-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NauClv9C48FY5vo5bdBK4kd3Yc6V8JS/rhoCQw/uRWLjFXa29S2Oda5+ihzAsPhx bam2TNQJficay28s3KTj5g== 0001047469-04-025139.txt : 20040803 0001047469-04-025139.hdr.sgml : 20040803 20040803143510 ACCESSION NUMBER: 0001047469-04-025139 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040531 FILED AS OF DATE: 20040803 EFFECTIVENESS DATE: 20040803 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA FUNDS TRUST I CENTRAL INDEX KEY: 0000021832 IRS NUMBER: 046143403 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-02214 FILM NUMBER: 04947942 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CENTER CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6174263750 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY FUNDS TRUST I DATE OF NAME CHANGE: 19990430 FORMER COMPANY: FORMER CONFORMED NAME: COLONIAL TRUST I DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: COLONIAL HIGH YIELD SECURITIES TRUST DATE OF NAME CHANGE: 19910917 N-CSR 1 a2140810zn-csr.txt N-CSR 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 811-2241 --------------------------------------------- Columbia Funds Trust I - ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) One Financial Center, Boston, Massachusetts 02111 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Vincent Pietropaolo, Esq. Columbia Management Group, Inc. One Financial Center Boston, MA 02111 - ------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 1-617-772-3698 ---------------------------- Date of fiscal year end: 05/31/04 -------------------------- Date of reporting period: 05/31/04 ------------------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. Item 1. Reports to Stockholders. [GRAPHIC] COLUMBIA STRATEGIC INCOME FUND ANNUAL REPORT MAY 31, 2004 [COLUMBIAFUNDS(R) LOGO] A MEMBER OF COLUMBIA MANAGEMENT GROUP TABLE OF CONTENTS Fund Profile 1 Performance Information 2 Economic Update 3 Portfolio Manager's Report 4 Financial Statements 6 Investment Portfolio 7 Statement of Assets and Liabilities 25 Statement of Operations 26 Statement of Changes in Net Assets 27 Notes to Financial Statements 29 Financial Highlights 36 Report of Independent Registered Public Accounting Firm 41 Trustees 42 Officers 44 Important Information About This Report 45
Economic and market conditions change frequently. There is no assurance that trends described in this report will continue or commence. NOT FDIC MAY LOSE VALUE INSURED ------------------- NO BANK GUARANTEE TO OUR FELLOW SHAREHOLDERS COLUMBIA STRATEGIC INCOME FUND DEAR SHAREHOLDER: We are pleased to let you know that FleetBoston Financial Corporation and Bank of America Corporation have merged, effective April 1, 2004. As a result of the merger, Columbia Management Group became part of the Bank of America family of companies. Looking ahead, we believe this merger will be a real benefit to our shareholders. Preserving and leveraging our strengths, the combined organization intends to deliver additional research and management capabilities, as well as new products to you. There are no immediate changes planned for fund names or customer service contacts. As you might know, on March 15, 2004, FleetBoston Financial announced an agreement in principle with the staff of the Securities and Exchange Commission ("SEC") and the New York Attorney General ("NYAG") to settle charges involving market timing in Columbia Management mutual funds. (Bank of America came to a similar settlement in principle at the same time.) The agreement requires the final approval of the SEC and the NYAG. This settlement in principle reflects our strong wish to put this regrettable situation behind us. Columbia Management has taken and will continue to take steps to strengthen policies, procedures and oversight to curb frequent trading of Columbia fund shares. We want you to know that all of the members of your fund's Board of Trustees are independent of the fund's advisor and its affiliates. In addition, the board has been energetic over the past year in strengthening its capacity to oversee the Columbia funds. Recently, the Board of Trustees: - - APPOINTED AN INTERIM CHIEF COMPLIANCE OFFICER OF THE COLUMBIA FUNDS, WHO REPORTS DIRECTLY TO EACH FUND'S AUDIT COMMITTEE. TRUSTEES WERE ALSO ASSIGNED TO FOUR SEPARATE INVESTMENT OVERSIGHT COMMITTEES, EACH DEDICATED TO MONITORING PERFORMANCE OF INDIVIDUAL FUNDS. - - VOTED TO DOUBLE THE REQUIRED INVESTMENT BY EACH TRUSTEE IN THE COLUMBIA FUNDS -- TO FURTHER ALIGN THE INTERESTS OF THE TRUSTEES WITH THOSE OF OUR FUND SHAREHOLDERS. AT THE SAME TIME, NEW POLICIES WERE INSTITUTED REQUIRING ALL INVESTMENT PERSONNEL AND TRUSTEES TO HOLD THEIR COLUMBIA FUND SHARES FOR A MINIMUM OF ONE YEAR (UNLESS EXTRAORDINARY CIRCUMSTANCES WARRANT AN EXCEPTION TO BE GRANTED BY SENIOR EXECUTIVES OF THE ADVISOR FOR INVESTMENT PERSONNEL AND BY A DESIGNATED COMMITTEE FOR THE BOARD). Both your fund's trustees and Columbia Management are committed to serving the interests of our shareholders, and we will continue to work hard to help you achieve your financial goals. In the pages that follow, you'll find valuable information about the economic environment during the period and the performance of your Columbia fund. These discussions are followed by financial statements for your fund. We hope that you will take time to read this report and discuss it with your financial advisor if you have any questions. As always, thank you for choosing Columbia funds. It is a privilege to play a role in your financial future. Sincerely, /s/ Thomas C. Theobald /s/ J. Kevin Connaughton Thomas C. Theobald J. Kevin Connaughton Chairman, Board of Trustees President, Columbia Funds J. Kevin Connaughton was named president of Columbia Funds on February 27, 2004. FUND PROFILE COLUMBIA STRATEGIC INCOME FUND The information below gives you a snapshot of your fund at the end of the reporting period. Your fund is actively managed and the composition of its portfolio will change over time. TOP 5 COUNTRIES AS OF 05/31/04 (%) United States 66.3 United Kingdom 4.5 Canada 3.6 Sweden 3.0 Russia 2.5
PORTFOLIO STRUCTURE AS OF 05/31/04 (%) Corporate fixed-income bonds & notes 40.5 Foreign government obligations 32.7 US government obligations 19.0 US government agencies 6.2 Convertible bonds 0.7 Cash equivalents & other net assets 0.9
QUALITY BREAKDOWN AS OF 05/31/04 (%) AAA 40.7 AA 3.2 A 2.7 BBB 3.6 BB 11.5 B 24.4 CCC 10.7 CC 2.1 D 0.2 Non-rated 0.9
Quality breakdown is 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 & Poor's Corporation, Moody's Investors Service, Inc. or Fitch Ratings Ltd. Country breakdown and portfolio structure are calculated as a percentage of net assets. (C) 2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. The Morningstar Style Box(TM) reveals a fund's investment strategy. For equity funds the vertical axis shows the market capitalization of the stocks owned and the horizontal axis shows investment style (value, blend or growth). For fixed-income funds the vertical axis shows the average credit quality of the bonds owned, and the horizontal axis shows interest rate sensitivity as measured by a bond's duration (short, intermediate or long). All of these numbers are drawn from the data most recently provided by the fund and entered into Morningstar's database as of month-end. Although the data are gathered from reliable sources, Morningstar cannot guarantee completeness and accuracy. As of 05/31/2004. [SIDENOTE] SUMMARY - - FOR THE 12-MONTH PERIOD ENDED MAY 31, 2004, THE FUND'S CLASS A SHARES RETURNED 6.21% WITHOUT SALES CHARGE DESPITE A CHALLENGING ENVIRONMENT FOR THE BOND MARKET, IN GENERAL. - - THE FUND OUTPERFORMED BOTH ITS BENCHMARK AND THE AVERAGE RETURN OF ITS PEER GROUP. - - THE FUND BENEFITED PRIMARILY FROM ITS EMPHASIS ON THE US HIGH-YIELD SECTOR. - - THE FOREIGN GOVERNMENT SECTOR ALSO CONTRIBUTED POSITIVELY TO PERFORMANCE. CLASS A SHARES 6.21% LEHMAN BROTHERS GOVERNMENT/CREDIT BOND INDEX -1.52%
OBJECTIVE Seeks high current income consistent with prudent risk and also seeks maximum total return TOTAL NET ASSETS $1,246.5 million MORNINGSTAR SYLE BOX [GRAPHIC] 1 PERFORMANCE INFORMATION COLUMBIA STRATEGIC INCOME FUND VALUE OF A $10,000 INVESTMENT 06/01/94 - 05/31/04 [CHART]
CLASS A SHARES WITHOUT SALES CHARGE CLASS A SHARES WITH SALES CHARGE LEHMAN BROTHERS GOVERNMENT/CREDIT BOND INDEX 10000 9525 10000 6/30/94 9969 9495.47 9977 7/31/94 10011.87 9536.3 10176.54 8/31/94 10024.88 9548.7 10180.61 9/30/94 9993.8 9519.1 10026.88 10/31/94 10037.78 9560.98 10015.85 11/30/94 9945.43 9473.02 9997.83 12/31/94 9990.18 9515.65 10063.81 1/31/95 10096.08 9616.52 10257.04 2/28/95 10341.42 9850.2 10495 3/31/95 10542.04 10041.29 10565.32 4/30/95 10775.02 10263.2 10713.23 5/31/95 11088.57 10561.86 11162.11 6/30/95 11117.4 10589.32 11251.41 7/31/95 11241.92 10707.93 11207.53 8/31/95 11286.88 10750.76 11350.99 9/30/95 11494.56 10948.57 11466.77 10/31/95 11654.34 11100.76 11635.33 11/30/95 11782.53 11222.86 11827.31 12/31/95 12011.12 11440.59 12001.17 1/31/96 12206.9 11627.07 12075.58 2/29/96 12103.14 11528.24 11819.58 3/31/96 12065.62 11492.5 11720.29 4/30/96 12147.66 11570.65 11639.42 5/31/96 12178.03 11599.58 11619.64 6/30/96 12243.8 11662.21 11774.18 7/31/96 12309.91 11725.19 11801.26 8/31/96 12481.02 11888.17 11771.76 9/30/96 12741.87 12136.63 11981.29 10/31/96 12915.16 12301.69 12260.46 11/30/96 13214.79 12587.09 12486.05 12/31/96 13242.55 12613.52 12347.45 1/31/97 13238.57 12609.74 12362.27 2/28/97 13344.48 12710.62 12388.23 3/31/97 13082.93 12461.49 12240.81 4/30/97 13226.84 12598.57 12419.53 5/31/97 13464.92 12825.34 12535.03 6/30/97 13648.05 12999.77 12685.45 7/31/97 13983.79 13319.56 13073.62 8/31/97 13923.66 13262.29 12927.2 9/30/97 14225.8 13550.08 13130.16 10/31/97 14183.13 13509.43 13340.24 11/30/97 14256.88 13579.68 13410.94 12/31/97 14383.76 13700.53 13551.76 1/31/98 14615.34 13921.11 13742.84 2/28/98 14670.88 13974.01 13715.35 3/31/98 14786.78 14084.41 13757.87 4/30/98 14862.19 14156.24 13826.66 5/31/98 14918.67 14210.03 13974.6 6/30/98 14914.19 14205.77 14117.14 7/31/98 15046.93 14332.2 14128.44 8/31/98 14423.99 13738.85 14403.94 9/30/98 14716.79 14017.75 14815.9 10/31/98 14691.78 13993.92 14710.7 11/30/98 15129.59 14410.93 14798.97 12/31/98 15125.05 14406.61 14835.96 1/31/99 15227.9 14504.58 14941.3 2/28/99 15029.94 14316.02 14585.7 3/31/99 15241.86 14517.87 14658.63 4/30/99 15455.25 14721.12 14695.27 5/31/99 15122.96 14404.62 14543.91 6/30/99 15118.42 14400.3 14498.82 7/31/99 15112.38 14394.54 14458.23 8/31/99 15041.35 14326.88 14446.66 9/30/99 15081.96 14365.57 14576.68 10/31/99 15077.43 14361.26 14614.58 11/30/99 15210.12 14487.64 14605.81 12/31/99 15319.63 14591.95 14516.72 1/31/2000 15152.64 14432.89 14512.36 2/29/2000 15381.45 14650.83 14693.77 3/31/2000 15304.54 14577.58 14906.83 4/30/2000 15157.62 14437.63 14833.78 5/31/2000 14986.34 14274.49 14820.43 6/30/2000 15293.56 14567.11 15122.77 7/31/2000 15409.79 14677.82 15283.07 8/31/2000 15528.44 14790.84 15498.56 9/30/2000 15351.42 14622.23 15557.46 10/31/2000 15024.43 14310.77 15655.47 11/30/2000 14744.98 14044.59 15923.18 12/31/2000 15218.29 14495.42 16236.86 1/31/2001 15846.81 15094.09 16509.64 2/28/2001 15867.41 15113.71 16679.69 3/31/2001 15500.87 14764.58 16756.42 4/30/2001 15335.01 14606.6 16630.74 5/31/2001 15428.56 14695.7 16727.2 6/30/2001 15234.16 14510.53 16807.49 7/31/2001 15330.13 14601.95 17226 8/31/2001 15587.68 14847.26 17446.49 9/30/2001 15076.4 14360.27 17607 10/31/2001 15515.13 14778.16 18054.22 11/30/2001 15709.07 14962.88 17758.13 12/31/2001 15683.93 14938.94 17617.84 1/31/2002 15713.73 14967.33 17746.45 2/28/2002 15743.59 14995.77 17897.3 3/31/2002 15793.97 15043.75 17533.98 4/30/2002 16100.37 15335.6 17874.14 5/31/2002 16180.87 15412.28 18038.58 6/30/2002 15915.5 15159.52 18191.91 7/31/2002 15727.7 14980.64 18410.21 8/31/2002 15979.34 15220.33 18822.6 9/30/2002 16056.05 15293.38 19227.29 10/31/2002 16089.76 15325.5 19042.71 11/30/2002 16450.17 15668.79 19054.13 12/31/2002 16932.16 16127.89 19559.07 1/31/2003 17175.99 16360.13 19559.07 2/28/2003 17481.72 16651.34 19907.22 3/31/2003 17639.06 16801.2 19881.34 4/30/2003 18316.39 17446.37 20094.07 5/31/2003 18810.94 17917.42 20664.74 6/30/2003 18968.95 18067.92 20582.08 7/31/2003 18504.21 17625.26 19719.69 8/31/2003 18602.28 17718.67 19849.84 9/30/2003 19232.9 18319.34 20479.08 10/31/2003 19330.99 18412.77 20219 11/30/2003 19682.81 18747.88 20273.59 12/31/2003 20198.5 19239.07 20474.3 1/31/2004 20362.11 19394.91 20660.61 2/29/2004 20463.92 19491.88 20912.67 3/31/2004 20629.68 19649.77 21105.07 4/30/2004 20107.75 19152.63 20457.14 5/31/2004 19962 19014 20354
The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Lehman Brothers Government/Credit Bond Index is an unmanaged group of fixed-income securities that differs from the composition of the fund. Unlike mutual funds, indices are not investments, do not incur fees or expenses and are not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in an index. AVERAGE ANNUAL TOTAL RETURN AS OF 05/31/04 (%)
SHARE CLASS A B C J Z INCEPTION 04/21/77 05/15/92 07/01/97 11/02/98 01/29/99 SALES CHARGE WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT 1-year 6.21 1.17 5.42 0.47 5.57 4.58 5.88 2.71 6.52 5-year 5.72 4.69 4.96 4.67 5.12 5.12 5.38 4.74 5.89 10-year 7.16 6.64 6.36 6.36 6.47 6.47 6.95 6.62 7.24
AVERAGE ANNUAL TOTAL RETURN AS OF 03/31/04 (%)
SHARE CLASS A B C J Z SALES CHARGE WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT 1-year 16.96 11.40 16.29 11.29 16.26 15.26 16.62 13.12 17.19 5-year 6.23 5.20 5.44 5.15 5.60 5.60 5.89 5.24 6.37 10-year 7.39 6.87 6.59 6.59 6.70 6.70 7.19 6.86 7.45
All results shown assume reinvestment of distributions. The "with sales charge" returns include the maximum 4.75% charge for class A shares and 3% for class J shares, the appropriate class B contingent deferred sales charge for the holding period after purchase as follows: through the first year--5%, second year--4%, third year--3%, fourth year--3%, fifth year--2%, sixth year--1%, thereafter--0%, and the class C contingent deferred sales charge of 1% for the first year only. Class Z shares are sold only at net asset value with no Rule 12b-1 fees. Performance for different share classes will vary based on differences in sales charges and the fees associated with each class. Performance reflects any voluntary waivers or reimbursements of fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance would have been lower. The share performance information for classes J and Z (newer class shares) includes returns of the fund's class A shares (the oldest existing fund class) for periods prior to the inception of the newer class shares. These class A share returns are not restated to reflect any expense differential (e.g., Rule 12b-1 fees) between class A shares and the newer class shares. Had the expense differential been reflected, the returns for periods prior to the inception of class J shares would have been lower, and the returns for the class Z shares would have been higher. Class C is a newer class of shares. Its performance information includes returns of the fund's class B shares for periods prior to the inception of class C shares. Class B shares would have substantially similar annual returns because class B and class C shares generally have similar expense structures. Class A shares were initially offered on April 21, 1977, class B shares were initially offered on May 15, 1992, class C shares were initially offered on July 1, 1997, class J shares were initially offered on November 2, 1998 and class Z shares were initially offered on January 29, 1999. [SIDENOTE] PERFORMANCE OF A $10,000 INVESTMENT 06/01/94 - 05/31/04 ($)
SALES CHARGE WITHOUT WITH Class A 19,962 19,014 Class B 18,525 18,525 Class C 18,717 18,717 Class J 19,574 18,986 Class Z 20,110 n/a
Performance data quoted represents past performance and current performance may be lower or higher. Past performance is no guarantee of future results. The investment return and principal value will fluctuate so that shares may be worth more or less than the original cost. Please visit www.columbiafunds.com for daily and most recent month-end performance updates. 2 ECONOMIC UPDATE COLUMBIA STRATEGIC INCOME FUND Despite mixed signals at the start, the US economy staged a solid recovery during the 12-month period that began June 1, 2003 and ended May 31, 2004. GDP grew at the highest annual pace in nearly two decades--averaging nearly 5.0% during the period. Consumer confidence tumbled early in this reporting period as the unemployment rate rose to 6.4% in June 2003 and job losses were reported from both the manufacturing and service sectors. Confidence wavered again when the number of new jobs was well below expectations in January and February 2004. Yet, consumers continued to account for most of the economy's gains. Consumer spending rose as a sizeable package of tax cuts, implemented in 2003, gave disposable income a boost. As a result, retail sales showed steady gains. Low interest rates fueled mortgage refinancing in 2003 and again early in 2004, which further enhanced household income and buoyed an already ebullient housing market. When nearly a million new jobs were added to the economy between March and May, consumer confidence rebounded. With the last remaining weak spot in the recovery--the employment picture--on the mend, the economy appeared to be on solid ground. Late in 2003, the business sector also bounced back. Industrial production turned higher in September, and factories utilized more of their capacity as the period wore on. Business spending on technology rose. In 2004, spending on capital equipment also picked up. BONDS REFLECTED THE ECONOMIC NEWS Although the US bond market began the period with respectable gains, they were whittled away as the economy strengthened and the employment picture brightened. Investors began to anticipate a shift in the Federal Reserve Board's policy on the key short-term interest rates it controls. At the prospect of higher short-term interest rates, bond prices fell and the yield on the 10-year US Treasury bond rose more than one-half of a percentage point in April--a significant move for a single month. It continued to edge higher in May. The Lehman Brothers Aggregate Bond Index, a broad measure of investment grade bond market performance, lost ground for the 12-month period. The index returned negative 0.44%. The strong economy was more good news than bad for the high-yield bond sector, which historically has been less vulnerable to the threat of higher interest rates than other fixed-income sectors. High-yield bonds led the fixed-income markets. However, most of the sector's gains came in the first eight months of the period. US STOCKS OUTPERFORMED BONDS The US stock market snapped a three-year losing streak in 2003. However, by May stocks, like most bond sectors, veered into negative territory. The S&P 500 Index returned 18.33% for this reporting period. Small- cap stocks, which had been strong performers earlier in the period, fell the most as the stock market retreated. Value stocks edged out growth stocks, but the margin of difference between them was slight. And as the stock market lost ground near the end of the period, growth stocks held up better than value stocks. [SIDENOTE] SUMMARY FOR THE 12-MONTH PERIOD ENDED MAY 31, 2004 - - MOST SECTORS OF THE INVESTMENT GRADE BOND MARKET DELIVERED NEGATIVE RETURNS AS INTEREST RATES SOARED IN THE LAST TWO MONTHS OF THE PERIOD. THE LEHMAN BROTHERS AGGREGATE BOND INDEX RETURNED NEGATIVE 0.44%. HIGH-YIELD BONDS, WHICH CAN BE LESS SENSITIVE TO CHANGING INTEREST RATES, FARED BETTER. THE MERRILL LYNCH US HIGH YIELD, CASH PAY INDEX RETURNED 11.34%. LEHMAN INDEX -0.44% MERRILL LYNCH INDEX 11.34%
- - AS THE ECONOMY STRENGTHENED AND CORPORATIONS REPORTED HIGHER PROFITS, STOCK PRICES ROSE FOR ALL SEGMENTS OF THE STOCK MARKET, AS MEASURED BY THE S&P 500 INDEX AND THE BROADER RUSSELL 3000 INDEX. BUT MANY SECTORS RETREATED IN THE FINAL MONTHS OF THE PERIOD AS INTEREST RATES MOVED HIGHER. S&P 500 INDEX 18.33% RUSSELL 3000 INDEX 19.71%
The Lehman Brothers Aggregate Bond Index is a market value-weighted index that tracks fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues. The Merrill Lynch US High Yield, Cash Pay Index is an unmanaged index that tracks the performance of non-investment-grade corporate bonds. The S&P 500 Index is an unmanaged index that tracks the performance of 500 widely held, large capitalization US stocks. The Russell 3000 Index is an unmanaged index that tracks the performance of the 3,000 largest US companies based on total market capitalization. 3 PORTFOLIO MANAGER'S REPORT COLUMBIA STRATEGIC INCOME FUND For the 12-month period ended May 31, 2004, class A shares of Columbia Strategic Income Fund returned 6.21% without sales charge. Fund performance was significantly better than the Lehman Brothers Government/Credit Bond Index, which returned negative 1.52% for the period. The fund also outperformed the average return of the Lipper Multi-Sector Income Funds Category, which was 4.74%.(1) The fund's relative return was especially strong during the period because of our emphasis on high-yield and foreign government securities, which enjoyed a long run of outstanding performance. HIGH-YIELD BONDS CONTINUE TO OUTPERFORM Continuing a strategy that has been in place for more than a year now, the fund continued to emphasize high-yield securities, which accounted for approximately 40% of total assets. Our enthusiasm for this sector during the period reflected our assessment that fixed-income investors were being more than adequately compensated for the risks inherent in low quality corporate bonds. Since late 2002, lower quality bonds have consistently outperformed higher quality bonds. Throughout the past year, credit quality has improved and the corporate default rate has declined significantly. As demand for low-quality bonds increased, some formerly struggling industries staged impressive rebounds. As a group, high-yield bonds were the best performing sector for the period, while the US government sector was the worst performing sector. During the reporting period, US cable and cellular industries were among the best performers in the high-yield sector. Charter Communications, a company that has benefited from improved liquidity and operating results, was a standout performer. On the negative side, Delta Air Lines, though a small position in the fund, was an underperformer, as were many other airline and aerospace bonds. The industry came under pressure as fuel prices soared, labor issues multiplied and competition intensified. FOREIGN BONDS AID PERFORMANCE Emerging market debt, in countries such as Brazil and Venezuela, made a positive contribution to performance. Emerging markets posted especially strong gains during the first half of the period, when worldwide monetary policy was relatively accommodating. Since early 2004, emerging market debt has given back some of its gains as investors became concerned about the impact of rising US and global interest rates on global growth and liquidity. Brazil was hit especially hard because of its high level of indebtedness and rising political uncertainty (1) Lipper Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as those of the fund. [SIDENOTE] NET ASSET VALUE PER SHARE AS OF 05/31/04 (%) Class A 6.02 Class B 6.02 Class C 6.02 Class J 6.01 Class Z 5.98
DISTRIBUTIONS DECLARED PER SHARE 06/01/03 - 05/31/04 ($) Class A 0.44 Class B 0.40 Class C 0.41 Class J 0.42 Class Z 0.46
SEC YIELDS AS OF 05/31/04 (%) Class A 5.48 Class B 5.00 Class C 5.16 Class J 5.14 Class Z 6.01
The 30-day SEC yields reflect the portfolio's earning power net of expenses, expressed as an annualized percentage of the public offering price per share at the end of the period. 4 surrounding municipal elections scheduled for later this year. Yet, the return from Brazilian bonds was still positive for the 12-month period. Interest rates on developed market sovereign debt moved higher as stronger global growth and higher oil prices raised concerns that tighter monetary policy will be required to keep inflation in check. In Europe, interest rates rose, but not by as much as in the United States because economic growth was less robust in Europe than in the United States. The Euro moved higher against the US dollar during the past year, adding to the outperformance of European bonds relative to Treasuries. In general, the net effect of currency fluctuations was favorable for the fund. Most other currencies moved higher versus the dollar for much of the past year, aiding the performance of bonds denominated in currencies such as the South African rand and the Australian dollar. LOOKING AHEAD The Federal Reserve Board (the Fed) has signaled that it is no longer worried about deflation and appears to be preparing to raise short-term interest rates. Although inflationary pressures are not yet worrisome, we would not be surprised to see the Fed boost rates in increments of one-quarter of a percentage point, and the fixed-income markets appear to be anticipating this move. Since we are committed to diversifying the fund's assets across US and foreign government and lower-rated corporate debt securities, we enter the new fiscal year with portfolio allocations similar to where we started the period, because we believe that the US and global economy should remain on a path of continued economic growth despite our expectations of higher interest rates. [PHOTO OF LAURA A. OSTRANDER] Laura A. Ostrander has managed or co-managed the Columbia Strategic Income Fund since September 2000 and has been with the advisor and its predecessors since 1996. /s/ Laura A. Ostrander Investing in high-yield securities offers the potential for high current income and attractive total return, but involves certain risks. Lower-rated bond risks include default of the issuer, rising interest rates and risk associated with investing in securities of foreign and emerging markets, including currency exchange rate fluctuations and economic and political change. Bond investing also involves interest rate risk, which means that bond prices may change as interest rates increase or decrease. Foreign investments involve market, political, accounting and currency risks not associated with other investments. [SIDENOTE] THE FEDERAL RESERVE HAS SIGNALED THAT IT IS NO LONGER WORRIED ABOUT DEFLATION, AND APPEARS TO BE PREPARING TO RAISE SHORT-TERM INTEREST RATES. HOLDINGS DISCUSSED IN THIS REPORT AS OF 05/31/04 (%) CHARTER COMMUNICATIONS 0.7 DELTA AIR LINES 0.1
Your fund is actively managed and the composition of its portfolio will change over time. Information provided is calculated as a percentage of net assets. 5 FINANCIAL STATEMENTS MAY 31, 2004 COLUMBIA STRATEGIC INCOME FUND
A GUIDE TO UNDERSTANDING YOUR FUND'S FINANCIAL STATEMENTS INVESTMENT PORTFOLIO The investment portfolio details all of the fund's holdings and their market value as of the last day of the reporting period. Portfolio holdings are organized by type of asset, industry, country or geographic region (if applicable) to demonstrate areas of concentration and diversification. STATEMENT OF ASSETS AND LIABILITIES This statement details the fund's assets, liabilities, net assets and share price for each share class as of the last day of the reporting period. Net assets are calculated by subtracting all the fund's liabilities (including any unpaid expenses) from the total of the fund's investment and non-investment assets. The share price for each class is calculated by dividing net assets for that class by the number of shares outstanding in that class as of the last day of the reporting period. STATEMENT OF OPERATIONS This statement details income earned by the fund and the expenses accrued by the fund during the reporting period. The Statement of Operations also shows any net gain or loss the fund realized on the sales of its holdings during the period, as well as any unrealized gains or losses recognized over the period. The total of these results represents the fund's net increase or decrease in net assets from operations. STATEMENT OF CHANGES IN NET ASSETS This statement demonstrates how the fund's net assets were affected by its operating results, distributions to shareholders and shareholder transactions (e.g., subscriptions, redemptions and dividend reinvestments) during the reporting period. The Statement of Changes in Net Assets also details changes in the number of shares outstanding. NOTES TO FINANCIAL STATEMENTS These notes disclose the organizational background of the fund, its significant accounting policies (including those surrounding security valuation, income recognition and distributions to shareholders), federal tax information, fees and compensation paid to affiliates and significant risks and contingencies. FINANCIAL HIGHLIGHTS The financial highlights demonstrate how the fund's net asset value per share was affected by the fund's operating results. The financial highlights table also discloses the classes' performance and certain key ratios (e.g., class expenses and net investment income as a percentage of average net assets).
6 INVESTMENT PORTFOLIO MAY 31, 2004 COLUMBIA STRATEGIC INCOME FUND
CORPORATE FIXED-INCOME BONDS & NOTES - 40.5% AGRICULTURE - 0.2% PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ AGRICULTURE PRODUCTION - 0.2% SEMINIS VEGETABLE SEEDS, INC. 10.250% 10/01/13 (a) USD 2,832,000 3,058,560 Agriculture Production Total 3,058,560 ----------- AGRICULTURE TOTAL 3,058,560 CONSTRUCTION - 1.9% BUILDING CONSTRUCTION - 1.9% ASSOCIATED MATERIALS, INC. (b) 03/01/14 (11.250% 03/01/09) (a) 1,095,000 717,225 9.750% 04/15/12 1,995,000 2,184,525 ATRIUM COMPANIES, INC. 10.500% 05/01/09 (a) 1,130,000 1,186,500 10.500% 05/01/09 2,755,000 2,892,750 CONGOLEUM CORP. 8.625% 08/01/08 (c) 1,305,000 952,650 D.R. HORTON, INC. 9.750% 09/15/10 4,355,000 4,964,700 K. HOVNANIAN ENTERPRISES, INC. 8.875% 04/01/12 1,270,000 1,323,975 10.500% 10/01/07 1,470,000 1,686,825 NORTEK HOLDINGS, INC. (b) 05/15/11 (10.000% 11/15/07) (a) 3,025,000 2,253,625 STANDARD PACIFIC CORP. 9.250% 04/15/12 2,470,000 2,642,900 WII COMPONENTS, INC. 10.000% 02/15/12 (a) 1,760,000 1,733,600 WILLIAM LYON HOMES, INC. 10.750% 04/01/13 1,245,000 1,378,838 Building Construction Total 23,918,113 ----------- CONSTRUCTION TOTAL 23,918,113 CONSUMER STAPLES - 0.3% HOUSEHOLD PRODUCTS - 0.3% ELIZABETH ARDEN, INC. 7.750% 01/15/14 (a) 1,365,000 1,358,175 PLAYTEX PRODUCTS, INC. 9.375% 06/01/11 2,960,000 2,856,400 Household Products Total 4,214,575 ----------- CONSUMER STAPLES TOTAL 4,214,575 FINANCE, INSURANCE & REAL ESTATE - 1.8% DEPOSITORY INSTITUTIONS - 0.3% DOLLAR FINANCIAL GROUP 9.750% 11/15/11 2,120,000 2,162,400 WESTERN FINANCIAL BANK 9.625% 05/15/12 1,090,000 1,182,650 Depository Institutions Total 3,345,050
See notes to investment portfolio. 7
PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ FINANCIAL SERVICES - 1.3% FINOVA GROUP, INC. 7.500% 11/15/09 USD 3,035,929 1,669,761 GLOBAL CASH ACCESS LLC/ GLOBAL CASH FINANCE CORP. 8.750% 03/15/12 (a) 1,740,000 1,800,900 LABRANCHE & CO. 11.000% 05/15/12 (a) 2,720,000 2,774,400 MDP ACQUISITIONS PLC 9.625% 10/01/12 2,800,000 3,024,000 ORION POWER HOLDINGS, INC. 12.000% 05/01/10 1,405,000 1,707,075 PEMEX FINANCE LTD. 9.150% 11/15/18 2,485,000 3,024,444 10.610% 08/15/17 1,650,000 2,175,393 Financial Services Total 16,175,973 REAL ESTATE - 0.2% FOREST CITY ENTERPRISES, INC. 7.625% 06/01/15 1,020,000 1,055,700 THORNBURG MORTGAGE, INC. 8.000% 05/15/13 1,545,000 1,521,825 Real Estate Total 2,577,525 ----------- FINANCE, INSURANCE & REAL ESTATE TOTAL 22,098,548 MANUFACTURING - 11.3% APPAREL - 0.5% BRODER BROTHERS CO. 11.250% 10/15/10 1,360,000 1,312,400 LEVI STRAUSS & CO. 12.250% 12/15/12 2,180,000 1,983,800 PHILLIPS VAN-HEUSEN 7.250% 02/15/11 (a) 815,000 815,000 8.125% 05/01/13 850,000 879,750 WARNACO, INC. 8.875% 06/15/13 610,000 645,075 Apparel Total 5,636,025 AUTO PARTS & EQUIPMENT - 0.3% DELCO REMY INTERNATIONAL, INC. 9.375% 04/15/12 (a) 340,000 328,950 11.000% 05/01/09 1,355,000 1,422,750 REXNORD CORP. 10.125% 12/15/12 1,040,000 1,123,200 TRW AUTOMOTIVE, INC. 9.375% 02/15/13 (a) 415,000 459,612 Auto Parts & Equipment Total 3,334,512 CHEMICALS & ALLIED PRODUCTS - 2.0% AVECIA GROUP PLC 11.000% 07/01/09 2,320,000 1,705,200 EQUISTAR CHEMICALS FUNDING LP 10.125% 09/01/08 1,625,000 1,763,125 10.625% 05/01/11 1,125,000 1,231,875 HUNTSMAN ICI HOLDINGS LLC (d) 12/31/09 11,835,000 5,799,150
See notes to investment portfolio. 8
PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ IMC GLOBAL, INC. 10.875% 08/01/13 (a) USD 1,835,000 2,202,000 INVISTA 9.250% 05/01/12 (a) 1,150,000 1,141,375 LYONDELL CHEMICAL CO. 9.625% 05/01/07 725,000 754,000 9.875% 05/01/07 1,350,000 1,404,000 NOVA CHEMICALS CORP. 6.500% 01/15/12 780,000 766,155 TERRA CAPITAL, INC. 12.875% 10/15/08 2,990,000 3,558,100 UAP HOLDING CORP. (b) 07/15/12 (10.750% 01/15/08) (a) 1,630,000 1,271,400 UNITED AGRICULTURE PRODUCTS, INC. 8.250% 12/15/11 (a) 1,395,000 1,562,400 WESTLAKE CHEMICAL CORP. 8.750% 07/15/11 (a) 1,180,000 1,274,400 Chemicals & Allied Products Total 24,433,180 ELECTRONIC & ELECTRICAL EQUIPMENT - 0.3% AMKOR TECHNOLOGY, INC. 9.250% 02/15/08 1,800,000 1,899,000 CONDOR SYSTEMS, INC. 11.875% 05/01/09 (e) 4,000,000 280,000 TRANSDIGM, INC. 8.375% 07/15/11 (a) 1,175,000 1,186,750 XEROX CORP. 7.125% 06/15/10 960,000 960,000 Electronic & Electrical Equipment Total 4,325,750 FABRICATED METAL - 0.2% EARLE M. JORGENSEN & CO. 9.750% 06/01/12 2,800,000 3,052,000 Fabricated Metal Total 3,052,000 FOOD & KINDRED PRODUCTS - 1.4% CONSTELLATION BRANDS, INC. 8.125% 01/15/12 1,175,000 1,233,750 DEL MONTE CORP. 9.250% 05/15/11 1,600,000 1,716,000 DOLE FOOD CO., INC. 8.625% 05/01/09 1,485,000 1,499,850 MERISANT CO. 9.500% 07/15/13 (a) 1,205,000 1,289,350 PINNACLE FOODS HOLDINGS 8.250% 12/01/13 (a) 2,190,000 2,162,625 PREMIER INTERNATIONAL FOODS PLC 12.000% 09/01/09 4,600,000 4,887,500 ROUNDY'S, INC. 8.875% 06/15/12 2,615,000 2,798,050 TABLETOP HOLDINGS, INC. (b) 05/15/14 (12.250% 11/15/08) (a) 2,930,000 1,640,800 Food & Kindred Products Total 17,227,925
See notes to investment portfolio. 9
PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ FURNITURE & FIXTURES - 0.3% JUNO LIGHTING, INC. 11.875% 07/01/09 USD 1,862,000 1,983,030 NORCRAFT COMPANIES 9.000% 11/01/11 (a) 835,000 880,925 TEMPUR-PEDIC, INC. 10.250% 08/15/10 1,024,000 1,157,120 Furniture & Fixtures Total 4,021,075 LUMBER & WOOD PRODUCTS - 0.1% MILLAR WESTERN FOREST PRODUCTS 7.750% 11/15/13 (a) 1,260,000 1,266,300 Lumber & Wood Products Total 1,266,300 MISCELLANEOUS MANUFACTURING - 2.4% AMSCAN HOLDINGS, INC. 8.750% 05/01/14 (a) 1,855,000 1,845,725 APPLIED EXTRUSION TECHNOLOGIES, INC. 10.750% 07/01/11 1,620,000 1,028,700 CROWN EUROPEAN HOLDINGS SA 10.875% 03/01/13 1,800,000 2,016,000 FASTENTECH, INC. 11.500% 05/01/11 (a) 2,475,000 2,660,625 FLOWSERVE CORP. 12.250% 08/15/10 1,889,000 2,134,570 HEXCEL CORP. 9.750% 01/15/09 1,385,000 1,443,863 J.B. POINDEXTER & CO. 8.750% 03/15/14 (a) 1,835,000 1,807,475 KOPPERS INDUSTRIES, INC. 9.875% 10/15/13 (a) 2,180,000 2,343,500 MAAX CORP. 9.750% 06/15/12 (a)(f) 1,080,000 1,107,000 MUELLER GROUP, INC. 10.000% 05/01/12 (a) 1,580,000 1,619,500 NEWCOR, INC., PIK 8.500% 01/31/13 (g) 847,510 516,981 OWENS-ILLINOIS, INC. 7.350% 05/15/08 1,950,000 1,872,000 7.500% 05/15/10 440,000 413,600 SPX CORP. 7.500% 01/01/13 1,575,000 1,602,562 SUPERIOR ESSEX COMMUNICATIONS GROUP 9.000% 04/15/12 (a) 1,420,000 1,356,100 TEKNI-PLEX, INC. 12.750% 06/15/10 2,715,000 2,715,000 TEREX CORP. Series 2001 B, 10.375% 04/01/11 1,700,000 1,887,000 TRINITY INDUSTRIES, INC. 6.500% 03/15/14 (a) 740,000 695,600 VALMONT INDUSTRIES, INC. 6.875% 05/01/14 (a) 570,000 558,600 Miscellaneous Manufacturing Total 29,624,401
See notes to investment portfolio. 10
PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ PAPER PRODUCTS - 0.8% BUCKEYE TECHNOLOGIES, INC. 8.500% 10/01/13 (a) USD 390,000 397,800 CARAUSTAR INDUSTRIES, INC. 9.875% 04/01/11 1,605,000 1,596,975 CONSOLIDATED CONTAINER CO. (b) 06/15/09 (10.750% 06/15/07) (a) 1,500,000 1,117,500 GEORGIA-PACIFIC CORP. 8.000% 01/15/24 (a) 750,000 729,375 NEWARK GROUP, INC. 9.750% 03/15/14 (a) 1,100,000 1,039,500 NORSKE SKOG CANADA LTD. 7.375% 03/01/14 (a) 565,000 552,491 8.625% 06/15/11 850,000 896,750 PORTOLA PACKAGING, INC. 8.250% 02/01/12 (a) 1,170,000 976,950 SMURFIT-STONE CONTAINER CORP. 8.250% 10/01/12 1,600,000 1,624,000 SOLO CUP CO. 8.500% 02/15/14 (a) 775,000 775,000 TEMBEC INDUSTRIES, INC. 8.500% 02/01/11 610,000 603,900 Paper Products Total 10,310,241 PRIMARY METAL - 0.7% BAYOU STEEL CORP. 9.000% 03/31/11 750,000 678,750 KAISER ALUMINUM & CHEMICAL CORP. 10.875% 10/15/06 (e) 3,200,000 3,168,000 METALLURG, INC. 11.000% 12/01/07 2,200,000 1,056,000 OREGON STEEL MILLS, INC. 10.000% 07/15/09 1,405,000 1,447,150 STEEL DYNAMICS, INC. 9.500% 03/15/09 (a) 460,000 503,700 9.500% 03/15/09 480,000 525,600 WISE METALS GROUP LLC 10.250% 05/15/12 (a) 1,725,000 1,742,250 Primary Metal Total 9,121,450 PRINTING & PUBLISHING - 1.7% DEX MEDIA, INC. (b) 11/15/13 (9.000% 11/15/08) (a) 1,375,000 886,875 8.000% 11/15/13 (a) 1,800,000 1,710,000 DEX MEDIA EAST LLC 12.125% 11/15/12 3,080,000 3,588,200 DEX MEDIA WEST LLC 9.875% 08/15/13 1,660,000 1,828,075 HAIGHTS CROSS COMMUNICATIONS, INC. (b) 08/15/11 (12.500% 02/01/09) (a) 1,735,000 945,575 11.750% 08/15/11 1,600,000 1,720,000
See notes to investment portfolio. 11
PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ HOLLINGER, INC. 11.875% 03/01/11 (a) USD 1,780,000 2,069,250 PRIMEDIA, INC. 8.875% 05/15/11 2,330,000 2,324,175 SHERIDAN GROUP 10.250% 08/15/11 (a) 1,290,000 1,364,175 VON HOFFMAN CORP. 10.250% 03/15/09 3,250,000 3,233,750 YELL FINANCE BV 10.750% 08/01/11 1,560,000 1,809,600 Printing & Publishing Total 21,479,675 STONE, CLAY, GLASS & CONCRETE - 0.2% OWENS-BROCKWAY GLASS CONTAINER 8.250% 05/15/13 340,000 336,600 US CONCRETE, INC. 8.375% 04/01/14 (a) 1,480,000 1,468,900 Stone, Clay, Glass & Concrete Total 1,805,500 TEXTILE MILL PRODUCTS - 0.1% COLLINS & AIKMAN FLOOR COVERING, INC. 9.750% 02/15/10 1,400,000 1,421,000 Textile Mill Products Total 1,421,000 TOBACCO PRODUCTS - 0.1% NORTH ATLANTIC TRADING 9.250% 03/01/12 (a) 1,245,000 1,241,887 Tobacco Products Total 1,241,887 TRANSPORTATION EQUIPMENT - 0.2% SEQUA CORP. 8.875% 04/01/08 1,160,000 1,229,600 TEEKAY SHIPPING CORP. 8.875% 07/15/11 700,000 766,500 Transportation Equipment Total 1,996,100 ----------- MANUFACTURING TOTAL 140,297,021 MINING & ENERGY - 4.0% METAL MINING - 0.3% TRIMAS CORP. 9.875% 06/15/12 4,165,000 4,435,725 Metal Mining Total 4,435,725 OIL & GAS EXTRACTION - 3.5% BENTON OIL & GAS CO. 9.375% 11/01/07 2,445,000 2,493,900 CHESAPEAKE ENERGY CORP. 7.500% 06/15/14 (a) 720,000 741,600 COASTAL CORP. 7.750% 06/15/10 3,550,000 3,124,000 COMPTON PETROLEUM CORP. 9.900% 05/15/09 2,200,000 2,387,000 DENBURY RESOURCES, INC. 7.500% 04/01/13 455,000 455,000 DYNEGY HOLDINGS, INC. 6.875% 04/01/11 1,895,000 1,553,900 9.875% 07/15/10 (a) 960,000 1,008,000
See notes to investment portfolio. 12
PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ ENCORE ACQUISITION CO. 8.375% 06/15/12 USD 1,885,000 1,998,100 ENERGY PARTNERS LTD. 8.750% 08/01/10 1,150,000 1,190,250 FOREST OIL CORP. 8.000% 06/15/08 2,405,000 2,531,262 GAZPROM 9.625% 03/01/13 5,760,000 5,909,760 MAGNUM HUNTER RESOURCES, INC. 9.600% 03/15/12 2,265,000 2,468,850 NORTHWEST PIPELINE CORP. 8.125% 03/01/10 760,000 816,050 PDVSA FINANCE LTD. 6.250% 02/15/06 EUR 2,629,900 3,171,100 PREMCOR REFINING GROUP 7.500% 06/15/15 USD 1,430,000 1,458,600 SONAT, INC. 6.875% 06/01/05 1,000,000 1,002,500 7.625% 07/15/11 4,230,000 3,690,675 SOUTHERN NATURAL GAS CO. 8.875% 03/15/10 1,335,000 1,448,475 TRANSTEXAS GAS CORP. 15.000% 03/15/05 (g)(h) 465,296 5 WHITING PETROLEUM CORP. 7.250% 05/01/12 (a) 2,290,000 2,295,725 WILLIAMS COMPANIES, INC. 8.125% 03/15/12 3,330,000 3,513,150 Oil & Gas Extraction Total 43,257,902 OIL & GAS FIELD SERVICES - 0.2% J. RAY McDERMOTT SA 11.000% 12/15/13 (a) 1,010,000 956,975 NEWPARK RESOURCES, INC. 8.625% 12/15/07 1,560,000 1,599,000 Oil & Gas Field Services Total 2,555,975 ----------- MINING & ENERGY TOTAL 50,249,602 RETAIL TRADE - 0.6% MISCELLANEOUS RETAIL - 0.6% FINLAY FINE JEWELRY CORP. 8.375% 06/01/12 (a)(f) 1,460,000 1,485,550 LEINER HEALTH PRODUCTS 11.000% 06/01/12 (a) 430,000 445,050 NEBRASKA BOOK CO. 8.625% 03/15/12 (a) 1,100,000 1,086,250 RITE AID CORP. 9.250% 06/01/13 2,435,000 2,495,875 SAKS, INC. 7.000% 12/01/13 533,000 525,005 STEINWAY MUSICAL INSTRUMENTS, INC. 8.750% 04/15/11 1,260,000 1,360,800 Miscellaneous Retail Total 7,398,530 ----------- RETAIL TRADE TOTAL 7,398,530
See notes to investment portfolio. 13
PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ SERVICES - 6.9% AMUSEMENT & RECREATION - 3.6% AMERICAN CASINO & ENTERTAINMENT 7.850% 02/01/12 (a) USD 2,130,000 2,135,325 AMERISTAR CASINOS, INC. 10.750% 02/15/09 1,750,000 2,003,750 AMF BOWLING WORLDWIDE, INC. 10.000% 03/01/10 (a) 1,340,000 1,360,100 BOMBARDIER RECREATIONAL 8.375% 12/15/13 (a) 2,605,000 2,448,700 BOYD GAMING CORP. 8.750% 04/15/12 780,000 828,750 CINEMARK, INC. (b) 03/15/14 (9.750% 03/15/09) (a) 2,290,000 1,454,150 CIRCUS & ELDORADO/SILVER LEGACY CAPITAL CORP. 10.125% 03/01/12 1,495,000 1,491,263 EQUINOX HOLDINGS, INC. 9.000% 12/15/09 (a) 2,130,000 2,140,650 HOLLYWOOD CASINO SHREVEPORT 13.000% 08/01/06 (h) 5,220,000 3,862,800 INN OF THE MOUNTAIN GODS RESORT 12.000% 11/15/10 (a) 1,360,000 1,475,600 MOHEGAN TRIBAL GAMING AUTHORITY 8.000% 04/01/12 1,575,000 1,661,625 8.375% 07/01/11 1,285,000 1,374,950 PARK PLACE ENTERTAINMENT CORP. 9.375% 02/15/07 660,000 712,800 PINNACLE ENTERTAINMENT, INC. 8.250% 03/15/12 (a) 3,500,000 3,316,250 8.750% 10/01/13 1,990,000 1,950,200 PREMIER ENTERTAINMENT BILOXI FINANCIAL 10.750% 02/01/12 (a) 1,120,000 1,178,800 RIVER ROCK ENTERTAINMENT 9.750% 11/01/11 (a) 1,830,000 1,939,800 SENECA GAMING CORP. 7.250% 05/01/12 (a) 1,860,000 1,841,400 SIX FLAGS, INC. 9.500% 02/01/09 4,045,000 4,120,844 STATION CASINOS, INC. 6.000% 04/01/12 925,000 881,062 6.875% 03/01/16 1,590,000 1,502,550 TOWN SPORTS INTERNATIONAL, INC. (b) 02/01/14 (11.000% 02/01/09) (a) 2,250,000 1,113,750 VAIL RESORTS, INC. 6.750% 02/15/14 (a) 1,420,000 1,320,600 WARNER MUSIC GROUP 7.375% 04/15/14 (a) 1,820,000 1,774,500 WYNN LAS VEGAS LLC 12.000% 11/01/10 1,190,000 1,392,300 Amusement & Recreation Total 45,282,519
See notes to investment portfolio. 14
PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ AUTO EQUIPMENT & RENTAL SERVICES - 1.0% ACCURIDE CORP. 9.250% 02/01/08 USD 875,000 890,313 ASBURY AUTOMOTIVE GROUP 8.000% 03/15/14 1,630,000 1,507,750 DANA CORP. 9.000% 08/15/11 784,000 887,880 DURA OPERATING CORP. 8.625% 04/15/12 2,125,000 2,146,250 9.000% 05/01/09 1,780,000 1,726,600 NATIONSRENT, INC. 9.500% 10/15/10 (a) 2,475,000 2,623,500 NAVISTAR INTERNATIONAL 7.500% 06/15/11 (f) 755,000 756,888 WILLIAMS SCOTSMAN, INC. 9.875% 06/01/07 1,130,000 1,113,050 Auto Equipment & Rental Services Total 11,652,231 BUSINESS SERVICES - 0.1% STRATUS TECHNOLOGIES, INC. 10.375% 12/01/08 (a) 1,135,000 1,106,625 Business Services Total 1,106,625 FUNERAL SERVICES - 0.2% SERVICE CORP. INTERNATIONAL 7.700% 04/15/09 2,385,000 2,468,475 Funeral Services Total 2,468,475 HEALTH SERVICES - 1.6% BIO-RAD LABORATORIES, INC. 7.500% 08/15/13 2,020,000 2,090,700 COVENTRY HEALTH CARE, INC. 8.125% 02/15/12 2,550,000 2,843,250 HCA, INC. 8.750% 09/01/10 1,815,000 2,041,076 INSIGHT HEALTH SERVICES CORP. 9.875% 11/01/11 2,160,000 2,197,800 MEDQUEST, INC. 11.875% 08/15/12 2,700,000 3,037,500 PACIFICARE HEALTH SYSTEMS, INC. 10.750% 06/01/09 591,000 675,218 TEAM HEALTH, INC. 9.000% 04/01/12 (a) 1,600,000 1,512,000 TENET HEALTHCARE CORP. 5.375% 11/15/06 675,000 636,188 6.375% 12/01/11 3,080,000 2,618,000 UNITED SURGICAL PARTNERS INTERNATIONAL, INC. 10.000% 12/15/11 2,235,000 2,519,962 Health Services Total 20,171,694 HOTELS, CAMPS & LODGING - 0.2% HARD ROCK HOTEL, INC. 8.875% 06/01/13 1,240,000 1,258,600 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. 7.875% 05/01/12 (a) 1,505,000 1,584,012 Hotels, Camps & Lodging Total 2,842,612
See notes to investment portfolio. 15
PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ OTHER SERVICES - 0.2% CORRECTIONS CORP. OF AMERICA 9.875% 05/01/09 USD 850,000 939,250 GEO GROUP, INC. 8.250% 07/15/13 940,000 925,900 Other Services Total 1,865,150 ----------- SERVICES TOTAL 85,389,306 TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 13.1% AEROSPACE - 0.2% BE AEROSPACE, INC. 8.875% 05/01/11 2,095,000 1,979,775 VOUGHT AIRCRAFT INDUSTRIES, INC. 8.000% 07/15/11 (a) 965,000 923,987 Aerospace Total 2,903,762 AIR TRANSPORTATION - 0.9% CHC HELICOPTER CORP. 7.375% 05/01/14 (a) 1,450,000 1,417,375 CONTINENTAL AIRLINES, INC. 7.568% 12/01/06 2,170,000 1,833,650 DELTA AIR LINES, INC. 7.900% 12/15/09 2,965,000 1,482,500 NORTHWEST AIRLINES, INC. 9.875% 03/15/07 2,520,000 1,864,800 PETROLEUM HELICOPTERS, INC. 9.375% 05/01/09 2,710,000 2,818,400 UNITED AIRLINES 1.340% 03/02/49 (i) 1,932,885 1,807,247 Air Transportation Total 11,223,972 BROADCASTING - 1.7% ADVANSTAR COMMUNICATIONS, INC. 12.000% 02/15/11 3,395,000 3,598,700 CANWEST MEDIA, INC. 10.625% 05/15/11 2,465,000 2,760,800 GRANITE BROADCASTING CORP. 9.750% 12/01/10 (a) 2,290,000 2,186,950 QUEBECOR MEDIA, INC. 11.125% 07/15/11 3,500,000 3,963,750 SINCLAIR BROADCAST GROUP, INC. 8.750% 12/15/11 960,000 1,027,200 SPANISH BROADCASTING SYSTEM 9.625% 11/01/09 2,450,000 2,584,750 TV AZTECA SA DE CV 10.500% 02/15/07 3,755,000 3,745,612 XM SATELLITE RADIO, INC. 6.650% 05/01/09 (a)(i) 1,380,000 1,380,000 Broadcasting Total 21,247,762 CABLE - 2.1% ATLANTIC BROADBAND FINANCIAL 9.375% 01/15/14 (a) 1,965,000 1,827,450 CABLEVISION SYSTEMS CORP. 5.670% 04/01/09 (a)(i) 1,580,000 1,611,600
See notes to investment portfolio. 16
PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ CHARTER COMMUNICATIONS HOLDING LLC 9.920% 04/01/11 USD 9,635,000 7,876,613 10.250% 09/15/10 (a) 1,130,000 1,146,950 CSC HOLDINGS, INC. 6.750% 04/15/12 (a) 910,000 873,600 7.625% 04/01/11 180,000 182,250 DIRECTV HOLDINGS LLC 8.375% 03/15/13 1,800,000 1,998,000 ECHOSTAR DBS CORP. 6.375% 10/01/11 (a) 2,460,000 2,398,500 INSIGHT COMMUNICATIONS, INC. (b) 02/15/11 (12.250% 02/15/06) 2,485,000 2,186,800 NORTHLAND CABLE TELEVISION, INC. 10.250% 11/15/07 2,835,000 2,785,388 NTL CABLE PLC 8.750% 04/15/14 (a) 1,365,000 1,385,475 PEGASUS SATELLITE COMMUNICATIONS, INC. 11.250% 01/15/10 (a)(e) 1,090,000 599,500 TELENET GROUP HOLDING NV (b) 06/15/14 (11.500% 12/15/08) (a) 2,210,000 1,359,150 Cable Total 26,231,276 COMMUNICATION SERVICES - 0.5% FAIRPOINT COMMUNICATIONS 11.875% 03/01/10 1,670,000 1,895,450 LUCENT TECHNOLOGIES, INC. 6.450% 03/15/29 1,100,000 830,500 SBA COMMUNICATIONS CORP. (b) 12/15/11 (9.750% 12/15/07) (a) 1,100,000 805,750 10.250% 02/01/09 3,245,000 3,220,662 Communications Services Total 6,752,362 ELECTRIC, GAS & SANITARY SERVICES - 0.6% ALLIED WASTE NORTH AMERICA, INC. 6.500% 11/15/10 (a) 1,855,000 1,794,713 Series 2001 B, 8.500% 12/01/08 3,600,000 3,888,000 WASTE SERVICES, INC. 9.500% 04/15/14 (a) 1,170,000 1,178,775 Electric, Gas & Sanitary Services Total 6,861,488 ELECTRIC SERVICES - 2.4% AES CORP. 9.000% 05/15/15 (a) 2,985,000 3,164,100 9.500% 06/01/09 1,646,000 1,711,840 BEAVER VALLEY FUNDING CORP. 9.000% 06/01/17 2,260,000 2,553,800 CAITHNESS COSO FUNDING CORP. 9.050% 12/15/09 2,720,250 2,937,870 CALPINE CORP. 8.500% 07/15/10 (a) 2,080,000 1,742,000 CMS ENERGY CORP. 8.900% 07/15/08 2,360,000 2,472,100
See notes to investment portfolio. 17
PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ EDISON MISSION ENERGY 9.875% 04/15/11 USD 2,290,000 2,290,000 ILLINOVA POWER CO. 11.500% 12/15/10 850,000 1,000,875 MSW ENERGY HOLDINGS FINANCE 7.375% 09/01/10 (a) 800,000 788,000 8.500% 09/01/10 (a) 2,250,000 2,328,750 NEVADA POWER CO. 9.000% 08/15/13 (a) 1,060,000 1,146,125 10.875% 10/15/09 2,025,000 2,278,125 PSE&G ENERGY HOLDINGS, INC. 8.625% 02/15/08 2,495,000 2,682,125 UCAR FINANCE, INC. 10.250% 02/15/12 2,200,000 2,431,000 Electric Services Total 29,526,710 MARINE SERVICES - 0.4% SHIP FINANCE INTERNATIONAL LTD. 8.500% 12/15/13 (a) 3,230,000 3,010,941 STENA AB 7.500% 11/01/13 900,000 904,500 9.625% 12/01/12 1,425,000 1,610,250 Marine Services Total 5,525,691 MOTOR FREIGHT & WAREHOUSING - 0.3% ALLIED HOLDINGS, INC. 8.625% 10/01/07 1,410,000 1,328,925 QDI CAPITAL CORP. 9.000% 11/15/10 (a) 2,060,000 1,936,400 Motor Freight & Warehousing Total 3,265,325 RADIO & TELEPHONE COMMUNICATIONS - 1.9% AIRGATE PCS, INC. 9.375% 09/01/09 362,600 355,348 AMERICAN CELLULAR CORP. Series B, 10.000% 08/01/11 1,430,000 1,254,825 CINCINNATI BELL, INC. 8.375% 01/15/14 1,815,000 1,633,500 DOBSON COMMUNICATIONS CORP. 8.875% 10/01/13 2,580,000 2,018,850 HORIZON PCS, INC. 13.750% 06/15/11 (e) 2,975,000 1,041,250 iPCS ESCROW CO. 11.500% 05/01/12 (a) 705,000 715,575 NEXTEL COMMUNICATIONS, INC. 7.375% 08/01/15 4,200,000 4,242,000 NEXTEL PARTNERS, INC. 8.125% 07/01/11 2,425,000 2,485,625 ROGERS CANTEL, INC. 9.750% 06/01/16 3,350,000 3,852,500 RURAL CELLULAR CORP. 8.250% 03/15/12 (a) 1,095,000 1,125,112 US UNWIRED, INC. (b) 11/01/09 (13.375% 11/01/04) 4,535,000 4,716,400 Radio & Telephone Communications Total 23,440,985
See notes to investment portfolio. 18
PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ RAILROAD - 0.3% KANSAS CITY SOUTHERN 7.500% 06/15/09 USD 1,285,000 1,297,850 TFM SA DE CV 12.500% 06/15/12 2,210,000 2,342,600 Railroad Total 3,640,450 TELECOMMUNICATION SERVICES - 1.8% AMERICAN TOWERS, INC. 7.250% 12/01/11 (a) 1,150,000 1,144,250 AXTEL SA 11.000% 12/15/13 (a) 2,260,000 2,124,400 CARRIER1 INTERNATIONAL SA 13.250% 02/15/09 (e) 6,000,000 540,000 INSIGHT MIDWEST 9.750% 10/01/09 (a) 1,385,000 1,457,712 LEVEL 3 COMMUNICATIONS 10.500% 12/01/08 2,370,000 1,824,900 QWEST CAPITAL FUNDING 7.250% 02/15/11 4,830,000 3,996,825 7.750% 02/15/31 2,065,000 1,600,375 QWEST SERVICES CORP. 13.500% 12/15/10 (a) 3,700,000 4,259,625 SPECTRASITE, INC. 8.250% 05/15/10 (a) 1,120,000 1,159,200 TIME WARNER TELECOM, INC. 9.750% 07/15/08 2,120,000 1,982,200 10.125% 02/01/11 750,000 678,750 WESTERN WIRELESS CORP. 9.250% 07/15/13 2,015,000 2,083,006 Telecommunication Services Total 22,851,243 ----------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES TOTAL 163,471,026 UTILITY -- 0.4% INDEPENDENT POWER PRODUCERS - 0.4% CALPINE CANADA ENERGY FINANCE 8.500% 05/01/08 1,155,000 687,225 CALPINE GENERATING CO. 10.250% 04/01/11 (a)(i) 2,030,000 1,786,400 11.500% 04/01/11 (a) 2,260,000 1,943,600 NRG ENERGY, INC. 8.000% 12/15/13 (a) 775,000 775,000 Independent Power Producers Total 5,192,225 ----------- UTILITY TOTAL 5,192,225 ----------- TOTAL CORPORATE FIXED-INCOME BONDS & NOTES (COST OF $494,445,394) 505,287,506
See notes to investment portfolio. 19
U.S. GOVERNMENT AGENCIES & OBLIGATIONS - 25.2% PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ FEDERAL HOME LOAN MORTGAGE CORP. 5.000% 08/25/10 USD 8,600,000 8,616,529 7.500% 03/01/16 12,588 13,134 8.000% 04/01/06-05/01/16 93,952 98,086 8.500% 02/01/07-07/01/10 86,168 91,609 8.750% 06/01/08-07/01/08 14,913 15,842 9.000% 09/01/04-01/01/22 104,072 113,970 9.250% 08/01/08-05/01/16 96,228 106,065 9.500% 11/01/08-08/01/16 72,903 79,326 9.750% 12/01/08-09/01/16 11,720 12,754 10.000% 07/01/09-11/01/19 155,747 170,168 10.500% 11/01/11-10/01/24 104,198 117,230 10.750% 05/01/10-09/01/13 179,030 198,097 11.250% 10/01/10-11/01/15 151,144 169,472 Federal Home Loan Mortgage Corp. Total 9,802,282 FEDERAL NATIONAL MORTGAGE ASSOCIATION 7.500% 02/01/06-11/01/11 29,609 30,369 8.000% 07/01/08-07/01/09 61,408 65,079 8.250% 11/01/07 31,038 31,961 8.500% 05/01/08-09/01/21 186,983 198,403 9.000% 11/01/08-08/01/21 502,849 547,762 9.250% 05/01/16 97,593 109,037 10.000% 11/01/13-03/01/16 277,720 310,749 10.500% 09/01/07-03/01/16 286,829 320,759 To Be Announced, 6.500% 06/03/34 (f) 60,590,000 62,729,554 Federal National Mortgage Association Total 64,343,673 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 8.500% 02/15/06 3,670 3,873 9.000% 08/15/08-12/15/17 1,524,676 1,697,773 9.500% 06/15/09-11/15/17 739,141 815,584 10.000% 11/15/09-09/15/21 191,939 213,873 10.500% 12/15/10-04/15/21 59,119 66,442 11.000% 12/15/09-10/15/15 330,331 372,380 11.750% 08/15/13 9,051 10,250 12.000% 05/15/14 549 628 Government National Mortgage Association Total 3,180,803 U.S. TREASURY NOTES & BONDS 4.875% 02/15/12 3,500,000 3,603,495 7.500% 11/15/24 12,000,000 15,109,692 8.875% 02/15/19 9,000,000 12,411,207 10.375% 11/15/12 52,000,000 63,911,224 10.625% 08/15/15 29,415,000 44,076,554 11.625% 11/15/04 23,600,000 24,689,659 12.500% 08/15/14 52,151,000 73,145,845 U.S. Treasury Notes & Bonds Total 236,947,676 ----------- TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS (COST OF $330,374,314) 314,274,434
See notes to investment portfolio. 20
FOREIGN GOVERNMENT OBLIGATIONS - 32.7% PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ EUROPEAN INVESTMENT BANK 7.625% 12/07/07 GBP 5,110,000 9,997,856 GOVERNMENT OF CANADA 10.000% 06/01/08 CAD 24,110,000 21,676,816 GOVERNMENT OF HUNGARY 6.250% 06/12/07 HUF 750,000,000 3,298,170 GOVERNMENT OF NEW ZEALAND 6.000% 11/15/11 NZD 21,400,000 13,335,261 6.500% 04/15/13 27,600,000 17,713,017 GOVERNMENT OF NORWAY 5.500% 05/15/09 NOK 41,770,000 6,600,721 GOVERNMENT OF SWEDEN 5.000% 01/28/09 SEK 153,580,000 21,526,499 5.500% 10/08/12 54,300,000 7,769,005 6.750% 05/05/14 35,625,000 5,559,656 KINGDOM OF SPAIN 5.500% 07/30/17 EUR 7,635,000 10,145,152 MINISTRY OF FINANCE RUSSIA 12.750% 06/24/28 USD 7,430,000 10,818,080 POLAND GOVERNMENT BOND 8.500% 05/12/07 PLN 29,915,000 8,080,101 REPUBLIC OF BRAZIL 2.125% 04/15/12 (i) USD 3,952,956 3,231,542 9.250% 10/22/10 4,180,000 3,866,500 11.000% 08/17/40 3,725,000 3,337,600 11.500% 04/02/09 EUR 4,250,000 5,304,671 14.500% 10/15/09 USD 12,750,000 14,439,375 REPUBLIC OF BULGARIA 2.000% 07/28/24 (i) 8,160,000 8,139,600 8.250% 01/15/15 4,215,000 4,720,800 REPUBLIC OF COLOMBIA 10.000% 01/23/12 5,523,000 5,536,807 10.750% 01/15/13 2,830,000 2,929,050 11.500% 05/31/11 EUR 3,010,000 4,061,275 11.750% 02/25/20 USD 4,620,000 4,885,650 REPUBLIC OF GERMANY 5.375% 01/04/10 EUR 10,660,000 14,089,001 6.000% 07/04/07 10,280,000 13,596,657 REPUBLIC OF GREECE 5.350% 05/18/11 10,000,000 13,145,377 REPUBLIC OF ITALY 5.000% 02/01/12 23,170,000 29,819,608 REPUBLIC OF PANAMA 8.125% 04/28/34 USD 3,300,000 2,937,000 8.875% 09/30/27 3,230,000 3,076,575 REPUBLIC OF PERU 9.875% 02/06/15 6,100,000 6,161,000 REPUBLIC OF PHILIPPINES 8.250% 01/15/14 3,325,000 3,135,475 REPUBLIC OF SOUTH AFRICA 5.250% 05/16/13 EUR 7,230,000 8,475,067 6.500% 06/02/14 (f) USD 4,400,000 4,391,200 13.000% 08/31/10 ZAR 49,400,000 8,481,436
See notes to investment portfolio. 21
PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ REPUBLIC OF VENEZUELA 9.250% 09/15/27 USD 6,945,000 5,851,162 RUSSIAN FEDERATION 5.000% 03/31/30 8,260,000 7,526,925 11.000% 07/24/18 5,752,000 7,221,636 TREASURY OF CORP. OF VICTORIA 7.500% 08/15/08 AUD 21,815,000 16,567,745 UNITED KINGDOM TREASURY 5.000% 03/07/12 GBP 7,630,000 13,823,152 7.500% 12/07/06 5,410,000 10,474,049 9.000% 07/12/11 4,750,000 10,667,454 UNITED MEXICAN STATES 7.500% 03/08/10 EUR 5,040,000 6,886,431 7.500% 04/08/33 USD 16,450,000 16,055,200 11.375% 09/15/16 2,580,000 3,612,000 WESTERN AUSTRALIA TREASURY CORP. 7.000% 04/15/11 AUD 6,100,000 4,591,382 ----------- TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST OF $393,942,290) 407,558,736 CONVERTIBLE BONDS - 0.7% TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 0.6% COMMUNICATION SERVICES - 0.3% COLT TELECOM GROUP PLC 2.000% 03/29/06 (a) EUR 1,615,000 2,139,616 2.000% 12/16/06 (a) 750,000 1,018,814 Communication Services Total 3,158,430 RADIO & TELEPHONE COMMUNICATIONS - 0.3% NORTEL NETWORKS CORP. 4.250% 09/01/08 4,640,000 4,251,539 Radio & Telephone Communications Total 4,251,539 ----------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES TOTAL 7,409,969 UTILITY - 0.1% INDEPENDENT POWER PRODUCERS - 0.1% MIRANT CORP. 2.500% 06/15/21 (e) USD 1,565,000 869,185 Independent Power Producers Total 869,185 UTILITY TOTAL 869,185 ----------- TOTAL CONVERTIBLE BONDS (COST OF $7,129,608) 8,279,154
See notes to investment portfolio. 22
SHORT-TERM OBLIGATION - 5.0% PAR VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ Repurchase agreement with State Street Bank & Trust Co., dated 05/28/04, due 06/01/04 at 0.930%, collateralized by U.S. Treasury Bonds with various maturities to 08/15/23, market value $63,302,290 (repurchase proceeds $62,057,412) (Cost of $62,051,000) USD 62,051,000 62,051,000 TOTAL INVESTMENTS - 104.1% (COST OF $1,287,942,606)(j) 1,297,450,830 OTHER ASSETS & LIABILITIES, NET - (4.1)% (50,987,431) NET ASSETS - 100.0% 1,246,463,399
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 May 31, 2004, these securities amounted to $156,880,532, which represents 12.6% of net assets. (b) Step bond. This security is currently accruing at zero. Shown parenthetically is the interest rate to be paid and the date the Fund will begin accruing at this rate. (c) The issuer has filed for bankruptcy protection under Chapter 11 and is in default of certain debt covenants, however, under the issuer's plan of reorganization, the issuer has guaranteed all interest due and therefore income is still being accrued. As of May 31, 2004, the value of this security represents 0.1% of net assets. (d) Zero coupon bond. (e) The issuer has filed for bankruptcy protection under Chapter 11, and is in default of certain debt covenants. Income is not being accrued. As of May 31, 2004, the value of these securities amounted to $6,497,935, which represents 0.5% of net assets. (f) Security purchased on a delayed delivery basis. (g) Represents fair value as determined in good faith under procedures approved by the Board of Trustees. (h) The issuer is in default of certain debt covenants. Income is not being accrued. As of May 31, 2004, the value of these securities amounted to $3,862,805, which represents 0.3% of net assets. (i) Variable rate security. The interest rate shown reflects the rate as of May 31, 2004. (j) Cost for federal income tax purposes is $1,306,682,729. See notes to financial statements. 23 As of May 31, 2004, the Fund had entered into the following forward currency exchange contracts:
FORWARD CURRENCY AGGREGATE SETTLEMENT UNREALIZED CONTRACTS TO BUY VALUE FACE VALUE DATE APPRECIATION - ------------------------------------------------------------------------------------------- EUR 750,000 $ 915,921 $ 904,875 06/10/04 $ 11,046 FORWARD CURRENCY AGGREGATE SETTLEMENT UNREALIZED CONTRACTS TO SELL VALUE FACE VALUE DATE DEPRECIATION - ------------------------------------------------------------------------------------------- EUR 2,461,700 $ 3,006,297 $ 2,970,041 06/10/04 $ (36,256) EUR 13,480,000 16,459,091 16,041,200 06/17/04 (417,891) EUR 4,462,500 5,447,125 5,341,613 06/28/04 (105,512) EUR 3,751,000 4,578,636 4,489,947 06/28/04 (88,689) EUR 8,742,000 10,670,871 10,466,797 06/28/04 (204,074) EUR 4,135,000 5,047,364 4,953,317 06/28/04 (94,047) EUR 8,578,000 10,470,685 10,267,866 06/28/04 (202,819) GBP 3,530,000 6,456,005 6,240,687 06/21/04 (215,318) ------------- $ (1,364,606) -------------
ACRONYM NAME - ------------------------------------------------------------------------------------------- AUD Australian Dollar CAD Canadian Dollar EUR Euro Currency GBP British Pound HUF Hungarian Forint NOK Norwegian Krona NZD New Zealand Dollar PIK Payment-In-Kind PLN Polish Zloty SEK Swedish Krona USD United States Dollar ZAR South African Rand
See notes to financial statements. 24 STATEMENT OF ASSETS AND LIABILITIES MAY 31, 2004 COLUMBIA STRATEGIC INCOME FUND
($) - --------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at cost 1,287,942,606 ------------- Investments, at value 1,297,450,830 Foreign currency (cost of $64) 64 Net unrealized appreciation on foreign foreign currency contracts 11,046 Receivable for: Investments sold 6,899,955 Fund shares sold 649,013 Interest 24,225,659 Foreign tax reclaim 299,386 Deferred Trustees' compensation plan 46,441 Other assets 426,045 ------------- Total Assets 1,330,008,439 LIABILITIES Net unrealized depreciation on foreign forward currency contracts 1,364,606 Payable for: Investments purchased 8,042,964 Investments purchased on a delayed delivery basis 70,354,525 Fund shares repurchased 2,026,418 Investment advisory fee 680,425 Transfer agent fee 265,507 Pricing and bookkeeping fees 39,311 Trustees' fees 672 Custody fee 37,904 Distribution and service fees 603,016 Deferred Trustees' fees 46,441 Other liabilities 83,251 ------------- Total Liabilities 83,545,040 NET ASSETS 1,246,463,399 COMPOSITION OF NET ASSETS Paid-in capital 1,582,599,877 Undistributed net investment income 852,349 Accumulated net realized loss (345,199,303) Net unrealized appreciation (depreciation) on: Investments 9,508,224 Foreign currency translations (1,297,748) NET ASSETS 1,246,463,399 CLASS A Net assets 566,268,625 Shares outstanding 94,029,744 Net asset value per share 6.02(a) Maximum offering price per share ($6.02/0.9525) 6.32(b) CLASS B Net assets 408,344,968 Shares outstanding 67,847,746 Net asset value and offering price per share 6.02(a) CLASS C Net assets 41,520,284 Shares outstanding 6,893,767 Net asset value and offering price per share 6.02(a) CLASS J Net assets 229,179,272 Shares outstanding 38,130,411 Net asset value and redemption price per share 6.01(a) Maximum offering price per share ($6.01/0.9700) 6.20(b) CLASS Z Net assets 1,150,250 Shares outstanding 192,443 Net asset value, offering and redemption price per share 5.98
(a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. (b) On sales of $50,000 or more the offering price is reduced. See notes to financial statements. 25 STATEMENT OF OPERATIONS FOR THE YEAR ENDED MAY 31, 2004 COLUMBIA STRATEGIC INCOME FUND
($) - ----------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Interest 93,436,617 Dividends 276,935 Dollar roll fee income 1,037,319 ----------- Total Investment Income (net of foreign taxes withheld of $15,211) 94,750,871 EXPENSES Investment advisory fee 8,539,325 Distribution fee: Class B 3,435,613 Class C 331,418 Class J 861,452 Service fee: Class A 1,412,350 Class B 1,095,095 Class C 105,425 Class J 588,165 Transfer agent fee 2,806,115 Pricing and bookkeeping fees 417,531 Trustees' fees 42,296 Custody fee 238,067 Non-recurring costs (See Note 7) 36,826 Other expenses 420,377 ----------- Total Expenses 20,330,055 Fees waived by Distributor - Class C (66,227) Non-recurring costs assumed by Investment Advisor (See Note 7) (36,826) Custody earnings credit (7,307) ----------- Net Expenses 20,219,695 ----------- Net Investment Income 74,531,176 NET REALIZED AND UNREALIZED GAIN (LOSS) ON Net realized gain (loss) on: INVESTMENTS AND FOREIGN CURRENCY Investments 53,264,925 Foreign currency transactions (9,952,946) ----------- Net realized gain 43,311,979 Net change in unrealized appreciation/depreciation on: Investments (44,761,191) Foreign currency translations 5,234,964 ----------- Net change in unrealized appreciation/depreciation (39,526,227) ----------- Net Gain 3,785,752 ----------- Net Increase in Net Assets from Operations 78,316,928
See notes to financial statements. 26 STATEMENTS OF CHANGES IN NET ASSETS COLUMBIA STRATEGIC INCOME FUND
YEAR ENDED PERIOD ENDED YEAR ENDED MAY 31, MAY 31, DECEMBER 31, 2004 ($) 2003 (a) ($) 2002 ($) - ----------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS Net investment income 74,531,176 34,240,196 87,534,488 Net realized gain (loss) on investments and foreign currency transactions 43,311,979 13,443,603 (102,998,317) Net change in unrealized appreciation/ depreciation on investments and foreign currency translations (39,526,227) 92,604,312 113,060,240 ---------------------------------------------- Net Increase from Operations 78,316,928 140,288,111 97,596,411 DISTRIBUTIONS DECLARED TO SHAREHOLDERS From net investment income: Class A (42,467,084) (15,184,183) (42,003,370) Class B (29,338,162) (10,942,373) (32,234,724) Class C (2,896,843) (1,015,241) (2,719,136) Class J (16,932,962) (6,687,799) (20,199,908) Class Z (64,839) (12,062) (44,973) Return of capital: Class A - - (2,370,220) Class B - - (1,818,983) Class C - - (153,439) Class J - - (1,139,866) Class Z - - (2,538) ---------------------------------------------- Total Distributions Declared to Shareholders (91,699,890) (33,841,658) (102,687,157) SHARE TRANSACTIONS Class A: Subscriptions 68,039,895 28,881,303 76,999,338 Distributions reinvested 22,542,999 7,792,998 22,577,921 Redemptions (113,152,672) (39,518,059) (120,669,061) ---------------------------------------------- Net Decrease (22,569,778) (2,843,758) (21,091,802) Class B: Subscriptions 40,064,707 32,599,690 66,402,147 Distributions reinvested 16,158,239 5,920,067 18,557,348 Redemptions (128,322,218) (47,619,346) (159,845,033) ---------------------------------------------- Net Decrease (72,099,272) (9,099,589) (74,885,538) Class C: Subscriptions 8,693,636 6,567,113 10,711,255 Distributions reinvested 1,571,832 547,933 1,596,012 Redemptions (13,809,960) (3,831,655) (16,138,332) ---------------------------------------------- Net Increase (Decrease) (3,544,492) 3,283,391 (3,831,065) Class J: Subscriptions 5,771,627 4,260,615 7,970,201 Redemptions (32,286,028) (38,576,078) (59,088,986) ---------------------------------------------- Net Decrease (26,514,401) (34,315,463) (51,118,785) Class Z: Subscriptions 1,051,458 1,247,878 31,748 Distributions reinvested 55,898 11,438 47,503 Redemptions (1,113,389) (108,415) (1,932,379) ---------------------------------------------- Net Increase (Decrease) (6,033) 1,150,901 (1,853,128) Net Decrease from Share Transactions (124,733,976) (41,824,518) (152,780,318) ---------------------------------------------- Total Increase (Decrease) in Net Assets (138,116,938) 64,621,935 (157,871,064) NET ASSETS Beginning of period 1,384,580,337 1,319,958,402 1,477,829,466 End of period (including undistributed (overdistributed) net investment income of $852,349, $(11,558,453) and $(25,578,478), respectively) 1,246,463,399 1,384,580,337 1,319,958,402
(a) The Fund changed its fiscal year end from December 31 to May 31. See notes to financial statements. 27 STATEMENTS OF CHANGES IN NET ASSETS COLUMBIA STRATEGIC INCOME FUND
YEAR ENDED PERIOD ENDED YEAR ENDED MAY 31, MAY 31, DECEMBER 31, 2004 2003 (a) 2002 - ----------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: CHANGES IN SHARES Class A: Subscriptions 11,072,096 4,991,280 13,798,283 Issued for distributions reinvested 3,674,542 1,347,649 4,075,545 Redemptions (18,468,207) (6,828,570) (21,765,079) ---------------------------------------------- Net Decrease (3,721,569) (489,641) (3,891,251) Class B: Subscriptions 6,545,770 5,624,733 11,996,584 Issued for distributions reinvested 2,635,178 1,023,970 3,358,728 Redemptions (20,955,613) (8,229,830) (28,815,674) ---------------------------------------------- Net Decrease (11,774,665) (1,581,127) (13,460,362) Class C: Subscriptions 1,417,309 1,130,031 1,930,151 Issued for distributions reinvested 256,111 94,722 287,824 Redemptions (2,263,480) (658,217) (2,910,443) ---------------------------------------------- Net Increase (Decrease) (590,060) 566,536 (692,468) Class J: Subscriptions 931,651 724,787 1,438,451 Redemptions (5,247,368) (6,646,170) (10,581,690) ---------------------------------------------- Net Decrease (4,315,717) (5,921,383) (9,143,239) Class Z: Subscriptions 171,694 212,751 5,811 Issued for distributions reinvested 9,156 1,948 8,620 Redemptions (184,806) (18,781) (344,889) ---------------------------------------------- Net Increase (Decrease) (3,956) 195,918 (330,458)
(a) The Fund changed its fiscal year end from December 31 to May 31. See notes to financial statements. 28 NOTES TO FINANCIAL STATEMENTS MAY 31, 2004 COLUMBIA STRATEGIC INCOME FUND NOTE 1. ORGANIZATION Columbia Strategic Income Fund (the "Fund"), a series of Columbia Funds 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 high current income consistent with prudent risk. The Fund also seeks maximum total return. FUND SHARES The Fund may issue an unlimited number of shares and offers five classes of shares: Class A, Class B, Class C, Class J and Class Z. Each share class has its own sales charge and expense structure. Class A shares are subject to a maximum front-end sales charge of 4.75% based on the amount of initial investment. Class A shares purchased without an initial sales charge are subject to a 1.00% contingent deferred sales charge ("CDSC") on shares sold within eighteen months on an original purchase of $1 million to $25 million. Class B shares are subject to a maximum CDSC of 5.00% based upon the holding period after purchase. Class B shares will convert to Class A shares in a certain number of years after purchase, depending on the program under which shares were purchased. Class C shares are subject to a 1.00% CDSC on shares sold within one year after purchase. Class J shares are subject to a 3% front-end sales charge and are available for purchase only by residents or citizens of Japan. Class Z shares are offered continuously at net asset value. There are certain restrictions on the purchase of Class Z shares, as described in the Fund's prospectus. Effective October 13, 2003, the Fund changed its name from Liberty Strategic Income Fund to Columbia Strategic Income Fund. Also on that date, the Trust changed its name from Liberty Funds Trust I to Columbia Funds Trust I. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. SECURITY VALUATION Debt securities generally are valued by a pricing service approved by the Trust'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. 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 rate 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 29 shares in the principal market in which such securities are normally traded. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange ("NYSE"). The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are generally determined at 2:00 p.m. Eastern (U.S.) time. Occasionally, events affecting the values of such foreign securities and such exchange rates may occur between the times at which they are determined and the close of the customary trading session of the NYSE, which would not be reflected in the computation of the Fund's net asset value. If events materially affecting the values of such foreign securities occur and it is determined that market quotations are not reliable, then these foreign securities will be valued at their fair value using procedures approved by the Board of Trustees. Investments for which market quotations are not readily available, or quotations which management believes are not appropriate, are valued at fair value under procedures approved by the Board of Trustees. 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 of the contracts. 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 forward 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. While 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 the Fund's investment advisor has determined are creditworthy. The Fund, through its custodian, receives delivery of underlying securities collateralizing a repurchase agreement. Collateral is at least equal, at all times, to the value of the repurchase obligation including interest. A repurchase agreement transaction involves certain risks in the event of default or insolvency of the counterparty. These risks include possible delays or restrictions upon the Fund's ability to dispose of the underlying securities and a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights. MORTGAGE DOLLAR ROLL TRANSACTIONS The Fund may enter into mortgage dollar roll transactions. A mortgage dollar roll transaction involves a sale by the Fund of securities that it holds with an agreement by the Fund to repurchase substantially similar securities at an agreed upon price and date. During the period between the sale and repurchase, the Fund will not be entitled to accrue interest and receive principal payment on the securities sold. Mortgage dollar roll transactions involve the risk that the market value of the securities sold by the Fund may decline below the repurchase price of those securities. In the event the buyer of the securities under a mortgage dollar roll transaction files for bankruptcy or becomes insolvent, the Fund's use of proceeds of the transaction may be restricted pending a determination by or with respect to the other party. The Fund 30 identifies U.S. Government securities or other liquid high grade debt obligations as segregated with the custodian in an amount equal to the mortgage dollar roll transactions. DELAYED DELIVERY SECURITIES The Fund may trade securities on other than normal settlement terms, including securities purchased or sold on a "when-issued" basis. This may increase the risk if the other party to the transaction fails to deliver and causes the Fund to subsequently invest at less advantageous prices. The Fund identifies cash or liquid portfolio securities as segregated with the custodian 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. The value of additional securities received as an income payment is recorded as income and as the cost basis of such securities. Fee income attributable to dollar roll transactions is recorded on the accrual basis 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. 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 or tax-exempt income, if any, for its tax year, and as such will not be subject to federal income taxes. In addition, the Fund intends to distribute in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded. DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income are declared daily and paid monthly. Net realized capital gains, if any, are distributed at least annually. NOTE 3. FEDERAL TAX INFORMATION The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund's capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations. For the year ended May 31, 2004, permanent differences resulting primarily from differing treatments for market discount reclassifications, Section 988 reclassification of foreign currency, paydown reclassifications and amortization/accretion adjustments were identified and reclassified among the components of the Fund's net assets as follows:
UNDISTRIBUTED NET ACCUMULATED INVESTMENT INCOME NET REALIZED LOSS PAID-IN CAPITAL - ------------------------------------------------------------- $ 29,579,516 $ (29,579,515) $ (1)
Net investment income and net realized gains (losses), as disclosed on the Statement of Operations, and net assets were not affected by this reclassification. 31 The tax character of distributions paid during the year ended May 31, 2004, the period ended May 31, 2003 and the year ended December 31, 2002 was as follows:
MAY 31, MAY 31, DECEMBER 31, 2004 2003 2002 - ----------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM: ORDINARY INCOME* $ 91,699,890 $ 33,841,658 $ 97,202,111 LONG-TERM CAPITAL GAINS -- -- -- TAX RETURN OF CAPITAL -- -- 5,485,046
*For tax purposes short-term capital gains distributions, if any, are considered ordinary income distributions. As of May 31, 2004, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ORDINARY LONG-TERM NET UNREALIZED INCOME CAPITAL GAINS DEPRECIATION* - -------------------------------------------------------- $ 18,813,500 $ -- $ (9,104,468)
*The differences between book-basis and tax-basis net unrealized depreciation are primarily due to deferral of losses from wash sales and discount accretion/premium amortization on debt securities. Unrealized appreciation and depreciation at May 31, 2004, based on cost of investments for federal income tax purposes was: UNREALIZED APPRECIATION $ 49,084,707 UNREALIZED DEPRECIATION (58,316,606) -------------- NET UNREALIZED DEPRECIATION $ (9,231,899)
The following capital loss carryforwards may be available to reduce taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code:
YEAR OF CAPITAL LOSS EXPIRATION CARRYFORWARD - ------------------------------------ 2007 $ 8,852,750 2008 63,518,542 2009 136,912,288 2010 135,415,014 2011 318,608 $ 345,017,202
Capital loss carryforwards of $12,688,939 were utilized and/or expired during the year ended May 31, 2004 for the Fund. Expired capital loss carryforwards are recorded as a reduction of paid-in capital. NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004, FleetBoston, including the Fund's investment advisor, transfer agent and distributor, was acquired by Bank of America Corporation ("BOA"). The acquisition did not change the way the Fund is managed, the investment personnel assigned to manage the Fund or the fees paid by the Fund. INVESTMENT ADVISORY FEE Columbia provides administrative and other services to the Fund in addition to investment advisory services. Columbia receives a monthly investment advisory fee based on the Fund's average daily net assets as follows:
AVERAGE DAILY NET ASSETS FEE RATE - ------------------------------------------ FIRST $1 BILLION 0.65% NEXT $1 BILLION 0.60% OVER $2 BILLION 0.55%
For the year ended May 31, 2004, the Fund's effective investment advisory fee rate was 0.64%. PRICING AND BOOKKEEPING FEES Columbia is responsible for providing pricing and bookkeeping services to the Fund under a pricing and bookkeeping agreement. Under a separate agreement (the "Outsourcing Agreement"), Columbia has delegated those functions to State Street Corporation ("State Street"). As a result, Columbia pays the total fees received to State Street under the Outsourcing Agreement. Under its pricing and bookkeeping agreement with the Fund, Columbia receives from the Fund an annual flat fee of $10,000 paid monthly, and in any month that the Fund's average daily net assets exceed $50 million, an additional monthly fee. The additional fee rate is calculated by taking into account the fees payable to State Street under the Outsourcing Agreement. This rate is applied to the average daily net assets of the Fund for that month. The Fund also pays additional fees for pricing services based on the number of securities held by the Fund. For the year ended May 31, 2004, the Fund's effective pricing and bookkeeping fee rate was 0.031%. 32 TRANSFER AGENT FEE Columbia Funds Services, Inc. (the "Transfer Agent"), an indirect, wholly owned subsidiary of BOA, provides shareholder services to the Fund. For such services, the Transfer Agent receives a fee, paid monthly, at the annual rate of $34.00 per open account. The Transfer Agent also receives reimbursement for certain out-of-pocket expenses. Prior to November 1, 2003, the Transfer Agent was entitled to receive a monthly transfer agent fee at the annual rate of 0.06% of the Fund's average daily net assets plus flat-rate charges based on the number of shareholder accounts and transactions. The Transfer Agent was also entitled to receive reimbursement for certain out-of-pocket expenses. For the year ended May 31, 2004, the Fund's effective transfer agent fee rate, inclusive of out-of-pocket fees, was 0.21%. Effective October 13, 2003, Liberty Funds Services, Inc. was renamed Columbia Funds Services, Inc. UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES Columbia Funds Distributor, Inc. (the "Distributor"), an indirect, wholly owned subsidiary of BOA, is the principal underwriter of the Fund. For the year ended May 31, 2004, the Distributor has retained net underwriting discounts of $58,900 on sales of the Fund's Class A shares and received CDSC fees of $219, $999,386 and $9,590 on Class A, Class B and Class C share redemptions, respectively. The Fund has adopted a 12b-1 plan (the "Plan") which requires the payment of a monthly service fee to the Distributor. The service fee is equal to 0.15% annually of the average daily net assets attributable to outstanding Class A and Class B shares issued prior to January 1, 1993 and 0.25% annually of the average daily net assets attributable to outstanding Class A, Class B, Class C and Class J shares issued thereafter. This arrangement results in a service fee between the 0.15% and 0.25% annual rates. For the year ended May 31, 2004, the effective service fee rate was 0.24% for Class A, Class B, Class C and Class J 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 and 0.35% annually of the average daily net assets attributable to Class J shares. 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. The CDSC and the fees received from the Plan are used principally as repayment to the Distributor for amounts paid by the Distributor to dealers who sold such shares. Effective October 13, 2003, Liberty Funds Distributor, Inc. was renamed Columbia Funds Distributor, Inc. CUSTODY CREDITS The Fund has an agreement with its custodian bank under which custody fees may be reduced by balance credits. The Fund could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement. FEES PAID TO OFFICERS AND TRUSTEES The Fund pays no compensation to its officers, all of whom are employees of Columbia or its affiliates. The Fund's Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund's assets. OTHER Columbia provides certain services to the Fund related to Sarbanes-Oxley compliance. For the year ended May 31, 2004, the Fund paid $3,393 to Columbia for such services. This amount is included in "Other expenses" on the Statement of Operations. NOTE 5. PORTFOLIO INFORMATION For the year ended May 31, 2004, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $860,742,493 and $1,012,085,751, respectively, of which $97,533,568 and $103,638,131, respectively, were U.S. Government securities. NOTE 6. LINE OF CREDIT The Fund and other affiliated funds participate in a $350,000,000 credit facility, which is used for temporary or emergency purposes to facilitate portfolio liquidity. Interest is charged to the Fund based on its borrowings. In addition, the Fund has 33 agreed to pay commitment fees on its pro-rata portion of the unutilized line of credit. The commitment fee is included in "Other expenses" on the Statement of Operations. For the year ended May 31, 2004, the Fund did not borrow under this arrangement. NOTE 7. 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. 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 there is no established secondary market. INDUSTRY FOCUS The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified. LEGAL PROCEEDINGS Columbia, the Distributor, and certain of their affiliates (collectively, "The Columbia Group") have received information requests and subpoenas from various regulatory and law enforcement authorities in connection with their investigations of late trading and market timing in mutual funds as well as other industry wide issues. The Columbia Group has not uncovered any instances where Columbia or the Distributor were knowingly involved in late trading of mutual fund shares. On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a civil complaint in the United States District Court for the District of Massachusetts against Columbia and the Distributor, alleging that they had violated certain provisions of the federal securities laws in connection with trading activity in mutual fund shares. Also on February 24, 2004, the New York Attorney General ("NYAG") filed a civil complaint in New York Supreme Court, County of New York against Columbia and the Distributor alleging that Columbia and the Distributor had violated certain New York anti-fraud statutes. If either Columbia or the Distributor is unsuccessful in its defense of these proceedings, it could be barred from serving as an investment advisor or distributor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could prevent Columbia, the Distributor or any company that is an affiliated person of Columbia and the Distributor from serving as an investment advisor or distributor for any registered investment company, including your fund. Your fund has been informed by Columbia and the Distributor that, if these results occur, they will seek exemptive relief from the SEC to permit them to continue to serve as your fund's investment advisor and distributor. There is no assurance that such exemptive relief will be granted. On March 15, 2004, Columbia and the Distributor entered into agreements in principle with the SEC Division of Enforcement and NYAG in settlement of the charges. Under the agreements, Columbia and the Distributor agreed, among other things, to the following conditions: payment of $70 million in disgorgement; payment of $70 million in civil penalties; an order requiring Columbia and the Distributor to cease and desist from violations of the antifraud provisions and other provisions of the federal securities laws; governance 34 changes designed to maintain the independence of the mutual fund boards of trustees and ensure compliance with securities laws and their fiduciary duties; and retention of an independent consultant to review Columbia's and the Distributor's compliance policies and procedures. The agreement requires the final approval of the SEC. In a separate agreement with the NYAG, the Columbia Group has agreed to reduce mutual fund fees by $80 million over a five-year period. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds. In connection with the events described in detail above, various parties have filed suit against certain funds, their Boards and/or FleetBoston (and affiliated entities). These suits and certain regulatory investigations are ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made. For the year ended May 31, 2004, Columbia has assumed $36,826 of legal, consulting services and Trustees' fees incurred by the Fund in connection with these matters. 35 FINANCIAL HIGHLIGHTS COLUMBIA STRATEGIC INCOME FUND SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD YEAR ENDED ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS A SHARES 2004 2003(a) 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 6.09 $ 5.63 $ 5.64 $ 6.00 $ 6.62 $ 7.11 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.36(b) 0.16(b) 0.38(b) 0.48(b)(c) 0.58(d) 0.57(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.01 0.46 0.05 (0.30)(c) (0.62) (0.48) ----------- ----------- ----------- ----------- ----------- ----------- Total from Investment Operations 0.37 0.62 0.43 0.18 (0.04) 0.09 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.44) (0.16) (0.42) (0.50) (0.53) (0.58)(e) Return of capital -- -- (0.02) (0.04) (0.05) -- ----------- ----------- ----------- ----------- ----------- ----------- Total Distributions Declared to Shareholders (0.44) (0.16) (0.44) (0.54) (0.58) (0.58) NET ASSET VALUE, END OF PERIOD $ 6.02 $ 6.09 $ 5.63 $ 5.64 $ 6.00 $ 6.62 Total return (f) 6.21% 11.10%(g) 7.97% 3.07% (0.68)% 1.28% RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (h) 1.17% 1.27%(i) 1.23% 1.21% 1.17% 1.19% Net investment income (h) 5.90% 6.52%(i) 6.75% 8.22%(c) 9.12% 8.30% Portfolio turnover rate 68% 59%(g) 62% 106% 35% 44% Net assets, end of period (000's) $ 566,269 $ 595,223 $ 552,737 $ 575,791 $ 536,481 $ 669,795
(a) The Fund changed its fiscal year end from December 31 to May 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share by $0.02, increase net realized and unrealized loss per share by $0.02 and decrease the ratio of net investment income to average net assets from 8.60% to 8.22%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (d) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (e) Distributions from income include currency gains and gains on securities treated as ordinary income for tax purposes. (f) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (g) Not annualized. (h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (i) Annualized. 36
PERIOD YEAR ENDED ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS B SHARES 2004 2003(a) 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 6.09 $ 5.62 $ 5.63 $ 6.00 $ 6.62 $ 7.11 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.32(b) 0.14(b) 0.34(b) 0.44(b)(c) 0.53(d) 0.51(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.01 0.47 0.04 (0.32)(c) (0.62) (0.48) ----------- ----------- ----------- ----------- ----------- ----------- Total from Investment Operations 0.33 0.61 0.38 0.12 (0.09) 0.03 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.40) (0.14) (0.37) (0.45) (0.48) (0.52)(e) Return of capital -- -- (0.02) (0.04) (0.05) -- ----------- ----------- ----------- ----------- ----------- ----------- Total Distributions Declared to Shareholders (0.40) (0.14) (0.39) (0.49) (0.53) (0.52) NET ASSET VALUE, END OF PERIOD $ 6.02 $ 6.09 $ 5.62 $ 5.63 $ 6.00 $ 6.62 Total return (f) 5.42% 10.95%(g) 7.17% 2.12% (1.41)% 0.52% RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (h) 1.92% 2.02%(i) 1.98% 1.96% 1.92% 1.94% Net investment income (h) 5.15% 5.77%(i) 6.00% 7.47%(c) 8.37% 7.55% Portfolio turnover rate 68% 59%(g) 62% 106% 35% 44% Net assets, end of period (000's) $ 408,345 $ 484,540 $ 456,563 $ 533,406 $ 693,733 $ 914,145
(a) The Fund changed its fiscal year end from December 31 to May 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share by $0.02, increase net realized and unrealized loss per share by $0.02 and decrease the ratio of net investment income to average net assets from 7.85% to 7.47%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (d) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (e) Distributions from income include currency gains and gains on securities treated as ordinary income for tax purposes. (f) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (g) Not annualized. (h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (i) Annualized. 37
PERIOD YEAR ENDED ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS C SHARES 2004 2003(a) 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 6.09 $ 5.63 $ 5.64 $ 6.00 $ 6.62 $ 7.11 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.33(b) 0.14(b) 0.35(b) 0.45(b)(c) 0.54(d)(e) 0.52(d)(e) Net realized and unrealized gain (loss) on investments and foreign currency 0.01 0.46 0.04 (0.31)(c) (0.62) (0.48) ----------- ---------- ---------- ----------- ----------- ---------- Total from Investment Operations 0.34 0.60 0.39 0.14 (0.08) 0.04 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.41) (0.14) (0.38) (0.46) (0.49) 0.53)(f) Return of capital -- -- (0.02) (0.04) (0.05) -- ----------- ---------- ---------- ----------- ----------- ---------- Total Distributions Declared to Shareholders (0.41) (0.14) (0.40) (0.50) (0.54) (0.53) NET ASSET VALUE, END OF PERIOD $ 6.02 $ 6.09 $ 5.63 $ 5.64 $ 6.00 $ 6.62 Total return (g) 5.57%(h) 10.82%(h)(i) 7.32%(h) 2.45% (1.26)%(h) 0.67%(h) RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (j) 1.77% 1.87%(k) 1.83% 1.81% 1.77%(d) 1.79%(d) Net investment income (j) 5.31% 5.92%(k) 6.15% 7.62%(c) 8.52%(d) 7.70%(d) Waiver/reimbursement 0.15% 0.15%(k) 0.15% -- 0.15% 0.15% Portfolio turnover rate 68% 59%(i) 62% 106% 35% 44% Net assets, end of period (000's) $ 41,520 $ 45,572 $ 38,923 $ 42,906 $ 43,538 $ 57,246
(a) The Fund changed its fiscal year end from December 31 to May 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share by $0.02, increase net realized and unrealized loss per share by $0.02 and decrease the ratio of net investment income to average net assets from 8.00% to 7.62%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (d) Net of fees waived by the Distributor which amounted to $0.02 and $0.01 per share and 0.15% and 0.15% for the periods ended December 31, 2000 and 1999, respectively. (e) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (f) Distributions from income include currency gains and gains on securities treated as ordinary income for tax purposes. (g) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (h) Had the Distributor not waived a portion of expenses, total return would have been reduced. (i) Not annualized. (j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (k) Annualized. 38
PERIOD YEAR ENDED ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS J SHARES 2004 2003(a) 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 6.08 $ 5.62 $ 5.63 $ 6.00 $ 6.62 $ 7.10 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.34(b) 0.15(b) 0.36(b) 0.46(b)(c) 0.55(d) 0.54(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.01 0.46 0.05 (0.31)(c) (0.62) (0.47) ----------- ----------- ----------- ----------- ----------- ----------- Total from Investment Operations 0.35 0.61 0.41 0.15 (0.07) 0.07 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.42) (0.15) (0.40) (0.48) (0.50) (0.55)(e) Return of capital -- -- (0.02) (0.04) (0.05) -- ----------- ----------- ----------- ----------- ----------- ----------- Total Distributions Declared to Shareholders (0.42) (0.15) (0.42) (0.52) (0.55) (0.55) NET ASSET VALUE, END OF PERIOD $ 6.01 $ 6.08 $ 5.62 $ 5.63 $ 6.00 $ 6.62 Total return (f) 5.88% 10.97%(g) 7.61% 2.56% (1.02)% 1.07% RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (h) 1.52% 1.62%(i) 1.58% 1.56% 1.52% 1.54% Net investment income (h) 5.55% 6.17%(i) 6.40% 7.87%(c) 8.77% 7.95% Portfolio turnover rate 68% 59%(g) 62% 106% 35% 44% Net assets, end of period (000's) $ 229,179 $ 258,057 $ 271,733 $ 323,866 $ 508,079 $ 568,311
(a) The Fund changed its fiscal year end from December 31 to May 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share by $0.02, increase net realized and unrealized loss per share by $0.02 and decrease the ratio of net investment income to average net assets from 8.25% to 7.87%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (d) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (e) Distributions from income include currency gains and gains on securities treated as ordinary income for tax purposes. (f) Total return at net asset value assuming all distributions reinvested and no initial sales charge. (g) Not annualized. (h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (i) Annualized. 39
PERIOD YEAR ENDED ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS Z SHARES 2004 2003(a) 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 6.05 $ 5.59 $ 5.62 $ 5.99 $ 6.62 $ 7.10 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.38(c) 0.17(c) 0.39(c) 0.49(c)(d) 0.59(e) 0.53(e) Net realized and unrealized gain(loss) on investments and foreign currency 0.01 0.45 0.03 (0.31)(d) (0.63) (0.47) ----------- ----------- ----------- ----------- ----------- ----------- Total from Investment Operations 0.39 0.62 0.42 0.18 (0.04) 0.06 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.46) (0.16) (0.43) (0.51) (0.54) (0.54)(f) Return of capital -- -- (0.02) (0.04) (0.05) -- ----------- ----------- ----------- ----------- ----------- ----------- Total Distributions Declared to Shareholders (0.46) (0.16) (0.45) (0.55) (0.59) (0.54) NET ASSET VALUE, END OF PERIOD $ 5.98 $ 6.05 $ 5.59 $ 5.62 $ 5.99 $ 6.62 Total return (g) 6.52% 11.29%(h) 7.87% 3.14% (0.59)% 1.50%(h) RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (i) 0.93% 1.03%(j) 0.99% 0.98% 0.93% 0.95%(j) Net investment income (i) 6.15% 6.76%(j) 6.99% 8.45%(d) 9.36% 8.54%(j) Portfolio turnover rate 68% 59%(h) 62% 106% 35% 44% Net assets, end of period (000) $ 1,150 $ 1,188 $ 3 $ 1,860 $ 1 $ 4,928
(a) The Fund changed its fiscal year end from December 31 to May 31. (b) Class Z shares were initially offered on January 29, 1999. Per share data and total return reflect activity from that date. (c) Per share data was calculated using average shares outstanding during the period. (d) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share by $0.02, increase net realized and unrealized loss per share by $0.02 and decrease the ratio of net investment income to average net assets from 8.84% to 8.45%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (e) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (f) Distributions from income include currency gains and gains on securities treated as ordinary income for tax purposes. (g) Total return at net asset value assuming all distributions reinvested. (h) Not annualized. (i) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (j) Annualized. 40 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM COLUMBIA STRATEGIC INCOME FUND TO THE TRUSTEES OF THE COLUMBIA FUNDS TRUST I AND THE SHAREHOLDERS OF COLUMBIA STRATEGIC 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 Strategic Income Fund (the "Fund") (a series of Columbia Funds Trust I) at May 31, 2004, the results of its operations, the changes in its net assets and its financial highlights for the periods indicated in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States), which require that we plan and perform the 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 May 31, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts July 19, 2004 41 TRUSTEES COLUMBIA STRATEGIC INCOME FUND Effective October 8, 2003, Patrick J. Simpson and Richard L. Woolworth were appointed to the Board of Trustees of the Fund. Messrs. Simpson and Woolworth had been directors of 15 Columbia Funds and 20 funds in the CMG Fund Trust. Also effective October 8, 2003, the incumbent trustees of the Fund were elected as directors of the 15 Columbia Funds and as trustees of the 20 funds in the CMG Fund Trust. The new combined Board of Trustees/Directors of the Fund now oversees 118 funds in the Columbia Funds Complex (including the former Liberty Funds, former Stein Roe Funds, Columbia Funds and CMG Funds). Several of these trustees/directors also serve on the Boards of other funds in the Columbia Funds Complex. The Trustees/Directors serve terms of indefinite duration. The names, addresses and ages of the Trustees/Directors and officers of the Funds in the Columbia Funds complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee/Director and other directorships they hold are shown below. Each officer listed below serves as an officer of each Fund in the Columbia Funds Complex.
NAME, ADDRESS AND AGE, POSITION WITH FUNDS, YEAR FIRST ELECTED OR PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN COLUMBIA FUNDS APPOINTED TO OFFICE(1) COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD DISINTERESTED TRUSTEES DOUGLAS A. HACKER (age 48) Executive Vice President-Strategy of United Airlines (airline) since December 2002 P.O. Box 66100 (formerly President of UAL Loyalty Services (airline) from September 2001 to December Chicago, IL 60666 2002; Executive Vice President and Chief Financial Officer of United Airlines from July Trustee (since 1996) 1999 to September 2001; Senior Vice President-Finance from March 1993 to July 1999). Oversees 118, Orbitz (online travel company) JANET LANGFORD KELLY (age 46) Private Investor since March 2004 (formerly Chief Administrative Officer and Senior Vice 9534 W. Gull Lake Drive President, Kmart Holding Corporation (consumer goods) from September 2003 to March 2004; Richland, MI 49083-8530 Executive Vice President-Corporate Development and Administration, General Counsel and Trustee (since 1996) Secretary, Kellogg Company (food manufacturer), from September 1999 to August 2003; Senior Vice President, Secretary and General Counsel, Sara Lee Corporation (branded, packaged, consumer-products manufacturer) from January 1995 to September 1999). Oversees 118, None RICHARD W. LOWRY (age 68) Private Investor since August 1987 (formerly Chairman and Chief Executive Officer, U.S. 10701 Charleston Drive Plywood Corporation (building products manufacturer). Oversees 1202, None Vero Beach, FL 32963 Trustee (since 1995)
(1) In December 2000, the boards of each of the former Liberty Funds and former Stein Roe Funds were combined into one board of trustees responsible for the oversight of both fund groups (collectively, the "Liberty Board"). In October 2003, the trustees on the Liberty Board were elected to the boards of the Columbia Funds (the "Columbia Board") and of the CMG Fund Trust (the "CMG Funds Board"); simultaneous with that election, Patrick J. Simpson and Richard L. Woolworth, who had been directors on the Columbia Board and trustees on the CMG Funds Board, were appointed to serve as trustees of the Liberty Board. The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Columbia Funds complex. (2) Messrs. Lowry, Neuhauser and Mayer each also serve as a director/trustee of the All-Star Funds, currently consisting of 2 funds, which are advised by an affiliate of the Advisor. 42
NAME, AGE, ADDRESS, POSITION WITH LIBERTY FUNDS(1), YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN FUND COMPLEX OR APPOINTED TO OFFICE OVERSEEN BY TRUSTEE, OTHER DIRECTORSHIPS HELD DISINTERESTED TRUSTEES DISINTERESTED TRUSTEES CHARLES R. NELSON (age 61) Professor of Economics, University of Washington, since January 1976; Ford and Louisa Van Department of Economics Voorhis Professor of Political Economy, University of Washington, since September 1993; University of Washington (formerly Director, Institute for Economic Research, University of Washington from Seattle, WA 98195 September 2001 to June 2003) Adjunct Professor of Statistics, University of Washington, Trustee (since 1981) since September 1980; Associate Editor, Journal of Money Credit and Banking, since September 1993; consultant on econometric and statistical matters. Oversees 118, None JOHN J. NEUHAUSER (age 61) Academic Vice President and Dean of Faculties since August 1999, Boston College (formerly 84 College Road Dean, Boston College School of Management from September 1977 to September 1999). Oversees Chestnut Hill, MA 02467-3838 121(2),(3), Saucony, Inc. (athletic footwear and apparel) Trustee (since 1985) PATRICK J. SIMPSON (age 59) Partner, Perkins Coie L.L.P. (law firm). Oversees 118, None 1120 N.W. Couch Street Tenth Floor Portland, OR 97209-4128 Trustee (since 2000) THOMAS E. STITZEL (age 68) Business Consultant since 1999 (formerly Professor of Finance from 1975 to 1999, College of 2208 Tawny Woods Place Business, Boise State University); Chartered Financial Analyst. Oversees 118, None Boise, ID 83706 Trustee (since 1998) THOMAS C. THEOBALD (age 67) Managing Director, William Blair Capital Partners (private equity investing) since 227 West Monroe Street, September 1994. Oversees 118, Anixter International (network support equipment Suite 3500 distributor), Jones Lang LaSalle (real estate management services), MONY Group (life Chicago, IL 60606 insurance) and Ventas, Inc (real estate investment trust) Trustee and Chairman of the Board(4) (since 1996) ANNE-LEE VERVILLE (age 58) Retired since 1997 (formerly General Manager, Global Education Industry, IBM 359 Stickney Hill Road Corporation (computer and technology) from 1994 to 1997). Oversees 119(3), Chairman of Hopkinton, NH 03229 the Board of Directors, Enesco Group, Inc. (designer, importer and distributor of giftware Trustee (since 1998) and collectibles) RICHARD L. WOOLWORTH (age 63) Retired since December 2003 (formerly Chairman and Chief Executive Officer, The 100 S.W. Market Street #1500 Regence Group (regional health insurer); Chairman and Chief Executive Officer, Portland, OR 97207 BlueCross BlueShield of Oregon; Certified Public Accountant. Oversees 118, Northwest Trustee (since 1991) Natural Gas Co. (natural gas service provider) INTERESTED TRUSTEES WILLIAM E. MAYER(5) (age 64) Managing Partner, Park Avenue Equity Partners (private equity) since February 1999 399 Park Avenue (formerly Founding Partner, Development Capital LLC from November1996 to Suite 3204 February 1999). Oversees 120(2), Lee Enterprises (print media), WR Hambrecht + Co. New York, NY 10022 (financial service provider),First Health (healthcare), Reader's Digest (publishing) and Trustee (since 1994) OPENFIELD Solutions (retail industry technology provider)
(3) Mr. Neuhauser and Ms. Verville also serve as disinterested directors of Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor. (4) Mr. Theobald was appointed as Chairman of the Board effective December 10, 2003. (5) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co. 43 OFFICERS COLUMBIA STRATEGIC INCOME FUND
NAME, ADDRESS AND AGE, POSITION WITH COLUMBIA FUNDS, YEAR FIRST ELECTED OR APPOINTED TO OFFICE PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS VICKI L. BENJAMIN (Age 42) Chief Accounting Officer of the Columbia Funds and Liberty All-Star Funds since June 2001; One Financial Center Assistant Treasurer of Liberty Acorn and Wanger Funds since June 2004 (formerly Controller Boston, MA 02111 of the Columbia Funds and of the Liberty All-Star Funds from May 2002 to May 2004); Chief Accounting Officer (since 2001) Controller and Chief Accounting Officer of the Galaxy Funds since September 2002 (formerly Vice President, Corporate Audit, State Street Bank and Trust Company from May 1998 to April 2001). MICHAEL CLARKE (Age 34) Controller of the Columbia Funds and of the Liberty All-Star Funds since 2004; Assistant One Financial Center Treasurer of Liberty Acorn and Wanger Funds since June 2004 (formerly Assistant Treasurer Boston, MA 02111 from June 2002 to May 2004; Vice President, Product Strategy & Development of Liberty Controller (since 2004) Funds Group from February 2001 to June 2002; Assistant Treasurer of the Liberty Funds and of the Liberty All-Star Funds from August 1999 to February 2001; Audit Manager at Deloitte & Touche LLP from May 1997 to August 1999). J. KEVIN CONNAUGHTON (Age 40) President of the Columbia Funds since February 27, 2004; Treasurer of the Columbia Funds One Financial Center and of the Liberty All-Star Funds since December 2000; Vice President of the Advisor since Boston, MA 02111 April 2003 (formerly Chief Accounting Officer and Controller of the Liberty Funds and Treasurer (since 2000) and Liberty All-Star Funds from February 1998 to October 2000); Treasurer of the Galaxy Funds President (since 2004) since September 2002; Treasurer, Columbia Management Multi-Strategy Hedge Fund, LLC since December 2002 (formerly Vice President of Colonial from February 1998 to October 2000). DAVID A. ROZENSON (Age 49) Secretary of the Columbia Funds and of the Liberty All-Star Funds since December 2003; One Financial Center Senior Counsel, Bank of America Corporation (formerly FleetBoston Financial Corporation) Boston, MA 02111 since January 1996; Associate General Counsel, Columbia Management Group since November Secretary (since 2003) 2002.
44 IMPORTANT INFORMATION ABOUT THIS REPORT COLUMBIA STRATEGIC INCOME FUND TRANSFER AGENT Columbia Funds Services, Inc. P.O. Box 8081 Boston MA 02266-8081 800.345.6611 DISTRIBUTOR Columbia Funds Distributor, Inc. One Financial Center Boston MA 02111 INVESTMENT ADVISOR Columbia Management Advisors, Inc. 100 Federal Street Boston MA 02110 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 125 High Street Boston MA 02110 The fund mails one shareholder report to each shareholder address. If you would like more than one report, please call shareholder services at 800-345-6611 and additional reports will be sent to you. This report has been prepared for shareholders of Columbia Strategic Income Fund. This report may also be used as sales literature when preceded or accompanied by the current prospectus which provides details of sales charges, investment objectives and operating policies of the fund and with the most recent copy of the Columbia Funds Performance Update. A description of the policies and procedures that the fund uses to determine how to vote proxies relating to its portfolio securities is available (i) without charge, upon request, by calling 800-345-6611 and (ii) on the Securities and Exchange Commission's website at http://www.sec.gov. 45 [GRAPHIC] eDelivery Help your fund reduce printing and postage costs! Elect to get your shareholder reports by electronic delivery. With Columbia's eDelivery program, you receive an e-mail message when your shareholder report becomes available online. If your fund account is registered with Columbia Funds, you can sign up quickly and easily on our website at www.columbiafunds.com. Please note -- if you own your fund shares through a financial institution, contact the institution to see if it offers electronic delivery. If you own your fund shares through a retirement plan, electronic delivery may not be available to you. COLUMBIA STRATEGIC INCOME FUND ANNUAL REPORT, MAY 31, 2004 PRSRT STD U.S. POSTAGE PAID HOLLISTON, MA PERMIT NO. 20 [COLUMBIAFUNDS(R) LOGO] A MEMBER OF COLUMBIA MANAGEMENT GROUP (C) 2004 COLUMBIA FUNDS DISTRIBUTOR, INC. ONE FINANCIAL CENTER, BOSTON, MA 02111-2621 800.345.6611 www.columbiafunds.com 716-02/065S-0504 (07/04) 04/1519 [GRAPHIC] COLUMBIA HIGH YIELD OPPORTUNITY FUND ANNUAL REPORT MAY 31, 2004 [COLUMBIAFUNDS(R) LOGO] A MEMBER OF COLUMBIA MANAGEMENT GROUP TABLE OF CONTENTS Fund Profile 1 Performance Information 2 Economic Update 3 Portfolio Managers' Report 4 Investment Portfolio 6 Statement of Assets and Liabilities 25 Statement of Operations 26 Statement of Changes in Net Assets 27 Notes to Financial Statements 29 Financial Highlights 35 Report of Independent Registered Public Accounting Firm 39 Trustees 40 Officers 42 Important Information About This Report 43 Columbia Funds 44
Economic and market conditions change frequently. There is no assurance that trends described in this report will continue or commence. NOT FDIC MAY LOSE VALUE INSURED ----------------- NO BANK GUARANTEE TO OUR FELLOW SHAREHOLDERS COLUMBIA HIGH YIELD OPPORTUNITY FUND DEAR SHAREHOLDER: We are pleased to let you know that FleetBoston Financial Corporation and Bank of America Corporation have merged, effective April 1, 2004. As a result of the merger, Columbia Management Group became part of the Bank of America family of companies. Looking ahead, we believe this merger will be a real benefit to our shareholders. Preserving and leveraging our strengths, the combined organization intends to deliver additional research and management capabilities, as well as new products to you. There are no immediate changes planned for fund names or customer service contacts. As you might know, on March 15, 2004, FleetBoston Financial announced an agreement in principle with the staff of the Securities and Exchange Commission ("SEC") and the New York Attorney General ("NYAG") to settle charges involving market timing in Columbia Management mutual funds. (Bank of America came to a similar settlement in principle at the same time.) The agreement requires the final approval of the SEC and the NYAG. This settlement in principle reflects our strong wish to put this regrettable situation behind us. Columbia Management has taken and will continue to take steps to strengthen policies, procedures and oversight to curb frequent trading of Columbia fund shares. We want you to know that all of the members of your fund's Board of Trustees are independent of the fund's advisor and its affiliates. In addition, the board has been energetic over the past year in strengthening its capacity to oversee the Columbia funds. Recently, the Board of Trustees: - - APPOINTED AN INTERIM CHIEF COMPLIANCE OFFICER OF THE COLUMBIA FUNDS, WHO REPORTS DIRECTLY TO EACH FUND'S AUDIT COMMITTEE. TRUSTEES WERE ALSO ASSIGNED TO FOUR SEPARATE INVESTMENT OVERSIGHT COMMITTEES, EACH DEDICATED TO MONITORING PERFORMANCE OF INDIVIDUAL FUNDS. - - VOTED TO DOUBLE THE REQUIRED INVESTMENT BY EACH TRUSTEE IN THE COLUMBIA FUNDS -- TO FURTHER ALIGN THE INTERESTS OF THE TRUSTEES WITH THOSE OF OUR FUND SHAREHOLDERS. AT THE SAME TIME, NEW POLICIES WERE INSTITUTED REQUIRING ALL INVESTMENT PERSONNEL AND TRUSTEES TO HOLD THEIR COLUMBIA FUND SHARES FOR A MINIMUM OF ONE YEAR (UNLESS EXTRAORDINARY CIRCUMSTANCES WARRANT AN EXCEPTION TO BE GRANTED BY SENIOR EXECUTIVES OF THE ADVISOR FOR INVESTMENT PERSONNEL AND BY A DESIGNATED COMMITTEE FOR THE BOARD). Both your fund's trustees and Columbia Management are committed to serving the interests of our shareholders, and we will continue to work hard to help you achieve your financial goals. In the pages that follow, you'll find valuable information about the economic environment during the period and the performance of your Columbia fund. These discussions are followed by financial statements for your fund. We hope that you will take time to read this report and discuss it with your financial advisor if you have any questions. As always, thank you for choosing Columbia funds. It is a privilege to play a role in your financial future. Sincerely, /s/ Thomas C. Theobald /s/ J. Kevin Connaughton Thomas C. Theobald J. Kevin Connaughton Chairman, Board of Trustees President, Columbia Funds J. Kevin Connaughton was named president of Columbia Funds on February 27, 2004. FUND PROFILE COLUMBIA HIGH YIELD OPPORTUNITY FUND The information below gives you a snapshot of your fund at the end of the reporting period. Your fund is actively managed and the composition of its portfolio will change over time. TOP 10 ISSUERS AS OF 05/31/04 (%) Qwest Capital Funding 2.1 Charter Communications Holdings 1.8 Trac-X North America High Yield 1.3 Dex Media 1.3 Calpine 1.2 Huntsman ICI 1.1 Pinnacle Entertainment 1.1 Nortel Networks 0.9 Allied Waste 0.9 Hollywood Casino Shreveport 0.8
MATURITY BREAKDOWN AS OF 05/31/04 (%) 0 - 3 years 6.5 3 - 5 years 16.7 5 - 7 years 28.2 7 - 10 years 40.1 10 - 15 years 2.9 15 - 20 years 0.3 20 - 30 years 0.9 Common and preferred stock 4.4
QUALITY BREAKDOWN AS OF 05/31/04 (%) AAA 2.1 BB 10.9 B 52.6 CCC 26.0 CC 6.0 D 0.6 Non-rated 1.8
PORTFOLIO STRUCTURE AS OF 05/31/04 (%) Corporate fixed-income bonds & notes 90.5 Common stocks 2.5 Cash equivalents 2.0 Convertible bonds 1.9 Preferred stocks 1.8 Other net assets 1.3
Maturity and quality 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 & Poor's Corporation, Moody's Investors Service, Inc. or Fitch Ratings Ltd. Portfolio structure and top 10 issuers are calculated as a percentage of net assets. (C) 2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. The Morningstar Style Box(TM)reveals a fund's investment strategy. For equity funds the vertical axis shows the market capitalization of the stocks owned and the horizontal axis shows investment style (value, blend or growth). For fixed-income funds the vertical axis shows the average credit quality of the bonds owned, and the horizontal axis shows interest rate sensitivity as measured by a bond's duration (short, intermediate or long). All of these numbers are drawn from the data most recently provided by the fund and entered into Morningstar's database as of month-end. Although the data are gathered from reliable sources, Morningstar cannot guarantee completeness and accuracy. As of 05/31/2004. [SIDENOTE] SUMMARY - - FOR THE 12-MONTH PERIOD ENDED MAY 31, 2004, THE FUND'S CLASS A SHARES RETURNED 13.30% WITHOUT SALES CHARGE DURING A PERIOD THAT WAS GENERALLY FAVORABLE FOR THE HIGH YIELD SECTOR. - - THE FUND'S EMPHASIS ON THE CABLE, CELL PHONE AND UTILITY SECTORS WAS KEY TO ITS GOOD RESULTS DURING THE PERIOD. - - THE BONDS OF AIRLINES AND LANDLINE PHONE COMPANIES CAME UNDER PRESSURE AND DETRACTED FROM PERFORMANCE. CLASS A SHARES 13.30% CS FIRST BOSTON HIGH YIELD INDEX 13.25%
OBJECTIVE Seeks high current income and total return TOTAL NET ASSETS $638.6 million MORNINGSTAR STYLE BOX [GRAPHIC] 1 PERFORMANCE INFORMATION COLUMBIA HIGH YIELD OPPORTUNITY FUND [CHART] VALUE OF A $10,000 INVESTMENT 06/01/94 - 05/31/04
CLASS A SHARES CLASS A SHARES CS FIRST BOSTON JP MORGAN GLOBAL WITHOUT SALES CHARGE WITH SALES CHARGE HIGH YIELD INDEX HIGH YIELD INDEX 6/1/94 $ 10,000 $ 9,525 $ 10,000 $ 10,000 6/30/94 $ 10,048 $ 9,571 $ 9,933 $ 9,961 7/31/94 $ 10,051 $ 9,574 $ 9,980 $ 9,976 8/31/94 $ 10,054 $ 9,576 $ 10,052 $ 10,016 9/30/94 $ 10,072 $ 9,594 $ 10,092 $ 10,015 10/31/94 $ 10,060 $ 9,582 $ 10,099 $ 10,030 11/30/94 $ 9,970 $ 9,496 $ 9,982 $ 9,938 12/31/94 $ 10,052 $ 9,575 $ 10,087 $ 10,236 1/31/95 $ 10,151 $ 9,669 $ 10,193 $ 10,367 2/28/95 $ 10,412 $ 9,917 $ 10,444 $ 10,736 3/31/95 $ 10,479 $ 9,982 $ 10,562 $ 10,844 4/30/95 $ 10,728 $ 10,218 $ 10,797 $ 11,124 5/31/95 $ 10,962 $ 10,441 $ 11,101 $ 11,441 6/30/95 $ 11,014 $ 10,491 $ 11,174 $ 11,487 7/31/95 $ 11,200 $ 10,668 $ 11,348 $ 11,666 8/31/95 $ 11,219 $ 10,686 $ 11,379 $ 11,711 9/30/95 $ 11,391 $ 10,850 $ 11,510 $ 11,851 10/31/95 $ 11,530 $ 10,982 $ 11,638 $ 11,961 11/30/95 $ 11,600 $ 11,049 $ 11,693 $ 12,039 12/31/95 $ 11,826 $ 11,265 $ 11,841 $ 12,234 1/31/96 $ 12,037 $ 11,465 $ 12,066 $ 12,466 2/29/96 $ 12,143 $ 11,566 $ 12,130 $ 12,541 3/31/96 $ 12,036 $ 11,464 $ 12,097 $ 12,500 4/30/96 $ 12,108 $ 11,533 $ 12,163 $ 12,577 5/31/96 $ 12,199 $ 11,620 $ 12,261 $ 12,673 6/30/96 $ 12,199 $ 11,620 $ 12,288 $ 12,727 7/31/96 $ 12,272 $ 11,689 $ 12,399 $ 12,813 8/31/96 $ 12,493 $ 11,900 $ 12,534 $ 13,002 9/30/96 $ 12,828 $ 12,219 $ 12,749 $ 13,310 10/31/96 $ 12,828 $ 12,219 $ 12,857 $ 13,433 11/30/96 $ 13,073 $ 12,452 $ 13,057 $ 13,680 12/31/96 $ 13,273 $ 12,643 $ 13,312 $ 13,826 1/31/97 $ 13,389 $ 12,753 $ 13,409 $ 13,936 2/28/97 $ 13,678 $ 13,028 $ 13,661 $ 14,175 3/31/97 $ 13,406 $ 12,769 $ 13,508 $ 13,944 4/30/97 $ 13,542 $ 12,899 $ 13,628 $ 14,075 5/31/97 $ 13,878 $ 13,219 $ 13,902 $ 14,400 6/30/97 $ 14,097 $ 13,428 $ 14,091 $ 14,590 7/31/97 $ 14,437 $ 13,751 $ 14,390 $ 14,979 8/31/97 $ 14,478 $ 13,790 $ 14,468 $ 14,988 9/30/97 $ 14,822 $ 14,118 $ 14,754 $ 15,286 10/31/97 $ 14,822 $ 14,118 $ 14,753 $ 15,264 11/30/97 $ 14,945 $ 14,235 $ 14,857 $ 15,402 12/31/97 $ 15,114 $ 14,396 $ 14,993 $ 15,540 1/31/98 $ 15,427 $ 14,694 $ 15,247 $ 15,781 2/28/98 $ 15,512 $ 14,775 $ 15,366 $ 15,903 3/31/98 $ 15,703 $ 14,957 $ 15,443 $ 16,063 4/30/98 $ 15,745 $ 14,997 $ 15,559 $ 16,144 5/31/98 $ 15,767 $ 15,018 $ 15,606 $ 16,166 6/30/98 $ 15,832 $ 15,080 $ 15,639 $ 16,200 7/31/98 $ 16,023 $ 15,262 $ 15,748 $ 16,336 8/31/98 $ 14,967 $ 14,256 $ 14,679 $ 15,278 9/30/98 $ 14,839 $ 14,134 $ 14,677 $ 15,263 10/31/98 $ 14,580 $ 13,888 $ 14,385 $ 14,934 11/30/98 $ 15,538 $ 14,800 $ 15,114 $ 15,757 12/31/98 $ 15,440 $ 14,707 $ 15,080 $ 15,693 1/31/99 $ 15,697 $ 14,951 $ 15,221 $ 15,881 2/28/99 $ 15,716 $ 14,969 $ 15,190 $ 15,800 3/31/99 $ 16,027 $ 15,265 $ 15,328 $ 15,994 4/30/99 $ 16,306 $ 15,531 $ 15,666 $ 16,401 5/31/99 $ 16,001 $ 15,241 $ 15,497 $ 13,514 6/30/99 $ 16,093 $ 15,329 $ 15,505 $ 16,167 7/31/99 $ 16,143 $ 15,377 $ 15,513 $ 16,172 8/31/99 $ 16,071 $ 15,307 $ 15,375 $ 16,010 9/30/99 $ 15,995 $ 15,235 $ 15,256 $ 15,895 10/31/99 $ 16,022 $ 15,261 $ 15,182 $ 15,807 11/30/99 $ 16,292 $ 15,518 $ 15,388 $ 16,065 12/31/99 $ 16,394 $ 15,615 $ 15,574 $ 16,222 1/31/2000 $ 16,212 $ 15,442 $ 15,512 $ 16,161 2/29/2000 $ 16,459 $ 15,677 $ 15,608 $ 16,225 3/31/2000 $ 16,208 $ 15,439 $ 15,374 $ 15,950 4/30/2000 $ 16,103 $ 15,338 $ 15,351 $ 15,946 5/31/2000 $ 15,796 $ 15,045 $ 15,105 $ 15,720 6/30/2000 $ 15,923 $ 15,167 $ 15,444 $ 16,030 7/31/2000 $ 16,084 $ 15,320 $ 15,589 $ 16,171 8/31/2000 $ 16,244 $ 15,472 $ 15,693 $ 16,295 9/30/2000 $ 15,972 $ 15,214 $ 15,549 $ 16,082 10/31/2000 $ 15,274 $ 14,549 $ 15,065 $ 15,611 11/30/2000 $ 14,398 $ 13,714 $ 14,472 $ 15,014 12/31/2000 $ 14,704 $ 14,006 $ 14,763 $ 15,278 1/31/2001 $ 15,864 $ 15,111 $ 15,648 $ 16,204 2/28/2001 $ 15,910 $ 15,155 $ 15,806 $ 16,392 3/31/2001 $ 15,298 $ 14,571 $ 15,492 $ 16,071 4/30/2001 $ 14,940 $ 14,230 $ 15,331 $ 15,902 5/31/2001 $ 15,077 $ 14,361 $ 15,637 $ 16,214 6/30/2001 $ 14,426 $ 13,741 $ 15,395 $ 15,933 7/31/2001 $ 14,414 $ 13,730 $ 15,560 $ 16,094 8/31/2001 $ 14,521 $ 13,831 $ 15,778 $ 16,304 9/30/2001 $ 13,356 $ 12,722 $ 14,784 $ 15,228 10/31/2001 $ 13,839 $ 13,181 $ 15,121 $ 15,607 11/30/2001 $ 14,326 $ 13,645 $ 15,609 $ 16,137 12/31/2001 $ 14,296 $ 13,617 $ 15,618 $ 16,116 1/31/2002 $ 14,444 $ 13,758 $ 15,764 $ 16,234 2/28/2002 $ 14,189 $ 13,515 $ 15,652 $ 16,112 3/31/2002 $ 14,434 $ 13,749 $ 16,010 $ 16,476 4/30/2002 $ 14,555 $ 13,864 $ 16,265 $ 16,727 5/31/2002 $ 14,357 $ 13,675 $ 16,208 $ 16,670 6/30/2002 $ 13,641 $ 12,993 $ 15,644 $ 16,070 7/31/2002 $ 13,263 $ 12,633 $ 15,196 $ 15,623 8/31/2002 $ 13,310 $ 12,677 $ 15,394 $ 15,767 9/30/2002 $ 13,190 $ 12,563 $ 15,205 $ 15,582 10/31/2002 $ 13,053 $ 12,433 $ 15,112 $ 15,470 11/30/2002 $ 13,588 $ 12,942 $ 15,911 $ 16,272 12/31/2002 $ 13,686 $ 13,036 $ 16,105 $ 16,460 1/31/2003 $ 13,955 $ 13,292 $ 16,543 $ 16,888 2/28/2003 $ 14,124 $ 13,453 $ 16,788 $ 17,135 3/31/2003 $ 14,398 $ 13,714 $ 17,218 $ 17,548 4/30/2003 $ 15,127 $ 14,408 $ 18,098 $ 18,418 5/31/2003 $ 15,193 $ 14,472 $ 18,360 $ 18,674 6/30/2003 $ 15,614 $ 14,872 $ 18,896 $ 19,219 7/31/2003 $ 15,503 $ 14,767 $ 18,743 $ 19,098 8/31/2003 $ 15,643 $ 14,900 $ 18,953 $ 19,287 9/30/2003 $ 16,107 $ 15,342 $ 19,471 $ 19,822 10/31/2003 $ 16,429 $ 15,649 $ 19,868 $ 20,190 11/30/2003 $ 16,776 $ 15,979 $ 20,140 $ 20,473 12/31/2003 $ 17,199 $ 16,382 $ 20,605 $ 20,991 1/31/2004 $ 17,512 $ 16,680 $ 21,005 $ 21,375 2/29/2004 $ 17,419 $ 16,592 $ 21,016 $ 21,392 3/31/2004 $ 17,438 $ 16,610 $ 21,156 $ 21,559 4/30/2004 $ 17,457 $ 16,628 $ 21,127 $ 21,479 5/31/2004 $ 17,205 $ 16,388 $ 20,790 $ 21,139
The graph and table do not reflect the deductions of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The CS First Boston High Yield Index is a broad-based, unmanaged index that tracks the performance of high-yield bonds. The JP Morgan Global High Yield Index is designed to mirror the investable universe of US dollar global high-yield corporate debt market, including domestic and international issues. Unlike mutual funds, indices are not investments, do not incur fees or expenses and are not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in an index. AVERAGE ANNUAL TOTAL RETURN AS OF 05/31/04 (%)
SHARE CLASS A B C Z INCEPTION 10/21/71 06/08/92 01/15/96 01/08/99 SALES CHARGE WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT 1-year 13.30 7.91 12.46 7.46 12.63 11.63 13.58 5-year 1.47 0.49 0.72 0.45 0.87 0.87 1.72 10-year 5.58 5.06 4.79 4.79 4.90 4.90 5.72
AVERAGE ANNUAL TOTAL RETURN AS OF 03/31/04 (%)
SHARE CLASS A B C Z SALES CHARGE WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT 1-year 21.13 15.37 20.24 15.24 20.41 19.41 21.43 5-year 1.70 0.72 0.95 0.69 1.11 1.11 1.96 10-year 5.60 5.08 4.81 4.81 4.91 4.91 5.73
All results shown assume reinvestment of distributions. The "with sales charge" returns include the maximum 4.75% charge for class A shares, the appropriate class B contingent deferred sales charge for the holding period after purchase as follows: through the first year--5%, second year--4%, third year--3%, fourth year--3%, fifth year--2%, sixth year--1%, thereafter--0%, and the class C contingent deferred sales charge of 1% for the first year only. Class Z shares are sold only at net asset value with no Rule 12b-1 fees. Performance for different share classes will vary based on differences in sales charges and fees associated with each class. Performance results reflect any voluntary waivers or reimbursement of fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. Class C is a newer class of shares. Its performance information includes returns of the fund's class B shares for periods prior to the inception of class C shares. Class B shares would have substantially similar annual returns because class B and class C shares generally have similar expense structures. Class A shares were initially offered on October 21, 1971, class B shares were initially offered on June 8, 1992, and class C shares were initially offered on January 15, 1996. Class Z is a newer class of shares. Its performance information includes returns of the fund's class A shares (the oldest existing fund class) for periods prior to its inception. The returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between class A shares and the newer class of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been higher. Class Z shares were initially offered on January 8, 1999. [SIDENOTE] PERFORMANCE OF A $10,000 INVESTMENT 06/01/94 - 05/31/04 ($)
SALES CHARGE WITHOUT WITH Class A 17,205 16,388 Class B 15,961 15,961 Class C 16,131 16,131 Class Z 17,438 n/a
Performance data quoted represents past performance and current performance may be lower or higher. Past performance is no guarantee of future results. The investment return and principal value will fluctuate so that shares may be worth more or less than the original cost. Please visit www.columbiafunds.com for daily and most recent month-end performance updates. 2 ECONOMIC UPDATE COLUMBIA HIGH YIELD OPPORTUNITY FUND Despite mixed signals at the start, the US economy staged a solid recovery during the 12-month period that began June 1, 2003 and ended May 31, 2004. GDP grew at the highest annual pace in nearly two decades--averaging nearly 5.0% during the period. Consumer confidence tumbled early in this reporting period as the unemployment rate rose to 6.4% in June 2003 and job losses were reported from both the manufacturing and service sectors. Confidence wavered again when the number of new jobs was well below expectations in January and February 2004. Yet, consumers continued to account for most of the economy's gains. Consumer spending rose as a sizeable package of tax cuts, implemented in 2003, gave disposable income a boost. As a result, retail sales showed steady gains. Low interest rates fueled mortgage refinancing in 2003 and again early in 2004, which further enhanced household income and buoyed an already ebullient housing market. When nearly a million new jobs were added to the economy between March and May, consumer confidence rebounded. With the last remaining weak spot in the recovery--the employment picture--on the mend, the economy appeared to be on solid ground. Late in 2003, the business sector also bounced back. Industrial production turned higher in September, and factories utilized more of their capacity as the period wore on. Business spending on technology rose. In 2004, spending on capital equipment also picked up. BONDS REFLECTED THE ECONOMIC NEWS Although the US bond market began the period with respectable gains, they were whittled away as the economy strengthened and the employment picture brightened. Investors began to anticipate a shift in the Federal Reserve Board's policy on the key short-term interest rates it controls. At the prospect of higher short-term interest rates, bond prices fell and the yield on the 10-year US Treasury bond rose more than one-half of a percentage point in April--a significant move for a single month. It continued to edge higher in May. The Lehman Brothers Aggregate Bond Index, a broad measure of investment grade bond market performance, lost ground for the 12-month period. The index returned negative 0.44%. The strong economy was more good news than bad for the high-yield bond sector, which historically has been less vulnerable to the threat of higher interest rates than other fixed-income sectors. High-yield bonds led the fixed-income markets. However, most of the sector's gains came in the first eight months of the period. US STOCKS OUTPERFORMED BONDS The US stock market snapped a three-year losing streak in 2003. However, by May stocks, like most bond sectors, veered into negative territory. The S&P 500 Index returned 18.33% for this reporting period. Small- cap stocks, which had been strong performers earlier in the period, fell the most as the stock market retreated. Value stocks edged out growth stocks, as measured by the Russell indices, but the margin of difference between them was slight. And as the stock market lost ground near the end of the period, growth stocks held up better than value stocks. [SIDENOTE] SUMMARY FOR THE 12-MONTH PERIOD ENDED MAY 31, 2004 - - MOST SECTORS OF THE INVESTMENT GRADE BOND MARKET DELIVERED NEGATIVE RETURNS AS INTEREST RATES SOARED IN THE LAST TWO MONTHS OF THE PERIOD. THE LEHMAN BROTHERS AGGREGATE BOND INDEX RETURNED NEGATIVE 0.44%. HIGH-YIELD BONDS, WHICH CAN BE LESS SENSITIVE TO CHANGING INTEREST RATES, FARED BETTER. THE MERRILL LYNCH US HIGH YIELD, CASH PAY INDEX RETURNED 11.34% LEHMAN INDEX -0.44% MERRILL LYNCH INDEX 11.34%
- - AS THE ECONOMY STRENGTHENED AND CORPORATIONS REPORTED HIGHER PROFITS, STOCK PRICES ROSE FOR ALL SEGMENTS OF THE STOCK MARKET, AS MEASURED BY THE S&P 500 INDEX AND THE BROADER RUSSELL 3000 INDEX. BUT MANY SECTORS RETREATED IN THE FINAL MONTHS OF THE PERIOD AS INTEREST RATES MOVED HIGHER. S&P 500 INDEX 18.33% RUSSELL 3000 INDEX 19.71%
The Lehman Brothers Aggregate Bond Index is a market value-weighted index that tracks fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues. The Merrill Lynch US High Yield, Cash Pay Index is an unmanaged index that tracks the performance of non-investment-grade corporate bonds. The S&P 500 Index is an unmanaged index that tracks the performance of 500 widely held, large capitalization US stocks. The Russell 3000 Index is an unmanaged index that tracks the performance of the 3,000 largest US companies based on total market capitalization. 3 PORTFOLIO MANAGERS' REPORT COLUMBIA HIGH YIELD OPPORTUNITY FUND For the 12-month period ended May 31, 2004, class A shares of Columbia High Yield Opportunity Fund returned 13.30% without sales charge. The fund performed in line with both its benchmarks, the CS First Boston High Yield Index and the JP Morgan Global High Yield Index, which returned 13.25% and 13.23%, respectively, for the period. It did better than the Lipper High Current Yield Funds Category, which averaged a return of 10.89% for the same period.(1) FURTHER GAINS FOR HIGH-YIELD BONDS LED BY LOWER QUALITY An improving economy and shrinking default rate helped high-yield issues deliver generally strong returns over the past 12-months. Lower quality issues led the high-yield market as investors favored those credits most leveraged to an improving economy and least sensitive to rising interest rates. Although lower quality credits outperformed for the entire period, their strongest gains occurred earlier in the period. The fund's performance benefited from an overweighting in lower quality credits relative to its benchmarks throughout the period. CABLE, WIRELESS, UTILITIES AND DISTRESSED ISSUES WERE STRONG Our decision to emphasize cable operators, cellular telephone and related infrastructure companies and independent power-producing utilities was a major factor in the fund's strong performance. The bonds of cable company Charter Communications rose strongly as the company turned its operations around and improved its balance sheet by refinancing high-cost debt at more favorable terms. In addition, investors appeared to be according a higher value to cable subscriber accounts. Tower-builder SBA Communications rebounded when fears that cell phone companies might hold back on infrastructure investment evaporated in the face of abundant outlays that changed investor expectations. Utilities were also important contributors to the fund's return, especially in the first half of the period. A diversity of power sources gave independent producer Orion Power a competitive advantage despite concerns about industry overcapacity. Orion also realized unexpectedly high value on the sale of some generating units. And credit quality continued to strengthen at energy-provider Dynegy, which also performed well. Among distressed and defaulted securities, US Unwired, a cellular operator; Kaiser Aluminum & Chemical, a bankrupt aluminum producer and Colt Telecom Group had stellar returns for the fund. A small position in equities also contributed to the fund's positive return, specifically our investments in Envirosource, XM Satellite Radio Holdings, NTL and Nextel Communications. CHEMICALS AND STEELS REFLECTED ECONOMIC RECOVERY Firmer prices for commodity chemicals boosted the value of bonds issued by Utah-based Huntsman. At the same time, strengthening farm (1) Lipper Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as those of the fund. [SIDENOTE] NET ASSET VALUE PER SHARE AS OF 05/31/04 ($) Class A 4.54 Class B 4.54 Class C 4.54 Class Z 4.54
DISTRIBUTIONS DECLARED PER SHARE 06/01/03 - 05/31/04 ($) Class A 0.32 Class B 0.29 Class C 0.29 Class Z 0.33
SEC YIELDS AS OF 05/31/04 (%) Class A 7.75 Class B 7.38 Class C 7.53 Class Z 8.39
The 30-day SEC yields reflect the portfolio's earning power net of expenses, expressed as an annualized percentage of the public offering price per share at the end of the period. HOLDINGS DISCUSSED IN THIS REPORT AS OF 05/31/04 (%) Charter Communications 1.8 SBA Communications 0.9 Orion Power 0.4 Dynegy 0.7 US Unwired 0.8 Kaiser Aluminum & Chemical 0.4 Colt Telecom Group 0.8 Envirosource 0.6 XM Satellite Radio Holdings 0.3 NTL 0.4 Nextel Communications 0.4 Huntsman 1.1 Terra Capital 0.6 Oregon Steel Mills 0.3 Delta Air Lines 0.3 Tenet Healthcare 0.6 HCA 0.2
Your fund is actively managed and the composition of its portfolio will change over time. Information provided is calculated as a percentage of net assets. 4 economies spurred sales of fertilizers and other agricultural chemicals, benefiting bonds issued by Terra Capital. Higher prices also led to a dramatic turnaround for Oregon Steel Mills in the second half of the reporting period. AEROSPACE AND HEALTH CARE ISSUES FELL Soaring prices for jet fuel and heavy labor costs pressured bonds of Delta Air Lines and other carriers. Tenet Healthcare and HCA, two for-profit hospital operators came under pressure as billing practices were challenged, bad debt expenses rose and government scrutiny of the industry increased. In addition, our underweight position among financial companies, a sector that performed particularly well, held back returns. OUTLOOK REMAINS GENERALLY POSITIVE We believe that an improving economy has the potential to translate into higher revenues for many high-yield issuers, but our optimism is tempered by the prospect of higher interest rates. A high volume of new bond issues may also weigh on the markets. As a result of our optimism, we have continued to position the fund more aggressively, with a higher exposure to CCC-rated issues. To address our interest rate concerns, we have reduced holdings among BB-rated credits that are generally more sensitive to rising rates. [PHOTO OF THOMAS A. LAPOINTE] Thomas A. LaPointe, CFA, has co-managed Columbia High Yield Opportunity Fund since February 2003 and has been with the advisor and its predecessors since January 1999. /s/ Thomas A. LaPointe [PHOTO OF KEVIN L. CRONK] Kevin L. Cronk, CFA has co-managed the fund since February 2003 and has been with the advisor and its predecessors since August 1999. /s/ Kevin L. Cronk Investing in high-yield bonds involves greater credit risk and other risks not associated with investing in higher-quality bonds. Bond investing also involves interest rate risk, which means that bond prices may change as interest rates increase or decrease. Foreign investments involve market, political, accounting and currency risks not associated with domestic investments. [SIDENOTE] WE BELIEVE THAT AN IMPROVING ECONOMY HAS THE POTENTIAL TO TRANSLATE INTO HIGHER REVENUES FOR MANY HIGH-YIELD ISSUERS, BUT OUR OPTIMISM IS TEMPERED BY THE PROSPECT OF HIGHER INTEREST RATES. 5 INVESTMENT PORTFOLIO MAY 31, 2004 COLUMBIA HIGH YIELD OPPORTUNITY FUND
PAR ($) VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - 90.5% AGRICULTURE - 0.4% AGRICULTURE PRODUCTION - 0.4% SEMINIS VEGETABLE SEEDS, INC. 10.250% 10/01/13 (a) 2,227,000 2,405,160 ----------- Agriculture Production Total 2,405,160 ----------- AGRICULTURE TOTAL 2,405,160 CONSTRUCTION - 3.7% BUILDING CONSTRUCTION - 3.7% ASSOCIATED MATERIALS, INC. (b) 03/01/14 (11.250% 03/01/09) (a) 1,350,000 884,250 9.750% 04/15/12 2,585,000 2,830,575 ATRIUM COMPANIES, INC. 10.500% 05/01/09 (a) 1,560,000 1,638,000 10.500% 05/01/09 650,000 682,500 D.R. HORTON, INC. 9.750% 09/15/10 3,400,000 3,876,000 K. HOVNANIAN ENTERPRISES, INC. 8.875% 04/01/12 1,435,000 1,495,988 10.500% 10/01/07 1,930,000 2,214,675 NORCRAFT CO. 9.000% 11/01/11 (a) 1,095,000 1,155,225 NORTEK HOLDINGS, INC. (b) 05/15/11 (10.000% 11/15/07) (a) 4,090,000 3,047,050 STANDARD PACIFIC CORP. 9.250% 04/15/12 1,425,000 1,524,750 WII COMPONENTS, INC. 10.000% 02/15/12 (a) 2,180,000 2,147,300 WILLIAM LYON HOMES 10.750% 04/01/13 1,730,000 1,915,975 ----------- Building Construction Total 23,412,288 ----------- CONSTRUCTION TOTAL 23,412,288 CONSUMER STAPLES - 0.9% HOUSEHOLD PRODUCTS - 0.9% ELIZABETH ARDEN, INC. 7.750% 01/15/14 (a) 1,895,000 1,885,525 PLAYTEX PRODUCTS, INC. 9.375% 06/01/11 3,865,000 3,729,725 ----------- Household Products Total 5,615,250 ----------- CONSUMER STAPLES TOTAL 5,615,250 FINANCE, INSURANCE & REAL ESTATE - 3.8% DEPOSITORY INSTITUTIONS - 0.3% WESTERN FINANCIAL BANK 9.625% 05/15/12 1,475,000 1,600,375 ----------- Depository Institutions Total 1,600,375
See notes to investment portfolio. 6
PAR ($) VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) FINANCE, INSURANCE & REAL ESTATE - (CONTINUED) FINANCIAL SERVICES - 3.3% DOLLAR FINANCIAL GROUP 9.750% 11/15/11 2,760,000 2,815,200 FINOVA GROUP, INC. 7.500% 11/15/09 4,112,303 2,261,767 GLOBAL CASH ACCESS LLC/ GLOBAL CASH FINANCE CORP. 8.750% 03/15/12 (a) 2,035,000 2,106,225 LABRANCHE & CO. 11.000% 05/15/12 (a) 3,335,000 3,401,700 THORNBURG MORTGAGE, INC. 8.000% 05/15/03 2,085,000 2,053,725 TRAC-X NORTH AMERICA HIGH YIELD CREDIT 8.000% 03/25/09 (a) 9,000,000 8,595,000 ----------- Financial Services Total 21,233,617 REAL ESTATE - 0.2% FOREST CITY ENTERPRISES, INC. 7.625% 06/01/15 1,390,000 1,438,650 ----------- Real Estate Total 1,438,650 ----------- FINANCE, INSURANCE & REAL ESTATE TOTAL 24,272,642 INDUSTRIALS - 0.4% INDUSTRIAL CONGLOMERATES - 0.4% SPX CORP. 7.500% 01/01/13 2,285,000 2,324,987 ----------- Industrial Conglomerates Total 2,324,987 ----------- INDUSTRIALS TOTAL 2,324,987 MANUFACTURING - 29.0% APPAREL - 1.0% BRODER BROTHERS CO. 11.250% 10/15/10 1,120,000 1,080,800 LEVI STRAUSS & CO. 12.250% 12/15/12 2,935,000 2,670,850 PHILLIPS VAN-HEUSEN 7.250% 02/15/11 (a) 1,010,000 1,010,000 8.125% 05/01/13 1,000,000 1,035,000 WARNACO, INC. 8.875% 06/15/13 600,000 634,500 ----------- Apparel Total 6,431,150 AUTO PARTS & EQUIPMENT - 1.4% ACCURIDE CORP. Series 1998 B, 9.250% 02/01/08 1,225,000 1,246,437 DANA CORP. 9.000% 08/15/11 1,000,000 1,132,500 DELCO REMY INTERNATIONAL, INC. 9.375% 04/15/12 (a) 430,000 416,025 11.000% 05/01/09 1,665,000 1,748,250
See notes to investment portfolio. 7
PAR ($) VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) MANUFACTURING - (CONTINUED) AUTO PARTS & EQUIPMENT - (CONTINUED) DURA OPERATING CORP. 8.625% 04/15/12 1,775,000 1,792,750 9.000% 05/01/09 2,000,000 1,940,000 TRW AUTOMOTIVE, INC. 9.375% 02/15/13 (a) 559,000 619,092 ----------- Auto Parts & Equipment Total 8,895,054 CHEMICALS & ALLIED PRODUCTS - 5.2% AVECIA GROUP PLC 11.000% 07/01/09 2,940,000 2,160,900 EQUISTAR CHEMICAL FUNDING LP 10.125% 09/01/08 1,860,000 2,018,100 10.625% 05/01/11 1,530,000 1,675,350 HUNTSMAN ICI HOLDINGS LLC (d) 12/31/09 14,580,000 7,144,200 IMC GLOBAL, INC. 10.875% 08/01/13 (a) 2,150,000 2,580,000 INVISTA, INC. 9.250% 05/01/12 (a) 1,390,000 1,379,575 KOPPERS INDUSTRIES, INC. 9.875% 10/15/13 (a) 2,295,000 2,467,125 LYONDELL CHEMICAL CO. 9.625% 05/01/07 1,615,000 1,679,600 9.875% 05/01/07 1,500,000 1,560,000 NOVA CHEMICALS CORP. 6.500% 01/15/12 780,000 766,155 TERRA CAPITAL, INC. 12.875% 10/15/08 3,220,000 3,831,800 UAP HOLDING CORP. (b) 07/15/12 (10.750% 01/15/08) (a) 2,190,000 1,708,200 UNITED AGRICULTURAL PRODUCTS, INC. 8.250% 12/15/11 (a) 1,900,000 2,128,000 WESTLAKE CHEMICAL CORP. 8.750% 07/15/11 (a) 1,710,000 1,846,800 ----------- Chemicals & Allied Products Total 32,945,805 ELECTRONIC & ELECTRICAL EQUIPMENT - 0.9% AMKOR TECHNOLOGY, INC. 9.250% 02/15/08 1,260,000 1,329,300 LUCENT TECHNOLOGIES, INC. 6.450% 03/15/29 1,890,000 1,426,950 STRATUS TECHNOLOGIES, INC. 10.375% 12/01/08 (a) 1,580,000 1,540,500 XEROX CORP. 7.125% 06/15/10 1,300,000 1,300,000 ----------- Electronic & Electrical Equipment Total 5,596,750 FABRICATED METAL - 0.4% EARLE M. JORGENSEN CO. 9.750% 06/01/12 2,400,000 2,616,000 ----------- Fabricated Metal Total 2,616,000 FOOD & KINDRED PRODUCTS - 3.1% CONSTELLATION BRANDS, INC. 8.125% 01/15/12 2,000,000 2,100,000
See notes to investment portfolio. 8
PAR ($) VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) MANUFACTURING - (CONTINUED) FOOD & KINDRED PRODUCTS - (CONTINUED) DEL MONTE CORP. 9.250% 05/15/11 1,755,000 1,882,238 DOLE FOOD CO., INC. 8.625% 05/01/09 2,030,000 2,050,300 MERISANT CO. 9.500% 07/15/13 (a) 1,605,000 1,717,350 PINNACLE FOODS HOLDINGS 8.250% 12/01/13 (a) 2,485,000 2,453,938 PREMIER INTERNATIONAL FOODS PLC 12.000% 09/01/09 4,750,000 5,046,875 ROUNDY'S, INC. 8.875% 06/15/12 2,475,000 2,648,250 TABLETOP HOLDINGS, INC. (b) 05/15/14 (12.250% 11/15/08) (a) 3,995,000 2,237,200 ----------- Food & Kindred Products Total 20,136,151 FURNITURE & FIXTURES - 0.9% CONGOLEUM CORP. 8.625% 08/01/08 (e) 1,755,000 1,281,150 JUNO LIGHTING, INC. 11.875% 07/01/09 2,340,000 2,492,100 TEMPUR-PEDIC, INC. 10.250% 08/15/10 1,510,000 1,706,300 ----------- Furniture & Fixtures Total 5,479,550 LUMBER & WOOD PRODUCTS - 0.4% MILLAR WESTERN FOREST PRODUCTS 7.750% 11/15/13 (a) 1,695,000 1,703,475 GEORGIA-PACIFIC CORP. 8.000% 01/15/24 (a) 600,000 583,500 ----------- Lumber & Wood Products Total 2,286,975 MISCELLANEOUS MANUFACTURING - 5.2% AMSCAN HOLDINGS, INC. 8.750% 05/01/14 (a) 2,245,000 2,233,775 FASTENTECH, INC. 11.500% 05/01/11 (a) 3,030,000 3,257,250 FLOWSERVE CORP. 12.250% 08/15/10 2,759,000 3,117,670 HEXCEL CORP. 9.750% 01/15/09 1,800,000 1,876,500 J.B. POINDEXTER & CO. 8.750% 03/15/14 (a) 1,750,000 1,723,750 MAAX CORP. 9.750% 06/15/12 (a)(c) 1,270,000 1,301,750 MUELLER GROUP, INC. 10.000% 05/01/12 (a) 1,065,000 1,091,625 MUELLER HOLDINGS, INC. (b) 04/15/14 (14.750% 04/15/09) 2,625,000 1,430,625 NAVISTAR INTERNATIONAL 7.500% 06/15/11 (c) 1,125,000 1,127,813 REXNORD CORP. 10.125% 12/15/12 1,360,000 1,468,800 SUPERIOR ESSEX COMMUNICATIONS GROUP 9.000% 04/15/12 (a) 1,750,000 1,671,250
See notes to investment portfolio. 9
PAR ($) VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) MANUFACTURING - (CONTINUED) MISCELLANEOUS MANUFACTURING - (CONTINUED) TEKNI-PLEX, INC. 12.750% 06/15/10 4,000,000 4,000,000 TEREX CORP. Series 2001 B, 10.375% 04/01/11 2,115,000 2,347,650 TRIMAS CORP. 9.875% 06/15/12 4,710,000 5,016,150 TRINITY INDUSTRIES, INC. 6.500% 03/15/14 (a) 920,000 864,800 VALMONT INDUSTRIES, INC. 6.875% 05/01/14 (a) 690,000 676,200 ----------- Miscellaneous Manufacturing Total 33,205,608 PAPER PRODUCTS - 2.9% APPLIED EXTRUSION TECHNOLOGIES, INC. 10.750% 07/01/11 1,965,000 1,247,775 BUCKEYE TECHNOLOGIES, INC. 8.500% 10/01/13 (a) 480,000 489,600 9.250% 09/15/08 1,980,000 1,940,400 CARAUSTAR INDUSTRIES, INC. 9.875% 04/01/11 2,015,000 2,004,925 CONSOLIDATED CONTAINER CO. (b) 06/15/09 (10.750% 06/15/07) (a) 1,700,000 1,266,500 MDP ACQUISITIONS PLC 9.625% 10/01/12 3,600,000 3,888,000 NEWARK GROUP, INC. 9.750% 03/15/14 (a) 1,360,000 1,285,200 NORSKE SKOG CANADA LTD. 7.375% 03/01/14 (a) 695,000 679,613 8.625% 06/15/11 1,200,000 1,266,000 PORTOLA PACKAGING, INC. 8.250% 02/01/12 (a) 1,485,000 1,239,975 SMURFIT-STONE CONTAINER CORP. 8.250% 10/01/12 1,675,000 1,700,125 SOLO CUP CO. 8.500% 02/15/14 (a) 660,000 660,000 TEMBEC INDUSTRIES, INC. 8.500% 02/01/11 920,000 910,800 ----------- Paper Products Total 18,578,913 PRIMARY METAL - 2.0% KAISER ALUMINUM & CHEMICAL CORP. 10.875% 10/15/06 (f) 2,385,000 2,361,150 METALLURG, INC. 11.000% 12/01/07 6,700,000 3,216,000 OREGON STEEL MILLS, INC. 10.000% 07/15/09 1,785,000 1,838,550 STEEL DYNAMICS, INC. 9.500% 03/15/09 (a) 430,000 470,850 9.500% 03/15/09 650,000 711,750 UCAR FINANCE, INC. 10.250% 02/15/12 1,890,000 2,088,450 WISE METALS GROUP LLC 10.250% 05/15/12 (a) 2,100,000 2,121,000 ----------- Primary Metal Total 12,807,750
See notes to investment portfolio. 10
PAR ($) VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) MANUFACTURING - (CONTINUED) PRINTING & PUBLISHING - 3.6% DEX MEDIA, INC. (b) 11/15/13 (9.000% 11/15/08) (a) 1,850,000 1,193,250 8.000% 11/15/13 (a) 2,450,000 2,327,500 DEX MEDIA EAST LLC 12.125% 11/15/12 2,335,000 2,720,275 DEX MEDIA WEST LLC 9.875% 08/15/13 2,075,000 2,285,094 HAIGHTS CROSS COMMUNICATIONS, INC. (b) 08/15/11 (12.500% 02/01/09) (a) 2,325,000 1,267,125 11.750% 08/15/11 1,250,000 1,343,750 HOLLINGER, INC. 11.875% 03/01/11 (a) 2,445,000 2,842,313 QUEBECOR MEDIA, INC. 11.125% 07/15/11 2,360,000 2,672,700 SHERIDAN GROUP 10.250% 08/15/11 (a) 1,515,000 1,602,112 VON HOFFMAN CORP. 10.250% 03/15/09 3,825,000 3,805,875 YELL FINANCE BV 10.750% 08/01/11 1,034,000 1,199,440 ----------- Printing & Publishing Total 23,259,434 STONE, CLAY, GLASS & CONCRETE - 1.4% CROWN EUROPEAN HOLDINGS SA 10.875% 03/01/13 2,550,000 2,856,000 OWENS-BROCKWAY GLASS CONTAINER 8.250% 05/15/13 1,045,000 1,034,550 OWENS-ILLINOIS, INC. 7.350% 05/15/08 3,050,000 2,928,000 7.500% 05/15/10 620,000 582,800 US CONCRETE, INC. 8.375% 04/01/14 (a) 1,830,000 1,816,275 ----------- Stone, Clay, Glass & Concrete Total 9,217,625 TEXTILE MILL PRODUCTS - 0.3% COLLINS & AIKMAN FLOOR COVERING, INC. 9.750% 02/15/10 1,600,000 1,624,000 ----------- Textile Mill Products Total 1,624,000 TOBACCO PRODUCTS - 0.2% NORTH ATLANTIC TRADING 9.250% 03/01/12 (a) 1,545,000 1,541,138 ----------- Tobacco Products Total 1,541,138 TRANSPORTATION EQUIPMENT - 0.1% NEWCOR, INC., PIK 8.500% 01/31/13 (g) 847,510 516,981 ----------- Transportation Equipment Total 516,981 ----------- MANUFACTURING TOTAL 185,138,884
See notes to investment portfolio. 11
PAR ($) VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) MINING & ENERGY - 4.5% OIL & GAS EXTRACTION - 2.8% BENTON OIL & GAS CO. 9.375% 11/01/07 2,565,000 2,616,300 CHESAPEAKE ENERGY CORP. 7.500% 06/15/14 (a) 855,000 880,650 COMPTON PETROLEUM CORP. 9.900% 05/15/09 2,675,000 2,902,375 DENBURY RESOURCES, INC. 7.500% 04/01/13 550,000 550,000 ENCORE ACQUISITION CO. 8.375% 06/15/12 1,870,000 1,982,200 ENERGY PARTNERS LTD. 8.750% 08/01/10 1,570,000 1,624,950 FOREST OIL CORP. 8.000% 06/15/08 2,160,000 2,273,400 MAGNUM HUNTER RESOURCES, INC. 9.600% 03/15/12 2,260,000 2,463,400 TRANSTEXAS GAS CORP. 15.000% 03/15/05 (g)(h) 475,296 5 WHITING PETROLEUM CORP. 7.250% 05/01/12 (a) 2,790,000 2,796,975 ----------- Oil & Gas Extraction Total 18,090,255 OIL & GAS FIELD SERVICES - 1.7% CHC HELICOPTER CORP. 7.375% 05/01/14 (a) 1,820,000 1,779,050 J. RAY McDERMOTT SA 11.000% 12/15/13 (a) 1,470,000 1,392,825 NEWPARK RESOURCES, INC. 8.625% 12/15/07 2,050,000 2,101,250 PETROLEUM HELICOPTERS, INC. 9.375% 05/01/09 3,125,000 3,250,000 PREMCOR REFINING GROUP 7.500% 06/15/15 2,015,000 2,055,300 ----------- Oil & Gas Field Services Total 10,578,425 ----------- MINING & ENERGY TOTAL 28,668,680 RETAIL TRADE - 1.6% APPAREL & ACCESSORY STORES - 0.3% FINLAY FINE JEWELRY CORP. 8.375% 06/01/12 (a)(c) 1,700,000 1,729,750 SAKS, INC. 7.000% 12/01/13 693,000 682,605 ----------- Apparel & Accessory Stores Total 2,412,355 MISCELLANEOUS RETAIL - 1.3% ASBURY AUTOMOTIVE GROUP 8.000% 03/15/14 1,990,000 1,840,750 LEINER HEALTH PRODUCTS 11.000% 06/01/12 (a) 500,000 517,500 NEBRASKA BOOK CO. 8.625% 03/15/12 (a) 1,340,000 1,323,250 RITE AID CORP. 9.250% 06/01/13 2,830,000 2,900,750 STEINWAY MUSICAL INSTRUMENTS, INC. 8.750% 04/15/11 1,485,000 1,603,800 ----------- Miscellaneous Retail Total 8,186,050 ----------- RETAIL TRADE TOTAL 10,598,405
See notes to investment portfolio. 12
PAR ($) VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) SERVICES - 14.8% AMUSEMENT & RECREATION - 8.6% AMERICAN CASINO & ENTERTAINMENT 7.850% 02/01/12 (a) 2,525,000 2,531,313 AMERISTAR CASINOS, INC. 10.750% 02/15/09 185,000 211,825 AMF BOWLING WORLDWIDE, INC. 10.000% 03/01/10 (a) 1,655,000 1,679,825 BOMBARDIER RECREATIONAL 8.375% 12/15/13 (a) 3,235,000 3,040,900 BOYD GAMING CORP. 8.750% 04/15/12 90,000 95,625 CINEMARK, INC. (b) 03/15/14 (9.750% 03/15/09) (a) 2,790,000 1,771,650 CIRCUS & ELDORADO/SILVER LEGACY CAPITAL CORP. 10.125% 03/01/12 1,990,000 1,985,025 EQUINOX HOLDINGS, INC. 9.000% 12/15/09 (a) 2,570,000 2,582,850 HARD ROCK HOTEL, INC. 8.875% 06/01/13 2,260,000 2,293,900 HOLLYWOOD CASINO SHREVEPORT 13.000% 08/01/06 (h) 7,050,000 5,217,000 INN OF THE MOUNTAIN GODS RESORT 12.000% 11/15/10 (a) 1,845,000 2,001,825 MOHEGAN TRIBAL GAMING AUTHORITY 8.000% 04/01/12 1,325,000 1,397,875 8.375% 07/01/11 450,000 481,500 PINNACLE ENTERTAINMENT 8.250% 03/15/12 (a) 3,800,000 3,600,500 8.750% 10/01/13 3,480,000 3,410,400 PREMIER ENTERTAINMENT BILOXI FINANCIAL 10.750% 02/01/12 (a) 1,505,000 1,584,013 RIVER ROCK ENTERTAINMENT 9.750% 11/01/11 (a) 2,210,000 2,342,600 SENECA GAMING CORP. 7.250% 05/01/12 (a) 2,265,000 2,242,350 SIX FLAGS, INC. 9.500% 02/01/09 4,785,000 4,874,719 STATION CASINOS, INC. 6.000% 04/01/12 1,135,000 1,081,088 6.875% 03/01/16 750,000 708,750 TOWN SPORTS INTERNATIONAL, INC. (b) 02/01/14 (11.000% 02/01/09) (a) 3,015,000 1,492,425 TRUMP HOLDINGS & FUNDING, PIK 17.625% 09/15/10 2,481,086 2,505,897 VAIL RESORTS, INC. 6.750% 02/15/14 (a) 2,060,000 1,915,800 WARNER MUSIC GROUP 7.375% 04/15/14 (a) 2,270,000 2,213,250 WYNN LAS VEGAS LLC 12.000% 11/01/10 1,500,000 1,755,000 ----------- Amusement & Recreation Total 55,017,905 FUNERAL SERVICES - 0.4% SERVICE CORP. INTERNATIONAL 7.700% 04/15/09 2,810,000 2,908,350 ----------- Funeral Services Total 2,908,350
See notes to investment portfolio. 13
PAR ($) VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) SERVICES - (CONTINUED) HEALTH SERVICES - 3.7% BIO-RAD LABORATORIES, INC. 7.500% 08/15/13 2,515,000 2,603,025 COVENTRY HEALTH CARE, INC. 8.125% 02/15/12 3,190,000 3,556,850 HCA, INC. 8.750% 09/01/10 1,120,000 1,259,507 INSIGHT HEALTH SERVICES CORP. 9.875% 11/01/11 2,900,000 2,950,750 MEDQUEST, INC. 11.875% 08/15/12 3,300,000 3,712,500 PACIFICARE HEALTH SYSTEMS, INC. 10.750% 06/01/09 707,000 807,747 TEAM HEALTH, INC. 9.000% 04/01/12 (a) 1,965,000 1,856,925 TENET HEALTHCARE CORP. 5.375% 11/15/06 835,000 786,987 6.375% 12/01/11 3,625,000 3,081,250 UNITED SURGICAL PARTNERS INTERNATIONAL, INC. 10.000% 12/15/11 2,600,000 2,931,500 ----------- Health Services Total 23,547,041 OTHER SERVICES - 2.1% ADVANSTAR COMMUNICATIONS, INC. 12.000% 02/15/11 4,050,000 4,293,000 CORRECTIONS CORP. OF AMERICA 9.875% 05/01/09 2,415,000 2,668,575 GEO GROUP, INC. 8.250% 07/15/13 1,260,000 1,241,100 NATIONSRENT, INC. 9.500% 10/15/10 (a) 3,260,000 3,455,600 WILLIAMS SCOTSMAN, INC. 9.875% 06/01/07 1,415,000 1,393,775 ----------- Other Services Total 13,052,050 ----------- SERVICES TOTAL 94,525,346 TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 26.3% AEROSPACE - 1.0% BE AEROSPACE, INC. 8.875% 05/01/11 2,080,000 1,965,600 CONDOR SYSTEMS, INC. 11.875% 05/01/09 (f) 4,000,000 280,000 SEQUA CORP. 8.875% 04/01/08 1,170,000 1,240,200 TRANSDIGM, INC. 8.375% 07/15/11 (a) 1,660,000 1,676,600 VOUGHT AIRCRAFT INDUSTRIES, INC. 8.000% 07/15/11 (a) 1,295,000 1,239,962 ----------- Aerospace Total 6,402,362 AIR TRANSPORTATION - 1.3% CONTINENTAL AIRLINES, INC. 7.568% 12/01/06 2,980,000 2,518,100 DELTA AIR LINES, INC. 7.900% 12/15/09 3,480,000 1,740,000
See notes to investment portfolio. 14
PAR ($) VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - (CONTINUED) AIR TRANSPORTATION - (CONTINUED) NORTHWEST AIRLINES CORP. 9.875% 03/15/07 2,905,000 2,149,700 UNITED AIRLINES 1.340% 03/02/49 (i) 2,380,905 2,226,146 ----------- Air Transportation Total 8,633,946 BROADCASTING - 2.2% CANWEST MEDIA, INC. 10.625% 05/15/11 2,775,000 3,108,000 GRANITE BROADCASTING CORP. 9.750% 12/01/10 (a) 3,140,000 2,998,700 SINCLAIR BROADCAST GROUP, INC. 8.750% 12/15/11 800,000 856,000 SPANISH BROADCASTING SYSTEM 9.625% 11/01/09 560,000 590,800 TV AZTECA SA DE CV 10.500% 02/15/07 5,070,000 5,057,325 XM SATELLITE RADIO HOLDINGS, INC. 6.650% 05/01/09 (a)(i) 1,675,000 1,675,000 ----------- Broadcasting Total 14,285,825 CABLE - 4.9% ATLANTIC BROADBAND FINANCIAL 9.375% 01/15/14 (a) 2,605,000 2,422,650 CABLEVISION SYSTEMS CORP. 5.670% 04/01/09 (a)(i) 1,945,000 1,983,900 CHARTER COMMUNICATIONS HOLDINGS LLC 9.920% 04/01/11 12,360,000 10,104,300 10.250% 09/15/10 (a) 1,500,000 1,522,500 CSC HOLDINGS, INC. 6.750% 04/15/12 (a) 1,130,000 1,084,800 7.625% 04/01/11 95,000 96,188 DIRECTV HOLDINGS FINANCE 8.375% 03/15/13 495,000 549,450 ECHOSTAR DBS CORP. 6.375% 10/01/11 (a) 685,000 667,875 INSIGHT COMMUNICATIONS, INC. (b) 02/15/11 (12.250% 02/15/06) 3,295,000 2,899,600 INSIGHT MIDWEST 9.750% 10/01/09 2,010,000 2,115,525 NORTHLAND CABLE TELEVISION, INC. 10.250% 11/15/07 3,650,000 3,586,125 NTL CABLE PLC 8.750% 04/15/14 (a) 1,770,000 1,796,550 PEGASUS SATELLITE COMMUNICATIONS, INC. 11.250% 01/15/10 (a)(f) 1,495,000 822,250 TELENET GROUP HOLDING NV (b) 06/15/14 (11.500% 12/15/08) (a) 3,045,000 1,872,675 ----------- Cable Total 31,524,388
See notes to investment portfolio. 15
PAR ($) VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - (CONTINUED) ELECTRIC, GAS & SANITARY SERVICES - 1.0% ALLIED WASTE NORTH AMERICA, INC. 6.500% 11/15/10 (a) 1,510,000 1,460,925 Series 2001 B, 8.500% 12/01/08 3,000,000 3,240,000 WASTE SERVICES, INC. 9.500% 04/15/14 (a) 1,480,000 1,491,100 ----------- Electric, Gas & Sanitary Services Total 6,192,025 ELECTRIC SERVICES - 1.8% BEAVER VALLEY FUNDING CORP. 9.000% 06/01/17 2,210,000 2,497,300 CMS ENERGY CORP. 8.900% 07/15/08 2,990,000 3,132,025 ILLINOVA POWER CORP. 11.500% 12/15/10 1,375,000 1,619,062 NEVADA POWER CO. 9.000% 08/15/13 (a) 985,000 1,065,031 10.875% 10/15/09 2,765,000 3,110,625 ----------- Electric Services Total 11,424,043 MARINE TRANSPORTATION - 1.2% SHIP FINANCE INTERNATIONAL LTD. 8.500% 12/15/13 (a) 3,405,000 3,174,073 STENA AB 7.500% 11/01/13 1,220,000 1,226,100 9.625% 12/01/12 1,630,000 1,841,900 TEEKAY SHIPPING CORP. 8.875% 07/15/11 1,310,000 1,434,450 ----------- Marine Transportation Total 7,676,523 PIPELINES - 2.4% COASTAL CORP. 7.750% 06/15/10 4,840,000 4,259,200 NORTHWEST PIPELINE CORP. 8.125% 03/01/10 1,040,000 1,116,700 SONAT, INC. 6.875% 06/01/05 1,500,000 1,503,750 7.625% 07/15/11 4,965,000 4,331,962 SOUTHERN NATURAL GAS 8.875% 03/15/10 1,630,000 1,768,550 WILLIAMS COMPANIES, INC. 8.125% 03/15/12 1,935,000 2,041,425 ----------- Pipelines Total 15,021,587 RADIO & TELEPHONE COMMUNICATIONS - 5.1% AIRGATE PCS, INC. 9.375% 09/01/09 543,900 533,022 AMERICAN CELLULAR CORP. Series B, 10.000% 08/01/11 1,955,000 1,715,512 AMERICAN TOWERS, INC. 7.250% 12/01/11 (a) 1,060,000 1,054,700 DOBSON COMMUNICATIONS CORP. 8.875% 10/01/13 3,230,000 2,527,475
See notes to investment portfolio. 16
PAR ($) VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - (CONTINUED) RADIO & TELEPHONE COMMUNICATIONS - (CONTINUED) HORIZON PCS, INC. 13.750% 06/15/11 (f) 3,300,000 1,155,000 iPCS ESCROW CO. 11.500% 05/01/12 (a) 910,000 923,650 NEXTEL COMMUNICATIONS, INC. 7.375% 08/01/15 1,000,000 1,010,000 NEXTEL PARTNERS, INC. 8.125% 07/01/11 3,250,000 3,331,250 ROGERS CANTEL, INC. 9.750% 06/01/16 3,715,000 4,272,250 RURAL CELLULAR CORP. 8.250% 03/15/12 (a) 1,355,000 1,392,262 SBA COMMUNICATIONS, INC. (b) 12/15/11 (9.750% 12/15/07) (a) 800,000 586,000 10.250% 02/01/09 4,045,000 4,014,662 SPECTRASITE, INC. 8.250% 05/15/10 (a) 1,690,000 1,749,150 US UNWIRED, INC. (b) 11/01/09 (13.375% 11/01/04) 5,130,000 5,335,200 WESTERN WIRELESS CORP. 9.250% 07/15/13 2,660,000 2,749,775 ----------- Radio & Telephone Communications Total 32,349,908 RAILROAD - 0.8% KANSAS CITY SOUTHERN 7.500% 06/15/09 1,620,000 1,636,200 RAILWORKS CORP. 11.500% 04/15/09 (h) 600,000 30,000 TFM SA DE CV 12.500% 06/15/12 3,030,000 3,211,800 ----------- Railroad Total 4,878,000 TELECOMMUNICATION SERVICES - 3.9% AXTEL SA 11.000% 12/15/13 (a) 2,580,000 2,425,200 CARRIER1 INTERNATIONAL SA 13.250% 02/15/09 (f) 6,000,000 540,000 CINCINNATI BELL, INC. 8.375% 01/15/14 2,455,000 2,209,500 FAIRPOINT COMMUNICATIONS 11.875% 03/01/10 1,150,000 1,305,250 LEVEL 3 COMMUNICATIONS, INC. 10.500% 12/01/08 3,020,000 2,325,400 QWEST CAPITAL FUNDING 7.250% 02/15/11 6,375,000 5,275,313 7.750% 02/15/31 2,385,000 1,848,375 QWEST SERVICES CORP. 13.500% 12/15/10 (a) 5,445,000 6,268,556 TIME WARNER TELECOM, INC. 9.750% 07/15/08 1,460,000 1,365,100 10.125% 02/01/11 1,760,000 1,592,800 ----------- Telecommunication Services Total 25,155,494
See notes to investment portfolio. 17
PAR ($) VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - (CONTINUED) TRANSPORTATION SERVICES - 0.7% ALLIED HOLDINGS, INC. Series 1997 B, 8.625% 10/01/07 1,835,000 1,729,488 QDI CAPITAL CORP. 9.000% 11/15/10 (a) 2,810,000 2,641,400 ----------- Transportation Services Total 4,370,888 ----------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES TOTAL 167,914,989 UTILITY - 5.1% INDEPENDENT POWER PRODUCERS - 5.1% AES CORP. 9.000% 05/15/15 (a) 3,115,000 3,301,900 9.500% 06/01/09 1,253,000 1,303,120 CAITHNESS COSO FUNDING CORP. Series 1999 B, 9.050% 12/15/09 3,557,250 3,841,830 CALPINE CORP. 8.500% 07/15/10 (a) 2,750,000 2,303,125 CALPINE CANADA ENERGY FINANCE 8.500% 05/01/08 1,565,000 931,175 CALPINE GENERATING CO. 10.250% 04/01/11 (a)(i) 2,505,000 2,204,400 11.500% 04/01/11 (a) 2,785,000 2,395,100 DYNEGY HOLDINGS, INC. 6.875% 04/01/11 2,475,000 2,029,500 9.875% 07/15/10 (a) 1,230,000 1,291,500 EDISON MISSION ENERGY 9.875% 04/15/11 3,090,000 3,090,000 MSW ENERGY HOLDINGS FINANCE 7.375% 09/01/10 (a) 910,000 896,350 8.500% 09/01/10 (a) 2,260,000 2,339,100 NRG ENERGY, INC. 8.000% 12/15/13 (a) 1,070,000 1,070,000 ORION POWER HOLDINGS, INC. 12.000% 05/01/10 2,100,000 2,551,500 PSE&G ENERGY HOLDINGS, INC. 8.625% 02/15/08 2,955,000 3,176,625 ----------- Independent Power Producers Total 32,725,225 ---------- UTILITY TOTAL 32,725,225 TOTAL CORPORATE FIXED-INCOME BONDS & NOTES (COST OF $592,644,455) 577,601,856 CONVERTIBLE BONDS - 1.9% MANUFACTURING - 0.9% ELECTRONIC & ELECTRICAL EQUIPMENT - 0.9% NORTEL NETWORKS LTD. 4.250% 09/01/08 6,240,000 5,717,587 ----------- Electronic & Electrical Equipment Total 5,717,587 ----------- MANUFACTURING TOTAL 5,717,587
See notes to investment portfolio. 18
PAR ($) VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ CONVERTIBLE BONDS - (CONTINUED) TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 0.8% COMMUNICATION SERVICES - 0.8% COLT TELECOM GROUP PLC 2.000% 08/06/05 EUR 1,400,000 974,553 2.000% 03/29/06 (a) 2,190,000 2,901,399 2.000% 12/16/06 (a) 980,000 1,331,250 ----------- Communication Services Total 5,207,202 ----------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES TOTAL 5,207,202 UTILITY - 0.2% INDEPENDENT POWER PRODUCERS - 0.2% MIRANT CORP. 2.500% 06/15/21 (f) USD 2,125,000 1,180,204 ----------- Independent Power Producers Total 1,180,204 ----------- UTILITY TOTAL 1,180,204 TOTAL CONVERTIBLE BONDS (COST OF $8,953,920) 12,104,993 SHARES - ------------------------------------------------------------------------------------------------------------------------------ PREFERRED STOCKS - 1.8% FINANCE, INSURANCE & REAL ESTATE - 0.7% FINANCE - 0.7% iStar Financial: Series E, 7.875% 86,769 2,169,225 Series F, 7.800% 97,000 2,388,625 ----------- Finance Total 4,557,850 ----------- FINANCE, INSURANCE & REAL ESTATE TOTAL 4,557,850 MANUFACTURING - 0.6% PRINTING & PUBLISHING - 0.6% PriMedia, Inc.: Series D, 10.000% 17,700 1,601,850 Series F, 9.200% 20,390 1,784,125 Series H, 8.625% 220 18,975 ----------- Printing & Publishing Total 3,404,950 ----------- MANUFACTURING TOTAL 3,404,950
See notes to investment portfolio. 19
SHARES VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ PREFERRED STOCKS - (CONTINUED) TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 0.5% BROADCASTING - 0.5% Spanish Broadcasting System, Inc., 10.750% 3,370 3,403,700 ----------- Broadcasting Total 3,403,700 COMMUNICATION SERVICES - 0.0% PTV, Inc. 19 143 ----------- Communication Services Total 143 ----------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES TOTAL 3,403,843 TOTAL PREFERRED STOCKS (COST OF $11,604,480) 11,366,643 COMMON STOCKS (j) - 2.5% MANUFACTURING - 0.6% COMMUNICATIONS EQUIPMENT - 0.3% EchoStar Communications Corp., Class A 50,000 1,608,000 ----------- Communications Equipment Total 1,608,000 ELECTRONIC & ELECTRICAL EQUIPMENT - 0.2% Amkor Technology, Inc. 105,000 1,079,400 ----------- Electronic & Electrical Equipment Total 1,079,400 PRINTING & PUBLISHING - 0.1% Haights Cross Communications, Inc. 18,220 892,780 ----------- Printing & Publishing Total 892,780 ----------- MANUFACTURING TOTAL 3,580,180 MINING & ENERGY - 0.0% CRUDE PETROLEUM & NATURAL GAS - 0.0% Coho Energy, Inc. (k) 750 -- Horizon Natural Resources Co. (g) 16,000 16 ----------- Crude Petroleum & Natural Gas Total 16 OIL & GAS EXTRACTION - 0.0% Orion Refining Corp. (g)(l) 10 -- ----------- Oil & Gas Extraction Total -- ----------- MINING & ENERGY TOTAL 16
See notes to investment portfolio. 20
SHARES VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS (j) - (CONTINUED) TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 1.7% CABLE - 0.4% NTL, Inc. 46,154 2,727,701 Ono Finance PLC (a)(g)(l) 5,700 -- ----------- Cable Total 2,727,701 ELECTRIC, GAS & SANITARY SERVICES - 0.1% Allied Waste Industries, Inc. 72,500 961,350 ----------- Electric, Gas & Sanitary Services Total 961,350 ELECTRIC SERVICES - 0.0% BayCorp Holdings Ltd. 3 40 ----------- Electric Services Total 40 POLLUTION CONTROL - 0.6% EnviroSource, Inc. (g) 50,004 4,000,320 Fairlane Management Corp. (g)(l) 50,004 -- ----------- Pollution Control Total 4,000,320 RADIO & TELEPHONE COMMUNICATIONS - 0.6% Airgate PCS, Inc. 22,468 415,433 Nextel Communications, Inc., Class A 100,000 2,313,000 SBA Communications Corp. 235,910 910,613 ----------- Radio & Telephone Communications Total 3,639,046 ----------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES TOTAL 11,328,457 UTILITY - 0.2% INDEPENDENT POWER PRODUCERS - 0.2% Dynegy, Inc., Class A 233,000 1,022,870 ----------- Independent Power Producers Total 1,022,870 ----------- UTILITY TOTAL 1,022,870 TOTAL COMMON STOCKS (COST OF $14,073,688) 15,931,523
See notes to investment portfolio. 21
UNITS VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ WARRANTS (j) - 0.0% MANUFACTURING - 0.0% PRINTING & PUBLISHING - 0.0% Haights Cross Communications, Inc.: expires 12/10/11 (k) 20 -- expires 12/10/12 18,044 361 Printing & Publishing Total 361 ----------- MANUFACTURING TOTAL 361 RETAIL TRADE - 0.0% FOOD STORES - 0.0% Pathmark Stores, Inc., expires 09/19/10 58,758 43,481 ----------- Food Stores Total 43,481 ----------- RETAIL TRADE TOTAL 43,481 TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 0.0% AEROSPACE - 0.0% Loral Space & Communications Ltd., expires 01/15/07 12,000 120 Aerospace Total 120 BROADCASTING - 0.0% XM Satellite Radio Holdings, Inc., expires 03/15/10 (a) 2,435 121,750 ----------- Broadcasting Total 121,750 CABLE - 0.0% Cable Satisfaction International, Inc., expires 03/01/05 (g)(l) 7,550 -- Ono Finance PLC, expires 02/15/11 (a)(g)(l) 1,200 -- ----------- Cable Total -- TRANSPORTATION SERVICES - 0.0% QDI LLC, expires 01/15/07 (a)(g) 10,207 42,869 ----------- Transportation Services Total 42,869 RADIO & TELEPHONE COMMUNICATIONS - 0.0% Carrier1 International SA, expires 02/19/09 (a)(g)(f)(l) 2,780 -- iPCS, Inc., expires 07/15/10 (a)(g)(l) 2,500 --
See notes to investment portfolio. 22
UNITS VALUE ($) - ------------------------------------------------------------------------------------------------------------------------------ WARRANTS (j) - (CONTINUED) TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - (CONTINUED) RADIO & TELEPHONE COMMUNICATIONS - (CONTINUED) MetroNet Communications Corp., expires 08/15/07 (a)(g)(l) 1,250 -- UbiquiTel, Inc., expires 04/15/10 (a)(g)(l) 5,250 -- ----------- Radio & Telephone Communications Total -- TELECOMMUNICATION SERVICES - 0.0% Horizon PCS, Inc., expires 10/01/10 (a)(g)(l) 4,705 -- Jazztel PLC, expires 07/15/10 (a)(g)(l) EUR 1,435 -- ----------- Telecommunication Services Total -- ----------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES TOTAL 164,739 TOTAL WARRANTS (COST OF $8,220,915) 208,581 PAR ($) - ------------------------------------------------------------------------------------------------------------------------------ SHORT-TERM OBLIGATION - 2.0% Repurchase agreement with State Street Bank & Trust Co., dated 05/28/04, due 06/01/04 at 0.930%, collateralized by a U.S. Treasury Bond maturing 02/15/16, market value $13,138,838 (repurchase proceeds $12,878,331) (Cost of $12,877,000) 12,877,000 12,877,000 TOTAL INVESTMENTS - 98.7% (COST OF $648,374,458) (M) 630,090,596 OTHER ASSETS & LIABILITIES, NET - 1.3% 8,498,156 NET ASSETS - 100.0% 638,588,752
See notes to investment portfolio. 23 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 May 31, 2004, these securities amounted to $194,205,144, which represents 30.4% of net assets. (b) Step bond. This security is currently accruing at zero. Shown parenthetically is the interest rate to be paid and the date the Fund will begin accruing at this rate. (c) Security purchased on a delayed delivery basis. (d) Zero coupon bond. (e) The issuer has filed for bankruptcy protection under Chapter 11 and is in default of certain debt covenants, however, under the issuer's plan of reorganization, the issuer has guaranteed all interest due and therefore income is still being accrued. As of May 31, 2004, the value of this security represents 0.2% of net assets. (f) The issuer has filed for bankruptcy protection under Chapter 11, and is in default of certain debt covenants. Income is not being accrued. As of May 31, 2004, the value of these securities amounted to $6,338,604, which represents 1.0% of net assets. (g) Represents fair value as determined in good faith under procedures approved by the Board of Trustees. (h) The issuer is in default of certain debt covenants. Income is not being accrued. As of May 31, 2004, the value of these securities amounted to $5,247,005, which represents 0.8% of net assets. (i) Variable rate security. The interest rate shown reflects the rate as of May 31, 2004. (j) Non-income producing security. (k) Rounds to less than $1. (l) Security has no value. (m) Cost for federal income tax purposes is $647,517,473. As of May 31, 2004, the Fund had entered into the following forward currency exchange contracts:
FORWARD CURRENCY AGGREGATE SETTLEMENT UNREALIZED CONTRACTS TO BUY VALUE FACE VALUE DATE APPRECIATION ----------------------------------------------------------------------------------- EUR 1,020,000 $ 1,245,653 $ 1,230,630 06/10/04 $ 15,023 FORWARD CURRENCY AGGREGATE SETTLEMENT UNREALIZED CONTRACTS TO SELL VALUE FACE VALUE DATE DEPRECIATION ----------------------------------------------------------------------------------- EUR 5,199,000 $ 6,349,164 $ 6,272,593 06/10/04 $ (76,571)
ACRONYM NAME ----------------------------------------------------------------------------------- EUR Euro Currency PIK Payment-In-Kind USD United States Dollar
See notes to financial statements. 24 STATEMENT OF ASSETS AND LIABILITIES MAY 31, 2004 COLUMBIA HIGH YIELD OPPORTUNITY FUND
($) - ------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at cost 648,374,458 Investments, at value 630,090,596 Receivable for: Investments sold 3,154,384 Fund shares sold 6,967,246 Interest 13,787,717 Dividends 89,410 Expense reimbursement due from Investment Advisor 96,308 Deferred Trustees' compensation plan 31,327 Other assets 5,192 ----------- Total Assets 654,222,180 LIABILITIES Payable to custodian bank 472,191 Net unrealized depreciation on foreign forward currency contracts 61,548 Payable for: Investments purchased 7,208,527 Investments purchased on a delayed delivery basis 3,829,798 Fund shares repurchased 1,547,356 Distributions 1,497,944 Investment advisory fee 323,868 Transfer agent fee 216,390 Pricing and bookkeeping fees 20,051 Trustees' fees 183 Custody fee 4,872 Distribution and service fees 322,372 Deferred Trustees' fees 31,327 Other liabilities 97,001 ----------- Total Liabilities 15,633,428 NET ASSETS 638,588,752 COMPOSITION OF NET ASSETS Paid-in capital 1,056,995,550 Undistributed net investment income 3,139,574 Accumulated net realized loss (403,201,359) Net unrealized depreciation on: Investments (18,283,862) Foreign currency translations (61,151) NET ASSETS 638,588,752 CLASS A Net assets 325,657,513 Shares outstanding 71,730,397 Net asset value per share 4.54(a) Maximum offering price per share ($4.54/0.9525) 4.77(b) CLASS B Net assets 252,414,873 Shares outstanding 55,598,819 Net asset value and offering price per share 4.54(a) CLASS C Net assets 46,322,303 Shares outstanding 10,202,877 Net asset value and offering price per share 4.54(a) CLASS Z Net assets 14,194,063 Shares outstanding 3,126,222 Net asset value, offering and redemption price per share 4.54
(a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. (b) On sales of $50,000 or more the offering price is reduced. See notes to financial statements. 25 STATEMENT OF OPERATIONS FOR THE YEAR ENDED MAY 31, 2004 COLUMBIA HIGH YIELD OPPORTUNITY FUND
($) - ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME Interest 63,927,232 Dividends 1,661,388 ----------- Total Investment Income (net of foreign taxes withheld of $584) 65,588,620 EXPENSES Investment advisory fee 4,453,431 Distribution fee: Class B 2,230,924 Class C 405,905 Service fee: Class A 911,449 Class B 743,641 Class C 135,304 Transfer agent fee 1,980,330 Pricing and bookkeeping fees 234,786 Trustees' fees 26,926 Custody fee 36,096 Non-recurring costs (See Note 7) 19,145 Other expenses 316,638 ----------- Total Expenses 11,494,575 Fees and expenses waived or reimbursed by Investment Advisor (37,548) Fees waived by Distributor - Class C (81,176) Non-recurring costs assumed by Investment Advisor (See Note 7) (19,145) Custody earnings credit (6,029) ----------- Net Expenses 11,350,677 ----------- Net Investment Income 54,237,943 NET REALIZED AND UNREALIZED GAIN (LOSS) ON Net realized gain (loss) on: INVESTMENTS AND FOREIGN CURRENCY Investments 8,566,815 Foreign currency transactions (296,069) ----------- Net realized gain 8,270,746 Net change in unrealized appreciation/depreciation on: Investments 32,835,268 Foreign currency translations 44,832 ----------- Net change in unrealized appreciation/depreciation 32,880,100 ----------- Net Gain 41,150,846 ----------- Net Increase in Net Assets from Operations 95,388,789
See notes to financial statements. 26 STATEMENTS OF CHANGES IN NET ASSETS COLUMBIA HIGH YIELD OPPORTUNITY FUND
YEAR ENDED PERIOD ENDED YEAR ENDED MAY 31, MAY 31, DECEMBER 31, 2004 ($) 2003(a)($) 2002 ($) - ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS Net investment income 54,237,943 24,767,811 55,441,396 Net realized gain (loss) on investments and foreign currency transactions 8,270,746 (17,632,755) (148,093,490) Net change in unrealized appreciation/depreciation on investments and foreign currency translations 32,880,100 72,727,890 60,419,314 ------------ ------------- ------------ Net Increase (Decrease) from Operations 95,388,789 79,862,946 (32,232,780) DISTRIBUTIONS DECLARED TO SHAREHOLDERS From net investment income: Class A (25,897,731) (13,142,914) (32,236,809) Class B (18,878,503) (9,273,542) (25,717,885) Class C (3,515,106) (1,580,199) (4,204,933) Class Z (1,901,969) (1,396,747) (1,529,375) Return of capital: Class A -- -- (2,748,971) Class B -- -- (2,193,075) Class C -- -- (358,573) Class Z -- -- (130,416) ------------ ------------- ------------ Total Distributions Declared to Shareholders (50,193,309) (25,393,402) (69,120,037) SHARE TRANSACTIONS Class A: Subscriptions 189,024,773 123,761,289 235,835,725 Proceeds received in connection with merger -- -- 175,784 Distributions reinvested 13,650,967 6,982,957 17,448,294 Redemptions (276,813,657) (143,095,138) (211,467,498) ------------ ------------- ------------ Net Increase (Decrease) (74,137,917) (12,350,892) 41,992,305 Class B: Subscriptions 41,567,784 31,442,432 88,840,756 Distributions reinvested 8,876,772 4,268,763 12,563,965 Redemptions (120,128,028) (31,579,170) (127,327,785) ------------ ------------- ------------ Net Increase (Decrease) (69,683,472) 4,132,025 (25,923,064) Class C: Subscriptions 26,520,739 9,708,920 22,531,723 Distributions reinvested 2,226,590 984,268 2,835,915 Redemptions (37,179,218) (9,260,789) (23,747,996) ------------ ------------- ------------ Net Increase (Decrease) (8,431,889) 1,432,399 1,619,642 Class Z: Subscriptions 31,287,165 18,835,360 20,514,243 Proceeds received in connection with merger -- -- 36,830,189 Distributions reinvested 1,483,445 1,244,797 1,500,998 Redemptions (66,364,258) (12,632,407) (24,679,597) ------------ ------------- ------------ Net Increase (Decrease) (33,593,648) 7,447,750 34,165,833 Net Increase (Decrease) from Share Transactions (185,846,926) 661,282 51,854,716 ------------ ------------- ------------ Total Increase (Decrease) in Net Assets (140,651,446) 55,130,826 (49,498,101)
(a) The Fund changed its fiscal year end from December 31 to May 31. See notes to financial statements. 27
YEAR ENDED PERIOD ENDED YEAR ENDED MAY 31, MAY 31, DECEMBER 31, 2004 ($) 2003(a)($) 2002 ($) - ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: Net Assets Beginning of period 779,240,198 724,109,372 773,607,473 End of period (including undistribued (overdistributed) net investment income of $3,139,574, $(2,035,796) and $(1,587,777), respectively) 638,588,752 779,240,198 724,109,372 Changes in Shares Class A: Subscriptions 42,769,227 30,064,102 56,148,431 Issued in connection with merger -- -- 43,511 Issued for distributions reinvested 3,017,589 1,670,630 4,119,471 Redemptions (61,621,799) (34,371,342) (49,928,762) ------------ ------------- ------------ Net Increase (Decrease) (15,834,983) (2,636,610) 10,382,651 Class B: Subscriptions 9,297,993 7,579,882 20,864,519 Issued for distributions reinvested 1,963,545 1,022,266 2,954,382 Redemptions (26,516,181) (7,619,970) (29,746,409) ------------ ------------- ------------ Net Increase (Decrease) (15,254,643) 982,178 (5,927,508) Class C: Subscriptions 5,944,258 2,356,861 5,278,283 Issued for distributions reinvested 492,263 235,678 668,879 Redemptions (8,189,751) (2,247,443) (5,607,906) ------------ ------------- ------------ Net Increase (Decrease) (1,753,230) 345,096 339,256 Class Z: Subscriptions 7,069,802 4,570,300 5,020,578 Issued in connection with merger -- -- 9,116,388 Issued for distributions reinvested 327,668 297,518 374,230 Redemptions (14,917,379) (3,077,369) (6,084,044) ------------ ------------- ------------ Net Increase (Decrease) (7,519,909) 1,790,449 8,427,152
(a) The Fund changed its fiscal year end from December 31 to May 31. See notes to financial statements. 28 NOTES TO FINANCIAL STATEMENTS MAY 31, 2004 COLUMBIA HIGH YIELD OPPORTUNITY FUND NOTE 1. ORGANIZATION Columbia High Yield Opportunity Fund (the "Fund"), a series of Columbia Funds 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 high current income and total return. FUND SHARES The Fund may issue an unlimited number of shares and offers four classes of shares: Class A, Class B, Class C and Class Z. Each share class has its own sales charge and expense structure. Class A shares are subject to a maximum front-end sales charge of 4.75% based on the amount of initial investment. Class A shares purchased without an initial sales charge are subject to a 1.00% contingent deferred sales charge ("CDSC") on shares sold within eighteen months on an original purchase of $1 million to $25 million. Class B shares are subject to a maximum CDSC of 5.00% based upon the holding period after purchase. Class B shares will convert to Class A shares in a certain number of years after purchase, depending on the program under which shares were purchased. Class C shares are subject to a 1.00% CDSC on shares sold within one year after purchase. Class Z shares are offered continuously at net asset value. There are certain restrictions on the purchase of Class Z shares, as described in the Fund's prospectus. Effective October 13, 2003, the Fund changed its name from Liberty High Yield Securities Fund to Columbia High Yield Opportunity Fund. Also on that date, the Trust changed its name from Liberty Funds Trust I to Columbia Funds Trust I. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. SECURITY VALUATION Debt securities generally are valued by a pricing service 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. 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 rate 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 29 of the New York Stock Exchange ("NYSE"). The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are generally determined at 2:00 p.m. Eastern (U.S.) time. Occasionally, events affecting the values of such foreign securities and such exchange rates may occur between the times at which they are determined and the close of the customary trading session of the NYSE, which would not be reflected in the computation of the Fund's net asset value. If events materially affecting the values of such foreign securities occur and it is determined that market quotations are not reliable, then these foreign securities will be valued at their fair value using procedures approved by the Board of Trustees. Investments for which market quotations are not readily available, or quotations which management believes are not appropriate, are valued at fair value under procedures approved by the Board of Trustees. 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 of the contracts. 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 forward 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. While 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 the Fund's investment advisor has determined are creditworthy. The Fund, through its custodian, receives delivery of underlying securities collateralizing a repurchase agreement. Collateral is at least equal, at all times, to the value of the repurchase obligation including interest. A repurchase agreement transaction involves certain risks in the event of default or insolvency of the counterparty. These risks include possible delays or restrictions upon the Fund's ability to dispose of the underlying securities and a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights. DELAYED DELIVERY SECURITIES The Fund may trade securities on other than normal settlement terms, including securities purchased or sold on a "when-issued" basis. This may increase the risk if the other party to the transaction fails to deliver and causes the Fund to subsequently invest at less advantageous prices. The Fund identifies cash or liquid portfolio securities as segregated with the custodian 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. Corporate actions and dividend income are recorded on the ex-date. The value of additional securities received as an income payment is recorded as income and as the cost basis of such securities. FOREIGN CURRENCY TRANSACTIONS The values of all assets and liabilities quoted in foreign currencies are translated into U.S. dollars at that day's exchange rates. Net realized and unrealized gains (losses) on foreign currency transactions include gains (losses) arising from the fluctuation in exchange rates between trade and settlement dates on securities transactions, gains (losses) arising from the disposition 30 of foreign currency and currency gains (losses) between the accrual and payment dates on dividends, interest income and foreign withholding taxes. For financial statement purposes, the Fund does not distinguish that portion of gains (losses) on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the net realized and unrealized gains (losses) on investments. DETERMINATION OF CLASS NET ASSET VALUES All income, expenses (other than class-specific expenses, as shown on the Statement of Operations) and realized and unrealized gains (losses) are allocated to each class of the Fund on a daily basis for purposes of determining the net asset value of each class. Income and expenses are allocated to each class based on the settled shares method, while realized and unrealized gains (losses) are allocated based on the relative net assets of each class. FEDERAL INCOME TAX STATUS The Fund intends to qualify each year as a "regulated investment company" under Subchapter M of the Internal Revenue Code, as amended, and will distribute substantially all of its taxable or tax-exempt income, if any, for its tax year, and as such will not be subject to federal income taxes. In addition, the Fund intends to distribute in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded. DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income are declared daily and paid monthly. Net realized capital gains, if any, are distributed at least annually. NOTE 3. FEDERAL TAX INFORMATION The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund's capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations. For the year ended May 31, 2004, permanent differences resulting primarily from differing treatments for market discount reclassifications, Section 988 reclassifications for foreign currency and amortization/accretion adjustments were identified and reclassified among the components of the Fund's net assets as follows:
UNDISTRIBUTED ACCUMULATED NET INVESTMENT NET REALIZED PAID-IN INCOME LOSS CAPITAL - -------------------------------------------------------------------- $ 1,130,736 $ (1,130,737) $ 1
Net investment income and net realized gains (losses), as disclosed on the Statement of Operations, and net assets were not affected by this reclassification. The tax character of distributions paid during the year ended May 31, 2004, the period ended May 31, 2003 and the year ended December 31, 2002 was as follows:
MAY 31, MAY 31, DECEMBER 31, 2004 2003 2002 - -------------------------------------------------------------------------------- Distributions paid from: Ordinary income* $ 50,193,309 $ 25,393,402 $ 63,689,002 Long-term capital gains -- -- -- Tax return of capital -- -- 5,431,035
*For tax purposes short-term capital gains distributions, if any, are considered ordinary income distributions. As of May 31, 2004, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ORDINARY LONG-TERM NET UNREALIZED INCOME CAPITAL GAINS DEPRECIATION* - -------------------------------------------------------------------- $ 4,718,009 $ -- $ (17,426,480)
*The differences between book-basis and tax-basis net unrealized depreciation are primarily due to deferral of losses from wash sales and discount accretion/premium amortization on debt securities. Unrealized appreciation and depreciation at May 31, 2004, based on cost of investments for federal income tax purposes was: Unrealized appreciation $ 31,980,244 - ------------------------------------------------------------------ Unrealized depreciation (49,407,121) ------------- Net unrealized depreciation $ (17,426,877)
The following capital loss carryforwards may be available to reduce taxable income arising from future 31 net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code:
YEAR OF CAPITAL LOSS EXPIRATION CARRYFORWARD - ----------------------------------------------------------------- 2007 $ 7,774,983 2008 44,818,986 2009 161,087,717 2010 171,019,187 2011 18,463,873 ------------- $ 403,164,746
Capital loss carryforwards of $6,990,639 were utilized and/or expired during the year ended May 31, 2004 for the Fund. Expired capital loss carryforwards are recorded as a reduction of paid-in capital. NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004, FleetBoston, including the Fund's investment advisor, transfer agent and distributor, was acquired by Bank of America Corporation ("BOA"). The acquisition did not change the way the Fund is managed, the investment personnel assigned to manage the Fund or the fees paid by the Fund. INVESTMENT ADVISORY FEE Columbia provides administrative and other services to the Fund in addition to investment advisory services. Columbia receives a monthly investment advisory fee based on the Fund's average daily net assets as follows:
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE - ------------------------------------------------------------ First $1 billion 0.60% Next $1 billion 0.55% Over $2 billion 0.50%
Prior to November 1, 2003, Columbia was entitled to receive a monthly investment advisory fee based on the Fund's average daily net assets as follows:
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE - ------------------------------------------------------------ First $1.5 billion 0.60% Over $1.5 billion 0.55%
PRICING AND BOOKKEEPING FEES Columbia is responsible for providing pricing and bookkeeping services to the Fund under a pricing and bookkeeping agreement. Under a separate agreement (the "Outsourcing Agreement"), Columbia has delegated those functions to State Street Corporation ("State Street"). As a result, Columbia pays the total fees received to State Street under the Outsourcing Agreement. Under its pricing and bookkeeping agreement with the Fund, Columbia receives from the Fund an annual flat fee of $10,000 paid monthly, and in any month that the Fund's average daily net assets exceed $50 million, an additional monthly fee. The additional fee rate is calculated by taking into account the fees payable to State Street under the Outsourcing Agreement. This rate is applied to the average daily net assets of the Fund for that month. The Fund also pays additional fees for pricing services based on the number of securities held by the Fund. For the year ended May 31, 2004, the Fund's effective pricing and bookkeeping fee rate was 0.032%. TRANSFER AGENT FEE Columbia Funds Services, Inc. (the "Transfer Agent"), an indirect, wholly owned subsidiary of BOA, provides shareholder services to the Fund. For such services, the Transfer Agent receives a fee, paid monthly, at the annual rate of $34.00 per open account. The Transfer Agent also receives reimbursement for certain out-of-pocket expenses. Columbia has voluntarily agreed to waive a portion of the transfer agent fee so that the transfer agent fee will not exceed 0.23% (exclusive of out-of-pocket expenses) annually of the Fund's average daily net assets. Columbia, at its discretion, may revise or discontinue this arrangement any time. Prior to November 1, 2003, the Transfer Agent was entitled to receive a monthly transfer agent fee at the annual rate of 0.06% of the Fund's average daily net assets plus flat-rate charges based on the number of shareholder accounts and transactions. The Transfer Agent was also entitled to receive reimbursement for certain out-of-pocket expenses. For the year ended May 31, 2004, the Fund's effective transfer agent fee rate, inclusive of out-of-pocket fees, was 0.27%. Effective October 13, 2003, Liberty Funds Services, Inc. was renamed Columbia Funds Services, Inc. 32 UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES Columbia Funds Distributor, Inc. (the "Distributor"), an indirect, wholly owned subsidiary of BOA, is the principal underwriter of the Fund. For the year ended May 31, 2004, the Distributor has retained net underwriting discounts of $33,672 on sales of the Fund's Class A shares and received CDSC fees of $109,308, $960,376 and $18,468 on Class A, Class B and Class C share redemptions, respectively. The Fund has adopted a 12b-1 plan (the "Plan") which requires the payment of a monthly service fee to the Distributor equal to 0.25% annually of the average daily net assets attributable to Class A, Class B and Class C shares. 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 Class C share distribution fee so that it will not exceed 0.60% annually. The CDSC and the fees received from the Plan are used principally as repayment to the Distributor for amounts paid by the Distributor to dealers who sold such shares. Effective October 13, 2003, Liberty Funds Distributor, Inc. was renamed Columbia Funds Distributor, Inc. CUSTODY CREDITS The Fund has an agreement with its custodian bank under which custody fees may be reduced by balance credits. The Fund could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement. FEES PAID TO OFFICERS AND TRUSTEES The Fund pays no compensation to its officers, all of whom are employees of Columbia or its affiliates. The Fund's Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund's assets. OTHER Columbia provides certain services to the Fund related to Sarbanes-Oxley compliance. For the year ended May 31, 2004, the Fund paid $2,498 to Columbia for such services. This amount is included in "Other expenses" on the Statement of Operations. NOTE 5. PORTFOLIO INFORMATION For the year ended May 31, 2004, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $542,529,846 and $712,277,833, respectively. NOTE 6. LINE OF CREDIT The Fund and other affiliated funds participate in a $350,000,000 credit facility, which is used for temporary or emergency purposes to facilitate portfolio liquidity. Interest is charged to the Fund based on its borrowings. In addition, the Fund has agreed to pay commitment fees on its pro-rata portion of the unutilized line of credit. The commitment fee is included in "Other expenses" on the Statement of Operations. For the year ended May 31, 2004, the Fund did not borrow under this arrangement. NOTE 7. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES INDUSTRY FOCUS The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified. 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 there is no established secondary market. 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 33 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. LEGAL PROCEEDINGS Columbia, the Distributor, and certain of their affiliates (collectively, "The Columbia Group") have received information requests and subpoenas from various regulatory and law enforcement authorities in connection with their investigations of late trading and market timing in mutual funds as well as other industry wide issues. The Columbia Group has not uncovered any instances where Columbia or the Distributor were knowingly involved in late trading of mutual fund shares. On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a civil complaint in the United States District Court for the District of Massachusetts against Columbia and the Distributor, alleging that they had violated certain provisions of the federal securities laws in connection with trading activity in mutual fund shares. Also on February 24, 2004, the New York Attorney General ("NYAG") filed a civil complaint in New York Supreme Court, County of New York against Columbia and the Distributor alleging that Columbia and the Distributor had violated certain New York anti-fraud statutes. If either Columbia or the Distributor is unsuccessful in its defense of these proceedings, it could be barred from serving as an investment advisor or distributor for any investment company registered under the Investment Company Act of 1940, as amended (a "registered investment company"). Such results could prevent Columbia, the Distributor or any company that is an affiliated person of Columbia and the Distributor from serving as an investment advisor or distributor for any registered investment company, including your fund. Your fund has been informed by Columbia and the Distributor that, if these results occur, they will seek exemptive relief from the SEC to permit them to continue to serve as your fund's investment advisor and distributor. There is no assurance that such exemptive relief will be granted. On March 15, 2004, Columbia and the Distributor entered into agreements in principle with the SEC Division of Enforcement and NYAG in settlement of the charges. Under the agreements, Columbia and the Distributor agreed, among other things, to the following conditions: payment of $70 million in disgorgement; payment of $70 million in civil penalties; an order requiring Columbia and the Distributor to cease and desist from violations of the antifraud provisions and other provisions of the federal securities laws; governance changes designed to maintain the independence of the mutual fund boards of trustees and ensure compliance with securities laws and their fiduciary duties; and retention of an independent consultant to review Columbia's and the Distributor's compliance policies and procedures. The agreement requires the final approval of the SEC. In a separate agreement with the NYAG, the Columbia Group has agreed to reduce mutual fund fees by $80 million over a five-year period. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds. In connection with the events described in detail above, various parties have filed suit against certain funds, their Boards and/or FleetBoston (and affiliated entities). These suits and certain regulatory investigations are ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made. For the year ended May 31, 2004, Columbia has assumed $19,145 of legal, consulting services and Trustees' fees incurred by the Fund in connection with these matters. 34 FINANCIAL HIGHLIGHTS COLUMBIA HIGH YIELD OPPORTUNITY FUND SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD YEAR ENDED ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS A SHARES 2004 2003(a) 2002 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 $ 6.76 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.35(b) 0.14(b) 0.34(b) 0.52(b)(c) 0.61(d) 0.60(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.21 0.30 (0.53) (0.65)(c) (1.24) (0.20) ---------- --------- --------- --------- --------- --------- Total from Investment Operations 0.56 0.44 (0.19) (0.13) (0.63) 0.40 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.32) (0.15) (0.39) (0.51) (0.62) (0.61) Return of capital -- -- (0.03) (0.04) -- -- ---------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.32) (0.15) (0.42) (0.55) (0.62) (0.61) NET ASSET VALUE, END OF PERIOD $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 Total return (e) 13.30%(f) 11.01%(f)(g) (4.27)% (2.78)% (10.28)% 6.17% RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (h) 1.19% 1.29%(i) 1.31% 1.22% 1.16% 1.21% Net investment income (h) 7.65% 8.24%(i) 7.92% 10.34%(c) 10.00% 9.02% Waiver/reimbursement 0.01% --%(i)(j) -- -- -- -- Portfolio turnover rate 75% 45%(g) 63% 62% 28% 42% Net assets, end of period (000's) $ 325,658 $ 376,944 $ 361,780 $ 369,043 $ 390,917 $ 540,201
(a) The Fund changed its fiscal year end from December 31 to May 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to increase net investment income per share by $0.05, decrease net realized and unrealized loss per share by $0.05 and increase the ratio of net investment income to average net assets from 9.76% to 10.34%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (d) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (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 not waived a portion of expenses, total return would have been reduced. (g) Not annualized. (h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (i) Annualized. (j) Rounds to less than 0.01%. 35 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD YEAR ENDED ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS B SHARES 2004 2003(a) 2002 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 $ 6.76 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.31(b) 0.13(b) 0.31(b) 0.48(b)(c) 0.56(d) 0.55(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.22 0.29 (0.54) (0.65)(c) (1.24) (0.20) ---------- --------- --------- --------- --------- --------- Total from Investment Operations 0.53 0.42 (0.23) (0.17) (0.68) 0.35 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.29) (0.13) (0.35) (0.47) (0.57) (0.56) Return of capital -- -- (0.03) (0.04) -- -- ---------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.29) (0.13) (0.38) (0.51) (0.57) (0.56) NET ASSET VALUE, END OF PERIOD $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 Total return (e) 12.46%(f) 10.67%(f)(g) (4.99)% (3.51)% (10.96)% 5.38% RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (h) 1.94% 2.04%(i) 2.06% 1.97% 1.91% 1.96% Net investment income (h) 6.90% 7.49%(i) 7.17% 9.59%(c) 9.25% 8.27% Waiver/reimbursement 0.01% --%(i)(j) -- -- -- -- Portfolio turnover rate 75% 45%(g) 63% 62% 28% 42% Net assets, end of period (000's) $ 252,415 $ 305,021 $ 280,220 $ 350,464 $ 433,949 $ 627,057
(a) The Fund changed its fiscal year end from December 31 to May 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to increase net investment income per share by $0.05, decrease net realized and unrealized loss per share by $0.05 and increase the ratio of net investment income to average net assets from 9.02% to 9.59%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (d) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (f) Had the Investment Advisor not waived a portion of expenses, total return would have been reduced. (g) Not annualized. (h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (i) Annualized. (j) Rounds to less than 0.01%. 36 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD YEAR ENDED ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS C SHARES 2004 2003(a) 2002 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 $ 6.76 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.32(b) 0.13(b) 0.31(b) 0.49(b)(c) 0.57(d) 0.56(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.21 0.29 (0.53) (0.65)(c) (1.24) (0.20) ---------- --------- --------- --------- --------- --------- Total from Investment Operations 0.53 0.42 (0.22) (0.16) (0.67) 0.36 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.29) (0.13) (0.36) (0.48) (0.58) (0.57) Return of capital -- -- (0.03) (0.04) -- -- ---------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.29) (0.13) (0.39) (0.52) (0.58) (0.57) NET ASSET VALUE, END OF PERIOD $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 Total return (e)(f) 12.63% 10.74%(g) (4.85)% (3.37)% (10.78)% 5.54% RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (h) 1.79% 1.89%(i) 1.91% 1.82% 1.76% 1.81% Net investment income (h) 7.05% 7.64%(i) 7.32% 9.74%(c) 9.40% 8.42% Waiver/reimbursement 0.16% 0.15%(i) 0.15% 0.15% 0.15% 0.15% Portfolio turnover rate 75% 45%(g) 63% 62% 28% 42% Net assets, end of period (000's) $ 46,322 $ 51,471 $ 46,568 $ 52,122 $ 48,904 $ 56,068
(a) The Fund changed its fiscal year end from December 31 to May 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to increase net investment income per share by $0.05, decrease net realized and unrealized loss per share by $0.05 and increase the ratio of net investment income to average net assets from 9.16% to 9.74%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (d) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (f) Had the Investment Advisor and/or Distributor not waived a portion of expenses, total return would have been reduced. (g) Not annualized. (h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (i) Annualized. 37 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD YEAR ENDED ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS Z SHARES 2004 2003(a) 2002 2001 2000 1999(b) - ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 $ 6.79 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.36(c) 0.15(c) 0.33(c) 0.53(c)(d) 0.62(e) 0.60(e) Net realized and unrealized gain (loss) on investments and foreign currency 0.21 0.29 (0.51) (0.65)(d) (1.24) (0.23) ---------- --------- --------- --------- --------- --------- Total from Investment Operations 0.57 0.44 (0.18) (0.12) (0.62) 0.37 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.33) (0.15) (0.40) (0.52) (0.63) (0.61) Return of capital -- -- (0.03) (0.04) -- -- ---------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.33) (0.15) (0.43) (0.56) (0.63) (0.61) NET ASSET VALUE, END OF PERIOD $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 Total return (f) 13.58%(g) 11.12%(g)(h) (4.03)% (2.53)% (10.06)% 5.83%(h) RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (i) 0.94% 1.04%(j) 1.06% 0.97% 0.91% 0.95%(j) Net investment income (i) 7.92% 8.49%(j) 8.17% 10.59%(d) 10.25% 9.22%(j) Waiver/reimbursement 0.01% --%(j)(k) -- -- -- -- Portfolio turnover rate 75% 45%(h) 63% 62% 28% 42% Net assets, end of period (000's) $ 14,194 $ 45,803 $ 35,541 $ 1,978 $ 566 $ 418
(a) The Fund changed its fiscal year end from December 31 to May 31. (b) Class Z shares were initially offered on January 8, 1999. Per share data and total returns reflect activity from that date. (c) Per share data was calculated using average shares outstanding during the period. (d) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to increase net investment income per share by $0.05, decrease net realized and unrealized loss per share by $0.05 and increase the ratio of net investment income to average net assets from 10.01% to 10.59%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (e) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (f) Total return at net asset value assuming all distributions reinvested. (g) Had the Investment Advisor not waived a portion of expenses, total return would have been reduced. (h) Not annualized. (i) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (j) Annualized. (k) Rounds to less than 0.01%. 38 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM COLUMBIA HIGH YIELD OPPORTUNITY FUND TO THE TRUSTEES OF THE COLUMBIA FUNDS TRUST I AND THE SHAREHOLDERS OF COLUMBIA HIGH YIELD OPPORTUNITY 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 High Yield Opportunity Fund (the "Fund") (a series of Columbia Funds Trust I) at May 31, 2004, the results of its operations, the changes in its net assets and its financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States), which require that we plan and perform the 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 May 31, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts July 19, 2004 39 TRUSTEES COLUMBIA HIGH YIELD OPPORTUNITY FUND Effective October 8, 2003, Patrick J. Simpson and Richard L. Woolworth were appointed to the Board of Trustees of the Fund. Messrs. Simpson and Woolworth had been directors of 15 Columbia Funds and 20 funds in the CMG Fund Trust. Also effective October 8, 2003, the incumbent trustees of the Fund were elected as directors of the 15 Columbia Funds and as trustees of the 20 funds in the CMG Fund Trust. The new combined Board of Trustees/Directors of the Fund now oversees 118 funds in the Columbia Funds Complex (including the former Liberty Funds, former Stein Roe Funds, Columbia Funds and CMG Funds). Several of these trustees/directors also serve on the Boards of other funds in the Columbia Funds Complex. The Trustees/Directors serve terms of indefinite duration. The names, addresses and ages of the Trustees/Directors and officers of the Funds in the Columbia Funds complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee/Director and other directorships they hold are shown below. Each officer listed below serves as an officer of each Fund in the Columbia Funds Complex.
NAME, ADDRESS AND AGE, POSITION WITH FUNDS, PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN COLUMBIA YEAR FIRST ELECTED OR APPOINTED TO OFFICE(1) FUNDS COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD DISINTERESTED TRUSTEES DOUGLAS A. HACKER (age 48) Executive Vice President-Strategy of United Airlines (airline) since December P.O. Box 66100 2002 (formerly President of UAL Loyalty Services (airline) from September 2001 Chicago, IL 60666 to December 2002; Executive Vice President and Chief Financial Officer of Trustee (since 1996) United Airlines from July 1999 to September 2001; Senior Vice President-Finance from March 1993 to July 1999). Oversees 118, Orbitz (online travel company) JANET LANGFORD KELLY (age 46) Private Investor since March 2004 (formerly Chief Administrative Officer and 9534 W. Gull Lake Drive Senior Vice President, Kmart Holding Corporation (consumer goods) from Richland, MI 49083-8530 September 2003 to March 2004; Executive Vice President-Corporate Development Trustee (since 1996) and Administration, General Counsel and Secretary, Kellogg Company (food manufacturer), from September 1999 to August 2003; Senior Vice President, Secretary and General Counsel, Sara Lee Corporation (branded, packaged, consumer-products manufacturer) from January 1995 to September 1999). Oversees 118, None RICHARD W. LOWRY (age 68) Private Investor since August 1987 (formerly Chairman and Chief Executive 10701 Charleston Drive Officer, U.S. Plywood Corporation (building products manufacturer). Oversees Vero Beach, FL 32963 120(3), None Trustee (since 1995) CHARLES R. NELSON (age 61) Professor of Economics, University of Washington, since January 1976; Ford and Department of Economics Louisa Van Voor his Professor of Political Economy, University of Washington, University of Washington since September 1993; (formerly Director, Institute for Economic Research, Seattle, WA 98195 University of Washington from September 2001 to June 2003) Adjunct Professor Trustee (since 1981) of Statistics, University of Washington, since September 1980; Associate Editor, Journal of Money Credit and Banking, since September 1993; consultant on econometric and statistical matters. Oversees 118, None
(1) In December 2000, the boards of each of the former Liberty Funds and former Stein Roe Funds were combined into one board of trustees responsible for the oversight of both fund groups (collectively, the "Liberty Board"). In October 2003, the trustees on the Liberty Board were elected to the boards of the Columbia Funds (the "Columbia Board") and of the CMG Fund Trust (the "CMG Funds Board"); simultaneous with that election, Patrick J. Simpson and Richard L. Woolworth, who had been directors on the Columbia Board and trustees on the CMG Funds Board, were appointed to serve as trustees of the Liberty Board. The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Columbia Funds complex. 40
NAME, ADDRESS AND AGE, POSITION WITH FUNDS, PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN COLUMBIA YEAR FIRST ELECTED OR APPOINTED TO OFFICE(1) FUNDS COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD DISINTERESTED TRUSTEES JOHN J. NEUHAUSER (age 61) Academic Vice President and Dean of Faculties since August 1999, Boston College 84 College Road (formerly Dean, Boston College School of Management from September 1977 to Chestnut Hill, MA 02467-3838 September 1999). Oversees 121(3),(4), Saucony, Inc. (athletic footwear and Trustee (since 1985) apparel) PATRICK J. SIMPSON (age 59) Partner, Perkins Coie L.L.P. (law firm). Oversees 118, None 1120 N.W. Couch Street Tenth Floor Portland, OR 97209-4128 Trustee (since 2000) THOMAS E. STITZEL (age 68) Business Consultant since 1999 (formerly Professor of Finance from 1975 to 2208 Tawny Woods Place 1999, College of Business, Boise State University); Chartered Financial Boise, ID 83706 Analyst. Oversees 118, None Trustee (since 1998) THOMAS C. THEOBALD (age 67) Managing Director, William Blair Capital Partners (private equity investing) 227 West Monroe Street, since September 1994. Oversees 118, Anixter International (network support Suite 3500 equipment distributor), Jones Lang LaSalle (real estate management services), Chicago, IL 60606 MONY Group (life insurance) and Ventas, Inc (real estate investment trust) Trustee and Chairman of the Board(5) (since 1996) ANNE-LEE VERVILLE (age 58) Retired since 1997 (formerly General Manager, Global Education Industry, IBM 359 Stickney Hill Road Corporation (computer and technology) from 1994 to 1997). Oversees 119(4), Hopkinton, NH 03229 Chairman of the Board of Directors, Enesco Group, Inc. (designer, importer and Trustee (since 1998) distributor of giftware and collectibles) RICHARD L. WOOLWORTH (age 63) Retired since December 2003 (formerly Chairman and Chief Executive Officer, 100 S.W. Market Street #1500 The Regence Group (regional health insurer); Chairman and Chief Executive Portland, OR 97207 Officer, BlueCross BlueShield of Oregon; Certified Public Accountant. Oversees Trustee (since 1991) 118, Northwest Natural Gas Co. (natural gas service provider) INTERESTED TRUSTEES WILLIAM E. MAYER(2) (age 64) Managing Partner, Park Avenue Equity Partners (private equity) since February 399 Park Avenue 1999 (formerly Founding Partner, Development Capital LLC from November 1996 to Suite 3204 February 1999). Oversees 120(3), Lee Enterprises (print media), WR Hambrecht + New York, NY 10022 Co. (financial service provider), First Health (healthcare), Reader's Digest Trustee (since 1994) (publishing) and OPENFIELD Solutions (retail industry technology provider)
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co. (3) Messrs. Lowry, Neuhauser and Mayer each also serve as a director/trustee of the All-Star Funds, currently consisting of 2 funds, which are advised by an affiliate of the Advisor. (4) Mr. Neuhauser and Ms. Verville also serve as disinterested directors of Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor. (5) Mr. Theobald was appointed as Chairman of the Board effective December 10, 2003. 41 OFFICERS COLUMBIA HIGH YIELD OPPORTUNITY FUND
NAME, ADDRESS AND AGE, POSITION WITH COLUMBIA PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS FUNDS, YEAR FIRST ELECTED OR APPOINTED TO OFFICE VICKI L. BENJAMIN (age 42) Chief Accounting Officer of the Columbia Funds and Liberty All-Star Funds One Financial Center since June 2001; Assistant Treasurer of Liberty Acorn and Wanger Funds since Boston, MA 02111 June 2004 (formerly Controller of the Columbia Funds and of the Liberty Chief Accounting Officer (since 2001) All-Star Funds from May 2002 to May 2004); Controller and Chief Accounting Officer of the Galaxy Funds since September 2002 (formerly Vice President, Corporate Audit, State Street Bank and Trust Company from May 1998 to April 2001). MICHAEL CLARKE (age 34) Controller of the Columbia Funds and of the Liberty All-Star Funds since 2004; One Financial Center Assistant Treasurer of Liberty Acorn and Wanger Funds since June 2004 Boston, MA 02111 (formerly Assistant Treasurer from June 2002 to May 2004; Vice President, Controller (since 2004) Product Strategy & Development of Liberty Funds Group from February 2001 to June 2002; Assistant Treasurer of the Liberty Funds and of the Liberty All-Star Funds from August 1999 to February 2001; Audit Manager at Deloitte & Touche LLP from May 1997 to August 1999). J. KEVIN CONNAUGHTON (age 40) President of the Columbia Funds since February 27, 2004; Treasurer of the One Financial Center Columbia Funds and of the Liberty All-Star Funds since December 2000; Vice Boston, MA 02111 President of the Advisor since April 2003 (formerly Chief Accounting Officer Treasurer (since 2000) and and Controller of the Liberty Funds and Liberty All-Star Funds from February President (since 2004) 1998 to October 2000); Treasurer of the Galaxy Funds since September 2002; Treasurer, Columbia Management Multi-Strategy Hedge Fund, LLC since December 2002 (formerly Vice President of Colonial from February 1998 to October 2000). DAVID A. ROZENSON (age 49) Secretary of the Columbia Funds and of the Liberty All-Star Funds since One Financial Center December 2003; Senior Counsel, Bank of America Corporation (formerly FleetBoston Boston, MA 02111 Financial Corporation) since January 1996; Associate General Counsel, Management Secretary (since 2003) Group since November 2002.
42 IMPORTANT INFORMATION ABOUT THIS REPORT COLUMBIA HIGH YIELD OPPORTUNITY FUND TRANSFER AGENT Columbia Funds Services, Inc. P.O. Box 8081 Boston MA 02266-8081 800.345.6611 DISTRIBUTOR Columbia Funds Distributor, Inc. One Financial Center Boston MA 02111 INVESTMENT ADVISOR Columbia Management Advisors, Inc. 100 Federal Street Boston MA 02110 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 125 High Street Boston, MA 02110 The fund mails one shareholder report to each shareholder address. If you would like more than one report, please call shareholder services at 800-345-6611 and additional reports will be sent to you. This report has been prepared for shareholders of Columbia High Yield Opportunity Fund. This report may also be used as sales literature when preceded or accompanied by the current prospectus which provides details of sales charges, investment objectives and operating policies of the fund and with the most recent copy of the Columbia Funds Performance Update. A description of the policies and procedures that the fund uses to determine how to vote proxies relating to its portfolio securities is available (i) without charge, upon request, by calling 800-345-6611 and (ii) on the Securities and Exchange Commission's website at http://www.sec.gov. 43 COLUMBIA FUNDS COLUMBIA HIGH YIELD OPPORTUNITY FUND LARGE GROWTH Columbia Common Stock Columbia Growth Columbia Growth Stock Columbia Large Cap Growth Columbia Tax-Managed Growth Columbia Tax-Managed Growth II Columbia Young Investor LARGE VALUE Columbia Disciplined Value Columbia Growth & Income Columbia Large Cap Core Columbia Tax-Managed Value MIDCAP GROWTH Columbia Acorn Select Columbia Mid Cap Growth Columbia Tax-Managed Aggressive Growth MIDCAP VALUE Columbia Dividend Income Columbia Mid Cap Columbia Strategic Investor SMALL GROWTH Columbia Acorn Columbia Acorn USA Columbia Small Company Equity SMALL VALUE Columbia Small Cap Columbia Small Cap Value BALANCED Columbia Asset Allocation Columbia Balanced Columbia Liberty Fund SPECIALTY Columbia Real Estate Equity Columbia Technology Columbia Utilities TAXABLE FIXED-INCOME Columbia Contrarian Income Columbia Corporate Bond Columbia Federal Securities Columbia Fixed Income Securities Columbia High Yield Columbia High Yield Opportunities Columbia Income Columbia Intermediate Bond Columbia Intermediate Government Income Columbia Quality Plus Bond Columbia Short Term Bond Columbia Strategic Income FLOATING RATE Columbia Floating Rate Columbia Floating Rate Advantage TAX EXEMPT Columbia High Yield Municipal Columbia Intermediate Tax-Exempt Bond Columbia Managed Municipals Columbia National Municipal Bond Columbia Tax-Exempt Columbia Tax-Exempt Insured 44 SINGLE STATE TAX EXEMPT Columbia California Tax-Exempt Columbia Connecticut Intermediate Municipal Bond Columbia Connecticut Tax-Exempt Columbia Florida Intermediate Municipal Bond Columbia Massachusetts Intermediate Municipal Bond Columbia Massachusetts Tax-Exempt Columbia New Jersey Intermediate Municipal Bond Columbia New York Intermediate Municipal Bond Columbia New York Tax-Exempt Columbia Oregon Municipal Bond Columbia Pennsylvania Intermediate Municipal Bond Columbia Rhode Island Intermediate Municipal Bond MONEY MARKET Columbia Money Market Columbia Municipal Money Market INTERNATIONAL/GLOBAL Columbia Acorn International Columbia Acorn International Select Columbia Europe Columbia Global Equity Columbia International Equity Columbia International Stock Columbia Newport Asia Pacific Columbia Newport Greater China Columbia Newport Tiger INDEX Columbia Large Company Index Columbia Small Company Index Columbia U.S. Treasury Index Please consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. Contact us at 800-345-6611 for a prospectus which contains this and other important information about the fund. Read it carefully before you invest. For complete product information on any Columbia fund, visit our website at www.columbiafunds.com. Columbia Management Group and Columbia Management refer collectively to the various investment advisory subsidiaries of Columbia Management Group, including Columbia Management Advisors, Inc., the registered investment advisor, and Columbia Funds Distributor, Inc. 45 [GRAPHIC] Help your fund reduce printing and postage costs! Elect to get your shareholder reports by electronic delivery. With Columbia's eDelivery program, you receive an e-mail message when your shareholder report becomes available online. If your fund account is registered with Columbia Funds, you can sign up quickly and easily on our website at www.columbiafunds.com. Please note -- if you own your fund shares through a financial institution, contact the institution to see if it offers electronic delivery. If you own your fund shares through a retirement plan, electronic delivery may not be available to you. COLUMBIA HIGH YIELD OPPORTUNITY FUND ANNUAL REPORT, MAY 31, 2004 PRSRT STD U.S. POSTAGE PAID HOLLISTON, MA PERMIT NO. 20 [COLUMBIAFUNDS(R) LOGO] A MEMBER OF COLUMBIA MANAGEMENT GROUP (C)2004 COLUMBIA FUNDS DISTRIBUTOR, INC. ONE FINANCIAL CENTER, BOSTON, MA 02111-2621 800.345.6611 www.columbiafunds.com 730-02/064S-0504 (07/04) 04/1520 ITEM 2. CODE OF ETHICS. (a) The registrant has, as of the end of the period covered by this report, adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. (b) During the period covered by this report, there were not any amendments to a provision of the code of ethics adopted in 2(a) above. (c) During the period covered by this report, there were not any waivers or implicit waivers to a provision of the code of ethics adopted in 2(a) above. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's Board of Trustees has determined that Douglas A. Hacker, Thomas E. Stitzel, Anne-Lee Verville and Richard L. Woolworth, each of whom are members of the registrant's Board of Trustees and Audit Committee, each qualify as an audit committee financial expert. Mr. Hacker, Mr. Stitzel, Ms. Verville and Mr. Woolworth are each independent trustees, as defined in paragraph (a)(2) of this item's instructions and collectively constitute the entire Audit Committee. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Fee information below is disclosed in aggregate for the series of the registrant whose reports to stockholders are included in this annual filing. (a) Aggregate Audit Fees billed by the principal accountant for professional services rendered during the fiscal years ended May 31, 2004 and May 31, 2003 are approximately as follows:
2004 2003 $77,100 $82,000
Audit Fees include amounts related to the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. (b) Aggregate Audit-Related Fees billed by the principal accountant for professional services rendered during the fiscal years ended May 31, 2004 and May 31, 2003 are approximately as follows:
2004 2003 $8,000 $0
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 fiscal year 2004, Audit-Related Fees include certain agreed-upon procedures performed for semi-annual shareholder reports. The "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. For the registrant, the percentage of Audit-Related services that were approved under the "de minimis" exception during the fiscal years ended May 31, 2004 and May 31, 2003 was zero. The pre-approval requirements for services to the investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. During the fiscal years ended May 31, 2004 and May 31, 2003, there were no Audit-Related Fees that were approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. The percentage of Audit-Related fees required to be approved under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X that were approved under the "de minimis" exception during the fiscal years ended May 31, 2004 and May 31, 2003 was zero. (c) Aggregate Tax Fees billed by the principal accountant for professional services rendered during the fiscal years ended May 31, 2004 and May 31, 2003 are approximately as follows:
2004 2003 $7,200 $7,700
Tax Fees include amounts for professional services by the principal accountant for tax compliance, tax advice and tax planning. Tax Fees in both fiscal years 2004 and 2003 include the review of annual tax returns and research on technical tax matters, while fiscal year 2003 also includes the review of calculations of required shareholder distributions for certain series of the registrant. The "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. For the registrant, the percentage of Tax Fees that were approved under the "de minimis" exception during the fiscal years ended May 31, 2004 and May 31, 2003 was zero. The pre-approval requirements for services to the investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. During the fiscal years ended May 31, 2004 and May 31, 2003, there were no Tax Fees that were approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. The percentage of Tax fees required to be approved under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X that were approved under the "de minimis" exception during the fiscal years ended May 31, 2004 and May 31, 2003 was zero. (d) Aggregate All Other Fees billed by the principal accountant for professional services rendered during the fiscal years ended May 31, 2004 and May 31, 2003 are as follows:
2004 2003 $0 $0
All Other Fees include amounts for products and services provided by the principal accountant, other than the services reported in (a)-(c) above. The "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. For the registrant, the percentage of All Other Fees that were approved under the "de minimis" exception during the fiscal years ended May 31, 2004 and May 31, 2003 was zero. The pre-approval requirements for services to the investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X became effective on May 6, 2003. During the fiscal year ended May 31, 2004, All Other Fees that were approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X were approximately $95,000. During the fiscal year ended May 31, 2004, All Other Fees that would have been subject to pre-approval had paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X been applicable at the time the services were provided, were approximately $95,000. For both fiscal years, All Other Fees relate to internal controls reviews of the registrant's transfer agent. The percentage of All Other Fees required to be approved under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X that were approved under the "de minimis" exception during the fiscal years ended May 31, 2004 and May 31, 2003 was zero. (e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES I. GENERAL OVERVIEW The Audit Committee of the registrant has adopted a formal policy (the "Policy") which sets forth the procedures and the conditions pursuant to which the Audit Committee will pre-approve (i) all audit and non-audit (including audit related, tax and all other) services provided by the registrant's independent auditor to the registrant and individual funds (collectively "Fund Services"), and (ii) all non-audit services provided by the registrant's independent auditor to the funds' adviser or a control affiliate of the adviser, that relate directly to the funds' operations and financial reporting (collectively "Fund-related Adviser Services"). A "control affiliate" is an entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the funds, and the term "adviser" is deemed to exclude any unaffiliated sub-adviser whose role is primarily portfolio management and is sub-contracted or overseen by another investment adviser. The adviser and control affiliates are collectively referred to as "Adviser Entities." The Audit Committee uses a combination of specific (on a case-by-case basis as potential services are contemplated) and general (pre-determined list of permitted services) pre-approvals. Unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee if it is to be provided by the independent auditor. The Policy does not delegate the Audit Committee's responsibilities to pre-approve services performed by the independent auditor to management. II. GENERAL PROCEDURES On an annual basis, the Fund Treasurer and/or Director of Trustee Administration shall submit to the Audit Committee a schedule of the types of Fund Services and Fund-related Adviser Services that are subject to general pre-approval. These schedules will provide a description of each type of service that is subject to general pre-approval and, where possible, will provide estimated fees for each instance of providing each service. This general pre-approval and related fees (where provided) will generally cover a one-year period (for example, from July 1 through June 30 of the following year). The Audit Committee will review and approve the types of services and review the projected fees for the next one-year period and may add to, or subtract from, the list of general pre-approved services from time to time, based on subsequent determinations. This approval acknowledges that the Audit Committee is in agreement with the specific types of services that the independent auditor will be permitted to perform. The fee amounts will be updated to the extent necessary at other regularly scheduled meetings of the Audit Committee. In addition to the fees for each individual service, the Audit Committee has the authority to implement a fee cap on the aggregate amount of non-audit services provided to an individual fund. If, subsequent to general pre-approval, a fund, its investment adviser or a control affiliate determines that it would like to engage the independent auditor to perform a service that requires pre-approval and that is not included in the general pre-approval list, the specific pre-approval procedure shall be as follows: - A brief written request shall be prepared by management detailing the proposed engagement with explanation as to why the work is proposed to be performed by the independent auditor; - The request should be addressed to the Audit Committee with copies to the Fund Treasurer and/or Director of Trustee Administration; - The Fund Treasurer and/or Director of Trustee Administration will arrange for a discussion of the service to be included on the agenda for the next regularly scheduled Audit Committee meeting, when the Committee will discuss the proposed engagement and approve or deny the request. - If the timing of the project is critical and the project needs to commence before the next regularly scheduled meeting, the Chairperson of the Audit Committee may approve or deny the request on behalf of the Audit Committee, or, in the Chairperson's discretion, determine to call a special meeting of the Audit Committee for the purpose of considering the proposal. Should the Chairperson of the Audit Committee be unavailable, any other member of the Audit Committee may serve as an alternate for the purpose of approving or denying the request. Discussion with the Chairperson (or alternate, if necessary) will be arranged by the Fund Treasurer and/or Director of Trustee Administration. The independent auditor will not commence any such project unless and until specific approval has been given. III. CERTAIN OTHER SERVICES PROVIDED TO ADVISER ENTITIES The Audit Committee recognizes that there are cases where services proposed to be provided by the independent auditor to the adviser or control affiliates are not Fund-related Adviser Services within the meaning of the Policy, but nonetheless may be relevant to the Audit Committee's ongoing evaluation of the auditor's independence and objectivity with respect to its audit services to the funds. As a result, in all cases where an Adviser Entity engages the independent auditor to provide audit or non-audit services that are not Fund Services or Fund-related Adviser Services, were not subject to pre-approval by the Audit Committee, and the projected fees for any such engagement (or the aggregate of all such engagements during the period covered by the Policy) exceeds a pre-determined threshold established by the Audit Committee; the independent auditor, Fund Treasurer and/or Director of Trustee Administration will notify the Audit Committee not later than its next meeting. Such notification shall include a general description of the services provided, the entity that is to be the recipient of such services, the timing of the engagement, the entity's reasons for selecting the independent auditor, and the projected fees. Such information will allow the Audit Committee to consider whether non-audit services provided to the adviser and Adviser Entities, which were not subject to Audit Committee pre-approval, are compatible with maintaining the auditor's independence with respect to the Funds. IV. REPORTING TO THE AUDIT COMMITTEE The Fund Treasurer or Director of Trustee Administration shall report to the Audit Committee at each of its regular meetings regarding all Fund Services or Fund-related Adviser Services initiated since the last such report was rendered, including: - A general description of the services, and - Actual billed and projected fees, and - The means by which such Fund Services or Fund-related Adviser Services were pre-approved by the Audit Committee. In addition, the independent auditor shall report to the Audit Committee annually, and no more than 90 days prior to the filing of audit reports with the SEC, all non-audit services provided to entities in the funds' "investment company complex," as defined by SEC rules, that did not require pre-approval under the Policy. V. Amendments; Annual Approval by Audit Committee The Policy may be amended from time to time by the Audit Committee. Prompt notice of any amendments will be provided to the independent auditor, Fund Treasurer and Director of Trustee Administration. The Policy shall be reviewed and approved at least annually by the Audit Committee. ***** (e)(2) This information has been included in items (b)-(d) above. (f) Not applicable. (g) All non-audit fees billed by the registrant's accountant for services rendered to the registrant for the fiscal years ended May 31, 2004 and May 31, 2003 are disclosed in (b)-(d) above. All non-audit fees billed by the registrant's accountant for services rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for the fiscal years ended May 31, 2004 and May 31, 2003 are also disclosed in (b)-(d) above. Such fees were approximately $95,000 and $95,000, respectively. (h) The registrant's Audit Committee of the Board of Directors has considered whether the provision of non-audit services that were rendered to the registrant's adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, is compatible with maintaining the principal accountant's independence. The Audit Committee determined that the provision of such services is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS Not applicable at this time. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The registrant has not filed Schedule 14A subsequent to the effective date of that Schedule's Item 7(d)(2)(ii)(G). However, it is the registrant's policy to consider candidates for the Board of Trustees/Directors who are recommend by shareholders. A Fund shareholder who wishes to nominate a candidate to the Board may send information regarding prospective candidates to the Fund's Governance Committee, care of the Fund's Secretary. The information should include evidence of the shareholder's Fund ownership, a full listing of the proposed candidate's education, experience, current employment, date of birth, names and addresses of at least three professional references, information as to whether the candidate is not an "interested person" under the 1940 Act and "independent" under NYSE Listing Standards in relation to the Fund, and such other information as may be helpful to the independent trustees/directors in evaluating the candidate. All satisfactorily completed information packages regarding a candidate will be forwarded to an independent trustee/director for consideration. ITEM 10. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer, based on his evaluation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing of this report, has concluded that such controls and procedures are adequately designed to ensure that information required to be disclosed by the registrant in Form N-CSR is accumulated and communicated to the registrant's management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 11. EXHIBITS. (a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR attached hereto as Exhibit 99.CODE ETH. (a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT. (a)(3) Not applicable. (b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (registrant) Columbia Funds Trust I ---------------------------------------------------------------- By (Signature and Title) /s/ J. Kevin Connaughton ---------------------------------------------------- J. Kevin Connaughton, President and Treasurer Date August 3, 2004 ------------------------------------------------------------------------ Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title) /s/ J. Kevin Connaughton ---------------------------------------------------- J. Kevin Connaughton, President and Treasurer Date August 3, 2004 ------------------------------------------------------------------------ EX-99.CODEETH 2 a2140810zex-99_codeeth.txt EX-99.CODEETH Exhibit 99.Code Eth COLUMBIA MANAGEMENT GROUP FAMILY OF FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. COVERED OFFICERS/PURPOSE OF THE CODE This Code of Ethics (the "Code") for the investment companies within the Columbia Management Group fund complex (collectively the "Funds" and each, a "Fund") applies to the Funds' Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, and Director of Trustee Administration (the "Covered Officers") for the purpose of promoting: - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; - full, fair, accurate, timely and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission ("SEC"), and in other public communications made by a Fund; - compliance with applicable laws and governmental rules and regulations; - the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and - accountability for adherence to the Code. Each Covered Officer shall adhere to a high standard of business ethics and shall be sensitive to situations that may give rise to actual or apparent conflicts of interest. II. ADMINISTRATION OF THE CODE . The Boards of Trustees and Boards of Directors of the Funds (collectively, the "Board") shall designate an individual to be primarily responsible for the administration of the Code (the "Code Officer"). The Code shall be administered by the Columbia Management Group Compliance Department. In the absence of the Code Officer, his or her designee shall serve as the Code Officer, but only on a temporary basis. Each Fund has designated a chief legal officer (the "Chief Legal Officer") for purposes of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. The Chief Legal Officer of a Fund shall assist the Fund's Code Officer in administration of this Code. The Chief Legal Officer shall be responsible for applying this Code to specific situations in which questions are presented under it (in consultation with Fund counsel, where appropriate) and has the authority to interpret this Code in any particular situation. However, any waivers sought by a Covered Officer must be approved by each Audit Committee of the Funds (collectively, the "Audit Committee"). III. MANAGING CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his/her service to, a Fund. For example, a conflict of interest would arise if a Covered Officer, or a family member, receives improper personal benefits as a result of the Covered Officer's position with a Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and a Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 (the "Company Act") and the Investment Advisers Act of 1940 (the "Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with a Fund because of their status as "affiliated persons" of the Fund. A Fund's and its investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of those provisions. This Code does not, and is not intended to, repeat or replace those programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between a Fund and its investment adviser, administrator, principal underwriter, pricing and bookkeeping agent and/or transfer agent (each, a "Service Provider") of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for a Fund or for a Service Provider, or for both), be involved in establishing policies and implementing decisions that will have different effects on the Service Provider and a Fund. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the Service Provider and is consistent with the performance by the Covered Officers of their duties as officers of a Fund. In addition, it is recognized by the Board that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions of the Company Act and the Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of a Fund. Each Covered Officer must: - not use personal influence or personal relationships improperly to influence investment decisions or financial reporting by a Fund whereby the Covered Officer or an immediate family member would benefit personally to the detriment of a Fund; and - not cause a Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer or an immediate family member rather than the benefit of the Fund.(1). There are some conflict of interest situations that must be approved by the Code Officer, after consultation with the Chief Legal Officer. Those situations include, but are not limited to,: - service as director on the board of any public or private company; - the receipt of any gifts in excess of $100 in the aggregate from a third party that does or seeks to do business with the Funds during any 12-month period; - the receipt of any entertainment from any company with which a Fund has current or prospective business dealings, unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; - any material ownership interest in, or any consulting or employment relationship with, any Fund service providers, other than its investment adviser, principal underwriter, administrator or any affiliated person thereof; - a direct or indirect material financial interest in commissions, transaction charges or spreads paid by a Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. IV. DISCLOSURE AND COMPLIANCE Each Covered Officer shall: - be familiar with the disclosure requirements generally applicable to the Funds; - ---------- (1) For purposes of this Code, personal trading activity of the Covered Officers shall be monitored in accordance with the Columbia Management Group Code of Ethics. Each Covered Officer shall be considered an "Access Person" under such Code. The term "immediate family" shall have the same meaning as provided in such Code. - not knowingly misrepresent, or cause others to misrepresent, facts about any Fund to others, whether within or outside the Fund, including to the Fund's trustees and auditors, and to governmental regulators and self-regulatory organizations; - to the extent appropriate within his/her area of responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and - promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. V. REPORTING AND ACCOUNTABILITY Each Covered Officer must: - upon adoption of the Code (or after becoming a Covered Officer), affirm in writing to the Board that he/she has received, read and understands the Code; - annually affirm to the Board compliance with the requirements of the Code; - not retaliate against any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; - notify the Chief Legal Officer and the Code Officer promptly if he/she knows of any violation of this Code; and - respond to the trustee and officer questionnaires circulated periodically in connection with the preparation of disclosure documents for the Funds. The Code Officer shall maintain records of all activities related to this Code. The Funds will follow the procedures set forth below in investigating and enforcing this Code: - The Chief Legal Officer and/or the Code Officer will take all appropriate action to investigate any potential violation reported to him/her; - If, after such investigation, the Chief Legal Officer and the Code Officer believes that no violation has occurred, the Code Officer will notify the person(s) reporting the potential violation, and no further action is required; - Any matter that the Chief Legal Officer and/or the Code Officer believes is a violation will be reported to the Audit Committee; - If the Audit Committee concurs that a violation has occurred, it will inform and make a recommendation to the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to the Chief Executive Officer of Columbia Management Group; or a recommendation to sanction or dismiss the Covered Officer; - The Audit Committee will be responsible for granting waivers in its sole discretion; - Any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. The Chief Legal Officer shall: - report to the Audit Committee quarterly any approvals provided in accordance with Section III of this Code; and - report to the Audit Committee quarterly any violations of, or material issues arising under, this Code. VI. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for the purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other polices or procedures of the Funds or the Funds' Service Providers govern or purport to govern the behavior or activities (including, but not limited to, personal trading activities) of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds' and their investment advisers' and principal underwriter's codes of ethics under Rule 17j-1 under the Company Act and any policies and procedures of the Service Providers are separate requirements applicable to the Covered Officers and are not part of this Code. VII. AMENDMENTS All material amendments to this Code must be approved or ratified by the Board, including a majority of independent directors. VIII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Board, the Covered Officers, the Chief Legal Officer, the Code Officer, outside audit firms and legal counsel to the Funds, and senior management of Columbia Management Group. IX. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion. EX-99.CERT 3 a2140810zex-99_cert.txt EX-99.CERT Exhibit 99.CERT I, J. Kevin Connaughton, certify that: 1. I have reviewed this report on Form N-CSR of Columbia Funds Trust I; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 3, 2004 /s/ J. Kevin Connaughton ----------------------------------------------- J. Kevin Connaughton, President and Treasurer EX-99.906CERT 4 a2140810zex-99_906cert.txt EX-99.906CERT Exhibit 99.906CERT CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Certified Shareholder Report of Columbia Funds Trust I (the "Trust") on Form N-CSR for the period ending May 31, 2004, as filed with the Securities and Exchange Commission on the date hereof ("the Report"), the undersigned hereby certifies that, to his knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Trust. Date: August 3, 2004 /s/ J. Kevin Connaughton ----------------------------------------------- J. Kevin Connaughton, President and Treasurer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission (the "Commission") or its staff upon request. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----