-----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, CIArv+BdNEzZngwdpAJyY8G+lJ7ntsLdH3onY398i/MJwQKSunkXBgvkNxvrq0Xg DBKBG5eFlsIr3oMJfms9tw== 0001047469-05-021341.txt : 20050811 0001047469-05-021341.hdr.sgml : 20050811 20050811154553 ACCESSION NUMBER: 0001047469-05-021341 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050531 FILED AS OF DATE: 20050811 DATE AS OF CHANGE: 20050811 EFFECTIVENESS DATE: 20050811 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: 051017032 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 a2160860zn-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: 811-2214 ------------------ 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: 05/31/05 ------------------ Date of reporting period: 05/31/05 ------------------ 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 HIGH YIELD OPPORTUNITY FUND ANNUAL REPORT MAY 31, 2005 TABLE OF CONTENTS Performance Information 1 Fund Profile 2 Understanding Your Expenses 3 Economic Update 4 Portfolio Managers' Report 5 Investment Portfolio 7 Statement of Assets and Liabilities 32 Statement of Operations 33 Statement of Changes in Net Assets 34 Notes to Financial Statements 35 Financial Highlights 42 Report of Independent Registered Public Accounting Firm 46 Trustees 47 Officers 49 Board Consideration and Approval of Investment Advisory Agreement 50 Important Information About This Report 53
The views expressed in the President's Message and Portfolio Managers' Report reflect the current views of the respective parties. These views are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict so actual outcomes and results may differ significantly from the views expressed. These views are subject to change at any time based upon economic, market or other conditions and the respective parties disclaim any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Columbia Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any particular Columbia Fund. References to specific company securities should not be construed as a recommendation or investment advice. NOT FDIC MAY LOSE VALUE INSURED ------------------- NO BANK GUARANTEE PRESIDENT'S MESSAGE COLUMBIA HIGH YIELD OPPORTUNITY FUND [PHOTO OF CHRISTOPHER L. WILSON] DEAR SHAREHOLDER: In 2004, Columbia Funds became part of the Bank of America family, one of the largest, most respected financial institutions in the United States. As a direct result of this merger, a number of changes are in the works that we believe may offer significant benefits for our shareholders. Plans are underway to combine various Nations Funds and Columbia Funds together to form a single fund family that covers a wide range of markets, sectors and asset classes under the management of talented, seasoned investment professionals. As a result, some funds will be merged in order to eliminate redundancies and fund management teams will be aligned to help maximize performance potential. You will receive more detailed information about these proposed mergers, and you will be asked to vote on certain fund changes that may affect you and your account. In this matter, your timely response will help us to implement the changes in 2005. The increased efficiencies we expect from a more streamlined offering of funds may help us reduce fees charged to the funds, because larger funds often benefit from size and scale of operations. For example, significant savings for the combined complex may result from the consolidation of certain vendor agreements. In fact, we recently announced plans to consolidate the transfer agency of all of our funds and consolidate custodial services, each under a single vendor. We have also reduced management fees for many funds as part of our settlement agreement (See Note 9 in the Notes to Financial Statements) with the New York Attorney General. As a result of these changes, we believe we will offer shareholders an even stronger lineup of investment options, with management expenses that continue to be competitive and fair. What will not change as we enter this next phase of consolidation is our commitment to the highest standards of performance and our dedication to superior service. Change for the better has another name: it's called improvement. It helps move us forward, and we believe that it represents progress for all our shareholders in their quest for long-term financial success. In the pages that follow, you'll find a discussion of the economic environment during the period followed by a detailed report from the fund's manager or managers on key factors that influenced performance. We hope that you will read the manager reports carefully and discuss any questions you might have with your financial advisor. As always, we thank you for choosing Columbia Funds. We appreciate your continued confidence. And, we look forward to helping you keep your long-term financial goals on target in the years to come. Sincerely, /s/ Christopher L. Wilson Christopher L. Wilson PRESIDENT, COLUMBIA FUNDS Christopher L. Wilson is Head of Mutual Funds for Columbia Management, President of Columbia Funds, President & CEO of Nations Funds and President of Galaxy Funds, responsible for the day-to-day delivery of mutual fund services to the firm's investors. With the exception of distribution, Chris oversees all aspects of the mutual fund services operation, including treasury, investment accounting and shareholder and broker services. Chris joined Bank of America in August 2004. PERFORMANCE INFORMATION COLUMBIA HIGH YIELD OPPORTUNITY FUND [CHART] VALUE OF A $10,000 INVESTMENT 06/01/95 - 05/31/05
CLASS A SHARES CLASS A SHARES CSFB JP MORGAN GLOBAL WITHOUT SALES CHARGE WITH SALES CHARGE HIGH YIELD INDEX HIGH YIELD INDEX -------------------- -------------------- --------------------- -------------------- 06/1/95 $ 10,000 $ 9,525 $ 10,000 $ 10,000 6/30/95 $ 10,048 $ 9,571 $ 10,066 $ 10,040 7/31/95 $ 10,218 $ 9,732 $ 10,222 $ 10,197 8/31/95 $ 10,235 $ 9,749 $ 10,251 $ 10,236 9/30/95 $ 10,392 $ 9,898 $ 10,369 $ 10,358 10/31/95 $ 10,519 $ 10,019 $ 10,484 $ 10,455 11/30/95 $ 10,583 $ 10,080 $ 10,533 $ 10,522 12/31/95 $ 10,789 $ 10,277 $ 10,667 $ 10,693 1/31/96 $ 10,981 $ 10,460 $ 10,869 $ 10,896 2/29/96 $ 11,078 $ 10,552 $ 10,927 $ 10,961 3/31/96 $ 10,980 $ 10,459 $ 10,897 $ 10,925 4/30/96 $ 11,046 $ 10,521 $ 10,956 $ 10,993 5/31/96 $ 11,129 $ 10,600 $ 11,045 $ 11,077 6/30/96 $ 11,129 $ 10,600 $ 11,069 $ 11,124 7/31/96 $ 11,196 $ 10,664 $ 11,169 $ 11,199 8/31/96 $ 11,397 $ 10,856 $ 11,291 $ 11,365 9/30/96 $ 11,703 $ 11,147 $ 11,485 $ 11,634 10/31/96 $ 11,703 $ 11,147 $ 11,581 $ 11,741 11/30/96 $ 11,926 $ 11,360 $ 11,762 $ 11,957 12/31/96 $ 12,109 $ 11,534 $ 11,991 $ 12,085 1/31/97 $ 12,214 $ 11,634 $ 12,079 $ 12,180 2/28/97 $ 12,478 $ 11,885 $ 12,306 $ 12,390 3/31/97 $ 12,230 $ 11,649 $ 12,168 $ 12,188 4/30/97 $ 12,354 $ 11,768 $ 12,276 $ 12,302 5/31/97 $ 12,661 $ 12,059 $ 12,523 $ 12,587 6/30/97 $ 12,861 $ 12,250 $ 12,694 $ 12,753 7/31/97 $ 13,171 $ 12,545 $ 12,963 $ 13,092 8/31/97 $ 13,208 $ 12,580 $ 13,033 $ 13,100 9/30/97 $ 13,522 $ 12,880 $ 13,291 $ 13,361 10/31/97 $ 13,522 $ 12,880 $ 13,289 $ 13,342 11/30/97 $ 13,634 $ 12,987 $ 13,384 $ 13,462 12/31/97 $ 13,788 $ 13,133 $ 13,506 $ 13,583 1/31/98 $ 14,074 $ 13,405 $ 13,735 $ 13,794 2/28/98 $ 14,151 $ 13,479 $ 13,842 $ 13,900 3/31/98 $ 14,325 $ 13,645 $ 13,911 $ 14,040 4/30/98 $ 14,364 $ 13,682 $ 14,016 $ 14,110 5/31/98 $ 14,384 $ 13,701 $ 14,058 $ 14,130 6/30/98 $ 14,443 $ 13,757 $ 14,087 $ 14,160 7/31/98 $ 14,618 $ 13,923 $ 14,186 $ 14,279 8/31/98 $ 13,654 $ 13,006 $ 13,223 $ 13,354 9/30/98 $ 13,537 $ 12,894 $ 13,221 $ 13,340 10/31/98 $ 13,301 $ 12,670 $ 12,958 $ 13,053 11/30/98 $ 14,175 $ 13,502 $ 13,615 $ 13,773 12/31/98 $ 14,086 $ 13,417 $ 13,584 $ 13,716 1/31/99 $ 14,320 $ 13,640 $ 13,712 $ 13,881 2/28/99 $ 14,337 $ 13,656 $ 13,683 $ 13,810 3/31/99 $ 14,621 $ 13,926 $ 13,807 $ 13,980 4/30/99 $ 14,875 $ 14,169 $ 14,113 $ 14,335 5/31/99 $ 14,597 $ 13,904 $ 13,960 $ 11,812 6/30/99 $ 14,682 $ 13,984 $ 13,967 $ 14,131 7/31/99 $ 14,727 $ 14,028 $ 13,974 $ 14,135 8/31/99 $ 14,661 $ 13,965 $ 13,850 $ 13,993 9/30/99 $ 14,592 $ 13,899 $ 13,743 $ 13,893 10/31/99 $ 14,617 $ 13,923 $ 13,676 $ 13,816 11/30/99 $ 14,862 $ 14,156 $ 13,862 $ 14,042 12/31/99 $ 14,956 $ 14,246 $ 14,029 $ 14,179 1/31/2000 $ 14,790 $ 14,088 $ 13,973 $ 14,125 2/29/2000 $ 15,015 $ 14,302 $ 14,060 $ 14,182 3/31/2000 $ 14,787 $ 14,084 $ 13,849 $ 13,941 4/30/2000 $ 14,691 $ 13,993 $ 13,828 $ 13,938 5/31/2000 $ 14,410 $ 13,725 $ 13,607 $ 13,740 6/30/2000 $ 14,527 $ 13,837 $ 13,912 $ 14,011 7/31/2000 $ 14,673 $ 13,976 $ 14,043 $ 14,134 8/31/2000 $ 14,819 $ 14,115 $ 14,137 $ 14,243 9/30/2000 $ 14,571 $ 13,879 $ 14,007 $ 14,056 10/31/2000 $ 13,934 $ 13,273 $ 13,571 $ 13,644 11/30/2000 $ 13,135 $ 12,511 $ 13,036 $ 13,123 12/31/2000 $ 13,414 $ 12,777 $ 13,298 $ 13,354 1/31/2001 $ 14,473 $ 13,785 $ 14,096 $ 14,163 2/28/2001 $ 14,515 $ 13,825 $ 14,239 $ 14,328 3/31/2001 $ 13,956 $ 13,293 $ 13,955 $ 14,047 4/30/2001 $ 13,629 $ 12,982 $ 13,810 $ 13,899 5/31/2001 $ 13,755 $ 13,101 $ 14,086 $ 14,172 6/30/2001 $ 13,161 $ 12,535 $ 13,868 $ 13,927 7/31/2001 $ 13,150 $ 12,525 $ 14,016 $ 14,067 8/31/2001 $ 13,247 $ 12,618 $ 14,213 $ 14,250 9/30/2001 $ 12,185 $ 11,606 $ 13,317 $ 13,310 10/31/2001 $ 12,625 $ 12,025 $ 13,621 $ 13,641 11/30/2001 $ 13,069 $ 12,448 $ 14,061 $ 14,105 12/31/2001 $ 13,042 $ 12,422 $ 14,069 $ 14,086 1/31/2002 $ 13,177 $ 12,551 $ 14,200 $ 14,189 2/28/2002 $ 12,944 $ 12,329 $ 14,099 $ 14,083 3/31/2002 $ 13,168 $ 12,543 $ 14,422 $ 14,401 4/30/2002 $ 13,279 $ 12,648 $ 14,651 $ 14,620 5/31/2002 $ 13,098 $ 12,476 $ 14,600 $ 14,570 6/30/2002 $ 12,444 $ 11,853 $ 14,092 $ 14,046 7/31/2002 $ 12,100 $ 11,525 $ 13,689 $ 13,655 8/31/2002 $ 12,142 $ 11,565 $ 13,867 $ 13,781 9/30/2002 $ 12,033 $ 11,461 $ 13,696 $ 13,620 10/31/2002 $ 11,908 $ 11,342 $ 13,613 $ 13,522 11/30/2002 $ 12,396 $ 11,807 $ 14,333 $ 14,222 12/31/2002 $ 12,485 $ 11,892 $ 14,508 $ 14,387 1/31/2003 $ 12,731 $ 12,126 $ 14,903 $ 14,761 2/28/2003 $ 12,885 $ 12,273 $ 15,123 $ 14,977 3/31/2003 $ 13,135 $ 12,511 $ 15,510 $ 15,338 4/30/2003 $ 13,800 $ 13,144 $ 16,303 $ 16,098 5/31/2003 $ 13,860 $ 13,202 $ 16,539 $ 16,322 6/30/2003 $ 14,244 $ 13,568 $ 17,022 $ 16,799 7/31/2003 $ 14,143 $ 13,471 $ 16,884 $ 16,693 8/31/2003 $ 14,271 $ 13,593 $ 17,073 $ 16,858 9/30/2003 $ 14,694 $ 13,996 $ 17,539 $ 17,325 10/31/2003 $ 14,988 $ 14,276 $ 17,897 $ 17,647 11/30/2003 $ 15,305 $ 14,578 $ 18,142 $ 17,894 12/31/2003 $ 15,690 $ 14,945 $ 18,562 $ 18,347 1/31/2004 $ 15,976 $ 15,217 $ 18,922 $ 18,683 2/29/2004 $ 15,891 $ 15,136 $ 18,931 $ 18,698 3/31/2004 $ 15,909 $ 15,153 $ 19,058 $ 18,844 4/30/2004 $ 15,926 $ 15,170 $ 19,031 $ 18,774 5/31/2004 $ 15,703 $ 14,957 $ 18,731 $ 18,483 6/30/2004 $ 15,942 $ 15,185 $ 19,021 $ 18,764 7/31/2004 $ 16,112 $ 15,347 $ 19,264 $ 19,000 8/31/2004 $ 16,362 $ 15,585 $ 19,578 $ 19,320 9/30/2004 $ 16,684 $ 15,892 $ 19,876 $ 19,598 10/31/2004 $ 16,976 $ 16,170 $ 20,218 $ 19,927 11/30/2004 $ 17,313 $ 16,490 $ 20,475 $ 20,150 12/31/2004 $ 17,543 $ 16,710 $ 20,782 $ 20,465 1/31/2005 $ 17,513 $ 16,681 $ 20,778 $ 20,462 2/28/2005 $ 17,769 $ 16,925 $ 21,052 $ 20,741 3/31/2005 $ 17,248 $ 16,429 $ 20,549 $ 20,226 4/30/2005 $ 16,991 $ 16,184 $ 20,345 $ 20,050 05/31/2005 $ 17,098 $ 16,286 $ 20,594 $ 20,338
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 Credit Suisse First Boston (CSFB) 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 the US dollar global high-yield corporate debt market, including domestic and international issues. Unlike the fund, indices are not investments, do not incur fees or expenses and are not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in an index. AVERAGE ANNUAL TOTAL RETURN AS OF 05/31/05 (%)
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 8.93 3.76 8.13 3.13 8.29 7.29 9.21 5-year 3.49 2.48 2.72 2.45 2.88 2.88 3.74 10-year 5.51 5.00 4.72 4.72 4.85 4.85 5.68
AVERAGE ANNUAL TOTAL RETURN AS OF 03/31/05 (%)
SHARE CLASS A B C Z --------------------------------------------------------------------------------------- SALES CHARGE WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT --------------------------------------------------------------------------------------- 1-year 8.41 3.26 7.61 2.61 7.77 6.77 8.69 5-year 3.13 2.13 2.36 2.09 2.52 2.52 3.38 10-year 6.07 5.56 5.28 5.28 5.40 5.40 6.24
THE "WITH SALES CHARGE" RETURNS INCLUDE THE MAXIMUM INITIAL SALES CHARGE OF 4.75% FOR CLASS A SHARES, MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.00% FOR CLASS B SHARES AND 1.00% FOR CLASS C SHARES FOR THE FIRST YEAR ONLY. THE "WITHOUT SALES CHARGE" RETURNS DO NOT INCLUDE THE EFFECT OF SALES CHARGES. IF THEY HAD, RETURNS WOULD BE LOWER. ALL RESULTS SHOWN ASSUME REINVESTMENT OF DISTRIBUTIONS. CLASS Z SHARES ARE SOLD AT NET ASSET VALUE WITH NO RULE 12b-1 FEES. PERFORMANCE FOR DIFFERENT SHARE CLASSES WILL VARY BASED ON DIFFERENCES IN SALES CHARGES AND FEES ASSOCIATED WITH EACH CLASS. PERFORMANCE RESULTS REFLECT ANY VOLUNTARY WAIVERS OR REIMBURSEMENT OF FUND EXPENSES BY THE ADVISOR OR ITS AFFILIATES. ABSENT THESE WAIVERS OR REIMBURSEMENT ARRANGEMENTS, PERFORMANCE RESULTS WOULD HAVE BEEN LOWER. 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 $10,000 INVESTMENT 06/01/95 - 05/31/05 ($)
SALES CHARGE: WITHOUT WITH ------------------------------------------------ Class A 17,098 16,286 Class B 15,862 15,862 Class C 16,054 16,054 Class Z 17,373 n/a
Performance data quoted represents past performance and current performance may be lower or higher. Past performance is no guarantee of future results. The investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. Please visit www.columbiafunds.com for daily and most recent month-end performance updates. 1 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 05/31/05 (%) Qwest 2.2 El Paso 1.7 Charter Communications Holdings 1.5 Dex Media 1.1 Hollywood Casino Shreveport 1.1 Spanish Broadcasting System 1.1 Paxson Communications 1.1 MedQuest 0.9 Calpine 0.9 Allied Waste 0.9
QUALITY BREAKDOWN AS OF 05/31/05 (%) AAA 1.1 BB 11.5 B 47.9 CCC 29.7 CC 5.5 Non-rated 4.3
MATURITY BREAKDOWN AS OF 05/31/05 (%) 0-3 years 6.0 3-5 years 11.2 5-7 years 34.3 7-10 years 40.1 10-15 years 1.3 15-20 years 0.6 20-30 years 0.9 Other 5.6
PORTFOLIO STRUCTURE AS OF 05/31/05 (%) Corporate fixed-income bonds & notes 91.0 Preferred stocks 2.2 Common Stocks and warrants 2.2 Convertible bonds 0.8 Municipal bond (taxable) 0.6 Cash equivalents, net other assets & 3.2 liabilities
Maturity and quality breakdowns are calculated as a percentage of investments. Ratings shown in the quality breakdown represent the rating assigned to a particular bond by one of the following nationally-recognized rating agencies: Standard & Poor's, a division of The McGraw-Hill Companies, Inc, Moody's Investors Service, Inc. or Fitch Ratings Ltd. Portfolio structure and top 10 issuers are calculated as a percentage of net assets. Management Style is determined by Columbia Management, and is based on the investment strategy and process as outlined in the fund's prospectus. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. [SIDENOTE] SUMMARY - - For the 12-month period ended May 31, 2005, the fund's class A shares returned 8.93% without sales charge. - - The fund's return was higher than the average return of the Lipper High Current Yield category, which was 8.60%, but below that of the Credit Suisse First Boston and JP Morgan Global High Yield indices, which returned 9.97% and 10.08%, respectively. - - The fund's emphasis on low quality bonds aided returns during the first half of the period but detracted somewhat from its competitive performance during the second half of the period. CLASS A SHARES 8.93% CSFB HIGH YIELD INDEX 9.97%
The Credit Suisse First Boston (CSFB) High Yield Index is a broad-based, unmanaged index that tracks the performance of high-yield bonds. It is unmanaged and unavailable for investment. The JP Morgan Global High Yield Index is designed to mirror the investable universe of the US dollar global high-yield corporate debt market, including domestic and international issues. It is unmanaged and unavailable for investment. OBJECTIVE Seeks high current income and total return TOTAL NET ASSETS $510.8 million MANAGEMENT STYLE
FIXED INCOME MATURITY QUALITY SHORT INTERM LONG HIGH MED LOW X
2 UNDERSTANDING YOUR EXPENSES COLUMBIA HIGH YIELD OPPORTUNITY FUND As a fund shareholder, you incur two types of costs. There are transaction costs, which generally include sales charges on purchases and may include redemption or exchange fees. There are also ongoing costs, which generally include investment advisory fees, Rule 12b-1 fees and other fund expenses. The information on this page is intended to help you understand your ongoing costs of investing in the fund and to compare this cost with the continuing costs of investing in other mutual funds. ANALYZING YOUR FUND'S EXPENSES BY SHARE CLASS To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors in each share class during the reporting period. The information in the following table is based on an initial investment of $1,000, which is invested at the beginning of the reporting period and held for the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the "actual" column is calculated using the fund's actual operating expenses and total return for the period. The amount listed in the "hypothetical" column for each share class assumes that the return each year is 5% before expenses and includes the fund's actual expense ratio. You should not use the hypothetical account values and expenses to estimate either your actual account balance at the end of the period or the expenses you paid during this reporting period. 12/01/04 - 05/31/05
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%) ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL Class A 1,000.00 1,000.00 988.03 1,019.20 5.70 5.79 1.15 Class B 1,000.00 1,000.00 984.39 1,015.46 9.40 9.55 1.90 Class C 1,000.00 1,000.00 985.09 1,016.21 8.66 8.80 1.75 Class Z 1,000.00 1,000.00 989.28 1,020.44 4.46 4.53 0.90
Expenses paid during the period are equal to the fund's respective class annualized expense ratio, multiplied by the average account value over the period, then multiplied by the number of days in the fund's most recent fiscal half-year and divided by 365. Had the distributor not waived or reimbursed a portion of class C shares' expenses, class C shares' total return would have been reduced. It is important to note that the expense amounts shown in the table are meant to highlight only continuing costs of investing in the fund and do not reflect any transactional costs, such as sales charges or redemption or exchange fees. Therefore, the hypothetical examples provided will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher. COMPARE WITH OTHER FUNDS Since all mutual funds are required to include the same hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the fund with other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. As you compare hypothetical examples of other fund companies, it is important to note that hypothetical examples are meant to highlight the continuing cost of investing in a fund and do not reflect any transactional costs, such as sales charges or redemption or exchange fees. [SIDENOTE] ESTIMATING YOUR ACTUAL EXPENSES To estimate the expenses that you paid over the period, first you will need your account balance at the end of the period: - - For shareholders who receive their account statements from Columbia Funds Services, Inc., your account balance is available online at www.columbiafunds.com or by calling Shareholder Services at 800.345.6611 - - For shareholders who receive their account statements from their brokerage firm, contact your brokerage firm to obtain your account balance 1. Divide your ending account balance by $1,000. For example, if an account balance was $8,600 at the end of the period, the result would be 8.6 2. In the section of the table below titled "Expenses paid during the period," locate the amount for your share class. You will find this number is in the column labeled "actual." Multiply this number by the result from step 1. Your answer is an estimate of the expenses you paid on your account during the period 3 ECONOMIC UPDATE COLUMBIA HIGH YIELD OPPORTUNITY FUND The US economy moved ahead at a steady pace during the 12-month period that began June 1, 2004 and ended May 31, 2005. Gross domestic product expanded at an estimated annualized rate of approximately 3.7% as job growth helped buoy consumer spending and rising profits boosted business spending. Record high energy prices failed to put a damper on growth as the economy actually gained strength as the period wore on. Job growth dominated the economic news and drove consumer confidence readings both up and down, depending on the number of new jobs reported. Overall, the labor market improved during the period and consumers remained significantly more optimistic about prospects for the US economy and about their own employment than they were a year ago. Consumer spending grew during the period, as retail sales and the housing market remained strong. The business sector also contributed to the economy's solid pace. Yet, given a maturing economic cycle, two straight years of double-digit profit growth and a significant build-up of cash on corporate balance sheets, business spending was not as robust as expected. BONDS DELIVERED SOLID GAINS The US bond market delivered solid returns despite rising short-term interest rates, which historically have driven yields on other maturity ranges higher--and bond prices lower. That was not the case over the past 12 months. After a brief period of volatility early in 2005, the yield on the 10-year U.S. Treasury note, a bellwether for the bond market, ended the period at 4.0%--significantly lower than where it started the period at 4.6%. In this environment, the Lehman Brothers Aggregate Bond Index returned 6.82% for the 12-month period. Municipal bonds did even better as state revenues strengthened and fiscal constraints helped many states balance their budgets. High-yield bonds led the fixed income markets, as a stronger economy resulted in improved credit ratings, stronger balance sheets and higher profits for many companies in the high-yield universe. The Merrill Lynch US High Yield, Cash Pay Index returned 10.16%. However, the sector was hit hard late in the period by news that GM and Ford bonds had been downgraded to junk status, and high-yield bonds gave back a portion of their earlier gains in the final months of the period. The riskiest high-yield bonds were hurt the most. SHORT-TERM INTEREST RATES MOVED HIGHER After a year of the lowest short-tem interest rates in recent history, the Federal Reserve Board (the Fed) raised the federal funds rate, a key short-term rate, from 1.0% to 3.0%(1) during the period. From the outset, the Fed indicated that it would raise short-term interest rates at a "measured pace" in an attempt to balance economic growth against inflationary pressures, and so far each of the eight increases have been in one-quarter percentage point increments. In recent testimony, Fed chairman Greenspan suggested that future increases would likely follow the same gradual course. STOCKS OUTPERFORMED BONDS Buoyed by strong gains in the fourth quarter of 2004, the S&P 500 Index returned 8.24% for the period. Returns were lackluster throughout most of 2004, but most segments of the stock market bounced back after the presidential election was settled in November. Stocks retreated early in 2005 as rising energy prices and higher interest rates turned investors cautious once again. Small and mid-cap stocks did significantly better than large cap stocks in the first half of the period, but large-cap stocks pulled ahead in the second half. Value stocks led growth stocks by a significant margin. (1) On June 30, the federal funds rate was raised to 3.25%. [SIDENOTE] SUMMARY FOR THE 12-MONTH PERIOD ENDED MAY 31, 2005 - - BONDS CHALKED UP SOLID GAINS AS MEASURED BY THE LEHMAN BROTHERS AGGREGATE BOND INDEX. HIGH-YIELD BONDS LED THE FIXED INCOME MARKETS, AS MEASURED BY THE MERRILL LYNCH US HIGH YIELD, CASH PAY INDEX. HOWEVER, THEY GAVE BACK SOME OF THEIR RETURN IN THE LAST MONTHS OF THE PERIOD. LEHMAN INDEX 6.82% MERRILL LYNCH INDEX 10.16%
- - STOCKS OUTPERFORMED MOST SEGMENTS OF THE BOND MARKET, AS MEASURED BY THE S&P 500 INDEX. MOST OF THE PERIOD'S GAINS WERE GENERATED DURING A FOURTH-QUARTER RALLY IN 2004. VALUE STOCKS OUTPERFORMED GROWTH STOCKS, AS MEASURED BY THE RUSSELL 1000 VALUE INDEX. S&P 500 INDEX 8.24% RUSSELL INDEX 15.49%
The Lehman Brothers Aggregate Bond Index is a market value-weighted index that tracks the performance of 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 1000 Value Index is an unmanaged index that tracks the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values. 4 PORTFOLIO MANAGERS' REPORT COLUMBIA HIGH YIELD OPPORTUNITY FUND For the 12-month period ended May 31, 2005, class A shares of Columbia High Yield Opportunity Fund returned 8.93% without sales charge. The fund underperformed its benchmarks, the CSFB High Yield Index and the JP Morgan Global High Yield Index, which returned 9.97% and 10.08%, respectively. It outperformed its peer group, the Lipper High Current Yield Funds Category, which averaged a return of 8.60% for the same period(1). Generally speaking, performance differences among the fund, the indices and the peer group were determined by the degree to which they owned lower quality securities. The fund's emphasis on low quality bonds aided returns during the first half of the period but detracted somewhat from competitive performance during the second half of the period. HIGH-YIELD RALLY PAUSED When the period began, high-yield bonds were the best-performing asset class in the fixed-income marketplace. Securities rated below investment-grade were the primary beneficiaries of the growing economy and the accompanying decline in corporate default rates. As a result of these positive factors, investors became increasingly willing to pursue lower quality companies to achieve yield levels that were unavailable in the Treasury market. Even within the high-yield category, the lowest quality issues were the strongest performers, a trend that greatly benefited the fund with its relatively high exposure to the lower end of the credit spectrum. However, the landscape began to change in March. Early in the month, the yield advantage of lower quality bonds over investment-grade securities narrowed to historical lows. The sector was subsequently hurt by the deteriorating credit quality of Ford and GM, which created concern that leveraged hedge funds and investment-grade managers might be forced to sell their positions. By the end of the period, the average yield spread between high-yield and investment-grade bonds had widened again--by more than one and one-half percentage points. TELECOM LED THE MARKET Bonds of wireless telecom providers were especially strong over the past year, driven by strong subscriber growth and steady revenue per user. However, the most important catalyst to the sector's strong market performance was the wave of consolidation that has swept through the industry. A groundbreaking merger between Cingular and AT&T Wireless, two companies not in the fund's portfolio, closed mid way through 2004. Late in 2004, it was announced that Nextel and Sprint would merge and early in 2005 news broke that ALLTEL would purchase Western Wireless. The fund registered a solid gain when it sold its Western Wireless bonds after the takeover announcement. Positions in Nextel bonds (and common stock) as well as the bonds of several companies affiliated with Sprint also aided performance. (1) Lipper Inc., a widely respected data provider in the industry, calculates an average total return (assuming reinvestment of distributions) for mutual funds with investment objectives similar to those of the fund. Lipper makes no adjustment for the effect of sales loads. [SIDENOTE] NET ASSET VALUE PER SHARE AS OF 05/31/05 ($) Class A 4.56 Class B 4.56 Class C 4.56 Class Z 4.56
DISTRIBUTIONS DECLARED PER SHARE 06/01/04 - 05/31/05 ($) Class A 0.38 Class B 0.35 Class C 0.35 Class Z 0.39
SEC YIELDS AS OF 05/31/05 (%) Class A 8.65 Class B 8.33 Class C 8.47 Class Z 9.34
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 05/31/05 (%) Nextel Communications 0.6 Nextel Partners 0.2 Northwest Airlines 0.5 Tembec Industries 0.2 Abitibi Consolidated 0.3
Your fund is actively managed and the composition of its portfolio will change over time. Holdings discussed are calculated as a percentage of net assets. 5 Although the fund benefited from its underweight and higher quality positioning in the automotive sector, it was hurt by its holdings in the airline and paper and packaging industries. We sold the fund's Delta Airlines holdings but retained our position in Northwest Airlines, whose financial condition has since weakened considerably amid higher oil prices and a protracted wage-and-benefit struggle with its labor unions. In the paper and packaging industry the inability to pass on higher costs hurt results, and fund holdings such as Abitibi Consolidated and Tembec Industries were poor performers. LOOKING AHEAD We believe that solid economic growth will continue to create a favorable environment for the high-yield market, although growth is likely to be slower than it was in 2004. So far, the Federal Reserve has balanced economic growth and inflation through a series of short-term interest-rate hikes, which commenced in June 2004. As long as inflation is kept in check and short-term rate increases do not exceed expectations, we are optimistic about the prospects for the high-yield market. [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 or its predecessors or affiliate organizations since February 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 or its predecessors or affiliate organizations since August 1999. /s/ Kevin L. Cronk Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yield and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa. Investing in high-yield securities (commonly known as "junk bonds") offers the potential for high current income and attractive total return, but involves certain risks. Changes in economic conditions or other circumstances may adversely affect a junk bond issuer's ability to make principal and interest payments. Rising interest rates tend to lower the value of all bonds. When interest rates go up, bond prices typically drop, and vice versa, International investing involves special risks, including foreign taxation, currency fluctuation, risks associated with possible differences in financial standards and other monetary and political risks. [SIDENOTE] AS LONG AS INFLATION IS KEPT IN CHECK AND SHORT-TERM RATE INCREASES DO NOT EXCEED EXPECTATIONS, WE ARE OPTIMISTIC ABOUT THE PROSPECTS FOR THE HIGH-YIELD MARKET. 6 INVESTMENT PORTFOLIO MAY 31, 2005 COLUMBIA HIGH YIELD OPPORTUNITY FUND
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - 91.0% BASIC MATERIALS - 9.0% CHEMICALS - 4.3% AGRICULTURAL CHEMICALS - 1.9% IMC Global, Inc. 10.875% 08/01/13 2,150,000 2,515,500 Terra Capital, Inc. 12.875% 10/15/08 3,220,000 3,807,650 UAP Holding Corp. (a) 07/15/12 (10.750% 01/15/08) 2,190,000 1,752,000 United Agri Products 8.250% 12/15/11 1,717,000 1,742,755 9,817,905 CHEMICALS - DIVERSIFIED - 1.8% BCP Crystal US Holdings Corp. 9.625% 06/15/14 917,000 1,027,040 Equistar Chemicals LP 10.625% 05/01/11 625,000 692,188 Huntsman International LLC 7.375% 01/01/15 (b) 1,415,000 1,390,237 Huntsman LLC 12.000% 07/15/12 (b) 1,570,000 1,805,500 Innophos Investments Holdings, Inc. PIK, 11.268% 02/15/15 (b)(c) 1,039,007 924,707 Lyondell Chemical Co. 9.625% 05/01/07 1,250,000 1,325,000 10.875% 05/01/09 25,000 25,750 NOVA Chemicals Corp. 6.500% 01/15/12 780,000 760,500 Westlake Chemical Corp. 8.750% 07/15/11 1,112,000 1,206,520 9,157,442 CHEMICALS - SPECIALTY - 0.6% Rhodia SA 8.875% 06/01/11 3,040,000 2,895,600 2,895,600 Chemicals Total 21,870,947 FOREST PRODUCTS & PAPER - 3.4% FORESTRY - 0.5% Millar Western Forest Products Ltd. 7.750% 11/15/13 1,695,000 1,550,925 Tembec Industries, Inc. 8.500% 02/01/11 1,605,000 1,243,875 2,794,800 PAPER & RELATED PRODUCTS - 2.9% Abitibi-Consolidated, Inc. 8.375% 04/01/15 1,375,000 1,350,937 Boise Cascade LLC 6.016% 10/15/12 (b)(c) 1,110,000 1,087,800 7.125% 10/15/14 (b) 1,250,000 1,184,375
See accompanying notes to financial statements. 7
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) BASIC MATERIALS - (CONTINUED) FOREST PRODUCTS & PAPER - (CONTINUED) Buckeye Technologies, Inc. 8.500% 10/01/13 480,000 494,400 9.250% 09/15/08 1,584,000 1,584,000 Caraustar Industries, Inc. 9.875% 04/01/11 1,175,000 1,142,687 Fraser Papers, Inc. 8.750% 03/15/15 (b) 1,695,000 1,536,094 Georgia-Pacific Corp. 8.000% 01/15/24 1,005,000 1,150,725 Neenah Paper, Inc. 7.375% 11/15/14 (b) 790,000 746,550 Newark Group, Inc. 9.750% 03/15/14 2,385,000 2,074,950 NewPage Corp. 10.000% 05/01/12 (b) 920,000 901,600 12.000% 05/01/13 (b) 1,150,000 1,124,125 Norske Skog Canada Ltd. 8.625% 06/15/11 450,000 454,500 14,832,743 Forest Products & Paper Total 17,627,543 IRON/STEEL - 0.8% METAL - IRON - 0.5% Wise Metals Group LLC 10.250% 05/15/12 2,785,000 2,311,550 2,311,550 STEEL - PRODUCERS - 0.2% Steel Dynamics, Inc. 9.500% 03/15/09 1,080,000 1,150,200 1,150,200 STEEL - SPECIALTY - 0.1% UCAR Finance, Inc. 10.250% 02/15/12 585,000 609,863 609,863 Iron/Steel Total 4,071,613 METALS & MINING - 0.5% METAL - ALUMINUM - 0.4% Kaiser Aluminum & Chemical Corp. 10.875% 10/15/06 (d) 2,385,000 2,086,875 2,086,875 MINING SERVICES - 0.1% HudBay Mining & Smelting Co., Ltd. 9.625% 01/15/12 (b) 560,000 543,200 543,200 Metals & Mining Total 2,630,075 ------------ BASIC MATERIALS TOTAL 46,200,178
See accompanying notes to financial statements. 8
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) COMMUNICATIONS - 18.5% MEDIA - 8.6% BROADCAST SERVICES/PROGRAMS - 0.6% Fisher Communications, Inc. 8.625% 09/15/14 1,060,000 1,126,250 XM Satellite Radio Holdings, Inc. 8.710% 05/01/09 (c) 1,675,000 1,691,750 2,818,000 CABLE TV - 3.6% Atlantic Broadband Finance LLC 9.375% 01/15/14 (b) 1,855,000 1,743,700 Cablevision Systems Corp. 7.890% 04/01/09 (b)(c) 235,000 245,575 8.000% 04/15/12 (b) 675,000 704,531 Charter Communications Holdings LLC 9.920% 04/01/11 8,210,000 5,993,300 10.250% 09/15/10 1,500,000 1,518,750 CSC Holdings, Inc. 6.750% 04/15/12 (b) 625,000 632,813 7.625% 04/01/11 700,000 742,000 Insight Midwest LP 9.750% 10/01/09 1,255,000 1,311,475 Northland Cable Television, Inc. 10.250% 11/15/07 2,180,000 2,147,300 Pegasus Satellite Communications, Inc. 11.250% 01/15/10 (b)(d) 2,325,000 1,336,875 Telenet Group Holding NV (a) 06/15/14 (11.250% 12/15/08) (b) 2,545,000 1,870,575 18,246,894 MULTIMEDIA - 1.4% Advanstar Communications, Inc. (a) 10/15/11 (15.000% 10/15/05) 1,825,000 1,770,250 12.000% 02/15/11 1,945,000 2,047,112 Haights Cross Communications, Inc. (a) 08/15/11 (12.500% 02/01/09) 2,325,000 1,418,250 Haights Cross Operating Co. 11.750% 08/15/11 1,250,000 1,356,250 11.750% 08/15/11 (b) 570,000 618,450 7,210,312 PUBLISHING - NEWSPAPERS - 0.5% Hollinger, Inc. 11.875% 03/01/11 (b)(e) 1,009,000 1,039,270 12.875% 03/01/11 (b) 1,474,000 1,621,400 2,660,670 PUBLISHING - PERIODICALS - 1.6% CBD Media Holdings LLC & Finance, Inc. 9.250% 07/15/12 1,335,000 1,301,625
See accompanying notes to financial statements. 9
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) COMMUNICATIONS - (CONTINUED) MEDIA - (CONTINUED) Dex Media, Inc. (a) 11/15/13 (9.000% 11/15/08) 1,350,000 1,076,625 Dex Media East LLC 12.125% 11/15/12 518,000 620,305 Dex Media West LLC 9.875% 08/15/13 3,607,000 4,130,015 WDAC Subsidiary Corp. 8.375% 12/01/14 (b) 1,385,000 1,294,975 8,423,545 TELEVISION - 0.9% Paxson Communications Corp. (a) 01/15/09 (12.250% 01/15/06) 1,955,000 1,808,375 10.750% 07/15/08 1,725,000 1,681,875 Sinclair Broadcast Group, Inc. 8.750% 12/15/11 1,000,000 1,060,000 4,550,250 Media Total 43,909,671 TELECOMMUNICATION SERVICES - 9.9% CELLULAR TELECOMMUNICATIONS - 3.2% American Cellular Corp. 10.000% 08/01/11 1,955,000 1,906,125 Dobson Cellular Systems 8.375% 11/01/11 (b) 525,000 532,875 Dobson Communications Corp. 8.875% 10/01/13 3,010,000 2,445,625 Horizon PCS, Inc. 11.375% 07/15/12 (b) 325,000 356,687 iPCS Escrow Co. 11.500% 05/01/12 910,000 1,005,550 Nextel Partners, Inc. 8.125% 07/01/11 1,070,000 1,163,625 Rogers Cantel, Inc. 9.750% 06/01/16 2,080,000 2,496,000 Rogers Wireless, Inc. 8.000% 12/15/12 1,295,000 1,385,650 Rural Cellular Corp. 8.250% 03/15/12 1,355,000 1,377,019 UbiquiTel Operating Co. 9.875% 03/01/11 1,520,000 1,641,600 US Unwired, Inc. 10.000% 06/15/12 1,845,000 2,020,275 16,331,031 SATELLITE TELECOMMUNICATIONS - 1.4% Inmarsat Finance II PLC (a) 11/15/12 (10.375% 11/15/08) 2,285,000 1,679,475
See accompanying notes to financial statements. 10
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) COMMUNICATIONS - (CONTINUED) TELECOMMUNICATION SERVICES - (CONTINUED) Intelsat Bermuda Ltd. 8.250% 01/15/13 (b) 2,500,000 2,537,500 New Skies Satellites NV 9.125% 11/01/12 (b) 1,195,000 1,183,050 PanAmSat Corp. 9.000% 08/15/14 696,000 756,900 Zeus Special Subsidiary Ltd. (a) 02/01/15 (9.250% 02/01/10) (b) 1,780,000 1,121,400 7,278,325 TELECOMMUNICATION EQUIPMENT - 0.3% Lucent Technologies, Inc. 6.450% 03/15/29 1,890,000 1,634,850 1,634,850 TELECOMMUNICATION SERVICES - 1.2% Axtel SA 11.000% 12/15/13 2,580,000 2,754,150 Time Warner Telecom, Inc. 9.750% 07/15/08 730,000 730,000 10.125% 02/01/11 2,690,000 2,609,300 6,093,450 TELEPHONE - INTEGRATED - 3.0% Cincinnati Bell, Inc. 8.375% 01/15/14 2,935,000 2,883,637 Qwest Capital Funding, Inc. 7.250% 02/15/11 3,790,000 3,505,750 7.750% 02/15/31 2,385,000 1,949,738 Qwest Services Corp. 14.000% 12/15/10 (b) 5,045,000 5,726,075 US LEC Corp. 11.890% 10/01/09 (c) 1,210,000 1,249,325 15,314,525 WIRELESS EQUIPMENT - 0.8% American Towers, Inc. 7.250% 12/01/11 1,825,000 1,911,688 SBA Telecommunications, Inc. (a) 12/15/11 (9.750% 12/15/07) 1,320,000 1,155,000 SpectraSite, Inc. 8.250% 05/15/10 1,000,000 1,057,500 4,124,188 Telecommunication Services Total 50,776,369 ------------ COMMUNICATIONS TOTAL 94,686,040
See accompanying notes to financial statements. 11
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER CYCLICAL - 19.7% AIRLINES - 0.9% Continental Airlines, Inc. 7.568% 12/01/06 2,725,000 2,261,750 Northwest Airlines, Inc. 9.875% 03/15/07 3,820,000 2,387,500 4,649,250 Airlines Total 4,649,250 APPAREL - 1.5% APPAREL MANUFACTURERS - 1.5% Broder Brothers Co. 11.250% 10/15/10 795,000 822,825 11.250% 10/15/10 (b) 785,000 812,475 Levi Strauss & Co. 9.750% 01/15/15 (b) 4,010,000 3,899,725 Phillips-Van Heusen Corp. 7.250% 02/15/11 1,010,000 1,032,725 8.125% 05/01/13 1,000,000 1,050,000 7,617,750 Apparel Total 7,617,750 AUTO MANUFACTURERS - 0.5% AUTO - CARS/LIGHT TRUCKS - 0.2% General Motors Corp. 8.375% 07/15/33 1,105,000 850,850 850,850 AUTO - MEDIUM & HEAVY DUTY TRUCKS - 0.3% Navistar International Corp. 7.500% 06/15/11 1,695,000 1,707,713 1,707,713 Auto Manufacturers Total 2,558,563 AUTO PARTS & EQUIPMENT - 1.9% AUTO/TRUCK PARTS & EQUIPMENT - ORIGINAL - 0.9% Cooper-Standard Automotive, Inc. 8.375% 12/15/14 2,915,000 2,419,450 Delco Remy International, Inc. 9.375% 04/15/12 1,540,000 1,170,400 Dura Operating Corp. 8.625% 04/15/12 1,300,000 1,176,500 4,766,350 AUTO/TRUCK PARTS & EQUIPMENT - REPLACEMENT - 0.3% Rexnord Corp. 10.125% 12/15/12 1,360,000 1,431,400 1,431,400
See accompanying notes to financial statements. 12
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER CYCLICAL - (CONTINUED) AUTO PARTS & EQUIPMENT - (CONTINUED) RUBBER - TIRES - 0.7% Goodyear Tire & Rubber Co. 7.857% 08/15/11 2,960,000 2,834,200 11.000% 03/01/11 455,000 505,050 3,339,250 Auto Parts & Equipment Total 9,537,000 DISTRIBUTION/WHOLESALE - 0.2% DISTRIBUTION/WHOLESALE - 0.2% Buhrmann US, Inc. 7.875% 03/01/15 (b) 945,000 907,200 907,200 Distribution/Wholesale Total 907,200 ENTERTAINMENT - 2.7% GAMBLING (NON-HOTEL) - 0.5% Global Cash Access LLC 8.750% 03/15/12 2,245,000 2,413,375 2,413,375 MUSIC - 0.7% Steinway Musical Instruments, Inc. 8.750% 04/15/11 1,485,000 1,544,400 Warner Music Group 7.375% 04/15/14 270,000 268,650 WMG Holdings Corp. PIK, 9.760% 12/15/14 (b)(c) 1,730,000 1,711,181 3,524,231 RESORTS/THEME PARKS - 0.6% Six Flags, Inc. 9.625% 06/01/14 3,550,000 3,070,750 3,070,750 THEATERS - 0.9% AMC Entertainment, Inc. 9.875% 02/01/12 3,075,000 3,059,717 LCE Acquisition Corp. 9.000% 08/01/14 (b) 1,910,000 1,852,700 4,912,417 Entertainment Total 13,920,773 HOME BUILDERS - 1.4% BUILDING - RESIDENTIAL/COMMERCIAL - 1.4% D.R. Horton, Inc. 9.750% 09/15/10 2,400,000 2,820,000 K. Hovnanian Enterprises, Inc. 8.875% 04/01/12 1,435,000 1,528,275 10.500% 10/01/07 1,930,000 2,123,000
See accompanying notes to financial statements. 13
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER CYCLICAL - (CONTINUED) HOME BUILDERS - (CONTINUED) Standard-Pacific Corp. 9.250% 04/15/12 625,000 687,500 7,158,775 Home Builders Total 7,158,775 HOME FURNISHINGS - 0.7% APPLIANCES - 0.3% ALH Finance LLC 8.500% 01/15/13 1,835,000 1,660,675 1,660,675 HOME FURNISHINGS - 0.4% WII Components, Inc. 10.000% 02/15/12 1,990,000 1,940,250 1,940,250 Home Furnishings Total 3,600,925 LEISURE TIME - 1.1% RECREATIONAL CENTERS - 1.1% AMF Bowling Worldwide, Inc. 10.000% 03/01/10 1,655,000 1,655,000 Equinox Holdings, Inc. 9.000% 12/15/09 2,270,000 2,326,750 Town Sports International, Inc. (a) 02/01/14 (11.000% 02/01/09) 2,670,000 1,535,250 5,517,000 Leisure Time Total 5,517,000 LODGING - 5.3% CASINO HOTELS - 5.3% Circus & Eldorado/Silver Legacy Capital Corp. 10.125% 03/01/12 1,870,000 1,958,825 Hard Rock Hotel, Inc. 8.875% 06/01/13 2,405,000 2,561,325 Hollywood Casino Shreveport 13.000% 08/01/06 (f) 7,050,000 5,745,750 Inn of the Mountain Gods Resort & Casino 12.000% 11/15/10 1,620,000 1,871,100 MGM Mirage 6.750% 09/01/12 1,515,000 1,552,875 Mohegan Tribal Gaming Authority 6.125% 02/15/13 (b) 380,000 381,900 Penn National Gaming, Inc. 6.750% 03/01/15 (b) 2,470,000 2,482,350 Pinnacle Entertainment, Inc. 8.250% 03/15/12 955,000 959,775 8.750% 10/01/13 1,685,000 1,743,975 River Rock Entertainment 9.750% 11/01/11 1,295,000 1,398,600
See accompanying notes to financial statements. 14
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER CYCLICAL - (CONTINUED) LODGING - (CONTINUED) Seneca Gaming Corp. 7.250% 05/01/12 1,870,000 1,891,038 Station Casinos, Inc. 6.875% 03/01/16 270,000 276,750 Virgin River Casino Corp. (a) 01/15/13 (12.750% 01/15/09) (b) 1,380,000 883,200 9.000% 01/15/12 (b) 747,000 769,410 Wynn Las Vegas LLC 6.625% 12/01/14 (b) 2,455,000 2,356,800 26,833,673 Lodging Total 26,833,673 RETAIL - 2.9% RETAIL - AUTOMOBILES - 0.4% Asbury Automotive Group, Inc. 8.000% 03/15/14 1,990,000 1,900,450 1,900,450 RETAIL - DRUG STORES - 0.5% Jean Coutu Group, Inc. (PJC) 8.500% 08/01/14 1,425,000 1,385,812 Rite Aid Corp. 7.500% 01/15/15 (b) 630,000 584,325 9.250% 06/01/13 670,000 634,825 2,604,962 RETAIL - HOME FURNISHINGS - 0.3% Tempur-Pedic, Inc. 10.250% 08/15/10 1,631,000 1,794,100 1,794,100 RETAIL - JEWELRY - 0.3% Finlay Fine Jewelry Corp. 8.375% 06/01/12 1,725,000 1,474,875 1,474,875 RETAIL - MAJOR DEPARTMENT STORES - 0.4% Saks, Inc. 7.000% 12/01/13 2,283,000 2,080,384 2,080,384 RETAIL - PROPANE DISTRIBUTORS - 0.4% Ferrellgas Partners LP 8.750% 06/15/12 1,455,000 1,433,175 Suburban Propane Partners 6.875% 12/15/13 (b) 920,000 864,800 2,297,975 RETAIL - RESTAURANTS - 0.3% Landry's Restaurants, Inc. 7.500% 12/15/14 (b) 1,570,000 1,464,025 1,464,025
See accompanying notes to financial statements. 15
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER CYCLICAL - (CONTINUED) RETAIL - (CONTINUED) RETAIL - VIDEO RENTAL - 0.3% Movie Gallery, Inc. 11.000% 05/01/12 (b) 1,335,000 1,375,050 1,375,050 Retail Total 14,991,821 TEXTILES - 0.6% TEXTILE - PRODUCTS - 0.6% Collins & Aikman Floorcoverings, Inc. 9.750% 02/15/10 1,500,000 1,578,750 INVISTA 9.250% 05/01/12 (b) 1,390,000 1,511,625 3,090,375 Textiles Total 3,090,375 ------------ CONSUMER CYCLICAL TOTAL 100,383,105 CONSUMER NON-CYCLICAL - 13.6% AGRICULTURE - 0.2% TOBACCO - 0.2% Alliance One International, Inc. 11.000% 05/15/12 (b) 1,220,000 1,241,350 1,241,350 Agriculture Total 1,241,350 BEVERAGES - 0.1% BEVERAGES - WINE/SPIRITS - 0.1% Constellation Brands, Inc. 8.125% 01/15/12 320,000 334,400 334,400 Beverages Total 334,400 BIOTECHNOLOGY - 0.4% MEDICAL - BIOMEDICAL/GENE - 0.4% Bio-Rad Laboratories, Inc. 7.500% 08/15/13 2,015,000 2,115,750 2,115,750 Biotechnology Total 2,115,750 COMMERCIAL SERVICES - 4.0% COMMERCIAL SERVICES - 0.8% Iron Mountain, Inc. 7.750% 01/15/15 1,110,000 1,093,350 Language Line Holdings, Inc. 11.125% 06/15/12 2,860,000 2,831,400 3,924,750
See accompanying notes to financial statements. 16
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER NON-CYCLICAL - (CONTINUED) COMMERCIAL SERVICES - (CONTINUED) COMMERCIAL SERVICES - FINANCE - 0.5% Dollar Financial Group, Inc. 9.750% 11/15/11 2,315,000 2,413,388 2,413,388 FUNERAL SERVICES & RELATED ITEMS - 0.4% Service Corp. International 7.700% 04/15/09 2,135,000 2,263,100 2,263,100 PRINTING - COMMERCIAL - 0.7% Sheridan Group 10.250% 08/15/11 1,515,000 1,560,450 Vertis, Inc. 13.500% 12/07/09 (b) 2,565,000 1,923,750 3,484,200 PRIVATE CORRECTIONS - 0.8% Corrections Corp. of America 6.250% 03/15/13 (b) 1,955,000 1,891,462 GEO Group, Inc. 8.250% 07/15/13 2,200,000 2,117,500 4,008,962 RENTAL AUTO/EQUIPMENT - 0.8% NationsRent, Inc. 9.500% 10/15/10 1,455,000 1,542,300 9.500% 05/01/15 (b) 1,305,000 1,285,425 Williams Scotsman, Inc. 9.875% 06/01/07 1,415,000 1,386,700 4,214,425 Commercial Services Total 20,308,825 COSMETICS/PERSONAL CARE - 1.1% COSMETICS & TOILETRIES - 1.1% DEL Laboratories, Inc. 8.000% 02/01/12 (b) 2,195,000 1,865,750 Elizabeth Arden, Inc. 7.750% 01/15/14 1,395,000 1,415,925 Revlon Consumer Products Corp. 8.625% 02/01/08 1,405,000 1,299,625 9.500% 04/01/11 (b) 1,245,000 1,145,400 5,726,700 Cosmetics/Personal Care Total 5,726,700 FOOD - 2.1% FOOD - CONFECTIONERY - 0.6% Merisant Co. 9.500% 07/15/13 (b) 1,855,000 1,363,425 Tabletop Holdings, Inc. (a) 05/15/14 (12.250% 11/15/08) (b) 5,295,000 1,906,200 3,269,625
See accompanying notes to financial statements. 17
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER NON-CYCLICAL - (CONTINUED) FOOD - (CONTINUED) FOOD - MISCELLANEOUS/DIVERSIFIED - 0.9% Dole Food Co., Inc. 8.625% 05/01/09 1,650,000 1,740,750 Pinnacle Foods Holding Corp. 8.250% 12/01/13 2,310,000 1,963,500 Reddy Ice Holdings, Inc. (a) 11/01/12 (10.500% 11/01/08) (b) 1,220,000 835,700 4,539,950 FOOD - RETAIL - 0.6% Stater Brothers Holdings, Inc. 8.125% 06/15/12 2,970,000 2,880,900 2,880,900 Food Total 10,690,475 HEALTHCARE SERVICES - 3.6% DIALYSIS CENTERS - 0.3% DaVita, Inc. 7.250% 03/15/15 (b) 1,330,000 1,336,650 1,336,650 MEDICAL - HMO - 0.2% Coventry Health Care, Inc. 8.125% 02/15/12 945,000 1,013,513 1,013,513 MEDICAL - HOSPITALS - 0.8% Tenet Healthcare Corp. 9.875% 07/01/14 3,865,000 4,135,550 4,135,550 MEDICAL - OUTPATIENT/HOME MEDICAL - 0.2% Select Medical Corp. 7.625% 02/01/15 (b) 1,115,000 1,095,487 1,095,487 MRI/MEDICAL DIAGNOSTIC IMAGING - 1.4% InSight Health Services Corp. 9.875% 11/01/11 3,050,000 2,607,750 MedQuest, Inc. 11.875% 08/15/12 2,095,000 2,095,000 MQ Associates, Inc. (a) 08/15/12 (12.250% 08/15/08) 4,665,000 2,659,050 7,361,800 PHYSICIAN PRACTICE MANAGEMENT - 0.7% US Oncology Holdings, Inc. 8.620% 03/15/15 (b)(c) 1,085,000 1,030,750
See accompanying notes to financial statements. 18
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER NON-CYCLICAL - (CONTINUED) HEALTHCARE SERVICES - (CONTINUED) US Oncology, Inc. 9.000% 08/15/12 2,280,000 2,416,800 3,447,550 Healthcare Services Total 18,390,550 HOUSEHOLD PRODUCTS/WARES - 1.1% CONSUMER PRODUCTS - MISCELLANEOUS - 1.1% Amscan Holdings, Inc. 8.750% 05/01/14 2,470,000 2,297,100 Jostens IH Corp. 7.625% 10/01/12 620,000 598,300 Playtex Products, Inc. 9.375% 06/01/11 2,760,000 2,898,000 5,793,400 Household Products/Wares Total 5,793,400 PHARMACEUTICALS - 1.0% MEDICAL - DRUGS - 0.7% Elan Finance PLC 7.750% 11/15/11 (b) 2,690,000 2,313,400 Warner Chilcott Corp. 8.750% 02/01/15 (b) 1,160,000 1,090,400 3,403,800 MEDICAL - WHOLESALE DRUG DISTRIBUTION - 0.3% Nycomed A/S PIK, 11.750% 09/15/13 (b) EUR 1,530,000 1,693,429 1,693,429 Pharmaceuticals Total 5,097,229 ------------ CONSUMER NON-CYCLICAL TOTAL 69,698,679 ENERGY - 6.2% OIL & GAS - 2.8% OIL & GAS DRILLING - 0.6% Ocean Rig Norway AS 10.250% 06/01/08 USD 1,816,000 1,834,160 Pride International, Inc. 7.375% 07/15/14 960,000 1,039,200 2,873,360 OIL COMPANIES - EXPLORATION & PRODUCTION - 2.0% Chesapeake Energy Corp. 7.500% 06/15/14 1,145,000 1,230,875 Compton Petroleum Corp. 9.900% 05/15/09 2,175,000 2,321,813 Delta Petroleum Corp. 7.000% 04/01/15 (b) 1,060,000 983,150 Energy Partners Ltd. 8.750% 08/01/10 1,570,000 1,624,950
See accompanying notes to financial statements. 19
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) ENERGY - (CONTINUED) OIl & GAS - (CONTINUED) Magnum Hunter Resources, Inc. 9.600% 03/15/12 469,000 520,590 Petroquest Energy, Inc. 10.375% 05/15/12 (b) 1,130,000 1,107,400 Whiting Petroleum Corp. 7.250% 05/01/12 2,355,000 2,349,112 10,137,890 OIL REFINING & MARKETING - 0.2% Premcor Refining Group, Inc. 7.500% 06/15/15 1,015,000 1,101,275 1,101,275 Oil & Gas Total 14,112,525 OIL & GAS SERVICES - 0.4% OIL - FIELD SERVICES - 0.4% Newpark Resources, Inc. 8.625% 12/15/07 2,050,000 2,039,750 2,039,750 Oil & Gas Services Total 2,039,750 PIPELINES - 3.0% PIPELINES - 3.0% Coastal Corp. 7.625% 09/01/08 500,000 493,750 7.750% 06/15/10 3,765,000 3,746,175 Dynegy Holdings, Inc. 6.875% 04/01/11 1,875,000 1,781,250 9.875% 07/15/10 (b) 1,230,000 1,331,475 Northwest Pipeline Corp. 8.125% 03/01/10 1,040,000 1,128,400 Sonat, Inc. 7.625% 07/15/11 2,965,000 2,920,525 Southern Natural Gas Co. 8.875% 03/15/10 1,630,000 1,770,588 Williams Companies, Inc. 8.125% 03/15/12 1,935,000 2,191,387 15,363,550 Pipelines Total 15,363,550 ------------ ENERGY TOTAL 31,515,825 FINANCIALS - 2.0% DIVERSIFIED FINANCIAL SERVICES - 1.2% FINANCE - AUTO LOANS - 0.1% General Motors Acceptance Corp. 6.875% 09/15/11 435,000 381,843 381,843
See accompanying notes to financial statements. 20
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) FINANCIALS - (CONTINUED) DIVERSIFIED FINANCIAL SERVICES - (CONTINUED) FINANCE - INVESTMENT BANKER/BROKER - 1.1% E*Trade Financial Corp. 8.000% 06/15/11 1,530,000 1,598,850 LaBranche & Co., Inc. 11.000% 05/15/12 3,755,000 4,055,400 5,654,250 Diversified Financial Services Total 6,036,093 REAL ESTATE INVESTMENT TRUSTS - 0.5% REITS - HOTELS - 0.1% La Quinta Properties, Inc. 7.000% 08/15/12 585,000 604,012 604,012 REITS - MORTGAGE - 0.4% Thornburg Mortgage, Inc. 8.000% 05/15/13 1,885,000 1,885,000 1,885,000 Real Estate Investment Trusts Total 2,489,012 SAVINGS & LOANS - 0.3% SAVINGS & LOANS/ THRIFTS - WESTERN US - 0.3% Western Financial Bank 9.625% 05/15/12 1,310,000 1,408,250 1,408,250 Savings & Loans Total 1,408,250 ------------ FINANCIALS TOTAL 9,933,355 INDUSTRIALS - 16.6% AEROSPACE & DEFENSE - 1.7% AEROSPACE/DEFENSE - EQUIPMENT - 1.7% Argo-Tech Corp. 9.250% 06/01/11 1,450,000 1,555,125 BE Aerospace, Inc. 8.875% 05/01/11 1,755,000 1,790,100 Sequa Corp. 8.875% 04/01/08 1,048,000 1,110,880 9.000% 08/01/09 890,000 952,300 Standard Aero Holdings, Inc. 8.250% 09/01/14 (b) 1,495,000 1,539,850 TransDigm, Inc. 8.375% 07/15/11 1,660,000 1,726,400 8,674,655 ELECTRONICS - MILITARY - 0.0% Condor Systems, Inc. 11.875% 05/01/09 (d)(g) 4,000,000 40,000 40,000 ------------ Aerospace & Defense Total 8,714,655
See accompanying notes to financial statements. 21
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) INDUSTRIALS - (CONTINUED) BUILDING MATERIALS - 1.4% BUILDING & CONSTRUCTION PRODUCTS - MISCELLANEOUS - 0.4% Associated Materials, Inc. (a) 03/01/14 (11.250% 03/01/09) 1,600,000 952,000 Nortek, Inc. 8.500% 09/01/14 1,110,000 993,450 1,945,450 BUILDING PRODUCTS - CEMENT/AGGREGATION - 0.7% RMCC Acquisition Co. 9.500% 11/01/12 (b) 2,100,000 2,037,000 US Concrete, Inc. 8.375% 04/01/14 1,660,000 1,535,500 3,572,500 BUILDING PRODUCTS - DOORS & WINDOWS - 0.3% ACIH, Inc. (a) 12/15/12 (11.500% 12/15/07) (b) 2,400,000 1,512,000 1,512,000 Building Materials Total 7,029,950 ELECTRICAL COMPONENTS & EQUIPMENT - 0.4% WIRE & CABLE PRODUCTS - 0.4% Coleman Cable, Inc. 9.875% 10/01/12 (b) 2,385,000 2,206,125 2,206,125 Electrical Components & Equipment Total 2,206,125 ELECTRONICS - 0.5% ELECTRONIC COMPONENTS - MISCELLANEOUS - 0.5% Flextronics International Ltd. 6.250% 11/15/14 800,000 800,000 Sanmina-SCI Corp. 6.750% 03/01/13 (b) 1,825,000 1,724,625 2,524,625 Electronics Total 2,524,625 ENGINEERING & CONSTRUCTION - 0.6% BUILDING & CONSTRUCTION - MISCELLANEOUS - 0.6% J. Ray McDermott SA 11.000% 12/15/13 (b) 2,710,000 2,981,000 2,981,000 Engineering & Construction Total 2,981,000
See accompanying notes to financial statements. 22
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) INDUSTRIALS - (CONTINUED) ENVIRONMENTAL CONTROL - 1.5% NON-HAZARDOUS WASTE DISPOSAL - 1.4% Allied Waste North America, Inc. 7.250% 03/15/15 (b) 1,050,000 992,250 7.875% 04/15/13 2,355,000 2,366,775 8.500% 12/01/08 495,000 512,325 Waste Services, Inc. 9.500% 04/15/14 (b) 2,994,000 2,949,090 6,820,440 RECYCLING - 0.1% IMCO Recycling Escrow, Inc. 9.000% 11/15/14 (b) 670,000 691,775 691,775 Environmental Control Total 7,512,215 HAND/MACHINE TOOLS - 0.1% MACHINE TOOLS & RELATED PRODUCTS - 0.1% Newcor, Inc. 6.000% 01/31/13 (7.500% 01/31/08) (g)(h) 847,510 516,981 516,981 Hand/Machine Tools Total 516,981 MACHINERY - DIVERSIFIED - 0.4% MACHINERY - GENERAL INDUSTRY - 0.4% Douglas Dynamics LLC 7.750% 01/15/12 (b) 1,980,000 1,910,700 1,910,700 Machinery - Diversified Total 1,910,700 METAL FABRICATE/HARDWARE - 1.5% METAL PROCESSORS & FABRICATION - 1.0% Altra Industrial Motion, Inc. 9.000% 12/01/11 (b) 1,360,000 1,305,600 Mueller Holdings, Inc. (a) 04/15/14 (14.750% 04/15/09) 1,490,000 1,065,350 10.000% 05/01/12 1,065,000 1,118,250 TriMas Corp. 9.875% 06/15/12 1,725,000 1,388,625 4,877,825 METAL PRODUCTS - FASTENERS - 0.5% FastenTech, Inc. 11.500% 05/01/11 2,500,000 2,637,500 2,637,500 Metal Fabricate/Hardware Total 7,515,325
See accompanying notes to financial statements. 23
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) INDUSTRIALS - (CONTINUED) MISCELLANEOUS MANUFACTURING - 2.0% DIVERSIFIED MANUFACTURING OPERATORS - 1.4% Bombardier, Inc. 6.300% 05/01/14 (b) 2,991,000 2,632,080 JB Poindexter & Co. 8.750% 03/15/14 1,915,000 1,809,675 Koppers Industries, Inc. 9.875% 10/15/13 1,565,000 1,666,725 Trinity Industries, Inc. 6.500% 03/15/14 920,000 887,800 6,996,280 FILTRATION/SEPARATE PRODUCTS - 0.3% Polypore International, Inc. (a) 10/01/12 (10.500% 11/01/08) (b) 2,730,000 1,371,825 1,371,825 MISCELLANEOUS MANUFACTURING - 0.3% Samsonite Corp. 8.875% 06/01/11 1,615,000 1,687,675 1,687,675 Miscellaneous Manufacturing Total 10,055,780 PACKAGING & CONTAINERS - 2.8% CONTAINERS - METAL/GLASS - 1.2% Crown European Holdings SA 10.875% 03/01/13 2,550,000 2,938,875 Owens-Brockway Glass Container 6.750% 12/01/14 1,300,000 1,313,000 8.250% 05/15/13 1,045,000 1,128,600 Owens-Illinois, Inc. 7.500% 05/15/10 620,000 654,100 6,034,575 CONTAINERS - PAPER/PLASTIC - 1.6% Consolidated Container Co. LLC (a) 06/15/09 (10.750% 06/15/07) 1,700,000 1,309,000 Jefferson Smurfit Corp. 8.250% 10/01/12 1,675,000 1,658,250 PIK, 11.500% 10/01/15 (b) EUR 2,431,474 2,304,718 MDP Acquisitions PLC 9.625% 10/01/12 USD 1,990,000 1,980,050 Portola Packaging, Inc. 8.250% 02/01/12 1,700,000 1,062,500 Tekni-Plex, Inc. 8.750% 11/15/13 (b) 230,000 200,100 8,514,618 Packaging & Containers Total 14,549,193
See accompanying notes to financial statements. 24
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) INDUSTRIALS - (CONTINUED) Transportation - 3.7% TRANSPORTATION - MARINE - 1.5% Ship Finance International Ltd. 8.500% 12/15/13 4,060,000 3,887,450 Stena AB 7.500% 11/01/13 2,405,000 2,314,812 9.625% 12/01/12 1,505,000 1,614,113 7,816,375 TRANSPORTATION - RAIL - 0.6% TFM SA de CV 9.375% 05/01/12 (b) 1,955,000 2,023,425 12.500% 06/15/12 780,000 904,800 2,928,225 TRANSPORTATION - SERVICES - 1.2% CHC Helicopter Corp. 7.375% 05/01/14 1,820,000 1,756,300 7.375% 05/01/14 (b) 1,355,000 1,307,575 Petroleum Helicopters, Inc. 9.375% 05/01/09 3,125,000 3,234,375 6,298,250 TRANSPORTATION - TRUCK - 0.4% Allied Holdings, Inc. 8.625% 10/01/07 730,000 270,100 QDI LLC 9.000% 11/15/10 1,970,000 1,792,700 2,062,800 Transportation Total 19,105,650 ----------- INDUSTRIALS TOTAL 84,622,199 TECHNOLOGY - 0.3% SEMICONDUCTORS - 0.3% ELECTRONIC COMPONENTS - SEMICONDUCTORS - 0.3% Amkor Technology, Inc. 9.250% 02/15/08 1,925,000 1,694,000 1,694,000 Semiconductors Total 1,694,000 ----------- TECHNOLOGY TOTAL 1,694,000 UTILITIES - 5.1% ELECTRIC - 5.1% ELECTRIC - GENERATION - 1.1% AES Corp. 9.000% 05/15/15 (b) 610,000 681,675 9.500% 06/01/09 1,553,000 1,723,830 Edison Mission Energy 9.875% 04/15/11 2,090,000 2,424,400
See accompanying notes to financial statements. 25
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) UTILITIES - (CONTINUED) ELECTRIC - (CONTINUED) Texas Genco LLC 6.875% 12/15/14 (b) 525,000 540,094 5,369,999 ELECTRIC - INTEGRATED - 1.2% CMS Energy Corp. 8.900% 07/15/08 1,900,000 2,033,000 Nevada Power Co. 9.000% 08/15/13 985,000 1,103,200 10.875% 10/15/09 1,765,000 1,967,975 PSE&G Energy Holdings LLC 8.625% 02/15/08 955,000 1,007,525 6,111,700 INDEPENDENT POWER PRODUCER - 2.8% Caithness Coso Funding Corp. 9.050% 12/15/09 3,117,775 3,336,019 Calpine Corp. 8.500% 07/15/10 (b) 1,770,000 1,292,100 Calpine Generating Co. LLC 11.500% 04/01/11 125,000 107,500 12.390% 04/01/11 (c) 3,575,000 3,146,000 MSW Energy Holdings LLC 7.375% 09/01/10 910,000 916,825 8.500% 09/01/10 2,260,000 2,339,100 Orion Power Holdings, Inc. 12.000% 05/01/10 2,620,000 3,137,450 14,274,994 Electric Total 25,756,693 ----------- UTILITIES TOTAL 25,756,693 TOTAL CORPORATE FIXED-INCOME BONDS & NOTES (COST OF $482,403,841) 464,490,074 PREFERRED STOCKS - 2.2% COMMUNICATIONS - 1.5% SHARES MEDIA - 1.5% Paxson Communications Corp. PIK, 14.250% 292 1,915,554 Primedia, Inc. Series H, 8.625% 220 21,505 PTV, Inc. 10.000% 18 55 Spanish Broadcasting System, Inc. PIK, 10.750% 5,325 5,724,375 Media Total 7,661,489 --------- COMMUNICATIONS TOTAL 7,661,489
See accompanying notes to financial statements. 26
SHARES VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- PREFERRED STOCKS - (CONTINUED) FINANCIALS - 0.7% REAL ESTATE INVESTMENT TRUSTS - 0.7% iStar Financial, Inc. Series E, 7.875% 86,769 2,228,879 Series F, 7.800% 57,000 1,446,375 Real Estate Investment Trusts Total 3,675,254 FINANCIALS TOTAL 3,675,254 ---------- TOTAL PREFERRED STOCKS (COST OF $10,898,458) 11,336,743 COMMON STOCKS - 2.1% CONSUMER DISCRETIONARY - 0.2% Hotels, Restaurants & Leisure - 0.2% Alliance Gaming Corp. (i) 55,000 714,450 Trump Entertainment Resorts, Inc. (i) 6,798 88,374 Hotels, Restaurants & Leisure Total 802,824 ---------- CONSUMER DISCRETIONARY TOTAL 802,824 ENERGY - 0.1% Energy Equipment & Services - 0.1% Hornbeck Offshore Services, Inc. (i) 27,300 672,945 Energy Equipment & Services Total 672,945 Oil & Gas - 0.0% Horizon Natural Resources Co. (g)(i) 16,000 16 Oil & Gas Total 16 ---------- ENERGY TOTAL 672,961 INDUSTRIALS - 0.1% Commercial Services & Supplies - 0.1% Allied Waste Industries, Inc. (i) 72,500 558,975 Fairlane Management Corp. (g)(j) 50,004 -- Commercial Services & Supplies Total 558,975 ---------- INDUSTRIALS TOTAL 558,975 MATERIALS - 0.1% Chemicals - 0.1% Lyondell Chemical Co. 30,000 712,200 Chemicals Total 712,200 ---------- MATERIALS TOTAL 712,200 TELECOMMUNICATION SERVICES - 1.4% Diversified Telecommunication Services - 0.4% NTL, Inc. (i) 31,154 2,002,579 Diversified Telecommunication Services Total 2,002,579 Wireless Telecommunication Services - 1.0% Alamosa Holdings, Inc. (i) 79,483 981,615 Nextel Communications, Inc., Class A (i) 100,000 3,018,000 SBA Communications Corp., Class A (i) 80,410 898,984 Wireless Telecommunication Services Total 4,898,599 ---------- TELECOMMUNICATION SERVICES TOTAL 6,901,178
See accompanying notes to financial statements. 27
SHARES VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- COMMON STOCKS - (CONTINUED) UTILITIES - 0.2% ELECTRIC UTILITIES - 0.0% BayCorp Holdings Ltd. (i) 3 41 Electric Utilities Total 41 MULTI-UTILITIES & UNREGULATED POWER - 0.2% Dynegy Holdings, Inc., Class A (i) 233,000 1,083,450 Multi-Utilities & Unregulated Power Total 1,083,450 ---------- UTILITIES TOTAL 1,083,491 TOTAL COMMON STOCKS (COST OF $12,239,131) 10,731,629 CONVERTIBLE BONDS - 0.8% COMMUNICATIONS - 0.5% PAR ($) TELECOMMUNICATION SERVICES - 0.5% TELECOMMUNICATIONS EQUIPMENT- 0.5% Nortel Networks Corp. 4.250% 09/01/08 2,640,000 2,424,840 2,424,840 Telecommunication Services Total 2,424,840 --------- COMMUNICATIONS TOTAL 2,424,840 UTILITIES - 0.3% ELECTRIC - 0.3% INDEPENDENT POWER PRODUCER - 0.3% Mirant Corp. 2.500% 06/15/21 (d) 2,125,000 1,678,729 1,678,729 Electric Total 1,678,729 --------- UTILITIES TOTAL 1,678,729 TOTAL CONVERTIBLE BONDS (COST OF $3,883,706) 4,103,569 MUNICIPAL BOND (TAXABLE) - 0.6% CALIFORNIA - 0.6% CA Cabazon Band Mission Indians 13.000% 10/01/11 (e) 3,250,000 3,378,277 --------- CALIFORNIA TOTAL 3,378,277 TOTAL MUNICIPAL BOND (TAXABLE) (COST OF $3,250,000) 3,378,277
See accompanying notes to financial statements. 28
UNITS VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- WARRANTS (i) - 0.1% COMMUNICATIONS - 0.0% MEDIA - 0.0% BROADCAST SERVICES/PROGRAMS - 0.0% XM Satellite Radio Holdings, Inc. Expires 03/15/10 (b) 2,435 153,405 Media Total 153,405 TELECOMMUNICATION SERVICES - 0.0% CELLULAR TELECOMMUNICATIONS - 0.0% UbiquiTel, Inc. Expires 04/15/10 (e) 5,250 52 52 TELECOMMUNICATION SERVICES - 0.0% Jazztel PLC Expires 07/15/10 (g)(j) 1,435 -- -- Telecommunication Services Total 52 --------- COMMUNICATIONS TOTAL 153,457 CONSUMER NON-CYCLICAL - 0.0% FOOD - 0.0% FOOD RETAIL - 0.0% Pathmark Stores, Inc. Expires 09/19/10 (e) 58,758 20,565 20,565 Food Total 20,565 --------- CONSUMER NON-CYCLICAL TOTAL 20,565 INDUSTRIALS - 0.1% METAL FABRICATE/HARDWARE - 0.1% METAL PROCESSORS & FABRICATION - 0.1% Mueller Holdings, Inc. Expires 04/15/14 (b) 2,625 301,875 301,875 Metal Fabricate/Hardware Total 301,875 TRANSPORTATION - 0.0% TRANSPORTATION - TRUCK - 0.0% QDI LLC Expires 01/15/07 (b)(e)(g) 10,207 30,009 30,009 Transportation Total 30,009 --------- INDUSTRIALS TOTAL 331,884 TOTAL WARRANTS (COST OF $7,829,465) 505,906
See accompanying notes to financial statements. 29
PAR ($) VALUE ($) - ------------------------------------------------------- ---------------------------------------------------------------------- SHORT-TERM OBLIGATION - 1.1% Repurchase agreement with State Street Bank & Trust Co., dated 05/31/05, due 06/01/05 at 2.900%, collateralized by a U.S. Treasury Note maturing 06/30/06, market value of $5,576,192 (repurchase proceeds $5,465,440) 5,465,000 5,465,000 TOTAL SHORT-TERM OBLIGATION (COST OF $5,465,000) 5,465,000 TOTAL INVESTMENTS - 97.9% (COST OF $525,969,601) (k) 500,011,198 OTHER ASSETS & LIABILITIES, NET - 2.1% 10,747,863 NET ASSETS - 100.0% 510,759,061
NOTES TO INVESTMENT PORTFOLIO: (a) Step bond. This security is currently not paying coupon. Shown parenthetically is the interest rate to be paid and the date the Fund will begin accruing at this rate. (b) 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, 2005, these securities, which did not include any illiquid securities, except for the following, amounted to $113,980,237, which represents 22.3% of net assets.
ACQUISITION SECURITY DATE PAR/UNIT COST VALUE ----------------------------------------------------------------------------- Hollinger, Inc 09/30/04 $ 1,009,000 $ 1,009,000 $ 1,039,270 QDI LLC 05/28/02 10,207 0 30,009 -------------- $ 1,069,279 ==============
(c) The interest rate shown on floating rate or variable rate securities reflects the rate at May 31, 2005. (d) The issuer has filed for bankruptcy protection under Chapter 11, and is in default of certain debt covenants. Income is not being accrued. At May 31, 2005, the value of these securities amounted to $5,142,479, which represents 1.0% of net assets. (e) Illiquid security. (f) The issuer is in default of certain debt covenants. Income is not being accrued. At May 31, 2005, the value of this security represents 1.1% of net assets. (g) Represents fair value as determined in good faith under procedures approved by the Board of Trustees. (h) Step bond. Shown parenthetically is the next interest rate to be paid. (i) Non-income producing security. (j) Security has no value. (k) Cost for federal income tax purposes is $526,595,193. See accompanying notes to financial statements. 30 At May 31, 2005, the Fund had entered into the following forward currency exchange contracts:
FORWARD CURRENCY AGGREGATE SETTLEMENT UNREALIZED CONTRACTS TO BUY VALUE FACE VALUE DATE DEPRECIATION - ----------------------------------------------------------------------------- EUR $ 492,681 $ 517,224 06/20/2005 $ (24,543) FORWARD CURRENCY AGGREGATE SETTLEMENT UNREALIZED CONTRACTS TO SELL VALUE FACE VALUE DATE APPRECIATION - ----------------------------------------------------------------------------- EUR $ 3,424,129 $ 3,566,740 06/20/2005 $ 142,611 EUR 8,622 8,881 06/20/2005 259 EUR 908,781 930,639 07/27/2005 21,858 -------------- $ 164,728 --------------
At May 31, 2005, the asset allocation of the Fund is as follows:
% OF ASSET ALLOCATION (UNAUDITED) NET ASSETS - ---------------------------------------------------------------------------- Corporate Fixed-Income Bonds & Notes 91.0% Preferred Stocks 2.2 Common Stocks 2.1 Convertible Bonds 0.8 Municipal Bond (Taxable) 0.6 Warrants 0.1 Short-Term Obligation 1.1 Other Assets & Liabilities, Net 2.1 ---------- 100.0% ==========
ACRONYM NAME EUR Euro PIK Payment-In-Kind REIT Real Estate Investment Trust USD United States Dollar
See accompanying notes to financial statements. 31 STATEMENT OF ASSETS AND LIABILITIES MAY 31, 2005 COLUMBIA HIGH YIELD OPPORTUNITY FUND
($) - -------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at cost 525,969,601 ------------ Investments, at value 500,011,198 Foreign currency (cost of $40) 39 Net unrealized appreciation on foreign forward currency contracts 164,728 Receivable for: Investments sold 6,351,111 Fund shares sold 866,923 Interest 11,123,846 Dividends 77,244 Due from Investment Advisor (See Note 7) 4,024 Deferred Trustees' compensation plan 37,039 Receivable due from closed foreign forward currency contracts 22,324 ------------ Total Assets 518,658,476 LIABILITIES Payable to custodian bank 1,368,490 Net unrealized depreciation on foreign forward currency contracts 24,543 Payable for: Investments purchased 2,417,624 Fund shares repurchased 1,226,347 Distributions 1,587,839 Investment advisory fee 264,832 Transfer agent fee 164,630 Pricing and bookkeeping fees 14,773 Custody fee 3,865 Distribution and service fees 254,747 Deferred Trustees' fees 37,039 Other liabilities 534,686 ------------ Total Liabilities 7,899,415 NET ASSETS 510,759,061 COMPOSITION OF NET ASSETS Paid-in capital 923,261,271 Undistributed net investment income 994,259 Accumulated net realized loss (388,173,213) Net unrealized appreciation (depreciation) on: Investments (25,958,403) Foreign currency translations 635,147 NET ASSETS 510,759,061 CLASS A Net assets 273,104,407 Shares outstanding 59,871,490 Net asset value per share 4.56(a) Maximum offering price per share ($4.56/0.9525) 4.79(b) CLASS B Net assets 194,459,611 Shares outstanding 42,630,501 Net asset value and offering price per share 4.56(a) CLASS C Net assets 30,365,997 Shares outstanding 6,656,818 Net asset value and offering price per share 4.56(a) CLASS Z Net assets 12,829,046 Shares outstanding 2,812,452 Net asset value, offering and redemption price per share 4.56
(a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. (b) On sales of $50,000 or more the offering price is reduced. See accompanying notes to financial statements. 32 STATEMENT OF OPERATIONS FOR THE YEAR ENDED MAY 31, 2005 COLUMBIA HIGH YIELD OPPORTUNITY FUND
($) - ---------------------------------------- --------------------------------------------------------------------------------- INVESTMENT INCOME Dividends 1,385,603 Interest 50,380,944 ---------------- Total Investment Income 51,766,547 EXPENSES Investment advisory fee 3,546,400 Distribution fee: Class B 1,745,004 Class C 317,167 Service fee: Class A 761,825 Class B 581,668 Class C 105,867 Transfer agent fee 1,298,518 Pricing and bookkeeping fees 200,820 Trustees' fees 29,847 Custody fee 43,011 Non-recurring costs (See Note 9) 19,488 Other expenses 272,697 ---------------- Total Expenses 8,922,312 Fees waived by Distributor - Class C (63,090) Non-recurring costs assumed by Investment Advisor (See Note 9) (19,488) Custody earnings credit (11,854) ---------------- Net Expenses 8,827,880 ---------------- Net Investment Income 42,938,667 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY Net realized gain (loss) on: Investments 16,458,457 Foreign currency transactions 28,408 Net realized loss on disposal of investments purchased/sold in error (See Note 8) -- ---------------- Net realized gain 16,486,865 Net change in unrealized appreciation (depreciation) on: Investments (7,674,541) Foreign currency translations 696,298 ---------------- Net change in unrealized appreciation (depreciation) (6,978,243) ---------------- Net Gain 9,508,622 ---------------- Net Increase in Net Assets from Operations 52,447,289
See accompanying notes to financial statements. 33 STATEMENT OF CHANGES IN NET ASSETS COLUMBIA HIGH YIELD OPPORTUNITY FUND
YEAR ENDED MAY 31, 2005 ($) 2004 ($) --------------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS Net investment income 42,938,667 54,237,943 Net realized gain on investments and foreign currency transactions 16,486,865 8,270,746 Net change in unrealized appreciation (depreciation) on investments and foreign currency translations (6,978,243) 32,880,100 --------------------------------- Net Increase from Operations 52,447,289 95,388,789 DISTRIBUTIONS DECLARED TO SHAREHOLDERS From net investment income: Class A (24,843,221) (25,897,731) Class B (17,229,500) (18,878,503) Class C (3,195,340) (3,515,106) Class Z (1,286,008) (1,901,969) --------------------------------- Total Distributions Declared to Shareholders (46,554,069) (50,193,309) SHARE TRANSACTIONS Class A: Subscriptions 51,631,025 189,024,773 Distributions reinvested 12,970,332 13,650,967 Redemptions (119,788,196) (276,813,657) --------------------------------- Net Decrease (55,186,839) (74,137,917) Class B: Subscriptions 15,033,791 41,567,784 Distributions reinvested 8,549,272 8,876,772 Redemptions (84,300,266) (120,128,028) --------------------------------- Net Decrease (60,717,203) (69,683,472) Class C: Subscriptions 2,313,673 26,520,739 Distributions reinvested 2,060,574 2,226,590 Redemptions (20,777,439) (37,179,218) --------------------------------- Net Decrease (16,403,192) (8,431,889) Class Z: Subscriptions 8,036,535 31,287,165 Distributions reinvested 964,387 1,483,445 Redemptions (10,416,599) (66,364,258) --------------------------------- Net Decrease (1,415,677) (33,593,648) Net Decrease from share Transactions (133,722,911) (185,846,926) --------------------------------- Total Decrease in Net Assets (127,829,691) (140,651,446) NET ASSETS Beginning of period 638,588,752 779,240,198 End of period 510,759,061 638,588,752 Undistributed net investment income at end of period 994,259 3,139,574 --------------------------------- CHANGES IN SHARES Class A: Subscriptions 11,017,719 42,769,227 Issued for distributions reinvested 2,760,651 3,017,589 Redemptions (25,637,277) (61,621,799) --------------------------------- Net Decrease (11,858,907) (15,834,983) Class B: Subscriptions 3,195,705 9,297,993 Issued for distributions reinvested 1,819,533 1,963,545 Redemptions (17,983,556) (26,516,181) --------------------------------- Net Decrease (12,968,318) (15,254,643) Class C: Subscriptions 492,732 5,944,258 Issued for distributions reinvested 438,421 492,263 Redemptions (4,477,212) (8,189,751) --------------------------------- Net Decrease (3,546,059) (1,753,230) Class Z: Subscriptions 1,698,113 7,069,802 Issued for distributions reinvested 204,777 327,668 Redemptions (2,216,660) (14,917,379) --------------------------------- Net Decrease (313,770) (7,519,909)
See accompanying notes to financial statements. 34 NOTES TO FINANCIAL STATEMENTS MAY 31, 2005 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. 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 pricing services approved by the Fund's Board of Trustees, based upon market transactions for normal, institutional-size trading units of similar securities. The services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes. Debt securities for which quotations are readily available are valued at an over-the-counter or exchange bid quotation. Certain debt securities, which tend to be more thinly traded and of lesser quality, are priced based on fundamental analysis of the financial condition of the issuer and the estimated value of any collateral. Valuations developed through pricing techniques may vary from the actual amounts realized upon sale of the securities, and the potential variation may be greater for those securities valued using fundamental analysis. 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 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 35 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 current exchange rate of the underlying currency, resulting in unrealized gains (losses) which become realized at the time the foreign currency contracts are closed or mature. Realized and unrealized gains (losses) arising from such transactions are included in net realized and unrealized gains (losses) on foreign currency transactions. The use of forward currency contracts does not eliminate fluctuations in the prices of the Fund's portfolio securities. 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. 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 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. 36 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 tax-exempt or taxable income, if any, for its tax year, and as such will not be subject to federal income taxes. In addition, the Fund intends to distribute in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded. DISTRIBUTIONS TO SHAREHOLDERS 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, 2005, permanent book and tax basis differences resulting primarily from differing treatments for discount accretion/premium amortization on debt securities, market discount reclassifications, paydown reclassifications, Section 988 reclassifications of foreign currency and non-deductible excise tax paid were identified and reclassified among the components of the Fund's net assets as follows:
UNDISTRIBUTED NET INVESTMENT ACCUMULATED PAID-IN INCOME NET REALIZED LOSS CAPITAL - --------------------------------------------------------------- $ 1,470,087 $ (1,458,719) $ (11,368)
Net investment income and net realized gains (losses), as disclosed on the Statement of Operations, and net assets were not affected by this reclassification. The tax character of distributions paid during the years ended May 31, 2005 and May 31, 2004 was as follows:
MAY 31, 2005 MAY 31, 2004 - ---------------------------------------------------------- Distributions paid from: Ordinary income $ 46,554,069 $ 50,193,309 Long-term capital gains -- --
As of May 31, 2005, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ORDINARY LONG-TERM NET UNREALIZED INCOME CAPITAL GAINS DEPRECIATION* - ------------------------------------------------------------ $ 3,740,121 $ -- $ (26,089,033)
* 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, 2005, based on cost of investments for federal income tax purposes, was: Unrealized appreciation $ 17,346,806 Unrealized depreciation (43,930,801) -------------- Net unrealized depreciation $ (26,583,995)
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 - ---------------------------------------------------------- 2008 $ 37,575,496 2009 161,087,717 2010 171,019,187 2011 18,463,873 $ 388,146,273
Of the capital loss carryforwards attributable to the Fund $3,086,545 ($2,216,468 will expire May 31, 2008 and $870,077 will expire May 31, 2009) was obtained in the merger with Stein Roe High Yield Fund. Capital loss carryforwards of $15,048,207 were utilized during the year ended May 31, 2005. 37 NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES INVESTMENT ADVISORY FEE Columbia Management Advisors, Inc. ("Columbia"), an indirect wholly owned subsidiary of Bank of America Corporation ("BOA"), is the investment advisor to the Fund and provides administrative and other services to the Fund. Effective November 1, 2004, Columbia receives a monthly investment advisory fee based on the Fund's average daily net assets at the following annual rates:
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE - ------------------------------------------------------------ First $500 million 0.60% $500 million to $1 billion 0.55% $1 billion to $1.5 billion 0.52% Over $1.5 billion 0.49%
Prior to November 1, 2004, Columbia received a monthly investment advisory fee based on the Fund's average daily net assets at the following annual rates:
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE - ----------------------------------------------------------- First $1 billion 0.60% Next $1 billion 0.55% Over $2 billion 0.50%
For the year ended May 31, 2005, the Fund's effective investment advisory fee rate was 0.60%. 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, 2005, the Fund's effective pricing and bookkeeping fee rate, inclusive of out-of-pocket expenses, was 0.034%. TRANSFER AGENT FEE Columbia Funds Services, Inc. (the "Transfer Agent"), an affiliate of Columbia, provides shareholder services to the Fund and has subcontracted with Boston Financial Data Services ("BFDS") to serve as sub-transfer agent. 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. For the year ended May 31, 2005, the Fund's effective transfer agent fee rate, inclusive of out-of-pocket fees and after fee waivers, was 0.22%. Columbia did not reimburse any transfer agent fees during the year ended May 31, 2005. UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES Columbia Funds Distributor, Inc. (the "Distributor"), an affiliate of Columbia, is the principal underwriter of the Fund. For the year ended May 31, 2005, the Distributor has retained net underwriting discounts of $18,380 on sales of the Fund's Class A shares and received net CDSC fees of $6,551, $656,147 and $9,909 on Class A, Class B and Class C share redemptions, respectively. The Fund has adopted a 12b-1 plan (the "Plan") which allows 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. 38 CUSTODY CREDITS The Fund has an agreement with its custodian bank under which custody fees may be reduced by balance credits. These credits are recorded as a reduction of total expenses on the Statement of Operations. The Fund could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement. FEES PAID TO OFFICERS AND TRUSTEES With the exception of one officer, all officers of the Fund are employees of Columbia or its affiliates and receive no compensation from the Fund. Effective August 23, 2004, the Board of Trustees appointed a Chief Compliance Officer to the Fund in accordance with federal securities regulations. The Fund, along with other affiliated funds, will pay its pro-rata share of the expenses associated with the Office of the Chief Compliance Officer. The Fund's fee for the Office of the Chief Compliance Officer will not exceed $15,000 per year. The Fund's Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund's assets. OTHER Columbia provides certain services to the Fund related to Sarbanes-Oxley compliance. For the year ended May 31, 2005, the Fund paid $2,106 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, 2005, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $385,673,357 and $522,549,289, respectively. NOTE 6. LINE OF CREDIT The Fund and other affiliated funds participate in a $350,000,000 committed unsecured revolving line of credit provided by State Street Bank and Trust Company. Borrowings are used for temporary or emergency purposes to facilitate portfolio liquidity. Interest is charged to each participating fund based on its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50%. In addition, a commitment fee of 0.10% per annum is accrued and apportioned among the participating funds based on their pro-rata portion of the unutilized line of credit. The commitment fee is included in "Other expenses" on the Statement of Operations. For the year ended May 31, 2005, the Fund did not borrow under this arrangement. NOTE 7. SHARES OF BENEFICIAL INTEREST As of May 31, 2005, the Fund had shareholders whose shares were beneficially owned by participant accounts over which Bank of America and/or its affiliates had either sole or joint investment discretion. Subscription and redemption activity of these accounts may have a significant effect on the operations of the Fund. The number of such accounts and the percentage of shares of beneficial interest outstanding held therein are as follows:
NUMBER OF SHAREHOLDERS % OF SHARES OUTSTANDING HELD - -------------------------------------------------------------- 1 0.1%
NOTE 8. TRADING LOSS OTHER During the year ended May 31, 2005 the Fund entered into a foreign forward currency exchange contract which resulted in a trading error. This position was subsequently closed at a loss of $4,024 and the Fund is in the process of being reimbursed by Columbia. NOTE 9. 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 39 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 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 On February 9, 2005, Columbia and the Distributor (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004. Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions. Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the Fund's independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the fund or its shareholders can not currently be determined. 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. A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other 40 things, removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages. On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has conditionally ordered its transfer to the MDL. The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, can not currently be made. On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the Columbia Funds and Columbia. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the Fund and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions. In 2004, certain Columbia funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005. The Fund and the other defendants to these actions, including Columbia and various of its affiliates, certain other mutual funds advised by Columbia and its affiliates, and various directors of such funds, have denied these allegations and are contesting the plaintiffs' claims. These proceedings are ongoing, however, based on currently available information, Columbia believes that these lawsuits are without merit, that the likelihood they will have a material adverse impact on any fund is remote, and that the lawsuits are not likely to materially affect its ability to provide investment management services to its clients, including the Fund. For the year ended May 31, 2005, Columbia has assumed $19,488 of legal, consulting services and Trustees' fees incurred by the Fund in connection with these matters. 41 FINANCIAL HIGHLIGHTS COLUMBIA HIGH YIELD OPPORTUNITY FUND SELECTED DATA FOR ASHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD ENDED YEAR ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS A SHARES 2005 2004 2003(a) 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.35(b) 0.35(b) 0.14(b) 0.34(b) 0.52(b)(c) 0.61(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.05 0.21 0.30 (0.53) (0.65)(c) (1.24) --------- --------- --------- --------- --------- --------- Total from Investment Operations 0.40 0.56 0.44 (0.19) (0.13) (0.63) LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.38) (0.32) (0.15) (0.39) (0.51) (0.62) Return of capital -- -- -- (0.03) (0.04) -- --------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.38) (0.32) (0.15) (0.42) (0.55) (0.62) NET ASSET VALUE, END OF PERIOD $ 4.56 $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30 Total return (e) 8.93%(f) 13.30%(g) 11.01%(g)(h) (4.27)% (2.78)% (10.28)% RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Expenses (i) 1.15% 1.19% 1.29%(j) 1.31% 1.22% 1.16% Net investment income (i) 7.55% 7.65% 8.24%(j) 7.92% 10.34%(c) 10.00% Waiver/reimbursement -- 0.01% --%(j)(k) -- -- -- Portfolio turnover rate 67% 75% 45%(h) 63% 62% 28% Net assets, end of period (000's) $ 273,104 $ 325,658 $ 376,944 $ 361,780 $ 369,043 $ 390,917
(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) Total return includes a voluntary reimbursement by the Investment Advisor for a realized investment loss. This reimbursement had an impact of less than 0.01% on the Fund's total return. (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%. 42 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD ENDED YEAR ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS B SHARES 2005 2004 2003(a) 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.32(b) 0.31(b) 0.13(b) 0.31(b) 0.48(b)(c) 0.56(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.05 0.22 0.29 (0.54) (0.65)(c) (1.24) --------- --------- --------- --------- --------- --------- Total from Investment Operations 0.37 0.53 0.42 (0.23) (0.17) (0.68) LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.35) (0.29) (0.13) (0.35) (0.47) (0.57) Return of capital -- -- -- (0.03) (0.04) -- --------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.35) (0.29) (0.13) (0.38) (0.51) (0.57) NET ASSET VALUE, END OF PERIOD $ 4.56 $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30 Total return (e) 8.13%(f) 12.46%(g) 10.67%(g)(h) (4.99)% (3.51)% (10.96)% RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Expenses (i) 1.90% 1.94% 2.04%(j) 2.06% 1.97% 1.91% Net investment income (i) 6.80% 6.90% 7.49%(j) 7.17% 9.59%(c) 9.25% Waiver/reimbursement -- 0.01% --%(j)(k) -- -- -- Portfolio turnover rate 67% 75% 45%(h) 63% 62% 28% Net assets, end of period (000's) $ 194,460 $ 252,415 $ 305,021 $ 280,220 $ 350,464 $ 433,949
(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) Total return includes a voluntary reimbursement by the Investment Advisor for a realized investment loss. This reimbursement had an impact of less than 0.01% on the Fund's total return. (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%. 43 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD ENDED YEAR ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS C SHARES 2005 2004 2003(a) 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.33(b) 0.32(b) 0.13(b) 0.31(b) 0.49(b)(c) 0.57(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.04 0.21 0.29 (0.53) (0.65)(c) (1.24) --------- --------- --------- --------- --------- --------- Total from Investment Operations 0.37 0.53 0.42 (0.22) (0.16) (0.67) LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.35) (0.29) (0.13) (0.36) (0.48) (0.58) Return of capital -- -- -- (0.03) (0.04) -- --------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.35) (0.29) (0.13) (0.39) (0.52) (0.58) NET ASSET VALUE, END OF PERIOD $ 4.56 $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30 Total return (e)(f) 8.29%(g) 12.63% 10.74%(h) (4.85)% (3.37)% (10.78)% RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Expenses (i) 1.75% 1.79% 1.89%(j) 1.91% 1.82% 1.76% Net investment income (i) 6.95% 7.05% 7.64%(j) 7.32% 9.74%(c) 9.40% Waiver/reimbursement 0.15% 0.16% 0.15%(j) 0.15% 0.15% 0.15% Portfolio turnover rate 67% 75% 45%(h) 63% 62% 28% Net assets, end of period (000's) $ 30,366 $ 46,322 $ 51,471 $ 46,568 $ 52,122 $ 48,904
(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) Total return includes a voluntary reimbursement by the Investment Advisor for a realized investment loss. This reimbursement had an impact of less than 0.01% on the Fund's total return. (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. 44 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD ENDED YEAR ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS Z SHARES 2005 2004 2003(a) 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.37(b) 0.36(b) 0.15(b) 0.33(b) 0.53(b)(c) 0.62(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.04 0.21 0.29 (0.51) (0.65)(c) (1.24) --------- --------- --------- --------- --------- --------- Total from Investment Operations 0.41 0.57 0.44 (0.18) (0.12) (0.62) LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.39) (0.33) (0.15) (0.40) (0.52) (0.63) Return of capital -- -- -- (0.03) (0.04) -- --------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.39) (0.33) (0.15) (0.43) (0.56) (0.63) NET ASSET VALUE, END OF PERIOD $ 4.56 $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30 Total return (e) 9.21%(f) 13.58%(g) 11.12%(g)(h) (4.03)% (2.53)% (10.06)% RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Expenses (i) 0.90% 0.94% 1.04%(j) 1.06% 0.97% 0.91% Net investment income (i) 7.80% 7.92% 8.49%(j) 8.17% 10.59%(c) 10.25% Waiver/reimbursement -- 0.01% --%(j)(k) -- -- -- Portfolio turnover rate 67% 75% 45%(h) 63% 62% 28% Net assets, end of period (000's) $ 12,829 $ 14,194 $ 45,803 $ 35,541 $ 1,978 $ 566
(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 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. (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. (f) Total return includes a voluntary reimbursement by the Investment Advisor for a realized investment loss. This reimbursement had an impact of less than 0.01% on the Fund's total return. (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%. 45 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, 2005, 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 audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.We believe that our audits, which included confirmation of securities at May 31, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts July 27, 2005 46 TRUSTEES COLUMBIA HIGH YIELD OPPORTUNITY FUND The Trustrees/Directors serve terms of indefinite duration. The names, addresses and ages of the Trustees/Directors and officers of the Funds in the Columbia Funds Complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee/Director and other directorships they hold are shown below. Each officer listed below serves as an officer of each Fund in the Columbia Funds Complex.
NAME, ADDRESS AND AGE, POSITION WITH FUNDS, PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN COLUMBIA YEAR FIRST ELECTED OR APPOINTED TO OFFICE(1) FUNDS COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD DISINTERESTED TRUSTEES DOUGLAS A. HACKER (age 49) Executive Vice President-Strategy of United Airlines (airline) since December, 2002 P.O. Box 66100 (formerly President of UAL Loyalty Services (airline) from September, 2001 to Chicago, IL 60666 December, 2002; Executive Vice President and Chief Financial Officer of United Trustee (since 1996) Airlines from July, 1999 to September, 2001; Senior Vice President-Finance from March, 1993 to July, 1999). Oversees 104, Nash Finch Company (food distributor) JANET LANGFORD KELLY (age 47) Partner, Zelle, Hofmann,Voelbel,Mason & Gette LLP (law firm); Adjunct Professor of 9534 W. Gull Lake Drive Law, Northwestern University, since September, 2004 (formerly Chief Administrative Richland, MI 49083-8530 Officer and Senior Vice President, Kmart Holding Corporation (consumer goods), from Trustee (since 1996) September, 2003 to March, 2004; Executive Vice President-Corporate Development and Administration, General Counsel and Secretary, Kellogg Company (food manufacturer), from September, 1999 to August, 2003; Senior Vice President, Secretary and General Counsel, Sara Lee Corporation (branded, packaged, consumer-products manufacturer) from January, 1995 to September, 1999). Oversees 104, None RICHARD W. LOWRY (age 69) Private Investor since August, 1987 (formerly Chairman and Chief Executive Officer, 10701 Charleston Drive U.S. Plywood Corporation (building products manufacturer)). Oversees 106(3), None Vero Beach, FL 32963 Trustee (since 1995) CHARLES R. NELSON (age 62) Professor of Economics, University of Washington, since January, 1976; Ford and Department of Economics Louisa Van Voorhis Professor of Political Economy, University of Washington, since University of Washington September, 1993 (formerly Director, Institute for Economic Research, University of Seattle, WA 98195 Washington from September, 2001 to June, 2003) Adjunct Professor of Statistics, Trustee (since 1981) University of Washington, since September, 1980; Associate Editor, Journal of Money Credit and Banking, since September, 1993; consultant on econometric and statistical matters. Oversees 104, None JOHN J. NEUHAUSER (age 62) 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 August, Chestnut Hill, MA 02467-3838 1999). Oversees 106(3), Saucony, Inc. (athletic footwear) Trustee (since 1985) PATRICK J. SIMPSON (age 61) Partner, Perkins Coie L.L.P. (law firm). Oversees 104, None 1120 N.W. Couch Street Tenth Floor Portland, OR 97209-4128 Trustee (since 2000)
47
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 THOMAS E. STITZEL (age 69) Business Consultant since 1999 (formerly Professor of Finance from 1975 to 1999, 2208 Tawny Woods Place College of Business, Boise State University); Chartered Financial Analyst. Oversees Boise, ID 83706 104, None Trustee (since 1998) THOMAS C. THEOBALD (age 68) Partner and Senior Advisor, Chicago Growth Partners (private equity investing) since 8 Sound Shore Drive, September, 2004 (formerly Managing Director,William Blair Capital Partners (private Suite 285 equity investing) from September, 1994 to September, 2004). Oversees 104, Anixter Greenwich, CT 06830 International (network support equipment distributor); Ventas, Inc. (real estate Trustee and Chairman of the Board(4) investment trust); Jones Lang LaSalle (real estate management services) and Ambac (since 1996) Financial Group (financial guaranty insurance) ANNE-LEE VERVILLE (age 59) Retired since 1997 (formerly General Manager, Global Education Industry, IBM 359 Stickney Hill Road Corporation (computer and technology) from 1994 to 1997). Oversees 104, Chairman of Hopkinton, NH 03229 the Board of Directors, Enesco Group, Inc. (designer, importer and distributor of Trustee (since 1998) giftware and collectibles) RICHARD L. WOOLWORTH (age 64) Retired since December 2003 (formerly Chairman and Chief Executive Officer, The 100 S.W. Market Street Regence Group (regional health insurer); Chairman and Chief Executive Officer, #1500 BlueCross BlueShield of Oregon; Certified Public Accountant,Arthur Young & Company). Portland, OR 97207 Oversees 104, Northwest Natural Gas Co. (natural gas service provider) Trustee (since 1991) INTERESTED TRUSTEE WILLIAM E. MAYER(2) (age 65) Partner, Park Avenue Equity Partners (private equity) since February, 1999 (formerly 399 Park Avenue Partner, Development Capital LLC from November 1996 to February, 1999). Oversees Suite 3204 106(3), Lee Enterprises (print media), WR Hambrecht + Co. (financial service New York, NY 10022 provider); Reader's Digest (publishing); OPENFIELD Solutions (retail industry Trustee (since 1994) technology provider)
(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) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co. (3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the Liberty All-Star Funds, currently consisting of 2 funds, which are advised by an affiliate of the Advisor. (4) Mr. Theobald was appointed as Chairman of the Board effective December 10, 2003. The Statement of Additional Information Includes additional information about the Trustees of the Funds and is available, without charge, upon request by calling 800-426-3750. 48 OFFICERS COLUMBIA HIGH YIELD OPPORTUNITY FUND
NAME, ADDRESS AND AGE, POSITION WITH COLUMBIA FUNDS, YEAR FIRST ELECTED OR PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS APPOINTED TO OFFICE CHRISTOPHER L. WILSON (age 47) Head of Mutual Funds since August, 2004 and Senior Vice President of the Advisor One Financial Center since January, 2005; President of the Columbia Funds, Liberty Funds and Stein Roe Boston, MA 02111 Funds since October, 2004; President and Chief Executive Officer of the Nations President (since 2004) Funds since January, 2005; President of the Galaxy Funds since April 2005; Director of Bank of America Global Liquidity Funds, plc since May 2005; Director of Banc of America Capital Management (Ireland), Limited since May 2005; Senior Vice President of BACAP Distributors LLC since January, 2005; Director of FIM Funding, Inc. since January, 2005; Senior Vice President of Columbia Funds Distributor, Inc. since January, 2005; Director of Columbia Funds Services, Inc. since January, 2005 (formerly President and Chief Executive Officer, CDC IXIS Asset Management Services, Inc. from September, 1998 to August, 2004). J. KEVIN CONNAUGHTON (age 40) Treasurer of the Columbia Funds since October, 2003 and of the Liberty Funds, Stein One Financial Center Roe Funds and All-Star Funds since December, 2000; Vice President of the Advisor Boston, MA 02111 since April, 2003 (formerly President of the Columbia Funds, Liberty Funds and Stein Treasurer (since 2000) Roe Funds from February, 2004 to October, 2004; Chief Accounting Officer and Controller of the Liberty Funds and All-Star Funds from February, 1998 to October, 2000); Treasurer of the Galaxy Funds since September, 2002 (formerly Treasurer from December, 2002 to December, 2004 and President from February, 2004 to December, 2004 of the Columbia Management Multi-Strategy Hedge Fund, LLC; Vice President of Colonial Management Associates, Inc. from February, 1998 to October, 2000). MARY JOAN HOENE (age 54) Senior Vice President and Chief Compliance Officer of the Columbia Funds, Liberty 40 West 57th Street Funds, Stein Roe Funds and All-Star Funds since August, 2004 (formerly Partner, New York, NY 10005 Carter, Ledyard & Milburn LLP from January, 2001 to August, 2004; Counsel, Carter, Senior Vice President and Chief Compliance Ledyard & Milburn LLP from November, 1999 to December, 2000; Vice President and Officer (since 2004) Counsel, Equitable Life Assurance Society of the United States from April, 1998 to November, 1999). MICHAEL G. CLARKE (age 35) Chief Accounting Officer of the Columbia Funds, Liberty Funds, Stein Roe Funds and One Financial Center All-Star Funds since October, 2004 (formerly Controller of the Columbia Funds, Boston, MA 02111 Liberty Funds, Stein Roe Funds and All-Star Funds from May, 2004 to October, 2004; Chief Accounting Officer (since 2004) Assistant Treasurer from June, 2002 to May, 2004; Vice President, Product Strategy & Development of the Liberty Funds and Stein Roe Funds from February, 2001 to June, 2002; Assistant Treasurer of the Liberty Funds, Stein Roe Funds and the All-Star Funds from August, 1999 to February, 2001; Audit Manager, Deloitte & Touche LLP from May, 1997 to August, 1999). JEFFREY R. COLEMAN (age 35) Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and All-Star Funds One Financial Center since October, 2004 (formerly Vice President of CDC IXIS Asset Management Services, Boston, MA 02111 Inc. and Deputy Treasurer of the CDC Nvest Funds and Loomis Sayles Funds from Controller (since 2004) February, 2003 to September, 2004; Assistant Vice President of CDC IXIS Asset Management Services, Inc. and Assistant Treasurer of the CDC Nvest Funds from August, 2000 to February, 2003; Tax Manager of PFPC, Inc. from November, 1996 to August, 2000). R. SCOTT HENDERSON (age 45) Secretary of the Columbia Funds, Liberty Funds and Stein Roe Funds since December, One Financial Center 2004 (formerly Of Counsel, Bingham McCutchen from April, 2001 to September, 2004; Boston, MA 02111 Executive Director and General Counsel, Massachusetts Pension Reserves Investment Secretary (since 2004) Management Board from September, 1997 to March, 2001).
49 BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENT COLUMBIA HIGH YIELD OPPORTUNITY FUND Section 15(c) of the Investment Company Act of 1940 (the "1940 Act") requires that the Board of Trustees/Directors (the "Board") of the Columbia Funds (the "Funds"), including a majority of the Trustees and Directors (collectively, the "Trustees") who are not "interested persons" of the Trusts, as defined in the 1940 Act (the "Independent Trustees"), annually review and approve the terms of the Funds' investment advisory agreements. At a meeting held on October 13, 2004, the Board reviewed and approved the management contracts ("Advisory Agreement") with Columbia Management Advisors, Inc. ("CMA") for the Fund. At meetings held on September 23, 2004 and October 12, 2004, the Advisory Fees and Expenses Committee (the "Committee") of the Board considered the factors described below relating to the selection of CMA and the approval of the Advisory Agreement. At a meeting held on October 13, 2004, the Board, including the Independent Trustees (who were advised by their independent legal counsel), considered these factors and reached the conclusions described below. NATURE, EXTENT AND QUALITY OF SERVICES The Board considered information regarding the nature, extent and quality of services that CMA provides to the Fund under the Advisory Agreement. CMA provided the most recent investment adviser registration form ("Form ADV") and code of ethics for CMA to the Board. The Board reviewed information on the status of Securities and Exchange Commission ("SEC") and New York Attorney General ("NYAG") proceedings against CMA and certain of its affiliates, including the agreement in principle entered into with the SEC and the NYAG on March 15, 2004 to settle civil complaints filed by the SEC and the NYAG relating to trading activity in mutual fund shares.(1) The Board evaluated the ability of CMA, including its resources, reputation and other attributes, to attract and retain highly qualified research, advisory and supervisory investment professionals. The Board considered information regarding CMA's compensation program for its personnel involved in the management of the Fund. Based on these considerations and other factors, including those referenced below, the Board concluded that they were generally satisfied with the nature, extent and quality of the investment advisory services provided to the Fund by CMA. FUND PERFORMANCE AND EXPENSES CMA provided the Board with relative performance and expense information for the Fund in a report prepared by Lipper Inc. ("Lipper") an independent provider of investment company data. The Board considered the total return performance information, which included the ranking of the Fund within a performance universe made up of funds with the same Lipper investment classification and objective (the "Performance Universe") by total return for one-year, three-year, five-year, ten-year or life of fund periods, as applicable. They also considered the Fund's performance in comparison to the performance results of a group (the "Performance Peer Group") of funds selected by Lipper based on similarities in fund type (e.g. open-end), investment classification and objective, asset size, load type and 12b-1/service fees and other expense features, and to the performance results of the Fund's benchmark index. The Board reviewed a description of Lipper's methodology for selecting the mutual funds in the Fund's Performance Peer Group and Performance Universe. The Board considered statistical information regarding the Fund's total expenses and certain components thereof, including management fees (both actual management fees based on expenses for advisory and administrative fees including any reductions for fee waivers and expense reimbursements as well as contractual management fees that are computed for a hypothetical level of assets), actual non-management expenses, and fee waivers/caps and expense reimbursements. They also considered comparisons of these expenses to the expense information for funds within a group (the "Expense Peer Group") selected by Lipper based on similarities in fund type (e.g. open-end), investment classification and objective, asset size, load type and 12b-1/service fees and other expense features (but which, unlike the Performance Peer Group, may include funds with several different investment classifications and objectives) and an expense universe ("Expense Universe") selected by Lipper based on the criteria for determining the Expense Peer Group other than asset size. The expense (1) On February 9, 2005, CMA and its affiliate, Columbia Funds Distributor, Inc., entered into settlement agreements with the SEC and the NYAG that contain substantially the terms outlined in the agreements in principle. 50 information in the Lipper report took into account all existing fee waivers and expense reimbursements as well as all voluntary advisory fee reductions applicable to certain Funds that were being proposed by management in order to reduce the aggregate advisory fees received from mutual funds advised by CMA and Banc of America Capital Management, LLC ("BACAP") by $32 million per year for five years as contemplated by the agreement in principle with the NYAG. The Committee also considered the projected impact on expenses of these Funds resulting from the overall cost reductions that management anticipated would result from the proposed shift to a common group of service providers for transfer agency, fund accounting and custody services for mutual funds advised by Bank of America affiliates. The Board also considered information in the Lipper report that ranked each Fund based on (i) each Fund's one-year performance and actual management fees, (ii) each Fund's one-year performance and total expenses and (iii) each Fund's 3-year performance and total expenses. Based on these comparisons and expense and performance rankings of the Fund in the Lipper Report, CMA determined an overall score for the Fund. The Committee and the Board also considered projected savings to the Fund that would result from certain modifications in soft dollar arrangements. The Committee also considered more detailed information relating to certain Funds that were highlighted for additional review based upon the fact that they ranked poorly in terms of overall expense or management fees, maintained poor performance or demonstrated a combination of below average to poor performance while maintaining below average or poor expense rankings. At its September 23, 2004 meeting, the Committee discussed these Funds with management and in executive session. The Committee requested additional information from management regarding the cause(s) of the below-average relative performance of these Funds, any remedial actions management recommended to improve performance and the general standards for review of portfolio manager performance. At its October 12, 2004 meeting, the Committee considered additional information provided by management regarding these Funds. The Board also considered management's proposal to merge or liquidate some of these Funds. Based on these considerations and other factors, the Board concluded that the overall performance and expense results supported by the approval of the Advisory Agreements for each Fund. INVESTMENT ADVISORY FEE RATES The Board reviewed and considered the proposed contractual investment advisory fee rates (the "Advisory Agreement Rates") payable by the Funds to CMA for investment advisory services. In addition, the Board reviewed and considered the existing and proposed fee waiver and reimbursement arrangements applicable to the Advisory Agreement Rates and considered the Advisory Agreement Rates after taking the fee waivers and reimbursements into account (the "Net Advisory Rates"). At previous meetings, the Committee had separately considered management's proposal to reduce annual investment advisory fees for certain Funds under the NYAG agreement in principle and the impact of these reductions on each affected Fund. Additionally, the Board considered information comparing the Advisory Agreement Rates and Net Advisory Rates (both on a stand-alone basis and on a combined basis with the Funds' administration fee rates) with those of the other funds in the Expense Peer Group. The Board concluded that the Advisory Agreement Rates and Net Advisory Rates represented reasonable compensation to CMA, in light of the nature, extent and quality of the services provided to the Funds, the fees paid and expenses borne by comparable funds and the costs that CMA incurs in providing these services to the Funds. PROFITABILITY The Board considered a detailed profitability analysis of CMA based on 2003 financial statements, adjusted to take into account advisory fee reductions implemented in November 2003 and proposed reductions under the NYAG proposed settlement. The Board concluded that, in light of the costs of providing investment management and other services to the Funds, the profits and other ancillary benefits that CMA and its affiliates received for providing these services to the Funds were not unreasonable. ECONOMIES OF SCALE In evaluating potential economies of scale, the Board considered CMA's proposal to implement a standardized breakpoint schedule for combined 51 advisory and administrative fees for the majority of the funds of the same general asset type within the Columbia Funds complex (other than index and closed-end funds). The Board noted that the standardization of the breakpoints would not result in a fee increase for any Fund. The Board concluded that any actual or potential economies of scale are, or will be, shared fairly with Fund shareholders, including most particularly through Advisory Agreement Rate breakpoints at current and reasonably foreseeable asset levels. INFORMATION ABOUT SERVICES TO OTHER CLIENTS In evaluating the proposed fee reductions under the NYAG agreement in principle, the Board considered information regarding the advisory fee rates charged by BACAP for the Nations Funds. Members of the Committee and the Board had also separately reviewed advisory fee rates for variable insurance product funds advised by CMA. This information assisted the Board in assessing the reasonableness of fees paid under the Advisory Agreements in light of the nature, extent and quality of services provided under those agreements. OTHER BENEFITS TO CMA The Board considered information regarding potential "fall-out" or ancillary benefits received by CMA and its affiliates as a result of their relationship with the Funds. These benefits could include benefits directly attributable to the relationship of CMA with the Funds (such as soft dollar credits) and benefits potentially derived from an increase in the business of CMA as a result of their relationship with the Funds (such as the ability to market to shareholders other financial products offered by CMA and its affiliates). OTHER FACTORS AND BROADER REVIEW The Board reviews detailed materials provided by CMA annually as part of the approval process under Section 15(c) of the 1940 Act. The Board also regularly reviews and assesses the quality of the services that the Funds receive throughout the year. In this regard, the Board reviews information provided by CMA at their regular meetings, including, among other things, a detailed portfolio review, and detailed fund performance reports. In addition, the Board interviews the heads of each investment area at each regular meeting of the Board and selected portfolio managers of the Funds at various times throughout the year. After considering the above-described factors and based on the deliberations and their evaluation of the information provided to them, the Board concluded that re-approval of the Advisory Agreements for each of the Funds was in the best interest of the Funds and their shareholders. Accordingly, the Board unanimously approved the Advisory Agreements. 52 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 and a copy of the fund's voting record are available (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov, and (iii) without charge, upon request, by calling 800-368-0346. Information regarding how the fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2004 is available from the SEC's website. Information regarding how the fund voted proxies relating to portfolio securities is also available from the fund's website. The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Columbia Management is the primary investment management division of Bank of America Corporation. Columbia Management entities furnish investment management services and advise institutional and mutual fund portfolios. Columbia Management Advisors, Inc. (CMA) is a SEC registered investment advisor and wholly owned subsidiary of Bank of America, N.A. CMA is part of Columbia Management. 53 [GRAPHIC] Help your fund reduce printing and postage costs! Elect to get your shareholder reports by eletronic delivery. With Columbia's eDelivery program, you receive an e-mail message when your shareholder report becomes available online. If your fund account is registered with Columbia Funds, you can sign up quickly and easily on our website at www.columbiafunds.com. Please note -- if you own your fund shares through a financial institution, contact the institution to see if it offers electronic delivery. If you own your fund shares through a retirement plan, electronic delivery may not be available to you. COLUMBIA HIGH YIELD OPPORTUNITY FUND ANNUAL REPORT, MAY 31, 2005 PRSRT STD U.S. POSTAGE PAID HOLLISTON, MA PERMIT NO. 20 [COLUMBIA MANAGEMENT(R) LOGO] (C)2005 COLUMBIA FUNDS DISTRIBUTOR, INC. ONE FINANCIAL CENTER, BOSTON, MA 02111-2621 800.345.6611 www.columbiafunds.com SHC-42/87062-0605 (07/05) 05/6594 [GRAPHIC] COLUMBIA STRATEGIC INCOME FUND ANNUAL REPORT MAY 31, 2005 TABLE OF CONTENTS Performance Information 1 Fund Profile 2 Understanding Your Expenses 3 Economic Update 4 Portfolio Managers' Report 5 Investment Portfolio 7 Statement of Assets and Liabilities 32 Statement of Operations 33 Statement of Changes in Net Assets 34 Notes to Financial Statements 36 Financial Highlights 43 Report of Independent Registered Public Accounting Firm 48 Trustees 49 Officers 51 Board Consideration and Approval of Investment Advisory Agreement 52 Columbia Funds 55 Important Information About This Report 57
The views expressed in the President's Message and Portfolio Managers' Report reflect the current views of the respective parties. These views are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict so actual outcomes and results may differ significantly from the views expressed. These views are subject to change at any time based upon economic, market or other conditions and the respective parties disclaim any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Columbia Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any particular Columbia Fund. References to specific company securities should not be construed as a recommendation or investment advice. NOT FDIC MAY LOSE VALUE INSURED ------------------- NO BANK GUARANTEE PRESIDENT'S MESSAGE COLUMBIA STRATEGIC INCOME FUND [PHOTO OF CHRISTOPHER L. WILSON] DEAR SHAREHOLDER: In 2004, Columbia Funds became part of the Bank of America family, one of the largest, most respected financial institutions in the United States. As a direct result of this merger, a number of changes are in the works that we believe may offer significant benefits for our shareholders. Plans are underway to combine various Nations Funds and Columbia Funds together to form a single fund family that covers a wide range of markets, sectors and asset classes under the management of talented, seasoned investment professionals. As a result, some funds will be merged in order to eliminate redundancies and fund management teams will be aligned to help maximize performance potential. You will receive more detailed information about these proposed mergers, and you will be asked to vote on certain fund changes that may affect you and your account. In this matter, your timely response will help us to implement the changes in 2005. The increased efficiencies we expect from a more streamlined offering of funds may help us reduce fees charged to the funds, because larger funds often benefit from size and scale of operations. For example, significant savings for the combined complex may result from the consolidation of certain vendor agreements. In fact, we recently announced plans to consolidate the transfer agency of all of our funds and consolidate custodial services, each under a single vendor. We have also reduced management fees for many funds as part of our settlement agreement (See Note 8 in the Notes to Financial Statements) with the New York Attorney General. As a result of these changes, we believe we will offer shareholders an even stronger lineup of investment options, with management expenses that continue to be competitive and fair. What will not change as we enter this next phase of consolidation is our commitment to the highest standards of performance and our dedication to superior service. Change for the better has another name: it's called improvement. It helps move us forward, and we believe that it represents progress for all our shareholders in their quest for long-term financial success. In the pages that follow, you'll find a discussion of the economic environment during the period followed by a detailed report from the fund's manager or managers on key factors that influenced performance. We hope that you will read the manager reports carefully and discuss any questions you might have with your financial advisor. As always, we thank you for choosing Columbia Funds. We appreciate your continued confidence. And, we look forward to helping you keep your long-term financial goals on target in the years to come. Sincerely, /s/ Christopher L. Wilson Christopher L. Wilson PRESIDENT, COLUMBIA FUNDS Christopher L. Wilson is Head of Mutual Funds for Columbia Management, President of Columbia Funds, President & CEO of Nations Funds and President of Galaxy Funds, responsible for the day-to-day delivery of mutual fund services to the firm's investors. With the exception of distribution, Chris oversees all aspects of the mutual fund services operation, including treasury, investment accounting and shareholder and broker services. Chris joined Bank of America in August 2004. PERFORMANCE INFORMATION COLUMBIA STRATEGIC INCOME FUND [CHART] VALUE OF A $10,000 INVESTMENT 06/01/95 - 05/31/05
CLASS A SHARES WITHOUT SALES CHARGE CLASS A SHARES WITH SALES CHARGE LEHMAN BROTHERS GOVERNMENT/CREDIT BOND INDEX 06/1/1995 $ 10,000 $ 9,525 $ 10,000 6/30/1995 $ 10,026 $ 9,550 $ 10,080 7/31/1995 $ 10,138 $ 9,657 $ 10,041 8/31/1995 $ 10,179 $ 9,695 $ 10,169 9/30/1995 $ 10,366 $ 9,874 $ 10,273 10/31/1995 $ 10,510 $ 10,011 $ 10,424 11/30/1995 $ 10,626 $ 10,121 $ 10,596 12/31/1995 $ 10,832 $ 10,317 $ 10,752 1/31/1996 $ 11,009 $ 10,486 $ 10,818 2/29/1996 $ 10,915 $ 10,397 $ 10,589 3/31/1996 $ 10,881 $ 10,364 $ 10,500 4/30/1996 $ 10,955 $ 10,435 $ 10,428 5/31/1996 $ 10,983 $ 10,461 $ 10,410 6/30/1996 $ 11,042 $ 10,517 $ 10,548 7/31/1996 $ 11,101 $ 10,574 $ 10,573 8/31/1996 $ 11,256 $ 10,721 $ 10,546 9/30/1996 $ 11,491 $ 10,945 $ 10,734 10/31/1996 $ 11,647 $ 11,094 $ 10,984 11/30/1996 $ 11,917 $ 11,351 $ 11,186 12/31/1996 $ 11,943 $ 11,375 $ 11,062 1/31/1997 $ 11,939 $ 11,372 $ 11,075 2/28/1997 $ 12,034 $ 11,463 $ 11,098 3/31/1997 $ 11,799 $ 11,238 $ 10,966 4/30/1997 $ 11,928 $ 11,362 $ 11,127 5/31/1997 $ 12,143 $ 11,566 $ 11,230 6/30/1997 $ 12,308 $ 11,724 $ 11,365 7/31/1997 $ 12,611 $ 12,012 $ 11,712 8/31/1997 $ 12,557 $ 11,960 $ 11,581 9/30/1997 $ 12,829 $ 12,220 $ 11,763 10/31/1997 $ 12,791 $ 12,183 $ 11,951 11/30/1997 $ 12,857 $ 12,247 $ 12,015 12/31/1997 $ 12,972 $ 12,356 $ 12,141 1/31/1998 $ 13,181 $ 12,554 $ 12,312 2/28/1998 $ 13,231 $ 12,602 $ 12,287 3/31/1998 $ 13,335 $ 12,702 $ 12,326 4/30/1998 $ 13,403 $ 12,767 $ 12,387 5/31/1998 $ 13,454 $ 12,815 $ 12,520 6/30/1998 $ 13,450 $ 12,811 $ 12,647 7/31/1998 $ 13,570 $ 12,925 $ 12,657 8/31/1998 $ 13,008 $ 12,390 $ 12,904 9/30/1998 $ 13,272 $ 12,642 $ 13,273 10/31/1998 $ 13,249 $ 12,620 $ 13,179 11/30/1998 $ 13,644 $ 12,996 $ 13,258 12/31/1998 $ 13,640 $ 12,992 $ 13,291 1/31/1999 $ 13,733 $ 13,081 $ 13,386 2/28/1999 $ 13,554 $ 12,911 $ 13,067 3/31/1999 $ 13,746 $ 13,093 $ 13,132 4/30/1999 $ 13,938 $ 13,276 $ 13,165 5/31/1999 $ 13,638 $ 12,991 $ 13,030 6/30/1999 $ 13,634 $ 12,987 $ 12,989 7/31/1999 $ 13,629 $ 12,981 $ 12,953 8/31/1999 $ 13,565 $ 12,920 $ 12,943 9/30/1999 $ 13,601 $ 12,955 $ 13,059 10/31/1999 $ 13,597 $ 12,951 $ 13,093 11/30/1999 $ 13,717 $ 13,065 $ 13,085 12/31/1999 $ 13,816 $ 13,159 $ 13,005 1/31/2000 $ 13,665 $ 13,016 $ 13,001 2/29/2000 $ 13,871 $ 13,213 $ 13,164 3/31/2000 $ 13,802 $ 13,146 $ 13,355 4/30/2000 $ 13,670 $ 13,020 $ 13,289 5/31/2000 $ 13,515 $ 12,873 $ 13,277 6/30/2000 $ 13,792 $ 13,137 $ 13,548 7/31/2000 $ 13,897 $ 13,237 $ 13,692 8/31/2000 $ 14,004 $ 13,339 $ 13,885 9/30/2000 $ 13,844 $ 13,187 $ 13,938 10/31/2000 $ 13,549 $ 12,906 $ 14,026 11/30/2000 $ 13,297 $ 12,666 $ 14,265 12/31/2000 $ 13,724 $ 13,072 $ 14,546 1/31/2001 $ 14,291 $ 13,612 $ 14,791 2/28/2001 $ 14,310 $ 13,630 $ 14,943 3/31/2001 $ 13,979 $ 13,315 $ 15,012 4/30/2001 $ 13,830 $ 13,173 $ 14,899 5/31/2001 $ 13,914 $ 13,253 $ 14,986 6/30/2001 $ 13,739 $ 13,086 $ 15,058 7/31/2001 $ 13,825 $ 13,168 $ 15,433 8/31/2001 $ 14,057 $ 13,390 $ 15,630 9/30/2001 $ 13,596 $ 12,951 $ 15,774 10/31/2001 $ 13,992 $ 13,327 $ 16,175 11/30/2001 $ 14,167 $ 13,494 $ 15,909 12/31/2001 $ 14,144 $ 13,472 $ 15,784 1/31/2002 $ 14,171 $ 13,498 $ 15,899 2/28/2002 $ 14,198 $ 13,524 $ 16,034 3/31/2002 $ 14,243 $ 13,567 $ 15,708 4/30/2002 $ 14,520 $ 13,830 $ 16,013 5/31/2002 $ 14,592 $ 13,899 $ 16,161 6/30/2002 $ 14,353 $ 13,671 $ 16,298 7/31/2002 $ 14,184 $ 13,510 $ 16,493 8/31/2002 $ 14,411 $ 13,726 $ 16,863 9/30/2002 $ 14,480 $ 13,792 $ 17,225 10/31/2002 $ 14,510 $ 13,821 $ 17,060 11/30/2002 $ 14,835 $ 14,131 $ 17,070 12/31/2002 $ 15,270 $ 14,545 $ 17,523 1/31/2003 $ 15,490 $ 14,754 $ 17,523 2/28/2003 $ 15,766 $ 15,017 $ 17,835 3/31/2003 $ 15,907 $ 15,152 $ 17,811 4/30/2003 $ 16,518 $ 15,734 $ 18,002 5/31/2003 $ 16,964 $ 16,158 $ 18,513 6/30/2003 $ 17,107 $ 16,294 $ 18,439 7/31/2003 $ 16,688 $ 15,895 $ 17,667 8/31/2003 $ 16,776 $ 15,979 $ 17,783 9/30/2003 $ 17,345 $ 16,521 $ 18,347 10/31/2003 $ 17,433 $ 16,605 $ 18,114 11/30/2003 $ 17,751 $ 16,907 $ 18,163 12/31/2003 $ 18,216 $ 17,350 $ 18,343 1/31/2004 $ 18,363 $ 17,491 $ 18,510 2/29/2004 $ 18,455 $ 17,578 $ 18,735 3/31/2004 $ 18,604 $ 17,721 $ 18,908 4/30/2004 $ 18,134 $ 17,272 $ 18,327 5/31/2004 $ 18,020 $ 17,164 $ 18,234 6/30/2004 $ 18,203 $ 17,339 $ 18,309 7/31/2004 $ 18,420 $ 17,545 $ 18,503 8/31/2004 $ 18,790 $ 17,898 $ 18,895 9/30/2004 $ 19,070 $ 18,164 $ 18,961 10/31/2004 $ 19,413 $ 18,491 $ 19,126 11/30/2004 $ 19,757 $ 18,819 $ 18,914 12/31/2004 $ 20,047 $ 19,095 $ 19,114 1/31/2005 $ 19,959 $ 19,011 $ 19,248 2/28/2005 $ 20,125 $ 19,169 $ 19,121 3/31/2005 $ 19,716 $ 18,780 $ 18,987 4/30/2005 $ 19,787 $ 18,847 $ 19,272 05/31/2005 $ 19,872 $ 18,928 $ 19,514
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 index that tracks the performance of U.S. Government and corporate bonds rated investment grade or better, with maturities of at least one year. Unlike the fund, indices are not investments, do not incur fees or expenses and are not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in an index. AVERAGE ANNUAL TOTAL RETURN AS OF 05/31/05 (%)
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 10.37 5.12 9.55 4.55 9.71 8.71 10.01 6.71 10.53 5-year 8.02 6.97 7.22 6.92 7.37 7.37 7.65 6.99 8.14 10-year 7.11 6.59 6.31 6.31 6.44 6.44 6.86 6.54 7.20
AVERAGE ANNUAL TOTAL RETURN AS OF 03/31/05 (%)
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 5.95 0.92 5.17 0.26 5.32 4.34 5.61 2.44 6.43 5-year 7.38 6.34 6.58 6.28 6.74 6.74 7.01 6.36 7.54 10-year 7.56 7.03 6.76 6.76 6.88 6.88 7.32 6.99 7.66
THE "WITH SALES CHARGE" RETURNS INCLUDE THE MAXIMUM INITIAL SALES CHARGE OF 4.75% FOR CLASS A SHARES AND 3.00% FOR CLASS J SHARES, MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 5.00% FOR CLASS B SHARES AND 1.00% FOR CLASS C SHARES FOR THE FIRST YEAR ONLY. THE "WITHOUT SALES CHARGE" RETURNS DO NOT INCLUDE THE EFFECT OF SALES CHARGES. IF THEY HAD, RETURNS WOULD BE LOWER. ALL RESULTS SHOWN ASSUME REINVESTMENT OF DISTRIBUTIONS. CLASS Z SHARES ARE SOLD AT NET ASSET VALUE WITH NO RULE 12b-1 FEES. PERFORMANCE FOR DIFFERENT SHARE CLASSES WILL VARY BASED ON DIFFERENCES IN SALES CHARGES AND FEES ASSOCIATED WITH EACH CLASS. PERFORMANCE 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 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 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 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 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 $10,000 INVESTMENT 06/01/95 - 05/31/05 ($)
SALES CHARGE WITHOUT WITH ---------------------------------------------------------------------------- Class A 19,872 18,928 Class B 18,442 18,442 Class C 18,660 18,660 Class J 19,423 18,840 Class Z 20,050 n/a
Performance data quoted represents past performance and current performance may be lower or higher. Past performance is no guarantee of future results. The investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. Please visit www.columbiafunds.com for daily and most recent month-end performance updates. 1 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. PORTFOLIO STRUCTURE AS OF 05/31/05 (%) Government agencies & obligations 53.4 Corporate fixed-income bonds & notes 38.0 Mortgage-backed securities 5.3 Asset-backed securities 0.7 Convertible bonds 0.3 Municipal bond (taxable) 0.2 Cash equivalents, net other assets & liabilities 2.1
QUALITY BREAKDOWN AS OF 05/31/05 (%) AAA 44.8 AA 1.7 A 1.3 BBB 6.6 BB 9.2 B 22.0 CCC 11.1 CC 1.8 Non-rated 1.5
Quality breakdown is calculated as a percentage of total investments. Ratings shown in the quality breakdown represent the rating assigned to a particular bond by one of the following nationally-recognized rating agencies: Standard & Poor's, a division of The McGraw-Hill Companies, Inc, Moody's Investors Service, Inc. or Fitch Ratings Ltd. Portfolio structure is calculated as a percentage of net assets. Management Style is determined by Columbia Management, and is based on the investment strategy and process as outlined in the fund's prospectus. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. [SIDENOTE] SUMMARY - - FOR THE 12-MONTH PERIOD ENDED MAY 31, 2005, THE FUND'S CLASS A SHARES RETURNED 10.37% WITHOUT SALES CHARGE. - - THE FUND OUTPERFORMED BOTH ITS BENCHMARK AND ITS PEER GROUP, IN LARGE PART BECAUSE OF ITS WILLINGNESS TO TAKE ON SOME ADDITIONAL RISK IN ORDER TO PRODUCE HIGHER CURRENT YIELDS. - - PERFORMANCE BENEFITED FROM EXPOSURE TO HIGH-YIELD AND FOREIGN GOVERNMENT BONDS, INCLUDING EMERGING MARKETS, WHICH WERE THE STRONGEST ASSET CLASSES DURING THE PERIOD. CLASS A SHARES 10.37% LEHMAN BROTHERS GOVERNMENT/CREDIT BOND INDEX 7.00%
The Lehman Brothers Government/Credit Bond Index is an unmanaged index that tracks the performance of U.S. Government and corporate bonds rated investment grade or better, with maturities of at least one year. It is unmanaged and unavailable for investment. OBJECTIVE Seeks current income consistent with prudent risk and also seeks maximum total return TOTAL NET ASSETS $1,276.1 million MANAGEMENT STYLE
FIXED INCOME MATURITY SHORT INTERM. LONG QUALITY LOW MED X HIGH
2 UNDERSTANDING YOUR EXPENSES COLUMBIA STRATEGIC INCOME FUND As a fund shareholder, you incur two types of costs. There are transaction costs, which generally include sales charges on purchases and may include redemption or exchange fees. There are also ongoing costs, which generally include investment advisory fees, Rule 12b-1 fees and other fund expenses. The information on this page is intended to help you understand your ongoing costs of investing in the fund and to compare this cost with the continuing costs of investing in other mutual funds. ANALYZING YOUR FUND'S EXPENSES BY SHARE CLASS To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors in each share class during the reporting period. The information in the following table is based on an initial investment of $1,000, which is invested at the beginning of the reporting period and held for the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the "actual" column is calculated using the fund's actual operating expenses and total return for the period. The amount listed in the "hypothetical" column for each share class assumes that the return each year is 5% before expenses and includes the fund's actual expense ratio. You should not use the hypothetical account values and expenses to estimate either your actual account balance at the end of the period or the expenses you paid during this reporting period. 12/01/04 - 05/31/05
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID FUND'S ANNUALIZED BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) DURING THE PERIOD ($) EXPENSE RATIO (%) ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL Class A 1,000.00 1,000.00 1,006.68 1,019.75 5.20 5.24 1.04 Class B 1,000.00 1,000.00 1,004.54 1,016.01 8.95 9.00 1.79 Class C 1,000.00 1,000.00 1,003.64 1,016.75 8.19 8.25 1.64 Class J 1,000.00 1,000.00 1,006.58 1,018.00 6.95 6.99 1.39 Class Z 1,000.00 1,000.00 1,007.93 1,020.94 4.00 4.03 0.80
Expenses paid during the period are equal to the fund's respective class annualized expense ratio, multiplied by the average account value over the period, then multiplied by the number of days in the fund's most recent fiscal half-year and divided by 365. Had the distributor not waived or reimbursed a portion of class C shares' expenses, class C shares' total return would have been reduced. It is important to note that the expense amounts shown in the table are meant to highlight only continuing costs of investing in the fund and do not reflect any transactional costs, such as sales charges or redemption or exchange fees. Therefore, the hypothetical examples provided will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher. COMPARE WITH OTHER FUNDS Since all mutual funds are required to include the same hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the fund with other funds. To do so, compare the 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. As you compare hypothetical examples of other fund companies, it is important to note that hypothetical examples are meant to highlight the continuing cost of investing in a fund and do not reflect any transactional costs, such as sales charges or redemption or exchange fees. [SIDENOTE] ESTIMATING YOUR ACTUAL EXPENSES To estimate the expenses that you paid over the period, first you will need your account balance at the end of the period: - - FOR SHAREHOLDERS WHO RECEIVE THEIR ACCOUNT STATEMENTS FROM COLUMBIA FUNDS SERVICES, INC., YOUR ACCOUNT BALANCE IS AVAILABLE ONLINE AT www.columbiafunds.com OR BY CALLING SHAREHOLDER SERVICES AT 800.345.6611 - - FOR SHAREHOLDERS WHO RECEIVE THEIR ACCOUNT STATEMENTS FROM THEIR BROKERAGE FIRM, CONTACT YOUR BROKERAGE FIRM TO OBTAIN YOUR ACCOUNT BALANCE 1. DIVIDE YOUR ENDING ACCOUNT BALANCE BY $1,000. FOR EXAMPLE, IF AN ACCOUNT BALANCE WAS $8,600 AT THE END OF THE PERIOD, THE RESULT WOULD BE 8.6 2. IN THE SECTION OF THE TABLE BELOW TITLED "EXPENSES PAID DURING THE PERIOD," LOCATE THE AMOUNT FOR YOUR SHARE CLASS. YOU WILL FIND THIS NUMBER IS IN THE COLUMN LABELED "ACTUAL." MULTIPLY THIS NUMBER BY THE RESULT FROM STEP 1. YOUR ANSWER IS AN ESTIMATE OF THE EXPENSES YOU PAID ON YOUR ACCOUNT DURING THE PERIOD 3 ECONOMIC UPDATE COLUMBIA STRATEGIC INCOME FUND ECONOMIC UPDATE The US economy moved ahead at a steady pace during the 12-month period that began June 1, 2004 and ended May 31, 2005. Gross domestic product (GDP) expanded at an estimated annualized rate of approximately 3.7% as job growth helped buoy consumer spending and rising profits boosted business spending. Record high energy prices failed to put a damper on growth as the economy actually gained strength as the period wore on. Job growth dominated the economic news and drove consumer confidence readings both up and down, depending on the number of new jobs reported. Overall, the labor market improved during the period and consumers remained significantly more optimistic about prospects for the US economy and about their own employment than they were a year ago. Consumer spending grew during the period, as retail sales and the housing market remained strong. The business sector also contributed to the economy's solid pace. Yet, given a maturing economic cycle, two straight years of double-digit profit growth and a significant build-up of cash on corporate balance sheets, business spending was not as robust as expected. BONDS DELIVERED SOLID GAINS The US bond market delivered solid returns despite rising short-term interest rates, which historically have driven yields on other maturity ranges higher--and bond prices lower. That was not the case over the past 12 months. After a brief period of volatility early in 2005, the yield on the 10-year U.S. Treasury note, a bellwether for the bond market, ended the period at 4.0%--significantly lower than where it started the period at 4.6%. In this environment, the Lehman Brothers Aggregate Bond Index returned 6.82% for the 12-month period. Municipal bonds did even better as state revenues strengthened and fiscal constraints helped many states balance their budgets. High-yield bonds led the fixed income markets, as a stronger economy resulted in improved credit ratings, stronger balance sheets and higher profits for many companies in the high-yield universe. The Merrill Lynch US High Yield, Cash Pay Index returned 10.16%. However, the sector was hit hard late in the period by news that GM and Ford bonds had been downgraded to junk status, and high-yield bonds gave back a portion of their earlier gains in the final months of the period. The riskiest high-yield bonds were hurt the most. SHORT-TERM INTEREST RATES MOVED HIGHER After a year of the lowest short-term interest rates in recent history, the Federal Reserve Board (the Fed) raised the federal funds rate, a key short-term rate, from 1.0% to 3.0%(1) during the period. From the outset, the Fed indicated that it would raise short-term interest rates at a "measured pace" in an attempt to balance economic growth against inflationary pressures, and so far each of the eight increases have been in one-quarter percentage point increments. In recent testimony, Fed chairman Greenspan suggested that future increases would likely follow the same gradual course. STOCKS OUTPERFORMED BONDS Buoyed by strong gains in the fourth quarter of 2004, the S&P 500 Index returned 8.24% for the period. Returns were lackluster throughout most of 2004, but most segments of the stock market bounced back after the presidential election was settled in November. Stocks retreated early in 2005 as rising energy prices and higher interest rates turned investors cautious once again. Small and mid-cap stocks did significantly better than large cap stocks in the first half of the period, but large-cap stocks pulled ahead in the second half. Value stocks led growth stocks by a significant margin. (1) On June 30, the federal funds rate was raised to 3.25%. [SIDENOTE] SUMMARY FOR THE 12-MONTH PERIOD ENDED MAY 31, 2005 - - BONDS CHALKED UP SOLID GAINS AS MEASURED BY THE LEHMAN BROTHERS AGGREGATE BOND INDEX. HIGH-YIELD BONDS LED THE FIXED INCOME MARKETS, AS MEASURED BY THE MERRILL LYNCH US HIGH YIELD, CASH PAY INDEX. HOWEVER, THEY GAVE BACK SOME OF THEIR RETURN IN THE LAST MONTHS OF THE PERIOD. LEHMAN INDEX 6.82% MERRILL LYNCH INDEX 10.16%
- - STOCKS OUTPERFORMED MOST SEGMENTS OF THE BOND MARKET, AS MEASURED BY THE S&P 500 INDEX. MOST OF THE PERIOD'S GAINS WERE GENERATED DURING A FOURTH-QUARTER RALLY IN 2004. VALUE STOCKS OUTPERFORMED GROWTH STOCKS, AS MEASURED BY THE RUSSELL(R) 1000 VALUE INDEX. S&P 500 INDEX 8.24% RUSSELL INDEX 15.49%
The Lehman Brothers Aggregate Bond Index is a market value-weighted index that tracks the performance of 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 1000 Value Index is an unmanaged index that tracks the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values. 4 PORTFOLIO MANAGERS' REPORT COLUMBIA STRATEGIC INCOME FUND For the 12-month period ended May 31, 2005, class A shares of Columbia Strategic Income Fund returned 10.37% without sales charge. Fund performance was greater than the Lehman Brothers Government/Credit Bond Index, which returned 7.00% for the period. The fund also exceeded the average return of the Lipper Multi-Sector Income Funds Category, which was 9.81%.(1) All three of the fund's major sectors--high-yield corporate, foreign government and US government bonds--made positive contributions to total return. However, the fund's emphasis on low-quality high-yield debt and emerging market debt was the most important factor behind its above-average results. HIGH-YIELD LED THE WAY The high-yield segment, which accounted for approximately 39% of the fund's assets during the past 12 months, made the most significant contribution to overall performance. For most of the period, lower-quality assets outperformed stronger credits as investors sought higher yields than those available from the US Treasury market. This trend reversed itself in March and April, and we cut back somewhat on lower quality credits. FOREIGN INVESTMENTS ADDED TO RETURN Investor interest in yield also benefited emerging market bonds, which accounted for approximately 15% of the fund's assets. Higher prices for commodities such as oil helped to drive the prices of emerging market exports higher, and many countries were able to improve their fiscal positions. The fund's investments in Brazil and Russia were especially productive during the period. The fund's investments in developed markets were aided by favorable currency translations, as the Canadian, Australian and New Zealand dollars rose strongly versus the US dollar. The euro also outperformed the dollar for much of the period, but gave back much of its gains late in the period amid uncertainty related to the European constitution and its subsequent rejection by voters in France and the Netherlands. However, the downward trends in European interest rates allowed European bonds to outperform Treasury bonds over the 12-month period. Altogether, the fund's investments in developed foreign markets accounted for approximately 20% of the total portfolio. TREASURIES PLAYED CATCH-UP The US Treasury market got off to a slow start during the 12-month period, as the Federal Reserve (the Fed) began what has become a protracted effort to push up short-term interest rates. Given the higher-rate environment, Treasury bonds with longer maturities held up surprisingly well, and produced positive results for the period. Treasuries finished the period on a high note, having gained momentum when the high-yield market began to retreat in March. (1) Lipper Inc., a widely respected data provider in the industry, calculates an average total return (assuming reinvestment of distributions) for mutual funds with investment objectives similar to those of the fund. Lipper makes no adjustment for the effect of sales loads. [SIDENOTE] NET ASSET VALUE PER SHARE AS OF 05/31/05 (%) Class A 6.15 Class B 6.15 Class C 6.15 Class J 6.14 Class Z 6.10
DISTRIBUTIONS DECLARED PER SHARE 06/01/04 - 05/31/05 ($) Class A 0.48 Class B 0.44 Class C 0.45 Class J 0.46 Class Z 0.50
SEC YIELDS AS OF 05/31/05 (%) Class A 5.15 Class B 4.66 Class C 4.81 Class J 4.81 Class Z 5.66
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. 5 LOOKING AHEAD With expectations of slightly slower economic growth in the United States and the potential for increased political uncertainty in emerging markets, we have reduced our commitment to some of the riskier areas of the fixed-income marketplace. In the United States, we expect the Fed to continue to raise short-term interest rates, but we do not envision the federal funds rate above 4.0%. Overseas, we expect the dollar to continue to move lower over time, despite recent US dollar strength. As a result of currency gains over the past few years, we have reduced our currency exposure to bring the fund more in line with its peer group. Finally, we will continue to pay attention to political developments in emerging markets, where elections slated in a number of countries, including Mexico and Brazil, have the potential to affect their respective bond markets in the year ahead. [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 or its predecessors or affiliate organizations since December 1996. /s/ Laura A. Ostrander [PHOTO OF KEVIN L. CRONK] Kevin L. Cronk, CFA, a member of the advisor's High Yield Portfolio Management Team, has co-managed the fund since June 2005. Mr. Cronk joined an affiliate of the advisor in August 1999 as a research analyst specializing in the chemicals, healthcare and telecom industries. /s/ Kevin L. Cronk [PHOTO OF THOMAS A. LAPOINTE] Thomas A. LaPointe, CFA, a member of the advisor's High Yield Portfolio Management Team, has co-managed the fund since June 2005. Mr. LaPointe joined an affiliate of the advisor in February 1999 as a senior member of the Fixed Income Department's research group and has provided high-yield analytical support to mutual funds investing in the metals, gaming and European telecom industries. /s/ Thomas A. LaPointe Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yield and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa. Investing in high-yield or "junk bonds" offers the potential for higher income than investments in investment-grade bonds but they also have a higher degree of risk. Changes in economic conditions or other circumstances may adversely affect a high-yield bond issuer's ability to make timely principal and interest payments. High-yield bonds issued by foreign entities have greater potential risks, including foreign taxation, currency fluctuations, risks associated with possible differences in financial standards and other monetary and political risks. [SIDENOTE] WITH EXPECTATIONS OF SLIGHTLY SLOWER ECONOMIC GROWTH IN THE UNITED STATES AND THE POTENTIAL FOR INCREASED POLITICAL UNCERTAINTY IN EMERGING MARKETS, WE HAVE REDUCED OUR COMMITMENT TO SOME OF THE RISKIER AREAS OF THE FIXED-INCOME MARKETPLACE. 6 INVESTMENT PORTFOLIO May 31, 2005 COLUMBIA STRATEGIC INCOME FUND
PAR VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ GOVERNMENT AGENCIES & OBLIGATIONS - 53.4% FOREIGN GOVERNMENT BONDS - 33.1% Aries Vermoegensverwaltungs GmbH 7.750% 10/25/09 (a) EUR 2,500,000 3,562,060 Corp. Andina de Fomento 6.375% 06/18/09 4,000,000 5,544,797 European Investment Bank 7.625% 12/07/07 GBP 5,110,000 9,988,795 Federal Republic of Brazil 4.250% 04/15/24 (b) USD 8,250,000 7,631,250 8.750% 02/04/25 2,475,000 2,493,563 11.500% 04/02/09 EUR 4,250,000 6,300,861 14.500% 10/15/09 USD 12,750,000 16,575,000 Federal Republic of Germany 4.250% 07/04/14 EUR 11,740,000 15,657,168 5.000% 07/04/12 5,010,000 6,964,347 6.000% 07/04/07 10,280,000 13,627,684 Government of Canada 5.250% 06/01/13 CAD 6,200,000 5,418,722 10.000% 06/01/08 24,110,000 23,017,108 Government of New Zealand 6.000% 11/15/11 NZD 21,400,000 15,303,488 6.500% 04/15/13 13,800,000 10,207,292 Kingdom of Norway 5.500% 05/15/09 NOK 41,770,000 7,070,301 6.000% 05/16/11 27,300,000 4,842,677 Kingdom of Spain 5.500% 07/30/17 EUR 7,635,000 11,306,596 Kingdom of Sweden 5.000% 01/28/09 SEK 153,580,000 22,447,832 6.750% 05/05/14 86,735,000 14,901,967 Republic of Bulgaria 8.250% 01/15/15 USD 7,065,000 8,840,434 Republic of Colombia 9.750% 04/09/11 5,095,403 5,745,067 11.500% 05/31/11 EUR 3,010,000 4,659,236 11.750% 02/25/20 USD 4,620,000 5,925,150 Republic of France 4.000% 04/25/14 EUR 8,220,000 10,743,753 Republic of Italy 5.000% 02/01/12 15,535,000 21,415,261 Republic of Panama 8.875% 09/30/27 USD 6,230,000 7,254,835 Republic of Peru 7.500% 10/14/14 EUR 2,475,000 3,374,110 9.875% 02/06/15 USD 6,100,000 7,417,600 Republic of Philippines 10.625% 03/16/25 3,100,000 3,472,000 Republic of Poland 8.500% 05/12/07 PLN 14,958,000 4,706,248 Republic of South Africa 5.250% 05/16/13 EUR 11,030,000 14,799,337 Republic of Venezuela 9.250% 09/15/27 USD 6,945,000 6,983,198 Russian Federation 5.000% 03/31/30 6,060,000 6,652,062 8.750% 07/24/05 5,000,000 5,035,000 11.000% 07/24/18 5,752,000 8,446,237 12.750% 06/24/28 7,430,000 13,212,026
See Accompanying Notes to Financial Statements. 7
PAR VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ GOVERNMENT AGENCIES & OBLIGATIONS - (CONTINUED) FOREIGN GOVERNMENT BONDS - (CONTINUED) United Kingdom Treasury 5.000% 03/07/12 GBP 2,540,000 4,814,443 7.500% 12/07/06 6,535,000 12,443,816 9.000% 07/12/11 4,750,000 10,815,789 United Mexican States 7.500% 03/08/10 EUR 5,040,000 7,269,830 7.500% 04/08/33 USD 9,255,000 10,587,720 11.375% 09/15/16 7,590,000 11,339,460 Victoria Treasury Corp. 7.500% 08/15/08 AUD 15,195,000 12,217,537 Western Australia Treasury Corp. 8.000% 10/15/07 14,930,000 11,948,793 FOREIGN GOVERNMENT BONDS TOTAL 422,980,450 U.S. GOVERNMENT AGENCIES & OBLIGATIONS - 20.3% Federal Farm Credit Banks 5.000% 08/25/10 USD 8,600,000 8,631,424 U.S. Treasury Bond 7.500% 11/15/24 12,000,000 16,851,096 8.875% 02/15/19 11,400,000 16,836,375 10.375% 11/15/12 52,000,000 60,098,584 10.625% 08/15/15 29,415,000 45,428,938 12.500% 08/15/14 52,151,000 69,745,861 U.S. Treasury Note 5.000% 02/15/11 19,500,000 20,711,126 7.000% 07/15/06 20,000,000 20,769,540 U.S. GOVERNMENT AGENCIES & OBLIGATIONS TOTAL 259,072,944 TOTAL GOVERNMENT AGENCIES & OBLIGATIONS (COST OF $651,615,294) 682,053,394 CORPORATE FIXED-INCOME BONDS & NOTES - 38.0% BASIC MATERIALS - 4.0% CHEMICALS - 1.7% AGRICULTURAL CHEMICALS - 0.7% IMC Global, Inc. 10.875% 08/01/13 1,835,000 2,146,950 Terra Capital, Inc. 12.875% 10/15/08 2,990,000 3,535,675 UAP Holding Corp. (c) 07/15/12 (10.750% 01/15/08) 1,630,000 1,304,000 United Agri Products 8.250% 12/15/11 1,387,000 1,407,805 8,394,430 CHEMICALS - DIVERSIFIED - 0.8% BCP Crystal US Holdings Corp. 9.625% 06/15/14 767,000 859,040 EquiStar Chemicals LP 10.625% 05/01/11 2,615,000 2,896,112
See Accompanying Notes to Financial Statements. 8
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) BASIC MATERIALS -(CONTINUED) CHEMICALS - (CONTINUED) Huntsman International LLC 7.375% 01/01/15 (a) 1,145,000 1,124,963 Huntsman LLC 12.000% 07/15/12 (a) 1,735,000 1,995,250 Innophos Investments Holdings, Inc. PIK, 11.268% 02/15/15 (a)(b) 951,566 846,887 Lyondell Chemical Co. 9.625% 05/01/07 1,150,000 1,219,000 10.875% 05/01/09 20,000 20,600 NOVA Chemicals Corp. 6.500% 01/15/12 780,000 760,500 Westlake Chemical Corp. 8.750% 07/15/11 767,000 832,195 10,554,547 CHEMICALS - SPECIALTY - 0.2% Rhodia SA 8.875% 06/01/11 2,435,000 2,319,337 2,319,337 Chemicals Total 21,268,314 FOREST PRODUCTS & PAPER - 1.2% FORESTRY - 0.2% Millar Western Forest Products Ltd. 7.750% 11/15/13 1,260,000 1,152,900 Tembec Industries, Inc. 8.500% 02/01/11 1,455,000 1,127,625 2,280,525 PAPER & RELATED PRODUCTS - 1.0% Abitibi-Consolidated, Inc. 8.375% 04/01/15 1,235,000 1,213,387 Boise Cascade LLC 6.016% 10/15/12 (a)(b) 915,000 896,700 7.125% 10/15/14 (a) 1,030,000 975,925 Buckeye Technologies, Inc. 8.500% 10/01/13 1,165,000 1,199,950 Caraustar Industries, Inc. 9.875% 04/01/11 1,145,000 1,113,513 Fraser Papers, Inc. 8.750% 03/15/15 (a) 1,360,000 1,232,500 Georgia-Pacific Corp. 8.000% 01/15/24 1,025,000 1,173,625 Neenah Paper, Inc. 7.375% 11/15/14 (a) 680,000 642,600 Newark Group, Inc. 9.750% 03/15/14 2,025,000 1,761,750 NewPage Corp. 10.000% 05/01/12 (a) 835,000 818,300 12.000% 05/01/13 (a) 1,040,000 1,016,600 Norske Skog Canada Ltd. 8.625% 06/15/11 850,000 858,500 12,903,350 Forest Products & Paper Total 15,183,875
See Accompanying Notes to Financial Statements. 9
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) BASIC MATERIALS - (CONTINUED) IRON/STEEL - 0.4% METAL - IRON - 0.1% Wise Metals Group LLC 10.250% 05/15/12 2,295,000 1,904,850 1,904,850 STEEL - PRODUCERS - 0.1% Steel Dynamics, Inc. 9.500% 03/15/09 940,000 1,001,100 1,001,100 STEEL - SPECIALTY - 0.2% UCAR Finance, Inc. 10.250% 02/15/12 2,200,000 2,293,500 2,293,500 Iron/Steel Total 5,199,450 METALS & MINING - 0.7% METAL - ALUMINUM - 0.2% Kaiser Aluminum & Chemical Corp. 10.875% 10/15/06 (d) 3,200,000 2,800,000 2,800,000 MINING SERVICES - 0.0% HudBay Mining & Smelting Co., Ltd. 9.625% 01/15/12 (a) 515,000 499,550 499,550 NON-FERROUS METALS - 0.5% Codelco, Inc. 5.500% 10/15/13 6,000,000 6,200,400 6,200,400 Metals & Mining Total 9,499,950 ------------ BASIC MATERIALS TOTAL 51,151,589 COMMUNICATIONS - 8.4% MEDIA - 4.0% BROADCAST SERVICES/PROGRAMS - 0.2% Fisher Communications, Inc. 8.625% 09/15/14 925,000 982,813 XM Satellite Radio Holdings, Inc. 8.710% 05/01/09 (b) 1,380,000 1,393,800 2,376,613 CABLE TV - 1.5% Atlantic Broadband Finance LLC 9.375% 01/15/14 (a) 1,965,000 1,847,100 Cablevision Systems Corp. 7.880% 04/01/09 (a)(b) 1,580,000 1,651,100 8.000% 04/15/12 (a) 620,000 647,125 Charter Communications Holdings LLC 9.920% 04/01/11 8,080,000 5,898,400 10.250% 09/15/10 1,130,000 1,144,125
See Accompanying Notes to Financial Statements. 10
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES -(CONTINUED) COMMUNICATIONS - (CONTINUED) MEDIA - (CONTINUED) CSC Holdings, Inc. 6.750% 04/15/12 (a) 665,000 673,312 7.625% 04/01/11 825,000 874,500 Insight Midwest LP 9.750% 10/01/09 1,020,000 1,065,900 Northland Cable Television, Inc. 10.250% 11/15/07 1,985,000 1,955,225 Pegasus Satellite Communications, Inc. 11.250% 01/15/10 (a)(d) 2,290,000 1,316,750 Telenet Group Holding NV (c) 06/15/14 (11.500% 12/15/08) (a) 2,210,000 1,624,350 18,697,887 MULTIMEDIA - 0.6% Advanstar Communications, Inc. (c) 10/15/11 (15.000% 10/15/05) 1,555,000 1,508,350 12.000% 02/15/11 1,615,000 1,699,788 Haights Cross Communications, Inc. (c) 08/15/11 (12.500% 02/15/09) 1,735,000 1,058,350 Haights Cross Operating Co. 11.750% 08/15/11 1,690,000 1,833,650 11.750% 08/15/11 (a) 655,000 710,675 Quebecor Media, Inc. 11.125% 07/15/11 1,260,000 1,395,450 8,206,263 PUBLISHING - NEWSPAPERS - 0.2% Hollinger, Inc. 11.875% 03/01/11 (a)(e) 734,000 756,020 12.875% 03/01/11 (a) 1,072,000 1,179,200 1,935,220 PUBLISHING - PERIODICALS - 0.9% CBD Media Holdings LLC & Finance, Inc. 9.250% 07/15/12 1,160,000 1,131,000 Dex Media East LLC 12.125% 11/15/12 877,000 1,050,208 Dex Media West LLC 9.875% 08/15/13 3,471,000 3,974,295 Dex Media, Inc. (c) 11/15/13 (9.000% 11/15/08) 1,375,000 1,096,562 PriMedia, Inc. 8.875% 05/15/11 2,330,000 2,440,675 WDAC Subsidiary Corp. 8.375% 12/01/14 (a) 1,455,000 1,360,425 11,053,165 RADIO - 0.2% Spanish Broadcasting System, Inc. 9.625% 11/01/09 2,325,000 2,444,156 2,444,156
See Accompanying Notes to Financial Statements. 11
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) COMMUNICATIONS - (CONTINUED) MEDIA - (CONTINUED) TELEVISION - 0.4% Paxson Communications Corp. (c) 01/15/09 (12.250% 01/15/06) 1,775,000 1,641,875 10.750% 07/15/08 2,215,000 2,159,625 Sinclair Broadcast Group, Inc. 8.750% 12/15/11 1,740,000 1,844,400 5,645,900 Media Total 50,359,204 TELECOMMUNICATION SERVICES - 4.4% CELLULAR TELECOMMUNICATIONS - 1.8% American Cellular Corp. 10.000% 08/01/11 1,430,000 1,394,250 Dobson Cellular Systems 8.375% 11/01/11 (a) 450,000 456,750 Dobson Communications Corp. 8.875% 10/01/13 2,720,000 2,210,000 Horizon PCS, Inc. 11.375% 07/15/12 (a) 945,000 1,037,137 iPCS Escrow Co. 11.500% 05/01/12 705,000 779,025 Nextel Communications, Inc. 7.375% 08/01/15 2,860,000 3,095,950 Nextel Partners, Inc. 8.125% 07/01/11 1,820,000 1,979,250 Rogers Cantel, Inc. 9.750% 06/01/16 1,890,000 2,268,000 Rogers Wireless, Inc. 8.000% 12/15/12 1,125,000 1,203,750 Rural Cellular Corp. 8.250% 03/15/12 1,215,000 1,234,744 UbiquiTel Operating Co. 9.875% 03/01/11 2,170,000 2,343,600 US Unwired, Inc. 10.000% 06/15/12 2,465,000 2,699,175 Western Wireless Corp. 9.250% 07/15/13 2,205,000 2,513,700 23,215,331 SATELLITE TELECOMMUNICATIONS - 0.5% Inmarsat Finance II PLC (c) 11/15/12 (10.375% 11/15/08) 2,090,000 1,536,150 Intelsat Bermuda Ltd. 8.250% 01/15/13 (a) 2,230,000 2,263,450 New Skies Satellites NV 9.125% 11/01/12 (a) 1,035,000 1,024,650 PanAmSat Corp. 9.000% 08/15/14 592,000 643,800 Zeus Special Subsidiary Ltd. (c) 02/01/15 (9.250% 02/01/10) (a) 1,620,000 1,020,600 6,488,650
See Accompanying Notes to Financial Statements. 12
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) COMMUNICATIONS - (CONTINUED) TELECOMMUNICATION SERVICES - (CONTINUED) TELECOMMUNICATION EQUIPMENT - 0.1% Lucent Technologies, Inc. 6.450% 03/15/29 1,700,000 1,470,500 1,470,500 TELECOMMUNICATION SERVICES - 0.4% Axtel SA 11.000% 12/15/13 2,260,000 2,412,550 Time Warner Telecom, Inc. 9.750% 07/15/08 1,060,000 1,060,000 10.125% 02/01/11 1,995,000 1,935,150 5,407,700 TELEPHONE - INTEGRATED - 1.3% Cincinnati Bell, Inc. 8.375% 01/15/14 2,685,000 2,638,012 Qwest Capital Funding, Inc. 7.250% 02/15/11 4,390,000 4,060,750 7.750% 02/15/31 2,065,000 1,688,138 Qwest Services Corp. 13.500% 12/15/10 (a) 5,505,000 6,248,175 US LEC Corp. 11.890% 10/01/09 (b) 1,040,000 1,073,800 15,708,875 WIRELESS EQUIPMENT - 0.3% American Towers, Inc. 7.250% 12/01/11 1,465,000 1,534,587 SBA Telecommunications, Inc. (c) 12/15/11 (9.750% 12/15/07) 1,540,000 1,347,500 SpectraSite, Inc. 8.250% 05/15/10 785,000 830,138 3,712,225 Telecommunication Services Total 56,003,281 ------------ COMMUNICATIONS TOTAL 106,362,485 CONSUMER CYCLICAL - 7.6% AIRLINES - 0.4% AIRLINES - 0.4% Continental Airlines, Inc. 7.568% 12/01/06 2,780,000 2,307,400 Northwest Airlines, Inc. 9.875% 03/15/07 3,445,000 2,153,125 4,460,525 Airlines Total 4,460,525 APPAREL - 0.5% APPAREL MANUFACTURERS - 0.5% Broder Brothers Co. 11.250% 10/15/10 795,000 822,825 11.250% 10/15/10 (a) 670,000 693,450
See Accompanying Notes to Financial Statements. 13
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER CYCLICAL - (CONTINUED) APPAREL - (CONTINUED) Levi Strauss & Co. 9.750% 01/15/15 (a) 3,850,000 3,744,125 Phillips-Van Heusen Corp. 7.250% 02/15/11 815,000 833,337 8.125% 05/01/13 870,000 913,500 7,007,237 Apparel Total 7,007,237 AUTO MANUFACTURERS - 0.2% AUTO - CARS/LIGHT TRUCKS - 0.1% General Motors Corp. 8.375% 07/15/33 1,300,000 1,001,000 1,001,000 AUTO - MEDIUM & HEAVY DUTY TRUCKS - 0.1% Navistar International Corp. 7.500% 06/15/11 1,535,000 1,546,513 1,546,513 Auto Manufacturers Total 2,547,513 AUTO PARTS & EQUIPMENT - 0.8% AUTO/TRUCK PARTS & EQUIPMENT - ORIGINAL - 0.4% Cooper-Standard Automotive, Inc. 8.375% 12/15/14 3,000,000 2,490,000 Delco Remy International, Inc. 9.375% 04/15/12 1,900,000 1,444,000 Dura Operating Corp. 8.625% 04/15/12 1,740,000 1,574,700 5,508,700 AUTO/TRUCK PARTS & EQUIPMENT - REPLACEMENT - 0.1% Rexnord Corp. 10.125% 12/15/12 1,040,000 1,094,600 1,094,600 RUBBER - TIRES - 0.3% Goodyear Tire & Rubber Co. 7.857% 08/15/11 2,365,000 2,264,487 12.250% 03/01/11 685,000 760,350 3,024,837 Auto Parts & Equipment Total 9,628,137 DISTRIBUTION/WHOLESALE - 0.1% DISTRIBUTION/WHOLESALE - 0.1% Buhrmann US, Inc. 7.875% 03/01/15 (a) 795,000 763,200 763,200 Distribution/Wholesale Total 763,200
See Accompanying Notes to Financial Statements. 14
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER CYCLICAL - (CONTINUED) ENTERTAINMENT - 1.1% GAMBLING (NON-HOTEL) - 0.1% Global Cash Access LLC 8.750% 03/15/12 1,945,000 2,090,875 2,090,875 MUSIC - 0.4% Steinway Musical Instruments, Inc. 8.750% 04/15/11 1,260,000 1,310,400 Warner Music Group 7.375% 04/15/14 1,920,000 1,910,400 WMG Holdings Corp. PIK, 9.760% 12/15/14 (a)(b) 1,400,000 1,384,771 4,605,571 RESORTS/THEME PARKS - 0.2% Six Flags, Inc. 9.625% 06/01/14 3,325,000 2,876,125 2,876,125 THEATERS - 0.4% AMC Entertainment, Inc. 9.875% 02/01/12 2,900,000 2,885,587 LCE Acquisition Corp. 9.000% 08/01/14 (a) 1,815,000 1,760,550 4,646,137 Entertainment Total 14,218,708 HOME BUILDERS - 0.6% BUILDING - RESIDENTIAL/COMMERCIAL - 0.6% D.R. Horton, Inc. 9.750% 09/15/10 2,855,000 3,354,625 K. Hovnanian Enterprises, Inc. 8.875% 04/01/12 1,270,000 1,352,550 10.500% 10/01/07 1,470,000 1,617,000 Standard-Pacific Corp. 9.250% 04/15/12 1,770,000 1,947,000 8,271,175 Home Builders Total 8,271,175 HOME FURNISHINGS - 0.2% APPLIANCES - 0.1% ALH Finance LLC 8.500% 01/15/13 1,660,000 1,502,300 1,502,300 HOME FURNISHINGS - 0.1% WII Components, Inc. 10.000% 02/15/12 1,640,000 1,599,000 1,599,000 Home Furnishings Total 3,101,300
See Accompanying Notes to Financial Statements. 15
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER CYCLICAL - (CONTINUED) LEISURE TIME - 0.5% LEISURE & RECREATIONAL PRODUCTS - 0.1% K2, Inc. 7.375% 07/01/14 990,000 1,024,650 1,024,650 RECREATIONAL CENTERS - 0.4% AMF Bowling Worldwide, Inc. 10.000% 03/01/10 1,825,000 1,825,000 Equinox Holdings, Inc. 9.000% 12/15/09 1,930,000 1,978,250 Town Sports International, Inc. (c) 02/01/14 (11.000% 02/01/09) 2,395,000 1,377,125 5,180,375 Leisure Time Total 6,205,025 LODGING - 1.9% CASINO HOTELS - 1.9% Circus & Eldorado/Silver Legacy Capital Corp. 10.125% 03/01/12 1,740,000 1,822,650 Hard Rock Hotel, Inc. 8.875% 06/01/13 2,040,000 2,172,600 Hollywood Casino Shreveport 13.000% 08/01/06 (f) 5,220,000 4,254,300 Inn of the Mountain Gods Resort & Casino 12.000% 11/15/10 1,710,000 1,975,050 MGM Mirage 6.750% 09/01/12 2,135,000 2,188,375 Mohegan Tribal Gaming Authority 6.125% 02/15/13 (a) 1,025,000 1,030,125 Penn National Gaming, Inc. 6.750% 03/01/15 (a) 1,890,000 1,899,450 Pinnacle Entertainment, Inc. 8.250% 03/15/12 880,000 884,400 8.750% 10/01/13 1,550,000 1,604,250 River Rock Entertainment 9.750% 11/01/11 1,165,000 1,258,200 Seneca Gaming Corp. 7.250% 05/01/12 1,540,000 1,557,325 Station Casinos, Inc. 6.875% 03/01/16 520,000 533,000 Virgin River Casino Corp. (c) 01/15/13 (12.750% 01/15/09) (a) 1,205,000 771,200 9.000% 01/15/12 (a) 664,000 683,920 Wynn Las Vegas LLC 6.625% 12/01/14 (a) 2,190,000 2,102,400 24,737,245 Lodging Total 24,737,245
See Accompanying Notes to Financial Statements. 16
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER CYCLICAL - (CONTINUED) RETAIL - 1.1% RETAIL - AUTOMOBILES - 0.1% Asbury Automotive Group, Inc. 8.000% 03/15/14 1,630,000 1,556,650 1,556,650 RETAIL - DRUG STORES - 0.2% Jean Coutu Group, Inc. (PJC) 8.500% 08/01/14 1,205,000 1,171,862 Rite Aid Corp. 7.500% 01/15/15 (a) 555,000 514,763 9.250% 06/01/13 1,325,000 1,255,437 2,942,062 RETAIL - HOME FURNISHINGS - 0.1% Tempur-Pedic, Inc. 10.250% 08/15/10 1,446,000 1,590,600 1,590,600 RETAIL - JEWELRY - 0.1% Finlay Fine Jewelry Corp. 8.375% 06/01/12 1,510,000 1,291,050 1,291,050 RETAIL - MAJOR DEPARTMENT STORES - 0.2% Saks, Inc. 7.000% 12/01/13 1,843,000 1,679,434 1,679,434 RETAIL - PROPANE DISTRIBUTORS - 0.2% Ferrellgas Partners LP 8.750% 06/15/12 1,310,000 1,290,350 Suburban Propane Partners 6.875% 12/15/13 (a) 825,000 775,500 2,065,850 RETAIL - RESTAURANTS - 0.1% Landry's Restaurants, Inc. 7.500% 12/15/14 (a) 1,435,000 1,338,138 1,338,138 RETAIL - VIDEO RENTAL - 0.1% Movie Gallery, Inc. 11.000% 05/01/12 (a) 1,120,000 1,153,600 1,153,600 Retail Total 13,617,384 TEXTILES - 0.2% TEXTILE - PRODUCTS - 0.2% Collins & Aikman Floorcoverings, Inc. 9.750% 02/15/10 1,400,000 1,473,500
See Accompanying Notes to Financial Statements. 17
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER CYCLICAL - (CONTINUED) TEXTILES - (CONTINUED) INVISTA 9.250% 05/01/12 (a) 1,150,000 1,250,625 2,724,125 Textiles Total 2,724,125 ------------ CONSUMER CYCLICAL TOTAL 97,281,574 CONSUMER NON-CYCLICAL - 5.2% AGRICULTURE - 0.1% TOBACCO - 0.1% Alliance One International, Inc. 11.000% 05/15/12 (a) 1,130,000 1,149,775 1,149,775 Agriculture Total 1,149,775 BEVERAGES - 0.1% BEVERAGES - WINE/SPIRITS - 0.1% Constellation Brands, Inc. 8.125% 01/15/12 1,175,000 1,227,875 1,227,875 Beverages Total 1,227,875 BIOTECHNOLOGY - 0.2% MEDICAL - BIOMEDICAL/GENE - 0.2% Bio-Rad Laboratories, Inc. 7.500% 08/15/13 2,020,000 2,121,000 2,121,000 Biotechnology Total 2,121,000 COMMERCIAL SERVICES - 1.4% COMMERCIAL SERVICES - 0.2% Iron Mountain, Inc. 7.750% 01/15/15 1,025,000 1,009,625 Language Line Holdings, Inc. 11.125% 06/15/12 2,365,000 2,341,350 3,350,975 COMMERCIAL SERVICES - FINANCE - 0.2% Dollar Financial Group, Inc. 9.750% 11/15/11 2,385,000 2,486,362 2,486,362 FUNERAL SERVICES & RELATED ITEMS - 0.2% Service Corp. International 7.700% 04/15/09 2,385,000 2,528,100 2,528,100 PRINTING - COMMERCIAL - 0.2% Sheridan Group 10.250% 08/15/11 1,290,000 1,328,700 Vertis, Inc. 13.500% 12/07/09 (a) 2,300,000 1,725,000 3,053,700
See Accompanying Notes to Financial Statements. 18
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER NON-CYCLICAL - (CONTINUED) COMMERCIAL SERVICES - (CONTINUED) PRIVATE CORRECTIONS - 0.3% Corrections Corp. of America 6.250% 03/15/13 (a) 1,555,000 1,504,463 GEO Group, Inc. 8.250% 07/15/13 1,965,000 1,891,312 3,395,775 RENTAL AUTO/EQUIPMENT - 0.3% NationsRent, Inc. 9.500% 10/15/10 1,355,000 1,436,300 9.500% 05/01/15 (a) 1,220,000 1,201,700 Williams Scotsman, Inc. 9.875% 06/01/07 1,130,000 1,107,400 3,745,400 Commercial Services Total 18,560,312 COSMETICS/PERSONAL CARE - 0.4% COSMETICS & TOILETRIES - 0.4% DEL Laboratories, Inc. 8.000% 02/01/12 (a) 1,745,000 1,483,250 Elizabeth Arden, Inc. 7.750% 01/15/14 1,365,000 1,385,475 Revlon Consumer Products Corp. 8.625% 02/01/08 1,130,000 1,045,250 9.500% 04/01/11 (a) 1,360,000 1,251,200 5,165,175 Cosmetics/Personal Care Total 5,165,175 FOOD - 0.7% FOOD - CONFECTIONERY - 0.2% Merisant Co. 9.500% 07/15/13 (a) 1,425,000 1,047,375 Tabletop Holdings, Inc. (c) 05/15/14 (12.250% 11/15/08) (a) 4,055,000 1,459,800 2,507,175 FOOD - MISCELLANEOUS/DIVERSIFIED - 0.3% Dole Food Co., Inc. 8.625% 05/01/09 1,436,000 1,514,980 Pinnacle Foods Holding Corp. 8.250% 12/01/13 2,080,000 1,768,000 Reddy Ice Holdings, Inc. (c) 11/01/12 (10.500% 11/01/08) (a) 1,120,000 767,200 4,050,180 FOOD - RETAIL - 0.2% Stater Brothers Holdings, Inc. 8.125% 06/15/12 2,715,000 2,633,550 2,633,550 Food Total 9,190,905
See Accompanying Notes to Financial Statements. 19
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER NON-CYCLICAL - (CONTINUED) HEALTHCARE SERVICES - 1.4% DIALYSIS CENTERS - 0.1% DaVita, Inc. 7.250% 03/15/15 (a) 1,725,000 1,733,625 1,733,625 MEDICAL - HMO - 0.2% Coventry Health Care, Inc. 8.125% 02/15/12 1,690,000 1,812,525 1,812,525 MEDICAL - HOSPITALS - 0.3% Tenet Healthcare Corp. 9.875% 07/01/14 3,945,000 4,221,150 4,221,150 MEDICAL - OUTPATIENT/HOME MEDICAL - 0.1% Select Medical Corp. 7.625% 02/01/15 (a) 1,020,000 1,002,150 1,002,150 MRI/MEDICAL DIAGNOSTIC IMAGING - 0.5% InSight Health Services Corp. 9.875% 11/01/11 2,400,000 2,052,000 MedQuest, Inc. 11.875% 08/15/12 2,460,000 2,460,000 MQ Associates, Inc. (c) 08/15/12 (12.250% 08/15/08) 3,945,000 2,248,650 6,760,650 PHYSICIAN PRACTICE MANAGEMENT - 0.2% US Oncology Holdings, Inc. 8.620% 03/15/15 (a)(b) 870,000 826,500 US Oncology, Inc. 9.000% 08/15/12 1,955,000 2,072,300 2,898,800 Healthcare Services Total 18,428,900 HOUSEHOLD PRODUCTS/WARES - 0.5% CONSUMER PRODUCTS - MISCELLANEOUS - 0.5% Amscan Holdings, Inc. 8.750% 05/01/14 2,255,000 2,097,150 Jostens IH Corp. 7.625% 10/01/12 1,155,000 1,114,575 Playtex Products, Inc. 9.375% 06/01/11 2,570,000 2,698,500 5,910,225 Household Products/Wares Total 5,910,225
See Accompanying Notes to Financial Statements. 20
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) CONSUMER NON-CYCLICAL - (CONTINUED) PHARMACEUTICALS - 0.4% MEDICAL - DRUGS - 0.3% Elan Finance PLC 7.750% 11/15/11 (a) 2,565,000 2,205,900 Warner Chilcott Corp. 8.750% 02/01/15 (a) 1,035,000 972,900 3,178,800 MEDICAL - WHOLESALE DRUG DISTRIBUTION - 0.1% Nycomed A/S PIK, 11.750% 09/15/13 (a) EUR 1,415,000 1,566,145 1,566,145 Pharmaceuticals Total 4,744,945 ------------ CONSUMER NON-CYCLICAL TOTAL 66,499,112 ENERGY - 3.5% OIL & GAS - 1.6% OIL & GAS DRILLING - 0.2% Ocean Rig Norway AS 10.250% 06/01/08 USD 1,585,000 1,600,850 Pride International, Inc. 7.375% 07/15/14 865,000 936,362 2,537,212 OIL COMPANIES - EXPLORATION & PRODUCTION - 1.3% Chesapeake Energy Corp. 6.375% 06/15/15 (a) 440,000 442,200 7.500% 06/15/14 1,525,000 1,639,375 Compton Petroleum Corp. 9.900% 05/15/09 2,200,000 2,348,500 Delta Petroleum Corp. 7.000% 04/01/15 (a) 875,000 811,562 Energy Partners Ltd. 8.750% 08/01/10 1,150,000 1,190,250 Magnum Hunter Resources, Inc. 9.600% 03/15/12 1,472,000 1,633,920 PEMEX Finance Ltd. 9.150% 11/15/18 2,485,000 3,148,396 10.610% 08/15/17 1,650,000 2,240,964 Petroquest Energy, Inc. 10.375% 05/15/12 (a) 1,040,000 1,019,200 Whiting Petroleum Corp. 7.250% 05/01/12 2,230,000 2,224,425 16,698,792 OIL REFINING & MARKETING - 0.1% Premcor Refining Group, Inc. 7.500% 06/15/15 1,430,000 1,551,550 1,551,550 Oil & Gas Total 20,787,554
See Accompanying Notes to Financial Statements. 21
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) ENERGY - (CONTINUED) OIL & GAS SERVICES - 0.7% OIL - FIELD SERVICES - 0.7% Gazprom 9.625% 03/01/13 5,760,000 6,915,456 Newpark Resources, Inc. 8.625% 12/15/07 1,560,000 1,552,200 8,467,656 Oil & Gas Services Total 8,467,656 PIPELINES - 1.2% PIPELINES - 1.2% Coastal Corp. 7.625% 09/01/08 1,000,000 987,500 7.750% 06/15/10 3,080,000 3,064,600 Dynegy Holdings, Inc. 6.875% 04/01/11 1,895,000 1,800,250 9.875% 07/15/10 (a) 960,000 1,039,200 Northwest Pipeline Corp. 8.125% 03/01/10 760,000 824,600 Sonat, Inc. 7.625% 07/15/11 4,230,000 4,166,550 Southern Natural Gas Co. 8.875% 03/15/10 1,335,000 1,450,144 Williams Companies, Inc. 8.125% 03/15/12 1,780,000 2,015,850 15,348,694 Pipelines Total 15,348,694 ------------ ENERGY TOTAL 44,603,904 FINANCIALS - 0.7% DIVERSIFIED FINANCIAL SERVICES - 0.5% FINANCE - AUTO LOANS - 0.0% General Motors Acceptance Corp. 6.875% 09/15/11 415,000 364,287 364,287 FINANCE - INVESTMENT BANKER/BROKER - 0.5% E*Trade Financial Corp. 8.000% 06/15/11 1,370,000 1,431,650 LaBranche & Co., Inc. 11.000% 05/15/12 3,745,000 4,044,600 5,476,250 Diversified Financial Services Total 5,840,537 REAL ESTATE INVESTMENT TRUSTS - 0.1% REITS - HOTELS - 0.0% La Quinta Properties, Inc. 7.000% 08/15/12 500,000 516,250 516,250
See Accompanying Notes to Financial Statements. 22
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) FINANCIALS -(CONTINUED) REAL ESTATE INVESTMENT TRUSTS - (CONTINUED) REITS - MORTGAGE - 0.1% Thornburg Mortgage, Inc. 8.000% 05/15/13 1,395,000 1,395,000 1,395,000 Real Estate Investment Trusts Total 1,911,250 SAVINGS & LOANS - 0.1% SAVINGS & LOANS/THRIFTS - WESTERN US - 0.1% Western Financial Bank 9.625% 05/15/12 1,225,000 1,316,875 1,316,875 Savings & Loans Total 1,316,875 ------------ FINANCIALS TOTAL 9,068,662 INDUSTRIALS - 6.2% AEROSPACE & DEFENSE - 0.6% AEROSPACE/DEFENSE-EQUIPMENT - 0.6% Argo-Tech Corp. 9.250% 06/01/11 1,330,000 1,426,425 BE Aerospace, Inc. 8.875% 05/01/11 2,095,000 2,136,900 Sequa Corp. 8.875% 04/01/08 955,000 1,012,300 9.000% 08/01/09 770,000 823,900 Standard Aero Holdings, Inc. 8.250% 09/01/14 (a) 1,370,000 1,411,100 TransDigm, Inc. 8.375% 07/15/11 1,175,000 1,222,000 8,032,625 ELECTRONICS - MILITARY - 0.0% Condor Systems, Inc. 11.875% 05/01/09 (d)(g) 4,000,000 40,000 40,000 Aerospace & Defense Total 8,072,625 BUILDING MATERIALS - 0.5% BUILDING & CONSTRUCTION PRODUCTS - MISCELLANEOUS - 0.1% Associated Materials, Inc. (c) 03/01/14 (11.250% 03/01/09) 1,430,000 850,850 Nortek, Inc. 8.500% 09/01/14 990,000 886,050 1,736,900 BUILDING PRODUCTS - CEMENT/AGGREGATION - 0.3% RMCC Acquisition Co. 9.500% 11/01/12 (a) 1,810,000 1,755,700 US Concrete, Inc. 8.375% 04/01/14 1,620,000 1,498,500 3,254,200
See Accompanying Notes to Financial Statements. 23
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) INDUSTRIALS - (CONTINUED) BUILDING MATERIALS - (CONTINUED) BUILDING PRODUCTS - DOORS & WINDOWS - 0.1% ACIH, Inc. (c) 12/15/12 (11.500% 12/15/07) (a) 2,105,000 1,326,150 1,326,150 Building Materials Total 6,317,250 ELECTRICAL COMPONENTS & EQUIPMENT - 0.2% WIRE & CABLE PRODUCTS - 0.2% Coleman Cable, Inc. 9.875% 10/01/12 (a) 2,065,000 1,910,125 1,910,125 Electrical Components & Equipment Total 1,910,125 ELECTRONICS - 0.2% ELECTRONIC COMPONENTS - MISCELLANEOUS - 0.2% Flextronics International Ltd. 6.250% 11/15/14 670,000 670,000 Sanmina-SCI Corp. 6.750% 03/01/13 (a) 1,655,000 1,563,975 2,233,975 Electronics Total 2,233,975 ENGINEERING & CONSTRUCTION - 0.2% BUILDING & CONSTRUCTION - MISCELLANEOUS - 0.2% J. Ray McDermott SA 11.000% 12/15/13 (a) 2,160,000 2,376,000 2,376,000 Engineering & Construction Total 2,376,000 ENVIRONMENTAL CONTROL - 0.6% NON-HAZARDOUS WASTE DISPOSAL - 0.6% Allied Waste North America, Inc. 7.250% 03/15/15 (a) 660,000 623,700 7.875% 04/15/13 1,820,000 1,829,100 8.500% 12/01/08 2,330,000 2,411,550 Waste Services, Inc. 9.500% 04/15/14 (a) 2,685,000 2,644,725 7,509,075 RECYCLING - 0.0% IMCO Recycling Escrow, Inc. 9.000% 11/15/14 (a) 575,000 593,688 593,688 Environmental Control Total 8,102,763
See Accompanying Notes to Financial Statements. 24
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) INDUSTRIALS - (CONTINUED) HAND/MACHINE TOOLS - 0.1% MACHINE TOOLS & RELATED PRODUCTS - 0.1% Newcor, Inc. 6.000% 01/31/13 (7.500% 01/31/08) (g)(h) 847,510 516,981 516,981 Hand/Machine Tools Total 516,981 MACHINERY - DIVERSIFIED - 0.1% MACHINERY - GENERAL INDUSTRY - 0.1% Douglas Dynamics LLC 7.750% 01/15/12 (a) 1,805,000 1,741,825 1,741,825 Machinery - Diversified Total 1,741,825 METAL FABRICATE/HARDWARE - 0.6% METAL PROCESSORS & FABRICATION - 0.4% Altra Industrial Motion, Inc. 9.000% 12/01/11 (a) 1,195,000 1,147,200 Mueller Holdings, Inc. (c) 04/15/14 (14.750% 04/15/09) 1,408,000 1,006,720 10.000% 05/01/12 1,700,000 1,785,000 TriMas Corp. 9.875% 06/15/12 2,195,000 1,766,975 5,705,895 METAL PRODUCTS - FASTENERS - 0.2% FastenTech, Inc. 11.500% 05/01/11 2,285,000 2,410,675 2,410,675 Metal Fabricate/Hardware Total 8,116,570 MISCELLANEOUS MANUFACTURING - 0.8% DIVERSIFIED MANUFACTURING OPERATORS - 0.6% Bombardier, Inc. 6.300% 05/01/14 (a) 2,715,000 2,389,200 J.B. Poindexter & Co. 8.750% 03/15/14 1,835,000 1,734,075 Koppers Industries, Inc. 9.875% 10/15/13 1,960,000 2,087,400 Trinity Industries, Inc. 6.500% 03/15/14 740,000 714,100 6,924,775 FILTRATION/SEPARATE PRODUCTS - 0.1% Polypore International, Inc. (c) 10/01/12 (10.500% 10/01/08) (a) 2,365,000 1,188,413 1,188,413
See Accompanying Notes to Financial Statements. 25
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) INDUSTRIALS - (CONTINUED) MISCELLANEOUS MANUFACTURING - (CONTINUED) MISCELLANEOUS MANUFACTURING - 0.1% Samsonite Corp. 8.875% 06/01/11 1,440,000 1,504,800 1,504,800 ------------ Miscellaneous Manufacturing Total 9,617,988 PACKAGING & CONTAINERS - 1.0% CONTAINERS - METAL/GLASS - 0.4% Crown European Holdings SA 10.875% 03/01/13 1,800,000 2,074,500 Owens-Brockway Glass Container 6.750% 12/01/14 1,950,000 1,969,500 8.250% 05/15/13 340,000 367,200 Owens-Illinois, Inc. 7.500% 05/15/10 440,000 464,200 4,875,400 CONTAINERS - PAPER/PLASTIC - 0.6% Consolidated Container Co. LLC (c) 06/15/09 (10.750% 06/15/07) 1,500,000 1,155,000 Jefferson Smurfit Corp. 8.250% 10/01/12 1,600,000 1,584,000 PIK, 11.500% 10/01/15 (a) EUR 2,161,310 2,048,719 MDP Acquisitions PLC 9.625% 10/01/12 USD 1,775,000 1,766,125 Portola Packaging, Inc. 8.250% 02/01/12 1,460,000 912,500 Tekni-Plex, Inc. 8.750% 11/15/13 (a) 215,000 187,050 7,653,394 Packaging & Containers Total 12,528,794 TRANSPORTATION - 1.3% TRANSPORTATION - MARINE - 0.5% Ship Finance International Ltd. 8.500% 12/15/13 3,795,000 3,633,712 Stena AB 7.500% 11/01/13 1,995,000 1,920,187 9.625% 12/01/12 1,425,000 1,528,313 7,082,212 TRANSPORTATION - RAIL - 0.2% TFM SA de CV 9.375% 05/01/12 (a) 1,760,000 1,821,600 12.500% 06/15/12 575,000 667,000 2,488,600 TRANSPORTATION - SERVICES - 0.4% CHC Helicopter Corp. 7.375% 05/01/14 1,450,000 1,399,250 7.375% 05/01/14 (a) 1,085,000 1,047,025
See Accompanying Notes to Financial Statements. 26
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) INDUSTRIALS - (CONTINUED) TRANSPORTATION - (CONTINUED) Petroleum Helicopters, Inc. 9.375% 05/01/09 2,710,000 2,804,850 5,251,125 TRANSPORTATION - TRUCK - 0.2% Allied Holdings, Inc. 8.625% 10/01/07 560,000 207,200 QDI LLC 9.000% 11/15/10 2,060,000 1,874,600 2,081,800 Transportation Total 16,903,737 ------------ INDUSTRIALS TOTAL 78,438,633 TECHNOLOGY - 0.1% SEMICONDUCTORS - 0.1% ELECTRONIC COMPONENTS - SEMICONDUCTORS - 0.1% Amkor Technology, Inc. 9.250% 02/15/08 1,805,000 1,588,400 1,588,400 Semiconductors Total 1,588,400 ------------ TECHNOLOGY TOTAL 1,588,400 UTILITIES - 2.3% ELECTRIC - 2.3% ELECTRIC - GENERATION - 0.5% AES Corp. 9.000% 05/15/15 (a) 585,000 653,737 9.500% 06/01/09 2,046,000 2,271,060 Edison Mission Energy 9.875% 04/15/11 2,290,000 2,656,400 Texas Genco LLC 6.875% 12/15/14 (a) 1,205,000 1,239,644 6,820,841 ELECTRIC - INTEGRATED - 0.8% CMS Energy Corp. 8.900% 07/15/08 1,810,000 1,936,700 Nevada Power Co. 9.000% 08/15/13 1,060,000 1,187,200 10.875% 10/15/09 2,025,000 2,257,875 PSE&G Energy Holdings LLC 8.625% 02/15/08 2,495,000 2,632,225 TNP Enterprises, Inc. 10.250% 04/01/10 1,630,000 1,715,575 9,729,575 INDEPENDENT POWER PRODUCER - 1.0% Caithness Coso Funding Corp. 9.050% 12/15/09 2,384,181 2,551,073 Calpine Corp. 8.500% 07/15/10 (a) 1,845,000 1,346,850
See Accompanying Notes to Financial Statements. 27
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ CORPORATE FIXED-INCOME BONDS & NOTES - (CONTINUED) UTILITIES - (CONTINUED) ELECTRIC - (CONTINUED) Calpine Generating Co. LLC 11.500% 04/01/11 1,370,000 1,178,200 12.390% 04/01/11 (b) 2,950,000 2,596,000 MSW Energy Holdings LLC 7.375% 09/01/10 800,000 806,000 8.500% 09/01/10 2,130,000 2,204,550 Orion Power Holdings, Inc. 12.000% 05/01/10 1,825,000 2,185,438 12,868,111 Electric Total 29,418,527 ------------ UTILITIES TOTAL 29,418,527 TOTAL CORPORATE FIXED-INCOME BONDS & NOTES (COST OF $478,539,069) 439,808,982 MORTGAGE-BACKED SECURITIES - 5.3% MORTGAGE-BACKED SECURITIES - 5.3% Federal Home Loan Mortgage Corp. 7.500% 03/01/16 6,050 6,141 8.000% 04/01/06 - 05/01/16 50,751 51,845 8.500% 02/01/07 - 07/01/10 39,821 41,160 8.750% 06/01/08 1,397 1,427 9.000% 06/01/08 - 01/01/22 64,244 68,763 9.250% 08/01/08 - 05/01/16 84,065 91,065 9.500% 11/01/08 - 08/01/16 34,343 36,318 9.750% 12/01/08 - 09/01/16 8,449 9,057 10.000% 07/01/09 - 11/01/19 112,171 120,334 10.500% 01/01/20 - 10/01/24 92,894 106,200 10.750% 05/01/10 - 09/01/13 118,845 129,789 11.250% 10/01/10 - 11/01/15 104,253 114,928 Federal National Mortgage Association 7.500% 11/01/11 16,820 16,909 8.000% 07/01/08 - 07/01/09 37,355 38,617 8.250% 11/01/07 19,123 19,270 8.500% 05/01/08 - 09/01/21 105,324 109,206 9.000% 11/01/08 - 08/01/21 342,494 362,854 9.250% 05/01/16 92,508 101,455 10.000% 11/01/13 - 03/01/16 214,828 239,354 10.500% 03/01/14 - 03/01/16 224,884 252,201 TBA 6.500% 12/01/35 (i) 60,590,000 62,937,863
See Accompanying Notes to Financial Statements. 28
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ MORTGAGE-BACKED SECURITIES - (CONTINUED) MORTGAGE-BACKED SECURITIES - (CONTINUED) Government National Mortgage Association 8.500% 02/15/06 612 627 9.000% 08/15/08 - 12/15/17 1,138,153 1,234,577 9.500% 06/15/09 - 11/15/17 507,997 544,136 10.000% 11/15/09 - 09/15/21 161,747 180,721 10.500% 12/15/10 - 04/15/21 49,627 56,119 11.000% 12/15/09 - 10/15/15 248,315 275,960 11.750% 08/15/13 8,448 9,662 12.000% 05/15/14 428 497 MORTGAGE-BACKED SECURITIES TOTAL 67,157,055 TOTAL MORTGAGE-BACKED SECURITIES (COST OF $67,231,574) 67,157,055 ASSET-BACKED SECURITIES - 0.7% Equity One ABS, Inc. 4.205% 04/25/34 5,050,000 5,018,387 GMAC Mortgage Corp. Loan Trust 4.865% 09/25/34 4,130,000 4,139,499 TOTAL ASSET-BACKED SECURITIES (COST OF $9,143,703) 9,157,886 CONVERTIBLE BONDS - 0.3% COMMUNICATIONS - 0.2% TELECOMMUNICATION SERVICES - 0.2% TELECOMMUNICATIONS EQUIPMENT - 0.2% Nortel Networks Corp. 4.250% 09/01/08 2,265,000 2,080,403 2,080,403 Telecommunication Services Total 2,080,403 ----------- COMMUNICATIONS TOTAL 2,080,403 UTILITIES - 0.1% ELECTRIC - 0.1% INDEPENDENT POWER PRODUCER - 0.1% Mirant Corp. 2.500% 06/15/21 (d) 1,565,000 1,236,334 1,236,334 Electric Total 1,236,334 ----------- UTILITIES TOTAL 1,236,334 TOTAL CONVERTIBLE BONDS (COST OF $3,115,519) 3,316,737
See Accompanying Notes to Financial Statements. 29
PAR ($) VALUE ($) - --------------------------------------------- ------------------------------------------------------------------------------ MUNICIPAL BOND (TAXABLE) - 0.2% CALIFORNIA - 0.2% CA Cabazon Band Mission Indians 13.000% 10/01/11 (e) 2,820,000 2,931,305 ------------- CALIFORNIA TOTAL 2,931,305 TOTAL MUNICIPAL BOND (TAXABLE) (COST OF $2,820,000) 2,931,305 SHORT-TERM OBLIGATION - 5.3% Repurchase agreement with State Street Bank & Trust Co., dated 05/31/05, due 06/01/05 at 2.900%, collateralized by U.S. Government Agencies with various maturities to 11/15/16, market value of $69,160,242 (repurchase proceeds $67,808,462) 67,803,000 67,803,000 TOTAL SHORT-TERM OBLIGATION (COST OF $67,803,000) 67,803,000 TOTAL INVESTMENTS - 103.2% (COST OF $1,280,268,159)(j) 1,316,832,262 OTHER ASSETS & LIABILITIES, NET - (3.2)% (40,768,912) NET ASSETS - 100.0% 1,276,063,350
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, 2005, these securities) which did not include any illiquid securities except for the following, amounted to $109,678,743, which represents 8.6% of net assets.
ACQUISTION SECURITY DATE PAR COST VALUE ---------------------------------------------------------------------------- Hollingar, Inc. 9/30/04 $ 734,000 $ 734,000 $ 756,020
(b) The interest rate shown on floating rate or variable rate securities reflects the rate at May 31, 2005. (c) Step bond. This security is currently not paying coupon. Shown parenthetically is the interest rate to be paid and the date the Fund will begin accruing at this rate. (d) The issuer has filed for bankruptcy protection under Chapter 11, and is in default of certain debt covenants. Income is not being accrued. At May 31, 2005, the value of these securities amounted to $5,393,084, which represents 0.4% of net assets. (e) Illiquid security. (f) The issuer is in default of certain debt covenants. Income is not being accrued. At May 31, 2005, the value of this security represents 0.3% of net assets. (g) Represents fair value as determined in good faith under procedures approved by the Board of Trustees. (h) Step bond. Shown parenthetically is the next interest rate to be paid. (i) Security purchased on a delayed delivery basis. (j) Cost for federal income tax purposes is $1,298,408,725. See Accompanying Notes to Financial Statements. 30 At May 31, 2005, the Fund had entered into the following forward currency exchange contracts:
FORWARD CURRENCY AGGREGATE SETTLEMENT UNREALIZED CONTRACTS TO SELL VALUE FACE VALUE DATE APPRECIATION - ------------------------------------------------------------------------------ EUR $ 8,152,297 $ 8,568,708 06/10/2005 $ 416,411 EUR 4,618,701 4,858,408 06/10/2005 239,707 EUR 10,159,984 10,719,390 06/15/2005 559,406 EUR 5,495,012 5,797,476 06/15/2005 302,464 EUR 17,241,712 17,795,680 06/16/2005 553,968 EUR 24,959,603 25,517,470 06/27/2005 557,867 GBP 6,416,805 6,594,040 06/10/2005 177,235 GBP 12,757,071 13,057,200 06/16/2005 300,129 NOK 6,146,349 6,259,082 06/10/2005 112,733 SEK 9,460,891 9,950,495 06/15/2005 489,604 SEK 9,460,891 9,901,617 06/15/2005 440,726 ----------- $ 4,150,250 -----------
At May 31, 2005, the asset allocation of the Fund is as follows:
% OF NET ASSET ALLOCATION (UNAUDITED) ASSETS - ------------------------------------------------------------------------- Government Agencies & Obligations 53.4% Corporate Fixed-Income Bonds & Notes 38.0 Mortgage-Backed Securities 5.3 Asset-Backed Securities 0.7 Convertible Bonds 0.3 Municipal Bond (Taxable) 0.2 Short-Term Obligation 5.3 Other Assets & Liabilities, Net (3.2) ----- 100.0% -----
ACRONYM NAME - ------- ---- AUD Australian Dollar CAD Canadian Dollar EUR Euro GBP British Pound NOK Norwegian Krone NZD New Zealand Dollar PIK Payment-In-Kind PLN Polish Zloty REIT Real Estate Investment Trust SEK Swedish Krona TBA To Be Announced USD United States Dollar
See Accompanying Notes to Financial Statements. 31 STATEMENT OF ASSETS AND LIABILITIES
($) - -------------------------------------------------- ------------------------------------------------------------------------ ASSETS Investments, at cost 1,280,268,159 ------------- Investments, at value 1,316,832,262 Cash 9,728,203 Foreign currency (cost of $784,953) 782,705 Net unrealized appreciation on foreign forward currency contracts 4,150,250 Receivable for: Investments sold 2,446,549 Fund shares sold 2,657,745 Dollar roll fee income 259,204 Interest 24,376,653 Foreign tax reclaims 148,870 Deferred Trustees' compensation plan 55,628 ------------- Total Assets 1,361,438,069 LIABILITIES Payable for: Investments purchased 18,135,910 Investments purchased on a delayed delivery basis 63,253,751 Fund shares repurchased 2,417,076 Investment advisory fee 606,705 Transfer agent fee 202,779 Pricing and bookkeeping fees 35,107 Merger costs 12,432 Trustees' fees 6,341 Custody fee 17,781 Distribution and service fees 556,366 Deferred dollar roll fee income 29,979 Deferred Trustees' fees 55,628 Other liabilities 44,864 ------------- Total Liabilities 85,374,719 NET ASSETS 1,276,063,350 COMPOSITION OF NET ASSETS Paid-in capital 1,586,581,727 Overdistributed net investment income (6,799,350) Accumulated net realized loss (344,211,764) Net unrealized appreciation on: Investments 36,564,103 Foreign currency translations 3,928,634 ------------- NET ASSETS 1,276,063,350 CLASS A Net assets 615,771,621 Shares outstanding 100,108,742 Net asset value per share 6.15(a) Maximum offering price per share ($6.15/0.9525) 6.46(b) CLASS B Net assets 349,974,531 Shares outstanding 56,937,753 Net asset value and offering price per share 6.15(a) CLASS C Net assets 51,487,816 Shares outstanding 8,369,726 Net asset value and offering price per share 6.15(a) CLASS J Net assets 212,131,376 Shares outstanding 34,564,026 Net asset value per share 6.14(a) Maximum offering price per share ($6.14/0.9700) 6.33(b) CLASS Z Net assets 46,698,006 Shares outstanding 7,651,776 Net asset value, offering and redemption price per share 6.10
(a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. (b) On sales of $50,000 or more the offering price is reduced. See Accompanying Notes to Financial Statements. 32 STATEMENT OF OPERATIONS FOR THE YEAR ENDED MAY 31, 2005 COLUMBIA STRATEGIC INCOME FUND
($) - -------------------------------------------------- ------------------------------------------------------------------------ INVESTMENT INCOME Interest 85,666,794 Dollar roll fee income 1,522,203 ------------- Total Investment Income (net of foreign taxes withheld of $4,522) 87,188,997 EXPENSES Investment advisory fee 7,515,216 Distribution fee: Class B 2,874,174 Class C 325,121 Class J 788,300 Service fee: Class A 1,431,285 Class B 921,689 Class C 103,901 Class J 541,752 Transfer agent fee 2,058,922 Pricing and bookkeeping fees 397,242 Trustees' fees 47,837 Custody fee 209,071 Merger costs 12,432 Non-recurring costs (See Note 8) 40,235 Other expenses 481,041 ------------- Total Expenses 17,748,218 Fees waived by Distributor - Class C (65,257) Non-recurring costs assumed by Investment Advisor (See Note 8) (40,235) Custody earnings credit (18,195) ------------- Net Expenses 17,624,531 ------------- Net Investment Income 69,564,466 NET REALIZED AND UNREALIZED GAIN (LOSS) ON Net realized gain (loss) on: INVESTMENTS AND FOREIGN CURRENCY Investments 22,127,956 Foreign currency transactions (4,290,782) ------------- Net realized gain 17,837,174 Net change in unrealized appreciation (depreciation) on: Investments 27,055,879 Foreign currency translations 5,226,382 ------------- Net change in unrealized appreciation (depreciation) 32,282,261 ------------- Net Gain 50,119,435 ------------- Net Increase in Net Assets from Operations 119,683,901
See Accompanying Notes to Financial Statements. 33 STATEMENT OF CHANGES IN NET ASSETS COLUMBIA STRATEGIC INCOME FUND
YEAR ENDED MAY 31, 2005 ($) 2004 ($) - -------------------------------------------------- ---------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS Net investment income 69,564,466 74,531,176 Net realized gain on investments and foreign currency transactions 17,837,174 43,311,979 Net change in unrealized appreciation (depreciation) on investments and foreign currency translations 32,282,261 (39,526,227) ----------------------------- Net Increase from Operations 119,683,901 78,316,928 DISTRIBUTIONS DECLARED TO SHAREHOLDERS From net investment income: Class A (46,245,319) (42,467,084) Class B (26,670,567) (29,338,162) Class C (3,110,631) (2,896,843) Class J (16,716,434) (16,932,962) Class Z (1,333,633) (64,839) ----------------------------- Total Distributions Declared to Shareholders (94,076,584) (91,699,890) SHARE TRANSACTIONS Class A: Subscriptions 112,949,787 68,039,895 Distributions reinvested 26,643,837 22,542,999 Redemptions (101,234,635) (113,152,672) ----------------------------- Net Increase (Decrease) 38,358,989 (22,569,778) Class B: Subscriptions 31,189,953 40,064,707 Distributions reinvested 15,375,032 16,158,239 Redemptions (114,341,740) (128,322,218) ----------------------------- Net Decrease (67,776,755) (72,099,272) Class C: Subscriptions 18,283,803 8,693,636 Distributions reinvested 1,832,963 1,571,832 Redemptions (10,901,213) (13,809,960) ----------------------------- Net Increase (Decrease) 9,215,553 (3,544,492) Class J: Subscriptions 4,292,898 5,771,627 Redemptions (26,429,927) (32,286,028) ----------------------------- Net Decrease (22,137,029) (26,514,401) Class Z: Subscriptions 49,407,426 1,051,458 Distributions reinvested 153,680 55,898 Redemptions (3,229,230) (1,113,389) ----------------------------- Net Increase (Decrease) 46,331,876 (6,033) Net Increase (Decrease) from Share Transactions 3,992,634 (124,733,976) ----------------------------- Total Increase (Decrease) in Net Assets 29,599,951 (138,116,938) NET ASSETS Beginning of period 1,246,463,399 1,384,580,337 End of period 1,276,063,350 1,246,463,399 Undistributed (overdistributed) net investment income at end of period (6,799,350) 852,349
See Accompanying Notes to Financial Statements. 34
YEAR ENDED MAY 31, 2005 2004 - -------------------------------------------------- ---------------------------------------------------------------------------- CHANGES IN SHARES Class A: Subscriptions 18,079,113 11,072,096 Issued for distributions reinvested 4,268,478 3,674,542 Redemptions (16,268,593) (18,468,207) ---------------------------- Net Increase (Decrease) 6,078,998 (3,721,569) Class B: Subscriptions 5,004,940 6,545,770 Issued for distributions reinvested 2,464,933 2,635,178 Redemptions (18,379,866) (20,955,613) ---------------------------- Net Decrease (10,909,993) (11,774,665) Class C: Subscriptions 2,940,461 1,417,309 Issued for distributions reinvested 293,565 256,111 Redemptions (1,758,067) (2,263,480) ---------------------------- Net Increase (Decrease) 1,475,959 (590,060) Class J: Subscriptions 685,030 931,651 Redemptions (4,251,415) (5,247,368) ---------------------------- Net Decrease (3,566,385) (4,315,717) Class Z: Subscriptions 7,959,417 171,694 Issued for distributions reinvested 24,800 9,156 Redemptions (524,884) (184,806) ---------------------------- Net Increase (Decrease) 7,459,333 (3,956)
See Accompanying Notes to Financial Statements. 35 NOTES TO FINANCIAL STATEMENTS MAY 31, 2005 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 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. 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 pricing services approved by the Fund's Board of Trustees, based upon market transactions for normal, institutional-size trading units of similar securities. The services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes. Debt securities for which quotations are readily available are valued at an over-the-counter or exchange bid quotation. Certain debt securities, which tend to be more thinly traded and of lesser quality, are priced based on fundamental analysis of the financial condition of the issuer and the estimated value of any collateral. Valuations developed through pricing techniques may vary from the actual amounts realized upon sale of the securities, and the potential variation may be greater for those securities valued using fundamental analysis. Short-term debt obligations maturing within 60 days are valued at amortized cost, which approximates market value. Forward currency exchange contracts are valued at the prevailing forward exchange rate of the underlying currencies. Foreign securities are generally valued at the last sale price on the foreign exchange or market on which they trade. If any foreign share prices are not readily available as a result of limited share activity, the securities are valued at the last sale price of the local shares in the principal market in which such securities are normally traded. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange ("NYSE"). The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are generally determined at 2:00 p.m. Eastern (U.S.) time. 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 36 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 current exchange rate of the underlying currency, resulting in unrealized gains (losses) which become realized at the time the foreign currency contracts are closed or mature. Realized and unrealized gains (losses) arising from such transactions are included in net realized and unrealized gains (losses) on foreign currency transactions. The use of forward currency contracts does not eliminate fluctuations in the prices of the Fund's portfolio securities. 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 investments from its portfolio with an agreement by the Fund to repurchase similar, but not identical, 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 identifies U.S. Government securities or other liquid high grade debt obligations 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 in an amount equal to the delayed delivery commitment. 37 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 mortgage 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 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 monthly 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, 2005, permanent book and tax basis differences resulting primarily from differing treatments for discount accretion/premium amortization on debt securities, market discount reclassifications, paydown reclassifications Section 988 reclassifications of foreign currency and non-deductible excise tax paid were identified and reclassified among the components of the Fund's net assets as follows:
OVERDISTRIBUTED ACCUMULATED NET INVESTMENT NET REALIZED PAID-IN INCOME LOSS CAPITAL - --------------------------------------------------------- $ 16,860,419 $ (16,849,635) $ (10,784)
Net investment income and net realized gains (losses), as disclosed on the Statement of Operations, and net assets were not affected by this reclassification. The tax character of distributions paid during the years ended May 31, 2005 and May 31, 2004 was as follows:
MAY 31, 2005 MAY 31, 2004 - ----------------------------------------------------------- Distributions paid from: Ordinary income $ 94,076,584 $ 91,699,890 Long-term capital gains -- --
38 As of May 31, 2005 the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ORDINARY LONG-TERM NET UNREALIZED INCOME CAPITAL GAINS APPRECIATION* - ------------------------------------------------------------ $ 15,831,468 $ -- $ 18,201,922
* The difference between book-basis and tax-basis net unrealized appreciation are primarily due to deferral of losses on wash sales and discount accretion/premium amortization on debt securities. Unrealized appreciation and depreciation at May 31, 2005, based on cost of investments for federal income tax purposes, was: Unrealized appreciation $ 64,148,758 Unrealized depreciation (45,725,221) - ----------------------------------------------------------- Net unrealized appreciation $ 18,423,537
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 $ 1,499,774 2008 63,518,542 2009 136,912,288 2010 135,415,014 2011 318,608 $ 337,664,226
Capital loss carryforwards of $7,352,976 were utilized during the year ended May 31, 2005 for the Fund. Under current tax rules, certain capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of May 31, 2005, post-October capital losses of $6,533,589 attributed to security transactions were deferred to June 1, 2005. NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES INVESTMENT ADVISORY FEE Columbia Management Advisors, Inc. ("Columbia"), an indirect wholly owned subsidiary of Bank of America Corporation ("BOA"), is the investment advisor to the Fund and provides administrative and other services to the Fund. Effective November 1, 2004, Columbia receives a monthly investment advisory fee based on the Fund's average daily net assets at the following annual rates:
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE - ----------------------------------------------------------- First $500 million 0.60% $500 million to $1 billion 0.55% $1 billion to $1.5 billion 0.52% Over $1.5 billion 0.49%
Prior to November 1, 2004, Columbia received a monthly investment advisory fee based on the Fund's average daily net assets at the following annual rates:
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE - ----------------------------------------------------------- First $1 billion 0.65% $1 billion to $2 billion 0.60% Over $2 billion 0.55%
For the year ended May 31, 2005, the Fund's effective investment advisory fee rate was 0.59%. 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, 2005, the Fund's effective pricing and bookkeeping fee rate, inclusive of out-of-pocket expenses, was 0.031%. TRANSFER AGENT FEE Columbia Funds Services, Inc. (the "Transfer Agent"), an affiliate of Columbia, provides shareholder services to the Fund and has subcontracted with Boston Financial Data Services ("BFDS") to serve as sub-transfer agent. For such services, the Transfer 39 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. For the year ended May 31, 2005, the Fund's effective transfer agent fee rate, inclusive of out-of-pocket fees, was 0.16%. UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES Columbia Funds Distributor, Inc. (the "Distributor"), an affiliate of Columbia, is the principal underwriter of the Fund. For the year ended May 31, 2005, the Distributor has retained net underwriting discounts of $132,086 on sales of the Fund's Class A shares and received net CDSC fees of $583, $899,725 and $6,086 on Class A, Class B and Class C share redemptions, respectively. The Fund has adopted a 12b-1 plan (the "Plan") which allows 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, 2005, 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. CUSTODY CREDITS The Fund has an agreement with its custodian bank under which custody fees may be reduced by balance credits. These credits are recorded as a reduction of total expenses on the Statement of Operations. The Fund could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement. FEES PAID TO OFFICERS AND TRUSTEES With the exception of one officer, all officers of the Fund are employees of Columbia or its affiliates and receive no compensation from the Fund. The Board of Trustees appointed a Chief Compliance Officer to the Fund in accordance with federal securities regulations. The Fund, along with other affiliated funds, will pay its pro-rata share of the expenses associated with the Office of the Chief Compliance Officer. The Fund's fee for the Office of the Chief Compliance Officer will not exceed $15,000 per year. The Fund's Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund's assets. OTHER Columbia provides certain services to the Fund related to Sarbanes-Oxley compliance. For the year ended May 31, 2005, the Fund paid $2,774 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, 2005, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $682,796,807 and $712,246,880, respectively, of which $120,301,401 and $104,142,240, respectively, were U.S. Government securities. NOTE 6. LINE OF CREDIT The Fund and other affiliated funds participate in a $350,000,000 committed unsecured revolving line of credit provided by State Street Bank and Trust Company. Borrowings are used for temporary or emergency purposes to facilitate portfolio liquidity. Interest is charged to each participating fund based on its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50%. In addition, a commitment fee of 0.10% per annum is accrued and apportioned among the participating funds based on their pro-rata portion of the unutilized line of credit. The commitment fee is included in "Other expenses" on the Statement of Operations. 40 For the year ended May 31, 2005, the Fund did not borrow under this arrangement. NOTE 7. SHARES OF BENEFICIAL INTEREST As of May 31, 2005, the Fund had shareholders whose shares were beneficially owned by participant accounts over which Bank of America and/or its affiliates had either sole or joint investment discretion. Subscription and redemption activity of these accounts may have a significant effect on the operations of the Fund. The number of such accounts and the percentage of shares of beneficial interest outstanding held therein are as follows:
NUMBER OF SHAREHOLDERS % OF SHARES OUTSTANDING HELD - ----------------------------------------------------------- 1 3.4%
NOTE 8. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES FOREIGN SECURITIES There are certain additional risks involved when investing in foreign securities that are not inherent with investments in domestic securities. These risks may involve foreign currency exchange rate fluctuations, adverse political and economic developments and the possible prevention of currency exchange or other foreign governmental laws or restrictions. In addition, the liquidity of foreign securities may be more limited than that of domestic securities. Investments in emerging market countries are subject to additional risk. The risk of foreign investments is typically increased in less developed countries. These countries are also more likely to experience high levels of inflation, deflation or currency devaluation which could hurt their economies and securities markets. 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 On February 9, 2005, Columbia and the Distributor (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004. Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions. Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the Fund's independent trustees and not unacceptable to the staff of the SEC. At this time, the 41 distribution plan is still under development. As such, any gain to the fund or its shareholders can not currently be determined. 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. A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages. On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has conditionally ordered its transfer to the MDL. The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, can not currently be made. On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the Columbia Funds and Columbia. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the Fund and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions. In 2004, certain Columbia funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005. The Fund and the other defendants to these actions, including Columbia and various of its affiliates, certain other mutual funds advised by Columbia and its affiliates, and various directors of such funds, have denied these allegations and are contesting the plaintiffs' claims. These proceedings are ongoing, however, based on currently available information, Columbia believes that these lawsuits are without merit, that the likelihood they will have a material adverse impact on any fund is remote, and that the lawsuits are not likely to materially affect its ability to provide investment management services to its clients, including the Fund. For the year ended May 31, 2005, Columbia has assumed $40,235 of legal, consulting services and Trustees' fees incurred by the Fund in connection with these matters. 42 FINANCIAL HIGHLIGHTS COLUMBIA STRATEGIC INCOME FUND SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD ENDED YEAR ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS A SHARES 2005 2004 2003(a) 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.02 $ 6.09 $ 5.63 $ 5.64 $ 6.00 $ 6.62 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.36(b) 0.36(b) 0.16(b) 0.38(b) 0.48(b)(c) 0.58(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.25 0.01 0.46 0.05 (0.30)(c) (0.62) --------- --------- --------- --------- --------- --------- Total from Investment Operations 0.61 0.37 0.62 0.43 0.18 (0.04) LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.48) (0.44) (0.16) (0.42) (0.50) (0.53) Return of capital -- -- -- (0.02) (0.04) (0.05) --------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.48) (0.44) (0.16) (0.44) (0.54) (0.58) NET ASSET VALUE, END OF PERIOD $ 6.15 $ 6.02 $ 6.09 $ 5.63 $ 5.64 $ 6.00 Total return (e) 10.37% 6.21% 11.10%(f) 7.97% 3.07% (0.68)% RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (g) 1.09% 1.17% 1.27%(h) 1.23% 1.21% 1.17% Net investment income (g) 5.81% 5.90% 6.52%(h) 6.75% 8.22%(c) 9.12% Portfolio turnover rate 57% 68% 59%(f) 62% 106% 35% Net assets, end of period (000's) $ 615,772 $ 566,269 $ 595,223 $ 552,737 $ 575,791 $ 536,481
(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) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. 43 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD ENDED YEAR ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS B SHARES 2005 2004 2003(a) 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.02 $ 6.09 $ 5.62 $ 5.63 $ 6.00 $ 6.62 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.32(b) 0.32(b) 0.14(b) 0.34(b) 0.44(b)(c) 0.53(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.25 0.01 0.47 0.04 (0.32)(c) (0.62) --------- --------- --------- --------- --------- --------- Total from Investment Operations 0.57 0.33 0.61 0.38 0.12 (0.09) LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.44) (0.40) (0.14) (0.37) (0.45) (0.48) Return of capital -- -- -- (0.02) (0.04) (0.05) --------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.44) (0.40) (0.14) (0.39) (0.49) (0.53) NET ASSET VALUE, END OF PERIOD $ 6.15 $ 6.02 $ 6.09 $ 5.62 $ 5.63 $ 6.00 Total return (e) 9.55% 5.42% 10.95%(f) 7.17% 2.12% (1.41)% RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (g) 1.84% 1.92% 2.02%(h) 1.98% 1.96% 1.92% Net investment income (g) 5.06% 5.15% 5.77%(h) 6.00% 7.47%(c) 8.37% Portfolio turnover rate 57% 68% 59%(f) 62% 106% 35% Net assets, end of period (000's) $ 349,975 $ 408,345 $ 484,540 $ 456,563 $ 533,406 $ 693,733
(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) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. 44 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD ENDED YEAR ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS C SHARES 2005 2004 2003(a) 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.02 $ 6.09 $ 5.63 $ 5.64 $ 6.00 $ 6.62 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.32(b) 0.33(b) 0.14(b) 0.35(b) 0.45(b)(c) 0.54(d)(e) Net realized and unrealized gain (loss) on investments and foreign currency 0.26 0.01 0.46 0.04 (0.31)(c) (0.62) --------- --------- --------- --------- --------- --------- Total from Investment Operations 0.58 0.34 0.60 0.39 0.14 (0.08) LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.45) (0.41) (0.14) (0.38) (0.46) (0.49) Return of capital -- -- -- (0.02) (0.04) (0.05) --------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.45) (0.41) (0.14) (0.40) (0.50) (0.54) NET ASSET VALUE, END OF PERIOD $ 6.15 $ 6.02 $ 6.09 $ 5.63 $ 5.64 $ 6.00 Total return (f) 9.71%(g) 5.57%(g) 10.82%(g)(h 7.32%(g) 2.45% (1.26)%(g) RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (i) 1.69% 1.77% 1.87%(j) 1.83% 1.81% 1.77%(d) Net investment income (i) 5.21% 5.31% 5.92%(j) 6.15% 7.62%(c) 8.52%(d) Waiver/reimbursement 0.15% 0.15% 0.15%(j) 0.15% -- 0.15% Portfolio turnover rate 57% 68% 59%(h) 62% 106% 35% Net assets, end of period (000's) $ 51,488 $ 41,520 $ 45,572 $ 38,923 $ 42,906 $ 43,538
(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 per share and 0.15% for the year ended December 31, 2000. (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 and no contingent deferred sales charge. (g) Had the Distributor 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. 45 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD ENDED YEAR ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS J SHARES 2005 2004 2003(a) 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.01 $ 6.08 $ 5.62 $ 5.63 $ 6.00 $ 6.62 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.34(b) 0.34(b) 0.15(b) 0.36(b) 0.46(b)(c) 0.55(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.25 0.01 0.46 0.05 (0.31)(c) (0.62) --------- --------- --------- --------- --------- --------- Total from Investment Operations 0.59 0.35 0.61 0.41 0.15 (0.07) LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.46) (0.42) (0.15) (0.40) (0.48) (0.50) Return of capital -- -- -- (0.02) (0.04) (0.05) --------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.46) (0.42) (0.15) (0.42) (0.52) (0.55) NET ASSET VALUE, END OF PERIOD $ 6.14 $ 6.01 $ 6.08 $ 5.62 $ 5.63 $ 6.00 Total return (e) 10.01% 5.88% 10.97%(f) 7.61% 2.56% (1.02)% RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (g) 1.44% 1.52% 1.62%(h) 1.58% 1.56% 1.52% Net investment income (g) 5.46% 5.55% 6.17%(h) 6.40% 7.87%(c) 8.77% Portfolio turnover rate 57% 68% 59%(f) 62% 106% 35% Net assets, end of period (000's) $ 212,131 $ 229,179 $ 258,057 $ 271,733 $ 323,866 $ 508,079
(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) Total return at net asset value assuming all distributions reinvested and no initial sales charge. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. 46 SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
PERIOD ENDED YEAR ENDED MAY 31, MAY 31, YEAR ENDED DECEMBER 31, CLASS Z SHARES 2005 2004 2003(a) 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 5.98 $ 6.05 $ 5.59 $ 5.62 $ 5.99 $ 6.62 INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.37(b) 0.38(b) 0.17(b) 0.39(b) 0.49(b)(c) 0.59(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.25 0.01 0.45 0.03 (0.31)(c) (0.63) --------- --------- --------- --------- --------- --------- Total from Investment Operations 0.62 0.39 0.62 0.42 0.18 (0.04) LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.50) (0.46) (0.16) (0.43) (0.51) (0.54) Return of capital -- -- -- (0.02) (0.04) (0.05) --------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.50) (0.46) (0.16) (0.45) (0.55) (0.59) NET ASSET VALUE, END OF PERIOD $ 6.10 $ 5.98 $ 6.05 $ 5.59 $ 5.62 $ 5.99 Total return (e) 10.53% 6.52% 11.29%(f) 7.87% 3.14% (0.59)% RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (g) 0.85% 0.93% 1.03%(h) 0.99% 0.98% 0.93% Net investment income (g) 6.05% 6.15% 6.76%(h) 6.99% 8.45%(c) 9.36% Portfolio turnover rate 57% 68% 59%(f) 62% 106% 35% Net assets, end of period (000) $ 46,698 $ 1,150 $ 1,188 $ 3 $ 1,860 $ 1
(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 8.84% 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. (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. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. 47 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, 2005, 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 audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts July 27, 2005 48 TRUSTEES COLUMBIA STRATEGIC INCOME FUND The Trustrees/Directors serve terms of indefinite duration. The names, addresses and ages of the Trustees/Directors and officers of the Funds in the Columbia Funds Complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee/Director and other directorships they hold are shown below. Each officer listed below serves as an officer of each Fund in the Columbia Funds Complex.
NAME, ADDRESS AND AGE, POSITION WITH FUNDS, PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN YEAR FIRST ELECTED OR APPOINTED TO OFFICE(1) COLUMBIA FUNDS COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD DISINTERESTED TRUSTEES DOUGLAS A. HACKER (age 49) Executive Vice President-Strategy of United Airlines (airline) since December, P.O. Box 66100 2002 (formerly President of UAL Loyalty Services (airline) from September, Chicago, IL 60666 2001 to December, 2002; Executive Vice President and Chief Financial Officer Trustee (since 1996) of United Airlines from July, 1999 to September, 2001; Senior Vice President-Finance from March, 1993 to July, 1999). Oversees 104, Nash Finch Company (food distributor) JANET LANGFORD KELLY (age 47) Partner, Zelle, Hofmann, Voelbel, Mason & Gette LLP (law firm); Adjunct 9534 W. Gull Lake Drive Professor of Law, Northwestern University, since September, 2004 (formerly Richland, MI 49083-8530 Chief Administrative Officer and Senior Vice President, Kmart Holding Trustee (since 1996) Corporation (consumer goods), from September, 2003 to March, 2004; Executive Vice President-Corporate Development and Administration, General Counsel and Secretary, Kellogg Company (food manufacturer), from September, 1999 to August, 2003; Senior Vice President, Secretary and General Counsel, Sara Lee Corporation (branded, packaged, consumer-products manufacturer) from January, 1995 to September, 1999). Oversees 104, None RICHARD W. LOWRY (age 69) 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 106(3), None Trustee (since 1995) CHARLES R. NELSON (age 62) Professor of Economics, University of Washington, since January, 1976; Ford Department of Economics and Louisa Van Voorhis Professor of Political Economy, University of University of Washington Washington, since September, 1993 (formerly Director, Institute for Economic Seattle, WA 98195 Research, University of Washington from September, 2001 to June, 2003) Adjunct Trustee (since 1981) Professor of Statistics, University of Washington, since September, 1980; Associate Editor, Journal of Money Credit and Banking, since September, 1993; consultant on econometric and statistical matters. Oversees 104, None JOHN J. NEUHAUSER (age 62) Academic Vice President and Dean of Faculties since August, 1999, Boston 84 College Road College (formerly Dean, Boston College School of Management from September, Chestnut Hill, MA 02467-3838 1977 to August, 1999). Oversees 106(3), Saucony, Inc. (athletic footwear) Trustee (since 1985) PATRICK J. SIMPSON (age 61) Partner, Perkins Coie L.L.P. (law firm). Oversees 104, None 1120 N.W. Couch Street Tenth Floor Portland, OR 97209-4128 Trustee (since 2000)
49
NAME, ADDRESS AND AGE, POSITION WITH FUNDS, PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN YEAR FIRST ELECTED OR APPOINTED TO OFFICE(1) COLUMBIA FUNDS COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD DISINTERESTED TRUSTEES THOMAS E. STITZEL (age 69) 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 104, None Trustee (since 1998) THOMAS C. THEOBALD (age 68) Partner and Senior Advisor, Chicago Growth Partners (private equity investing) 8 Sound Shore Drive, since September, 2004 (formerly Managing Director, William Blair Capital Suite 285 Partners (private equity investing) from September, 1994 to September, 2004). Greenwich, CT 06830 Oversees 104, Anixter International (network support equipment distributor); Trustee and Chairman of the Board(4) Ventas, Inc. (real estate investment trust); Jones Lang LaSalle (real estate (since 1996) management services) and Ambac Financial Group (financial guaranty insurance) ANNE-LEE VERVILLE (age 59) Retired since 1997 (formerly General Manager, Global Education Industry, IBM 359 Stickney Hill Road Corporation (computer and technology) from 1994 to 1997). Oversees 104, 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 64) Retired since December 2003 (formerly Chairman and Chief Executive Officer, 100 S.W. Market Street The Regence Group (regional health insurer); Chairman and Chief Executive #1500 Officer, BlueCross BlueShield of Oregon; Certified Public Accountant, Arthur Portland, OR 97207 Young & Company). Oversees 104, Northwest Natural Gas Co. (natural gas service Trustee (since 1991) provider) INTERESTED TRUSTEE WILLIAM E. MAYER(2) (age 65) Partner, Park Avenue Equity Partners (private equity) since February, 1999 399 Park Avenue (formerly Partner, Development Capital LLC from November 1996 to February, Suite 3204 1999). Oversees 106(3), Lee Enterprises (print media), WR Hambrecht + Co. New York, NY 10022 (financial service provider); Reader's Digest (publishing); OPENFIELD Trustee (since 1994) Solutions (retail industry technology provider)
(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) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co. (3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the Liberty All-Star Funds, currently consisting of 2 funds, which are advised by an affiliate of the Advisor. (4) Mr. Theobald was appointed as Chairman of the Board effective December 10, 2003. The Statement of Additional Information Includes additional information about the Trustees of the Funds and is available, without charge, upon request by calling 800-426-3750. 50 OFFICER 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 CHRISTOPHER L. WILSON (age 47) Head of Mutual Funds since August, 2004 and Senior Vice President of the One Financial Center Advisor since January, 2005; President of the Columbia Funds, Liberty Funds Boston, MA 02111 and Stein Roe Funds since October, 2004; President and Chief Executive Officer President (since 2004) of the Nations Funds since January, 2005; President of the Galaxy Funds since April 2005; Director of Bank of America Global Liquidity Funds, plc since May 2005; Director of Banc of America Capital Management (Ireland), Limited since May 2005; Senior Vice President of BACAP Distributors LLC since January, 2005; Director of FIM Funding, Inc. since January, 2005; Senior Vice President of Columbia Funds Distributor, Inc. since January, 2005; Director of Columbia Funds Services, Inc. since January, 2005 (formerly President and Chief Executive Officer, CDC IXIS Asset Management Services, Inc. from September, 1998 to August, 2004). J. KEVIN CONNAUGHTON (age 40) Treasurer of the Columbia Funds since October, 2003 and of the Liberty Funds, One Financial Center Stein Roe Funds and All-Star Funds since December, 2000; Vice President of the Boston, MA 02111 Advisor since April, 2003 (formerly President of the Columbia Funds, Liberty Treasurer (since 2000) Funds and Stein Roe Funds from February, 2004 to October, 2004; Chief Accounting Officer and Controller of the Liberty Funds and All-Star Funds from February, 1998 to October, 2000); Treasurer of the Galaxy Funds since September, 2002 (formerly Treasurer from December, 2002 to December, 2004 and President from February, 2004 to December, 2004 of the Columbia Management Multi-Strategy Hedge Fund, LLC; Vice President of Colonial Management Associates, Inc. from February, 1998 to October, 2000). MARY JOAN HOENE (age 54) Senior Vice President and Chief Compliance Officer of the Columbia Funds, 40 West 57th Street Liberty Funds, Stein Roe Funds and All-Star Funds since August, 2004 (formerly New York, NY 10005 Partner, Carter, Ledyard & Milburn LLP from January, 2001 to August, 2004; Senior Vice President and Chief Compliance Counsel, Carter, Ledyard & Milburn LLP from November, 1999 to December, 2000; Officer (since 2004) Vice President and Counsel, Equitable Life Assurance Society of the United States from April, 1998 to November, 1999). MICHAEL G. CLARKE (age 35) Chief Accounting Officer of the Columbia Funds, Liberty Funds, Stein Roe Funds One Financial Center and All-Star Funds since October, 2004 (formerly Controller of the Columbia Boston, MA 02111 Funds, Liberty Funds, Stein Roe Funds and All-Star Funds from May, 2004 to Chief Accounting Officer (since 2004) October, 2004; Assistant Treasurer from June, 2002 to May, 2004; Vice President, Product Strategy & Development of the Liberty Funds and Stein Roe Funds from February, 2001 to June, 2002; Assistant Treasurer of the Liberty Funds, Stein Roe Funds and the All-Star Funds from August, 1999 to February, 2001; Audit Manager, Deloitte & Touche LLP from May, 1997 to August, 1999). JEFFREY R. COLEMAN (age 35) Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and All-Star One Financial Center Funds since October, 2004 (formerly Vice President of CDC IXIS Asset Boston, MA 02111 Management Services, Inc. and Deputy Treasurer of the CDC Nvest Funds and Controller (since 2004) Loomis Sayles Funds from February, 2003 to September, 2004; Assistant Vice President of CDC IXIS Asset Management Services, Inc. and Assistant Treasurer of the CDC Nvest Funds from August, 2000 to February, 2003; Tax Manager of PFPC, Inc. from November, 1996 to August, 2000). R. SCOTT HENDERSON (age 45) Secretary of the Columbia Funds, Liberty Funds and Stein Roe Funds since One Financial Center December, 2004 (formerly Of Counsel, Bingham McCutchen from April, 2001 to Boston, MA 02111 September, 2004; Executive Director and General Counsel, Massachusetts Pension Secretary (since 2004) Reserves Investment Management Board from September, 1997 to March, 2001).
51 BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENT COLUMBIA STRATEGIC INCOME FUND Section 15(c) of the Investment Company Act of 1940 (the "1940 Act") requires that the Board of Trustees/Directors (the "Board") of the Columbia Funds (the "Funds"), including a majority of the Trustees and Directors (collectively, the "Trustees") who are not "interested persons" of the Trusts, as defined in the 1940 Act (the "Independent Trustees"), annually review and approve the terms of the Funds' investment advisory agreements. At a meeting held on October 13, 2004, the Board reviewed and approved the management contracts ("Advisory Agreement") with Columbia Management Advisors, Inc. ("CMA") for the Fund. At meetings held on September 23, 2004 and October 12, 2004, the Advisory Fees and Expenses Committee (the "Committee") of the Board considered the factors described below relating to the selection of CMA and the approval of the Advisory Agreement. At a meeting held on October 13, 2004, the Board, including the Independent Trustees (who were advised by their independent legal counsel), considered these factors and reached the conclusions described below. NATURE, EXTENT AND QUALITY OF SERVICES The Board considered information regarding the nature, extent and quality of services that CMA provides to the Fund under the Advisory Agreement. CMA provided the most recent investment adviser registration form ("Form ADV") and code of ethics for CMA to the Board. The Board reviewed information on the status of Securities and Exchange Commission ("SEC") and New York Attorney General ("NYAG") proceedings against CMA and certain of its affiliates, including the agreement in principle entered into with the SEC and the NYAG on March 15, 2004 to settle civil complaints filed by the SEC and the NYAG relating to trading activity in mutual fund shares.(1) The Board evaluated the ability of CMA, including its resources, reputation and other attributes, to attract and retain highly qualified research, advisory and supervisory investment professionals. The Board considered information regarding CMA's compensation program for its personnel involved in the management of the Fund. Based on these considerations and other factors, including those referenced below, the Board concluded that they were generally satisfied with the nature, extent and quality of the investment advisory services provided to the Fund by CMA. FUND PERFORMANCE AND EXPENSES CMA provided the Board with relative performance and expense information for the Fund in a report prepared by Lipper Inc. ("Lipper") an independent provider of investment company data. The Board considered the total return performance information, which included the ranking of the Fund within a performance universe made up of funds with the same Lipper investment classification and objective (the "Performance Universe") by total return for one-year, three-year, five-year, ten-year or life of fund periods, as applicable. They also considered the Fund's performance in comparison to the performance results of a group (the "Performance Peer Group") of funds selected by Lipper based on similarities in fund type (e.g. open-end), investment classification and objective, asset size, load type and 12b-1/service fees and other expense features, and to the performance results of the Fund's benchmark index. The Board reviewed a description of Lipper's methodology for selecting the mutual funds in the Fund's Performance Peer Group and Performance Universe. The Board considered statistical information regarding the Fund's total expenses and certain components thereof, including management fees (both actual management fees based on expenses for advisory and administrative fees including any reductions for fee waivers and expense reimbursements as well as contractual management fees that are computed for a hypothetical level of assets), actual non-management expenses, and fee waivers/caps and expense reimbursements. They also considered comparisons of these expenses to the expense information for funds within a group (the "Expense Peer Group") selected by Lipper based on similarities in fund type (e.g. open-end), investment classification and objective, asset size, load type and 12b-1/service fees and other expense features (but which, unlike the Performance Peer Group, may include funds with several different investment classifications and objectives) and an expense universe ("Expense Universe") selected by Lipper based on the criteria for determining the Expense Peer Group other than asset size. The expense (1) On February 9, 2005, CMA and its affiliate, Columbia Funds Distributor, Inc., entered into settlement agreements with the SEC and the NYAG that contain substantially the terms outlined in the agreements in principle. 52 information in the Lipper report took into account all existing fee waivers and expense reimbursements as well as all voluntary advisory fee reductions applicable to certain Funds that were being proposed by management in order to reduce the aggregate advisory fees received from mutual funds advised by CMA and Banc of America Capital Management, LLC ("BACAP") by $32 million per year for five years as contemplated by the agreement in principle with the NYAG. The Committee also considered the projected impact on expenses of these Funds resulting from the overall cost reductions that management anticipated would result from the proposed shift to a common group of service providers for transfer agency, fund accounting and custody services for mutual funds advised by Bank of America affiliates. The Board also considered information in the Lipper report that ranked each Fund based on (i) each Fund's one-year performance and actual management fees, (ii) each Fund's one-year performance and total expenses and (iii) each Fund's 3-year performance and total expenses. Based on these comparisons and expense and performance rankings of the Fund in the Lipper Report, CMA determined an overall score for the Fund. The Committee and the Board also considered projected savings to the Fund that would result from certain modifications in soft dollar arrangements. The Committee also considered more detailed information relating to certain Funds that were highlighted for additional review based upon the fact that they ranked poorly in terms of overall expense or management fees, maintained poor performance or demonstrated a combination of below average to poor performance while maintaining below average or poor expense rankings. At its September 23, 2004 meeting, the Committee discussed these Funds with management and in executive session. The Committee requested additional information from management regarding the cause(s) of the below-average relative performance of these Funds, any remedial actions management recommended to improve performance and the general standards for review of portfolio manager performance. At its October 12, 2004 meeting, the Committee considered additional information provided by management regarding these Funds. The Board also considered management's proposal to merge or liquidate some of these Funds. Based on these considerations and other factors, the Board concluded that the overall performance and expense results supported by the approval of the Advisory Agreements for each Fund. INVESTMENT ADVISORY FEE RATES The Board reviewed and considered the proposed contractual investment advisory fee rates (the "Advisory Agreement Rates") payable by the Funds to CMA for investment advisory services. In addition, the Board reviewed and considered the existing and proposed fee waiver and reimbursement arrangements applicable to the Advisory Agreement Rates and considered the Advisory Agreement Rates after taking the fee waivers and reimbursements into account (the "Net Advisory Rates"). At previous meetings, the Committee had separately considered management's proposal to reduce annual investment advisory fees for certain Funds under the NYAG agreement in principle and the impact of these reductions on each affected Fund. Additionally, the Board considered information comparing the Advisory Agreement Rates and Net Advisory Rates (both on a stand-alone basis and on a combined basis with the Funds' administration fee rates) with those of the other funds in the Expense Peer Group. The Board concluded that the Advisory Agreement Rates and Net Advisory Rates represented reasonable compensation to CMA, in light of the nature, extent and quality of the services provided to the Funds, the fees paid and expenses borne by comparable funds and the costs that CMA incurs in providing these services to the Funds. PROFITABILITY The Board considered a detailed profitability analysis of CMA based on 2003 financial statements, adjusted to take into account advisory fee reductions implemented in November 2003 and proposed reductions under the NYAG proposed settlement. The Board concluded that, in light of the costs of providing investment management and other services to the Funds, the profits and other ancillary benefits that CMA and its affiliates received for providing these services to the Funds were not unreasonable. ECONOMIES OF SCALE In evaluating potential economies of scale, the Board considered CMA's proposal to implement a standardized breakpoint schedule for combined 53 advisory and administrative fees for the majority of the funds of the same general asset type within the Columbia Funds complex (other than index and closed-end funds). The Board noted that the standardization of the breakpoints would not result in a fee increase for any Fund. The Board concluded that any actual or potential economies of scale are, or will be, shared fairly with Fund shareholders, including most particularly through Advisory Agreement Rate breakpoints at current and reasonably foreseeable asset levels. INFORMATION ABOUT SERVICES TO OTHER CLIENTS In evaluating the proposed fee reductions under the NYAG agreement in principle, the Board considered information regarding the advisory fee rates charged by BACAP for the Nations Funds. Members of the Committee and the Board had also separately reviewed advisory fee rates for variable insurance product funds advised by CMA. This information assisted the Board in assessing the reasonableness of fees paid under the Advisory Agreements in light of the nature, extent and quality of services provided under those agreements. OTHER BENEFITS TO CMA The Board considered information regarding potential "fall-out" or ancillary benefits received by CMA and its affiliates as a result of their relationship with the Funds. These benefits could include benefits directly attributable to the relationship of CMA with the Funds (such as soft dollar credits) and benefits potentially derived from an increase in the business of CMA as a result of their relationship with the Funds (such as the ability to market to shareholders other financial products offered by CMA and its affiliates). OTHER FACTORS AND BROADER REVIEW The Board reviews detailed materials provided by CMA annually as part of the approval process under Section 15(c) of the 1940 Act. The Board also regularly reviews and assesses the quality of the services that the Funds receive throughout the year. In this regard, the Board reviews information provided by CMA at their regular meetings, including, among other things, a detailed portfolio review, and detailed fund performance reports. In addition, the Board interviews the heads of each investment area at each regular meeting of the Board and selected portfolio managers of the Funds at various times throughout the year. After considering the above-described factors and based on the deliberations and their evaluation of the information provided to them, the Board concluded that re-approval of the Advisory Agreements for each of the Funds was in the best interest of the Funds and their shareholders. Accordingly, the Board unanimously approved the Advisory Agreements. 54 COLUMBIA FUNDS COLUMBIA STRATEGIC INCOME FUND LARGE 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 MIDCAP VALUE Columbia Dividend Income Columbia Mid Cap Value* Columbia Strategic Investor SMALL GROWTH Columbia Acorn Columbia Acorn USA Columbia Small Company Equity SMALL VALUE Columbia Small Cap Value BALANCED Columbia Asset Allocation Columbia Balanced Columbia Liberty Fund Columbia Thermostat SPECIALTY Columbia Real Estate Equity Columbia Technology Columbia Utilities TAXABLE FIXED-INCOME Columbia Federal Securities Columbia Fixed Income Securities* Columbia High Yield Columbia High Yield Opportunity Columbia Income* Columbia Intermediate Bond Columbia Intermediate Government Income* Columbia Quality Plus Bond Columbia Short Term Bond* Columbia Strategic Income TAX EXEMPT Columbia High Yield Municipal Columbia Intermediate Tax-Exempt Bond Columbia Managed Municipals* Columbia Tax-Exempt Columbia Tax-Exempt Insured
55 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 Global Equity Columbia International Stock Columbia Newport Greater China Columbia Newport Tiger* INDEX Columbia Large Company Index* Columbia Small Company Index* Columbia U.S. Treasury Index
* The fund's trustees have approved the merger of this fund, which is scheduled to occur before the end of 2005. 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 is the primary investment management division of Bank of America Corporation. Columbia Management entities furnish investment management services and advise institutional and mutual fund portfolios. Columbia Management Advisors, Inc. (CMA) is a SEC registered investment advisor and wholly owned subsidiary of Bank of America, N.A. CMA is part of Columbia Management. 56 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 and a copy of the fund's voting record are available (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov, and (iii) without charge, upon request, by calling 800-368-0346. Information regarding how the fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2004 is available from the SEC's website. Information regarding how the fund voted proxies relating to portfolio securities is also available from the fund's website. The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Columbia Management is the primary investment management division of Bank of America Corporation. Columbia Management entities furnish investment management services and advise institutional and mutual fund portfolios. Columbia Management Advisors, Inc. (CMA) is a SEC registered investment advisor and wholly owned subsidiary of Bank of America, N.A. CMA is part of Columbia Management. 57 [GRAPHIC] Help your fund reduce printing and postage costs! Elect to get your shareholder reports by eletronic delivery. With Columbia's eDelivery program, you receive an e-mail message when your shareholder report becomes available online. If your fund account is registered with Columbia Funds, you can sign up quickly and easily on our website at www.columbiafunds.com. Please note -- if you own your fund shares through a financial institution, contact the institution to see if it offers electronic delivery. If you own your fund shares through a retirement plan, electronic delivery may not be available to you. COLUMBIA STRATEGIC INCOME FUND ANNUAL REPORT, MAY 31, 2005 PRSRT STD U.S. POSTAGE PAID HOLLISTON, MA PERMIT NO. 20 [COLUMBIA MANAGEMENT(R) LOGO] (C) 2005 COLUMBIA FUNDS DISTRIBUTOR, INC. ONE FINANCIAL CENTER, BOSTON, MA 02111-2621 800.345.6611 www.columbiafunds.com SHC-42/87266-0605 (07/05) 05/6604 ITEM 2. CODE OF ETHICS. (a) The registrant has, as of the end of the period covered by this report, adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. (b) During the period covered by this report, there were not any amendments to a provision of the code of ethics adopted in 2(a) above. (c) During the period covered by this report, there were not any waivers or implicit waivers to a provision of the code of ethics adopted in 2(a) above. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's Board of Trustees has determined that Douglas A. Hacker, Thomas E. Stitzel, Anne-Lee Verville and Richard L. Woolworth, each of whom are members of the registrant's Board of Trustees and Audit Committee, each qualify as an audit committee financial expert. Mr. Hacker, Mr. Stitzel, Ms. Verville and Mr. Woolworth are each independent trustees, as defined in paragraph (a)(2) of this item's instructions and collectively constitute the entire Audit Committee. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Fee information below is disclosed in aggregate for the two series of the registrant whose reports to stockholders are included in this annual filing. (a) Aggregate Audit Fees billed by the principal accountant for professional services rendered during the fiscal years ended May 31, 2005 and May 31, 2004 are approximately as follows:
2005 2004 $ 84,900 $ 77,100
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, 2005 and May 31, 2004 are approximately as follows:
2005 2004 $ 7,400 $ 8,000
Audit-Related Fees include amounts for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported in Audit Fees above. In both fiscal years 2005 and 2004, Audit-Related Fees include certain agreed-upon procedures performed for semi-annual shareholder reports. (c) Aggregate Tax Fees billed by the principal accountant for professional services rendered during the fiscal years ended May 31, 2005 and May 31, 2004 are approximately as follows:
2005 2004 $ 5,300 $ 7,200
Tax Fees in both fiscal years 2005 and 2004 consist primarily of the review of annual tax returns and include amounts for professional services by the principal accountant for tax compliance, tax advice and tax planning. (d) Aggregate All Other Fees billed by the principal accountant for professional services rendered during the fiscal years ended May 31, 2005 and May 31, 2004 are approximately as follows:
2005 2004 $ 0 $ 0
All Other Fees include amounts for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) above. None of the amounts described in paragraphs (a) through (d) above were approved pursuant to the "de minimus" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (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 June 1 through May 31 of the following year). The Audit Committee will review and approve the types of services and review the projected fees for the next one-year period and may add to, or subtract from, the list of general pre-approved services from time to time, based on subsequent determinations. This approval acknowledges that the Audit Committee is in agreement with the specific types of services that the independent auditor will be permitted to perform. The fee amounts will be updated to the extent necessary at other regularly scheduled meetings of the Audit Committee. In addition to the fees for each individual service, the Audit Committee has the authority to implement a fee cap on the aggregate amount of non-audit services provided to an individual fund. If, subsequent to general pre-approval, a fund, its investment adviser or a control affiliate determines that it would like to engage the independent auditor to perform a service that requires pre-approval and that is not included in the general pre-approval list, the specific pre-approval procedure shall be as follows: - 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) The percentage of services described in paragraphs (b) through (d) of this Item approved pursuant to the "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X during both fiscal years ended May 31, 2005 and May 31, 2004 was zero. (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, 2005 and May 31, 2004 are disclosed in (b) through (d) of this Item. During the fiscal years ended May 31, 2005 and May 31, 2004, there were no Audit-Related Fees or Tax Fees that were approved 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. During the fiscal years ended May 31, 2005 and 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 $95,500 and $95,000, respectively. For both fiscal years, All Other Fees consist primarily of internal controls reviews of the registrant's transfer agent. The percentage of Audit-Related Fees, Tax Fees and 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 both fiscal years ended May 31, 2005 and May 31, 2004 was zero. (h) The registrant's Audit Committee of the Board of Directors has considered whether the provision of non-audit services that were rendered to the registrant's adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, is compatible with maintaining the principal accountant's independence. The Audit Committee determined that the provision of such services is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS The registrant's "Schedule I - Investments in securities of unaffiliated issuers" (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form N-CSR. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have not been any material changes to the procedures by which shareholders may recommend nominees to the registrant's board of directors, since those procedures were last disclosed in response to requirements of Item 7(d)(2)(ii)(G) of Schedule 14A or this Item. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officers, based on their evaluation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing of this report, 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 second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR attached hereto as Exhibit 99.CODE ETH. (a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT. (a)(3) Not applicable. (b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (registrant) Columbia Funds Trust I ------------------------------------------------------------ By (Signature and Title) /S/ Christopher L. Wilson ------------------------------------------------ Christopher L. Wilson, President Date July 28, 2005 -------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title) /S/ Christopher L. Wilson ------------------------------------------------ Christopher L. Wilson, President Date July 28, 2005 -------------------------------------------------------------------- By (Signature and Title) /S/ J. Kevin Connaughton ------------------------------------------------ J. Kevin Connaughton, Treasurer Date July 28, 2005 -------------------------------------------------------------------- EX-99.CODEETH 2 a2160860zex-99_codeeth.txt EX 99.CODE ETH 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; - not knowingly misrepresent, or cause others to misrepresent, facts about any Fund to others, whether within or outside the Fund, - ---------- (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. 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 a2160860zex-99_cert.txt EX 99.CERT Exhibit 99.CERT I, Christopher L. Wilson, 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 officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 28, 2005 /S/ Christopher L. Wilson -------------------------------- Christopher L. Wilson, President I, J. Kevin Connaughton, certify that: 1. I have reviewed this report on Form N-CSR of Columbia Funds Trust 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 officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 28, 2005 /S/ J. Kevin Connaughton ------------------------------- J. Kevin Connaughton, Treasurer EX-99.906CERT 4 a2160860zex-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, 2005, 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: July 28, 2005 /S/ Christopher L. Wilson -------------------------------- Christopher L. Wilson, President Date: July 28, 2005 /S/ J. Kevin Connaughton ------------------------------- J. Kevin Connaughton, Treasurer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission (the "Commission") or its staff upon request. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----