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 811-4367
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Columbia Funds Series Trust I
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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)
James R. Bordewick, Jr., Esq.
Columbia Management Advisors, LLC
One Financial Center
Boston, MA 02111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-426-3750
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Date of fiscal year end: March 31, 2007
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Date of reporting period: March 31, 2007
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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. (S) 3507.
Item 1. Reports to Stockholders.
[LOGO] Columbia Management(R)
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Columbia World Equity Fund
Annual Report - March 31, 2007
NOT FDIC INSURED May Lose Value
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No Bank Guarantee
President's Message
March 31, 2007
Table of contents
Economic Update 1
Performance Information 2
Understanding Your Expenses 3
Portfolio Managers' Report 4
Fund Profile 6
Investment Portfolio 7
Statement of Assets and
Liabilities 14
Statement of Operations 16
Statement of Changes in Net
Assets 17
Financial Highlights 19
Notes to Financial Statements 22
Report of Independent
Registered Public
Accounting Firm 30
Unaudited Information 31
Fund Governance 32
Board Consideration and
Approval of Investment
Advisory Agreements 36
Summary of Management Fee
Evaluation by Independent Fee
Consultant 39
Important Information
About This Report 45
The views expressed in this report reflect the current views of the
respective parties. These views are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult to
predict so actual outcomes and results may differ significantly from the
views expressed. These views are subject to change at any time based upon
economic, market or other conditions and the respective parties disclaim any
responsibility to update such views. These views may not be relied on as
investment advice and, because investment decisions for a Columbia Fund are
based on numerous factors, may not be relied on as an indication of trading
intent on behalf of any particular Columbia Fund. References to specific
company securities should not be construed as a recommendation or investment
advice.
[PHOTO] Christopher L. Wilson
President, Columbia Funds
Dear Shareholder:
Investing is a long-term process and we are pleased that
you have chosen to include the Columbia family of funds in
your overall financial plan.
Your financial advisor can help you establish an
appropriate investment portfolio and periodically review
that portfolio. A well balanced portfolio is one of the
keys to successful long-term investing. Your portfolio
should be diversified across different asset classes and
market segments and your chosen asset allocation should be
appropriate for your investment goals, risk tolerance and
time horizons.
However, creating an investment strategy is not a one-step process. From time
to time, you'll need to re-evaluate your strategy to determine whether your
investment needs have changed. Most experts recommend giving your portfolio a
"check-up" every year.
As you begin your portfolio check-up, consider whether you have experienced any
major life events since the last time you assessed your portfolio. You may need
to tweak your strategy if you have:
.. Gotten married or divorced
.. Added a child to your family
.. Made a significant change in employment
.. Entered or moved significantly closer to retirement
.. Experienced a serious illness or death in the family
.. Taken on or paid off substantial debt
It's important to remember that over time, performance in different market
segments will fluctuate. When the stock market is up, the bond market is
typically down -- and vice versa. These shifts can cause your portfolio balance
to drift away from your chosen asset allocation. A periodic portfolio check-up
can help make sure your portfolio stays on track. Remember that asset
allocation does not ensure a profit or guarantee against loss.
You'll also want to analyze the individual investments in your portfolio. Of
course, performance should be a key factor in your analysis, but it's not the
only factor to consider. Make sure the investments in your portfolio line up
with your overall objectives and risk tolerance. Be aware of changes in
portfolio management and pay special attention to any funds that have made
significant shifts in their investment strategy.
We hope this information will help you, in working with your financial advisor,
to stay on track to reach your investment goals. Thank you for your business
and for your continued confidence in Columbia Funds.
Sincerely,
/s/ Christopher L. Wilson
Christopher L. Wilson
President, Columbia Funds
Economic Update - Columbia World Equity Fund
Summary
For the 12-month period ended March 31, 2007
. The world's major stock markets moved higher, boosted by generally solid
economic growth. Foreign markets were generally stronger than the US market,
as measured by the MSCI EAFE Index.
MSCI World MSCI EAFE
Index Index
[GRAPHIC] [GRAPHIC]
15.44% 20.20%
The Morgan Stanley Capital International (MSCI) World Index tracks the
performance of global stocks.
The Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East
(EAFE) Index is a free float-adjusted market capitalization index that is
designed to measure developed market equity performance, excluding the US and
Canada.
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.
World economic growth advanced at a healthy pace during the 12-month period
that began April 1, 2006 and ended March 31, 2007. For 2006, world gross
domestic product was estimated at 3.6%. In 2007, growth is expected to slow
somewhat to 3.0%, primarily because of slower growth in the United States,
where a weak housing market weighed on the economy throughout the period. Core
inflation remained above the comfort level of central banks in most of the
world's major economies, and most central banks raised short-term interest
rates in an effort to control inflationary pressures during the period.
Slower growth for euro zone economies
In the euro zone, the economy expanded 2.75% in 2006, as strong external trade
boosted growth. However, the economy got off to a slower start in 2007, as both
export demand and private consumption showed signs of weakening. The European
Central Bank (ECB) continued to raise its key policy rate in quarter-point
increments throughout the period, reflecting continued concerns about
inflation. Capacity utilization is tight, as many factories are close to their
limits; wages have increased; and money supply growth reached a record high in
January--lending support to the ECB's policy decisions.
Japan's economy loses some momentum
Japan's economy maintained a slow but relatively steady pace of growth
throughout the period. However, it lost momentum in the early months of 2007 as
exports cooled and consumer spending remained weak. Although inflation is
negligible, the Bank of Japan appears set to lift interest rates later this
year. Elsewhere in Asia, the economies of South Korea and Taiwan also showed
signs of slowing as external demand for technology-related exports decelerated
sharply in the final months of 2006.
China continues to expand at record pace
China's economy expanded at an estimated pace of 10.6% in 2006--its fastest
growth in over a decade--despite government-induced monetary and administrative
measures designed to cool the engines of growth. China's export-driven economy
remains vulnerable to slower growth around the globe. Nevertheless, it showed
signs of continued expansion at an impressive pace in the early months of 2007.
World stock markets reflected economic strength
In an environment of generally healthy growth, the world's major stock markets
delivered robust returns. The Morgan Stanley Capital International (MSCI) EAFE
Index, which measures stock market performance in major developed countries
around the world (excluding the United States and Canada), returned 20.20%.
Despite a sharp sell-off in February, most markets regained their forward
momentum and bounced back with significant strength. The MSCI World Index,
which includes the US market, returned 15.44%.
Pass performance is no guarantee of future results.
1
Performance Information - Columbia World Equity Fund
Performance data quoted represents past performance and current performance
may be lower or higher. Past performance is no guarantee of future results.
The investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than the original cost. Please visit
www.columbiafunds.com for daily and most recent month-end performance updates.
Annual operating expense ratio*
Class A 1.47%
Class B 2.22%
Class C 2.22%
*The annual operating expense ratio is as stated in the fund's prospectus that
is current as of the date of this report and may differ from the expense
ratios disclosed elsewhere in this report.
Growth of a $10,000
investment 04/01/97 -
03/31/07
[CHART]
Class A shares Class A shares
without with MSCI World
sales charge sales charge Index
-------------- ---------------- ----------
$10,000 $9,425 $10,000
04/30/1997 10,204 9,617 10,325
05/31/1997 10,635 10,023 10,960
06/30/1997 10,957 10,327 11,505
07/31/1997 11,257 10,610 12,033
08/31/1997 10,630 10,019 11,225
09/30/1997 11,238 10,592 11,834
10/31/1997 10,829 10,206 11,209
11/30/1997 11,424 10,767 11,405
12/31/1997 11,950 11,263 11,542
01/31/1998 11,815 11,136 11,862
02/28/1998 12,415 11,701 12,662
03/31/1998 13,246 12,484 13,195
04/30/1998 13,210 12,451 13,322
05/31/1998 12,995 12,248 13,153
06/30/1998 13,240 12,479 13,463
07/31/1998 13,468 12,694 13,439
08/31/1998 11,646 10,976 11,645
09/30/1998 12,260 11,555 11,849
10/31/1998 12,788 12,053 12,918
11/30/1998 13,128 12,373 13,684
12/31/1998 14,035 13,228 14,350
01/31/1999 14,546 13,710 14,663
02/28/1999 13,903 13,104 14,271
03/31/1999 13,823 13,028 14,864
04/30/1999 14,403 13,575 15,448
05/31/1999 14,752 13,904 14,881
06/30/1999 15,010 14,147 15,573
07/31/1999 14,651 13,809 15,524
08/31/1999 14,231 13,412 15,495
09/30/1999 14,195 13,379 15,343
10/31/1999 15,129 14,259 16,138
11/30/1999 15,713 14,810 16,590
12/31/1999 17,806 16,782 17,930
01/31/2000 17,658 16,643 16,901
02/29/2000 18,230 17,182 16,945
03/31/2000 19,020 17,926 18,114
04/30/2000 17,352 16,354 17,346
05/31/2000 16,937 15,963 16,905
06/30/2000 17,659 16,643 17,472
07/31/2000 17,056 16,076 16,977
08/31/2000 17,838 16,812 17,527
09/30/2000 16,919 15,946 16,593
10/31/2000 16,325 15,386 16,313
11/30/2000 14,327 13,503 15,321
12/31/2000 15,487 14,597 15,566
01/31/2001 15,853 14,941 15,867
02/28/2001 14,666 13,822 14,524
03/31/2001 13,696 12,909 13,567
04/30/2001 14,610 13,770 14,567
05/31/2001 14,176 13,361 14,378
06/30/2001 13,685 12,898 13,925
07/31/2001 13,331 12,564 13,738
08/31/2001 12,783 12,048 13,077
09/30/2001 11,811 11,132 11,924
10/31/2001 11,834 11,153 12,152
11/30/2001 11,949 11,262 12,869
12/31/2001 12,051 11,358 12,948
01/31/2002 11,274 10,626 12,555
02/28/2002 10,886 10,260 12,444
03/31/2002 11,194 10,551 13,018
04/30/2002 10,977 10,346 12,552
05/31/2002 10,806 10,185 12,573
06/30/2002 10,338 9,744 11,809
07/31/2002 9,550 9,001 10,812
08/31/2002 9,608 9,055 10,830
09/30/2002 8,842 8,333 9,638
10/31/2002 9,276 8,743 10,348
11/30/2002 9,779 9,217 10,905
12/31/2002 9,573 9,023 10,375
01/31/2003 9,368 8,829 10,059
02/28/2003 9,253 8,721 9,883
03/31/2003 9,253 8,721 9,850
04/30/2003 9,961 9,388 10,723
05/31/2003 10,475 9,873 11,333
06/30/2003 10,533 9,927 11,528
07/31/2003 10,830 10,207 11,761
08/31/2003 11,104 10,465 12,014
09/30/2003 10,978 10,347 12,086
10/31/2003 11,641 10,972 12,801
11/30/2003 11,801 11,122 12,994
12/31/2003 12,441 11,725 13,809
01/31/2004 12,635 11,908 14,030
02/29/2004 12,737 12,005 14,264
03/31/2004 12,668 11,940 14,170
04/30/2004 12,349 11,639 13,880
05/31/2004 12,360 11,649 14,006
06/30/2004 12,623 11,897 14,293
07/31/2004 12,155 11,456 13,827
08/31/2004 12,132 11,434 13,888
09/30/2004 12,360 11,649 14,151
10/31/2004 12,645 11,918 14,497
11/30/2004 13,251 12,489 15,258
12/31/2004 13,749 12,959 15,841
01/31/2005 13,520 12,742 15,485
02/28/2005 14,025 13,219 15,976
03/31/2005 13,682 12,895 15,667
04/30/2005 13,452 12,679 15,324
05/31/2005 13,728 12,938 15,597
06/30/2005 13,843 13,047 15,733
07/31/2005 14,325 13,501 16,282
08/31/2005 14,428 13,598 16,404
09/30/2005 14,875 14,020 16,830
10/31/2005 14,542 13,706 16,421
11/30/2005 14,932 14,073 16,968
12/31/2005 15,286 14,407 17,345
01/31/2006 15,920 15,005 18,120
02/28/2006 15,874 14,961 18,093
03/31/2006 16,301 15,364 18,491
04/30/2006 16,878 15,907 19,053
05/31/2006 16,267 15,332 18,402
06/30/2006 16,272 15,336 18,396
07/31/2006 16,365 15,424 18,510
08/31/2006 16,761 15,797 18,991
09/30/2006 16,935 15,961 19,217
10/31/2006 17,517 16,510 19,923
11/30/2006 17,936 16,905 20,411
12/31/2006 18,435 17,375 20,825
01/31/2007 18,713 17,637 21,071
02/28/2007 18,459 17,397 20,961
03/31/2007 18,762 17,683 21,344
The chart above shows the growth in value of a hypothetical $10,000 investment
in Class A shares of Columbia World Equity Fund during the stated time period,
and does not reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. The Morgan Stanley Capital
International (MSCI) World Index tracks the performance of global stocks.
Indices are not investments, do not incur fees or expenses and are not
professionally managed. It is not possible to invest directly in an index.
Securities in the fund may not match those in an index.
Performance of a $10,000 investment 04/01/97 - 03/31/07 ($)
Share class
-----------------------------------------------------------
Sales charge without with
Class A 18,762 17,683
Class B 17,371 17,371
Class C 17,345 17,345
Average annual total return as of 03/31/07 (%)
Share class A B C
-----------------------------------------------------------------
Inception 10/15/91 03/27/95 03/27/95
-----------------------------------------------------------------
Sales charge without with without with without with
1-year 15.11 8.49 14.17 9.17 14.19 13.19
5-year 10.88 9.57 10.04 9.76 10.01 10.01
10-year 6.49 5.87 5.68 5.68 5.66 5.66
The "with sales charge" returns include the maximum initial sales charge of
5.75% for Class A shares, the applicable contingent deferred sales charge of
5.00% in the first year, declining to 1.00% in the sixth year, and eliminated
thereafter for Class B shares and 1.00% for Class C shares for the first year
only. The "without sales charge" returns do not include the effect of sales
charges. If they had, returns would be lower.
Performance results reflect any waivers or reimbursements of fund expenses by
the investment advisor and/or any of its affiliates. Absent these waivers or
reimbursement arrangements, performance results would have been lower.
All results shown assume reinvestment of distributions. Performance for
different share classes will vary based on differences in sales charges and
fees associated with each class.
The table does not reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares.
2
Understanding Your Expenses - Columbia World Equity Fund
Estimating your actual expenses
To estimate the expenses that you paid over the period, first you will need
your account balance at the end of the period:
. For shareholders who receive their account statements from Columbia
Management Services, Inc., your account balance is available online at
www.columbiafunds.com or by calling Shareholder Services at 800.345.6611.
. For shareholders who receive their account statements from their brokerage
firm, contact your brokerage firm to obtain your account balance.
1.Divide your ending account balance by $1,000. For example, if an account
balance was $8,600 at the end of the period, the result would be 8.6.
2.In the section of the table below titled "Expenses paid during the period,"
locate the amount for your share class. You will find this number in the
column labeled "actual." Multiply this number by the result from step 1.
Your answer is an estimate of the expenses you paid on your account during
the period.
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also ongoing costs, which generally
include investment advisory fees, Rule 12b-1 fees and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to compare these costs with the ongoing costs of
investing in other mutual funds.
Analyzing your fund's expenses by share class
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in each share class during the period. The
information in the following table is based on an initial investment of $1,000,
which is invested at the beginning of the reporting period and held for the
entire period. Expense information is calculated two ways and each method
provides you with different information. The amount listed in the "actual"
column is calculated using the fund's actual operating expenses and total
return for the period. The amount listed in the "hypothetical" column for each
share class assumes that the return each year is 5% before expenses and is
calculated based on the fund's actual operating expenses. You should not use
the hypothetical account values and expenses to estimate either your actual
account balance at the end of the period or the expenses you paid during this
reporting period.
Compare with other funds
Since all mutual funds are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this
information to compare the ongoing cost of investing in the fund with other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds. As you compare
hypothetical examples of other funds, it is important to note that hypothetical
examples are meant to highlight the continuing cost of investing in a fund and
do not reflect any transaction costs, such as sales charges, redemption fees or
exchange fees.
10/01/06 - 03/31/07
Account value at the Account value at the Expenses paid Fund's annualized
beginning of the period ($) end of the period ($) during the period ($) expense ratio (%)
- -------------------------------------------------------------------------------------------------
Actual Hypothetical Actual Hypothetical Actual Hypothetical Actual
Class A 1,000.00 1,000.00 1,108.00 1,017.70 7.62 7.29 1.45
Class B 1,000.00 1,000.00 1,103.32 1,013.96 11.54 11.05 2.20
Class C 1,000.00 1,000.00 1,103.42 1,013.96 11.54 11.05 2.20
Expenses paid during the period are equal to the annualized expense ratio for
the share class, multiplied by the average account value over the period, then
multiplied by the number of days in the fund's most recent fiscal half-year and
divided by 365.
It is important to note that the expense amounts shown in the table are meant
to highlight only ongoing costs of investing in the fund and do not reflect any
transaction costs, such as sales charges, redemption fees or exchange fees.
Therefore, the hypothetical examples provided may not help you determine the
relative total costs of owning shares of different funds. If these transaction
costs were included, your costs would have been higher.
3
Portfolio Managers' Report - Columbia World Equity Fund
Performance data quoted represents past performance and current performance
may be lower or higher. Past performance is no guarantee of future results.
The investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than the original cost. Please visit
www.columbiafunds.com for daily and most recent month-end performance updates.
Net asset value per share
as of 03/31/07 ($)
Class A 15.48
Class B 14.86
Class C 14.84
Distributions declared per share
04/01/06 - 03/31/07 ($)
Class A 0.75
Class B 0.61
Class C 0.61
Holdings discussed in this report
as of 03/31/07 (%)
Toyota Motor Corp. 0.7
JM AB 0.5
Volvo AB 0.6
SKF AB 0.7
BASF AG 1.2
Salzgitter AG 0.8
E.ON AG 1.1
Kohl's Corp. 0.8
Federated Department
Stores, Inc. 0.9
MEMC Electronic
Materials, Inc. 0.6
Taiwan Semiconductor
Manufacturing Co., Ltd. 0.6
Telefonica O2 Czech Republic
AS 0.4
Merrill Lynch & Co., Inc. 0.9
The fund is actively managed and the composition of its portfolio will change
over time. Information provided is calculated as a percentage of net assets.
For the 12-month period that ended March 31, 2007, Columbia World Equity Fund
Class A shares returned 15.11% without sales charge. The fund's benchmark, the
MSCI World Index, returned 15.44%./1/ The average return of funds in the fund's
peer group, the Morningstar World Stock Category, was 13.97% over the same
period./2/ Individual stocks in Japan, Sweden and Germany were largely
responsible for the fund's positive return.
Stock selection was the primary source of performance
Our emphasis on stock selection in companies that we believe should benefit
from global economic growth was instrumental in boosting the fund's total
return. In Japan, performance was enhanced by Canon, Inc., a leader in digital
imaging, and automakers Toyota Motor Corp. and Honda Motor Co., which benefited
from growing concerns about fuel efficiency and the trend toward hybrid
technology. We took profits in Canon, Inc. and Honda Motor Co. when they
reached our target valuations. In Sweden, homebuilder JM AB did well in a
robust housing market. Strong growth in gross domestic product in several
global economies was a factor in the performance of two other stocks in
Sweden--Volvo AB, a manufacturer of trucks and heavy industrial equipment, and
SKF AB, a maker of ball bearings, which are fundamental components of most
industrial processes. Volvo AB was also positively affected by concerns about
controlling automobile emissions, as the company produces some of the best
emission control equipment. In Germany, noteworthy results came from chemical
company BASF AG and steel producer Salzgitter AG, which rose partly because of
higher steel prices. Buoyed by merger and acquisition activity, European
utilities generated returns that were more than double the MSCI World Index
return. Our position in E.ON AG, an integrated power company in Germany, was
helped by this trend.
Approximately half of the fund was invested in the United States, where
retailer Kohl's Corp. rose on solid profit growth. Federated Department Stores
, Inc., also made a positive impact, as the company began to see benefits from
its restructuring program. MEMC Electronic Materials, Inc., figured heavily
into performance. The company produces wafers for the semiconductor and solar
industries. Higher semiconductor prices and growing interest in alternative
energy worked to the company's advantage.
We held a small number of emerging market stocks, including Taiwan
Semiconductor Manufacturing Co., Ltd. and Telefonica O2 Czech Republic AS, both
of which produced positive results. Investments in emerging markets are likely
to remain a very small part of the fund, but we may add positions as
opportunities arise.
/1/The Morgan Stanley Capital International (MSCI) World Index tracks the
performance of global stocks. 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.
/2/2007, Morningstar, Inc. All rights reserved. The information contained
herein is the proprietary information of Morningstar, Inc., may not be
copied or redistributed for any purpose and may only be used for
noncommercial, personal purposes. The information contained herein is not
represented or warranted to be accurate, correct, complete or timely.
Morningstar, Inc. shall not be responsible for investment decisions, damages
or other losses resulting from the use of this information. Past performance
is no guarantee of future performance. Morningstar, Inc. has not granted
consent for it to be considered or deemed an "expert" under the Securities
Act of 1933. Morningstar Categories compare the performance of funds with
similar investment objectives and strategies.
4
Portfolio Managers' Report (continued) - Columbia World Equity Fund
UK consumer discretionary stocks and US financial stocks disappointed
The fund had less exposure than the index to the United Kingdom, which had
strong performance, and the underweight held back results. In addition, one of
the fund's worst performers was UK-based PartyGaming, an on-line gaming company
which suffered because of new legislation that bans US financial institutions
from processing on-line gaming transactions. We sold the stock. US financial
stocks suffered as the rising number of subprime mortgage defaults affected
companies such as AmeriCredit and Radian Group, Inc., which we sold. Our
holdings in Merrill Lynch & Co., Inc., also fell short of our expectations.
Looking ahead
We expect some of the world's equity markets to face some head winds in the
period ahead. In the United States, the pace of economic growth has slowed
because of the Federal Reserve Board's interest-rate hikes, and there are
concerns that the problems in the subprime mortgage market could put additional
pressure on economic growth. Because the United States is a large consumer for
the rest of the world's goods, a significant slowdown in consumer spending
could have negative implications for global growth. In addition, China, another
important market for consumer goods, is looking for ways to slow its economy.
We believe these factors could lead to short-term volatility in the equity
markets. Longer term, however, we think the fundamental backdrop is attractive.
Global growth is relatively high and global monetary policy remains relatively
favorable, creating positive long-term conditions for the equity markets.
Top 5 countries
as of 03/31/07 (%)
United States 48.4
Japan 11.0
United Kingdom 7.9
France 6.2
Germany 5.7
Top 5 sectors
as of 03/31/07 (%)
Financials 25.6
Consumer discretionary 11.8
Industrials 11.4
Health care 10.7
Information technology 10.5
Top 10 holdings
as of 03/31/07 (%)
Total SA 1.5
JPMorgan Chase & Co. 1.4
International Business
Machines Corp. 1.4
Hewlett-Packard Co. 1.3
Citigroup, Inc. 1.3
Banco Santander Central
Hispano SA 1.2
Westpac Banking Corp. 1.2
BASF AG 1.2
United Overseas Bank Ltd. 1.2
Barclays PLC 1.2
The fund is actively managed and the composition of its portfolio will change
over time. Country breakdown and sector breakdown are calculated as a
percentage of total investments. Top 10 holdings are calculated as a
percentage of net assets.
5
Fund Profile - Columbia World Equity Fund
Performance data quoted represents past performance and current performance
may be lower or higher. Past performance is no guarantee of future results.
The investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than the original cost. Please visit
www.columbiafunds.com for daily and most recent month-end performance updates.
Summary
12-month return as of 03/31/2007
[GRAPHIC] +15.11%
Class A Shares
(without sales charge)
[GRAPHIC] +15.44%
MSCI World Index
Management Style
Equity Style
[GRAPHIC]
Management style is determined by Columbia Management and is based on the
investment strategy and process as outlined in the fund's prospectus.
Summary
.. For the 12-month period that ended March 31, 2007, the fund's Class A shares
returned 15.11% without sales charge.
.. Strong global economic trends helped the fund, its benchmark and the average
fund in its peer group to double-digit returns for the period.
.. Stock selection drove the fund's return, with individual stocks in Japan,
Sweden and Germany providing the biggest boost to performance.
Portfolio Management
Brian Condon has co-managed Columbia World Equity Fund since June 2005 and has
been with the advisor or its predecessors or affiliate organizations since
April 1999.
Fred Copper has co-managed the fund since October 2005 and has been with the
advisor or its predecessors or affiliate organizations since September 2005.
Colin Moore has co-managed the fund since September 2004 and has been with the
advisor or its predecessors or affiliate organizations since September 2002.
Portfolio holdings and characteristics are subject to change and may not be
representative of current holdings and characteristics. The outlook for this
fund may differ from that presented for other Columbia Funds. Performance for
different classes of shares will vary based on differences in sales charges and
fees associated with each class. For standardized performance, please refer to
the Performance Information page.
Equity investments are affected by stock market fluctuations that occur in
response to economic and business developments.
International investing may involve certain risks, including foreign taxation,
potential confiscatory levels of taxation and withholding taxes, currency
fluctuations, risks associated with possible differences in financial standards
and other monetary and political risks.
6
Investment Portfolio - Columbia World Equity Fund
March 31, 2007
Common Stocks - 99.1%
Shares Value ($)
Consumer Discretionary - 11.8%
Auto Components - 1.2% Continental AG 3,000 387,770
Denso Corp. 19,200 713,646
---------------------------------------- ------- ----------
Auto Components Total 1,101,416
Automobiles - 1.3% Peugeot SA 7,500 528,596
Toyota Motor Corp. 11,000 704,769
---------------------------------------- ------- ----------
Automobiles Total 1,233,365
Distributors - 0.5% Smiths News PLC 167,400 459,538
---------------------------------------- ------- ----------
Distributors Total 459,538
Hotels, Restaurants & McDonald's Corp. 16,900 761,345
Leisure - 0.8% -----------------------------------------------------------
Hotels, Restaurants & Leisure Total 761,345
Household Durables - 1.3% JM AB 15,000 516,627
Matsushita Electric Industrial Co., Ltd. 37,000 745,714
---------------------------------------- ------- ----------
Household Durables Total 1,262,341
Leisure Equipment & FUJIFILM Holdings Corp. 11,100 454,022
Products - 1.0% Mattel, Inc. 20,000 551,400
---------------------------------------- ------- ----------
Leisure Equipment & Products Total 1,005,422
Media - 3.3% CBS Corp., Class B 15,750 481,793
McGraw-Hill Companies, Inc. 7,200 452,736
News Corp., Class B 32,539 796,229
Time Warner, Inc. 34,500 680,340
Vivendi 17,500 711,140
---------------------------------------- ------- ----------
Media Total 3,122,238
Multiline Retail - 1.7% Federated Department Stores, Inc. 20,000 901,000
Kohl's Corp. (a) 10,000 766,100
---------------------------------------- ------- ----------
Multiline Retail Total 1,667,100
Specialty Retail - 0.7% Best Buy Co., Inc. 13,500 657,720
---------------------------------------- ------- ----------
Specialty Retail Total 657,720
Consumer Discretionary Total 11,270,485
Consumer Staples - 8.1%
Beverages - 2.9% Anheuser-Busch Companies, Inc. 9,750 491,985
Coca-Cola Co. 15,300 734,400
Diageo PLC 24,794 502,302
Heineken NV 10,300 538,812
PepsiCo, Inc. 7,500 476,700
---------------------------------------- ------- ----------
Beverages Total 2,744,199
Food & Staples Retailing - 1.4% Kesko Oyj, Class B 9,900 528,071
Massmart Holdings Ltd. 35,000 406,954
Metro, Inc., Class A 14,600 461,585
---------------------------------------- ------- ----------
Food & Staples Retailing Total 1,396,610
See Accompanying Notes to Financial Statements.
7
Columbia World Equity Fund
March 31, 2007
Common Stocks (continued)
Shares Value ($)
Consumer Staples (continued)
Food Products - 1.4% General Mills, Inc. 12,700 739,394
Toyo Suisan Kaisha Ltd. 30,000 590,631
----------------------------------- ------- ---------
Food Products Total 1,330,025
Household Products - 1.8% Colgate-Palmolive Co. 14,950 998,511
Kimberly-Clark Corp. 10,900 746,541
----------------------------------- ------- ---------
Household Products Total 1,745,052
Personal Products - 0.6% Avon Products, Inc. 14,500 540,270
----------------------------------- ------- ---------
Personal Products Total 540,270
Consumer Staples Total 7,756,156
Energy - 8.4%
Energy Equipment & Halliburton Co. 22,100 701,454
Services - 1.7% TGS Nopec Geophysical Co. ASA (a) 20,000 462,300
Tidewater, Inc. 9,000 527,220
----------------------------------- ------- ---------
Energy Equipment & Services Total 1,690,974
Oil, Gas & Consumable BP PLC 40,018 434,697
Fuels - 6.7% Chevron Corp. 13,000 961,480
ENI SpA 21,885 712,167
Exxon Mobil Corp. 11,800 890,310
Marathon Oil Corp. 2,600 256,958
Occidental Petroleum Corp. 13,300 655,823
PetroChina Co., Ltd., Class H 400,000 474,051
Total SA 21,172 1,483,423
XTO Energy, Inc. 9,700 531,657
----------------------------------- ------- ---------
Oil, Gas & Consumable Fuels Total 6,400,566
Energy Total 8,091,540
Financials - 25.6%
Capital Markets - 3.0% Deutsche Bank AG, Registered Shares 5,500 740,889
Lazard Ltd., Class A 7,000 351,260
Lehman Brothers Holdings, Inc. 7,600 532,532
Merrill Lynch & Co., Inc. 10,000 816,700
State Street Corp. 7,000 453,250
----------------------------------- ------- ---------
Capital Markets Total 2,894,631
Commercial Banks - 14.2% Banco Bilbao Vizcaya Argentaria SA 28,700 704,669
Banco Santander Central Hispano SA 65,544 1,169,761
Bank of Ireland 24,000 517,776
Barclays PLC 80,313 1,139,496
BNP Paribas 9,000 940,051
Danske Bank A/S 11,100 516,418
Depfa Bank PLC 27,583 492,641
HBOS PLC 45,011 927,379
HSBC Holdings PLC 41,124 719,835
PNC Financial Services Group, Inc. 7,000 503,790
See Accompanying Notes to Financial Statements.
8
Columbia World Equity Fund
March 31, 2007
Common Stocks (continued)
Shares Value ($)
Financials (continued)
Commercial Banks (continued) Royal Bank of Scotland Group PLC 29,134 1,137,453
Societe Generale 6,212 1,073,551
Sumitomo Mitsui Financial Group, Inc. 50 454,005
U.S. Bancorp 28,600 1,000,142
United Overseas Bank Ltd. 83,000 1,148,865
Westpac Banking Corp. 54,848 1,169,348
------------------------------------------ ------ ----------
Commercial Banks Total 13,615,180
Consumer Finance - 0.8% ORIX Corp. 2,700 703,412
------------------------------------------ ------ ----------
Consumer Finance Total 703,412
Diversified Financial CIT Group, Inc. 14,600 772,632
Services - 4.7% Citigroup, Inc. 24,000 1,232,160
ING Groep NV 26,676 1,127,852
JPMorgan Chase & Co. 28,600 1,383,668
------------------------------------------ ------ ----------
Diversified Financial Services Total 4,516,312
Insurance - 2.5% ACE Ltd. 8,300 473,598
Aviva PLC 32,000 471,339
Axis Capital Holdings Ltd. 14,000 474,040
Hartford Financial Services Group, Inc. 10,000 955,800
------------------------------------------ ------ ----------
Insurance Total 2,374,777
Real Estate Management & Sun Hung Kai Properties Ltd. 34,000 392,936
Development - 0.4% ------------------------------------------------------------
Real Estate Management & Development Total 392,936
Financials Total 24,497,248
Health Care - 10.7%
Biotechnology - 0.3% Vertex Pharmaceuticals, Inc. (a) 10,500 294,420
------------------------------------------ ------ ----------
Biotechnology Total 294,420
Health Care Equipment & Cytyc Corp. (a) 14,000 478,940
Supplies - 1.0% Zimmer Holdings, Inc. (a) 5,900 503,919
------------------------------------------ ------ ----------
Health Care Equipment & Supplies Total 982,859
Health Care Providers & CIGNA Corp. 3,400 485,044
Services - 2.7% Coventry Health Care, Inc. (a) 8,500 476,425
Laboratory Corp. of America Holdings (a) 5,000 363,150
McKesson Corp. 12,000 702,480
OPG Groep NV 4,200 525,991
------------------------------------------ ------ ----------
Health Care Providers & Services Total 2,553,090
Life Sciences Tools & Covance, Inc. (a) 4,000 237,360
Services - 1.0% Waters Corp. (a) 12,500 725,000
------------------------------------------ ------ ----------
Life Sciences Tools & Services Total 962,360
Pharmaceuticals - 5.7% AstraZeneca PLC 8,677 466,831
Biovail Corp. 23,400 511,524
Eisai Co., Ltd. 9,400 450,696
Johnson & Johnson 5,500 331,430
See Accompanying Notes to Financial Statements.
9
Columbia World Equity Fund
March 31, 2007
Common Stocks (continued)
Shares Value ($)
Health Care (continued)
Pharmaceuticals (continued) Merck & Co., Inc. 14,700 649,299
Novartis AG, Registered Shares 15,750 903,407
Ono Pharmaceutical Co., Ltd. 12,800 716,904
Pfizer, Inc. 28,000 707,280
Takeda Pharmaceutical Co., Ltd. 11,200 734,691
---------------------------------------- ------ ----------
Pharmaceuticals Total 5,472,062
Health Care Total 10,264,791
Industrials - 11.4%
Aerospace & Defense - 3.3% General Dynamics Corp. 12,200 932,080
Rolls-Royce Group PLC (b) 83,600 813,102
Saab AB, Class B 25,000 673,082
United Technologies Corp. 11,200 728,000
---------------------------------------- ------ ----------
Aerospace & Defense Total 3,146,264
Building Products - 0.7% Geberit AG, Registered Shares 450 692,507
---------------------------------------- ------ ----------
Building Products Total 692,507
Commercial Services & Dun & Bradstreet Corp. 8,800 802,560
Supplies - 3.1% Equifax, Inc. 20,000 729,000
Republic Services, Inc. 17,100 475,722
Waste Management, Inc. 29,200 1,004,772
---------------------------------------- ------ ----------
Commercial Services & Supplies Total 3,012,054
Electrical Equipment - 0.7% Schneider Electric SA 5,400 685,508
---------------------------------------- ------ ----------
Electrical Equipment Total 685,508
Machinery - 3.0% Eaton Corp. 9,600 802,176
Heidelberger Druckmaschinen AG 17,100 783,516
SKF AB, Class B 33,000 686,437
Volvo AB, Class B 7,000 589,448
---------------------------------------- ------ ----------
Machinery Total 2,861,577
Road & Rail - 0.6% Central Japan Railway Co. 46 523,082
---------------------------------------- ------ ----------
Road & Rail Total 523,082
Industrials Total 10,920,992
Information Technology - 10.5%
Communications Equipment - 1.0% Cisco Systems, Inc. (a) 36,700 936,951
---------------------------------------- ------ ----------
Communications Equipment Total 936,951
Computers & Peripherals - 3.4% Apple, Inc. (a) 7,500 696,825
Hewlett-Packard Co. 30,700 1,232,298
International Business Machines Corp. 14,600 1,376,196
---------------------------------------- ------ ----------
Computers & Peripherals Total 3,305,319
Electronic Equipment & Kyocera Corp. 9,200 867,379
Instruments - 0.9% ----------------------------------------------------------
Electronic Equipment & Instruments Total 867,379
See Accompanying Notes to Financial Statements.
10
Columbia World Equity Fund
March 31, 2007
Common Stocks (continued)
Shares Value ($)
Information Technology (continued)
IT Services - 1.6% Accenture Ltd., Class A 14,000 539,560
CGI Group, Inc., Class A (a) 70,000 605,110
Nomura Research Institute Ltd. 12,000 353,361
------------------------------------------------- ------ ----------
IT Services Total 1,498,031
Office Electronics - 0.8% Brother Industries Ltd. 55,400 750,326
------------------------------------------------- ------ ----------
Office Electronics Total 750,326
Semiconductors & Semiconductor Intersil Corp., Class A 9,000 238,410
Equipment - 1.7% MEMC Electronic Materials, Inc. (a) 10,000 605,800
NVIDIA Corp. (a) 10,000 287,800
Taiwan Semiconductor Manufacturing Co., Ltd., ADR 50,193 539,575
------------------------------------------------- ------ ----------
Semiconductors & Semiconductor Equipment Total 1,671,585
Software - 1.1% Autodesk, Inc. (a) 11,500 432,400
Microsoft Corp. 21,200 590,844
------------------------------------------------- ------ ----------
Software Total 1,023,244
Information Technology Total 10,052,835
Materials - 4.8%
Chemicals - 2.8% Air Products & Chemicals, Inc. 6,600 488,136
BASF AG 10,219 1,150,511
Dow Chemical Co. 12,700 582,422
Linde AG 4,700 506,360
------------------------------------------------- ------ ----------
Chemicals Total 2,727,429
Metals & Mining - 2.0% JFE Holdings, Inc. 10,000 591,480
Nucor Corp. 7,800 508,014
Salzgitter AG 5,506 804,070
------------------------------------------------- ------ ----------
Metals & Mining Total 1,903,564
Materials Total 4,630,993
Telecommunication Services - 3.1%
Diversified Telecommunication Belgacom SA 21,543 956,876
Services - 3.1% Citizens Communications Co. 35,000 523,250
France Telecom SA 19,901 525,581
Nippon Telegraph & Telephone Corp. 107 565,691
Telefonica O2 Czech Republic AS 15,000 390,658
------------------------------------------------- ------ ----------
Diversified Telecommunication Services Total 2,962,056
Telecommunication Services Total 2,962,056
Utilities - 4.7%
Electric Utilities - 3.0% British Energy Group PLC (a) 52,000 498,594
E.ON AG 7,553 1,026,927
Edison International 10,700 525,691
FirstEnergy Corp. 12,100 801,504
------------------------------------------------- ------ ----------
Electric Utilities Total 2,852,716
See Accompanying Notes to Financial Statements.
11
Columbia World Equity Fund
March 31, 2007
Common Stocks (continued)
Shares Value ($)
Utilities (continued)
Gas Utilities - 0.7% Tokyo Gas Co., Ltd. 114,000 635,591
------------------------------------------------------ ------- ----------
Gas Utilities Total 635,591
Multi-Utilities - 1.0% PG&E Corp. 20,900 1,008,843
------------------------------------------------------ ------- ----------
Multi-Utilities Total 1,008,843
Utilities Total 4,497,150
Total Common Stocks
(cost of $79,495,720) 94,944,246
Par ($)
Short-Term Obligation - 0.6%
Repurchase agreement with Fixed Income Clearing Corp.,
dated 03/30/07, due 04/02/07 at 5.060%,
collateralized by a U.S. Treasury Obligation maturing
05/31/11, market value of $595,950 (repurchase
proceeds $580,245) 580,000 580,000
------------------------------------------------------ ------- ----------
Total Short-Term Obligation (cost of $580,000) 580,000
------------------------------------------------------ ------- ----------
Total Investments - 99.7% (cost of $80,075,720)(c) 95,524,246
------------------------------------------------------ ------- ----------
Other Assets & Liabilities, Net - 0.3% 302,142
------------------------------------------------------ ------- ----------
Net Assets - 100.0% 95,826,388
Notes to Investment Portfolio:
(a)Non-income producing security.
(b)Represents fair value as determined in good faith
under procedures approved by the Board of
Trustees.
(c)Cost for federal income tax purposes is
$80,447,196.
At March 31, 2007, the Fund had entered into the
following forward currency exchange contracts:
Aggregate Unrealized
Forward Currency Face Settlement Appreciation
Contracts to Buy Value Value Date (Depreciation)
---------------- ----- --------- ---------- --------------
AUD $1,445,158 $1,444,979 06/28/07 $ 179
CAD 1,442,472 1,436,926 06/28/07 5,546
CAD 285,716 284,849 06/28/07 867
CHF 1,337,368 1,343,086 06/28/07 (5,718)
GBP 3,269,165 3,267,957 06/28/07 1,208
NOK 380,433 379,778 06/28/07 655
-------
$ 2,737
=======
Aggregate Unrealized
Forward Currency Face Settlement Appreciation
Contracts to Sell Value Value Date (Depreciation)
----------------- ----- --------- ---------- --------------
CZK $ 286,295 $ 286,973 06/28/07 $ 678
DKK 95,314 95,142 06/28/07 (172)
EUR 2,156,794 2,161,048 06/28/07 4,254
EUR 380,690 380,350 06/28/07 (340)
JPY 188,373 188,061 06/28/07 (312)
NOK 579,141 576,593 06/28/07 (2,548)
SEK 1,097,975 1,102,490 06/28/07 4,515
SGD 578,008 578,518 06/28/07 510
TWD 477,609 477,614 06/28/07 5
ZAR 192,769 194,156 06/28/07 1,387
-------
$ 7,977
=======
See Accompanying Notes to Financial Statements.
12
Columbia World Equity Fund
March 31, 2007
The Fund was invested in the following countries
at March 31, 2007:
% of Total
Country (Unaudited) Value Investments
------------------- ----- -----------
United States* $46,270,078 48.4
Japan 10,555,401 11.0
United Kingdom 7,570,567 7.9
France 5,947,849 6.2
Germany 5,400,044 5.7
Sweden 2,465,594 2.6
Netherlands 2,192,655 2.3
Spain 1,874,430 2.0
Switzerland 1,595,914 1.7
Canada 1,578,219 1.7
Bermuda 1,364,860 1.4
Australia 1,169,348 1.2
Singapore 1,148,865 1.2
Ireland 1,010,417 1.1
Belgium 956,876 1.0
Italy 712,166 0.7
Taiwan 539,575 0.6
Finland 528,071 0.6
Denmark 516,418 0.5
China 474,051 0.5
Norway 462,300 0.5
South Africa 406,954 0.4
Hong Kong 392,935 0.4
Czech Republic 390,659 0.4
----------- -----
$95,524,246 100.0
=========== =====
* Includes short-term obligation.
Certain securities are listed by country of
underlying exposure but may trade predominantly
on other exchanges.
Acronym Name
------- ----
ADR American Depositary Receipt
AUD Australian Dollar
CAD Canadian Dollar
CHF Swiss Franc
CZK Czech Koruna
DKK Danish Krone
EUR Euro Currency
GBP Great Britain Pound
JPY Japanese Yen
NOK Norwegian Krone
SEK Swedish Krona
SGD Singapore Dollar
TWD Taiwan Dollar
ZAR South African Rand
See Accompanying Notes to Financial Statements.
13
Statement of Assets and Liabilities - Columbia World Equity Fund
March 31, 2007
($)
Assets Investments, at cost 80,075,720
----------
Investments, at value 95,524,246
Cash 8,987
Foreign currency (cost of $17,088) 17,055
Unrealized appreciation on foreign forward currency contracts 19,804
Receivable for:
Investments sold 1,248,543
Fund shares sold 216,002
Interest 163
Dividends 314,778
Foreign tax reclaims 40,881
Deferred Trustees' compensation plan 24,378
------------------------------------------------------------- ----------
Total Assets 97,414,837
Liabilities Unrealized depreciation on foreign forward currency contracts 9,090
Payable for:
Investments purchased 1,329,586
Fund shares repurchased 49,150
Investment advisory fee 33,422
Administration fee 20,844
Transfer agent fee 27,631
Pricing and bookkeeping fees 10,015
Audit fee 24,910
Custody fee 4,802
Reports to shareholders 23,303
Distribution and service fees 26,300
Chief compliance officer expenses 1,551
Deferred Trustees' fees 24,378
Other liabilities 3,467
------------------------------------------------------------- ----------
Total Liabilities 1,588,449
------------------------------------------------------------- ----------
Net Assets 95,826,388
Composition of Net Assets Paid-in capital 75,738,590
Overdistributed net investment income (316,730)
Accumulated net realized gain 4,936,961
Net unrealized appreciation (depreciation) on:
Investments 15,448,526
Foreign currency translations 19,041
------------------------------------------------------------- ----------
Net Assets 95,826,388
See Accompanying Notes to Financial Statements.
14
Statement of Assets and Liabilities (continued) - Columbia World Equity Fund
March 31, 2007
Class A Net assets $86,237,152
Shares outstanding 5,571,938
Net asset value per share $ 15.48(a)(c)
Maximum sales charge 5.75%
Maximum offering price per share $ 16.42(b)
Class B
Net assets $ 8,445,299
Shares outstanding 568,170(a)(c)
Net asset value and offering price per share $ 14.86
Class C
Net assets $ 1,143,937
Shares outstanding 77,079
Net asset value and offering price per share $ 14.84(a)(c)
(a)Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b)On sales of $50,000 or more the offering price is reduced.
(c)Redemption price per share is equal to net asset value less any applicable
redemption fees.
See Accompanying Notes to Financial Statements.
15
Statement of Operations - Columbia World Equity Fund
For the Year Ended March 31, 2007
($)
Investment Income Dividends (net of foreign taxes withheld of $142,779) 2,128,428
Interest 34,531
----------------------------------------------------- ----------
Total Investment Income 2,162,959
Expenses Investment advisory fee 379,910
Administration fee 237,444
Distribution fee:
Class B 80,064
Class C 9,826
Service fee:
Class A 207,468
Class B 26,688
Class C 3,276
Transfer agent fee 222,182
Pricing and bookkeeping fees 80,018
Trustees' fees 14,681
Custody fee 22,925
Audit fee 48,784
Reports to shareholders 81,616
Chief compliance officer expenses 5,044
Other expenses 63,900
----------------------------------------------------- ----------
Total Expenses 1,483,826
Custody earnings credit (61)
----------------------------------------------------- ----------
Net Expenses 1,483,765
----------------------------------------------------- ----------
Net Investment Income 679,194
Net Realized and Unrealized Gain Net realized gain (loss) on:
(Loss) on Investments Investments 8,249,496
and Foreign Currency Foreign currency transactions (68,595)
----------------------------------------------------- ----------
Net realized gain 8,180,901
Net change in unrealized appreciation on:
Investments 4,331,381
Foreign currency translations 17,278
----------------------------------------------------- ----------
Net change in unrealized appreciation 4,348,659
----------------------------------------------------- ----------
Net Gain 12,529,560
----------------------------------------------------- ----------
Net Increase Resulting from Operations 13,208,754
See Accompanying Notes to Financial Statements.
16
Statement of Changes in Net Assets - Columbia World Equity Fund
Year Year
Ended Ended
March 31, March 31,
Increase (Decrease) in Net Assets 2007 ($) 2006 ($)
Operations Net investment income 679,194 596,244
Net realized gain on investments and foreign
currency transactions 8,180,901 12,088,067
Net change in unrealized appreciation on
investments and foreign currency translations 4,348,659 3,805,985
----------------------------------------------- ----------- -----------
Net Increase Resulting from Operations 13,208,754 16,490,296
Distributions Declared to From net investment income:
Shareholders Class A (1,024,302) (355,963)
Class B (28,835) --
Class C (4,103) --
From net realized gains:
Class A (3,149,348) --
Class B (390,540) --
Class C (52,844) --
----------------------------------------------- ----------- -----------
Total Distributions Declared to Shareholders (4,649,972) (355,963)
Share Transactions Class A:
Subscriptions 5,944,109 3,181,622
Distributions reinvested 3,937,893 330,610
Redemptions (12,927,605) (13,726,851)
----------------------------------------------- ----------- -----------
Net Decrease (3,045,603) (10,214,619)
Class B:
Subscriptions 656,257 787,351
Distributions reinvested 387,228 --
Redemptions (7,024,664) (5,860,586)
----------------------------------------------- ----------- -----------
Net Decrease (5,981,179) (5,073,235)
Class C:
Subscriptions 298,635 272,321
Distributions reinvested 51,853 --
Redemptions (603,486) (258,500)
----------------------------------------------- ----------- -----------
Net Increase (Decrease) (252,998) 13,821
Net Decrease from Share Transactions (9,279,780) (15,274,033)
Redemption fees 1,231 1,440
----------------------------------------------- ----------- -----------
Total Increase (Decrease) in Net Assets (719,767) 861,740
Net Assets Beginning of period 96,546,155 95,684,415
End of period 95,826,388 96,546,155
Undistributed (overdistributed) net investment
income at end of period (316,730) 123,109
----------------------------------------------- ----------- -----------
See Accompanying Notes to Financial Statements.
17
Statement of Changes in Net Assets (continued) - Columbia World Equity Fund
Year Year
Ended Ended
March 31, March 31,
2007 2006
Changes in Shares Class A:
Subscriptions 404,295 246,284
Distributions reinvested 266,554 24,674
Redemptions (879,432) (1,074,033)
------------------------- --------- ----------
Net Decrease (208,583) (803,075)
Class B:
Subscriptions 46,447 65,580
Distributions reinvested 27,336 --
Redemptions (500,847) (475,315)
------------------------- --------- ----------
Net Decrease (427,064) (409,735)
Class C:
Subscriptions 21,206 21,571
Distributions reinvested 3,647 --
Redemptions (42,704) (20,454)
------------------------- --------- ----------
Net Increase (Decrease) (17,851) 1,117
See Accompanying Notes to Financial Statements.
18
Financial Highlights - Columbia World Equity Fund
Selected data for a share outstanding throughout each period is as follows:
Class A Shares
Period Year Ended
Year Ended March 31, Ended October 31,
------------------------------ March 31, -------------------
2007 2006 2005 2004 (a) 2003 2002
- ------------------------------------------------------------------------------------------- ---------------------
Net Asset Value, Beginning of Period $ 14.14 $ 11.92 $ 11.09 $ 10.19 $ 8.12 $ 10.36
Income from Investment Operations:
Net investment income (loss) (b) 0.12 0.10 0.07(c) (0.02) 0.01 0.02
Net realized and unrealized gain (loss) on investments,
foreign currency and foreign capital gains tax 1.97 2.18 0.81 0.92 2.06 (2.26)
------- ------- ------- ------- ------- -------
Total from Investment Operations 2.09 2.28 0.88 0.90 2.07 (2.24)
Less Distributions Declared to Shareholders:
From net investment income (0.18) (0.06) (0.05) -- -- --
From net realized gains (0.57) -- -- -- -- --
------- ------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (0.75) (0.06) (0.05) -- -- --
Redemption Fees:
Redemption fees added to paid-in-capital --(d) --(d) --(d) -- -- --
Net Asset Value, End of Period $ 15.48 $ 14.14 $ 11.92 $ 11.09 $ 10.19 $ 8.12
Total return (e) 15.11% 19.15%(f) 7.99% 8.83%(g) 25.49%(f) (21.62)%
Ratios to Average Net Assets/Supplemental Data:
Net expenses (h) 1.47% 1.51% 1.56% 1.64%(i) 1.66% 1.57%
Net investment income (loss) (h) 0.80% 0.76% 0.59% (0.34)%(i) 0.13% 0.17%
Waiver/Reimbursement -- 0.03% -- -- 0.03% --
Portfolio turnover rate 85% 62% 68% 57 %(g) 95% 59%
Net assets, end of period (000's) $86,237 $81,746 $78,479 $84,393 $82,366 $79,227
(a)The Fund changed its fiscal year end from October 31 to March 31.
(b)Per share data was calculated using the average shares outstanding during
the period.
(c)Net investment income per share reflects a special dividend which amounted
to $0.03 per share.
(d)Rounds to less than $0.01.
(e)Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(f)Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g)Not annualized.
(h)The benefits derived from custody credits had an impact of less than 0.01%.
(i)Annualized.
See Accompanying Notes to Financial Statements.
19
Financial Highlights - Columbia World Equity Fund
Selected data for a share outstanding throughout each period is as follows:
Class B Shares
Period Year Ended
Year Ended March 31, Ended October 31,
----------------------------- March 31, -------------------
2007 2006 2005 2004 (a) 2003 2002
- ------------------------------------------------------------------------------------------- ---------------------
Net Asset Value, Beginning of Period $13.58 $ 11.48 $ 10.71 $ 9.87 $ 7.93 $ 10.19
Income from Investment Operations:
Net investment income (loss) (b) 0.02 --(c) (0.02)(d) (0.05) (0.05) (0.05)
Net realized and unrealized gain (loss) on investments,
foreign currency and foreign capital gains tax 1.87 2.10 0.79 0.89 1.99 (2.21)
------ ------- ------- ------- ------- -------
Total from Investment Operations 1.89 2.10 0.77 0.84 1.94 (2.26)
Less Distributions Declared to Shareholders:
From net investment income (0.04) -- -- -- -- --
From net realized gains (0.57) -- -- -- -- --
------ ------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (0.61) -- -- -- -- --
Redemption Fees:
Redemption fees added to paid-in-capital --(c) --(c) --(c) -- -- --
Net Asset Value, End of Period $14.86 $ 13.58 $ 11.48 $ 10.71 $ 9.87 $ 7.93
Total return (e) 14.17% 18.29%(f) 7.19% 8.51%(g) 24.46%(f) (22.18)%
Ratios to Average Net Assets/Supplemental Data:
Net expenses (h) 2.22% 2.26% 2.31% 2.39%(i) 2.41% 2.32%
Net investment income (loss) (h) 0.11% 0.01% (0.16)% (1.09)%(i) (0.62)% (0.58)%
Waiver/Reimbursement -- 0.03% -- -- 0.03% --
Portfolio turnover rate 85% 62% 68% 57 %(g) 95% 59%
Net assets, end of period (000's) $8,445 $13,513 $16,129 $19,896 $20,086 $20,311
(a)The Fund changed its fiscal year end from October 31 to March 31.
(b)Per share data was calculated using the average shares outstanding during
the period.
(c)Rounds to less than $0.01.
(d)Net investment loss per share reflects a special dividend which amounted to
$0.03 per share.
(e)Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(f)Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g)Not annualized.
(h)The benefits derived from custody credits had an impact of less than 0.01%.
(i)Annualized.
See Accompanying Notes to Financial Statements.
20
Financial Highlights - Columbia World Equity Fund
Selected data for a share outstanding throughout each period is as follows:
Class C Shares
Period Year Ended
Year Ended March 31, Ended October 31,
--------------------------- March 31, ------------------
2007 2006 2005 2004 (a) 2003 2002
- ------------------------------------------------------------------------------------------------- --------------------
Net Asset Value, Beginning of Period $13.56 $11.47 $10.70 $ 9.86 $ 7.93 $ 10.20
Income from Investment Operations:
Net investment income (loss) (b) --(c) --(c) (0.02)(d) (0.05) (0.05) (0.05)
Net realized and unrealized gain (loss) on investments, foreign
currency and foreign capital gains tax 1.89 2.09 0.79 0.89 1.98 (2.22)
------ ------ ------ ------ ------ -------
Total from Investment Operations 1.89 2.09 0.77 0.84 1.93 (2.27)
Less Distributions Declared to Shareholders:
From net investment income (0.04) -- -- -- -- --
From net realized gains (0.57) -- -- -- -- --
------ ------ ------ ------ ------ -------
Total Distributions Declared to Shareholders (0.61) -- -- -- -- --
Redemption Fees:
Redemption fees added to paid-in-capital --(c) --(c) --(c) -- -- --
Net Asset Value, End of Period $14.84 $13.56 $11.47 $10.70 $ 9.86 $ 7.93
Total return (e) 14.19% 18.22%(f) 7.20% 8.52%(g) 24.34%(f) (22.25)%
Ratios to Average Net Assets/Supplemental Data:
Net expenses (h) 2.22% 2.26% 2.31% 2.39%(i) 2.41% 2.32%
Net investment income (loss) (h) 0.02% --%(j) (0.16)% (1.09)%(i) (0.62)% (0.58)%
Waiver/Reimbursement -- 0.03% -- -- 0.03% --
Portfolio turnover rate 85% 62% 68% 57%(g) 95% 59%
Net assets, end of period (000's) $1,144 $1,287 $1,076 $1,129 $1,017 $ 1,041
(a)The Fund changed its fiscal year end from October 31 to March 31.
(b)Per share data was calculated using the average shares outstanding during
the period.
(c)Rounds to less than $0.01.
(d)Net investment loss per share reflects a special dividend which amounted to
$0.03 per share.
(e)Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(f)Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g)Not annualized.
(h)The benefits derived from custody credits had an impact of less than 0.01%.
(i)Annualized.
(j)Rounds to less than 0.01%.
See Accompanying Notes to Financial Statements.
21
Notes to Financial Statements - Columbia World Equity Fund
March 31, 2007
Note 1. Organization
Columbia World Equity Fund (the "Fund"), a series of Columbia Funds Series
Trust I (the "Trust"), is a diversified portfolio. The Trust is a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company.
Investment Goal
The Fund seeks long-term growth by investing primarily in global equities.
Fund Shares
The Fund may issue an unlimited number of shares and offers three classes of
shares: Class A, Class B and Class C. Each share class has its own sales charge
and expense structure.
Class A shares are subject to a maximum front-end sales charge of 5.75% based
on the amount of initial investment. Class A shares purchased without an
initial sales charge in accounts aggregating $1 million to $50 million at the
time of purchase are subject to a contingent deferred sales charge ("CDSC") of
1.00% if the shares are sold within twelve months of the time of the purchase.
Class B shares are subject to a maximum CDSC of 5.00% based upon the holding
period after purchase. Class B shares will convert to Class A shares eight
years after purchase. Class C shares are subject to a 1.00% CDSC on shares sold
within one year after purchase.
Note 2. Significant Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP") requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
Security Valuation
Equity securities are valued at the last sale price on the principal exchange
on which they trade, except for securities traded on the NASDAQ, which are
valued at the NASDAQ official close price. Unlisted securities or listed
securities for which there were no sales during the day are valued at the
closing bid price on such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Forward currency exchange contracts are valued at the prevailing forward
exchange rates of the underlying currencies.
Foreign securities are generally valued at the last sale price on the foreign
exchange or market on which they trade. If any foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local shares in the principal market in
which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange ("NYSE"). The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
generally determined
at 4:00 p.m. Eastern (U.S.) time. Occasionally, events affecting the values of
such foreign securities and such exchange rates may occur between the times at
which they are determined and the close of the customary trading session of the
NYSE, which would not be reflected in the computation of the Fund's net asset
value. If events materially affecting the values of such foreign securities
occur and it is determined that market quotations are not reliable, then these
foreign securities will be valued at their fair value using procedures approved
by the Board of Trustees. The Fund may use a systematic fair valuation model
provided by an independent third party to value securities principally traded
in foreign markets in order to adjust for possible stale pricing that may occur
between the close of the foreign exchanges and the time for valuation. If a
security is valued at a "fair value", such value is likely to be different from
the last quoted market price for the security.
Investments for which market quotations are not readily available, or that have
quotations which management believes are not appropriate, are valued at fair
value as determined in good faith under consistently applied
22
Columbia World Equity Fund
March 31, 2007
procedures established by and under the general supervision of the Board of
Trustees.
In September 2006, Statement of Financial Accounting Standards No. 157, Fair
Value Measurements ("SFAS 157"), was issued. SFAS 157 is effective for fiscal
years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is evaluating the impact the application of
SFAS 157 will have on the Fund's financial statement disclosures.
Security Transactions
Security transactions are accounted for on the trade date. Cost is determined
and gains (losses) are based upon the specific identification method for both
financial statement and federal income tax purposes.
Forward Foreign Currency Exchange Contracts
Forward foreign currency exchange contracts are agreements to exchange one
currency for another at a future date at a specified price. These contracts are
used to minimize the exposure to foreign exchange rate fluctuations during the
period between trade and settlement date. The Fund may utilize forward foreign
currency exchange contracts in connection with the settlement of purchases and
sales of securities. The Fund may also enter into these contracts to hedge
certain other foreign currency denominated assets. Contracts to buy generally
are used to acquire exposure to foreign currencies, while contracts to sell are
used to hedge the Fund's investments against currency fluctuations. Forward
currency contracts are valued daily at the current exchange rate of the
underlying currency, resulting in unrealized gains (losses) which become
realized at the time the foreign currency contracts are closed or mature.
Realized and unrealized gains (losses) arising from such transactions are
included in net realized and unrealized gains (losses) on foreign currency
transactions. The use of forward currency contracts does not eliminate
fluctuations in the prices of the Fund's portfolio securities. Although the
maximum potential loss from such contracts is the aggregate face value in U.S.
dollars at the time the contract was opened, exposure is typically limited to
the change in value of the contract (in U.S. dollars) over the period it
remains open. The Fund could also be exposed to risk if the counterparties of
the contracts are unable to fulfill the terms of the contracts.
Repurchase Agreements
The Fund may engage in repurchase agreement transactions with institutions that
Columbia Management Advisors, LLC ("Columbia") has determined are creditworthy.
The Fund, through its custodian, receives delivery of underlying securities
collateralizing a repurchase agreement. Columbia is responsible for determining
that collateral is at least equal, at all times, to the value of the repurchase
obligation including interest. A repurchase agreement transaction involves
certain risks in the event of default or insolvency of the counterparty. These
risks include possible delays or restrictions upon the Fund's ability to
dispose of the underlying securities and a possible decline in the value of the
underlying securities during the period while the Fund seeks to assert its
rights.
Income Recognition
Interest income is recorded on the accrual basis. Corporate actions and
dividend income are recorded on the ex-date, except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware
of such, net of non-reclaimable tax withholdings.
Foreign Currency Transactions
The values of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates. Net realized and
unrealized gains (losses) on foreign currency transactions include gains
(losses) arising from the fluctuation in exchange rates between trade and
settlement dates on securities transactions, gains (losses) arising from the
disposition of foreign currency and currency gains (losses) between the accrual
and payment dates on dividends, interest income and foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of
gains (losses) on investments which is due to changes in foreign exchange rates
from that which is due to changes in market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains (losses)
on investments in the Statement of Operations.
Determination of Class Net Asset Values
All income, expenses (other than class-specific expenses, as shown on the
Statement of Operations) and realized and unrealized gains (losses) are
allocated to each class of the
23
Columbia World Equity Fund
March 31, 2007
Fund on a daily basis, based on the relative net assets of each class, for
purposes of determining the net asset value of each class.
Federal Income Tax Status
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code, as amended, and will distribute
substantially all of its taxable income, if any, for its tax year, and as such
will not be subject to federal income taxes. In addition, the Fund intends to
distribute in each calendar year substantially all of its net investment
income, capital gains and certain other amounts, if any, such that the Fund
should not be subject to federal excise tax. Therefore, no federal income or
excise tax provision is recorded.
Distributions to Shareholders
Distributions to shareholders are recorded on ex-date. Net realized capital
gains, if any, are distributed at least annually.
Indemnification
In the normal course of business, the Fund enters into contracts that contain a
variety of representations and warranties and which provide general
indemnities. The Fund's maximum exposure under these arrangements is unknown,
as this would involve future claims against the Fund. Also, under the Fund's
organizational documents and by contract, the trustees and officers of the
Trust are indemnified against certain liabilities that may arise out of their
duties to the Trust. However, based on experience, the Fund expects the risk of
loss due to these representations, warranties and indemnities to be minimal.
Note 3. Federal Tax Information
The timing and character of income and capital gain distributions are
determined in accordance with income tax regulations, which may differ from
GAAP. Reclassifications are made to the Fund's capital accounts for permanent
tax differences to reflect income and gains available for distribution (or
available capital loss carryforwards) under income tax regulations.
For the year ended March 31, 2007, permanent book and tax basis differences
resulting primarily from differing treatments for foreign currency transactions
were identified and reclassified among the components of the Fund's net assets
as follows:
Overdistributed Accumulated
Net Investment Net Realized
Income Gain Paid-In Capital
$(61,793) $(339,734) $401,527
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended March 31, 2007
and March 31, 2006 was as follows:
March 31, 2007 March 31, 2006
Distributions paid from:
Ordinary Income* $2,012,765 $355,963
Long-Term Capital
Gains 2,637,207 --
*For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
As of March 31, 2007, the components of distributable earnings on a tax basis
were as follows:
Undistributed Undistributed Net
Ordinary Long-Term Unrealized
Income Capital Gains Appreciation*
$1,515,270 $3,512,454 $15,077,050
*The differences between book-basis and tax-basis net unrealized
appreciation/depreciation are primarily due to passive foreign investment
company mark to market.
Unrealized appreciation and depreciation at March 31, 2007, based on cost of
investments for federal income tax purposes were:
Unrealized appreciation $15,870,029
Unrealized depreciation (792,979)
Net unrealized appreciation $15,077,050
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109 (the "Interpretation"). This
Interpretation is effective on the last business day of the semiannual
reporting period for fiscal years beginning after December 15,
24
Columbia World Equity Fund
March 31, 2007
2006 and is to be applied to open tax positions upon initial
adoption. This Interpretation prescribes a minimum recognition threshold and
measurement method for the financial statement recognition of tax positions
taken or expected to be taken in a tax return and also requires certain
expanded disclosures. Management is evaluating the application of this
Interpretation to the Fund and has not at this time quantified the impact, if
any, resulting from the adoption of this Interpretation on the Fund's financial
statements.
Note 4. Fees and Compensation Paid to Affiliates
Investment Advisory Fee
Columbia, an indirect, wholly-owned subsidiary of Bank of America Corporation
("BOA"), is the investment advisor to the Fund. Columbia receives a monthly
investment advisory fee based on the Fund's average daily net assets at the
following annual rates:
Average Daily Net Assets Annual Fee Rate
First $1 billion 0.40%
Over $1 billion 0.35%
For the year ended March 31, 2007, the Fund's effective investment advisory fee
rate was 0.40% of the Fund's average daily net assets.
Administration Fee
Columbia provides administrative and other services to the Fund for a monthly
administration fee at the annual rate of 0.25% of the Fund's average daily net
assets.
Pricing and Bookkeeping Fees
Effective December 15, 2006, the Fund entered into a financial reporting
services agreement with State Street Bank & Trust Company ("State Street") and
Columbia (the "Financial Reporting Services Agreement") pursuant to which State
Street provides financial reporting services to the Fund. Also effective
December 15, 2006, the Fund entered into an accounting services agreement with
State Street and Columbia (collectively with the Financial Reporting Services
Agreement, the "State Street Agreements") pursuant to which State Street
provides accounting services to the Fund. Under the State Street Agreements,
the Fund pays State Street an annual fee of $38,000 paid monthly plus an
additional monthly fee based on an annualized percentage rate of average daily
net assets of the Fund for the month. Under the State Street Agreements, the
combined fee payable to State Street by the Fund will not exceed $140,000
annually. The Fund also reimburses State Street for certain out-of-pocket
expenses.
Effective December 15, 2006, the Fund entered into a Pricing and Bookkeeping
Oversight and Services Agreement (the "Services Agreement") with Columbia.
Under the Services Agreement, Columbia provides services related to Fund
expenses and the requirements of the Sarbanes-Oxley Act of 2002, and provides
oversight of the accounting and financial reporting services provided by State
Street. Under the Services Agreement, the Fund reimburses Columbia for
out-of-pocket expenses and direct internal costs relating to accounting
oversight and for services related to Fund expenses and the requirements of the
Sarbanes-Oxley Act of 2002.
Prior to December 15, 2006, Columbia was responsible for providing pricing and
bookkeeping services to the Fund under a pricing and bookkeeping agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia was
entitled to receive an annual fee at the rate structure described above under
the State Street Agreements. Under separate agreements between Columbia and
State Street, Columbia delegated certain functions to State Street. As a result
of the delegation, the total fees payable under the pricing and bookkeeping
agreement (other than certain reimbursements paid to Columbia and discussed
below) were paid to State Street. The Fund also reimbursed Columbia and State
Street for out-of-pocket expenses and charges, including fees payable to third
parties for pricing the Fund's portfolio securities and direct internal costs
incurred by Columbia in connection with providing fund accounting oversight and
monitoring and certain other services.
For the year ended March 31, 2007, the effective pricing and bookkeeping fee
rates for the Fund, inclusive of out-of-pocket expenses, was 0.084% of the
Fund's average daily net assets.
Transfer Agent Fee
Columbia Management Services, Inc. (the "Transfer Agent"), an affiliate of
Columbia and an indirect, wholly-owned subsidiary of BOA, provides shareholder
services to the Fund and has contracted with Boston Financial Data Services
25
Columbia World Equity Fund
March 31, 2007
("BFDS") to serve as sub-transfer agent. The Transfer Agent is entitled to
receive a fee for its services, paid monthly, at the annual rate of $17.00 per
open account plus reimbursement of certain sub-transfer agent fees paid by the
Transfer Agent (exclusive of BFDS fees) calculated based on assets held in
omnibus accounts and intended to recover the cost of payments to other parties
(including affiliates of BOA) for services to those accounts. The Transfer
Agent pays the fees of BFDS for services as sub-transfer agent and is not
entitled to reimbursements for such fees from the Fund. The Transfer Agent may
also retain, as additional compensation for its services, fees for wire,
telephone and redemption orders, IRA trustee agent fees and account transcript
fees due the Transfer Agent from shareholders of the Fund and credits (net of
bank charges) earned with respect to balances in accounts the Transfer Agent
maintains in connection with its services to the Fund. The Transfer Agent also
receives reimbursement for certain out-of-pocket expenses.
For the year ended March 31, 2007, the Fund's effective transfer agent fee
rate, inclusive of out-of-pocket expenses and sub-transfer agent fees, was
0.23% of the Fund's average daily net assets.
Underwriting Discounts, Service and Distribution Fees
Columbia Management Distributors, Inc. (the "Distributor"), an affiliate of
Columbia and an indirect, wholly-owned subsidiary of BOA, is the principal
underwriter of the Fund. For the year ended March 31, 2007, the Distributor has
retained net underwriting discounts of $30,912 on sales of the Fund's Class A
shares and net CDSC fees of $201, $15,816 and $520 on Class A, Class B and
Class C share redemptions, respectively.
The Fund has adopted a Rule 12b-1 plan (the "Plan") which allows the payment of
a monthly service fee to the Distributor at the annual rate of 0.25% of the
average daily net assets attributable to Class A, Class B and Class C shares of
the Fund. The Plan also requires the payment of a monthly distribution fee to
the Distributor at the annual rate of 0.75% of the average daily net assets
attributable to Class B and Class C shares only. This arrangement may be
modified or terminated by the distributor at any time.
The CDSC and the distribution fees received from the Plan are used principally
as repayment to the Distributor for amounts paid by the Distributor to dealers
who sold such shares.
Custody Credits
The Fund has an agreement with its custodian bank under which custody fees may
be reduced by balance credits. These credits are recorded as a reduction of
total expenses in the Statement of Operations. The Fund could have invested a
portion of the assets utilized in connection with the expense offset
arrangement in an income-producing asset if it had not entered into such an
agreement.
Fees Paid to Officers and Trustees
All officers of the Fund are employees of Columbia or its affiliates and, with
the exception of the Fund's Chief Compliance Officer, receive no compensation
from the Fund. The Board of Trustees has appointed a Chief Compliance Officer
to the Fund in accordance with federal securities regulations. The Fund, along
with other affiliated funds, pays its pro-rata share of the expenses associated
with the Chief Compliance Officer. The Fund's expenses for the Chief Compliance
Officer will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may
be terminated at any time. Obligations of the plan will be paid solely out of
the Fund's assets.
Other
Columbia provides certain services to the Fund related to the requirements of
the Sarbanes-Oxley Act of 2002. For the year ended March 31, 2007, the Fund
paid $2,875 to Columbia for such services. This amount is included in "Other
expenses" in the Statement of Operations.
Note 5. Portfolio Information
For the year ended March 31, 2007, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $80,751,487 and
$93,898,499, respectively.
Note 6. Shares of Beneficial Interest
As of March 31, 2007, one shareholder held 5.1% of the shares outstanding.
Subscription and redemption activity of this account may have a significant
effect on the operations of the Fund.
Note 7. Line of Credit
The Trust and other affiliated funds participate in a $350,000,000 committed
unsecured revolving line of credit and
26
Columbia World Equity Fund
March 31, 2007
a $150,000,000 uncommitted, unsecured line of credit, both provided by State
Street. Borrowings are available for temporary or emergency purposes.
Interest on the committed line of credit is charged to each participating fund
based on the fund's borrowings at a rate per annum equal to the Federal Funds
Rate plus 0.50%. In addition, a commitment fee of 0.10% per annum is accrued
and apportioned among the participating funds based on their pro-rata portion
of the unutilized committed line of credit. Interest on the uncommitted line of
credit is charged to each participating fund based on the fund's borrowings at
a variable rate per annum equal to the Federal Funds Rate plus a spread, as
determined and quoted by State Street at the time of the request for a loan. A
one-time structuring fee of $30,000 is also accrued and apportioned to each
fund participating in the uncommitted line of credit based on the average net
assets of the participating funds. In addition, if the uncommitted line of
credit is extended for an additional period, an annual administration fee of
$15,000 will be charged and apportioned among the participating fund. The
commitment fee and structuring fee are included in "Other expenses" in the
Statement of Operations.
For the year ended March 31, 2007, the Fund did not borrow under this
arrangement.
Note 8. Redemption Fees
The Fund imposes a 2.00% redemption fee to shareholders of the Fund who redeem
shares within 60 days of purchase. Redemption fees, which are retained by the
Fund, are accounted for as an addition to paid-in capital and are allocated to
each class proportionately for purposes of determining the net asset value of
each class. For the year ended March 31, 2007, the redemption fees for the
Class A, Class B, and Class C shares of the Fund amounted to $1,079, $135, and
$17, respectively.
Note 9. Disclosure of Significant Risks and Contingencies
Foreign Securities
There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities. These
risks may involve foreign currency exchange rate fluctuations, adverse
political and economic developments and the possible prevention of currency
exchange or other foreign governmental laws or restrictions. In addition, the
liquidity of foreign securities may be more limited than that of domestic
securities.
Investments in emerging market countries are subject to additional risk. The
risk of foreign investments is typically increased in less developed countries.
These countries are also more likely to experience high levels of inflation,
deflation or currency devaluation which could hurt their economies and
securities markets.
Sector Focus
Companies that are in different but closely related industries are sometimes
described as being in the same sector. Although the Fund does not intend to
focus on any particular sector, at times the Fund may have a large portion of
its assets invested in a particular sector. During such times, the Fund will
have greater exposure to the economic and market events affecting such sector
than if it were more broadly invested across multiple sectors.
Legal Proceedings
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged
into Banc of America Capital Management, LLC (now named Columbia Management
Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has
been renamed Columbia Management Distributors, Inc.) (the "Distributor")
(collectively, the "Columbia Group") entered into an Assurance of
Discontinuance with the New York Attorney General ("NYAG") (the "NYAG
Settlement") and consented to the entry of a cease-and-desist order by the
Securities and Exchange Commission ("SEC") (the "SEC Order") on matters
relating to mutual fund trading. The SEC Order and the NYAG Settlement are
referred to collectively as the "Settlements".
Under the terms of the SEC Order, the Columbia Group agreed, among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution
consultant (see below). The Columbia Funds have
27
Columbia World Equity Fund
March 31, 2007
also voluntarily undertaken to implement certain governance measures designed
to maintain the independence of their boards of trustees. The NYAG Settlement
also, among other things, requires Columbia and its affiliates to reduce
management fees for certain Columbia Funds (including the former Nations Funds)
and other mutual funds collectively by $32 million per year for five years, for
a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan that was developed by an independent distribution consultant
and approved by the SEC on April 6, 2007.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov.
A copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with the events described above, various parties have filed suit
against certain funds, the Trustees of the Columbia Funds, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America and
its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation
transferred these cases and cases against other mutual fund companies based on
similar allegations to the United States District Court in Maryland for
consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently,
additional related cases were transferred to the MDL. On September 29, 2004,
the plaintiffs in the MDL filed amended and consolidated complaints. One of
these amended complaints is a putative class action that includes claims under
the federal securities laws and state common law, and that names Columbia, the
Distributor, the Trustees of the Columbia Funds, Bank of America Corporation
and others as defendants. Another of the amended complaints is a derivative
action purportedly on behalf of the Columbia Funds that asserts claims under
federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss
the claims in the pending cases. On March 1, 2006, for reasons stated in the
court's memoranda dated November 3, 2005, the U.S. District Court for the
District of Maryland granted in part and denied in part the defendants' motions
to dismiss. The court dismissed all of the class action claims pending against
the Columbia Funds Trusts. As to Columbia and the Distributor, the claims under
the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the
Investment Company Act of 1940 ("ICA") and the state law claims were dismissed.
The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and claims under Section 36(b) of the ICA were not dismissed.
On March 21, 2005, a purported class action was filed in Massachusetts state
court alleging that certain conduct, including market timing, entitled Class B
shareholders in certain Columbia funds to an exemption from contingent deferred
sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit was
removed to federal court in Massachusetts and the federal Judicial Panel
transferred the CDSC Lawsuit to the MDL.
On April 4, 2006, the plaintiffs and the Columbia defendants named in the MDL,
including the Columbia Funds, entered into a term sheet containing the
principal terms of a stipulation of settlement that would settle all
Columbia-related claims in the MDL described above, including the CDSC Lawsuit.
On April 6, 2006, the U.S. District Court for the District of Maryland stayed
all actions with respect to these Columbia-related claims. The settlement is
subject to court approval.
In 2004, the Columbia Funds' adviser and distributor and certain affiliated
entities and individuals were named as defendants in certain purported
shareholder class and derivative actions making claims, including claims under
the Investment Company and the Investment Advisers Acts of 1940 and state law.
Certain Columbia Funds were named as nominal defendants. The suits allege,
inter alia, that the fees and expenses paid by the funds are excessive and that
the advisers and their affiliates inappropriately used fund assets to
distribute the funds and for other improper purposes. On March 2, 2005, the
actions were consolidated in the Massachusetts federal court as In re Columbia
Entities Litigation. The plaintiffs filed a consolidated amended complaint on
June 9, 2005. On November 30, 2005, the judge dismissed all claims by
plaintiffs and entered final judgment in favor of the defendants. The
plaintiffs appealed to the United States Court of Appeals for the First Circuit
on December 30, 2005. A stipulation and settlement agreement dated January 19,
2007 was filed in the First Circuit on February 14, 2007, with a joint
stipulation of dismissal and
28
Columbia World Equity Fund
March 31, 2007
motion for remand to obtain district court approval of the settlement. That
joint motion was granted and the appeal was dismissed. On March 6, 2007, the
case was remanded to the District Court. On May 11, 2007, the District Court
entered a preliminary approval order which granted preliminary approval of the
settlement. A final settlement hearing, at which the District Court will
determine whether the proposed settlement should be finally approved and the
action dismissed on the merits with prejudice, is scheduled for September 18,
2007. The terms of the settlement, if finally approved, will require payments
by the funds' adviser and/or its affiliates, including payment of plaintiffs'
attorneys' fees and notice to class members. In the event that the settlement
is not finally approved, the plaintiffs may elect to go forward with their
appeal and no opinion is expressed regarding the likely outcome or financial
impact of such an appeal on any fund.
29
Report of Independent Registered Public Accounting Firm
To the Trustees of Columbia Funds Series Trust I and the Shareholders of
Columbia World Equity Fund
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Columbia World Equity Fund (the
"Fund") (a series of Columbia Funds Series Trust I) at March 31, 2007, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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 March 31, 2007 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 25, 2007
30
Unaudited Information - Columbia World Equity Fund
Federal Income Tax Information
For the fiscal year ended March 31, 2007, the amount of long-term capital gains
designated by the Fund was $5,760,407.
Foreign taxes paid during the fiscal year ended March 31, 2007, amounting to
$142,779 ($0.02 per share) are expected to be passed through to shareholders as
100% allowable foreign tax credits on Form 1099-DIV for the year ending
December 31, 2007.
Gross income derived from sources within foreign countries amounted to
$1,312,983 ($0.21 per share) for the fiscal year ended March 31, 2007.
32.50% of the ordinary income distributed by the Fund, for the year ended
March 31, 2007, qualifies for the corporate dividends received deduction.
For non-corporate shareholders 72.60%, or the maximum amount allowable under
the Jobs and Growth Tax Relief Reconciliation Act of 2003, of income earned by
the Fund for the period April 1, 2006 to March 31, 2007 may represent qualified
dividend income. Final information will be provided in your 2007 Form 1099-DIV.
31
Fund Governance - Columbia World Equity Fund
The Trustees serve terms of indefinite duration. The names, addresses and ages
of the Trustees and officers of the Funds of Columbia Funds Series Trust I, 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.
Independent Trustees
Name, address and year of birth, Principal occupation(s) during past five years, Number
Position with funds, Year first of portfolios in Columbia Funds Complex overseen by
elected or appointed to office/1/ trustee, Other directorships held
Douglas A. Hacker (Born 1955)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Independent business executive since May, 2006;
Advisors, LLC Executive Vice President-Strategy of United Airlines
One Financial Center (airline) from December, 2002 to May, 2006; President
Boston, MA 02111 of UAL Loyalty Services (airline marketing company)
Trustee (since 1996) from September, 2001 to December, 2002; Executive Vice
President and Chief Financial Officer of United
Airlines from July, 1999 to September, 2001. Oversees
75, Nash Finch Company (food distributor); Aircastle
Limited (aircraft leasing)
Janet Langford Kelly (Born 1957)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Deputy General Counsel-Corporate Legal Services,
Advisors, LLC ConocoPhillips (integrated petroleum company) since
One Financial Center August, 2006; Partner, Zelle, Hofmann, Voelbel, Mason
Boston, MA 02111 & Gette LLP (law firm) from March, 2005 to July, 2006;
Trustee (since 1996) Adjunct Professor of Law, Northwestern University,
from September, 2004 to June, 2006, Director, UAL
Corporation (airline) from February, 2006 to July,
2006; Chief Administrative Officer and Senior Vice
President, Kmart Holding Corporation (consumer goods),
from September, 2003 to March, 2004; Executive Vice
President-Corporate Development and Administration,
General Counsel and Secretary, Kellogg Company (food
manufacturer), from September, 1999 to August, 2003.
Oversees 75, None
Richard W. Lowry (Born 1936)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Private Investor since August, 1987 (formerly Chairman
Advisors, LLC and Chief Executive Officer, U.S. Plywood Corporation
One Financial Center (building products manufacturer) until 1987). Oversees
Boston, MA 02111 75, None
Trustee (since 1995)
Charles R. Nelson (Born 1943)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Professor of Economics, University of Washington,
Advisors, LLC since January, 1976; Ford and Louisa Van Voorhis
One Financial Center Professor of Political Economy, University of
Boston, MA 02111 Washington, since September, 1993; Director, Institute
Trustee (since 1981) for Economic Research, University of Washington from
September, 2001 to June, 2003; Adjunct Professor of
Statistics, University of Washington, since September,
1980; Associate Editor, Journal of Money Credit and
Banking, since September, 1993; Consultant on
econometric and statistical matters. Oversees 75, None
John J. Neuhauser (Born 1942)
- -----------------------------------------------------------------------------------------
c/o Columbia Management University Professor, Boston College since November,
Advisors, LLC 2005; Academic Vice President and Dean of Faculties,
One Financial Center Boston College from August, 1999 to October, 2005.
Boston, MA 02111 Oversees 75, None
Trustee (since 1985)
32
Fund Governance (continued) - Columbia World Equity Fund
Independent Trustees
Name, address and year of birth, Principal occupation(s) during past five years, Number
Position with funds, Year first of portfolios in Columbia Funds Complex overseen by
elected or appointed to office/1/ trustee, Other directorships held
Patrick J. Simpson (Born 1944)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Partner, Perkins Coie LLP (law firm). Oversees 75, None
Advisors, LLC
One Financial Center
Boston, MA 02111
Trustee (since 2000)
Thomas E. Stitzel (Born 1936)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Business Consultant since 1999; Chartered Financial
Advisors, LLC Analyst. Oversees 75, None
One Financial Center
Boston, MA 02111
Trustee (since 1998)
Thomas C. Theobald (Born 1937)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Partner and Senior Advisor, Chicago Growth Partners
Advisors, LLC (private equity investing) since September, 2004;
One Financial Center Managing Director, William Blair Capital Partners
Boston, MA 02111 (private equity investing) from September, 1994 to
Trustee and Chairman of the September, 2004. Oversees 75, Anixter International
Board/2/ (since 1996) (network support equipment distributor); Ventas, Inc.
(real estate investment trust); Jones Lang LaSalle
(real estate management services); Ambac Financial
Group (financial guaranty insurance)
Anne-Lee Verville (Born 1945)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Retired since 1997 (formerly General Manager, Global
Advisors, LLC Education Industry, IBM Corporation (computer and
One Financial Center technology) from 1994 to 1997). Oversees 75, None
Boston, MA 02111
Trustee (since 1998)
Interested Trustee
William E. Mayer (Born 1940)
- ------------------------------------------------------------------------------------
c/o Columbia Management Partner, Park Avenue Equity Partners (private equity)
Advisors, LLC since February, 1999; Dean and Professor, College of
One Financial Center Business, University of Maryland, 1992 to 1997.
Boston, MA 02111 Oversees 75, Lee Enterprises (print media), WR
Trustee/3/ (since 1994) Hambrecht + Co. (financial service provider); Reader's
Digest (publishing)
/1/In December 2000, the boards of each of the former Liberty Funds and former
Stein Roe Funds were combined into one board of trustees responsible for the
oversight of both fund groups (collectively, the "Liberty Board"). In October
2003, the trustees on the Liberty Board were elected to the boards of the
Columbia Funds (the "Columbia Board") and of the CMG Fund Trust (the "CMG
Funds Board"); simultaneous with that election, Patrick J. Simpson who had
been a director on the Columbia Board and trustee on the CMG Funds Board, was
appointed to serve as trustee 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. Theobald was appointed as Chairman of the Board effective December 10,
2003.
/3/Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940) by reason of his affiliation with WR Hambrecht + Co.
The Statement of Additional Information includes additional information about
the Trustees of the Fund and is available, without charge, upon request by
calling 800-345-6611.
33
Fund Governance (continued) - Columbia World Equity Fund
Officers
Name, address and year of birth, Principal occupation(s) during past five years
Position with Columbia Funds, Year
first elected or appointed to office
Christopher L. Wilson (Born 1957)
- --------------------------------------------------------------------------------------------
One Financial Center President - Columbia Funds, since October 2004;
Boston, MA 02111 Managing Director - Columbia Management Advisors, LLC,
President (since 2004) since September 2004; Senior Vice President - Columbia
Management Distributors, Inc., since January 2005;
Director - Columbia Management Services, Inc., since
January 2005; Director - Bank of America Global
Liquidity Funds, plc and Banc of America Capital
Management (Ireland), Limited, since May 2005;
Director - FIM Funding, Inc., since January 2005;
President and Chief Executive Officer - CDC IXIS AM
Services, Inc. (asset management), from September 1998
through August 2004; and a senior officer or director
of various other Bank of America-affiliated entities,
including other registered and unregistered funds.
James R. Bordewick, Jr. (Born 1959)
- --------------------------------------------------------------------------------------------
One Financial Center Associate General Counsel, Bank of America since
Boston, MA 02111 April, 2005; Senior Vice President and Associate
Senior Vice President, Secretary General Counsel, MFS Investment Management (investment
and Chief Legal Officer (since 2006) management) prior to April, 2005.
J. Kevin Connaughton (Born 1964)
- --------------------------------------------------------------------------------------------
One Financial Center Treasurer - Columbia Funds, since October 2003;
Boston, MA 02111 Treasurer - the Liberty Funds, Stein Roe Funds and
Senior Vice President, Chief Liberty All-Star Funds, December 2000 - December 2006;
Financial Officer and Treasurer Vice President - Columbia Management Advisors, Inc.,
(since 2000) since April 2003; President - Columbia Funds, Liberty
Funds and Stein Roe Funds, February 2004 to October
2004; Treasurer - Galaxy Funds, September 2002 to
December 2005; Treasurer, December 2002 to December
2004, and President, February 2004 to December 2004 -
Columbia Management Multi-Strategy Hedge Fund, LLC;
and a senior officer of various other Bank of
America-affiliated entities, including other
registered and unregistered funds.
Linda J. Wondrack (Born 1964)
- --------------------------------------------------------------------------------------------
One Financial Center Director (Columbia Management Group LLC and Investment
Boston, MA 02111 Product Group Compliance), Bank of America since June
Senior Vice President, Chief 2005; Director of Corporate Compliance and Conflicts
Compliance Officer (since 2007) Officer, MFS Investment Management (investment
management), August 2004 to May 2005; Managing
Director, Deutsche Asset Management (investment
management) prior to August 2004.
Michael G. Clarke (Born 1969)
- --------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Managing Director of the Advisor
Chief Accounting Officer and September, 2004 to December, 2005; Vice President Fund
Assistant Treasurer (since 2004) Administration of the Advisor June, 2002 to September,
2004. Vice President Product Strategy and Development
of the Advisor from February, 2001 to June, 2002.
34
Fund Governance (continued) - Columbia World Equity Fund
Officers
Name, address and year of birth, Principal occupation(s) during past five years
Position with Columbia Funds, Year
first elected or appointed to office
Jeffrey R. Coleman (Born 1969)
- --------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Fund Controller of the Advisor from
Deputy Treasurer (since 2006) October 2004 to January 2006; Vice President of CDC
IXIS Asset Management Services, Inc. (investment
management) from August, 2000 to September, 2004.
Joseph F. DiMaria (Born 1968)
- --------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Head of Tax/Compliance and Assistant
Deputy Treasurer (since 2006) Treasurer of the Advisor from November, 2004 to
December, 2005; Director of Trustee Administration
(Sarbanes-Oxley) of the Advisor from May, 2003 to
October, 2004; Senior Audit Manager,
PricewaterhouseCoopers (independent registered public
accounting firm) from July, 2000 to April, 2003.
Ty S. Edwards (Born 1966)
- --------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Vice President of the Advisor from
Deputy Treasurer (since 2006) July, 2002 to December, 2005; Assistant Vice President
and Director, State Street Corporation (financial
services) prior to 2002.
Barry S. Vallan (Born 1969)
- --------------------------------------------------------------------------------------------
One Financial Center Vice President-Fund Treasury of the Advisor since
Boston, MA 02111 October, 2004; Vice President-Trustee Reporting of the
Controller (since 2006) Advisor from April, 2002 to October, 2004; Management
Consultant, PricewaterhouseCoopers (independent
registered public accounting firm) prior to October,
2002.
35
Board Consideration and Approval of Investment Advisory Agreements
The Advisory Fees and Expenses Committee of the Board of Trustees meets one or
more times annually to review the advisory agreements (collectively, the
"Agreements") of the funds for which the Trustees serve as trustees (each a
"fund") and determine whether to recommend that the full Board approve the
continuation of the Agreements for an additional one-year period. After the
Committee has made its recommendation, the full Board, including the
Independent Trustees, determines whether to approve the continuation of the
Agreements. In addition, the Board, including the Independent Trustees,
considers matters bearing on the Agreements at most of its other meetings
throughout the year and meets regularly with the heads of each investment area
within Columbia. Through the Board's Investment Oversight Committees, Trustees
also meet with selected fund portfolio managers at various times throughout the
year.
The Trustees receive and review all materials that they, their legal counsel or
Columbia, the funds' investment adviser, believe to be reasonably necessary for
the Trustees to evaluate the Agreements and determine whether to approve the
continuation of the Agreements. Those materials generally include, among other
items, (i) information on the investment performance of each fund relative to
the performance of peer groups of mutual funds and the fund's performance
benchmarks, (ii) information on each fund's advisory fees and other expenses,
including information comparing the fund's expenses to those of peer groups of
mutual funds and information about any applicable expense caps and fee
"breakpoints," (iii) information about the profitability of the Agreements to
Columbia, including potential "fall-out" or ancillary benefits that Columbia
and its affiliates may receive as a result of their relationships with the
funds and (iv) information obtained through Columbia's response to a
questionnaire prepared at the request of the Trustees by counsel to the funds
and independent legal counsel to the Independent Trustees. The Trustees also
consider other information such as (v) Columbia's financial results and
financial condition, (vi) each fund's investment objective and strategies and
the size, education and experience of Columbia's investment staffs and their
use of technology, external research and trading cost measurement tools, (vii)
the allocation of the funds' brokerage, if any, and the use of "soft"
commission dollars to pay for research products and services, (viii) Columbia's
resources devoted to, and its record of compliance with, the funds' investment
policies and restrictions, policies on personal securities transactions and
other compliance policies, (ix) Columbia's response to various legal and
regulatory proceedings since 2003 and (x) the economic outlook generally and
for the mutual fund industry in particular. In addition, the Advisory Fees and
Expenses Committee confers with the funds' independent fee consultant and
reviews materials relating to the funds' relationships with Columbia provided
by the independent fee consultant. Throughout the process, the Trustees have
the opportunity to ask questions of and request additional materials from
Columbia and to consult with independent legal counsel to the Independent
Trustees and the independent fee consultant.
The Board of Trustees most recently approved the continuation of the Agreements
at its October, 2006 meeting, following meetings of the Advisory Fees and
Expenses Committee held in August, September and October, 2006. In considering
whether to approve the continuation of the Agreements, the Trustees, including
the Independent Trustees, did not identify any single factor as determinative,
and each weighed various factors as he or she deemed appropriate. The Trustees
considered the following matters in connection with their approval of the
continuation of the Agreements:
The nature, extent and quality of the services provided to the funds under the
Agreements. The Trustees considered the nature, extent and quality of the
services provided by Columbia and its affiliates to the funds and the resources
dedicated to the funds by Columbia and its affiliates. Among other things, the
Trustees considered (i) Columbia's ability (including its personnel and other
resources, compensation programs for personnel involved in fund management,
reputation and other attributes) to attract and retain highly qualified
research, advisory and supervisory investment professionals; (ii) the portfolio
management services provided by those investment professionals; and (iii) the
trade execution services provided on behalf of the funds. For each fund, the
Trustees also considered the benefits to shareholders of investing in a mutual
fund that is part of a family of funds offering exposure to a variety of asset
classes and investment disciplines and providing a variety of fund and
shareholder services. After reviewing those and related factors, the Trustees
concluded, within the context of their overall conclusions regarding each of
the Agreements, that the nature, extent and quality of services provided
supported the continuation of the Agreements.
36
Investment performance of the funds and Columbia. The Trustees reviewed
information about the performance of each fund over various time periods,
including information prepared by an independent third party that compared the
performance of each fund to the performance of peer groups of mutual funds and
performance benchmarks. The Trustees also reviewed a description of the third
party's methodology for identifying each fund's peer group for purposes of
performance and expense comparisons. The Trustees also considered additional
information that the Advisory Fees and Expenses Committee requested from
Columbia relating to funds that presented relatively weaker performance and/or
relatively higher expenses.
In the case of each fund whose performance lagged that of a relevant peer group
for certain (although not necessarily all) periods, the Trustees concluded that
other factors relevant to performance were sufficient, in light of other
considerations, to warrant continuation of the fund's Agreements. Those factors
varied from fund to fund, but included one or more of the following: (i) that
the fund's performance, although lagging in certain recent periods, was
stronger over the longer term; (ii) that the underperformance was attributable,
to a significant extent, to investment decisions that were reasonable and
consistent with the fund's investment strategy and policies and that the fund
was performing as expected, given these investment decisions, market conditions
and the fund's investment strategy; (iii) that the fund's performance was
competitive when compared to other relevant performance benchmarks or peer
groups; (iv) that Columbia had taken or was taking steps designed to help
improve the fund's investment performance, including, but not limited to,
replacing portfolio managers or modifying investment strategies; and (v) that
the fund was proposed to be reorganized into another fund, and that such
reorganization would result in a reduction in fund expenses.
The Trustees also considered Columbia's performance and reputation generally,
the funds' performance as a fund family generally, and Columbia's historical
responsiveness to Trustee concerns about performance and Columbia's willingness
to take steps intended to improve performance.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
performance of each fund and Columbia was sufficient, in light of other
considerations, to warrant the continuation of the Agreement(s) pertaining to
that fund.
The costs of the services provided and profits realized by Columbia and its
affiliates from their relationships with the funds. The Trustees considered the
fees charged to the funds for advisory services as well as the total expense
levels of the funds. That information included comparisons (provided by
management and by an independent third party) of each fund's advisory fees and
total expense levels to those of the fund's peer groups and information about
the advisory fees charged by Columbia to comparable institutional accounts. In
considering the fees charged to those accounts, the Trustees took into account,
among other things, management's representations about the differences between
managing mutual funds as compared to other types of accounts, including
differences in the services provided, differences in the risk profile of such
business for Columbia, and the additional resources required to manage mutual
funds effectively. In evaluating each fund's advisory fees, the Trustees also
took into account the demands, complexity and quality of the investment
management of the fund. The Trustees considered existing advisory fee
breakpoints, and Columbia's use of advisory fee waivers and expense caps, which
benefited a number of the funds. The Trustees also noted management's stated
justification for the fees charged to the funds, which included information
about the investment performance of the funds and the services provided to the
funds. The Trustees also considered the compensation directly or indirectly
received by Columbia and its affiliates from their relationships with the
funds. The Trustees reviewed information provided by management as to the
profitability to Columbia and its affiliates of their relationships with each
fund, and information about the allocation of expenses used to calculate
profitability. When reviewing profitability, the Trustees also considered court
cases in which adviser profitability was an issue in whole or in part, the
performance of the relevant funds, the expense level of each fund, and whether
Columbia had implemented breakpoints and/or expense caps with respect to the
fund.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
advisory fees charged to each fund, and the related profitability to Columbia
and its affiliates of their relationships with the fund, supported the
continuation of the Agreement(s) pertaining to that fund.
37
Economies of Scale. The Trustees considered the existence of any economies of
scale in the provision by Columbia of services to each fund, to groups of
related funds, and to Columbia's investment advisory clients as a whole and
whether those economies were shared with the funds through breakpoints in the
investment advisory fees or other means, such as expense waivers/reductions and
additional investments by Columbia in investment, trading and compliance
resources. The Trustees noted that many of the funds benefited from
breakpoints, expense caps, or both. In considering those issues, the Trustees
also took note of the costs of the services provided (both on an absolute and a
relative basis) and the profitability to Columbia and its affiliates of their
relationships with the funds, as discussed above.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
extent to which economies of scale were shared with the funds supported the
continuation of the Agreements.
Other Factors. The Trustees also considered other factors, which included but
were not limited to the following:
.. the extent to which each fund had operated in accordance with its investment
objective and investment restrictions, the nature and scope of the compliance
programs of the funds and Columbia and the compliance-related resources that
Columbia and its affiliates were providing to the funds;
.. the nature, quality, cost and extent of administrative and shareholder
services performed by Columbia and its affiliates, both under the Agreements
and under separate agreements for the provision of transfer agency and
administrative services;
.. so-called "fall-out benefits" to Columbia and its affiliates, such as the
engagement of its affiliates to provide distribution, brokerage and transfer
agency services to the funds, and the benefits of research made available to
Columbia by reason of brokerage commissions generated by the funds'
securities transactions, as well as possible conflicts of interest associated
with those fall-out and other benefits, and the reporting, disclosure and
other processes in place to disclose and monitor those possible conflicts of
interest; and
.. the draft report provided by the funds' independent fee consultant, which
included information about and analysis of the funds' fees, expenses and
performance.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel and the independent fee consultant, the Trustees, including
the Independent Trustees, approved the continuance of each of the Agreements
through October 31, 2007.
38
Summary of Management Fee Evaluation by Independent Fee Consultant
Prepared Pursuant to the February 9, 2005 Assurance of Discontinuance between
the Office of Attorney General of New York State and Columbia Management
Advisors, Inc. and Columbia Funds Distributor, Inc. October 11, 2006
I. Overview
Columbia Management Advisors, LLC ("CMA") and Columbia Funds Distributors,
Inc./1/ ("CFD") agreed on February 9, 2005 to the New York Attorney General's
Assurance of Discontinuance ("AOD"). Among other things, the AOD stipulates
that CMA may manage or advise a Columbia Fund ("Fund" and together with all
such funds or a group of such funds as the "Funds") only if the Independent
Members of the Fund's Board of Trustees (such Independent Members of the Fund's
Board together with the other members of the Fund's Board, referred to as the
"Trustees") appoint a Senior Officer or retain an Independent Fee Consultant
("IFC") who is to manage the process by which proposed management fees are
negotiated. The AOD further stipulates that the Senior Officer or IFC is to
prepare a written annual evaluation of the fee negotiation process.
On September 14, 2006, the Independent Members of the Funds' Boards retained me
as IFC for the Funds. In this capacity, I have prepared the second annual
written evaluation of the fee negotiation process. I am successor to the first
IFC, Erik Sirri, who prepared the annual evaluation in 2005 and who contributed
to the second annual written evaluation until his resignation as IFC in August
2006 to become Director of the Division of Market Regulation at the U.S.
Securities and Exchange Commission./2/
A. Role of the Independent Fee Consultant
The AOD charges the IFC with "managing the process by which proposed management
fees...to be charged the Columbia Fund are negotiated so that they are
negotiated in a manner which is at arms' length and reasonable and consistent
with this Assurance of Discontinuance." In this role, the IFC does not replace
the Trustees in negotiating management fees with CMA, and the IFC does not
substitute his or her judgment for that of the Trustees about the
reasonableness of proposed fees. As the AOD states, CMA "may manage or advise a
Columbia Fund only if the reasonableness of the proposed management fees is
determined by the Board of Trustees...using...an annual independent written
evaluation prepared by or under the direction of...the Independent Fee
Consultant."
B. Elements Involved in Managing the Fee Negotiation Process
Managing the fee negotiation process has three elements. One involves reviewing
the information provided by CMG to the Trustees for evaluating the proposed
management fees and augmenting that information, as necessary, with additional
information from CMG or other sources and with further analyses of the
information and data. The second element involves reviewing the information and
analysis relative to at least the following six factors set forth in the AOD:
1.The nature and quality of CMA's services, including the Fund's performance;
2.Management fees (including any components thereof) charged by other mutual
fund companies for like services;
3.Possible economies of scale as the Fund grows larger;
4.Management fees (including any components thereof) charged to institutional
and other clients of CMA for like services;
5.Costs to CMA and its affiliates of supplying services pursuant to the
management fee agreements, excluding any intra-corporate profit; and
6.Profit margins of CMA and its affiliates from supplying such services.
1CMA and CFD are subsidiaries of Columbia Management Group, Inc. ("CMG"), which
also is the parent of Columbia Management Services, Inc. ("CFS"), the Funds'
transfer agent. Before the date of this report, CMA merged into an affiliated
entity, Banc of America Capital Management, LLC, which was renamed Columbia
Management Advisors, LLC and which carries on the business of CMA. CFD also
has been renamed Columbia Management Distributors, Inc.
2I am an independent economic consultant. From August 2005 until August 2006, I
provided support to Mr. Sirri as an independent consultant. From 1994 to 2004,
I was Chief Economist at the Investment Company Institute. Earlier, I was
Section Chief and Assistant Director at the Federal Reserve Board and
Professor of Economics at Oklahoma State University. I have no material
relationship with Bank of America or CMG, aside from serving as IFC, and I am
aware of no material relationship with any of their affiliates. To assist me
with the report, I engaged NERA Economic Consulting, an independent consulting
firm that has had extensive experience in the mutual fund industry. I also
have retained Willkie Farr & Gallagher LLP as counsel to advise me in
connection with the report.
39
The final element involves providing the Trustees with a written evaluation of
the above factors as they relate to the fee negotiation process.
C. Organization of the Annual Evaluation
The 2006 annual evaluation focuses on the six factors and contains a section
for each factor except that CMA's costs and profits from managing the Funds
have been combined into a single section. In each section, the discussion of
the factor considers and analyzes the available data and other information as
they bear upon the fee negotiation process. If appropriate, the discussion in
the section may point out certain aspects of the proposed fees that may warrant
particular attention from the Trustees. The discussion also may suggest other
data, information, and approaches that the Trustees might consider
incorporating into the fee negotiation process in future years.
In addition to a discussion of the six factors, the report reviews the status
of recommendations made in the 2005 IFC evaluation. The 2006 report also
summarizes the findings with regard to the six factors and contains a summary
of recommendations for possible enhancements to the process.
II. Status of 2005 Recommendations
The 2005 IFC evaluation contains recommendations aimed at enhancing the
evaluation of proposed management fees by Trustees. The section summarizes
those recommendations and includes my assessment of the response to the
recommendations.
1. Recommendation: Trustees should consider requesting more analytical work
from CMG in the preparation of future 15(c) materials.
Status: CMG has provided additional analyses to the Trustees on economies
of scale, a comparative analysis of institutional and retail management
fees, management fee breakpoints, risk-adjusted performance, fee waivers
and expense reimbursements, and CMG's costs and profitability.
2. Recommendation: Trustees may wish to consider whether CMG should continue
expanding the use of Morningstar or other third party data to supplement
CMG's fee and performance analysis that is now based primarily on Lipper
reports.
Status: CMG has used data from Morningstar Inc. to compare with data from
Lipper Inc. ("Lipper") in performing the Trustees' screening procedures.
3. Recommendation: Trustees should consider whether...the fund-by-fund
screen...should place comparable emphasis on both basis point and quintile
information in their evaluation of the funds...Also, the Trustees should
consider incorporating sequences of one year performance into a
fund-by-fund screen.
Status: CMG has not provided Trustees with results of the screening process
using percentiles. CMG has provided Trustees with information on the
changes in performance and expenses between 2005 and 2006 and data on
one-year returns.
4. Recommendation: Given the volatility of fund performance, the Trustees may
want to consider whether a better method exists than th[e] fee waiver
process to deal with fund underperformance.
Status: It is my understanding that the Trustees have determined to address
fund underperformance not only through fee waivers and expense caps but
also through discussions with CMG regarding the sources of
underperformance. CMG has provided Trustees with an analysis of the
relationship between breakpoints, expense reimbursements, and fee waivers.
5. Recommendation: [Seventy-one] percent of funds [have] yet to reach their
first management fee breakpoint... Trustees may wish to consider whether
the results of my ongoing economies-of-scale work affects the underlying
economic assumptions reflected in the existing breakpoint schedules.
Status: CMG has prepared a memo for the Trustees discussing its views on
the nature and sharing of potential economies of scale. The memo discuses
CMG's view that economies of scale arise at the complex level rather than
the fund level. The memo also describes steps, including the introduction
of breakpoints, taken to share economies of scale with shareholders. CMG's
analysis, however, does not discuss specific sources of economies of scale
and does not link breakpoints to economies of scale that might be realized
as the Funds' assets increase.
40
6. Recommendation: Trustees should continue working with management to address
issues of funds that demonstrate consistent or significant underperformance
even if the fee levels for the funds are low.
Status: Trustees monitor performance on an ongoing basis.
III. Findings
A. General
1. Based upon my examination of the available information and the six factors,
I conclude that the Trustees have the relevant information necessary to
evaluate the reasonableness of the proposed management fees for the Funds.
CMG has provided the Trustees with relevant materials on the six factors
through the 15(c) contract renewal process and in materials prepared for
review at Board and Committee meetings.
2. In my view, the process by which the proposed management fees of the Funds
have been negotiated in 2006 thus far has been, to the extent practicable,
at arms' length and reasonable and consistent with the AOD.
B. Nature and Quality of Services, Including Performance
3. The performance of the Funds has been relatively strong, especially that of
fixed-income Funds. For each of the 1-, 3-, 5- and 10-year performance
periods, over 60 percent of the funds have ranked in the top three
performance quintiles.
4. The performance of the equity Funds overall, though less concentrated in
the top two quintiles than the fixed income Funds, improved in 2006
relative to that in 2005. The fixed-income funds maintained the relatively
high performance level of 2005 in 2006.
5. The Funds' overall performance adjusted for risk was significantly stronger
than performance unadjusted for risk. Domestic and international equity
funds, in particular, moved to higher relative performance rankings after
adjusting for risk.
6. The procedure used to construct the performance universe in which each
Fund's performance is ranked relative to comparable funds may bias a Fund's
ranking upward within that universe. The bias occurs because the
performance ranking procedure includes all share classes of multi-class
funds in the universe and because the procedure ranks either no-load or A
share classes of the Funds. No-load and A share classes generally have
lower total expenses than B and C shares (owing to B and C shares having
higher distribution/service fees) and thus, given all else, would
outperform many of B and C share classes included in the universe. A
preliminary analysis that adjusts for the bias results in a downward
movement in the relative performance for the Funds but does not change the
general finding that the Funds' performance has been strong relative to
comparable funds.
C. Management Fees Charged by Other Mutual Fund Companies
7. The Funds' management fees and total expenses are generally low relative to
those of their peers. At least 56 percent of the Funds are in the first or
second quintiles with the lowest fees and expenses and nearly three fourths
or more in the first three quintiles. Equity Funds are more highly
concentrated in the first three quintiles than fixed-income Funds.
8. The fee and expense rankings as whole are similar to those in 2005 in that
the majority of funds are ranked in the top quintiles. Nonetheless, a
number of individual funds experienced a change in ranking between 2005 and
2006. This fund-level instability may reflect sensitivity of rankings to
the composition of the comparison groups, as the membership of the peer
groups typically changed substantially between the two years.
9. The Liberty Money Market Fund VS appears to have a higher management fee
structure than that of other Columbia money market funds of comparable
asset size.
41
D. Trustees' Fee and Performance Evaluation Process
10. The Trustees' evaluation process identified 21 funds in 2006 for further
review based upon their relative performance or expenses. Seventeen of
these funds had been subject to review in 2004 or 2005.
E. Potential Economies of Scale
11. CMG has prepared a memo for the Trustees containing its views on the
sources and sharing of potential economies of scale. CMG views economies of
scale as arising at the complex level and would regard estimates of scale
economies for individual funds as unreliable. CMG has not, however,
identified specific sources of economies of scale nor has it provided any
estimates of the magnitude of any economies of scale. In the memo, CMG also
describes measures taken by the Trustees and CMG that seek to share any
potential economies of scale through breakpoints in management fee
schedules, expense reimbursements, fee waivers, enhanced shareholder
services, fund mergers, and operational consolidation. These measures,
although of significant benefit to shareholders, have not been directly
linked in the memo to the existence, sources, and magnitude of economies of
scale.
F. Management Fees Charged to Institutional Clients
12. CMG has provided Trustees with comparisons of mutual fund management fees
and institutional fees based upon standardized fee schedules and upon
actual fees. Based upon the information, institutional fees are generally
lower than the Funds' management fees. This pattern is consistent with the
economics of the two financial products. Data are not available, however,
on actual institutional fees at other money managers. Thus, it is not
possible to determine the extent to which differences between the Funds'
management fees and institutional fees are consistent with those seen
generally in the marketplace.
G. Revenues, Expenses, and Profits
13. The financial statements and the methodology underlying their construction
generally form a sufficient basis for Trustees to evaluate the expenses and
profitability of the Funds.
IV. Recommendations
A. Performance
1. Trustees may wish to consider incorporating risk adjusted measures in their
evaluation of performance. CMG has begun to prepare reports for the
Trustees with risk adjustments, which could form the basis for formally
including the measures in the 15(c) materials. To this end, Trustees may
wish to have CMG prepare documents explaining risk adjustments and
describing their advantages and disadvantages.
2. Trustees may wish to consider having CMG evaluate the sensitivity of
performance rankings to the design of the universe. The preliminary
analysis contained in the evaluation suggests that the method employed by
Lipper, the source of performance rankings used by the Trustees, may bias
performance rankings upward.
B. Economies of Scale
3. Trustees may wish to consider having CMG extend its analysis of economies
of scale by examining the sources of such economies, if any. Identification
of the sources may enable the Trustees and CMG to gauge their magnitude. It
also may enable the Trustees and CMG to build upon past work on
standardized fee schedules so that the schedules themselves are consistent
with any economies of scale and their sources. Finally, an extension of the
analysis may enable the Trustees and CMG to develop a framework that
coordinates the use of fee waivers and expense caps with the standard fee
schedules and with any economies of scale and their sources.
C. Institutional Fees
4. Trustees may wish to consider encouraging CMG to build further upon its
expanded analysis of institutional fees by refining the matching of
institutional accounts with mutual funds, by dating the establishment of
each institutional account, and by incorporating other accounts, such as
subadvisory relationships, trusts, offshore funds, and separately managed
accounts into the analysis.
42
D. Profitability
5. Trustees may wish to consider requesting that CMG expand the reporting of
revenues and expenses to include more line-item detail for management and
administration, transfer agency, fund accounting, and distribution.
6. Trustees may wish to consider requesting that CMG provide a statement of
its operations in the 15(c) materials.
7. Trustees may wish to consider the treatment of the revenue sharing with the
Private Bank of Bank of America in their review of CMG's profitability.
Respectfully submitted,
John D. Rea
43
Appendix
Sources of Information Used in the Evaluation
The following list generally describes the sources and types of information
that were used in preparing this report.
1. Performance, management fees, and expense ratios for the Funds and
comparable funds from other fund complexes from Lipper and CMG. The sources
of this information were CMG and Lipper;
2. CMG's expenses and profitability obtained directly from CMG;
3. Information on CMG's organizational structure;
4. Profitability of publicly traded asset managers from Lipper;
5. Interviews with CMG staff, including members of senior management, legal
staff, heads of affiliates, portfolio managers, and financial personnel;
6. Documents prepared by CMG for Section 15(c) contract renewals in 2005 and
2006;
7. Academic research papers, industry publications, professional materials on
mutual fund operations and profitability, and SEC releases and studies of
mutual fund expenses
8. Interviews with and documents prepared by Ernst & Young LLP in its review
of the Private Bank Revenue Sharing Agreement;
9. Discussions with Trustees and attendance at Board and committee meetings
during which matters pertaining to the evaluation were considered.
In addition, I engaged NERA Economic Consulting ("NERA") to assist me in data
management and analysis. NERA has extensive experience in the mutual fund
industry that provides unique insights and special knowledge pertaining to my
independent analysis of fees, performance, and profitability. I have also
retained attorneys in the Washington, D.C. office of Willkie Farr & Gallagher
LLP as outside counsel to advise me in connection with my evaluation.
Finally, meetings and discussions with CMG staff were informative. My
participation in Board and committee meetings in which Trustees and CMG
management discussed issues relating to management contracts were of great
benefit to the preparation of the evaluation.
44
Important Information About This Report
Columbia World Equity Fund
Transfer Agent
Columbia Management Services, Inc.
P.O. Box 8081
Boston, MA 02266-8081
1-800-345-6611
Distributor
Columbia Management
Distributors, Inc.
One Financial Center
Boston, MA 02111
Investment Advisor
Columbia Management Advisors, LLC
100 Federal Street
Boston, MA 02110
The fund mails one shareholder report to each shareholder address. If you would
like more than one report, please call shareholder services at 1-800-345-6611
and additional reports will be sent to you. This report has been prepared for
shareholders of Columbia World Equity Fund.
A description of the policies and procedures that the fund uses to determine
how to vote proxies and a copy of the fund's voting records are available
(i) at www.columbiamanagement.com; (ii) on the Securities and Exchange
Commission's website at www.sec.gov, and (iii) without charge, upon request, by
calling 1-800-368-0346. Information regarding how the fund voted proxies
relating to portfolio securities during the 12-month period ended June 30 is
available from the SEC's website. Information regarding how the fund voted
proxies relating to portfolio securities is also available from the fund's
website.
The fund files a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q
is available on the SEC's website at www.sec.gov and may be reviewed and copied
at the SEC's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Please consider the investment objectives, risk, charges and expenses for the
fund carefully before investing. Contact your financial advisor for a
prospectus, which contains this and other important information about the fund.
You should read it carefully before you invest.
Columbia Management Group, LLC ("Columbia Management") is the investment
management division of Bank of America Corporation. Columbia Management
entities furnish investment management services and products for institutional
and individual investors. Columbia Funds are distributed by Columbia Management
Distributors, Inc., member NASD and SIPC. Columbia Management Distributors,
Inc. is part of Columbia Management and an affiliate of Bank of America
Corporation.
45
Columbia World Equity Fund
Annual Report - March 31, 2007
[LOGO] Columbia Management(R)
(C)2007 Columbia Management Distributors, Inc.
One Financial Center, Boston, MA 02111-2621
800-345-6611 www.columbiafunds.com
SHC-42/129815-0307 (05/07) 07-37691
[LOGO] Columbia Management(R)
--------------
Columbia Income Fund
Annual Report - March 31, 2007
NOT FDIC INSURED May Lose Value
-----------------
No Bank Guarantee
President's Message
March 31, 2007
Table of contents
Economic Update 1
Performance Information 2
Understanding Your Expenses 3
Portfolio Managers' Report 4
Fund Profile 6
Financial Statements 7
Investment Portfolio 8
Statement of Assets and
Liabilities 29
Statement of Operations 31
Statement of Changes in Net
Assets 32
Financial Highlights 34
Notes to Financial Statements 38
Report of Independent
Registered Public Accounting
Firm 47
Fund Governance 48
Board Consideration and
Approval of Investment
Advisory Agreements 52
Summary of Management Fee
Evaluation by Independent Fee
Consultant 55
Important Information
About This Report 61
The views expressed in this report reflect the current views of the
respective parties. These views are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult to
predict so actual outcomes and results may differ significantly from the
views expressed. These views are subject to change at any time based upon
economic, market or other conditions and the respective parties disclaim any
responsibility to update such views. These views may not be relied on as
investment advice and, because investment decisions for a Columbia Fund are
based on numerous factors, may not be relied on as an indication of trading
intent on behalf of any particular Columbia Fund. References to specific
company securities should not be construed as a recommendation or investment
advice.
[PHOTO] Christopher L. Wilson
President, Columbia Funds
Dear Shareholder:
Investing is a long-term process and we are pleased that
you have chosen to include the Columbia family of funds in
your overall financial plan.
Your financial advisor can help you establish an
appropriate investment portfolio and periodically review
that portfolio. A well balanced portfolio is one of the
keys to successful long-term investing. Your portfolio
should be diversified across different asset classes and
market segments and your chosen asset allocation should be
appropriate for your investment goals, risk tolerance and
time horizons.
However, creating an investment strategy is not a one-step process. From time
to time, you'll need to re-evaluate your strategy to determine whether your
investment needs have changed. Most experts recommend giving your portfolio a
"check-up" every year.
As you begin your portfolio check-up, consider whether you have experienced any
major life events since the last time you assessed your portfolio. You may need
to tweak your strategy if you have:
.. Gotten married or divorced
.. Added a child to your family
.. Made a significant change in employment
.. Entered or moved significantly closer to retirement
.. Experienced a serious illness or death in the family
.. Taken on or paid off substantial debt
It's important to remember that over time, performance in different market
segments will fluctuate. These shifts can cause your portfolio balance to drift
away from your chosen asset allocation. A periodic portfolio check-up can help
make sure your portfolio stays on track. Remember that asset allocation does
not ensure a profit or guarantee against loss.
You'll also want to analyze the individual investments in your portfolio. Of
course, performance should be a key factor in your analysis, but it's not the
only factor to consider. Make sure the investments in your portfolio line up
with your overall objectives and risk tolerance. Be aware of changes in
portfolio management and pay special attention to any funds that have made
significant shifts in their investment strategy.
We hope this information will help you, in working with your financial advisor,
to stay on track to reach your investment goals. Thank you for your business
and for your continued confidence in Columbia Funds.
Sincerely,
/s/ Christopher L. Wilson
Christopher L. Wilson
President, Columbia Funds
Economic Update - Columbia Income Fund
Summary
For the 12-month period ended March 31, 2007
. Investment-grade bonds rebounded as yields declined, lifting the Lehman
Brothers U.S. Aggregate Bond Index to a respectable return. High-yield
bonds, as measured by the Merrill Lynch U.S. High Yield, Cash Pay Index, led
the US fixed-income markets.
Lehman Merrill Lynch
Index Index
[GRAPHIC] [GRAPHIC]
6.59% 11.45%
. The broad US stock market, as measured by the S&P 500 Index, returned
11.83%. Stock markets outside the United States were even stronger, as
measured by the MSCI EAFE Index.
S&P Index MSCI Index
[GRAPHIC] [GRAPHIC]
11.83% 20.20%
The Lehman Brothers U.S. Aggregate Bond Index is a market value-weighted
index that tracks the daily price, coupon, pay-downs, and total return
performance of fixed-rate, publicly placed, dollar-denominated, and
non-convertible investment grade debt issues with at least $250 million par
amount outstanding and with at least one year to final maturity.
The Merrill Lynch U.S. High Yield, Cash Pay Index tracks the performance of
non-investment-grade corporate bonds.
The S&P 500 Index tracks the performance of 500 widely held,
large-capitalization US stocks.
The Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East
(EAFE) Index is a free float-adjusted market capitalization index that is
designed to measure developed market equity performance, excluding the US and
Canada.
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.
US economic growth advanced at a modest pace during the 12-month period that
began April 1, 2006 and ended March 31, 2007. A weak housing market weighed on
the economy throughout the period, with few signs that relief was imminent.
Energy prices trended downward, but rose again late in the period, and core
inflation moved higher. Yet, many economic indicators remained positive. Job
growth, for example, was relatively strong, as the labor markets added an
average of 164,000 new jobs each month over the period and the unemployment
rate declined to 4.4%. Personal income rose and consumer spending continued to
expand, albeit at a slower pace as the period wore on. Against this backdrop,
economic growth averaged around 2.2% for the 12-month period.
Between April and June 2006, the Federal Reserve Board (the Fed) raised a key
short-term interest rate, the federal funds rate, twice -- to 5.25%. But after
its June meeting, the Fed turned cautious in the face of slower economic growth
and held the federal funds rate steady. Investors reacted favorably to the
prospect of stable or lower interest rates and fueled a rally that moved stock
prices higher and gave a boost to the bond market as well.
Bonds bounced back
Although bond yields moved higher early in the period, most segments of the US
bond market delivered respectable returns, as prices rose and yields declined
in reaction to the Fed's mid-year decision to put further short-term rate
increases on hold. The yield on the 10-year US Treasury note/1/, a bellwether
for the bond market, ended the 12-month period at 4.63% -- somewhat lower than
where it started. In this environment, the Lehman Brothers U.S. Aggregate Bond
Index returned 6.59%. High-yield bonds led the US fixed-income markets,
reflecting investor confidence about the overall resilience of the economy
despite its slower pace of growth. The Merrill Lynch U.S. High Yield, Cash Pay
Index returned 11.45%.
Despite late set-back, stocks moved solidly higher
Stock prices rose at an above-average pace during the 12-month period covered
by this report. The S&P 500 Index, a broad measure of common stock performance,
rose 11.83%. Large-cap stocks staged a comeback against small- and mid-cap
stocks, as measured by their respective Russell indices. Foreign stock markets
were even stronger than the US market. The MSCI EAFE Index, which tracks stock
market performance in industrialized countries outside the United States,
returned 20.20%, despite a volatile stretch late in the period when the US and
many foreign stock markets retreated in response to a sharp decline in the
Chinese market and other market-specific factors.
/1/10-year Treasury not used solely as a benchmark for long-term interest rates.
Past performance is no guarantee of future results.
1
Performance Information - Columbia Income Fund
Performance data quoted represents past performance and current performance
may be lower or higher. Past performance is no guarantee of future results.
The investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than the original cost. Please visit
www.columbiafunds.com for daily and most recent month-end performance updates.
Annual operating expense ratio*
Class A 0.97%
Class B 1.72%
Class C 1.72%
Class Z 0.72%
*The annual operating expense ratio is as stated in the fund's prospectus that
is current as of the date of this report and may differ from the expense
ratios disclosed elsewhere in this report.
Growth of a $10,000 investment 04/01/97 - 03/31/07
[CHART]
Class A Class A Lehman Brothers Lehman Brothers
Shares Shares Intermediate Intermediate
Without Sales With Sales Government/Credit Credit
Charge Charge Bond Index Bond Index
------------- ------------- ----------- --------------
$10,000 $9,525 $10,000 $10,000
04/30/1997 $10,113 $9,633 $10,117 $10,133
05/31/1997 $10,270 $9,782 $10,201 $10,235
06/30/1997 $10,425 $9,930 $10,294 $10,348
07/31/1997 $10,750 $10,239 $10,503 $10,622
08/31/1997 $10,622 $10,118 $10,450 $10,529
09/30/1997 $10,777 $10,265 $10,571 $10,676
10/31/1997 $10,807 $10,294 $10,689 $10,775
11/30/1997 $10,857 $10,341 $10,712 $10,800
12/31/1997 $10,965 $10,444 $10,798 $10,882
01/31/1998 $11,086 $10,560 $10,939 $11,027
02/28/1998 $11,113 $10,585 $10,931 $11,028
03/31/1998 $11,177 $10,646 $10,966 $11,067
04/30/1998 $11,239 $10,705 $11,021 $11,130
05/31/1998 $11,304 $10,767 $11,101 $11,225
06/30/1998 $11,333 $10,795 $11,172 $11,287
07/31/1998 $11,378 $10,837 $11,211 $11,317
08/31/1998 $11,134 $10,605 $11,387 $11,397
09/30/1998 $11,369 $10,829 $11,673 $11,738
10/31/1998 $11,134 $10,605 $11,661 $11,644
11/30/1998 $11,335 $10,797 $11,660 $11,735
12/31/1998 $11,402 $10,861 $11,707 $11,785
01/31/1999 $11,498 $10,952 $11,771 $11,879
02/28/1999 $11,324 $10,786 $11,598 $11,677
03/31/1999 $11,452 $10,908 $11,685 $11,786
04/30/1999 $11,554 $11,005 $11,721 $11,832
05/31/1999 $11,434 $10,891 $11,631 $11,701
06/30/1999 $11,392 $10,851 $11,639 $11,690
07/31/1999 $11,355 $10,816 $11,629 $11,653
08/31/1999 $11,331 $10,793 $11,638 $11,645
09/30/1999 $11,446 $10,902 $11,746 $11,773
10/31/1999 $11,478 $10,933 $11,777 $11,817
11/30/1999 $11,547 $10,998 $11,791 $11,846
12/31/1999 $11,543 $10,995 $11,752 $11,804
01/31/2000 $11,571 $11,021 $11,709 $11,753
02/29/2000 $11,698 $11,143 $11,805 $11,850
03/31/2000 $11,830 $11,269 $11,927 $11,951
04/30/2000 $11,703 $11,147 $11,900 $11,881
05/31/2000 $11,647 $11,093 $11,919 $11,875
06/30/2000 $11,955 $11,387 $12,129 $12,122
07/31/2000 $12,113 $11,538 $12,221 $12,234
08/31/2000 $12,298 $11,714 $12,365 $12,390
09/30/2000 $12,348 $11,761 $12,478 $12,511
10/31/2000 $12,291 $11,707 $12,535 $12,522
11/30/2000 $12,405 $11,816 $12,706 $12,671
12/31/2000 $12,672 $12,070 $12,939 $12,919
01/31/2001 $12,964 $12,349 $13,151 $13,192
02/28/2001 $13,142 $12,518 $13,275 $13,321
03/31/2001 $13,203 $12,575 $13,377 $13,432
04/30/2001 $13,191 $12,564 $13,343 $13,406
05/31/2001 $13,334 $12,701 $13,417 $13,508
06/30/2001 $13,373 $12,738 $13,467 $13,568
07/31/2001 $13,665 $13,016 $13,747 $13,885
08/31/2001 $13,831 $13,174 $13,884 $14,043
09/30/2001 $13,577 $12,932 $14,087 $14,130
10/31/2001 $13,791 $13,136 $14,321 $14,382
11/30/2001 $13,807 $13,151 $14,178 $14,271
12/31/2001 $13,732 $13,080 $14,100 $14,180
01/31/2002 $13,838 $13,180 $14,173 $14,269
02/28/2002 $13,886 $13,227 $14,285 $14,378
03/31/2002 $13,817 $13,160 $14,068 $14,156
04/30/2002 $14,097 $13,428 $14,300 $14,353
05/31/2002 $14,183 $13,509 $14,443 $14,548
06/30/2002 $14,114 $13,443 $14,567 $14,605
07/31/2002 $14,029 $13,363 $14,739 $14,653
08/31/2002 $14,231 $13,555 $14,959 $14,936
09/30/2002 $14,389 $13,705 $15,227 $15,217
10/31/2002 $14,093 $13,423 $15,167 $15,095
11/30/2002 $14,397 $13,713 $15,154 $15,220
12/31/2002 $14,718 $14,019 $15,484 $15,617
01/31/2003 $14,809 $14,106 $15,484 $15,661
02/28/2003 $15,067 $14,351 $15,702 $15,937
03/31/2003 $15,074 $14,358 $15,718 $15,970
04/30/2003 $15,453 $14,719 $15,837 $16,189
05/31/2003 $15,864 $15,110 $16,156 $16,602
06/30/2003 $15,977 $15,218 $16,144 $16,610
07/31/2003 $15,489 $14,753 $15,705 $16,100
08/31/2003 $15,540 $14,802 $15,743 $16,149
09/30/2003 $16,025 $15,264 $16,141 $16,630
10/31/2003 $16,072 $15,308 $15,990 $16,482
11/30/2003 $16,195 $15,426 $16,012 $16,531
12/31/2003 $16,417 $15,637 $16,151 $16,695
01/31/2004 $16,608 $15,819 $16,258 $16,828
02/29/2004 $16,717 $15,923 $16,424 $17,015
03/31/2004 $16,856 $16,055 $16,552 $17,165
04/30/2004 $16,516 $15,731 $16,160 $16,727
05/31/2004 $16,336 $15,560 $16,087 $16,622
06/30/2004 $16,439 $15,658 $16,135 $16,682
07/31/2004 $16,626 $15,836 $16,271 $16,852
08/31/2004 $16,932 $16,128 $16,542 $17,179
09/30/2004 $17,035 $16,226 $16,570 $17,242
10/31/2004 $17,229 $16,411 $16,681 $17,373
11/30/2004 $17,167 $16,352 $16,530 $17,221
12/31/2004 $17,346 $16,522 $16,642 $17,374
01/31/2005 $17,438 $16,609 $16,674 $17,424
02/28/2005 $17,429 $16,601 $16,582 $17,330
03/31/2005 $17,192 $16,375 $16,496 $17,171
04/30/2005 $17,335 $16,511 $16,684 $17,360
05/31/2005 $17,494 $16,663 $16,834 $17,544
06/30/2005 $17,657 $16,818 $16,905 $17,644
07/31/2005 $17,607 $16,771 $16,764 $17,502
08/31/2005 $17,787 $16,942 $16,960 $17,723
09/30/2005 $17,597 $16,761 $16,816 $17,551
10/31/2005 $17,438 $16,610 $16,724 $17,419
11/30/2005 $17,531 $16,698 $16,797 $17,503
12/31/2005 $17,682 $16,842 $16,903 $17,620
01/31/2006 $17,689 $16,848 $16,902 $17,615
02/28/2006 $17,765 $16,921 $16,913 $17,643
03/31/2006 $17,605 $16,769 $16,839 $17,527
04/30/2006 $17,548 $16,715 $16,847 $17,525
05/31/2006 $17,512 $16,680 $16,849 $17,520
06/30/2006 $17,494 $16,663 $16,874 $17,537
07/31/2006 $17,701 $16,860 $17,063 $17,756
08/31/2006 $17,982 $17,128 $17,277 $18,019
09/30/2006 $18,156 $17,294 $17,413 $18,181
10/31/2006 $18,293 $17,424 $17,505 $18,294
11/30/2006 $18,543 $17,662 $17,665 $18,495
12/31/2006 $18,434 $17,558 $17,592 $18,414
01/31/2007 $18,478 $17,600 $17,599 $18,427
02/28/2007 $18,812 $17,919 $17,842 $18,724
03/31/2007 $18,661 $17,777 $17,884 $18,729
The chart above shows the growth in value of a hypothetical $10,000 investment
in Class A shares of Columbia Income Fund during the stated time period, and
does not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. The Lehman Brothers
Intermediate Government/Credit Bond Index tracks the performance of
intermediate term US government and corporate bonds. The Lehman Brothers
Intermediate Credit Bond Index is the intermediate component of the U.S. Credit
Index. The U.S. Credit Index includes publicly issued US corporate and foreign
debentures and secured notes that meet specified maturity, liquidity, and
quality requirements. Indices are not investments, do not incur fees or
expenses and are not professionally managed. It is not possible to invest
directly in an index. Securities in the fund may not match those in an index.
Performance of a $10,000 investment 04/01/97 - 03/31/07 ($)
Sales charge without with
Class A 18,661 17,777
Class B 18,011 18,011
Class C 18,138 18,138
Class Z 19,043 n/a
Average annual total return as of 03/31/07 (%)
Share class A B C Z
------------------------------------------------------------
Inception 07/31/00 07/15/02 07/15/02 03/05/86
------------------------------------------------------------
Sales charge without with without with without with without
1-year 6.04 1.00 5.26 0.26 5.41 4.41 6.31
5-year 6.20 5.17 5.45 5.12 5.60 5.60 6.53
10-year 6.44 5.92 6.06 6.06 6.13 6.13 6.65
The "with sales charge" returns include the maximum initial sales charge of
4.75% for Class A shares, the maximum contingent deferred sales charge of 5.00%
in the first year, declining to 1.00% in the sixth year, and eliminated
thereafter for Class B shares and 1.00% for Class C shares for the first year
only. The "without sales charge" returns do not include the effect of sales
charges. If they had, returns would be lower.
Performance results reflect any waivers or reimbursements of fund expenses by
the investment advisor and/or any of its affiliates. Absent these waivers or
reimbursement arrangements, performance results would have been lower.
All results shown assume reinvestment of distributions. Performance for
different share classes will vary based on differences in sales charges and
fees associated with each class. Class Z shares are sold at net asset value
with no Rule 12b-1 fees. Class Z shares have limited eligibility and the
investment minimum requirements may vary. Please see the fund's prospectus for
details.
The table does not reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares.
The returns of Class A shares include returns of the fund's Class Z shares (the
oldest existing fund share class) for periods prior to the inception of Class A
shares. The returns of Class B and Class C shares include returns of the fund's
Class A shares for periods prior to the inception of Class B and Class C
shares, respectively. The returns of Class B and Class C shares also include
returns of the fund's Class Z shares for periods prior to the inception of
Class A shares. These returns have not been restated to reflect any differences
in expenses (such as Rule 12b-1 fees) between Class Z shares and Class A, Class
B or Class C shares or between Class A shares and Class B or Class C shares. If
differences in expenses had been reflected, the returns shown for Class A,
Class B and Class C shares for periods prior to the inception of Class A, Class
B and Class C shares, respectively, would have been lower. Class A shares were
initially offered on July 31, 2000, Class B and Class C shares were initially
offered on July 15, 2002, and Class Z shares were initially offered on March 5,
1986.
2
Understanding Your Expenses - Columbia Income Fund
Estimating your actual expenses
To estimate the expenses that you paid over the period, first you will need
your account balance at the end of the period:
. For shareholders who receive their account statements from Columbia
Management Services, Inc., your account balance is available online at
www.columbiafunds.com or by calling Shareholder Services at 800.345.6611.
. For shareholders who receive their account statements from their brokerage
firm, contact your brokerage firm to obtain your account balance.
1.Divide your ending account balance by $1,000. For example, if an account
balance was $8,600 at the end of the period, the result would be 8.6.
2.In the section of the table below titled "Expenses paid during the period,"
locate the amount for your share class. You will find this number in the
column labeled "actual." Multiply this number by the result from step 1.
Your answer is an estimate of the expenses you paid on your account during
the period.
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also ongoing costs, which generally
include investment advisory fees, Rule 12b-1 fees and other fund expenses. The
information on this page is intended to help you understand the ongoing costs
of investing in the fund and to compare these costs with the ongoing costs of
investing in other mutual funds.
Analyzing your fund's expenses by share class
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in each share class during the period. The
information in the following table is based on an initial investment of $1,000,
which is invested at the beginning of the reporting period and held for the
entire period. Expense information is calculated two ways and each method
provides you with different information. The amount listed in the "actual"
column is calculated using the fund's actual operating expenses and total
return for the period. The amount listed in the "hypothetical" column for each
share class assumes that the return each year is 5% before expenses and is
calculated based on the fund's actual operating expenses. You should not use
the hypothetical account values and expenses to estimate either your actual
account balance at the end of the period or the expenses you paid during this
reporting period.
Compare with other funds
Since all mutual funds are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this
information to compare the ongoing cost of investing in the fund with other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds. As you compare
hypothetical examples of other funds, it is important to note that hypothetical
examples are meant to highlight the ongoing cost of investing in a fund and do
not reflect any transaction costs, such as sales charges, redemption fees or
exchange fees.
10/01/06 - 03/31/07
Account value at the Account value at the Expenses paid Fund's annualized
beginning of the period ($) end of the period ($) during the period ($) expense ratio (%)
- -------------------------------------------------------------------------------------------------
Actual Hypothetical Actual Hypothetical Actual Hypothetical Actual
Class A 1,000.00 1,000.00 1,028.12 1,020.19 4.80 4.78 0.95
Class B 1,000.00 1,000.00 1,024.28 1,016.45 8.58 8.55 1.70
Class C 1,000.00 1,000.00 1,025.08 1,017.20 7.83 7.80 1.55
Class Z 1,000.00 1,000.00 1,029.42 1,021.44 3.54 3.53 0.70
Expenses paid during the period are equal to the annualized expense ratio for
the share class, multiplied by the average account value over the period, then
multiplied by the number of days in the fund's most recent fiscal half-year and
divided by 365.
Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, account value at the end of the period would
have been reduced.
It is important to note that the expense amounts shown in the table are meant
to highlight only ongoing costs of investing in the fund and do not reflect any
transaction costs, such as sales charges, redemption fees or exchange fees.
Therefore, the hypothetical examples provided may not help you determine the
relative total costs of owning shares of different funds. If these transaction
costs were included, your costs would have been higher.
3
Portfolio Managers' Report - Columbia Income Fund
Performance data quoted represents past performance and current performance
may be lower or higher. Past performance is no guarantee of future results.
The investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than the original cost. Please visit
www.columbiafunds.com for daily and most recent month-end performance updates.
Net asset value per share
as of 03/31/07 ($)
Class A 9.68
Class B 9.68
Class C 9.68
Class Z 9.68
Distributions declared per share
04/01/06 - 03/31/07 ($)
Class A 0.51
Class B 0.43
Class C 0.45
Class Z 0.53
For the 12-month period that ended March 31, 2007, Columbia Income Fund Class A
shares returned 6.04% without sales charge. The fund's return was lower than
the returns of its benchmarks, the Lehman Brothers Intermediate
Government/Credit Bond Index and the Lehman Brothers Intermediate Credit Bond
Index, which returned 6.14% and 6.82%, respectively, for the same period./1/
The fund's return was also lower than the average return of its peer group the
Lipper Corporate Debt Funds BBB Rated Classification, which was 6.88% for the
12-month period./2/ Allocation decisions within the financial sector accounted
for the performance shortfall.
The past 12 months were a fairly stable period for the fixed-income markets.
Three months into the period, the Federal Reserve Open Market Committee (the
Fed) suspended its two-year-long string of short-term interest rate hikes, and
stayed on the sidelines for the remainder of the period. Meanwhile, inflation
remained moderate enough to bring long-term rates down slightly. The net result
was a healthy bond market. While long-term bonds tended to outperform issues
with shorter maturities, solid gains were posted at all points of the maturity
spectrum.
Steady economic growth favored corporate bonds
The national economy managed to stay in a sweet spot characterized by strong
growth and the absence of undue inflationary pressures. The economy's steady
growth created a favorable environment for corporate bonds, consistent with a
general trend in which fixed-income investors were rewarded for assuming credit
risk. In particular, high-yield bonds were the top performing bond market
sector during the period. Our decision to overweight the high-yield sector
enabled the fund to maintain its competitiveness with other intermediate bond
funds.
However, this reward for risk-taking did not extend to the mortgage market.
Toward the end of the period, a surge in foreclosures experienced by subprime
lenders resulted in significant losses for low-quality mortgage pools. While
the fund's exposure to subprime securities was limited, many of its mortgage
holdings lost ground as investors worried that problems could spill over to
other areas of the market.
The fund's sector decisions experienced mixed results during the period.
Positions in the financial sector helped performance for the first six months,
then hampered performance in the second half, above and beyond subprime
concerns. A decision to underweight the insurance sector also hampered
performance as major carriers delivered above-average performance after a mild
hurricane year. We plan to add to the fund's insurance holdings because of the
balance sheet improvements created by the limited payouts of the past year and
limited subprime exposure. In addition, we believe insurers appear to be less
likely than other financial companies to be candidates for a private equity
transaction.
/1/The Lehman Brothers Intermediate Government/Credit Bond Index tracks the
performance of intermediate term US government and corporate bonds. The
Lehman Brothers Intermediate Credit Bond Index is the intermediate component
of the U.S. Credit Index. The U.S. Credit Index includes publicly issued US
corporate and foreign debentures and secured notes that meet specified
maturity, liquidity, and quality requirements. Indices are not investments,
do not incur fees, expenses or taxes and are not professionally managed. It
is not possible to invest directly in an index.
/2/Lipper Inc., a widely respected data provider in the industry, calculates an
average total return (assuming reinvestment of distributions) for mutual
funds with investment objectives similar to those of the fund. Lipper makes
no adjustment for the effect of sales loads.
4
Portfolio Managers' Report (continued) - Columbia Income Fund
Looking ahead
We plan to take a more neutral view of the high-yield market now that low
quality issues offer historically low yield advantages versus investment-grade
credits. The fund is currently overweight in AAA and BBB-rated bonds, whose
prospects we believe remain attractive given our constructive outlook for the
economy as a whole. While the bond market still faces an elevated risk of
shareholder-friendly leveraged transactions, we believe such risks are to a
large degree priced into today's yield levels.
Portfolio structure
as of 03/31/07 (%)
Corporate fixed-income
bonds & notes 77.6
Government & agency
obligations 9.9
Asset-backed securities 6.8
Mortgage-backed
securities 3.1
Collateralized mortgage
obligations 2.4
Cash equivalents, net other
assets & liabilities 0.2
Quality breakdown
as of 03/31/07 (%)
Aaa/AAA 14.7
Aa/AA 16.9
A 15.3
Baa/BBB 35.4
Ba/BB 7.8
B 7.1
Caa/CCC 1.6
Other 1.2
Maturity breakdown
as of 03/31/07 (%)
0-1 year 3.1
1-5 years 28.5
5-10 years 39.6
10-20 years 4.3
Over 20 years 24.5
Portfolio structure is calculated as a percentage of net assets. Quality and
maturity breakdowns are calculated as a percentage of total investments.
Ratings shown in the quality breakdown represent the rating assigned to a
particular bond by one of the following nationally-recognized rating
agencies: Standard and Poor's, a division of the McGraw-Hill Companies, Inc.,
Moody's Investors Service, Inc. or Fitch Ratings Ltd.
The fund is actively managed and the composition of its portfolio will change
over time.
SEC yields
as of 03/31/07 (%)
Class A 5.01
Class B 4.59
Class C 4.73
Class Z 5.57
The 30-day SEC yields reflect the portfolio's earning power net of expenses,
expressed as an annualized percentage of the public offering price at the end
of the period.
5
Fund Profile - Columbia Income Fund
Performance data quoted represents past performance and current performance
may be lower or higher. Past performance is no guarantee of future results.
The investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than the original cost. Please visit
www.columbiafunds.com for daily and most recent month-end performance updates.
Summary
12-month return as of 03/31/07
[GRAPHIC] +6.04%
Class A shares
(without sales charge)
[GRAPHIC] +6.14%
Lehman Brothers
Intermediate
Government/Credit Bond
Index
[GRAPHIC] + 6.82%
Lehman Brothers
Intermediate Credit Bond
Index
Management Style
Fixed-Income Maturity
[GRAPHIC]
Management style is determined by Columbia Management and is based on the
investment strategy and process as outlined in the fund's prospectus.
Summary
.. For the 12-month period that ended March 31, 2007, the fund's Class A shares
returned 6.04 % without sales charge.
.. The fund's return was lower than the return of its benchmark and the average
return of its peer group.
.. The fund had more exposure than the indices to high-yield bonds, the
best-performing sector of the fixed-income market, which benefited
performance. However, the composition of holdings in the financial sector
hurt relative performance in the second half of the period.
Portfolio Management
Kevin L. Cronk has co-managed the Columbia Income Fund since March 2003 and has
been with the advisor or its predecessors or affiliate organizations since 1999.
Thomas A. LaPointe has co-managed the fund since March 2003 and has been with
the advisor or its predecessors or affiliate organizations since 1999.
Carl W. Pappo has co-managed the fund since March 2005 and has been with the
advisor or its predecessors or affiliate organizations since 1993.
-----------------
Portfolio holdings and characteristics are subject to change and may not be
representative of current holdings and characteristics. The outlook for this
fund may differ from that presented for other Columbia Funds. Performance for
different classes of shares will vary based on differences in sales charges and
fees associated with each class. For standardized performance, please refer to
the Performance Information page.
Investing in fixed-income securities may involve certain risks, including the
credit quality of individual issuers, possible prepayments, market or economic
developments and yield and share price fluctuations due to changes in interest
rates. When interest rates go up, bond prices typically drop, and vice versa.
Investing in high-yield securities (commonly known as "junk" bonds) offers the
potential for high current income and attractive total return but involves
certain risks. Changes in economic conditions or other circumstances may
adversely affect a junk bond issuer's ability to make principal and interest
payments. Rising interest rates tend to lower the value of all bonds.
High-yield bonds issued by foreign entities have greater potential risks,
including less regulation, currency fluctuations, economic instability and
political developments.
6
Financial Statements - Columbia Income Fund
March 31, 2007
A guide to understanding your fund's
financial statements
-------------------------------------
Investment Portfolio The investment portfolio details all
of the fund's holdings and their
values as of the last day of the
reporting period. Portfolio holdings
are organized by type of asset,
industry, country or geographic
region (if applicable) to demonstrate
areas of concentration and
diversification.
-------------------------------------
Statement of Assets and This statement details the fund's
Liabilities assets, liabilities, net assets and
share price for each share class as
of the last day of the reporting
period. Net assets are calculated by
subtracting all the fund's
liabilities (including any unpaid
expenses) from the total of the
fund's investment and non-investment
assets. The share price for each
class is calculated by dividing net
assets for that class by the number
of shares outstanding in that class
as of the last day of the reporting
period.
-------------------------------------
Statement of Operations This statement details income earned
by the fund and the expenses accrued
by the fund during the reporting
period. This statement also shows any
net gain or loss the fund realized on
the sales of its holdings during the
period, as well as any unrealized
gains or losses recognized over the
period. The total of these results
represents the fund's net increase or
decrease in net assets from
operations.
-------------------------------------
Statement of Changes in Net This statement demonstrates how the
Assets fund's net assets were affected by
its operating results, distributions
to shareholders and shareholder
transactions (e.g., subscriptions,
redemptions and dividend
reinvestments) during the reporting
period. This statement also details
changes in the number of shares
outstanding.
-------------------------------------
Financial Highlights The financial highlights demonstrate
how the fund's net asset value per
share was affected by the fund's
operating results. The financial
highlights table also discloses
performance for each class of shares
and certain key ratios (e.g., class
expenses and net investment income as
a percentage of average net assets).
-------------------------------------
Notes to Financial Statements These notes disclose the
organizational background of the
fund, its significant accounting
policies (including those surrounding
security valuation, income
recognition and distributions to
shareholders), federal tax
information, fees and compensation
paid to affiliates and significant
risks and contingencies.
7
Investment Portfolio - Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes - 77.6%
Par ($) Value ($)
Basic Materials - 2.7%
Chemicals - 0.7%
BCP Crystal US Holdings Corp. 9.625% 06/15/14 215,000 244,223
Chemtura Corp. 6.875% 06/01/16 420,000 406,350
Dow Chemical Co. 6.000% 10/01/12 1,000,000 1,031,052
EquiStar Chemicals LP 10.625% 05/01/11 280,000 295,400
Huntsman International LLC 6.875% 11/15/13 (a) 170,000 233,907
7.875% 11/15/14 (a) 245,000 253,269
Ineos Group Holdings PLC 8.500% 02/15/16 (a) 500,000 478,750
Innophos Investments Holdings, PIK,
Inc. 13.374% 02/15/15 (b) 101,283 103,654
Lyondell Chemical Co. 8.000% 09/15/14 225,000 235,687
8.250% 09/15/16 305,000 326,350
MacDermid, Inc. 9.500% 04/15/17 (a)(c) 205,000 210,125
Mosaic Co. 7.625% 12/01/16 (a) 510,000 538,050
NOVA Chemicals Corp. 6.500% 01/15/12 350,000 333,375
----------------------------- --------- ----------
Chemicals Total 4,690,192
Forest Products & Paper - 1.5%
Abitibi-Consolidated, Inc. 8.375% 04/01/15 355,000 333,700
Domtar, Inc. 7.125% 08/15/15 395,000 393,025
Georgia-Pacific Corp. 8.000% 01/15/24 455,000 457,275
NewPage Corp. 10.000% 05/01/12 225,000 246,094
12.000% 05/01/13 220,000 238,700
Norske Skog Canada Ltd. 7.375% 03/01/14 1,200,000 1,161,000
Weyerhaeuser Co. 7.375% 03/15/32 6,610,000 6,924,484
----------------------------- --------- ----------
Forest Products & Paper Total 9,754,278
Metals & Mining - 0.5%
FMG Finance Ltd. 10.625% 09/01/16 (a) 635,000 730,250
Freeport-McMoRan Copper & Gold,
Inc. 8.375% 04/01/17 870,000 940,687
Vale Overseas Ltd. 6.250% 01/23/17 1,615,000 1,645,617
----------------------------- --------- ----------
Metals & Mining Total 3,316,554
Basic Materials Total 17,761,024
Communications - 12.1%
Media - 5.8%
Advanstar Communications, Inc. 12.000% 02/15/11 440,000 458,700
15.000% 10/15/11 (b) 100,000 104,500
See Accompanying Notes to Financial Statements.
8
Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Communications (continued)
Media (continued)
Atlantic Broadband Finance LLC 9.375% 01/15/14 360,000 368,100
Cablevision Systems Corp. 8.000% 04/15/12 355,000 360,325
Charter Communications Holdings I
LLC 9.920% 04/01/14 745,000 663,050
11.000% 10/01/15 420,000 435,750
Clear Channel Communications,
Inc. 4.900% 05/15/15 195,000 163,949
5.500% 12/15/16 305,000 257,297
7.650% 09/15/10 5,110,000 5,395,766
CMP Susquehanna Corp. 9.875% 05/15/14 (a) 380,000 389,500
Comcast Corp. 6.450% 03/15/37 2,000,000 2,002,280
CSC Holdings, Inc. 7.625% 04/01/11 640,000 656,000
7.625% 07/15/18 (d) 165,000 166,650
Dex Media West LLC 9.875% 08/15/13 1,033,000 1,127,261
DirecTV Holdings LLC 6.375% 06/15/15 470,000 446,500
EchoStar DBS Corp. 6.625% 10/01/14 635,000 638,969
Insight Midwest LP 9.750% 10/01/09 935,000 950,194
Lamar Media Corp. 6.625% 08/15/15 725,000 706,875
LIN Television Corp. 6.500% 05/15/13 545,000 533,419
PriMedia, Inc. 8.000% 05/15/13 460,000 476,100
Quebecor Media, Inc. 7.750% 03/15/16 450,000 462,375
R.H. Donnelley Corp. 8.875% 01/15/16 190,000 201,875
Reader's Digest Association, Inc. 9.000% 02/15/17 (a) 385,000 370,562
Telenet Group Holding NV (e) 06/15/14 (a)
(11.500% 12/15/08) 390,000 365,625
Time Warner, Inc. 5.875% 11/15/16 5,720,000 5,767,625
6.500% 11/15/36 3,445,000 3,435,247
Umbrella Acquisition, Inc. PIK,
9.750% 03/15/15 (a) 655,000 652,544
Viacom, Inc. 5.750% 04/30/11 4,580,000 4,642,856
6.875% 04/30/36 6,220,000 6,269,660
--------------------- --------- ----------
Media Total 38,469,554
See Accompanying Notes to Financial Statements.
9
Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Communications (continued)
Telecommunication Services - 6.3%
Cincinnati Bell, Inc. 7.000% 02/15/15 305,000 302,713
Citizens Communications Co. 7.875% 01/15/27 (a) 370,000 378,325
Cricket Communications, Inc. 9.375% 11/01/14 (a) 625,000 662,500
Digicel Group Ltd. PIK,
9.125% 01/15/15 (a)(b)(d) 660,000 625,334
Dobson Cellular Systems, Inc. 8.375% 11/01/11 300,000 318,375
9.875% 11/01/12 305,000 332,450
Intelsat Bermuda, Ltd. 11.250% 06/15/16 (a) 745,000 845,575
Intelsat Intermediate Holdings Co., (e) 02/01/15
Ltd. (9.250% 02/01/10) 315,000 261,450
Lucent Technologies, Inc. 6.450% 03/15/29 505,000 455,763
MetroPCS Wireless, Inc. 9.250% 11/01/14 (a) 510,000 539,325
Nextel Communications, Inc. 6.875% 10/31/13 (d) 2,495,000 2,556,030
7.375% 08/01/15 1,365,000 1,411,818
Nordic Telephone Co. Holdings ApS 8.875% 05/01/16 (a) 385,000 411,950
Orascom Telecom Finance SCA 7.875% 02/08/14 (a) 220,000 216,700
PanAmSat Corp. 9.000% 08/15/14 210,000 227,325
Qwest Corp. 7.500% 10/01/14 1,030,000 1,086,650
7.500% 06/15/23 100,000 101,625
8.875% 03/15/12 435,000 480,675
Rogers Wireless, Inc. 9.750% 06/01/16 1,200,000 1,512,000
Rural Cellular Corp. 11.110% 11/01/12 (b) 350,000 364,000
Sprint Capital Corp. 8.750% 03/15/32 5,300,000 6,251,451
Syniverse Technologies, Inc. 7.750% 08/15/13 340,000 334,050
Telecom Italia Capital SA 5.250% 11/15/13 7,050,000 6,835,271
7.200% 07/18/36 5,790,000 6,028,050
Time Warner Telecom Holdings, Inc. 9.250% 02/15/14 340,000 363,800
Verizon Communications, Inc. 6.250% 04/01/37 2,645,000 2,619,872
Virgin Media Finance PLC 8.750% 04/15/14 565,000 587,600
Vodafone Group PLC 5.750% 03/15/16 4,475,000 4,496,569
West Corp. 11.000% 10/15/16 (a) 445,000 469,475
Wind Acquisition Financial SA PIK,
12.610% 12/21/11 (b) 530,000 543,250
See Accompanying Notes to Financial Statements.
10
Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Communications (continued)
Telecommunication Services (continued)
Windstream Corp. 8.625% 08/01/16 525,000 574,219
-------------------------------- --------- ----------
Telecommunication Services Total 42,194,190
Communications Total 80,663,744
Consumer Cyclical - 8.8%
Airlines - 0.9%
Continental Airlines, Inc. 7.461% 04/01/15 3,850,165 4,018,610
Southwest Airlines Co. 5.750% 12/15/16 2,395,000 2,354,659
-------------------------------- --------- ----------
Airlines Total 6,373,269
Apparel - 0.2%
Broder Brothers Co. 11.250% 10/15/10 235,000 239,700
Hanesbrands, Inc. 8.735% 12/15/14 (a)(b) 185,000 188,469
Levi Strauss & Co. 9.750% 01/15/15 665,000 729,837
Phillips-Van Heusen Corp. 7.250% 02/15/11 440,000 449,900
-------------------------------- --------- ----------
Apparel Total 1,607,906
Auto Manufacturers - 0.4%
DaimlerChrysler NA Holding Corp. 8.500% 01/18/31 (d) 1,200,000 1,498,675
Ford Motor Co. 7.450% 07/16/31 485,000 375,269
General Motors Corp. 8.375% 07/15/33 750,000 673,125
-------------------------------- --------- ----------
Auto Manufacturers Total 2,547,069
Auto Parts & Equipment - 0.3%
ArvinMeritor, Inc. 8.125% 09/15/15 285,000 282,863
Commercial Vehicle Group, Inc. 8.000% 07/01/13 335,000 338,350
Goodyear Tire & Rubber Co. 8.625% 12/01/11 (a) 135,000 145,125
9.000% 07/01/15 385,000 422,537
HLI Operating Co., Inc. 10.500% 06/15/10 355,000 375,856
TRW Automotive, Inc. 7.000% 03/15/14 (a)(d) 550,000 539,000
-------------------------------- --------- ----------
Auto Parts & Equipment Total 2,103,731
Entertainment - 0.2%
Six Flags, Inc. 9.625% 06/01/14 370,000 347,800
Steinway Musical Instruments, Inc. 7.000% 03/01/14 (a) 385,000 379,225
WMG Acquisition Corp. 7.375% 04/15/14 285,000 271,463
WMG Holdings Corp. (e) 12/15/14
(9.500% 12/15/09) 385,000 294,525
-------------------------------- --------- ----------
Entertainment Total 1,293,013
See Accompanying Notes to Financial Statements.
11
Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Consumer Cyclical (continued)
Home Builders - 1.2%
D.R. Horton, Inc. 5.625% 09/15/14 (d) 4,570,000 4,343,602
5.625% 01/15/16 (d) 250,000 231,254
6.500% 04/15/16 2,240,000 2,190,713
K. Hovnanian Enterprises, Inc. 6.500% 01/15/14 500,000 447,500
KB Home 5.875% 01/15/15 570,000 503,025
----------------------- --------- ----------
Home Builders Total 7,716,094
Home Furnishings - 0.1%
Sealy Mattress Co. 8.250% 06/15/14 375,000 394,688
----------------------- --------- ----------
Home Furnishings Total 394,688
Housewares - 0.0%
Vitro SA de CV 9.125% 02/01/17 (a) 210,000 215,250
----------------------- --------- ----------
Housewares Total 215,250
Leisure Time - 0.1%
K2, Inc. 7.375% 07/01/14 220,000 218,350
Royal Caribbean Cruises Ltd. 7.000% 06/15/13 440,000 454,658
----------------------- --------- ----------
Leisure Time Total 673,008
Lodging - 1.6%
Chukchansi Economic Development
Authority 8.000% 11/15/13 (a) 365,000 377,319
Galaxy Entertainment Finance Co.,
Ltd. 9.875% 12/15/12 (a) 515,000 562,638
Greektown Holdings LLC 10.750% 12/01/13 (a) 610,000 652,700
Harrah's Operating Co., Inc. 5.625% 06/01/15 1,265,000 1,091,062
7.125% 06/01/07 2,250,000 2,258,437
Hyatt Equities LLC 6.875% 06/15/07 (a) 1,525,000 1,527,609
Jacobs Entertainment, Inc. 9.750% 06/15/14 385,000 393,663
Las Vegas Sands Corp. 6.375% 02/15/15 480,000 458,400
MGM Mirage, Inc. 7.625% 01/15/17 950,000 961,875
Mohegan Tribal Gaming Authority 6.875% 02/15/15 (d) 125,000 124,688
Pinnacle Entertainment, Inc. 8.250% 03/15/12 445,000 458,350
Seminole Hard Rock Entertainment,
Inc. 7.848% 03/15/14 (a)(b) 330,000 336,600
Station Casinos, Inc. 6.625% 03/15/18 405,000 360,450
6.875% 03/01/16 600,000 549,750
Wynn Las Vegas LLC 6.625% 12/01/14 600,000 594,000
----------------------- --------- ----------
Lodging Total 10,707,541
See Accompanying Notes to Financial Statements.
12
Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Consumer Cyclical (continued)
Retail - 3.8%
AmeriGas Partners LP 7.125% 05/20/16 260,000 260,650
Asbury Automotive Group, Inc. 7.625% 03/15/17 (a) 180,000 180,450
8.000% 03/15/14 350,000 357,875
Buffets, Inc. 12.500% 11/01/14 305,000 317,200
CVS Corp. 5.298% 01/11/27 (a) 1,398,020 1,333,837
CVS Lease Pass Through 6.036% 12/10/28 (a) 2,462,415 2,490,512
Dave & Buster's, Inc. 11.250% 03/15/14 330,000 336,600
Federated Department Stores, Inc. 6.900% 04/01/29 (d) 1,370,000 1,383,941
Federated Retail Holdings, Inc. 5.350% 03/15/12 645,000 643,311
5.900% 12/01/16 1,470,000 1,464,517
JC Penney Corp., Inc. 7.400% 04/01/37 6,095,000 6,585,123
Landry's Restaurants, Inc. 7.500% 12/15/14 270,000 265,950
Ltd. Brands, Inc. 6.950% 03/01/33 2,520,000 2,513,771
Michaels Stores, Inc. 11.375% 11/01/16 (a) 310,000 334,025
Rite Aid Corp. 7.500% 01/15/15 350,000 349,125
United Auto Group, Inc. 7.750% 12/15/16 (a) 310,000 313,100
Wal-Mart Stores, Inc. 4.125% 02/15/11 4,520,000 4,379,550
5.250% 09/01/35 1,975,000 1,793,977
--------------------- --------- ----------
Retail Total 25,303,514
Textiles - 0.0%
INVISTA 9.250% 05/01/12 (a) 230,000 244,950
--------------------- --------- ----------
Textiles Total 244,950
Consumer Cyclical Total 59,180,033
Consumer Non-Cyclical - 6.6%
Agriculture - 0.1%
Alliance One International, Inc. 8.500% 05/15/12 (a) 295,000 297,386
11.000% 05/15/12 290,000 319,000
Reynolds American, Inc. 7.625% 06/01/16 295,000 313,830
--------------------- --------- ----------
Agriculture Total 930,216
Beverages - 0.3%
Constellation Brands, Inc. 8.125% 01/15/12 428,000 442,980
Cott Beverages, Inc. 8.000% 12/15/11 255,000 260,100
SABMiller PLC 6.200% 07/01/11 (a) 1,500,000 1,548,812
--------------------- --------- ----------
Beverages Total 2,251,892
See Accompanying Notes to Financial Statements.
13
Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Consumer Non-Cyclical (continued)
Biotechnology - 0.8%
Bio-Rad Laboratories, Inc. 7.500% 08/15/13 1,200,000 1,236,000
Genentech, Inc. 4.400% 07/15/10 3,900,000 3,826,278
----------------------------- --------- ---------
Biotechnology Total 5,062,278
Commercial Services - 1.3%
ACE Cash Express, Inc. 10.250% 10/01/14 (a) 220,000 226,600
Ashtead Capital, Inc. 9.000% 08/15/16 (a) 340,000 362,100
Ashtead Holdings PLC 8.625% 08/01/15 (a) 365,000 381,425
Corrections Corp. of America 6.250% 03/15/13 315,000 315,000
Erac USA Finance Co. 6.750% 05/15/07 (a) 1,800,000 1,802,378
8.000% 01/15/11 (a) 1,800,000 1,965,942
GEO Group, Inc. 8.250% 07/15/13 480,000 500,400
Hertz Corp. 8.875% 01/01/14 415,000 447,162
Iron Mountain, Inc. 7.750% 01/15/15 300,000 306,000
Quebecor World Capital Corp. 8.750% 03/15/16 (a) 570,000 577,125
Quebecor World, Inc. 9.750% 01/15/15 (a) 220,000 231,000
Rental Services Corp. 9.500% 12/01/14 (a) 495,000 527,175
Service Corp. International 6.750% 04/01/16 260,000 258,700
United Rentals North America, Inc. 7.750% 11/15/13 380,000 390,450
----------------------------- --------- ---------
Commercial Services Total 8,291,457
Cosmetics/Personal Care - 0.1%
DEL Laboratories, Inc. 8.000% 02/01/12 400,000 373,000
Elizabeth Arden, Inc. 7.750% 01/15/14 430,000 438,600
----------------------------- --------- ---------
Cosmetics/Personal Care Total 811,600
Food - 1.1%
ConAgra Foods, Inc. 7.000% 10/01/28 1,850,000 1,969,656
Dean Foods Co. 7.000% 06/01/16 260,000 260,975
Dole Food Co., Inc. 8.625% 05/01/09 305,000 304,238
Kroger Co. 7.500% 04/01/31 (d) 1,655,000 1,803,559
8.000% 09/15/29 2,226,000 2,497,821
Pinnacle Foods Holding Corp. 8.250% 12/01/13 420,000 456,771
Reddy Ice Holdings, Inc. (e) 11/01/12
(10.500% 11/01/08) 280,000 254,800
----------------------------- --------- ---------
Food Total 7,547,820
See Accompanying Notes to Financial Statements.
14
Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Consumer Non-Cyclical (continued)
Healthcare Products - 0.1%
Advanced Medical Optics, Inc. 7.500% 05/01/17 (a)(c) 175,000 176,313
------------------------------ --------- ----------
Healthcare Products Total 176,313
Healthcare Services - 0.9%
Aetna, Inc. 6.000% 06/15/16 345,000 357,562
DaVita, Inc. 7.250% 03/15/15 405,000 409,556
HCA, Inc. 9.250% 11/15/16 (a) 345,000 372,169
PIK,
9.625% 11/15/16 (a) 985,000 1,063,800
MedQuest, Inc. 11.875% 08/15/12 285,000 259,350
Tenet Healthcare Corp. 9.875% 07/01/14 600,000 606,000
UnitedHealth Group, Inc. 3.300% 01/30/08 2,850,000 2,800,809
US Oncology Holdings, Inc. PIK,
9.797% 03/15/12 (a)(b) 660,000 666,600
------------------------------ --------- ----------
Healthcare Services Total 6,535,846
Household Products/Wares - 1.0%
American Greetings Corp. 7.375% 06/01/16 440,000 453,750
Amscan Holdings, Inc. 8.750% 05/01/14 415,000 407,737
Clorox Co. 5.480% 12/14/07 (b) 3,000,000 3,001,893
Fortune Brands, Inc. 5.125% 01/15/11 490,000 485,638
5.875% 01/15/36 2,000,000 1,785,802
Jarden Corp. 7.500% 05/01/17 430,000 434,300
Jostens IH Corp. 7.625% 10/01/12 310,000 315,425
------------------------------ --------- ----------
Household Products/Wares Total 6,884,545
Pharmaceuticals - 0.9%
Elan Finance PLC 8.875% 12/01/13 (a) 665,000 675,806
Merck & Co., Inc. 5.750% 11/15/36 1,095,000 1,062,253
Mylan Laboratories, Inc. 6.375% 08/15/15 635,000 627,062
NBTY, Inc. 7.125% 10/01/15 225,000 226,406
Omnicare, Inc. 6.750% 12/15/13 200,000 200,750
Warner Chilcott Corp. 8.750% 02/01/15 365,000 380,513
Wyeth 6.500% 02/01/34 2,500,000 2,648,090
------------------------------ --------- ----------
Pharmaceuticals Total 5,820,880
Consumer Non-Cyclical Total 44,312,847
See Accompanying Notes to Financial Statements.
15
Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Energy - 7.9%
Coal - 0.2%
Arch Western Finance LLC 6.750% 07/01/13 360,000 354,150
Massey Energy Co. 6.875% 12/15/13 380,000 360,525
Peabody Energy Corp. 7.375% 11/01/16 165,000 173,662
-------------------- --------- ---------
Coal Total 888,337
Oil & Gas - 6.1%
Anadarko Petroleum Corp. 6.450% 09/15/36 3,645,000 3,606,899
Canadian Natural Resources Ltd. 5.700% 05/15/17 2,510,000 2,498,396
6.250% 03/15/38 2,525,000 2,470,468
Chesapeake Energy Corp. 6.375% 06/15/15 300,000 298,500
7.500% 06/15/14 260,000 272,350
El Paso Production Holding Co. 7.750% 06/01/13 1,240,000 1,295,800
Gazprom International SA 7.201% 02/01/20 (a) 2,670,513 2,800,700
7.201% 02/01/20 133,526 140,035
Hess Corp. 7.125% 03/15/33 570,000 616,616
7.300% 08/15/31 1,445,000 1,592,808
Marathon Oil Corp. 6.000% 07/01/12 1,220,000 1,261,903
Murphy Oil Corp. 6.375% 05/01/12 1,350,000 1,401,016
Nexen, Inc. 5.875% 03/10/35 1,600,000 1,500,910
7.875% 03/15/32 2,100,000 2,485,997
Noble Drilling Corp. 7.500% 03/15/19 2,100,000 2,356,265
OPTI Canada, Inc. 8.250% 12/15/14 (a) 275,000 286,000
Pemex Project Funding Master
Trust 7.875% 02/01/09 1,200,000 1,251,000
9.125% 10/13/10 450,000 503,775
Petrobras International Finance Co. 8.375% 12/10/18 215,000 258,000
PetroHawk Energy Corp. 9.125% 07/15/13 420,000 447,300
Pride International, Inc. 7.375% 07/15/14 355,000 363,875
Qatar Petroleum 5.579% 05/30/11 (a) 1,050,000 1,055,430
Quicksilver Resources, Inc. 7.125% 04/01/16 315,000 310,275
Ras Laffan Liquefied Natural Gas
Co., Ltd. 3.437% 09/15/09 (a) 1,281,120 1,257,573
Ras Laffan Liquefied Natural Gas
Co., Ltd. III 5.832% 09/30/16 (a) 640,000 648,865
5.838% 09/30/27 (a) 1,200,000 1,146,756
See Accompanying Notes to Financial Statements.
16
Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Energy (continued)
Oil & Gas (continued)
Tesoro Corp. 6.625% 11/01/15 300,000 303,750
Valero Energy Corp. 6.875% 04/15/12 (d) 2,945,000 3,136,119
7.500% 04/15/32 4,795,000 5,448,693
------------------------ ---------- ----------
Oil & Gas Total 41,016,074
Oil & Gas Services - 0.0%
Seitel, Inc. 9.750% 02/15/14 (a) 215,000 217,688
------------------------ ---------- ----------
Oil & Gas Services Total 217,688
Pipelines - 1.6%
Atlas Pipeline Partners LP 8.125% 12/15/15 285,000 293,550
Colorado Interstate Gas Co. 6.800% 11/15/15 475,000 505,154
Energy Transfer Partners LP 6.125% 02/15/17 (d) 1,530,000 1,563,365
MarkWest Energy Partners LP 8.500% 07/15/16 520,000 542,100
Plains All American Pipeline LP 6.650% 01/15/37 (a) 6,330,000 6,435,141
Williams Companies, Inc. 6.375% 10/01/10 (a) 520,000 527,150
7.750% 06/15/31 80,000 85,600
8.125% 03/15/12 635,000 690,563
------------------------ ---------- ----------
Pipelines Total 10,642,623
Energy Total 52,764,722
Financials - 29.3%
Banks - 8.0%
Barclays Bank PLC 7.375% 06/29/49 (a) 3,900,000 4,227,304
Chinatrust Commercial Bank 5.625% 03/29/49 (a)(b) 825,000 805,627
HSBC Bank USA 3.875% 09/15/09 3,290,000 3,193,517
HSBC Capital Funding LP 9.547% 12/31/49 (a)(b) 2,700,000 3,036,004
HSBC Holdings PLC 6.500% 05/02/36 690,000 729,267
Lloyds TSB Group PLC 6.267% 12/31/49 (a)(b) 3,000,000 2,948,295
M&I Marshall & Ilsley Bank 5.300% 09/08/11 3,625,000 3,647,881
PNC Funding Corp. 5.125% 12/14/10 1,375,000 1,377,206
5.625% 02/01/17 1,990,000 2,004,280
Union Planters Corp. 4.375% 12/01/10 3,250,000 3,180,170
USB Capital IX 6.189% 04/15/49 (b) 12,930,000 13,257,724
Wachovia Capital Trust III 5.800% 03/15/42 (b) 6,185,000 6,258,762
Wachovia Corp. 4.375% 06/01/10 (d) 1,225,000 1,201,764
5.300% 10/15/11 5,795,000 5,828,362
See Accompanying Notes to Financial Statements.
17
Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Financials (continued)
Banks (continued)
Wells Fargo & Co. 5.455% 09/15/09 (b) 1,800,000 1,803,098
----------------------- --------- ----------
Banks Total 53,499,261
Diversified Financial Services - 12.7%
Air 2 US 8.027% 10/01/19 (a) 673,047 706,700
American Express Co. 6.800% 09/01/66 5,000,000 5,324,715
Ameriprise Financial, Inc. 7.518% 06/01/66 5,300,000 5,720,444
Buffalo Thunder Development
Authority 9.375% 12/15/14 (a) 185,000 188,700
Capital One Capital IV 6.745% 02/17/37 5,825,000 5,580,752
CIT Group, Inc. 5.850% 09/15/16 6,205,000 6,259,585
6.100% 03/15/67 (b) 1,045,000 1,007,283
Citigroup, Inc. 5.100% 09/29/11 3,165,000 3,163,687
Countrywide Financial Corp. 6.250% 05/15/16 (d) 470,000 473,771
Dow Jones CDX High Yield Index 7.625% 06/29/12 (a)(c) 1,900,000 1,873,875
E*Trade Financial Corp. 8.000% 06/15/11 350,000 368,375
Ford Motor Credit Co. 6.193% 09/28/07 (b) 3,000,000 2,999,847
7.375% 02/01/11 1,115,000 1,096,639
8.000% 12/15/16 305,000 293,484
Fund American Companies, Inc. 5.875% 05/15/13 1,557,000 1,557,450
General Electric Capital Corp. 5.475% 12/15/09 (b) 2,410,000 2,414,695
6.750% 03/15/32 5,040,000 5,710,481
General Motors Acceptance Corp. 6.875% 09/15/11 1,250,000 1,251,211
8.000% 11/01/31 1,200,000 1,286,573
Goldman Sachs Group, Inc. 5.300% 02/14/12 4,125,000 4,126,196
Idearc, Inc. 8.000% 11/15/16 (a) 625,000 642,969
International Lease Finance Corp. 4.875% 09/01/10 1,440,000 1,429,160
6.375% 03/15/09 1,550,000 1,586,856
JPMorgan Chase Capital XVIII 6.950% 08/17/36 6,695,000 6,977,837
JPMorgan Chase Capital XXII 6.450% 02/02/37 2,145,000 2,102,269
LaBranche & Co., Inc. 11.000% 05/15/12 450,000 490,500
Lehman Brothers Holdings, Inc. 5.450% 10/22/08 (b)(d) 600,000 600,545
5.500% 04/04/16 150,000 149,153
Morgan Stanley 5.750% 10/18/16 4,495,000 4,521,098
See Accompanying Notes to Financial Statements.
18
Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Financials (continued)
Diversified Financial Services (continued)
NSG Holdings LLC 7.750% 12/15/25 (a) 320,000 334,400
PF Export Receivables Master Trust 3.748% 06/01/13 (a) 763,449 720,245
Pinnacle Foods Finance LLC 9.250% 04/01/15 (a)(c) 370,000 363,525
10.625% 04/01/17 (a)(c) 295,000 290,206
Residential Capital LLC 6.375% 06/30/10 2,685,000 2,684,278
6.500% 04/17/13 7,675,000 7,602,134
Sally Holdings LLC 10.500% 11/15/16 (a) 310,000 318,525
Snoqualmie Entertainment
Authority 9.125% 02/01/15 (a) 70,000 72,187
9.150% 02/01/14 (a)(b) 70,000 71,225
Wimar Opco LLC 9.625% 12/15/14 (a) 460,000 461,725
Windsor Financing LLC 5.881% 07/15/17 (a) 2,275,158 2,282,188
------------------------------------ --------- ----------
Diversified Financial Services Total 85,105,488
Insurance - 3.5%
AMBAC Financial Group, Inc. 6.150% 02/15/37 (b) 1,065,000 1,002,587
Hartford Financial Services Group,
Inc. 4.700% 09/01/07 2,300,000 2,292,801
ING Groep NV 5.775% 12/29/49 (b)(d) 3,105,000 3,089,087
Liberty Mutual Group, Inc. 7.500% 08/15/36 (a) 4,010,000 4,284,148
7.800% 03/15/37 (a) 2,400,000 2,339,925
Metlife, Inc. 6.400% 12/15/36 4,845,000 4,730,624
Prudential Financial, Inc. 4.750% 06/13/15 1,075,000 1,023,661
Prudential Insurance Co. of America 7.650% 07/01/07 (a) 2,400,000 2,414,537
XL Capital Ltd. 6.500% 12/31/49 (b) 2,485,000 2,410,231
------------------------------------ --------- ----------
Insurance Total 23,587,601
Real Estate - 0.3%
Prudential Property 6.625% 04/01/09 (a) 1,800,000 1,846,903
------------------------------------ --------- ----------
Real Estate Total 1,846,903
Real Estate Investment Trusts (REITs) - 2.8%
Archstone-Smith Trust 5.750% 03/15/16 1,820,000 1,845,000
6.875% 02/15/08 148,250 148,177
Health Care Property Investors, Inc. 6.300% 09/15/16 3,865,000 3,961,923
7.072% 06/08/15 745,000 790,897
Highwoods Properties, Inc. 5.850% 03/15/17 (a) 830,000 823,948
See Accompanying Notes to Financial Statements.
19
Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Financials (continued)
Real Estate Investment Trusts (REITs) (continued)
Hospitality Properties Trust 5.625% 03/15/17 (a) 3,040,000 2,993,932
Host Marriott LP 6.750% 06/01/16 400,000 403,000
iStar Financial, Inc. 5.125% 04/01/11 (d) 850,000 841,996
8.750% 08/15/08 1,209,000 1,261,341
Liberty Property LP 5.500% 12/15/16 2,155,000 2,139,997
Rouse Co. LP 6.750% 05/01/13 (a) 825,000 840,784
Simon Property Group LP 5.875% 03/01/17 2,500,000 2,564,973
------------------------------------------- --------- -----------
Real Estate Investment Trusts (REITs) Total 18,615,968
Savings & Loans - 2.0%
Washington Mutual Bank 5.125% 01/15/15 2,815,000 2,700,531
Washington Mutual Preferred
Funding Delaware 6.534% 03/29/49 (a)(b) 8,800,000 8,657,264
Washington Mutual, Inc. 5.250% 09/15/17 2,120,000 2,015,176
------------------------------------------- --------- -----------
Savings & Loans Total 13,372,971
Financials Total 196,028,192
Industrials - 4.0%
Aerospace & Defense - 0.5%
DRS Technologies, Inc. 6.625% 02/01/16 315,000 318,150
L-3 Communications Corp. 6.375% 10/15/15 340,000 337,025
Raytheon Co. 5.500% 11/15/12 1,800,000 1,831,143
Sequa Corp. 9.000% 08/01/09 200,000 211,000
Systems 2001 Asset Trust 6.664% 09/15/13 (a) 608,984 641,888
------------------------------------------- --------- -----------
Aerospace & Defense Total 3,339,206
Building Materials - 0.2%
Goodman Global Holding Co., Inc. 7.875% 12/15/12 225,000 226,125
NTK Holdings, Inc. (e) 03/01/14
(10.750% 09/01/09) 650,000 471,250
Ply Gem Industries, Inc. 9.000% 02/15/12 340,000 294,950
------------------------------------------- --------- -----------
Building Materials Total 992,325
Electrical Components & Equipment - 0.1%
Belden CDT, Inc. 7.000% 03/15/17 (a) 405,000 413,109
General Cable Corp. 7.125% 04/01/17 (a) 170,000 171,062
7.725% 04/01/15 (a)(b) 170,000 170,000
------------------------------------------- --------- -----------
Electrical Components & Equipment Total 754,171
See Accompanying Notes to Financial Statements.
20
Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Industrials (continued)
Electronics - 0.4%
Flextronics International Ltd. 6.250% 11/15/14 770,000 744,975
NXP BV/NXP Funding LLC 9.500% 10/15/15 (a) 260,000 268,450
Thomas & Betts Corp. 7.250% 06/01/13 1,200,000 1,258,865
------------------------------------- --------- ---------
Electronics Total 2,272,290
Engineering & Construction - 0.0%
Esco Corp. 8.625% 12/15/13 (a) 180,000 190,800
------------------------------------- --------- ---------
Engineering & Construction Total 190,800
Environmental Control - 0.3%
Aleris International, Inc. 10.000% 12/15/16 (a) 260,000 271,700
PIK,
9.000% 12/15/14 (a) 260,000 274,300
Allied Waste North America, Inc. 7.125% 05/15/16 300,000 305,250
7.875% 04/15/13 950,000 985,625
Aventine Renewable Energy
Holdings, Inc. 10.000% 04/01/17 (a) 365,000 377,319
------------------------------------- --------- ---------
Environmental Control Total 2,214,194
Hand/Machine Tools - 0.0%
Baldor Electric Co. 8.625% 02/15/17 245,000 259,087
------------------------------------- --------- ---------
Hand/Machine Tools Total 259,087
Machinery-Construction & Mining - 0.3%
Caterpillar, Inc. 6.050% 08/15/36 1,400,000 1,429,018
Terex Corp. 7.375% 01/15/14 305,000 314,150
------------------------------------- --------- ---------
Machinery-Construction & Mining Total 1,743,168
Machinery-Diversified - 0.1%
Columbus McKinnon Corp. 8.875% 11/01/13 295,000 312,700
Manitowoc Co., Inc. 7.125% 11/01/13 300,000 306,000
------------------------------------- --------- ---------
Machinery-Diversified Total 618,700
Miscellaneous Manufacturing - 0.5%
American Railcar Industries, Inc. 7.500% 03/01/14 (a) 270,000 277,425
Bombardier, Inc. 6.300% 05/01/14 (a) 1,500,000 1,425,000
Covalence Specialty Materials Corp. 10.250% 03/01/16 (a) 430,000 430,000
Nutro Products, Inc. 10.750% 04/15/14 (a) 350,000 378,000
Trinity Industries, Inc. 6.500% 03/15/14 950,000 940,500
------------------------------------- --------- ---------
Miscellaneous Manufacturing Total 3,450,925
See Accompanying Notes to Financial Statements.
21
Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Industrials (continued)
Packaging & Containers - 0.3%
Crown Americas LLC & Crown
Americas Capital Corp. 7.750% 11/15/15 450,000 468,000
Jefferson Smurfit Corp. 8.250% 10/01/12 370,000 370,000
Owens-Brockway Glass Container,
Inc. 6.750% 12/01/14 1,200,000 1,188,000
Solo Cup Co. 8.500% 02/15/14 215,000 183,019
---------------------------- --------- ----------
Packaging & Containers Total 2,209,019
Transportation - 1.3%
BNSF Funding Trust I 6.613% 12/15/55 (b) 2,100,000 1,952,070
Burlington Northern Santa Fe Corp. 7.950% 08/15/30 945,000 1,117,352
CHC Helicopter Corp. 7.375% 05/01/14 385,000 374,412
FedEx Corp. 9.650% 06/15/12 (d) 600,000 713,835
Navios Maritime Holdings, Inc. 9.500% 12/15/14 (a) 325,000 338,406
PHI, Inc. 7.125% 04/15/13 315,000 300,825
QDI LLC 9.000% 11/15/10 245,000 235,200
Ship Finance International Ltd. 8.500% 12/15/13 420,000 430,500
Stena AB 7.500% 11/01/13 670,000 680,050
TFM SA de CV 9.375% 05/01/12 370,000 397,750
Union Pacific Corp. 6.650% 01/15/11 2,010,000 2,101,369
---------------------------- --------- ----------
Transportation Total 8,641,769
Industrials Total 26,685,654
Technology - 0.8%
Computers - 0.5%
Hewlett-Packard Co. 6.500% 07/01/12 (d) 3,000,000 3,190,758
Sungard Data Systems, Inc. 9.125% 08/15/13 300,000 321,750
---------------------------- --------- ----------
Computers Total 3,512,508
Semiconductors - 0.2%
Advanced Micro Devices, Inc. 7.750% 11/01/12 250,000 252,813
Freescale Semiconductor, Inc. 10.125% 12/15/16 (a)(d) 780,000 781,950
PIK,
9.125% 12/15/14 (a) 505,000 501,212
---------------------------- --------- ----------
Semiconductors Total 1,535,975
Software - 0.1%
Open Solutions, Inc. 9.750% 02/01/15 (a) 395,000 406,850
---------------------------- --------- ----------
Software Total 406,850
Technology Total 5,455,333
See Accompanying Notes to Financial Statements.
22
Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Utilities - 5.4%
Electric - 5.1%
AES Corp. 7.750% 03/01/14 805,000 845,250
Alabama Power Co. 5.550% 08/25/09 (b) 2,540,000 2,546,739
American Electric Power Co., Inc. 5.250% 06/01/15 (d) 1,825,000 1,795,189
Calpine Generating Co. LLC 14.370% 04/01/11 (f) 245,000 259,700
CMS Energy Corp. 6.875% 12/15/15 200,000 208,500
8.500% 04/15/11 125,000 135,937
Commonwealth Edison Co. 5.900% 03/15/36 690,000 640,414
6.950% 07/15/18 1,410,000 1,398,944
Dominion Resources, Inc. 5.663% 09/28/07 (b) 1,350,000 1,350,508
Dynegy Holdings, Inc. 7.125% 05/15/18 480,000 460,800
Edison Mission Energy 7.500% 06/15/13 405,000 418,162
FPL Energy American Wind LLC 6.639% 06/20/23 (a) 1,249,738 1,300,977
FPL Energy National Wind LLC 5.608% 03/10/24 (a) 209,217 206,524
Hydro Quebec 8.500% 12/01/29 1,620,000 2,244,729
ITC Holdings Corp. 5.250% 07/15/13 (a) 2,655,000 2,592,419
Kiowa Power Partners LLC 5.737% 03/30/21 (a) 1,190,000 1,163,237
MidAmerican Energy Holdings Co. 5.875% 10/01/12 2,700,000 2,779,726
Mirant Mid Atlantic LLC 8.625% 06/30/12 930,365 985,024
Mirant North America LLC 7.375% 12/31/13 435,000 445,875
Nevada Power Co. 9.000% 08/15/13 800,000 863,130
NRG Energy, Inc. 7.250% 02/01/14 300,000 307,500
7.375% 02/01/16 300,000 308,250
7.375% 01/15/17 55,000 56,444
Oncor Electric Delivery Co. 7.250% 01/15/33 1,800,000 2,011,118
Pacific Gas & Electric Co. 6.050% 03/01/34 2,500,000 2,506,117
Progress Energy, Inc. 7.750% 03/01/31 2,200,000 2,631,090
Southern California Edison Co. 5.625% 02/01/36 1,325,000 1,283,407
Southern Power Co. 6.375% 11/15/36 600,000 588,521
TECO Energy, Inc. 7.000% 05/01/12 600,000 633,000
Tenaska Alabama II Partners LP 6.125% 03/30/23 (a) 1,071,362 1,085,601
--------------------- --------- ----------
Electric Total 34,052,832
See Accompanying Notes to Financial Statements.
23
Columbia Income Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Utilities (continued)
Gas - 0.3%
Nakilat, Inc. 6.067% 12/31/33 (a) 1,385,000 1,335,805
Southern California Gas Co. 5.530% 12/01/09 (b) 1,055,000 1,057,467
------------------------------------------ ---------- -----------
Gas Total 2,393,272
Utilities Total 36,446,104
Total Corporate Fixed-Income Bonds & Notes
(Cost of $516,979,301) 519,297,653
Government & Agency Obligations - 9.9%
Foreign Government Obligations - 2.9%
Export-Import Bank of Korea 4.625% 03/16/10 (d) 1,550,000 1,528,449
Province of Manitoba 5.000% 02/15/12 170,000 170,944
Province of New Brunswick 5.200% 02/21/17 1,600,000 1,614,677
Province of Ontario 5.000% 10/18/11 505,000 507,654
5.450% 04/27/16 (d) 7,000,000 7,206,507
Province of Quebec 5.000% 03/01/16 3,835,000 3,799,526
State of Qatar 9.750% 06/15/30 (a) 1,650,000 2,458,500
Swedish Export Credit 5.125% 03/01/17 1,280,000 1,283,391
United Mexican States 6.750% 09/27/34 1,200,000 1,308,600
Foreign Government Obligations Total 19,878,248
U.S. Government Agencies - 3.8%
Federal Home Loan Bank System 4.850% 02/15/08 2,265,000 2,258,891
5.300% 01/16/09 3,250,000 3,250,140
Federal Home Loan Mortgage Corp. 5.000% 12/14/18 2,900,000 2,830,681
5.750% 06/27/16 1,750,000 1,815,851
6.000% 06/27/11 12,340,000 12,357,905
Federal National Mortgage
Association 6.000% 04/18/36 2,775,000 2,843,068
U.S. Government Agencies Total 25,356,536
U.S. Government Obligations - 3.2%
U.S. Treasury Bonds 4.500% 02/15/36 (d) 4,030,000 3,799,533
7.250% 08/15/22 (d) 700,000 875,492
U. S. Treasury Notes 4.625% 02/29/12 (d) 1,000,000 1,003,711
4.625% 02/15/17 (d)(g) 15,650,000 15,618,215
U.S. Government Obligations Total 21,296,951
Total Government & Agency Obligations
(Cost of $65,046,521) 66,531,735
See Accompanying Notes to Financial Statements.
24
Columbia Income Fund
March 31, 2007
Par ($) Value ($)
Asset-Backed Securities - 6.8%
AmeriCredit Automobile
Receivables Trust 3.930% 10/06/11 2,700,000 2,667,874
Bay View Auto Trust 4.550% 02/25/14 600,000 595,179
5.310% 06/25/14 1,110,000 1,107,233
Capital Auto Receivables Asset
Trust 5.500% 04/20/10 (a) 1,250,000 1,256,115
CIT Equipment Collateral 2.830% 12/20/11 1,597,318 1,594,939
Citicorp Residential Mortgage
Securities, Inc. 5.745% 03/25/37 3,300,000 3,299,901
Citigroup Mortgage Loan Trust, Inc. 5.517% 08/25/35 1,200,000 1,189,430
5.598% 03/25/36 1,000,000 995,612
5.666% 08/25/35 1,000,000 985,335
Countrywide Asset-Backed
Certificates 5.430% 06/25/21 (b) 2,106,203 2,105,531
Ford Credit Auto Owner Trust 5.470% 09/15/12 4,000,000 4,003,716
5.680% 06/15/12 1,500,000 1,516,697
GE Equipment Small Ticket LLC 4.620% 12/22/14 (a) 488,770 484,588
5.120% 06/22/15 (a) 1,642,930 1,649,328
Green Tree Financial Corp. 6.870% 01/15/29 657,876 681,547
GS Auto Loan Trust 4.980% 11/15/13 1,208,019 1,203,257
Harley-Davidson Motorcycle Trust 5.540% 04/15/15 1,400,000 1,410,523
Indymac Seconds Asset Backed
Trust 5.450% 06/25/36 (b) 2,092,870 2,092,528
JPMorgan Auto Receivables Trust 5.610% 12/15/14 (a) 3,000,000 3,019,997
JPMorgan Mortgage Acquisition
Corp. 5.627% 10/25/35 1,550,000 1,552,194
Long Beach Auto Receivables Trust 4.522% 06/15/12 3,200,000 3,166,342
Pinnacle Capital Asset Trust 5.770% 05/25/10 (a) 1,500,000 1,501,491
Providian Gateway Master Trust 3.350% 09/15/11 (a) 600,000 595,076
Residential Asset Mortgage
Products, Inc. 4.120% 06/25/33 419,753 411,335
Residential Asset Securities Corp. 5.430% 06/25/36 (b) 2,000,000 1,999,307
Residential Funding Mortgage
Securities II, Inc. 5.110% 09/25/35 1,500,000 1,429,618
Small Business Administration 5.570% 03/01/26 1,126,574 1,147,577
See Accompanying Notes to Financial Statements.
25
Columbia Income Fund
March 31, 2007
Asset-Backed Securities (continued)
Par ($) Value ($)
Soundview Home Equity Loan Trust 5.510% 11/25/35 (b) 630,722 630,620
WFS Financial Owner Trust 4.760% 05/17/13 1,200,000 1,188,327
-------------------------------- --------- ----------
Total Asset-Backed Securities
(Cost of $45,572,212) 45,481,217
Mortgage-Backed Securities - 3.1%
Federal Home Loan Mortgage Corp. 5.500% 07/01/21 2,141,926 2,146,452
Federal National Mortgage
Association 6.500% 11/01/36 1,914,325 1,952,852
9.000% 07/01/19 2,448 2,498
9.000% 06/01/20 53,340 57,284
TBA:
5.000% 04/17/22 (c) 1,800,000 1,774,688
5.000% 04/12/37 (c) 1,716,000 1,657,550
5.500% 04/12/37 (c) 5,300,000 5,243,688
6.000% 04/12/37 (c) 7,480,000 7,533,766
Government National Mortgage
Association 10.000% 10/15/17 3,970 4,412
10.000% 01/15/19 334 371
10.500% 01/15/16 9,994 11,121
10.500% 04/15/20 2,231 2,505
10.500% 05/15/20 7,193 8,075
11.500% 05/15/13 6,737 7,465
12.500% 11/15/10 3,856 4,229
12.500% 10/15/13 2,139 2,366
12.500% 11/15/13 3,015 3,355
12.500% 12/15/13 7,919 8,812
13.000% 04/15/11 32 36
14.000% 08/15/11 1,921 2,166
-------------------------------- --------- ----------
Total Mortgage-Backed Securities
(Cost of $20,409,684) 20,423,691
Collateralized Mortgage Obligations - 2.4%
Agency - 0.2%
Government National Mortgage
Association 4.954% 05/16/31 1,365,000 1,322,666
Agency Total 1,322,666
Non-Agency - 2.2%
Citigroup Mortgage Loan Trust, Inc. 5.844% 11/25/36 (b) 4,496,922 4,546,861
Countrywide Alternative Loan Trust 5.000% 03/25/20 4,072,122 4,032,671
5.500% 09/25/35 2,140,177 2,081,030
First Horizon Alternative Mortgage
Securities 5.978% 05/25/36 (b) 992,640 976,342
See Accompanying Notes to Financial Statements.
26
Columbia Income Fund
March 31, 2007
Collateralized Mortgage Obligations (continued)
Par ($) Value ($)
Non-Agency (continued)
Nomura Asset Acceptance Corp. 5.420% 08/25/36 (b) 669,010 669,146
Residential Accredit Loans, Inc. 5.500% 02/25/35 2,035,046 2,019,576
Wachovia Mortgage Loan Trust LLC 5.424% 05/20/36 (b) 498,631 492,803
Non-Agency Total 14,818,429
Total Collateralized Mortgage Obligations
(Cost of $16,184,059) 16,141,095
Shares
Securities Lending Collateral - 5.5%
State Street Navigator Securities Lending Prime
Portfolio (h) 36,572,712 36,572,712
----------------------------------------------------- ---------- -----------
Total Securities Lending Collateral
(Cost of $36,572,712) 36,572,712
Short-Term Obligations - 1.9%
Par ($)
Commercial Paper - 0.7%
Giro Funding US Corp. 5.319% 05/02/07 1,500,000 1,493,219
Lake Constance Funding LLC 5.245% 05/18/07 2,000,000 1,986,305
Versailles CDS LLC 5.541% 04/17/07 (i) 1,500,000 1,496,486
Commercial Paper Total 4,976,010
Repurchase Agreement - 1.2%
Repurchase agreement with Fixed Income Clearing
Corp., dated 03/30/07, due 04/02/07 at 5.060%,
collateralized by a U.S. Treasury Obligation maturing
02/15/10, market value of $8,080,000 (repurchase
proceeds $7,921,339) 7,918,000 7,918,000
Repurchase Agreement Total 7,918,000
Total Short-Term Obligations (Cost of $12,894,010) 12,894,010
----------------------------------------------------- ---------- -----------
Total Investments - 107.2% (Cost of $713,658,499)(j) 717,342,113
----------------------------------------------------- ---------- -----------
Other Assets & Liabilities, Net - (7.2)% (48,209,810)
----------------------------------------------------- ---------- -----------
Net Assets - 100.0% 669,132,303
Notes to Investment Portfolio:
(a)Security exempt from registration pursuant to
Rule 144A under the Securities Act of 1933. These
securities may be resold in transactions exempt
from registration, normally to qualified
institutional buyers. At March 31, 2007, these
securities, which are not illiquid, amounted to
$112,954,779, which represents 16.9% of net
assets.
(b)The interest rate shown on floating rate or
variable rate securities reflects the rate at
March 31, 2007.
(c)Security purchased on a delayed delivery basis.
(d)All or a portion of this security was on loan at
March 31, 2007. The total market value of
securities on loan at March 31, 2007 is
$35,787,675.
(e)Step bond. This security is currently not paying
coupon. Shown parenthetically is the next coupon
rate to be paid and the date the Fund will begin
accruing at this rate.
(f)The issuer is in default of certain debt
covenants. Income is not being accrued. At
March 31, 2007, the value of this security
represents 0.0% of net assets.
See Accompanying Notes to Financial Statements.
27
Columbia Income Fund
March 31, 2007
(g)This security or a portion of this security is
pledged as collateral for open futures contracts.
At March 31, 2007, the total market value of this
security pledged amounted to $349,289.
(h)Investment made with cash collateral received
from securities lending activity.
(i)The rate shown represents the discount rate at
the date of purchase.
(j)Cost for federal income tax purposes is
$715,330,173.
At March 31, 2007, the Fund held the following
open short futures contracts:
Number of Aggregate Expiration Unrealized
Type Contracts Face Value Value Date Appreciation
---- --------- ---------- ----- ---------- ------------
U.S. Treasury Bonds 243 $27,490,484 $27,033,750 Jun-2007 $456,734
At March 31, 2007, the Fund had entered into the
following forward currency exchange contract:
Forward Currency Aggregate Unrealized
Contract to Sell Value Face Value Settlement Date Depreciation
---------------- ----- ---------- --------------- ------------
EUR $227,240 $224,685 04/16/07 $(2,555)
At March 31, 2007, the asset allocation of the
Fund is as follows:
Asset Allocation (unaudited) % of Net Assets
---------------------------- ---------------
Corporate Fixed-Income Bonds & Notes 77.6
Government & Agency Obligations 9.9
Asset-Backed Securities 6.8
Mortgage-Backed Securities 3.1
Collateralized Mortgage Obligations 2.4
-----
99.8
Securities Lending Collateral 5.5
Short-Term Obligations 1.9
Other Assets & Liabilities, Net (7.2)
-----
100.0
=====
Acronym Name
------- ----
EUR Euro
PIK Payment-In-Kind
TBA To Be Announced
See Accompanying Notes to Financial Statements.
28
Statement of Assets and Liabilities - Columbia Income Fund
March 31, 2007
($)
Assets Investments, at cost 713,658,499
Investments, at value (including securities on loan of $35,787,675) 717,342,113
Cash 189,584
Receivable for:
Investments sold 8,229,127
Fund shares sold 1,306,751
Interest 8,877,860
Foreign tax reclaims 22,686
Securities lending 12,148
Futures variation margin 75,938
Deferred Trustees' compensation plan 34,133
Other assets 973
------------------------------------------------------------------- -----------
Total Assets 736,091,313
Liabilities Collateral on securities loaned 36,572,712
Unrealized depreciation on foreign forward currency contracts 2,555
Payable for:
Investments purchased 10,283,094
Investments purchased on a delayed delivery basis 17,435,850
Fund shares repurchased 524,508
Distributions 1,544,302
Investment advisory fee 232,693
Administration fee 72,622
Transfer agent fee 68,542
Pricing and bookkeeping fees 23,715
Trustees' fees 556
Custody fee 5,774
Distribution and service fees 55,613
Chief compliance officer expenses 3,447
Deferred Trustees' fees 34,133
Deferred dollar roll fee income 298
Other liabilities 98,596
------------------------------------------------------------------- -----------
Total Liabilities 66,959,010
------------------------------------------------------------------- -----------
Net Assets 669,132,303
Composition of Net Assets Paid-in capital 699,201,708
Overdistributed net investment income (1,545,918)
Accumulated net realized loss (32,661,394)
Net unrealized appreciation (depreciation) on:
Investments 3,683,614
Foreign currency translations (2,441)
Futures contracts 456,734
------------------------------------------------------------------- -----------
Net Assets 669,132,303
See Accompanying Notes to Financial Statements.
29
Statement of Assets and Liabilities (continued) - Columbia Income Fund
March 31, 2007
Class A Net assets $ 123,329,879
Shares outstanding 12,734,753
Net asset value per share $ 9.68(a)
Maximum sales charge 4.75%
Maximum offering price per share $ 10.16(b)
Class B
Net assets $ 20,105,394
Shares outstanding 2,076,040
Net asset value and offering price per share $ 9.68(a)
Class C
Net assets $ 16,659,922
Shares outstanding 1,720,269
Net asset value and offering price per share $ 9.68(a)
Class Z
Net assets $ 509,037,108
Shares outstanding 52,562,100
Net asset value, offering and redemption price per share $ 9.68
(a)Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b)On sales of $50,000 or more the offering price is reduced.
See Accompanying Notes to Financial Statements.
30
Statement of Operations - Columbia Income Fund
For the Year Ended March 31, 2007
($)
Investment Income Interest 34,068,797
Securities lending 65,373
Dollar roll fee income 64,512
-------------------------------------------------------- ----------
Total Investment Income 34,198,682
Expenses Investment advisory fee 2,323,876
Administration fee 724,625
Distribution fee:
Class B 165,706
Class C 111,794
Service fee:
Class A 277,207
Class B 55,274
Class C 37,231
Transfer agent fee 375,078
Pricing and bookkeeping fees 182,151
Trustees' fees 31,794
Custody fee 28,265
Chief compliance officer expenses 9,839
Other expenses 377,682
-------------------------------------------------------- ----------
Total Expenses 4,700,522
Fees waived by Distributor - Class C (22,439)
Custody earnings credit (7,861)
-------------------------------------------------------- ----------
Net Expenses 4,670,222
-------------------------------------------------------- ----------
Net Investment Income 29,528,460
Net Realized and Unrealized Gain Net realized loss on:
(Loss) on Investments, Foreign Investments (2,645,425)
Currency and Futures Contracts Foreign currency transactions (2,518)
Futures contracts (777,084)
Net realized loss on disposal of investments
purchased/sold in error (See Note 9) --
-------------------------------------------------------- ----------
Net realized loss (3,425,027)
Net change in unrealized appreciation (depreciation) on:
Investments 7,746,246
Foreign currency translations (2,441)
Futures contracts 456,734
-------------------------------------------------------- ----------
Net change in unrealized appreciation 8,200,539
-------------------------------------------------------- ----------
Net Gain 4,775,512
-------------------------------------------------------- ----------
Net Increase Resulting from Operations 34,303,972
See Accompanying Notes to Financial Statements.
31
Statement of Changes in Net Assets - Columbia Income Fund
Year Ended March 31,
Increase (Decrease) in Net Assets 2007 ($) 2006 ($)
Operations Net investment income 29,528,460 27,586,983
Net realized gain (loss) on investments, foreign
currency transactions and futures contracts (3,425,027) 3,366,286
Net change in unrealized appreciation
(depreciation) on investments, foreign
currency translations and futures contracts 8,200,539 (14,821,817)
------------------------------------------------ ----------- ------------
Net Increase Resulting from Operations 34,303,972 16,131,452
Distributions Declared From net investment income:
to Shareholders Class A (5,846,202) (5,077,776)
Class B (997,114) (1,084,622)
Class C (695,045) (535,188)
Class Z (22,774,908) (23,998,853)
------------------------------------------------ ----------- ------------
Total Distributions Declared to Shareholders (30,313,269) (30,696,439)
Share Transactions Class A:
Subscriptions 42,939,827 25,064,558
Distributions reinvested 4,324,217 3,387,392
Redemptions (25,146,508) (21,812,170)
------------------------------------------------ ----------- ------------
Net Increase 22,117,536 6,639,780
Class B:
Subscriptions 4,203,406 5,204,620
Distributions reinvested 698,684 722,045
Redemptions (8,588,862) (6,959,734)
------------------------------------------------ ----------- ------------
Net Decrease (3,686,772) (1,033,069)
Class C:
Subscriptions 7,515,193 5,382,863
Distributions reinvested 479,361 333,951
Redemptions (4,490,367) (3,202,512)
------------------------------------------------ ----------- ------------
Net Increase 3,504,187 2,514,302
Class Z:
Subscriptions 230,825,585 205,890,666
Distributions reinvested 10,941,745 17,019,845
Redemptions (87,074,414) (394,756,253)
------------------------------------------------ ----------- ------------
Net Increase (Decrease) 154,692,916 (171,845,742)
Net Increase (Decrease) from Share Transactions 176,627,867 (163,724,729)
------------------------------------------------ ----------- ------------
Total Increase (Decrease) in Net Assets 180,618,570 (178,289,716)
Net Assets Beginning of period 488,513,733 666,803,449
End of period 669,132,303 488,513,733
Overdistributed net investment income at end of
period (1,545,918) (2,311,329)
See Accompanying Notes to Financial Statements.
32
Statement of Changes in Net Assets (continued) - Columbia Income Fund
Year Ended March 31,
2007 2006
Changes in Shares Class A:
Subscriptions 4,465,996 2,548,855
Issued for distributions reinvested 448,389 344,181
Redemptions (2,610,548) (2,221,904)
------------------------------------ ---------- -----------
Net Increase 2,303,837 671,132
Class B:
Subscriptions 437,636 528,266
Issued for distributions reinvested 72,518 73,323
Redemptions (893,624) (706,644)
------------------------------------ ---------- -----------
Net Decrease (383,470) (105,055)
Class C:
Subscriptions 780,553 546,276
Issued for distributions reinvested 49,713 33,957
Redemptions (466,368) (325,025)
------------------------------------ ---------- -----------
Net Increase 363,898 255,208
Class Z:
Subscriptions 23,913,122 20,886,752
Issued for distributions reinvested 1,135,205 1,719,251
Redemptions (9,046,215) (40,012,824)
------------------------------------ ---------- -----------
Net Increase (Decrease) 16,002,112 (17,406,821)
See Accompanying Notes to Financial Statements.
33
Financial Highlights - Columbia Income Fund
Selected data for a share outstanding throughout each period is as follows:
Class A Shares
Period
Ended
Year Ended March 31, March 31, Year Ended June 30,
------------------------------ 2004 (a)(b) ------------------
2007 2006 2005 ----------- 2003 (c) 2002 (c)
- ------------------------------------------------------------------------------ ----------------------
Net Asset Value, Beginning of Period $ 9.62 $ 9.89 $ 10.21 $ 10.10 $ 9.44 $ 9.54
Income from Investment Operations:
Net investment income (d) 0.49 0.45 0.47 0.39 0.45 0.60
Net realized and unrealized gain (loss) on
investments, foreign currency and
futures contracts 0.08 (0.21) (0.27) 0.15 0.75 (0.08)
-------- -------- ------- ------- ------- ------
Total from Investment Operations 0.57 0.24 0.20 0.54 1.20 0.52
Less Distributions Declared to Shareholders:
From net investment income (0.51) (0.51) (0.52) (0.43) (0.54) (0.62)
Return of capital -- -- -- -- -- --(e)
-------- -------- ------- ------- ------- ------
Total Distributions Declared to Shareholders (0.51) (0.51) (0.52) (0.43) (0.54) (0.62)
Net Asset Value, End of Period $ 9.68 $ 9.62 $ 9.89 $ 10.21 $ 10.10 $ 9.44
Total return (f) 6.04%(g) 2.39% 2.00% 5.50%(h)(i) 13.18%(h) 5.53%
Ratios to Average Net Assets/
Supplemental Data:
Net operating expenses (j) 0.97% 1.01% 0.97% 1.14%(k) 1.23% 1.10%
Interest expense -- -- -- --%(k)(l) -- --
Net expenses (j) 0.97% 1.01% 0.97% 1.14%(k) 1.23% 1.10%
Net investment income (j) 5.13% 4.57% 4.66% 5.20%(k) 5.12% 6.32%
Waiver/Reimbursement -- -- -- 0.03%(k) 0.05% --
Portfolio turnover rate 142% 147% 36% 93%(i) 96% 136%(m)
Net assets, end of period (000's) $123,330 $100,295 $96,568 $92,053 $89,740 $ 204
(a)On October 13, 2003, the Liberty Income Fund was renamed Columbia Income
Fund.
(b)The Fund changed its fiscal year end from June 30 to March 31, effective
March 31, 2004.
(c)Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F Income
Portfolio, prior to the portfolio liquidation.
(d)Per share data was calculated using the average shares outstanding during
the period.
(e)Rounds to less than $0.01 per share.
(f)Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(g)Total return includes a voluntary reimbursement by the investment advisor
for a realized investment loss due to a trading error. This reimbursement
increased total return and net asset value per share by less than 0.01% and
less than $0.01, respectively.
(h)Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i)Not annualized.
(j)The benefits derived from custody credits had an impact of less than 0.01%.
(k)Annualized.
(l)Rounds to less than 0.01%.
(m)Portfolio turnover disclosed is for the SR&F Income Portfolio.
See Accompanying Notes to Financial Statements.
34
Financial Highlights - Columbia Income Fund
Selected data for a share outstanding throughout each period is as follows:
Class B Shares
Period Period
Ended Ended
Year Ended March 31, March 31, June 30,
---------------------------- 2004 (a)(b) 2003 (c)(d)
2007 2006 2005 ----------- -----------
- ---------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 9.62 $ 9.89 $ 10.21 $ 10.10 $ 9.47
Income from Investment Operations:
Net investment income (e) 0.42 0.38 0.39 0.33 0.40
Net realized and unrealized gain (loss) on investments,
foreign currency and futures contracts 0.07 (0.22) (0.27) 0.15 0.68
------- ------- ------- ------- -------
Total from Investment Operations 0.49 0.16 0.12 0.48 1.08
Less Distributions Declared to Shareholders:
From net investment income (0.43) (0.43) (0.44) (0.37) (0.45)
Net Asset Value, End of Period $ 9.68 $ 9.62 $ 9.89 $ 10.21 $ 10.10
Total return (f) 5.26%(g) 1.63% 1.25% 4.91%(h)(i) 11.78%(h)(i)
Ratios to Average Net Assets/Supplemental Data:
Net operating expenses (j) 1.72% 1.76% 1.72% 1.89%(k) 1.99%(k)
Interest expense -- -- -- --%(k)(l) --
Net expenses (j) 1.72% 1.76% 1.72% 1.89%(k) 1.99%(k)
Net investment income (j) 4.38% 3.83% 3.91% 4.46%(k) 4.39%(k)
Waiver/Reimbursement -- -- -- 0.03%(k) 0.11%(k)
Portfolio turnover rate 142% 147% 36% 93%(i) 96%(i)
Net assets, end of period (000's) $20,105 $23,649 $25,375 $29,534 $32,430
(a)On October 13, 2003, the Liberty Income Fund was renamed Columbia Income
Fund.
(b)The Fund changed its fiscal year end from June 30 to March 31, effective
March 31, 2004.
(c)Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F Income
Portfolio, prior to the portfolio liquidation.
(d)Class B shares were initially offered on July 15, 2002. Per share data and
total return reflect activity from that date.
(e)Per share data was calculated using the average shares outstanding during
the period.
(f)Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(g)Total return includes a voluntary reimbursement by the investment advisor
for a realized investment loss due to a trading error. This reimbursement
increased total return and net asset value per share by less than 0.01% and
less than $0.01, respectively.
(h)Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i)Not annualized.
(j)The benefits derived from custody credits had an impact of less than 0.01%.
(k)Annualized.
(l)Rounds to less than 0.01%.
See Accompanying Notes to Financial Statements.
35
Financial Highlights - Columbia Income Fund
Selected data for a share outstanding throughout each period is as follows:
Class C Shares
Period Period
Ended Ended
Year Ended March 31, March 31, June 30,
---------------------------- 2004 (a)(b) 2003 (c)(d)
2007 2006 2005 ----------- -----------
- ---------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 9.62 $ 9.89 $ 10.21 $10.10 $ 9.47
Income from Investment Operations:
Net investment income (e) 0.44 0.39 0.41 0.34 0.42
Net realized and unrealized gain (loss) on investments,
foreign currency and futures contracts 0.07 (0.21) (0.27) 0.15 0.68
------- ------- ------- ------ ------
Total from Investment Operations 0.51 0.18 0.14 0.49 1.10
Less Distributions Declared to Shareholders:
From net investment income (0.45) (0.45) (0.46) (0.38) (0.47)
Net Asset Value, End of Period $ 9.68 $ 9.62 $ 9.89 $10.21 $10.10
Total return (f)(g) 5.41%(h) 1.78% 1.40% 5.03%(i) 11.94%(i)
Ratios to Average Net Assets/Supplemental Data:
Net operating expenses (j) 1.57% 1.61% 1.57% 1.74% (k) 1.84%(k)
Interest expense -- -- -- --%(k)(l) --
Net expenses (j) 1.57% 1.61% 1.57% 1.74%(k) 1.84%(k)
Net investment income (j) 4.52% 3.96% 4.06% 4.52%(k) 4.51%(k)
Waiver/Reimbursement 0.15% 0.15% 0.15% 0.18%(k) 0.23%(k)
Portfolio turnover rate 142% 147% 36% 93%(i) 96%(i)
Net assets, end of period (000's) $16,660 $13,042 $10,895 $9,185 $5,522
(a)On October 13, 2003, the Liberty Income Fund was renamed Columbia Income
Fund.
(b)The Fund changed its fiscal year end from June 30 to March 31, effective
March 31, 2004.
(c)Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F Income
Portfolio, prior to the portfolio liquidation.
(d)Class C shares were initially offered on July 15, 2002. Per share data and
total return reflect activity from that date.
(e)Per share data was calculated using the average shares outstanding during
the period.
(f)Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(g)Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h)Total return includes a voluntary reimbursement by the investment advisor
for a realized investment loss due to a trading error. This reimbursement
increased total return and net asset value per share by less than 0.01% and
less than $0.01, respectively.
(i)Not annualized.
(j)The benefits derived from custody credits had an impact of less than 0.01%.
(k)Annualized.
(l)Rounds to less than 0.01%.
See Accompanying Notes to Financial Statements.
36
Financial Highlights - Columbia Income Fund
Selected data for a share outstanding throughout each period is as follows:
Class Z Shares
Period
Ended
Year Ended March 31, March 31, Year Ended June 30,
------------------------------- 2004 (a)(b) --------------------
2007 2006 2005 ----------- 2003 (c)(d) 2002 (d)
- ------------------------------------------------------------------------------- ------------------------
Net Asset Value, Beginning of Period $ 9.62 $ 9.89 $ 10.21 $ 10.10 $ 9.44 $ 9.54
Income from Investment Operations:
Net investment income (e) 0.52 0.48 0.49 0.41 0.53 0.63
Net realized and unrealized gain (loss) on
investments, foreign currency and
futures contracts 0.07 (0.22) (0.26) 0.16 0.71 (0.09)
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.59 0.26 0.23 0.57 1.24 0.54
Less Distributions Declared to
Shareholders:
From net investment income (0.53) (0.53) (0.55) (0.46) (0.58) (0.64)
Return of capital -- -- -- -- -- --(f)
-------- -------- -------- -------- -------- --------
Total Distributions Declared to Shareholders (0.53) (0.53) (0.55) (0.46) (0.58) (0.64)
Net Asset Value, End of Period $ 9.68 $ 9.62 $ 9.89 $ 10.21 $ 10.10 $ 9.44
Total return (g) 6.31%(h) 2.64% 2.33% 5.80%(i)(j) 13.61% 5.80%
Ratios to Average Net Assets/
Supplemental Data:
Net operating expenses (k) 0.72% 0.76% 0.72% 0.82%(l) 0.84% 0.85%
Interest expense -- -- -- --%(l)(m) -- --
Net expenses (k) 0.72% 0.76% 0.72% 0.82%(l) 0.84% 0.85%
Net investment income (k) 5.39% 4.82% 4.91% 5.46%(l) 5.51% 6.57%
Waiver/Reimbursement -- -- -- 0.02%(l) -- --
Portfolio turnover rate 142% 147% 36% 93%(j) 96% 136%(n)
Net assets, end of period (000's) $509,037 $351,529 $533,965 $425,402 $427,959 $327,121
(a)On October 13, 2003, the Liberty Income Fund was renamed Columbia Income
Fund.
(b)The Fund changed its fiscal year end from June 30 to March 31, effective
March 31, 2004.
(c)Effective July 15, 2002, the Stein Roe Income Fund's Class S shares were
renamed Liberty Income Fund Class Z shares.
(d)Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F Income
Portfolio, prior to the portfolio liquidation.
(e)Per share data was calculated using the average shares outstanding during
the period.
(f)Rounds to less than $0.01 per share.
(g)Total return at net asset value assuming all distributions reinvested.
(h)Total return includes a voluntary reimbursement by the investment advisor
for a realized investment loss due to a trading error. This reimbursement
increased total return and net asset value per share by less than 0.01% and
less than $0.01, respectively.
(i)Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(j)Not annualized.
(k)The benefits derived from custody credits had an impact of less than 0.01%.
(l)Annualized.
(m)Rounds to less than 0.01%.
(n)Portfolio turnover disclosed is for the SR&F Income Portfolio.
See Accompanying Notes to Financial Statements.
37
Notes to Financial Statements - Columbia Income Fund
March 31, 2007
Note 1. Organization
Columbia Income Fund (the "Fund"), a series of Columbia Funds Series Trust I
(the "Trust"), is a diversified portfolio. The Trust is a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company.
Investment Goal
The Fund seeks its total return by investing for a high level of current income
and, to a lesser extent, capital appreciation.
Fund Shares
The Fund may issue an unlimited number of shares and offers four classes of
shares: Class A, Class B, Class C and Class Z. Each share class has its own
sales charge and expense structure.
Class A shares are subject to a maximum front-end sales charge of 4.75% based
on the amount of initial investment. Class A shares purchased without an
initial sales charge in accounts aggregating up to $50 million at the time of
purchase are subject to a 1.00% contingent deferred sales charge ("CDSC") if
the shares are sold within twelve months of the time of the purchase. Class B
shares are subject to a maximum CDSC of 5.00% based upon the holding period
after purchase. Class B shares will convert to Class A shares eight years after
purchase. Class C shares are subject to a 1.00% CDSC on shares sold within one
year after purchase. Class Z shares are offered continuously at net asset
value. There are certain restrictions on the purchase of Class Z shares, as
described in the Fund's prospectus.
Note 2. Significant Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP") requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
Security Valuation
Debt securities generally are valued by pricing services approved by the Fund's
Board of Trustees, based upon market transactions for normal,
institutional-size trading units of similar securities. The services may use
various pricing techniques which take into account appropriate factors such as
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other data, as well as broker quotes. Debt securities for which quotations
are readily available are valued at an over-the-counter or exchange bid
quotation. Certain debt securities, which tend to be more thinly traded and of
lesser quality, are priced based on fundamental analysis of the financial
condition of the issuer and the estimated value of any collateral. Valuations
developed through pricing techniques may vary from the actual amounts realized
upon sale of the securities, and the potential variation may be greater for
those securities valued using fundamental analysis.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Forward currency exchange contracts are valued at the prevailing forward
exchange rate of the underlying currencies.
Futures contracts are valued at the settlement price established each day by
the board of trade or exchange on which they are traded.
Foreign securities are generally valued at the last sale price on the foreign
exchange or market on which they trade. If any foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local shares in the principal market in
which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange ("NYSE"). The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
generally determined at 4:00 p.m. Eastern (U.S.) time. Events affecting the
values of such foreign securities and such exchange rates may occur between the
times at which they are determined and the close of the customary trading
session of the NYSE, which would not be reflected in the computation of the
Fund's net asset value. If
38
Columbia Income Fund
March 31, 2007
events materially affecting the values of such foreign securities occur and it
is determined that market quotations are not reliable, then these foreign
securities will be valued at their fair value using procedures approved by the
Board of Trustees.
Investments for which market quotations are not readily available, or that have
quotations which management believes are not appropriate, are valued at fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees. If a
security is valued at "fair value", such value is likely to be different from
the last quoted market price for the security.
In September 2006, Statement of Financial Accounting Standards No. 157, Fair
Value Measurements ("SFAS 157"), was issued. SFAS 157 is effective for fiscal
years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is evaluating the impact the application of
SFAS 157 will have on the Fund's financial statement disclosures.
Security Transactions
Security transactions are accounted for on the trade date. Cost is determined
and gains (losses) are based upon the specific identification method for both
financial statement and federal income tax purposes.
Forward Foreign Currency Exchange Contracts
Forward foreign currency exchange contracts are agreements to exchange one
currency for another at a future date at a specified price. These contracts are
used to minimize the exposure to foreign exchange rate fluctuations during the
period between trade and settlement date. The Fund may utilize forward foreign
currency exchange contracts in connection with the settlement of purchases and
sales of securities. The Fund may also enter into these contracts to hedge
certain other foreign currency denominated assets. Contracts to buy generally
are used to acquire exposure to foreign currencies, while contracts to sell are
used to hedge the Fund's investments against currency fluctuations. Forward
currency contracts are valued daily at the current exchange rate of the
underlying currency, resulting in unrealized gains (losses) which become
realized at the time the foreign currency contracts are closed or mature.
Realized and unrealized gains (losses) arising from such transactions are
included in net realized and unrealized gains (losses) on foreign currency
transactions. The use of forward currency contracts does not eliminate
fluctuations in the prices of the Fund's portfolio securities. Although the
maximum potential loss from such contracts is the aggregate face value in U.S.
dollars at the time the contract was opened, exposure is typically limited to
the change in value of the contract (in U.S. dollars) over the period it
remains open. The Fund could also be exposed to risk if the counterparties of
the contracts are unable to fulfill the terms of the contracts. The
counterparty risk exposure is, therefore, closely monitored and contracts are
only executed with high credit quality financial institutions.
Repurchase Agreements
The Fund may engage in repurchase agreement transactions with institutions that
Columbia Management Advisors, LLC ("Columbia") has determined are creditworthy.
The Fund, through its custodian, receives delivery of underlying securities
collateralizing a repurchase agreement. Columbia is responsible for determining
that collateral is at least equal, at all times, to the value of the repurchase
obligation including interest. A repurchase agreement transaction involves
certain risks in the event of default or insolvency of the counterparty. These
risks include possible delays or restrictions upon the Fund's ability to
dispose of the underlying securities and a possible decline in the value of the
underlying securities during the period while the Fund seeks to assert its
rights.
Delayed Delivery Securities
The Fund may trade securities on other than normal settlement terms, including
securities purchased or sold on a "when-issued" basis. This may increase the
risk if the other party to the transaction fails to deliver and causes the Fund
to subsequently invest at less advantageous prices. The Fund holds until
settlement date, in a segregated account, cash or liquid securities in an
amount equal to the delayed delivery commitment.
Mortgage Dollar Roll Transactions
The Fund may enter into mortgage "dollar rolls" in which the Fund sells
securities for delivery in the current month and
39
Columbia Income Fund
March 31, 2007
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date not exceeding 120 days. During the roll period, the Fund loses the right
to receive principal and interest paid on the securities sold. However, the
Fund would benefit to the extent of any difference between the price received
for the securities sold and the lower forward price for the future purchase
(often referred to as the "drop") or fee income plus the interest earned on the
cash proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and gain
or loss due to mortgage prepayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this technique
will diminish the investment performance of the Fund compared with what such
performance would have been without the use of mortgage dollar rolls. All cash
proceeds will be invested in instruments that are permissible investments for
the Fund. The Fund will hold and maintain in a segregated account until the
settlement date, cash or liquid securities in an amount equal to the forward
purchase price.
The Fund's policy is to record the components of mortgage dollar rolls using
"to be announced" mortgage-backed securities ("TBA Dollar Rolls"). For
financial reporting and tax purposes, the Fund treats mortgage dollar rolls as
two separate transactions, one involving the purchase of a security and a
separate transaction involving a sale. The Fund does not currently enter into
mortgage dollar rolls that are accounted for as financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom the
Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than an instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon the investment advisor's ability to predict correctly interest
rates and mortgage prepayments. For these reasons, there is no assurance that
mortgage dollar rolls can be successfully employed.
Futures Contracts
The Fund may invest in futures contracts to gain or reduce exposure to
particular securities or segments of the bond markets. Derivatives are
financial instruments whose values depend on, or derived from, the value of the
underlying security, index, or currency. The Fund may use derivatives for both
hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to
changes in interest rates, or to offset a potential loss in one position by
establishing an opposite position. The fund typically uses derivatives in an
effort to achieve more efficiently economic exposure similar to those it could
have achieved through the purchase and sale of fixed income securities. The use
of futures contracts involves certain risks, which include: (1) imperfect
correlation between the price movement of the instruments and the underlying
securities, (2) inability to close out positions due to differing trading
hours, or the temporary absence of a liquid market, for either the instrument
or the underlying securities, or (3) an inaccurate prediction by Columbia of
the future direction of interest rates. Any of these risks may involve amounts
exceeding the variation margin recorded in the Fund's Statement of Assets and
Liabilities at any given time.
Upon entering into a futures contract, the Fund deposits cash or securities
with the broker in an amount sufficient to meet the initial margin requirement.
Subsequent payments are made or received by the Fund equal to the daily change
in the contract value and are recorded as variation margin receivable or
payable and offset in unrealized gains or losses. The Fund recognizes a
realized gain or loss when the contract is closed or expires.
Income Recognition
Interest income is recorded on the accrual basis. Premium and discount are
amortized and accreted, respectively, on all debt securities. Fee income
attributable to a mortgage dollar roll transaction is accrued over the term of
the transaction.
Foreign Currency Transactions
The values of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates. Net realized and
unrealized gains (losses) on foreign currency transactions include gains
(losses) arising from the fluctuation in exchange rates between trade and
settlement dates on securities transactions, gains (losses) arising from the
disposition of foreign currency and currency gains (losses) between the accrual
and payment dates on dividends, interest income and foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of
gains (losses) on investments which is due to changes in foreign exchange rates
from that which is due to changes in market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains (losses)
on investments in the Statement of Operations.
40
Columbia Income Fund
March 31, 2007
Determination of Class Net Asset Values
All income, expenses (other than class-specific expenses, as shown on the
Statement of Operations) and realized and unrealized gains (losses), are
allocated to each class of the Fund on a daily basis for purposes of
determining the net asset value of each class. Income and expenses are
allocated to each class based on the settled shares method, while realized and
unrealized gains (losses) are allocated based on the relative net assets of
each class.
Federal Income Tax Status
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code, as amended, and will distribute
substantially all of its taxable income, if any, for its tax year, and as such
will not be subject to federal income taxes. In addition, the Fund intends to
distribute in each calendar year substantially all of its net investment
income, capital gains and certain other amounts, if any, such that the Fund
should not be subject to federal excise tax. Therefore, no federal income or
excise tax provision is recorded.
Distributions to Shareholders
Distributions to shareholders are recorded on the ex-date. Dividends from net
investment income are declared daily and paid monthly. Net realized capital
gains, if any, are distributed at least annually.
Indemnification
In the normal course of business, the Fund enters into contracts that contain a
variety of representations and warranties and which provide general
indemnities. The Fund's maximum exposure under these arrangements is unknown,
as this would involve future claims against the Fund. Also, under the Fund's
organizational documents and by contract, the trustees and officers of the
Trust are indemnified against certain liabilities that may arise out of their
duties to the Trust. However, based on experience, the Fund expects the risk of
loss due to these representations, warranties and indemnities to be minimal.
Note 3. Federal Tax Information
The timing and character of income and capital gain distributions are
determined in accordance with income tax regulations, which may differ from
GAAP. Reclassifications are made to the Fund's capital accounts for permanent
tax differences to reflect income and gains available for distribution (or
available capital loss carryforwards) under income tax regulations.
For the year ended March 31, 2007, permanent book and tax basis differences
resulting primarily from differing treatments for in-kind redemptions, discount
accretion/premium amortization on debt securities and paydown gain/loss
reclasses were identified and reclassified among the components of the Fund's
net assets as follows:
Overdistributed Accumulated
Net Investment Net Realized
Income Loss Paid-In Capital
$1,550,220 $(1,430,526) $(119,694)
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended March 31, 2007
and March 31, 2006 was as follows:
March 31, 2007 March 31, 2006
Distributions paid from:
Ordinary Income* $30,313,269 $30,696,439
*For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
As of March 31, 2007, the components of distributable earnings on a tax basis
were as follows:
Undistributed Undistributed Net
Ordinary Long-Term Unrealized
Income Capital Gains Appreciation*
$1,163,993 $-- $2,011,940
*The differences between book-basis and tax-basis net unrealized appreciation
are primarily due to differing treatments of capital loss carryforwards,
futures contracts, forward currency contracts, distribution reclassifications
and discount accretion/premium amortization on debt securities and deferral of
losses from wash sales.
Unrealized appreciation and depreciation at March 31, 2007, based on cost of
investments for federal income tax purposes were:
Unrealized appreciation $ 8,750,055
Unrealized depreciation (6,738,115)
Net unrealized appreciation $ 2,011,940
41
Columbia Income Fund
March 31, 2007
The following capital loss carryforwards, determined as of March 31, 2007, may
be available to reduce taxable income arising from future net realized gains on
investments, if any, to the extent permitted by the Internal Revenue Code:
Year of Expiration Capital Loss Carryforward
2008 $ 7,932,135
2009 8,620,038
2010 1,393,345
2011 2,985,140
2014 3,731,648
2015 6,709,359
Total $31,371,665
Of the capital loss carryforwards attributable to the Fund, $10,086,973
($4,838,296 will expire March 31, 2008, $3,855,332 will expire March 31, 2009
and $1,393,345 will expire March 31, 2010) was obtained in a merger with
Liberty Income Fund.
Under current tax rules, certain currency and capital losses realized after
October 31 may be deferred and treated as occurring on the first day of the
following fiscal year. As of March 31, 2007, capital losses of $292,784
attributed to security transactions were deferred to April 1, 2007.
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109 (the "Interpretation"). This
Interpretation is effective on the last business day of the semiannual
reporting period for fiscal years beginning after December 15, 2006 and is to
be applied to open tax positions upon initial adoption. This Interpretation
prescribes a minimum recognition threshold and measurement method for the
financial statement recognition of tax positions taken or expected to be taken
in a tax return and also requires certain expanded disclosures. Management is
evaluating the application of this Interpretation to the Fund and has not at
this time quantified the impact, if any, resulting from the adoption of this
Interpretation on the Fund's financial statements.
Note 4. Fees and Compensation Paid to Affiliates
Investment Advisory Fee
Columbia, an indirect, wholly-owned subsidiary of Bank of America Corporation
("BOA"), is the investment advisor to the Fund. Columbia receives a monthly
investment advisory fee based on the Fund's average daily net assets at the
following annual rates:
Average Daily Net Assets Annual Fee Rate
First $500 million 0.420%
$500 million to $1 billion 0.375%
$1 billion to $1.5 billion 0.370%
$1.5 billion to $3 billion 0.340%
$3 billion to $6 billion 0.330%
Over $6 billion 0.320%
For the year ended March 31, 2007, the Fund's effective investment advisory fee
rate was 0.42% of the Fund's average daily net assets.
Administration Fee
Columbia provides administrative and other services to the Fund for a monthly
administration fee based on the Fund's average daily net assets at the
following annual rates:
Average Daily Net Assets Annual Fee Rate
First $100 million 0.150%
$100 million to $1 billion 0.125%
Over $1 billion 0.100%
For the year ended March 31, 2007, the Fund's effective administration fee rate
was 0.13% of the Fund's average daily net assets.
Pricing and Bookkeeping Fees
Effective December 15, 2006, the Fund entered into a Financial Reporting
Services Agreement with State Street Bank & Trust Company ("State Street") and
Columbia (the "Financial Reporting Services Agreement") pursuant to which State
Street provides financial reporting services to the Fund. Also effective
December 15, 2006, the Fund entered into an Accounting Services Agreement with
State Street and
42
Columbia Income Fund
March 31, 2007
Columbia (collectively with the Financial Reporting Services Agreement, the
"State Street Agreements") pursuant to which State Street provides accounting
services to the Fund. Under the State Street Agreements, the Fund pays State
Street an annual fee of $38,000 paid monthly plus an additional monthly fee
based on an annualized percentage rate of average daily net assets of the Fund
for the month. Under the State Street Agreements, the combined fee payable to
State Street by the Fund will not exceed $140,000 annually. The Fund also
reimburses State Street for certain out-of-pocket expenses.
Effective December 15, 2006, the Fund entered into a Pricing and Bookkeeping
Oversight and Services Agreement (the "Services Agreement") with Columbia.
Under the Services Agreement, Columbia provides services related to Fund
expenses and the requirements of the Sarbanes-Oxley Act of 2002, and provides
oversight of the accounting and financial reporting services provided by State
Street. Under the Services Agreement, the Fund reimburses Columbia for
out-of-pocket expenses and direct internal costs relating to accounting
oversight and for services related to Fund expenses and the requirements of the
Sarbanes-Oxley Act of 2002.
Prior to December 15, 2006, Columbia was responsible for providing pricing and
bookkeeping services to the Fund under a pricing and bookkeeping agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia was
entitled to receive an annual fee at the same fee structure described above
under the State Street Agreements. Under separate agreements between Columbia
and State Street, Columbia delegated certain functions to State Street. As a
result of the delegation, the total fees payable under the pricing and
bookkeeping agreement (other than certain reimbursements paid to Columbia and
discussed below) were paid to State Street. The Fund also reimbursed Columbia
and State Street for out-of-pocket expenses and charges, including fees payable
to third parties for pricing the Fund's portfolio securities and direct
internal costs incurred by Columbia in connection with providing fund
accounting oversight and monitoring and certain other services.
For the year ended March 31, 2007, the Fund's effective pricing and bookkeeping
fee rate, inclusive of out-of-pocket expenses, was 0.033% of the Fund's average
daily net assets.
Transfer Agent Fee
Columbia Management Services, Inc. (the "Transfer Agent"), an affiliate of
Columbia and an indirect, wholly-owned subsidiary of BOA, provides shareholder
services to the Fund and has contracted with Boston Financial Data Services
("BFDS") to serve as sub-transfer agent. The Transfer Agent is entitled to
receive a fee for its services, paid monthly, at the annual rate of $17.00 per
open account plus reimbursement of certain sub-transfer agent fees (exclusive
of BFDS fees) calculated based on assets held in omnibus accounts and intended
to recover the cost of payments to other parties (including affiliates of BOA)
for services to those accounts. The Transfer Agent pays the fees of BFDS for
services as sub-transfer agent and is not entitled to reimbursements for such
fees from the Fund. The Transfer Agent may also retain, as additional
compensation for its services, fees for wire, telephone and redemption orders,
IRA trustee agent fees and account transcript fees due the Transfer Agent from
shareholders of the Fund and credits (net of bank charges) earned with respect
to balances in accounts the Transfer Agent maintains in connection with its
services to the Fund. The Transfer Agent also receives reimbursement for
certain out-of-pocket expenses.
For the year ended March 31, 2007, the Fund's effective transfer agent fee
rate, inclusive of out-of-pocket expenses and sub-transfer agent fees, was
0.07% of the Fund's average daily net assets.
Underwriting Discounts, Service and Distribution Fees
Columbia Management Distributors, Inc. (the "Distributor"), an affiliate of
Columbia and an indirect, wholly-owned subsidiary of BOA, is the principal
underwriter of the Fund. For the year ended March 31, 2007, the Distributor has
retained net underwriting discounts of $17,869 on sales of the Fund's Class A
shares and net CDSC fees of $146, $42,193 and $4,239 on Class A, Class B and
Class C share redemptions, respectively.
The Fund has adopted a Rule 12b-1 plan (the "Plan") which allows the payment of
a monthly service fee to the Distributor at the annual rate of 0.25% of the
average daily net assets attributable to Class A, Class B and Class C shares of
the Fund. The Plan also requires the payment of a monthly distribution fee to
the Distributor at the annual rate of 0.75%
43
Columbia Income Fund
March 31, 2007
of the average daily net assets attributable to Class B and Class C shares
only. The Distributor has voluntarily agreed to waive a portion of the Class C
share distribution fee so that it will not exceed 0.60% annually of Class C
average daily net assets. These waivers may be modified or terminated by the
Distributor at any time.
The CDSC and the distribution fees received from the Plan are used principally
as repayment to the Distributor for amounts paid by the Distributor to dealers
who sold such shares.
Custody Credits
The Fund has an agreement with its custodian bank under which custody fees may
be reduced by balance credits. These credits are recorded as a reduction of
total expenses in the Statement of Operations. The Fund could have invested a
portion of the assets utilized in connection with the expense offset
arrangement in an income-producing asset if it had not entered into such an
agreement.
Fees Paid to Officers and Trustees
All officers of the Fund are employees of Columbia or its affiliates and, with
the exception of the Fund's Chief Compliance Officer, receive no compensation
from the Fund. The Board of Trustees has appointed a Chief Compliance Officer
to the Fund in accordance with federal securities regulations. The Fund, along
with other affiliated funds, pays its pro-rata share of the expenses associated
with the Chief Compliance Officer. The Fund's expenses for the Chief Compliance
Officer will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may
be terminated at any time. Obligations of the plan will be paid solely out of
the Fund's assets.
Other
Columbia provides certain services to the Fund related to the requirements of
the Sarbanes-Oxley Act of 2002. For the year ended March 31, 2007, the Fund
paid $2,875 to Columbia for such services. This amount is included in "Other
expenses" in the Statement of Operations.
Note 5. Portfolio Information
For the year ended March 31, 2007, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $954,353,413 and
$770,695,484, respectively, of which $271,381,164 and $306,200,420,
respectively, were U.S. Government securities.
Note 6. Line of Credit
The Trust and other affiliated funds participate in a $350,000,000 committed
unsecured revolving line of credit and a $150,000,000 uncommitted, unsecured
line of credit, both provided by State Street. Borrowings are available for
temporary or emergency purposes.
Interest on the committed line of credit is charged to each participating fund
based on the fund's borrowings at a rate per annum equal to the Federal Funds
Rate plus 0.50%. In addition, a commitment fee of 0.10% per annum is accrued
and apportioned among the participating funds based on their pro-rata portion
of the unutilized committed line of credit. Interest on the uncommitted line of
credit is charged to each participating fund based on the fund's borrowings at
a variable rate per annum equal to the Federal Funds Rate plus a spread, as
determined and quoted by State Street at the time of the request for a loan. A
one-time structuring fee of $30,000 is also accrued and apportioned to each
fund participating in the uncommitted line of credit based on the average net
assets of the participating funds. In addition, if the uncommitted line of
credit is extended for an additional period, an annual administration fee of
$15,000 will be charged and apportioned among the participating fund. The
commitment fee and structuring fee are included in "Other expenses" in the
Statement of Operations.
For the year ended March 31, 2007, the Fund did not borrow under this
arrangement.
Note 7. Shares of Beneficial Interest
As of March 31, 2007, the Fund had one shareholder that held 41.8% of the
shares outstanding. These shares were beneficially owned by participant
accounts over which BOA and/or its affiliates had either sole or joint
investment discretion. Subscription and redemption activity of these accounts
may have a significant effect on the operations of the Fund.
As of March 31, 2007, the Fund had one shareholder that held 8.6% of the shares
outstanding. These shares were beneficially owned by participant accounts over
which BOA
44
Columbia Income Fund
March 31, 2007
and/or its affiliates did not have investment discretion. Subscription and
redemption activity of these accounts may have a significant effect on the
operations of the Fund.
Note 8. Securities lending
The Fund commenced a securities lending program in August 2006 and may lend its
securities to certain approved brokers, dealers and other financial
institutions. Each loan is collateralized by cash, in an amount at least equal
to the market value of the securities loaned plus accrued income from the
investment of collateral. The market value of the loaned securities is
determined at the close of business of the Fund and any additional required
collateral is delivered to the Fund on the next business day. The collateral
received is invested and the income generated by the investment of the
collateral, net of any fees remitted to State Street as the lending agent and
borrower rebates, is paid to the Fund. Generally, in the event of borrower
default, the Fund has the right to use the collateral to offset any losses
incurred. In the event the Fund is delayed or prevented from exercising its
right to dispose of the collateral, there may be a potential loss to the Fund.
The Fund bears the risk of loss with respect to the investment of collateral.
Note 9. Other
During the year ended March 31, 2007, the Fund had a realized investment loss
in the amount of $3,209 due to a trading error. Columbia voluntarily reimbursed
the Fund for the loss.
Note 10. Disclosure of Significant Risks and Contingencies
High-Yield Securities
Investing in high-yield securities may involve greater credit risk and
considerations not typically associated with investing in U.S. Government bonds
and other higher quality fixed income securities. These securities are
non-investment grade securities, often referred to as "junk bonds". Economic
downturns may disrupt the high yield market and impair the ability of issuers
to repay principal and interest. Also, an increase in interest rates would
likely have an adverse impact on the value of such obligations. Moreover,
high-yield securities may be less liquid to the extent that there is no
established secondary market.
Sector Focus
Companies that are in different but closely related industries are sometimes
described as being in the same sector. Although the Fund does not intend to
focus on any particular sector, at times the Fund may have a large portion of
its assets invested in a particular sector. During such times, the Fund will
have greater exposure to the economic and market events affecting such sector
than if it were more broadly invested across multiple sectors.
Legal Proceedings
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged
into Banc of America Capital Management, LLC (now named Columbia Management
Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has
been renamed Columbia Management Distributors, Inc.) (the "Distributor")
(collectively, the "Columbia Group") entered into an Assurance of
Discontinuance with the New York Attorney General ("NYAG") (the "NYAG
Settlement") and consented to the entry of a cease-and-desist order by the
Securities and Exchange Commission ("SEC") (the "SEC Order") on matters
relating to mutual fund trading. The SEC Order and the NYAG Settlement are
referred to collectively as the "Settlements".
Under the terms of the SEC Order, the Columbia Group agreed, among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution
consultant (see below). The Columbia Funds have also voluntarily undertaken to
implement certain governance measures designed to maintain the independence of
their boards of trustees. The NYAG Settlement also, among other things,
requires Columbia and its affiliates to reduce management fees for certain
Columbia Funds (including the former Nations Funds) and other mutual funds
collectively by $32 million per year for five years, for a projected total of
$160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan that was
45
Columbia Income Fund
March 31, 2007
developed by an independent distribution consultant and approved by the SEC on
April 6, 2007.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov.
A copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with the events described above, various parties have filed suit
against certain funds, the Trustees of the Columbia Funds, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America and
its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation
transferred these cases and cases against other mutual fund companies based on
similar allegations to the United States District Court in Maryland for
consolidated or coordinated pretrial proceedings (the ''MDL''). Subsequently,
additional related cases were transferred to the MDL. On September 29, 2004,
the plaintiffs in the MDL filed amended and consolidated complaints. One of
these amended complaints is a putative class action that includes claims under
the federal securities laws and state common law, and that names Columbia, the
Distributor, the Trustees of the Columbia Funds, Bank of America Corporation
and others as defendants. Another of the amended complaints is a derivative
action purportedly on behalf of the Columbia Funds that asserts claims under
federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss
the claims in the pending cases. On March 1, 2006, for reasons stated in the
court's memoranda dated November 3, 2005, the U.S. District Court for the
District of Maryland granted in part and denied in part the defendants' motions
to dismiss. The court dismissed all of the class action claims pending against
the Columbia Funds Trusts. As to Columbia and the Distributor, the claims under
the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the
Investment Company Act of 1940 ("ICA") and the state law claims were dismissed.
The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and claims under Section 36(b) of the ICA were not dismissed.
On March 21, 2005, a purported class action was filed in Massachusetts state
court alleging that certain conduct, including market timing, entitled Class B
shareholders in certain Columbia funds to an exemption from contingent deferred
sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit was
removed to federal court in Massachusetts and the federal Judicial Panel
transferred the CDSC Lawsuit to the MDL.
On April 4, 2006, the plaintiffs and the Columbia defendants named in the MDL,
including the Columbia Funds, entered into a term sheet containing the
principal terms of a stipulation of settlement that would settle all
Columbia-related claims in the MDL described above, including the CDSC Lawsuit.
On April 6, 2006, the U.S. District Court for the District of Maryland stayed
all actions with respect to these Columbia-related claims. The settlement is
subject to court approval.
In 2004, the Columbia Funds' adviser and distributor and certain affiliated
entities and individuals were named as defendants in certain purported
shareholder class and derivative actions making claims, including claims under
the Investment Company and the Investment Advisers Acts of 1940 and state law.
Certain Columbia Funds were named as nominal defendants. The suits allege,
inter alia, that the fees and expenses paid by the funds are excessive and that
the advisers and their affiliates inappropriately used fund assets to
distribute the funds and for other improper purposes. On March 2, 2005, the
actions were consolidated in the Massachusetts federal court as In re Columbia
Entities Litigation. The plaintiffs filed a consolidated amended complaint on
June 9, 2005. On November 30, 2005, the judge dismissed all claims by
plaintiffs and entered final judgment in favor of the defendants. The
plaintiffs appealed to the United States Court of Appeals for the First Circuit
on December 30, 2005. A stipulation and settlement agreement dated January 19,
2007 was filed in the First Circuit on February 14, 2007, with a joint
stipulation of dismissal and motion for remand to obtain district court
approval of the settlement. That joint motion was granted and the appeal was
dismissed. On March 6, 2007, the case was remanded to the District Court. On
May 11, 2007, the District Court entered a preliminary approval order which
granted preliminary approval of the settlement. A final settlement hearing, at
which the District Court will determine whether the proposed settlement should
be finally approved and the action dismissed on the merits with prejudice, is
scheduled for September 18, 2007. The terms of the settlement, if finally
approved, will require payments by the funds' adviser and/or its affiliates,
including payment of plaintiffs' attorneys' fees and notice to class members.
In the event that the settlement is not finally approved, the plaintiffs may
elect to go forward with their appeal and no opinion is expressed regarding the
likely outcome or financial impact of such an appeal on any fund.
46
Report of Independent Registered Public Accounting Firm
To the Trustees of Columbia Funds Series Trust I and the Shareholders of
Columbia Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Columbia Income Fund (the "Fund")
(a series of Columbia Funds Series Trust I) at March 31, 2007, and the results
of its operations, the changes in its net assets and the financial highlights
for the periods indicated in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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 March 31, 2007 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion. The
financial highlights of the Fund for periods prior to July 1, 2003 were audited
by another independent registered public accounting firm whose report dated
August 19, 2003 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 25, 2007
47
Fund Governance - Columbia Income Fund
The Trustees serve terms of indefinite duration. The names, addresses and ages
of the Trustees and officers of the Funds of Columbia Funds Series Trust I, 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.
Independent Trustees
Name, address and year of birth, Principal occupation(s) during past five years, Number
Position with funds, Year first of portfolios in Columbia Funds Complex overseen by
elected or appointed to office/1/ trustee, Other directorships held
Douglas A. Hacker (Born 1955)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Independent business executive since May, 2006;
Advisors, LLC Executive Vice President-Strategy of United Airlines
One Financial Center (airline) from December, 2002 to May, 2006; President
Boston, MA 02111 of UAL Loyalty Services (airline marketing company)
Trustee (since 1996) from September, 2001 to December, 2002; Executive Vice
President and Chief Financial Officer of United
Airlines from July, 1999 to September, 2001. Oversees
75, Nash Finch Company (food distributor); Aircastle
Limited (aircraft leasing)
Janet Langford Kelly (Born 1957)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Deputy General Counsel-Corporate Legal Services,
Advisors, LLC ConocoPhillips (integrated petroleum company) since
One Financial Center August, 2006; Partner, Zelle, Hofmann, Voelbel, Mason
Boston, MA 02111 & Gette LLP (law firm) from March, 2005 to July, 2006;
Trustee (since 1996) Adjunct Professor of Law, Northwestern University,
from September, 2004 to June, 2006, Director, UAL
Corporation (airline) from February, 2006 to July,
2006; Chief Administrative Officer and Senior Vice
President, Kmart Holding Corporation (consumer goods),
from September, 2003 to March, 2004; Executive Vice
President-Corporate Development and Administration,
General Counsel and Secretary, Kellogg Company (food
manufacturer), from September, 1999 to August, 2003.
Oversees 75, None
Richard W. Lowry (Born 1936)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Private Investor since August, 1987 (formerly Chairman
Advisors, LLC and Chief Executive Officer, U.S. Plywood Corporation
One Financial Center (building products manufacturer) until 1987). Oversees
Boston, MA 02111 75, None
Trustee (since 1995)
Charles R. Nelson (Born 1943)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Professor of Economics, University of Washington,
Advisors, LLC since January, 1976; Ford and Louisa Van Voorhis
One Financial Center Professor of Political Economy, University of
Boston, MA 02111 Washington, since September, 1993; Director, Institute
Trustee (since 1981) for Economic Research, University of Washington from
September, 2001 to June, 2003; Adjunct Professor of
Statistics, University of Washington, since September,
1980; Associate Editor, Journal of Money Credit and
Banking, since September, 1993; Consultant on
econometric and statistical matters. Oversees 75, None
John J. Neuhauser (Born 1942)
- -----------------------------------------------------------------------------------------
c/o Columbia Management University Professor, Boston College since November,
Advisors, LLC 2005; Academic Vice President and Dean of Faculties,
One Financial Center Boston College from August, 1999 to October, 2005.
Boston, MA 02111 Oversees 75, None
Trustee (since 1985)
48
Fund Governance (continued) - Columbia Income Fund
Independent Trustees
Name, address and year of birth, Principal occupation(s) during past five years, Number
Position with funds, Year first of portfolios in Columbia Funds Complex overseen by
elected or appointed to office/1/ trustee, Other directorships held
Patrick J. Simpson (Born 1944)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Partner, Perkins Coie LLP (law firm). Oversees 75, None
Advisors, LLC
One Financial Center
Boston, MA 02111
Trustee (since 2000)
Thomas E. Stitzel (Born 1936)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Business Consultant since 1999; Chartered Financial
Advisors, LLC Analyst. Oversees 75, None
One Financial Center
Boston, MA 02111
Trustee (since 1998)
Thomas C. Theobald (Born 1937)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Partner and Senior Advisor, Chicago Growth Partners
Advisors, LLC (private equity investing) since September, 2004;
One Financial Center Managing Director, William Blair Capital Partners
Boston, MA 02111 (private equity investing) from September, 1994 to
Trustee and Chairman of the September, 2004. Oversees 75, Anixter International
Board/2/ (since 1996) (network support equipment distributor); Ventas, Inc.
(real estate investment trust); Jones Lang LaSalle
(real estate management services); Ambac Financial
Group (financial guaranty insurance)
Anne-Lee Verville (Born 1945)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Retired since 1997 (formerly General Manager, Global
Advisors, LLC Education Industry, IBM Corporation (computer and
One Financial Center technology) from 1994 to 1997). Oversees 75, None
Boston, MA 02111
Trustee (since 1998)
Interested Trustee
William E. Mayer (Born 1940)
- ------------------------------------------------------------------------------------
c/o Columbia Management Partner, Park Avenue Equity Partners (private equity)
Advisors, LLC since February, 1999; Dean and Professor, College of
One Financial Center Business, University of Maryland, 1992 to 1997.
Boston, MA 02111 Oversees 75, Lee Enterprises (print media), WR
Trustee/3/ (since 1994) Hambrecht + Co. (financial service provider); Reader's
Digest (publishing)
/1/In December 2000, the boards of each of the former Liberty Funds and former
Stein Roe Funds were combined into one board of trustees responsible for the
oversight of both fund groups (collectively, the "Liberty Board"). In
October 2003, the trustees on the Liberty Board were elected to the boards
of the Columbia Funds (the "Columbia Board") and of the CMG Fund Trust (the
"CMG Funds Board"); simultaneous with that election, Patrick J. Simpson who
had been a director on the Columbia Board and trustee on the CMG Funds
Board, was appointed to serve as trustee 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. Theobald was appointed as Chairman of the Board effective December 10,
2003.
/3/Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940) by reason of his affiliation with WR Hambrecht + Co.
The Statement of Additional Information includes additional information about
the Trustees of the Fund and is available, without charge, upon request by
calling 800-345-6611.
49
Fund Governance (continued) - Columbia Income Fund
Officers
Name, address and year of birth, Principal occupation(s) during past five years
Position with Columbia Funds, Year
first elected or appointed to office
Christopher L. Wilson (Born 1957)
- --------------------------------------------------------------------------------------------
One Financial Center President - Columbia Funds, since October 2004;
Boston, MA 02111 Managing Director - Columbia Management Advisors, LLC,
President (since 2004) since September 2004; Senior Vice President - Columbia
Management Distributors, Inc., since January 2005;
Director - Columbia Management Services, Inc., since
January 2005; Director - Bank of America Global
Liquidity Funds, plc and Banc of America Capital
Management (Ireland), Limited, since May 2005;
Director - FIM Funding, Inc., since January 2005;
President and Chief Executive Officer - CDC IXIS AM
Services, Inc. (asset management), from September 1998
through August 2004; and a senior officer or director
of various other Bank of America-affiliated entities,
including other registered and unregistered funds.
James R. Bordewick, Jr. (Born 1959)
- --------------------------------------------------------------------------------------------
One Financial Center Associate General Counsel, Bank of America since
Boston, MA 02111 April, 2005; Senior Vice President and Associate
Senior Vice President, Secretary General Counsel, MFS Investment Management (investment
and Chief Legal Officer (since 2006) management) prior to April, 2005.
J. Kevin Connaughton (Born 1964)
- --------------------------------------------------------------------------------------------
One Financial Center Treasurer - Columbia Funds, since October 2003;
Boston, MA 02111 Treasurer - the Liberty Funds, Stein Roe Funds and
Senior Vice President, Liberty All-Star Funds, December 2000 - December 2006;
Chief Financial Officer and Vice President - Columbia Management Advisors, Inc.,
Treasurer (since 2000) since April 2003; President - Columbia Funds, Liberty
Funds and Stein Roe Funds, February 2004 to October
2004; Treasurer - Galaxy Funds, September 2002 to
December 2005; Treasurer, December 2002 to December
2004, and President, February 2004 to December 2004 -
Columbia Management Multi-Strategy Hedge Fund, LLC;
and a senior officer of various other Bank of
America-affiliated entities, including other
registered and unregistered funds.
Linda J. Wondrack (Born 1964)
- --------------------------------------------------------------------------------------------
One Financial Center Director (Columbia Management Group LLC and Investment
Boston, MA 02111 Product Group Compliance), Bank of America since June
Senior Vice President, 2005; Director of Corporate Compliance and Conflicts
Chief Compliance Officer Officer, MFS Investment Management (investment
(since 2007) management), August 2004 to May 2005; Managing
Director, Deutsche Asset Management (investment
management) prior to August 2004.
Michael G. Clarke (Born 1969)
- --------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Managing Director of the Advisor
Chief Accounting Officer and September, 2004 to December, 2005; Vice President Fund
Assistant Treasurer (since 2004) Administration of the Advisor June, 2002 to September,
2004. Vice President Product Strategy and Development
of the Advisor from February, 2001 to June, 2002.
Jeffrey R. Coleman (Born 1969)
- --------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Fund Controller of the Advisor from
Deputy Treasurer (since 2006) October 2004 to January 2006; Vice President of CDC
IXIS Asset Management Services, Inc. (investment
management) from August, 2000 to September, 2004.
50
Fund Governance (continued) - Columbia Income Fund
Officers
Name, address and year of birth, Principal occupation(s) during past five years
Position with Columbia Funds, Year
first elected or appointed to office
Joseph F. DiMaria (Born 1968)
- --------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Head of Tax/Compliance and Assistant
Deputy Treasurer (since 2006) Treasurer of the Advisor from November, 2004 to
December, 2005; Director of Trustee Administration
(Sarbanes-Oxley) of the Advisor from May, 2003 to
October, 2004; Senior Audit Manager,
PricewaterhouseCoopers (independent registered public
accounting firm) from July, 2000 to April, 2003.
Ty S. Edwards (Born 1966)
- --------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Vice President of the Advisor from
Deputy Treasurer (since 2006) July, 2002 to December, 2005; Assistant Vice President
and Director, State Street Corporation (financial
services) prior to 2002.
Barry S. Vallan (Born 1969)
- --------------------------------------------------------------------------------------------
One Financial Center Vice President - Fund Treasury of the Advisor since
Boston, MA 02111 October, 2004; Vice President - Trustee Reporting of
Controller (since 2006) the Advisor from April, 2002 to October, 2004;
Management Consultant, PricewaterhouseCoopers
(independent registered public accounting firm) prior
to October, 2002.
51
Board Consideration and Approval of Investment Advisory Agreements
The Advisory Fees and Expenses Committee of the Board of Trustees meets one or
more times annually to review the advisory agreements (collectively, the
"Agreements") of the funds for which the Trustees serve as trustees (each a
"fund") and determine whether to recommend that the full Board approve the
continuation of the Agreements for an additional one-year period. After the
Committee has made its recommendation, the full Board, including the
Independent Trustees, determines whether to approve the continuation of the
Agreements. In addition, the Board, including the Independent Trustees,
considers matters bearing on the Agreements at most of its other meetings
throughout the year and meets regularly with the heads of each investment area
within Columbia. Through the Board's Investment Oversight Committees, Trustees
also meet with selected fund portfolio managers at various times throughout the
year.
The Trustees receive and review all materials that they, their legal counsel or
Columbia, the funds' investment adviser, believe to be reasonably necessary for
the Trustees to evaluate the Agreements and determine whether to approve the
continuation of the Agreements. Those materials generally include, among other
items, (i) information on the investment performance of each fund relative to
the performance of peer groups of mutual funds and the fund's performance
benchmarks, (ii) information on each fund's advisory fees and other expenses,
including information comparing the fund's expenses to those of peer groups of
mutual funds and information about any applicable expense caps and fee
"breakpoints," (iii) information about the profitability of the Agreements to
Columbia, including potential "fall-out" or ancillary benefits that Columbia
and its affiliates may receive as a result of their relationships with the
funds and (iv) information obtained through Columbia's response to a
questionnaire prepared at the request of the Trustees by counsel to the funds
and independent legal counsel to the Independent Trustees. The Trustees also
consider other information such as (v) Columbia's financial results and
financial condition, (vi) each fund's investment objective and strategies and
the size, education and experience of Columbia's investment staffs and their
use of technology, external research and trading cost measurement tools, (vii)
the allocation of the funds' brokerage, if any, and the use of "soft"
commission dollars to pay for research products and services, (viii) Columbia's
resources devoted to, and its record of compliance with, the funds' investment
policies and restrictions, policies on personal securities transactions and
other compliance policies, (ix) Columbia's response to various legal and
regulatory proceedings since 2003 and (x) the economic outlook generally and
for the mutual fund industry in particular. In addition, the Advisory Fees and
Expenses Committee confers with the funds' independent fee consultant and
reviews materials relating to the funds' relationships with Columbia provided
by the independent fee consultant. Throughout the process, the Trustees have
the opportunity to ask questions of and request additional materials from
Columbia and to consult with independent legal counsel to the Independent
Trustees and the independent fee consultant.
The Board of Trustees most recently approved the continuation of the Agreements
at its October, 2006 meeting, following meetings of the Advisory Fees and
Expenses Committee held in August, September and October, 2006. In considering
whether to approve the continuation of the Agreements, the Trustees, including
the Independent Trustees, did not identify any single factor as determinative,
and each weighed various factors as he or she deemed appropriate. The Trustees
considered the following matters in connection with their approval of the
continuation of the Agreements:
The nature, extent and quality of the services provided to the funds under the
Agreements. The Trustees considered the nature, extent and quality of the
services provided by Columbia and its affiliates to the funds and the resources
dedicated to the funds by Columbia and its affiliates. Among other things, the
Trustees considered (i) Columbia's ability (including its personnel and other
resources, compensation programs for personnel involved in fund management,
reputation and other attributes) to attract and retain highly qualified
research, advisory and supervisory investment professionals; (ii) the portfolio
management services provided by those investment professionals; and (iii) the
trade execution services provided on behalf of the funds. For each fund, the
Trustees also considered the benefits to shareholders of investing in a mutual
fund that is part of a family of funds offering exposure to a variety of asset
classes and investment disciplines and providing a variety of fund and
shareholder services. After reviewing those and related factors, the Trustees
concluded, within the context of their
52
overall conclusions regarding each of the Agreements, that the nature, extent
and quality of services provided supported the continuation of the Agreements.
Investment performance of the funds and Columbia. The Trustees reviewed
information about the performance of each fund over various time periods,
including information prepared by an independent third party that compared the
performance of each fund to the performance of peer groups of mutual funds and
performance benchmarks. The Trustees also reviewed a description of the third
party's methodology for identifying each fund's peer group for purposes of
performance and expense comparisons. The Trustees also considered additional
information that the Advisory Fees and Expenses Committee requested from
Columbia relating to funds that presented relatively weaker performance and/or
relatively higher expenses.
In the case of each fund whose performance lagged that of a relevant peer group
for certain (although not necessarily all) periods, the Trustees concluded that
other factors relevant to performance were sufficient, in light of other
considerations, to warrant continuation of the fund's Agreements. Those factors
varied from fund to fund, but included one or more of the following: (i) that
the fund's performance, although lagging in certain recent periods, was
stronger over the longer term; (ii) that the underperformance was attributable,
to a significant extent, to investment decisions that were reasonable and
consistent with the fund's investment strategy and policies and that the fund
was performing as expected, given these investment decisions, market conditions
and the fund's investment strategy; (iii) that the fund's performance was
competitive when compared to other relevant performance benchmarks or peer
groups; (iv) that Columbia had taken or was taking steps designed to help
improve the fund's investment performance, including, but not limited to,
replacing portfolio managers or modifying investment strategies; and (v) that
the fund was proposed to be reorganized into another fund, and that such
reorganization would result in a reduction in fund expenses.
The Trustees also considered Columbia's performance and reputation generally,
the funds' performance as a fund family generally, and Columbia's historical
responsiveness to Trustee concerns about performance and Columbia's willingness
to take steps intended to improve performance.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
performance of each fund and Columbia was sufficient, in light of other
considerations, to warrant the continuation of the Agreement(s) pertaining to
that fund.
The costs of the services provided and profits realized by Columbia and its
affiliates from their relationships with the funds. The Trustees considered the
fees charged to the funds for advisory services as well as the total expense
levels of the funds. That information included comparisons (provided by
management and by an independent third party) of each fund's advisory fees and
total expense levels to those of the fund's peer groups and information about
the advisory fees charged by Columbia to comparable institutional accounts. In
considering the fees charged to those accounts, the Trustees took into account,
among other things, management's representations about the differences between
managing mutual funds as compared to other types of accounts, including
differences in the services provided, differences in the risk profile of such
business for Columbia, and the additional resources required to manage mutual
funds effectively. In evaluating each fund's advisory fees, the Trustees also
took into account the demands, complexity and quality of the investment
management of the fund. The Trustees considered existing advisory fee
breakpoints, and Columbia's use of advisory fee waivers and expense caps, which
benefited a number of the funds. The Trustees also noted management's stated
justification for the fees charged to the funds, which included information
about the investment performance of the funds and the services provided to the
funds. The Trustees also considered the compensation directly or indirectly
received by Columbia and its affiliates from their relationships with the
funds. The Trustees reviewed information provided by management as to the
profitability to Columbia and its affiliates of their relationships with each
fund, and information about the allocation of expenses used to calculate
profitability. When reviewing profitability, the Trustees also considered court
cases in which adviser profitability was an issue in whole or in part, the
performance of the relevant funds, the expense level of each fund, and whether
Columbia had implemented breakpoints and/or expense caps with respect to the
fund.
53
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
advisory fees charged to each fund, and the related profitability to Columbia
and its affiliates of their relationships with the fund, supported the
continuation of the Agreement(s) pertaining to that fund.
Economies of Scale. The Trustees considered the existence of any economies of
scale in the provision by Columbia of services to each fund, to groups of
related funds, and to Columbia's investment advisory clients as a whole and
whether those economies were shared with the funds through breakpoints in the
investment advisory fees or other means, such as expense waivers/reductions and
additional investments by Columbia in investment, trading and compliance
resources. The Trustees noted that many of the funds benefited from
breakpoints, expense caps, or both. In considering those issues, the Trustees
also took note of the costs of the services provided (both on an absolute and a
relative basis) and the profitability to Columbia and its affiliates of their
relationships with the funds, as discussed above.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
extent to which economies of scale were shared with the funds supported the
continuation of the Agreements.
Other Factors. The Trustees also considered other factors, which included but
were not limited to the following:
.. the extent to which each fund had operated in accordance with its investment
objective and investment restrictions, the nature and scope of the compliance
programs of the funds and Columbia and the compliance-related resources that
Columbia and its affiliates were providing to the funds;
.. the nature, quality, cost and extent of administrative and shareholder
services performed by Columbia and its affiliates, both under the Agreements
and under separate agreements for the provision of transfer agency and
administrative services;
.. so-called "fall-out benefits" to Columbia and its affiliates, such as the
engagement of its affiliates to provide distribution, brokerage and transfer
agency services to the funds, and the benefits of research made available to
Columbia by reason of brokerage commissions generated by the funds'
securities transactions, as well as possible conflicts of interest associated
with those fall-out and other benefits, and the reporting, disclosure and
other processes in place to disclose and monitor those possible conflicts of
interest; and
.. the draft report provided by the funds' independent fee consultant, which
included information about and analysis of the funds' fees, expenses and
performance.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel and the independent fee consultant, the Trustees, including
the Independent Trustees, approved the continuance of each of the Agreements
through October 31, 2007.
54
Summary of Management Fee Evaluation by Independent Fee Consultant
Prepared Pursuant to the February 9, 2005 Assurance of Discontinuance between
the Office of Attorney General of New York State and Columbia Management
Advisors, Inc. and Columbia Funds Distributor, Inc. October 11, 2006
I. Overview
Columbia Management Advisors, LLC ("CMA") and Columbia Funds Distributors,
Inc./1/ ("CFD") agreed on February 9, 2005 to the New York Attorney General's
Assurance of Discontinuance ("AOD"). Among other things, the AOD stipulates
that CMA may manage or advise a Columbia Fund ("Fund" and together with all
such funds or a group of such funds as the "Funds") only if the Independent
Members of the Fund's Board of Trustees (such Independent Members of the Fund's
Board together with the other members of the Fund's Board, referred to as the
"Trustees") appoint a Senior Officer or retain an Independent Fee Consultant
("IFC") who is to manage the process by which proposed management fees are
negotiated. The AOD further stipulates that the Senior Officer or IFC is to
prepare a written annual evaluation of the fee negotiation process.
On September 14, 2006, the Independent Members of the Funds' Boards retained me
as IFC for the Funds. In this capacity, I have prepared the second annual
written evaluation of the fee negotiation process. I am successor to the first
IFC, Erik Sirri, who prepared the annual evaluation in 2005 and who contributed
to the second annual written evaluation until his resignation as IFC in August
2006 to become Director of the Division of Market Regulation at the U.S.
Securities and Exchange Commission./2/
A. Role of the Independent Fee Consultant
The AOD charges the IFC with "managing the process by which proposed management
fees...to be charged the Columbia Fund are negotiated so that they are
negotiated in a manner which is at arms' length and reasonable and consistent
with this Assurance of Discontinuance." In this role, the IFC does not replace
the Trustees in negotiating management fees with CMA, and the IFC does not
substitute his or her judgment for that of the Trustees about the
reasonableness of proposed fees. As the AOD states, CMA "may manage or advise a
Columbia Fund only if the reasonableness of the proposed management fees is
determined by the Board of Trustees...using...an annual independent written
evaluation prepared by or under the direction of...the Independent Fee
Consultant."
B. Elements Involved in Managing the Fee Negotiation Process
Managing the fee negotiation process has three elements. One involves reviewing
the information provided by CMG to the Trustees for evaluating the proposed
management fees and augmenting that information, as necessary, with additional
information from CMG or other sources and with further analyses of the
information and data. The second element involves reviewing the information and
analysis relative to at least the following six factors set forth in the AOD:
1.The nature and quality of CMA's services, including the Fund's performance;
2.Management fees (including any components thereof) charged by other mutual
fund companies for like services;
3.Possible economies of scale as the Fund grows larger;
4.Management fees (including any components thereof) charged to institutional
and other clients of CMA for like services;
5.Costs to CMA and its affiliates of supplying services pursuant to the
management fee agreements, excluding any intra-corporate profit; and
6.Profit margins of CMA and its affiliates from supplying such services.
1CMA and CFD are subsidiaries of Columbia Management Group, Inc. ("CMG"), which
also is the parent of Columbia Management Services, Inc. ("CFS"), the Funds'
transfer agent. Before the date of this report, CMA merged into an affiliated
entity, Banc of America Capital Management, LLC, which was renamed Columbia
Management Advisors, LLC and which carries on the business of CMA. CFD also
has been renamed Columbia Management Distributors, Inc.
2I am an independent economic consultant. From August 2005 until August 2006, I
provided support to Mr. Sirri as an independent consultant. From 1994 to 2004,
I was Chief Economist at the Investment Company Institute. Earlier, I was
Section Chief and Assistant Director at the Federal Reserve Board and
Professor of Economics at Oklahoma State University. I have no material
relationship with Bank of America or CMG, aside from serving as IFC, and I am
aware of no material relationship with any of their affiliates. To assist me
with the report, I engaged NERA Economic Consulting, an independent consulting
firm that has had extensive experience in the mutual fund industry. I also
have retained Willkie Farr & Gallagher LLP as counsel to advise me in
connection with the report.
55
The final element involves providing the Trustees with a written evaluation of
the above factors as they relate to the fee negotiation process.
C. Organization of the Annual Evaluation
The 2006 annual evaluation focuses on the six factors and contains a section
for each factor except that CMA's costs and profits from managing the Funds
have been combined into a single section. In each section, the discussion of
the factor considers and analyzes the available data and other information as
they bear upon the fee negotiation process. If appropriate, the discussion in
the section may point out certain aspects of the proposed fees that may warrant
particular attention from the Trustees. The discussion also may suggest other
data, information, and approaches that the Trustees might consider
incorporating into the fee negotiation process in future years.
In addition to a discussion of the six factors, the report reviews the status
of recommendations made in the 2005 IFC evaluation. The 2006 report also
summarizes the findings with regard to the six factors and contains a summary
of recommendations for possible enhancements to the process.
II. Status of 2005 Recommendations
The 2005 IFC evaluation contains recommendations aimed at enhancing the
evaluation of proposed management fees by Trustees. The section summarizes
those recommendations and includes my assessment of the response to the
recommendations.
1.Recommendation: Trustees should consider requesting more analytical work from
CMG in the preparation of future 15(c) materials.
Status: CMG has provided additional analyses to the Trustees on economies of
scale, a comparative analysis of institutional and retail management fees,
management fee breakpoints, risk-adjusted performance, fee waivers and
expense reimbursements, and CMG's costs and profitability.
2.Recommendation: Trustees may wish to consider whether CMG should continue
expanding the use of Morningstar or other third party data to supplement
CMG's fee and performance analysis that is now based primarily on Lipper
reports.
Status: CMG has used data from Morningstar Inc. to compare with data from
Lipper Inc. ("Lipper") in performing the Trustees' screening procedures.
3.Recommendation: Trustees should consider whether...the fund-by-fund
screen...should place comparable emphasis on both basis point and quintile
information in their evaluation of the funds...Also, the Trustees should
consider incorporating sequences of one year performance into a fund-by-fund
screen.
Status: CMG has not provided Trustees with results of the screening process
using percentiles. CMG has provided Trustees with information on the changes
in performance and expenses between 2005 and 2006 and data on one-year
returns.
4.Recommendation: Given the volatility of fund performance, the Trustees may
want to consider whether a better method exists than th[e] fee waiver process
to deal with fund underperformance.
Status: It is my understanding that the Trustees have determined to address
fund underperformance not only through fee waivers and expense caps but also
through discussions with CMG regarding the sources of underperformance. CMG
has provided Trustees with an analysis of the relationship between
breakpoints, expense reimbursements, and fee waivers.
5.Recommendation: [Seventy-one] percent of funds [have] yet to reach their
first management fee breakpoint... Trustees may wish to consider whether the
results of my ongoing economies-of-scale work affects the underlying economic
assumptions reflected in the existing breakpoint schedules.
Status: CMG has prepared a memo for the Trustees discussing its views on the
nature and sharing of potential economies of scale. The memo discuses CMG's
view that economies of scale arise at the complex level rather than the fund
level. The memo also describes steps, including the introduction of
breakpoints, taken to share economies of scale with shareholders. CMG's
analysis, however, does not discuss specific sources of economies of scale
and does not link breakpoints to economies of scale that might be realized as
the Funds' assets increase.
56
6.Recommendation: Trustees should continue working with management to address
issues of funds that demonstrate consistent or significant underperformance
even if the fee levels for the funds are low.
Status: Trustees monitor performance on an ongoing basis.
III. Findings
A. General
1.Based upon my examination of the available information and the six factors, I
conclude that the Trustees have the relevant information necessary to
evaluate the reasonableness of the proposed management fees for the Funds.
CMG has provided the Trustees with relevant materials on the six factors
through the 15(c) contract renewal process and in materials prepared for
review at Board and Committee meetings.
2.In my view, the process by which the proposed management fees of the Funds
have been negotiated in 2006 thus far has been, to the extent practicable, at
arms' length and reasonable and consistent with the AOD.
B. Nature and Quality of Services, Including Performance
3.The performance of the Funds has been relatively strong, especially that of
fixed-income Funds. For each of the 1-, 3-, 5- and 10-year performance
periods, over 60 percent of the funds have ranked in the top three
performance quintiles.
4.The performance of the equity Funds overall, though less concentrated in the
top two quintiles than the fixed income Funds, improved in 2006 relative to
that in 2005. The fixed-income funds maintained the relatively high
performance level of 2005 in 2006.
5.The Funds' overall performance adjusted for risk was significantly stronger
than performance unadjusted for risk. Domestic and international equity
funds, in particular, moved to higher relative performance rankings after
adjusting for risk.
6.The procedure used to construct the performance universe in which each Fund's
performance is ranked relative to comparable funds may bias a Fund's ranking
upward within that universe. The bias occurs because the performance ranking
procedure includes all share classes of multi-class funds in the universe and
because the procedure ranks either no-load or A share classes of the Funds.
No-load and A share classes generally have lower total expenses than B and C
shares (owing to B and C shares having higher distribution/service fees) and
thus, given all else, would outperform many of B and C share classes included
in the universe. A preliminary analysis that adjusts for the bias results in
a downward movement in the relative performance for the Funds but does not
change the general finding that the Funds' performance has been strong
relative to comparable funds.
C. Management Fees Charged by Other Mutual Fund Companies
7.The Funds' management fees and total expenses are generally low relative to
those of their peers. At least 56 percent of the Funds are in the first or
second quintiles with the lowest fees and expenses and nearly three fourths
or more in the first three quintiles. Equity Funds are more highly
concentrated in the first three quintiles than fixed-income Funds.
8.The fee and expense rankings as whole are similar to those in 2005 in that
the majority of funds are ranked in the top quintiles. Nonetheless, a number
of individual funds experienced a change in ranking between 2005 and 2006.
This fund-level instability may reflect sensitivity of rankings to the
composition of the comparison groups, as the membership of the peer groups
typically changed substantially between the two years.
9.The Liberty Money Market Fund VS appears to have a higher management fee
structure than that of other Columbia money market funds of comparable asset
size.
57
D. Trustees' Fee and Performance Evaluation Process
10.The Trustees' evaluation process identified 21 funds in 2006 for further
review based upon their relative performance or expenses. Seventeen of these
funds had been subject to review in 2004 or 2005.
E. Potential Economies of Scale
11.CMG has prepared a memo for the Trustees containing its views on the sources
and sharing of potential economies of scale. CMG views economies of scale as
arising at the complex level and would regard estimates of scale economies
for individual funds as unreliable. CMG has not, however, identified
specific sources of economies of scale nor has it provided any estimates of
the magnitude of any economies of scale. In the memo, CMG also describes
measures taken by the Trustees and CMG that seek to share any potential
economies of scale through breakpoints in management fee schedules, expense
reimbursements, fee waivers, enhanced shareholder services, fund mergers,
and operational consolidation. These measures, although of significant
benefit to shareholders, have not been directly linked in the memo to the
existence, sources, and magnitude of economies of scale.
F. Management Fees Charged to Institutional Clients
12.CMG has provided Trustees with comparisons of mutual fund management fees
and institutional fees based upon standardized fee schedules and upon actual
fees. Based upon the information, institutional fees are generally lower
than the Funds' management fees. This pattern is consistent with the
economics of the two financial products. Data are not available, however, on
actual institutional fees at other money managers. Thus, it is not possible
to determine the extent to which differences between the Funds' management
fees and institutional fees are consistent with those seen generally in the
marketplace.
G. Revenues, Expenses, and Profits
13.The financial statements and the methodology underlying their construction
generally form a sufficient basis for Trustees to evaluate the expenses and
profitability of the Funds.
IV. Recommendations
A. Performance
1.Trustees may wish to consider incorporating risk adjusted measures in their
evaluation of performance. CMG has begun to prepare reports for the Trustees
with risk adjustments, which could form the basis for formally including the
measures in the 15(c) materials. To this end, Trustees may wish to have CMG
prepare documents explaining risk adjustments and describing their advantages
and disadvantages.
2.Trustees may wish to consider having CMG evaluate the sensitivity of
performance rankings to the design of the universe. The preliminary analysis
contained in the evaluation suggests that the method employed by Lipper, the
source of performance rankings used by the Trustees, may bias performance
rankings upward.
B. Economies of Scale
3.Trustees may wish to consider having CMG extend its analysis of economies of
scale by examining the sources of such economies, if any. Identification of
the sources may enable the Trustees and CMG to gauge their magnitude. It also
may enable the Trustees and CMG to build upon past work on standardized fee
schedules so that the schedules themselves are consistent with any economies
of scale and their sources. Finally, an extension of the analysis may enable
the Trustees and CMG to develop a framework that coordinates the use of fee
waivers and expense caps with the standard fee schedules and with any
economies of scale and their sources.
C. Institutional Fees
4.Trustees may wish to consider encouraging CMG to build further upon its
expanded analysis of institutional fees by refining the matching of
institutional accounts with mutual funds, by dating the establishment of each
institutional account, and by incorporating other accounts, such as
subadvisory relationships, trusts, offshore funds, and separately managed
accounts into the analysis.
58
D. Profitability
5.Trustees may wish to consider requesting that CMG expand the reporting of
revenues and expenses to include more line-item detail for management and
administration, transfer agency, fund accounting, and distribution.
6.Trustees may wish to consider requesting that CMG provide a statement of its
operations in the 15(c) materials.
7.Trustees may wish to consider the treatment of the revenue sharing with the
Private Bank of Bank of America in their review of CMG's profitability.
Respectfully submitted,
John D. Rea
59
Appendix
Sources of Information Used in the Evaluation
The following list generally describes the sources and types of information
that were used in preparing this report.
1. Performance, management fees, and expense ratios for the Funds and
comparable funds from other fund complexes from Lipper and CMG. The sources
of this information were CMG and Lipper;
2. CMG's expenses and profitability obtained directly from CMG;
3. Information on CMG's organizational structure;
4. Profitability of publicly traded asset managers from Lipper;
5. Interviews with CMG staff, including members of senior management, legal
staff, heads of affiliates, portfolio managers, and financial personnel;
6. Documents prepared by CMG for Section 15(c) contract renewals in 2005 and
2006;
7. Academic research papers, industry publications, professional materials on
mutual fund operations and profitability, and SEC releases and studies of
mutual fund expenses
8. Interviews with and documents prepared by Ernst & Young LLP in its review
of the Private Bank Revenue Sharing Agreement;
9. Discussions with Trustees and attendance at Board and committee meetings
during which matters pertaining to the evaluation were considered.
In addition, I engaged NERA Economic Consulting ("NERA") to assist me in data
management and analysis. NERA has extensive experience in the mutual fund
industry that provides unique insights and special knowledge pertaining to my
independent analysis of fees, performance, and profitability. I have also
retained attorneys in the Washington, D.C. office of Willkie Farr & Gallagher
LLP as outside counsel to advise me in connection with my evaluation.
Finally, meetings and discussions with CMG staff were informative. My
participation in Board and committee meetings in which Trustees and CMG
management discussed issues relating to management contracts were of great
benefit to the preparation of the evaluation.
60
Important Information About This Report
Columbia Income Fund
The fund mails one shareholder report to each shareholder address. If you would
like more than one report, please call shareholder services at 1-800-345-6611
and additional reports will be sent to you. This report has been prepared for
shareholders of Columbia Income Fund.
A description of the policies and procedures that the fund uses to determine
how to vote proxies and a copy of the fund's voting records are available
(i) at www.columbiamanagement.com; (ii) on the Securities and Exchange
Commission's website at www.sec.gov, and (iii) without charge, upon request, by
calling 1-800-368-0346. Information regarding how the fund voted proxies
relating to portfolio securities during the 12-month period ended June 30 is
available from the SEC's website. Information regarding how the fund voted
proxies relating to portfolio securities is also available from the fund's
website.
The fund files a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q
is available on the SEC's website at www.sec.gov and may be reviewed and copied
at the SEC's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Please consider the investment objectives, risk, charges and expenses for the
fund carefully before investing. Contact your financial advisor for a
prospectus, which contains this and other important information about the fund.
You should read it carefully before you invest.
Columbia Management Group, LLC ("Columbia Management") is the investment
management division of Bank of America Corporation. Columbia Management
entities furnish investment management services and products for institutional
and individual investors. Columbia Funds are distributed by Columbia Management
Distributors, Inc., member NASD and SIPC. Columbia Management Distributors,
Inc. is part of Columbia Management and an affiliate of Bank of America
Corporation.
Transfer Agent
Columbia Management Services, Inc.
P.O. Box 8081
Boston, MA 02266-8081
1-800-345-6611
Distributor
Columbia Management
Distributors, Inc.
One Financial Center
Boston, MA 02111
Investment Advisor
Columbia Management Advisors, LLC
100 Federal Street
Boston, MA 02110
61
Columbia Income Fund
Annual Report - March 31, 2007
[LOGO] Columbia Management(R)
(C)2007 Columbia Management Distributors, Inc.
One Financial Center, Boston, MA 02111-2621
800-345-6611 www.columbiafunds.com
SHC - 42/130009-0307 (05/07) 07/38367
[GRAPHIC]
--------------
Columbia Intermediate Bond Fund
Annual Report - March 31, 2007
NOT FDIC INSURED May Lose Value
-----------------
No Bank Guarantee
President's Message
March 31, 2007
Table of contents
Economic Update 1
Performance Information 2
Understanding Your Expenses 3
Portfolio Managers' Report 4
Fund Profile 6
Investment Portfolio 7
Statement of Assets and
Liabilities 30
Statement of Operations 32
Statement of Changes in Net
Assets 33
Financial Highlights 35
Notes to Financial Statements 40
Report of Independent
Registered Public Accounting
Firm 49
Fund Governance 50
Board Consideration and
Approval of Investment
Advisory Agreements 54
Summary of Management Fee
Evaluation by Independent Fee
Consultant 57
Columbia Funds 63
Important Information
about This Report 65
The views expressed in this report reflect the current views of the
respective parties. These views are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult to
predict so actual outcomes and results may differ significantly from the
views expressed. These views are subject to change at any time based upon
economic, market or other conditions and the respective parties disclaim any
responsibility to update such views. These views may not be relied on as
investment advice and, because investment decisions for a Columbia Fund are
based on numerous factors, may not be relied on as an indication of trading
intent on behalf of any particular Columbia Fund. References to specific
company securities should not be construed as a recommendation or investment
advice.
[PHOTO] Christopher L. Wilson
President, Columbia Funds
Dear Shareholder:
Investing is a long-term process and we are pleased that
you have chosen to include the Columbia family of funds in
your overall financial plan.
Your financial advisor can help you establish an
appropriate investment portfolio and periodically review
that portfolio. A well balanced portfolio is one of the
keys to successful long-term investing. Your portfolio
should be diversified across different asset classes and
market segments and your chosen asset allocation should be
appropriate for your investment goals, risk tolerance and
time horizons.
However, creating an investment strategy is not a one-step process. From time
to time, you'll need to re-evaluate your strategy to determine whether your
investment needs have changed. Most experts recommend giving your portfolio a
"check-up" every year.
As you begin your portfolio check-up, consider whether you have experienced any
major life events since the last time you assessed your portfolio. You may need
to tweak your strategy if you have:
.. Gotten married or divorced
.. Added a child to your family
.. Made a significant change in employment
.. Entered or moved significantly closer to retirement
.. Experienced a serious illness or death in the family
.. Taken on or paid off substantial debt
It's important to remember that over time, performance in different market
segments will fluctuate. These shifts can cause your portfolio balance to drift
away from your chosen asset allocation. A periodic portfolio check-up can help
make sure your portfolio stays on track. Remember that asset allocation does
not ensure a profit or guarantee against loss.
You'll also want to analyze the individual investments in your portfolio. Of
course, performance should be a key factor in your analysis, but it's not the
only factor to consider. Make sure the investments in your portfolio line up
with your overall objectives and risk tolerance. Be aware of changes in
portfolio management and pay special attention to any funds that have made
significant shifts in their investment strategy.
We hope this information will help you, in working with your financial advisor,
to stay on track to reach your investment goals. Thank you for your business
and for your continued confidence in Columbia Funds.
Sincerely,
/s/ Christopher L. Wilson
Christopher L. Wilson
President, Columbia Funds
Economic Update - Columbia Intermediate Bond Fund
Summary
For the 12-month period that ended March 31, 2007
. Investment-grade bonds rebounded as yields declined, lifting the Lehman
Brothers U.S. Aggregate Bond Index to a respectable return. High-yield
bonds, as measured by the Merrill Lynch U.S. High Yield, Cash Pay Index, led
the U.S. fixed-income markets.
Lehman Merrill Lynch
Index Index
[GRAPHIC] [GRAPHIC]
6.59% 11.45%
. The broad US stock market, as measured by the S&P 500 Index, returned
11.83%. Stock markets outside the United States were even stronger, as
measured by the MSCI EAFE Index.
S&P Index MSCI Index
[GRAPHIC] [GRAPHIC]
11.83% 20.20%
The Lehman Brothers U.S. Aggregate Bond Index is a market value-weighted
index that tracks the daily price, coupon, pay-downs, and total return
performance of fixed-rate, publicly placed, dollar-denominated, and
non-convertible investment grade debt issues with at least $250 million par
amount outstanding and with at least one year to final maturity.
The Merrill Lynch U.S. High Yield, Cash Pay Index tracks the performance of
non-investment-grade corporate bonds.
The S&P 500 Index tracks the performance of 500 widely held,
large-capitalization US stocks.
The Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East
(EAFE) Index is a free float-adjusted market capitalization index that is
designed to measure developed market equity performance, excluding the US and
Canada.
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.
US economic growth advanced at a modest pace during the 12-month period that
began April 1, 2006 and ended March 31, 2007. A weak housing market weighed on
the economy throughout the period, with few signs that relief was imminent.
Energy prices trended downward, but rose again late in the period, and core
inflation moved higher. Yet, many economic indicators remained positive. Job
growth, for example, was relatively strong, as the labor markets added an
average of 164,000 new jobs each month over the period and the unemployment
rate declined to 4.4%. Personal income rose and consumer spending continued to
expand, albeit at a slower pace as the period wore on. Against this backdrop,
economic growth averaged around 2.2% for the 12-month period.
Between April and June 2006, the Federal Reserve Board (the Fed) raised a key
short-term interest rate, the federal funds rate, twice -- to 5.25%. But after
its June meeting, the Fed turned cautious in the face of slower economic growth
and held the federal funds rate steady. Investors reacted favorably to the
prospect of stable or lower interest rates and fueled a rally that moved stock
prices higher and gave a boost to the bond market as well.
Bonds bounced back
Although bond yields moved higher early in the period, most segments of the US
bond market delivered respectable returns, as prices rose and yields declined
in reaction to the Fed's mid-year decision to put further short-term rate
increases on hold. The yield on the 10-year US Treasury note/1/, a bellwether
for the bond market, ended the 12-month period at 4.63% -- somewhat lower than
where it started. In this environment, the Lehman Brothers U.S. Aggregate Bond
Index returned 6.59%. High-yield bonds led the US fixed-income markets,
reflecting investor confidence about the overall resilience of the economy
despite its slower pace of growth. The Merrill Lynch U.S. High Yield, Cash Pay
Index returned 11.45%.
Despite late set-back, stocks moved solidly higher
Stock prices rose at an above-average pace during the 12-month period covered
by this report. The S&P 500 Index, a broad measure of common stock performance,
rose 11.83%. Large-cap stocks staged a comeback against small- and mid-cap
stocks, as measured by their respective Russell indices. Foreign stock markets
were even stronger than the US market. The MSCI EAFE Index, which tracks stock
market performance in industrialized countries outside the United States and
Canada, returned 20.20%, despite a volatile stretch late in the period when the
US and many foreign stock markets retreated in response to a sharp decline in
the Chinese market and other market-specific factors.
/1/10-year Treasury note used solely as a benchmark for long-term interest
rates.
Past performance is no guarantee of future results.
1
Performance Information - Columbia Intermediate Bond Fund
Performance data quoted represents past performance and current performance
may be lower or higher. Past performance is no guarantee of future results.
The investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than the original cost. Please visit
www.columbiafunds.com for daily and most recent month-end performance updates.
Annual operating expense ratio*
Class A 1.00%
Class B 1.65%
Class C 1.65%
Class R 1.15%
Class Z 0.65%
*The annual operating expense ratio is as stated in the fund's prospectus that
is current as of the date of this report and may differ from the expense
ratios disclosed elsewhere in this report.
Growth of a $10,000 investment 04/01/97 - 03/31/07
[CHART]
Lehman Brothers
Class A shares Class A shares U.S. Aggregate
without sales charge with sales charge Bond Index
-------------------- ----------------- -----------
4/30/1997 9,671 10,153 10,150
5/31/1997 9,774 10,262 10,246
6/30/1997 9,911 10,405 10,368
7/31/1997 10,193 10,701 10,648
8/31/1997 10,087 10,590 10,558
9/30/1997 10,229 10,739 10,713
10/31/1997 10,329 10,844 10,868
11/30/1997 10,369 10,886 10,918
12/31/1997 10,437 10,957 11,029
1/31/1998 10,573 11,101 11,170
2/28/1998 10,593 11,122 11,161
3/31/1998 10,651 11,182 11,199
4/30/1998 10,706 11,240 11,257
5/31/1998 10,799 11,338 11,364
6/30/1998 10,855 11,397 11,461
7/31/1998 10,880 11,423 11,485
8/31/1998 10,828 11,368 11,672
9/30/1998 11,055 11,607 11,945
10/31/1998 10,880 11,422 11,882
11/30/1998 11,047 11,598 11,949
12/31/1998 11,107 11,661 11,985
1/31/1999 11,222 11,782 12,070
2/28/1999 11,078 11,630 11,859
3/31/1999 11,203 11,762 11,924
4/30/1999 11,251 11,812 11,962
5/31/1999 11,174 11,732 11,857
6/30/1999 11,138 11,693 11,819
7/31/1999 11,139 11,694 11,768
8/31/1999 11,135 11,691 11,763
9/30/1999 11,248 11,809 11,899
10/31/1999 11,261 11,823 11,943
11/30/1999 11,286 11,849 11,942
12/31/1999 11,248 11,809 11,884
1/31/2000 11,271 11,833 11,845
2/29/2000 11,387 11,955 11,989
3/31/2000 11,502 12,076 12,147
4/30/2000 11,432 12,002 12,112
5/31/2000 11,368 11,935 12,106
6/30/2000 11,653 12,234 12,357
7/31/2000 11,780 12,367 12,470
8/31/2000 11,964 12,561 12,651
9/30/2000 12,078 12,680 12,730
10/31/2000 12,095 12,698 12,814
11/30/2000 12,222 12,832 13,024
12/31/2000 12,441 13,061 13,267
1/31/2001 12,741 13,376 13,484
2/28/2001 12,894 13,537 13,602
3/31/2001 12,980 13,627 13,670
4/30/2001 12,946 13,592 13,612
5/31/2001 13,105 13,759 13,694
6/30/2001 13,113 13,767 13,746
7/31/2001 13,419 14,088 14,054
8/31/2001 13,592 14,270 14,215
9/30/2001 13,451 14,121 14,382
10/31/2001 13,640 14,320 14,682
11/30/2001 13,633 14,313 14,480
12/31/2001 13,565 14,242 14,387
1/31/2002 13,670 14,351 14,504
2/28/2002 13,743 14,429 14,644
3/31/2002 13,647 14,328 14,401
4/30/2002 13,769 14,455 14,681
5/31/2002 13,902 14,596 14,805
6/30/2002 13,781 14,469 14,933
7/31/2002 13,675 14,357 15,113
8/31/2002 13,887 14,580 15,369
9/30/2002 13,952 14,648 15,618
10/31/2002 13,778 14,465 15,546
11/30/2002 13,989 14,686 15,541
12/31/2002 14,297 15,010 15,863
1/31/2003 14,362 15,079 15,877
2/28/2003 14,572 15,299 16,096
3/31/2003 14,619 15,348 16,083
4/30/2003 14,879 15,621 16,217
5/31/2003 15,239 15,999 16,519
6/30/2003 15,303 16,066 16,486
7/31/2003 14,930 15,674 15,932
8/31/2003 14,973 15,720 16,037
9/30/2003 15,403 16,171 16,462
10/31/2003 15,378 16,145 16,309
11/30/2003 15,455 16,226 16,348
12/31/2003 15,617 16,396 16,515
1/31/2004 15,780 16,566 16,647
2/29/2004 15,892 16,684 16,826
3/31/2004 16,004 16,803 16,953
4/30/2004 15,668 16,450 16,512
5/31/2004 15,540 16,315 16,446
6/30/2004 15,619 16,398 16,540
7/31/2004 15,769 16,555 16,703
8/31/2004 16,059 16,860 17,022
9/30/2004 16,117 16,921 17,068
10/31/2004 16,269 17,080 17,212
11/30/2004 16,190 16,998 17,074
12/31/2004 16,338 17,152 17,231
1/31/2005 16,418 17,237 17,340
2/28/2005 16,392 17,209 17,237
3/31/2005 16,252 17,063 17,149
4/30/2005 16,405 17,223 17,381
5/31/2005 16,558 17,383 17,569
6/30/2005 16,673 17,505 17,665
7/31/2005 16,568 17,395 17,505
8/31/2005 16,739 17,574 17,729
9/30/2005 16,582 17,409 17,546
10/31/2005 16,459 17,280 17,407
11/30/2005 16,541 17,366 17,484
12/31/2005 16,689 17,521 17,650
1/31/2006 16,697 17,530 17,652
2/28/2006 16,740 17,575 17,710
3/31/2006 16,596 17,424 17,537
4/30/2006 16,568 17,394 17,505
5/31/2006 16,540 17,365 17,486
6/30/2006 16,550 17,375 17,522
7/31/2006 16,753 17,589 17,759
8/31/2006 17,015 17,863 18,031
9/30/2006 17,163 18,019 18,189
10/31/2006 17,271 18,132 18,309
11/30/2006 17,457 18,328 18,522
12/31/2006 17,412 18,280 18,414
1/31/2007 17,424 18,293 18,407
2/28/2007 17,694 18,577 18,690
3/31/2007 17,613 18,499 18,692
The chart above shows the growth in value of a hypothetical $10,000 investment
in Class A shares of Columbia Intermediate Bond Fund during the stated time
period, and does not reflect the deduction of taxes that a shareholder would
pay on fund distributions or redemption of fund shares. The growth of $10,000
with sales charge for Class A is calculated with an initial sales charge at
4.75%. The Lehman Brothers U.S. Aggregate Bond Index is a market value-weighted
index that tracks the daily price, coupon, pay-downs, and total return
performance of fixed-rate, publicly placed, dollar-denominated, and
non-convertible investment grade debt issues with at least $250 million par
amount outstanding and with at least one year to final maturity. Indices are
not investments, do not incur fees or expenses and are not professionally
managed. It is not possible to invest directly in an index. Securities in the
fund may not match those in an index.
Performance of a $10,000 investment 04/01/97 - 03/31/07 ($)
Sales charge without with
Class A 18,499 17,613
Class B 17,800 17,800
Class C 17,938 17,938
Class R 18,441 n/a
Class Z 18,821 n/a
Average annual total return as of 03/31/07 (%)
Share class A B C R Z
---------------------------------------------------------------------
Inception 07/31/00 02/01/02 02/01/02 01/23/06 12/05/78
---------------------------------------------------------------------
Sales charge without with without with without with without without
1-year 6.21 2.80 5.42 2.42 5.58 4.58 5.94 6.48
5-year 5.25 4.23 4.47 4.47 4.62 4.62 5.18 5.51
10-year 6.34 5.82 5.94 5.94 6.02 6.02 6.31 6.53
The "with sales charge" returns include the maximum initial sales charge of
3.25% for Class A shares, the maximum contingent deferred sales charge of 3.00%
in the first year, declining to 1.00% in the fourth year, and eliminated
thereafter for Class B shares and 1.00% for Class C shares for the first year
only. The "without sales charge" returns do not include the effect of sales
charges. If they had, returns would be lower. Prior to August 22, 2005, new
purchases of Class A shares had a maximum initial sales charge of 4.75%. The 5
&10 year average annual returns with sales charge as of 3/31/07 include the
previous sales charge of 4.75%. The 1 year return with sales charge as of
3/31/07 includes the new sales charge of 3.25%.
Performance results reflect any waivers or reimbursements of fund expenses by
the investment advisor and/or any of its affiliates. Absent these waivers or
reimbursement arrangements, performance results would have been lower.
All results shown assume reinvestment of distributions. Performance for
different share classes will vary based on differences in sales charges and
fees associated with each class. Class R and Z shares are sold at net asset
value with no Rule 12b-1 fees. Class R and Z shares have limited eligibility
and the investment minimum requirements may vary. Please see the fund's
prospectus for details.
The table does not reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares.
The returns of Class A shares include returns of the fund's Class Z shares (the
oldest existing fund share class) for periods prior to the inception of Class A
shares. The returns of Class B and Class C shares include returns of the fund's
Class A shares for period prior to the inception of Class B and Class C shares,
respectively. The returns of Class B and Class C shares also include returns of
the fund's Class Z shares for periods prior to the inception of Class A shares.
The returns for Class R shares include returns of the fund's Class A shares for
periods prior to the inception of Class R shares. The returns of Class R shares
also include the returns of the fund's Class Z shares for periods prior to the
inception of Class A shares. These returns have not been restated to reflect
any differences in expenses (such as Rule 12b-1 fees) between Class Z shares
and Class A, Class B, Class C or Class R shares, or between Class A shares and
Class B, Class C or Class R shares. If differences in expenses had been
reflected, the returns shown for Class A, Class B, Class C and Class R shares
for periods prior to the inception of Class A, Class B, Class C and Class R
shares, respectively, would have been lower. Class A shares were initially
offered on July 31, 2000, Class B and Class C shares were initially offered on
February 1, 2002, Class R shares were initially offered on January 23, 2006,
and Class Z shares were initially offered on December 5, 1978.
2
Understanding Your Expenses - Columbia Intermediate Bond Fund
Estimating your actual expenses
To estimate the expenses that you paid over the period, first you will need
your account balance at the end of the period:
. For shareholders who receive their account statements from Columbia
Management Services, Inc., your account balance is available online at
www.columbiafunds.com or by calling Shareholder Services at 800.345.6611.
. For shareholders who receive their account statements from their brokerage
firm, contact your brokerage firm to obtain your account balance.
1.Divide your ending account balance by $1,000. For example, if an account
balance was $8,600 at the end of the period, the result would be 8.6.
2.In the section of the table below titled "Expenses paid during the period,"
locate the amount for your share class. You will find this number in the
column labeled "actual." Multiply this number by the result from step 1.
Your answer is an estimate of the expenses you paid on your account during
the period.
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also ongoing costs, which generally
include investment advisory fees, Rule 12b-1 fees and other fund expenses. The
information on this page is intended to help you understand the ongoing costs
of investing in the fund and to compare these costs with the ongoing costs of
investing in other mutual funds.
Analyzing your fund's expenses by share class
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in each share class during the period. The
information in the following table is based on an initial investment of $1,000,
which is invested at the beginning of the reporting period and held for the
entire period. Expense information is calculated two ways and each method
provides you with different information. The amount listed in the "actual"
column is calculated using the fund's actual operating expenses and total
return for the period. The amount listed in the "hypothetical" column for each
share class assumes that the return each year is 5% before expenses and is
calculated based on the fund's actual operating expenses. You should not use
the hypothetical account values and expenses to estimate either your actual
account balance at the end of the period or the expenses you paid during this
reporting period.
Compare with other funds
Since all mutual funds are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this
information to compare the ongoing cost of investing in the fund with other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds. As you compare
hypothetical examples of other funds, it is important to note that hypothetical
examples are meant to highlight the ongoing cost of investing in a fund and do
not reflect any transaction costs, such as sales charges, redemption fees or
exchange fees.
10/01/06 - 03/31/07
Account value at the Account value at the Expenses paid Fund's annualized
beginning of the period ($) end of the period ($) during the period ($) expense ratio (%)
- -------------------------------------------------------------------------------------------------
Actual Hypothetical Actual Hypothetical Actual Hypothetical Actual
Class A 1,000.00 1,000.00 1,027.08 1,020.39 4.60 4.58 0.91
Class B 1,000.00 1,000.00 1,023.29 1,016.65 8.37 8.35 1.66
Class C 1,000.00 1,000.00 1,023.98 1,017.40 7.62 7.59 1.51
Class R 1,000.00 1,000.00 1,025.78 1,019.15 5.86 5.84 1.16
Class Z 1,000.00 1,000.00 1,028.32 1,021.64 3.34 3.33 0.66
Expenses paid during the period are equal to the annualized expense ratio for
the share class, multiplied by the average account value over the period, then
multiplied by the number of days in the fund's most recent fiscal half-year and
divided by 365.
Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, account value at the end of the period would
have been reduced.
It is important to note that the expense amounts shown in the table are meant
to highlight only ongoing costs of investing in the fund and do not reflect any
transaction costs, such as sales charges, redemption fees or exchange fees.
Therefore, the hypothetical examples provided may not help you determine the
relative total costs of owning shares of different funds. If these transaction
costs were included, your costs would have been higher.
3
Portfolio Managers' Report - Columbia Intermediate Bond Fund
Performance data quoted represents past performance and current performance
may be lower or higher. Past performance is no guarantee of future results.
The investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than the original cost. Please visit
www.columbiafunds.com for daily and most recent month-end performance updates.
Net asset value per share
as of 03/31/07 ($)
Class A 8.84
Class B 8.84
Class C 8.84
Class R 8.84
Class Z 8.84
Distributions declared per share
04/01/06 - 03/31/07 ($)
Class A 0.43
Class B 0.36
Class C 0.38
Class R 0.41
Class Z 0.45
Portfolio structure
as of 03/31/07 (%)
Corporate fixed-income 47.5
bonds & notes
Government & agency 18.3
obligations
Mortgage-backed 13.7
securities
Asset-backed securities 9.3
Collateralized mortgage
obligations 7.9
Commercial mortgage- 3.4
backed securities
Common Stock 0.0*
Cash equivalents, net other
assets & liabilities (0.1)
* Rounds to less than 0.1%
Portfolio structure is calculated as a percentage of net assets.
The fund is actively managed and the composition of its portfolio will change
over time.
For the 12-month period that ended March 31, 2007, Class A shares of Columbia
Intermediate Bond Fund returned 6.21% without sales charge. The fund's return
was lower than the 6.59% return of its benchmark, the Lehman Brothers U.S.
Aggregate Bond Index, for the same period./1/ The fund incurs fees that the
index does not. The fund exceeded the average return of its peer group, the
Lipper Intermediate Investment Grade Debt Funds Classification, which was 6.08%
for the period./2/ Strong returns from high-yield investments helped create
this performance advantage versus the fund's peer group.
The past 12 months were a fairly stable period for the fixed-income markets.
Three months into the period, the Federal Reserve Open Market Committee (the
Fed) suspended its two-year-long string of short-term interest rate hikes, and
stayed on the sidelines for the remainder of the period. Meanwhile, inflation
remained moderate enough to bring long-term rates down slightly. The net result
was a healthy bond market. While long-term bonds tended to outperform issues
with shorter maturities, solid gains were posted at all points of the maturity
spectrum.
Steady economic growth favored corporate bonds
The national economy remained in a sweet spot characterized by strong growth
and the absence of undue inflationary pressures. The economy's steady growth
created a favorable environment for corporate bonds, consistent with a general
trend in which fixed-income investors were rewarded for assuming credit risk.
In particular, high-yield bonds were the top performing bond market sector
during the period. Our decision to overweight the high-yield sector helped the
fund's performance relative to other intermediate bond funds.
However, this reward for risk-taking did not extend to the mortgage market.
Toward the end of the period, a surge in foreclosures experienced by subprime
lenders resulted in significant losses for low-quality mortgage pools. While
the fund's exposure to subprime securities was limited, many of its mortgage
holdings lost ground as investors worried that problems could spill over to
other areas of the market.
The fund's sector decisions experienced mixed results during the period.
Positions in the financial sector helped performance for the first six months,
then hampered performance in the second half, above and beyond subprime
concerns. A decision to underweight the insurance sector also hampered
performance as major carriers delivered above-average performance after a mild
hurricane year. We may consider adding to the fund's insurance holdings because
of the balance sheet improvements created by the limited payouts of the past
year and limited subprime exposure. In addition, we believe insurers appear to
be less likely than other financial companies to be candidates for a private
equity transaction.
/1/The Lehman Brothers U.S. Aggregate Bond Index is a market value-weighted
index that tracks the daily price, coupon, pay-downs, and total return
performance of fixed-rate, publicly placed, dollar-denominated, and
non-convertible investment grade debt issues with at least $250 million par
amount outstanding and with at least one year to final maturity. 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.
/2/Lipper Inc., a widely respected data provider in the industry, calculates an
average total return (assuming reinvestment of distributions) for mutual
funds with investment objectives similar to those of the fund. Lipper makes
no adjustment for the effect of sales loads.
4
Portfolio Managers' Report (continued) - Columbia Intermediate Bond Fund
Quality breakdown
as of 03/31/07 (%)
Aaa/AAA 44.1
Aa/AA 12.9
A 12.3
Baa/BBB 21.3
Ba/BB 3.6
B 2.7
Caa/CCC 0.6
Other 2.5
Maturity breakdown
as of 03/31/07 (%)
0-1 year 5.1
1-5 years 46.2
5-10 years 31.2
10-20 years 5.3
Over 20 years 12.2
Quality and maturity breakdowns are calculated as a percentage of total
investments. Ratings shown in the quality breakdown represent the highest
rating assigned to a particular bond by one of the following
nationally-recognized rating agencies: Standard and Poor's, a division of the
McGraw-Hill Companies, Inc., Moody's Investors Service, Inc. or Fitch Ratings
Ltd.
SEC yields
as of 03/31/07 (%)
Class A 4.62
Class B 4.12
Class C 4.27
Class R 4.59
Class Z 5.10
The 30-day SEC yields reflect the portfolio's earning power net of expenses,
expressed as an annualized percentage of the public offering price at the end
of the period.
Looking ahead
At the end of the period, the fund's positioning reflected our generally
positive view of the corporate bond market, supported by solid corporate
earnings and economic environment. We plan to keep our high-yield exposure in
line with our competitive peers, and would look to retain our slightly
above-average exposure to investment-grade corporate issues. The bond market
still faces an elevated risk of shareholder-friendly leveraged transactions.
Yet, we believe that such risks are generally priced into today's yields.
5
Fund Profile - Columbia Intermediate Bond Fund
Performance data quoted represents past performance and current performance
may be lower or higher. Past performance is no guarantee of future results.
The investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than the original cost. Please visit
www.columbiafunds.com for daily and most recent month-end performance updates.
Summary
12-month return as of 03/31/07
[GRAPHIC] +6.21%
Class A Shares
(without sales charge)
[GRAPHIC] +6.59%
Lehman Brothers U.S.
Aggregate Bond Index
Management Style
Fixed-Income Maturity
[GRAPHIC]
Management style is determined by Columbia Management and is based on the
investment strategy and process as outlined in the fund's prospectus.
Summary
.. For the 12-month period that ended March 31, 2007, the fund's Class A shares
returned 6.21% without sales charge.
.. The fund's return was higher than the average return of its peer group and
lower than the return of its benchmark.
.. The fund had more exposure than the index to high-yield bonds, the
best-performing sector of the fixed-income market during the period, which
benefited performance.
Portfolio Management
Carl W. Pappo is the lead manager for the fund. He has co-managed the fund
since March 2005 and has been with the advisor or its predecessors or affiliate
organizations since 1993.
Thomas LaPointe has co-managed the fund since March 2003 and has been with the
advisor or its predecessors or affiliate organizations since 1999.
Ann T. Peterson has managed or co-managed the fund since March 2005 and has
been with the advisor or its predecessors or affiliate organizations since 1993.
Kevin L. Cronk has co-managed the fund since November 2006 and has been with
the advisor or its predecessors or affiliate organizations since 1999.
-----------------
Portfolio holdings and characteristics are subject to change and may not be
representative of current holdings and characteristics. The outlook for this
fund may differ from that presented for other Columbia Funds. Performance for
different classes of shares will vary based on differences in sales charges and
fees associated with each class. For standardized performance, please refer to
Performance Information page.
Investing in fixed-income securities may involve certain risks, including the
credit quality of individual issuers, possible prepayments, market or economic
developments and yield and share price fluctuations due to changes in interest
rates. When interest rates go up, bond prices typically drop, and vice versa.
Investing in high-yield securities (commonly known as "junk" bonds) offers the
potential for high current income and attractive total return but involves
certain risks. Changes in economic conditions or other circumstances may
adversely affect a junk bond issuer's ability to make principal and interest
payments. Rising interest rates tend to lower the value of all bonds.
High-yield bonds issued by foreign entities have greater potential risks,
including less regulation, currency fluctuations, economic instability and
political developments.
6
Investment Portfolio - Columbia Intermediate Bond Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes - 47.5%
Par ($) Value ($)
Basic Materials - 1.4%
Chemicals - 0.3%
BCP Crystal US Holdings Corp. 9.625% 06/15/14 285,000 323,737
Chemtura Corp. 6.875% 06/01/16 545,000 527,287
Dow Chemical Co. 6.000% 10/01/12 2,490,000 2,567,319
EquiStar Chemicals LP 10.625% 05/01/11 650,000 685,750
Huntsman International LLC 6.875% 11/15/13 (a) 205,000 282,065
7.875% 11/15/14 (a) 290,000 299,788
Ineos Group Holdings PLC 8.500% 02/15/16 (a) 500,000 478,750
Lyondell Chemical Co. 8.000% 09/15/14 265,000 277,588
8.250% 09/15/16 385,000 411,950
MacDermid, Inc. 9.500% 04/15/17 (a)(b) 275,000 281,875
Mosaic Co. 7.625% 12/01/16 (a) 665,000 701,575
NOVA Chemicals Corp. 6.500% 01/15/12 470,000 447,675
----------------------------- ---------- ----------
Chemicals Total 7,285,359
Forest Products & Paper - 0.7%
Abitibi-Consolidated, Inc. 8.375% 04/01/15 445,000 418,300
Norske Skog Canada Ltd. 7.375% 03/01/14 1,000,000 967,500
Domtar, Inc. 7.125% 08/15/15 505,000 502,475
Georgia-Pacific Corp. 8.000% 01/15/24 565,000 567,825
NewPage Corp. 10.000% 05/01/12 280,000 306,250
12.000% 05/01/13 275,000 298,375
Weyerhaeuser Co. 7.375% 03/15/32 12,405,000 12,995,192
----------------------------- ---------- ----------
Forest Products & Paper Total 16,055,917
Metals & Mining - 0.4%
FMG Finance Ltd. 10.625% 09/01/16 (a) 795,000 914,250
Freeport-McMoRan Copper & Gold,
Inc. 8.375% 04/01/17 1,120,000 1,211,000
Vale Overseas Ltd. 6.250% 01/23/17 3,730,000 3,800,714
6.875% 11/21/36 1,935,000 1,998,249
----------------------------- ---------- ----------
Metals & Mining Total 7,924,213
Basic Materials Total 31,265,489
Communications - 5.8%
Media - 2.5%
Advanstar Communications, Inc. 12.000% 02/15/11 555,000 578,588
15.000% 10/15/11 (c) 130,000 135,850
See Accompanying Notes to Financial Statements.
7
Columbia Intermediate Bond Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Communications (continued)
Media (continued)
Atlantic Broadband Finance LLC 9.375% 01/15/14 470,000 480,575
Cablevision Systems Corp. 8.000% 04/15/12 455,000 461,825
Charter Communications Holdings I
LLC 9.920% 04/01/14 940,000 836,600
11.000% 10/01/15 500,000 518,750
Clear Channel Communications,
Inc. 4.900% 05/15/15 230,000 193,375
5.500% 12/15/16 360,000 303,695
7.650% 09/15/10 6,890,000 7,275,309
CMP Susquehanna Corp. 9.875% 05/15/14 (a) 475,000 486,875
CSC Holdings, Inc. 7.625% 04/01/11 (d) 805,000 825,125
7.625% 07/15/18 215,000 217,150
DirecTV Holdings LLC 6.375% 06/15/15 595,000 565,250
EchoStar DBS Corp. 6.625% 10/01/14 800,000 805,000
Lamar Media Corp. 6.625% 08/15/15 1,145,000 1,116,375
LIN Television Corp. 6.500% 05/15/13 365,000 357,244
PriMedia, Inc. 8.000% 05/15/13 560,000 579,600
Quebecor Media, Inc. 7.750% 03/15/16 565,000 580,538
R.H. Donnelley Corp. 8.875% 01/15/16 1,655,000 1,758,437
Reader's Digest Association, Inc. 9.000% 02/15/17 (a) 510,000 490,875
Sinclair Broadcast Group, Inc. 8.000% 03/15/12 390,000 403,650
Telenet Group Holding NV (e) 06/15/14 (a)
(11.500% 12/15/08) 490,000 459,375
Time Warner, Inc. 5.875% 11/15/16 10,310,000 10,395,841
6.500% 11/15/36 7,875,000 7,852,706
Umbrella Acquisition, Inc. PIK,
9.750% 03/15/15 (a) 830,000 826,888
Viacom, Inc. 5.750% 04/30/11 7,760,000 7,866,498
6.875% 04/30/36 8,570,000 8,638,423
--------------------------- ---------- ----------
Media Total 55,010,417
Telecommunication Services - 3.3%
Citizens Communications Co. 7.875% 01/15/27 (a) 475,000 485,688
Cricket Communications, Inc. 9.375% 11/01/14 (a) 790,000 837,400
Digicel Group Ltd. PIK,
9.125% 01/15/15 (a)(c)(d) 855,000 811,294
See Accompanying Notes to Financial Statements.
8
Columbia Intermediate Bond Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Communications (continued)
Telecommunication Services (continued)
Dobson Cellular Systems, Inc. 9.875% 11/01/12 405,000 441,450
Intelsat Bermuda, Ltd. 11.250% 06/15/16 (a) 950,000 1,078,250
Intelsat Intermediate Holdings Co., (e) 02/01/15
Ltd. (9.250% 02/01/10) 395,000 327,850
Lucent Technologies, Inc. 6.450% 03/15/29 645,000 582,113
MetroPCS Wireless, Inc. 9.250% 11/01/14 (a) 615,000 650,363
Nextel Communications, Inc. 6.875% 10/31/13 5,235,000 5,363,053
7.375% 08/01/15 1,545,000 1,597,992
Nordic Telephone Co. Holdings ApS 8.875% 05/01/16 (a) 500,000 535,000
Orascom Telecom Finance SCA 7.875% 02/08/14 (a) 280,000 275,800
Qwest Corp. 7.500% 06/15/23 515,000 523,369
8.875% 03/15/12 1,485,000 1,640,925
Rogers Wireless, Inc. 9.750% 06/01/16 2,000,000 2,520,000
Rural Cellular Corp. 11.110% 11/01/12 (c) 450,000 468,000
Sprint Capital Corp. 8.750% 03/15/32 10,785,000 12,721,112
Syniverse Technologies, Inc. 7.750% 08/15/13 430,000 422,475
Telecom Italia Capital SA 5.250% 11/15/13 9,890,000 9,588,770
7.200% 07/18/36 8,035,000 8,365,351
Time Warner Telecom Holdings, Inc. 9.250% 02/15/14 445,000 476,150
Verizon Communications, Inc. 6.250% 04/01/37 6,105,000 6,047,002
Virgin Media Finance PLC 8.750% 04/15/14 720,000 748,800
Vodafone Group PLC 5.750% 03/15/16 12,750,000 12,811,455
West Corp. 11.000% 10/15/16 (a) 570,000 601,350
Wind Acquisition Financial SA PIK,
12.500% 12/21/11 690,000 697,661
Windstream Corp. 8.625% 08/01/16 700,000 765,625
-------------------------------- ---------- -----------
Telecommunication Services Total 71,384,298
Communications Total 126,394,715
Consumer Cyclical - 5.1%
Airlines - 0.6%
Continental Airlines, Inc. 6.940% 10/15/13 993,062 1,012,923
7.461% 04/01/15 5,344,871 5,578,710
Southwest Airlines Co. 5.750% 12/15/16 4,900,000 4,817,464
United Airlines, Inc. 9.200% 03/22/08 (f) 1,790,863 949,157
-------------------------------- ---------- -----------
Airlines Total 12,358,254
See Accompanying Notes to Financial Statements.
9
Columbia Intermediate Bond Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Consumer Cyclical (continued)
Apparel - 0.1%
Broder Brothers Co. 11.250% 10/15/10 290,000 295,800
Hanesbrands, Inc. 8.735% 12/15/14 (a)(c) 240,000 244,500
Levi Strauss & Co. 9.750% 01/15/15 865,000 949,337
Phillips-Van Heusen Corp. 7.250% 02/15/11 1,000,000 1,022,500
---------------------------- --------- ----------
Apparel Total 2,512,137
Auto Manufacturers - 0.5%
DaimlerChrysler NA Holding Corp. 5.820% 09/10/07 (c) 6,000,000 6,009,186
8.500% 01/18/31(d) 3,500,000 4,371,136
Ford Motor Co. 7.450% 07/16/31 630,000 487,463
General Motors Corp. 8.375% 07/15/33 965,000 866,087
---------------------------- --------- ----------
Auto Manufacturers Total 11,733,872
Auto Parts & Equipment - 0.1%
ArvinMeritor, Inc. 8.125% 09/15/15 365,000 362,263
Commercial Vehicle Group, Inc. 8.000% 07/01/13 435,000 439,350
Goodyear Tire & Rubber Co. 8.625% 12/01/11 (a) 165,000 177,375
9.000% 07/01/15 495,000 543,262
HLI Operating Co., Inc. 10.500% 06/15/10 450,000 476,437
TRW Automotive, Inc. 7.000% 03/15/14 (a)(d) 700,000 686,000
---------------------------- --------- ----------
Auto Parts & Equipment Total 2,684,687
Entertainment - 0.1%
Six Flags, Inc. 9.625% 06/01/14 470,000 441,800
Steinway Musical Instruments, Inc. 7.000% 03/01/14 (a) 500,000 492,500
WMG Acquisition Corp. 7.375% 04/15/14 370,000 352,425
WMG Holdings Corp. (e) 12/15/14
(9.500% 12/15/09) 485,000 371,025
---------------------------- --------- ----------
Entertainment Total 1,657,750
Home Builders - 0.5%
D.R. Horton, Inc. 5.625% 09/15/14 (d) 3,850,000 3,659,271
5.625% 01/15/16 620,000 573,510
6.500% 04/15/16 5,225,000 5,110,034
K. Hovnanian Enterprises, Inc. 6.500% 01/15/14 1,000,000 895,000
KB Home 5.875% 01/15/15 345,000 304,463
---------------------------- --------- ----------
Home Builders Total 10,542,278
Home Furnishings - 0.0%
Sealy Mattress Co. 8.250% 06/15/14 475,000 499,938
---------------------------- --------- ----------
Home Furnishings Total 499,938
See Accompanying Notes to Financial Statements.
10
Columbia Intermediate Bond Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Consumer Cyclical (continued)
Housewares - 0.0%
Vitro SA de CV 9.125% 02/01/17 (a) 270,000 276,750
----------------------- --------- ----------
Housewares Total 276,750
Leisure Time - 0.0%
K2, Inc. 7.375% 07/01/14 270,000 267,975
Royal Caribbean Cruises Ltd. 7.000% 06/15/13 560,000 578,656
----------------------- --------- ----------
Leisure Time Total 846,631
Lodging - 0.7%
Chukchansi Economic Development
Authority 8.000% 11/15/13 (a) 465,000 480,694
Galaxy Entertainment Finance Co.,
Ltd. 9.875% 12/15/12 (a) 665,000 726,512
Greektown Holdings LLC 10.750% 12/01/13 (a) 775,000 829,250
Harrah's Operating Co., Inc. 5.625% 06/01/15 2,950,000 2,544,375
Hyatt Equities LLC 6.875% 06/15/07 (a) 5,000,000 5,008,555
Jacobs Entertainment, Inc. 9.750% 06/15/14 475,000 485,687
Las Vegas Sands Corp. 6.375% 02/15/15 610,000 582,550
MGM Mirage, Inc. 7.625% 01/15/17 1,200,000 1,215,000
Mohegan Tribal Gaming Authority 6.875% 02/15/15 (d) 155,000 154,613
Pinnacle Entertainment, Inc. 8.250% 03/15/12 555,000 571,650
Seminole Hard Rock Entertainment,
Inc. 7.848% 03/15/14 (a)(c) 420,000 428,400
Station Casinos, Inc. 6.875% 03/01/16 1,335,000 1,223,194
----------------------- --------- ----------
Lodging Total 14,250,480
Retail - 2.5%
AmeriGas Partners LP 7.125% 05/20/16 915,000 917,288
Asbury Automotive Group, Inc. 7.625% 03/15/17 (a) 700,000 701,750
Buffets, Inc. 12.500% 11/01/14 355,000 369,200
CVS Corp. 5.298% 01/11/27 (a) 4,456,806 4,252,194
CVS Lease Pass Through 6.036% 12/10/28 (a) 5,680,966 5,745,786
Dave & Buster's, Inc. 11.250% 03/15/14 415,000 423,300
Federated Department Stores, Inc. 6.900% 04/01/29 2,780,000 2,808,289
Federated Retail Holdings, Inc. 5.350% 03/15/12 1,250,000 1,246,728
5.900% 12/01/16 3,185,000 3,173,120
See Accompanying Notes to Financial Statements.
11
Columbia Intermediate Bond Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Consumer Cyclical (continued)
Retail (continued)
JC Penney Corp., Inc. 7.400% 04/01/37 (d) 6,295,000 6,801,206
Landry's Restaurants, Inc. 7.500% 12/15/14 350,000 344,750
Ltd. Brands, Inc. 6.950% 03/01/33 5,480,000 5,466,453
May Department Stores Co. 3.950% 07/15/07 12,000,000 11,938,884
Michaels Stores, Inc. 11.375% 11/01/16 (a) 365,000 393,288
Rite Aid Corp. 7.500% 01/15/15 430,000 428,925
United Auto Group, Inc. 7.750% 12/15/16 (a) 395,000 398,950
Wal-Mart Stores, Inc. 4.125% 02/15/11 3,245,000 3,144,168
5.250% 09/01/35 5,880,000 5,341,057
--------------------- ---------- -----------
Retail Total 53,895,336
Textiles - 0.0%
INVISTA 9.250% 05/01/12 (a) 295,000 314,175
--------------------- ---------- -----------
Textiles Total 314,175
Consumer Cyclical Total 111,572,288
Consumer Non-Cyclical - 4.2%
Agriculture - 0.1%
Alliance One International, Inc. 8.500% 05/15/12 (a) 370,000 372,992
11.000% 05/15/12 370,000 407,000
Reynolds American, Inc. 7.625% 06/01/16 385,000 409,575
--------------------- ---------- -----------
Agriculture Total 1,189,567
Beverages - 0.6%
Constellation Brands, Inc. 8.125% 01/15/12 555,000 574,425
Cott Beverages, Inc. 8.000% 12/15/11 310,000 316,200
Diageo Capital PLC 5.450% 04/20/07 (c) 7,500,000 7,500,150
SABMiller PLC 6.200% 07/01/11 (a) 4,860,000 5,018,149
--------------------- ---------- -----------
Beverages Total 13,408,924
Biotechnology - 0.3%
Bio-Rad Laboratories, Inc. 7.500% 08/15/13 2,000,000 2,060,000
Genentech, Inc. 4.400% 07/15/10 4,200,000 4,120,607
--------------------- ---------- -----------
Biotechnology Total 6,180,607
Commercial Services - 0.3%
ACE Cash Express, Inc. 10.250% 10/01/14 (a) 280,000 288,400
Ashtead Capital, Inc. 9.000% 08/15/16 (a) 1,000,000 1,065,000
Corrections Corp. of America 6.250% 03/15/13 440,000 440,000
See Accompanying Notes to Financial Statements.
12
Columbia Intermediate Bond Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Consumer Non-Cyclical (continued)
Commercial Services (continued)
GEO Group, Inc. 8.250% 07/15/13 605,000 630,712
Hertz Corp. 8.875% 01/01/14 525,000 565,687
Iron Mountain, Inc. 7.750% 01/15/15 380,000 387,600
Quebecor World Capital Corp. 8.750% 03/15/16 (a) 920,000 931,500
Quebecor World, Inc. 9.750% 01/15/15 (a) 270,000 283,500
Rental Services Corp. 9.500% 12/01/14 (a) 610,000 649,650
Service Corp. International 6.750% 04/01/16 320,000 318,400
United Rentals North America, Inc. 7.750% 11/15/13 495,000 508,613
----------------------------- --------- ---------
Commercial Services Total 6,069,062
Cosmetics/Personal Care - 0.0%
DEL Laboratories, Inc. 8.000% 02/01/12 520,000 484,900
Elizabeth Arden, Inc. 7.750% 01/15/14 565,000 576,300
----------------------------- --------- ---------
Cosmetics/Personal Care Total 1,061,200
Food - 0.4%
ConAgra Foods, Inc. 7.000% 10/01/28 1,410,000 1,501,197
Dean Foods Co. 7.000% 06/01/16 520,000 521,950
Dole Food Co., Inc. 8.625% 05/01/09 375,000 374,063
Kroger Co. 7.500% 04/01/31 (d) 3,080,000 3,356,473
8.000% 09/15/29 (d) 1,865,000 2,092,739
Pinnacle Foods Holding Corp. 8.250% 12/01/13 495,000 538,337
Reddy Ice Holdings, Inc. (e) 11/01/12
(10.500% 11/01/08) 340,000 309,400
----------------------------- --------- ---------
Food Total 8,694,159
Healthcare Products - 0.0%
Advanced Medical Optics, Inc. 7.500% 05/01/17 (a) 225,000 226,688
----------------------------- --------- ---------
Healthcare Products Total 226,688
Healthcare Services - 0.7%
Aetna, Inc. 6.000% 06/15/16 (d) 3,820,000 3,959,086
DaVita, Inc. 7.250% 03/15/15 520,000 525,850
HCA, Inc. 9.250% 11/15/16 (a) 430,000 463,863
PIK,
9.625% 11/15/16 (a) 1,235,000 1,333,800
MedQuest, Inc. 11.875% 08/15/12 360,000 327,600
Tenet Healthcare Corp. 9.875% 07/01/14 710,000 717,100
UnitedHealth Group, Inc. 3.300% 01/30/08 8,250,000 8,107,605
See Accompanying Notes to Financial Statements.
13
Columbia Intermediate Bond Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Consumer Non-Cyclical (continued)
Healthcare Services (continued)
US Oncology Holdings, Inc. PIK,
9.797% 03/15/12 (a)(c) 845,000 853,450
------------------------------ ---------- ----------
Healthcare Services Total 16,288,354
Household Products/Wares - 1.1%
American Greetings Corp. 7.375% 06/01/16 515,000 531,094
Amscan Holdings, Inc. 8.750% 05/01/14 540,000 530,550
Clorox Co. 5.480% 12/14/07 (c) 15,000,000 15,009,465
Fortune Brands, Inc. 5.125% 01/15/11 5,215,000 5,168,571
5.375% 01/15/16 2,350,000 2,258,388
Jarden Corp. 7.500% 05/01/17 565,000 570,650
Jostens IH Corp. 7.625% 10/01/12 375,000 381,562
------------------------------ ---------- ----------
Household Products/Wares Total 24,450,280
Pharmaceuticals - 0.7%
Elan Finance PLC 8.875% 12/01/13 (a) 845,000 858,731
Merck & Co., Inc. 5.750% 11/15/36 2,525,000 2,449,487
Mylan Laboratories, Inc. 6.375% 08/15/15 805,000 794,938
NBTY, Inc. 7.125% 10/01/15 275,000 276,719
Omnicare, Inc. 6.750% 12/15/13 255,000 255,956
Warner Chilcott Corp. 8.750% 02/01/15 470,000 489,975
Wyeth 5.500% 02/01/14 1,640,000 1,649,989
5.500% 02/15/16 7,985,000 8,001,066
------------------------------ ---------- ----------
Pharmaceuticals Total 14,776,861
Consumer Non-Cyclical Total 92,345,702
Energy - 4.8%
Coal - 0.1%
Arch Western Finance LLC 6.750% 07/01/13 455,000 447,606
Peabody Energy Corp. 7.375% 11/01/16 200,000 210,500
------------------------------ ---------- ----------
Coal Total 658,106
Oil & Gas - 3.9%
Anadarko Petroleum Corp. 6.450% 09/15/36 7,230,000 7,154,425
Canadian Natural Resources Ltd. 5.700% 05/15/17 5,730,000 5,703,510
6.250% 03/15/38 5,730,000 5,606,249
Chesapeake Energy Corp. 6.375% 06/15/15 1,500,000 1,492,500
7.500% 06/15/14 1,160,000 1,215,100
See Accompanying Notes to Financial Statements.
14
Columbia Intermediate Bond Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Energy (continued)
Oil & Gas (continued)
El Paso Production Holding Co. 7.750% 06/01/13 1,585,000 1,656,325
Gazprom International SA 7.201% 02/01/20 (a) 5,722,527 6,001,500
7.201% 02/01/20 309,970 325,081
Hess Corp. 7.125% 03/15/33 1,182,000 1,278,668
7.300% 08/15/31 (d) 3,180,000 3,505,279
Marathon Oil Corp. 6.000% 07/01/12 (d) 1,470,000 1,520,490
Nexen, Inc. 5.875% 03/10/35 2,210,000 2,073,132
7.875% 03/15/32 5,250,000 6,214,992
Noble Drilling Corp. 7.500% 03/15/19 4,813,000 5,400,335
OPTI Canada, Inc. 8.250% 12/15/14 (a) 360,000 374,400
Pemex Project Funding Master
Trust 7.875% 02/01/09 6,000,000 6,255,000
Petrobras International Finance Co. 8.375% 12/10/18 895,000 1,074,000
PetroHawk Energy Corp. 9.125% 07/15/13 565,000 601,725
Pride International, Inc. 7.375% 07/15/14 1,155,000 1,183,875
Qatar Petroleum 5.579% 05/30/11 (a) 2,455,000 2,467,695
Quicksilver Resources, Inc. 7.125% 04/01/16 390,000 384,150
Ras Laffan Liquefied Natural Gas
Co., Ltd. 3.437% 09/15/09 (a) 4,320,000 4,240,598
Ras Laffan Liquefied Natural Gas
Co., Ltd. III 5.832% 09/30/16 (a) 2,230,000 2,260,889
Tesoro Corp. 6.625% 11/01/15 365,000 369,563
Valero Energy Corp. 6.875% 04/15/12 11,305,000 12,038,649
7.500% 04/15/32 4,695,000 5,335,060
------------------------ ---------- ----------
Oil & Gas Total 85,733,190
Oil & Gas Services - 0.0%
Seitel, Inc. 9.750% 02/15/14 (a) 275,000 278,438
------------------------ ---------- ----------
Oil & Gas Services Total 278,438
Pipelines - 0.8%
Atlas Pipeline Partners LP 8.125% 12/15/15 370,000 381,100
Colorado Interstate Gas Co. 6.800% 11/15/15 300,000 319,045
Energy Transfer Partners LP 6.125% 02/15/17 (d) 3,685,000 3,765,359
MarkWest Energy Partners LP 8.500% 07/15/16 705,000 734,963
Plains All American Pipeline LP 6.650% 01/15/37 (a) 10,920,000 11,101,381
See Accompanying Notes to Financial Statements.
15
Columbia Intermediate Bond Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Energy (continued)
Pipelines (continued)
Williams Companies, Inc. 6.375% 10/01/10 (a) 525,000 532,219
7.750% 06/15/31 105,000 112,350
8.125% 03/15/12 1,005,000 1,092,937
----------------------- ---------- -----------
Pipelines Total 18,039,354
Energy Total 104,709,088
Financials - 19.4%
Banks - 5.8%
Barclays Bank PLC 7.375% 06/15/49 (a) 7,500,000 8,129,430
Chinatrust Commercial Bank 5.625% 12/29/49 (a)(c) 2,350,000 2,294,815
HSBC Bank USA 3.875% 09/15/09 (d) 12,810,000 12,434,334
HSBC Capital Funding LP 9.547% 12/31/49 (a)(c) 10,500,000 11,806,683
Lloyds TSB Group PLC 6.267% 12/31/49 (a)(c) 5,270,000 5,179,172
M&I Marshall & Ilsley Bank 5.300% 09/08/11 8,380,000 8,432,895
PNC Funding Corp. 5.125% 12/14/10 3,315,000 3,320,317
5.625% 02/01/17 3,695,000 3,721,515
Union Planters Corp. 4.375% 12/01/10 7,720,000 7,554,128
USB Capital IX 6.189% 04/15/42 (c) 17,410,000 17,851,274
Wachovia Capital Trust III 5.800% 03/15/42 (c) 11,495,000 11,632,089
Wachovia Corp. 4.375% 06/01/10 (d) 6,320,000 6,200,122
5.300% 10/15/11 17,415,000 17,515,258
5.625% 12/15/08 3,555,000 3,587,251
Wells Fargo & Co. 5.300% 08/26/11 8,665,000 8,732,552
----------------------- ---------- -----------
Banks Total 128,391,835
Diversified Financial Services - 8.2%
Air 2 US 8.027% 10/01/19 (a) 3,159,973 3,317,971
American Express Co. 6.800% 09/01/66 (c) 2,825,000 3,008,464
Ameriprise Financial, Inc. 7.518% 06/01/66 (c) 10,030,000 10,825,670
Buffalo Thunder Development
Authority 9.375% 12/15/14 (c) 240,000 244,800
Capital One Capital IV 6.745% 02/17/37 (d) 11,020,000 10,557,920
CIT Group, Inc. 5.580% 09/20/07 (c)(d) 5,000,000 5,004,745
5.850% 09/15/16 9,035,000 9,114,481
6.100% 03/15/67 (c)(d) 2,045,000 1,971,190
Citicorp 8.040% 12/15/19 (a) 12,075,000 14,205,211
See Accompanying Notes to Financial Statements.
16
Columbia Intermediate Bond Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Financials (continued)
Diversified Financial Services (continued)
Citigroup, Inc. 4.625% 08/03/10 3,150,000 3,115,211
5.100% 09/29/11 9,940,000 9,935,875
Countrywide Home Loan, Inc. 5.610% 11/16/07 (c) 5,000,000 5,004,365
Dow Jones CDX High Yield Index 7.625% 06/29/12 (a) 2,500,000 2,465,625
Ford Motor Credit Co. 5.700% 01/15/10 2,000,000 1,914,542
5.800% 01/12/09 4,650,000 4,561,403
7.375% 02/01/11 1,285,000 1,263,840
8.000% 12/15/16 390,000 375,275
9.750% 09/15/10 (a) 3,962,000 4,173,341
Fund American Companies, Inc. 5.875% 05/15/13 4,535,000 4,536,310
General Motors Acceptance Corp. 6.875% 09/15/11 1,250,000 1,251,211
8.000% 11/01/31 1,220,000 1,308,016
Goldman Sachs Group, Inc. 5.300% 02/14/12 8,675,000 8,677,516
Idearc, Inc. 8.000% 11/15/16 (a) 765,000 786,994
International Lease Finance Corp. 4.875% 09/01/10 4,390,000 4,356,952
6.375% 03/15/09 4,600,000 4,709,379
John Deere Capital Corp. 7.000% 03/15/12 6,000,000 6,485,184
JPMorgan Chase Capital XVIII 6.950% 08/17/36 12,775,000 13,314,693
JPMorgan Chase Capital XXII 6.450% 02/02/37 4,645,000 4,552,467
LaBranche & Co., Inc. 11.000% 05/15/12 575,000 626,750
Lehman Brothers Holdings, Inc. 5.500% 04/04/16 (d) 2,830,000 2,814,027
Morgan Stanley 5.750% 10/18/16 14,325,000 14,408,171
NSG Holdings LLC 7.750% 12/15/25 (a) 415,000 433,675
PF Export Receivables Master Trust 3.748% 06/01/13 (a) 2,390,375 2,255,104
Pinnacle Foods Finance LLC 9.250% 04/01/15 (a) 480,000 471,600
10.625% 04/01/17 (a) 385,000 378,744
Residential Capital LLC 6.375% 06/30/10 5,410,000 5,408,545
6.500% 04/17/13 10,695,000 10,593,462
Sally Holdings LLC 10.500% 11/15/16 (a) 375,000 385,312
Snoqualmie Entertainment
Authority 9.125% 02/01/15 (a) 90,000 92,812
9.150% 02/01/14 (a)(c) 90,000 91,575
Wimar Opco LLC 9.625% 12/15/14 (a) 560,000 562,100
------------------------------------ ---------- -----------
Diversified Financial Services Total 179,560,528
See Accompanying Notes to Financial Statements.
17
Columbia Intermediate Bond Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Financials (continued)
Insurance - 2.9%
Ambac Financial Group, Inc. 6.150% 02/15/37 (c) 2,010,000 1,892,206
Berkshire Hathaway Finance Corp. 4.850% 01/15/15 (d) 5,000,000 4,854,020
Hartford Financial Services Group,
Inc. 4.700% 09/01/07 4,000,000 3,987,480
Hartford Life Global Funding Trusts 5.525% 09/15/09 (c) 5,825,000 5,844,502
ING Groep NV 5.775% 12/29/49 (d) 8,395,000 8,351,976
Liberty Mutual Group, Inc. 7.500% 08/15/36 (a)(d) 8,805,000 9,406,963
7.800% 03/15/37 (a) 4,610,000 4,494,607
Metlife, Inc. 6.400% 12/15/36 10,980,000 10,720,795
Prudential Financial, Inc. 4.750% 06/13/15 (d) 3,210,000 3,056,700
Prudential Insurance Co. of America 7.650% 07/01/07 (a) 7,105,000 7,148,035
XL Capital Ltd. 6.500% 12/31/49 (c) 4,670,000 4,529,489
------------------------------------------- ---------- -----------
Insurance Total 64,286,773
Real Estate Investment Trusts (REITs) - 1.6%
Archstone-Smith Trust 5.750% 03/15/16 6,150,000 6,234,476
Health Care Property Investors, Inc. 5.625% 05/01/17 3,765,000 3,636,165
6.300% 09/15/16 4,000,000 4,100,308
7.072% 06/08/15 2,530,000 2,685,866
Highwoods Properties, Inc. 5.850% 03/15/17 (a) 2,005,000 1,990,382
Hospitality Properties Trust 5.625% 03/15/17 (a) 5,740,000 5,653,016
iStar Financial, Inc. 5.125% 04/01/11 (d) 2,400,000 2,377,402
8.750% 08/15/08 3,000,000 3,129,879
Liberty Property LP 5.500% 12/15/16 5,075,000 5,039,668
Rouse Co. LP 6.750% 05/01/13 (a) 1,000,000 1,019,132
------------------------------------------- ---------- -----------
Real Estate Investment Trusts (REITs) Total 35,866,294
Savings & Loans - 0.9%
Washington Mutual Preferred
Funding Delaware 6.534% 03/29/49 (a)(c) 12,700,000 12,494,006
Washington Mutual, Inc. 5.250% 09/15/17 6,665,000 6,335,449
------------------------------------------- ---------- -----------
Savings & Loans Total 18,829,455
Financials Total 426,934,885
See Accompanying Notes to Financial Statements.
18
Columbia Intermediate Bond Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Industrials - 2.0% Par ($) Value ($)
Aerospace & Defense - 0.2%
DRS Technologies, Inc. 6.625% 02/01/16 360,000 363,600
L-3 Communications Corp. 6.375% 10/15/15 545,000 540,231
Raytheon Co. 7.200% 08/15/27 (d) 1,730,000 2,003,092
Sequa Corp. 9.000% 08/01/09 265,000 279,575
Systems 2001 Asset Trust 6.664% 09/15/13 (a) 1,906,742 2,009,764
--------------------------------------- --------- ---------
Aerospace & Defense Total 5,196,262
Building Materials - 0.1%
Goodman Global Holding Co., Inc. 7.875% 12/15/12 290,000 291,450
NTK Holdings, Inc. (e) 03/01/14
(10.750% 09/01/09) 830,000 601,750
Ply Gem Industries, Inc. 9.000% 02/15/12 370,000 320,975
--------------------------------------- --------- ---------
Building Materials Total 1,214,175
Electrical Components & Equipment - 0.1%
Belden CDT, Inc. 7.000% 03/15/17 (a) 530,000 540,612
General Cable Corp. 7.125% 04/01/17 (a) 220,000 221,375
7.725% 04/01/15 (a)(c) 220,000 220,000
--------------------------------------- --------- ---------
Electrical Components & Equipment Total 981,987
Electronics - 0.2%
Flextronics International Ltd. 6.250% 11/15/14 985,000 952,987
NXP BV/NXP Funding LLC 7.875% 10/15/14 (a) 515,000 531,738
Thomas & Betts Corp. 7.250% 06/01/13 2,000,000 2,098,108
--------------------------------------- --------- ---------
Electronics Total 3,582,833
Engineering & Construction - 0.0%
Esco Corp. 8.625% 12/15/13 (a) 235,000 249,100
--------------------------------------- --------- ---------
Engineering & Construction Total 249,100
Environmental Control - 0.2%
Aleris International, Inc. 10.000% 12/15/16 (a) 315,000 329,175
PIK,
9.000% 12/15/14 (a) 315,000 332,325
Allied Waste North America, Inc. 7.125% 05/15/16 2,500,000 2,543,750
Aventine Renewable Energy
Holdings, Inc. 10.000% 04/01/17 (a)(d) 460,000 475,525
--------------------------------------- --------- ---------
Environmental Control Total 3,680,775
Hand/Machine Tools - 0.0%
Baldor Electric Co. 8.625% 02/15/17 315,000 333,113
--------------------------------------- --------- ---------
Hand/Machine Tools Total 333,113
See Accompanying Notes to Financial Statements.
19
Columbia Intermediate Bond Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Industrials (continued)
Machinery-Construction & Mining - 0.2%
Caterpillar, Inc. 6.050% 08/15/36 3,360,000 3,429,643
Terex Corp. 7.375% 01/15/14 380,000 391,400
------------------------------------- --------- ---------
Machinery-Construction & Mining Total 3,821,043
Machinery-Diversified - 0.0%
Columbus McKinnon Corp. 8.875% 11/01/13 370,000 392,200
------------------------------------- --------- ---------
Machinery-Diversified Total 392,200
Miscellaneous Manufacturing - 0.2%
American Railcar Industries, Inc. 7.500% 03/01/14 (a) 350,000 359,625
Bombardier, Inc. 6.300% 05/01/14 (a) 2,360,000 2,242,000
Covalence Specialty Materials
Corp. 10.250% 03/01/16 (a) 565,000 565,000
Nutro Products, Inc. 10.750% 04/15/14 (a) 445,000 480,600
Trinity Industries, Inc. 6.500% 03/15/14 1,550,000 1,534,500
------------------------------------- --------- ---------
Miscellaneous Manufacturing Total 5,181,725
Packaging & Containers - 0.1%
Crown Americas LLC & Crown
Americas Capital Corp. 7.750% 11/15/15 555,000 577,200
Jefferson Smurfit Corp. 8.250% 10/01/12 475,000 475,000
Owens-Brockway Glass Container,
Inc. 6.750% 12/01/14 1,010,000 999,900
Owens-Illinois, Inc. 7.500% 05/15/10 540,000 548,100
Solo Cup Co. 8.500% 02/15/14 270,000 229,837
------------------------------------- --------- ---------
Packaging & Containers Total 2,830,037
Transportation - 0.7%
BNSF Funding Trust I 6.613% 12/15/55 (c) 5,500,000 5,112,563
Burlington Northern Santa Fe Corp. 7.950% 08/15/30 2,375,000 2,808,160
Kansas City Southern de Mexico SA
de CV 9.375% 05/01/12 475,000 510,625
Navios Maritime Holdings, Inc. 9.500% 12/15/14 (a) 395,000 411,294
PHI, Inc. 7.125% 04/15/13 420,000 401,100
QDI LLC 9.000% 11/15/10 315,000 302,400
Ship Finance International Ltd. 8.500% 12/15/13 500,000 512,500
Stena AB 7.500% 11/01/13 855,000 867,825
See Accompanying Notes to Financial Statements.
20
Columbia Intermediate Bond Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Industrials (continued)
Transportation (continued)
Union Pacific Corp. 6.650% 01/15/11 4,595,000 4,803,875
------------------------ --------- ----------
Transportation Total 15,730,342
Industrials Total 43,193,592
Technology - 0.3%
Computers - 0.2%
Hewlett-Packard Co. 6.500% 07/01/12 4,000,000 4,254,344
Sungard Data Systems, Inc. 9.125% 08/15/13 380,000 407,550
------------------------ --------- ----------
Computers Total 4,661,894
Semiconductors - 0.1%
Advanced Micro Devices, Inc. 7.750% 11/01/12 325,000 328,656
Freescale Semiconductor, Inc. 10.125% 12/15/16 (a)(d) 985,000 987,462
PIK,
9.125% 12/15/14 (a) 635,000 630,238
------------------------ --------- ----------
Semiconductors Total 1,946,356
Software - 0.0%
Open Solutions, Inc. 9.750% 02/01/15 (a) 495,000 509,850
------------------------ --------- ----------
Software Total 509,850
Technology Total 7,118,100
Utilities - 4.5%
Electric - 4.2%
AES Corp. 7.750% 03/01/14 1,460,000 1,533,000
American Electric Power Co., Inc. 5.250% 06/01/15 7,973,000 7,842,761
Calpine Generating Co. LLC 14.370% 04/01/11 (g) 305,000 323,300
CMS Energy Corp. 6.875% 12/15/15 610,000 635,925
Commonwealth Edison Co. 5.900% 03/15/36 4,565,000 4,236,941
6.950% 07/15/18 3,320,000 3,293,968
Dominion Resources, Inc. 5.650% 09/28/07 (c) 4,225,000 4,226,589
Dynegy Holdings, Inc. 7.125% 05/15/18 615,000 590,400
Edison Mission Energy 7.500% 06/15/13 525,000 542,063
FPL Energy American Wind LLC 6.639% 06/20/23 (a) 3,857,420 4,015,574
FPL Energy National Wind LLC 5.608% 03/10/24 (a) 715,272 706,066
Hydro Quebec 8.500% 12/01/29 5,200,000 7,205,302
ITC Holdings Corp. 5.250% 07/15/13 (a) 6,300,000 6,151,503
Kiowa Power Partners LLC 5.737% 03/30/21 (a) 3,550,000 3,470,161
See Accompanying Notes to Financial Statements.
21
Columbia Intermediate Bond Fund
March 31, 2007
Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($)
Utilities (continued)
Electric (continued)
MidAmerican Energy Holdings Co. 3.500% 05/15/08 5,310,000 5,210,618
5.875% 10/01/12 5,500,000 5,662,404
Mirant Mid Atlantic LLC 8.625% 06/30/12 930,365 985,024
Nevada Power Co. 9.000% 08/15/13 1,300,000 1,402,587
Niagara Mohawk Power Corp. 8.875% 05/15/07 6,200,000 6,222,723
NRG Energy, Inc. 7.375% 02/01/16 285,000 292,838
7.375% 01/15/17 485,000 497,731
Oglethorpe Power Corp. 6.974% 06/30/11 1,722,000 1,739,685
Pacific Gas & Electric Co. 6.050% 03/01/34 4,625,000 4,636,317
Pepco Holdings, Inc. 5.985% 06/01/10 (c) 5,000,000 5,000,770
Progress Energy, Inc. 7.750% 03/01/31 4,840,000 5,788,398
Southern California Edison Co. 5.000% 01/15/16 (d) 4,500,000 4,375,080
5.625% 02/01/36 1,506,000 1,458,725
Southern Power Co. 6.375% 11/15/36 1,385,000 1,358,502
TECO Energy, Inc. 7.000% 05/01/12 880,000 928,400
Tenaska Alabama II Partners LP 6.125% 03/30/23 (a) 3,161,693 3,203,711
----------------------------------------- ---------- -------------
Electric Total 93,537,066
Gas - 0.3%
Nakilat, Inc. 6.067% 12/31/33 (a) 3,300,000 3,182,784
Southern California Gas Co. 5.530% 12/01/09 (c) 3,390,000 3,397,929
----------------------------------------- ---------- -------------
Gas Total 6,580,713
Utilities Total 100,117,779
Total Corporate Fixed-Income Bonds &Notes
(Cost of $1,037,740,014) 1,043,651,638
Government & Agency Obligations - 18.3%
Foreign Government Obligations - 1.7%
Export-Import Bank of Korea 4.625% 03/16/10 4,700,000 4,634,651
Province of Manitoba 5.000% 02/15/12 250,000 251,388
Province of New Brunswick 5.200% 02/21/17 5,230,000 5,277,975
Province of Ontario 5.000% 10/18/11 750,000 753,942
Province of Quebec 5.000% 07/17/09 (d) 5,500,000 5,516,423
5.000% 03/01/16 11,705,000 11,596,729
See Accompanying Notes to Financial Statements.
22
Columbia Intermediate Bond Fund
March 31, 2007
Government & Agency Obligations (continued)
Par ($) Value ($)
Foreign Government Obligations (continued)
State of Qatar 9.750% 06/15/30 (a) 3,350,000 4,991,500
Swedish Export Credit 5.125% 03/01/17 4,185,000 4,196,086
Foreign Government Obligations Total 37,218,694
U.S. Government Agencies - 7.0%
Federal Home Loan Bank System 4.850% 02/15/08 8,030,000 8,008,343
5.300% 01/16/09 10,000,000 10,000,430
5.550% 03/19/09 15,000,000 15,000,360
Federal Home Loan Mortgage Corp. 5.000% 12/14/18 8,500,000 8,296,825
5.250% 07/18/11 3,000,000 3,046,605
5.250% 12/05/11 66,810,000 66,622,999
5.750% 06/27/16 5,250,000 5,447,552
Federal National Mortgage
Association 5.250% 04/04/08 18,850,000 18,849,623
5.450% 03/27/09 18,500,000 18,500,000
U.S. Government Agencies Total 153,772,737
U.S. Government Obligations - 9.6%
U.S. Treasury Bonds 4.500% 02/15/36 (d) 5,655,000 5,331,602
U.S. Treasury Notes 2.750% 08/15/07 (d) 17,985,000 17,831,840
4.375% 12/15/10 (d)(h) 75,240,000 74,852,063
4.500% 11/15/10 (d) 2,365,000 2,363,153
4.625% 02/29/12 (d) 41,755,000 41,918,105
4.625% 02/15/17 (d) 69,385,000 69,244,079
U.S. Government Obligations Total 211,540,842
Total Government & Agency Obligations
(Cost of $401,362,401) 402,532,273
Mortgage-Backed Securities - 13.7%
Federal Home Loan Mortgage Corp. 4.500% 04/01/34 4,048,750 3,811,191
4.500% 05/01/34 6,092,384 5,734,915
5.500% 07/01/21 46,387,414 46,485,447
12.000% 07/01/20 145,711 158,375
Federal National Mortgage
Association 5.000% 08/01/35 8,349,082 8,074,622
5.500% 12/01/17 4,004,544 4,024,260
6.000% 04/01/09 470,304 472,817
6.000% 01/01/14 346,408 352,899
6.000% 01/01/24 156,993 158,868
6.000% 03/01/24 147,406 149,191
6.000% 09/01/36 16,778,251 16,902,967
6.000% 02/01/37 29,485,759 29,704,932
See Accompanying Notes to Financial Statements.
23
Columbia Intermediate Bond Fund
March 31, 2007
Mortgage-Backed Securities (continued)
Par ($) Value ($)
6.500% 10/01/28 779,529 804,295
6.500% 12/01/31 961,456 990,329
6.500% 11/01/36 23,094,704 23,559,498
TBA:
5.000% 04/17/22 (b) 8,920,000 8,794,567
5.000% 04/12/37 (b) 9,300,000 8,983,223
5.500% 04/12/37 (b) 103,300,000 102,202,438
6.000% 04/12/37 (b) 40,287,000 40,576,583
Government National Mortgage
Association 5.750% 07/20/25 (c) 86,193 87,166
8.000% 01/15/08 6,802 6,909
8.000% 02/15/08 1,796 1,824
8.000% 04/15/08 1,715 1,742
8.000% 05/15/08 2,937 2,983
8.000% 06/15/08 33,419 33,946
8.000% 07/15/08 5,395 5,480
9.000% 06/15/16 2,800 3,000
9.000% 08/15/16 3,654 3,914
9.000% 10/15/16 6,288 6,736
-------------------------------- ----------- -----------
Total Mortgage-Backed Securities
(Cost of $301,748,272) 302,095,117
Asset-Backed Securities - 9.3%
ACE Securities Corp. 5.450% 05/25/36 (c) 5,168,000 5,167,488
Bay View Auto Trust 5.310% 06/25/14 3,500,000 3,491,276
Capital Auto Receivables Asset
Trust 5.310% 06/15/12 9,000,000 8,973,961
5.500% 04/20/10 (a) 4,400,000 4,421,524
Carmax Auto Owner Trust 4.730% 09/17/12 2,900,000 2,871,786
Cigna CBO Ltd. 6.460% 11/15/08 (a) 1,831,420 1,831,420
CIT Equipment Collateral 2.830% 12/20/11 1,597,318 1,594,939
Citicorp Residential Mortgage
Securities, Inc. 5.745% 03/25/37 11,000,000 10,999,670
Citigroup Mortgage Loan Trust, Inc. 5.517% 08/25/35 3,775,000 3,741,747
5.598% 03/25/36 2,850,000 2,837,495
5.666% 08/25/35 2,330,000 2,295,830
Countrywide Asset-Backed
Certificates 5.430% 06/25/21 (c) 4,513,292 4,511,853
5.813% 04/25/37 8,500,000 8,507,558
Credit-Based Asset Servicing and
Securitization 5.545% 11/25/35 2,950,000 2,936,041
See Accompanying Notes to Financial Statements.
24
Columbia Intermediate Bond Fund
March 31, 2007
Asset-Backed Securities (continued)
Par ($) Value ($)
Diversified REIT Trust 6.780% 03/18/11 (a)(c) 5,000,000 5,096,465
Ford Credit Auto Owner Trust 5.680% 06/15/12 5,422,000 5,482,353
Fremont Home Loan Trust 5.430% 02/25/36 (c) 11,768,000 11,766,921
GE Equipment Small Ticket LLC 4.620% 12/22/14 (a) 3,211,919 3,184,437
5.120% 06/22/15 (a) 6,571,720 6,597,313
Green Tree Financial Corp. 6.870% 01/15/29 1,847,966 1,914,459
Harley-Davidson Motorcycle Trust 5.540% 04/15/15 4,600,000 4,634,576
Indymac Seconds Asset Backed
Trust 5.450% 06/25/36 (c) 4,185,740 4,185,055
JPMorgan Auto Receivables Trust 5.610% 12/15/14 (a) 7,150,000 7,197,661
JPMorgan Mortgage Acquisition
Corp. 5.440% 04/25/36 (c) 9,500,000 9,499,972
5.627% 10/25/35 5,000,000 5,007,078
Long Beach Auto Receivables Trust 4.522% 06/15/12 6,100,000 6,035,840
Long Beach Mortgage Loan Trust 5.420% 05/25/36 (c) 5,100,000 5,098,008
Merrill Lynch Mortgage Investors,
Inc. 5.470% 05/25/37 (c) 3,454,750 3,453,638
Nomura Home Equity Loan, Inc. 5.440% 03/25/36 (c) 3,000,000 2,999,366
Origen Manufactured Housing 3.790% 12/15/17 2,191,046 2,151,418
Pinnacle Capital Asset Trust 5.770% 05/25/10 (a) 5,200,000 5,205,168
Providian Gateway Master Trust 3.350% 09/15/11 (a) 1,500,000 1,487,689
Renaissance Home Equity Loan
Trust 5.355% 11/25/35 (c) 4,750,000 4,656,630
5.390% 01/25/37 (c) 7,768,028 7,766,774
5.565% 02/25/36 (c) 6,000,000 5,985,636
Residential Asset Securities Corp. 5.430% 06/25/36 (c) 5,000,000 4,998,269
Residential Funding Mortgage
Securities II, Inc. 5.110% 09/25/35 5,000,000 4,765,392
Small Business Administration
Participation Certificates 4.570% 06/01/25 4,124,755 3,981,652
5.570% 03/01/26 3,887,879 3,960,363
Soundview Home Equity Loan Trust 5.510% 11/25/35 (c) 9,965,404 9,963,788
WFS Financial Owner Trust 4.760% 05/17/13 4,000,000 3,961,091
----------------------------- ---------- -----------
Total Asset-Backed Securities
(Cost of $205,556,084) 205,219,600
See Accompanying Notes to Financial Statements.
25
Columbia Intermediate Bond Fund
March 31, 2007
Collateralized Mortgage Obligations - 7.9%
Par ($) Value ($)
Agency - 3.2%
Federal Home Loan Mortgage Corp. 4.000% 03/15/19 7,075,000 6,428,948
4.750% 07/15/24 15,000,000 14,886,016
5.000% 03/15/28 15,000,000 14,890,024
Federal National Mortgage
Association 5.000% 07/25/15 13,500,000 13,421,822
5.000% 12/25/15 15,000,000 14,912,694
9.250% 03/25/18 122,956 130,687
Government National Mortgage
Association 4.954% 05/16/31 4,300,000 4,166,641
Small Business Administration
Participation Certificates 5.390% 12/01/25 1,049,625 1,060,206
Agency Total 69,897,038
Non-Agency - 4.7%
American Home Mortgage
Investment Trust 5.430% 06/25/36 (c) 8,240,438 8,239,762
American Mortgage Trust 8.445% 09/27/22 15,751 9,490
Citigroup Mortgage Loan Trust, Inc. 5.844% 11/25/36 (c) 18,855,017 19,064,407
Countrywide Alternative Loan Trust 5.000% 03/25/20 13,729,338 13,596,329
5.000% 07/25/35 3,681,865 3,622,981
5.250% 03/25/35 3,940,676 3,888,883
5.500% 09/25/35 6,503,568 6,323,833
GMAC Mortgage Corp. Loan Trust 5.648% 04/19/36 (c) 3,873,421 3,856,478
GSMPS Mortgage Loan Trust 7.750% 09/19/27 (a) 938,194 986,852
JPMorgan Mortgage Trust 4.989% 10/25/35 (c) 5,423,000 5,371,608
Merrill Lynch/Countrywide
Commercial Mortgage Trust 5.456% 07/12/46 (c) 9,652,000 9,661,609
Nomura Asset Acceptance Corp. 5.420% 08/25/36 (c) 12,711,184 12,713,778
5.515% 01/25/36 (c) 8,060,000 8,030,662
Residential Accredit Loans, Inc. 5.500% 02/25/35 4,423,926 4,390,295
Suntrust Alternative Loan Trust 6.066% 12/25/35 (c) 3,100,106 3,103,000
Non-Agency Total 102,859,967
Total Collateralized Mortgage Obligations
(Cost of $175,224,665) 172,757,005
Commercial Mortgage-Backed Securities - 3.4%
Credit Suisse Mortgage Capital
Certificates 5.416% 02/15/40 15,000,000 14,994,273
See Accompanying Notes to Financial Statements.
26
Columbia Intermediate Bond Fund
March 31, 2007
Commercial Mortgage-Backed Securities (continued)
Par ($) Value ($)
First Union National Bank
Commercial Mortgage Trust 5.585% 02/12/34 3,298,241 3,318,632
6.141% 02/12/34 8,000,000 8,326,381
JPMorgan Chase Commercial
Mortgage Securities Corp. 5.466% 06/12/47 (c) 16,000,000 16,126,880
5.565% 04/15/43 (c) 9,411,000 9,486,200
5.876% 04/15/45 (c) 6,280,000 6,519,792
LB-UBS Commercial Mortgage Trust 6.510% 12/15/26 5,000,000 5,215,330
Structured Asset Securities Corp.,
I.O. 2.142% 02/25/28 (j) 4,713,039 153,624
Wachovia Bank Commercial
Mortgage Trust 3.989% 06/15/35 11,930,000 11,191,537
----------------------------------------------- ----------- -----------
Total Commercial Mortgage-Backed Securities
(Cost of $76,020,026) 75,332,649
Common Stock - 0.0% Shares
Industrials - 0.0%
Airlines - 0.0%
UAL Corp. (d) 1,493 56,988
----------------------------------------------- ----------- -----------
Airlines Total 56,988
Industrials Total 56,988
Total Common Stock
(Cost of $53,240) 56,988
Securities Lending Collateral - 8.8%
State Street Navigator Securities Lending Prime
Portfolio (k) 194,288,103 194,288,103
----------------------------------------------- ----------- -----------
Total Securities Lending Collateral
(Cost of $194,288,103) 194,288,103
Short-Term Obligations - 7.2% Par ($)
Commercial Paper - 4.0%
Carrera Capital Finance LTD. 5.260% 04/20/07 15,000,000 14,958,358
Compass Securities 5.270% 04/12/07 15,000,000 14,975,846
First Tennessee Bank N.A. 5.300% 05/30/07 7,000,000 7,000,000
Giro Funding US Corp. 5.319% 05/02/07 10,000,000 9,954,792
Greyhawk Funding Corp. 5.220% 04/12/07 15,000,000 14,976,075
Ivory Funding Corp. 5.250% 04/05/07 6,000,000 5,996,500
Lake Constance Funding LLC 5.245% 05/18/07 10,000,000 9,931,523
Versailles CDS LLC 5.541% 04/17/07 (i) 10,400,000 10,375,641
Commercial Paper Total 88,168,735
See Accompanying Notes to Financial Statements.
27
Columbia Intermediate Bond Fund
March 31, 2007
Short-Term Obligations (continued)
Par ($) Value ($)
Repurchase Agreement - 3.2%
Repurchase agreement with Fixed Income Clearing
Corp., dated 03/30/07, due on 04/02/07, at 5.060%,
collateralized by a U.S. Treasury Obligation
maturing 02/15/10, market value of $72,533,150
(repurchase proceeds $71,136,983) 71,107,000 71,107,000
Repurchase Agreement Total 71,107,000
-------------------------------------------------- ---------- -------------
Total Short-Term Obligations (Cost of $159,275,735) 159,275,735
-------------------------------------------------- ---------- -------------
Total Investments - 116.1% (Cost of $2,551,520,740)(l) 2,555,209,108
-------------------------------------------------- ---------- -------------
Other Assets & Liabilities, Net - (16.1)% (355,146,535)
-------------------------------------------------- ---------- -------------
Net Assets - 100.0% 2,200,062,573
Notes to Investment Portfolio:
(a)Security exempt from registration pursuant to
Rule 144A under the Securities Act of 1933. These
securities may be resold in transactions exempt
from registration, normally to qualified
institutional buyers. At March 31, 2007, these
securities, which are not illiquid, amounted to
$243,326,167, which represents 11.1% of net
assets.
(b)Security purchased on a delayed delivery basis.
(c)The interest rate shown on floating rate or
variable rate securities reflects the rate at
March 31, 2007.
(d)All or a portion of this security was on loan at
March 31, 2007. The total market value of
securities on loan at March 31, 2007 is
$190,189,935.
(e)Step bond. This security is currently not paying
coupon. Shown parenthetically is the next
interest rate to be paid and the date the Fund
will begin accruing at this rate.
(f)The issuer has filed for bankruptcy protection
under Chapter 11, and is in default of certain
debt covenants. Income is not being accrued. At
March 31, 2007, the value of this security
represents less than 0.1% of net assets.
(g)The issuer is in default of certain debt
covenants. Income is not being accrued. At
March 31, 2007, the value of this security
represents less than 0.1% of net assets.
(h)The security or a portion of the security is
pledged as collateral for open futures contracts.
At March 31, 2007, the total market value of
securities pledged amounted to $1,745,951.
(i)The rate shown represents the discount rate at
the date of purchase.
(j)Accrued interest accumulates in the value of this
security and is payable at redemption.
(k)Investment made with cash collateral received
from securities lending activity.
(l)Cost for federal income tax purposes is
$2,554,139,672.
At March 31, 2007, the Fund held the following
open long futures contracts:
Number of Aggregate Expiration Unrealized
Type Contracts Value Face Value Date Appreciation
---- --------- ----- ---------- ---------- ------------
10-Year U.S. Treasury Notes 250 $27,031,250 $27,002,765 Jun-2007 $28,485
At March 31, 2007, the Fund held the following
open short futures contracts:
Number of Aggregate Expiration Unrealized
Type Contracts Value Face Value Date Appreciation
---- --------- ----- ---------- ---------- ------------
U.S. Treasury Bonds 310 $34,487,500 $35,070,164 Jun-2007 $582,664
At March 31, 2007, the Fund had entered into the
following forward currency exchange contract:
Forward Currency Aggregate Settlement Unrealized
Contracts to Sell Value Face Value Date Depreciation
----------------- ----- ---------- ---------- ------------
EUR $274,025 $270,944 04/16/2007 $(3,081)
See Accompanying Notes to Financial Statements.
28
Columbia Intermediate Bond Fund
March 31, 2007
At March 31, 2007, the asset allocation of the
Fund is as follows:
Asset Allocation (unaudited) % of Net Assets
---------------------------- ---------------
Corporate Fixed-Income Bonds & Notes 47.5
Government & Agency Obligations 18.3
Mortgage-Backed Securities 13.7
Asset-Backed Securities 9.3
Collateralized Mortgage Obligations 7.9
Commercial Mortgage-Backed Securities 3.4
Common Stock 0.0*
-----
100.1
Securities Lending Collateral 8.8
Short-Term Obligations 7.2
Other Assets & Liabilities, Net (16.1)
-----
100.0
=====
* Rounds to less than 0.1%.
Acronym Name
------- ----
EUR Euro
I.O. Interest only security
PIK Payment-In-Kind
TBA To Be Announced
See Accompanying Notes to Financial Statements.
29
Statement of Assets and Liabilities - Columbia Intermediate Bond Fund
March 31, 2007
($)
Assets Investments, at cost 2,551,520,740
Investments, at value (includes securities on loan of $190,189,935) 2,555,209,108
Cash 1,342,612
Receivable for:
Investments sold 24,290,200
Investments sold on a delayed delivery basis 8,415,295
Fund shares sold 4,699,227
Interest 21,316,282
Securities lending 40,461
Dollar roll fee income 20,689
Futures variation margin 195,575
Deferred Trustees' compensation plan 47,483
------------------------------------------------------------------- -------------
Total Assets 2,615,576,932
Liabilities Collateral on securities loaned 194,288,103
Net unrealized depreciation on foreign forward currency contracts 3,081
Payable for:
Investments purchased 41,923,546
Investments purchased on a delayed delivery basis 171,223,756
Fund shares repurchased 2,469,653
Distributions 4,100,304
Investment advisory fee 595,271
Administration fee 277,275
Transfer agent fee 300,100
Pricing and bookkeeping fees 25,006
Custody fee 3,788
Distribution and service fees 124,797
Chief compliance officer expenses 3,750
Deferred Trustees' fees 47,483
Deferred dollar roll fee income 2,423
Other liabilities 126,023
------------------------------------------------------------------- -------------
Total Liabilities 415,514,359
------------------------------------------------------------------- -------------
Net Assets 2,200,062,573
Composition of Net Assets Paid-in capital 2,218,375,841
Overdistributed net investment income (663,197)
Accumulated net realized loss (21,946,645)
Net unrealized appreciation (depreciation) on:
Investments 3,688,368
Foreign currency translations (2,943)
Futures contracts 611,149
------------------------------------------------------------------- -------------
Net Assets 2,200,062,573
See Accompanying Notes to Financial Statements.
30
Statement of Assets and Liabilities (continued) - Columbia Intermediate Bond
Fund
March 31, 2007
Class A Net assets $ 206,147,226
Shares outstanding 23,313,470
Net asset value per share $ 8.84(a)
Maximum sales charge 3.25%
Maximum offering price per share $ 9.14(b)
Class B Net assets $ 63,617,151
Shares outstanding 7,194,533
Net asset value and offering price per share $ 8.84(a)
Class C Net assets $ 35,458,415
Shares outstanding 4,010,074
Net asset value and offering price per share $ 8.84(a)
Class R Net assets $ 41,636
Shares outstanding 4,709
Net asset value, offering and redemption price per share $ 8.84
Class Z Net assets $1,894,798,145
Shares outstanding 214,287,536
Net asset value, offering and redemption price per share $ 8.84
(a)Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b)On sales of $50,000 or more the offering price is reduced.
See Accompanying Notes to Financial Statements.
31
Statement of Operations - Columbia Intermediate Bond Fund
For the Year Ended March 31, 2007
($)
Investment Income Interest 109,254,308
Securities lending 263,865
Dollar roll fee income 916,883
--------------------------------------------------------------------- -----------
Total Investment Income 110,435,056
Expenses Investment advisory fee 6,264,699
Administration fee 2,904,155
Distribution fee:
Class A 200,857
Class B 506,833
Class C 273,483
Class R 61
Service fee:
Class A 502,070
Class B 168,944
Class C 91,205
Transfer agent fee 1,901,404
Pricing and bookkeeping fees 204,626
Trustees' fees 82,786
Custody fee 60,179
Chief compliance officer expenses 14,622
Other expenses 675,735
--------------------------------------------------------------------- -----------
Total Expenses 13,851,659
Fees waived by Distributor:
Class A (200,857)
Class C (54,591)
Custody earnings credit (24,456)
--------------------------------------------------------------------- -----------
Net Expenses 13,571,755
--------------------------------------------------------------------- -----------
Net Investment Income 96,863,301
Net Realized and Unrealized Gain
(Loss) on Investments, Futures
Contracts and Foreign Currency Net realized gain (loss) on:
Investments (76,667)
Futures contracts 2,225,060
Foreign currency transactions (2,860)
Net realized loss on disposal of investments purchased/sold in error
(See Note 9) --
--------------------------------------------------------------------- -----------
Net realized gain 2,145,533
Net change in unrealized appreciation (depreciation) on:
Investments 23,185,202
Futures contracts 567,941
Foreign currency translations (2,943)
--------------------------------------------------------------------- -----------
Net change in unrealized appreciation 23,750,200
--------------------------------------------------------------------- -----------
Net Gain 25,895,733
--------------------------------------------------------------------- -----------
Net Increase Resulting from Operations 122,759,034
See Accompanying Notes to Financial Statements.
32
Statement of Changes in Net Assets - Columbia Intermediate Bond Fund
Year Ended March 31,
Increase (Decrease) in Net Assets 2007 ($) 2006 ($)
Operations Net investment income 96,863,301 63,522,689
Net realized gain (loss) on investments, futures
contracts and foreign currency transactions 2,145,533 (2,948,652)
Net change in unrealized appreciation
(depreciation) on investments, futures contracts
and foreign currency translations 23,750,200 (34,270,616)
-------------------------------------------------- ------------- -------------
Net Increase Resulting from Operations 122,759,034 26,303,421
Distributions Declared From net investment income:
to Shareholders Class A (9,848,383) (8,651,072)
Class B (2,809,349) (3,180,156)
Class C (1,570,733) (1,736,012)
Class R (551) (85)
Class Z (84,128,806) (53,085,324)
-------------------------------------------------- ------------- -------------
Total Distributions Declared to Shareholders (98,357,822) (66,652,649)
Share Transactions Class A:
Subscriptions 68,666,209 82,023,103
Distributions reinvested 9,150,244 7,932,526
Redemptions (73,489,796) (53,737,747)
-------------------------------------------------- ------------- -------------
Net Increase 4,326,657 36,217,882
Class B:
Subscriptions 5,022,878 4,620,880
Distributions reinvested 2,091,091 2,349,868
Redemptions (18,588,850) (20,292,596)
-------------------------------------------------- ------------- -------------
Net Decrease (11,474,881) (13,321,848)
Class C:
Subscriptions 8,579,992 7,423,112
Distributions reinvested 1,047,095 1,129,993
Redemptions (14,208,518) (14,596,002)
-------------------------------------------------- ------------- -------------
Net Decrease (4,581,431) (6,042,897)
Class R:(a)
Subscriptions 31,140 10,000
Distributions reinvested 549 85
Redemptions (16) --
-------------------------------------------------- ------------- -------------
Net Increase 31,673 10,085
Class Z:
Subscriptions 766,380,243 810,019,487
Distributions reinvested 44,272,411 34,504,969
Redemptions (315,972,118) (310,023,508)
-------------------------------------------------- ------------- -------------
Net Increase 494,680,536 534,500,948
Net Increase from Share Transactions 482,982,554 551,364,170
-------------------------------------------------- ------------- -------------
Total Increase in Net Assets 507,383,766 511,014,942
Net Assets Beginning of period 1,692,678,807 1,181,663,865
End of period 2,200,062,573 1,692,678,807
Overdistributed net investment income at end of
period (663,197) (1,937,369)
-------------------------------------------------- ------------- -------------
(a)Class R shares were initially offered on January 23, 2006.
See Accompanying Notes to Financial Statements.
33
Statement of Changes in Net Assets (continued) - Columbia Intermediate Bond Fund
Year Ended March 31,
2007 2006
Changes in Shares Class A:
Subscriptions 7,826,404 9,176,505
Issued for distributions reinvested 1,042,188 888,752
Redemptions (8,377,201) (6,026,549)
------------------------------------ ----------- -----------
Net Increase 491,391 4,038,708
Class B:
Subscriptions 571,522 517,501
Issued for distributions reinvested 238,270 263,037
Redemptions (2,123,906) (2,272,895)
------------------------------------ ----------- -----------
Net Decrease (1,314,114) (1,492,357)
Class C:
Subscriptions 974,976 831,460
Issued for distributions reinvested 119,300 126,489
Redemptions (1,621,832) (1,634,253)
------------------------------------ ----------- -----------
Net Decrease (527,556) (676,304)
Class R: (a)
Subscriptions 3,515 1,124
Issued for distributions reinvested 63 9
Redemptions (2) --
------------------------------------ ----------- -----------
Net Increase 3,576 1,133
Class Z:
Subscriptions 87,356,084 90,710,775
Issued for distributions reinvested 5,040,148 3,865,127
Redemptions (35,995,798) (34,639,383)
------------------------------------ ----------- -----------
Net Increase 56,400,434 59,936,519
(a)Class R shares were initially offered on January 23, 2006.
See Accompanying Notes to Financial Statements.
34
Financial Highlights - Columbia Intermediate Bond Fund
Selected data for a share outstanding throughout each period is as follows:
Class A Shares
Period
Ended Year Ended
Year Ended March 31, March 31, June 30,
------------------------------- 2004 (a)(b) -------------------
2007 2006 2005 ----------- 2003 (c) 2002 (c)
- ------------------------------------------------------------------------------- -----------------------
Net Asset Value, Beginning of Period $ 8.74 $ 8.96 $ 9.27 $ 9.18 $ 8.73 $ 8.84
Income from Investment Operations:
Net investment income (d) 0.42 0.39 0.39 0.30 0.45 0.53
Net realized and unrealized gain (loss) on
investments, futures contracts and foreign
currency 0.11 (0.20) (0.25) 0.11 0.48 (0.08)
-------- -------- -------- -------- ------- -------
Total from Investment Operations 0.53 0.19 0.14 0.41 0.93 0.45
Less Distributions Declared to Shareholders:
From net investment income (0.43) (0.41) (0.42) (0.32) (0.48) (0.56)
From net realized gains -- -- (0.03) -- -- --
Return of capital -- -- -- -- -- --(e)
-------- -------- -------- -------- ------- -------
Total Distributions Declared to Shareholders (0.43) (0.41) (0.45) (0.32) (0.48) (0.56)
Net Asset Value, End of Period $ 8.84 $ 8.74 $ 8.96 $ 9.27 $ 9.18 $ 8.73
Total return (f)(g) 6.21%(h) 2.12% 1.55% 4.59%(i) 11.03% 5.10%
Ratios to Average Net Assets/Supplemental
Data:
Net operating expenses (j) 0.87% 0.89% 0.94% 0.99%(k) 1.05% 1.04%
Interest expense -- -- -- -- --%(l) --
Net expenses (j) 0.87% 0.89% 0.94% 0.99%(k) 1.05% 1.04%
Net investment income (j) 4.83% 4.36% 4.31% 4.31%(k) 5.13% 5.94%
Waiver/Reimbursement 0.10% 0.10% 0.10% 0.10%(k) 0.10% 0.10%
Portfolio turnover rate 150% 126% 40% 96%(i) 114% 179%(m)
Net assets, end of period (000's) $206,147 $199,376 $168,213 $146,709 $92,993 $32,493
(a)On October 13, 2003, the Liberty Intermediate Bond Fund was renamed Columbia
Intermediate Bond Fund.
(b)The Fund changed its fiscal year end from June 30 to March 31, effective
March 31, 2004.
(c)Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F
Intermediate Bond Portfolio, prior to the portfolio liquidation.
(d)Per share data was calculated using the average shares outstanding during
the period.
(e)Rounds to less than $0.01 per share.
(f)Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(g)Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h)Total return includes a voluntary reimbursement by the investment advisor
for a realized investment loss due to a trading error. This reimbursement
increased total return and net asset value per share by less than 0.01% and
less than $0.01, respectively.
(i)Not annualized.
(j)The benefits derived from custody credits had an impact of less than 0.01%.
(k)Annualized.
(l)Rounds to less than 0.01%.
(m)Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio.
See Accompanying Notes to Financial Statements.
35
Financial Highlights - Columbia Intermediate Bond Fund
Selected data for a share outstanding throughout each period is as follows:
Class B Shares
Period Year Period
Ended Ended Ended
Year Ended March 31, March 31, June 30, June 30,
---------------------------- 2004 (a)(b) 2003 (c) 2002 (c)(d)
2007 2006 2005 ----------- -------- -----------
- ---------------------------------------------------------------------------- -
Net Asset Value, Beginning of Period $ 8.74 $ 8.96 $ 9.27 $ 9.18 $ 8.73 $ 8.89
Income from Investment Operations:
Net investment income (e) 0.36 0.32 0.32 0.25 0.39 0.18
Net realized and unrealized gain (loss) on
investments, futures contracts and foreign
currency 0.10 (0.20) (0.25) 0.11 0.47 (0.13)
------- ------- ------- -------- -------- -------
Total from Investment Operations 0.46 0.12 0.07 0.36 0.86 0.05
Less Distributions Declared to Shareholders:
From net investment income (0.36) (0.34) (0.35) (0.27) (0.41) (0.21)
From net realized gains -- -- (0.03) -- -- --
Return of capital -- -- -- -- -- --(f)
------- ------- ------- -------- -------- -------
Total Distributions Declared to Shareholders (0.36) (0.34) (0.38) (0.27) (0.41) (0.21)
Net Asset Value, End of Period $ 8.84 $ 8.74 $ 8.96 $ 9.27 $ 9.18 $ 8.73
Total return (g) 5.42%(h) 1.36% 0.80% 4.00%(i) 10.21% 0.51%(i)
Ratios to Average Net Assets/Supplemental
Data:
Net operating expenses (j) 1.62% 1.64% 1.69% 1.74%(k) 1.80% 1.83%(k)
Interest expense -- -- -- -- --%(l) --
Net expenses (j) 1.62% 1.64% 1.69% 1.74%(k) 1.80% 1.83%(k)
Net investment income (j) 4.08% 3.61% 3.56% 3.58%(k) 4.38% 5.04%(k)
Portfolio turnover rate 150% 126% 40% 96%(i) 114% 179%(i)(m)
Net assets, end of period (000's) $63,617 $74,332 $89,564 $104,700 $103,880 $28,758
(a)On October 13, 2003, the Liberty Intermediate Bond Fund was renamed Columbia
Intermediate Bond Fund.
(b)The Fund changed its fiscal year end from June 30 to March 31, effective
March 31, 2004.
(c)Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F
Intermediate Bond Portfolio, prior to the portfolio liquidation.
(d)Class B shares were initially offered on February 1, 2002. Per share data
and total return reflect activity from that date.
(e)Per share data was calculated using the average shares outstanding during
the period.
(f)Rounds to less than $0.01 per share.
(g)Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(h)Total return includes a voluntary reimbursement by the investment advisor
for a realized investment loss due to a trading error. This reimbursement
increased total return and net asset value per share by less than 0.01% and
less than $0.01, respectively.
(i)Not annualized.
(j)The benefits derived from custody credits had an impact of less than 0.01%.
(k)Annualized.
(l)Rounds to less than 0.01%.
(m)Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio.
See Accompanying Notes to Financial Statements.
36
Financial Highlights - Columbia Intermediate Bond Fund
Selected data for a share outstanding throughout each period is as follows:
Class C Shares
Period Year Period
Ended Ended Ended
Year Ended March 31, March 31, June 30, June 30,
---------------------------- 2004 (a)(b) 2003 (c) 2002 (c)(d)
2007 2006 2005 ----------- -------- -----------
- ---------------------------------------------------------------------------- -
Net Asset Value, Beginning of Period $ 8.74 $ 8.96 $ 9.27 $ 9.18 $ 8.73 $ 8.89
Income from Investment Operations:
Net investment income (e) 0.37 0.34 0.34 0.26 0.40 0.19
Net realized and unrealized gain (loss) on
investments, futures contracts and foreign
currency 0.11 (0.20) (0.26) 0.11 0.48 (0.14)
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.48 0.14 0.08 0.37 0.88 0.05
Less Distributions Declared to Shareholders:
From net investment income (0.38) (0.36) (0.36) (0.28) (0.43) (0.21)
From net realized gains -- -- (0.03) -- -- --
Return of capital -- -- -- -- -- --(f)
------- ------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (0.38) (0.36) (0.39) (0.28) (0.43) (0.21)
Net Asset Value, End of Period $ 8.84 $ 8.74 $ 8.96 $ 9.27 $ 9.18 $ 8.73
Total return (g)(h) 5.58%(i) 1.51% 0.95% 4.12%(j) 10.37% 0.58%(j)
Ratios to Average Net Assets/Supplemental
Data:
Net operating expenses (k) 1.47% 1.49% 1.54% 1.59%(l) 1.65% 1.68%(l)
Interest expense -- -- -- -- --%(m) --
Net expenses (k) 1.47% 1.49% 1.54% 1.59%(l) 1.65% 1.68%(l)
Net investment income (k) 4.23% 3.76% 3.71% 3.72%(l) 4.50% 5.19%(l)
Waiver/Reimbursement 0.15% 0.15% 0.15% 0.15%(l) 0.15% 0.15%(l)
Portfolio turnover rate 150% 126% 40% 96%(j) 114% 179%(j)(n)
Net assets, end of period (000's) $35,458 $39,641 $46,693 $59,009 $51,676 $11,651
(a)On October 13, 2003, the Liberty Intermediate Bond Fund was renamed Columbia
Intermediate Bond Fund.
(b)The Fund changed its fiscal year end from June 30 to March 31, effective
March 31, 2004.
(c)Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F
Intermediate Bond Portfolio, prior to the portfolio liquidation.
(d)Class C shares were initially offered on February 1, 2002. Per share data
and total return reflect activity from that date.
(e)Per share data was calculated using the average shares outstanding during
the period.
(f)Rounds to less than $0.01 per share.
(g)Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(h)Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i)Total return includes a voluntary reimbursement by the investment advisor
for a realized investment loss due to a trading error. This reimbursement
increased total return and net asset value per share by less than 0.01% and
less than $0.01, respectively.
(j)Not annualized.
(k)The benefits derived from custody credits had an impact of less than 0.01%.
(l)Annualized.
(m)Rounds to less than 0.01%.
(n)Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio.
See Accompanying Notes to Financial Statements.
37
Financial Highlights - Columbia Intermediate Bond Fund
Selected data for a share outstanding throughout each period is as follows:
Class R Shares
Year Period
Ended Ended
March 31, March 31,
2007 2006 (a)
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 8.74 $ 8.91
Income from Investment Operations:
Net investment income (b) 0.39 0.06
Net realized and unrealized gain (loss) on investments, futures contracts and foreign currency 0.12 (0.15)
------ ------
Total from Investment Operations 0.51 (0.09)
Less Distributions Declared to Shareholders:
From net investment income (0.41) (0.08)
Net Asset Value, End of Period $ 8.84 $ 8.74
Total return (c) 5.94%(d) (1.06)%(e)
Ratios to Average Net Assets/Supplemental Data:
Expenses (f) 1.12% 1.30%(g)
Net investment income (f) 4.45% 3.25%(g)
Portfolio turnover rate 150% 126%(e)
Net assets, end of period (000's) $ 42 $ 10
(a)Class R shares were initially offered on January 23, 2006.
(b)Per share data was calculated using the average the shares outstanding
during the period.
(c)Total return at net asset value assuming all distributions reinvested.
(d)Total return includes a voluntary reimbursement by the investment advisor
for a realized investment loss due to a trading error. This reimbursement
increased total return and net asset value per share by less than 0.01% and
less than $0.01, respectively.
(e)Not annualized.
(f)The benefits derived from custody credits had an impact of less than 0.01%.
(g)Annualized.
See Accompanying Notes to Financial Statements.
38
Financial Highlights - Columbia Intermediate Bond Fund
Selected data for a share outstanding throughout each period is as follows:
Class Z Shares
Period
Ended Year Ended
Year Ended March 31, March 31, June 30,
----------------------------------- 2004 (a)(b) ---------------------
2007 2006 2005 ----------- 2003 (c)(d) 2002 (d)
- --------------------------------------------------------------------------------- -------------------------
Net Asset Value, Beginning of Period $ 8.74 $ 8.96 $ 9.27 $ 9.18 $ 8.73 $ 8.84
Income from Investment Operations:
Net investment income (e) 0.45 0.41 0.41 0.31 0.49 0.55
Net realized and unrealized gain (loss) on
investments, futures contracts and
foreign currency 0.10 (0.20) (0.25) 0.12 0.46 (0.08)
---------- ---------- -------- -------- -------- --------
Total from Investment Operations 0.55 0.21 0.16 0.43 0.95 0.47
Less Distributions Declared to
Shareholders:
From net investment income (0.45) (0.43) (0.44) (0.34) (0.50) (0.58)
From net realized gains -- -- (0.03) -- -- --
Return of capital -- -- -- -- -- --(f)
---------- ---------- -------- -------- -------- --------
Total Distributions Declared to
Shareholders (0.45) (0.43) (0.47) (0.34) (0.50) (0.58)
Net Asset Value, End of Period $ 8.84 $ 8.74 $ 8.96 $ 9.27 $ 9.18 $ 8.73
Total return (g) 6.48%(h) 2.37% 1.80% 4.78%(i) 11.30% 5.36%
Ratios to Average Net Assets/
Supplemental Data:
Operating expenses (j) 0.62% 0.64% 0.69% 0.74%(k) 0.80% 0.79%
Interest expense -- -- -- -- --%(l) --
Expenses (j) 0.62% 0.64% 0.69% 0.74%(k) 0.80% 0.79%
Net investment income (j) 5.08% 4.63% 4.56% 4.58%(k) 5.51% 6.22%
Portfolio turnover rate 150% 126% 40% 96%(i) 114% 179%(m)
Net assets, end of period (000's) $1,894,798 $1,379,320 $877,193 $793,477 $717,923 $729,580
(a)On October 13, 2003, the Liberty Intermediate Bond Fund was renamed Columbia
Intermediate Bond Fund.
(b)The Fund changed its fiscal year end from June 30 to March 31, effective
March 31, 2004.
(c)Effective July 29, 2002, the Stein Roe Intermediate Bond Fund's Class S
shares were renamed Liberty Intermediate Bond Fund Class Z shares.
(d)Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F
Intermediate Bond Portfolio, prior to the portfolio liquidation.
(e)Per share data was calculated using the average shares outstanding during
the period.
(f)Rounds to less than $0.01 per share.
(g)Total return at net asset value assuming all distributions reinvested.
(h)Total return includes a voluntary reimbursement by the investment adviser
for a realized investment loss due to a trading error. This reimbursement
increased total return and net asset value per share by less than 0.01% and
less than $0.01, respectively.
(i)Not annualized.
(j)The benefits derived from custody credits had an impact of less than 0.01%.
(k)Annualized.
(l)Rounds to less than 0.01%.
(m)Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio.
See Accompanying Notes to Financial Statements.
39
Notes to Financial Statements - Columbia Intermediate Bond Fund
March 31, 2007
Note 1. Organization
Columbia Intermediate Bond Fund (the "Fund"), a series of Columbia Funds Series
Trust I (the "Trust"), is a diversified portfolio. The Trust is a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company.
Investment Goal
The Fund seeks its total return by pursuing current income and opportunities
for capital appreciation.
Fund Shares
The Fund may issue an unlimited number of shares and offers five classes of
shares: Class A, Class B, Class C, Class R and Class Z. Each share class has
its own sales charge and expense structure.
Class A shares are subject to a maximum front-end sales charge of 3.25% based
on the amount of initial investment. Class A shares purchased without an
initial sales charge in accounts aggregating up to $50 million at the time of
purchase are subject to a 1.00% contingent deferred sales charge ("CDSC") if
the shares are sold within twelve months of the time of the purchase. Class B
shares are subject to a maximum CDSC of 3.00% based upon the holding period
after purchase. Class B shares will convert to Class A shares eight years after
purchase. Class C shares are subject to a 1.00% CDSC on shares sold within one
year after purchase. Class R and Class Z shares are offered continuously at net
asset value. There are certain restrictions on the purchase of Class R and
Class Z shares, as described in the Fund's prospectus.
Note 2. Significant Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP") requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
Security Valuation
Debt securities generally are valued by pricing services approved by the Fund's
Board of Trustees, based upon market transactions for normal,
institutional-size trading units of similar securities. The services may use
various pricing techniques which take into account appropriate factors such as
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other data, as well as broker quotes. Debt securities for which quotations
are readily available are valued at an over-the-counter or exchange bid
quotation. Certain debt securities, which tend to be more thinly traded and of
lesser quality, are priced based on fundamental analysis of the financial
condition of the issuer and the estimated value of any collateral. Valuations
developed through pricing techniques may vary from the actual amounts realized
upon sale of the securities, and the potential variation may be greater for
those securities valued using fundamental analysis.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Forward currency exchange contracts are valued at the prevailing forward
exchange rate of the underlying securities.
Futures contracts are valued at the settlement price established each day by
the board of trade or exchange on which they are traded.
Investments for which market quotations are not readily available, or that have
quotations which management believes are not appropriate, are valued at fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees. If a
security is valued at a "fair value", such value is likely to be different from
the last quoted market price for the security.
In September 2006, Statement of Financial Accounting Standards No. 157, Fair
Value Measurements ("SFAS 157"), was issued. SFAS 157 is effective for fiscal
years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is evaluating the impact the application of
SFAS 157 will have on the Fund's financial statement disclosures.
Security Transactions
Security transactions are accounted for on the trade date. Cost is determined
and gains (losses) are based upon the
40
Columbia Intermediate Bond Fund
March 31, 2007
specific identification method for both financial statement and federal income
tax purposes.
Futures Contracts
The Fund may invest in futures contracts to gain or reduce exposure to
particular securities or segments of the bond markets. Derivatives are
financial instruments whose values depend on, or derived from, the value of the
underlying security, index or currency. The Fund may use derivatives for both
hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to
changes in interest rates, or to offset a potential loss in one position by
establishing an opposite position. The fund typically uses derivatives in an
effort to achieve more efficiently economic exposure similar to those it could
have achieved through the purchase and sale of fixed income securities. The use
of futures contracts involves certain risks, which include: (1) imperfect
correlation between the price movement of the instruments and the underlying
securities, (2) inability to close out positions due to differing trading
hours, or the temporary absence of a liquid market, for either the instrument
or the underlying securities, or (3) an inaccurate prediction by Columbia
Management Advisors, LLC ("Columbia"), the Fund's investment adviser, of the
future direction of interest rates. Any of these risks may involve amounts
exceeding the variation margin recorded in the Fund's Statement of Assets and
Liabilities at any given time.
Upon entering into a futures contract, the Fund deposits cash or securities
with the broker in an amount sufficient to meet the initial margin requirement.
Subsequent payments are made or received by the Fund equal to the daily change
in the contract value and are recorded as variation margin receivable or
payable and offset in unrealized gains or losses. The Fund recognizes a
realized gain or loss when the contract is closed or expires.
Repurchase Agreements
The Fund may engage in repurchase agreement transactions with institutions that
Columbia has determined are creditworthy. The Fund, through its custodian,
receives delivery of underlying securities collateralizing a repurchase
agreement. Columbia is responsible for determining that collateral is at least
equal, at all times, to the value of the repurchase obligation including
interest. A repurchase agreement transaction involves certain risks in the
event of default or insolvency of the counterparty. These risks include
possible delays or restrictions upon the Fund's ability to dispose of the
underlying securities and a possible decline in the value of the underlying
securities during the period while the Fund seeks to assert its rights.
Mortgage Dollar Roll Transactions
The Fund may enter into mortgage "dollar rolls" in which the Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity)
but not identical securities on a specified future date not exceeding 120 days.
During the roll period, the Fund loses the right to receive principal and
interest paid on the securities sold. However, the Fund would benefit to the
extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund compared with what such performance would
have been without the use of mortgage dollar rolls. All cash proceeds will be
invested in instruments that are permissible investments for the Fund. The Fund
will hold and maintain in a segregated account until the settlement date, cash
or liquid securities in an amount equal to the forward purchase price.
The Fund's policy is to record the components of mortgage dollar rolls using
"to be announced" mortgage-backed securities ("TBA Dollar Rolls"). For
financial reporting and tax purposes, the Fund treats mortgage dollar rolls as
two separate transactions, one involving the purchase of a security and a
separate transaction involving a sale. The Fund does not currently enter into
mortgage dollar rolls that are accounted for as financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom the
Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than an instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon the investment advisor's ability to predict correctly interest
rates and mortgage prepayments. For these reasons, there is no
41
Columbia Intermediate Bond Fund
March 31, 2007
assurance that mortgage dollar rolls can be successfully employed.
Delayed Delivery Securities
The Fund may trade securities on other than normal settlement terms, including
securities purchased or sold on a "when-issued" basis. This may increase the
risk if the other party to the transaction fails to deliver and causes the Fund
to subsequently invest at less advantageous prices. The Fund holds until
settlement date, in a segregated account, cash or liquid securities in an
amount equal to the delayed delivery commitment.
Income Recognition
Interest income is recorded on the accrual basis. Premium and discount are
amortized and accreted, respectively, on all debt securities. Fee income
attributable to mortgage dollar roll transactions is accrued over the term of
the transaction.
Forward Foreign Currency Exchange Contracts
Forward foreign currency exchange contracts are agreements to exchange one
currency for another at a future date at a specified price. These contracts are
used to minimize the exposure to foreign exchange rate fluctuations during the
period between trade and settlement date. The Fund may utilize forward foreign
currency exchange contracts in connection with the settlement of purchases and
sales of securities. The Fund may also enter into these contracts to hedge
certain other foreign currency denominated assets. Contracts to buy generally
are used to acquire exposure to foreign currencies, while contracts to sell are
used to hedge the Fund's investments against currency fluctuations. Forward
currency contracts are valued daily at the current exchange rate of the
underlying currency, resulting in unrealized gains (losses) which become
realized at the time the foreign currency contracts are closed or mature.
Realized and unrealized gains (losses) arising from such transactions are
included in net realized and unrealized gains (losses) on foreign currency
transactions. The use of forward currency contracts does not eliminate
fluctuations in the prices of the Fund's portfolio securities. Although the
maximum potential loss from such contracts is the aggregate face value in U.S.
dollars at the time the contract was opened, exposure is typically limited to
the change in value of the contract (in U.S. dollars) over the period it
remains open. The Fund could also be exposed to risk if the counterparties of
the contracts are unable to fulfill the terms of the contracts. The
counterparty risk exposure is, therefore, closely monitored and contracts are
only executed with high credit quality financial institutions.
Stripped Securities
Stripped mortgage-backed securities are derivative multi-class mortgage
securities structured so that one class receives most, if not all, of the
principal from the underlying mortgage assets, while the other class receives
most, if not all, of the interest and the remainder of the principal. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Fund may fail to fully recoup its initial investment in an
interest-only security. The market value of these securities can be extremely
volatile in response to changes in interest rates. Credit risk reflects the
risk that the Fund may not receive all or part of its principal because the
issuer or credit enhancer has defaulted on its obligation.
Determination of Class Net Asset Values
All income, expenses (other than class-specific expenses, as shown on the
Statement of Operations) and realized and unrealized gains (losses) are
allocated to each class of the Fund on a daily basis for purposes of
determining the net asset value of each class. Income and expenses are
allocated to each class based on the settled shares method, while realized and
unrealized gains (losses) are allocated based on the relative net assets of
each class.
Federal Income Tax Status
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code, as amended, and will distribute
substantially all of its taxable income, if any, for its tax year, and as such
will not be subject to federal income taxes. In addition, the Fund intends to
distribute in each calendar year substantially all of its net investment
income, capital gains and certain other amounts, if any, such that the Fund
should not be subject to federal excise tax. Therefore, no federal income or
excise tax provision is recorded.
Distributions to Shareholders
Distributions to shareholders are recorded on the ex-date. Dividends from net
investment income are declared daily and
42
Columbia Intermediate Bond Fund
March 31, 2007
paid monthly. Net realized capital gains, if any, are distributed at least
annually.
Indemnification
In the normal course of business, the Fund enters into contracts that contain a
variety of representations and warranties and which provide general
indemnities. The Fund's maximum exposure under these arrangements is unknown,
as this would involve future claims against the Fund. Also, under the Fund's
organizational documents and by contract, the trustees and officers of the
Trust are indemnified against certain liabilities that may arise out of their
duties to the Trust. However, based on experience, the Fund expects the risk of
loss due to these representations, warranties and indemnities to be minimal.
Note 3. Federal Tax Information
The timing and character of income and capital gain distributions are
determined in accordance with income tax regulations, which may differ from
GAAP. Reclassifications are made to the Fund's capital accounts for permanent
tax differences to reflect income and gains available for distribution (or
available capital loss carryforwards) under income tax regulations.
For the year ended March 31, 2007, permanent book and tax basis differences
resulting primarily from differing treatments for discount accretion/ premium
amortization on debt securities and market discount reclasses were identified
and reclassified among the components of the Fund's net assets as follows:
Overdistributed Net Accumulated Paid-In
Investment Income Net Realized Loss Capital
$2,768,693 $(2,768,691) $(2)
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended March 31, 2007
and March 31, 2006 was as follows:
March 31, 2007 March 31, 2006
Distributions paid
from:
Ordinary Income* $98,357,822 $66,652,649
*For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
As of March 31, 2007, the components of distributable earnings on a tax basis
were as follows:
Undistributed Undistributed Net
Ordinary Long-Term Unrealized
Income Capital Gains Appreciation*
$4,832,862 $ -- $1,069,436
*The differences between book-basis and tax-basis net unrealized
appreciation/depreciation are primarily due to deferral of losses from wash
sales and differing treatment for discount accretion/premium amortization on
debt securities.
Unrealized appreciation and depreciation at March 31, 2007, based on cost of
investments for federal income tax purposes were:
Unrealized appreciation $ 19,423,096
Unrealized depreciation (18,353,660)
Net unrealized appreciation $ 1,069,436
The following capital loss carryforwards, determined as of March 31, 2007, may
be available to reduce taxable income arising from future net realized gains on
investments, if any, to the extent permitted by the Internal Revenue Code:
Year of Expiration Capital Loss Carryforward
2013 $ 6,075,470
2014 3,776,565
2015 8,375,463
-----------
Total $18,227,498
Under current tax rules, certain currency and capital losses realized after
October 31 may be deferred and treated as occurring on the first day of the
following fiscal year. As of March 31, 2007, post-October capital losses of
$744,787 attributed to security transactions were deferred to April 1, 2007.
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109 (the "Interpretation"). This
Interpretation is effective on the last business day of the semiannual
reporting period for fiscal years beginning after December 15, 2006 and is to
be applied to open tax positions upon initial adoption. This Interpretation
prescribes a minimum recognition threshold and measurement method for the
43
Columbia Intermediate Bond Fund
March 31, 2007
financial statement recognition of tax positions taken or expected to be taken
in a tax return and also requires certain expanded disclosures. Management is
evaluating the application of this Interpretation to the Fund and has not at
this time quantified the impact, if any, resulting from the adoption of this
Interpretation on the Fund's financial statements.
Note 4. Fees and Compensation Paid to Affiliates
Investment Advisory Fee
Columbia, an indirect, wholly-owned subsidiary of Bank of America Corporation
("BOA"), is the investment advisor to the Fund. Columbia receives a monthly
investment advisory fee based on the Fund's average daily net assets at the
following annual rates:
Average Daily Net Assets Annual Fee Rate
First $1 billion 0.35%
$1 billion to $1.5 billion 0.30%
$1.5 billion to $3 billion 0.29%
$3 billion to $6 billion 0.28%
Over $6 billion 0.27%
For the year ended March 31, 2007, the Fund's effective investment advisory fee
rate was 0.32% of the Fund's average daily net assets.
Administration Fee
Columbia provides administrative and other services to the Fund for a monthly
administration fee at the annual rate of 0.15% of the Fund's average daily net
assets.
Pricing and Bookkeeping Fees
Effective December 15, 2006, the Fund entered into a Financial Reporting
Services Agreement with State Street Bank & Trust Company ("State Street") and
Columbia (the "Financial Reporting Services Agreement") pursuant to which State
Street provides financial reporting services to the Fund. Also effective
December 15, 2006, the Fund entered into an Accounting Services Agreement with
State Street and Columbia (collectively with the Financial Reporting Services
Agreement, the "State Street Agreements") pursuant to which State Street
provides accounting services to the Fund. Under the State Street Agreements,
the Fund pays State Street an annual fee of $38,000 paid monthly plus an
additional monthly fee based on an annualized percentage rate of average daily
net assets of the Fund for the month. Under the State Street Agreements, the
combined fee payable to State Street by the Fund will not exceed $140,000
annually. The Fund also reimburses State Street for certain out-of-pocket
expenses.
Effective December 15, 2006, the Fund entered into a Pricing and Bookkeeping
Oversight and Services Agreement (the "Services Agreement") with Columbia.
Under the Services Agreement Columbia provides services related to Fund
expenses and the requirements of the Sarbanes-Oxley Act of 2002, and provides
oversight of the accounting and financial reporting services provided by State
Street. Under the Services Agreement, the Fund reimburses Columbia for
out-of-pocket expenses and direct internal costs relating to accounting
oversight and for services related to Fund expenses and the requirements of the
Sarbanes-Oxley Act of 2002.
Prior to December 15, 2006, Columbia was responsible for providing pricing and
bookkeeping services to the Fund under a pricing and bookkeeping agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia was
entitled to receive an annual fee at the same fee structure described above
under the State Street Agreements. Under separate agreements between Columbia
and State Street, Columbia delegated certain functions to State Street. As a
result of the delegation, the total fees payable under the pricing and
bookkeeping agreement (other than certain reimbursements paid to Columbia and
discussed below) were paid to State Street. The Fund also reimbursed Columbia
and State Street for out-of-pocket expenses and charges, including fees payable
to third parties for pricing the Fund's portfolio securities and direct
internal costs incurred by Columbia in connection with providing fund
accounting oversight and monitoring and certain other services.
For the year ended March 31, 2007, the Fund's effective pricing and bookkeeping
fee rate, inclusive of out-of-pocket expenses, was 0.011% of the Fund's average
daily net assets.
Transfer Agent Fee
Columbia Management Services, Inc. (the "Transfer Agent"), an affiliate of
Columbia and an indirect, wholly-owned
44
Columbia Intermediate Bond Fund
March 31, 2007
subsidiary of BOA, provides shareholder services to the Fund and has contracted
with Boston Financial Data Services ("BFDS") to serve as sub-transfer agent.
The Transfer Agent is entitled to receive a fee for its services, paid monthly,
at the annual rate of $17.00 per open account plus reimbursement of certain
sub-transfer agent fees (exclusive of BFDS fees) calculated based on assets
held in omnibus accounts and intended to recover the cost of payments to other
parties (including affiliates of BOA) for services to those accounts. The
Transfer Agent pays the fees of BFDS for services as sub-transfer agent and is
not entitled to reimbursements for such fees from the Fund. The Transfer Agent
may also retain, as additional compensation for its services, fees for wire,
telephone and redemption orders, IRA trustee agent fees and account transcript
fees due the Transfer Agent from shareholders of the Fund and credits (net of
bank charges) earned with respect to balances in accounts the Transfer Agent
maintains in connection with its services to the Fund. The Transfer Agent also
receives reimbursement for certain out-of-pocket expenses.
For the year ended March 31, 2007, the Fund's effective transfer agent fee
rate, inclusive of out-of-pocket expenses and sub-transfer agent fees, was
0.10% of the Fund's average daily net assets.
Underwriting Discounts, Service and Distribution Fees
Columbia Management Distributors, Inc. (the "Distributor"), an affiliate of
Columbia and an indirect, wholly-owned subsidiary of BOA, is the principal
underwriter of the Fund. For the year ended March 31, 2007, the Distributor has
retained net underwriting discounts of $11,230 on sales of the Fund's Class A
shares and net CDSC fees of $163, $211,917 and $2,596 on Class A, Class B and
Class C share redemptions, respectively.
The Fund has adopted a Rule 12b-1 plan (the "Plan") which allows the payment of
a monthly service fee to the Distributor at the annual rate of 0.25% of the
average daily net assets attributable to Class A, Class B and Class C shares of
the Fund. The Plan also requires the payment of a monthly distribution fee to
the Distributor at the annual rates of 0.10%, 0.75%, 0.75% and 0.50% of the
average daily net assets attributable to Class A, Class B, Class C and Class R
shares, respectively. The Distributor has voluntarily agreed to waive the
Class A share distribution fee. The Distributor has also voluntarily agreed to
waive a portion of the Class C share distribution fee so that it will not
exceed 0.60% annually of Class C average daily net assets. These waivers may be
modified or terminated by the Distributor at any time.
The CDSC and the distribution fees received from the Plan are used principally
as repayment to the Distributor for amounts paid by the Distributor to dealers
who sold such shares.
Custody Credits
The Fund has an agreement with its custodian bank under which custody fees may
be reduced by balance credits. These credits are recorded as a reduction of
total expenses in the Statement of Operations. The Fund could have invested a
portion of the assets utilized in connection with the expense offset
arrangement in an income-producing asset if it had not entered into such an
agreement.
Fees Paid to Officers and Trustees
All officers of the Fund are employees of Columbia or its affiliates and, with
the exception of the Fund's Chief Compliance Officer, receive no compensation
from the Fund. The Board of Trustees has appointed a Chief Compliance Officer
to the Fund in accordance with federal securities regulations. The Fund, along
with other affiliated funds, pays its pro-rata share of the expenses associated
with the Chief Compliance Officer. The Fund's expenses for the Chief Compliance
Officer will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may
be terminated at any time. Obligations of the plan will be paid solely out of
the Fund's assets.
Other
Columbia provides certain services to the Fund related to the requirements of
the Sarbanes-Oxley Act of 2002. For the year ended March 31, 2007, the Fund
paid $2,875 to Columbia for such services. This amount is included in "Other
expenses" in the Statement of Operations.
Note 5. Portfolio Information
For the year ended March 31, 2007, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $3,191,983,302 and
$2,610,517,111,
45
Columbia Intermediate Bond Fund
March 31, 2007
respectively, of which $1,631,736,771 and $1,559,812,014, respectively, were
U.S. Government securities.
Note 6. Shares of Beneficial Interest
As of March 31, 2007, the Fund had one shareholder that held 41.9% of the
shares outstanding. The shares were beneficially owned by participant accounts
over which BOA and/or its affiliates had either sole or joint investment
discretion. Subscription and redemption activity of these accounts may have a
significant effect on the operations of the Fund.
As of March 31, 2007, the Fund had two shareholders that held 20.0% of the
shares outstanding. These shares were beneficially owned by participant
accounts over which BOA and/or its affiliates did not have investment
discretion. Subscription and redemption activity of these accounts may have a
significant effect on the operations of the Fund.
Note 7. Line of Credit
The Trust and other affiliated funds participate in a $350,000,000 committed
unsecured revolving line of credit and a $150,000,000 uncommitted, unsecured
line of credit, both provided by State Street. Borrowings are available for
temporary or emergency purposes.
Interest on the committed line of credit is charged to each participating fund
based on the fund's borrowings at a rate per annum equal to the Federal Funds
Rate plus 0.50%. In addition, a commitment fee of 0.10% per annum is accrued
and apportioned among the participating funds based on their pro-rata portion
of the unutilized committed line of credit. Interest on the uncommitted line of
credit is charged to each participating fund based on the fund's borrowings at
a variable rate per annum equal to the Federal Funds Rate plus a spread, as
determined and quoted by State Street at the time of the request for a loan. A
one-time structuring fee of $30,000 is also accrued and apportioned to each
fund participating in the uncommitted line of credit based on the average net
assets of the participating funds. In addition, if the uncommitted line of
credit is extended for an additional period, an annual administration fee of
$15,000 will be charged and apportioned among the participating fund. The
commitment fee and structuring fee are included in "Other expenses" in the
Statement of Operations.
For the year ended March 31, 2007, the Fund did not borrow under this
arrangement.
Note 8. Securities Lending
The Fund commenced a securities lending program in August 2006 and may lend its
securities to certain approved brokers, dealers and other financial
institutions. Each loan is collateralized by cash, in an amount at least equal
to the market value of the securities loaned plus accrued income from the
investment of collateral. The market value of the loaned securities is
determined at the close of business of the Fund and any additional required
collateral is delivered to the Fund on the next business day. The collateral
received is invested and the income generated by the investment of the
collateral, net of any fees remitted to State Street as the lending agent and
borrower rebates, is paid to the Fund. Generally, in the event of borrower
default, the Fund has the right to use the collateral to offset any losses
incurred. In the event the Fund is delayed or prevented from exercising its
right to dispose of the collateral, there may be a potential loss to the Fund.
The Fund bears the risk of loss with respect to the investment of collateral.
Note 9. Other
During the year ended March 31, 2007, the Fund had a realized investment loss
in the amount of $135 due to a trading error. Columbia voluntarily reimbursed
the Fund for the loss.
Note 10. Other Related Party Transactions
During the year ended March 31, 2007, the Fund used Bank of America Securities,
a wholly-owned subsidiary of BOA, as a broker. No commissions were paid to Bank
of America Securities during the period.
Note 11. Disclosure of Significant Risks and Contingencies
High-Yield Securities
Investing in high-yield securities may involve greater credit risk and
considerations not typically associated with investing in U.S. Government bonds
and other higher quality fixed income securities. These securities are
non-investment grade securities, often referred to as "junk bonds". Economic
downturns may disrupt the high yield market and impair the ability of issuers
to repay principal and interest. Also, an increase in interest rates would
likely have an adverse impact on the value of such obligations. Moreover,
high-yield securities may be less liquid to the extent that there is no
established secondary market.
46
Columbia Intermediate Bond Fund
March 31, 2007
Sector Focus
Companies that are in different but closely related industries are sometimes
described as being in the same sector. Although the Fund does not intend to
focus on any particular sector, at times the Fund may have a large portion of
its assets invested in a particular sector. During such times, the Fund will
have greater exposure to the economic and market events affecting such sector
than if it were more broadly invested across multiple sectors.
Legal Proceedings
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged
into Banc of America Capital Management, LLC (now named Columbia Management
Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has
been renamed Columbia Management Distributors, Inc.) (the "Distributor")
(collectively, the "Columbia Group") entered into an Assurance of
Discontinuance with the New York Attorney General ("NYAG") (the "NYAG
Settlement") and consented to the entry of a cease-and-desist order by the
Securities and Exchange Commission ("SEC") (the "SEC Order") on matters
relating to mutual fund trading. The SEC Order and the NYAG Settlement are
referred to collectively as the "Settlements".
Under the terms of the SEC Order, the Columbia Group agreed, among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution
consultant (see below). The Columbia Funds have also voluntarily undertaken to
implement certain governance measures designed to maintain the independence of
their boards of trustees. The NYAG Settlement also, among other things,
requires Columbia and its affiliates to reduce management fees for certain
Columbia Funds (including the former Nations Funds) and other mutual funds
collectively by $32 million per year for five years, for a projected total of
$160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan that was developed by an independent distribution consultant
and approved by the SEC on April 6, 2007.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov.
A copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with the events described above, various parties have filed suit
against certain funds, the Trustees of the Columbia Funds, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America and
its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation
transferred these cases and cases against other mutual fund companies based on
similar allegations to the United States District Court in Maryland for
consolidated or coordinated pretrial proceedings (the ''MDL''). Subsequently,
additional related cases were transferred to the MDL. On September 29, 2004,
the plaintiffs in the MDL filed amended and consolidated complaints. One of
these amended complaints is a putative class action that includes claims under
the federal securities laws and state common law, and that names Columbia, the
Distributor, the Trustees of the Columbia Funds, Bank of America Corporation
and others as defendants. Another of the amended complaints is a derivative
action purportedly on behalf of the Columbia Funds that asserts claims under
federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss
the claims in the pending cases. On March 1, 2006, for reasons stated in the
court's memoranda dated November 3, 2005, the U.S. District Court for the
District of Maryland granted in part and denied in part the defendants' motions
to dismiss. The court dismissed all of the class action claims pending against
the Columbia Funds Trusts. As to Columbia and the Distributor, the claims under
the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the
Investment Company Act of 1940 ("ICA") and the state law claims were dismissed.
The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and claims under Section 36(b) of the ICA were not dismissed.
On March 21, 2005, a purported class action was filed in Massachusetts state
court alleging that certain conduct,
47
Columbia Intermediate Bond Fund
March 31, 2007
including market timing, entitled Class B shareholders in certain Columbia
funds to an exemption from contingent deferred sales charges upon early
redemption ("the CDSC Lawsuit"). The CDSC Lawsuit was removed to federal court
in Massachusetts and the federal Judicial Panel transferred the CDSC Lawsuit to
the MDL.
On April 4, 2006, the plaintiffs and the Columbia defendants named in the MDL,
including the Columbia Funds, entered into a term sheet containing the
principal terms of a stipulation of settlement that would settle all
Columbia-related claims in the MDL described above, including the CDSC Lawsuit.
On April 6, 2006, the U.S. District Court for the District of Maryland stayed
all actions with respect to these Columbia-related claims. The settlement is
subject to court approval.
In 2004, the Columbia Funds' adviser and distributor and certain affiliated
entities and individuals were named as defendants in certain purported
shareholder class and derivative actions making claims, including claims under
the Investment Company and the Investment Advisers Acts of 1940 and state law.
Certain Columbia Funds were named as nominal defendants. The suits allege,
inter alia, that the fees and expenses paid by the funds are excessive and that
the advisers and their affiliates inappropriately used fund assets to
distribute the funds and for other improper purposes. On March 2, 2005, the
actions were consolidated in the Massachusetts federal court as In re Columbia
Entities Litigation. The plaintiffs filed a consolidated amended complaint on
June 9, 2005. On November 30, 2005, the judge dismissed all claims by
plaintiffs and entered final judgment in favor of the defendants. The
plaintiffs appealed to the United States Court of Appeals for the First Circuit
on December 30, 2005. A stipulation and settlement agreement dated January 19,
2007 was filed in the First Circuit on February 14, 2007, with a joint
stipulation of dismissal and motion for remand to obtain district court
approval of the settlement. That joint motion was granted and the appeal was
dismissed. On March 6, 2007, the case was remanded to the District Court. On
May 11, 2007, the District Court entered a preliminary approval order which
granted preliminary approval of the settlement. A final settlement hearing, at
which the District Court will determine whether the proposed settlement should
be finally approved and the action dismissed on the merits with prejudice, is
scheduled for September 18, 2007. The terms of the settlement, if finally
approved, will require payments by the funds' adviser and/or its affiliates,
including payment of plaintiffs' attorneys' fees and notice to class members.
In the event that the settlement is not finally approved, the plaintiffs may
elect to go forward with their appeal and no opinion is expressed regarding the
likely outcome or financial impact of such an appeal on any fund.
48
Report of Independent Registered Public Accounting Firm
To the Trustees of Columbia Funds Series Trust I and the Shareholders of
Columbia Intermediate Bond Fund
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Columbia Intermediate Bond Fund
(the "Fund") (a series of Columbia Funds Series Trust I) at March 31, 2007, and
the results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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 March 31, 2007 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion. The
financial highlights of the Fund for the periods prior to July 1, 2003 were
audited by another independent registered public accounting firm whose report
dated August 19, 2003 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 25, 2007
49
Fund Governance - Columbia Intermediate Bond Fund
The Trustees serve terms of indefinite duration. The names, addresses and ages
of the Trustees and officers of the Funds of Columbia Funds Series Trust I, 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.
Independent Trustees
Name, address and year of birth, Principal occupation(s) during past five years, Number
Position with funds, Year first of portfolios in Columbia Funds Complex overseen by
elected or appointed to office/1/ trustee, Other directorships held
Douglas A. Hacker (Born 1955)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Independent business executive since May, 2006;
Advisors, LLC Executive Vice President-Strategy of United Airlines
One Financial Center (airline) from December, 2002 to May, 2006; President
Boston, MA 02111 of UAL Loyalty Services (airline marketing company)
Trustee (since 1996) from September, 2001 to December, 2002; Executive Vice
President and Chief Financial Officer of United
Airlines from July, 1999 to September, 2001. Oversees
75, Nash Finch Company (food distributor); Aircastle
Limited (aircraft leasing)
Janet Langford Kelly (Born 1957)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Deputy General Counsel-Corporate Legal Services,
Advisors, LLC ConocoPhillips (integrated petroleum company) since
One Financial Center August, 2006; Partner, Zelle, Hofmann, Voelbel, Mason
Boston, MA 02111 & Gette LLP (law firm) from March, 2005 to July, 2006;
Trustee (since 1996) Adjunct Professor of Law, Northwestern University,
from September, 2004 to June, 2006, Director, UAL
Corporation (airline) from February, 2006 to July,
2006; Chief Administrative Officer and Senior Vice
President, Kmart Holding Corporation (consumer goods),
from September, 2003 to March, 2004; Executive Vice
President-Corporate Development and Administration,
General Counsel and Secretary, Kellogg Company (food
manufacturer), from September, 1999 to August, 2003.
Oversees 75, None
Richard W. Lowry (Born 1936)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Private Investor since August, 1987 (formerly Chairman
Advisors, LLC and Chief Executive Officer, U.S. Plywood Corporation
One Financial Center (building products manufacturer) until 1987). Oversees
Boston, MA 02111 75, None
Trustee (since 1995)
Charles R. Nelson (Born 1943)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Professor of Economics, University of Washington,
Advisors, LLC since January, 1976; Ford and Louisa Van Voorhis
One Financial Center Professor of Political Economy, University of
Boston, MA 02111 Washington, since September, 1993; Director, Institute
Trustee (since 1981) for Economic Research, University of Washington from
September, 2001 to June, 2003; Adjunct Professor of
Statistics, University of Washington, since September,
1980; Associate Editor, Journal of Money Credit and
Banking, since September, 1993; Consultant on
econometric and statistical matters. Oversees 75, None
John J. Neuhauser (Born 1942)
- -----------------------------------------------------------------------------------------
c/o Columbia Management University Professor, Boston College since November,
Advisors, LLC 2005; Academic Vice President and Dean of Faculties,
One Financial Center Boston College from August, 1999 to October, 2005.
Boston, MA 02111 Oversees 75, None
Trustee (since 1985)
50
Fund Governance (continued) - Columbia Intermediate Bond Fund
Name, address and year of birth, Principal occupation(s) during past five
Position with funds, Year first years, Number of portfolios in Columbia
elected or appointed to office/1/ Funds Complex overseen by trustee, Other
directorships held
Independent Trustees
Patrick J. Simpson (Born 1944)
- --------------------------------------------------------------------------------------------
c/o Columbia Management Partner, Perkins Coie LLP (law firm). Oversees 75, None
Advisors, LLC
One Financial Center
Boston, MA 02111
Trustee (since 2000)
Thomas E. Stitzel (Born 1936)
- --------------------------------------------------------------------------------------------
c/o Columbia Management Business Consultant since 1999; Chartered Financial
Advisors, LLC Analyst. Oversees 75, None
One Financial Center
Boston, MA 02111
Trustee (since 1998)
Thomas C. Theobald (Born 1937)
- --------------------------------------------------------------------------------------------
c/o Columbia Management Partner and Senior Advisor, Chicago Growth Partners
Advisors, LLC (private equity investing) since September, 2004;
One Financial Center Managing Director, William Blair Capital Partners
Boston, MA 02111 (private equity investing) from September, 1994 to
Trustee and Chairman of the Board/2/ September, 2004. Oversees 75, Anixter International
(since 1996) (network support equipment distributor); Ventas, Inc.
(real estate investment trust); Jones Lang LaSalle
(real estate management services); Ambac Financial
Group (financial guaranty insurance)
Anne-Lee Verville (Born 1945)
- --------------------------------------------------------------------------------------------
c/o Columbia Management Retired since 1997 (formerly General Manager, Global
Advisors, LLC Education Industry, IBM Corporation (computer and
One Financial Center technology) from 1994 to 1997). Oversees 75, None
Boston, MA 02111
Trustee (since 1998)
Interested Trustee
William E. Mayer (Born 1940)
- ------------------------------------------------------------------------------------
c/o Columbia Management Partner, Park Avenue Equity Partners (private equity)
Advisors, LLC since February, 1999; Dean and Professor, College of
One Financial Center Business, University of Maryland, 1992 to 1997.
Boston, MA 02111 Oversees 75, Lee Enterprises (print media), WR
Trustee/3/ (since 1994) Hambrecht + Co. (financial service provider); Reader's
Digest (publishing)
/1/In December 2000, the boards of each of the former Liberty Funds and former
Stein Roe Funds were combined into one board of trustees responsible for the
oversight of both fund groups (collectively, the "Liberty Board"). In
October 2003, the trustees on the Liberty Board were elected to the boards
of the Columbia Funds (the "Columbia Board") and of the CMG Fund Trust (the
"CMG Funds Board"); simultaneous with that election, Patrick J. Simpson who
had been a director on the Columbia Board and trustee on the CMG Funds
Board, was appointed to serve as trustee 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. Theobald was appointed as Chairman of the Board effective December 10,
2003.
/3/Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940) by reason of his affiliation with WR Hambrecht + Co.
The Statement of Additional Information includes additional information about
the Trustees of the Fund and is available, without charge, upon request by
calling 800-345-6611.
51
Fund Governance (continued) - Columbia Intermediate Bond Fund
Officers
Name, address and year of birth, Principal occupation(s) during past five years
Position with Columbia Funds, Year
first elected or appointed to office
Christopher L. Wilson (Born 1957)
- --------------------------------------------------------------------------------------------
One Financial Center President - Columbia Funds, since October 2004;
Boston, MA 02111 Managing Director - Columbia Management Advisors, LLC,
President (since 2004) since September 2004; Senior Vice President - Columbia
Management Distributors, Inc., since January 2005;
Director - Columbia Management Services, Inc., since
January 2005; Director - Bank of America Global
Liquidity Funds, plc and Banc of America Capital
Management (Ireland), Limited, since May 2005;
Director - FIM Funding, Inc., since January 2005;
President and Chief Executive Officer- CDC IXIS AM
Services, Inc. (asset management), from September 1998
through August 2004; and a senior officer or director
of various other Bank of America-affiliated entities,
including other registered and unregistered funds.
James R. Bordewick, Jr. (Born 1959)
- --------------------------------------------------------------------------------------------
One Financial Center Associate General Counsel, Bank of America since
Boston, MA 02111 April, 2005; Senior Vice President and Associate
Senior Vice President, Secretary General Counsel, MFS Investment Management (investment
and Chief Legal Officer (since 2006) management) prior to April, 2005.
J. Kevin Connaughton (Born 1964)
- --------------------------------------------------------------------------------------------
One Financial Center Treasurer - Columbia Funds, since October 2003;
Boston, MA 02111 Treasurer - the Liberty Funds, Stein Roe Funds and
Senior Vice President, Liberty All-Star Funds, December 2000 - December 2006;
Chief Financial Officer and Vice President - Columbia Management Advisors, Inc.,
Treasurer (since 2000) since April 2003; President - Columbia Funds, Liberty
Funds and Stein Roe Funds, February 2004 to October
2004; Treasurer - Galaxy Funds, September 2002 to
December 2005; Treasurer, December 2002 to December
2004, and President, February 2004 to December 2004 -
Columbia Management Multi-Strategy Hedge Fund, LLC;
and a senior officer of various other Bank of
America-affiliated entities, including other
registered and unregistered funds.
Linda J. Wondrack (Born 1964)
- --------------------------------------------------------------------------------------------
One Financial Center Director (Columbia Management Group LLC and Investment
Boston, MA 02111 Product Group Compliance), Bank of America since June
Senior Vice President, Chief 2005; Director of Corporate Compliance and Conflicts
Compliance Officer (since 2007) Officer, MFS Investment Management (investment
management), August 2004 to May 2005; Managing
Director, Deutsche Asset Management (investment
management) prior to August 2004.
Michael G. Clarke (Born 1969)
- --------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Managing Director of the Advisor
Chief Accounting Officer and September, 2004 to December, 2005; Vice President Fund
Assistant Treasurer (since 2004) Administration of the Advisor June, 2002 to September,
2004. Vice President Product Strategy and Development
of the Advisor from February, 2001 to June, 2002.
Jeffrey R. Coleman (Born 1969)
- --------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Fund Controller of the Advisor from
Deputy Treasurer (since 2006) October 2004 to January 2006; Vice President of CDC
IXIS Asset Management Services, Inc. (investment
management) from August, 2000 to September, 2004.
52
Fund Governance (continued) - Columbia Intermediate Bond Fund
Officers
Name, address and year of birth, Principal occupation(s) during past five years
Position with Columbia Funds, Year
first elected or appointed to office
Joseph F. DiMaria (Born 1968)
- --------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Head of Tax/Compliance and Assistant
Deputy Treasurer (since 2006) Treasurer of the Advisor from November, 2004 to
December, 2005; Director of Trustee Administration
(Sarbanes-Oxley) of the Advisor from May, 2003 to
October, 2004; Senior Audit Manager,
PricewaterhouseCoopers (independent registered public
accounting firm) from July, 2000 to April, 2003.
Ty S. Edwards (Born 1966)
- --------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Vice President of the Advisor from
Deputy Treasurer (since 2006) July, 2002 to December, 2005; Assistant Vice President
and Director, State Street Corporation (financial
services) prior to 2002.
Barry S. Vallan (Born 1969)
- --------------------------------------------------------------------------------------------
One Financial Center Vice President-Fund Treasury of the Advisor since
Boston, MA 02111 October, 2004; Vice President-Trustee Reporting of the
Controller (since 2006) Advisor from April, 2002 to October, 2004; Management
Consultant, PricewaterhouseCoopers (independent
registered public accounting firm) prior to October,
2002.
53
Board Consideration and Approval of Investment Advisory Agreements
The Advisory Fees and Expenses Committee of the Board of Trustees meets one or
more times annually to review the advisory agreements (collectively, the
"Agreements") of the funds for which the Trustees serve as trustees (each a
"fund") and determine whether to recommend that the full Board approve the
continuation of the Agreements for an additional one-year period. After the
Committee has made its recommendation, the full Board, including the
Independent Trustees, determines whether to approve the continuation of the
Agreements. In addition, the Board, including the Independent Trustees,
considers matters bearing on the Agreements at most of its other meetings
throughout the year and meets regularly with the heads of each investment area
within Columbia. Through the Board's Investment Oversight Committees, Trustees
also meet with selected fund portfolio managers at various times throughout the
year.
The Trustees receive and review all materials that they, their legal counsel or
Columbia, the funds' investment adviser, believe to be reasonably necessary for
the Trustees to evaluate the Agreements and determine whether to approve the
continuation of the Agreements. Those materials generally include, among other
items, (i) information on the investment performance of each fund relative to
the performance of peer groups of mutual funds and the fund's performance
benchmarks, (ii) information on each fund's advisory fees and other expenses,
including information comparing the fund's expenses to those of peer groups of
mutual funds and information about any applicable expense caps and fee
"breakpoints," (iii) information about the profitability of the Agreements to
Columbia, including potential "fall-out" or ancillary benefits that Columbia
and its affiliates may receive as a result of their relationships with the
funds and (iv) information obtained through Columbia's response to a
questionnaire prepared at the request of the Trustees by counsel to the funds
and independent legal counsel to the Independent Trustees. The Trustees also
consider other information such as (v) Columbia's financial results and
financial condition, (vi) each fund's investment objective and strategies and
the size, education and experience of Columbia's investment staffs and their
use of technology, external research and trading cost measurement tools, (vii)
the allocation of the funds' brokerage, if any, and the use of "soft"
commission dollars to pay for research products and services, (viii) Columbia's
resources devoted to, and its record of compliance with, the funds' investment
policies and restrictions, policies on personal securities transactions and
other compliance policies, (ix) Columbia's response to various legal and
regulatory proceedings since 2003 and (x) the economic outlook generally and
for the mutual fund industry in particular. In addition, the Advisory Fees and
Expenses Committee confers with the funds' independent fee consultant and
reviews materials relating to the funds' relationships with Columbia provided
by the independent fee consultant. Throughout the process, the Trustees have
the opportunity to ask questions of and request additional materials from
Columbia and to consult with independent legal counsel to the Independent
Trustees and the independent fee consultant.
The Board of Trustees most recently approved the continuation of the Agreements
at its October, 2006 meeting, following meetings of the Advisory Fees and
Expenses Committee held in August, September and October, 2006. In considering
whether to approve the continuation of the Agreements, the Trustees, including
the Independent Trustees, did not identify any single factor as determinative,
and each weighed various factors as he or she deemed appropriate. The Trustees
considered the following matters in connection with their approval of the
continuation of the Agreements:
The nature, extent and quality of the services provided to the funds under the
Agreements. The Trustees considered the nature, extent and quality of the
services provided by Columbia and its affiliates to the funds and the resources
dedicated to the funds by Columbia and its affiliates. Among other things, the
Trustees considered (i) Columbia's ability (including its personnel and other
resources, compensation programs for personnel involved in fund management,
reputation and other attributes) to attract and retain highly qualified
research, advisory and supervisory investment professionals; (ii) the portfolio
management services provided by those investment professionals; and (iii) the
trade execution services provided on behalf of the funds. For each fund, the
Trustees also considered the benefits to shareholders of investing in a mutual
fund that is part of a family of funds offering exposure to a variety of asset
classes and investment disciplines and providing a variety of fund and
shareholder services. After reviewing those and related factors, the Trustees
concluded, within the context of their overall conclusions regarding each of
the Agreements, that the nature, extent and quality of services provided
supported the continuation of the Agreements.
54
Investment performance of the funds and Columbia. The Trustees reviewed
information about the performance of each fund over various time periods,
including information prepared by an independent third party that compared the
performance of each fund to the performance of peer groups of mutual funds and
performance benchmarks. The Trustees also reviewed a description of the third
party's methodology for identifying each fund's peer group for purposes of
performance and expense comparisons. The Trustees also considered additional
information that the Advisory Fees and Expenses Committee requested from
Columbia relating to funds that presented relatively weaker performance and/or
relatively higher expenses.
In the case of each fund whose performance lagged that of a relevant peer group
for certain (although not necessarily all) periods, the Trustees concluded that
other factors relevant to performance were sufficient, in light of other
considerations, to warrant continuation of the fund's Agreements. Those factors
varied from fund to fund, but included one or more of the following: (i) that
the fund's performance, although lagging in certain recent periods, was
stronger over the longer term; (ii) that the underperformance was attributable,
to a significant extent, to investment decisions that were reasonable and
consistent with the fund's investment strategy and policies and that the fund
was performing as expected, given these investment decisions, market conditions
and the fund's investment strategy; (iii) that the fund's performance was
competitive when compared to other relevant performance benchmarks or peer
groups; (iv) that Columbia had taken or was taking steps designed to help
improve the fund's investment performance, including, but not limited to,
replacing portfolio managers or modifying investment strategies; and (v) that
the fund was proposed to be reorganized into another fund, and that such
reorganization would result in a reduction in fund expenses.
The Trustees also considered Columbia's performance and reputation generally,
the funds' performance as a fund family generally, and Columbia's historical
responsiveness to Trustee concerns about performance and Columbia's willingness
to take steps intended to improve performance.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
performance of each fund and Columbia was sufficient, in light of other
considerations, to warrant the continuation of the Agreement(s) pertaining to
that fund.
The costs of the services provided and profits realized by Columbia and its
affiliates from their relationships with the funds. The Trustees considered the
fees charged to the funds for advisory services as well as the total expense
levels of the funds. That information included comparisons (provided by
management and by an independent third party) of each fund's advisory fees and
total expense levels to those of the fund's peer groups and information about
the advisory fees charged by Columbia to comparable institutional accounts. In
considering the fees charged to those accounts, the Trustees took into account,
among other things, management's representations about the differences between
managing mutual funds as compared to other types of accounts, including
differences in the services provided, differences in the risk profile of such
business for Columbia, and the additional resources required to manage mutual
funds effectively. In evaluating each fund's advisory fees, the Trustees also
took into account the demands, complexity and quality of the investment
management of the fund. The Trustees considered existing advisory fee
breakpoints, and Columbia's use of advisory fee waivers and expense caps, which
benefited a number of the funds. The Trustees also noted management's stated
justification for the fees charged to the funds, which included information
about the investment performance of the funds and the services provided to the
funds. The Trustees also considered the compensation directly or indirectly
received by Columbia and its affiliates from their relationships with the
funds. The Trustees reviewed information provided by management as to the
profitability to Columbia and its affiliates of their relationships with each
fund, and information about the allocation of expenses used to calculate
profitability. When reviewing profitability, the Trustees also considered court
cases in which adviser profitability was an issue in whole or in part, the
performance of the relevant funds, the expense level of each fund, and whether
Columbia had implemented breakpoints and/or expense caps with respect to the
fund.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
advisory fees charged to each fund, and the related profitability to Columbia
and its affiliates of their relationships with the fund, supported the
continuation of the Agreement(s) pertaining to that fund.
55
Economies of Scale. The Trustees considered the existence of any economies of
scale in the provision by Columbia of services to each fund, to groups of
related funds, and to Columbia's investment advisory clients as a whole and
whether those economies were shared with the funds through breakpoints in the
investment advisory fees or other means, such as expense waivers/reductions and
additional investments by Columbia in investment, trading and compliance
resources. The Trustees noted that many of the funds benefited from
breakpoints, expense caps, or both. In considering those issues, the Trustees
also took note of the costs of the services provided (both on an absolute and a
relative basis) and the profitability to Columbia and its affiliates of their
relationships with the funds, as discussed above.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
extent to which economies of scale were shared with the funds supported the
continuation of the Agreements.
Other Factors. The Trustees also considered other factors, which included but
were not limited to the following:
.. the extent to which each fund had operated in accordance with its investment
objective and investment restrictions, the nature and scope of the compliance
programs of the funds and Columbia and the compliance-related resources that
Columbia and its affiliates were providing to the funds;
.. the nature, quality, cost and extent of administrative and shareholder
services performed by Columbia and its affiliates, both under the Agreements
and under separate agreements for the provision of transfer agency and
administrative services;
.. so-called "fall-out benefits" to Columbia and its affiliates, such as the
engagement of its affiliates to provide distribution, brokerage and transfer
agency services to the funds, and the benefits of research made available to
Columbia by reason of brokerage commissions generated by the funds'
securities transactions, as well as possible conflicts of interest associated
with those fall-out and other benefits, and the reporting, disclosure and
other processes in place to disclose and monitor those possible conflicts of
interest; and
.. the draft report provided by the funds' independent fee consultant, which
included information about and analysis of the funds' fees, expenses and
performance.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel and the independent fee consultant, the Trustees, including
the Independent Trustees, approved the continuance of each of the Agreements
through October 31, 2007.
56
Summary of Management Fee Evaluation by Independent Fee Consultant
Prepared Pursuant to the February 9, 2005 Assurance of Discontinuance between
the Office of Attorney General of New York State and Columbia Management
Advisors, Inc. and Columbia Funds Distributor, Inc. October 11, 2006
I. Overview
Columbia Management Advisors, LLC ("CMA") and Columbia Funds Distributors,
Inc./1/ ("CFD") agreed on February 9, 2005 to the New York Attorney General's
Assurance of Discontinuance ("AOD"). Among other things, the AOD stipulates
that CMA may manage or advise a Columbia Fund ("Fund" and together with all
such funds or a group of such funds as the "Funds") only if the Independent
Members of the Fund's Board of Trustees (such Independent Members of the Fund's
Board together with the other members of the Fund's Board, referred to as the
"Trustees") appoint a Senior Officer or retain an Independent Fee Consultant
("IFC") who is to manage the process by which proposed management fees are
negotiated. The AOD further stipulates that the Senior Officer or IFC is to
prepare a written annual evaluation of the fee negotiation process.
On September 14, 2006, the Independent Members of the Funds' Boards retained me
as IFC for the Funds. In this capacity, I have prepared the second annual
written evaluation of the fee negotiation process. I am successor to the first
IFC, Erik Sirri, who prepared the annual evaluation in 2005 and who contributed
to the second annual written evaluation until his resignation as IFC in August
2006 to become Director of the Division of Market Regulation at the U.S.
Securities and Exchange Commission./2/
A. Role of the Independent Fee Consultant
The AOD charges the IFC with "managing the process by which proposed management
fees...to be charged the Columbia Fund are negotiated so that they are
negotiated in a manner which is at arms' length and reasonable and consistent
with this Assurance of Discontinuance." In this role, the IFC does not replace
the Trustees in negotiating management fees with CMA, and the IFC does not
substitute his or her judgment for that of the Trustees about the
reasonableness of proposed fees. As the AOD states, CMA "may manage or advise a
Columbia Fund only if the reasonableness of the proposed management fees is
determined by the Board of Trustees...using...an annual independent written
evaluation prepared by or under the direction of...the Independent Fee
Consultant."
B. Elements Involved in Managing the Fee Negotiation Process
Managing the fee negotiation process has three elements. One involves reviewing
the information provided by CMG to the Trustees for evaluating the proposed
management fees and augmenting that information, as necessary, with additional
information from CMG or other sources and with further analyses of the
information and data. The second element involves reviewing the information and
analysis relative to at least the following six factors set forth in the AOD:
1.The nature and quality of CMA's services, including the Fund's performance;
2.Management fees (including any components thereof) charged by other mutual
fund companies for like services;
3.Possible economies of scale as the Fund grows larger;
4.Management fees (including any components thereof) charged to institutional
and other clients of CMA for like services;
5.Costs to CMA and its affiliates of supplying services pursuant to the
management fee agreements, excluding any intra-corporate profit; and
6.Profit margins of CMA and its affiliates from supplying such services.
1CMA and CFD are subsidiaries of Columbia Management Group, Inc. ("CMG"), which
also is the parent of Columbia Management Services, Inc. ("CFS"), the Funds'
transfer agent. Before the date of this report, CMA merged into an affiliated
entity, Banc of America Capital Management, LLC, which was renamed Columbia
Management Advisors, LLC and which carries on the business of CMA. CFD also
has been renamed Columbia Management Distributors, Inc.
2I am an independent economic consultant. From August 2005 until August 2006, I
provided support to Mr. Sirri as an independent consultant. From 1994 to 2004,
I was Chief Economist at the Investment Company Institute. Earlier, I was
Section Chief and Assistant Director at the Federal Reserve Board and
Professor of Economics at Oklahoma State University. I have no material
relationship with Bank of America or CMG, aside from serving as IFC, and I am
aware of no material relationship with any of their affiliates. To assist me
with the report, I engaged NERA Economic Consulting, an independent consulting
firm that has had extensive experience in the mutual fund industry. I also
have retained Willkie Farr & Gallagher LLP as counsel to advise me in
connection with the report.
57
The final element involves providing the Trustees with a written evaluation of
the above factors as they relate to the fee negotiation process.
C. Organization of the Annual Evaluation
The 2006 annual evaluation focuses on the six factors and contains a section
for each factor except that CMA's costs and profits from managing the Funds
have been combined into a single section. In each section, the discussion of
the factor considers and analyzes the available data and other information as
they bear upon the fee negotiation process. If appropriate, the discussion in
the section may point out certain aspects of the proposed fees that may warrant
particular attention from the Trustees. The discussion also may suggest other
data, information, and approaches that the Trustees might consider
incorporating into the fee negotiation process in future years.
In addition to a discussion of the six factors, the report reviews the status
of recommendations made in the 2005 IFC evaluation. The 2006 report also
summarizes the findings with regard to the six factors and contains a summary
of recommendations for possible enhancements to the process.
II. Status of 2005 Recommendations
The 2005 IFC evaluation contains recommendations aimed at enhancing the
evaluation of proposed management fees by Trustees. The section summarizes
those recommendations and includes my assessment of the response to the
recommendations.
1. Recommendation: Trustees should consider requesting more analytical work
from CMG in the preparation of future 15(c) materials.
Status: CMG has provided additional analyses to the Trustees on economies
of scale, a comparative analysis of institutional and retail management
fees, management fee breakpoints, risk-adjusted performance, fee waivers
and expense reimbursements, and CMG's costs and profitability.
2. Recommendation: Trustees may wish to consider whether CMG should continue
expanding the use of Morningstar or other third party data to supplement
CMG's fee and performance analysis that is now based primarily on Lipper
reports.
Status: CMG has used data from Morningstar Inc. to compare with data from
Lipper Inc. ("Lipper") in performing the Trustees' screening procedures.
3. Recommendation: Trustees should consider whether...the fund-by-fund
screen...should place comparable emphasis on both basis point and quintile
information in their evaluation of the funds...Also, the Trustees should
consider incorporating sequences of one year performance into a
fund-by-fund screen.
Status: CMG has not provided Trustees with results of the screening process
using percentiles. CMG has provided Trustees with information on the
changes in performance and expenses between 2005 and 2006 and data on
one-year returns.
4. Recommendation: Given the volatility of fund performance, the Trustees may
want to consider whether a better method exists than th[e] fee waiver
process to deal with fund underperformance.
Status: It is my understanding that the Trustees have determined to address
fund underperformance not only through fee waivers and expense caps but
also through discussions with CMG regarding the sources of
underperformance. CMG has provided Trustees with an analysis of the
relationship between breakpoints, expense reimbursements, and fee waivers.
5. Recommendation: [Seventy-one] percent of funds [have] yet to reach their
first management fee breakpoint... Trustees may wish to consider whether
the results of my ongoing economies-of-scale work affects the underlying
economic assumptions reflected in the existing breakpoint schedules.
Status: CMG has prepared a memo for the Trustees discussing its views on
the nature and sharing of potential economies of scale. The memo discuses
CMG's view that economies of scale arise at the complex level rather than
the fund level. The memo also describes steps, including the introduction
of breakpoints, taken to share economies of scale with shareholders. CMG's
analysis, however, does not discuss specific sources of economies of scale
and does not link breakpoints to economies of scale that might be realized
as the Funds' assets increase.
58
6. Recommendation: Trustees should continue working with management to address
issues of funds that demonstrate consistent or significant underperformance
even if the fee levels for the funds are low.
Status: Trustees monitor performance on an ongoing basis.
III. Findings
A. General
1. Based upon my examination of the available information and the six factors,
I conclude that the Trustees have the relevant information necessary to
evaluate the reasonableness of the proposed management fees for the Funds.
CMG has provided the Trustees with relevant materials on the six factors
through the 15(c) contract renewal process and in materials prepared for
review at Board and Committee meetings.
2. In my view, the process by which the proposed management fees of the Funds
have been negotiated in 2006 thus far has been, to the extent practicable,
at arms' length and reasonable and consistent with the AOD.
B. Nature and Quality of Services, Including Performance
3. The performance of the Funds has been relatively strong, especially that of
fixed-income Funds. For each of the 1-, 3-, 5- and 10-year performance
periods, over 60 percent of the funds have ranked in the top three
performance quintiles.
4. The performance of the equity Funds overall, though less concentrated in
the top two quintiles than the fixed income Funds, improved in 2006
relative to that in 2005. The fixed-income funds maintained the relatively
high performance level of 2005 in 2006.
5. The Funds' overall performance adjusted for risk was significantly stronger
than performance unadjusted for risk. Domestic and international equity
funds, in particular, moved to higher relative performance rankings after
adjusting for risk.
6. The procedure used to construct the performance universe in which each
Fund's performance is ranked relative to comparable funds may bias a Fund's
ranking upward within that universe. The bias occurs because the
performance ranking procedure includes all share classes of multi-class
funds in the universe and because the procedure ranks either no-load or A
share classes of the Funds. No-load and A share classes generally have
lower total expenses than B and C shares (owing to B and C shares having
higher distribution/service fees) and thus, given all else, would
outperform many of B and C share classes included in the universe. A
preliminary analysis that adjusts for the bias results in a downward
movement in the relative performance for the Funds but does not change the
general finding that the Funds' performance has been strong relative to
comparable funds.
C. Management Fees Charged by Other Mutual Fund Companies
7. The Funds' management fees and total expenses are generally low relative to
those of their peers. At least 56 percent of the Funds are in the first or
second quintiles with the lowest fees and expenses and nearly three fourths
or more in the first three quintiles. Equity Funds are more highly
concentrated in the first three quintiles than fixed-income Funds.
8. The fee and expense rankings as whole are similar to those in 2005 in that
the majority of funds are ranked in the top quintiles. Nonetheless, a
number of individual funds experienced a change in ranking between 2005 and
2006. This fund-level instability may reflect sensitivity of rankings to
the composition of the comparison groups, as the membership of the peer
groups typically changed substantially between the two years.
9. The Liberty Money Market Fund VS appears to have a higher management fee
structure than that of other Columbia money market funds of comparable
asset size.
59
D. Trustees' Fee and Performance Evaluation Process
10. The Trustees' evaluation process identified 21 funds in 2006 for further
review based upon their relative performance or expenses. Seventeen of
these funds had been subject to review in 2004 or 2005.
E. Potential Economies of Scale
11. CMG has prepared a memo for the Trustees containing its views on the
sources and sharing of potential economies of scale. CMG views economies of
scale as arising at the complex level and would regard estimates of scale
economies for individual funds as unreliable. CMG has not, however,
identified specific sources of economies of scale nor has it provided any
estimates of the magnitude of any economies of scale. In the memo, CMG also
describes measures taken by the Trustees and CMG that seek to share any
potential economies of scale through breakpoints in management fee
schedules, expense reimbursements, fee waivers, enhanced shareholder
services, fund mergers, and operational consolidation. These measures,
although of significant benefit to shareholders, have not been directly
linked in the memo to the existence, sources, and magnitude of economies of
scale.
F. Management Fees Charged to Institutional Clients
12. CMG has provided Trustees with comparisons of mutual fund management fees
and institutional fees based upon standardized fee schedules and upon
actual fees. Based upon the information, institutional fees are generally
lower than the Funds' management fees. This pattern is consistent with the
economics of the two financial products. Data are not available, however,
on actual institutional fees at other money managers. Thus, it is not
possible to determine the extent to which differences between the Funds'
management fees and institutional fees are consistent with those seen
generally in the marketplace.
G. Revenues, Expenses, and Profits
13. The financial statements and the methodology underlying their construction
generally form a sufficient basis for Trustees to evaluate the expenses and
profitability of the Funds.
IV. Recommendations
A. Performance
1. Trustees may wish to consider incorporating risk adjusted measures in their
evaluation of performance. CMG has begun to prepare reports for the
Trustees with risk adjustments, which could form the basis for formally
including the measures in the 15(c) materials. To this end, Trustees may
wish to have CMG prepare documents explaining risk adjustments and
describing their advantages and disadvantages.
2. Trustees may wish to consider having CMG evaluate the sensitivity of
performance rankings to the design of the universe. The preliminary
analysis contained in the evaluation suggests that the method employed by
Lipper, the source of performance rankings used by the Trustees, may bias
performance rankings upward.
B. Economies of Scale
3. Trustees may wish to consider having CMG extend its analysis of economies
of scale by examining the sources of such economies, if any. Identification
of the sources may enable the Trustees and CMG to gauge their magnitude. It
also may enable the Trustees and CMG to build upon past work on
standardized fee schedules so that the schedules themselves are consistent
with any economies of scale and their sources. Finally, an extension of the
analysis may enable the Trustees and CMG to develop a framework that
coordinates the use of fee waivers and expense caps with the standard fee
schedules and with any economies of scale and their sources.
C. Institutional Fees
4. Trustees may wish to consider encouraging CMG to build further upon its
expanded analysis of institutional fees by refining the matching of
institutional accounts with mutual funds, by dating the establishment of
each institutional account, and by incorporating other accounts, such as
subadvisory relationships, trusts, offshore funds, and separately managed
accounts into the analysis.
60
D. Profitability
5. Trustees may wish to consider requesting that CMG expand the reporting of
revenues and expenses to include more line-item detail for management and
administration, transfer agency, fund accounting, and distribution.
6. Trustees may wish to consider requesting that CMG provide a statement of
its operations in the 15(c) materials.
7. Trustees may wish to consider the treatment of the revenue sharing with the
Private Bank of Bank of America in their review of CMG's profitability.
Respectfully submitted,
John D. Rea
61
Appendix
Sources of Information Used in the Evaluation
The following list generally describes the sources and types of information
that were used in preparing this report.
1. Performance, management fees, and expense ratios for the Funds and
comparable funds from other fund complexes from Lipper and CMG. The sources
of this information were CMG and Lipper;
2. CMG's expenses and profitability obtained directly from CMG;
3. Information on CMG's organizational structure;
4. Profitability of publicly traded asset managers from Lipper;
5. Interviews with CMG staff, including members of senior management, legal
staff, heads of affiliates, portfolio managers, and financial personnel;
6. Documents prepared by CMG for Section 15(c) contract renewals in 2005 and
2006;
7. Academic research papers, industry publications, professional materials on
mutual fund operations and profitability, and SEC releases and studies of
mutual fund expenses
8. Interviews with and documents prepared by Ernst & Young LLP in its review
of the Private Bank Revenue Sharing Agreement;
9. Discussions with Trustees and attendance at Board and committee meetings
during which matters pertaining to the evaluation were considered.
In addition, I engaged NERA Economic Consulting ("NERA") to assist me in data
management and analysis. NERA has extensive experience in the mutual fund
industry that provides unique insights and special knowledge pertaining to my
independent analysis of fees, performance, and profitability. I have also
retained attorneys in the Washington, D.C. office of Willkie Farr & Gallagher
LLP as outside counsel to advise me in connection with my evaluation.
Finally, meetings and discussions with CMG staff were informative. My
participation in Board and committee meetings in which Trustees and CMG
management discussed issues relating to management contracts were of great
benefit to the preparation of the evaluation.
62
Columbia Funds - Columbia Intermediate Bond Fund
-----------------------------------------------------------------
Growth Funds Columbia Acorn Fund
Columbia Acorn Select
Columbia Acorn USA
Columbia Large Cap Growth Fund
Columbia Marsico 21st Century Fund
Columbia Marsico Focused Equities Fund
Columbia Marsico Growth Fund
Columbia Mid Cap Growth Fund
Columbia Small Cap Growth Fund I
Columbia Small Cap Growth Fund II
-----------------------------------------------------------------
Core Funds Columbia Common Stock Fund
Columbia Large Cap Core Fund
Columbia Small Cap Core Fund
-----------------------------------------------------------------
Value Funds Columbia Disciplined Value Fund
Columbia Dividend Income Fund
Columbia Large Cap Value Fund
Columbia Mid Cap Value Fund
Columbia Small Cap Value Fund I
Columbia Small Cap Value Fund II
Columbia Strategic Investor Fund
-----------------------------------------------------------------
Asset Allocation/Hybrid Columbia Asset Allocation Fund
Funds Columbia Asset Allocation Fund II
Columbia Balanced Fund
Columbia Liberty Fund
Columbia LifeGoal/TM/ Balanced Growth
Portfolio
Columbia LifeGoal/TM/ Growth Portfolio
Columbia LifeGoal/TM/ Income Portfolio
Columbia LifeGoal/TM/ Income and
Growth Portfolio
Columbia Masters Global Equity
Portfolio
Columbia Masters Heritage Portfolio
Columbia Masters International Equity
Portfolio
Columbia Thermostat Fund
-----------------------------------------------------------------
Index Funds Columbia Large Cap Enhanced Core Fund
Columbia Large Cap Index Fund
Columbia Mid Cap Index Fund
Columbia Small Cap Index Fund
-----------------------------------------------------------------
Specialty Funds Columbia Convertible Securities Fund
Columbia Real Estate Equity Fund
Columbia Technology Fund
-----------------------------------------------------------------
Global/International Funds Columbia Acorn International
Columbia Acorn International Select
Columbia Global Value Fund
Columbia Greater China Fund
Columbia International Stock Fund
Columbia International Value Fund
Columbia Marsico International
Opportunities Fund
Columbia Multi-Advisor International
Equity Fund
Columbia World Equity Fund
63
Columbia Funds (continued) - Columbia Intermediate Bond Fund
------------------------------------------------------------
Taxable Bond Funds Columbia Conservative High Yield Fund
Columbia Core Bond Fund
Columbia Federal Securities Fund
Columbia High Income Fund
Columbia High Yield Opportunity Fund
Columbia Income Fund
Columbia Intermediate Bond Fund
Columbia Short Term Bond Fund
Columbia Strategic Income Fund
Columbia Total Return Bond Fund
Columbia U.S. Treasury Index Fund
------------------------------------------------------------
Tax-Exempt Bond Funds Columbia California Tax-Exempt Fund
Columbia California Intermediate
Municipal Bond Fund
Columbia Connecticut Tax-Exempt Fund
Columbia Connecticut Intermediate
Municipal Bond Fund
Columbia Georgia Intermediate
Municipal Bond Fund
Columbia High Yield Municipal Fund
Columbia Intermediate Municipal Bond
Fund
Columbia Massachusetts Intermediate
Municipal Bond Fund
Columbia Massachusetts Tax-Exempt Fund
Columbia Maryland Intermediate
Municipal Bond Fund
Columbia North Carolina Intermediate
Municipal Bond Fund
Columbia New York Tax-Exempt Fund
Columbia New Jersey Intermediate
Municipal Bond Fund
Columbia New York Intermediate
Municipal Bond Fund
Columbia Oregon Intermediate
Municipal Bond Fund
Columbia Rhode Island Intermediate
Municipal Bond Fund
Columbia South Carolina Intermediate
Municipal Bond Fund
Columbia Short Term Municipal Bond
Fund
Columbia Tax-Exempt Fund
Columbia Virginia Intermediate
Municipal Bond Fund
------------------------------------------------------------
Money Market Funds Columbia California Tax-Exempt
Reserves
Columbia Cash Reserves
Columbia Connecticut Municipal
Reserves
Columbia Government Plus Reserves
Columbia Government Reserves
Columbia Massachusetts Municipal
Reserves
Columbia Money Market Reserves
Columbia Municipal Reserves
Columbia New York Tax-Exempt Reserves
Columbia Prime Reserves
Columbia Tax-Exempt Reserves
Columbia Treasury Reserves
For complete product information on any Columbia Fund, visit our website at
www.columbiafunds.com.
64
Important Information About This Report
Columbia Intermediate Bond Fund
Transfer Agent
Columbia Management Services, Inc.
P.O. Box 8081
Boston, MA 02266-8081
1-800-345-6611
Distributor
Columbia Management
Distributors, Inc.
One Financial Center
Boston, MA 02111
Investment Advisor
Columbia Management Advisors, LLC
100 Federal Street
Boston, MA 02110
The fund mails one shareholder report to each shareholder address. If you would
like more than one report, please call shareholder services at 1-800-345-6611
and additional reports will be sent to you. This report has been prepared for
shareholders of Columbia Intermediate Bond Fund.
A description of the policies and procedures that the fund uses to determine
how to vote proxies and a copy of the fund's voting records are available
(i) at www.columbiamanagement.com; (ii) on the Securities and Exchange
Commission's website at www.sec.gov, and (iii) without charge, upon request, by
calling 1-800-368-0346. Information regarding how the fund voted proxies
relating to portfolio securities during the 12-month period ended June 30 is
available from the SEC's website. Information regarding how the fund voted
proxies relating to portfolio securities is also available from the fund's
website.
The fund files a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q
is available on the SEC's website at www.sec.gov and may be reviewed and copied
at the SEC's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Please consider the investment objectives, risk, charges and expenses for the
fund carefully before investing. Contact your financial advisor for a
prospectus, which contains this and other important information about the fund.
You should read it carefully before you invest.
Columbia Management Group, LLC ("Columbia Management") is the investment
management division of Bank of America Corporation. Columbia Management
entities furnish investment management services and products for institutional
and individual investors. Columbia Funds are distributed by Columbia Management
Distributors, Inc., member NASD and SIPC. Columbia Management Distributors,
Inc. is part of Columbia Management and an affiliate of Bank of America
Corporation.
65
Columbia Intermediate Bond Fund
Annual Report - March 31, 2007
[GRAPHIC]
(C)2007 Columbia Management Distributors, Inc.
One Financial Center, Boston, MA 02111-2621
800-345-6611 www.columbiafunds.com
SHC-42/129910-0307 (05/07) 07/38409
[LOGO] Columbia Management(R)
--------------
Columbia U.S. Treasury Index Fund
Annual Report - March 31, 2007
NOT FDIC INSURED May Lose Value
-----------------
No Bank Guarantee
President's Message
March 31, 2007
Table of Contents
Economic Update 1
Performance Information 2
Understanding Your Expenses 3
Portfolio Manager's Report 4
Fund Profile 5
Investment Portfolio 6
Statement of Assets and
Liabilities 8
Statement of Operations 9
Statement of Changes in Net
Assets 10
Financial Highlights 12
Notes to Financial Statements 16
Report of Independent
Registered Public Accounting
Firm 22
Fund Governance 23
Board Consideration and
Approval of Investment
Advisory Agreements 28
Summary of Management Fee
Evaluation by Independent Fee
Consultant 31
Important Information
About This Report 37
The views expressed in this report reflect the current views of the
respective parties. These views are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult to
predict so actual outcomes and results may differ significantly from the
views expressed. These views are subject to change at any time based upon
economic, market or other conditions and the respective parties disclaim any
responsibility to update such views. These views may not be relied on as
investment advice and, because investment decisions for a Columbia Fund are
based on numerous factors, may not be relied on as an indication of trading
intent on behalf of any particular Columbia Fund. References to specific
company securities should not be construed as a recommendation or investment
advice.
[PHOTO] Christopher L. Wilson
President, Columbia Funds
Dear Shareholder:
Investing is a long-term process and we are pleased that
you have chosen to include the Columbia family of funds in
your overall financial plan.
Your financial advisor can help you establish an
appropriate investment portfolio and periodically review
that portfolio. A well balanced portfolio is one of the
keys to successful long-term investing. Your portfolio
should be diversified across different asset classes and
market segments and your chosen asset allocation should be
appropriate for your investment goals, risk tolerance and
time horizons.
However, creating an investment strategy is not a one-step process. From time
to time, you'll need to re-evaluate your strategy to determine whether your
investment needs have changed. Most experts recommend giving your portfolio a
"check-up" every year.
As you begin your portfolio check-up, consider whether you have experienced any
major life events since the last time you assessed your portfolio. You may need
to tweak your strategy if you have:
. Gotten married or divorced
. Added a child to your family
. Made a significant change in employment
. Entered or moved significantly closer to retirement
. Experienced a serious illness or death in the family
. Taken on or paid off substantial debt
It's important to remember that over time, performance in different market
segments will fluctuate. These shifts can cause your portfolio balance to drift
away from your chosen asset allocation. A periodic portfolio check-up can help
make sure your portfolio stays on track. Remember that asset allocation does
not ensure a profit or guarantee against loss.
You'll also want to analyze the individual investments in your portfolio. Of
course, performance should be a key factor in your analysis, but it's not the
only factor to consider. Make sure the investments in your portfolio line up
with your overall objectives and risk tolerance. Be aware of changes in
portfolio management and pay special attention to any funds that have made
significant shifts in their investment strategy.
We hope this information will help you, in working with your financial advisor,
to stay on track to reach your investment goals. Thank you for your business
and for your continued confidence in Columbia Funds.
Sincerely,
/s/ Christopher L. Wilson
Christopher L. Wilson
President, Columbia Funds
Economic Update - Columbia U.S. Treasury Index Fund
Summary
For the 12-month period ended March 31, 2007
. Investment-grade bonds rebounded as yields declined, lifting the Lehman
Brothers U.S. Aggregate Bond Index to a respectable return. High-yield
bonds, as measured by the Merrill Lynch U.S. High Yield, Cash Pay Index, led
the US fixed-income markets.
Lehman Merrill Lynch
Index Index
[GRAPHIC] [GRAPHIC]
6.59% 11.45%
. The broad US stock market, as measured by the S&P 500 Index, returned
11.83%. Stock markets outside the United States were even stronger, as
measured by the MSCI EAFE Index.
S&P Index MSCI Index
[GRAPHIC] [GRAPHIC]
11.83% 20.20%
The Lehman Brothers U.S. Aggregate Bond Index is a market value-weighted
index that tracks the daily price, coupon, pay-downs, and total return
performance of fixed-rate, publicly placed, dollar-denominated, and
non-convertible investment grade debt issues with at least $250 million par
amount outstanding and with at least one year to final maturity.
The Merrill Lynch U.S. High Yield, Cash Pay Index tracks the performance of
non-investment-grade corporate bonds.
The S&P 500 Index tracks the performance of 500 widely held,
large-capitalization US stocks.
The Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East
(EAFE) Index is a free float-adjusted market capitalization index that is
designed to measure developed market equity performance, excluding the US and
Canada.
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.
US economic growth advanced at a modest pace during the 12-month period that
began April 1, 2006 and ended March 31, 2007. A weak housing market weighed on
the economy throughout the period, with few signs that relief was imminent.
Energy prices trended downward, but rose again late in the period, and core
inflation moved higher. Yet, many economic indicators remained positive. Job
growth, for example, was relatively strong, as the labor markets added an
average of 164,000 new jobs each month over the period and the unemployment
rate declined to 4.4%. Personal income rose and consumer spending continued to
expand, albeit at a slower pace as the period wore on. Against this backdrop,
economic growth averaged around 2.2% for the 12-month period.
Between April and June 2006, the Federal Reserve Board (the Fed) raised a key
short-term interest rate, the federal funds rate, twice -- to 5.25%. But after
its June meeting, the Fed turned cautious in the face of slower economic growth
and held the federal funds rate steady. Investors reacted favorably to the
prospect of stable or lower interest rates and fueled a rally that moved stock
prices higher and gave a boost to the bond market as well.
Bonds bounced back
Although bond yields moved higher early in the period, most segments of the US
bond market delivered respectable returns, as prices rose and yields declined
in reaction to the Fed's mid-year decision to put further short-term rate
increases on hold. The yield on the 10-year US Treasury note/1/, a bellwether
for the bond market, ended the 12-month period at 4.63% -- somewhat lower than
where it started. In this environment, the Lehman Brothers U.S. Aggregate Bond
Index returned 6.59%. High-yield bonds led the US fixed-income markets,
reflecting investor confidence about the overall resilience of the economy
despite its slower pace of growth. The Merrill Lynch U.S. High Yield, Cash Pay
Index returned 11.45%.
Despite late set-back, stocks moved solidly higher
Stock prices rose at an above-average pace during the 12-month period covered
by this report. The S&P 500 Index, a broad measure of common stock performance,
rose 11.83%. Large-cap stocks staged a comeback against small- and mid-cap
stocks, as measured by their respective Russell indices. Foreign stock markets
were even stronger than the US market. The MSCI EAFE Index, which tracks stock
market performance in industrialized countries outside the United States and
Canada returned 20.20%, despite a volatile stretch late in the period when the
US and many foreign stock markets retreated in response to a sharp decline in
the Chinese market and other market-specific factors.
/1/10-year Treasury note used solely as a benchmark for long-term interest
rates.
Past performance is no guarantee of future results.
1
Performance Information - Columbia U.S. Treasury Index Fund
Performance data quoted represents past performance and current performance
may be lower or higher. Past performance is no guarantee of future results.
The investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than the original cost. Please visit
www.columbiafunds.com for daily and most recent month-end performance updates.
Annual operating expense ratio
Class A 0.66%
Class B 1.41%
Class C 1.41%
Class Z 0.43%
*The annual operating expense ratio is as stated in the fund's prospectus that
is current as of the date of this report and may differ from the
expense ratios disclosed elsewhere in this report.
Growth of a $10,000
investment 04/01/97 -
03/31/07
[CHART]
Class A Class A Citigroup
shares without shares with Bond U.S.
Sales charge Sales charge Treasury Index
-------------- -------------- --------------
10,000 9,525 10,000
4/30/1997 10,132 9,651 10,138
5/31/1997 10,216 9,731 10,227
6/30/1997 10,319 9,829 10,342
7/31/1997 10,618 10,113 10,639
8/31/1997 10,509 10,010 10,529
9/30/1997 10,666 10,159 10,690
10/31/1997 10,845 10,330 10,876
11/30/1997 10,909 10,391 10,933
12/31/1997 11,017 10,494 11,050
1/31/1998 11,178 10,647 11,220
2/28/1998 11,145 10,616 11,184
3/31/1998 11,171 10,640 11,217
4/30/1998 11,216 10,683 11,267
5/31/1998 11,337 10,798 11,382
6/30/1998 11,457 10,913 11,514
7/31/1998 11,471 10,926 11,532
8/31/1998 11,777 11,218 11,842
9/30/1998 12,095 11,520 12,173
10/31/1998 12,065 11,492 12,131
11/30/1998 12,055 11,483 12,133
12/31/1998 12,092 11,518 12,156
1/31/1999 12,140 11,563 12,230
2/28/1999 11,835 11,273 11,920
3/31/1999 11,882 11,318 11,968
4/30/1999 11,905 11,339 11,994
5/31/1999 11,793 11,233 11,888
6/30/1999 11,747 11,189 11,858
7/31/1999 11,748 11,190 11,848
8/31/1999 11,738 11,180 11,851
9/30/1999 11,829 11,267 11,943
10/31/1999 11,842 11,280 11,958
11/30/1999 11,818 11,257 11,935
12/31/1999 11,746 11,188 11,858
1/31/2000 11,759 11,201 11,887
2/29/2000 11,936 11,369 12,065
3/31/2000 12,166 11,588 12,304
4/30/2000 12,143 11,566 12,267
5/31/2000 12,134 11,558 12,286
6/30/2000 12,341 11,755 12,493
7/31/2000 12,464 11,872 12,621
8/31/2000 12,650 12,049 12,805
9/30/2000 12,662 12,061 12,816
10/31/2000 12,776 12,170 12,941
11/30/2000 13,038 12,419 13,205
12/31/2000 13,290 12,659 13,457
1/31/2001 13,379 12,744 13,562
2/28/2001 13,538 12,895 13,727
3/31/2001 13,579 12,934 13,773
4/30/2001 13,413 12,776 13,603
5/31/2001 13,453 12,814 13,650
6/30/2001 13,517 12,875 13,721
7/31/2001 13,853 13,195 14,061
8/31/2001 14,022 13,356 14,242
9/30/2001 14,254 13,577 14,472
10/31/2001 14,646 13,950 14,865
11/30/2001 14,274 13,596 14,504
12/31/2001 14,127 13,456 14,365
1/31/2002 14,217 13,542 14,458
2/28/2002 14,342 13,661 14,592
3/31/2002 13,991 13,326 14,236
4/30/2002 14,335 13,654 14,585
5/31/2002 14,412 13,728 14,670
6/30/2002 14,595 13,902 14,877
7/31/2002 14,944 14,234 15,226
8/31/2002 15,250 14,526 15,548
9/30/2002 15,653 14,910 15,966
10/31/2002 15,479 14,744 15,784
11/30/2002 15,312 14,585 15,634
12/31/2002 15,693 14,948 16,036
1/31/2003 15,643 14,900 15,984
2/28/2003 15,909 15,153 16,261
3/31/2003 15,822 15,070 16,193
4/30/2003 15,904 15,149 16,269
5/31/2003 16,348 15,571 16,742
6/30/2003 16,240 15,468 16,637
7/31/2003 15,520 14,783 15,908
8/31/2003 15,595 14,854 16,002
9/30/2003 16,055 15,292 16,483
10/31/2003 15,812 15,061 16,235
11/30/2003 15,812 15,061 16,257
12/31/2003 15,952 15,194 16,402
1/31/2004 16,074 15,311 16,540
2/29/2004 16,267 15,495 16,741
3/31/2004 16,407 15,628 16,901
4/30/2004 15,871 15,117 16,358
5/31/2004 15,820 15,068 16,304
6/30/2004 15,871 15,117 16,373
7/31/2004 16,025 15,263 16,522
8/31/2004 16,342 15,566 16,862
9/30/2004 16,376 15,598 16,906
10/31/2004 16,486 15,703 17,039
11/30/2004 16,265 15,492 16,811
12/31/2004 16,406 15,627 16,977
1/31/2005 16,533 15,747 17,101
2/28/2005 16,382 15,604 16,961
3/31/2005 16,328 15,553 16,905
4/30/2005 16,607 15,819 17,201
5/31/2005 16,798 16,001 17,414
6/30/2005 16,896 16,093 17,522
7/31/2005 16,656 15,865 17,284
8/31/2005 16,911 16,108 17,562
9/30/2005 16,686 15,893 17,329
10/31/2005 16,539 15,753 17,192
11/30/2005 16,608 15,820 17,278
12/31/2005 16,776 15,979 17,452
1/31/2006 16,709 15,915 17,400
2/28/2006 16,731 15,936 17,429
3/31/2006 16,555 15,769 17,243
4/30/2006 16,471 15,688 17,172
5/31/2006 16,467 15,685 17,181
6/30/2006 16,527 15,742 17,234
7/31/2006 16,715 15,921 17,448
8/31/2006 16,953 16,147 17,704
9/30/2006 17,092 16,280 17,867
10/31/2006 17,186 16,369 17,958
11/30/2006 17,344 16,520 18,145
12/31/2006 17,194 16,378 17,998
1/31/2007 17,160 16,345 17,967
2/28/2007 17,448 16,620 18,266
3/31/2007 17,428 16,598 18,253
The chart above shows the growth in value of a hypothetical $10,000 investment
in Class A shares of Columbia U.S. Treasury Index Fund during the stated
period, and does not reflect the deduction of taxes that a shareholder would
pay on fund distributions or redemption of fund shares. The Citigroup Bond U.S.
Treasury Index is an index composed of all US Treasury notes and bonds with
remaining maturities of at least one year and outstanding principal of at least
$25 million that are included in the Citigroup Broad Investment-Grade Bond
Index. Securities in the Citigroup Bond U.S. Treasury Index are weighted by
market value, that is, the price per bond or note multiplied by the number of
bonds or notes outstanding. Indices are not investments, do not incur fees or
expenses and are not professionally managed. It is not possible to invest
directly in an index. Securities in the fund may not match those in an index.
Performance of a $10,000 investment 04/01/97 - 03/31/07 ($)
Sales charge without with
Class A 17,428 16,598
Class B 16,873 16,873
Class C 16,982 16,982
Class Z 17,609 n/a
Average annual total return as of 03/31/07 (%)
Share class A B C Z
----------------------------------------------------------------
Inception 11/25/02 11/25/02 11/25/02 06/04/91
----------------------------------------------------------------
Sales charge without with without with without with without
1-year 5.30 0.31 4.52 -0.48 4.67 3.67 5.53
5-year 4.49 3.48 3.82 3.47 3.95 3.95 4.71
10-year 5.71 5.20 5.37 5.37 5.44 5.44 5.82
The "with sales charge" returns include the maximum initial sales charge of
4.75% for Class A shares, the maximum contingent deferred sales charge of 5.00%
in the first year, declining to 1.00% in the sixth year, and eliminated
thereafter for Class B shares and 1.00% for Class C shares for the first year
only. The "without sales charge" returns do not include the effect of sales
charges. If they had, returns would be lower.
Performance results reflect any waivers or reimbursements of fund expenses by
the investment advisor and/or any of its affiliates. Absent these waivers or
reimbursement arrangements, performance results would have been lower.
All results shown assume reinvestment of distributions. Performance for
different share classes will vary based on differences in sales charges and
fees associated with each class. Class Z shares are sold at net asset value
with no Rule 12b-1 fees. Class Z shares have limited eligibility and the
investment minimum requirements may vary. Please see the fund's prospectus for
details.
The table does not reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares
The returns of Class A, Class B and Class C shares include returns of the
fund's Class Z shares (the oldest existing fund share class) for periods prior
to the inception of Class A, Class B and Class C shares, respectively. These
returns have not been restated to reflect any expense differential (e.g. Rule
12b-1 fees) between Class Z shares and Class A, Class B or Class C shares. If
differences in expenses had been reflected, the returns shown for Class A,
Class B and Class C shares for periods prior to the inception of Class A, Class
B and Class C shares, respectively, would have been lower. Class A, Class B and
Class C shares were initially offered on November 25, 2002 and Class Z shares
were initially offered on June 4, 1991.
2
Understanding Your Expenses - Columbia U.S. Treasury Index Fund
Estimating your actual expenses
To estimate the expenses that you paid over the period, first you will need
your account balance at the end of the period:
. For shareholders who receive their account statements from Columbia
Management Services, Inc., your account balance is available online at
www.columbiafunds.com or by calling Shareholder Services at 800.345.6611.
. For shareholders who receive their account statements from their brokerage
firm, contact your brokerage firm to obtain your account balance.
1.Divide your ending account balance by $1,000. For example, if an account
balance was $8,600 at the end of the period, the result would be 8.6.
2.In the section of the table below titled "Expenses paid during the period,"
locate the amount for your share class. You will find this number in the
column labeled "actual." Multiply this number by the result from step 1.
Your answer is an estimate of the expenses you paid on your account during
the period.
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also ongoing costs, which generally
include investment advisory fees, Rule 12b-1 fees and other fund expenses. The
information on this page is intended to help you understand the ongoing costs
of investing in the fund and to compare these costs with the ongoing costs of
investing in other mutual funds.
Analyzing your fund's expenses by share class
To illustrate these ongoing costs, we have provided an example and calculated
the expenses paid by investors in each share class during the period. The
information in the following table is based on an initial investment of $1,000,
which is invested at the beginning of the reporting period and held for the
entire period. Expense information is calculated two ways and each method
provides you with different information. The amount listed in the "actual"
column is calculated using the fund's actual operating expenses and total
return for the period. The amount listed in the "hypothetical" column for each
share class assumes that the return each year is 5% before expenses and is
calculated based on the fund's actual operating expenses. You should not use
the hypothetical account values and expenses to estimate either your actual
account balance at the end of the period or the expenses you paid during this
reporting period.
Compare with other funds
Since all mutual funds are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this
information to compare the ongoing cost of investing in the fund with other
funds. To do so, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds. As you compare
hypothetical examples of other funds, it is important to note that hypothetical
examples are meant to highlight the ongoing cost of investing in a fund and do
not reflect any transaction costs, such as sales charges, redemption fees or
exchange fees.
10/01/06 - 03/31/07
Account value at the Account value at the Expenses paid Fund's annualized
beginning of the period ($) end of the period ($) during the period ($) expense ratio (%)
- -------------------------------------------------------------------------------------------------
Actual Hypothetical Actual Hypothetical Actual Hypothetical Actual
Class A 1,000.00 1,000.00 1,019.90 1,021.94 3.02 3.02 0.60
Class B 1,000.00 1,000.00 1,016.11 1,018.20 6.79 6.79 1.35
Class C 1,000.00 1,000.00 1,016.80 1,018.95 6.03 6.04 1.20
Class Z 1,000.00 1,000.00 1,020.89 1,022.99 1.96 1.97 0.39
Expenses paid during the period are equal to the annualized expense ratio for
the share class, multiplied by the average account value over the period, then
multiplied by the number of days in the fund's most recent fiscal half-year and
divided by 365.
Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, account value at the end of the period would
have been reduced.
It is important to note that the expense amounts shown in the table are meant
to highlight only ongoing costs of investing in the fund and do not reflect any
transaction costs, such as sales charges, redemption fees or exchange fees.
Therefore, the hypothetical examples provided may not help you determine the
relative total costs of owning shares of different funds. If these transaction
costs were included, your costs would have been higher.
3
Portfolio Manager's Report - Columbia U.S. Treasury Index Fund
Performance data quoted represents past performance and current performance
may be lower or higher. Past performance is no guarantee of future results.
The investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than the original cost. Please visit
www.columbiafunds.com for daily and most recent month-end performance updates.
Net asset value per share
as of 3/31/07 ($)
Class A 10.53
Class B 10.53
Class C 10.53
Class Z 10.53
Distributions declared per share
04/01/06 - 3/31/07 ($)
Class A 0.46
Class B 0.38
Class C 0.40
Class Z 0.49
Maturity breakdown
as of 3/31/07 (%)
0-1 year 0.8
1-2 years 22.7
2-3 years 10.6
3-4 years 9.6
4-5 years 9.8
5-7 years 9.6
7-10 years 16.5
10-15 years 7.5
15-20 years 5.1
20-25 years 6.4
25 years and over 1.4
Asset allocation
as of 3/31/07 (%)
Government Issues 77.0
Cash and equivalents 23.0
Maturity breakdown and asset allocation are calculated as a percentage of
total investments.
The fund is actively managed and the composition of its portfolio will change
over time.
For the 12-month period that ended March 31, 2007, Columbia U.S. Treasury Index
Fund's Class A shares returned 5.30% without sales charge. The fund's Class Z
shares returned 5.53%. The fund's benchmark, the Citigroup Bond U.S. Treasury
Index, posted a total return of 5.85% over the same period./1/ Fees generally
accounted for the difference between the fund's return and that of the index.
The fund incurs expenses while the index does not. The fund's return was
slightly lower than the average return of its peer group, the Lipper General
U.S. Treasury Funds Category, which was 5.69%./2/
A steady Fed helped raise Treasury bond prices
Treasury bond prices moved slightly higher for the 12-month period, but not in
a straight line. During the first three months of the reporting period, the
bond market retreated sharply as fixed-income investors began to fear that the
Federal Reserve Board (the Fed) was prepared to continue to raise short-term
interest rates. However, when the Fed held the line on additional rate hikes at
its June 2006 meeting, bond prices moved higher before settling into a fairly
narrow trading range for the remainder of the period.
Flight to quality late in the period
For most of the 12-month reporting period, investors were rewarded for taking
on credit risk. Investment-grade corporate bonds outperformed comparable
Treasury securities by nearly a full percentage point. However, this trend
reversed itself during the first quarter of 2007, when the credit scares
experienced by the subprime mortgage market created a flight-to-quality mindset
that enabled Treasuries to keep pace with corporates.
Yields declined as prices rose
During the year, the average yield to maturity on the fund declined from 4.9%
to 4.7%, consistent with a slight decline in interest rates across most
maturity ranges. The fund's average maturity also declined from 7.1 years to
6.9 years because we reduced the fund's holdings in the 10+ year maturity range
by approximately five percentage points and made a corresponding increase in
the one-to-five-year range.
At the end of the period, bond yields were essentially flat across the maturity
spectrum, with 30-year securities yielding only a quarter of a percentage point
more than two-year securities. We believe this yield pattern suggests that the
market is anticipating a slight decrease in short-term rates by the end of the
year. While an unexpectedly weak economy could, in theory, force the Fed to
lower rates more aggressively, we believe short rates and the overall bond
market will be fairly stable in the year ahead.
/1/The Citigroup Bond U.S. Treasury Index is an index composed of all US
Treasury notes and bonds with remaining maturities of at least one year and
outstanding principal of at least $25 million that are included in the
Citigroup Broad Investment-Grade Bond Index. Securities in the Citigroup
Bond U.S. Treasury Index are weighted by market value, that is, the price
per bond or note multiplied by the number of bonds or notes outstanding.
Indices are not investments, do not incur fees or expenses and are not
professionally managed. It is not possible to invest directly in an index.
Securities in the fund may not match those in an index.
/2/Lipper Inc., a widely respected data provider in the industry, calculates an
average total return (assuming reinvestment of distributions) for mutual
funds with investment objectives similar to those of the fund. Lipper makes
no adjustment for the effect of sales loads.
4
Fund Profile - Columbia U.S. Treasury Index Fund
Performance data quoted represents past performance and current performance
may be lower or higher. Past performance is no guarantee of future results.
The investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than the original cost. Please visit
www.columbiafunds.com for daily and most recent month-end performance updates.
Summary
12-month return as of 03/31/07
[GRAPHIC] +5.30%
Class A shares
(without sales charge)
[GRAPHIC] +5.85%
Citigroup Bond U.S.
Treasury Index
Management Style
Fixed-Income Maturity
[GRAPHIC]
Management style is determined by Columbia Management and is based on the
investment strategy and process as outlined in the fund's prospectus.
Summary
.. For the 12-month period that ended March 31, 2007, the fund's class A shares
returned 5.30% without sales charge.
.. The Federal Reserve Board kept short-term interest rates steady after June
2006 and Treasury yields remained essentially flat across all maturities.
.. The fund shortened its maturity profile during the year, to stay in line with
the pattern of new issuance within the Treasury market.
Portfolio Management
David Lindsay has managed the Columbia U.S. Treasury Index Fund since July 1994
and has been with the advisor or its predecessors or affiliate organizations
since 1986.
Portfolio holdings and characteristics are subject to change and may not be
representative of current holdings and characteristics. The outlook for this
fund may differ from that presented for other Columbia Funds. Performance for
different classes of shares will vary based on differences in sales charges and
fees associated with each class. For standardized performance, please refer to
the Performance Information page.
The value of the fund may be affected by interest rate changes and the
creditworthiness of issuers held in the fund. When interest rates go up, bond
prices typically drop, and vice versa.
The fund is subject to indexing risk; Your investment in the fund will
typically decline in value when its index declines. Since the fund is designed
to track its index, the fund cannot purchase other securities that may help
offset declines in its index. In addition, because the fund may not hold all
issues included in its index, may not always be fully invested, and bears
transaction costs and expenses, the fund's performance may fail to match the
performance of its index, after taking expenses into account. Security prices
in a market, sector or industry may fall, reducing the value of your
investment. Fund shares are not guaranteed or backed by the US government or
any agency.
5
Investment Portfolio - Columbia U.S. Treasury Index Fund
March 31, 2007
Government & Agency Obligations - 98.0%
Par ($) Value ($)
U.S. Treasury Bonds - 27.7% 12.000% 08/15/13 (a) 3,175,000 3,477,492
7.500% 11/15/16 (a) 6,150,000 7,473,929
8.750% 05/15/17 (a) 1,330,000 1,758,197
7.875% 02/15/21 (a) 6,000,000 7,794,372
8.125% 08/15/21 (a) 950,000 1,264,242
7.250% 08/15/22 (a) 2,350,000 2,939,152
6.875% 08/15/25 (a) 3,600,000 4,439,811
6.125% 11/15/27 (a) 5,450,000 6,292,194
5.250% 02/15/29 (a) 2,750,000 2,870,956
4.500% 02/15/36 (a) 2,150,000 2,027,046
----------------------------------------------- ---------- -----------
U.S. Treasury Bonds Total 40,337,391
U.S. Treasury Notes - 70.3% 4.875% 04/30/08 (a) 4,000,000 3,999,532
5.625% 05/15/08 4,815,000 4,854,310
4.125% 08/15/08 (a) 4,400,000 4,362,873
3.125% 10/15/08 (a) 13,300,000 12,987,756
4.625% 11/30/08 (a) 2,950,000 2,947,926
2.625% 03/15/09 (a) 3,650,000 3,517,403
5.500% 05/15/09 5,650,000 5,753,067
4.875% 08/15/09 (a) 9,450,000 9,511,274
4.000% 04/15/10 (a) 3,800,000 3,741,814
5.750% 08/15/10 (a) 9,750,000 10,117,526
5.000% 08/15/11 (a) 13,850,000 14,118,344
4.000% 11/15/12 (a) 2,450,000 2,385,688
3.875% 02/15/13 (a) 8,250,000 7,968,658
4.250% 08/15/14 (a) 5,000,000 4,887,695
4.000% 02/15/15 (a) 3,550,000 3,403,286
4.125% 05/15/15 (a) 400,000 386,312
4.500% 02/15/16 (a) 7,700,000 7,621,799
----------------------------------------------- ---------- -----------
U.S. Treasury Notes Total 102,565,263
----------------------------------------------- ---------- -----------
Total Government & Agency Obligations
(cost of $141,790,683) 142,902,654
Shares
Securities Lending Collateral - 28.5%
State Street Navigator Securities Lending Prime
Portfolio (b) 41,524,419 41,524,419
----------------------------------------------- ---------- -----------
Total Securities Lending Collateral
(cost of $41,524,419) 41,524,419
See Accompanying Notes to Financial Statements.
6
Columbia U.S. Treasury Index Fund March 31, 2007
Par ($) Value ($)
Short-Term Obligation - 0.8%
Repurchase agreement with Fixed Income Clearing
Corp., dated 03/30/07, due 04/02/07 at 5.060%,
collateralized by a U.S. Agency Obligation maturing
02/15/19, market value of $1,241,082 (repurchase
proceeds $1,213,511) 1,213,000 1,213,000
---------------------------------------------------- --------- -----------
Total Short-Term Obligation (cost of $1,213,000) 1,213,000
---------------------------------------------------- --------- -----------
Total Investments - 127.3% (cost of $184,528,102)(c) 185,640,073
---------------------------------------------------- --------- -----------
Other Assets & Liabilities, Net - (27.3)% (39,811,425)
---------------------------------------------------- --------- -----------
Net Assets - 100.0% 145,828,648
Notes to Investment Portfolio:
(a)All or a portion of this security was on loan at
March 31, 2007. The total market value of
securities on loan at March 31, 2007 is
$40,625,609.
(b)Investment made with cash collateral received
from securities lending activity.
(c)Cost for federal income tax purposes is
$185,797,932.
At March 31, 2007, the fund held investments in
the following:
Holdings by Revenue Source (unaudited) % of Net Assets
-------------------------------------- ---------------
U.S. Treasury Notes 70.3
U.S. Treasury Bonds 27.7
-----
98.0
Security Lending Collateral 28.5
Short-Term Obligation 0 .8
Other Assets & Liabilities, Net (27.3)
-----
100.0
=====
See Accompanying Notes to Financial Statements.
7
Statement of Assets and Liabilities - Columbia U.S. Treasury Index Fund
March 31, 2007
($)
Assets Investments, at cost 184,528,102
-----------
Investments, at value (including securities on loan of $40,625,609) 185,640,073
Cash 421
Receivable for:
Fund shares sold 444,134
Interest 1,562,830
Securities lending 2,435
Expense reimbursement due from Investment Advisor 6,473
Deferred Trustees' compensation plan 11,390
Other assets 1,180
------------------------------------------------------------------- -----------
Total Assets 187,668,936
Liabilities Collateral on securities loaned 41,524,419
Payable for:
Fund shares repurchased 60,306
Distributions 187,301
Investment advisory fee 12,435
Administration fee 37,270
Transfer agent fee 4,117
Distribution and service fees 3,050
Deferred Trustees' fees 11,390
------------------------------------------------------------------- -----------
Total Liabilities 41,840,288
------------------------------------------------------------------- -----------
Net Assets 145,828,648
Composition of Net Assets Paid-in capital 149,551,742
Overdistributed net investment income (1,182,826)
Accumulated net realized loss (3,652,239)
Net unrealized appreciation on investments 1,111,971
------------------------------------------------------------------- -----------
Net Assets 145,828,648
Class A
Net assets 5,235,479
Shares outstanding 497,275
Net asset value per share 10.53 (a)
Maximum sales charge 4.75%
Maximum offering price per share 11.06 (b)
Class B
Net assets 1,488,253
Shares outstanding 141,354
Net asset value and offering price per share 10.53 (a)
Class C
Net assets 972,888
Shares outstanding 92,405
Net asset value and offering price per share 10.53 (a)
Class Z
Net assets 138,132,028
Shares outstanding 13,119,688
Net asset value, offering and redemption price per share 10.53
(a)Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b)On sales of $50,000 or more the offering price is reduced.
See Accompanying Notes to Financial Statements.
8
Statement of Operations - Columbia U.S. Treasury Index Fund
For the Year Ended March 31, 2007
($)
Investment Income Interest 6,489,657
Securities lending 21,972
----------------------------------------------------------------- ----------
Total Investment Income 6,511,629
Expenses Investment advisory fee 139,758
Administration fee 419,275
Distribution fee:
Class B 11,387
Class C 8,463
Service fee:
Class A 9,449
Class B 3,796
Class C 2,822
Sub-account services fee - Class Z 50,926
Trustees' fees 13,913
Other expenses 1,961
----------------------------------------------------------------- ----------
Total Operating Expenses 661,750
Interest expense 311
----------------------------------------------------------------- ----------
Total Expenses 662,061
Fees and expenses waived or reimbursed by Investment Advisor (84,754)
Fees and expenses waived or reimbursed by Administrator - Class Z (13,333)
Fees waived by Distributor - Class C (1,691)
----------------------------------------------------------------- ----------
Net Expenses 562,283
----------------------------------------------------------------- ----------
Net Investment Income 5,949,346
Net Realized and Unrealized Gain Net realized loss on investments (1,044,349)
(Loss) on Investments Net change in unrealized appreciation on investments 2,522,659
----------------------------------------------------------------- ----------
Net Gain 1,478,310
----------------------------------------------------------------- ----------
Net Increase Resulting from Operations 7,427,656
See Accompanying Notes to Financial Statements.
9
Statement of Changes in Net Assets - Columbia U.S. Treasury Index Fund
Year Ended March 31,
Increase (Decrease) in Net Assets 2007 ($) 2006 ($)
Operations Net investment income 5,949,346 5,837,189
Net realized loss on investments (1,044,349) (358,055)
Net change in unrealized appreciation (depreciation)
on investments 2,522,659 (2,778,329)
---------------------------------------------------- ----------- -----------
Net Increase Resulting from Operations 7,427,656 2,700,805
Distributions Declared to From net investment income:
Shareholders Class A (167,113) (168,812)
Class B (55,696) (52,104)
Class C (43,017) (37,133)
Class Z (6,185,851) (6,086,330)
---------------------------------------------------- ----------- -----------
Total Distributions Declared to Shareholders (6,451,677) (6,344,379)
Share Transactions Class A:
Subscriptions 3,315,677 3,047,725
Distributions reinvested 110,237 136,474
Redemptions (1,422,264) (3,171,464)
---------------------------------------------------- ----------- -----------
Net Increase 2,003,650 12,735
Class B:
Subscriptions 352,222 556,973
Distributions reinvested 46,825 41,319
Redemptions (536,647) (388,735)
---------------------------------------------------- ----------- -----------
Net Increase (Decrease) (137,600) 209,557
Class C:
Subscriptions 697,196 789,893
Distributions reinvested 35,264 33,338
Redemptions (835,950) (599,602)
---------------------------------------------------- ----------- -----------
Net Increase (Decrease) (103,490) 223,629
Class Z:
Subscriptions 25,060,964 22,817,562
Distributions reinvested 4,172,915 4,150,366
Redemptions (28,635,828) (38,881,587)
---------------------------------------------------- ----------- -----------
Net Increase (Decrease) 598,051 (11,913,659)
Net Increase (Decrease) from Share Transactions 2,360,611 (11,467,738)
---------------------------------------------------- ----------- -----------
Total Increase (Decrease) in Net Assets 3,336,590 (15,111,312)
Net Assets Beginning of period 142,492,058 157,603,370
End of period 145,828,648 142,492,058
Overdistributed net investment income at end of
period (1,182,826) (1,440,584)
---------------------------------------------------- ----------- -----------
See Accompanying Notes to Financial Statements.
10
Statement of Changes in Net Assets (continued) - Columbia U.S. Treasury Index
Fund
Year Ended March 31,
2007 2006
Changes in Shares Class A:
Subscriptions 315,530 284,145
Issued for distributions reinvested 10,511 12,720
Redemptions (135,801) (299,053)
------------------------------------ ---------- ----------
Net Increase (Decrease) 190,240 (2,188)
Class B:
Subscriptions 33,772 51,875
Issued for distributions reinvested 4,468 3,853
Redemptions (51,444) (36,604)
------------------------------------ ---------- ----------
Net Increase (Decrease) (13,204) 19,124
Class C:
Subscriptions 67,302 73,666
Issued for distributions reinvested 3,362 3,108
Redemptions (79,758) (56,379)
------------------------------------ ---------- ----------
Net Increase (Decrease) (9,094) 20,395
Class Z:
Subscriptions 2,391,750 2,127,992
Issued for distributions reinvested 398,207 386,340
Redemptions (2,747,815) (3,618,184)
------------------------------------ ---------- ----------
Net Increase (Decrease) 42,142 (1,103,852)
See Accompanying Notes to Financial Statements.
11
Financial Highlights - Columbia U.S. Treasury Index Fund
Selected data for a share outstanding throughout each period is as follows:
Class A Shares
Period
Ended
Year Ended March 31, March 31,
-------------------------------------- 2003 (b)
2007 2006 2005 2004 (a) ---------
- -----------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.45 $10.72 $11.18 $11.25 $11.05
Income from Investment Operations:
Net investment income (c) 0.42 0.39 0.35 0.35 0.19
Net realized and unrealized gain (loss) on investments 0.12 (0.24) (0.41) 0.05 0.15
------ ------ ------ ------ ------
Total from Investment Operations 0.54 0.15 (0.06) 0.40 0.34
Less Distributions Declared to Shareholders:
From net investment income (0.46) (0.42) (0.40) (0.47) (0.14)
Net Asset Value, End of Period $10.53 $10.45 $10.72 $11.18 $11.25
Total Return (d) 5.30%(e) 1.38%(e) (0.48)% 3.70% 3.12%(f)
Ratios to Average Net Assets/Supplemental Data:
Net operating Expenses 0.60% 0.63% 0.66% 0.66% 0.65%(g)
Interest Expense --%(h) --%(h) -- -- --
Net expenses 0.60% 0.63% 0.66% 0.66% 0.65%(g)
Net investment income 4.05% 3.60% 3.22% 3.14% 4.86%(g)
Waiver/Reinbursement 0.06% 0.03% -- -- --
Portfolio turnover rate 39% 36% 44% 42% 48%
Net assets, end of period (000's) $5,235 $3,208 $3,314 $2,625 $ 477
(a)Effective October 13, 2003, the Liberty U.S. Treasury Index Fund was renamed
Columbia U.S. Treasury Index Fund.
(b)Class A shares were initially offered on November 25, 2002. Per share data
and total return reflect activity from that date.
(c)Per share data was calculated using the average shares outstanding during
the period.
(d)Total return at net asset value assuming all distributions reinvested and no
initial sales charge.
(e)Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(f)Not annualized.
(g)Annualized.
(h)Rounds to less than 0.01%.
See Accompanying Notes to Financial Statements.
12
Financial Highlights - Columbia U.S. Treasury Index Fund
Selected data for a share outstanding throughout each period is as follows:
Class B Shares
Period
Ended
Year Ended March 31, March 31,
-------------------------------------- 2003 (b)
2007 2006 2005 2004 (a) ---------
- -----------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.45 $10.72 $11.18 $11.25 $11.05
Income from Investment Operations:
Net investment income (c) 0.35 0.31 0.27 0.27 0.17
Net realized and unrealized gain (loss) on investments 0.11 (0.24) (0.41) 0.05 0.15
------ ------ ------ ------ ------
Total from Investment Operations 0.46 0.07 (0.14) 0.32 0.32
Less Distributions Declared to Shareholders:
From net investment income (0.38) (0.34) (0.32) (0.39) (0.12)
Net Asset Value, End of Period $10.53 $10.45 $10.72 $11.18 $11.25
Total Return (d) 4.52%(e) 0.62%(e) (1.23)% 2.91% 2.87%(f)
Ratios to Average Net Assets/Supplemental Data:
Net operating Expenses 1.35% 1.38% 1.41% 1.41% 1.40%(g)
Interest Expense --%(h) --%(h) -- -- --
Net expenses 1.35% 1.38% 1.41% 1.41% 1.40%(g)
Net investment income 3.31% 2.85% 2.48% 2.44% 4.25%(g)
Waiver/Reimbursement 0.06% 0.03% -- -- --
Portfolio turnover rate 39% 36% 44% 42% 48%
Net assets, end of period (000's) $1,488 $1,615 $1,451 $1,574 $ 678
(a)Effective October 13, 2003, the Liberty U.S. Treasury Index Fund was renamed
Columbia U.S. Treasury Index Fund.
(b)Class B shares were initially offered on November 25, 2002. Per share data
and total return reflect activity from that date.
(c)Per share data was calculated using the average shares outstanding during
the period.
(d)Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(e)Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(f)Not annualized.
(g)Annualized.
(h)Rounds to less than 0.01%.
See Accompanying Notes to Financial Statements.
13
Financial Highlights - Columbia U.S. Treasury Index Fund
Selected data for a share outstanding throughout each period is as follows:
Class C Shares
Period
Ended
Year Ended March 31, March 31,
-------------------------------------- 2003 (b)
2007 2006 2005 2004 (a) ---------
- -----------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.45 $10.72 $11.18 $11.25 $11.05
Income from Investment Operations:
Net investment income (c) 0.36 0.32 0.29 0.28 0.27
Net realized and unrealized gain (loss) on investments 0.12 (0.23) (0.41) 0.06 0.05
------ ------ ------ ------ ------
Total from Investment Operations 0.48 0.09 (0.12) 0.34 0.32
Less Distributions Declared to Shareholders:
From net investment income (0.40) (0.36) (0.34) (0.41) (0.12)
Net Asset Value, End of Period $10.53 $10.45 $10.72 $11.18 $11.25
Total Return (d)(e) 4.67% 0.77% (1.07)% 3.07% 2.92%(f)
Ratios to Average Net Assets/Supplemental Data:
Net operating Expenses 1.20% 1.23% 1.26% 1.26% 1.25%(g)
Interest Expense --%(h) --%(h) -- -- --
Net expenses 1.20% 1.23% 1.26% 1.26% 1.25%(g)
Net investment income 3.44% 3.01% 2.67% 2.56% 6.87%(g)
Waiver/Reimbursement 0.21% 0.18% 0.15% 0.15% 0.15%(g)
Portfolio turnover rate 39% 36% 44% 42% 48%
Net assets, end of period (000's) $ 973 $1,060 $ 869 $1,843 $ 414
(a)Effective October 13, 2003, the Liberty U.S. Treasury Index Fund was renamed
Columbia U.S. Treasury Index Fund.
(b)Class C shares were initially offered on November 25, 2002. Per share data
and total return reflect activity from that date.
(c)Per share data was calculated using the average shares outstanding during
the period.
(d)Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(e)Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(f)Not annualized.
(g)Annualized.
(h)Rounds to less than 0.01%.
See Accompanying Notes to Financial Statements.
14
Financial Highlights - Columbia U.S. Treasury Index Fund
Selected data for a share outstanding throughout each period is as follows:
Class Z Shares
Year Ended March 31,
-------------------------------------------------------
2007 2006 2005 2004 (a) 2003 (b)
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.45 $ 10.72 $ 11.18 $ 11.26 $ 10.40
Income from Investment Operations:
Net investment income (c) 0.45 0.41 0.38 0.39 0.46
Net realized and unrealized gain (loss) on investments 0.12 (0.23) (0.41) 0.03 0.90
-------- -------- -------- -------- --------
Total from Investment Operations 0.57 0.18 (0.03) 0.42 1.36
Less Distributions Declared to Shareholders:
From net investment income (0.49) (0.45) (0.43) (0.50) (0.50)
Net Asset Value, End of Period $ 10.53 $ 10.45 $ 10.72 $ 11.18 $ 11.26
Total Return (d)(e) 5.53% 1.62% (0.25)% 3.85% 13.28%
Ratios to Average Net Assets/Supplemental Data:
Net operating Expenses 0.38% 0.39% 0.42% 0.42% 0.42%
Interest Expense --%(f) --%(f) -- -- --
Net expenses 0.38% 0.39% 0.42% 0.42% 0.42%
Net investment income 4.28% 3.83% 3.47% 3.49% 4.21%
Waiver/Reimbursement 0.07% 0.04% 0.01% 0.01% --%(f)
Portfolio turnover rate 39% 36% 44% 42% 48%
Net assets, end of period (000's) $138,132 $136,609 $151,969 $177,714 $183,042
(a)Effective October 13, 2003, the Liberty U.S. Treasury Index Fund was renamed
Columbia U.S. Treasury Index Fund.
(b)On November 25, 2002, the Galaxy II U.S. Treasury Index Fund was renamed
Liberty U.S. Treasury Index Fund, Class Z shares.
(c)Per share data was calculated using the average shares outstanding during
the period.
(d)Total return at net asset value assuming all distributions reinvested.
(e)Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(f)Rounds to less than 0.01%.
See Accompanying Notes to Financial Statements.
15
Notes to Financial Statements - Columbia U.S. Treasury Index Fund
March 31, 2007
Note 1. Organization
Columbia U.S. Treasury Index Fund (the "Fund"), a series of Columbia Funds
Series Trust I (the "Trust"), is a diversified portfolio. The Trust is a
Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
Investment Goal
The Fund seeks to provide investment results that, before deduction of
operating expenses, match the price and yield performance of the Citigroup Bond
U.S. Treasury Index.
Fund Shares
The Fund may issue an unlimited number of shares and offers four classes of
shares: Class A, Class B, Class C and Class Z. Each share class has its own
sales charge and expense structure.
Class A shares are subject to a maximum front-end sales charge of 4.75% based
on the amount of initial investment. Class B shares are subject to a maximum
contingent deferred sales charge ("CDSC") of 5.00% based upon the holding
period after purchase. Class B shares will convert to Class A shares eight
years after purchase. Class C shares are subject to a 1.00% CDSC on shares sold
within one year after purchase. Class Z shares are offered continuously at net
asset value. There are certain restrictions on the purchase of Class Z shares,
as described in the Fund's prospectus.
Note 2. Significant Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP") requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
Security Valuation
Debt securities generally are valued by pricing services approved by the Fund's
Board of Trustees, based upon market transactions for normal,
institutional-size trading units of similar securities. The services may use
various pricing techniques which take into account appropriate factors such as
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other data, as well as broker quotes. Debt securities for which quotations
are readily available are valued at an over-the-counter or exchange bid
quotation.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Investments for which market quotations are not readily available, or that have
quotations which management believes are not appropriate, are valued at fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees. If a
security is valued at a "fair value", such value is likely to be different from
the last quoted market price for the security.
In September 2006, Statement of Financial Accounting Standards No. 157, Fair
Value Measurements ("SFAS 157"), was issued. SFAS 157 is effective for fiscal
years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is evaluating the impact the application of
SFAS 157 will have on the Fund's financial statement disclosures.
Security Transactions
Security transactions are accounted for on the trade date. Cost is determined
and gains (losses) are based upon the specific identification method for both
financial statement and federal income tax purposes.
Repurchase Agreements
The Fund may engage in repurchase agreement transactions with institutions that
Columbia Management Advisors, LLC ("Columbia") has determined are creditworthy.
The Fund, through its custodian, receives delivery of underlying securities
collateralizing a repurchase agreement. Columbia is responsible for determining
that collateral is at least equal, at all times, to the value of the repurchase
obligation including interest. A repurchase agreement transaction involves
certain risks in the event of default or insolvency of the counterparty. These
risks include possible delays or
16
Columbia U.S. Treasury Index Fund
March 31, 2007
restrictions upon the Fund's ability to dispose of the underlying securities
and a possible decline in the value of the underlying securities during the
period while the Fund seeks to assert its rights.
Income Recognition
Interest income is recorded on the accrual basis. Premium and discount are
amortized and accreted, respectively, on all debt securities. Corporate actions
and dividend income are recorded on the ex-date.
Determination of Class Net Asset Values
All income, expenses (other than class-specific expenses, as shown on the
Statement of Operations) and realized and unrealized gains (losses) are
allocated to each class of the Fund on a daily basis for purposes of
determining the net asset value of each class. Income and expenses are
allocated to each class based on the settled shares method, while realized and
unrealized gains (losses) are allocated based on the relative net assets of
each class.
Federal Income Tax Status
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code, as amended, and will distribute
substantially all of its taxable income, if any, for its tax year, and as such
will not be subject to federal income taxes. In addition, the Fund intends to
distribute in each calendar year substantially all of its net investment
income, capital gains and certain other amounts, if any, such that the Fund
should not be subject to federal excise tax. Therefore, no federal income or
excise tax provision is recorded.
Distributions to Shareholders
Distributions to shareholders are recorded on the
ex-date. Dividends from net investment income are declared daily and paid
monthly. Net realized capital gains, if any, are distributed at least annually.
Indemnification
In the normal course of business, the Fund enters into contracts that contain a
variety of representations and warranties and which provide general
indemnities. The Fund's maximum exposure under these arrangements is unknown,
as this would involve future claims against the Fund. Also, under the Fund's
organizational documents and by contract, the trustees and officers of the
Trust are indemnified against certain liabilities that may arise out of their
duties to the Trust. However, based on experience, the Fund expects the risk of
loss due to these representations, warranties and indemnities to be minimal.
Note 3. Federal Tax Information
The timing and character of income and capital gain distributions are
determined in accordance with income tax regulations, which may differ from
GAAP. Reclassifications are made to the Fund's capital accounts for permanent
tax differences to reflect income and gains available for distribution (or
available capital loss carryforwards) under income tax regulations.
For the year ended March 31, 2007, permanent book and tax basis differences
resulting primarily from differing treatments for discount accretion/premium
amortization on debt securities and market discount reclasses were identified
and reclassified among the components of the Fund's net assets as follows:
Overdistributed Accumulated
Net Investment Net Realized Paid-In
Income Loss Capital
$760,089 $(760,089) $--
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended March 31, 2007
and March 31, 2006 was as follows:
March 31, March 31,
2007 2006
Distributions paid from:
Ordinary Income* $6,451,677 $6,344,379
*For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
17
Columbia U.S. Treasury Index Fund
March 31, 2007
As of March 31, 2007, the components of distributable earnings on a tax basis
were as follows:
Undistributed Undistributed Net
Ordinary Long-term Unrealized
Income Capital Gains Depreciation*
$198,020 $-- $(157,859)
*The differences between book-basis and tax-basis net unrealized depreciation
are primarily due to deferral of losses from wash sales and differing
treatment for discount accretion/premium amortization on debt securities.
Unrealized appreciation and depreciation at March 31, 2007, based on cost of
investments for federal income tax purposes was:
Unrealized appreciation $ 1,724,575
Unrealized depreciation (1,882,434)
Net unrealized depreciation $ (157,859)
The following capital loss carryforwards, determined as of March 31, 2007, may
be available to reduce taxable income arising from future net realized gains on
investments, if any, to the extent permitted by the Internal Revenue Code:
Year of Expiration Capital Loss Carryforward
2009 $ 388,326
2013 151,924
2014 790,826
2015 1,853,769
Total $ 3,184,845
Under current tax rules, certain currency and capital losses realized after
October 31 may be deferred and treated as occurring on the first day of the
following fiscal year. As of March 31, 2007, post-October capital losses of
$379,673 attributed to security transactions were deferred to April 1, 2007.
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109 (the "Interpretation"). This
Interpretation is effective on the last business day of the semiannual
reporting period for fiscal years beginning after December 15, 2006 and is to
be applied to open tax positions upon initial adoption. This Interpretation
prescribes a minimum recognition threshold and measurement method for the
financial statement recognition of tax positions taken or expected to be taken
in a tax return and also requires certain expanded disclosures. Management is
evaluating the application of this Interpretation to the Fund and has not at
this time quantified the impact, if any, resulting from the adoption of this
Interpretation on the Fund's financial statements.
Note 4. Fees and Compensation Paid to Affiliates
Investment Advisory Fee
Columbia, an indirect, wholly-owned subsidiary of Bank of America Corporation
("BOA"), is the investment advisor to the Fund. Columbia receives a monthly
investment advisory fee at the annual rate of 0.10% of the Fund's average daily
net assets.
Administration Fee
Columbia provides administrative services to the Fund pursuant to an
administrative services agreement. Columbia, from the administration fee it
receives from the Fund, pays all expenses of the Fund, except the fees and
expenses of the Trustees who are not interested persons, service and
distribution fees, brokerage fees and commissions, annual sub-account fees
payable with respect to shares of the Fund held by defined contribution plans,
interest on borrowings, taxes and such extraordinary, non-recurring expenses as
may arise, including litigation expenses. Columbia receives a monthly
administration fee for its services as administrator at the annual rate of
0.30% of the average daily net assets of the Fund.
Underwriting Discounts, Service and Distribution Fees
Columbia Management Distributors, Inc. (the "Distributor"), an affiliate of
Columbia and an indirect, wholly-owned subsidiary of BOA, is the principal
underwriter of the Fund. For the year ended March 31, 2007, the Distributor has
retained net underwriting discounts $5,992 on sales of the Fund's Class A
shares and net CDSC fees of $0, $5,923 and $0 on Class A, Class B and Class C
share redemptions, respectively.
18
Columbia U.S. Treasury Index Fund
March 31, 2007
The Fund has adopted a Rule 12b-1 plan (the "Plan"), which allows the payment
of a monthly service fee to the Distributor at the annual rate of 0.25% of the
average daily net assets attributable to Class A, Class B and Class C shares of
the Fund. The Plan also requires the payment of a monthly distribution fee to
the Distributor equal to 0.75% annually of the average daily net assets
attributable to Class B and Class C shares only. The Distributor has
voluntarily agreed to waive a portion of the 12b-1 fees for Class C shares of
the Fund so that these fees do not exceed 0.85% annually of the average daily
net assets attributable to Class C shares. This arrangement may be modified or
terminated by the Distributor at any time.
The CDSC and the distribution 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.
Sub-Account Services Fee
The Trust may enter into agreements with one or more entities, including
affiliates of Columbia, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") for a
fee of $21.00 per-account with respect to Class Z shares of the Fund held by
defined contribution plans. Such entities are compensated by the Fund for the
Sub-Account Services. For the year ended March 31, 2007, the Administrator
reimbursed the Fund for sub-account service fees in the amount of $13,333 for
the Fund.
Fee Waivers
Columbia has voluntarily agreed to waive fees and reimburse the Fund for
certain expenses to the extent that total expenses (exclusive of distribution
and service fees, sub account service fees, brokerage commissions, interest,
taxes and extraordinary expenses, if any) exceed the annual rate of 0.35% of
the Fund's average daily net assets. Columbia, at its discretion, may revise or
discontinue this arrangement at any time.
Fees Paid to Officers and Trustees
All officers of the Fund are employees of Columbia or its affiliates and, with
the exception of the Fund's Chief Compliance Officer, receive no compensation
from the Fund. The Board of Trustees has appointed a Chief Compliance Officer
to the Fund in accordance with federal securities regulations. The Fund, along
with other affiliated funds, pays its pro-rata share of the expenses associated
with the Chief Compliance Officer. The Fund's expenses for the Chief Compliance
Officer will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may
be terminated at any time. Obligations of the plan will be paid solely out of
the Fund's assets.
Other
Columbia provides certain services to the Fund related to the requirements of
the Sarbanes-Oxley Act of 2002. The fees for such services are included as part
of the administration fee.
Note 5. Portfolio Information
For the year ended March 31, 2007, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $54,715,213 and
$53,371,320 respectively, all of which were U.S. Government securities.
Note 6. Line of Credit
The Trust and other affiliated funds participate in a $350,000,000 committed
unsecured revolving line of credit and a $150,000,000 uncommitted, unsecured
line of credit, both provided by State Street. Borrowings are available for
temporary or emergency purposes.
Interest on the committed line of credit is charged to each participating fund
based on the fund's borrowings at a rate per annum equal to the Federal Funds
Rate plus 0.50%. In addition, a commitment fee of 0.10% per annum is accrued
and apportioned among the participating funds based on their pro-rata portion
of the unutilized committed line of credit. Interest on the uncommitted line of
credit is charged to each participating fund based on the fund's borrowings at
a variable rate per annum equal to the Federal Funds Rate plus a spread, as
determined and quoted by State Street at the time of the request for a loan. A
one-time structuring fee of $30,000 is also accrued and apportioned to each
fund participating in the uncommitted line of credit based on the average net
assets of the participating funds. In addition, if the uncommitted line of
credit is extended for an additional period, an annual administration fee of
$15,000 will be charged and apportioned among the participating fund. The
commitment fee and structuring fee are included in "Other expenses" in the
Statement of Operations.
19
Columbia U.S. Treasury Index Fund
March 31, 2007
For the year ended March 31, 2007, the average daily loan balance outstanding
on days where borrowing existed was $1,000,000 at a weighted average interest
rate of 5.60%
Note 7. Shares of Beneficial Interest
As of March 31, 2007, one shareholder held 32.4% of the shares outstanding. The
shares were beneficially owned by participant accounts over which BOA and/or
its affiliates had either sole or joint investment discretion. Subscription and
redemption activity of these accounts may have a significant effect on the
operations of the Fund.
Note 8. Securities Lending
The Fund commenced a securities lending program in August 2006 and may lend its
securities to certain approved brokers, dealers and other financial
institutions. Each loan is collateralized by cash, in an amount at least equal
to the market value of the securities loaned plus accrued income from the
investment of collateral. The market value of the loaned securities is
determined at the close of business of the Fund and any additional required
collateral is delivered to the Fund on the next business day. The collateral
received is invested and the income generated by the investment of the
collateral, net of any fees remitted to State Street as the lending agent and
borrower rebates, is paid to the Fund. Generally, in the event of borrower
default, the Fund has the right to use the collateral to offset any losses
incurred. In the event the Fund is delayed or prevented from exercising its
right to dispose of the collateral, there may be a potential loss to the Fund.
The Fund bears the risk of loss with respect to the investment of collateral.
Note 9. Disclosure of Significant Risks and Contingencies
Legal Proceedings
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged
into Banc of America Capital Management, LLC (now named Columbia Management
Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has
been renamed Columbia Management Distributors, Inc.) (the "Distributor")
(collectively, the "Columbia Group") entered into an Assurance of
Discontinuance with the New York Attorney General ("NYAG") (the "NYAG
Settlement") and consented to the entry of a cease-and-desist order by the
Securities and Exchange Commission ("SEC") (the "SEC Order") on matters
relating to mutual fund trading. The SEC Order and the NYAG Settlement are
referred to collectively as the "Settlements".
Under the terms of the SEC Order, the Columbia Group agreed, among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution
consultant (see below). The Columbia Funds have also voluntarily undertaken to
implement certain governance measures designed to maintain the independence of
their boards of trustees. The NYAG Settlement also, among other things,
requires Columbia and its affiliates to reduce management fees for certain
Columbia Funds (including the former Nations Funds) and other mutual funds
collectively by $32 million per year for five years, for a projected total of
$160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan that was developed by an independent distribution consultant
and approved by the SEC on April 6, 2007.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov.
A copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with the events described above, various parties have filed suit
against certain funds, the Trustees of the Columbia Funds, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America and
its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation
transferred these cases and cases against other mutual fund companies based on
similar allegations to the United States District Court in Maryland for
consolidated or coordinated pretrial proceedings (the ''MDL''). Subsequently,
additional related cases were transferred to the MDL. On September 29, 2004,
the plaintiffs in the MDL filed amended and consolidated complaints. One of
these amended complaints is a putative class action that includes
20
Columbia U.S. Treasury Index Fund
March 31, 2007
claims under the federal securities laws and state common law, and that names
Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America
Corporation and others as defendants. Another of the amended complaints is a
derivative action purportedly on behalf of the Columbia Funds that asserts
claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss
the claims in the pending cases. On March 1, 2006, for reasons stated in the
court's memoranda dated November 3, 2005, the U.S. District Court for the
District of Maryland granted in part and denied in part the defendants' motions
to dismiss. The court dismissed all of the class action claims pending against
the Columbia Funds Trusts. As to Columbia and the Distributor, the claims under
the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the
Investment Company Act of 1940 ("ICA") and the state law claims were dismissed.
The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and claims under Section 36(b) of the ICA were not dismissed.
On March 21, 2005, a purported class action was filed in Massachusetts state
court alleging that certain conduct, including market timing, entitled Class B
shareholders in certain Columbia funds to an exemption from contingent deferred
sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit was
removed to federal court in Massachusetts and the federal Judicial Panel
transferred the CDSC Lawsuit to the MDL.
On April 4, 2006, the plaintiffs and the Columbia defendants named in the MDL,
including the Columbia Funds, entered into a term sheet containing the
principal terms of a stipulation of settlement that would settle all
Columbia-related claims in the MDL described above, including the CDSC Lawsuit.
On April 6, 2006, the U.S. District Court for the District of Maryland stayed
all actions with respect to these Columbia-related claims. The settlement is
subject to court approval.
In 2004, the Columbia Funds' adviser and distributor and certain affiliated
entities and individuals were named as defendants in certain purported
shareholder class and derivative actions making claims, including claims under
the Investment Company and the Investment Advisers Acts of 1940 and state law.
Certain Columbia Funds were named as nominal defendants. The suits allege,
inter alia, that the fees and expenses paid by the funds are excessive and that
the advisers and their affiliates inappropriately used fund assets to
distribute the funds and for other improper purposes. On March 2, 2005, the
actions were consolidated in the Massachusetts federal court as In re Columbia
Entities Litigation. The plaintiffs filed a consolidated amended complaint on
June 9, 2005. On November 30, 2005, the judge dismissed all claims by
plaintiffs and entered final judgment in favor of the defendants. The
plaintiffs appealed to the United States Court of Appeals for the First Circuit
on December 30, 2005. A stipulation and settlement agreement dated January 19,
2007 was filed in the First Circuit on February 14, 2007, with a joint
stipulation of dismissal and motion for remand to obtain district court
approval of the settlement. That joint motion was granted and the appeal was
dismissed. On March 6, 2007, the case was remanded to the District Court. On
May 11, 2007, the District Court entered a preliminary approval order which
granted preliminary approval of the settlement. A final settlement hearing, at
which the District Court will determine whether the proposed settlement should
be finally approved and the action dismissed on the merits with prejudice, is
scheduled for September 18, 2007. The terms of the settlement, if finally
approved, will require payments by the funds' adviser and/or its affiliates,
including payment of plaintiffs' attorneys' fees and notice to class members.
In the event that the settlement is not finally approved, the plaintiffs may
elect to go forward with their appeal and no opinion is expressed regarding the
likely outcome or financial impact of such an appeal on any fund.
21
Report Of Independent Registered Public Accounting Firm
To the Trustees of Columbia Funds Series Trust I and the Shareholders of
Columbia U.S. Treasury Index Fund
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Columbia U.S. Treasury Index Fund
(the "Fund") (a series of Columbia Funds Series Trust I) at March 31, 2007, and
the results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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 March 31, 2007 by correspondence with the
custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 25, 2007
22
Fund Governance - Columbia U.S. Treasury Index Fund
The Trustees serve terms of indefinite duration. The names, addresses and ages
of the Trustees and officers of the Funds of Columbia Funds Series Trust I, 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.
Independent Trustees
Name, address and year of birth, Principal occupation(s) during past five years, Number
Position with funds, Year first of portfolios in Columbia Funds Complex overseen by
elected or appointed to office/1/ trustee, Other directorships held
Douglas A. Hacker (Born 1955)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Independent business executive since May, 2006;
Advisors, LLC Executive Vice President-Strategy of United Airlines
One Financial Center (airline) from December, 2002 to May, 2006; President
Boston, MA 02111 of UAL Loyalty Services (airline marketing company)
Trustee (since 1996) from September, 2001 to December, 2002; Executive Vice
President and Chief Financial Officer of United
Airlines from July, 1999 to September, 2001. Oversees
75, Nash Finch Company (food distributor); Aircastle
Limited (aircraft leasing)
Janet Langford Kelly (Born 1957)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Deputy General Counsel-Corporate Legal Services,
Advisors, LLC ConocoPhillips (integrated petroleum company) since
One Financial Center August, 2006; Partner, Zelle, Hofmann, Voelbel, Mason
Boston, MA 02111 & Gette LLP (law firm) from March, 2005 to July, 2006;
Trustee (since 1996) Adjunct Professor of Law, Northwestern University,
from September, 2004 to June, 2006, Director, UAL
Corporation (airline) from February, 2006 to July,
2006; Chief Administrative Officer and Senior Vice
President, Kmart Holding Corporation (consumer goods),
from September, 2003 to March, 2004; Executive Vice
President-Corporate Development and Administration,
General Counsel and Secretary, Kellogg Company (food
manufacturer), from September, 1999 to August, 2003.
Oversees 75, None
Richard W. Lowry (Born 1936)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Private Investor since August, 1987 (formerly Chairman
Advisors, LLC and Chief Executive Officer, U.S. Plywood Corporation
One Financial Center (building products manufacturer) until 1987). Oversees
Boston, MA 02111 75, None
Trustee (since 1995)
Charles R. Nelson (Born 1943)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Professor of Economics, University of Washington,
Advisors, LLC since January, 1976; Ford and Louisa Van Voorhis
One Financial Center Professor of Political Economy, University of
Boston, MA 02111 Washington, since September, 1993; Director, Institute
Trustee (since 1981) for Economic Research, University of Washington from
September, 2001 to June, 2003; Adjunct Professor of
Statistics, University of Washington, since September,
1980; Associate Editor, Journal of Money Credit and
Banking, since September, 1993; Consultant on
econometric and statistical matters. Oversees 75, None
23
Fund Governance (continued) - Columbia U.S. Treasury Index Fund
Independent Trustees
Name, address and year of birth, Principal occupation(s) during past five years, Number
Position with funds, Year first of portfolios in Columbia Funds Complex overseen by
elected or appointed to office/1/ trustee, Other directorships held
John J. Neuhauser (Born 1942)
- --------------------------------------------------------------------------------------------
c/o Columbia Management University Professor, Boston College since November,
Advisors, LLC 2005; Academic Vice President and Dean of Faculties,
One Financial Center Boston College from August, 1999 to October, 2005.
Boston, MA 02111 Oversees 75, None
Trustee (since 1985)
Patrick J. Simpson (Born 1944)
- --------------------------------------------------------------------------------------------
c/o Columbia Management Partner, Perkins Coie LLP (law firm). Oversees 75, None
Advisors, LLC
One Financial Center
Boston, MA 02111
Trustee (since 2000)
Thomas E. Stitzel (Born 1936)
- --------------------------------------------------------------------------------------------
c/o Columbia Management Business Consultant since 1999; Chartered Financial
Advisors, LLC Analyst. Oversees 75, None
One Financial Center
Boston, MA 02111
Trustee (since 1998)
Thomas C. Theobald (Born 1937)
- --------------------------------------------------------------------------------------------
c/o Columbia Management Partner and Senior Advisor, Chicago Growth Partners
Advisors, LLC (private equity investing) since September, 2004;
One Financial Center Managing Director, William Blair Capital Partners
Boston, MA 02111 (private equity investing) from September, 1994 to
Trustee and Chairman of the Board/2/ September, 2004. Oversees 75, Anixter International
(since 1996) (network support equipment distributor); Ventas, Inc.
(real estate investment trust); Jones Lang LaSalle
(real estate management services); Ambac Financial
Group (financial guaranty insurance)
Anne-Lee Verville (Born 1945)
- --------------------------------------------------------------------------------------------
c/o Columbia Management Retired since 1997 (formerly General Manager, Global
Advisors, LLC Education Industry, IBM Corporation (computer and
One Financial Center technology) from 1994 to 1997). Oversees 75, None
Boston, MA 02111
Trustee (since 1998)
24
Fund Governance (continued) - Columbia U.S. Treasury Index Fund
Interested Trustee
Name, address and year of birth, Principal occupation(s) during past five years, Number
Position with funds, Year first of portfolios in Columbia Funds Complex overseen by
elected or appointed to office/1/ trustee, Other directorships held
William E. Mayer (Born 1940)
- -----------------------------------------------------------------------------------------
c/o Columbia Management Partner, Park Avenue Equity Partners (private equity)
Advisors, LLC since February, 1999; Dean and Professor, College of
One Financial Center Business, University of Maryland, 1992 to 1997.
Boston, MA 02111 Oversees 75, Lee Enterprises (print media), WR
Trustee/3/ (since 1994) Hambrecht + Co. (financial service provider); Reader's
Digest (publishing)
/1/In December 2000, the boards of each of the former Liberty Funds and former
Stein Roe Funds were combined into one board of trustees responsible for the
oversight of both fund groups (collectively, the "Liberty Board"). In
October 2003, the trustees on the Liberty Board were elected to the boards
of the Columbia Funds (the "Columbia Board") and of the CMG Fund Trust (the
"CMG Funds Board"); simultaneous with that election, Patrick J. Simpson who
had been a director on the Columbia Board and trustee on the CMG Funds
Board, was appointed to serve as trustee 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. Theobald was appointed as Chairman of the Board effective December 10,
2003.
/3/Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940) by reason of his affiliation with WR Hambrecht + Co.
The Statement of Additional Information includes additional information about
the Trustees of the Fund and is available, without charge, upon request by
calling 800-345-6611.
25
Fund Governance (continued) - Columbia U.S. Treasury Index Fund
Officers
Name, address and year of birth, Principal occupation(s) during past five years
Position with Columbia Funds, Year
first elected or appointed to office
Christopher L. Wilson (Born 1957)
- --------------------------------------------------------------------------------------------
One Financial Center President - Columbia Funds, since October 2004;
Boston, MA 02111 Managing Director - Columbia Management Advisors, LLC,
President (since 2004) since September 2004; Senior Vice President - Columbia
Management Distributors, Inc., since January 2005;
Director - Columbia Management Services, Inc., since
January 2005; Director - Bank of America Global
Liquidity Funds, plc and Banc of America Capital
Management (Ireland), Limited, since May 2005;
Director - FIM Funding, Inc., since January 2005;
President and Chief Executive Officer - CDC IXIS AM
Services, Inc. (asset management), from September 1998
through August 2004; and a senior officer or director
of various other Bank of America-affiliated entities,
including other registered and unregistered funds.
James R. Bordewick, Jr. (Born 1959)
- --------------------------------------------------------------------------------------------
One Financial Center Associate General Counsel, Bank of America since
Boston, MA 02111 April, 2005; Senior Vice President and Associate
Senior Vice President, Secretary General Counsel, MFS Investment Management (investment
and Chief Legal Officer (since 2006) management) prior to April, 2005.
J. Kevin Connaughton (Born 1964)
- --------------------------------------------------------------------------------------------
One Financial Center Treasurer - Columbia Funds, since October 2003;
Boston, MA 02111 Treasurer - the Liberty Funds, Stein Roe Funds and
Senior Vice President, Chief Liberty All-Star Funds, December 2000 - December 2006;
Financial Officer and Treasurer Vice President - Columbia Management Advisors, Inc.,
(since 2000) since April 2003; President - Columbia Funds, Liberty
Funds and Stein Roe Funds, February 2004 to October
2004; Treasurer - Galaxy Funds, September 2002 to
December 2005; Treasurer, December 2002 to December
2004, and President, February 2004 to December 2004 -
Columbia Management Multi-Strategy Hedge Fund, LLC;
and a senior officer of various other Bank of
America-affiliated entities, including other
registered and unregistered funds.
Linda J. Wondrack (Born 1964)
- --------------------------------------------------------------------------------------------
One Financial Center Director (Columbia Management Group LLC and Investment
Boston, MA 02111 Product Group Compliance), Bank of America since June
Senior Vice President, Chief 2005; Director of Corporate Compliance and Conflicts
Compliance Officer (since 2007) Officer, MFS Investment Management (investment
management), August 2004 to May 2005; Managing
Director, Deutsche Asset Management (investment
management) prior to August 2004.
Michael G. Clarke (Born 1969)
- --------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Managing Director of the Advisor
Chief Accounting Officer and September, 2004 to December, 2005; Vice President Fund
Assistant Treasurer (since 2004) Administration of the Advisor June, 2002 to September,
2004. Vice President Product Strategy and Development
of the Advisor from February, 2001 to June, 2002.
Jeffrey R. Coleman (Born 1969)
- --------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Fund Controller of the Advisor from
Deputy Treasurer (since 2006) October 2004 to January 2006; Vice President of CDC
IXIS Asset Management Services, Inc. (investment
management) from August, 2000 to September, 2004.
26
Fund Governance (continued) - Columbia U.S. Treasury Index Fund
Officers
Name, address and year of birth, Principal occupation(s) during past five years
Position with Columbia Funds, Year
first elected or appointed to office
Joseph F. DiMaria (Born 1968)
- --------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Head of Tax/Compliance and Assistant
Deputy Treasurer (since 2006) Treasurer of the Advisor from November, 2004 to
December, 2005; Director of Trustee Administration
(Sarbanes-Oxley) of the Advisor from May, 2003 to
October, 2004; Senior Audit Manager,
PricewaterhouseCoopers (independent registered public
accounting firm) from July, 2000 to April, 2003.
Ty S. Edwards (Born 1966)
- --------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Vice President of the Advisor from
Deputy Treasurer (since 2006) July, 2002 to December, 2005; Assistant Vice President
and Director, State Street Corporation (financial
services) prior to 2002.
Barry S. Vallan (Born 1969)
- --------------------------------------------------------------------------------------------
One Financial Center Vice President-Fund Treasury of the Advisor since
Boston, MA 02111 October, 2004; Vice President-Trustee Reporting of the
Controller (since 2006) Advisor from April, 2002 to October, 2004; Management
Consultant, PricewaterhouseCoopers (independent
registered public accounting firm) prior to October,
2002.
27
Board Consideration and Approval of
Investment Advisory Agreements
The Advisory Fees and Expenses Committee of the Board of Trustees meets one or
more times annually to review the advisory agreements (collectively, the
"Agreements") of the funds for which the Trustees serve as trustees (each a
"fund") and determine whether to recommend that the full Board approve the
continuation of the Agreements for an additional one-year period. After the
Committee has made its recommendation, the full Board, including the
Independent Trustees, determines whether to approve the continuation of the
Agreements. In addition, the Board, including the Independent Trustees,
considers matters bearing on the Agreements at most of its other meetings
throughout the year and meets regularly with the heads of each investment area
within Columbia. Through the Board's Investment Oversight Committees, Trustees
also meet with selected fund portfolio managers at various times throughout the
year.
The Trustees receive and review all materials that they, their legal counsel or
Columbia, the funds' investment adviser, believe to be reasonably necessary for
the Trustees to evaluate the Agreements and determine whether to approve the
continuation of the Agreements. Those materials generally include, among other
items, (i) information on the investment performance of each fund relative to
the performance of peer groups of mutual funds and the fund's performance
benchmarks, (ii) information on each fund's advisory fees and other expenses,
including information comparing the fund's expenses to those of peer groups of
mutual funds and information about any applicable expense caps and fee
"breakpoints," (iii) information about the profitability of the Agreements to
Columbia, including potential "fall-out" or ancillary benefits that Columbia
and its affiliates may receive as a result of their relationships with the
funds and (iv) information obtained through Columbia's response to a
questionnaire prepared at the request of the Trustees by counsel to the funds
and independent legal counsel to the Independent Trustees. The Trustees also
consider other information such as (v) Columbia's financial results and
financial condition, (vi) each fund's investment objective and strategies and
the size, education and experience of Columbia's investment staffs and their
use of technology, external research and trading cost measurement tools, (vii)
the allocation of the funds' brokerage, if any, and the use of "soft"
commission dollars to pay for research products and services, (viii) Columbia's
resources devoted to, and its record of compliance with, the funds' investment
policies and restrictions, policies on personal securities transactions and
other compliance policies, (ix) Columbia's response to various legal and
regulatory proceedings since 2003 and (x) the economic outlook generally and
for the mutual fund industry in particular. In addition, the Advisory Fees and
Expenses Committee confers with the funds' independent fee consultant and
reviews materials relating to the funds' relationships with Columbia provided
by the independent fee consultant. Throughout the process, the Trustees have
the opportunity to ask questions of and request additional materials from
Columbia and to consult with independent legal counsel to the Independent
Trustees and the independent fee consultant.
The Board of Trustees most recently approved the continuation of the Agreements
at its October, 2006 meeting, following meetings of the Advisory Fees and
Expenses Committee held in August, September and October, 2006. In considering
whether to approve the continuation of the Agreements, the Trustees, including
the Independent Trustees, did not identify any single factor as determinative,
and each weighed various factors as he or she deemed appropriate. The Trustees
considered the following matters in connection with their approval of the
continuation of the Agreements:
The nature, extent and quality of the services provided to the funds under the
Agreements. The Trustees considered the nature, extent and quality of the
services provided by Columbia and its affiliates to the funds and the resources
dedicated to the funds by Columbia and its affiliates. Among other things, the
Trustees considered (i) Columbia's ability (including its personnel and other
resources, compensation programs for personnel involved in fund management,
reputation and other attributes) to attract and retain highly qualified
research, advisory and supervisory investment professionals; (ii) the portfolio
management services provided by those investment professionals; and (iii) the
trade execution services provided on behalf of the funds. For each fund, the
Trustees also considered the benefits to shareholders of investing in a mutual
fund that is part of a family of funds offering exposure to a variety of asset
classes and investment disciplines and providing a variety of fund and
shareholder services. After reviewing those and related factors, the Trustees
concluded, within the context of their overall conclusions regarding each of
the Agreements, that the nature, extent and quality of services provided
supported the continuation of the Agreements.
28
Investment performance of the funds and Columbia. The Trustees reviewed
information about the performance of each fund over various time periods,
including information prepared by an independent third party that compared the
performance of each fund to the performance of peer groups of mutual funds and
performance benchmarks. The Trustees also reviewed a description of the third
party's methodology for identifying each fund's peer group for purposes of
performance and expense comparisons. The Trustees also considered additional
information that the Advisory Fees and Expenses Committee requested from
Columbia relating to funds that presented relatively weaker performance and/or
relatively higher expenses.
In the case of each fund whose performance lagged that of a relevant peer group
for certain (although not necessarily all) periods, the Trustees concluded that
other factors relevant to performance were sufficient, in light of other
considerations, to warrant continuation of the fund's Agreements. Those factors
varied from fund to fund, but included one or more of the following: (i) that
the fund's performance, although lagging in certain recent periods, was
stronger over the longer term; (ii) that the underperformance was attributable,
to a significant extent, to investment decisions that were reasonable and
consistent with the fund's investment strategy and policies and that the fund
was performing as expected, given these investment decisions, market conditions
and the fund's investment strategy; (iii) that the fund's performance was
competitive when compared to other relevant performance benchmarks or peer
groups; (iv) that Columbia had taken or was taking steps designed to help
improve the fund's investment performance, including, but not limited to,
replacing portfolio managers or modifying investment strategies; and (v) that
the fund was proposed to be reorganized into another fund, and that such
reorganization would result in a reduction in fund expenses.
The Trustees also considered Columbia's performance and reputation generally,
the funds' performance as a fund family generally, and Columbia's historical
responsiveness to Trustee concerns about performance and Columbia's willingness
to take steps intended to improve performance.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
performance of each fund and Columbia was sufficient, in light of other
considerations, to warrant the continuation of the Agreement(s) pertaining to
that fund.
The costs of the services provided and profits realized by Columbia and its
affiliates from their relationships with the funds. The Trustees considered the
fees charged to the funds for advisory services as well as the total expense
levels of the funds. That information included comparisons (provided by
management and by an independent third party) of each fund's advisory fees and
total expense levels to those of the fund's peer groups and information about
the advisory fees charged by Columbia to comparable institutional accounts. In
considering the fees charged to those accounts, the Trustees took into account,
among other things, management's representations about the differences between
managing mutual funds as compared to other types of accounts, including
differences in the services provided, differences in the risk profile of such
business for Columbia, and the additional resources required to manage mutual
funds effectively. In evaluating each fund's advisory fees, the Trustees also
took into account the demands, complexity and quality of the investment
management of the fund. The Trustees considered existing advisory fee
breakpoints, and Columbia's use of advisory fee waivers and expense caps, which
benefited a number of the funds. The Trustees also noted management's stated
justification for the fees charged to the funds, which included information
about the investment performance of the funds and the services provided to the
funds. The Trustees also considered the compensation directly or indirectly
received by Columbia and its affiliates from their relationships with the
funds. The Trustees reviewed information provided by management as to the
profitability to Columbia and its affiliates of their relationships with each
fund, and information about the allocation of expenses used to calculate
profitability. When reviewing profitability, the Trustees also considered court
cases in which adviser profitability was an issue in whole or in part, the
performance of the relevant funds, the expense level of each fund, and whether
Columbia had implemented breakpoints and/or expense caps with respect to the
fund.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
advisory fees charged to each fund, and the related profitability to Columbia
and its affiliates of their relationships with the fund, supported the
continuation of the Agreement(s) pertaining to that fund.
29
Economies of Scale. The Trustees considered the existence of any economies of
scale in the provision by Columbia of services to each fund, to groups of
related funds, and to Columbia's investment advisory clients as a whole and
whether those economies were shared with the funds through breakpoints in the
investment advisory fees or other means, such as expense waivers/reductions and
additional investments by Columbia in investment, trading and compliance
resources. The Trustees noted that many of the funds benefited from
breakpoints, expense caps, or both. In considering those issues, the Trustees
also took note of the costs of the services provided (both on an absolute and a
relative basis) and the profitability to Columbia and its affiliates of their
relationships with the funds, as discussed above.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
extent to which economies of scale were shared with the funds supported the
continuation of the Agreements.
Other Factors. The Trustees also considered other factors, which included but
were not limited to the following:
.. the extent to which each fund had operated in accordance with its investment
objective and investment restrictions, the nature and scope of the compliance
programs of the funds and Columbia and the compliance-related resources that
Columbia and its affiliates were providing to the funds;
.. the nature, quality, cost and extent of administrative and shareholder
services performed by Columbia and its affiliates, both under the Agreements
and under separate agreements for the provision of transfer agency and
administrative services;
.. so-called "fall-out benefits" to Columbia and its affiliates, such as the
engagement of its affiliates to provide distribution, brokerage and transfer
agency services to the funds, and the benefits of research made available to
Columbia by reason of brokerage commissions generated by the funds'
securities transactions, as well as possible conflicts of interest associated
with those fall-out and other benefits, and the reporting, disclosure and
other processes in place to disclose and monitor those possible conflicts of
interest; and
.. the draft report provided by the funds' independent fee consultant, which
included information about and analysis of the funds' fees, expenses and
performance.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel and the independent fee consultant, the Trustees, including
the Independent Trustees, approved the continuance of each of the Agreements
through October 31, 2007.
30
Summary of Management Fee Evaluation by
Independent Fee Consultant
Prepared Pursuant to the February 9, 2005 Assurance of Discontinuance between
the Office of Attorney General of New York State and Columbia Management
Advisors, Inc. and Columbia Funds Distributor, Inc. October 11, 2006
I. Overview
Columbia Management Advisors, LLC ("CMA") and Columbia Funds Distributors,
Inc./1/ ("CFD") agreed on February 9, 2005 to the New York Attorney General's
Assurance of Discontinuance ("AOD"). Among other things, the AOD stipulates
that CMA may manage or advise a Columbia Fund ("Fund" and together with all
such funds or a group of such funds as the "Funds") only if the Independent
Members of the Fund's Board of Trustees (such Independent Members of the Fund's
Board together with the other members of the Fund's Board, referred to as the
"Trustees") appoint a Senior Officer or retain an Independent Fee Consultant
("IFC") who is to manage the process by which proposed management fees are
negotiated. The AOD further stipulates that the Senior Officer or IFC is to
prepare a written annual evaluation of the fee negotiation process.
On September 14, 2006, the Independent Members of the Funds' Boards retained me
as IFC for the Funds. In this capacity, I have prepared the second annual
written evaluation of the fee negotiation process. I am successor to the first
IFC, Erik Sirri, who prepared the annual evaluation in 2005 and who contributed
to the second annual written evaluation until his resignation as IFC in August
2006 to become Director of the Division of Market Regulation at the U.S.
Securities and Exchange Commission./2/
A. Role of the Independent Fee Consultant
The AOD charges the IFC with "managing the process by which proposed management
fees...to be charged the Columbia Fund are negotiated so that they are
negotiated in a manner which is at arms' length and reasonable and consistent
with this Assurance of Discontinuance." In this role, the IFC does not replace
the Trustees in negotiating management fees with CMA, and the IFC does not
substitute his or her judgment for that of the Trustees about the
reasonableness of proposed fees. As the AOD states, CMA "may manage or advise a
Columbia Fund only if the reasonableness of the proposed management fees is
determined by the Board of Trustees...using...an annual independent written
evaluation prepared by or under the direction of...the Independent Fee
Consultant."
B. Elements Involved in Managing the Fee Negotiation Process
Managing the fee negotiation process has three elements. One involves reviewing
the information provided by CMG to the Trustees for evaluating the proposed
management fees and augmenting that information, as necessary, with additional
information from CMG or other sources and with further analyses of the
information and data. The second element involves reviewing the information and
analysis relative to at least the following six factors set forth in the AOD:
1.The nature and quality of CMA's services, including the Fund's performance;
2.Management fees (including any components thereof) charged by other mutual
fund companies for like services;
3.Possible economies of scale as the Fund grows larger;
4.Management fees (including any components thereof) charged to institutional
and other clients of CMA for like services;
5.Costs to CMA and its affiliates of supplying services pursuant to the
management fee agreements, excluding any intra-corporate profit; and
6.Profit margins of CMA and its affiliates from supplying such services.
1CMA and CFD are subsidiaries of Columbia Management Group, Inc. ("CMG"), which
also is the parent of Columbia Management Services, Inc. ("CFS"), the Funds'
transfer agent. Before the date of this report, CMA merged into an affiliated
entity, Banc of America Capital Management, LLC, which was renamed Columbia
Management Advisors, LLC and which carries on the business of CMA. CFD also
has been renamed Columbia Management Distributors, Inc.
2I am an independent economic consultant. From August 2005 until August 2006, I
provided support to Mr. Sirri as an independent consultant. From 1994 to 2004,
I was Chief Economist at the Investment Company Institute. Earlier, I was
Section Chief and Assistant Director at the Federal Reserve Board and
Professor of Economics at Oklahoma State University. I have no material
relationship with Bank of America or CMG, aside from serving as IFC, and I am
aware of no material relationship with any of their affiliates. To assist me
with the report, I engaged NERA Economic Consulting, an independent consulting
firm that has had extensive experience in the mutual fund industry. I also
have retained Willkie Farr & Gallagher LLP as counsel to advise me in
connection with the report.
31
The final element involves providing the Trustees with a written evaluation of
the above factors as they relate to the fee negotiation process.
C. Organization of the Annual Evaluation
The 2006 annual evaluation focuses on the six factors and contains a section
for each factor except that CMA's costs and profits from managing the Funds
have been combined into a single section. In each section, the discussion of
the factor considers and analyzes the available data and other information as
they bear upon the fee negotiation process. If appropriate, the discussion in
the section may point out certain aspects of the proposed fees that may warrant
particular attention from the Trustees. The discussion also may suggest other
data, information, and approaches that the Trustees might consider
incorporating into the fee negotiation process in future years.
In addition to a discussion of the six factors, the report reviews the status
of recommendations made in the 2005 IFC evaluation. The 2006 report also
summarizes the findings with regard to the six factors and contains a summary
of recommendations for possible enhancements to the process.
II. Status of 2005 Recommendations
The 2005 IFC evaluation contains recommendations aimed at enhancing the
evaluation of proposed management fees by Trustees. The section summarizes
those recommendations and includes my assessment of the response to the
recommendations.
1. Recommendation: Trustees should consider requesting more analytical work
from CMG in the preparation of future 15(c) materials.
Status: CMG has provided additional analyses to the Trustees on economies
of scale, a comparative analysis of institutional and retail management
fees, management fee breakpoints, risk-adjusted performance, fee waivers
and expense reimbursements, and CMG's costs and profitability.
2. Recommendation: Trustees may wish to consider whether CMG should continue
expanding the use of Morningstar or other third party data to supplement
CMG's fee and performance analysis that is now based primarily on Lipper
reports.
Status: CMG has used data from Morningstar Inc. to compare with data from
Lipper Inc. ("Lipper") in performing the Trustees' screening procedures.
3. Recommendation: Trustees should consider whether...the fund-by-fund
screen...should place comparable emphasis on both basis point and quintile
information in their evaluation of the funds...Also, the Trustees should
consider incorporating sequences of one year performance into a
fund-by-fund screen.
Status: CMG has not provided Trustees with results of the screening process
using percentiles. CMG has provided Trustees with information on the
changes in performance and expenses between 2005 and 2006 and data on
one-year returns.
4. Recommendation: Given the volatility of fund performance, the Trustees may
want to consider whether a better method exists than th[e] fee waiver
process to deal with fund underperformance.
Status: It is my understanding that the Trustees have determined to address
fund underperformance not only through fee waivers and expense caps but
also through discussions with CMG regarding the sources of
underperformance. CMG has provided Trustees with an analysis of the
relationship between breakpoints, expense reimbursements, and fee waivers.
5. Recommendation: [Seventy-one] percent of funds [have] yet to reach their
first management fee breakpoint... Trustees may wish to consider whether
the results of my ongoing economies-of-scale work affects the underlying
economic assumptions reflected in the existing breakpoint schedules.
Status: CMG has prepared a memo for the Trustees discussing its views on
the nature and sharing of potential economies of scale. The memo discuses
CMG's view that economies of scale arise at the complex level rather than
the fund level. The memo also describes steps, including the introduction
of breakpoints, taken to share economies of scale with shareholders. CMG's
analysis, however, does not discuss specific sources of economies of scale
and does not link breakpoints to economies of scale that might be realized
as the Funds' assets increase.
32
6. Recommendation: Trustees should continue working with management to address
issues of funds that demonstrate consistent or significant underperformance
even if the fee levels for the funds are low.
Status: Trustees monitor performance on an ongoing basis.
III. Findings
A. General
1. Based upon my examination of the available information and the six factors,
I conclude that the Trustees have the relevant information necessary to
evaluate the reasonableness of the proposed management fees for the Funds.
CMG has provided the Trustees with relevant materials on the six factors
through the 15(c) contract renewal process and in materials prepared for
review at Board and Committee meetings.
2. In my view, the process by which the proposed management fees of the Funds
have been negotiated in 2006 thus far has been, to the extent practicable,
at arms' length and reasonable and consistent with the AOD.
B. Nature and Quality of Services, Including Performance
3. The performance of the Funds has been relatively strong, especially that of
fixed-income Funds. For each of the 1-, 3-, 5- and 10-year performance
periods, over 60 percent of the funds have ranked in the top three
performance quintiles.
4. The performance of the equity Funds overall, though less concentrated in
the top two quintiles than the fixed income Funds, improved in 2006
relative to that in 2005. The fixed-income funds maintained the relatively
high performance level of 2005 in 2006.
5. The Funds' overall performance adjusted for risk was significantly stronger
than performance unadjusted for risk. Domestic and international equity
funds, in particular, moved to higher relative performance rankings after
adjusting for risk.
6. The procedure used to construct the performance universe in which each
Fund's performance is ranked relative to comparable funds may bias a Fund's
ranking upward within that universe. The bias occurs because the
performance ranking procedure includes all share classes of multi-class
funds in the universe and because the procedure ranks either no-load or A
share classes of the Funds. No-load and A share classes generally have
lower total expenses than B and C shares (owing to B and C shares having
higher distribution/service fees) and thus, given all else, would
outperform many of B and C share classes included in the universe. A
preliminary analysis that adjusts for the bias results in a downward
movement in the relative performance for the Funds but does not change the
general finding that the Funds' performance has been strong relative to
comparable funds.
C. Management Fees Charged by Other Mutual Fund Companies
7. The Funds' management fees and total expenses are generally low relative to
those of their peers. At least 56 percent of the Funds are in the first or
second quintiles with the lowest fees and expenses and nearly three fourths
or more in the first three quintiles. Equity Funds are more highly
concentrated in the first three quintiles than fixed-income Funds.
8. The fee and expense rankings as whole are similar to those in 2005 in that
the majority of funds are ranked in the top quintiles. Nonetheless, a
number of individual funds experienced a change in ranking between 2005 and
2006. This fund-level instability may reflect sensitivity of rankings to
the composition of the comparison groups, as the membership of the peer
groups typically changed substantially between the two years.
9. The Liberty Money Market Fund VS appears to have a higher management fee
structure than that of other Columbia money market funds of comparable
asset size.
33
D. Trustees' Fee and Performance Evaluation Process
10. The Trustees' evaluation process identified 21 funds in 2006 for further
review based upon their relative performance or expenses. Seventeen of
these funds had been subject to review in 2004 or 2005.
E. Potential Economies of Scale
11. CMG has prepared a memo for the Trustees containing its views on the
sources and sharing of potential economies of scale. CMG views economies of
scale as arising at the complex level and would regard estimates of scale
economies for individual funds as unreliable. CMG has not, however,
identified specific sources of economies of scale nor has it provided any
estimates of the magnitude of any economies of scale. In the memo, CMG also
describes measures taken by the Trustees and CMG that seek to share any
potential economies of scale through breakpoints in management fee
schedules, expense reimbursements, fee waivers, enhanced shareholder
services, fund mergers, and operational consolidation. These measures,
although of significant benefit to shareholders, have not been directly
linked in the memo to the existence, sources, and magnitude of economies of
scale.
F. Management Fees Charged to Institutional Clients
12. CMG has provided Trustees with comparisons of mutual fund management fees
and institutional fees based upon standardized fee schedules and upon
actual fees. Based upon the information, institutional fees are generally
lower than the Funds' management fees. This pattern is consistent with the
economics of the two financial products. Data are not available, however,
on actual institutional fees at other money managers. Thus, it is not
possible to determine the extent to which differences between the Funds'
management fees and institutional fees are consistent with those seen
generally in the marketplace.
G. Revenues, Expenses, and Profits
13. The financial statements and the methodology underlying their construction
generally form a sufficient basis for Trustees to evaluate the expenses and
profitability of the Funds.
IV. Recommendations
A. Performance
1. Trustees may wish to consider incorporating risk adjusted measures in their
evaluation of performance. CMG has begun to prepare reports for the
Trustees with risk adjustments, which could form the basis for formally
including the measures in the 15(c) materials. To this end, Trustees may
wish to have CMG prepare documents explaining risk adjustments and
describing their advantages and disadvantages.
2. Trustees may wish to consider having CMG evaluate the sensitivity of
performance rankings to the design of the universe. The preliminary
analysis contained in the evaluation suggests that the method employed by
Lipper, the source of performance rankings used by the Trustees, may bias
performance rankings upward.
B. Economies of Scale
3. Trustees may wish to consider having CMG extend its analysis of economies
of scale by examining the sources of such economies, if any. Identification
of the sources may enable the Trustees and CMG to gauge their magnitude. It
also may enable the Trustees and CMG to build upon past work on
standardized fee schedules so that the schedules themselves are consistent
with any economies of scale and their sources. Finally, an extension of the
analysis may enable the Trustees and CMG to develop a framework that
coordinates the use of fee waivers and expense caps with the standard fee
schedules and with any economies of scale and their sources.
C. Institutional Fees
4. Trustees may wish to consider encouraging CMG to build further upon its
expanded analysis of institutional fees by refining the matching of
institutional accounts with mutual funds, by dating the establishment of
each institutional account, and by incorporating other accounts, such as
subadvisory relationships, trusts, offshore funds, and separately managed
accounts into the analysis.
34
D. Profitability
5. Trustees may wish to consider requesting that CMG expand the reporting of
revenues and expenses to include more line-item detail for management and
administration, transfer agency, fund accounting, and distribution.
6. Trustees may wish to consider requesting that CMG provide a statement of
its operations in the 15(c) materials.
7. Trustees may wish to consider the treatment of the revenue sharing with the
Private Bank of Bank of America in their review of CMG's profitability.
Respectfully submitted,
John D. Rea
35
Appendix
Sources of Information Used in the Evaluation
The following list generally describes the sources and types of information
that were used in preparing this report.
1. Performance, management fees, and expense ratios for the Funds and
comparable funds from other fund complexes from Lipper and CMG. The sources
of this information were CMG and Lipper;
2. CMG's expenses and profitability obtained directly from CMG;
3. Information on CMG's organizational structure;
4. Profitability of publicly traded asset managers from Lipper;
5. Interviews with CMG staff, including members of senior management, legal
staff, heads of affiliates, portfolio managers, and financial personnel;
6. Documents prepared by CMG for Section 15(c) contract renewals in 2005 and
2006;
7. Academic research papers, industry publications, professional materials on
mutual fund operations and profitability, and SEC releases and studies of
mutual fund expenses
8. Interviews with and documents prepared by Ernst & Young LLP in its review
of the Private Bank Revenue Sharing Agreement;
9. Discussions with Trustees and attendance at Board and committee meetings
during which matters pertaining to the evaluation were considered.
In addition, I engaged NERA Economic Consulting ("NERA") to assist me in data
management and analysis. NERA has extensive experience in the mutual fund
industry that provides unique insights and special knowledge pertaining to my
independent analysis of fees, performance, and profitability. I have also
retained attorneys in the Washington, D.C. office of Willkie Farr & Gallagher
LLP as outside counsel to advise me in connection with my evaluation.
Finally, meetings and discussions with CMG staff were informative. My
participation in Board and committee meetings in which Trustees and CMG
management discussed issues relating to management contracts were of great
benefit to the preparation of the evaluation.
36
Important Information About This Report
Columbia U.S. Treasury Index Fund
Transfer Agent
Columbia Management Services, Inc.
P.O. Box 8081
Boston, MA 02266-8081
1-800-345-6611
Distributor
Columbia Management
Distributors, Inc.
One Financial Center
Boston, MA 02111
Investment Advisor
Columbia Management Advisors, LLC
100 Federal Street
Boston, MA 02110
The fund mails one shareholder report to each shareholder address. If you would
like more than one report, please call shareholder services at 1-800-345-6611
and additional reports will be sent to you. This report has been prepared for
shareholders of Columbia U.S. Treasury Index Fund.
A description of the policies and procedures that the fund uses to determine
how to vote proxies and a copy of the fund's voting records are available
(i) at www.columbiamanagement.com; (ii) on the Securities and Exchange
Commission's website at www.sec.gov, and (iii) without charge, upon request, by
calling 1-800-368-0346. Information regarding how the fund voted proxies
relating to portfolio securities during the 12-month period ended June 30 is
available from the SEC's website. Information regarding how the fund voted
proxies relating to portfolio securities is also available from the fund's
website.
The fund files a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q
is available on the SEC's website at www.sec.gov and may be reviewed and copied
at the SEC's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Please consider the investment objectives, risk, charges and expenses for the
fund carefully before investing. Contact your financial advisor for a
prospectus, which contains this and other important information about the fund.
You should read it carefully before you invest.
Columbia Management Group, LLC ("Columbia Management") is the investment
management division of Bank of America Corporation. Columbia Management
entities furnish investment management services and products for institutional
and individual investors. Columbia Funds are distributed by Columbia Management
Distributors, Inc., member NASD and SIPC. Columbia Management Distributors,
Inc. is part of Columbia Management and an affiliate of Bank of America
Corporation.
37
Columbia U.S. Treasury Index Fund
Annual Report - March 31, 2007
[LOGO] Columbia Management(R)
(C)2007 Columbia Management Distributors, Inc.
One Financial Center, Boston, MA 02111-2621
800-345-6611 www.columbiafunds.com
SHC - 42/130008-0307 (05/07) 07-37586
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 no waivers,
including any implicit waivers, from a provision of the code of ethics
described in 2(a) above that relates to one or more of the items set
forth in paragraph (b) of this item's instructions.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Trustees has determined that Douglas A. Hacker,
Thomas E. Stitzel 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, Mr. Stitzel and Ms. Verville are each
independent trustees, as defined in paragraph (a)(2) of this item's
instructions and collectively constitute the entire Audit Committee.
Item 4. Principal Accountant Fees and Services.
Fee information below is disclosed for the four series of the registrant whose
reports to stockholders are included in this annual filing.
(a) Audit Fees. Aggregate Audit Fees billed by the principal accountant for
professional services rendered during the fiscal years ended March 31, 2007 and
March 31, 2006 are approximately as follows:
2007 2006
$112,800 $104,700
Audit Fees include amounts related to the audit of the registrant's annual
financial statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements for those
fiscal years.
(b) Audit-Related Fees. Aggregate Audit-Related Fees billed to the registrant
by the principal accountant for professional services rendered during the
fiscal years ended March 31, 2007 and March 31, 2006 are approximately as
follows:
2007 2006
$16,400 $27,100
Audit-Related Fees include amounts for assurance and related services by the
principal accountant that are reasonably related to the performance of the
audit of the registrant's financial statements and are not reported in Audit
Fees above. In both fiscal years 2007 and 2006, Audit-Related Fees include
agreed-upon procedures performed for semi-annual shareholder reports. Fiscal
year 2006 Audit-Related Fees also includes agreed-upon procedures related to a
fund merger.
During the fiscal years ended March 31, 2007 and March 31, 2006, there were no
Audit-Related Fees billed by the registrant's principal accountant to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser) and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant for
an engagement that related directly to the operations and financial reporting
of the registrant.
(c) Tax Fees. Aggregate Tax Fees billed by the principal accountant to the
registrant for professional services rendered during the fiscal years ended
March 31, 2007 and March 31, 2006 are approximately as follows:
2007 2006
$26,500 $20,400
Tax Fees include amounts for the review of annual tax returns, the review of
required shareholder distribution calculations and typically include amounts
for professional services by the principal accountant for tax compliance, tax
advice and tax planning. In both fiscal years 2007 and 2006, Tax Fees also
include the review of foreign tax filings.
During the fiscal years ended March 31, 2007 and March 31, 2006, there were no
Tax Fees billed by the registrant's principal accountant to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another
investment adviser) and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant for
an engagement that related directly to the operations and financial reporting
of the registrant.
(d) All Other Fees. Aggregate All Other Fees billed by the principal accountant
to the registrant for professional services rendered during the fiscal years
ended March 31, 2007 and March 31, 2006 are approximately as follows:
2007 2006
$900 $1,900
All Other Fees include amounts for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) above. In both fiscal years 2007 and 2006, All Other Fees
consist of fees billed for agreed-upon procedures related to the review of the
registrant's anti-money laundering program.
Aggregate All Other Fees billed by the registrant's principal accountant to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser) and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant for
an engagement that related directly to the operations and financial reporting
of the registrant during the fiscal years ended March 31, 2007 and March 31,
2006 are approximately as follows:
2007 2006
$849,100 $361,600
In both fiscal years 2007 and 2006, All Other Fees consist of fees billed for
internal control examinations of the registrant's transfer agent and investment
advisor.
(e)(1) Audit Committee Pre-Approval Policies and Procedures
The registrant's Audit Committee is required to pre-approve the engagement of
the registrant's independent accountants to provide audit and non-audit
services to the registrant and non-audit services to its investment adviser
(not including any sub-adviser whose role is primarily portfolio management and
is subcontracted with or overseen by another investment adviser) or any entity
controlling, controlled by or under common control with such investment adviser
that provides ongoing services to the registrant ("Adviser Affiliates"), if the
engagement relates directly to the operations and financial reporting of the
registrant.
The Audit Committee has adopted a Policy for Engagement of Independent
Accountants for Audit and Non-Audit Services ("Policy"). The Policy sets forth
the understanding of the Audit Committee regarding the engagement of the
registrant's independent accountants to provide (i) audit and permissible
audit-related, tax and other services to the registrant (collectively "Fund
Services"); (ii) non-audit services to the registrant's investment adviser (not
including any sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser) and Adviser
Affiliates, if the engagement relates directly to the operations or financial
reporting of a Fund (collectively "Fund-related Adviser Services"); and (iii)
certain other audit and non-audit services to the registrant's investment
adviser (not including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment adviser)
and Adviser Affiliates. Unless a type of service receives general pre-approval
under the Policy, it requires specific pre-approval by the Audit Committee if
it is to be provided by the independent accountants. Pre-approval of non-audit
services to the registrant, the registrant's investment adviser (not including
any sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser) and Adviser
Affiliates may be waived provided that the "de minimis" requirements set forth
under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are met.
Under the Policy, the Audit Committee may delegate pre-approval authority to
any pre-designated member or members who are Independent Trustees/Directors.
The member(s) to whom such authority is delegated must report, for
informational purposes only, any pre-approval decisions to the Audit Committee
at its next regular meeting. The Audit Committee's responsibilities with
respect to the pre-approval of services performed by the independent
accountants may not be delegated to management.
The Policy requires the Fund Treasurer and/or Director of Board
Administration to submit to the Audit Committee, on an annual basis, a schedule
of the types of services that are subject to general pre-approval. The
schedule(s) provide a description of each type of service that is subject to
general pre-approval and, where possible, will provide estimated fee caps for
each instance of providing each service. The Audit Committees will review and
approve the types of services and review the projected fees for the next fiscal
year and may add to, or subtract from, the list of general pre-approved
services from time to time based on subsequent determinations. That approval
acknowledges that the Audit Committee is in agreement with the specific types
of services that the independent accountants will be permitted to perform.
The Fund Treasurer and/or Director of Board Administration shall report to the
Audit Committee at each of its regular meetings regarding all Fund Services or
Fund-related Adviser Services initiated since the last such report was
rendered, including a general description of the services, actual billed and
projected fees, and the means by which such Fund Services or Fund-related
Adviser Services were pre-approved by the Audit Committee.
*****
(e)(2) The percentage of services described in paragraphs (b) through (d) of
this Item approved pursuant to the "de minimis" exception under paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X during both fiscal years ended
March 31, 2007 and March 31, 2006 was zero.
(f)Not applicable.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant for
the fiscal years ended March 31, 2007 and March 31, 2006 are approximately as
follows:
2007 2006
$892,900 $411,000
(h) The registrant's Audit Committee of the Board of Directors has considered
whether the provision of non-audit services that were rendered to the
registrant's adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X, is compatible with maintaining the principal
accountant's independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments
The registrant's "Schedule I - Investments in securities of unaffiliated
issuers" (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form
N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have not been any material changes to the procedures by which
shareholders may recommend nominees to the registrant's board of directors,
since those procedures were last disclosed in response to requirements of
Item 7(d)(2)(ii)(G) of Schedule 14A or this Item.
Item 11. Controls and Procedures.
(a)The registrant's principal executive officer and principal financial
officers, based on their evaluation of the registrant's disclosure
controls and procedures as of a date within 90 days of the filing of
this report, 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 was no change in the registrant's internal control over financial
reporting that occurred during the registrant's second fiscal quarter of
the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12. Exhibits.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR
attached hereto as Exhibit 99.CODE ETH.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of
1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) Columbia Funds Series Trust I
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By (Signature and Title) /s/ Christopher L. Wilson
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Christopher L. Wilson, President
Date May 25, 2007
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title) /s/ Christopher L. Wilson
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Christopher L. Wilson, President
Date May 25, 2007
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By (Signature and Title) /s/ J. Kevin Connaughton
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J. Kevin Connaughton, Treasurer
Date May 25, 2007
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