N-CSR
COLUMBIA FLOATING RATE ADVANTAGE FUND
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 811-9709
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Columbia Floating Rate Advantage Fund
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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)
Russell Kane, 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: 1-617-772-3363
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Date of fiscal year end: 08/31/2003
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Date of reporting period: 08/31/2003
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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
[GRAPHIC]
Columbia Floating
Rate Advantage Fund
Annual Report
August 31, 2003
We are now Columbia Funds!
INSIDE -- Management's discussion of the changes effective as of October 13,
2003.
President's Message
[PHOTO]
Dear Shareholder:
As you know, the fund you invest in has long been associated with a larger
investment management organization. In the 1990s, it was affiliated with
Liberty Financial, whose asset management companies included Colonial, Stein
Roe and Newport. In 2001, these companies became part of the asset management
division of FleetBoston Financial Corp, which you know as Columbia Management
Group (CMG).
Earlier this year, six of the asset management firms that were brought together
under the CMG umbrella were consolidated and renamed Columbia Management
Advisors, Inc. On October 13, 2003, we took the natural next step forward in
this process by changing the name of our funds from Liberty to Columbia. For
example, Liberty Floating Rate Advantage Fund was changed to Columbia Floating
Rate Advantage Fund. We have also modified certain fund names that existed
under both the Liberty and Columbia brands.
As a result of these fund name changes, most fund CUSIP numbers have changed.
(A CUSIP is a unique identification number assigned to each class of a mutual
fund by the Committee on Uniform Security Identification Procedures.) However,
ticker symbols have not changed. A list of new fund names and other information
related to these changes are available online at www.columbiafunds.com, our new
website address.
A consolidated identity
The consolidation of our management under a single organization and the
renaming of our funds are part of a larger effort to create a consistent
identity. Having taken these additional steps, we believe it will be easier for
our shareholders to do business with us. All funds will be listed under the
"Columbia" name in the mutual fund listings section of your newspaper (as long
as they meet the newspaper's listing requirements). All service inquires will
be handled by Columbia Funds Services, Inc., the new name of our shareholder
service organization.
What will not change is our commitment to fund shareholders. We remain
committed to providing the best possible customer service and to offering a
wide variety of mutual funds to help you pursue your long-term financial goals.
Should you have questions, please call shareholder services at 800-345-6611.
In the report that follows, your portfolio manager talks in depth about
investment strategies and other factors that affected your fund's performance
during the period. We encourage you to read the report carefully.
As always, we thank you for your business and we look forward to continuing to
serve your investment needs.
Sincerely,
/s/ Joseph R. Palumbo
Joseph R. Palombo
President
Net asset value per share as of 08/31/03 ($)
Class A 11.22
Class B 11.22
Class C 11.22
Class Z 11.22
Distributions declared per share 09/01/02-08/31/03
Class A 0.81
Class B 0.77
Class C 0.76
Class Z 0.85
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
Economic and market conditions change frequently.There is no assurance that the
trends described in this report will continue or commence.
Performance Information -- Columbia Floating Rate Advantage Fund
Value of a $10,000 investment
1/13/00 --8/31/03
Performance of a $10,000 investment 1/13/00-08/31/03 ($)
without with
sales charge sales charge
---------------------------------
Class A 12,569 12,129
---------------------------------
Class B 12,418 12,278
---------------------------------
Class C 12,353 12,353
---------------------------------
Class Z 12,725 n/a
[CHART]
Class A shares Class A shares CSFB Leveraged
without sales charge with sales charge Loan Index
-------------------- ----------------- ----------
10,000 9,650 10,000
01/31/2000 10,050 9,698 10,097
02/29/2000 10,141 9,787 10,130
03/31/2000 10,151 9,795 10,050
04/30/2000 10,210 9,853 10,086
05/31/2000 10,316 9,955 10,171
06/30/2000 10,420 10,055 10,233
07/31/2000 10,521 10,153 10,307
08/31/2000 10,604 10,233 10,359
09/30/2000 10,696 10,322 10,393
10/31/2000 10,778 10,400 10,398
11/30/2000 10,821 10,442 10,421
12/31/2000 10,895 10,514 10,494
01/31/2001 10,998 10,613 10,557
02/28/2001 11,049 10,663 10,647
03/31/2001 11,020 10,634 10,660
04/30/2001 10,915 10,533 10,615
05/31/2001 11,027 10,641 10,742
06/30/2001 11,041 10,654 10,755
07/31/2001 11,176 10,785 10,782
08/31/2001 11,316 10,920 10,868
09/30/2001 11,128 10,739 10,660
10/31/2001 10,873 10,493 10,494
11/30/2001 11,007 10,622 10,659
12/31/2001 11,176 10,784 10,769
01/31/2002 11,344 10,947 10,829
02/28/2002 11,274 10,879 10,788
03/31/2002 11,493 11,090 10,913
04/30/2002 11,652 11,245 11,029
05/31/2002 11,683 11,274 11,022
06/30/2002 11,455 11,054 10,855
07/31/2002 11,051 10,664 10,690
08/31/2002 10,878 10,497 10,659
09/30/2002 10,723 10,347 10,683
10/31/2002 10,621 10,249 10,540
11/30/2002 10,806 10,427 10,721
12/31/2002 11,067 10,680 10,889
01/31/2003 11,232 10,839 11,036
02/28/2003 11,249 10,855 11,094
03/31/2003 11,398 10,999 11,129
04/30/2003 11,778 11,366 11,287
05/31/2003 12,143 11,718 11,438
06/30/2003 12,421 11,986 11,599
07/31/2003 12,494 12,057 11,679
08/31/2003 12,570 12,130 11,704
Mutual fund performance changes over time. Please visit www.columbiafunds.com
for daily performance updates.
Past performance is no guarantee of the future investment results. The
principal value and investment returns will fluctuate, resulting in a gain or a
loss on sale. The graph and table do not reflect the deduction of taxes a
shareholder would pay on the fund distributions or redemption of the fund
shares. The CSFB Leveraged Loan Index is an unmanaged index that tracks the
performance of senior floating rate bank loans. Unlike the fund, indices are
not investments, do not incur fees or expenses and are not professionally
managed. It is not possible to invest directly in an index. Securities in the
fund may not match those in the index. Index performance is from December 31,
1999.
Average annual total return as of 8/31/03 (%)
Share Class A B C Z
Inception 1/13/00 1/13/00 1/13/00 1/13/00
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without with without with without with without
sales sales sales sales sales sales sales
charge charge charge charge charge charge charge
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1-year 15.55 11.51 15.16 11.91 14.99 13.99 15.95
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Life 6.50 5.46 6.14 5.81 5.99 5.99 6.86
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Average annual total return as of 6/30/03 (%)
Share Class A B C Z
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without with without with without with without
sales sales sales sales sales sales sales
charge charge charge charge charge charge charge
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1-year 8.43 4.64 8.05 4.80 7.90 6.90 8.81
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Life 6.46 5.37 6.10 5.75 5.95 5.95 6.82
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Past performance is no guarantee of future investment results. The principal
value and investment returns will fluctuate, resulting in a gain or loss on
sale. All results shown assume reinvestment of distributions. The "with sales
charge" returns include the maximum 3.50% sales charge for class A shares; the
appropriate class B shares early withdrawal charge (EWC) for the holding period
after purchase as follows: first year - 3.25%, second year - 3.00%, third year
- - 2.00%, fourth year - 1.50%, fifth year - 1.00%, thereafter - 0%; and the
class C shares EWC of 1.00% for the first year only. 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. Performance for different share
classes will vary based on differences in sales charges and fees associated
with each class.
1
Portfolio Managers' Report
30-day SEC yield as of 08/31/03
After
reimbursement (%)
Class A 5.84
Class B 5.73
Class C 5.56
Class Z 6.00
The 30-day SEC yield reflects the portfolio's earning power, net of
expenses, expressed as an annualized percentage of the public offering
price at the end of the period. If the advisor or its affiliates had not waived
certain fund expenses, the 30-day SEC yield would have been 5.60% for
Class A shares, 5.49% for Class B shares, 5.30% for Class C shares and
5.92% for Class Z shares.
Top 10 issuers as of 08/31/03 (%)
Comcast Cable Communications 4.0
Nextel Finance 3.6
Century Cable Holdings 3.6
Washington Group International 2.7
Calpine 2.2
Mission Energy Holdings 2.1
Cricket Communications 2.0
Olympus Cable Holdings 1.9
Quorum Broadcasting 1.9
Huntsman 1.8
Holdings are calculated as a percentage of net assets. Because the fund is
actively managed, there is no guarantee that the fund will continue to
maintain these holdings in the future.
For the 12-month period ended August 31, 2003, class A shares of Columbia
Floating Rate Advantage Fund returned 15.55% without sales charge. That was
greater than the return of the fund's benchmark, the CSFB Leveraged Loan Index,
which was 9.80% for the period. The fund also did better than the Lipper Loan
Participation Loan Category average, which was 9.49%./1/ These high returns
reflect an advantageous environment for all types of credit instruments. We
believe the fund was able to outperform because of favorable sector allocation
and security selection and also because of the positive effect of using
leverage in a rising market.
A strong credit environment
Bank loans and other forms of credit were in high demand, especially during the
past six months. From investment-grade corporate debt to high-yield bonds, we
witnessed a sharp recovery from the weak credit markets of the previous two
years. The corporate accounting scandals that dominated the headlines in 2002
had brought new credit issuance to a standstill. During 2003, however, the
capital markets were once again open for a wide range of issuers. Corporate
balance sheets improved and default rates declined from over 10% at the
beginning of 2003 to 5.4% by mid-year.
As always, the use of leverage tends to exaggerate the trends of the underlying
market. When the market was declining a year ago, the decline was magnified by
our leverage. Since November of 2002, however, our one-quarter to one-third
leveraged position added several percentage points to the fund's return.
Cable and wireless--a boon to performance
The fund's overweight in wireless communications and cable contributed
significantly to its strong performance. Wireless Communications, which
accounted for 10.0% of the net assets on August 31, was hit disproportionately
hard in 2002, with many issues trading at discounts of 30-45% of par. Since
then, the industry has staged a strong recovery. Many wireless companies took
advantage of their improved operating performance and prevailing low interest
rates by bringing high-yield bonds to market, thereby improving their capital
structure. In many cases, they even repaid bank debt at 100 cents on the
dollar. Holdings such as Centennial Cellular and Western Wireless (0.4% and
0.5% of net assets, respectively) were especially strong performers./2/
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/1/ Lipper, Inc., a widely respected data provider in the industry, calculates
an average total return for mutual funds with similar investment objectives
as the fund.
/2/ Holdings are disclosed as of August 31, 2003, and are subject to change.
2
Cable Television, which constituted 13.3% of the fund's net assets at period
end, also rebounded from difficult times. Following the Adelphia bankruptcy in
2002, mergers and acquisitions activity came to a halt, and subscriber bases
became difficult to value. Over the past six to nine months, however, a series
of these types of transactions and other asset sales took place. Although the
subscriber values implied by these transactions were down from their peak, they
were also greater than what the depressed market was suggesting. Adelphia, the
bellwether for an industry on the mend, remains an important holding for the
fund because of our position in its wholly-owned subsidiaries, Century Cable
and Olympus Cable (3.6% and 1.9% of net assets, respectively).
/s/ Brian Good /s/ Jim Fellows
Brian Good and Jim Fellows have been portfolio managers of the Columbia
Floating Rate Advantage Fund since its inception in January 2000.
Just like any other investment, floating rate loan investments present
financial risks. Defaults on the loans in the portfolio could reduce the
fund's net asset value (NAV) and its distributions, as could nonpayment of
scheduled interest and principal. Prepayment of principal by a borrower could
mean that the fund managers have to replace the loan with a lower-yielding
security, which could affect the valuation of the portfolio's holdings.
The fund is a continuously offered, closed-end management investment company
and provides limited liquidity through a quarterly tender offer for between 5%
and 25% of outstanding shares. Each quarter, the fund's trustees must approve
the actual tender amount. Please read the prospectus carefully for more
details.
The use of leverage for investment purposes creates opportunities for greater
total returns, but at the same time involves certain risks, such as greater
volatility of the NAV of the fund's shares and the nonpayment of dividends.
The fund may invest a high percentage of assets in a limited number of loans,
so the default of any individual holding can have a greater impact on the
fund's NAV than could a default in a more diversified portfolio.
Unlike floating rate loans, some fixed-income investments may be covered by
FDIC insurance or other guarantees relating to timely payment of principal and
interest. Some may also provide tax benefits.
Portfolio quality breakdown (%)
as of 08/31/03 (dollar-weighted)
[CHART]
Baa3 3.3
Ba1 3.5
Ba2 6.4
Ba3 19.6
B1 19.2
B2 10.3
B3 12.1
Caa1 3.4
Caa2 2.0
Ca 1.6
NR 8.8
Other 9.8
Quality breakdowns are calculated as a percentage of total investments. Because
the fund is actively managed, there is no guarantee that the fund will continue
to maintain these quality breakdowns in the future.
Top 5 sectors as of 08/31/03 (%)
[CHART]
Cable television 13.3
Wireless communications 10.0
Healthcare services 6.2
Electric utilities 6.0
Movies/Entertainment 5.7
Sector breakdowns are calculated as a percentage of net assets. Because the
fund is actively managed, there is no guarantee that the fund will continue to
maintain this breakdown in the future.
3
Investment Portfolio
August 31, 2003
Variable Rate Senior
Loan Interests (a) - 111.3% Par Value
----------------------------------------------------
Aerospace/Defense - 1.4%
Integrated Defense Technologies,
Term Loan B 03/04/08 $ 946,194 $ 942,612
Vought Aircraft Industries, Inc.:
Term Loan B 06/30/07 216,435 212,827
Term Loan C 06/30/08 1,334,577 1,332,358
Term Loan X 12/31/06 847,637 845,511
------------
3,333,308
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Auto Parts - 3.4%
142466 Ontario Ltd.,
Term Loan B 08/10/07 2,365,119 2,370,707
Accuride Corp.,
Term Loan C 01/21/07 1,000,000 1,002,751
Federal-Mogul Corp.: (b)
Supplemental
Revolver 02/24/04 1,328,381 1,321,717
Term Loan C 02/24/04 573,404 571,966
TRW Automotive Acquisitions Corp.,
Term Loan C1 02/28/11 2,000,000 2,007,774
United Components, Inc.,
Term Loan B 06/30/10 1,000,000 1,008,330
------------
8,283,245
------------
Broadcasting - 5.3%
Comcorp Broadcasting, Inc.,
Term Loan A2 03/31/04 1,813,479 1,804,412
Gray Television, Inc.,
Incremental Term
Loan 12/31/10 2,085,000 2,102,738
Quorum Broadcasting Co., Inc.:
Revolver 12/31/04 1,392,365 1,343,629
Term Loan C 12/31/04 1,481,752 1,429,859
Term Loan B 12/31/04 1,983,293 1,938,627
UPC Financing Partnership,
Term Loan C2 03/31/09 5,000,000 4,419,838
White Knight Broadcasting, Inc.,
Term Loan A2 09/15/03 186,521 185,588
------------
13,224,691
------------
Building Products - 1.2%
Outsourcing Solutions, Inc., (d)
Term Loan B 06/10/06 2,408,750 1,541,600
Tapco International Corp.:
Term Loan B 06/23/07 854,552 856,103
Term Loan C 06/23/08 611,097 612,200
------------
3,009,903
------------
Business Services - 0.8%
HQ Global, (c)
Term Loan B 11/06/05 1,849,805 735,060
Par Value
---------------------------------------------------
NATG Holdings LLC: (d)
Revolver A 01/23/05 $ 131,418 $ 131,434
Term Loan A 01/23/09 127,805 102,238
Term Loan B1 01/23/10 86,523 69,214
Term Loan B2 01/23/10 43,771 43,769
Pacer International, Inc.,
Term Loan 06/10/10 929,412 938,201
------------
2,019,916
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Cable Television - 13.3%
Bresnan Communications LLC,
Term Loan B 12/31/07 3,500,000 3,583,490
Century Cable Holdings LLC,
Term Loan 06/30/09 10,500,000 8,808,239
Charter Communications Operating LLC:
Term Loan A 09/18/07 1,006,250 923,221
Term Loan B 03/18/08 3,273,123 3,076,133
Comcast Cable Communications,
Term Loan 11/18/06 10,000,000 9,958,782
CSC Holdings, Inc., (b)
Revolver 06/30/06 1,960,000 1,827,810
Olympus Cable Holdings LLC:
Term Loan A 06/30/10 3,000,000 2,580,000
Term Loan B 09/30/10 2,500,000 2,184,375
------------
32,942,050
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Casinos/Gambling - 5.0%
Aladdin Gaming LLC: (c)
Term Loan A 02/25/05 4,000,000 3,200,000
Term Loan B 08/26/06 1,250,000 1,015,625
Alliance Gaming Corp.,
Term Loan 09/04/09 3,456,250 3,481,706
Ameristar Casinos, Inc.,
Term Loan B 12/20/06 874,280 877,022
Marina District Finance Co., Inc.,
Term Loan A 12/31/07 3,750,000 3,747,532
------------
12,321,885
------------
Chemicals - 2.7%
Huntsman Corp. LLC:
Term Loan A 03/31/07 3,379,041 3,004,887
Term Loan B 03/31/07 1,653,378 1,470,170
Huntsman International LLC:
Term Loan B 06/30/07 284,713 285,799
Term Loan C 06/30/08 245,829 246,708
Messer Griesheim Industries, Inc.:
Term Loan B 04/27/09 526,219 529,720
Term Loan C 04/27/10 757,385 763,212
Noveon, Inc., (b)
Term Loan B 12/31/09 338,213 340,278
------------
6,640,774
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See notes to investment portfolio.
4
Investment Portfolio (continued)
August 31, 2003
Variable Rate Senior
Loan Interests (a) (continued)Par. Value
-----------------------------------------------
Coal - 0.6%
Headwaters, Inc.,
Term Loan B 08/30/07 $ 1,481,952 $ 1,506,718
------------
Consumer Services - 1.1%
Alderwoods Group, Inc.:
Note 5 Year 01/02/07 254,887 258,710
Note 7 Year 01/02/09 528,100 565,067
Knowledge Learning Corp.,
Term Loan B 05/15/10 1,970,000 1,952,753
------------
2,776,530
------------
Consumer Specialties - 3.5%
Church & Dwight Co., Inc.,
Term Loan B 09/30/07 544,666 548,569
Johnson Diversey, Inc.,
Term Loan B 11/03/09 2,310,000 2,323,900
Neptune Technology Group, Inc.,
Term Loan B 03/31/10 1,947,368 1,977,613
Playtex Products, Inc.
Term Loan C 05/31/09 1,492,424 1,493,975
United Industries Corp.,
Term Loan B 01/20/06 2,297,987 2,304,702
------------
8,648,759
------------
Containers/Packaging - 2.2%
Graphic Packaging International, Inc.,
Term Loan B 08/09/10 4,000,000 4,021,203
Pliant Corp.,
Term Loan B 05/31/08 1,460,690 1,456,684
------------
5,477,887
------------
Diversified Commercial Services - 0.5%
Transcore Holdings, Inc.,
Term Loan B 10/01/06 1,142,980 1,148,983
------------
Diversified Manufacturing - 4.5%
Amsted Industries, Inc.,
Term Loan 10/15/10 3,000,000 3,041,106
Enersys, Inc.,
Term Loan B 11/09/08 1,457,547 1,462,078
Jason, Inc.,
Term Loan B 06/30/07 1,351,196 1,289,009
Polymer Group, Inc.,
Term Loan 12/31/06 2,593,219 2,492,732
Polypore, Inc.:
Term Loan B 12/31/06 984,772 994,624
Term Loan C 12/31/07 968,750 976,799
Superior Telecom, Inc., (c)
Term Loan B 05/27/04 2,384,316 822,589
------------
11,078,937
------------
Par Value
-----------------------------------------------
Electric Utilities - 6.0%
Calpine Corp.,
Second Lien 07/16/07 $ 5,700,000 $ 5,400,527
Mission Energy Holdings Co.:
Term Loan A 07/02/06 2,467,532 1,375,614
Term Loan B 07/02/06 7,032,468 3,879,481
Northwestern Corp.,
Term Loan 12/01/06 2,487,500 2,482,281
Westar Energy, Inc.,
Term Loan 06/05/05 1,680,255 1,688,651
------------
14,826,554
------------
Electronic Components - 1.3%
Viasystems, Inc.,
Term Loan B 09/30/08 3,713,009 3,184,115
------------
Engineering & Construction - 3.0%
URS Corp.,
Term Loan B 08/22/08 873,047 878,615
Washington Group International, (b)
Revolver B 07/23/04 6,500,000 6,555,537
------------
7,434,152
------------
Environmental Services - 1.5%
Allied Waste North America, Inc.:
Tranche A 01/15/10 1,000,000 1,007,084
Tranche C 01/15/10 1,000,000 1,006,871
Environmental Systems Products Holdings,
Tranche 1 12/31/04 1,692,529 1,692,502
------------
3,706,457
------------
Farming/Agriculture - 0.4%
Scotts Company,
Term Loan B 12/31/07 925,879 932,816
------------
Finance Companies - 0.2%
Finova Group, Inc.,
Note 05/15/09 1,490,000 588,550
------------
Food Chains - 0.8%
Buffets, Inc.,
Term Loan 06/30/09 609,463 607,909
Domino's, Inc.,
Term Loan 06/25/10 1,377,049 1,389,619
------------
1,997,528
------------
See notes to investment portfolio.
5
Investment Portfolio (continued)
August 31, 2003
Variable Rate Senior
Loan Interests (a) (continued) Par Value
----------------------------------------------------
Food Manufacturing - 4.6%
Burns Philp, Inc.,
Term Loan 02/26/09 $ 2,164,575 $ 2,215,209
Commonwealth Brands, Inc.,
Term Loan 08/28/07 1,388,750 1,396,342
Constellation Brands, Inc.,
Term Loan B 11/30/08 1,277,283 1,290,541
Interstate Bakeries,
Tranche A 07/19/06 1,000,000 997,482
Interstate Brands Corp.,
Term Loan B 07/19/07 955,190 957,906
Term Loan C 07/19/07 2,955,038 2,955,819
Merisant Co.,
Term Loan B 01/11/10 950,000 958,881
Michael Foods, Inc.,
Term Loan B 04/10/08 668,732 672,129
------------
11,444,309
------------
Healthcare Services - 6.0%
Ameripath, Inc.,
Term Loan 03/27/10 3,491,250 3,527,758
Concentra Operating Corp.,
Term Loan 06/30/09 2,333,000 2,343,868
Fresenius Medical Care, Inc.,
Term Loan C 02/21/10 1,300,000 1,305,680
Medex, Inc.,
Term Loan 05/30/09 2,000,000 2,013,317
Pacificare Health Systems, Inc.,
Term Loan 06/03/08 1,000,000 1,007,069
PerkinElmer, Inc.,
Term Loan B 12/26/08 1,805,000 1,835,095
Team Health, Inc.,
Term Loan B 10/31/08 2,855,694 2,831,125
------------
14,863,912
------------
Hospital Management - 0.9%
Community Health Systems, Inc.,
Term Loan B 07/16/10 492,519 494,366
Vanguard Health Systems,
Incremental Term
Loan 01/03/10 1,592,000 1,605,386
------------
2,099,752
------------
Hotels/Resorts - 0.8%
Wyndham International, Inc.,
Term Loan 06/30/06 2,416,940 2,008,773
------------
Industrial Machinery/Components - 0.4%
Terex Corp.,
Incremental Term
Loan 12/31/09 992,462 985,420
------------
Par. Value
-----------------------------------------------
Metals/Mining - 1.5%
Dresser, Inc.,
Term Loan B 04/10/09 $ 1,800,297 $ 1,813,098
Stillwater Mining Co.,
Term Loan B 12/31/07 1,912,988 1,932,346
------------
3,745,444
------------
Movies/Entertainment - 5.4%
AMF Bowling Worldwide, Inc.,
Term Loan 02/28/08 1,633,617 1,638,453
Carmike Cinemas, Inc.,
Term Loan 01/31/07 2,336,093 2,356,514
GT Brands LLC,
Term Loan 09/30/07 2,322,443 2,256,153
Loews Cineplex Entertainment,
Term Loan 02/29/08 3,735,378 3,724,316
Regal Cinemas, Inc.,
Term Loan D 06/30/09 1,250,000 1,260,138
Vivendi Universal Entertainment LLP,
Term Loan B 06/30/08 2,000,000 2,011,798
------------
13,247,372
------------
Oil Refining/Marketing - 2.4%
CITGO Petroleum Corp.,
Term Loan 02/27/06 1,500,000 1,560,424
WEG Acquisitions LP,
Term Loan 06/17/08 1,000,000 1,009,653
Williams Energy Partners,
Term Loan B 08/06/08 1,500,000 1,503,750
Williams Production RMT Co.,
Term Loan 05/30/07 1,875,000 1,891,152
------------
5,964,979
------------
Paper - 1.1%
Appleton Papers, Inc.,
Term Loan C 11/08/06 1,094,777 1,099,579
Port Townsend Paper Corp.,
Term Loan B 03/16/07 1,857,250 1,727,527
------------
2,827,106
------------
Pharmaceuticals - 1.1%
Medpointe, Inc.,
Term Loan B 09/30/08 2,775,117 2,629,784
------------
Printing/Publishing - 2.5%
CBD Media, Inc.,
Term Loan B 12/31/09 2,000,000 2,019,533
See notes to investment portfolio.
6
Investment Portfolio (continued)
August 31, 2003
Variable Rate Senior
Loan Interests (a) (continued)Par. Value
-----------------------------------------------
Printing/Publishing (continued)
Readers Digest Association, Inc.,
Term Loan B 05/20/08 $ 1,879,043 $ 1,866,575
TV Guide, Inc.: (b)
Term Loan A 02/28/05 1,015,288 969,598
Term Loan B 02/28/05 315,333 301,141
Weekly Reader Corp.,
Term Loan B 11/17/06 962,732 935,512
------------
6,092,359
------------
Rail/Shipping - 2.0%
American Commercial Lines: (c)
Term Loan B 06/30/06 775,443 649,239
Term Loan C 06/30/07 1,022,879 856,405
Dakota Minnesota Eastern Rail Corp.,
Term Loan 07/25/07 1,000,000 1,011,044
Helm Holding Corp.,
Term Loan B 10/18/06 2,421,864 2,321,743
------------
4,838,431
------------
Real Estate Investment Trusts - 1.5%
AIMCO Properties LP,
Term Loan 05/30/08 2,000,000 2,008,157
Central Parking Corp.,
Term Loan B 03/31/10 1,795,500 1,801,658
------------
3,809,815
------------
Retail Stores - 0.7%
CH Operating LLC,
Term Loan 06/21/07 1,758,621 1,760,799
------------
Semiconductors - 0.4%
Semiconductors Components Industries LLC:
Term Loan C 08/04/07 742,991 736,248
Term Loan D 08/04/07 242,991 240,207
------------
976,455
------------
Steel/Iron Ore - 3.0%
International Steel Group,
Tranche A 05/06/05 1,370,291 1,363,823
Ispat Inland LP.:
Term Loan B 07/16/05 2,196,287 1,535,316
Term Loan C 07/16/06 2,196,287 1,535,316
UCAR Finance, Inc.,
Term Loan B 12/31/07 2,981,552 2,989,329
------------
7,423,784
------------
Telecommunication Services - 2.1%
Alaska Communications Systems Holdings, Inc.,
Term Loan 02/14/09 1,750,000 1,754,832
Par Value
--------------------------------------------------------
Time Warner Telecom Holdings,
Term Loan B 03/31/08 $ 1,194,000 $ 1,188,932
Valor Telecommunications Enterprises LLC,
Term Loan B 06/30/08 2,354,913 2,347,388
------------
5,291,152
------------
Telecommunications Infrastructure/
Equipment - 0.5%
Spectrasite Communications, Inc.,
Term Loan B 12/31/07 1,222,815 1,230,275
------------
Textiles - 1.4%
Springs Industries, Inc.,
Term Loan A 03/05/07 863,293 861,123
St. John's Knits International, Inc.,
Term Loan B 07/31/07 2,646,381 2,651,273
------------
3,512,396
------------
Transportation - 4.3%
Laidlaw Investments Ltd.,
Term Loan B 06/19/09 3,366,000 3,453,192
Motor Coach Industries International, Inc.,
Term Loan 06/16/05 2,762,509 2,265,179
TTIndustries, Inc.,
Term Loan B 03/31/07 3,310,428 3,092,162
United Airlines,
Term Loan B 07/01/04 1,892,000 1,878,506
------------
10,689,039
------------
Wireless Communications - 10.0%
Centennial Cellular Operating Co. LLC,
Term Loan A 11/30/06 1,091,462 1,048,729
Centennial Puerto Rico Operations Corp.:
Term Loan B 05/31/07 587,010 567,772
Term Loan C 11/30/07 346,455 335,223
Cricket Communications, Inc., (c)
Vendor Term Loan 06/30/07 11,500,000 4,858,750
Nextel Finance Co., Inc.:
Term Loan A 12/31/07 4,138,158 4,003,566
Term Loan B 06/30/08 2,490,625 2,490,454
Term Loan C 12/31/08 2,490,625 2,490,451
Nextel Partners,
Term Loan B 01/29/08 3,482,500 3,443,546
Rural Cellular Corp.,
Term Loan D 10/03/09 1,036,479 1,009,955
Sygnet Wireless, Inc.,
Term Loan C 12/23/07 2,018,162 1,993,130
Ubiquitel Operating Co.:
Term Loan A 09/30/07 938,776 748,064
Term Loan B 11/17/08 469,388 372,645
See notes to investment portfolio.
7
Investment Portfolio (continued)
August 31, 2003
Variable Rate Senior
Loan Interests (a) (continued) Par. Value
---------------------------------------------------------
Wireless Communications (continued)
Western Wireless Corp.,
Term Loan B 09/30/08 $ 1,321,637 $ 1,278,780
------------
24,641,065
------------
Total Variable Rate Senior Loan Interests
(cost of $283,427,027) 275,166,179
------------
Common Stocks (e) - 2.2% Shares
---------------------------------------------------------
Business Services - 0.0%
NATG Holdings LLC (d) 40,800 72,216
------------
Engineering & Construction - 1.7%
Washington Group International 164,146 4,136,479
------------
Healthcare Services - 0.2%
Sun Healthcare Group,
Inc. 92,617 421,304
------------
Movies/Entertainment - 0.3%
AMF Bowling Worldwide, Inc., 29,759 803,493
------------
Total Common Stocks
(cost of $6,319,264) 5,433,492
------------
Short-Term Obligation - 8.0% Par.
---------------------------------------------------------
Repurchase agreement with State
Street Bank & Trust Co.,
dated 08/29/03, due 09/02/03
at 0.940%, collateralized by a
U.S. Treasury Bond maturing
02/12/04, market value of
$20,158,700 (repurchase
proceeds $19,765,064)
(cost of $19,763,000) $19,763,000 19,763,000
------------
Total Investments - 121.5%
(cost of $309,509,291)(f) 300,362,671
------------
Other Assets & Liabilities, Net - (21.5)% (53,068,430)
---------------------------------------------------------
Net Assets - 100.0% $247,294,241
------------
Notes to Investment Portfolio:
(a) Senior Loans in which the Fund invests generally pay interest at rates
which are periodically redetermined by reference to a base lending rate
plus a premium. These base lending rates are generally (i) the prime rate
offered by one or more major United States banks, (ii) the lending rate
offered by one or more European banks such as the London Inter-Bank Offered
Rate ('LIBOR') and (iii) the certificate of deposit rate. Senior loans are
generally considered to be restricted in that the Fund ordinarily is
contractually obligated to receive approval from the Agent Bank and/or
borrower prior to the disposition of a Senior Loan.
(b) Unfunded commitment, see note 8.
(c) These securities are in default of certain debt covenants. Income is not
being accrued.
(d) Represents fair value as determined in good faith under the direction of
the Board of Trustees.
(e) Non-income producing.
(f) Cost for federal income tax purposes is $309,572,715.
Acronym Name
- ------- ----
IRL Increasing Rate Loan
See notes to financial statements.
8
Statement of Assets and Liabilities
August 31, 2003
Assets:
Investments, at cost $309,509,291
------------
Investments, at value $300,362,671
Cash 493
Receivable for:
Investments sold 1,094,378
Fund shares sold 5,119,502
Interest and fees 1,729,697
Deferred Trustees' compensation plan 3,120
Other assets 4,131
------------
Total Assets 308,313,992
------------
Liabilities:
Deferred facility fees 323,636
Payable for:
Investments purchased 60,571
Distributions 471,160
Management fee 119,840
Administration fee 53,272
Transfer agent fee 42,813
Pricing and bookkeeping fees 36,046
Audit fee 57,810
Distribution and services fees 127,269
Custody fee 5,010
Interest expense 73,438
Expense reimbursement due to Advisor 37,094
Deferred Trustees' fee 3,120
Other liabilities 108,672
Notes payable 59,500,000
------------
Total Liabilities 61,019,751
------------
Net Assets $247,294,241
------------
Composition of Net Assets:
Paid-in capital $269,639,534
Overdistributed net investment income (59,212)
Accumulated net realized loss (13,139,461)
Net unrealized depreciation on investments (9,146,620)
------------
Net Assets $247,294,241
------------
Class A:
Net assets $ 85,165,503
Shares outstanding 7,589,089
------------
Net asset value and redemption price per share $ 11.22(a)
------------
Maximum offering price per share
($11.22/0.9650) $ 11.63(b)
------------
Class B:
Net assets $ 76,378,802
Shares outstanding 6,806,325
------------
Net asset value and offering price per share $ 11.22(a)
------------
Class C:
Net assets $ 80,571,522
Shares outstanding 7,179,896
------------
Net asset value and offering price per share $ 11.22(a)
------------
Class Z:
Net assets $ 5,178,414
Shares outstanding 461,433
------------
Net asset value, offering and redemption price
per share $ 11.22
------------
(a) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b) On sales of $100,000 or more the offering price is reduced.
Statement of Operations
For the Year Ended August 31, 2003
Investment Income:
Interest $17,887,070
Facility and other fees 993,382
-----------
Total Investment Income 18,880,452
-----------
Expenses:
Management fee 1,177,927
Administration fee 523,522
Distribution fee:
Class A 65,340
Class B 299,227
Class C 362,057
Service fee:
Class A 163,350
Class B 166,237
Class C 150,857
Transfer agent fee 465,244
Pricing and bookkeeping fees 203,873
Trustees' fee 11,724
Custody fee 20,048
Other expenses 286,974
-----------
Total Operating Expenses 3,896,380
Fees and expenses waived or reimbursed by
Advisor (696,577)
Custody earnings credit (2,086)
-----------
Net Operating Expenses 3,197,717
Interest expense 988,653
Commitment fee 426,037
-----------
Net Expenses 4,612,407
-----------
Net Investment Income 14,268,045
-----------
Net Realized and Unrealized
Gain (Loss) on Investments:
Net realized loss on investments (4,458,140)
Net change in unrealized appreciation/
depreciation on investments 16,553,299
-----------
Net Gain 12,095,159
-----------
Net Increase in Net Assets from Operations $26,363,204
-----------
See notes to financial statements.
9
Year Year
Ended Ended
Increase (Decrease) August 31, August 31,
in Net Assets: 2003 2002
---------------------------------------------------------
Operations:
Net investment income $ 14,268,045 $ 17,565,808
Net realized loss on
investments (4,458,140) (4,422,545)
Net change in unrealized
appreciation/depreciation
on investments 16,553,299 (24,393,222)
------------ ------------
Net Increase (Decrease)
from Operations 26,363,204 (11,249,959)
------------ ------------
Distributions Declared to Shareholders:
From net investment income:
Class A (4,987,877) (7,229,439)
Class B (4,852,868) (5,772,702)
Class C (4,288,202) (4,574,186)
Class Z (60,225) (212,723)
------------ ------------
Total Distributions Declared
to Shareholders (14,189,172) (17,789,050)
------------ ------------
Share Transactions:
Class A:
Subscriptions 26,844,332 18,572,509
Distributions reinvested 3,108,790 4,678,393
Redemptions (18,545,181) (50,701,801)
------------ ------------
Net Increase
(Decrease) 11,407,941 (27,450,899)
------------ ------------
Class B:
Subscriptions 15,460,982 22,463,001
Distributions reinvested 2,841,144 3,580,288
Redemptions (14,388,694) (28,971,192)
------------ ------------
Net Increase
(Decrease) 3,913,432 (2,927,903)
------------ ------------
Class C:
Subscriptions 31,262,179 28,691,771
Distributions reinvested 2,853,491 3,074,908
Redemptions (19,111,456) (26,047,239)
------------ ------------
Net Increase 15,004,214 5,719,440
------------ ------------
Class Z:
Subscriptions 4,975,535 159,842
Distributions reinvested 2,309 212,723
Redemptions (23,102) (2,766,176)
------------ ------------
Net Increase
(Decrease) 4,954,742 (2,393,611)
------------ ------------
Net Increase (Decrease)
from Share Transactions 35,280,329 (27,052,973)
------------ ------------
Total Increase (Decrease) in
Net Assets 47,454,361 (56,091,982)
Statement of Changes in Net Assets
Year Year
Ended Ended
Increase (Decrease) August 31, August 31,
in Net Assets: 2003 2002
---------------------------------------------------------
Net Assets:
Beginning of period $199,839,880 $255,931,862
------------ ------------
End of period (including
overdistributed net
investment income of
$(59,212) and
$(107,726), respectively) $247,294,241 $199,839,880
------------ ------------
Changes in Shares:
Class A:
Subscriptions 2,421,540 1,648,681
Issued for distributions
reinvested 294,027 413,072
Redemptions (1,778,375) (4,646,687)
------------ ------------
Net Increase
(Decrease) 937,192 (2,584,934)
------------ ------------
Class B:
Subscriptions 1,412,670 1,986,627
Issued for distributions
reinvested 268,398 316,278
Redemptions (1,376,098) (2,670,279)
------------ ------------
Net Increase
(Decrease) 304,970 (367,374)
------------ ------------
Class C:
Subscriptions 2,837,998 2,534,958
Issued for distributions
reinvested 269,627 271,691
Redemptions (1,823,827) (2,370,615)
------------ ------------
Net Increase 1,283,798 436,034
------------ ------------
Class Z:
Subscriptions 449,963 13,333
Issued for distributions
reinvested 210 19,606
Redemptions (2,073) (262,457)
------------ ------------
Net Increase
(Decrease) 448,100 (229,518)
------------ ------------
See notes to financial statements.
10
For the Year Ended August 31, 2003
Increase (Decrease) in Cash
----------------------------------------------------------
Cash flows from operating activities:
Net investment Income $ 14,268,045
Adjustments to reconcile net investment
income to net cash provided by
operating activities:
Purchase of investment securities (251,907,917)
Proceeds from disposition of investment
securities 244,641,157
Purchase of short-term portfolio
investments, net (6,764,356)
Increase in interest and fees receivable (52,302)
Decrease in receivable for expense
reimbursement 29,031
Increase in receivable for investments sold (882,647)
Decrease in other assets 53,045
Increase in deferred facility fees 14,312
Increase in payable for accrued expenses 207,228
Net amortization of premium (discount) (2,031,926)
Decrease in payable for investments
purchased (35,258)
Increase in payable for expense
reimbursement 37,094
Increase in other liabilities 38,158
-------------
Net cash used by operating activities (2,386,336)
Cash flows from financing activities:
Decrease in notes payable (14,500,000)
Decrease in interest payable (36,007)
Proceeds from shares sold 74,004,629
Payment of shares redeemed (52,068,973)
Distributions paid in cash (6,141,615)
-------------
Net cash provided by financing activities 1,258,034
-------------
Net decrease in cash (1,128,302)
Cash:
Beginning of year 1,128,795
-------------
End of year $ 493
-------------
Statement of Cash Flows
See notes to financial statements.
11
Notes to Financial Statements
August 31, 2003
Note 1. Accounting Policies
Organization:
Columbia Floating Rate Advantage Fund (the "Fund") (formerly Liberty Floating
Rate Advantage Fund), is a Massachusetts business trust, registered under the
Investment Company Act of 1940, as amended, as a non-diversified, closed-end
management investment company. The Fund's investment goal is to provide a high
level of current income, consistent with preservation of capital. The Fund
authorized an unlimited number of shares. The Fund offers four classes of
shares: Class A, Class B, Class C and Class Z. Class A shares are sold with a
front-end sales charge. A 1.00% early withdrawal charge is assessed to Class A
shares purchased without an initial sales charge on redemptions made within
eighteen months on an original purchase of $1 million to $25 million. Class B
shares are subject to an annual distribution fee and an early withdrawal
charge. Class B shares will convert to Class A shares eight years after
purchase. Class C shares are subject to an early withdrawal charge on
redemptions made within one year after purchase and an annual distribution fee.
Class Z shares are offered continuously at net asset value. There are certain
restrictions on the purchase of Class Z shares, as described in the Fund's
prospectus.
On April 1, 2003, Stein Roe & Farnham Incorporated ("Stein Roe"), the
investment advisor to the Fund, merged into Columbia Management Advisors, Inc.
("Columbia"), formerly known as Columbia Management Co., an indirect,
wholly-owned subsidiary of FleetBoston Financial Corporation. At the time of
the merger, Columbia assumed the obligations of Stein Roe with respect to the
Fund. The merger did not change the way the Fund is managed, the investment
personnel assigned to manage the Fund or the fees paid by the Fund to Columbia.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the 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.
Investment Valuation and Transactions:
The value of the Portfolio is determined in accordance with guidelines
established, and periodically reviewed, by the Board of Trustees. Variable rate
senior loans are generally valued using market prices or quotations provided by
banks, dealers or pricing services with respect to secondary market
transactions. The prices provided by these principal market makers may differ
from the value that would be realized if the loans were sold and the
differences could be material to the financial statements. In the absence of
actual market values, senior loans will be valued by Columbia, at fair value,
which is intended to approximate market value, pursuant to procedures approved
by the Board of Trustees. In determining fair value, Columbia will consider on
an ongoing basis, among other factors, (i) the creditworthiness of the
Borrower; (ii) the current interest rate, the interest rate redetermination
period and maturity of such senior loan interests; and (iii) recent prices in
the market for instruments of similar quality, rate and interest rate
redetermination period and maturity. Because of uncertainty inherent in the
valuation process, the estimated value of a senior loan interest may differ
significantly from the value that would have been used had there been market
activity for that senior loan interest.
Equity securities generally are valued at the last sale price or, in the case
of unlisted or listed securities for which there were no sales during the last
day, at the current quoted bid price. Equity securities for which market
quotations are not readily available are valued at fair value as determined in
good faith under consistency applied procedures established by and under the
general supervison of the Board of Trustees.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
Statement of Cash Flows:
Information on financial transactions which have been settled through the
receipt or disbursement of cash is presented in the Statement of Cash Flows.
The cash amount shown in the Statement of Cash Flows is the amount included in
the Fund's Statement of Assets and Liabilities and represents cash on hand at
its custodian bank account and does not include any short-term investments at
August 31, 2003.
12
Notes to Financial Statements (continued)
August 31, 2003
Determination of Class Net Asset Values:
All income, expenses (other than class specific fees), and realized and
unrealized gains (losses) are allocated to each class proportionately on a
daily basis, based on net assets, for purposes of determining the net asset
value of each class.
Federal Income Taxes:
Consistent with the Fund's policy to qualify as a regulated investment company
and to distribute all of its taxable income, no federal income tax has been
accrued.
Interest Income, Discount and Premium:
Interest income is recorded on the accrual basis and includes accretion of
discount, amortization of premiums and paydown gains and losses. Facility fees
received are treated as market discounts. Unamortized facility fees are
reflected as deferred fees on the Statement of Assets and Liabilities.
Distributions to Shareholders:
The Fund declares and records distributions daily and pays monthly.
Note 2. Federal Tax Information
Income and capital gain distributions are determined in accordance with income
tax regulations, which may differ from accounting principles generally accepted
in the United States of America. These differences are primarily due to
differing treatments for deferral of losses from wash sales, discount
accretion/premium amortization on debt securities, capital loss carryforwards,
distribution payable, post-October losses and non-deductible expenses.
Reclassifications are made to the Fund's capital accounts to reflect income and
gains available for distribution (or available capital loss carryforwards)
under income tax regulations.
For the year ended August 31, 2003, permanent items identified and reclassified
among the components of net assets are as follows:
Overdistributed Accumulated
Net Investment Net Realized
Income Loss
--------------- ------------
$(30,359) $30,359
Net investment income, net realized gains (losses) and net assets were not
affected by this reclassification.
The tax character of distributions paid during the year was as follows:
Ordinary
Income
--------
$14,189,172
As of August 31, 2003, the components of distributable earnings on a tax basis
were as follows:
Undistributed
Ordinary Unrealized
Income Depreciation*
------------- -------------
$468,307 $(9,210,044)
* The difference between book-basis and tax-basis unrealized depreciation is
attributable primarily amortization/accretion on debt securities and to the
tax deferral of losses on wash sales.
The following capital loss carryforwards are 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
---------- ------------
2009 $ 22,035
2010 819,190
2011 4,813,376
----------
$5,654,601
----------
Under current tax rules, certain capital losses realized after October 31 may
be deferred and treated as occurring on the first day of the following fiscal
year. As of August 31, 2003 for federal income tax purposes, post-October
losses of $7,474,622 attributable to security transactions were deferred to
September 1, 2003.
Expired capital loss carryforwards, if any, are recorded as reduction of
paid-in capital.
Note 3. Fees and Compensation Paid to Affiliates
Management Fee:
Columbia is the investment advisor of the Fund and receives a monthly fee equal
to 0.45% annually of the Fund's average daily managed assets.
At a special meeting held on October 8, 2003, the Board of Trustees approved a
new management fee structure to go into effect on November 1, 2003. Under the
new structure, Columbia will receive a monthly fee based on the Fund's average
daily net assets as follows:
Annual
Average Daily Net Assets Fee Rate
------------------------ --------
First $1 billion 0.45%
Next $1 billion 0.40%
Over $2 billion 0.35%
13
Notes to Financial Statements (continued)
August 31, 2003
Administration Fee:
Columbia also provides accounting and other services for a monthly fee equal to
0.20% annually of the Fund's average daily managed assets.
Pricing and Bookkeeping Fees:
Columbia is responsible for providing pricing and bookkeeping services to the
Fund under a Pricing and Bookkeeping Agreement. Under a separate agreement (the
"Outsourcing Agreement"), Columbia has delegated those functions to State
Street Bank and Trust Company ("State Street"). Columbia pays fees 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 are more than $50 million, a monthly
fee equal to the average daily net assets of the Fund for that month multiplied
by a fee rate that is calculated by taking into account the fees payable to
State Street under the Outsourcing Agreement. For the year ended August 31,
2003, the net asset based fee rate was 0.032%. The Fund also pays out-of-pocket
costs for pricing services.
Transfer Agent Fee:
Liberty Funds Services, Inc. (the "Transfer Agent"), an affiliate of Columbia,
provides shareholder services for a monthly fee comprised of 0.06% annually of
the Fund's average daily net assets plus charges based on the number of
shareholder accounts and transactions. The Transfer Agent also receives
reimbursement for certain out-of-pocket expenses. Effective October 13, 2003
Liberty Funds Services, Inc. changed its name to Columbia Funds Services, Inc.
At a special meeting held on October 8, 2003, the Board of Trustees approved
the change of transfer agent fees structure of the Fund. Effective November 1,
2003, the Fund will be charged an annual $34.00 charge per open account for the
transfer agent fees.
Underwriting Discounts, Service and Distribution Fees:
Liberty Funds Distributor, Inc. (the "Distributor"), an affiliate of Columbia,
is the Fund's principal underwriter. Effective October 13, 2003 Liberty Funds
Distributor, Inc. changed its name to Columbia Funds Distributor, Inc. For the
year ended August 31, 2003, the Fund has been advised that the Distributor
retained net underwriting discounts of $14,478 on sales of the Fund's Class A
shares and received early withdrawal charges (EWC) of $958, $242,910 and
$27,685 on Class A, Class B and Class C share redemptions, respectively. The
Fund has adopted a 12b-1 plan (the "Plan"), which requires it to pay the
Distributor a monthly service fee equal to 0.25% annually on Class A, Class B
and Class C net assets. The Plan also requires the payment of a monthly
distribution fee to the Distributor equal to 0.10%, 0.45% and 0.60% annually of
the average daily net assets attributable to Class A, Class B and Class C
shares only.
The EWC 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.
Expense Limits:
Columbia has voluntarily agreed, until further notice, to waive fees and bear
certain Fund expenses to the extent that certain expenses (exclusive of
management fees, administration fees, service fees, distribution fees,
brokerage commissions, interest, commitment fees, leverage fees, taxes and
extraordinary expenses, if any) exceed 0.15% of average daily net assets.
Other:
The Fund pays no compensation to its officers, all of whom are employees of
Columbia or its affiliates.
The Fund's Independent 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.
The Fund has an agreement with its custodian bank under which $2,086 of custody
fees were reduced by balance credits for the year ended August 31, 2003. 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.
Note 4. Portfolio Information
Investment Activity:
During the year ended August 31, 2003, purchases and sales of investments,
other than short-term obligations, were $251,907,917 and $244,641,157,
respectively.
14
Notes to Financial Statements (continued)
August 31, 2003
Unrealized appreciation (depreciation) at August 31, 2003, based on cost of
investments for federal income tax purposes, was:
Gross unrealized appreciation $ 4,513,096
Gross unrealized depreciation (13,723,140)
------------
Net unrealized depreciation $ (9,210,044)
------------
Other:
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
Note 5. Tender of Shares
The Board of Trustees has adopted a policy of making tender offers on a
quarterly basis. The Board has designated the 15(th) day of February, May,
August, and November each year, or the next business day if the 15(th) is not a
business day as the Repurchase Request Deadline. Tender offers are made for a
portion of the Fund's then outstanding shares at the net asset value of the
shares as of the Repurchase Pricing Date. The tender offer amount, which is
determined by the Board of Trustees, will be at least 5% and no more than 25%
of the total number of shares outstanding on the Repurchase Request Deadline.
The Fund may repurchase an additional amount of shares up to 2% of the shares
outstanding on the Repurchase Request Deadline. During the year ended August
31, 2003, there were four tender offers in November, February, May and August.
For each tender, the Fund offered to repurchase 15%, 17%, 15% and 12%, of its
shares, 12.57%, 5.71%, 4.32% and 3.93%, respectively, of shares outstanding
were tendered.
Note 6. Senior Loan Participation Commitments
The Fund invests primarily in participations and assignments, or acts as a
party to the primary lending syndicate of a Variable Rate Senior Loan interest
to United States corporations, partnerships, and other entities. If the lead
lender in a typical lending syndicate becomes insolvent, enters FDIC
receivership or, if not FDIC insured, enters into bankruptcy, the Fund may
incur certain costs and delays in receiving payment or may suffer a loss of
principal and/or interest. When the Fund purchases a participation of a senior
loan interest, the Fund typically enters into a contractual agreement with the
lender or other third party selling the participation, but not with the
borrower directly. As such, the Fund assumes the credit risk of the Borrower,
Selling Participant or other persons interpositioned between the Fund and the
Borrower.
At August 31, 2003, the following sets forth the selling participants with
respect to interests in senior loans purchased by the Portfolio on a
participation basis.
Principal
Selling Participant Amount Value
------------------- ---------- ----------
Citibank:
CSC Holdings, Inc.,
Revolver $1,960,000 $1,827,810
Note 7. Loan Agreement
At August 31, 2003, the Fund had one term loan outstanding with Citicorp North
America, Inc., totaling $59,500,000 which bore interest at 1.12 % per annum,
due September 18, 2003. The Fund may borrow up to $150,000,000. The average
daily loan balance was $68,904,110 at a weighted average interest rate of
1.37%. The Fund is required to maintain certain asset coverage with respect to
the loans.
Note 8. Unfunded Loan Commitments
As of August 31, 2003, the Fund had unfunded loan commitments of $5,913,453,
which could be extended at the option of the Borrower.
Unfunded
Borrower Commitments
-------- -----------
CSC Holdings, Inc. $1,040,000
Federal-Mogul Corp. 247,075
Noveon, Inc. 625,000
TV Guide, Inc. 1,001,378
Washington Group International, Inc. 3,000,000
----------
$5,913,453
----------
15
Financial Highlights
Selected data for a share outstanding throughout each period is as follows:
Year Ended August 31, Period Ended
----------------------------------- August 31,
Class A Shares 2003 2002 2001 2000 (a)
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.48 $ 11.74 $ 12.09 $ 12.00
-------- -------- -------- --------
Income from Investment Operations:
Net investment income 0.81 (b) 0.83(b)(c) 1.10(b) 0.64
Net realized and unrealized gain (loss) on investments 0.74 (1.26)(c) (0.32) 0.07
-------- -------- -------- --------
Total from Investment Operations 1.55 (0.43) 0.78 0.71
-------- -------- -------- --------
Less Distributions Declared to
Shareholders:
From net investment income (0.81) (0.83) (1.13) (0.62)
From net realized gains -- -- --(d) --
-------- -------- -------- --------
Total Distributions Declared to Shareholders (0.81) (0.83) (1.13) (0.62)
-------- -------- -------- --------
Net Asset Value, End of Period $ 11.22 $ 10.48 $ 11.74 $ 12.09
-------- -------- -------- --------
Total return (e)(f) 15.55% (3.88)% 6.71% 6.04%(g)
-------- -------- -------- --------
Ratios to Average Net Assets/
Supplemental Data:
Operating expenses (h) 1.38% 1.38% 1.37% 1.01%(i)
Interest and commitment fees expenses 0.73% 0.99% 2.04% 1.91%(i)
Net expenses (h) 2.11% 2.37% 3.41% 2.92%(i)
Net investment income (h) 7.67% 7.25%(c) 9.24% 9.49%(i)
Waiver/reimbursement 0.36% 0.32% 0.32% 1.41%(i)
Portfolio turnover rate 90% 98% 65% 8% (g)
Net assets, end of period (000's) $ 85,166 $ 69,733 $108,399 $ 54,402
(a) The Fund commenced investment operations on January 13, 2000.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective September 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
and accreting premium and discount on all debt securities. The effect of
this change for the year ended August 31, 2002, to the net investment
income and net realized and unrealized loss per share was less than $0.01.
The impact to the ratio of net investment income to average net assets was
less than 0.01%. Per share data and ratios for periods prior to August 31,
2002 have not been restated to reflect this change in presentation.
(d) Rounds to less than $0.01.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or early withdrawal charge.
(f) Had the Advisor not waived or reimbursed a portion of expenses, total
return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
16
Financial Highlights (continued)
Selected data for a share outstanding throughout each period is as follows:
Year Ended August 31, Period Ended
----------------------------------- August 31,
Class B Shares 2003 2002 2001 2000 (a)
- -----------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.48 $ 11.74 $ 12.07 $ 12.00
-------- -------- -------- --------
Income from Investment Operations:
Net investment income 0.78 (b) 0.78(b)(c) 1.05(b) 0.62
Net realized and unrealized gain (loss)
on investments 0.73 (1.25)(c) (0.30) 0.05
-------- -------- -------- --------
Total from Investment Operations 1.51 (0.47) 0.75 0.67
-------- -------- -------- --------
Less Distributions Declared to
Shareholders:
From net investment income (0.77) (0.79) (1.08) (0.60)
From net realized gains -- -- --(d) --
-------- -------- -------- --------
Total Distributions Declared to
Shareholders (0.77) (0.79) (1.08) (0.60)
-------- -------- -------- --------
Net Asset Value, End of Period $ 11.22 $ 10.48 $ 11.74 $ 12.07
-------- -------- -------- --------
Total return (e)(f) 15.16% (4.22)% 6.52% 5.69%(g)
-------- -------- -------- --------
Ratios to Average Net
Assets/ Supplemental Data:
Operating expenses (h) 1.73% 1.73% 1.72% 1.36%(i)
Interest and commitment fees expenses 0.73% 0.99% 2.04% 1.91%(i)
Net expenses (h) 2.46% 2.72% 3.76% 3.27%(i)
Net investment income (h) 7.34% 6.90%(c) 8.89% 9.14%(i)
Waiver/reimbursement 0.36% 0.32% 0.32% 1.41%(i)
Portfolio turnover rate 90% 98% 65% 8% (g)
Net assets, end of period (000's) $ 76,379 $ 68,157 $ 80,609 $ 19,964
(a) The Fund commenced investment operations on January 13, 2000.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective September 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
and accreting premium and discount on all debt securities. The effect of
this change for the year ended August 31, 2002, to the net investment
income and net realized and unrealized loss per share was less than $0.01.
The impact to the ratio of net investment income to average net assets was
less than 0.01%. Per share data and ratios for periods prior to August 31,
2002 have not been restated to reflect this change in presentation.
(d) Rounds to less than $0.01.
(e) Total return at net asset value assuming all distributions reinvested and
no early withdrawal charge.
(f) Had the Advisor not waived or reimbursed a portion of expenses, total
return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
17
Financial Highlights (continued)
Selected data for a share outstanding throughout each period is as follows:
Year Ended August 31, Period Ended
----------------------------------- August 31,
Class C Shares 2003 2002 2001 2000 (a)
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.48 $ 11.74 $ 12.07 $ 12.00
-------- -------- -------- --------
Income from Investment Operations:
Net investment income 0.76(b) 0.76(b)(c) 1.03(b) 0.61
Net realized and unrealized gain (loss) on investments 0.74 (1.25)(c) (0.30) 0.05
-------- -------- -------- --------
Total from Investment Operations 1.50 (0.49) 0.73 0.66
-------- -------- -------- --------
Less Distributions Declared to
Shareholders:
From net investment income (0.76) (0.77) (1.06) (0.59)
From net realized gains -- -- --(d) --
-------- -------- -------- --------
Total Distributions Declared to
Shareholders (0.76) (0.77) (1.06) (0.59)
-------- -------- -------- --------
Net Asset Value, End of Period $ 11.22 $ 10.48 $ 11.74 $ 12.07
-------- -------- -------- --------
Total return (e)(f) 14.99% (4.36)% 6.35% 5.62%(g)
-------- -------- -------- --------
Ratios to Average Net Assets/
Supplemental Data:
Operating expenses (h) 1.88% 1.88% 1.87% 1.51%(i)
Interest and commitment fees expenses 0.73% 0.99% 2.04% 1.91%(i)
Net expenses (h) 2.61% 2.87% 3.91% 3.42%(i)
Net investment income (h) 7.14% 6.75%(c) 8.74% 8.99%(i)
Waiver/reimbursement 0.36% 0.32% 0.32% 1.41%(i)
Portfolio turnover rate 90% 98% 65% 8% (g)
Net assets, end of period (000's) $ 80,572 $ 61,811 $ 64,074 $ 13,013
(a) The Fund commenced investment operations on January 13, 2000.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective September 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
and accreting premium and discount on all debt securities. The effect of
this change for the year ended August 31, 2002, to the net investment
income and net realized and unrealized loss per share was less than $0.01.
The impact to the ratio of net investment income to average net assets was
less than 0.01%. Per share data and ratios for periods prior to August 31,
2002 have not been restated to reflect this change in presentation.
(d) Rounds to less than $0.01.
(e) Total return at net asset value assuming all distributions reinvested and
no early withdrawal charge.
(f) Had the Advisor not waived or reimbursed a portion of expenses, total
return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
18
Financial Highlights (continued)
Selected data for a share outstanding throughout each period is as follows:
Year Ended August 31, Period Ended
----------------------------------- August 31,
Class Z Shares 2003 2002 2001 2000 (a)
- --------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.48 $ 11.74 $ 12.08 $ 12.00
-------- -------- -------- --------
Income from Investment Operations:
Net investment income 0.78 (b) 0.86(b)(c) 1.14(b) 0.67
Net realized and unrealized gain (loss)
on investments 0.81 (1.25)(c) (0.31) 0.05
-------- -------- -------- --------
Total from Investment Operations 1.59 (0.39) 0.83 0.72
-------- -------- -------- --------
Less Distributions Declared to
Shareholders:
From net investment income (0.85) (0.87) (1.17) (0.64)
From net realized gains -- -- --(d) --
-------- -------- -------- --------
Total Distributions Declared to
Shareholders (0.85) (0.87) (1.17) (0.64)
-------- -------- -------- --------
Net Asset Value, End of Period $ 11.22 $ 10.48 $ 11.74 $ 12.08
-------- -------- -------- --------
Total return (e)(f) 15.95% (3.53)% 7.17% 6.11%(g)
-------- -------- -------- --------
Ratios to Average Net Assets/
Supplemental Data:
Operating expenses (h) 1.03% 1.03% 1.02% 0.66%(i)
Interest and commitment fees expenses 0.73% 0.99% 2.04% 1.91%(i)
Net expenses (h) 1.76% 2.02% 3.06% 2.57%(i)
Net investment income (h) 7.21% 7.60%(c) 9.59% 9.84%(i)
Waiver/reimbursement 0.36% 0.32% 0.32% 1.41%(i)
Portfolio turnover rate 90% 98% 65% 8%(g)
Net assets, end of period (000's) $ 5,178 $ 140 $ 2,850 $ 2,656
(a) The Fund commenced investment operations on January 13, 2000.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective September 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
and accreting premium and discount on all debt securities. The effect of
this change for the year ended August 31, 2002, to the net investment
income and net realized and unrealized loss per share was less than $0.01.
The impact to the ratio of net investment income to average net assets was
less than 0.01%. Per share data and ratios for periods prior to August 31,
2002 have not been restated to reflect this change in presentation.
(d) Rounds to less than $0.01.
(e) Total return at net asset value assuming all distributions reinvested.
(f) Had the Advisor not waived or reimbursed a portion of expenses, total
return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
19
Financial Highlights (continued)
Loan Agreement Asset Coverage Requirements
Total Amount Asset Coverage Per $1,000
Date Outstanding of Indebtedness
-------- ---------------- -----------------------------
08/31/2003 $59,500,000 $5,156
08/31/2002 74,000,000 3,701
08/31/2001 88,000,000 3,908
08/31/2000 19,000,000 6,739
20
Report of Independent Auditors
To the Trustees and the Shareholders of
Columbia Floating Rate Advantage Fund
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations, changes in
net assets, and cash flows and the financial highlights present fairly, in all
material respects, the financial position of Columbia Floating Rate Advantage
Fund (the "Fund") (formerly Liberty Floating Rate Advantage Fund), at August
31, 2003, and the results of its operations, the changes in its net assets, its
cash flows and its financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States of America, 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 audits, which included confirmation of securities at August 31, 2003, by
correspondence with the custodian and lending or agent banks, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 21, 2003
21
Trustees
Effective October 8, 2003, Patrick J. Simpson and Richard L. Woolworth were
appointed to the Board of Trustees of the Fund. Messrs. Simpson and Woolworth
had been directors of 15 Columbia Funds and 12 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 12 funds in the
CMG Fund Trust. The new combined Board of Trustees of the Fund now oversees 124
funds in the Columbia Funds Complex (including the former Liberty Funds, former
Stein Roe Funds, Columbia Funds and CMG Funds). Several of those trustees also
serve on the Boards of other funds in the Columbia Funds Complex.
The Trustees serve terms of indefinite duration. The names, addresses and ages
of the Trustees 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 and other directorships they hold are shown below.
Each officer listed below serves as an officer of each Fund in the Columbia
Funds Complex. The Statement of Additional Information (SAI) contains
additional information about the Trustees and is available without charge upon
request by calling the fund's distributor at 800-345-6611.
Number of
Year First Portfolios in
Position Elected or Columbia Funds Other
with Appointed Principal Occupation(s) Complex Overseen Directorships
Name, Address and Age Funds to Office/1/ During Past Five Years by Trustee Held
- ---------------------------------------------------------------------------------------------------------------------------------
Disinterested Trustees
Douglas A. Hacker (Age 48) Trustee 1996 Executive Vice President 124 None
P.O. Box 66100 - Strategy of United
Chicago, IL 60666 Airlines (airline) since
December, 2002 (formerly
President of UAL Loyalty
Services (airline) from
September, 2001 to
December, 2002;
Executive Vice President
and Chief Financial
Officer of United
Airlines from March,
1993 to September, 2001;
Senior Vice President
and Chief Financial
Officer of UAL, Inc.
prior thereto).
Janet Langford Kelly (Age 45) Trustee 1996 Chief Administrative 124 None
3100 West Beaver Road Officer and Senior Vice
Troy, MI 48084-3163 President, Kmart Holding
Corporation since
September, 2003
(formerly 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).
Richard W. Lowry (Age 67) Trustee 1995 Private Investor since 126/3/ None
10701 Charleston Drive August, 1987 (formerly
Vero Beach, FL 32963 Chairman and Chief
Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer)).
Charles R. Nelson (Age 61) Trustee 1981 Professor of Economics, 124 None
Department of Economics University of
University of Washington Washington, since
Seattle, WA 98195 January, 1976; Ford and
Louisa Van Voorhis
Professor of Political
Economy, University of
Washington, since
September, 1993;
Director, Institute for
Economic Research,
University of
Washington, since
September, 2001; Adjunct
Professor of Statistics,
University of
Washington, since
September, 1980;
Associate Editor,
Journal of Money Credit
and Banking, since
September, 1993;
consultant on
econometric and
statistical matters.
John J. Neuhauser (Age 60) Trustee 1985 Academic Vice President 127/3,4/ Saucony, Inc. (athletic footwear);
84 College Road and Dean of Faculties SkillSoft Corp.
Chestnut Hill, MA 02467-3838 since August, 1999, (E-Learning)
Boston College (formerly
Dean, Boston College
School of Management
from September, 1977 to
September, 1999.
Patrick J. Simpson (Age 58) Trustee 2000 Partner, Perkins Coie 124 None
1211 S.W. 5th Avenue L.L.P. (formerly
Suite 1500 Partner, Stoel Rives
Portland, OR 97204 Boley Jones & Grey).
Thomas E. Stitzel (Age 67) Trustee 1998 Business Consultant 124 None
2208 Tawny Woods Place since 1999 (formerly
Boise, ID 83706 Professor of Finance
from 1975 to 1999 and
Dean from 1977 to 1991,
College of Business,
Boise State University);
Chartered Financial
Analyst.
22
Trustees (continued)
Number of
Year First Portfolios in
Position Elected or Columbia Funds Other
with Appointed Principal Occupation(s) Complex Overseen Directorships
Name, Address and Age Funds to Office/1/ During Past Five Years by Trustee Held
- -------------------------------------------------------------------------------------------------------------------------------
Disinterested Trustees
Thomas C. Theobald (Age 66) Trustee 1996 Managing Director, 124 Anixter International (network
27 West Monroe Street, William Blair Capital support equipment distributor),
Suite 3500 Partners (private equity Jones Lang LaSalle (real estate
Chicago, IL 60606 investing) since management services) and
September, 1994 MONY Group (life insurance).
(formerly Chief
Executive Officer and
Chairman of the Board of
Directors, Continental
Bank Corporation prior
thereto).
Anne-Lee Verville (Age 58) Trustee 1998 Author and speaker on 125/4/ Chairman of the Board of
359 Stickney Hill Road educational systems Directors, Enesco Group, Inc.
Hopkinton, NH 03229 needs (formerly General (designer, importer and
Manager, Global distributor of giftware and
Education Industry from collectibles).
1994 to 1997, and
President, Applications
Solutions Division from
1991 to 1994, IBM
Corporation (global
education and global
applications)).
Richard L. Woolworth (Age 62) Trustee 1991 Chairman and Chief 124 NW Natural, a natural gas
100 S.W. Market Street Executive Officer, The service provider
#1500 Regence Group
Portland, OR 97207 (healthcare maintenance
organization) (formerly
Chairman and Chief
Executive Officer,
BlueCross BlueShield of
Oregon; Certified Public
Accountant, Arthur Young
& Company).
Interested Trustees
William E. Mayer/2/ (Age 63) Trustee 1994 Managing Partner, Park 126/3/ Lee Enterprises (print media),
399 Park Avenue Avenue Equity Partners WR Hambrecht + Co. (financial
Suite 3204 (private equity) since service provider) and First
New York, NY 10022 February, 1999 (formerly Health (healthcare).
Founding Partner,
Development Capital LLC
from November 1996 to
February, 1999; Dean and
Professor, College of
Business and Management,
University of Maryland
from October, 1992 to
November, 1996).
Joseph R. Palombo/2/ (Age 50) Trustee, 2000 Executive Vice President 125/5/ None
One Financial Center Chairman and Chief Operating
Boston, MA 02111 of the Officer of Columbia
Board Management Group, Inc.
and (Columbia Management)
President since December, 2001 and
Director, Executive Vice
President and Chief
Operating Officer of the
Advisor since April,
2003 (formerly Chief
Operations Officer of
Mutual Funds, Liberty
Financial Companies,
Inc. from August, 2000
to November, 2001;
Executive Vice President
of Stein Roe & Farnham
Incorporated (Stein Roe)
from
April, 1999 to April,
2003; Director of
Colonial Management
Associates, Inc.
(Colonial) from April,
1999 to April, 2003;
Director of Stein Roe
from September, 2000 to
April, 2003) President
of Columbia Funds and
Galaxy Funds since
February, 2003 (formerly
Vice President from
September 2002 to
February 2003); Manager
of Stein Roe Floating
Rate Limited Liability
Company since October,
2000; (formerly Vice
President of the
Columbia Funds from
April, 1999 to August,
2000; Chief Operating
Officer and Chief
Compliance Officer,
Putnam Mutual Funds from
December, 1993 to March,
1999).
/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 Funds (the "CMG
Funds Board"); simultaneous with that election, Patrick J. Simpson and
Richard L. Woolworth, who had been directors on the Columbia Board and
trustees on the CMG Funds Board, were appointed to serve as trustees of the
Liberty Board. The date shown is the earliest date on which a
trustee/director was elected or appointed to the board of a Fund in the
Columbia Funds Complex).
/2/ Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht +
Co. Mr. Palombo is an interested person as an employee of the Advisor.
/3/ Messrs. Lowry, Neuhauser and Mayer each also serve as a director/trustee of
the All-Star Funds, currently consisting of 2 funds, which are advised by
an affiliate of the Advisor.
/4/ Mr. Neuhauser and Ms. Verville also serve as disinterested directors of
Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the
Advisor.
/5/ Mr. Palombo also serves as an interested director of Columbia Management
Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor.
23
Officers and Transfer Agent
Year First
Elected or
Position with Appointed Principal Occupation(s)
Name, Address and Age Columbia Funds to Office During Past Five Years
- ------------------------------------------------------------------------------------------------------------
Officers
Vicki L. Benjamin (Age 42) Chief Accounting 2001 Controller of the Columbia Funds and of the
One Financial Center Officer and Liberty All-Star Funds since May, 2002; Chief
Boston, MA 02111 Controller Accounting Officer of the Columbia Funds and
Liberty All-Star Funds since June, 2001;
Controller and Chief Accounting Officer of the
Galaxy Funds since September, 2002 (formerly Vice
President, Corporate Audit, State Street Bank and
Trust Company from May, 1998 to April, 2001;
Audit Manager from July, 1994 to June, 1997;
Senior Audit Manager from July, 1997 to May,
1998, Coopers & Lybrand, LLP).
J. Kevin Connaughton (Age 39) Treasurer 2000 Treasurer of the Columbia Funds and of the
One Financial Center Liberty All-Star Funds since December, 2000; Vice
Boston, MA 02111 President of the Advisor since April, 2003
(formerly 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 from February, 1998 to October, 2000 and
Senior Tax Manager, Coopers & Lybrand, LLP from
April, 1996 to January, 1998).
Important Information About This Report
The Transfer Agent for Columbia Floating Rate Advantage Fund is:
Columbia Funds Services, Inc.
P.O. Box 8081
Boston, MA 02266-8081
Please note our new name as of October 13, 2003.
The fund mails one shareholder report to each shareholder address. If you would
like more than one report, please call shareholder services at 800-345-6611 and
additional reports will be sent to you.
This report has been prepared for shareholders of Columbia Floating Rate
Advantage Fund. This report may also be used as sales literature when preceded
or accompanied by the current prospectus which provides details of sales
charges, investment objectives and operating policies of the fund and with the
most recent copy of the Columbia Funds Performance Update.
Annual Report:
Columbia Floating Rate Advantage Fund
Columbia Floating Rate Advantage Fund Annual Report, August 31, 2003
[LOGO] [LOGO](R) ColumbiaFunds
A Member of Columbia Management Group
(C) 2003 Columbia Funds Distributor, Inc.
One Financial Center, Boston, MA 02111-2621
800.345.6611 www.columbiafunds.com
762-02/212P-0803 (10/03) 03/2926
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Holliston, MA Permit NO. 20
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 and
Anne-Lee Verville, 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 and Ms. Verville are each independent trustees, as defined in
paragraph (a)(2) of this item's instructions.
Item 4. Principal Accountant Fees and Services.
Not applicable at this time.
Item 5. Audit Committee of Listed Registrants.
Not applicable at this time.
Item 6. Reserved.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Columbia Management Advisors, Inc. ("CMA")
VOTING CLIENT AND FUND PROXIES
POLICY:
All proxies for client securities for which Columbia Management Advisors, Inc.
("CMA") has been granted authority to vote shall be voted in a manner considered
to be in the best interests of CMA's clients, including the CMA Managed Funds(1)
and their shareholders without regard to any benefit to CMA or its affiliates.
CMA shall examine each proposal and vote against the proposal, if, in its
judgment, approval or adoption of the proposal would be expected to impact
adversely the current or potential market value of the issuer's securities. In
addition, CMA shall examine each proposal and vote the securities held on behalf
of a client against the proposal, if, in its judgment, the proposal would be
expected to effect adversely the best interest of the client. References to the
best
interest of a client refer to the interest of the client in terms of the
potential economic return on the client's investment. In the event a client
believes that its other interests require a different vote, CMA shall vote as
the client instructs.
CMA addresses potential material conflicts of interest by having a predetermined
voting policy. For those proposals that require special consideration or in
instances where special circumstances may require varying from the predetermined
policy, the Proxy Committee will determine the vote in the best interest of
CMA's clients, without consideration of any benefit to CMA, its affiliates or
its other clients.
OVERVIEW:
CMA's policy is based upon its fiduciary obligation to act in its clients' best
interests. In addition, the SEC recently adopted rules under the Investment
Company Act of 1940 and the Investment Advisers Act of 1940. These rules impose
obligations with respect to proxy voting on investment advisers and investment
companies.
PROCEDURE:
I. Account Policies
Except as otherwise directed by the client, CMA shall vote as follows:
Separately Managed Accounts
CMA shall vote proxies on securities held in its separately managed accounts.
CMA Trust Company Trust Pools
CMA Trust Company shall vote proxies on securities held in the trust pools.
CMG Funds/CMA Fund Trust
CMA shall vote proxies on securities held in the Funds, including multi-managed
and subadvised Funds.
CMA Private Portfolio
CMA shall vote proxies on securities held in its separately managed accounts.
Private Management Accounts
The authority to vote proxies on securities held in such accounts shall be
reserved to the client.
MasterPlan Accounts
Where CMA serves as trustee (or custodian) with participant-directed accounts
(including 404(c) plans), the proxies on securities held in such accounts shall
be forwarded to the participants for voting where permitted by the controlling
instrument. This includes ESOP or company stock.
II. Proxy Committee
CMA shall establish a Proxy Committee, which shall be composed of the heads of
equity investments, equity research and compliance, and senior operational and
investment representatives of CMA's regional offices, fund administration and
legal department and the Sarbanes Oxley specialist. In the event that such
persons are unable to participate in a meeting of the Proxy Committee, their
designees shall act on their behalf. A vacancy in the Proxy Committee shall be
filled by the prior member's successor in position at CMA or a person of
equivalent experience. Each portfolio manager of a fund or account which holds
securities of an issuer having a shareholder meeting shall be an ad hoc member
of the Proxy Committee in connection with the vote of proxies for the meeting.
The Proxy Committee's functions shall include, in part,
(a) direction of the vote on proposals where there has been a recommendation to
the Committee not to vote according to the predetermined policy provided in the
Voting Guidelines in III (A) and (B) below or which proposals require special
consideration under III (C) below,
(b) annual review of this Proxy Voting Policy and Procedure to ensure
consistency with internal policies and regulatory agency policies,
(c) annual review of existing Voting Guidelines and development of additional
Voting Guidelines to assist in the review of proxy proposals, and
(d) development and modification of Voting Procedures as it deems appropriate or
necessary.
In determining the vote of any proposal for which it has responsibility, the
Proxy Committee shall consider whether the proposal would be expected to impact
adversely the current or potential market value of the issuer's securities. In
addition, the Proxy Committee shall examine the proposal and vote the securities
held on behalf of a client against the proposal, if, in its judgment, the
proposal would be expected to effect adversely the best interest of the client.
References to the best interest of a client refer to the interest of the client
in terms of the potential economic return on the client's investment. In the
event a client believes that its other interests require a different vote, CMA
shall vote as the client instructs.
In determining the vote on any proposal, the Proxy Committee shall not consider
any benefit to CMA, any of its affiliates, any of its or its affiliates'
clients, or of its customers or service providers, other than benefits to the
owner of the securities to be voted.
The Proxy Committee shall create a charter, which shall be consistent with this
policy and procedure. The charter shall set forth the Committee's purpose,
membership and operation. The charter shall include procedures prohibiting a
member from voting on a matter for which he or she has a conflict of interest by
reason of a direct relationship with the issuer or other party affected by a
given proposal, e.g., is a portfolio manager for an account of the issuer.
III. Voting Guidelines
In general, proposals which are designed to either dissuade or preclude the
acquisition and/or merger of one corporate entity by/with another, or have the
effect of diluting the value of the existing shares outstanding, or reduce the
shareholders' power over any company actions are rejected. Individual merger and
corporate restructuring proposals are reviewed on a case-by-case basis.
A. Proposals usually voted for
CMA will vote in favor of the following proposals, unless otherwise directed by
the Proxy Committee:
1. Auditors. Proposals for the annual appointment or approval of independent
corporate auditors. An auditor will usually be thought of as independent unless
the auditor receives more than 50% of its revenues from non-audit activities
from the company and its affiliates.
2. Directors. Proposals for the election of Directors or an increase or decrease
in the number of Directors provided a majority of directors would be
independent. However, CMA will vote against proposals that give management the
ability to alter the size of the board without shareholder approval.
3. Chairman of the Board / Chief Executive Officer. Proposals for the creation
or elimination of positions or titles for senior management personnel. CMA
prefers the role of Chairman and CEO to be held by different persons. In
evaluating proposals we will consider the size of the company and the nature of
its shareholder base.
4. Compensation. Proposals for specific compensation for employees/directors if
provisions are consistent with standard business practices, such as bonus plans,
incentive plans, stock option plans, pension and retirement benefits, stock
purchase plans, or thrift plans. CMA requires management to provide substantial
justification for the repricing of options.
5. Debt Limits. Proposals for an increase in debt limit, unless proposed
specifically as an anti-takeover action.
6. Indemnification. Proposals to approve indemnification of the Board of
Directors through self-insurance plans or purchase of insurance. It is not the
intent to eliminate Director Responsibility for negligence and or breaches of
fiduciary duty.
7. Meeting. Proposals to approve the minutes of a prior meeting; proposals to
change the date or location of the annual meeting.
8. Name of Company. Proposals to approve a change in the company name.
9. Principal Office. Proposals to change the location of the company's principal
place of business provided the purpose is not to reduce the scope of adequate
regulatory or financial supervision.
10. Report and Accounts. Proposals to approve the annual reports and accounts
provided the certifications required by Sarbanes Oxley Act 2002 have been
provided.
11. Par Value. Proposals to change the par value of the stock.
12. Shares. Proposals for the elimination of authorized but un-issued shares or
retirement of those shares purchased for a sinking fund or treasury stock;
proposals to increase the authorized shares for stock dividends, stock splits or
general issuance, unless proposed as an anti-takeover action.
13. Share Repurchase Programs. Proposals to institute/ renew open market share
repurchase plans in which all shareholders may participate on equal terms.
14. Independent Committees. Proposals that request that the board audit,
compensation and/ or nominating committees include independent directors. The
Audit Committee must satisfy the independence and experience requirements
established by the Securities and Exchange Commission ("SEC") and the New York
Stock Exchange. At least one member of the Audit Committee must qualify as a
"financial expert" within the definition set forth in rules of the SEC.
15. Equal Opportunity Employment. Proposals that endorse the recruitment,
development, and promotion of personnel on a non-discriminatory merit basis,
regardless of race, creed, color or gender.
B. Proposals Usually Voted Against
CMA will vote against the following proposals, unless otherwise determined by
the Proxy Committee.
1. Super Majority Voting. Proposals to require a majority vote larger than 51%
of outstanding shares to approve any proxy proposal. Such proposals are largely
intended to support management positions prior to the occurrence of a particular
event.
2. Cumulative Voting. Proposals, which allow more than one vote per share in the
election of directors. Directors should represent all shareholders equally as
opposed to group influences.
3. Preferred Stock, Warrants, Rights, Poison Pills. Proposals intended largely
to avoid acquisition prior to the occurrence of an actual event or to discourage
acquisition by creating a cost constraint.
4. Reclassification of Common Stock. Proposals to change voting rights by type
of Common stock or for long term holders versus new holders.
5. Written Consent. Proposals to eliminate the right of shareholders to act by
written consent without a meeting.
C. Ability to Vote Proxies Other than as Provided in A or B Above.
A Portfolio Manager, SubAdviser or other party involved with a client's or
Fund's account may conclude that the interest of the client or Fund requires
that a proxy be voted on a proposal in a manner that differs from the
predetermined proxy voting policy. In this situation, he or she shall request
that the Proxy Committee consider voting the proxy on the proposal other than
according to the predetermined policy provided in III (A) or (B) above. If any
person (or entity) requests the Proxy Committee (or any of its members) to vote
a proxy other than according to the predetermined policy, that person shall
furnish to the Proxy Committee a written explanation of the reasons for the
request and a description of the person's (or entity's) relationship with the
party proposing the matter to shareholders.
The Proxy Committee may vary from the predetermined policy if it determines that
voting on the proposal according to the predetermined policy would be expected
to impact adversely the current or potential market value of the issuer's
securities or to effect adversely the best interest of the client. References to
the best interest of a client refer to the interest of the client in terms of
the potential economic return on the client's investment. In the event a client
believes that its other interests require a different vote, CMA shall vote as
the client instructs. In determining the vote on any proposal, the Proxy
Committee shall not consider any benefit other than benefits to the owner of the
securities to be voted.
D. Proposals Requiring Special Consideration
The following proposals require individual, special consideration. The Proxy
Committee will determine how proxies related to each of these proposals will be
voted. The Proxy Committee shall determines to vote against any such proposal
which would be expected
to impact adversely the current or potential market value of the issuer's
securities or to effect adversely the best interest of the client. References to
the best interest of a client refer to the interest of the client in terms of
the potential economic return on the client's investment. In the event a client
believes that its other interests require a different vote, CMA shall vote as
the client instructs In determining the vote on any proposal, the Proxy
Committee shall not consider any benefit other than benefits to the owner of the
securities to be voted.
1. New Proposals. For each new type of proposal that is expected to be proposed
to shareholders of multiple companies, the Proxy Committee will develop a
Guideline, which will be incorporated into this Proxy Voting Policy and
Procedures.
2. Accounts Adhering to Taft Hartley Principles. All proposals for these
accounts shall be voted according to the Taft Hartley Guidelines developed by
Institutional Shareholder Services, Inc. ("ISS").
3. Accounts Adhering to Socially Responsible Principles. All proposals for these
accounts shall be voted according to the Socially Responsible Guidelines
developed by ISS or as specified by the client.
4. Proxies of International Issuers which Block Securities Sales between the
Time a Shareholder submits a Proxy and the Vote. Proposals for these securities
shall be voted only on the specific instruction of the Proxy Committee and to
the extent practicable in accordance with these Proxy Voting Guidelines.
5. Proxies of Investment Company Shares. Proposals on issues other than those
specified above under III (A) and (B), e.g., election of directors, selection of
accountants.
6. Mergers/Acquisitions. Proposals where a hostile merger/acquisition is
apparent or where CMA represents ownership in more than one of the companies
involved in a potential merger/acquisition. Proposals for potential
mergers/acquisitions, which do not appear to be hostile, shall be voted based on
previously stated Guidelines.
7. Shareholder Proposals. Shareholder proposals that are not covered by III (A)
and (B) above will be reviewed individually.
8. Executive/Director Compensation. Except as provided in III (A)(4), proposals
relating to compensation of any executive or director will be voted as
recommended by ISS or as otherwise directed by the Proxy Committee.
9. Annual Evaluation of New Issues. During the first quarter of each year, the
Proxy Committee will consider any new controversial issues that are likely to be
on the ballots during the upcoming proxy season. The Proxy Committee will also
be notified in the unusual instance when an analyst or portfolio manager feels
strongly that the best interests of shareholders would be served by deviating
from our standard policy on a specific proposal.
10. Pre-Emptive Rights. Proposals to create or eliminate pre-emptive rights. In
evaluating proposals the Proxy Committee will consider the size of the company
and the nature of its shareholder base.
If any person (or entity) requests that the Proxy Committee (or any of its
members) vote a proxy in a specific manner, that person shall furnish to the
Proxy Committee a written explanation of the reasons for the request and a
description of the person's (or entity's) relationship with the party proposing
the matter to shareholders.
IV. VOTING PROCEDURES
The Proxy Committee has developed the following procedures to assist in the
voting of proxies according to the Voting Guidelines set forth in Section III
above. The Proxy Committee may revise these procedures from time to time, as it
deems appropriate or necessary to effect the purposes of this Policy and
Procedures.
CMA shall use Institutional Shareholder Services ("ISS"), a third party vendor,
to implement its proxy voting process. ISS shall provide proxy analysis and
record keeping services.
On a daily basis CMA shall send to ISS a holdings file detailing each equity
holding held in an account advised by CMA. Information on equity holdings for
the international portfolio shall be sent weekly.
ISS shall receive proxy material information from Proxy Edge or the custodian
bank for the account. This shall include issues to be voted upon, together with
a breakdown of holdings for CMA accounts. ISS shall then reconcile information
it receives from CMA with that it has received from Proxy Edge and custodian
banks. Any discrepancies shall be noted and resolved by ISS.
Whenever a vote is solicited, ISS shall send CMA a request to vote over a secure
website. CMA personnel shall check this website daily. The request shall be
accompanied by a recommended vote. The recommended vote shall be based upon
CMA's Voting Guidelines previously delivered by CMA to ISS as set forth in
Section III. CMA shall promptly provide ISS with any amendments or modifications
to the Guidelines. CMA shall return a final instruction to vote to ISS, which
ISS shall record with Proxy Edge or the custodian bank as our agent.
ISS shall have procedures in place to ensure that a vote is cast on every
security holding maintained by CMA on which a vote is solicited unless otherwise
directed by the Proxy Committee. On a yearly basis, or as required by our
clients CMA shall receive a report from ISS detailing CMA's voting for the
previous period.
Each time that ISS shall send CMA a request to vote the request shall be
accompanied by the recommended vote determined in accordance with CMA's Voting
Guidelines. ISS
shall vote as indicated in the request unless the client has reserved
discretion, the Proxy Committee determines that the best interest of a client
requires another vote or the proposal is a matter on which the Proxy Committee
has discretion under Section III.D. In such situations ISS shall vote based on
the direction of the client or the Proxy Committee, as the case may be. The
interests of CMA's Taft Hartley or "Socially Responsible " clients may impact a
proposal that normally should be voted in a certain way. ISS shall inform CMA of
all proposals having impact on its Taft Hartley and or "Socially Responsible "
clients. The Proxy Voting Committee shall be consulted before a vote is placed
in cases where Taft Hartley or Socially Responsible issues are presented.
(1) CMA Managed Funds or a Fund is a registered investment company or series of
a registered investment company managed or advised by Columbia Management
Advisors, Inc.
Item 8. Reserved.
Item 9. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial
officer, 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 10. 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.
(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 Floating Rate Advantage Fund
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By (Signature and Title) /s/ Joseph R. Palombo
-------------------------
Joseph R. Palombo, President
Date November 7, 2003
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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/ Joseph R. Palombo
--------------------------
Joseph R. Palombo, President
Date November 7, 2003
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By (Signature and Title) /s/ J. Kevin Connaughton
--------------------------
J. Kevin Connaughton, Treasurer
Date November 7, 2003
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