UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-3009
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Columbia Funds Trust II
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(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
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(Address of principal executive offices) (Zip code)
Vincent Pietropaolo, Esq.
Columbia Management Group, Inc.
One Financial Center
Boston, MA 02111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-772-3698
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Date of fiscal year end: 08/31/2004
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Date of reporting period: 08/31/2004
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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 GREATER CHINA FUND
Annual Report
August 31, 2004
Photo: Man and dog running with stick.
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 Managers' Report ...... 5
Investment Portfolio ............ 7
Statement of Assets
and Liabilities .............. 10
Statement of Operations ......... 11
Statements of Changes
in Net Assets ................ 12
Notes to Financial Statements ... 14
Financial Highlights ............ 20
Report of Independent Registered
Public Accounting Firm .......... 24
Unaudited Information ........... 25
Trustees ........................ 26
Officers ........................ 28
Important Information
About This Report ............... 29
Economic and market conditions change frequently. There is no assurance that the
trends described in this report will continue or commence.
TO OUR FELLOW SHAREHOLDERS
------------------------------------------------------
Columbia Newport Greater China 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
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Columbia Newport Greater China Fund
Summary
[] For the 12-month period ended August 31, 2004, the fund's class A shares
returned 16.11% without sales charge.
[] In an environment that was generally favorable for stocks, the fund, its
benchmarks and its peer group all generated double-digit returns. However,
the fund lagged its benchmarks when lower quality securities outperformed,
especially in the first half of the period. The fund tends to emphasize
higher quality securities.
[] We believe the fund did better than the Lipper China Region Funds Category
average because of well-timed strategic moves in its exposure to mainland
China.
Class A shares
[Illustration: Arrow going up]
16.11
MSCI China Index
[Illustration: Arrow going up]
21.92
Objective
Seeks long-term growth of capital by investing primarily in equity securities of
companies located in the Greater China Region
Total net assets
$72.4 million
[Graphic]
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 10 holdings as of 08/31/04 (%)
China Mobile 6.0
Datang International Power
Generation 4.7
China Merchants Holdings
International 4.6
Taiwan Semiconductor
Manufacturing 4.5
PetroChina 4.4
Sun Hung Kai Properties 4.3
Hong Kong & China Gas 4.3
Henderson Land Development 4.1
Chinatrust Financial Holding 4.1
Hutchison Whampoa 3.6
Top 5 sectors as of 08/31/04 (%)
Financials 25.7
Industrials 17.0
Utilities 13.2
Information technology 13.1
Telecommunication services 10.4
Sector breakdown 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
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Columbia Newport Greater China Fund
Performance of a $10,000 investment
05/16/97 - 08/31/04 ($)
sales charge: without with
Class A 16,002 15,082
Class B 15,240 15,240
Class C 15,445 15,445
Class Z 16,737 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.
Line Chart:
Value of a $10,000 investment 05/16/97 - 08/31/04
MSCI China Hang Seng Class A shares Class A shares
Index Index without sales charge with sales charge
May-1997 10000 10000 10000 9425
10000 10000 13418 12646
10224 10304 14415 13586
11624 11105 15104 14236
12309 9621 13417 12645
10262 10275 13701 12913
8596 7271 10149 9565
7040 7269 9631 9077
6832 7397 9887 9319
5094 6392 7778 7331
6901 7929 10474 9872
6723 8000 10346 9751
6030 7241 9352 8814
5239 6268 7944 7487
4422 6025 6852 6458
3622 5597 5963 5621
2641 5167 4774 4499
3782 5611 6287 5926
4159 7245 7770 7323
4291 7453 8049 7586
3937 7199 7892 7438
3205 6814 7097 6689
3069 7067 6968 6568
3487 7895 7756 7310
4362 9644 9000 8482
4372 8825 8818 8311
6420 9839 10867 10242
5619 9583 10336 9741
5574 9836 10579 9970
5351 9298 9986 9412
4919 9725 10366 9770
4825 11323 12096 11400
4462 12490 13241 12480
4268 11421 13302 12537
3484 12621 14425 13595
3564 12853 15760 14854
3900 11487 14061 13253
3970 10924 13552 12773
4500 12014 15009 14146
4415 12519 15503 14612
4236 12761 15162 14290
3721 11694 14114 13303
3547 11141 13287 12523
3075 10481 12574 11851
3100 11317 13121 12366
3549 12072 14107 13296
3226 11086 13652 12867
2703 9645 12445 11729
2977 10146 13408 12637
3058 10026 13363 12594
3159 9929 13074 12322
2731 9378 12436 11721
2140 8498 11313 10662
2067 7637 10175 9590
2120 7744 10592 9983
2327 8689 11472 10813
2335 8782 11737 11062
2116 8263 11714 11040
2133 8077 11629 10961
2253 8584 12342 11633
2351 8972 12879 12139
2387 8859 12864 12124
2307 8308 12236 11532
2206 8050 11501 10839
2163 7934 10949 10319
1991 7186 10220 9633
2003 7486 10251 9662
2085 7999 10849 10225
2007 7408 10272 9681
2103 7358 10487 9884
2050 7251 10356 9761
1971 6955 9902 9332
1974 7072 9994 9419
2226 7749 11072 10435
2369 7825 11519 10857
2603 8282 12645 11918
2777 8994 13778 12985
2798 9352 14125 13313
3224 10127 15227 14351
3256 10275 14934 14076
3764 10504 15905 14990
3740 11082 16579 15626
3973 11587 17579 16568
3638 10632 16611 15655
3163 10029 15169 14297
3380 10343 15789 14881
3359 10423 15680 14779
3372 10385 15440 14552
Aug-2004 3385 10948 16002 15082
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) China Index is designed to broadly and
fairly represent the full diversity of business activities in China. This index
aims to capture 85% of the free float adjusted market capitalization in each
industry group. The Hang Seng Stock Index is an unmanaged index that tracks the
performance of approximately 70% of the total market capitalization of the stock
exchange of Hong Kong. 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. Shares of the Columbia Newport Greater China Fund were offered during a
subscription period that began June 20, 1997 and ended July 25, 1997. The
subscription proceeds were invested into the fund on July 25, 1997. The fund's
performance returns are calculated from its inception date of May 16, 1997.
Index performance is from May 31, 1997.
Average annual total return as of 08/31/04 (%)
Share class A B C Z
Inception 05/16/97 05/16/97 05/16/97 05/16/97
Sales charge without with without with without with without
1-Year 16.11 9.43 15.25 10.25 15.15 14.15 16.44
5-year 8.63 7.35 7.83 7.53 7.77 7.77 9.44
Life 6.66 5.80 5.95 5.95 6.14 6.14 7.32
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 36.10 28.28 35.06 30.06 34.99 33.99 36.69
5-years 7.61 6.34 6.81 6.50 6.76 6.76 8.43
Life 6.52 5.64 5.81 5.81 6.01 6.01 7.19
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% 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.
2
UNDERSTANDING YOUR EXPENSES
-----------------------------------------------------
Columbia Newport Greater China 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 1,000.00 914.18 1,015.99 8.76 9.22 1.82
Class B 1,000.00 1,000.00 910.31 1,012.22 12.34 13.00 2.57
Class C 1,000.00 1,000.00 909.86 1,012.22 12.34 13.00 2.57
Class Z 1,000.00 1,000.00 915.19 1,017.24 7.56 7.96 1.57
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.
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 or redemption or exchange fees.
3
ECONOMIC UPDATE
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Columbia Newport Greater China Fund
Summary
For the 12-month period that
ended August 31, 2004
[] Despite a slowdown in economic activity in mainland China, engineered by
the People's Bank of China, the stock markets of Greater China benefited
from the region's solid growth. The MSCI China Index returned 21.92%.
[] GDP growth in China exceeded 9% during the period. However, growth is
expected to slow in 2005.
[] 2004 GDP growth for Hong Kong and Taiwan was less robust than growth in
mainland China, yet higher than it was in 2003.
MSCI China Index
[Illustration: Arrow going up]
21.92%
The MSCI China Index is an unmanaged broad-based index that tracks the
performance of Chinese companies available to non-domestic investors.
During the 12-month period that began September 1, 2003 and ended August 31,
2004, the region known as greater China (including Hong Kong and Taiwan) grew at
a faster pace than the world around it, and its stock markets were lifted by
favorable economic activity. For the 12-month reporting period, the MSCI China
Index returned 21.92%. However, these gains mask uneven performance during the
period. Stocks in China, Hong Kong and Taiwan were red hot in 2003, but all
three markets gave back much of their prior year's gains in 2004. Hong Kong's
stock market held up somewhat better than China or Taiwan as the rising price of
oil had a more subdued impact on the companies in developed markets than in
emerging markets.
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. Negative sentiment
about the technology sector put a damper on growth in both Hong Kong and Taiwan
in July, but the sector rebounded in August.
Mainland China engineers a soft landing for economy
In China, the good news was a slowdown, rather than a pick-up, in the pace of
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 grew at an estimated rate of
between 9.5% and 10.0%. Morgan Stanley estimates that the pace of 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.
Looking ahead
Inflation and rapid economic growth often go hand in hand, and within greater
China, inflation is watching. Also, the ripple effect of slower growth in China
has yet to be felt in other regions. Lehman Brothers Japan has predicted that
slowing import growth in China could halve economic growth in Asia outside of
Japan in the second half of 2004.
4
Portfolio Manager's Report
------------------------------------------------------
Columbia Newport Greater China Fund
Net asset value per share
as of 08/31/04 ($)
Class A 20.64
Class B 20.18
Class C 20.45
Class Z 21.38
Distributions declared per share
09/01/03 - 08/31/04 ($)
Class A 0.11
Class B --
Class C --
Class Z 0.16
Holdings discussed in this report
as of 08/31/04 (%)
Xinao Gas Holdings 1.6%
China Mengniu Dairy 0.5%
Taiwan Semiconductor
Manufacturing 4.5%
Lite-On Technology 1.8%
MediaTek 0.7%
China Insurance
International Holdings 0.5%
Your fund is actively managed and the composition of its portfolio will change
over time. Information provided is calculated as a percentage of net assets.
For the 12-month period ended August 31, 2004, class A shares of Columbia
Newport Greater China Fund returned 16.11% without sales charge. The fund
trailed the MSCI China Index, which returned 21.92%. The fund's return was also
less than the 21.70% return of the Hang Seng Stock Index, an index that tracks
the performance of Hong Kong stocks, which are not included in the MSCI China
Index. However, the fund outperformed the 14.92% average of its peer group, the
Lipper China Region Funds Category.1
The fund trailed its benchmarks primarily because it did not have as much
exposure to lower quality stocks as they did. Lower quality stocks did
especially well in the first half of the period. However, the performance gap
began to close as investors shifted their focus to companies with good balance
sheets and solid prospects for long-term growth.
We are pleased to report that the fund did better than the Lipper China Region
Funds Category average. When the People's Bank of China announced that it was
taking steps to restrain the pace of economic growth, we reduced the fund's
exposure to mainland China because we believed that investors would exit its
stock market. As a result, the fund weathered the subsequent downturn better
than funds with higher mainland China exposure. Later in the period, when
valuations became attractive, we added back to the fund's position in mainland
China.
Boosting investment in mainland China
As the Chinese economy slowed, stock valuations declined, and selected
companies--particularly those associated with infrastructure development and
domestic consumption--became attractive. As a result, we doubled the fund's
allocation to Xinao Gas Holdings, a gas distributor, which was a positive
performer during the period. The fund also participated in an IPO for China
Mengniu Dairy, the biggest provider of milk in China. While the stock declined
slightly, we are enthusiastic about its long-term potential.
Higher inflation a positive indicator
In Taiwan and Hong Kong, economic growth improved; and after a long period of
deflation, we saw the first hint of inflation. Inflation, along with low
interest rates and rising consumer spending, was welcomed as a sign that
economic growth may be sustainable.
However, in Taiwan, internal problems hurt stock market performance during the
reporting period. An assassination attempt on the President and tension between
Taiwan and mainland China put a damper on stocks. In addition, technology
companies suffered, as the US technology sector cooled. Against this background,
we made some changes to the fund's
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 Greater China Fund
Sidebar text: We have positioned the portfolio to take advantage of the
build-out of China's infrastructure, a rise in domestic consumption and the
"re-inflation" of the economy.
position in Taiwan. We sold long-term holdings, Realtek Semiconductor, Asustek
Computer and PhoenixTec Power. We increased positions in Taiwan Semiconductor
Manufacturing and Lite-On Technology, a maker of optical display products. We
also invested in MediaTek, a designer and manufacturer of chip sets for optical
storage devices. Valuations for all three companies were at historically low
levels. Their short-term returns were slightly negative, yet we are optimistic
that they have the potential to benefit the fund over the longer term.
In Hong Kong, we believe that higher inflation has the potential to benefit
consumer-oriented companies, real estate businesses and financial institutions
in the portfolio. Although we made relatively few changes in Hong Kong, we added
China Insurance International Holdings, a general insurance and reinsurance
company. The company was slightly negative for performance during the period.
An optimistic outlook for region
Looking ahead, we see both positive factors and potential impediments to growth.
On the positive side, we believe we have seen the end of deflation. We think
Asian central banks will keep interest rates relatively low and are confident
that the Chinese have charted the correct course in tempering growth. If China
continues to expand, even at a slower pace, the entire region should
benefit--especially Taiwan, which uses China for outsourcing. Yet, higher oil
prices and a slowdown in US economic growth could be potential impediments to
growth in China. With these factors in mind, we have positioned the portfolio to
take advantage of the build-out of China's infrastructure, a rise in domestic
consumption and the "re-inflation" of the economy.
Photo of: Eric Sandlund
Eric Sandlund has managed Columbia Newport Greater China Fund since March 2004
and has been with the advisor and its predecessors since June 2002.
/s/ Eric Sandlund
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.
6
Investment Portfolio
------------------------------------------------------------
Columbia Newport Greater China Fund
August 31, 2004
Common Stocks - 98.4%
CONSUMER DISCRETIONARY - 8.2% Shares Value ($)
- ------------------------------------------ -----------------------------------------------------------------------------
Distributors - 4.2% China Resources Enterprise Ltd. 652,000 868,170
Heng Tai Consumables Group Ltd. 1,458,000 136,808
Li & Fung Ltd. 1,580,000 2,044,989
Distributors Total 3,049,967
-----------------------------------------------------------------------------
Household Durables - 0.8% Guangdong Kelon Electrical Holdings Co., Ltd.,
Class H 1,576,000 575,278
Household Durables Total 575,278
-----------------------------------------------------------------------------
Media - 1.3% Television Broadcasts Ltd. 230,000 953,750
Media Total 953,750
-----------------------------------------------------------------------------
Specialty Retail - 1.9% Esprit Holdings Ltd. 277,000 1,338,219
Specialty Retail Total 1,338,219
------------
CONSUMER DISCRETIONARY TOTAL 5,917,214
CONSUMER STAPLES - 2.3%
- ------------------------------------------ -----------------------------------------------------------------------------
Food & Staples Retailing - 0.5% Convenience Retail Asia Ltd. 1,176,000 373,285
Food & Staples Retailing Total 373,285
-----------------------------------------------------------------------------
Food Products - 1.8% China Mengniu Dairy Co., Ltd. 534,000 335,932
People's Food Holdings Ltd. 1,564,000 979,496
Food Products Total 1,315,428
------------
CONSUMER STAPLES TOTAL 1,688,713
ENERGY - 6.2%
- ------------------------------------------ -----------------------------------------------------------------------------
Oil & Gas - 6.2% CNOOC Ltd. 2,772,500 1,304,162
PetroChina Co., Ltd., Class H 6,378,000 3,212,382
Oil & Gas Total 4,516,544
------------
ENERGY TOTAL 4,516,544
FINANCIALS - 25.7%
- ------------------------------------------ -----------------------------------------------------------------------------
Commercial Banks - 9.9% Chinatrust Financial Holding Co., Ltd. 2,769,247 2,941,121
Dah Sing Financial Group 224,800 1,615,538
Guoco Group Ltd. 89,000 750,305
Hang Seng Bank Ltd. 112,000 1,496,262
JCG Holdings Ltd. 424,000 399,672
Commercial Banks Total 7,202,898
-----------------------------------------------------------------------------
Diversified Financial Services - 0.5% Aeon Credit Service Co., Ltd. 524,000 329,180
Diversified Financial Services Total 329,180
-----------------------------------------------------------------------------
Insurance - 3.3% Cathay Financial Holding Co., Ltd. 1,143,000 2,014,385
China Insurance International Holdings Co., Ltd. 876,000 365,904
Insurance Total 2,380,289
-----------------------------------------------------------------------------
Real Estate - 12.0% Cheung Kong Holdings Ltd. 114,000 990,521
Henderson Land Development Co., Ltd. 602,000 2,953,759
Shanghai Forte Land Co., Ltd. 1,522,000 355,503
Sun Hung Kai Properties Ltd. 332,000 3,100,071
Swire Pacific Ltd., Class A 185,000 1,312,376
Real Estate Total 8,712,230
------------
FINANCIALS TOTAL 18,624,597
See Accompanying Notes to Financial Statements.
7
- --------------------------------------------------------------------------------
August 31, 2004 Columbia Newport Greater China Fund
Common Stocks - (continued)
HEALTH CARE - 0.6%
Shares Value ($)
- ------------------------------------------ -----------------------------------------------------------------------------
Health Care Equipment & Supplies - 0.6% Golden Meditech Co., Ltd. (a) 476,000 183,135
Pihsiang Machinery Manufacturing Co., Ltd. 128,698 254,669
Health Care Equipment & Supplies Total 437,804
------------
HEALTH CARE TOTAL 437,804
INDUSTRIALS - 17.0%
- ------------------------------------------ -----------------------------------------------------------------------------
Electrical Equipment - 1.2% Johnson Electric Holdings Ltd. 837,500 855,198
Electrical Equipment Total 855,198
-----------------------------------------------------------------------------
Industrial Conglomerates - 8.2% China Merchants Holdings International Co., Ltd. 2,192,000 3,325,129
Hutchison Whampoa Ltd. 333,200 2,626,794
Industrial Conglomerates Total 5,951,923
-----------------------------------------------------------------------------
Marine - 2.1% Cosco Pacific Ltd. 972,000 1,467,559
Marine Total 1,467,559
-----------------------------------------------------------------------------
Transportation Infrastructure - 5.5% Anhui Expressway Co., Ltd., Class H 1,442,000 633,888
Jiangsu Expressway Co., Ltd., Class H 2,198,000 889,359
Zhejiang Expressway Co., Ltd., Class H 3,628,000 2,475,116
Transportation Infrastructure Total 3,998,363
------------
INDUSTRIALS TOTAL 12,273,043
INFORMATION TECHNOLOGY - 13.1%
- ------------------------------------------ -----------------------------------------------------------------------------
Computers & Peripherals - 3.3% Acer, Inc. 802,582 1,072,957
Lite-On Technology Corp. 1,348,732 1,269,584
Computers & Peripherals Total 2,342,541
-----------------------------------------------------------------------------
Electronic Equipment & Instruments - 4.6% Hon Hai Precision Industry Co., Ltd. 650,226 2,144,871
Synnex Technology International Corp. 799,700 1,196,967
Electronic Equipment & Instruments Total 3,341,838
-----------------------------------------------------------------------------
Semiconductor & Semiconductor Equipment - 5.2% MediaTek, Inc. 72,039 509,675
Taiwan Semiconductor Manufacturing Co., Ltd. 2,335,692 3,246,423
Semiconductor & Semiconductor Equipment Total 3,756,098
------------
INFORMATION TECHNOLOGY TOTAL 9,440,477
MATERIALS - 1.7%
- ------------------------------------------ -----------------------------------------------------------------------------
Metals & Mining - 1.7% Yanzhou Coal Mining Co., Ltd., Class H 1,126,000 1,223,864
Metals & Mining Total 1,223,864
------------
MATERIALS TOTAL 1,223,864
TELECOMMUNICATION SERVICES - 10.4%
- ------------------------------------------ -----------------------------------------------------------------------------
Diversified Telecommunication Services - 2.7% China Telecom Corp., Ltd., Class H 6,016,000 1,955,701
Diversified Telecommunication Services Total 1,955,701
-----------------------------------------------------------------------------
Wireless Telecommunication Services - 7.7%
China Mobile Ltd. 1,476,500 4,315,248
Taiwan Cellular Corp. 1,330,000 1,256,079
Wireless Telecommunication Services Total 5,571,327
------------
TELECOMMUNICATION SERVICES TOTAL 7,527,028
See Accompanying Notes to Financial Statements.
8
- --------------------------------------------------------------------------------
August 31, 2004 Columbia Newport Greater China Fund
Common Stocks - (continued)
UTILITIES - 13.2% Shares Value ($)
- ------------------------------------------ -----------------------------------------------------------------------------
Electric Utilities - 7.4% Datang International Power Generation Co., Ltd.,
Class H 4,402,000 3,422,956
Huaneng Power International, Inc., Class H 2,578,000 1,921,811
Electric Utilities Total 5,344,767
-----------------------------------------------------------------------------
Gas Utilities - 5.8% Hong Kong & China Gas Co., Ltd. 1,718,304 3,088,012
Xinao Gas Holdings Ltd. (a) 2,292,000 1,145,078
Gas Utilities Total 4,233,090
------------
UTILITIES TOTAL 9,577,857
------------
TOTAL COMMON STOCKS (Cost of $57,212,701) 71,227,141
Short-Term Obligation - 0.4%
- ------------------------------------------ -----------------------------------------------------------------------------
Par ($)
Repurchase agreement with State Street
Bank & Trust Co., dated 08/31/04, due 09/01/04
at 1.490%, collateralized by a U.S. Treasury
Bond maturing 05/15/14, market value
$316,050 (repurchase proceeds $308,013) 308,000 308,000
------------
TOTAL SHORT-TERM OBLIGATION (Cost of $308,000) 308,000
Total Investments - 98.8%
(cost of $57,520,701) (b) 71,535,141
Other Assets & Liabilities, Net - 1.2% 835,092
Net Assets - 100.0% 72,370,233
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Cost for both financial statement and federal income tax purposes is the
same.
SUMMARY OF SECURITIES % OF TOTAL
BY COUNTRY (UNAUDITED) VALUE ($) INVESTMENTS
---------------------- ---------- -----------
Hong Kong 37,675,056 52.7
China 16,665,857 23.3
Taiwan 15,906,731 22.2
Singapore 979,497 1.4
United States* 308,000 0.4
---------- --------
71,535,141 100.0
* Represents short-term obligation.
Certain securities are listed by country of underlying exposure but may
trade predominantly on other exchanges.
See Accompanying Notes to Financial Statements.
9
STATEMENT OF ASSETS AND LIABILITIES
---------------------------------------------
Columbia Newport Greater China Fund
August 31, 2004
($)
- ------------------------------------------ -----------------------------------------------------------------------------
Assets Investments, at cost 57,520,701
Investments, at value 71,535,141
Cash 654
Foreign currency (cost of $366,471) 366,251
Receivable for:
Investments sold 1,485,186
Fund shares sold 140,830
Interest 13
Dividends 246,194
Deferred Trustees' compensation plan 5,345
------------
Total Assets 73,779,614
-----------------------------------------------------------------------------
Liabilities Payable for:
Investments purchased 1,089,283
Fund shares repurchased 143,879
Investment advisory fee 56,412
Administration fee 15
Transfer agent fee 25,810
Pricing and bookkeeping fees 13,104
Trustees' fees 400
Audit fee 20,500
Custody fee 13,015
Distribution and service fees 26,100
Deferred Trustees' fees 5,345
Other liabilities 15,518
------------
Total Liabilities 1,409,381
Net Assets 72,370,233
-----------------------------------------------------------------------------
Composition of Net Assets Paid-in capital 93,269,974
Undistributed net investment income 464,770
Accumulated net realized loss (35,379,177)
Net unrealized appreciation on:
Investments 14,014,440
Foreign currency translations 226
------------
Net Assets 72,370,233
-----------------------------------------------------------------------------
Class A Net assets 47,282,045
Shares outstanding 2,291,144
Net asset value per share 20.64(a)
Maximum offering price per share ($20.64/0.9425) 21.90(b)
-----------------------------------------------------------------------------
Class B Net assets 10,470,778
Shares outstanding 518,843
Net asset value and offering price per share 20.18(a)
-----------------------------------------------------------------------------
Class C Net assets 9,435,755
Shares outstanding 461,488
Net asset value and offering price per share 20.45(a)
-----------------------------------------------------------------------------
Class Z Net assets 5,181,655
Shares outstanding 242,317
Net asset value, offering and redemption price per share 21.38(c)
(a) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
(c) Redemption price per share is equal to net asset value less any applicable
redemption fee.
10
See Accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
---------------------------------------------------------
For the Year Ended August 31, 2004 Columbia Newport Greater China Fund
($)
- ------------------------------------------ -----------------------------------------------------------------------------
Investment Income Dividends 1,917,415
Interest 20,976
------------
Total Investment Income (net of foreign taxes
withheld of $101,310) 1,938,391
-----------------------------------------------------------------------------
Expenses Investment advisory fee 686,152
Administration fee 24,036
Distribution fee:
Class B 68,781
Class C 61,026
Service fee:
Class A 120,081
Class B 22,859
Class C 20,298
Transfer agent fee 193,695
Pricing and bookkeeping fees 39,253
Trustees' fees 6,902
Custody fee 80,981
Non-recurring costs (See Note 8) 3,494
Other expenses 123,572
------------
Total Expenses 1,451,130
Custody earnings credit (134)
Non-recurring costs assumed by Investment Advisor (See Note 8) (3,494)
------------
Net Expenses 1,447,502
------------
Net Investment Income 490,889
-----------------------------------------------------------------------------
Net Realized and Unrealized Net realized gain on:
Gain (Loss) on Investments Investments 2,979,569
and Foreign Currency Foreign currency transactions 31,887
------------
Net realized gain 3,011,456
Net change in unrealized appreciation/depreciation on:
Investments 4,747,952
Foreign currency translations (3,356)
------------
Net change in unrealized appreciation/depreciation 4,744,596
Net Gain 7,756,052
------------
Net Increase in Net Assets from Operations 8,246,941
See Accompanying Notes to Financial Statements.
11
Statement of Changes in Net Assets
----------------------------------------------
Columbia Newport Greater China Fund
Year Ended August 31,
---------------------------
Increase (Decrease) in Net Assets 2004 ($) 2003 ($)
- ------------------------------------------ -----------------------------------------------------------------------------
Operations Net investment income 490,889 342,542
Net realized gain on investments and foreign
currency transactions 3,011,456 1,801,272
Net change in unrealized appreciation/depreciation
on investments and foreign currency translations 4,744,596 8,355,746
---------------------------
Net Increase from Operations 8,246,941 10,499,560
-----------------------------------------------------------------------------
Distributions Declared to Shareholders: From net investment income:
Class A (271,209) (211,935)
Class Z (33,006) (4,185)
---------------------------
Total Distributions Declared to Shareholders (304,215) (216,120)
-----------------------------------------------------------------------------
Share Transactions Class A:
Subscriptions 11,934,006 42,825,644
Distributions reinvested 202,579 167,826
Redemptions (13,899,730) (41,932,214)
---------------------------
Net Increase (Decrease) (1,763,145) 1,061,256
Class B:
Subscriptions 8,194,945 2,556,672
Redemptions (3,513,395) (2,218,990)
---------------------------
Net Increase 4,681,550 337,682
Class C:
Subscriptions 10,274,672 4,366,827
Redemptions (4,715,322) (3,463,081)
---------------------------
Net Increase 5,559,350 903,746
Class Z:
Subscriptions 6,509,751 5,991,931
Distributions reinvested 19,453 2,201
Redemptions (3,704,101) (4,470,220)
---------------------------
Net Increase 2,825,103 1,523,912
Net Increase from Share Transactions 11,302,858 3,826,596
Redemption fees 7,435 5,884
Total Increase in Net Assets 19,253,019 14,115,920
-----------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
12
- --------------------------------------------------------------------------------
Columbia Newport Greater China Fund
Year Ended August 31,
---------------------------
2004 ($) 2003 ($)
- ------------------------------------------ -----------------------------------------------------------------------------
Net Assets Beginning of period 53,117,214 39,001,294
End of period (including undistributed
net investment income of $464,770 and
$246,209, respectively) 72,370,233 53,117,214
-----------------------------------------------------------------------------
Changes in Shares Class A:
Subscriptions 587,185 3,071,717
Issued for distributions reinvested 10,373 11,869
Redemptions (693,251) (3,019,611)
---------------------------
Net Increase (Decrease) (95,693) 63,975
Class B:
Subscriptions 402,492 181,670
Redemptions (176,010) (163,897)
---------------------------
Net Increase 226,482 17,773
Class C:
Subscriptions 507,747 311,576
Redemptions (232,916) (252,340)
---------------------------
Net Increase 274,831 59,236
Class Z:
Subscriptions 308,478 415,808
Issued for distributions reinvested 963 155
Redemptions (174,971) (317,706)
---------------------------
Net Increase 134,470 98,257
See Accompanying Notes to Financial Statements.
13
NOTES TO FINANCIAL STATEMENTS
---------------------------------------------------
August 31, 2004 Columbia Newport Greater China Fund
Note 1. Organization
Columbia Newport Greater China Fund (the "Fund"), a series of Columbia Funds
Trust II (the "Trust"), is a non-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 of capital by investing primarily in equity
securities of companies located in the Greater China Region.
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
Greater China Fund to Columbia Newport Greater China Fund. Also on that date,
the Trust changed its name from Liberty Funds Trust II to Columbia Funds Trust
II.
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. 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
14
- --------------------------------------------------------------------------------
August 31, 2004 Columbia Newport Greater China Fund
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.
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:
15
- --------------------------------------------------------------------------------
August 31, 2004 Columbia Newport Greater China Fund
Undistributed Accumulated
Net Investment Net Realized Paid-In
Income Gain Capital
- --------------------------------------------------------------------------------
$31,887 $(31,887) $--
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, 2004 August 31, 2003
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary Income* $304,215 $216,120
* 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 Long-term Net Unrealized
Ordinary Income Capital Gains Appreciation
- --------------------------------------------------------------------------------
$470,637 $-- $14,014,440
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 assets and
liabilities resulting from changes in exchange rates, was:
Unrealized appreciation $19,030,900
Unrealized depreciation $(5,016,460)
- --------------------------------------------------------------------------------
Net unrealized appreciation $14,014,440
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
- --------------------------------------------------------------------------------
2007 $29,627,550
- --------------------------------------------------------------------------------
2008 703,958
- --------------------------------------------------------------------------------
2010 5,047,669
- --------------------------------------------------------------------------------
$35,379,177
Capital loss carryforwards of $2,979,569 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 $1 billion 0.95%
- --------------------------------------------------------------------------------
Next $500 million 0.90%
- --------------------------------------------------------------------------------
Over $1.5 billion 0.85%
Prior to November 1, 2003, Columbia was entitled to receive a monthly investment
advisory fee at the annual rate of 1.15% of the Fund's average daily net assets.
For the year ended August 31, 2004, the Fund's effective investment advisory fee
rate was 0.98%.
Administration Fees
Columbia provides administrative and other services to the Fund. Effective
November 1, 2003, the Board of Trustees approved an administration fee reduction
for the Fund. As a result of the fee reduction, Columbia no longer receives fees
from the Fund for its administration services.
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 0.03%.
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
16
- --------------------------------------------------------------------------------
August 31, 2004 Columbia Newport Greater China Fund
("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 0.056%
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 0.28%.
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 $60,813 on sales of
the Fund's Class A shares and received CDSC fees of $49, $44,393 and $17,632 on
Class A, Class B and Class C share redemptions, respectively.
The Fund has adopted a 12b-1 plan (the "Plan") which requires the payment of a
monthly service fee to the Distributor at the annual rate of 0.25% of the
average daily net assets attributable to Class A, Class B and Class C shares of
the Fund. The Plan also requires the payment of a monthly distribution fee to
the Distributor at the annual rate of 0.75% of the average daily net assets
attributable to Class B and Class C shares only.
The 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 1.90% 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.
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 $1,374 to Columbia
for such services. This amount is included in "Other expenses" on the Statement
of Operations.
17
- --------------------------------------------------------------------------------
August 31, 2004 Columbia Newport Greater China Fund
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 $30,514,807 and
$16,973,466, 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 $7,435.
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. 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 Greater China Region,
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.
Issuer Focus
As a non-diversified fund, the Fund may invest a greater percentage of its total
assets in the securities of fewer issuers than a diversified fund. The Fund may,
therefore, have a greater risk of loss from a few issuers than a similar fund
that invests more broadly.
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 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
18
- --------------------------------------------------------------------------------
August 31, 2004 Columbia Newport Greater China Fund
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, it will seek exemptive relief from the SEC to permit it to
continue to serve as your fund's investment advisor. 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 $3,494 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
19
FINANCIAL HIGHLIGHTS
------------------------------------------------------------
Columbia Newport Greater China Fund
Selected data for a share outstanding throughout each period is as follows:
Year Ended August 31,
-----------------------------------------------------------------------------------
Class A Shares 2004 2003 (a) 2002 (a) 2001 (a) 2000 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 17.88 $ 14.29 $ 14.91 $ 19.98 $ 13.94
- ------------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss) (b) 0.17 0.14 0.10 0.12 0.05
Net realized and unrealized
gain (loss) on investments
and foreign currency 2.70 3.53 (0.57) (5.19) 5.99
------- ------- ------- ------- -------
Total from Investment Operations 2.87 3.67 (0.47) (5.07) 6.04
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared to Shareholders:
From net investment income (0.11) (0.08) (0.15) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Redemption fees:
Redemption fees added to paid-in-capital --(b)(c) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 20.64 $ 17.88 $ 14.29 $ 14.91 $ 19.98
Total return (d) 16.11% 25.84%(e) (3.22)%(e) (25.38)%(e) 43.33%(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
Operating expenses (f) 1.89% 2.15% 2.15% 2.15% 2.15%
Interest expense -- --%(g) --%(g) -- --
Expenses (f) 1.89% 2.15% 2.15% 2.15% 2.15%
Net investment income (loss) (f) 0.84% 0.97% 0.65% 0.68% 0.26%
Waiver/reimbursement -- 0.37% 0.29% 0.21% 0.10%
Portfolio turnover rate 25% 33% 16% 14% 28%
Net assets, end of period (000's) $47,282 $42,685 $33,201 $37,652 $ 64,722
- ------------------------------------------------------------------------------------------------------------------------------------
(a) For the years ended August 31, 2003, 2002, 2001 and 2000, the Fund was
audited by Ernst & Young LLP.
(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/Administrator not waived or reimbursed a portion
of expenses, total return would have been reduced.
(f) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(g) Rounds to less than 0.01%.
20
- --------------------------------------------------------------------------------
Columbia Newport Greater China Fund
Selected data for a share outstanding throughout each period is as follows:
Year Ended August 31,
---------------------------------------------------------------------------------
Class B Shares 2004 2003 (a) 2002 (a) 2001 (a) 2000 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 17.51 $ 14.02 $ 14.63 $ 19.75 $ 13.88
- ------------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss) (b) 0.05 0.04 (0.02) (0.01) (0.09)
Net realized and unrealized
gain (loss) on investments
and foreign currency 2.62 3.45 (0.55) (5.11) 5.96
------- ------- ------- ------- -------
Total from Investment Operations 2.67 3.49 (0.57) (5.12) 5.87
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared to Shareholders:
From net investment income -- -- (0.04) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Redemption fees:
Redemption fees added to paid-in-capital --(b)(c) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 20.18 $ 17.51 $ 14.02 $ 14.63 $ 19.75
Total return (d) 15.25% 24.89%(e) (3.93)%(e) (25.92)%(e) 42.29%(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
Operating expenses (f) 2.64% 2.90% 2.90% 2.90% 2.90%
Interest expense -- --%(g) --%(g) -- --
Expenses (f) 2.64% 2.90% 2.90% 2.90% 2.90%
Net investment income (loss) (f) 0.23% 0.30% (0.10)% (0.07)% (0.49)%
Waiver/reimbursement -- 0.37% 0.29% 0.21% 0.10%
Portfolio turnover rate 25% 33% 16% 14% 28%
Net assets, end of period (000's) $10,471 $ 5,121 $ 3,850 $ 4,151 $ 6,335
- ------------------------------------------------------------------------------------------------------------------------------------
(a) For the years ended August 31, 2003, 2002, 2001 and 2000, the Fund was
audited by Ernst & Young LLP.
(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/Administrator not waived or reimbursed a portion
of expenses, total return would have been reduced.
(f) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(g) Rounds to less than 0.01%.
21
- --------------------------------------------------------------------------------
Columbia Newport Greater China Fund
Selected data for a share outstanding throughout each period is as follows:
Year Ended August 31,
---------------------------------------------------------------------------------
Class C Shares 2004 2003 (a) 2002 (a) 2001 (a) 2000 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 17.76 $ 14.22 $ 14.84 $ 20.03 $ 14.10
- ------------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss) (b) 0.04 0.05 (0.02) (0.01) (0.09)
Net realized and unrealized
gain (loss) on investments
and foreign currency 2.65 3.49 (0.56) (5.18) 6.02
------- ------- ------- ------- -------
Total from Investment Operations 2.69 3.54 (0.58) (5.19) 5.93
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared to Shareholders:
From net investment income -- -- (0.04) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Redemption fees:
Redemption fees added to paid-in-capital --(b)(c) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 20.45 $ 17.76 $ 14.22 $ 14.84 $ 20.03
Total return (d) 15.15% 24.89%(e) (3.94)%(e) (25.91)%(e) 42.06%(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
Operating expenses (f) 2.64% 2.90% 2.90% 2.90% 2.90%
Interest expense -- --%(g) --%(g) -- --
Expenses (f) 2.64% 2.90% 2.90% 2.90% 2.90%
Net investment income (loss) (f) 0.20% 0.35% (0.10)% (0.07)% (0.49)%
Waiver/reimbursement -- 0.37% 0.29% 0.21% 0.10%
Portfolio turnover rate 25% 33% 16% 14% 28%
Net assets, end of period (000's) $ 9,436 $ 3,316 $ 1,812 $ 1,352 $ 1,296
- ------------------------------------------------------------------------------------------------------------------------------------
(a) For the years ended August 31, 2003, 2002, 2001 and 2000, the Fund was
audited by Ernst & Young LLP.
(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/Administrator not waived or reimbursed a portion
of expenses, total return would have been reduced.
(f) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(g) Rounds to less than 0.01%.
22
- --------------------------------------------------------------------------------
Columbia Newport Greater China Fund
Selected data for a share outstanding throughout each period is as follows:
Year Ended August 31,
---------------------------------------------------------------------------------
Class Z Shares 2004 2003 (a) 2002 (a) 2001 (a) 2000 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 18.51 $ 14.41 $ 15.05 $ 20.11 $ 14.01
- ------------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (b) 0.22 0.11 0.14 0.16 0.09
Net realized and unrealized
gain (loss) on investments
and foreign currency 2.81 4.10 (0.59) (5.22) 6.01
------- ------- ------- ------- -------
Total from Investment Operations 3.03 4.21 (0.45) (5.06) 6.10
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared to Shareholders:
From net investment income (0.16) (0.12) (0.19) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Redemption fees:
Redemption fees added to paid-in-capital --(b)(c) 0.01 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 21.38 $ 18.51 $ 14.41 $ 15.05 $ 20.11
Total return (d) 16.44% 29.51%(e) (3.10)%(e) (25.16)%(e) 43.54%(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
Operating expenses (f) 1.64% 1.90% 1.90% 1.90% 1.90%
Interest expense -- --%(g) --%(g) -- --
Expenses (f) 1.64% 1.90% 1.90% 1.90% 1.90%
Net investment income (f) 1.06% 0.70% 0.90% 0.93% 0.51%
Waiver/reimbursement -- 0.37% 0.29% 0.21% 0.10%
Portfolio turnover rate 25% 33% 16% 14% 28%
Net assets, end of period (000's) $ 5,182 $1,996 $138 $145 $164
- ------------------------------------------------------------------------------------------------------------------------------------
(a) For the years ended August 31, 2003, 2002, 2001 and 2000, the Fund was
audited by Ernst & Young LLP.
(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/Administrator not waived or reimbursed a portion
of expenses, total return would have been reduced.
(f) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(g) Rounds to less than 0.01%
23
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
-----------------------------------------------
Columbia Newport Greater China Fund
To the Trustees of Columbia Funds Trust II
and the Shareholders of Columbia Newport Greater China 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 Greater China Fund
(the "Fund") (a series of Columbia Funds Trust II) at August 31, 2003, 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 auditing 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 years ending August 31, 2003 were audited by other independent
accountants whose report dated October 17, 2003 expressed an unqualified opinion
on those statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 18, 2004
24
UNAUDITED INFORMATION
-----------------------------------------------------------
Columbia Newport Greater China Fund
Federal Income Tax Information
Foreign taxes paid during the fiscal year ended August 31, 2004, amounting to
$101,310 ($0.03 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
$2,018,725 ($0.57 per share) for the fiscal year ended August 31, 2004.
For non-corporate shareholders 36.78%, 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.
25
TRUSTEES
------------------------------------------------------------------------
Columbia Newport Greater China 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
Chestnut Hill, MA 02467-3838 September 1999). Oversees 1213,4, Saucony, Inc. (athletic footwear)
Trustee (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.
26
- --------------------------------------------------------------------------------
Columbia Newport Greater China 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.
27
OFFICERS
- --------------------------------------------------------------------------------
Columbia Newport Greater China 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
Boston, MA 02111 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 August, 2004; Counsel, Carter, Ledyard & Milburn LLP from November 1999 to
Chief Compliance Officer December 2000; Vice President and Counsel, Equitable Life Assurance Society of
(since 2004) 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 to May 2004; Vice President, Product Strategy & Development of the Liberty Funds
(since 2004) 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
Management Group since November 2002. Secretary (since 2003)
--------------------------------------------------------------------------------
28
IMPORTANT INFORMATION ABOUT THIS REPORT
-----------------------------------------
Columbia Newport Greater China 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 funds mail 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 Greater China
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 funds 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.
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.
29
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Columbia Newport Greater China 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
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736-02/772S-0904 (10/04) 04/2925
ITEM 2. CODE OF ETHICS.
(a) The registrant has, as of the end of the period covered by this
report, adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party.
(b) During the period covered by this report, there were not any
amendments to a provision of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, there were not any waivers
or implicit waivers to a provision of the code of ethics adopted in
2(a) above.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that Douglas A. Hacker, Thomas
E. Stitzel, Anne-Lee Verville and Richard L. Woolworth, each of whom are members
of the registrant's Board of Trustees and Audit Committee, each qualify as an
audit committee financial expert. Mr. Hacker, Mr. Stitzel, Ms. Verville and Mr.
Woolworth are each independent trustees, as defined in paragraph (a)(2) of this
item's instructions and collectively constitute the entire Audit Committee.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Fee information below is disclosed in aggregate for the series of the registrant
whose reports to stockholders are included in this annual filing. Effective
March 1, 2004, 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
$19,800 $23,000
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
$3,500 $4,000
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
$2,500 $2,200
Tax Fees include amounts for professional services by the principal accountant
for tax compliance, tax advice and tax planning. Tax Fees in both fiscal years
2004 and 2003 primarily consist of the review of annual tax returns.
The "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X became effective on May 6, 2003. For the 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 II
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By (Signature and Title) /s/ Christopher L. Wilson
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Christopher L. Wilson, President
Date October 28, 2004
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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
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Christopher L. Wilson, President
Date October 28, 2004
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By (Signature and Title) /s/ J. Kevin Connaughton
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J. Kevin Connaughton, Treasurer
Date October 28, 2004
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