions (5,805,997) (2,769,012) (4,810,443) -------------------------------------------- Net Decrease (5,095,530) (2,290,138) (3,693,591) Class C: Subscriptions 763,277 1,191,289 5,104,039 Issued for distributions reinvested 1,315 -- -- Redemptions (739,255) (1,420,516) (5,657,106) -------------------------------------------- Net Increase (Decrease) 25,337 (229,227) (553,067) Class T: Subscriptions 24,700 7,033 26,459 Issued for distributions reinvested 16,780 -- 18,448 Redemptions (377,383) (298,398) (460,186) -------------------------------------------- Net Decrease (335,903) (291,365) (415,279) Class Z: Subscriptions 501,244 7,168,711 65,769,295 Issued for distributions reinvested 42,018 -- 67,517 Redemptions (4,535,587) (10,345,294) (69,376,873) -------------------------------------------- Net Decrease (3,992,325) (3,176,583) (3,540,061)
(a) The Fund has changed its fiscal year from December 31 to August 31. See Accompany Notes to Financial Statements. 14 Notes to Financial Statements --------------------------------------------------- August 31, 2004 Columbia Newport Tiger Fund Note 1. Organization Columbia Newport Tiger Fund (the "Fund"), a series of Columbia Funds Trust VII (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 capital appreciation by investing primarily in equity securities of companies located in the Tiger countries of Asia. The countries or regions in which the Fund invests include Hong Kong, Singapore, South Korea, Taiwan, Malaysia, Thailand, India, Indonesia, China and the Philippines. Fund Shares The Fund may issue an unlimited number of shares and offers five classes of shares: Class A, Class B, Class C, Class T and Class Z. Each share class has its own sales charge and expense structure. Class A and Class T shares are subject to a maximum front-end sales charge of 5.75% based on the amount of initial investment. Class A and Class T shares purchased without an initial sales charge in accounts aggregating $1 million to $25 million at the time of purchase are subject to a 1.00% contingent deferred sales charge ("CDSC") on shares sold within eighteen months of the time of purchase. 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. Effective October 13, 2003, the Fund changed its name from Liberty Newport Tiger Fund to Columbia Newport Tiger Fund. Also on that date, the Trust changed its name from Liberty Funds Trust VII to Columbia Funds Trust VII. 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 Equity securities are valued at the last sale price on the principal exchange on which they trade, except for securities traded on the NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities or listed securities for which there were no sales during the day are valued at the closing bid price on such exchanges or over-the-counter markets. 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. Occasionally, 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 15 - -------------------------------------------------------------------------------- August 31, 2004 Columbia Newport Tiger Fund 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. The Fund may use a systematic fair valuation model provided by an independent third party to value securities principally traded in foreign markets in order to adjust for possible stale pricing that may occur between the close of the foreign exchanges and the time for valuation. If a security is valued at a "fair value," such value is likely to be different from the last quoted market price for the security. Investments for which market quotations are not readily available, or quotations which management believes are not appropriate, are valued at fair value under procedures approved by the Board of Trustees. Security Transactions Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes. Repurchase Agreements The Fund may engage in repurchase agreement transactions with institutions that the Fund's investment advisor has determined are creditworthy. The Fund, through its custodian, receives delivery of underlying securities collateralizing a repurchase agreement. Collateral is at least equal, at all times, to the value of the repurchase obligation including interest. A repurchase agreement transaction involves certain risks in the event of default or insolvency of the counterparty. These risks include possible delays or restrictions upon the Fund's ability to dispose of the underlying securities and a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights. Income Recognition Interest income is recorded on the accrual basis. Corporate actions and dividend income are recorded on the ex-date, except for certain foreign securities which are recorded as soon after ex-date as the Fund becomes aware of such, net of non-reclaimable tax withholdings. 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, based on the relative net assets of each class, for purposes of determining the net asset value 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. Foreign Capital Gains Taxes Realized gains in certain countries may be subject to foreign taxes at the fund level, at rates ranging from approximately 10% to 30%. The Fund accrues for such foreign taxes on net realized and unrealized gains at the appropriate rate for each jurisdiction. 16 - -------------------------------------------------------------------------------- August 31, 2004 Columbia Newport Tiger Fund Distributions to Shareholders Distributions to shareholders are recorded on ex-date. 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 August 31, 2004, permanent differences resulting primarily from differing treatments for foreign currency transactions were identified and reclassified among the components of the Fund's net assets as follows: Undistributed Accumulated Paid-In Net Investment Income Net Realized Loss Capital - -------------------------------------------------------------------------------- $(1,532,658) $1,532,658 $-- 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 years ended August 31, 2004, August 31, 2003 and December 31, 2002, was as follows: August 31, 2004 August 31, 2003 December 31, 2002 - -------------------------------------------------------------------------------- Distributions paid from: Ordinary Income* $1,659,080 $-- $1,370,094 * For tax purposes short-term capital gains distributions, if any, are considered ordinary income distributions. As of August 31, 2004, the components of distributable earnings on a tax basis were as follows: Undistributed Undistributed Ordinary Long-term Net Unrealized Income Capital Gains Appreciation* - -------------------------------------------------------------------------------- $1,184,173 $-- $32,983,007 * The differences between book-basis and tax-basis net unrealized appreciation/depreciation are primarily due to deferral of losses from wash sales. Unrealized appreciation and depreciation at August 31, 2004, 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 $ 61,183,058 Unrealized depreciation (28,195,377) - -------------------------------------------------------------------------------- Net unrealized appreciation $ 32,987,681 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 - -------------------------------------------------------------------------------- 2006 $143,826,658 - -------------------------------------------------------------------------------- 2007 22,164,746 - -------------------------------------------------------------------------------- $165,991,404 - -------------------------------------------------------------------------------- Capital loss carryforwards of $53,966,329 were utilized during the year ended August 31, 2004 for the Fund. Expired capital loss carryforwards are recorded as a reduction of paid-in capital. Note 4. Fees and Compensation Paid to Affiliates Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004, FleetBoston, including the Fund's investment advisor, transfer agent and distributor, was acquired by Bank of America Corporation ("BOA"). The acquisition did not change the way the Fund is managed, the investment personnel assigned to manage the Fund or the fees paid by the Fund. Investment Advisory Fee Columbia 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 $100 million 1.00% - -------------------------------------------------------------------------------- Next $1.4 billion 0.75% - -------------------------------------------------------------------------------- Next $1.0 billion 0.70% - -------------------------------------------------------------------------------- Over $2.5 billion 0.65% - -------------------------------------------------------------------------------- For the year ended August 31, 2004, the Fund's effective investment advisory fee rate was 0.82%. 17 - -------------------------------------------------------------------------------- August 31, 2004 Columbia Newport Tiger Fund Administration Fees Columbia provides administrative and other services to the Fund for a monthly administration fee at the annual rate of 0.25% of the Fund's average daily net assets. 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 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 August 31, 2004, the Fund's effective pricing and bookkeeping fee rates, inclusive of out-of-pocket expenses, was 0.031%. Transfer Agent Fees Columbia Funds Services, Inc. (the "Transfer Agent"), an affiliate of Columbia, provides shareholder services to the Fund. For such services, the Transfer Agent receives a fee, paid monthly, at the annual rate of $28.00 per open account. The Transfer Agent also receives reimbursement for certain out-of-pocket expenses. Prior to November 1, 2003, the Transfer Agent was entitled to receive a monthly transfer agent fee, in addition to reimbursement for certain out-of-pocket expenses, at the annual rate of 0.06% of the Fund's average daily net assets plus flat-rate charges based on the number of shareholder accounts and transactions. For the year ended August 31, 2004, the Fund's effective transfer agent fee rate, inclusive of out-of-pocket expenses, was 0.33%. Effective October 13, 2003, Liberty Funds Services, Inc. was renamed Columbia Funds Services, Inc. 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 August 31, 2004, the Distributor has retained net underwriting discounts of $35,725 and $1,225 on sales of the Fund's Class A and Class T shares, respectively. The Distributor has also received CDSC fees of $19,550, $93,049 and $6,618 on Class A, Class B and Class C share redemptions, respectively for the period. 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 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. Effective October 13, 2003, Liberty Funds Distributor, Inc. was renamed Columbia Funds Distributor, Inc. Expense Limits and Fee Reimbursements Columbia has voluntarily agreed to waive fees and reimburse certain expenses to the extent that total expenses (exclusive of distribution and service fees, brokerage commissions, interest, taxes and extraordinary expenses, if any) exceed 1.55% annually of the Fund's average daily net assets. This arrangement may be revised or discontinued by Columbia at any time. Custody credits The Fund has an agreement with its custodian bank under which custody fees may be reduced by balance credits. The Fund could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement. 18 - -------------------------------------------------------------------------------- August 31, 2004 Columbia Newport Tiger Fund Fees Paid to Officers and Trustees The Fund pays no compensation to its officers, all of whom are employees of Columbia or its affiliates. The Fund's Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund's assets. Other Columbia provides certain services to the Fund related to Sarbanes-Oxley compliance. For the year ended August 31, 2004, the Fund paid $1,869 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 August 31, 2004, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $111,840,539 and $206,047,703, respectively. Note 6. Redemption Fees The Fund imposes a 2.00% redemption fee to shareholders of Class Z shares who redeem shares held for 60 days or less. Redemption fees, which are retained by the Fund, are accounted for as an addition to paid in capital and are allocated to each class proportionately for purposes of determining the net asset value of each class. Prior to October 9, 2003, redemption fees were recorded as a component of paid-in capital on Class Z shares. For the year ended August 31, 2004, the redemption fees for the Class Z shares of the Fund amounted to $1,780. Note 7. Line of Credit The Fund and other affiliated funds participate in a $350,000,000 credit facility, which is used for temporary or emergency purposes to facilitate portfolio liquidity. Interest is charged to the Fund based on its borrowings. In addition, the Fund has agreed to pay commitment fees on its pro-rata portion of the unutilized line of credit. The commitment fee is included in "Other expenses" on the Statement of Operations. For the year ended August 31, 2004, the average daily loan balance outstanding on days where borrowing existed was $3,000,000 at a weighted average interest rate of 1.563%. Note 8. Disclosure of Significant Risks and Contingencies Foreign Securities There are certain additional risks involved when investing in foreign securities that are not inherent with investments in domestic securities. These risks may involve foreign currency exchange rate fluctuations, adverse political and economic developments and the possible prevention of currency exchange or other foreign governmental laws or restrictions. In addition, the liquidity of foreign securities may be more limited than that of domestic securities. Investments in emerging market countries are subject to additional risk. The risk of foreign investments is typically increased in less developed countries. These countries are also more likely to experience high levels of inflation, deflation or currency devaluation which could hurt their economies and securities markets. Geographic Concentration Because the Fund's investments are concentrated in the Tiger countries of Asia, events within the region will have a greater effect on the Fund than if the Fund were more geographically diversified. In addition, events in any one country within the region may impact the other countries or the region as a whole. Markets in the region can experience significant volatility due to social, regulatory and political uncertainties. Industry Focus The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified. Legal Proceedings Columbia, the Distributor, and certain of their affiliates (collectively, "The Columbia Group") have received information requests and subpoenas from various regulatory and law enforcement authorities in connection with their investigations of late trading and market timing in mutual funds as well as other industry wide issues. The Columbia Group has not uncovered any instances where Columbia or the Distributor were knowingly involved in late trading of mutual fund shares. On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a civil complaint in the United States District Court for the District of Massachusetts 19 - -------------------------------------------------------------------------------- August 31, 2004 Columbia Newport Tiger Fund against Columbia and the Distributor, alleging that they had violated certain provisions of the federal securities laws in connection with trading activity in mutual fund shares. Also on February 24, 2004, the New York Attorney General ("NYAG") filed a civil complaint in New York Supreme Court, County of New York against Columbia and the Distributor alleging that Columbia and the Distributor had violated certain New York anti-fraud statutes. If either Columbia or the Distributor is unsuccessful in its defense of these proceedings, it could be barred from serving as an investment advisor or distributor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could prevent Columbia, the Distributor or any company that is an affiliated person of Columbia and the Distributor from serving as an investment advisor or distributor for any registered investment company, including your fund. Your fund has been informed by Columbia that, if these results occur, they will seek exemptive relief from the SEC to permit them to continue to serve as your fund's investment advisor and distributor. There is no assurance that such exemptive relief will be granted. On March 15, 2004, Columbia and the Distributor entered into agreements in principle with the SEC Division of Enforcement and NYAG in settlement of the charges. Under the agreements, Columbia and the Distributor agreed, among other things, to the following conditions: payment of $70 million in disgorgement; payment of $70 million in civil penalties; an order requiring Columbia and the Distributor to cease and desist from violations of the antifraud provisions and other provisions of the federal securities laws; governance changes designed to maintain the independence of the mutual fund boards of trustees and ensure compliance with securities laws and their fiduciary duties; and retention of an independent consultant to review Columbia's and the Distributor's compliance policies and procedures. The agreement requires the final approval of the SEC. In a separate agreement with the NYAG, the Columbia Group and its affiliate Banc of America Capital Management, LLC have agreed to collectively reduce mutual fund fees by $160 million over a five-year period. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds. In connection with the events described in detail above, various parties have filed suit against certain funds, their Boards and/or FleetBoston (and affiliated entities). More than 300 cases (including those filed against entities unaffiliated with the funds, their Boards and/or FleetBoston and its affiliated entities) have been consolidated in a multi-district proceeding and transferred to the Federal District Court in Maryland. Recently, certain Columbia funds and affiliated entities have been named as defendants in several derivative actions under various sections of the Investment Company Act of 1940, as amended, alleging, among other things, that the fees and expenses paid by those funds are excessive. The funds and the other defendants to these actions, including Columbia and various 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 suits and certain regulatory investigations 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 funds. For the year ended August 31, 2004, Columbia has assumed $15,871 of legal, consulting services and Trustees' fees incurred by the Fund in connection with these matters. Note 9. Comparability of Financial Statements The fiscal year end of the Fund was changed from December 31 to August 31. Note 10. Subsequent Event In late September, India's Ministry of Finance confirmed that, effective October 1, 2004, the tax on long-term capital gains was eliminated and the short-term capital gains tax rate was reduced from 33.66% to 11.22%. The impact of the change will result in a reduction in the foreign capital gains tax payable and a corresponding increase in net asset value of the Fund as follows: Amount: $ 940,682 - -------------------------------------------------------------------------------- Per-share: $ 0.03 Additionally, effective October 1, 2004, India's Ministry of Finance charges a securities transactions tax, levied at the rate of 0.075% on the value of all equity securities transactions traded on a recognized Indian stock exchange. The transaction tax will be included in the net amount of purchases and sales of securities. 20 Financial Highlights ------------------------------------------------------------ Columbia Newport Tiger Fund Selected data for a share outstanding throughout each period is as follows:
Year Period Ended Ended Year Ended December 31, August 31, August 31, ---------------------------------------------------- Class A Shares 2004 2003 (a) 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 10.24 $ 8.14 $ 9.38 $ 11.34 $ 13.47 $ 7.78 - ------------------------------------------------------------------------------------------------------------------------------------ Income from Investment Operations: Net investment income (b) 0.13 0.07 0.05 0.08 0.01 0.09 Net realized and unrealized gain (loss) on investments and foreign currency and foreign capital gains tax 1.02 2.03 (1.25) (1.95) (2.14) 5.60 -------------- --------------- ------------- ------------- --------- ---------- Total from Investment Operations 1.15 2.10 (1.20) (1.87) (2.13) 5.69 - ------------------------------------------------------------------------------------------------------------------------------------ Less Distributions Declared to Shareholders: From net investment income (0.06) -- (0.04) (0.09) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Redemption Fees: Redemption fees added to paid in capital --(b)(c) -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, End of Period $ 11.33 $ 10.24 $ 8.14 $ 9.38 $ 11.34 $ 13.47 Total return (d) 11.27%(e) 25.80%(e)(f) (12.83)%(e) (16.55)%(e) (15.81)% 73.14% - ------------------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets/ Supplemental Data: Operating expenses (g) 1.80% 1.80%(h) 1.80% 1.80% 1.71% 1.77% Interest expense --%(i) --%(h)(i) 0.01% --%(i) -- -- Expenses (g) 1.80% 1.80%(h) 1.81% 1.80% 1.71% 1.77% Net investment income (g) 1.18% 1.21%(h) 0.54% 0.75% 0.07% 0.97% Waiver/reimbursement 0.13% 0.20%(h) 0.07% --%(i) -- -- Portfolio turnover rate 32% 18%(f) 25% 12% 25% 14% Net assets, end of period (000's) $159,489 $131,974 $108,240 $178,145 $321,671 $403,082 - ------------------------------------------------------------------------------------------------------------------------------------
(a) The Fund has changed its fiscal year end from December 31 to August 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Rounds to less than $0.01 per share. (d) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (e) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. (i) Rounds to less than 0.01%. 21 - -------------------------------------------------------------------------------- Columbia Newport Tiger Fund Selected data for a share outstanding throughout each period is as follows:
Year Period Ended Ended Year Ended December 31, August 31, August 31, ---------------------------------------------------- Class B Shares 2004 2003 (a) 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 9.90 $ 7.90 $ 9.14 $ 11.05 $ 13.23 $ 7.70 - ------------------------------------------------------------------------------------------------------------------------------------ Income from Investment Operations: Net investment income (loss) (b) 0.01 0.03 (0.02) --(c) (0.08) 0.02 Net realized and unrealized gain (loss) on investments and foreign currency and foreign capital gains tax 1.02 1.97 (1.22) (1.89) (2.10) 5.51 ------------- --------------- ------------- ------------ --------- ---------- Total from Investment Operations 1.03 2.00 (1.24) (1.89) (2.18) 5.53 - ------------------------------------------------------------------------------------------------------------------------------------ Less Distributions Declared to Shareholders: (0.01) -- -- (0.02) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Redemption Fees: Redemption fees added to paid in capital --(b)(c) -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, End of Period $ 10.92 $ 9.90 $ 7.90 $ 9.14 $ 11.05 $ 13.23 Total return (d) 10.38%(e) 25.32%(e)(f) (13.57)%(e) (17.12)%(e) (16.48)% 71.82% - ------------------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets/ Supplemental Data: Operating expenses (g) 2.55% 2.55%(h) 2.55% 2.55% 2.46% 2.52% Interest expense --%(i) --%(h)(i) 0.01% --%(i) -- -- Expenses (g) 2.55% 2.55%(h) 2.56% 2.55% 2.46% 2.52% Net investment income (loss) (g) 0.07% 0.49%(h) (0.21)% --%(i) (0.68)% 0.22% Waiver/reimbursement 0.13% 0.20%(h) 0.07% --%(i) -- -- Portfolio turnover rate 32% 18%(f) 25% 12% 25% 14% Net assets, end of period (000's) $75,473 $118,849 $112,942 $164,354 $265,219 $407,179 - ------------------------------------------------------------------------------------------------------------------------------------
(a) The Fund has changed its fiscal year end from December 31 to August 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Rounds to less than $0.01 per share. (d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (e) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. (i) Rounds to less than 0.01%. 22 - -------------------------------------------------------------------------------- Columbia Newport Tiger Fund Selected data for a share outstanding throughout each period is as follows:
Year Period Ended Ended Year Ended December 31, August 31, August 31, ---------------------------------------------------- Class C Shares 2004 2003 (a) 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 9.91 $ 7.91 $ 9.15 $ 11.07 $ 13.25 $ 7.71 - ------------------------------------------------------------------------------------------------------------------------------------ Income from Investment Operations: Net investment income (loss) (b) 0.04 0.03 (0.02) --(c) (0.08) 0.02 Net realized and unrealized gain (loss) on investments and foreign currency and foreign capital gain tax 0.99 1.97 (1.22) (1.90) (2.10) 5.52 ------------- --------------- ------------- ------------ --------- ---------- Total from Investment Operations 1.03 2.00 (1.24) (1.90) (2.18) 5.54 - ------------------------------------------------------------------------------------------------------------------------------------ Less Distributions Declared to Shareholders: From net investment income (0.01) -- -- (0.02) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Redemption Fees: Redemption fees added to paid in capital --(b)(c) -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, End of Period $ 10.93 $ 9.91 $ 7.91 $ 9.15 $ 11.07 $ 13.25 Total return (d) 10.37%(e) 25.28%(e)(f) (13.55)%(e) (17.18)%(e) (16.45)% 71.85% - ------------------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets/ Supplemental Data: Operating expenses (g) 2.55% 2.55%(h) 2.55% 2.55% 2.46% 2.52% Interest expense --%(i) --%(h)(i) 0.01% --%(i) -- -- Expenses (g) 2.55% 2.55%(h) 2.56% 2.55% 2.46% 2.52% Net investment income (loss) (g) 0.36% 0.49%(h) (0.21)% --%(i) (0.68)% 0.22% Waiver/reimbursement 0.13% 0.20%(h) 0.07% --%(i) -- -- Portfolio turnover rate 32% 18%(f) 25% 12% 25% 14% Net assets, end of period (000's) $25,234 $ 22,619 $19,866 $28,036 $42,897 $73,038 - ------------------------------------------------------------------------------------------------------------------------------------
(a) The Fund has changed its fiscal year end from December 31 to August 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Rounds to less than $0.01 per share. (d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (e) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. (i) Rounds to less than 0.01%. 23 - -------------------------------------------------------------------------------- Columbia Newport Tiger Fund Selected data for a share outstanding throughout each period is as follows:
Year Period Ended Ended Year Ended December 31, August 31, August 31, --------------------------------------------------- Class T Shares 2004 2003 (a) 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 10.29 $ 8.16 $ 9.41 $ 11.38 $ 13.48 $ 7.77 - ------------------------------------------------------------------------------------------------------------------------------------ Income from Investment Operations: Net investment income (b) 0.15 0.08 0.08 0.10 0.04 0.12 Net realized and unrealized gain (loss) on investments and foreign currency and foreign capital gains tax 1.03 2.05 (1.27) (1.96) (2.14) 5.59 ------------- --------------- ------------ ------------ --------- ---------- Total from Investment Operations 1.18 2.13 (1.19) (1.86) (2.10) 5.71 - ------------------------------------------------------------------------------------------------------------------------------------ Less Distributions Declared to Shareholders: From net investment income (0.08) -- (0.06) (0.11) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Redemption Fees: Redemption fees added to paid in capital --(b)(c) -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, End of Period $ 11.39 $ 10.29 $ 8.16 $ 9.41 $ 11.38 $ 13.48 Total return (d) 11.50%(e) 26.10%(e)(f) (12.68)%(e) (16.39)%(e) (15.58)% 73.49% - ------------------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets/ Supplemental Data: Operating expenses (g) 1.55% 1.55%(h) 1.55% 1.55% 1.46% 1.52% Interest expense --%(i) --%(h)(i) 0.01% --%(i) -- -- Expenses (g) 1.55% 1.55%(h) 1.56% 1.55% 1.46% 1.52% Net investment income (g) 1.30% 1.50%(h) 0.79% 1.00% 0.32% 1.22% Waiver/reimbursement 0.13% 0.20%(h) 0.07% --%(i) -- -- Portfolio turnover rate 32% 18%(f) 25% 12% 25% 14% Net assets, end of period (000's) $26,615 $27,501 $24,180 $31,782 $46,733 $69,503 - ------------------------------------------------------------------------------------------------------------------------------------
(a) The Fund has changed its fiscal year end from December 31 to August 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Rounds to less than $0.01 per share. (d) Total return at net asset value assuming all distributions reinvested and no initial sales charge. (e) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. (i) Rounds to less than 0.01%. 24 - -------------------------------------------------------------------------------- Columbia Newport Tiger Fund Selected data for a share outstanding throughout each period is as follows:
Year Period Ended Ended Year Ended December 31, August 31, August 31, ----------------------------------------------------- Class Z Shares 2004 2003 (a) 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, Beginning of Period $ 10.26 $ 8.14 $ 9.38 $ 11.35 $ 13.46 $ 7.75 - ------------------------------------------------------------------------------------------------------------------------------------ Income from Investment Operations: Net investment income (b) 0.09 0.07 0.08 0.10 0.04 0.12 Net realized and unrealized gain (loss) on investments and foreign currency and foreign capital gain tax 1.09 2.05 (1.26) (1.96) (2.15) 5.59 ------------- --------------- ------------ ------------ ---------- ---------- Total from Investment Operations 1.18 2.12 (1.18) (1.86) (2.11) 5.71 - ------------------------------------------------------------------------------------------------------------------------------------ Less Distributions Declared to Shareholders: From net investment income (0.08) -- (0.06) (0.11) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Redemption Fees: Redemption fees added to paid in capital --(b)(c) --(b)(c) -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net Asset Value, End of Period $ 11.36 $ 10.26 $ 8.14 $ 9.38 $ 11.35 $ 13.46 Total return (d) 11.53%(e) 26.04%(e)(f) (12.61)%(e) (16.43)%(e) (15.68)% 73.68% - ------------------------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets/ Supplemental Data: Operating expenses (g) 1.55% 1.55%(h) 1.55% 1.55% 1.46% 1.52% Interest expense --%(i) --%(h)(i) 0.01% --%(i) -- -- Expenses (g) 1.55% 1.55%(h) 1.56% 1.55% 1.46% 1.52% Net investment income (g) 0.82% 1.31%(h) 0.79% 1.00% 0.32% 1.22% Waiver/reimbursement 0.13% 0.20%(h) 0.07% --%(i) -- -- Portfolio turnover rate 32% 18%(f) 25% 12% 25% 14% Net assets, end of period (000's) $26,385 $64,803 $77,225 $122,255 $157,606 $214,498 - ------------------------------------------------------------------------------------------------------------------------------------
(a) The Fund has changed its fiscal year end from December 31 to August 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Rounds to less than $0.01 per share. (d) Total return at net asset value assuming all distributions reinvested. (e) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. (i) Rounds to less than 0.01%. 25 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------- Columbia Newport Tiger Fund To the Trustees of Columbia Funds Trust VII and the Shareholders of Columbia Newport Tiger Fund In our opinion, the accompanying statements of assets and liabilities, including the investment portfolios, 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 Newport Tiger Fund (the "Fund") (a series of Columbia Funds Trust VII) at August 31, 2004, 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 audits 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 audits 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 audits, which included confirmation of securities at August 31, 2004 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts October 18, 2004 26 UNAUDITED INFORMATION ----------------------------------------------------------- Columbia Newport Tiger Fund Federal Income Tax Information Foreign taxes paid during the fiscal year ended August 31, 2004, amounting to $2,357,761 ($0.08 per share) are expected to be passed through to shareholders as 100% allowable foreign tax credits on Form 1099-DIV for the year ending December 31, 2004. Gross income derived from sources within foreign countries amounted to $11,146,005 ($0.40 per share) for the fiscal year ended August 31, 2004. For non-corporate shareholders 100.00%, or the maximum amount allowable under the Jobs and Growth Tax Relief Reconciliation Act of 2003, of income earned by the Fund for the period September 1, 2003 to August 31, 2004 may represent qualified dividend income. Final information will be provided in your 2004 1099-Div Form. 27 TRUSTEES ------------------------------------------------------------------------ Columbia Newport Tiger Fund Effective October 8, 2003, Patrick J. Simpson and Richard L. Woolworth were appointed to the Board of the Trustees of the Fund. Messrs. Simpson and Woolworth had been directors of 15 Columbia Funds and 20 funds in the CMG Fund Trust. Also effective October 8, 2003, the incumbent trustees of the Fund were elected as directors of the 15 Columbia Funds and as trustees of the 20 funds in the CMG Fund Trust. The new combined Board of Trustees/Directors of the Fund now oversees 118 funds in the Columbia Funds Complex (including the former Liberty Funds, former Stein Roe Funds, Columbia Funds and CMG Funds). Several of these trustees/directors also serve on the Boards of other funds in the Columbia Funds Complex. The Trustees/Directors serve terms of indefinite duration. The names, addresses and ages of the Trustees/Directors and officers of the Funds in the Columbia Funds Complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee/Director and other directorships they hold are shown below. Each officer listed below serves as an officer of each Fund in the Columbia Funds Complex.
Name, address and age, Position with funds, Principal occupation(s) during past five years, Number of portfolios in Columbia Funds Year first elected or appointed to office(1) Complex overseen by trustee/director, Other directorships held DISINTERESTED TRUSTEES Douglas A. Hacker (Age 48) Executive Vice President - Strategy of United Airlines (airline) since December 2002 P.O. Box 66100 (formerly President of UAL Loyalty Services (airline) from September 2001 to December Chicago, IL 60666 2002; Executive Vice President and Chief Financial Officer of United Airlines from Trustee (since 1996) March 1999 to September 2001; Senior Vice President - Finance from March 1993 to July 1999). Oversees 118, Orbitz, Inc. (on-line travel company) -------------------------------------------------------------------------------------- Janet Langford Kelly (Age 46) Adjunct Professor of Law, Northwestern University since September 2004, Private 9534 W. Gull Lake Drive Investor since March 2004 (formerly Chief Administrative Officer and Senior Vice Richland, MI 49083-8530 President, Kmart Holding Corporation (consumer goods), from September 2003 to Trustee (since 1996) 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 118, None -------------------------------------------------------------------------------------- Richard W. Lowry (Age 68) Private Investor since August 1987 (formerly Chairman and Chief Executive Officer, 10701 Charleston Drive U.S. Plywood Corporation (building products manufacturer)). Oversees 1203, None Vero Beach, FL 32963 Trustee (since 1995) -------------------------------------------------------------------------------------- Charles R. Nelson (Age 62) Professor of Economics, University of Washington, since January 1976; Ford and Louisa Department of Economics Van Voorhis Professor of Political Economy, University of Washington, since September, University of Washington 1993 (formerly Director, Institute for Economic Research, University of Washington Seattle, WA 98195 from September 2001 to June 2003) Adjunct Professor of Statistics, University of Trustee (since 1981) Washington, since September 1980; Associate Editor, Journal of Money Credit and Banking, since September 1993; consultant on econometric and statistical matters. Oversees 118, None -------------------------------------------------------------------------------------- John J. Neuhauser (Age 61) Academic Vice President and Dean of Faculties since August 1999, Boston College 84 College Road (formerly Dean, Boston College School of Management from September 1977 to September Chestnut Hill, MA 02467-3838 1999). Oversees 1213,4, Saucony, Inc. (athletic footwear) Trustee (since 1985) --------------------------------------------------------------------------------------
(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. 28 - -------------------------------------------------------------------------------- Columbia Newport Tiger Fund
Name, address and age, Position with funds, Principal occupation(s) during past five years, Number of portfolios in Columbia Funds Year first elected or appointed to office(1) Complex overseen by trustee/director, Other directorships held DISINTERESTED TRUSTEES Patrick J. Simpson (Age 60) Partner, Perkins Coie L.L.P. (law firm). Oversees 118, None 1120 N.W. Couch Street Tenth Floor Portland, OR 97209-4128 Trustee (since 2000) -------------------------------------------------------------------------------------- Thomas E. Stitzel (Age 68) Business Consultant since 1999 (formerly Professor of Finance from 1975 to 1999, 2208 Tawny Woods Place College of Business, Boise State University); Chartered Financial Analyst. Oversees Boise, ID 83706 118, None. Trustee (since 1998) -------------------------------------------------------------------------------------- Thomas C. Theobald (Age 67) Partner and Senior Advisor, Chicago Growth Partners (private equity investing) since 303 W. Madison September 2004 (formerly Managing Director, William Blair Capital Partners (private Suite 2500 equity investing) from September 1994 to September 2004). Oversees 118, Anixter Chicago, IL 60606 International (network support equipment distributor); Ventas, Inc. (real estate Trustee and Chairman of the Board5 investment trust); Jones Lang LaSalle (real estate management services) and MONY (since 1996) Group (life 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 1194, Chairman of Hopkinton, NH 03229 the Board of Directors, Enesco Group, Inc. (designer, importer and distributor of Trustee (since 1998) giftware and collectibles) -------------------------------------------------------------------------------------- Richard L. Woolworth (Age 63) Retired since December 2003 (formerly Chairman and Chief Executive Officer, The 100 S.W. Market Street #1500 Regence Group (regional health insurer); Chairman and Chief Executive Officer, Portland, OR 97207 BlueCross BlueShield of Oregon; Certified Public Accountant, Arthur Young & Company). Trustee (since 1991) Oversees 118, Northwest Natural Gas Co. (natural gas service provider) INTERESTED TRUSTEE William E. Mayer2 (Age 64) Managing Partner, Park Avenue Equity Partners (private equity) since February 1999 399 Park Avenue (formerly Founding Partner, Development Capital LLC from November 1996 to February Suite 3204 1999). Oversees 1203, Lee Enterprises (print media), WR Hambrecht + Co. (financial New York, NY 10022 service provider); First Health (healthcare); 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. Neuhauser and Ms. Verville also serve as disinterested directors of Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor. (5) Mr. Theobald was appointed as Chairman of the Board effective December 10, 2003. 29 OFFICERS ------------------------------------------------------------------------ Columbia Newport Tiger 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) President of the Columbia Funds since October 2004 (formerly President and Chief One Financial Center Executive Officer, CDC IXIS Asset Management Services, Inc. from September, 1998 to Boston, MA 02111 August 2004). President (since 2004) ----------------------------------------------------------------------------------- J. Kevin Connaughton (Age 40) Treasurer of the Columbia Funds and of the Liberty All-Star Funds since December One Financial Center 2000; Vice President of the Advisor since April 2003 (formerly President of the Boston, MA 02111 Columbia Funds from February 2004 to October 2004; Chief Accounting Officer and Treasurer (since 2000) Controller of the Liberty Funds and of the Liberty All-Star Funds from February 1998 to October 2000); Treasurer of the Galaxy Funds since September 2002; Treasurer, Columbia Management Multi-Strategy Hedge Fund, LLC since December 2002 (formerly Vice President of Colonial 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 since 40 West 57th Street August 2004; Chief Compliance Officer of the Liberty All-Star Funds since August New York, NY 10019 2004 (formerly Partner, Carter, Ledyard & Milburn LLP from January 2001 to August, Senior Vice President and 2004; Counsel, Carter, Ledyard & Milburn LLP from November 1999 to December 2000; Chief Compliance Officer Vice President and Counsel, Equitable Life Assurance Society of the United States (since 2004) from April 1998 to November 1999). ----------------------------------------------------------------------------------- Michael G. Clarke (Age 34) Chief Accounting Officer of the Columbia Funds and of the Liberty All-Star Funds One Financial Center since October 2004 (formerly Controller of the Columbia Funds and of the Liberty Boston, MA 02111 All-Star Funds from May 2004 to October 2004; Assistant Treasurer from June 2002 to Chief Accounting Officer May 2004; Vice President, Product Strategy & Development of the Liberty Funds Group (since 2004) from February 2001 to June 2002; Assistant Treasurer of the Liberty Funds and of the Liberty All-Star Funds from August 1999 to February, 2001; Audit Manager, Deloitte & Toche LLP from May 1997 to August 1999). ----------------------------------------------------------------------------------- Jeffrey R. Coleman (Age 34) Controller of the Columbia Funds and of the Liberty All-Star Funds since October One Financial Center 2004 (formerly Vice President of CDC IXIS Asset Management Services, Inc. and Boston, MA 02111 Deputy Treasurer of the CDC Nvest Funds and Loomis Sayles Funds from February 2003 Controller (since 2004) 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). ----------------------------------------------------------------------------------- David A. Rozenson (Age 50) Secretary of the Columbia Funds and of the Liberty All-Star Funds since December One Financial Center 2003; Senior Counsel, Bank of America Corporation (formerly FleetBoston Financial Boston, MA 02111 Corporation) since January 1996; Associate General Counsel, Columbia Management Secretary (since 2003) Group since November 2002. -----------------------------------------------------------------------------------
30 COLUMBIA FUNDS ------------------------------------------------------------------ Columbia Newport Tiger Fund --------------------------------------- Large Growth Columbia Common Stock Columbia Growth Columbia Growth Stock Columbia Large Cap Growth Columbia Tax-Managed Growth Columbia Tax-Managed Growth II Columbia Young Investor --------------------------------------- Large Value Columbia Disciplined Value Columbia Growth & Income Columbia Large Cap Core Columbia Tax-Managed Value --------------------------------------- Midcap Growth Columbia Acorn Select Columbia Mid Cap Growth Columbia Tax-Managed Aggressive Growth --------------------------------------- Midcap Value Columbia Dividend Income Columbia Mid Cap Columbia Strategic Investor --------------------------------------- Small Growth Columbia Acorn Columbia Acorn USA Columbia Small Company Equity --------------------------------------- Small Value Columbia Small Cap Columbia Small Cap Value --------------------------------------- Balanced Columbia Asset Allocation Columbia Balanced Columbia Liberty Fund --------------------------------------- Specialty Columbia Real Estate Equity Columbia Technology Columbia Utilities --------------------------------------- Taxable Fixed-Income Columbia Contrarian Income Columbia Corporate Bond Columbia Federal Securities Columbia Fixed Income Securities Columbia High Yield Columbia High Yield Opportunities Columbia Income Columbia Intermediate Bond Columbia Intermediate Government Income Columbia Quality Plus Bond Columbia Short Term Bond Columbia Strategic Income --------------------------------------- Tax Exempt Columbia High Yield Municipal Columbia Intermediate Tax-Exempt Bond Columbia Managed Municipals Columbia National Municipal Bond Columbia Tax-Exempt Columbia Tax-Exempt Insured 31 - -------------------------------------------------------------------------------- Columbia Newport Tiger Fund
--------------------------------------- Single State Tax Exempt Columbia California Tax-Exempt Columbia Connecticut Intermediate Municipal Bond Columbia Connecticut Tax-Exempt Columbia Florida Intermediate Municipal Bond Columbia Massachusetts Intermediate Municipal Bond Columbia Massachusetts Tax-Exempt Columbia New Jersey Intermediate Municipal Bond Columbia New York Intermediate Municipal Bond Columbia New York Tax-Exempt Columbia Oregon Municipal Bond Columbia Pennsylvania Intermediate Municipal Bond Columbia Rhode Island Intermediate Municipal Bond --------------------------------------- Money Market Columbia Money Market Columbia Municipal Money Market --------------------------------------- International/Global Columbia Acorn International Columbia Acorn International Select Columbia Europe Columbia Global Equity Columbia International Equity Columbia International Stock Columbia Newport Asia Pacific Columbia Newport Greater China Columbia Newport Tiger --------------------------------------- Index Columbia Large Company Index Columbia Small Company Index Columbia U.S. Treasury Index
Please consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. Contact us at 800-345-6611 for a prospectus which contains this and other important information about the fund. Read it carefully before you invest. For complete product information on any Columbia fund, visit our website at www.columbiafunds.com. Columbia Management Group and Columbia Management refer collectively to the various investment advisory subsidiaries of Columbia Management Group, including Columbia Management Advisors, Inc., a registered investment advisor, and Columbia Funds Distributor, Inc. 32 IMPORTANT INFORMATION ABOUT THIS REPORT ----------------------------------------- Columbia Newport Tiger 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 Newport Tiger Fund. This report may also be used as sales literature when preceded or accompanied by the current prospectus which provides details of sales charges, investment objectives and operating policies of the fund and with the most recent copy of the Columbia Funds Performance Update. A description of the policies and procedures that the fund uses to determine how to vote proxies relating to their portfolio securities 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. 33 Photo of: hand on keyboard eDelivery Help your fund reduce printing and postage costs! Elect to get your shareholder reports by electronic delivery. With Columbia's eDelivery program, you receive an e-mail message when your shareholder report becomes available online. If your fund account is registered with Columbia Funds, you can sign up quickly and easily on our website at www.columbiafunds.com. Please note -- if you own your fund shares through a financial institution, contact the institution to see if it offers electronic delivery. If you own your fund shares through a retirement plan, electronic delivery may not be available to you. Columbia Newport Tiger Fund Annual Report, August 31, 2004 Logo: Columbia Funds A Member of Columbia Management Group (C) 2004 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.345.6611 www.columbiafunds.com ------------- PRSRT STD U.S. Postage PAID Holliston, MA Permit NO. 20 ------------- 732-02/771S-0904 (10/04) 04/2924 [GRAPHIC] COLUMBIA EUROPE FUND ANNUAL REPORT AUGUST 31, 2004 [COLUMBIAFUNDS LOGO] A MEMBER OF COLUMBIA MANAGEMENT GROUP 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 13 Statement of Operations 14 Statement of Changes in Net Assets 15 Notes to Financial Statements 16 Financial Highlights 22 Report of Independent Registered Public Accounting Firm 26 Unaudited Information 27 Trustees 28 Officers 30 Columbia Funds 31 Important Information About This Report 33
Economic and market conditions change frequently. There is no assurance that the trends described in this report will continue or commence. NOT FDIC MAY LOSE VALUE INSURED ----------------- NO BANK GUARANTEE TO OUR FELLOW SHAREHOLDERS COLUMBIA EUROPE FUND DEAR SHAREHOLDER: We are pleased to let you know that FleetBoston Financial Corporation and Bank of America Corporation have merged, effective April 1, 2004. As a result of the merger, Columbia Management Group became part of the Bank of America family of companies. Looking ahead, we believe this merger will be a real benefit to our shareholders. Preserving and leveraging our strengths, the combined organization intends to deliver additional research and management capabilities, as well as new products to you. There are no immediate changes planned for fund names or customer service contacts. As you might know, on March 15, 2004, FleetBoston Financial announced an agreement in principle between Columbia Management Advisors, Inc. and Columbia Funds Distributor, Inc. (collectively "Columbia Management") with the staff of the Securities and Exchange Commission ("SEC") and the New York Attorney General ("NYAG") to settle charges involving market timing in Columbia Management mutual funds. (Bank of America came to a similar settlement in principle at the same time.) Under the agreements Columbia Management agreed, among other things, to pay $70 million in disgorgement and $70 million in civil penalties. In a separate agreement with the NYAG, the Columbia Group and its affiliate Bank of America Capital Management, LLC have agreed to collectively reduce mutual fund fees by $160 million over a five-year period. Please rest assured that the settlement and all associated legal fees will be paid by Columbia Management; not by the affected funds or their shareholders. The agreement requires the final approval of the SEC and the NYAG. You should know that your fund's Board of Trustees has taken another important step to strengthen its capacity to oversee your fund. Recently, the Board of Trustees appointed Mary Joan Hoene as Chief Compliance Officer of Columbia funds. In this role, Ms. Hoene will work with the Board of Trustees, particularly focused on the overall compliance program of the funds and the responsibility and performance of the funds' service providers. Ms. Hoene will report directly to the Board of Trustees and will work closely with senior leadership of Columbia Management, the investment arm of Bank of America, and with Bank of America's principal compliance executives. Prior to her appointment, Ms. Hoene was a partner in the law firm of Carter, Ledyard & Milburn, LLP. Among the firm's clients were investment advisors and independent directors of mutual funds. Ms. Hoene has also worked for the Securities and Exchange Commission as associate director and deputy director for the Division of Investment Management. She has also been an active advisor to several fund boards in developing independent board practices. The Board is pleased that it has appointed Ms. Hoene with her broad and extensive experience to this important new position. Both your fund's trustees and Columbia Management are committed to serving the interests of our shareholders, and we will continue to work hard to help you achieve your financial goals. In the pages that follow, you'll find valuable information about the economic environment during the period and the performance of your Columbia fund. These discussions are followed by financial statements for your fund. We hope that you will take time to read this report and discuss it with your financial advisor if you have any questions. As always, thank you for choosing Columbia funds. It is a privilege to play a role in your financial future. Sincerely, /s/ Thomas C. Theobald /s/ J. Kevin Connaughton Thomas C. Theobald J. Kevin Connaughton Chairman, Board of Trustees President, Columbia Funds J. Kevin Connaughton was named president of Columbia Funds on February 27, 2004. FUND PROFILE COLUMBIA EUROPE 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. TOP 5 COUNTRIES AS OF 08/31/04 (%) United Kingdom 34.6 France 15.8 Germany 9.8 Switzerland 9.0 Netherlands 5.3
SECTORS AS OF 08/31/04 (%) Financials 22.6 Health Care 14.4 Consumer - Discretionary 14.2 Consumer - Staples 10.9 Industrials 9.8
TOP 10 HOLDINGS AS OF 08/31/04 (%) Reckitt Benckiser 2.7 Sanofi-Aventis 2.6 BP PLC 2.6 Novartis 2.6 ENI 2.5 ING Groep 2.4 Royal Bank of Scotland Group 2.3 Total 2.2 Vodafone Group 2.2 GlaxoSmithKline 2.2
Country breakdowns, sectors and portfolio holdings are calculated as a percentage of net assets. (C)2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. The Morningstar Style Box(TM) reveals a fund's investment strategy. For equity funds the vertical axis shows the market capitalization of the stocks owned and the horizontal axis shows investment style (value, blend or growth). For fixed-income funds the vertical axis shows the average credit quality of the bonds owned, and the horizontal axis shows interest rate sensitivity as measured by a bond's duration (short, intermediate or long). All of these numbers are drawn from the data most recently provided by the fund and entered into Morningstar's database as of month-end. Although the data are gathered from reliable sources, Morningstar cannot guarantee completeness and accuracy. As of 08/31/04. [SIDENOTE] SUMMARY - - FOR THE 12-MONTH PERIOD ENDED AUGUST 31, 2004, THE FUND'S CLASS A SHARES RETURNED 21.94% WITHOUT SALES CHARGE. - - STRONG ECONOMIC GROWTH AND A WEAK DOLLAR HELPED THE FUND, ITS BENCHMARK AND PEER GROUP ACHIEVE DOUBLE-DIGIT RETURNS FOR THE PERIOD. - - THE FUND TRAILED ITS BENCHMARK BY LESS THAN TWO PERCENTAGE POINTS, PRIMARILY BECAUSE WE MOVED INTO MEDIA STOCKS WHILE PRICES WERE STILL FALLING AND BECAUSE OUR EXPOSURE TO ENERGY WAS LOWER THAN THE INDEX. ENERGY WAS THE BEST-PERFORMING AREA OF THE MARKET. CLASS A SHARES 21.94% MSCI EUROPE INDEX 23.13%
OBJECTIVE Seeks long-term growth by investing primarily in equity securities of European issuers TOTAL NET ASSETS $3.5 million MORNINGSTAR STYLE BOX [GRAPHIC] 1 PERFORMANCE INFORMATION COLUMBIA EUROPE FUND [CHART] VALUE OF A $10,000 INVESTMENT 11/08/99 - 08/31/04
CLASS A SHARES WITHOUT SALES CHARGE CLASS A SHARES WITH SALES CHARGE MSCI EUROPE INDEX 11/8/1999 $ 10,000 $ 9,425 $ 10,000 11/30/1999 $ 10,707 $ 10,091 $ 10,175 12/31/1999 $ 12,527 $ 11,807 $ 11,218 1/31/2000 $ 11,733 $ 11,058 $ 10,419 2/29/2000 $ 13,621 $ 12,838 $ 10,962 3/31/2000 $ 12,933 $ 12,189 $ 11,226 4/30/2000 $ 12,197 $ 11,496 $ 10,731 5/31/2000 $ 11,887 $ 11,204 $ 10,643 6/30/2000 $ 11,771 $ 11,094 $ 10,872 7/31/2000 $ 11,877 $ 11,194 $ 10,698 8/31/2000 $ 11,867 $ 11,185 $ 10,572 9/30/2000 $ 11,490 $ 10,829 $ 10,077 10/31/2000 $ 11,151 $ 10,510 $ 10,000 11/30/2000 $ 10,628 $ 10,017 $ 9,613 12/31/2000 $ 11,373 $ 10,719 $ 10,276 1/31/2001 $ 10,948 $ 10,318 $ 10,281 2/28/2001 $ 10,116 $ 9,534 $ 9,378 3/31/2001 $ 9,128 $ 8,603 $ 8,679 4/30/2001 $ 9,564 $ 9,014 $ 9,296 5/31/2001 $ 9,195 $ 8,667 $ 8,842 6/30/2001 $ 9,089 $ 8,566 $ 8,508 7/31/2001 $ 9,021 $ 8,502 $ 8,529 8/31/2001 $ 9,108 $ 8,584 $ 8,307 9/30/2001 $ 8,324 $ 7,845 $ 7,478 10/31/2001 $ 8,305 $ 7,827 $ 7,716 11/30/2001 $ 8,469 $ 7,982 $ 8,026 12/31/2001 $ 8,663 $ 8,165 $ 8,231 1/31/2002 $ 8,237 $ 7,763 $ 8,447 2/28/2002 $ 8,266 $ 7,790 $ 7,800 3/31/2002 $ 8,527 $ 8,037 $ 8,222 4/30/2002 $ 8,440 $ 7,955 $ 8,160 5/31/2002 $ 8,237 $ 7,763 $ 8,134 6/30/2002 $ 8,111 $ 7,644 $ 7,852 7/31/2002 $ 7,230 $ 6,814 $ 6,978 8/31/2002 $ 7,181 $ 6,768 $ 6,977 9/30/2002 $ 6,417 $ 6,048 $ 6,059 10/31/2002 $ 6,775 $ 6,385 $ 6,645 11/30/2002 $ 7,046 $ 6,640 $ 6,971 12/31/2002 $ 6,745 $ 6,358 $ 6,718 1/31/2003 $ 6,455 $ 6,084 $ 6,400 2/28/2003 $ 6,388 $ 6,020 $ 6,191 3/31/2003 $ 6,427 $ 6,057 $ 6,099 4/30/2003 $ 7,007 $ 6,605 $ 6,922 5/31/2003 $ 7,443 $ 7,015 $ 7,371 6/30/2003 $ 7,395 $ 6,970 $ 7,442 7/31/2003 $ 7,540 $ 7,106 $ 7,593 8/31/2003 $ 7,588 $ 7,152 $ 7,579 9/30/2003 $ 7,666 $ 7,225 $ 7,732 10/31/2003 $ 8,333 $ 7,854 $ 8,250 11/30/2003 $ 8,652 $ 8,155 $ 8,601 12/31/2003 $ 9,204 $ 8,675 $ 9,307 1/31/2004 $ 9,320 $ 8,784 $ 9,416 2/29/2004 $ 9,649 $ 9,095 $ 9,692 3/31/2004 $ 9,378 $ 8,839 $ 9,390 4/30/2004 $ 9,340 $ 8,803 $ 9,312 5/31/2004 $ 9,427 $ 8,885 $ 9,463 6/30/2004 $ 9,562 $ 9,013 $ 9,589 7/31/2004 $ 9,243 $ 8,712 $ 9,326 8/31/2004 $ 9,255 $ 8,722 $ 9,333
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 Morgan Stanley Capital International (MSCI) Europe Index is a broad-based, unmanaged index that tracks the performance of European stocks. Unlike mutual funds, 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. Index performance is from November 8, 1999. AVERAGE ANNUAL TOTAL RETURN AS OF 08/31/04 (%)
SHARE CLASS A B C Z INCEPTION 11/08/99 11/08/99 11/08/99 11/08/99 SALES CHARGE WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT 1-YEAR 21.94 14.93 21.02 16.02 20.93 19.93 22.13 LIFE -1.59 -2.79 -2.35 -2.76 -2.53 -2.53 -1.15
AVERAGE ANNUAL TOTAL RETURN AS OF 06/30/04 (%)
SHARE CLASS A B C Z SALES CHARGE WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT 1-YEAR 29.32 21.88 28.44 23.44 28.22 27.22 29.49 LIFE -0.95 -2.21 -1.72 -2.14 -1.90 -1.90 -0.48
THE "WITH SALES CHARGE" RETURNS INCLUDE THE MAXIMUM INITIAL SALES CHARGE OF 5.75% FOR CLASS A SHARES, MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.00% FOR CLASS B SHARES AND 1.00% CONTINGENT DEFERRED SALES CHARGE FOR CLASS C SHARES FOR THE FIRST YEAR ONLY. 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. [SIDENOTE] PERFORMANCE OF A $10,000 INVESTMENT 11/08/99 - 08/31/04 ($)
SALES CHARGE: WITHOUT WITH Class A 9,255 8,722 Class B 8,916 8,737 Class C 8,838 8,838 Class Z 9,458 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 EUROPE 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 continuing costs, which generally include investment advisory and/or 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 continuing 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 $1,000, which is invested at the beginning of the reporting period and held for the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the "actual" column is calculated using the fund's actual operating expenses and total return for the period. The amount listed in the "hypothetical" column for each share class assumes that the return each year is 5% before expenses and includes the fund's actual expense ratio. You should not use the hypothetical account values and expenses to estimate either your actual account balance at the end of the period or the expenses you paid during this reporting period. MARCH 1, 2004 - AUGUST 31, 2004
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%) ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL CLASS A 1,000.00 1,000.00 959.33 1,016.54 8.42 8.67 1.71 CLASS B 1,000.00 1,000.00 955.71 1,012.77 12.09 12.45 2.46 CLASS C 1,000.00 1,000.00 955.31 1,012.77 12.09 12.45 2.46 CLASS Z 1,000.00 1,000.00 960.28 1,017.80 7.19 7.41 1.46
Expenses paid during the period are equal to the fund's annualized expense ratio, multiplied by the average account value over the period, then multiplied by the number of days in most recent fiscal half-year and divided by 366. Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced. It is important to note that the expense amounts shown in the table are meant to highlight only continuing 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 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, 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 EUROPE FUND During the period that began September 1, 2003 and ended August 31, 2004, the economies of Europe participated in a worldwide economic rebound. However, European economic growth averaged 2.1% compared to 4.7% for the global economy and 3.5% for the industrialized world. Forecasts for 2005 call for another year of single-digit growth in the region known as the EURO ZONE, because it shares the euro as a common currency. Growth in selected areas, such as France, Greece, and the United Kingdom is expected to be slightly higher.(1) SLUGGISH LABOR MARKET CLOUDS THE EUROPEAN RECOVERY Across the euro zone, manufacturing activity has improved, but it has failed to spur much in the way of corresponding gains in employment. One reason is that European manufacturers now appear to have the upper hand in negotiating with labor unions. Once uncompetitive because of the high wages they were forced to pay, European manufacturers have become leaner and more efficient in recent years. Labor unions are being forced to agree to wage and workweek concessions, a process that could go on for some time. Timing is another reason for Europe's sluggish labor market. Job growth typically lags production increases in an economic recovery. In that regard, it is worth noting that unemployment appears to have stabilized in Germany, and across the euro zone, business intentions to add staff have moved higher. In France, unemployment has already started to fall. France has experienced a downturn in export activity, but strong domestic demand helped propel French economic growth higher than the region's average in 2004. Both household and business spending fueled a surge in imports. The production of the Airbus A380, which is scheduled for 2005, is also driving expectations in France. HIGHER GROWTH IN THE UK Economic growth in the United Kingdom was higher than in the euro zone. However, consumer spending slowed in the final months of the period and housing-market activity decelerated as interest rates edged higher. Lackluster growth in the euro zone, which is the United Kingdom's largest trading partner, has also put the damper on UK exports. With the economy losing steam and no clear threat of inflation, speculation is growing that future rate hikes could be on hold. Yet, UK growth is expected to remain higher than for European economies. EUROPE'S STOCK MARKETS REBOUND Despite mediocre economic results, Europe's stock markets logged double-digit gains for the 12-month reporting period. The MSCI Europe Index returned 23.13%. However, most of those gains were achieved in the first half of the period. Concerns about terrorism, higher energy prices and a potential slowdown in US consumer spending weighed on investors as the period wore on. Slower spending in the United States would have a negative impact on European exports, which account for a substantial percentage of the region's economic activity. Within the euro zone, stock markets in Spain, Austria and Greece continued to move higher in 2004. The UK's equity market has also registered a positive, albeit small, return so far this year. (1) As estimated by Morgan Stanley. [SIDENOTE] SUMMARY: FOR THE 12-MONTH PERIOD THAT ENDED AUGUST 31, 2004 - - IMPROVED ECONOMIC GROWTH HELPED THE STOCK MARKETS OF EUROPE GENERATE DOUBLE-DIGIT GAINS FOR THE PERIOD. THE MSCI EUROPE INDEX, WHICH TRACKS THE PERFORMANCE OF COMMON STOCKS IN THE DEVELOPED MARKETS OF EUROPE, RETURNED 23.13%. MSCI EUROPE INDEX 23.13%
- - GDP GROWTH IN THE EURO ZONE WAS SLOWER THAN IN THE UNITED STATES, JAPAN AND OTHER DEVELOPED MARKETS. LACKLUSTER CONSUMER SPENDING RESTRAINED GROWTH. - - ECONOMIC GROWTH WAS STRONGER IN THE UNITED KINGDOM, BUT THE PACE SLOWED NEAR THE END OF THE PERIOD. The MSCI Europe Index is a broad-based, unmanaged index that tracks the performance of common stocks in the developed markets of Europe. 4 PORTFOLIO MANAGERS' REPORT COLUMBIA EUROPE FUND For the 12-month period ended August 31, 2004, Columbia Europe Fund class A shares returned 21.94% without sales charge. The fund trailed its benchmark, the MSCI Europe Index, which returned 23.13% for the period. The fund's return was modestly below the 22.34% average return of its peer group, the Lipper European Region Funds Category.(2) Strong economic growth and a weak dollar helped the fund, its index and peer group achieve these attractive returns. However, the fund trailed the index and peer group. In retrospect, our move into the media sector was somewhat premature. Also, the fund's exposure to the top-performing energy sector was lower than its index. A CHANGING INVESTMENT ENVIRONMENT During the first six months of the reporting period, low valuations and underestimated earnings growth made stocks attractive, and most European stock markets performed well. However, the market environment began to change in 2004 as valuations became less attractive, fewer companies upgraded their earnings estimates, interest rates rose, consumer confidence declined and growth slowed in the United States and Asia. As a result, we reduced the fund's exposure to sectors that were vulnerable to this shift in market conditions, especially technology and retailing. We also trimmed our allocation to smaller stocks in favor of larger companies that were selling at a discount to their peers. MEDIA STOCKS DISAPPOINT During the period, we increased the fund's exposure to the media sector because valuations and earnings were attractive. Many companies had restructured their operations and we believed they were positioned to do well as the economy improved. When the economic recovery appeared to stall late in the period, stocks declined. Our media holdings went down more than the rest of the market. However, we maintained our position in media stocks, which have recently bounced back. CREATING A MORE DEFENSIVE PORTFOLIO When selecting companies for the portfolio, we favored defensive areas of the market, such as consumer staples, telecommunications services, utilities and energy. In consumer staples we added Unilever PLC, a household products company, and we boosted our position in Nestle S.A. While Unilever's stock price declined slightly, Nestle added to return. We also invested in William Morrison Supermarkets PLC, which bought Safeway. The stock declined because consolidating Morrison and Safeway proved to be a bigger challenge than expected. In the high-yielding telecommunications sector, we found fixed-line telecommunications companies, such as Telecom Italia S.p.A, attractive from a valuation standpoint. The fund also gained ground with Scottish Power PLC, a supplier of gas and electricity to the United Kingdom. In the energy sector, we invested in Shell Transport & Trading Co. PLC, a global energy company. With a new management team in place, the company's long-term (2) Lipper, Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as the fund. [SIDENOTE] NET ASSET VALUE PER SHARE AS OF 08/31/04 ($) Class A 9.56 Class B 9.21 Class C 9.13 Class Z 9.77
HOLDINGS DISCUSSED IN THIS REPORT AS OF 08/31/04 (%) Unilever PLC 1.4% Nestle S.A. 1.9% William Morrison Supermarkets PLC 0.4% Telecom Italia S.p.A. 0.5% Scottish Power PLC 0.5% Shell Transport & Trading Co. PLC 0.8% Randstad Holding N.V. 1.6%
Your fund is actively managed and the composition of its portfolio will change over time. Information provided is calculated as a percentage of net assets. 5 prospects appear to be attractive. We also added a commitment to energy service companies because we believe that increased global demand for energy is likely to boost oil and gas exploration. GDP GROWTH INFLUENCED COUNTRY ALLOCATION We added to the fund's position in Norway and Sweden, where economic growth is higher than for the rest of Europe. We favored banks that benefited from restructuring and rising mortgage and credit card demand. We also increased investment in Austria, where we were attracted to companies with exposure to Eastern European countries that have entered the European Union. In the Netherlands, we bought Randstad Holding N.V, a global temporary employment agency whose earnings rose as global employment improved. MAINTAINING AN EMPHASIS ON QUALITY, STABILITY AND LEADERSHIP While GDP growth in Europe is improving, concerns about rising interest rates and higher oil prices are likely to weigh on the financial markets. With that in mind, we have focused on identifying leading companies that enjoy steady demand for their products and services. At this time, the valuation difference among countries and sectors is quite small. As a result, we believe that stock selection is likely to determine performance going forward. We intend to continue emphasizing high quality companies in regions that are leading in GDP growth. [PHOTO OF DEBORAH SNEE] Deborah Snee has co-managed the fund since November 1999 and has been with the advisor and its predecessors since 1999. /s/ Deborah Snee [PHOTO OF PENNY BURGESS] Penny Burgess has co-managed the fund since February 2003 and has been with the advisor and its predecessors since 1993. /s/ Penny Burgess PLEASE NOTE: On October 13, 2004, the fund's Board of Trustees voted to liquidate the fund. The fund will be closed to new investors as of the close of business on November 10, 2004. The fund is scheduled for liquidation on or about December 10, 2004. The fund will continue to accept some automatic purchases and certain retirement contributions until the fund is liquidated. International investing offers significant long-term growth potential, but also involves certain risks. These risks include currency exchange rate fluctuations, economic change, instability of emerging countries and political developments. A portfolio of stocks from a single region poses additional risks due to limited diversification. A concentration of investments in a specific sector, such as the financial sector, may cause the fund to experience increased volatility. [SIDENOTE] WE HAVE STRUCTURED A PORTFOLIO THAT ALLOWS US TO TAKE ADVANTAGE OF LEADING COMPANIES THAT ENJOY STEADY DEMAND FOR THEIR PRODUCTS AND SERVICES. 6 FINANCIAL STATEMENTS AUGUST 31, 2004 COLUMBIA EUROPE 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 AUGUST 31, 2004 COLUMBIA EUROPE FUND COMMON STOCKS - 96.8%
SHARES VALUE ($) ---------------------------------------------------------------------------- CONSUMER DISCRETIONARY - 11.9% AUTOMOBILES - 1.7% Renault SA 745 60,123 Automobiles Total 60,123 ---------------------------------------------------------------------------- HOTELS, RESTAURANTS & LEISURE - 3.5% Accor SA 540 22,907 Carnival PLC 1,065 51,468 InterContinental Hotels Group PLC 2,770 28,364 OPAP SA 890 17,025 Hotels, Restaurants & Leisure Total 119,764 ---------------------------------------------------------------------------- HOUSEHOLD DURABLES - 0.5% Koninklijke (Royal) Philips Electronics N.V. 755 17,525 Household Durables Total 17,525 ---------------------------------------------------------------------------- MEDIA - 5.0% JC Decaux SA (a) 2,238 43,859 Pearson PLC 4,985 55,903 Reuters Group PLC 3,233 18,753 Societe Television Francaise 1 1,155 32,657 WPP Group PLC 2,564 23,045 Media Total 174,217 ---------------------------------------------------------------------------- SPECIALTY RETAIL - 0.8% Burberry Group PLC 4,400 28,848 Specialty Retail Total 28,848 ---------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS - 0.4% Puma AG Rudolf Dassler Sport 51 12,520 Textiles, Apparel & Luxury Goods Total 12,520 ----------- CONSUMER DISCRETIONARY TOTAL 412,997 CONSUMER STAPLES - 10.9% BEVERAGES - 1.8% Diageo PLC 4,260 52,640 SABMiller PLC 849 10,585 Beverages Total 63,225 ---------------------------------------------------------------------------- FOOD & STAPLES RETAILING - 0.9% Metro AG (a) 378 17,622 William Morrison Supermarkets PLC 4,286 14,003 Food & Staples Retailing Total 31,625 ---------------------------------------------------------------------------- FOOD PRODUCTS - 3.8% Cadbury Schweppes PLC 2,156 17,377 Nestle SA, Registered Shares 278 65,999 Unilever PLC 5,780 49,755 Food Products Total 133,131 ---------------------------------------------------------------------------- HOUSEHOLD PRODUCTS - 2.7% Reckitt Benckiser PLC 3,500 92,401 Household Products Total 92,401 ---------------------------------------------------------------------------- TOBACCO - 1.7% Imperial Tobacco Group PLC 2,636 58,358 Tobacco Total 58,358 ----------- CONSUMER STAPLES TOTAL 378,740 ENERGY - 9.6% ENERGY EQUIPMENT & SERVICES - 0.2% Saipem S.p.A. 800 8,492 Energy Equipment & Services Total 8,492
See Accompanying Notes to Financial Statements. 8
SHARES VALUE ($) ---------------------------------------------------------------------------- ENERGY - (CONTINUED) OIL & GAS - 9.4% BP PLC 10,113 90,404 ENI S.p.A. 4,240 87,075 Fortum Oyj 2,000 28,164 Norsk Hydro ASA 260 16,266 Shell Transport & Trading Co., PLC 3,800 27,895 Total SA 396 77,515 Oil & Gas Total 327,319 ----------- ENERGY TOTAL 335,811 FINANCIALS - 22.6% CAPITAL MARKETS - 0.9% Credit Suisse Group 1,040 32,663 Capital Markets Total 32,663 ---------------------------------------------------------------------------- COMMERCIAL BANKS - 17.0% Anglo Irish Bank Corp., PLC 2,922 48,882 Banco Popolare di Verona e Novara 2,530 41,781 Banco Popular Espanol SA 990 53,830 Bank of Ireland 1,450 19,583 Barclays PLC 5,921 55,171 BNP Paribas SA 282 17,184 Credit Agricole SA 2,120 53,700 Danske Bank A/S 800 19,379 Erste Bank Der Oesterreichischen Sparkassen AG 1,375 52,540 Hansabank Ltd. 2,274 19,061 HBOS PLC 1,440 17,714 Lloyds TSB Group PLC 2,400 18,122 National Bank of Greece SA 819 18,013 Royal Bank of Scotland Group PLC 2,864 80,196 Skandinaviska Enskilda Banken AB, Class A 2,600 36,711 Societe Generale 441 37,923 Commercial Banks Total 589,790 ---------------------------------------------------------------------------- DIVERSIFIED FINANCIALS - 2.4% ING Groep N.V. 3,453 84,917 Diversified Financials Total 84,917 ---------------------------------------------------------------------------- INSURANCE - 2.3% Aegon N.V. 813 8,743 Allianz AG, Registered Shares 360 34,862 Axa 891 18,353 Irish Life & Permanent PLC 1,125 17,184 Insurance Total 79,142 ----------- FINANCIALS TOTAL 786,512 HEALTH CARE - 14.4% HEALTH CARE EQUIPMENT & SUPPLIES - 3.2% Nobel Biocare Holding AG 120 17,012 Phonak Holding AG, Registered Shares 640 19,390 Smith & Nephew PLC 6,019 54,452 Synthes, Inc. 200 21,461 Health Care Equipment & Supplies Total 112,315 ---------------------------------------------------------------------------- HEALTH CARE PROVIDERS & SERVICES - 0.2% Falck A/S (a) 800 5,885 Health Care Providers & Services Total 5,885
See Accompanying Notes to Financial Statements. 9
SHARES VALUE ($) ---------------------------------------------------------------------------- HEALTH CARE - (CONTINUED) PHARMACEUTICALS - 11.0% AstraZeneca PLC 1,140 52,723 GlaxoSmithKline PLC, ADR 1,850 76,109 Novartis AG, Registered Shares 1,936 89,828 Sanofi-Aventis 1,270 90,532 Schering AG 331 18,442 Teva Pharmaceutical Industries Ltd., ADR 2,000 54,500 Pharmaceuticals Total 382,134 ----------- HEALTH CARE TOTAL 500,334 INDUSTRIALS - 9.8% BUILDING PRODUCTS - 1.0% Wienerberger AG 934 33,986 Building Products Total 33,986 ---------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES - 2.7% Capita Group PLC 4,270 24,475 Group 4 Securicor PLC 6,560 13,819 Randstad Holding N.V. 1,852 56,670 Commercial Services & Supplies Total 94,964 ---------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING - 0.9% Vinci SA 300 32,165 Construction & Engineering Total 32,165 ---------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES - 2.2% Siemens AG, Registered Shares 708 48,673 Smiths Group PLC 2,315 29,108 Industrial Conglomerates Total 77,781 ---------------------------------------------------------------------------- MACHINERY - 3.0% Atlas Copco AB, Class B 1,490 48,433 Heidelberger Druckmaschinen AG 600 17,780 Volvo AB, Class B 1,100 37,831 Machinery Total 104,044 ----------- INDUSTRIALS TOTAL 342,940 INFORMATION TECHNOLOGY - 3.0% COMMUNICATIONS EQUIPMENT - 0.8% Telefonaktiebolaget LM Ericsson, Class B (a) 10,800 29,221 Communications Equipment Total 29,221 ---------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.5% Tandberg ASA 2,000 17,913 Electronic Equipment & Instruments Total 17,913 ---------------------------------------------------------------------------- IT SERVICES - 0.3% Indra Sistemas SA 824 10,581 IT Services Total 10,581 ---------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.8% ARM Holdings PLC 7,422 10,641 ASML Holding N.V. (a) 1,330 17,207 Semiconductors & Semiconductor Equipment Total 27,848 ---------------------------------------------------------------------------- SOFTWARE - 0.6% Dassault Systemes SA 435 18,785 Software Total 18,785 ----------- INFORMATION TECHNOLOGY TOTAL 104,348
See Accompanying Notes to Financial Statements. 10
SHARES VALUE ($) ---------------------------------------------------------------------------- MATERIALS - 4.8% CHEMICALS - 4.0% BASF AG 700 37,926 Linde AG 463 24,916 Novozymes A/S, Class B 200 8,432 Syngenta AG 751 67,606 Chemicals Total 138,880 ---------------------------------------------------------------------------- PAPER & FOREST PRODUCTS - 0.8% Stora Enso Oyj, Class R 2,000 26,899 Paper & Forest Products Total 26,899 ----------- MATERIALS TOTAL 165,779 TELECOMMUNICATION SERVICES - 5.5% DIVERSIFIED TELECOMMUNICATION SERVICES - 3.3% Belgacom SA (a) 773 25,875 Deutsche Telekom AG, Registered Shares (a) 498 8,722 France Telecom SA 1,810 43,095 TDC A/S 500 17,685 Telecom Italia S.p.A. 5,999 18,035 Diversified Telecommunication Services Total 113,412 ---------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES - 2.2% Vodafone Group PLC 33,668 76,943 Wireless Telecommunication Services Total 76,943 ----------- TELECOMMUNICATION SERVICES TOTAL 190,355 UTILITIES - 4.3% ELECTRIC UTILITIES - 2.2% EON AG 540 38,443 Public Power Corp. 740 17,870 Scottish Power PLC 2,593 18,855 Electric Utilities Total 75,168 ---------------------------------------------------------------------------- GAS UTILITIES - 2.1% Centrica PLC 3,900 17,372 Enagas 1,670 18,591 National Grid Transco PLC 4,575 38,482 Gas Utilities Total 74,445 ----------- UTILITIES TOTAL 149,613 TOTAL COMMON STOCKS (COST OF $2,874,064) 3,367,429
See Accompanying Notes to Financial Statements. 11 PREFERRED STOCKS - 2.3%
SHARES VALUE ($) ---------------------------------------------------------------------------- CONSUMER DISCRETIONARY - 2.3% AUTOMOBILES - 1.8% Porsche AG 100 61,080 Automobiles Total 61,080 ---------------------------------------------------------------------------- MEDIA - 0.5% ProSiebenSat.1 Media AG 1,076 18,714 Media Total 18,714 ----------- CONSUMER DISCRETIONARY TOTAL 79,794 TOTAL PREFERRED STOCKS (COST OF $83,230) 79,794 TOTAL INVESTMENTS - 99.1% (COST OF $2,957,294) (b) 3,447,223 OTHER ASSETS & LIABILITIES, NET - 0.9% 32,831 NET ASSETS - 100.0% 3,480,054
NOTES TO INVESTMENT PORTFOLIO: (a) Non-income producing security. (b) Cost for federal income tax purposes is $2,984,938.
ACRONYM NAME ---------------------------------------------------------------------------- ADR American Depositary Receipt
SUMMARY OF SECURITIES % OF TOTAL BY COUNTRY (UNAUDITED) VALUE ($) INVESTMENTS ---------------------------------------------------------------------------- United Kingdom 1,203,982 34.9% France 548,797 15.9 Germany 339,700 9.9 Switzerland 313,960 9.1 Netherlands 185,062 5.4 Italy 155,383 4.5 Sweden 152,196 4.4 Austria 86,525 2.5 Ireland 85,648 2.5 Spain 83,002 2.4 Finland 55,063 1.6 Israel 54,500 1.6 Greece 52,908 1.5 Denmark 51,382 1.5 Norway 34,179 1.0 Belgium 25,875 0.7 Estonia 19,061 0.6 --------- ----- 3,447,223 100.0 ========= =====
Certain securities are listed by country of underlying exposure but may trade predominantly on other exchanges. See Accompanying Notes to Financial Statements. 12 STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 2004 COLUMBIA EUROPE FUND
($) ---------------------------------------------------------------------------- ASSETS Investments, at cost 2,957,294 Investments, at value 3,447,223 Cash 57,298 Foreign currency (cost of $5,949) 5,962 Receivable for: Fund shares sold 487 Dividends 9,385 Foreign tax reclaims 3,570 Expense reimbursement due from Investment Advisor 42,365 Deferred Trustees' compensation plan 2,716 ----------- Total Assets 3,569,006 ---------------------------------------------------------------------------- LIABILITIES Payable for: Investments purchased 32,315 Investment advisory fee 2,105 Administration fee 677 Transfer agent fee 2,016 Pricing and bookkeeping fees 11,865 Trustees' fees 215 Audit fee 19,980 Custody fee 6,903 Reports to shareholders 8,000 Distribution and service fees 1,415 Deferred Trustees' fees 2,716 Other liabilities 745 ----------- Total Liabilities 88,952 NET ASSETS 3,480,054 ---------------------------------------------------------------------------- COMPOSITION OF NET ASSETS Paid-in capital 6,350,900 Accumulated net investment loss (11,354) Accumulated net realized loss (3,349,906) Net unrealized appreciation on: Investments 489,929 Foreign currency translations 485 ----------- NET ASSETS 3,480,054 ---------------------------------------------------------------------------- CLASS A Net assets 1,513,931 Shares outstanding 158,403 Net asset value per share 9.56(a) Maximum offering price per share ($9.56/0.9425) 10.14(b) ---------------------------------------------------------------------------- CLASS B Net assets 1,464,430 Shares outstanding 159,029 Net asset value and offering price per share 9.21(a) ---------------------------------------------------------------------------- CLASS C Net assets 168,562 Shares outstanding 18,470 Net asset value and offering price per share 9.13(a) ---------------------------------------------------------------------------- CLASS Z Net assets 333,131 Shares outstanding 34,088 Net asset value, offering and redemption price per share 9.77(c)
(a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. (b) On sales of $50,000 or more the offering price is reduced. (c) Redemption price per share is equal to net asset value less any applicable redemption fees. See Accompanying Notes to Financial Statements. 13 STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2004 COLUMBIA EUROPE FUND
($) ---------------------------------------------------------------------------- INVESTMENT INCOME Dividends 90,705 Interest 561 ----------- Total Investment Income (net of foreign taxes withheld of $16,188) 91,266 ---------------------------------------------------------------------------- EXPENSES Investment advisory fee 29,101 Administration fee 8,626 Distribution fee: Class A 2,093 Class B 11,699 Class C 1,387 Service fee: Class A 5,231 Class B 3,900 Class C 461 Transfer agent fee 15,164 Pricing and bookkeeping fees 23,207 Trustees' fees 6,490 Custody fee 43,734 Audit fee 20,426 Registration fee 55,188 Reports to shareholders 16,095 Non-recurring costs (See Note 9) 194 Other expenses 6,256 ----------- Total Expenses 249,252 Fees and expenses waived or reimbursed by Investment Advisor (163,464) Fees waived by Distributor - Class A (2,093) Custody earnings credit (232) Non-recurring costs assumed by Investment Advisor (See Note 9) (194) ----------- Net Expenses 83,269 ----------- Net Investment Income 7,997 ---------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON Net realized gain (loss) on: INVESTMENTS AND FOREIGN CURRENCY Investments 639,529 Foreign currency transactions (11,148) ----------- Net realized gain 628,381 Net change in unrealized appreciation/depreciation on: Investments 144,189 Foreign currency translations (1,097) ----------- Net change in unrealized appreciation/depreciation 143,092 ----------- Net Gain 771,473 ----------- Net Increase in Net Assets from Operations 779,470
See Accompanying Notes to Financial Statements. 14 STATEMENT OF CHANGES IN NET ASSETS AUGUST 31, 2004 COLUMBIA EUROPE FUND
YEAR ENDED AUGUST 31, ------------------------ INCREASE (DECREASE) IN NET ASSETS: 2004 ($) 2003 ($) - ------------------------------------------ -------------------------------------------------------------------------------- OPERATIONS Net investment income 7,997 2,007 Net realized gain (loss) on investments and foreign currency transactions 628,381 (196,327) Net change in unrealized appreciation/depreciation on investments and foreign currency translations 143,092 413,839 ------------------------ Net Increase from Operations 779,470 219,519 -------------------------------------------------------------------------------- SHARE TRANSACTIONS Class A: Subscriptions 178,897 6,630,977 Redemptions (1,106,489) (9,468,293) ------------------------ Net Decrease (927,592) (2,837,316) Class B: Subscriptions 586,810 1,231,412 Redemptions (627,260) (1,451,614) ------------------------ Net Decrease (40,450) (220,202) Class C: Subscriptions 561,157 8,762,220 Redemptions (688,680) (8,766,448) ------------------------ Net Decrease (127,523) (4,228) Class Z: Subscriptions 442,254 7,001,434 Redemptions (237,790) (6,946,104) ------------------------ Net Increase 204,464 55,330 Net Decrease from Share Transactions (891,101) (3,006,416) Redemption fees 1,004 -- ------------------------ Total Decrease in Net Assets (110,627) (2,786,897) -------------------------------------------------------------------------------- NET ASSETS Beginning of period 3,590,681 6,377,578 End of period (including accumlated net investment loss of $(11,354) and $(8,203), respectively) 3,480,054 3,590,681 -------------------------------------------------------------------------------- CHANGES IN SHARES Class A: Subscriptions 18,991 963,349 Redemptions (115,066) (1,353,961) ------------------------ Net Decrease (96,075) (390,612) Class B: Subscriptions 66,504 182,247 Redemptions (70,040) (211,698) ------------------------ Net Decrease (3,536) (29,451) Class C: Subscriptions 66,547 1,299,443 Redemptions (82,324) (1,291,182) ------------------------ Net Increase (Decrease) (15,777) 8,261 Class Z: Subscriptions 46,131 1,021,706 Redemptions (24,480) (1,010,307) ------------------------ Net Increase 21,651 11,399
See Accompanying Notes to Financial Statements. 15 NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2004 COLUMBIA EUROPE FUND NOTE 1. ORGANIZATION Columbia Europe Fund (the "Fund"), a series of Columbia Funds Trust VII (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 long-term growth by investing primarily in equity securities of European issuers. 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 5.75% 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. Effective October 13, 2003, the Fund changed its name from Liberty Newport Europe Fund to Columbia Europe Fund. Also on that date, the Trust changed its name from Liberty Funds Trust VII to Columbia Funds Trust VII. 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 Equity securities are valued at the last sale price on the principal exchange on which they trade, except for securities traded on the NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities or listed securities for which there were no sales during the day are valued at the closing bid price on such exchanges or over-the-counter markets. 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. Occasionally, 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. 16 SECURITY TRANSACTIONS Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes. REPURCHASE AGREEMENTS The Fund may engage in repurchase agreement transactions with institutions that the Fund's investment advisor has determined are creditworthy. The Fund, through its custodian, receives delivery of underlying securities collateralizing a repurchase agreement. Collateral is at least equal, at all times, to the value of the repurchase obligation including interest. A repurchase agreement transaction involves certain risks in the event of default or insolvency of the counterparty. These risks include possible delays or restrictions upon the Fund's ability to dispose of the underlying securities and a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights. INCOME RECOGNITION Interest income is recorded on the accrual basis. Corporate actions and dividend income are recorded on the ex-date, except for certain foreign securities which are recorded as soon after ex-date as the Fund becomes aware of such, net of non-reclaimable tax withholdings. 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 Distributions to shareholders are recorded on ex-date. 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 August 31, 2004, permanent differences resulting primarily from differing treatments for foreign currency transactions were identified and reclassified among the components of the Fund's net assets as follows:
ACCUMULATED ACCUMULATED NET INVESTMENT NET REALIZED PAID-IN LOSS LOSS CAPITAL - --------------------------------------------------------- $ (11,148) $ 11,148 $ --
17 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 years ended August 31, 2004 and August 31, 2003 was as follows:
AUGUST 31, AUGUST 31, 2004 2003 - ------------------------------------------------------------- Distributions paid from: Ordinary Income* $ -- $ --
* For tax purposes short-term capital gains distributions, if any, are considered ordinary income distributions. As of August 31, 2004, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ORDINARY LONG-TERM NET UNREALIZED INCOME CAPITAL GAINS APPRECIATION* - ------------------------------------------------------------- $ -- $ -- $ 462,770
* The differences between book-basis and tax-basis net unrealized appreciation/depreciation are primarily due to deferral of losses from wash sales and changes in the value of assets and liabilities resulting from changes in exchange rates. Unrealized appreciation and depreciation at August 31, 2004, 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 $ 526,470 Unrealized depreciation (64,185) - ------------------------------------------------------------- Net unrealized appreciation $ 462,285
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 - ------------------------------------------------------------- 2010 $ 1,834,931 2011 1,487,332 - ------------------------------------------------------------- $ 3,322,263
Capital loss carryforwards of $486,912 were utilized during the year ended August 31, 2004 for the Fund. Expired capital loss carryforwards are recorded as a reduction of paid-in capital. Under current tax rules, certain currency and capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of August 31, 2004, post-October currency losses of $8,533 were deferred to September 1, 2004. NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004, FleetBoston, including the Fund's investment advisor, transfer agent and distributor, was acquired by Bank of America Corporation ("BOA"). The acquisition did not change the way the Fund is managed, the investment personnel assigned to manage the Fund or the fees paid by the Fund. INVESTMENT ADVISORY FEE Columbia 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 $1 billion 0.70% Next $500 million 0.65% Over $1.5 billion 0.60%
Prior to November 1, 2003, Columbia was entitled to receive a monthly investment advisory fee at the annual rate of 0.70% of the Fund's average daily net assets. For the year ended August 31, 2004, the Fund's effective investment advisory fee rate was 0.70%. ADMINISTRATION FEES Columbia provides administrative and other services to the Fund for a monthly administration fee at the annual rate of 0.20% of the Fund's average daily net assets. Prior to November 1, 2003, Columbia was entitled to receive a monthly administration fee at the annual rate of 0.25% of the Fund's average daily net assets. For the year ended August 31, 2004, the Fund's effective administration fee rate was 0.21%. 18 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 August 31, 2004, the Fund's effective pricing and bookkeeping fee rates, inclusive of out-of-pocket expenses, was 0.558%. TRANSFER AGENT FEE Columbia Funds Services, Inc. (the "Transfer Agent"), an affiliate of Columbia, provides shareholder services to the Fund. For such services, the Transfer Agent receives a fee, paid monthly, at the annual rate of $28.00 per open account. The Transfer Agent also receives reimbursement for certain out-of-pocket expenses. Prior to November 1, 2003, the Transfer Agent was entitled to receive a monthly transfer agent fee, in addition to reimbursement for certain out-of-pocket expenses, at the annual rate of 0.06% of the Fund's average daily net assets plus flat-rate charges based on the number of shareholder accounts and transactions. For the year ended August 31, 2004, the Fund's effective transfer agent fee rate, inclusive of out-of-pocket expenses, was 0.36%. Effective October 13, 2003, Liberty Funds Services, Inc. was renamed Columbia Funds Services, Inc. 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 August 31, 2004, the Distributor has retained net underwriting discounts of $332 on sales of the Fund's Class A shares and received CDSC fees of $1,292 and $8 on 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 in its entirety. 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. Effective October 13, 2003, Liberty Funds Distributor, Inc. was renamed Columbia Funds Distributor, Inc. EXPENSE LIMITS AND FEE REIMBURSEMENTS Columbia has voluntarily agreed to waive certain fees to the extent that total expenses (exclusive of distribution and service fees, brokerage commissions, interest, taxes and extraordinary expenses, if any) exceed 1.45% annually of the Fund's average daily net assets. This arrangement may be revised or discontinued by Columbia at any time. Prior to November 1, 2003, Columbia waived certain fees to the extent that total expenses (exclusive of distribution and service fees, brokerage commissions, interest, taxes and extraordinary expenses, if any) exceeded 1.50% annually of the Fund's average daily net assets. CUSTODY CREDITS The Fund has an agreement with its custodian bank under which custody fees may be reduced by balance credits. The Fund could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement. FEES PAID TO OFFICERS AND TRUSTEES The Fund pays no compensation to its officers, all of whom are employees of Columbia or its affiliates. The Fund's Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund's assets. 19 OTHER Columbia provides certain services to the Fund related to Sarbanes-Oxley compliance. For the year ended August 31, 2004, the Fund paid $1,292 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 August 31, 2004, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $3,830,016 and $4,627,742, respectively. NOTE 6. REDEMPTION FEES The Fund imposes a 2.00% redemption fee to shareholders of Class Z shares who redeem shares held for 60 days or less. Redemption fees, which are retained by the Fund, are accounted for as an addition to paid in capital and are allocated to each class proportionately for purposes of determining the net asset value of each class. Prior to October 9, 2003, redemption fees were recorded as a component of paid-in capital on Class Z shares. For the year ended August 31, 2004, the redemption fees for the Class Z shares of the Fund amounted to $1,004. NOTE 7. LINE OF CREDIT The Fund and other affiliated funds participate in a $350,000,000 credit facility, which is used for temporary or emergency purposes to facilitate portfolio liquidity. Interest is charged to the Fund based on its borrowings. In addition, the Fund has agreed to pay commitment fees on its pro-rata portion of the unutilized line of credit. The commitment fee is included in "Other expenses" on the Statement of Operations. For the year ended August 31, 2004, the Fund did not borrow under these arrangements. NOTE 8. SHARES OF BENEFICIAL INTEREST As of August 31, 2004, 28.69% of the outstanding shares of the Fund were held by one shareholder. Subscription and redemption activity of this shareholder may have a material effect on the Fund. NOTE 9. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES FOREIGN SECURITIES There are certain additional risks involved when investing in foreign securities that are not inherent with investments in domestic securities. These risks may involve foreign currency exchange rate fluctuations, adverse political and economic developments and the possible prevention of currency exchange or other foreign governmental laws or restrictions. In addition, the liquidity of foreign securities may be more limited than that of domestic securities. GEOGRAPHIC CONCENTRATION Because the Fund's investments are concentrated in securities of European issuers, events within the region will have a greater effect on the Fund than if the Fund were more geographically diversified. In addition, events in any one country within the region may impact the other countries or the region as a whole. Markets in the region can experience significant volatility due to social, regulatory and political uncertainties. INDUSTRY FOCUS The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified. LEGAL PROCEEDINGS Columbia, the Distributor, and certain of their affiliates (collectively, "The Columbia Group") have received information requests and subpoenas from various regulatory and law enforcement authorities in connection with their investigations of late trading and market timing in mutual funds as well as other industry wide issues. The Columbia Group has not uncovered any instances where Columbia or the Distributor were knowingly involved in late trading of mutual fund shares. On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a civil complaint in the United States District Court for the District of Massachusetts against Columbia and the Distributor, alleging that they had violated certain provisions of the 20 federal securities laws in connection with trading activity in mutual fund shares. Also on February 24, 2004, the New York Attorney General ("NYAG") filed a civil complaint in New York Supreme Court, County of New York against Columbia and the Distributor alleging that Columbia and the Distributor had violated certain New York anti-fraud statutes. If either Columbia or the Distributor is unsuccessful in its defense of these proceedings, it could be barred from serving as an investment advisor or distributor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could prevent Columbia, the Distributor or any company that is an affiliated person of Columbia and the Distributor from serving as an investment advisor or distributor for any registered investment company, including your fund. Your fund has been informed by Columbia and the Distributor that, if these results occur, they will seek exemptive relief from the SEC to permit them to continue to serve as your fund's investment advisor and distributor. There is no assurance that such exemptive relief will be granted. On March 15, 2004, Columbia and the Distributor entered into agreements in principle with the SEC Division of Enforcement and NYAG in settlement of the charges. Under the agreements, Columbia and the Distributor agreed, among other things, to the following conditions: payment of $70 million in disgorgement; payment of $70 million in civil penalties; an order requiring Columbia and the Distributor to cease and desist from violations of the antifraud provisions and other provisions of the federal securities laws; governance changes designed to maintain the independence of the mutual fund boards of trustees and ensure compliance with securities laws and their fiduciary duties; and retention of an independent consultant to review Columbia's and the Distributor's compliance policies and procedures. The agreement requires the final approval of the SEC. In a separate agreement with the NYAG, the Columbia Group and its affiliate Banc of America Capital Management, LLC have agreed to collectively reduce mutual fund fees by $160 million over a five-year period. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds. In connection with the events described in detail above, various parties have filed suit against certain funds, their Boards and/or FleetBoston (and affiliated entities). More than 300 cases (including those filed against entities unaffiliated with the funds, their Boards and/or FleetBoston and its affiliated entities) have been consolidated in a multi-district proceeding and transferred to the Federal District Court in Maryland. Recently, certain Columbia funds and affiliated entities have been named as defendants in several derivative actions under various sections of the Investment Company Act of 1940, as amended, alleging, among other things, that the fees and expenses paid by those funds are excessive. The funds and the other defendants to these actions, including Columbia and various 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 suits and certain regulatory investigations 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 funds. For the year ended August 31, 2004, Columbia has assumed $194 of legal, consulting services and Trustees' fees incurred by the Fund in connection with these matters. NOTE 10. SUBSEQUENT EVENT On October 13, 2004, the Board of Trustees of the Fund voted to liquidate the Fund. The effective date of the liquidation is expected to be on or about December 10, 2004. 21 FINANCIAL HIGHLIGHTS COLUMBIA EUROPE FUND SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD ENDED YEAR ENDED AUGUST 31, AUGUST 31, CLASS A SHARES 2004 2003(a) 2002(a) 2001(a) 2000(a)(b) - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 7.84 $ 7.42 $ 9.41 $ 12.26 $ 10.33 INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (c) 0.04 0.02 0.02 (0.01) (0.03) Net realized and unrealized gain (loss) on investments and foreign currency 1.68 0.40 (2.01) (2.84) 1.96 ---------- ---------- ----------- ------------ -------------- Total from Investment Operations 1.72 0.42 (1.99) (2.85) 1.93 REDEMPTION FEES: Redemption fees added to paid-in-capital --(c)(d) -- -- -- -- NET ASSET VALUE, END OF PERIOD $ 9.56 $ 7.84 $ 7.42 $ 9.41 $ 12.26 Total return (e) (f) 21.94% 5.66% (21.15)% (23.25)% 18.68%(g) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Expenses (h) 1.71% 1.75% 1.75% 1.75% 1.75%(i) Net investment income (loss) (h) 0.41% 0.28% 0.18% (0.14)% (0.25)%(i) Waiver/reimbursement 4.03% 3.64% 1.93% 1.25% 1.45%(i) Portfolio turnover rate 96% 74% 71% 67% 24%(g) Net assets, end of period (000's) $ 1,514 $ 1,995 $ 4,788 $ 5,823 $ 9,874
(a) For the years ended August 31, 2003, 2002, 2001, and period ended August 31, 2000, the Fund was audited by Ernst & Young LLP. (b) The Fund commenced investment operations on November 1, 1999. The activity shown is from the effective date of registration (November 8, 1999) with the Securities and Exchange Commission. (c) Per share data was calculated using average shares outstanding during the period. (d) Rounds to less than $0.01 per share. (e) Total return at net asset value assuming no initial sales charge or contingent deferred sales charge. (f) Had the Investment Advisor and/or Distributor not waived or reimbursed a portion of expenses, total return would have been reduced. (g) Not annualized. (h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (i) Annualized. 22 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD ENDED YEAR ENDED AUGUST 31, AUGUST 31, CLASS B SHARES 2004 2003(a) 2002(a) 2001(a) 2000(a)(b) - ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.61 $ 7.26 $ 9.27 $ 12.17 $ 10.33 INCOME FROM INVESTMENT OPERATIONS: Net investment loss (c) (0.02) (0.02) (0.05) (0.09) (0.10) Net realized and unrealized gain (loss) on investments and foreign currency 1.62 0.37 (1.96) (2.81) 1.94 ---------- ---------- ----------- ------------ -------------- Total from Investment Operations 1.60 0.35 (2.01) (2.90) 1.84 REDEMPTION FEES: Redemption fees added to paid-in-capital --(c)(d) -- -- -- -- NET ASSET VALUE, END OF PERIOD $ 9.21 $ 7.61 $ 7.26 $ 9.27 $ 12.17 Total return (e) (f) 21.02% 4.82% (21.68)% (23.83)% 17.81%(g) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Expenses (h) 2.46% 2.50% 2.50% 2.50% 2.50%(i) Net investment loss (h) (0.20)% (0.27)% (0.57)% (0.89)% (1.00)%(i) Waiver/reimbursement 3.93% 3.95% 1.83% 1.15% 1.45%(i) Portfolio turnover rate 96% 74% 71% 67% 24%(g) Net assets, end of period (000's) $ 1,464 $ 1,238 $ 1,394 $ 2,062 $ 2,989
(a) For the years ended August 31, 2003, 2002, 2001, and period ended August 31, 2000, the Fund was audited by Ernst & Young LLP. (b) The Fund commenced investment operations on November 1, 1999. The activity shown is from the effective date of registration (November 8, 1999) with the Securities and Exchange Commission. (c) Per share data was calculated using average shares outstanding during the period. (d) Rounds to less than $0.01 per share. (e) Total return at net asset value assuming no contingent deferred sales charge. (f) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced. (g) Not annualized. (h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (i) Annualized. 23 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD ENDED YEAR ENDED AUGUST 31, AUGUST 31, CLASS C SHARES 2004 2003(a) 2002(a) 2001(a) 2000(a)(b) - ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.55 $ 7.26 $ 9.28 $ 12.19 $ 10.33 INCOME FROM INVESTMENT OPERATIONS: Net investment loss (c) (0.03) (0.04) (0.05) (0.09) (0.10) Net realized and unrealized gain (loss) on investments and foreign currency 1.61 0.33 (1.97) (2.82) 1.96 ---------- ---------- ----------- ------------ -------------- Total from Investment Operations 1.58 0.29 (2.02) (2.91) 1.86 REDEMPTION FEES: Redemption fees added to paid-in-capital --(c)(d) -- -- -- -- NET ASSET VALUE, END OF PERIOD $ 9.13 $ 7.55 $ 7.26 $ 9.28 $ 12.19 Total return (e) (f) 20.93% 3.99% (21.77)% (23.87)% 18.01%(g) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Expenses (h) 2.46% 2.50% 2.50% 2.50% 2.50%(i) Net investment loss (h) (0.28)% (0.65)% (0.57)% (0.89)% (1.00)%(i) Waiver/reimbursement 3.93% 3.51% 1.83% 1.15% 1.45%(i) Portfolio turnover rate 96% 74% 71% 67% 24%(g) Net assets, end of period (000's) $ 169 $ 259 $ 189 $ 308 $ 488
(a) For the years ended August 31, 2003, 2002, 2001, and period ended August 31, 2000, the Fund was audited by Ernst & Young LLP. (b) The Fund commenced investment operations on November 1, 1999. The activity shown is from the effective date of registration (November 8, 1999) with the Securities and Exchange Commission. (c) Per share data was calculated using average shares outstanding during the period. (d) Rounds to less than $0.01 per share. (e) Total return at net asset value assuming no contingent deferred sales charge. (f) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced. (g) Not annualized. (h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (i) Annualized. 24 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD ENDED YEAR ENDED AUGUST 31, AUGUST 31, CLASS Z SHARES 2004 2003(a) 2002(a) 2001(a) 2000(a)(b) - ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 8.00 $ 7.39 $ 9.09 $ 11.83 $ 10.33 INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (c) 0.09 (0.02) 0.04 0.01 --(d) Net realized and unrealized gain (loss) on investments and foreign currency 1.68 0.63 (1.74) (2.75) 1.50 ---------- ---------- ----------- ------------ -------------- Total from Investment Operations 1.77 0.61 (1.70) (2.74) 1.50 REDEMPTION FEES: Redemption fees added to paid-in-capital --(c)(d) -- -- -- -- NET ASSET VALUE, END OF PERIOD $ 9.77 $ 8.00 $ 7.39 $ 9.09 $ 11.83 Total return (e) (f) 22.13% 8.25% (18.70)% (23.16)% 14.52%(g) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Expenses (h) 1.46% 1.50% 1.50% 1.50% 1.50%(i) Net investment income (loss) (h) 0.94% (0.26)% 0.43% 0.11% --(i)(j) Waiver/reimbursement 3.93% 3.54% 1.83% 1.15% 1.45%(i) Portfolio turnover rate 96% 74% 71% 67% 24%(g) Net assets, end of period (000's) $ 333 $ 99 $ 8 $ 26 $ 35
(a) For the years ended August 31, 2003, 2002, 2001, and period ended August 31, 2000, the Fund was audited by Ernst & Young LLP. (b) The Fund commenced investment operations on November 1, 1999. The activity shown is from the effective date of registration (November 8, 1999) with the Securities and Exchange Commission. (c) Per share data was calculated using average shares outstanding during the period. (d) Rounds to less than $0.01 per share. (e) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced. (f) Total return at net asset value assuming all distributions reinvested. (g) Not annualized. (h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (i) Annualized. (j) Rounds to less than 0.01% 25 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM COLUMBIA EUROPE FUND TO THE TRUSTEES OF COLUMBIA FUNDS TRUST VII AND THE SHAREHOLDERS OF COLUMBIA EUROPE 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 Europe Fund (the "Fund") (a series of Columbia Funds Trust VII) at August 31, 2004, and the results of its operations, the changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management, our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States), which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2004 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The financial statements of the Fund as of August 31, 2003 and for the four fiscal periods ending August 31, 2003 were audited by other independent accountants whose report dated October 17, 2003 expressed an unqualified opinion on those statements. The Trustees of the Fund approved a plan of liquidation for the Fund as described in Note 10. PricewaterhouseCoopers LLP Boston, Massachusetts October 18, 2004 26 UNAUDITED INFORMATION COLUMBIA EUROPE FUND FEDERAL INCOME TAX INFORMATION Foreign taxes paid during the fiscal year ended August 31, 2004, amounting to $16,188 ($0.04 per share) are expected to be passed through to shareholders as 100% allowable foreign tax credits on Form 1099-DIV for the year ending December 31, 2004. Gross income derived from sources within foreign countries amounted to $106,893 ($0.29 per share) for the fiscal year ended August 31, 2004. 27 TRUSTEES COLUMBIA EUROPE FUND Effective October 8, 2003, Patrick J. Simpson and Richard L. Woolworth were appointed to the Board of the Trustees of the Fund. Messrs. Simpson and Woolworth had been directors of 15 Columbia Funds and 20 funds in the CMG Fund Trust. Also effective October 8, 2003, the incumbent trustees of the Fund were elected as directors of the 15 Columbia Funds and as trustees of the 20 funds in the CMG Fund Trust. The new combined Board of Trustees/Directors of the Fund now oversees 118 funds in the Columbia Funds Complex (including the former Liberty Funds, former Stein Roe Funds, Columbia Funds and CMG Funds). Several of these trustees/directors also serve on the Boards of other funds in the Columbia Funds Complex. The 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 48) Executive Vice President-Strategy of United Airlines (airline) since December 2002 P.O. Box 66100 (formerly President of UAL Loyalty Services (airline) from September 2001 to Chicago, IL 60666 December 2002; Executive Vice President and Chief Financial Officer of United Trustee (since 1996) Airlines from March 1999 to September 2001; Senior Vice President-Finance from March 1993 to July 1999). Oversees 118, Orbitz, Inc. (on-line travel company) JANET LANGFORD KELLY (age 46) Adjunct Professor of Law, Northwestern University since September 2004, Private 9534 W. Gull Lake Drive Investor since March 2004 (formerly Chief Administrative Officer and Senior Vice Richland, MI 49083-8530 President, Kmart Holding Corporation (consumer goods), from September 2003 to March Trustee (since 1996) 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 118, None RICHARD W. LOWRY (age 68) Private Investor since August 1987 (formerly Chairman and Chief Executive Officer, 10701 Charleston Drive U.S. Plywood Corporation (building products manufacturer)). Oversees 120(3), None Vero Beach, FL 32963 Trustee (since 1995) CHARLES R. NELSON (age 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, since University of Washington September, 1993 (formerly Director, Institute for Economic Research, University of Seattle, WA 98195 Washington from September 2001 to June 2003) Adjunct Professor of Statistics, Trustee (since 1981) University of Washington, since September 1980; Associate Editor, Journal of Money Credit and Banking, since September 1993; consultant on econometric and statistical matters. Oversees 118, None
(1) In December 2000, the boards of each of the former Liberty Funds and former Stein Roe Funds were combined into one board of trustees responsible for the oversight of both fund groups (collectively, the "Liberty Board"). In October 2003, the trustees on the Liberty Board were elected to the boards of the Columbia Funds (the "Columbia Board") and of the CMG Fund Trust (the "CMG Funds Board"); simultaneous with that election, Patrick J. Simpson and Richard L. Woolworth, who had been directors on the Columbia Board and trustees on the CMG Funds Board, were appointed to serve as trustees of the Liberty Board. The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Columbia Funds Complex. 28
NAME, ADDRESS AND AGE, POSITION WITH FUNDS, PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN YEAR FIRST ELECTED OR APPOINTED TO OFFICE(1) COLUMBIA FUNDS COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD DISINTERESTED TRUSTEES JOHN J. NEUHAUSER (age 61) Academic Vice President and Dean of Faculties since August 1999, Boston College 84 College Road (formerly Dean, Boston College School of Management from September 1977 to Chestnut Hill, MA 02467-3838 September 1999). Oversees 121(3),(4), Saucony, Inc. (athletic footwear) Trustee (since 1985) PATRICK J. SIMPSON (age 60) Partner, Perkins Coie L.L.P. (law firm). Oversees 118, None 1120 N.W. Couch Street Tenth Floor Portland, OR 97209-4128 Trustee (since 2000) THOMAS E. STITZEL (age 68) Business Consultant since 1999 (formerly Professor of Finance from 1975 to 1999, 2208 Tawny Woods Place College of Business, Boise State University); Chartered Financial Analyst. Boise, ID 83706 Oversees 118, None. Trustee (since 1998) THOMAS C. THEOBALD (age 67) Partner and Senior Advisor, Chicago Growth Partners (private equity investing) since 303 W. Madison September 2004 (formerly Managing Director, William Blair Capital Partners (private Suite 2500 equity investing) from September 1994 to September 2004). Oversees 118, Anixter Chicago, IL 60606 International (network support equipment distributor); Ventas, Inc. (real estate Trustee and Chairman of the Board(5) investment trust); Jones Lang LaSalle (real estate management services) and MONY (since 1996) Group (life 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 119(4), Hopkinton, NH 03229 Chairman of the Board of Directors, Enesco Group, Inc. (designer, importer and Trustee (since 1998) distributor of giftware and collectibles) RICHARD L. WOOLWORTH (age 63) Retired since December 2003 (formerly Chairman and Chief Executive Officer, The 100 S.W. Market Street #1500 Regence Group (regional health insurer); Chairman and Chief Executive Officer, Portland, OR 97207 BlueCross BlueShield of Oregon; Certified Public Accountant, Arthur Young & Trustee (since 1991) Company). Oversees 118, Northwest Natural Gas Co. (natural gas service provider) INTERESTED TRUSTEE WILLIAM E. MAYER(2) (age 64) Managing Partner, Park Avenue Equity Partners (private equity) since February 1999 399 Park Avenue (formerly Founding Partner, Development Capital LLC from November 1996 to Suite 3204 February 1999). Oversees 1203, Lee Enterprises (print media), WR Hambrecht + Co. New York, NY 10022 (financial service provider); First Health (healthcare); Reader's Digest Trustee (since 1994) (publishing); OPENFIELD Solutions (retail industry technology provider)
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co. (3) Messrs. Lowry, Neuhauser and Mayer 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. Neuhauser and Ms. Verville also serve as disinterested directors of Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor. (5) Mr. Theobald was appointed as Chairman of the Board effective December 10, 2003. 29 OFFICERS COLUMBIA EUROPE 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) President of the Columbia Funds since October 2004 (formerly President and Chief One Financial Center Executive Officer, CDC IXIS Asset Management Services, Inc. from September, Boston, MA 02111 1998 to August 2004). President (since 2004) J. KEVIN CONNAUGHTON (age 40) Treasurer of the Columbia Funds and of the Liberty All-Star Funds since December One Financial Center 2000; Vice President of the Advisor since April 2003 (formerly President of the Boston, MA 02111 Columbia Funds from February 2004 to October 2004; Chief Accounting Officer and Treasurer (since 2000) Controller of the Liberty Funds and of the Liberty All-Star Funds from February 1998 to October 2000); Treasurer of the Galaxy Funds since September 2002; Treasurer, Columbia Management Multi-Strategy Hedge Fund, LLC since December 2002 (formerly Vice President of Colonial 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 since 40 West 57th Street August 2004; Chief Compliance Officer of the Liberty All-Star Funds since August New York, NY 10019 2004 (formerly Partner, Carter, Ledyard & Milburn LLP from January 2001 to Senior Vice President and Chief Compliance August, 2004; Counsel, Carter, Ledyard & Milburn LLP from November 1999 to Officer (since 2004) December 2000; Vice President and Counsel, Equitable Life Assurance Society of the United States from April 1998 to November 1999). MICHAEL G. CLARKE (age 34) Chief Accounting Officer of the Columbia Funds and of the Liberty All-Star Funds One Financial Center since October 2004 (formerly Controller of the Columbia Funds and of the Liberty Boston, MA 02111 All-Star Funds from May 2004 to October 2004; Assistant Treasurer from June 2002 Chief Accounting Officer (since 2004) to May 2004; Vice President, Product Strategy & Development of the Liberty Funds Group from February 2001 to June 2002; Assistant Treasurer of the Liberty Funds and of the Liberty All-Star Funds from August 1999 to February, 2001; Audit Manager, Deloitte & Toche LLP from May 1997 to August 1999). JEFFREY R. COLEMAN (age 34) Controller of the Columbia Funds and of the Liberty All-Star Funds since October One Financial Center 2004 (formerly Vice President of CDC IXIS Asset Management Services, Inc. and Boston, MA 02111 Deputy Treasurer of the CDC Nvest Funds and Loomis Sayles Funds from February Controller (since 2004) 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). DAVID A. ROZENSON (age 50) Secretary of the Columbia Funds and of the Liberty All-Star Funds since December One Financial Center 2003; Senior Counsel, Bank of America Corporation (formerly FleetBoston Boston, MA 02111 Financial Corporation) since January 1996; Associate General Counsel, Columbia Secretary (since 2003) Management Group since November 2002.
30 COLUMBIA FUNDS COLUMBIA EUROPE FUND LARGE GROWTH Columbia Common Stock Columbia Growth Columbia Growth Stock Columbia Large Cap Growth Columbia Tax-Managed Growth Columbia Tax-Managed Growth II Columbia Young Investor LARGE VALUE Columbia Disciplined Value Columbia Growth & Income Columbia Large Cap Core Columbia Tax-Managed Value MIDCAP GROWTH Columbia Acorn Select Columbia Mid Cap Growth Columbia Tax-Managed Aggressive Growth MIDCAP VALUE Columbia Dividend Income Columbia Mid Cap Columbia Strategic Investor SMALL GROWTH Columbia Acorn Columbia Acorn USA Columbia Small Company Equity SMALL VALUE Columbia Small Cap Columbia Small Cap Value BALANCED Columbia Asset Allocation Columbia Balanced Columbia Liberty Fund SPECIALTY Columbia Real Estate Equity Columbia Technology Columbia Utilities TAXABLE FIXED-INCOME Columbia Contrarian Income Columbia Corporate Bond Columbia Federal Securities Columbia Fixed Income Securities Columbia High Yield Columbia High Yield Opportunities Columbia Income Columbia Intermediate Bond Columbia Intermediate Government Income Columbia Quality Plus Bond Columbia Short Term Bond Columbia Strategic Income TAX EXEMPT Columbia High Yield Municipal Columbia Intermediate Tax-Exempt Bond Columbia Managed Municipals Columbia National Municipal Bond Columbia Tax-Exempt Columbia Tax-Exempt Insured 31 SINGLE STATE TAX EXEMPT Columbia California Tax-Exempt Columbia Connecticut Intermediate Municipal Bond Columbia Connecticut Tax-Exempt Columbia Florida Intermediate Municipal Bond Columbia Massachusetts Intermediate Municipal Bond Columbia Massachusetts Tax-Exempt Columbia New Jersey Intermediate Municipal Bond Columbia New York Intermediate Municipal Bond Columbia New York Tax-Exempt Columbia Oregon Municipal Bond Columbia Pennsylvania Intermediate Municipal Bond Columbia Rhode Island Intermediate Municipal Bond MONEY MARKET Columbia Money Market Columbia Municipal Money Market INTERNATIONAL/GLOBAL Columbia Acorn International Columbia Acorn International Select Columbia Europe Columbia Global Equity Columbia International Equity Columbia International Stock Columbia Newport Asia Pacific Columbia Newport Greater China Columbia Newport Tiger INDEX Columbia Large Company Index Columbia Small Company Index Columbia U.S. Treasury Index Please consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. Contact us at 800-345-6611 for a prospectus which contains this and other important information about the fund. Read it carefully before you invest. For complete product information on any Columbia fund, visit our website at www.columbiafunds.com. Columbia Management Group and Columbia Management refer collectively to the various investment advisory subsidiaries of Columbia Management Group, including Columbia Management Advisors, Inc., the registered investment advisor, and Columbia Funds Distributor, Inc. 32 IMPORTANT INFORMATION ABOUT THIS REPORT COLUMBIA EUROPE FUND 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 Europe 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 fund's use to determine how to vote proxies relating to their portfolio securities 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. Please note that on March 1, 2004, Ernst & Young LLP ("E&Y") resigned as the fund's independent registered public accounting firm. During the two most recent fiscal years, E&Y's audit reports contained no adverse opinion or disclaimer of opinion; nor were its reports qualified or modified as to uncertainty, audit scope, or accounting principle. Further, in connection with its audits for the two most recent fiscal years and through March 1, 2004, there were no disagreements between the fund and E&Y on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which if not resolved to the satisfaction of E&Y would have caused it to make reference to the disagreement in its report on the financial statements for such years. Effective March 1, 2004, PricewaterhouseCoopers LLP was appointed by the audit committee of the Board of Trustees as the independent registered public accounting firm of the fund for the fiscal year ended August 31, 2004. [SIDENOTE] 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 33 [GRAPHIC] eDELIVERY 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 EUROPE FUND ANNUAL REPORT, AUGUST 31, 2004 PRSRT STD U.S. Postage PAID Holliston, MA Permit NO. 20 [COLUMBIAFUNDS LOGO] A MEMBER OF COLUMBIA MANAGEMENT GROUP (C)2004 COLUMBIA FUNDS DISTRIBUTOR, INC. ONE FINANCIAL CENTER, BOSTON, MA 02111-2621 800.345.6611 www.columbiafunds.com 738-02/774S-0904 (10/04) 04/2914 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. Effective March 1, 2004, one of the series of the registrant included in this filing engaged new independent accountants. Unless otherwise noted, fees disclosed below represent fees paid or accrued to the current and predecessor principal accountants while each was engaged by the registrant. (a) Aggregate Audit Fees billed by the principal accountant for professional services rendered during the fiscal years ended August 31, 2004 and August 31, 2003 are approximately as follows: 2004 2003 $46,100 $51,400 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 August 31, 2004 and August 31, 2003 are approximately as follows: 2004 2003 $7,000 $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 2004 and 2003, Audit-Related Fees include certain agreed-upon procedures performed for semi-annual shareholder reports. The "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. For the registrant, the percentage of Audit-Related services that were approved under the "de minimis" exception during the fiscal years ended August 31, 2004 and August 31, 2003 was zero. The pre-approval requirements for services to the investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. During the fiscal years ended August 31, 2004 and August 31, 2003, there were no Audit-Related Fees that were approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. The percentage of Audit-Related fees required to be approved under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X that were approved under the "de minimis" exception during the fiscal years ended August 31, 2004 and August 31, 2003 was zero. (c) Aggregate Tax Fees billed by the principal accountant for professional services rendered during the fiscal years ended August 31, 2004 and August 31, 2003 are approximately as follows: 2004 2003 $9,200 $12,400 Tax Fees include amounts for professional services by the principal accountant for tax compliance, tax advice and tax planning. Tax Fees in both fiscal years 2004 and 2003 primarily consist of the review of annual tax returns. In addition, tax fees in both fiscal years 2004 and 2003 include, for one series, consultation and assistance with foreign tax filings. The "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. For the registrant, the percentage of Tax Fees that were approved under the "de minimis" exception during the fiscal years ended August 31, 2004 and August 31, 2003 was zero. The pre-approval requirements for services to the investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. During the fiscal years ended August 31, 2004 and August 31, 2003, there were no Tax Fees that were approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. The percentage of Tax fees required to be approved under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X that were approved under the "de minimis" exception during the fiscal years ended August 31, 2004 and August 31, 2003 was zero. (d) Aggregate All Other Fees billed by the principal accountant for professional services rendered during the fiscal years ended August 31, 2004 and August 31, 2003 are as follows: 2004 2003 $0 $0 All Other Fees include amounts for products and services provided by the principal accountant, other than the services reported in (a)-(c) above. The "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. For the registrant, the percentage of All Other Fees that were approved under the "de minimis" exception during the fiscal years ended August 31, 2004 and August 31, 2003 was zero. The pre-approval requirements for services to the investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. During the fiscal year ended August 31, 2004, All Other Fees that were approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X were approximately $95,000 (note that fees were paid to the current principal accountant). During the fiscal year ended August 31, 2003, All Other Fees that would have been subject to pre-approval had paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X been applicable at the time the services were provided, were approximately $95,000 (note that fees were paid to the current principal accountant). For both fiscal years, All Other Fees relate to internal controls reviews of the registrant's transfer agent. The percentage of All Other Fees required to be approved under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X that were approved under the "de minimis" exception during the fiscal years ended August 31, 2004 and August 31, 2003 was zero. (e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES I. GENERAL OVERVIEW The Audit Committee of the registrant has adopted a formal policy (the "Policy") which sets forth the procedures and the conditions pursuant to which the Audit Committee will pre-approve (i) all audit and non-audit (including audit related, tax and all other) services provided by the registrant's independent auditor to the registrant and individual funds (collectively "Fund Services"), and (ii) all non-audit services provided by the registrant's independent auditor to the funds' adviser or a control affiliate of the adviser, that relate directly to the funds' operations and financial reporting (collectively "Fund-related Adviser Services"). A "control affiliate" is an entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the funds, and the term "adviser" is deemed to exclude any unaffiliated sub-adviser whose role is primarily portfolio management and is sub-contracted or overseen by another investment adviser. The adviser and control affiliates are collectively referred to as "Adviser Entities." The Audit Committee uses a combination of specific (on a case-by-case basis as potential services are contemplated) and general (pre-determined list of permitted services) pre-approvals. Unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee if it is to be provided by the independent auditor. The Policy does not delegate the Audit Committee's responsibilities to pre-approve services performed by the independent auditor to management. II. GENERAL PROCEDURES On an annual basis, the Fund Treasurer and/or Director of Trustee Administration shall submit to the Audit Committee a schedule of the types of Fund Services and Fund-related Adviser Services that are subject to general pre-approval. These schedules will provide a description of each type of service that is subject to general pre-approval and, where possible, will provide estimated fees for each instance of providing each service. This general pre-approval and related fees (where provided) will generally cover a one-year period (for example, from July 1 through August 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: o 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; o The request should be addressed to the Audit Committee with copies to the Fund Treasurer and/or Director of Trustee Administration; o 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. o 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: o A general description of the services, and o Actual billed and projected fees, and o The means by which such Fund Services or Fund-related Adviser Services were pre-approved by the Audit Committee. In addition, the independent auditor shall report to the Audit Committee annually, and no more than 90 days prior to the filing of audit reports with the SEC, all non-audit services provided to entities in the funds' "investment company complex," as defined by SEC rules, that did not require pre-approval under the Policy. V. AMENDMENTS; ANNUAL APPROVAL BY AUDIT COMMITTEE The Policy may be amended from time to time by the Audit Committee. Prompt notice of any amendments will be provided to the independent auditor, Fund Treasurer and Director of Trustee Administration. The Policy shall be reviewed and approved at least annually by the Audit Committee. ***** (e)(2) This information has been included in items (b)-(d) above. (f) Not applicable. (g) All non-audit fees billed by the registrant's accountant for services rendered to the registrant for the fiscal years ended August 31, 2004 and August 31, 2003 are disclosed in (b)-(d) above. All non-audit fees billed by the registrant's accountant for services rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for the fiscal years ended August 31, 2004 and August 31, 2003 are also disclosed in (b)-(d) above. Such fees were approximately $95,000 and $95,000, respectively. (h) The registrant's Audit Committee of the Board of Directors has considered whether the provision of non-audit services that were rendered to the registrant's adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, is compatible with maintaining the principal accountant's independence. The Audit Committee determined that the provision of such services is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS 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. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 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 the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A or this Item. ITEM 10. 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, have concluded that such controls and procedures are adequately designed to ensure that information required to be disclosed by the registrant in Form N-CSR is accumulated and communicated to the registrant's management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 11. EXHIBITS. (a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR attached hereto as Exhibit 99.CODE ETH. (a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT. (a)(3) Not applicable. (b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (registrant) Columbia Funds Trust VII ------------------------------------------------------------------ By (Signature and Title) /s/ Christopher L. Wilson ------------------------------------------------------ Christopher L. Wilson, President Date October 28, 2004 -------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title) /s/ Christopher L. Wilson ------------------------------------------------------ Christopher L. Wilson, President Date October 28, 2004 -------------------------------------------------------------------------- By (Signature and Title) /s/ J. Kevin Connaughton ------------------------------------------------------ J. Kevin Connaughton, Treasurer Date October 28, 2004 -------------------------------------------------------------------------- EX-99.CODE ETH 2 file002.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: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o 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; o compliance with applicable laws and governmental rules and regulations; o the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o 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: o 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 o 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,: o service as director on the board of any public or private company; o 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; o 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; o 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; o 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: o 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. o 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; o 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 o promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. V. REPORTING AND ACCOUNTABILITY Each Covered Officer must: o 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; o annually affirm to the Board compliance with the requirements of the Code; o 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; o notify the Chief Legal Officer and the Code Officer promptly if he/she knows of any violation of this Code; and o 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: o The Chief Legal Officer and/or the Code Officer will take all appropriate action to investigate any potential violation reported to him/her; o 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; o Any matter that the Chief Legal Officer and/or the Code Officer believes is a violation will be reported to the Audit Committee; o 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; o The Audit Committee will be responsible for granting waivers in its sole discretion; o 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: o report to the Audit Committee quarterly any approvals provided in accordance with Section III of this Code; and o 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 file003.txt CERTIFICATIONS I, Christopher L. Wilson, certify that: 1. I have reviewed this report on Form N-CSR of Columbia Funds Trust VII; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 28, 2004 /s/ Christopher L. Wilson -------------------------------- Christopher L. Wilson, President I, J. Kevin Connaughton, certify that: 1. I have reviewed this report on Form N-CSR of Columbia Funds Trust VII; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 28, 2004 /s/ J. Kevin Connaughton ------------------------------- J. Kevin Connaughton, Treasurer EX-99.906CERT 4 file004.txt CERTIFICATIONS CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Certified Shareholder Report of Columbia Funds Trust VII (the "Trust") on Form N-CSR for the period ending August 31, 2004, as filed with the Securities and Exchange Commission on the date hereof ("the Report"), the undersigned hereby certifies that, to his knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Trust. Date: October 28, 2004 /s/ Christopher L. Wilson -------------------------------- Christopher L. Wilson, President Date: October 28, 2004 /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. ss.1350 and is not being filed as part of the Form N-CSR with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----