<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-2241
---------------------------------------------
Columbia Funds Trust I
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Vincent Pietropaolo, Esq.
Columbia Management Group, Inc.
One Financial Center
Boston, MA 02111
- -------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-772-3698
----------------------------
Date of fiscal year end: 05/31/04
--------------------------
Date of reporting period: 05/31/04
-------------------------
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW, Washington, DC 20549-0609. The OMB has reviewed this collection of
information under the clearance requirements of 44 U.S.C. Section 3507.
<Page>
Item 1. Reports to Stockholders.
<Page>
[GRAPHIC]
COLUMBIA STRATEGIC INCOME FUND
ANNUAL REPORT
MAY 31, 2004
[COLUMBIAFUNDS(R) LOGO]
A MEMBER OF COLUMBIA MANAGEMENT GROUP
<Page>
TABLE OF CONTENTS
<Table>
Fund Profile 1
Performance Information 2
Economic Update 3
Portfolio Manager's Report 4
Financial Statements 6
Investment Portfolio 7
Statement of Assets and Liabilities 25
Statement of Operations 26
Statement of Changes in Net Assets 27
Notes to Financial Statements 29
Financial Highlights 36
Report of Independent Registered Public Accounting Firm 41
Trustees 42
Officers 44
Important Information About This Report 45
</Table>
Economic and market conditions change frequently. There is no assurance that
trends described in this report will continue or commence.
NOT FDIC MAY LOSE VALUE
INSURED -------------------
NO BANK GUARANTEE
TO OUR FELLOW SHAREHOLDERS
COLUMBIA STRATEGIC INCOME FUND
DEAR SHAREHOLDER:
We are pleased to let you know that FleetBoston Financial Corporation and Bank
of America Corporation have merged, effective April 1, 2004. As a result of the
merger, Columbia Management Group became part of the Bank of America family of
companies. Looking ahead, we believe this merger will be a real benefit to our
shareholders. Preserving and leveraging our strengths, the combined organization
intends to deliver additional research and management capabilities, as well as
new products to you. There are no immediate changes planned for fund names or
customer service contacts.
As you might know, on March 15, 2004, FleetBoston Financial announced an
agreement in principle with the staff of the Securities and Exchange Commission
("SEC") and the New York Attorney General ("NYAG") to settle charges involving
market timing in Columbia Management mutual funds. (Bank of America came to a
similar settlement in principle at the same time.) The agreement requires the
final approval of the SEC and the NYAG. This settlement in principle reflects
our strong wish to put this regrettable situation behind us. Columbia Management
has taken and will continue to take steps to strengthen policies, procedures and
oversight to curb frequent trading of Columbia fund shares.
We want you to know that all of the members of your fund's Board of Trustees are
independent of the fund's advisor and its affiliates. In addition, the board has
been energetic over the past year in strengthening its capacity to oversee the
Columbia funds. Recently, the Board of Trustees:
- - APPOINTED AN INTERIM CHIEF COMPLIANCE OFFICER OF THE COLUMBIA FUNDS, WHO
REPORTS DIRECTLY TO EACH FUND'S AUDIT COMMITTEE. TRUSTEES WERE ALSO ASSIGNED
TO FOUR SEPARATE INVESTMENT OVERSIGHT COMMITTEES, EACH DEDICATED TO
MONITORING PERFORMANCE OF INDIVIDUAL FUNDS.
- - VOTED TO DOUBLE THE REQUIRED INVESTMENT BY EACH TRUSTEE IN THE COLUMBIA FUNDS
-- TO FURTHER ALIGN THE INTERESTS OF THE TRUSTEES WITH THOSE OF OUR FUND
SHAREHOLDERS. AT THE SAME TIME, NEW POLICIES WERE INSTITUTED REQUIRING ALL
INVESTMENT PERSONNEL AND TRUSTEES TO HOLD THEIR COLUMBIA FUND SHARES FOR A
MINIMUM OF ONE YEAR (UNLESS EXTRAORDINARY CIRCUMSTANCES WARRANT AN EXCEPTION
TO BE GRANTED BY SENIOR EXECUTIVES OF THE ADVISOR FOR INVESTMENT PERSONNEL
AND BY A DESIGNATED COMMITTEE FOR THE BOARD).
Both your fund's trustees and Columbia Management are committed to serving the
interests of our shareholders, and we will continue to work hard to help you
achieve your financial goals.
In the pages that follow, you'll find valuable information about the economic
environment during the period and the performance of your Columbia fund. These
discussions are followed by financial statements for your fund. We hope that you
will take time to read this report and discuss it with your financial advisor if
you have any questions.
As always, thank you for choosing Columbia funds. It is a privilege to play a
role in your financial future.
Sincerely,
/s/ Thomas C. Theobald /s/ J. Kevin Connaughton
Thomas C. Theobald J. Kevin Connaughton
Chairman, Board of Trustees President, Columbia Funds
J. Kevin Connaughton was named president of Columbia Funds on February 27, 2004.
<Page>
FUND PROFILE
COLUMBIA STRATEGIC INCOME FUND
The information below gives you a snapshot of your fund at the end of the
reporting period. Your fund is actively managed and the composition of its
portfolio will change over time.
TOP 5 COUNTRIES AS OF 05/31/04 (%)
<Table>
United States 66.3
United Kingdom 4.5
Canada 3.6
Sweden 3.0
Russia 2.5
</Table>
PORTFOLIO STRUCTURE AS OF 05/31/04 (%)
<Table>
Corporate fixed-income bonds & notes 40.5
Foreign government obligations 32.7
US government obligations 19.0
US government agencies 6.2
Convertible bonds 0.7
Cash equivalents & other net assets 0.9
</Table>
QUALITY BREAKDOWN AS OF 05/31/04 (%)
<Table>
AAA 40.7
AA 3.2
A 2.7
BBB 3.6
BB 11.5
B 24.4
CCC 10.7
CC 2.1
D 0.2
Non-rated 0.9
</Table>
Quality breakdown is calculated as a percentage of total investments. Ratings
shown in the quality breakdown represent the highest rating assigned to a
particular bond by one of the following nationally-recognized rating agencies:
Standard & Poor's Corporation, Moody's Investors Service, Inc. or Fitch Ratings
Ltd.
Country breakdown and portfolio structure are calculated as a percentage of net
assets.
(C) 2004 Morningstar, Inc. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for any
damages or losses arising from any use of this information. Past performance is
no guarantee of future results.
The Morningstar Style Box(TM) reveals a fund's investment strategy. For equity
funds the vertical axis shows the market capitalization of the stocks owned and
the horizontal axis shows investment style (value, blend or growth). For
fixed-income funds the vertical axis shows the average credit quality of the
bonds owned, and the horizontal axis shows interest rate sensitivity as measured
by a bond's duration (short, intermediate or long). All of these numbers are
drawn from the data most recently provided by the fund and entered into
Morningstar's database as of month-end. Although the data are gathered from
reliable sources, Morningstar cannot guarantee completeness and accuracy. As of
05/31/2004.
[SIDENOTE]
SUMMARY
- - FOR THE 12-MONTH PERIOD ENDED MAY 31, 2004, THE FUND'S CLASS A SHARES
RETURNED 6.21% WITHOUT SALES CHARGE DESPITE A CHALLENGING ENVIRONMENT FOR THE
BOND MARKET, IN GENERAL.
- - THE FUND OUTPERFORMED BOTH ITS BENCHMARK AND THE AVERAGE RETURN OF ITS PEER
GROUP.
- - THE FUND BENEFITED PRIMARILY FROM ITS EMPHASIS ON THE US HIGH-YIELD SECTOR.
- - THE FOREIGN GOVERNMENT SECTOR ALSO CONTRIBUTED POSITIVELY TO PERFORMANCE.
<Table>
CLASS A SHARES 6.21%
LEHMAN BROTHERS GOVERNMENT/CREDIT BOND INDEX -1.52%
</Table>
OBJECTIVE
Seeks high current income consistent with prudent risk and also seeks
maximum total return
TOTAL NET ASSETS
$1,246.5 million
MORNINGSTAR SYLE BOX
[GRAPHIC]
1
<Page>
PERFORMANCE INFORMATION
COLUMBIA STRATEGIC INCOME FUND
VALUE OF A $10,000 INVESTMENT 06/01/94 - 05/31/04
[CHART]
<Table>
<Caption>
CLASS A SHARES WITHOUT SALES CHARGE CLASS A SHARES WITH SALES CHARGE LEHMAN BROTHERS GOVERNMENT/CREDIT BOND INDEX
10000 9525 10000
6/30/94 9969 9495.47 9977
7/31/94 10011.87 9536.3 10176.54
8/31/94 10024.88 9548.7 10180.61
9/30/94 9993.8 9519.1 10026.88
10/31/94 10037.78 9560.98 10015.85
11/30/94 9945.43 9473.02 9997.83
12/31/94 9990.18 9515.65 10063.81
1/31/95 10096.08 9616.52 10257.04
2/28/95 10341.42 9850.2 10495
3/31/95 10542.04 10041.29 10565.32
4/30/95 10775.02 10263.2 10713.23
5/31/95 11088.57 10561.86 11162.11
6/30/95 11117.4 10589.32 11251.41
7/31/95 11241.92 10707.93 11207.53
8/31/95 11286.88 10750.76 11350.99
9/30/95 11494.56 10948.57 11466.77
10/31/95 11654.34 11100.76 11635.33
11/30/95 11782.53 11222.86 11827.31
12/31/95 12011.12 11440.59 12001.17
1/31/96 12206.9 11627.07 12075.58
2/29/96 12103.14 11528.24 11819.58
3/31/96 12065.62 11492.5 11720.29
4/30/96 12147.66 11570.65 11639.42
5/31/96 12178.03 11599.58 11619.64
6/30/96 12243.8 11662.21 11774.18
7/31/96 12309.91 11725.19 11801.26
8/31/96 12481.02 11888.17 11771.76
9/30/96 12741.87 12136.63 11981.29
10/31/96 12915.16 12301.69 12260.46
11/30/96 13214.79 12587.09 12486.05
12/31/96 13242.55 12613.52 12347.45
1/31/97 13238.57 12609.74 12362.27
2/28/97 13344.48 12710.62 12388.23
3/31/97 13082.93 12461.49 12240.81
4/30/97 13226.84 12598.57 12419.53
5/31/97 13464.92 12825.34 12535.03
6/30/97 13648.05 12999.77 12685.45
7/31/97 13983.79 13319.56 13073.62
8/31/97 13923.66 13262.29 12927.2
9/30/97 14225.8 13550.08 13130.16
10/31/97 14183.13 13509.43 13340.24
11/30/97 14256.88 13579.68 13410.94
12/31/97 14383.76 13700.53 13551.76
1/31/98 14615.34 13921.11 13742.84
2/28/98 14670.88 13974.01 13715.35
3/31/98 14786.78 14084.41 13757.87
4/30/98 14862.19 14156.24 13826.66
5/31/98 14918.67 14210.03 13974.6
6/30/98 14914.19 14205.77 14117.14
7/31/98 15046.93 14332.2 14128.44
8/31/98 14423.99 13738.85 14403.94
9/30/98 14716.79 14017.75 14815.9
10/31/98 14691.78 13993.92 14710.7
11/30/98 15129.59 14410.93 14798.97
12/31/98 15125.05 14406.61 14835.96
1/31/99 15227.9 14504.58 14941.3
2/28/99 15029.94 14316.02 14585.7
3/31/99 15241.86 14517.87 14658.63
4/30/99 15455.25 14721.12 14695.27
5/31/99 15122.96 14404.62 14543.91
6/30/99 15118.42 14400.3 14498.82
7/31/99 15112.38 14394.54 14458.23
8/31/99 15041.35 14326.88 14446.66
9/30/99 15081.96 14365.57 14576.68
10/31/99 15077.43 14361.26 14614.58
11/30/99 15210.12 14487.64 14605.81
12/31/99 15319.63 14591.95 14516.72
1/31/2000 15152.64 14432.89 14512.36
2/29/2000 15381.45 14650.83 14693.77
3/31/2000 15304.54 14577.58 14906.83
4/30/2000 15157.62 14437.63 14833.78
5/31/2000 14986.34 14274.49 14820.43
6/30/2000 15293.56 14567.11 15122.77
7/31/2000 15409.79 14677.82 15283.07
8/31/2000 15528.44 14790.84 15498.56
9/30/2000 15351.42 14622.23 15557.46
10/31/2000 15024.43 14310.77 15655.47
11/30/2000 14744.98 14044.59 15923.18
12/31/2000 15218.29 14495.42 16236.86
1/31/2001 15846.81 15094.09 16509.64
2/28/2001 15867.41 15113.71 16679.69
3/31/2001 15500.87 14764.58 16756.42
4/30/2001 15335.01 14606.6 16630.74
5/31/2001 15428.56 14695.7 16727.2
6/30/2001 15234.16 14510.53 16807.49
7/31/2001 15330.13 14601.95 17226
8/31/2001 15587.68 14847.26 17446.49
9/30/2001 15076.4 14360.27 17607
10/31/2001 15515.13 14778.16 18054.22
11/30/2001 15709.07 14962.88 17758.13
12/31/2001 15683.93 14938.94 17617.84
1/31/2002 15713.73 14967.33 17746.45
2/28/2002 15743.59 14995.77 17897.3
3/31/2002 15793.97 15043.75 17533.98
4/30/2002 16100.37 15335.6 17874.14
5/31/2002 16180.87 15412.28 18038.58
6/30/2002 15915.5 15159.52 18191.91
7/31/2002 15727.7 14980.64 18410.21
8/31/2002 15979.34 15220.33 18822.6
9/30/2002 16056.05 15293.38 19227.29
10/31/2002 16089.76 15325.5 19042.71
11/30/2002 16450.17 15668.79 19054.13
12/31/2002 16932.16 16127.89 19559.07
1/31/2003 17175.99 16360.13 19559.07
2/28/2003 17481.72 16651.34 19907.22
3/31/2003 17639.06 16801.2 19881.34
4/30/2003 18316.39 17446.37 20094.07
5/31/2003 18810.94 17917.42 20664.74
6/30/2003 18968.95 18067.92 20582.08
7/31/2003 18504.21 17625.26 19719.69
8/31/2003 18602.28 17718.67 19849.84
9/30/2003 19232.9 18319.34 20479.08
10/31/2003 19330.99 18412.77 20219
11/30/2003 19682.81 18747.88 20273.59
12/31/2003 20198.5 19239.07 20474.3
1/31/2004 20362.11 19394.91 20660.61
2/29/2004 20463.92 19491.88 20912.67
3/31/2004 20629.68 19649.77 21105.07
4/30/2004 20107.75 19152.63 20457.14
5/31/2004 19962 19014 20354
</Table>
The graph and table do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares. The Lehman
Brothers Government/Credit Bond Index is an unmanaged group of fixed-income
securities that differs from the composition of the fund. Unlike mutual funds,
indices are not investments, do not incur fees or expenses and are not
professionally managed. It is not possible to invest directly in an index.
Securities in the fund may not match those in an index.
AVERAGE ANNUAL TOTAL RETURN AS OF 05/31/04 (%)
<Table>
<Caption>
SHARE CLASS A B C J Z
INCEPTION 04/21/77 05/15/92 07/01/97 11/02/98 01/29/99
SALES CHARGE WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT
1-year 6.21 1.17 5.42 0.47 5.57 4.58 5.88 2.71 6.52
5-year 5.72 4.69 4.96 4.67 5.12 5.12 5.38 4.74 5.89
10-year 7.16 6.64 6.36 6.36 6.47 6.47 6.95 6.62 7.24
</Table>
AVERAGE ANNUAL TOTAL RETURN AS OF 03/31/04 (%)
<Table>
<Caption>
SHARE CLASS A B C J Z
SALES CHARGE WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT
1-year 16.96 11.40 16.29 11.29 16.26 15.26 16.62 13.12 17.19
5-year 6.23 5.20 5.44 5.15 5.60 5.60 5.89 5.24 6.37
10-year 7.39 6.87 6.59 6.59 6.70 6.70 7.19 6.86 7.45
</Table>
All results shown assume reinvestment of distributions. The "with sales charge"
returns include the maximum 4.75% charge for class A shares and 3% for class J
shares, the appropriate class B contingent deferred sales charge for the holding
period after purchase as follows: through the first year--5%, second year--4%,
third year--3%, fourth year--3%, fifth year--2%, sixth year--1%, thereafter--0%,
and the class C contingent deferred sales charge of 1% for the first year only.
Class Z shares are sold only at net asset value with no Rule 12b-1 fees.
Performance for different share classes will vary based on differences in sales
charges and the fees associated with each class.
Performance reflects any voluntary waivers or reimbursements of fund expenses by
the advisor or its affiliates. Absent these waivers or reimbursement
arrangements, performance would have been lower.
The share performance information for classes J and Z (newer class shares)
includes returns of the fund's class A shares (the oldest existing fund class)
for periods prior to the inception of the newer class shares. These class A
share returns are not restated to reflect any expense differential (e.g., Rule
12b-1 fees) between class A shares and the newer class shares. Had the expense
differential been reflected, the returns for periods prior to the inception of
class J shares would have been lower, and the returns for the class Z shares
would have been higher. Class C is a newer class of shares. Its performance
information includes returns of the fund's class B shares for periods prior to
the inception of class C shares. Class B shares would have substantially similar
annual returns because class B and class C shares generally have similar expense
structures. Class A shares were initially offered on April 21, 1977, class B
shares were initially offered on May 15, 1992, class C shares were initially
offered on July 1, 1997, class J shares were initially offered on November 2,
1998 and class Z shares were initially offered on January 29, 1999.
[SIDENOTE]
PERFORMANCE OF A $10,000 INVESTMENT 06/01/94 - 05/31/04 ($)
<Table>
<Caption>
SALES CHARGE WITHOUT WITH
Class A 19,962 19,014
Class B 18,525 18,525
Class C 18,717 18,717
Class J 19,574 18,986
Class Z 20,110 n/a
</Table>
Performance data quoted represents past performance and current performance may
be lower or higher. Past performance is no guarantee of future results. The
investment return and principal value will fluctuate so that shares may be worth
more or less than the original cost. Please visit www.columbiafunds.com for
daily and most recent month-end performance updates.
2
<Page>
ECONOMIC UPDATE
COLUMBIA STRATEGIC INCOME FUND
Despite mixed signals at the start, the US economy staged a solid recovery
during the 12-month period that began June 1, 2003 and ended May 31, 2004. GDP
grew at the highest annual pace in nearly two decades--averaging nearly 5.0%
during the period.
Consumer confidence tumbled early in this reporting period as the unemployment
rate rose to 6.4% in June 2003 and job losses were reported from both the
manufacturing and service sectors. Confidence wavered again when the number of
new jobs was well below expectations in January and February 2004. Yet,
consumers continued to account for most of the economy's gains. Consumer
spending rose as a sizeable package of tax cuts, implemented in 2003, gave
disposable income a boost. As a result, retail sales showed steady gains. Low
interest rates fueled mortgage refinancing in 2003 and again early in 2004,
which further enhanced household income and buoyed an already ebullient housing
market. When nearly a million new jobs were added to the economy between March
and May, consumer confidence rebounded. With the last remaining weak spot in the
recovery--the employment picture--on the mend, the economy appeared to be on
solid ground.
Late in 2003, the business sector also bounced back. Industrial production
turned higher in September, and factories utilized more of their capacity as the
period wore on. Business spending on technology rose. In 2004, spending on
capital equipment also picked up.
BONDS REFLECTED THE ECONOMIC NEWS
Although the US bond market began the period with respectable gains, they were
whittled away as the economy strengthened and the employment picture brightened.
Investors began to anticipate a shift in the Federal Reserve Board's policy on
the key short-term interest rates it controls. At the prospect of higher
short-term interest rates, bond prices fell and the yield on the 10-year US
Treasury bond rose more than one-half of a percentage point in April--a
significant move for a single month. It continued to edge higher in May. The
Lehman Brothers Aggregate Bond Index, a broad measure of investment grade bond
market performance, lost ground for the 12-month period. The index returned
negative 0.44%.
The strong economy was more good news than bad for the high-yield bond sector,
which historically has been less vulnerable to the threat of higher interest
rates than other fixed-income sectors. High-yield bonds led the fixed-income
markets. However, most of the sector's gains came in the first eight months of
the period.
US STOCKS OUTPERFORMED BONDS
The US stock market snapped a three-year losing streak in 2003. However, by May
stocks, like most bond sectors, veered into negative territory. The S&P 500
Index returned 18.33% for this reporting period. Small- cap stocks, which had
been strong performers earlier in the period, fell the most as the stock market
retreated. Value stocks edged out growth stocks, but the margin of difference
between them was slight. And as the stock market lost ground near the end of the
period, growth stocks held up better than value stocks.
[SIDENOTE]
SUMMARY
FOR THE 12-MONTH PERIOD ENDED MAY 31, 2004
- - MOST SECTORS OF THE INVESTMENT GRADE BOND MARKET DELIVERED NEGATIVE RETURNS
AS INTEREST RATES SOARED IN THE LAST TWO MONTHS OF THE PERIOD. THE LEHMAN
BROTHERS AGGREGATE BOND INDEX RETURNED NEGATIVE 0.44%. HIGH-YIELD BONDS,
WHICH CAN BE LESS SENSITIVE TO CHANGING INTEREST RATES, FARED BETTER. THE
MERRILL LYNCH US HIGH YIELD, CASH PAY INDEX RETURNED 11.34%.
<Table>
LEHMAN INDEX -0.44%
MERRILL LYNCH INDEX 11.34%
</Table>
- - AS THE ECONOMY STRENGTHENED AND CORPORATIONS REPORTED HIGHER PROFITS, STOCK
PRICES ROSE FOR ALL SEGMENTS OF THE STOCK MARKET, AS MEASURED BY THE S&P 500
INDEX AND THE BROADER RUSSELL 3000 INDEX. BUT MANY SECTORS RETREATED IN THE
FINAL MONTHS OF THE PERIOD AS INTEREST RATES MOVED HIGHER.
<Table>
S&P 500 INDEX 18.33%
RUSSELL 3000 INDEX 19.71%
</Table>
The Lehman Brothers Aggregate Bond Index is a market value-weighted index that
tracks fixed-rate, publicly placed, dollar-denominated, and non-convertible
investment grade debt issues.
The Merrill Lynch US High Yield, Cash Pay Index is an unmanaged index that
tracks the performance of non-investment-grade corporate bonds.
The S&P 500 Index is an unmanaged index that tracks the performance of 500
widely held, large capitalization US stocks.
The Russell 3000 Index is an unmanaged index that tracks the performance of the
3,000 largest US companies based on total market capitalization.
3
<Page>
PORTFOLIO MANAGER'S REPORT
COLUMBIA STRATEGIC INCOME FUND
For the 12-month period ended May 31, 2004, class A shares of Columbia Strategic
Income Fund returned 6.21% without sales charge. Fund performance was
significantly better than the Lehman Brothers Government/Credit Bond Index,
which returned negative 1.52% for the period. The fund also outperformed the
average return of the Lipper Multi-Sector Income Funds Category, which was
4.74%.(1) The fund's relative return was especially strong during the period
because of our emphasis on high-yield and foreign government securities, which
enjoyed a long run of outstanding performance.
HIGH-YIELD BONDS CONTINUE TO OUTPERFORM
Continuing a strategy that has been in place for more than a year now, the fund
continued to emphasize high-yield securities, which accounted for approximately
40% of total assets. Our enthusiasm for this sector during the period reflected
our assessment that fixed-income investors were being more than adequately
compensated for the risks inherent in low quality corporate bonds. Since late
2002, lower quality bonds have consistently outperformed higher quality bonds.
Throughout the past year, credit quality has improved and the corporate default
rate has declined significantly. As demand for low-quality bonds increased, some
formerly struggling industries staged impressive rebounds. As a group,
high-yield bonds were the best performing sector for the period, while the US
government sector was the worst performing sector.
During the reporting period, US cable and cellular industries were among the
best performers in the high-yield sector. Charter Communications, a company that
has benefited from improved liquidity and operating results, was a standout
performer. On the negative side, Delta Air Lines, though a small position in the
fund, was an underperformer, as were many other airline and aerospace bonds. The
industry came under pressure as fuel prices soared, labor issues multiplied and
competition intensified.
FOREIGN BONDS AID PERFORMANCE
Emerging market debt, in countries such as Brazil and Venezuela, made a positive
contribution to performance. Emerging markets posted especially strong gains
during the first half of the period, when worldwide monetary policy was
relatively accommodating. Since early 2004, emerging market debt has given back
some of its gains as investors became concerned about the impact of rising US
and global interest rates on global growth and liquidity. Brazil was hit
especially hard because of its high level of indebtedness and rising political
uncertainty
(1) Lipper Inc., a widely respected data provider in the industry, calculates an
average total return for mutual funds with similar investment objectives as
those of the fund.
[SIDENOTE]
NET ASSET VALUE PER SHARE AS OF 05/31/04 (%)
<Table>
Class A 6.02
Class B 6.02
Class C 6.02
Class J 6.01
Class Z 5.98
</Table>
DISTRIBUTIONS DECLARED PER SHARE 06/01/03 - 05/31/04 ($)
<Table>
Class A 0.44
Class B 0.40
Class C 0.41
Class J 0.42
Class Z 0.46
</Table>
SEC YIELDS AS OF 05/31/04 (%)
<Table>
Class A 5.48
Class B 5.00
Class C 5.16
Class J 5.14
Class Z 6.01
</Table>
The 30-day SEC yields reflect the portfolio's earning power net of expenses,
expressed as an annualized percentage of the public offering price per share at
the end of the period.
4
<Page>
surrounding municipal elections scheduled for later this year. Yet, the return
from Brazilian bonds was still positive for the 12-month period.
Interest rates on developed market sovereign debt moved higher as stronger
global growth and higher oil prices raised concerns that tighter monetary policy
will be required to keep inflation in check. In Europe, interest rates rose, but
not by as much as in the United States because economic growth was less robust
in Europe than in the United States. The Euro moved higher against the US dollar
during the past year, adding to the outperformance of European bonds relative to
Treasuries. In general, the net effect of currency fluctuations was favorable
for the fund. Most other currencies moved higher versus the dollar for much of
the past year, aiding the performance of bonds denominated in currencies such as
the South African rand and the Australian dollar.
LOOKING AHEAD
The Federal Reserve Board (the Fed) has signaled that it is no longer worried
about deflation and appears to be preparing to raise short-term interest rates.
Although inflationary pressures are not yet worrisome, we would not be surprised
to see the Fed boost rates in increments of one-quarter of a percentage point,
and the fixed-income markets appear to be anticipating this move. Since we are
committed to diversifying the fund's assets across US and foreign government and
lower-rated corporate debt securities, we enter the new fiscal year with
portfolio allocations similar to where we started the period, because we believe
that the US and global economy should remain on a path of continued economic
growth despite our expectations of higher interest rates.
[PHOTO OF LAURA A. OSTRANDER]
Laura A. Ostrander has managed or co-managed the Columbia Strategic Income Fund
since September 2000 and has been with the advisor and its predecessors since
1996.
/s/ Laura A. Ostrander
Investing in high-yield securities offers the potential for high current income
and attractive total return, but involves certain risks. Lower-rated bond risks
include default of the issuer, rising interest rates and risk associated with
investing in securities of foreign and emerging markets, including currency
exchange rate fluctuations and economic and political change. Bond investing
also involves interest rate risk, which means that bond prices may change as
interest rates increase or decrease. Foreign investments involve market,
political, accounting and currency risks not associated with other investments.
[SIDENOTE]
THE FEDERAL RESERVE HAS SIGNALED THAT IT IS NO LONGER WORRIED ABOUT DEFLATION,
AND APPEARS TO BE PREPARING TO RAISE SHORT-TERM INTEREST RATES.
HOLDINGS DISCUSSED IN THIS REPORT AS OF 05/31/04 (%)
<Table>
CHARTER COMMUNICATIONS 0.7
DELTA AIR LINES 0.1
</Table>
Your fund is actively managed and the composition of its portfolio will change
over time. Information provided is calculated as a percentage of net assets.
5
<Page>
FINANCIAL STATEMENTS
MAY 31, 2004 COLUMBIA STRATEGIC INCOME FUND
<Table>
<Caption>
A GUIDE TO UNDERSTANDING YOUR FUND'S FINANCIAL STATEMENTS
INVESTMENT PORTFOLIO The investment portfolio details all of the fund's holdings and their market
value as of the last day of the reporting period. Portfolio holdings are
organized by type of asset, industry, country or geographic region (if
applicable) to demonstrate areas of concentration and diversification.
STATEMENT OF ASSETS AND LIABILITIES This statement details the fund's assets, liabilities, net assets and share
price for each share class as of the last day of the reporting period. Net
assets are calculated by subtracting all the fund's liabilities (including any
unpaid expenses) from the total of the fund's investment and non-investment
assets. The share price for each class is calculated by dividing net assets for
that class by the number of shares outstanding in that class as of the last day
of the reporting period.
STATEMENT OF OPERATIONS This statement details income earned by the fund and the expenses accrued by the
fund during the reporting period. The Statement of Operations also shows any net
gain or loss the fund realized on the sales of its holdings during the period,
as well as any unrealized gains or losses recognized over the period. The total
of these results represents the fund's net increase or decrease in net assets
from operations.
STATEMENT OF CHANGES IN NET ASSETS This statement demonstrates how the fund's net assets were affected by its
operating results, distributions to shareholders and shareholder transactions
(e.g., subscriptions, redemptions and dividend reinvestments) during the
reporting period. The Statement of Changes in Net Assets also details changes in
the number of shares outstanding.
NOTES TO FINANCIAL STATEMENTS These notes disclose the organizational background of the fund, its significant
accounting policies (including those surrounding security valuation, income
recognition and distributions to shareholders), federal tax information, fees
and compensation paid to affiliates and significant risks and contingencies.
FINANCIAL HIGHLIGHTS The financial highlights demonstrate how the fund's net asset value per share
was affected by the fund's operating results. The financial highlights table
also discloses the classes' performance and certain key ratios (e.g., class
expenses and net investment income as a percentage of average net assets).
</Table>
6
<Page>
INVESTMENT PORTFOLIO
MAY 31, 2004
COLUMBIA STRATEGIC INCOME FUND
<Table>
<Caption>
CORPORATE FIXED-INCOME
BONDS & NOTES - 40.5%
AGRICULTURE - 0.2% PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
AGRICULTURE PRODUCTION - 0.2%
SEMINIS VEGETABLE SEEDS, INC. 10.250% 10/01/13 (a) USD 2,832,000 3,058,560
Agriculture Production Total 3,058,560
-----------
AGRICULTURE TOTAL 3,058,560
CONSTRUCTION - 1.9%
BUILDING CONSTRUCTION - 1.9%
ASSOCIATED MATERIALS, INC. (b) 03/01/14
(11.250% 03/01/09) (a) 1,095,000 717,225
9.750% 04/15/12 1,995,000 2,184,525
ATRIUM COMPANIES, INC. 10.500% 05/01/09 (a) 1,130,000 1,186,500
10.500% 05/01/09 2,755,000 2,892,750
CONGOLEUM CORP. 8.625% 08/01/08 (c) 1,305,000 952,650
D.R. HORTON, INC. 9.750% 09/15/10 4,355,000 4,964,700
K. HOVNANIAN ENTERPRISES, INC. 8.875% 04/01/12 1,270,000 1,323,975
10.500% 10/01/07 1,470,000 1,686,825
NORTEK HOLDINGS, INC. (b) 05/15/11
(10.000% 11/15/07) (a) 3,025,000 2,253,625
STANDARD PACIFIC CORP. 9.250% 04/15/12 2,470,000 2,642,900
WII COMPONENTS, INC. 10.000% 02/15/12 (a) 1,760,000 1,733,600
WILLIAM LYON HOMES, INC. 10.750% 04/01/13 1,245,000 1,378,838
Building Construction Total 23,918,113
-----------
CONSTRUCTION TOTAL 23,918,113
CONSUMER STAPLES - 0.3%
HOUSEHOLD PRODUCTS - 0.3%
ELIZABETH ARDEN, INC. 7.750% 01/15/14 (a) 1,365,000 1,358,175
PLAYTEX PRODUCTS, INC. 9.375% 06/01/11 2,960,000 2,856,400
Household Products Total 4,214,575
-----------
CONSUMER STAPLES TOTAL 4,214,575
FINANCE, INSURANCE & REAL ESTATE - 1.8%
DEPOSITORY INSTITUTIONS - 0.3%
DOLLAR FINANCIAL GROUP 9.750% 11/15/11 2,120,000 2,162,400
WESTERN FINANCIAL BANK 9.625% 05/15/12 1,090,000 1,182,650
Depository Institutions Total 3,345,050
</Table>
See notes to investment portfolio.
7
<Page>
<Table>
<Caption>
PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES - 1.3%
FINOVA GROUP, INC. 7.500% 11/15/09 USD 3,035,929 1,669,761
GLOBAL CASH ACCESS LLC/
GLOBAL CASH FINANCE CORP. 8.750% 03/15/12 (a) 1,740,000 1,800,900
LABRANCHE & CO. 11.000% 05/15/12 (a) 2,720,000 2,774,400
MDP ACQUISITIONS PLC 9.625% 10/01/12 2,800,000 3,024,000
ORION POWER HOLDINGS, INC. 12.000% 05/01/10 1,405,000 1,707,075
PEMEX FINANCE LTD. 9.150% 11/15/18 2,485,000 3,024,444
10.610% 08/15/17 1,650,000 2,175,393
Financial Services Total 16,175,973
REAL ESTATE - 0.2%
FOREST CITY ENTERPRISES, INC. 7.625% 06/01/15 1,020,000 1,055,700
THORNBURG MORTGAGE, INC. 8.000% 05/15/13 1,545,000 1,521,825
Real Estate Total 2,577,525
-----------
FINANCE, INSURANCE &
REAL ESTATE TOTAL 22,098,548
MANUFACTURING - 11.3%
APPAREL - 0.5%
BRODER BROTHERS CO. 11.250% 10/15/10 1,360,000 1,312,400
LEVI STRAUSS & CO. 12.250% 12/15/12 2,180,000 1,983,800
PHILLIPS VAN-HEUSEN 7.250% 02/15/11 (a) 815,000 815,000
8.125% 05/01/13 850,000 879,750
WARNACO, INC. 8.875% 06/15/13 610,000 645,075
Apparel Total 5,636,025
AUTO PARTS & EQUIPMENT - 0.3%
DELCO REMY INTERNATIONAL, INC. 9.375% 04/15/12 (a) 340,000 328,950
11.000% 05/01/09 1,355,000 1,422,750
REXNORD CORP. 10.125% 12/15/12 1,040,000 1,123,200
TRW AUTOMOTIVE, INC. 9.375% 02/15/13 (a) 415,000 459,612
Auto Parts & Equipment Total 3,334,512
CHEMICALS & ALLIED PRODUCTS - 2.0%
AVECIA GROUP PLC 11.000% 07/01/09 2,320,000 1,705,200
EQUISTAR CHEMICALS FUNDING LP 10.125% 09/01/08 1,625,000 1,763,125
10.625% 05/01/11 1,125,000 1,231,875
HUNTSMAN ICI HOLDINGS LLC (d) 12/31/09 11,835,000 5,799,150
</Table>
See notes to investment portfolio.
8
<Page>
<Table>
<Caption>
PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
IMC GLOBAL, INC. 10.875% 08/01/13 (a) USD 1,835,000 2,202,000
INVISTA 9.250% 05/01/12 (a) 1,150,000 1,141,375
LYONDELL CHEMICAL CO. 9.625% 05/01/07 725,000 754,000
9.875% 05/01/07 1,350,000 1,404,000
NOVA CHEMICALS CORP. 6.500% 01/15/12 780,000 766,155
TERRA CAPITAL, INC. 12.875% 10/15/08 2,990,000 3,558,100
UAP HOLDING CORP. (b) 07/15/12
(10.750% 01/15/08) (a) 1,630,000 1,271,400
UNITED AGRICULTURE PRODUCTS, INC. 8.250% 12/15/11 (a) 1,395,000 1,562,400
WESTLAKE CHEMICAL CORP. 8.750% 07/15/11 (a) 1,180,000 1,274,400
Chemicals & Allied Products Total 24,433,180
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.3%
AMKOR TECHNOLOGY, INC. 9.250% 02/15/08 1,800,000 1,899,000
CONDOR SYSTEMS, INC. 11.875% 05/01/09 (e) 4,000,000 280,000
TRANSDIGM, INC. 8.375% 07/15/11 (a) 1,175,000 1,186,750
XEROX CORP. 7.125% 06/15/10 960,000 960,000
Electronic & Electrical
Equipment Total 4,325,750
FABRICATED METAL - 0.2%
EARLE M. JORGENSEN & CO. 9.750% 06/01/12 2,800,000 3,052,000
Fabricated Metal Total 3,052,000
FOOD & KINDRED PRODUCTS - 1.4%
CONSTELLATION BRANDS, INC. 8.125% 01/15/12 1,175,000 1,233,750
DEL MONTE CORP. 9.250% 05/15/11 1,600,000 1,716,000
DOLE FOOD CO., INC. 8.625% 05/01/09 1,485,000 1,499,850
MERISANT CO. 9.500% 07/15/13 (a) 1,205,000 1,289,350
PINNACLE FOODS HOLDINGS 8.250% 12/01/13 (a) 2,190,000 2,162,625
PREMIER INTERNATIONAL FOODS PLC 12.000% 09/01/09 4,600,000 4,887,500
ROUNDY'S, INC. 8.875% 06/15/12 2,615,000 2,798,050
TABLETOP HOLDINGS, INC. (b) 05/15/14
(12.250% 11/15/08) (a) 2,930,000 1,640,800
Food & Kindred Products Total 17,227,925
</Table>
See notes to investment portfolio.
9
<Page>
<Table>
<Caption>
PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
FURNITURE & FIXTURES - 0.3%
JUNO LIGHTING, INC. 11.875% 07/01/09 USD 1,862,000 1,983,030
NORCRAFT COMPANIES 9.000% 11/01/11 (a) 835,000 880,925
TEMPUR-PEDIC, INC. 10.250% 08/15/10 1,024,000 1,157,120
Furniture & Fixtures Total 4,021,075
LUMBER & WOOD PRODUCTS - 0.1%
MILLAR WESTERN FOREST PRODUCTS 7.750% 11/15/13 (a) 1,260,000 1,266,300
Lumber & Wood Products Total 1,266,300
MISCELLANEOUS MANUFACTURING - 2.4%
AMSCAN HOLDINGS, INC. 8.750% 05/01/14 (a) 1,855,000 1,845,725
APPLIED EXTRUSION TECHNOLOGIES, INC. 10.750% 07/01/11 1,620,000 1,028,700
CROWN EUROPEAN HOLDINGS SA 10.875% 03/01/13 1,800,000 2,016,000
FASTENTECH, INC. 11.500% 05/01/11 (a) 2,475,000 2,660,625
FLOWSERVE CORP. 12.250% 08/15/10 1,889,000 2,134,570
HEXCEL CORP. 9.750% 01/15/09 1,385,000 1,443,863
J.B. POINDEXTER & CO. 8.750% 03/15/14 (a) 1,835,000 1,807,475
KOPPERS INDUSTRIES, INC. 9.875% 10/15/13 (a) 2,180,000 2,343,500
MAAX CORP. 9.750% 06/15/12 (a)(f) 1,080,000 1,107,000
MUELLER GROUP, INC. 10.000% 05/01/12 (a) 1,580,000 1,619,500
NEWCOR, INC., PIK 8.500% 01/31/13 (g) 847,510 516,981
OWENS-ILLINOIS, INC. 7.350% 05/15/08 1,950,000 1,872,000
7.500% 05/15/10 440,000 413,600
SPX CORP. 7.500% 01/01/13 1,575,000 1,602,562
SUPERIOR ESSEX COMMUNICATIONS GROUP 9.000% 04/15/12 (a) 1,420,000 1,356,100
TEKNI-PLEX, INC. 12.750% 06/15/10 2,715,000 2,715,000
TEREX CORP. Series 2001 B,
10.375% 04/01/11 1,700,000 1,887,000
TRINITY INDUSTRIES, INC. 6.500% 03/15/14 (a) 740,000 695,600
VALMONT INDUSTRIES, INC. 6.875% 05/01/14 (a) 570,000 558,600
Miscellaneous Manufacturing Total 29,624,401
</Table>
See notes to investment portfolio.
10
<Page>
<Table>
<Caption>
PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
PAPER PRODUCTS - 0.8%
BUCKEYE TECHNOLOGIES, INC. 8.500% 10/01/13 (a) USD 390,000 397,800
CARAUSTAR INDUSTRIES, INC. 9.875% 04/01/11 1,605,000 1,596,975
CONSOLIDATED CONTAINER CO. (b) 06/15/09
(10.750% 06/15/07) (a) 1,500,000 1,117,500
GEORGIA-PACIFIC CORP. 8.000% 01/15/24 (a) 750,000 729,375
NEWARK GROUP, INC. 9.750% 03/15/14 (a) 1,100,000 1,039,500
NORSKE SKOG CANADA LTD. 7.375% 03/01/14 (a) 565,000 552,491
8.625% 06/15/11 850,000 896,750
PORTOLA PACKAGING, INC. 8.250% 02/01/12 (a) 1,170,000 976,950
SMURFIT-STONE CONTAINER CORP. 8.250% 10/01/12 1,600,000 1,624,000
SOLO CUP CO. 8.500% 02/15/14 (a) 775,000 775,000
TEMBEC INDUSTRIES, INC. 8.500% 02/01/11 610,000 603,900
Paper Products Total 10,310,241
PRIMARY METAL - 0.7%
BAYOU STEEL CORP. 9.000% 03/31/11 750,000 678,750
KAISER ALUMINUM & CHEMICAL CORP. 10.875% 10/15/06 (e) 3,200,000 3,168,000
METALLURG, INC. 11.000% 12/01/07 2,200,000 1,056,000
OREGON STEEL MILLS, INC. 10.000% 07/15/09 1,405,000 1,447,150
STEEL DYNAMICS, INC. 9.500% 03/15/09 (a) 460,000 503,700
9.500% 03/15/09 480,000 525,600
WISE METALS GROUP LLC 10.250% 05/15/12 (a) 1,725,000 1,742,250
Primary Metal Total 9,121,450
PRINTING & PUBLISHING - 1.7%
DEX MEDIA, INC. (b) 11/15/13
(9.000% 11/15/08) (a) 1,375,000 886,875
8.000% 11/15/13 (a) 1,800,000 1,710,000
DEX MEDIA EAST LLC 12.125% 11/15/12 3,080,000 3,588,200
DEX MEDIA WEST LLC 9.875% 08/15/13 1,660,000 1,828,075
HAIGHTS CROSS COMMUNICATIONS, INC. (b) 08/15/11
(12.500% 02/01/09) (a) 1,735,000 945,575
11.750% 08/15/11 1,600,000 1,720,000
</Table>
See notes to investment portfolio.
11
<Page>
<Table>
<Caption>
PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
HOLLINGER, INC.
11.875% 03/01/11 (a) USD 1,780,000 2,069,250
PRIMEDIA, INC. 8.875% 05/15/11 2,330,000 2,324,175
SHERIDAN GROUP 10.250% 08/15/11 (a) 1,290,000 1,364,175
VON HOFFMAN CORP. 10.250% 03/15/09 3,250,000 3,233,750
YELL FINANCE BV 10.750% 08/01/11 1,560,000 1,809,600
Printing & Publishing Total 21,479,675
STONE, CLAY, GLASS & CONCRETE - 0.2%
OWENS-BROCKWAY GLASS CONTAINER 8.250% 05/15/13 340,000 336,600
US CONCRETE, INC. 8.375% 04/01/14 (a) 1,480,000 1,468,900
Stone, Clay, Glass & Concrete Total 1,805,500
TEXTILE MILL PRODUCTS - 0.1%
COLLINS & AIKMAN FLOOR COVERING, INC. 9.750% 02/15/10 1,400,000 1,421,000
Textile Mill Products Total 1,421,000
TOBACCO PRODUCTS - 0.1%
NORTH ATLANTIC TRADING 9.250% 03/01/12 (a) 1,245,000 1,241,887
Tobacco Products Total 1,241,887
TRANSPORTATION EQUIPMENT - 0.2%
SEQUA CORP. 8.875% 04/01/08 1,160,000 1,229,600
TEEKAY SHIPPING CORP. 8.875% 07/15/11 700,000 766,500
Transportation Equipment Total 1,996,100
-----------
MANUFACTURING TOTAL 140,297,021
MINING & ENERGY - 4.0%
METAL MINING - 0.3%
TRIMAS CORP. 9.875% 06/15/12 4,165,000 4,435,725
Metal Mining Total 4,435,725
OIL & GAS EXTRACTION - 3.5%
BENTON OIL & GAS CO. 9.375% 11/01/07 2,445,000 2,493,900
CHESAPEAKE ENERGY CORP. 7.500% 06/15/14 (a) 720,000 741,600
COASTAL CORP. 7.750% 06/15/10 3,550,000 3,124,000
COMPTON PETROLEUM CORP. 9.900% 05/15/09 2,200,000 2,387,000
DENBURY RESOURCES, INC. 7.500% 04/01/13 455,000 455,000
DYNEGY HOLDINGS, INC. 6.875% 04/01/11 1,895,000 1,553,900
9.875% 07/15/10 (a) 960,000 1,008,000
</Table>
See notes to investment portfolio.
12
<Page>
<Table>
<Caption>
PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
ENCORE ACQUISITION CO. 8.375% 06/15/12 USD 1,885,000 1,998,100
ENERGY PARTNERS LTD. 8.750% 08/01/10 1,150,000 1,190,250
FOREST OIL CORP. 8.000% 06/15/08 2,405,000 2,531,262
GAZPROM 9.625% 03/01/13 5,760,000 5,909,760
MAGNUM HUNTER RESOURCES, INC. 9.600% 03/15/12 2,265,000 2,468,850
NORTHWEST PIPELINE CORP. 8.125% 03/01/10 760,000 816,050
PDVSA FINANCE LTD. 6.250% 02/15/06 EUR 2,629,900 3,171,100
PREMCOR REFINING GROUP 7.500% 06/15/15 USD 1,430,000 1,458,600
SONAT, INC. 6.875% 06/01/05 1,000,000 1,002,500
7.625% 07/15/11 4,230,000 3,690,675
SOUTHERN NATURAL GAS CO. 8.875% 03/15/10 1,335,000 1,448,475
TRANSTEXAS GAS CORP. 15.000% 03/15/05 (g)(h) 465,296 5
WHITING PETROLEUM CORP. 7.250% 05/01/12 (a) 2,290,000 2,295,725
WILLIAMS COMPANIES, INC. 8.125% 03/15/12 3,330,000 3,513,150
Oil & Gas Extraction Total 43,257,902
OIL & GAS FIELD SERVICES - 0.2%
J. RAY McDERMOTT SA 11.000% 12/15/13 (a) 1,010,000 956,975
NEWPARK RESOURCES, INC. 8.625% 12/15/07 1,560,000 1,599,000
Oil & Gas Field Services Total 2,555,975
-----------
MINING & ENERGY TOTAL 50,249,602
RETAIL TRADE - 0.6%
MISCELLANEOUS RETAIL - 0.6%
FINLAY FINE JEWELRY CORP. 8.375% 06/01/12 (a)(f) 1,460,000 1,485,550
LEINER HEALTH PRODUCTS 11.000% 06/01/12 (a) 430,000 445,050
NEBRASKA BOOK CO. 8.625% 03/15/12 (a) 1,100,000 1,086,250
RITE AID CORP. 9.250% 06/01/13 2,435,000 2,495,875
SAKS, INC. 7.000% 12/01/13 533,000 525,005
STEINWAY MUSICAL INSTRUMENTS, INC. 8.750% 04/15/11 1,260,000 1,360,800
Miscellaneous Retail Total 7,398,530
-----------
RETAIL TRADE TOTAL 7,398,530
</Table>
See notes to investment portfolio.
13
<Page>
<Table>
<Caption>
PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
SERVICES - 6.9%
AMUSEMENT & RECREATION - 3.6%
AMERICAN CASINO & ENTERTAINMENT 7.850% 02/01/12 (a) USD 2,130,000 2,135,325
AMERISTAR CASINOS, INC. 10.750% 02/15/09 1,750,000 2,003,750
AMF BOWLING WORLDWIDE, INC. 10.000% 03/01/10 (a) 1,340,000 1,360,100
BOMBARDIER RECREATIONAL 8.375% 12/15/13 (a) 2,605,000 2,448,700
BOYD GAMING CORP. 8.750% 04/15/12 780,000 828,750
CINEMARK, INC. (b) 03/15/14
(9.750% 03/15/09) (a) 2,290,000 1,454,150
CIRCUS & ELDORADO/SILVER
LEGACY CAPITAL CORP. 10.125% 03/01/12 1,495,000 1,491,263
EQUINOX HOLDINGS, INC. 9.000% 12/15/09 (a) 2,130,000 2,140,650
HOLLYWOOD CASINO SHREVEPORT 13.000% 08/01/06 (h) 5,220,000 3,862,800
INN OF THE MOUNTAIN GODS RESORT 12.000% 11/15/10 (a) 1,360,000 1,475,600
MOHEGAN TRIBAL GAMING AUTHORITY 8.000% 04/01/12 1,575,000 1,661,625
8.375% 07/01/11 1,285,000 1,374,950
PARK PLACE ENTERTAINMENT CORP. 9.375% 02/15/07 660,000 712,800
PINNACLE ENTERTAINMENT, INC. 8.250% 03/15/12 (a) 3,500,000 3,316,250
8.750% 10/01/13 1,990,000 1,950,200
PREMIER ENTERTAINMENT BILOXI FINANCIAL 10.750% 02/01/12 (a) 1,120,000 1,178,800
RIVER ROCK ENTERTAINMENT 9.750% 11/01/11 (a) 1,830,000 1,939,800
SENECA GAMING CORP. 7.250% 05/01/12 (a) 1,860,000 1,841,400
SIX FLAGS, INC. 9.500% 02/01/09 4,045,000 4,120,844
STATION CASINOS, INC. 6.000% 04/01/12 925,000 881,062
6.875% 03/01/16 1,590,000 1,502,550
TOWN SPORTS INTERNATIONAL, INC. (b) 02/01/14
(11.000% 02/01/09) (a) 2,250,000 1,113,750
VAIL RESORTS, INC. 6.750% 02/15/14 (a) 1,420,000 1,320,600
WARNER MUSIC GROUP 7.375% 04/15/14 (a) 1,820,000 1,774,500
WYNN LAS VEGAS LLC 12.000% 11/01/10 1,190,000 1,392,300
Amusement & Recreation Total 45,282,519
</Table>
See notes to investment portfolio.
14
<Page>
<Table>
<Caption>
PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
AUTO EQUIPMENT & RENTAL SERVICES - 1.0%
ACCURIDE CORP. 9.250% 02/01/08 USD 875,000 890,313
ASBURY AUTOMOTIVE GROUP 8.000% 03/15/14 1,630,000 1,507,750
DANA CORP. 9.000% 08/15/11 784,000 887,880
DURA OPERATING CORP. 8.625% 04/15/12 2,125,000 2,146,250
9.000% 05/01/09 1,780,000 1,726,600
NATIONSRENT, INC. 9.500% 10/15/10 (a) 2,475,000 2,623,500
NAVISTAR INTERNATIONAL 7.500% 06/15/11 (f) 755,000 756,888
WILLIAMS SCOTSMAN, INC. 9.875% 06/01/07 1,130,000 1,113,050
Auto Equipment & Rental
Services Total 11,652,231
BUSINESS SERVICES - 0.1%
STRATUS TECHNOLOGIES, INC. 10.375% 12/01/08 (a) 1,135,000 1,106,625
Business Services Total 1,106,625
FUNERAL SERVICES - 0.2%
SERVICE CORP. INTERNATIONAL 7.700% 04/15/09 2,385,000 2,468,475
Funeral Services Total 2,468,475
HEALTH SERVICES - 1.6%
BIO-RAD LABORATORIES, INC. 7.500% 08/15/13 2,020,000 2,090,700
COVENTRY HEALTH CARE, INC. 8.125% 02/15/12 2,550,000 2,843,250
HCA, INC. 8.750% 09/01/10 1,815,000 2,041,076
INSIGHT HEALTH SERVICES CORP. 9.875% 11/01/11 2,160,000 2,197,800
MEDQUEST, INC. 11.875% 08/15/12 2,700,000 3,037,500
PACIFICARE HEALTH SYSTEMS, INC. 10.750% 06/01/09 591,000 675,218
TEAM HEALTH, INC. 9.000% 04/01/12 (a) 1,600,000 1,512,000
TENET HEALTHCARE CORP. 5.375% 11/15/06 675,000 636,188
6.375% 12/01/11 3,080,000 2,618,000
UNITED SURGICAL
PARTNERS INTERNATIONAL, INC. 10.000% 12/15/11 2,235,000 2,519,962
Health Services Total 20,171,694
HOTELS, CAMPS & LODGING - 0.2%
HARD ROCK HOTEL, INC. 8.875% 06/01/13 1,240,000 1,258,600
STARWOOD HOTELS & RESORTS WORLDWIDE, INC. 7.875% 05/01/12 (a) 1,505,000 1,584,012
Hotels, Camps & Lodging Total 2,842,612
</Table>
See notes to investment portfolio.
15
<Page>
<Table>
<Caption>
PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
OTHER SERVICES - 0.2%
CORRECTIONS CORP. OF AMERICA 9.875% 05/01/09 USD 850,000 939,250
GEO GROUP, INC. 8.250% 07/15/13 940,000 925,900
Other Services Total 1,865,150
-----------
SERVICES TOTAL 85,389,306
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 13.1%
AEROSPACE - 0.2%
BE AEROSPACE, INC. 8.875% 05/01/11 2,095,000 1,979,775
VOUGHT AIRCRAFT INDUSTRIES, INC. 8.000% 07/15/11 (a) 965,000 923,987
Aerospace Total 2,903,762
AIR TRANSPORTATION - 0.9%
CHC HELICOPTER CORP. 7.375% 05/01/14 (a) 1,450,000 1,417,375
CONTINENTAL AIRLINES, INC. 7.568% 12/01/06 2,170,000 1,833,650
DELTA AIR LINES, INC. 7.900% 12/15/09 2,965,000 1,482,500
NORTHWEST AIRLINES, INC. 9.875% 03/15/07 2,520,000 1,864,800
PETROLEUM HELICOPTERS, INC. 9.375% 05/01/09 2,710,000 2,818,400
UNITED AIRLINES 1.340% 03/02/49 (i) 1,932,885 1,807,247
Air Transportation Total 11,223,972
BROADCASTING - 1.7%
ADVANSTAR COMMUNICATIONS, INC. 12.000% 02/15/11 3,395,000 3,598,700
CANWEST MEDIA, INC. 10.625% 05/15/11 2,465,000 2,760,800
GRANITE BROADCASTING CORP. 9.750% 12/01/10 (a) 2,290,000 2,186,950
QUEBECOR MEDIA, INC. 11.125% 07/15/11 3,500,000 3,963,750
SINCLAIR BROADCAST GROUP, INC. 8.750% 12/15/11 960,000 1,027,200
SPANISH BROADCASTING SYSTEM 9.625% 11/01/09 2,450,000 2,584,750
TV AZTECA SA DE CV 10.500% 02/15/07 3,755,000 3,745,612
XM SATELLITE RADIO, INC. 6.650% 05/01/09 (a)(i) 1,380,000 1,380,000
Broadcasting Total 21,247,762
CABLE - 2.1%
ATLANTIC BROADBAND FINANCIAL 9.375% 01/15/14 (a) 1,965,000 1,827,450
CABLEVISION SYSTEMS CORP. 5.670% 04/01/09 (a)(i) 1,580,000 1,611,600
</Table>
See notes to investment portfolio.
16
<Page>
<Table>
<Caption>
PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CHARTER COMMUNICATIONS HOLDING LLC 9.920% 04/01/11 USD 9,635,000 7,876,613
10.250% 09/15/10 (a) 1,130,000 1,146,950
CSC HOLDINGS, INC. 6.750% 04/15/12 (a) 910,000 873,600
7.625% 04/01/11 180,000 182,250
DIRECTV HOLDINGS LLC 8.375% 03/15/13 1,800,000 1,998,000
ECHOSTAR DBS CORP. 6.375% 10/01/11 (a) 2,460,000 2,398,500
INSIGHT COMMUNICATIONS, INC. (b) 02/15/11
(12.250% 02/15/06) 2,485,000 2,186,800
NORTHLAND CABLE TELEVISION, INC. 10.250% 11/15/07 2,835,000 2,785,388
NTL CABLE PLC 8.750% 04/15/14 (a) 1,365,000 1,385,475
PEGASUS SATELLITE COMMUNICATIONS, INC. 11.250% 01/15/10 (a)(e) 1,090,000 599,500
TELENET GROUP HOLDING NV (b) 06/15/14
(11.500% 12/15/08) (a) 2,210,000 1,359,150
Cable Total 26,231,276
COMMUNICATION SERVICES - 0.5%
FAIRPOINT COMMUNICATIONS 11.875% 03/01/10 1,670,000 1,895,450
LUCENT TECHNOLOGIES, INC. 6.450% 03/15/29 1,100,000 830,500
SBA COMMUNICATIONS CORP. (b) 12/15/11
(9.750% 12/15/07) (a) 1,100,000 805,750
10.250% 02/01/09 3,245,000 3,220,662
Communications Services Total 6,752,362
ELECTRIC, GAS & SANITARY SERVICES - 0.6%
ALLIED WASTE NORTH AMERICA, INC. 6.500% 11/15/10 (a) 1,855,000 1,794,713
Series 2001 B,
8.500% 12/01/08 3,600,000 3,888,000
WASTE SERVICES, INC. 9.500% 04/15/14 (a) 1,170,000 1,178,775
Electric, Gas & Sanitary
Services Total 6,861,488
ELECTRIC SERVICES - 2.4%
AES CORP. 9.000% 05/15/15 (a) 2,985,000 3,164,100
9.500% 06/01/09 1,646,000 1,711,840
BEAVER VALLEY FUNDING CORP. 9.000% 06/01/17 2,260,000 2,553,800
CAITHNESS COSO FUNDING CORP. 9.050% 12/15/09 2,720,250 2,937,870
CALPINE CORP. 8.500% 07/15/10 (a) 2,080,000 1,742,000
CMS ENERGY CORP. 8.900% 07/15/08 2,360,000 2,472,100
</Table>
See notes to investment portfolio.
17
<Page>
<Table>
<Caption>
PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
EDISON MISSION ENERGY 9.875% 04/15/11 USD 2,290,000 2,290,000
ILLINOVA POWER CO. 11.500% 12/15/10 850,000 1,000,875
MSW ENERGY HOLDINGS FINANCE 7.375% 09/01/10 (a) 800,000 788,000
8.500% 09/01/10 (a) 2,250,000 2,328,750
NEVADA POWER CO. 9.000% 08/15/13 (a) 1,060,000 1,146,125
10.875% 10/15/09 2,025,000 2,278,125
PSE&G ENERGY HOLDINGS, INC. 8.625% 02/15/08 2,495,000 2,682,125
UCAR FINANCE, INC. 10.250% 02/15/12 2,200,000 2,431,000
Electric Services Total 29,526,710
MARINE SERVICES - 0.4%
SHIP FINANCE INTERNATIONAL LTD. 8.500% 12/15/13 (a) 3,230,000 3,010,941
STENA AB 7.500% 11/01/13 900,000 904,500
9.625% 12/01/12 1,425,000 1,610,250
Marine Services Total 5,525,691
MOTOR FREIGHT & WAREHOUSING - 0.3%
ALLIED HOLDINGS, INC. 8.625% 10/01/07 1,410,000 1,328,925
QDI CAPITAL CORP. 9.000% 11/15/10 (a) 2,060,000 1,936,400
Motor Freight & Warehousing Total 3,265,325
RADIO & TELEPHONE COMMUNICATIONS - 1.9%
AIRGATE PCS, INC. 9.375% 09/01/09 362,600 355,348
AMERICAN CELLULAR CORP. Series B,
10.000% 08/01/11 1,430,000 1,254,825
CINCINNATI BELL, INC. 8.375% 01/15/14 1,815,000 1,633,500
DOBSON COMMUNICATIONS CORP. 8.875% 10/01/13 2,580,000 2,018,850
HORIZON PCS, INC. 13.750% 06/15/11 (e) 2,975,000 1,041,250
iPCS ESCROW CO. 11.500% 05/01/12 (a) 705,000 715,575
NEXTEL COMMUNICATIONS, INC. 7.375% 08/01/15 4,200,000 4,242,000
NEXTEL PARTNERS, INC. 8.125% 07/01/11 2,425,000 2,485,625
ROGERS CANTEL, INC. 9.750% 06/01/16 3,350,000 3,852,500
RURAL CELLULAR CORP. 8.250% 03/15/12 (a) 1,095,000 1,125,112
US UNWIRED, INC. (b) 11/01/09
(13.375% 11/01/04) 4,535,000 4,716,400
Radio & Telephone
Communications Total 23,440,985
</Table>
See notes to investment portfolio.
18
<Page>
<Table>
<Caption>
PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
RAILROAD - 0.3%
KANSAS CITY SOUTHERN 7.500% 06/15/09 USD 1,285,000 1,297,850
TFM SA DE CV 12.500% 06/15/12 2,210,000 2,342,600
Railroad Total 3,640,450
TELECOMMUNICATION SERVICES - 1.8%
AMERICAN TOWERS, INC. 7.250% 12/01/11 (a) 1,150,000 1,144,250
AXTEL SA 11.000% 12/15/13 (a) 2,260,000 2,124,400
CARRIER1 INTERNATIONAL SA 13.250% 02/15/09 (e) 6,000,000 540,000
INSIGHT MIDWEST 9.750% 10/01/09 (a) 1,385,000 1,457,712
LEVEL 3 COMMUNICATIONS 10.500% 12/01/08 2,370,000 1,824,900
QWEST CAPITAL FUNDING 7.250% 02/15/11 4,830,000 3,996,825
7.750% 02/15/31 2,065,000 1,600,375
QWEST SERVICES CORP. 13.500% 12/15/10 (a) 3,700,000 4,259,625
SPECTRASITE, INC. 8.250% 05/15/10 (a) 1,120,000 1,159,200
TIME WARNER TELECOM, INC. 9.750% 07/15/08 2,120,000 1,982,200
10.125% 02/01/11 750,000 678,750
WESTERN WIRELESS CORP. 9.250% 07/15/13 2,015,000 2,083,006
Telecommunication Services Total 22,851,243
-----------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY
SERVICES TOTAL 163,471,026
UTILITY -- 0.4%
INDEPENDENT POWER PRODUCERS - 0.4%
CALPINE CANADA ENERGY FINANCE 8.500% 05/01/08 1,155,000 687,225
CALPINE GENERATING CO. 10.250% 04/01/11 (a)(i) 2,030,000 1,786,400
11.500% 04/01/11 (a) 2,260,000 1,943,600
NRG ENERGY, INC. 8.000% 12/15/13 (a) 775,000 775,000
Independent Power Producers Total 5,192,225
-----------
UTILITY TOTAL 5,192,225
-----------
TOTAL CORPORATE
FIXED-INCOME BONDS & NOTES
(COST OF $494,445,394) 505,287,506
</Table>
See notes to investment portfolio.
19
<Page>
<Table>
<Caption>
U.S. GOVERNMENT AGENCIES &
OBLIGATIONS - 25.2% PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. 5.000% 08/25/10 USD 8,600,000 8,616,529
7.500% 03/01/16 12,588 13,134
8.000% 04/01/06-05/01/16 93,952 98,086
8.500% 02/01/07-07/01/10 86,168 91,609
8.750% 06/01/08-07/01/08 14,913 15,842
9.000% 09/01/04-01/01/22 104,072 113,970
9.250% 08/01/08-05/01/16 96,228 106,065
9.500% 11/01/08-08/01/16 72,903 79,326
9.750% 12/01/08-09/01/16 11,720 12,754
10.000% 07/01/09-11/01/19 155,747 170,168
10.500% 11/01/11-10/01/24 104,198 117,230
10.750% 05/01/10-09/01/13 179,030 198,097
11.250% 10/01/10-11/01/15 151,144 169,472
Federal Home Loan
Mortgage Corp. Total 9,802,282
FEDERAL NATIONAL MORTGAGE ASSOCIATION 7.500% 02/01/06-11/01/11 29,609 30,369
8.000% 07/01/08-07/01/09 61,408 65,079
8.250% 11/01/07 31,038 31,961
8.500% 05/01/08-09/01/21 186,983 198,403
9.000% 11/01/08-08/01/21 502,849 547,762
9.250% 05/01/16 97,593 109,037
10.000% 11/01/13-03/01/16 277,720 310,749
10.500% 09/01/07-03/01/16 286,829 320,759
To Be Announced,
6.500% 06/03/34 (f) 60,590,000 62,729,554
Federal National
Mortgage Association Total 64,343,673
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 8.500% 02/15/06 3,670 3,873
9.000% 08/15/08-12/15/17 1,524,676 1,697,773
9.500% 06/15/09-11/15/17 739,141 815,584
10.000% 11/15/09-09/15/21 191,939 213,873
10.500% 12/15/10-04/15/21 59,119 66,442
11.000% 12/15/09-10/15/15 330,331 372,380
11.750% 08/15/13 9,051 10,250
12.000% 05/15/14 549 628
Government National
Mortgage Association Total 3,180,803
U.S. TREASURY NOTES & BONDS 4.875% 02/15/12 3,500,000 3,603,495
7.500% 11/15/24 12,000,000 15,109,692
8.875% 02/15/19 9,000,000 12,411,207
10.375% 11/15/12 52,000,000 63,911,224
10.625% 08/15/15 29,415,000 44,076,554
11.625% 11/15/04 23,600,000 24,689,659
12.500% 08/15/14 52,151,000 73,145,845
U.S. Treasury
Notes & Bonds Total 236,947,676
-----------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS
(COST OF $330,374,314) 314,274,434
</Table>
See notes to investment portfolio.
20
<Page>
<Table>
<Caption>
FOREIGN GOVERNMENT OBLIGATIONS - 32.7% PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
EUROPEAN INVESTMENT BANK 7.625% 12/07/07 GBP 5,110,000 9,997,856
GOVERNMENT OF CANADA 10.000% 06/01/08 CAD 24,110,000 21,676,816
GOVERNMENT OF HUNGARY 6.250% 06/12/07 HUF 750,000,000 3,298,170
GOVERNMENT OF NEW ZEALAND 6.000% 11/15/11 NZD 21,400,000 13,335,261
6.500% 04/15/13 27,600,000 17,713,017
GOVERNMENT OF NORWAY 5.500% 05/15/09 NOK 41,770,000 6,600,721
GOVERNMENT OF SWEDEN 5.000% 01/28/09 SEK 153,580,000 21,526,499
5.500% 10/08/12 54,300,000 7,769,005
6.750% 05/05/14 35,625,000 5,559,656
KINGDOM OF SPAIN 5.500% 07/30/17 EUR 7,635,000 10,145,152
MINISTRY OF FINANCE RUSSIA 12.750% 06/24/28 USD 7,430,000 10,818,080
POLAND GOVERNMENT BOND 8.500% 05/12/07 PLN 29,915,000 8,080,101
REPUBLIC OF BRAZIL 2.125% 04/15/12 (i) USD 3,952,956 3,231,542
9.250% 10/22/10 4,180,000 3,866,500
11.000% 08/17/40 3,725,000 3,337,600
11.500% 04/02/09 EUR 4,250,000 5,304,671
14.500% 10/15/09 USD 12,750,000 14,439,375
REPUBLIC OF BULGARIA 2.000% 07/28/24 (i) 8,160,000 8,139,600
8.250% 01/15/15 4,215,000 4,720,800
REPUBLIC OF COLOMBIA 10.000% 01/23/12 5,523,000 5,536,807
10.750% 01/15/13 2,830,000 2,929,050
11.500% 05/31/11 EUR 3,010,000 4,061,275
11.750% 02/25/20 USD 4,620,000 4,885,650
REPUBLIC OF GERMANY 5.375% 01/04/10 EUR 10,660,000 14,089,001
6.000% 07/04/07 10,280,000 13,596,657
REPUBLIC OF GREECE 5.350% 05/18/11 10,000,000 13,145,377
REPUBLIC OF ITALY 5.000% 02/01/12 23,170,000 29,819,608
REPUBLIC OF PANAMA 8.125% 04/28/34 USD 3,300,000 2,937,000
8.875% 09/30/27 3,230,000 3,076,575
REPUBLIC OF PERU 9.875% 02/06/15 6,100,000 6,161,000
REPUBLIC OF PHILIPPINES 8.250% 01/15/14 3,325,000 3,135,475
REPUBLIC OF SOUTH AFRICA 5.250% 05/16/13 EUR 7,230,000 8,475,067
6.500% 06/02/14 (f) USD 4,400,000 4,391,200
13.000% 08/31/10 ZAR 49,400,000 8,481,436
</Table>
See notes to investment portfolio.
21
<Page>
<Table>
<Caption>
PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
REPUBLIC OF VENEZUELA 9.250% 09/15/27 USD 6,945,000 5,851,162
RUSSIAN FEDERATION 5.000% 03/31/30 8,260,000 7,526,925
11.000% 07/24/18 5,752,000 7,221,636
TREASURY OF CORP. OF VICTORIA 7.500% 08/15/08 AUD 21,815,000 16,567,745
UNITED KINGDOM TREASURY 5.000% 03/07/12 GBP 7,630,000 13,823,152
7.500% 12/07/06 5,410,000 10,474,049
9.000% 07/12/11 4,750,000 10,667,454
UNITED MEXICAN STATES 7.500% 03/08/10 EUR 5,040,000 6,886,431
7.500% 04/08/33 USD 16,450,000 16,055,200
11.375% 09/15/16 2,580,000 3,612,000
WESTERN AUSTRALIA TREASURY CORP. 7.000% 04/15/11 AUD 6,100,000 4,591,382
-----------
TOTAL FOREIGN
GOVERNMENT OBLIGATIONS
(COST OF $393,942,290) 407,558,736
CONVERTIBLE BONDS - 0.7%
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 0.6%
COMMUNICATION SERVICES - 0.3%
COLT TELECOM GROUP PLC 2.000% 03/29/06 (a) EUR 1,615,000 2,139,616
2.000% 12/16/06 (a) 750,000 1,018,814
Communication
Services Total 3,158,430
RADIO & TELEPHONE COMMUNICATIONS - 0.3%
NORTEL NETWORKS CORP. 4.250% 09/01/08 4,640,000 4,251,539
Radio & Telephone
Communications Total 4,251,539
-----------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY
SERVICES TOTAL 7,409,969
UTILITY - 0.1%
INDEPENDENT POWER PRODUCERS - 0.1%
MIRANT CORP. 2.500% 06/15/21 (e) USD 1,565,000 869,185
Independent Power Producers Total 869,185
UTILITY TOTAL 869,185
-----------
TOTAL CONVERTIBLE BONDS
(COST OF $7,129,608) 8,279,154
</Table>
See notes to investment portfolio.
22
<Page>
<Table>
<Caption>
SHORT-TERM OBLIGATION - 5.0% PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with State Street
Bank & Trust Co., dated 05/28/04,
due 06/01/04 at 0.930%, collateralized
by U.S. Treasury Bonds with various
maturities to 08/15/23, market value
$63,302,290 (repurchase proceeds
$62,057,412) (Cost of $62,051,000) USD 62,051,000 62,051,000
TOTAL INVESTMENTS - 104.1%
(COST OF $1,287,942,606)(j) 1,297,450,830
OTHER ASSETS & LIABILITIES, NET - (4.1)% (50,987,431)
NET ASSETS - 100.0% 1,246,463,399
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) Security exempt from registration pursuant to Rule 144A under the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
May 31, 2004, these securities amounted to $156,880,532, which represents
12.6% of net assets.
(b) Step bond. This security is currently accruing at zero. Shown
parenthetically is the interest rate to be paid and the date the Fund will
begin accruing at this rate.
(c) The issuer has filed for bankruptcy protection under Chapter 11 and is in
default of certain debt covenants, however, under the issuer's plan of
reorganization, the issuer has guaranteed all interest due and therefore
income is still being accrued. As of May 31, 2004, the value of this
security represents 0.1% of net assets.
(d) Zero coupon bond.
(e) The issuer has filed for bankruptcy protection under Chapter 11, and is in
default of certain debt covenants. Income is not being accrued. As of May
31, 2004, the value of these securities amounted to $6,497,935, which
represents 0.5% of net assets.
(f) Security purchased on a delayed delivery basis.
(g) Represents fair value as determined in good faith under procedures approved
by the Board of Trustees.
(h) The issuer is in default of certain debt covenants. Income is not being
accrued. As of May 31, 2004, the value of these securities amounted to
$3,862,805, which represents 0.3% of net assets.
(i) Variable rate security. The interest rate shown reflects the rate as of May
31, 2004.
(j) Cost for federal income tax purposes is $1,306,682,729.
See notes to financial statements.
23
<Page>
As of May 31, 2004, the Fund had entered into the following forward currency
exchange contracts:
<Table>
<Caption>
FORWARD CURRENCY AGGREGATE SETTLEMENT UNREALIZED
CONTRACTS TO BUY VALUE FACE VALUE DATE APPRECIATION
- -------------------------------------------------------------------------------------------
EUR 750,000 $ 915,921 $ 904,875 06/10/04 $ 11,046
<Caption>
FORWARD CURRENCY AGGREGATE SETTLEMENT UNREALIZED
CONTRACTS TO SELL VALUE FACE VALUE DATE DEPRECIATION
- -------------------------------------------------------------------------------------------
EUR 2,461,700 $ 3,006,297 $ 2,970,041 06/10/04 $ (36,256)
EUR 13,480,000 16,459,091 16,041,200 06/17/04 (417,891)
EUR 4,462,500 5,447,125 5,341,613 06/28/04 (105,512)
EUR 3,751,000 4,578,636 4,489,947 06/28/04 (88,689)
EUR 8,742,000 10,670,871 10,466,797 06/28/04 (204,074)
EUR 4,135,000 5,047,364 4,953,317 06/28/04 (94,047)
EUR 8,578,000 10,470,685 10,267,866 06/28/04 (202,819)
GBP 3,530,000 6,456,005 6,240,687 06/21/04 (215,318)
-------------
$ (1,364,606)
-------------
</Table>
<Table>
<Caption>
ACRONYM NAME
- -------------------------------------------------------------------------------------------
AUD Australian Dollar
CAD Canadian Dollar
EUR Euro Currency
GBP British Pound
HUF Hungarian Forint
NOK Norwegian Krona
NZD New Zealand Dollar
PIK Payment-In-Kind
PLN Polish Zloty
SEK Swedish Krona
USD United States Dollar
ZAR South African Rand
</Table>
See notes to financial statements.
24
<Page>
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2004 COLUMBIA STRATEGIC INCOME FUND
<Table>
<Caption>
($)
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS Investments, at cost 1,287,942,606
-------------
Investments, at value 1,297,450,830
Foreign currency (cost of $64) 64
Net unrealized appreciation on foreign foreign currency
contracts 11,046
Receivable for:
Investments sold 6,899,955
Fund shares sold 649,013
Interest 24,225,659
Foreign tax reclaim 299,386
Deferred Trustees' compensation plan 46,441
Other assets 426,045
-------------
Total Assets 1,330,008,439
LIABILITIES Net unrealized depreciation on foreign forward currency
contracts 1,364,606
Payable for:
Investments purchased 8,042,964
Investments purchased on a delayed delivery basis 70,354,525
Fund shares repurchased 2,026,418
Investment advisory fee 680,425
Transfer agent fee 265,507
Pricing and bookkeeping fees 39,311
Trustees' fees 672
Custody fee 37,904
Distribution and service fees 603,016
Deferred Trustees' fees 46,441
Other liabilities 83,251
-------------
Total Liabilities 83,545,040
NET ASSETS 1,246,463,399
COMPOSITION OF NET ASSETS Paid-in capital 1,582,599,877
Undistributed net investment income 852,349
Accumulated net realized loss (345,199,303)
Net unrealized appreciation (depreciation) on:
Investments 9,508,224
Foreign currency translations (1,297,748)
NET ASSETS 1,246,463,399
CLASS A Net assets 566,268,625
Shares outstanding 94,029,744
Net asset value per share 6.02(a)
Maximum offering price per share ($6.02/0.9525) 6.32(b)
CLASS B Net assets 408,344,968
Shares outstanding 67,847,746
Net asset value and offering price per share 6.02(a)
CLASS C Net assets 41,520,284
Shares outstanding 6,893,767
Net asset value and offering price per share 6.02(a)
CLASS J Net assets 229,179,272
Shares outstanding 38,130,411
Net asset value and redemption price per share 6.01(a)
Maximum offering price per share ($6.01/0.9700) 6.20(b)
CLASS Z Net assets 1,150,250
Shares outstanding 192,443
Net asset value, offering and redemption price per share 5.98
</Table>
(a) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
See notes to financial statements.
25
<Page>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 2004 COLUMBIA STRATEGIC INCOME FUND
<Table>
<Caption>
($)
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME Interest 93,436,617
Dividends 276,935
Dollar roll fee income 1,037,319
-----------
Total Investment Income (net of foreign taxes withheld of $15,211) 94,750,871
EXPENSES Investment advisory fee 8,539,325
Distribution fee:
Class B 3,435,613
Class C 331,418
Class J 861,452
Service fee:
Class A 1,412,350
Class B 1,095,095
Class C 105,425
Class J 588,165
Transfer agent fee 2,806,115
Pricing and bookkeeping fees 417,531
Trustees' fees 42,296
Custody fee 238,067
Non-recurring costs (See Note 7) 36,826
Other expenses 420,377
-----------
Total Expenses 20,330,055
Fees waived by Distributor - Class C (66,227)
Non-recurring costs assumed by Investment Advisor (See Note 7) (36,826)
Custody earnings credit (7,307)
-----------
Net Expenses 20,219,695
-----------
Net Investment Income 74,531,176
NET REALIZED AND UNREALIZED GAIN (LOSS) ON Net realized gain (loss) on:
INVESTMENTS AND FOREIGN CURRENCY Investments 53,264,925
Foreign currency transactions (9,952,946)
-----------
Net realized gain 43,311,979
Net change in unrealized
appreciation/depreciation on:
Investments (44,761,191)
Foreign currency translations 5,234,964
-----------
Net change in unrealized appreciation/depreciation (39,526,227)
-----------
Net Gain 3,785,752
-----------
Net Increase in Net Assets from Operations 78,316,928
</Table>
See notes to financial statements.
26
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
COLUMBIA STRATEGIC INCOME FUND
<Table>
<Caption>
YEAR ENDED PERIOD ENDED YEAR ENDED
MAY 31, MAY 31, DECEMBER 31,
2004 ($) 2003 (a) ($) 2002 ($)
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS Net investment income 74,531,176 34,240,196 87,534,488
Net realized gain (loss) on investments
and foreign currency transactions 43,311,979 13,443,603 (102,998,317)
Net change in unrealized appreciation/
depreciation on investments and
foreign currency translations (39,526,227) 92,604,312 113,060,240
----------------------------------------------
Net Increase from Operations 78,316,928 140,288,111 97,596,411
DISTRIBUTIONS DECLARED TO SHAREHOLDERS From net investment income:
Class A (42,467,084) (15,184,183) (42,003,370)
Class B (29,338,162) (10,942,373) (32,234,724)
Class C (2,896,843) (1,015,241) (2,719,136)
Class J (16,932,962) (6,687,799) (20,199,908)
Class Z (64,839) (12,062) (44,973)
Return of capital:
Class A - - (2,370,220)
Class B - - (1,818,983)
Class C - - (153,439)
Class J - - (1,139,866)
Class Z - - (2,538)
----------------------------------------------
Total Distributions Declared to
Shareholders (91,699,890) (33,841,658) (102,687,157)
SHARE TRANSACTIONS Class A:
Subscriptions 68,039,895 28,881,303 76,999,338
Distributions reinvested 22,542,999 7,792,998 22,577,921
Redemptions (113,152,672) (39,518,059) (120,669,061)
----------------------------------------------
Net Decrease (22,569,778) (2,843,758) (21,091,802)
Class B:
Subscriptions 40,064,707 32,599,690 66,402,147
Distributions reinvested 16,158,239 5,920,067 18,557,348
Redemptions (128,322,218) (47,619,346) (159,845,033)
----------------------------------------------
Net Decrease (72,099,272) (9,099,589) (74,885,538)
Class C:
Subscriptions 8,693,636 6,567,113 10,711,255
Distributions reinvested 1,571,832 547,933 1,596,012
Redemptions (13,809,960) (3,831,655) (16,138,332)
----------------------------------------------
Net Increase (Decrease) (3,544,492) 3,283,391 (3,831,065)
Class J:
Subscriptions 5,771,627 4,260,615 7,970,201
Redemptions (32,286,028) (38,576,078) (59,088,986)
----------------------------------------------
Net Decrease (26,514,401) (34,315,463) (51,118,785)
Class Z:
Subscriptions 1,051,458 1,247,878 31,748
Distributions reinvested 55,898 11,438 47,503
Redemptions (1,113,389) (108,415) (1,932,379)
----------------------------------------------
Net Increase (Decrease) (6,033) 1,150,901 (1,853,128)
Net Decrease from Share Transactions (124,733,976) (41,824,518) (152,780,318)
----------------------------------------------
Total Increase (Decrease) in Net
Assets (138,116,938) 64,621,935 (157,871,064)
NET ASSETS Beginning of period 1,384,580,337 1,319,958,402 1,477,829,466
End of period (including
undistributed (overdistributed)
net investment income of $852,349,
$(11,558,453) and $(25,578,478),
respectively) 1,246,463,399 1,384,580,337 1,319,958,402
</Table>
(a) The Fund changed its fiscal year end from December 31 to May 31.
See notes to financial statements.
27
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
COLUMBIA STRATEGIC INCOME FUND
<Table>
<Caption>
YEAR ENDED PERIOD ENDED YEAR ENDED
MAY 31, MAY 31, DECEMBER 31,
2004 2003 (a) 2002
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
CHANGES IN SHARES Class A:
Subscriptions 11,072,096 4,991,280 13,798,283
Issued for distributions reinvested 3,674,542 1,347,649 4,075,545
Redemptions (18,468,207) (6,828,570) (21,765,079)
----------------------------------------------
Net Decrease (3,721,569) (489,641) (3,891,251)
Class B:
Subscriptions 6,545,770 5,624,733 11,996,584
Issued for distributions reinvested 2,635,178 1,023,970 3,358,728
Redemptions (20,955,613) (8,229,830) (28,815,674)
----------------------------------------------
Net Decrease (11,774,665) (1,581,127) (13,460,362)
Class C:
Subscriptions 1,417,309 1,130,031 1,930,151
Issued for distributions reinvested 256,111 94,722 287,824
Redemptions (2,263,480) (658,217) (2,910,443)
----------------------------------------------
Net Increase (Decrease) (590,060) 566,536 (692,468)
Class J:
Subscriptions 931,651 724,787 1,438,451
Redemptions (5,247,368) (6,646,170) (10,581,690)
----------------------------------------------
Net Decrease (4,315,717) (5,921,383) (9,143,239)
Class Z:
Subscriptions 171,694 212,751 5,811
Issued for distributions reinvested 9,156 1,948 8,620
Redemptions (184,806) (18,781) (344,889)
----------------------------------------------
Net Increase (Decrease) (3,956) 195,918 (330,458)
</Table>
(a) The Fund changed its fiscal year end from December 31 to May 31.
See notes to financial statements.
28
<Page>
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2004 COLUMBIA STRATEGIC INCOME FUND
NOTE 1. ORGANIZATION
Columbia Strategic Income Fund (the "Fund"), a series of Columbia Funds Trust I
(the "Trust"), is a diversified portfolio. The Trust is a Massachusetts business
trust registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
INVESTMENT GOAL
The Fund seeks high current income consistent with prudent risk. The Fund also
seeks maximum total return.
FUND SHARES
The Fund may issue an unlimited number of shares and offers five classes of
shares: Class A, Class B, Class C, Class J and Class Z. Each share class has its
own sales charge and expense structure.
Class A shares are subject to a maximum front-end sales charge of 4.75% based on
the amount of initial investment. Class A shares purchased without an initial
sales charge are subject to a 1.00% contingent deferred sales charge ("CDSC") on
shares sold within eighteen months on an original purchase of $1 million to $25
million. Class B shares are subject to a maximum CDSC of 5.00% based upon the
holding period after purchase. Class B shares will convert to Class A shares in
a certain number of years after purchase, depending on the program under which
shares were purchased. Class C shares are subject to a 1.00% CDSC on shares sold
within one year after purchase. Class J shares are subject to a 3% front-end
sales charge and are available for purchase only by residents or citizens of
Japan. Class Z shares are offered continuously at net asset value. There are
certain restrictions on the purchase of Class Z shares, as described in the
Fund's prospectus.
Effective October 13, 2003, the Fund changed its name from Liberty Strategic
Income Fund to Columbia Strategic Income Fund. Also on that date, the Trust
changed its name from Liberty Funds Trust I to Columbia Funds Trust I.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements.
SECURITY VALUATION
Debt securities generally are valued by a pricing service approved by the
Trust's Board of Trustees, based upon market transactions for normal,
institutional-size trading units of similar securities. The services may use
various pricing techniques which take into account appropriate factors such as
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other data, as well as broker quotes. Debt securities for which quotations
are readily available are valued at an over-the-counter or exchange bid
quotation. Certain debt securities, which tend to be more thinly traded and of
lesser quality, are priced based on fundamental analysis of the financial
condition of the issuer and the estimated value of any collateral. Valuations
developed through pricing techniques may vary from the actual amounts realized
upon sale of the securities, and the potential variation may be greater for
those securities valued using fundamental analysis.
Equity securities are valued at the last sale price on the principal exchange on
which they trade, except for securities traded on the NASDAQ, which are valued
at the NASDAQ official close price. Unlisted securities or listed securities for
which there were no sales during the day are valued at the closing bid price on
such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Forward currency exchange contracts are valued at the prevailing forward
exchange rate of the underlying currencies.
Foreign securities are generally valued at the last sale price on the foreign
exchange or market on which they trade. If any foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local
29
<Page>
shares in the principal market in which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange ("NYSE"). The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
generally determined at 2:00 p.m. Eastern (U.S.) time. Occasionally, events
affecting the values of such foreign securities and such exchange rates may
occur between the times at which they are determined and the close of the
customary trading session of the NYSE, which would not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
values of such foreign securities occur and it is determined that market
quotations are not reliable, then these foreign securities will be valued at
their fair value using procedures approved by the Board of Trustees.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value under
procedures approved by the Board of Trustees.
SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date. Cost is determined
and gains (losses) are based upon the specific identification method for both
financial statement and federal income tax purposes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward foreign currency exchange contracts are agreements to exchange one
currency for another at a future date at a specified price. These contracts are
used to minimize the exposure to foreign exchange rate fluctuations during the
period between trade and settlement date of the contracts. The Fund may utilize
forward foreign currency exchange contracts in connection with the settlement of
purchases and sales of securities. The Fund may also enter into these contracts
to hedge certain other foreign currency denominated assets. Contracts to buy
generally are used to acquire exposure to foreign currencies, while contracts to
sell are used to hedge the Fund's investments against currency fluctuations.
Forward currency contracts are valued daily at the forward exchange rate of the
underlying currency, resulting in unrealized gains (losses) which become
realized at the time the foreign currency contracts are closed or mature.
Realized and unrealized gains (losses) arising from such transactions are
included in net realized and unrealized gains (losses) on foreign currency
transactions. The use of forward currency contracts does not eliminate
fluctuations in the prices of the Fund's portfolio securities. While the maximum
potential loss from such contracts is the aggregate face value in U.S. dollars
at the time the contract was opened, exposure is typically limited to the change
in value of the contract (in U.S. dollars) over the period it remains open. The
Fund could also be exposed to risk if the counterparties of the contracts are
unable to fulfill the terms of the contracts.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions with institutions that
the Fund's investment advisor has determined are creditworthy. The Fund, through
its custodian, receives delivery of underlying securities collateralizing a
repurchase agreement. Collateral is at least equal, at all times, to the value
of the repurchase obligation including interest. A repurchase agreement
transaction involves certain risks in the event of default or insolvency of the
counterparty. These risks include possible delays or restrictions upon the
Fund's ability to dispose of the underlying securities and a possible decline in
the value of the underlying securities during the period while the Fund seeks to
assert its rights.
MORTGAGE DOLLAR ROLL TRANSACTIONS
The Fund may enter into mortgage dollar roll transactions. A mortgage dollar
roll transaction involves a sale by the Fund of securities that it holds with an
agreement by the Fund to repurchase substantially similar securities at an
agreed upon price and date. During the period between the sale and repurchase,
the Fund will not be entitled to accrue interest and receive principal payment
on the securities sold. Mortgage dollar roll transactions involve the risk that
the market value of the securities sold by the Fund may decline below the
repurchase price of those securities. In the event the buyer of the securities
under a mortgage dollar roll transaction files for bankruptcy or becomes
insolvent, the Fund's use of proceeds of the transaction may be restricted
pending a determination by or with respect to the other party. The Fund
30
<Page>
identifies U.S. Government securities or other liquid high grade debt
obligations as segregated with the custodian in an amount equal to the mortgage
dollar roll transactions.
DELAYED DELIVERY SECURITIES
The Fund may trade securities on other than normal settlement terms, including
securities purchased or sold on a "when-issued" basis. This may increase the
risk if the other party to the transaction fails to deliver and causes the Fund
to subsequently invest at less advantageous prices. The Fund identifies cash or
liquid portfolio securities as segregated with the custodian in an amount equal
to the delayed delivery commitment.
INCOME RECOGNITION
Interest income is recorded on the accrual basis. Premium and discount are
amortized and accreted, respectively, on all debt securities. The value of
additional securities received as an income payment is recorded as income and as
the cost basis of such securities. Fee income attributable to dollar roll
transactions is recorded on the accrual basis over the term of the transaction.
FOREIGN CURRENCY TRANSACTIONS
The values of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates. Net realized and
unrealized gains (losses) on foreign currency transactions include gains
(losses) arising from the fluctuation in exchange rates between trade and
settlement dates on securities transactions, gains (losses) arising from the
disposition of foreign currency and currency gains (losses) between the accrual
and payment dates on dividends, interest income and foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of
gains (losses) on investments which is due to changes in foreign exchange rates
from that which is due to changes in market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains (losses) on
investments.
DETERMINATION OF CLASS NET ASSET VALUES
All income, expenses (other than class-specific expenses, as shown on the
Statement of Operations) and realized and unrealized gains (losses) are
allocated to each class of the Fund on a daily basis for purposes of determining
the net asset value of each class. Income and expenses are allocated to each
class based on the settled shares method, while realized and unrealized gains
(losses) are allocated based on the relative net assets of each class.
FEDERAL INCOME TAX STATUS
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code, as amended, and will distribute
substantially all of its taxable or tax-exempt income, if any, for its tax year,
and as such will not be subject to federal income taxes. In addition, the Fund
intends to distribute in each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, such that
the Fund should not be subject to federal excise tax. Therefore, no federal
income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared daily and paid monthly. Net
realized capital gains, if any, are distributed at least annually.
NOTE 3. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined
in accordance with income tax regulations, which may differ from GAAP.
Reclassifications are made to the Fund's capital accounts for permanent tax
differences to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
For the year ended May 31, 2004, permanent differences resulting primarily from
differing treatments for market discount reclassifications, Section 988
reclassification of foreign currency, paydown reclassifications and
amortization/accretion adjustments were identified and reclassified among the
components of the Fund's net assets as follows:
<Table>
<Caption>
UNDISTRIBUTED NET ACCUMULATED
INVESTMENT INCOME NET REALIZED LOSS PAID-IN CAPITAL
- -------------------------------------------------------------
$ 29,579,516 $ (29,579,515) $ (1)
</Table>
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
31
<Page>
The tax character of distributions paid during the year ended May 31, 2004, the
period ended May 31, 2003 and the year ended December 31, 2002 was as follows:
<Table>
<Caption>
MAY 31, MAY 31, DECEMBER 31,
2004 2003 2002
- -----------------------------------------------------------------------------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME* $ 91,699,890 $ 33,841,658 $ 97,202,111
LONG-TERM CAPITAL GAINS -- -- --
TAX RETURN OF CAPITAL -- -- 5,485,046
</Table>
*For tax purposes short-term capital gains distributions, if any, are considered
ordinary income distributions.
As of May 31, 2004, the components of distributable earnings on a tax basis were
as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS DEPRECIATION*
- --------------------------------------------------------
$ 18,813,500 $ -- $ (9,104,468)
</Table>
*The differences between book-basis and tax-basis net unrealized depreciation
are primarily due to deferral of losses from wash sales and discount
accretion/premium amortization on debt securities.
Unrealized appreciation and depreciation at May 31, 2004, based on cost of
investments for federal income tax purposes was:
<Table>
UNREALIZED APPRECIATION $ 49,084,707
UNREALIZED DEPRECIATION (58,316,606)
--------------
NET UNREALIZED DEPRECIATION $ (9,231,899)
</Table>
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:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ------------------------------------
2007 $ 8,852,750
2008 63,518,542
2009 136,912,288
2010 135,415,014
2011 318,608
$ 345,017,202
</Table>
Capital loss carryforwards of $12,688,939 were utilized and/or expired during
the year ended May 31, 2004 for the Fund. Expired capital loss carryforwards are
recorded as a reduction of paid-in capital.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the
Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary
of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004,
FleetBoston, including the Fund's investment advisor, transfer agent and
distributor, was acquired by Bank of America Corporation ("BOA"). The
acquisition did not change the way the Fund is managed, the investment personnel
assigned to manage the Fund or the fees paid by the Fund.
INVESTMENT ADVISORY FEE
Columbia provides administrative and other services to the Fund in addition to
investment advisory services. Columbia receives a monthly investment advisory
fee based on the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS FEE RATE
- ------------------------------------------
FIRST $1 BILLION 0.65%
NEXT $1 BILLION 0.60%
OVER $2 BILLION 0.55%
</Table>
For the year ended May 31, 2004, the Fund's effective investment advisory fee
rate was 0.64%.
PRICING AND BOOKKEEPING FEES
Columbia is responsible for providing pricing and bookkeeping services to the
Fund under a pricing and bookkeeping agreement. Under a separate agreement (the
"Outsourcing Agreement"), Columbia has delegated those functions to State Street
Corporation ("State Street"). As a result, Columbia pays the total fees received
to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average daily net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average daily net assets of the Fund for that month. The Fund also pays
additional fees for pricing services based on the number of securities held by
the Fund. For the year ended May 31, 2004, the Fund's effective pricing and
bookkeeping fee rate was 0.031%.
32
<Page>
TRANSFER AGENT FEE
Columbia Funds Services, Inc. (the "Transfer Agent"), an indirect, wholly owned
subsidiary of BOA, provides shareholder services to the Fund. For such services,
the Transfer Agent receives a fee, paid monthly, at the annual rate of $34.00
per open account. The Transfer Agent also receives reimbursement for certain
out-of-pocket expenses.
Prior to November 1, 2003, the Transfer Agent was entitled to receive a monthly
transfer agent fee at the annual rate of 0.06% of the Fund's average daily net
assets plus flat-rate charges based on the number of shareholder accounts and
transactions. The Transfer Agent was also entitled to receive reimbursement for
certain out-of-pocket expenses.
For the year ended May 31, 2004, the Fund's effective transfer agent fee rate,
inclusive of out-of-pocket fees, was 0.21%.
Effective October 13, 2003, Liberty Funds Services, Inc. was renamed Columbia
Funds Services, Inc.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES
Columbia Funds Distributor, Inc. (the "Distributor"), an indirect, wholly owned
subsidiary of BOA, is the principal underwriter of the Fund. For the year ended
May 31, 2004, the Distributor has retained net underwriting discounts of $58,900
on sales of the Fund's Class A shares and received CDSC fees of $219, $999,386
and $9,590 on Class A, Class B and Class C share redemptions, respectively.
The Fund has adopted a 12b-1 plan (the "Plan") which requires the payment of a
monthly service fee to the Distributor. The service fee is equal to 0.15%
annually of the average daily net assets attributable to outstanding Class A and
Class B shares issued prior to January 1, 1993 and 0.25% annually of the average
daily net assets attributable to outstanding Class A, Class B, Class C and Class
J shares issued thereafter. This arrangement results in a service fee between
the 0.15% and 0.25% annual rates. For the year ended May 31, 2004, the effective
service fee rate was 0.24% for Class A, Class B, Class C and Class J shares of
the Fund.
The Plan also requires the payment of a monthly distribution fee to the
Distributor equal to 0.75% annually of the average daily net assets attributable
to Class B and Class C shares and 0.35% annually of the average daily net assets
attributable to Class J shares. The Distributor has voluntarily agreed to waive
a portion of the Class C share distribution fee so that it will not exceed 0.60%
annually.
The CDSC and the fees received from the Plan are used principally as repayment
to the Distributor for amounts paid by the Distributor to dealers who sold such
shares.
Effective October 13, 2003, Liberty Funds Distributor, Inc. was renamed Columbia
Funds Distributor, Inc.
CUSTODY CREDITS
The Fund has an agreement with its custodian bank under which custody fees may
be reduced by balance credits. The Fund could have invested a portion of the
assets utilized in connection with the expense offset arrangement in an
income-producing asset if it had not entered into such an agreement.
FEES PAID TO OFFICERS AND TRUSTEES
The Fund pays no compensation to its officers, all of whom are employees of
Columbia or its affiliates.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER
Columbia provides certain services to the Fund related to Sarbanes-Oxley
compliance. For the year ended May 31, 2004, the Fund paid $3,393 to Columbia
for such services. This amount is included in "Other expenses" on the Statement
of Operations.
NOTE 5. PORTFOLIO INFORMATION
For the year ended May 31, 2004, the cost of purchases and proceeds from sales
of securities, excluding short-term obligations, were $860,742,493 and
$1,012,085,751, respectively, of which $97,533,568 and $103,638,131,
respectively, were U.S. Government securities.
NOTE 6. LINE OF CREDIT
The Fund and other affiliated funds participate in a $350,000,000 credit
facility, which is used for temporary or emergency purposes to facilitate
portfolio liquidity. Interest is charged to the Fund based on its borrowings. In
addition, the Fund has
33
<Page>
agreed to pay commitment fees on its pro-rata portion of the unutilized line of
credit. The commitment fee is included in "Other expenses" on the Statement of
Operations. For the year ended May 31, 2004, the Fund did not borrow under this
arrangement.
NOTE 7. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
FOREIGN SECURITIES
There are certain additional risks involved when investing in foreign securities
that are not inherent with investments in domestic securities. These risks may
involve foreign currency exchange rate fluctuations, adverse political and
economic developments and the possible prevention of currency exchange or other
foreign governmental laws or restrictions. In addition, the liquidity of foreign
securities may be more limited than that of domestic securities.
Investments in emerging market countries are subject to additional risk. The
risk of foreign investments is typically increased in less developed countries.
These countries are also more likely to experience high levels of inflation,
deflation or currency devaluation which could hurt their economies and
securities markets.
HIGH-YIELD SECURITIES
Investing in high-yield securities may involve greater credit risk and
considerations not typically associated with investing in U.S. Government bonds
and other higher quality fixed income securities. These securities are
non-investment grade securities, often referred to as "junk bonds." Economic
downturns may disrupt the high yield market and impair the ability of issuers to
repay principal and interest. Also, an increase in interest rates would likely
have an adverse impact on the value of such obligations. Moreover, high yield
securities may be less liquid to the extent there is no established secondary
market.
INDUSTRY FOCUS
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
LEGAL PROCEEDINGS
Columbia, the Distributor, and certain of their affiliates (collectively, "The
Columbia Group") have received information requests and subpoenas from various
regulatory and law enforcement authorities in connection with their
investigations of late trading and market timing in mutual funds as well as
other industry wide issues. The Columbia Group has not uncovered any instances
where Columbia or the Distributor were knowingly involved in late trading of
mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against Columbia and the Distributor, alleging that they had
violated certain provisions of the federal securities laws in connection with
trading activity in mutual fund shares. Also on February 24, 2004, the New York
Attorney General ("NYAG") filed a civil complaint in New York Supreme Court,
County of New York against Columbia and the Distributor alleging that Columbia
and the Distributor had violated certain New York anti-fraud statutes. If either
Columbia or the Distributor is unsuccessful in its defense of these proceedings,
it could be barred from serving as an investment advisor or distributor for any
investment company registered under the Investment Company Act of 1940, as
amended (a "registered investment company"). Such results could prevent
Columbia, the Distributor or any company that is an affiliated person of
Columbia and the Distributor from serving as an investment advisor or
distributor for any registered investment company, including your fund. Your
fund has been informed by Columbia and the Distributor that, if these results
occur, they will seek exemptive relief from the SEC to permit them to continue
to serve as your fund's investment advisor and distributor. There is no
assurance that such exemptive relief will be granted. On March 15, 2004,
Columbia and the Distributor entered into agreements in principle with the SEC
Division of Enforcement and NYAG in settlement of the charges. Under the
agreements, Columbia and the Distributor agreed, among other things, to the
following conditions: payment of $70 million in disgorgement; payment of $70
million in civil penalties; an order requiring Columbia and the Distributor to
cease and desist from violations of the antifraud provisions and other
provisions of the federal securities laws; governance
34
<Page>
changes designed to maintain the independence of the mutual fund boards of
trustees and ensure compliance with securities laws and their fiduciary duties;
and retention of an independent consultant to review Columbia's and the
Distributor's compliance policies and procedures. The agreement requires the
final approval of the SEC. In a separate agreement with the NYAG, the Columbia
Group has agreed to reduce mutual fund fees by $80 million over a five-year
period.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or FleetBoston (and
affiliated entities). These suits and certain regulatory investigations are
ongoing. Accordingly, an estimate of the financial impact of this litigation on
any fund, if any, cannot currently be made.
For the year ended May 31, 2004, Columbia has assumed $36,826 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
35
<Page>
FINANCIAL HIGHLIGHTS
COLUMBIA STRATEGIC INCOME FUND
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<Table>
<Caption>
PERIOD
YEAR ENDED ENDED
MAY 31, MAY 31, YEAR ENDED DECEMBER 31,
CLASS A SHARES 2004 2003(a) 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 6.09 $ 5.63 $ 5.64 $ 6.00 $ 6.62 $ 7.11
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.36(b) 0.16(b) 0.38(b) 0.48(b)(c) 0.58(d) 0.57(d)
Net realized and unrealized
gain (loss) on investments
and foreign currency 0.01 0.46 0.05 (0.30)(c) (0.62) (0.48)
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment
Operations 0.37 0.62 0.43 0.18 (0.04) 0.09
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.44) (0.16) (0.42) (0.50) (0.53) (0.58)(e)
Return of capital -- -- (0.02) (0.04) (0.05) --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions Declared
to Shareholders (0.44) (0.16) (0.44) (0.54) (0.58) (0.58)
NET ASSET VALUE, END OF PERIOD $ 6.02 $ 6.09 $ 5.63 $ 5.64 $ 6.00 $ 6.62
Total return (f) 6.21% 11.10%(g) 7.97% 3.07% (0.68)% 1.28%
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h) 1.17% 1.27%(i) 1.23% 1.21% 1.17% 1.19%
Net investment income (h) 5.90% 6.52%(i) 6.75% 8.22%(c) 9.12% 8.30%
Portfolio turnover rate 68% 59%(g) 62% 106% 35% 44%
Net assets, end of
period (000's) $ 566,269 $ 595,223 $ 552,737 $ 575,791 $ 536,481 $ 669,795
</Table>
(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to decrease net investment
income per share by $0.02, increase net realized and unrealized loss per
share by $0.02 and decrease the ratio of net investment income to average
net assets from 8.60% to 8.22%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e) Distributions from income include currency gains and gains on securities
treated as ordinary income for tax purposes.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
36
<Page>
<Table>
<Caption>
PERIOD
YEAR ENDED ENDED
MAY 31, MAY 31, YEAR ENDED DECEMBER 31,
CLASS B SHARES 2004 2003(a) 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 6.09 $ 5.62 $ 5.63 $ 6.00 $ 6.62 $ 7.11
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.32(b) 0.14(b) 0.34(b) 0.44(b)(c) 0.53(d) 0.51(d)
Net realized and unrealized
gain (loss) on investments
and foreign currency 0.01 0.47 0.04 (0.32)(c) (0.62) (0.48)
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment
Operations 0.33 0.61 0.38 0.12 (0.09) 0.03
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.40) (0.14) (0.37) (0.45) (0.48) (0.52)(e)
Return of capital -- -- (0.02) (0.04) (0.05) --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions Declared
to Shareholders (0.40) (0.14) (0.39) (0.49) (0.53) (0.52)
NET ASSET VALUE, END OF PERIOD $ 6.02 $ 6.09 $ 5.62 $ 5.63 $ 6.00 $ 6.62
Total return (f) 5.42% 10.95%(g) 7.17% 2.12% (1.41)% 0.52%
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h) 1.92% 2.02%(i) 1.98% 1.96% 1.92% 1.94%
Net investment income (h) 5.15% 5.77%(i) 6.00% 7.47%(c) 8.37% 7.55%
Portfolio turnover rate 68% 59%(g) 62% 106% 35% 44%
Net assets, end of
period (000's) $ 408,345 $ 484,540 $ 456,563 $ 533,406 $ 693,733 $ 914,145
</Table>
(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to decrease net investment
income per share by $0.02, increase net realized and unrealized loss per
share by $0.02 and decrease the ratio of net investment income to average
net assets from 7.85% to 7.47%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e) Distributions from income include currency gains and gains on securities
treated as ordinary income for tax purposes.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
37
<Page>
<Table>
<Caption>
PERIOD
YEAR ENDED ENDED
MAY 31, MAY 31, YEAR ENDED DECEMBER 31,
CLASS C SHARES 2004 2003(a) 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 6.09 $ 5.63 $ 5.64 $ 6.00 $ 6.62 $ 7.11
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.33(b) 0.14(b) 0.35(b) 0.45(b)(c) 0.54(d)(e) 0.52(d)(e)
Net realized and unrealized
gain (loss) on investments
and foreign currency 0.01 0.46 0.04 (0.31)(c) (0.62) (0.48)
----------- ---------- ---------- ----------- ----------- ----------
Total from Investment
Operations 0.34 0.60 0.39 0.14 (0.08) 0.04
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.41) (0.14) (0.38) (0.46) (0.49) 0.53)(f)
Return of capital -- -- (0.02) (0.04) (0.05) --
----------- ---------- ---------- ----------- ----------- ----------
Total Distributions Declared
to Shareholders (0.41) (0.14) (0.40) (0.50) (0.54) (0.53)
NET ASSET VALUE, END OF PERIOD $ 6.02 $ 6.09 $ 5.63 $ 5.64 $ 6.00 $ 6.62
Total return (g) 5.57%(h) 10.82%(h)(i) 7.32%(h) 2.45% (1.26)%(h) 0.67%(h)
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (j) 1.77% 1.87%(k) 1.83% 1.81% 1.77%(d) 1.79%(d)
Net investment income (j) 5.31% 5.92%(k) 6.15% 7.62%(c) 8.52%(d) 7.70%(d)
Waiver/reimbursement 0.15% 0.15%(k) 0.15% -- 0.15% 0.15%
Portfolio turnover rate 68% 59%(i) 62% 106% 35% 44%
Net assets, end of
period (000's) $ 41,520 $ 45,572 $ 38,923 $ 42,906 $ 43,538 $ 57,246
</Table>
(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to decrease net investment
income per share by $0.02, increase net realized and unrealized loss per
share by $0.02 and decrease the ratio of net investment income to average
net assets from 8.00% to 7.62%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) Net of fees waived by the Distributor which amounted to $0.02 and $0.01 per
share and 0.15% and 0.15% for the periods ended December 31, 2000 and 1999,
respectively.
(e) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(f) Distributions from income include currency gains and gains on securities
treated as ordinary income for tax purposes.
(g) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(h) Had the Distributor not waived a portion of expenses, total return would
have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
38
<Page>
<Table>
<Caption>
PERIOD
YEAR ENDED ENDED
MAY 31, MAY 31, YEAR ENDED DECEMBER 31,
CLASS J SHARES 2004 2003(a) 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 6.08 $ 5.62 $ 5.63 $ 6.00 $ 6.62 $ 7.10
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.34(b) 0.15(b) 0.36(b) 0.46(b)(c) 0.55(d) 0.54(d)
Net realized and unrealized
gain (loss) on investments
and foreign currency 0.01 0.46 0.05 (0.31)(c) (0.62) (0.47)
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment
Operations 0.35 0.61 0.41 0.15 (0.07) 0.07
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.42) (0.15) (0.40) (0.48) (0.50) (0.55)(e)
Return of capital -- -- (0.02) (0.04) (0.05) --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions Declared
to Shareholders (0.42) (0.15) (0.42) (0.52) (0.55) (0.55)
NET ASSET VALUE, END OF PERIOD $ 6.01 $ 6.08 $ 5.62 $ 5.63 $ 6.00 $ 6.62
Total return (f) 5.88% 10.97%(g) 7.61% 2.56% (1.02)% 1.07%
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h) 1.52% 1.62%(i) 1.58% 1.56% 1.52% 1.54%
Net investment income (h) 5.55% 6.17%(i) 6.40% 7.87%(c) 8.77% 7.95%
Portfolio turnover rate 68% 59%(g) 62% 106% 35% 44%
Net assets, end of
period (000's) $ 229,179 $ 258,057 $ 271,733 $ 323,866 $ 508,079 $ 568,311
</Table>
(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to decrease net investment
income per share by $0.02, increase net realized and unrealized loss per
share by $0.02 and decrease the ratio of net investment income to average
net assets from 8.25% to 7.87%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e) Distributions from income include currency gains and gains on securities
treated as ordinary income for tax purposes.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
39
<Page>
<Table>
<Caption>
PERIOD
YEAR ENDED ENDED
MAY 31, MAY 31, YEAR ENDED DECEMBER 31,
CLASS Z SHARES 2004 2003(a) 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 6.05 $ 5.59 $ 5.62 $ 5.99 $ 6.62 $ 7.10
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.38(c) 0.17(c) 0.39(c) 0.49(c)(d) 0.59(e) 0.53(e)
Net realized and unrealized
gain(loss) on investments
and foreign currency 0.01 0.45 0.03 (0.31)(d) (0.63) (0.47)
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment
Operations 0.39 0.62 0.42 0.18 (0.04) 0.06
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.46) (0.16) (0.43) (0.51) (0.54) (0.54)(f)
Return of capital -- -- (0.02) (0.04) (0.05) --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions Declared
to Shareholders (0.46) (0.16) (0.45) (0.55) (0.59) (0.54)
NET ASSET VALUE, END OF PERIOD $ 5.98 $ 6.05 $ 5.59 $ 5.62 $ 5.99 $ 6.62
Total return (g) 6.52% 11.29%(h) 7.87% 3.14% (0.59)% 1.50%(h)
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (i) 0.93% 1.03%(j) 0.99% 0.98% 0.93% 0.95%(j)
Net investment income (i) 6.15% 6.76%(j) 6.99% 8.45%(d) 9.36% 8.54%(j)
Portfolio turnover rate 68% 59%(h) 62% 106% 35% 44%
Net assets, end of
period (000) $ 1,150 $ 1,188 $ 3 $ 1,860 $ 1 $ 4,928
</Table>
(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Class Z shares were initially offered on January 29, 1999. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to decrease net investment
income per share by $0.02, increase net realized and unrealized loss per
share by $0.02 and decrease the ratio of net investment income to average
net assets from 8.84% to 8.45%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(e) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(f) Distributions from income include currency gains and gains on securities
treated as ordinary income for tax purposes.
(g) Total return at net asset value assuming all distributions reinvested.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
40
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
COLUMBIA STRATEGIC INCOME FUND
TO THE TRUSTEES OF THE COLUMBIA FUNDS TRUST I AND THE SHAREHOLDERS OF COLUMBIA
STRATEGIC INCOME FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Columbia Strategic Income Fund (the
"Fund") (a series of Columbia Funds Trust I) at May 31, 2004, the results of its
operations, the changes in its net assets and its financial highlights for the
periods indicated in conformity with accounting principles generally accepted in
the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States), which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at May 31, 2004 by correspondence with the custodian and brokers,
provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 19, 2004
41
<Page>
TRUSTEES
COLUMBIA STRATEGIC INCOME FUND
Effective October 8, 2003, Patrick J. Simpson and Richard L. Woolworth were
appointed to the Board of Trustees of the Fund. Messrs. Simpson and Woolworth
had been directors of 15 Columbia Funds and 20 funds in the CMG Fund Trust. Also
effective October 8, 2003, the incumbent trustees of the Fund were elected as
directors of the 15 Columbia Funds and as trustees of the 20 funds in the CMG
Fund Trust. The new combined Board of Trustees/Directors of the Fund now
oversees 118 funds in the Columbia Funds Complex (including the former Liberty
Funds, former Stein Roe Funds, Columbia Funds and CMG Funds). Several of these
trustees/directors also serve on the Boards of other funds in the Columbia Funds
Complex.
The Trustees/Directors serve terms of indefinite duration. The names, addresses
and ages of the Trustees/Directors and officers of the Funds in the Columbia
Funds complex, the year each was first elected or appointed to office, their
principal business occupations during at least the last five years, the number
of portfolios overseen by each Trustee/Director and other directorships they
hold are shown below. Each officer listed below serves as an officer of each
Fund in the Columbia Funds Complex.
<Table>
<Caption>
NAME, ADDRESS AND AGE, POSITION WITH
FUNDS, YEAR FIRST ELECTED OR PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN COLUMBIA FUNDS
APPOINTED TO OFFICE(1) COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD
DISINTERESTED TRUSTEES
DOUGLAS A. HACKER (age 48) Executive Vice President-Strategy of United Airlines (airline) since December 2002
P.O. Box 66100 (formerly President of UAL Loyalty Services (airline) from September 2001 to December
Chicago, IL 60666 2002; Executive Vice President and Chief Financial Officer of United Airlines from July
Trustee (since 1996) 1999 to September 2001; Senior Vice President-Finance from March 1993 to July 1999).
Oversees 118, Orbitz (online travel company)
JANET LANGFORD KELLY (age 46) Private Investor since March 2004 (formerly Chief Administrative Officer and Senior Vice
9534 W. Gull Lake Drive President, Kmart Holding Corporation (consumer goods) from September 2003 to March 2004;
Richland, MI 49083-8530 Executive Vice President-Corporate Development and Administration, General Counsel and
Trustee (since 1996) Secretary, Kellogg Company (food manufacturer), from September 1999 to August 2003; Senior
Vice President, Secretary and General Counsel, Sara Lee Corporation (branded, packaged,
consumer-products manufacturer) from January 1995 to September 1999). Oversees 118, None
RICHARD W. LOWRY (age 68) Private Investor since August 1987 (formerly Chairman and Chief Executive Officer, U.S.
10701 Charleston Drive Plywood Corporation (building products manufacturer). Oversees 1202, None
Vero Beach, FL 32963
Trustee (since 1995)
</Table>
(1) In December 2000, the boards of each of the former Liberty Funds and former
Stein Roe Funds were combined into one board of trustees responsible for
the oversight of both fund groups (collectively, the "Liberty Board"). In
October 2003, the trustees on the Liberty Board were elected to the boards
of the Columbia Funds (the "Columbia Board") and of the CMG Fund Trust (the
"CMG Funds Board"); simultaneous with that election, Patrick J. Simpson and
Richard L. Woolworth, who had been directors on the Columbia Board and
trustees on the CMG Funds Board, were appointed to serve as trustees of the
Liberty Board. The date shown is the earliest date on which a
trustee/director was elected or appointed to the board of a Fund in the
Columbia Funds complex.
(2) Messrs. Lowry, Neuhauser and Mayer each also serve as a director/trustee of
the All-Star Funds, currently consisting of 2 funds, which are advised by
an affiliate of the Advisor.
42
<Page>
<Table>
<Caption>
NAME, AGE, ADDRESS, POSITION WITH
LIBERTY FUNDS(1), YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN FUND COMPLEX
OR APPOINTED TO OFFICE OVERSEEN BY TRUSTEE, OTHER DIRECTORSHIPS HELD DISINTERESTED TRUSTEES
DISINTERESTED TRUSTEES
CHARLES R. NELSON (age 61) Professor of Economics, University of Washington, since January 1976; Ford and Louisa Van
Department of Economics Voorhis Professor of Political Economy, University of Washington, since September 1993;
University of Washington (formerly Director, Institute for Economic Research, University of Washington from
Seattle, WA 98195 September 2001 to June 2003) Adjunct Professor of Statistics, University of Washington,
Trustee (since 1981) since September 1980; Associate Editor, Journal of Money Credit and Banking, since
September 1993; consultant on econometric and statistical matters. Oversees 118, None
JOHN J. NEUHAUSER (age 61) Academic Vice President and Dean of Faculties since August 1999, Boston College (formerly
84 College Road Dean, Boston College School of Management from September 1977 to September 1999). Oversees
Chestnut Hill, MA 02467-3838 121(2),(3), Saucony, Inc. (athletic footwear and apparel)
Trustee (since 1985)
PATRICK J. SIMPSON (age 59) Partner, Perkins Coie L.L.P. (law firm). Oversees 118, None
1120 N.W. Couch Street
Tenth Floor
Portland, OR 97209-4128
Trustee (since 2000)
THOMAS E. STITZEL (age 68) Business Consultant since 1999 (formerly Professor of Finance from 1975 to 1999, College of
2208 Tawny Woods Place Business, Boise State University); Chartered Financial Analyst. Oversees 118, None
Boise, ID 83706
Trustee (since 1998)
THOMAS C. THEOBALD (age 67) Managing Director, William Blair Capital Partners (private equity investing) since
227 West Monroe Street, September 1994. Oversees 118, Anixter International (network support equipment
Suite 3500 distributor), Jones Lang LaSalle (real estate management services), MONY Group (life
Chicago, IL 60606 insurance) and Ventas, Inc (real estate investment trust)
Trustee and Chairman of the Board(4)
(since 1996)
ANNE-LEE VERVILLE (age 58) Retired since 1997 (formerly General Manager, Global Education Industry, IBM
359 Stickney Hill Road Corporation (computer and technology) from 1994 to 1997). Oversees 119(3), Chairman of
Hopkinton, NH 03229 the Board of Directors, Enesco Group, Inc. (designer, importer and distributor of giftware
Trustee (since 1998) and collectibles)
RICHARD L. WOOLWORTH (age 63) Retired since December 2003 (formerly Chairman and Chief Executive Officer, The
100 S.W. Market Street #1500 Regence Group (regional health insurer); Chairman and Chief Executive Officer,
Portland, OR 97207 BlueCross BlueShield of Oregon; Certified Public Accountant. Oversees 118, Northwest
Trustee (since 1991) Natural Gas Co. (natural gas service provider)
INTERESTED TRUSTEES
WILLIAM E. MAYER(5) (age 64) Managing Partner, Park Avenue Equity Partners (private equity) since February 1999
399 Park Avenue (formerly Founding Partner, Development Capital LLC from November1996 to
Suite 3204 February 1999). Oversees 120(2), Lee Enterprises (print media), WR Hambrecht + Co.
New York, NY 10022 (financial service provider),First Health (healthcare), Reader's Digest (publishing) and
Trustee (since 1994) OPENFIELD Solutions (retail industry technology provider)
</Table>
(3) Mr. Neuhauser and Ms. Verville also serve as disinterested directors of
Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the
Advisor.
(4) Mr. Theobald was appointed as Chairman of the Board effective December 10,
2003.
(5) Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht +
Co.
43
<Page>
OFFICERS
COLUMBIA STRATEGIC INCOME FUND
<Table>
<Caption>
NAME, ADDRESS AND AGE, POSITION WITH
COLUMBIA FUNDS, YEAR FIRST ELECTED OR
APPOINTED TO OFFICE PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
VICKI L. BENJAMIN (Age 42) Chief Accounting Officer of the Columbia Funds and Liberty All-Star Funds since June 2001;
One Financial Center Assistant Treasurer of Liberty Acorn and Wanger Funds since June 2004 (formerly Controller
Boston, MA 02111 of the Columbia Funds and of the Liberty All-Star Funds from May 2002 to May 2004);
Chief Accounting Officer (since 2001) Controller and Chief Accounting Officer of the Galaxy Funds since September 2002 (formerly
Vice President, Corporate Audit, State Street Bank and Trust Company from May 1998 to
April 2001).
MICHAEL CLARKE (Age 34) Controller of the Columbia Funds and of the Liberty All-Star Funds since 2004; Assistant
One Financial Center Treasurer of Liberty Acorn and Wanger Funds since June 2004 (formerly Assistant Treasurer
Boston, MA 02111 from June 2002 to May 2004; Vice President, Product Strategy & Development of Liberty
Controller (since 2004) Funds Group from February 2001 to June 2002; Assistant Treasurer of the Liberty Funds and
of the Liberty All-Star Funds from August 1999 to February 2001; Audit Manager at Deloitte
& Touche LLP from May 1997 to August 1999).
J. KEVIN CONNAUGHTON (Age 40) President of the Columbia Funds since February 27, 2004; Treasurer of the Columbia Funds
One Financial Center and of the Liberty All-Star Funds since December 2000; Vice President of the Advisor since
Boston, MA 02111 April 2003 (formerly Chief Accounting Officer and Controller of the Liberty Funds and
Treasurer (since 2000) and Liberty All-Star Funds from February 1998 to October 2000); Treasurer of the Galaxy Funds
President (since 2004) since September 2002; Treasurer, Columbia Management Multi-Strategy Hedge Fund, LLC since
December 2002 (formerly Vice President of Colonial from February 1998 to October 2000).
DAVID A. ROZENSON (Age 49) Secretary of the Columbia Funds and of the Liberty All-Star Funds since December 2003;
One Financial Center Senior Counsel, Bank of America Corporation (formerly FleetBoston Financial Corporation)
Boston, MA 02111 since January 1996; Associate General Counsel, Columbia Management Group since November
Secretary (since 2003) 2002.
</Table>
44
<Page>
IMPORTANT INFORMATION ABOUT THIS REPORT
COLUMBIA STRATEGIC INCOME FUND
TRANSFER AGENT
Columbia Funds Services, Inc.
P.O. Box 8081
Boston MA 02266-8081
800.345.6611
DISTRIBUTOR
Columbia Funds Distributor, Inc.
One Financial Center
Boston MA 02111
INVESTMENT ADVISOR
Columbia Management Advisors, Inc.
100 Federal Street
Boston MA 02110
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
125 High Street
Boston MA 02110
The fund mails one shareholder report to each shareholder address. If you would
like more than one report, please call shareholder services at 800-345-6611 and
additional reports will be sent to you.
This report has been prepared for shareholders of Columbia Strategic Income
Fund. This report may also be used as sales literature when preceded or
accompanied by the current prospectus which provides details of sales charges,
investment objectives and operating policies of the fund and with the most
recent copy of the Columbia Funds Performance Update.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to its portfolio securities is available (i) without
charge, upon request, by calling 800-345-6611 and (ii) on the Securities and
Exchange Commission's website at http://www.sec.gov.
45
<Page>
[GRAPHIC]
eDelivery
Help your fund reduce printing and postage costs! Elect to get your shareholder
reports by electronic delivery. With Columbia's eDelivery program, you receive
an e-mail message when your shareholder report becomes available online. If your
fund account is registered with Columbia Funds, you can sign up quickly and
easily on our website at www.columbiafunds.com.
Please note -- if you own your fund shares through a financial institution,
contact the institution to see if it offers electronic delivery. If you own your
fund shares through a retirement plan, electronic delivery may not be available
to you.
COLUMBIA STRATEGIC INCOME FUND ANNUAL REPORT, MAY 31, 2004 PRSRT STD
U.S. POSTAGE
PAID
HOLLISTON, MA
PERMIT NO. 20
[COLUMBIAFUNDS(R) LOGO]
A MEMBER OF COLUMBIA MANAGEMENT GROUP
(C) 2004 COLUMBIA FUNDS DISTRIBUTOR, INC.
ONE FINANCIAL CENTER, BOSTON, MA 02111-2621
800.345.6611 www.columbiafunds.com
716-02/065S-0504 (07/04) 04/1519
<Page>
[GRAPHIC]
COLUMBIA HIGH YIELD OPPORTUNITY FUND
ANNUAL REPORT
MAY 31, 2004
[COLUMBIAFUNDS(R) LOGO]
A MEMBER OF COLUMBIA MANAGEMENT GROUP
<Page>
TABLE OF CONTENTS
<Table>
Fund Profile 1
Performance Information 2
Economic Update 3
Portfolio Managers' Report 4
Investment Portfolio 6
Statement of Assets and Liabilities 25
Statement of Operations 26
Statement of Changes in Net Assets 27
Notes to Financial Statements 29
Financial Highlights 35
Report of Independent Registered
Public Accounting Firm 39
Trustees 40
Officers 42
Important Information
About This Report 43
Columbia Funds 44
</Table>
Economic and market conditions change frequently. There is no assurance that
trends described in this report will continue or commence.
NOT FDIC MAY LOSE VALUE
INSURED -----------------
NO BANK GUARANTEE
TO OUR FELLOW SHAREHOLDERS
COLUMBIA HIGH YIELD OPPORTUNITY FUND
DEAR SHAREHOLDER:
We are pleased to let you know that FleetBoston Financial Corporation and Bank
of America Corporation have merged, effective April 1, 2004. As a result of the
merger, Columbia Management Group became part of the Bank of America family of
companies. Looking ahead, we believe this merger will be a real benefit to our
shareholders. Preserving and leveraging our strengths, the combined organization
intends to deliver additional research and management capabilities, as well as
new products to you. There are no immediate changes planned for fund names or
customer service contacts.
As you might know, on March 15, 2004, FleetBoston Financial announced an
agreement in principle with the staff of the Securities and Exchange Commission
("SEC") and the New York Attorney General ("NYAG") to settle charges involving
market timing in Columbia Management mutual funds. (Bank of America came to a
similar settlement in principle at the same time.) The agreement requires the
final approval of the SEC and the NYAG. This settlement in principle reflects
our strong wish to put this regrettable situation behind us. Columbia Management
has taken and will continue to take steps to strengthen policies, procedures and
oversight to curb frequent trading of Columbia fund shares.
We want you to know that all of the members of your fund's Board of Trustees are
independent of the fund's advisor and its affiliates. In addition, the board has
been energetic over the past year in strengthening its capacity to oversee the
Columbia funds. Recently, the Board of Trustees:
- - APPOINTED AN INTERIM CHIEF COMPLIANCE OFFICER OF THE COLUMBIA FUNDS, WHO
REPORTS DIRECTLY TO EACH FUND'S AUDIT COMMITTEE. TRUSTEES WERE ALSO ASSIGNED
TO FOUR SEPARATE INVESTMENT OVERSIGHT COMMITTEES, EACH DEDICATED TO
MONITORING PERFORMANCE OF INDIVIDUAL FUNDS.
- - VOTED TO DOUBLE THE REQUIRED INVESTMENT BY EACH TRUSTEE IN THE COLUMBIA FUNDS
-- TO FURTHER ALIGN THE INTERESTS OF THE TRUSTEES WITH THOSE OF OUR FUND
SHAREHOLDERS. AT THE SAME TIME, NEW POLICIES WERE INSTITUTED REQUIRING ALL
INVESTMENT PERSONNEL AND TRUSTEES TO HOLD THEIR COLUMBIA FUND SHARES FOR A
MINIMUM OF ONE YEAR (UNLESS EXTRAORDINARY CIRCUMSTANCES WARRANT AN EXCEPTION
TO BE GRANTED BY SENIOR EXECUTIVES OF THE ADVISOR FOR INVESTMENT PERSONNEL
AND BY A DESIGNATED COMMITTEE FOR THE BOARD).
Both your fund's trustees and Columbia Management are committed to serving the
interests of our shareholders, and we will continue to work hard to help you
achieve your financial goals.
In the pages that follow, you'll find valuable information about the economic
environment during the period and the performance of your Columbia fund. These
discussions are followed by financial statements for your fund. We hope that you
will take time to read this report and discuss it with your financial advisor if
you have any questions.
As always, thank you for choosing Columbia funds. It is a privilege to play a
role in your financial future.
Sincerely,
/s/ Thomas C. Theobald /s/ J. Kevin Connaughton
Thomas C. Theobald J. Kevin Connaughton
Chairman, Board of Trustees President, Columbia Funds
J. Kevin Connaughton was named president of Columbia Funds on February 27, 2004.
<Page>
FUND PROFILE
COLUMBIA HIGH YIELD OPPORTUNITY FUND
The information below gives you a snapshot of your fund at the end of the
reporting period. Your fund is actively managed and the composition of its
portfolio will change over time.
TOP 10 ISSUERS AS OF 05/31/04 (%)
<Table>
Qwest Capital Funding 2.1
Charter Communications Holdings 1.8
Trac-X North America High Yield 1.3
Dex Media 1.3
Calpine 1.2
Huntsman ICI 1.1
Pinnacle Entertainment 1.1
Nortel Networks 0.9
Allied Waste 0.9
Hollywood Casino Shreveport 0.8
</Table>
MATURITY BREAKDOWN AS OF 05/31/04 (%)
<Table>
0 - 3 years 6.5
3 - 5 years 16.7
5 - 7 years 28.2
7 - 10 years 40.1
10 - 15 years 2.9
15 - 20 years 0.3
20 - 30 years 0.9
Common and preferred stock 4.4
</Table>
QUALITY BREAKDOWN AS OF 05/31/04 (%)
<Table>
AAA 2.1
BB 10.9
B 52.6
CCC 26.0
CC 6.0
D 0.6
Non-rated 1.8
</Table>
PORTFOLIO STRUCTURE AS OF 05/31/04 (%)
<Table>
Corporate fixed-income
bonds & notes 90.5
Common stocks 2.5
Cash equivalents 2.0
Convertible bonds 1.9
Preferred stocks 1.8
Other net assets 1.3
</Table>
Maturity and quality breakdowns are calculated as a percentage of total
investments. Ratings shown in the quality breakdown represent the highest rating
assigned to a particular bond by one of the following nationally-recognized
rating agencies: Standard & Poor's Corporation, Moody's Investors Service, Inc.
or Fitch Ratings Ltd.
Portfolio structure and top 10 issuers are calculated as a percentage of net
assets.
(C) 2004 Morningstar, Inc. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for any
damages or losses arising from any use of this information. Past performance is
no guarantee of future results.
The Morningstar Style Box(TM)reveals a fund's investment strategy. For equity
funds the vertical axis shows the market capitalization of the stocks owned and
the horizontal axis shows investment style (value, blend or growth). For
fixed-income funds the vertical axis shows the average credit quality of the
bonds owned, and the horizontal axis shows interest rate sensitivity as measured
by a bond's duration (short, intermediate or long). All of these numbers are
drawn from the data most recently provided by the fund and entered into
Morningstar's database as of month-end. Although the data are gathered from
reliable sources, Morningstar cannot guarantee completeness and accuracy. As of
05/31/2004.
[SIDENOTE]
SUMMARY
- - FOR THE 12-MONTH PERIOD ENDED MAY 31, 2004, THE FUND'S CLASS A SHARES
RETURNED 13.30% WITHOUT SALES CHARGE DURING A PERIOD THAT WAS GENERALLY
FAVORABLE FOR THE HIGH YIELD SECTOR.
- - THE FUND'S EMPHASIS ON THE CABLE, CELL PHONE AND UTILITY SECTORS WAS KEY TO
ITS GOOD RESULTS DURING THE PERIOD.
- - THE BONDS OF AIRLINES AND LANDLINE PHONE COMPANIES CAME UNDER PRESSURE AND
DETRACTED FROM PERFORMANCE.
<Table>
CLASS A SHARES 13.30%
CS FIRST BOSTON HIGH YIELD INDEX 13.25%
</Table>
OBJECTIVE
Seeks high current income and total return
TOTAL NET ASSETS
$638.6 million
MORNINGSTAR STYLE BOX
[GRAPHIC]
1
<Page>
PERFORMANCE INFORMATION
COLUMBIA HIGH YIELD OPPORTUNITY FUND
[CHART]
VALUE OF A $10,000 INVESTMENT 06/01/94 - 05/31/04
<Table>
<Caption>
CLASS A SHARES CLASS A SHARES CS FIRST BOSTON JP MORGAN GLOBAL
WITHOUT SALES CHARGE WITH SALES CHARGE HIGH YIELD INDEX HIGH YIELD INDEX
6/1/94 $ 10,000 $ 9,525 $ 10,000 $ 10,000
6/30/94 $ 10,048 $ 9,571 $ 9,933 $ 9,961
7/31/94 $ 10,051 $ 9,574 $ 9,980 $ 9,976
8/31/94 $ 10,054 $ 9,576 $ 10,052 $ 10,016
9/30/94 $ 10,072 $ 9,594 $ 10,092 $ 10,015
10/31/94 $ 10,060 $ 9,582 $ 10,099 $ 10,030
11/30/94 $ 9,970 $ 9,496 $ 9,982 $ 9,938
12/31/94 $ 10,052 $ 9,575 $ 10,087 $ 10,236
1/31/95 $ 10,151 $ 9,669 $ 10,193 $ 10,367
2/28/95 $ 10,412 $ 9,917 $ 10,444 $ 10,736
3/31/95 $ 10,479 $ 9,982 $ 10,562 $ 10,844
4/30/95 $ 10,728 $ 10,218 $ 10,797 $ 11,124
5/31/95 $ 10,962 $ 10,441 $ 11,101 $ 11,441
6/30/95 $ 11,014 $ 10,491 $ 11,174 $ 11,487
7/31/95 $ 11,200 $ 10,668 $ 11,348 $ 11,666
8/31/95 $ 11,219 $ 10,686 $ 11,379 $ 11,711
9/30/95 $ 11,391 $ 10,850 $ 11,510 $ 11,851
10/31/95 $ 11,530 $ 10,982 $ 11,638 $ 11,961
11/30/95 $ 11,600 $ 11,049 $ 11,693 $ 12,039
12/31/95 $ 11,826 $ 11,265 $ 11,841 $ 12,234
1/31/96 $ 12,037 $ 11,465 $ 12,066 $ 12,466
2/29/96 $ 12,143 $ 11,566 $ 12,130 $ 12,541
3/31/96 $ 12,036 $ 11,464 $ 12,097 $ 12,500
4/30/96 $ 12,108 $ 11,533 $ 12,163 $ 12,577
5/31/96 $ 12,199 $ 11,620 $ 12,261 $ 12,673
6/30/96 $ 12,199 $ 11,620 $ 12,288 $ 12,727
7/31/96 $ 12,272 $ 11,689 $ 12,399 $ 12,813
8/31/96 $ 12,493 $ 11,900 $ 12,534 $ 13,002
9/30/96 $ 12,828 $ 12,219 $ 12,749 $ 13,310
10/31/96 $ 12,828 $ 12,219 $ 12,857 $ 13,433
11/30/96 $ 13,073 $ 12,452 $ 13,057 $ 13,680
12/31/96 $ 13,273 $ 12,643 $ 13,312 $ 13,826
1/31/97 $ 13,389 $ 12,753 $ 13,409 $ 13,936
2/28/97 $ 13,678 $ 13,028 $ 13,661 $ 14,175
3/31/97 $ 13,406 $ 12,769 $ 13,508 $ 13,944
4/30/97 $ 13,542 $ 12,899 $ 13,628 $ 14,075
5/31/97 $ 13,878 $ 13,219 $ 13,902 $ 14,400
6/30/97 $ 14,097 $ 13,428 $ 14,091 $ 14,590
7/31/97 $ 14,437 $ 13,751 $ 14,390 $ 14,979
8/31/97 $ 14,478 $ 13,790 $ 14,468 $ 14,988
9/30/97 $ 14,822 $ 14,118 $ 14,754 $ 15,286
10/31/97 $ 14,822 $ 14,118 $ 14,753 $ 15,264
11/30/97 $ 14,945 $ 14,235 $ 14,857 $ 15,402
12/31/97 $ 15,114 $ 14,396 $ 14,993 $ 15,540
1/31/98 $ 15,427 $ 14,694 $ 15,247 $ 15,781
2/28/98 $ 15,512 $ 14,775 $ 15,366 $ 15,903
3/31/98 $ 15,703 $ 14,957 $ 15,443 $ 16,063
4/30/98 $ 15,745 $ 14,997 $ 15,559 $ 16,144
5/31/98 $ 15,767 $ 15,018 $ 15,606 $ 16,166
6/30/98 $ 15,832 $ 15,080 $ 15,639 $ 16,200
7/31/98 $ 16,023 $ 15,262 $ 15,748 $ 16,336
8/31/98 $ 14,967 $ 14,256 $ 14,679 $ 15,278
9/30/98 $ 14,839 $ 14,134 $ 14,677 $ 15,263
10/31/98 $ 14,580 $ 13,888 $ 14,385 $ 14,934
11/30/98 $ 15,538 $ 14,800 $ 15,114 $ 15,757
12/31/98 $ 15,440 $ 14,707 $ 15,080 $ 15,693
1/31/99 $ 15,697 $ 14,951 $ 15,221 $ 15,881
2/28/99 $ 15,716 $ 14,969 $ 15,190 $ 15,800
3/31/99 $ 16,027 $ 15,265 $ 15,328 $ 15,994
4/30/99 $ 16,306 $ 15,531 $ 15,666 $ 16,401
5/31/99 $ 16,001 $ 15,241 $ 15,497 $ 13,514
6/30/99 $ 16,093 $ 15,329 $ 15,505 $ 16,167
7/31/99 $ 16,143 $ 15,377 $ 15,513 $ 16,172
8/31/99 $ 16,071 $ 15,307 $ 15,375 $ 16,010
9/30/99 $ 15,995 $ 15,235 $ 15,256 $ 15,895
10/31/99 $ 16,022 $ 15,261 $ 15,182 $ 15,807
11/30/99 $ 16,292 $ 15,518 $ 15,388 $ 16,065
12/31/99 $ 16,394 $ 15,615 $ 15,574 $ 16,222
1/31/2000 $ 16,212 $ 15,442 $ 15,512 $ 16,161
2/29/2000 $ 16,459 $ 15,677 $ 15,608 $ 16,225
3/31/2000 $ 16,208 $ 15,439 $ 15,374 $ 15,950
4/30/2000 $ 16,103 $ 15,338 $ 15,351 $ 15,946
5/31/2000 $ 15,796 $ 15,045 $ 15,105 $ 15,720
6/30/2000 $ 15,923 $ 15,167 $ 15,444 $ 16,030
7/31/2000 $ 16,084 $ 15,320 $ 15,589 $ 16,171
8/31/2000 $ 16,244 $ 15,472 $ 15,693 $ 16,295
9/30/2000 $ 15,972 $ 15,214 $ 15,549 $ 16,082
10/31/2000 $ 15,274 $ 14,549 $ 15,065 $ 15,611
11/30/2000 $ 14,398 $ 13,714 $ 14,472 $ 15,014
12/31/2000 $ 14,704 $ 14,006 $ 14,763 $ 15,278
1/31/2001 $ 15,864 $ 15,111 $ 15,648 $ 16,204
2/28/2001 $ 15,910 $ 15,155 $ 15,806 $ 16,392
3/31/2001 $ 15,298 $ 14,571 $ 15,492 $ 16,071
4/30/2001 $ 14,940 $ 14,230 $ 15,331 $ 15,902
5/31/2001 $ 15,077 $ 14,361 $ 15,637 $ 16,214
6/30/2001 $ 14,426 $ 13,741 $ 15,395 $ 15,933
7/31/2001 $ 14,414 $ 13,730 $ 15,560 $ 16,094
8/31/2001 $ 14,521 $ 13,831 $ 15,778 $ 16,304
9/30/2001 $ 13,356 $ 12,722 $ 14,784 $ 15,228
10/31/2001 $ 13,839 $ 13,181 $ 15,121 $ 15,607
11/30/2001 $ 14,326 $ 13,645 $ 15,609 $ 16,137
12/31/2001 $ 14,296 $ 13,617 $ 15,618 $ 16,116
1/31/2002 $ 14,444 $ 13,758 $ 15,764 $ 16,234
2/28/2002 $ 14,189 $ 13,515 $ 15,652 $ 16,112
3/31/2002 $ 14,434 $ 13,749 $ 16,010 $ 16,476
4/30/2002 $ 14,555 $ 13,864 $ 16,265 $ 16,727
5/31/2002 $ 14,357 $ 13,675 $ 16,208 $ 16,670
6/30/2002 $ 13,641 $ 12,993 $ 15,644 $ 16,070
7/31/2002 $ 13,263 $ 12,633 $ 15,196 $ 15,623
8/31/2002 $ 13,310 $ 12,677 $ 15,394 $ 15,767
9/30/2002 $ 13,190 $ 12,563 $ 15,205 $ 15,582
10/31/2002 $ 13,053 $ 12,433 $ 15,112 $ 15,470
11/30/2002 $ 13,588 $ 12,942 $ 15,911 $ 16,272
12/31/2002 $ 13,686 $ 13,036 $ 16,105 $ 16,460
1/31/2003 $ 13,955 $ 13,292 $ 16,543 $ 16,888
2/28/2003 $ 14,124 $ 13,453 $ 16,788 $ 17,135
3/31/2003 $ 14,398 $ 13,714 $ 17,218 $ 17,548
4/30/2003 $ 15,127 $ 14,408 $ 18,098 $ 18,418
5/31/2003 $ 15,193 $ 14,472 $ 18,360 $ 18,674
6/30/2003 $ 15,614 $ 14,872 $ 18,896 $ 19,219
7/31/2003 $ 15,503 $ 14,767 $ 18,743 $ 19,098
8/31/2003 $ 15,643 $ 14,900 $ 18,953 $ 19,287
9/30/2003 $ 16,107 $ 15,342 $ 19,471 $ 19,822
10/31/2003 $ 16,429 $ 15,649 $ 19,868 $ 20,190
11/30/2003 $ 16,776 $ 15,979 $ 20,140 $ 20,473
12/31/2003 $ 17,199 $ 16,382 $ 20,605 $ 20,991
1/31/2004 $ 17,512 $ 16,680 $ 21,005 $ 21,375
2/29/2004 $ 17,419 $ 16,592 $ 21,016 $ 21,392
3/31/2004 $ 17,438 $ 16,610 $ 21,156 $ 21,559
4/30/2004 $ 17,457 $ 16,628 $ 21,127 $ 21,479
5/31/2004 $ 17,205 $ 16,388 $ 20,790 $ 21,139
</Table>
The graph and table do not reflect the deductions of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares. The CS First
Boston High Yield Index is a broad-based, unmanaged index that tracks the
performance of high-yield bonds. The JP Morgan Global High Yield Index is
designed to mirror the investable universe of US dollar global high-yield
corporate debt market, including domestic and international issues. Unlike
mutual funds, indices are not investments, do not incur fees or expenses and are
not professionally managed. It is not possible to invest directly in an index.
Securities in the fund may not match those in an index.
AVERAGE ANNUAL TOTAL RETURN AS OF 05/31/04 (%)
<Table>
<Caption>
SHARE CLASS A B C Z
INCEPTION 10/21/71 06/08/92 01/15/96 01/08/99
SALES CHARGE WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT
1-year 13.30 7.91 12.46 7.46 12.63 11.63 13.58
5-year 1.47 0.49 0.72 0.45 0.87 0.87 1.72
10-year 5.58 5.06 4.79 4.79 4.90 4.90 5.72
</Table>
AVERAGE ANNUAL TOTAL RETURN AS OF 03/31/04 (%)
<Table>
<Caption>
SHARE CLASS A B C Z
SALES CHARGE WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT
1-year 21.13 15.37 20.24 15.24 20.41 19.41 21.43
5-year 1.70 0.72 0.95 0.69 1.11 1.11 1.96
10-year 5.60 5.08 4.81 4.81 4.91 4.91 5.73
</Table>
All results shown assume reinvestment of distributions. The "with sales charge"
returns include the maximum 4.75% charge for class A shares, the appropriate
class B contingent deferred sales charge for the holding period after purchase
as follows: through the first year--5%, second year--4%, third year--3%, fourth
year--3%, fifth year--2%, sixth year--1%, thereafter--0%, and the class C
contingent deferred sales charge of 1% for the first year only. Class Z shares
are sold only at net asset value with no Rule 12b-1 fees. Performance for
different share classes will vary based on differences in sales charges and fees
associated with each class.
Performance results reflect any voluntary waivers or reimbursement of fund
expenses by the advisor or its affiliates. Absent these waivers or reimbursement
arrangements, performance results would have been lower.
Class C is a newer class of shares. Its performance information includes returns
of the fund's class B shares for periods prior to the inception of class C
shares. Class B shares would have substantially similar annual returns because
class B and class C shares generally have similar expense structures. Class A
shares were initially offered on October 21, 1971, class B shares were initially
offered on June 8, 1992, and class C shares were initially offered on January
15, 1996.
Class Z is a newer class of shares. Its performance information includes returns
of the fund's class A shares (the oldest existing fund class) for periods prior
to its inception. The returns have not been restated to reflect any differences
in expenses (such as Rule 12b-1 fees) between class A shares and the newer class
of shares. If differences in expenses had been reflected, the returns shown for
periods prior to the inception of the newer class of shares would have been
higher. Class Z shares were initially offered on January 8, 1999.
[SIDENOTE]
PERFORMANCE OF A $10,000 INVESTMENT 06/01/94 - 05/31/04 ($)
<Table>
<Caption>
SALES CHARGE WITHOUT WITH
Class A 17,205 16,388
Class B 15,961 15,961
Class C 16,131 16,131
Class Z 17,438 n/a
</Table>
Performance data quoted represents past performance and current performance may
be lower or higher. Past performance is no guarantee of future results. The
investment return and principal value will fluctuate so that shares may be worth
more or less than the original cost. Please visit www.columbiafunds.com for
daily and most recent month-end performance updates.
2
<Page>
ECONOMIC UPDATE
COLUMBIA HIGH YIELD OPPORTUNITY FUND
Despite mixed signals at the start, the US economy staged a solid recovery
during the 12-month period that began June 1, 2003 and ended May 31, 2004. GDP
grew at the highest annual pace in nearly two decades--averaging nearly 5.0%
during the period.
Consumer confidence tumbled early in this reporting period as the unemployment
rate rose to 6.4% in June 2003 and job losses were reported from both the
manufacturing and service sectors. Confidence wavered again when the number of
new jobs was well below expectations in January and February 2004. Yet,
consumers continued to account for most of the economy's gains. Consumer
spending rose as a sizeable package of tax cuts, implemented in 2003, gave
disposable income a boost. As a result, retail sales showed steady gains. Low
interest rates fueled mortgage refinancing in 2003 and again early in 2004,
which further enhanced household income and buoyed an already ebullient housing
market. When nearly a million new jobs were added to the economy between March
and May, consumer confidence rebounded. With the last remaining weak spot in the
recovery--the employment picture--on the mend, the economy appeared to be on
solid ground.
Late in 2003, the business sector also bounced back. Industrial production
turned higher in September, and factories utilized more of their capacity as the
period wore on. Business spending on technology rose. In 2004, spending on
capital equipment also picked up.
BONDS REFLECTED THE ECONOMIC NEWS
Although the US bond market began the period with respectable gains, they were
whittled away as the economy strengthened and the employment picture brightened.
Investors began to anticipate a shift in the Federal Reserve Board's policy on
the key short-term interest rates it controls. At the prospect of higher
short-term interest rates, bond prices fell and the yield on the 10-year US
Treasury bond rose more than one-half of a percentage point in April--a
significant move for a single month. It continued to edge higher in May. The
Lehman Brothers Aggregate Bond Index, a broad measure of investment grade bond
market performance, lost ground for the 12-month period. The index returned
negative 0.44%.
The strong economy was more good news than bad for the high-yield bond sector,
which historically has been less vulnerable to the threat of higher interest
rates than other fixed-income sectors. High-yield bonds led the fixed-income
markets. However, most of the sector's gains came in the first eight months of
the period.
US STOCKS OUTPERFORMED BONDS
The US stock market snapped a three-year losing streak in 2003. However, by May
stocks, like most bond sectors, veered into negative territory. The S&P 500
Index returned 18.33% for this reporting period. Small- cap stocks, which had
been strong performers earlier in the period, fell the most as the stock market
retreated. Value stocks edged out growth stocks, as measured by the Russell
indices, but the margin of difference between them was slight. And as the stock
market lost ground near the end of the period, growth stocks held up better than
value stocks.
[SIDENOTE]
SUMMARY
FOR THE 12-MONTH PERIOD ENDED MAY 31, 2004
- - MOST SECTORS OF THE INVESTMENT GRADE BOND MARKET DELIVERED NEGATIVE RETURNS
AS INTEREST RATES SOARED IN THE LAST TWO MONTHS OF THE PERIOD. THE LEHMAN
BROTHERS AGGREGATE BOND INDEX RETURNED NEGATIVE 0.44%. HIGH-YIELD BONDS,
WHICH CAN BE LESS SENSITIVE TO CHANGING INTEREST RATES, FARED BETTER. THE
MERRILL LYNCH US HIGH YIELD, CASH PAY INDEX RETURNED 11.34%
<Table>
LEHMAN INDEX -0.44%
MERRILL LYNCH INDEX 11.34%
</Table>
- - AS THE ECONOMY STRENGTHENED AND CORPORATIONS REPORTED HIGHER PROFITS, STOCK
PRICES ROSE FOR ALL SEGMENTS OF THE STOCK MARKET, AS MEASURED BY THE S&P 500
INDEX AND THE BROADER RUSSELL 3000 INDEX. BUT MANY SECTORS RETREATED IN THE
FINAL MONTHS OF THE PERIOD AS INTEREST RATES MOVED HIGHER.
<Table>
S&P 500 INDEX 18.33%
RUSSELL 3000 INDEX 19.71%
</Table>
The Lehman Brothers Aggregate Bond Index is a market value-weighted index that
tracks fixed-rate, publicly placed, dollar-denominated, and non-convertible
investment grade debt issues.
The Merrill Lynch US High Yield, Cash Pay Index is an unmanaged index that
tracks the performance of non-investment-grade corporate bonds.
The S&P 500 Index is an unmanaged index that tracks the performance of 500
widely held, large capitalization US stocks.
The Russell 3000 Index is an unmanaged index that tracks the performance of the
3,000 largest US companies based on total market capitalization.
3
<Page>
PORTFOLIO MANAGERS' REPORT
COLUMBIA HIGH YIELD OPPORTUNITY FUND
For the 12-month period ended May 31, 2004, class A shares of Columbia High
Yield Opportunity Fund returned 13.30% without sales charge. The fund performed
in line with both its benchmarks, the CS First Boston High Yield Index and the
JP Morgan Global High Yield Index, which returned 13.25% and 13.23%,
respectively, for the period. It did better than the Lipper High Current Yield
Funds Category, which averaged a return of 10.89% for the same period.(1)
FURTHER GAINS FOR HIGH-YIELD BONDS LED BY LOWER QUALITY
An improving economy and shrinking default rate helped high-yield issues deliver
generally strong returns over the past 12-months. Lower quality issues led the
high-yield market as investors favored those credits most leveraged to an
improving economy and least sensitive to rising interest rates. Although lower
quality credits outperformed for the entire period, their strongest gains
occurred earlier in the period. The fund's performance benefited from an
overweighting in lower quality credits relative to its benchmarks throughout the
period.
CABLE, WIRELESS, UTILITIES AND DISTRESSED ISSUES WERE STRONG
Our decision to emphasize cable operators, cellular telephone and related
infrastructure companies and independent power-producing utilities was a major
factor in the fund's strong performance. The bonds of cable company Charter
Communications rose strongly as the company turned its operations around and
improved its balance sheet by refinancing high-cost debt at more favorable
terms. In addition, investors appeared to be according a higher value to cable
subscriber accounts. Tower-builder SBA Communications rebounded when fears that
cell phone companies might hold back on infrastructure investment evaporated in
the face of abundant outlays that changed investor expectations.
Utilities were also important contributors to the fund's return, especially in
the first half of the period. A diversity of power sources gave independent
producer Orion Power a competitive advantage despite concerns about industry
overcapacity. Orion also realized unexpectedly high value on the sale of some
generating units. And credit quality continued to strengthen at energy-provider
Dynegy, which also performed well.
Among distressed and defaulted securities, US Unwired, a cellular operator;
Kaiser Aluminum & Chemical, a bankrupt aluminum producer and Colt Telecom Group
had stellar returns for the fund. A small position in equities also contributed
to the fund's positive return, specifically our investments in Envirosource, XM
Satellite Radio Holdings, NTL and Nextel Communications.
CHEMICALS AND STEELS REFLECTED ECONOMIC RECOVERY
Firmer prices for commodity chemicals boosted the value of bonds issued by
Utah-based Huntsman. At the same time, strengthening farm
(1) Lipper Inc., a widely respected data provider in the industry, calculates an
average total return for mutual funds with similar investment objectives as
those of the fund.
[SIDENOTE]
NET ASSET VALUE PER SHARE AS OF 05/31/04 ($)
<Table>
Class A 4.54
Class B 4.54
Class C 4.54
Class Z 4.54
</Table>
DISTRIBUTIONS DECLARED PER SHARE 06/01/03 - 05/31/04 ($)
<Table>
Class A 0.32
Class B 0.29
Class C 0.29
Class Z 0.33
</Table>
SEC YIELDS AS OF 05/31/04 (%)
<Table>
Class A 7.75
Class B 7.38
Class C 7.53
Class Z 8.39
</Table>
The 30-day SEC yields reflect the portfolio's earning power net of expenses,
expressed as an annualized percentage of the public offering price per share at
the end of the period.
HOLDINGS DISCUSSED IN THIS REPORT AS OF 05/31/04 (%)
<Table>
Charter Communications 1.8
SBA Communications 0.9
Orion Power 0.4
Dynegy 0.7
US Unwired 0.8
Kaiser Aluminum & Chemical 0.4
Colt Telecom Group 0.8
Envirosource 0.6
XM Satellite Radio Holdings 0.3
NTL 0.4
Nextel Communications 0.4
Huntsman 1.1
Terra Capital 0.6
Oregon Steel Mills 0.3
Delta Air Lines 0.3
Tenet Healthcare 0.6
HCA 0.2
</Table>
Your fund is actively managed and the composition of its portfolio will change
over time. Information provided is calculated as a percentage of net assets.
4
<Page>
economies spurred sales of fertilizers and other agricultural chemicals,
benefiting bonds issued by Terra Capital. Higher prices also led to a dramatic
turnaround for Oregon Steel Mills in the second half of the reporting period.
AEROSPACE AND HEALTH CARE ISSUES FELL
Soaring prices for jet fuel and heavy labor costs pressured bonds of Delta Air
Lines and other carriers. Tenet Healthcare and HCA, two for-profit hospital
operators came under pressure as billing practices were challenged, bad debt
expenses rose and government scrutiny of the industry increased. In addition,
our underweight position among financial companies, a sector that performed
particularly well, held back returns.
OUTLOOK REMAINS GENERALLY POSITIVE
We believe that an improving economy has the potential to translate into higher
revenues for many high-yield issuers, but our optimism is tempered by the
prospect of higher interest rates. A high volume of new bond issues may also
weigh on the markets.
As a result of our optimism, we have continued to position the fund more
aggressively, with a higher exposure to CCC-rated issues. To address our
interest rate concerns, we have reduced holdings among BB-rated credits that are
generally more sensitive to rising rates.
[PHOTO OF THOMAS A. LAPOINTE]
Thomas A. LaPointe, CFA, has co-managed Columbia High Yield Opportunity Fund
since February 2003 and has been with the advisor and its predecessors since
January 1999.
/s/ Thomas A. LaPointe
[PHOTO OF KEVIN L. CRONK]
Kevin L. Cronk, CFA has co-managed the fund since February 2003 and has been
with the advisor and its predecessors since August 1999.
/s/ Kevin L. Cronk
Investing in high-yield bonds involves greater credit risk and other risks not
associated with investing in higher-quality bonds. Bond investing also involves
interest rate risk, which means that bond prices may change as interest rates
increase or decrease. Foreign investments involve market, political, accounting
and currency risks not associated with domestic investments.
[SIDENOTE]
WE BELIEVE THAT AN IMPROVING ECONOMY HAS THE POTENTIAL TO TRANSLATE INTO HIGHER
REVENUES FOR MANY HIGH-YIELD ISSUERS, BUT OUR OPTIMISM IS TEMPERED BY THE
PROSPECT OF HIGHER INTEREST RATES.
5
<Page>
INVESTMENT PORTFOLIO
MAY 31, 2004 COLUMBIA HIGH YIELD OPPORTUNITY FUND
<Table>
<Caption>
PAR ($) VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - 90.5%
AGRICULTURE - 0.4%
AGRICULTURE PRODUCTION - 0.4%
SEMINIS VEGETABLE SEEDS, INC. 10.250% 10/01/13 (a) 2,227,000 2,405,160
-----------
Agriculture Production Total 2,405,160
-----------
AGRICULTURE TOTAL 2,405,160
CONSTRUCTION - 3.7%
BUILDING CONSTRUCTION - 3.7%
ASSOCIATED MATERIALS, INC. (b) 03/01/14
(11.250% 03/01/09) (a) 1,350,000 884,250
9.750% 04/15/12 2,585,000 2,830,575
ATRIUM COMPANIES, INC. 10.500% 05/01/09 (a) 1,560,000 1,638,000
10.500% 05/01/09 650,000 682,500
D.R. HORTON, INC. 9.750% 09/15/10 3,400,000 3,876,000
K. HOVNANIAN ENTERPRISES, INC. 8.875% 04/01/12 1,435,000 1,495,988
10.500% 10/01/07 1,930,000 2,214,675
NORCRAFT CO. 9.000% 11/01/11 (a) 1,095,000 1,155,225
NORTEK HOLDINGS, INC. (b) 05/15/11
(10.000% 11/15/07) (a) 4,090,000 3,047,050
STANDARD PACIFIC CORP. 9.250% 04/15/12 1,425,000 1,524,750
WII COMPONENTS, INC. 10.000% 02/15/12 (a) 2,180,000 2,147,300
WILLIAM LYON HOMES 10.750% 04/01/13 1,730,000 1,915,975
-----------
Building Construction Total 23,412,288
-----------
CONSTRUCTION TOTAL 23,412,288
CONSUMER STAPLES - 0.9%
HOUSEHOLD PRODUCTS - 0.9%
ELIZABETH ARDEN, INC. 7.750% 01/15/14 (a) 1,895,000 1,885,525
PLAYTEX PRODUCTS, INC. 9.375% 06/01/11 3,865,000 3,729,725
-----------
Household Products Total 5,615,250
-----------
CONSUMER STAPLES TOTAL 5,615,250
FINANCE, INSURANCE & REAL ESTATE - 3.8%
DEPOSITORY INSTITUTIONS - 0.3%
WESTERN FINANCIAL BANK 9.625% 05/15/12 1,475,000 1,600,375
-----------
Depository Institutions Total 1,600,375
</Table>
See notes to investment portfolio.
6
<Page>
<Table>
<Caption>
PAR ($) VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - (CONTINUED)
FINANCE, INSURANCE & REAL ESTATE - (CONTINUED)
FINANCIAL SERVICES - 3.3%
DOLLAR FINANCIAL GROUP 9.750% 11/15/11 2,760,000 2,815,200
FINOVA GROUP, INC. 7.500% 11/15/09 4,112,303 2,261,767
GLOBAL CASH ACCESS LLC/
GLOBAL CASH FINANCE CORP. 8.750% 03/15/12 (a) 2,035,000 2,106,225
LABRANCHE & CO. 11.000% 05/15/12 (a) 3,335,000 3,401,700
THORNBURG MORTGAGE, INC. 8.000% 05/15/03 2,085,000 2,053,725
TRAC-X NORTH AMERICA HIGH YIELD CREDIT 8.000% 03/25/09 (a) 9,000,000 8,595,000
-----------
Financial Services Total 21,233,617
REAL ESTATE - 0.2%
FOREST CITY ENTERPRISES, INC. 7.625% 06/01/15 1,390,000 1,438,650
-----------
Real Estate Total 1,438,650
-----------
FINANCE, INSURANCE & REAL ESTATE TOTAL 24,272,642
INDUSTRIALS - 0.4%
INDUSTRIAL CONGLOMERATES - 0.4%
SPX CORP. 7.500% 01/01/13 2,285,000 2,324,987
-----------
Industrial Conglomerates Total 2,324,987
-----------
INDUSTRIALS TOTAL 2,324,987
MANUFACTURING - 29.0%
APPAREL - 1.0%
BRODER BROTHERS CO. 11.250% 10/15/10 1,120,000 1,080,800
LEVI STRAUSS & CO. 12.250% 12/15/12 2,935,000 2,670,850
PHILLIPS VAN-HEUSEN 7.250% 02/15/11 (a) 1,010,000 1,010,000
8.125% 05/01/13 1,000,000 1,035,000
WARNACO, INC. 8.875% 06/15/13 600,000 634,500
-----------
Apparel Total 6,431,150
AUTO PARTS & EQUIPMENT - 1.4%
ACCURIDE CORP. Series 1998 B,
9.250% 02/01/08 1,225,000 1,246,437
DANA CORP. 9.000% 08/15/11 1,000,000 1,132,500
DELCO REMY INTERNATIONAL, INC. 9.375% 04/15/12 (a) 430,000 416,025
11.000% 05/01/09 1,665,000 1,748,250
</Table>
See notes to investment portfolio.
7
<Page>
<Table>
<Caption>
PAR ($) VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - (CONTINUED)
MANUFACTURING - (CONTINUED)
AUTO PARTS & EQUIPMENT - (CONTINUED)
DURA OPERATING CORP. 8.625% 04/15/12 1,775,000 1,792,750
9.000% 05/01/09 2,000,000 1,940,000
TRW AUTOMOTIVE, INC. 9.375% 02/15/13 (a) 559,000 619,092
-----------
Auto Parts & Equipment Total 8,895,054
CHEMICALS & ALLIED PRODUCTS - 5.2%
AVECIA GROUP PLC 11.000% 07/01/09 2,940,000 2,160,900
EQUISTAR CHEMICAL FUNDING LP 10.125% 09/01/08 1,860,000 2,018,100
10.625% 05/01/11 1,530,000 1,675,350
HUNTSMAN ICI HOLDINGS LLC (d) 12/31/09 14,580,000 7,144,200
IMC GLOBAL, INC. 10.875% 08/01/13 (a) 2,150,000 2,580,000
INVISTA, INC. 9.250% 05/01/12 (a) 1,390,000 1,379,575
KOPPERS INDUSTRIES, INC. 9.875% 10/15/13 (a) 2,295,000 2,467,125
LYONDELL CHEMICAL CO. 9.625% 05/01/07 1,615,000 1,679,600
9.875% 05/01/07 1,500,000 1,560,000
NOVA CHEMICALS CORP. 6.500% 01/15/12 780,000 766,155
TERRA CAPITAL, INC. 12.875% 10/15/08 3,220,000 3,831,800
UAP HOLDING CORP. (b) 07/15/12
(10.750% 01/15/08) (a) 2,190,000 1,708,200
UNITED AGRICULTURAL PRODUCTS, INC. 8.250% 12/15/11 (a) 1,900,000 2,128,000
WESTLAKE CHEMICAL CORP. 8.750% 07/15/11 (a) 1,710,000 1,846,800
-----------
Chemicals & Allied Products Total 32,945,805
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.9%
AMKOR TECHNOLOGY, INC. 9.250% 02/15/08 1,260,000 1,329,300
LUCENT TECHNOLOGIES, INC. 6.450% 03/15/29 1,890,000 1,426,950
STRATUS TECHNOLOGIES, INC. 10.375% 12/01/08 (a) 1,580,000 1,540,500
XEROX CORP. 7.125% 06/15/10 1,300,000 1,300,000
-----------
Electronic & Electrical Equipment Total 5,596,750
FABRICATED METAL - 0.4%
EARLE M. JORGENSEN CO. 9.750% 06/01/12 2,400,000 2,616,000
-----------
Fabricated Metal Total 2,616,000
FOOD & KINDRED PRODUCTS - 3.1%
CONSTELLATION BRANDS, INC. 8.125% 01/15/12 2,000,000 2,100,000
</Table>
See notes to investment portfolio.
8
<Page>
<Table>
<Caption>
PAR ($) VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - (CONTINUED)
MANUFACTURING - (CONTINUED)
FOOD & KINDRED PRODUCTS - (CONTINUED)
DEL MONTE CORP. 9.250% 05/15/11 1,755,000 1,882,238
DOLE FOOD CO., INC. 8.625% 05/01/09 2,030,000 2,050,300
MERISANT CO. 9.500% 07/15/13 (a) 1,605,000 1,717,350
PINNACLE FOODS HOLDINGS 8.250% 12/01/13 (a) 2,485,000 2,453,938
PREMIER INTERNATIONAL FOODS PLC 12.000% 09/01/09 4,750,000 5,046,875
ROUNDY'S, INC. 8.875% 06/15/12 2,475,000 2,648,250
TABLETOP HOLDINGS, INC. (b) 05/15/14
(12.250% 11/15/08) (a) 3,995,000 2,237,200
-----------
Food & Kindred Products Total 20,136,151
FURNITURE & FIXTURES - 0.9%
CONGOLEUM CORP. 8.625% 08/01/08 (e) 1,755,000 1,281,150
JUNO LIGHTING, INC. 11.875% 07/01/09 2,340,000 2,492,100
TEMPUR-PEDIC, INC. 10.250% 08/15/10 1,510,000 1,706,300
-----------
Furniture & Fixtures Total 5,479,550
LUMBER & WOOD PRODUCTS - 0.4%
MILLAR WESTERN FOREST PRODUCTS 7.750% 11/15/13 (a) 1,695,000 1,703,475
GEORGIA-PACIFIC CORP. 8.000% 01/15/24 (a) 600,000 583,500
-----------
Lumber & Wood Products Total 2,286,975
MISCELLANEOUS MANUFACTURING - 5.2%
AMSCAN HOLDINGS, INC. 8.750% 05/01/14 (a) 2,245,000 2,233,775
FASTENTECH, INC. 11.500% 05/01/11 (a) 3,030,000 3,257,250
FLOWSERVE CORP. 12.250% 08/15/10 2,759,000 3,117,670
HEXCEL CORP. 9.750% 01/15/09 1,800,000 1,876,500
J.B. POINDEXTER & CO. 8.750% 03/15/14 (a) 1,750,000 1,723,750
MAAX CORP. 9.750% 06/15/12 (a)(c) 1,270,000 1,301,750
MUELLER GROUP, INC. 10.000% 05/01/12 (a) 1,065,000 1,091,625
MUELLER HOLDINGS, INC. (b) 04/15/14
(14.750% 04/15/09) 2,625,000 1,430,625
NAVISTAR INTERNATIONAL 7.500% 06/15/11 (c) 1,125,000 1,127,813
REXNORD CORP. 10.125% 12/15/12 1,360,000 1,468,800
SUPERIOR ESSEX COMMUNICATIONS GROUP 9.000% 04/15/12 (a) 1,750,000 1,671,250
</Table>
See notes to investment portfolio.
9
<Page>
<Table>
<Caption>
PAR ($) VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - (CONTINUED)
MANUFACTURING - (CONTINUED)
MISCELLANEOUS MANUFACTURING - (CONTINUED)
TEKNI-PLEX, INC. 12.750% 06/15/10 4,000,000 4,000,000
TEREX CORP. Series 2001 B,
10.375% 04/01/11 2,115,000 2,347,650
TRIMAS CORP. 9.875% 06/15/12 4,710,000 5,016,150
TRINITY INDUSTRIES, INC. 6.500% 03/15/14 (a) 920,000 864,800
VALMONT INDUSTRIES, INC. 6.875% 05/01/14 (a) 690,000 676,200
-----------
Miscellaneous Manufacturing Total 33,205,608
PAPER PRODUCTS - 2.9%
APPLIED EXTRUSION TECHNOLOGIES, INC. 10.750% 07/01/11 1,965,000 1,247,775
BUCKEYE TECHNOLOGIES, INC. 8.500% 10/01/13 (a) 480,000 489,600
9.250% 09/15/08 1,980,000 1,940,400
CARAUSTAR INDUSTRIES, INC. 9.875% 04/01/11 2,015,000 2,004,925
CONSOLIDATED CONTAINER CO. (b) 06/15/09
(10.750% 06/15/07) (a) 1,700,000 1,266,500
MDP ACQUISITIONS PLC 9.625% 10/01/12 3,600,000 3,888,000
NEWARK GROUP, INC. 9.750% 03/15/14 (a) 1,360,000 1,285,200
NORSKE SKOG CANADA LTD. 7.375% 03/01/14 (a) 695,000 679,613
8.625% 06/15/11 1,200,000 1,266,000
PORTOLA PACKAGING, INC. 8.250% 02/01/12 (a) 1,485,000 1,239,975
SMURFIT-STONE CONTAINER CORP. 8.250% 10/01/12 1,675,000 1,700,125
SOLO CUP CO. 8.500% 02/15/14 (a) 660,000 660,000
TEMBEC INDUSTRIES, INC. 8.500% 02/01/11 920,000 910,800
-----------
Paper Products Total 18,578,913
PRIMARY METAL - 2.0%
KAISER ALUMINUM & CHEMICAL CORP. 10.875% 10/15/06 (f) 2,385,000 2,361,150
METALLURG, INC. 11.000% 12/01/07 6,700,000 3,216,000
OREGON STEEL MILLS, INC. 10.000% 07/15/09 1,785,000 1,838,550
STEEL DYNAMICS, INC. 9.500% 03/15/09 (a) 430,000 470,850
9.500% 03/15/09 650,000 711,750
UCAR FINANCE, INC. 10.250% 02/15/12 1,890,000 2,088,450
WISE METALS GROUP LLC 10.250% 05/15/12 (a) 2,100,000 2,121,000
-----------
Primary Metal Total 12,807,750
</Table>
See notes to investment portfolio.
10
<Page>
<Table>
<Caption>
PAR ($) VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - (CONTINUED)
MANUFACTURING - (CONTINUED)
PRINTING & PUBLISHING - 3.6%
DEX MEDIA, INC. (b) 11/15/13
(9.000% 11/15/08) (a) 1,850,000 1,193,250
8.000% 11/15/13 (a) 2,450,000 2,327,500
DEX MEDIA EAST LLC 12.125% 11/15/12 2,335,000 2,720,275
DEX MEDIA WEST LLC 9.875% 08/15/13 2,075,000 2,285,094
HAIGHTS CROSS COMMUNICATIONS, INC. (b) 08/15/11
(12.500% 02/01/09) (a) 2,325,000 1,267,125
11.750% 08/15/11 1,250,000 1,343,750
HOLLINGER, INC. 11.875% 03/01/11 (a) 2,445,000 2,842,313
QUEBECOR MEDIA, INC. 11.125% 07/15/11 2,360,000 2,672,700
SHERIDAN GROUP 10.250% 08/15/11 (a) 1,515,000 1,602,112
VON HOFFMAN CORP. 10.250% 03/15/09 3,825,000 3,805,875
YELL FINANCE BV 10.750% 08/01/11 1,034,000 1,199,440
-----------
Printing & Publishing Total 23,259,434
STONE, CLAY, GLASS & CONCRETE - 1.4%
CROWN EUROPEAN HOLDINGS SA 10.875% 03/01/13 2,550,000 2,856,000
OWENS-BROCKWAY GLASS CONTAINER 8.250% 05/15/13 1,045,000 1,034,550
OWENS-ILLINOIS, INC. 7.350% 05/15/08 3,050,000 2,928,000
7.500% 05/15/10 620,000 582,800
US CONCRETE, INC. 8.375% 04/01/14 (a) 1,830,000 1,816,275
-----------
Stone, Clay, Glass & Concrete Total 9,217,625
TEXTILE MILL PRODUCTS - 0.3%
COLLINS & AIKMAN FLOOR COVERING, INC. 9.750% 02/15/10 1,600,000 1,624,000
-----------
Textile Mill Products Total 1,624,000
TOBACCO PRODUCTS - 0.2%
NORTH ATLANTIC TRADING 9.250% 03/01/12 (a) 1,545,000 1,541,138
-----------
Tobacco Products Total 1,541,138
TRANSPORTATION EQUIPMENT - 0.1%
NEWCOR, INC., PIK 8.500% 01/31/13 (g) 847,510 516,981
-----------
Transportation Equipment Total 516,981
-----------
MANUFACTURING TOTAL 185,138,884
</Table>
See notes to investment portfolio.
11
<Page>
<Table>
<Caption>
PAR ($) VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - (CONTINUED)
MINING & ENERGY - 4.5%
OIL & GAS EXTRACTION - 2.8%
BENTON OIL & GAS CO. 9.375% 11/01/07 2,565,000 2,616,300
CHESAPEAKE ENERGY CORP. 7.500% 06/15/14 (a) 855,000 880,650
COMPTON PETROLEUM CORP. 9.900% 05/15/09 2,675,000 2,902,375
DENBURY RESOURCES, INC. 7.500% 04/01/13 550,000 550,000
ENCORE ACQUISITION CO. 8.375% 06/15/12 1,870,000 1,982,200
ENERGY PARTNERS LTD. 8.750% 08/01/10 1,570,000 1,624,950
FOREST OIL CORP. 8.000% 06/15/08 2,160,000 2,273,400
MAGNUM HUNTER RESOURCES, INC. 9.600% 03/15/12 2,260,000 2,463,400
TRANSTEXAS GAS CORP. 15.000% 03/15/05 (g)(h) 475,296 5
WHITING PETROLEUM CORP. 7.250% 05/01/12 (a) 2,790,000 2,796,975
-----------
Oil & Gas Extraction Total 18,090,255
OIL & GAS FIELD SERVICES - 1.7%
CHC HELICOPTER CORP. 7.375% 05/01/14 (a) 1,820,000 1,779,050
J. RAY McDERMOTT SA 11.000% 12/15/13 (a) 1,470,000 1,392,825
NEWPARK RESOURCES, INC. 8.625% 12/15/07 2,050,000 2,101,250
PETROLEUM HELICOPTERS, INC. 9.375% 05/01/09 3,125,000 3,250,000
PREMCOR REFINING GROUP 7.500% 06/15/15 2,015,000 2,055,300
-----------
Oil & Gas Field Services Total 10,578,425
-----------
MINING & ENERGY TOTAL 28,668,680
RETAIL TRADE - 1.6%
APPAREL & ACCESSORY STORES - 0.3%
FINLAY FINE JEWELRY CORP. 8.375% 06/01/12 (a)(c) 1,700,000 1,729,750
SAKS, INC. 7.000% 12/01/13 693,000 682,605
-----------
Apparel & Accessory Stores Total 2,412,355
MISCELLANEOUS RETAIL - 1.3%
ASBURY AUTOMOTIVE GROUP 8.000% 03/15/14 1,990,000 1,840,750
LEINER HEALTH PRODUCTS 11.000% 06/01/12 (a) 500,000 517,500
NEBRASKA BOOK CO. 8.625% 03/15/12 (a) 1,340,000 1,323,250
RITE AID CORP. 9.250% 06/01/13 2,830,000 2,900,750
STEINWAY MUSICAL INSTRUMENTS, INC. 8.750% 04/15/11 1,485,000 1,603,800
-----------
Miscellaneous Retail Total 8,186,050
-----------
RETAIL TRADE TOTAL 10,598,405
</Table>
See notes to investment portfolio.
12
<Page>
<Table>
<Caption>
PAR ($) VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - (CONTINUED)
SERVICES - 14.8%
AMUSEMENT & RECREATION - 8.6%
AMERICAN CASINO & ENTERTAINMENT 7.850% 02/01/12 (a) 2,525,000 2,531,313
AMERISTAR CASINOS, INC. 10.750% 02/15/09 185,000 211,825
AMF BOWLING WORLDWIDE, INC. 10.000% 03/01/10 (a) 1,655,000 1,679,825
BOMBARDIER RECREATIONAL 8.375% 12/15/13 (a) 3,235,000 3,040,900
BOYD GAMING CORP. 8.750% 04/15/12 90,000 95,625
CINEMARK, INC. (b) 03/15/14
(9.750% 03/15/09) (a) 2,790,000 1,771,650
CIRCUS & ELDORADO/SILVER
LEGACY CAPITAL CORP. 10.125% 03/01/12 1,990,000 1,985,025
EQUINOX HOLDINGS, INC. 9.000% 12/15/09 (a) 2,570,000 2,582,850
HARD ROCK HOTEL, INC. 8.875% 06/01/13 2,260,000 2,293,900
HOLLYWOOD CASINO SHREVEPORT 13.000% 08/01/06 (h) 7,050,000 5,217,000
INN OF THE MOUNTAIN GODS RESORT 12.000% 11/15/10 (a) 1,845,000 2,001,825
MOHEGAN TRIBAL GAMING AUTHORITY 8.000% 04/01/12 1,325,000 1,397,875
8.375% 07/01/11 450,000 481,500
PINNACLE ENTERTAINMENT 8.250% 03/15/12 (a) 3,800,000 3,600,500
8.750% 10/01/13 3,480,000 3,410,400
PREMIER ENTERTAINMENT BILOXI FINANCIAL 10.750% 02/01/12 (a) 1,505,000 1,584,013
RIVER ROCK ENTERTAINMENT 9.750% 11/01/11 (a) 2,210,000 2,342,600
SENECA GAMING CORP. 7.250% 05/01/12 (a) 2,265,000 2,242,350
SIX FLAGS, INC. 9.500% 02/01/09 4,785,000 4,874,719
STATION CASINOS, INC. 6.000% 04/01/12 1,135,000 1,081,088
6.875% 03/01/16 750,000 708,750
TOWN SPORTS INTERNATIONAL, INC. (b) 02/01/14
(11.000% 02/01/09) (a) 3,015,000 1,492,425
TRUMP HOLDINGS & FUNDING, PIK 17.625% 09/15/10 2,481,086 2,505,897
VAIL RESORTS, INC. 6.750% 02/15/14 (a) 2,060,000 1,915,800
WARNER MUSIC GROUP 7.375% 04/15/14 (a) 2,270,000 2,213,250
WYNN LAS VEGAS LLC 12.000% 11/01/10 1,500,000 1,755,000
-----------
Amusement & Recreation Total 55,017,905
FUNERAL SERVICES - 0.4%
SERVICE CORP. INTERNATIONAL 7.700% 04/15/09 2,810,000 2,908,350
-----------
Funeral Services Total 2,908,350
</Table>
See notes to investment portfolio.
13
<Page>
<Table>
<Caption>
PAR ($) VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - (CONTINUED)
SERVICES - (CONTINUED)
HEALTH SERVICES - 3.7%
BIO-RAD LABORATORIES, INC. 7.500% 08/15/13 2,515,000 2,603,025
COVENTRY HEALTH CARE, INC. 8.125% 02/15/12 3,190,000 3,556,850
HCA, INC. 8.750% 09/01/10 1,120,000 1,259,507
INSIGHT HEALTH SERVICES CORP. 9.875% 11/01/11 2,900,000 2,950,750
MEDQUEST, INC. 11.875% 08/15/12 3,300,000 3,712,500
PACIFICARE HEALTH SYSTEMS, INC. 10.750% 06/01/09 707,000 807,747
TEAM HEALTH, INC. 9.000% 04/01/12 (a) 1,965,000 1,856,925
TENET HEALTHCARE CORP. 5.375% 11/15/06 835,000 786,987
6.375% 12/01/11 3,625,000 3,081,250
UNITED SURGICAL
PARTNERS INTERNATIONAL, INC. 10.000% 12/15/11 2,600,000 2,931,500
-----------
Health Services Total 23,547,041
OTHER SERVICES - 2.1%
ADVANSTAR COMMUNICATIONS, INC. 12.000% 02/15/11 4,050,000 4,293,000
CORRECTIONS CORP. OF AMERICA 9.875% 05/01/09 2,415,000 2,668,575
GEO GROUP, INC. 8.250% 07/15/13 1,260,000 1,241,100
NATIONSRENT, INC. 9.500% 10/15/10 (a) 3,260,000 3,455,600
WILLIAMS SCOTSMAN, INC. 9.875% 06/01/07 1,415,000 1,393,775
-----------
Other Services Total 13,052,050
-----------
SERVICES TOTAL 94,525,346
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY
SERVICES - 26.3%
AEROSPACE - 1.0%
BE AEROSPACE, INC. 8.875% 05/01/11 2,080,000 1,965,600
CONDOR SYSTEMS, INC. 11.875% 05/01/09 (f) 4,000,000 280,000
SEQUA CORP. 8.875% 04/01/08 1,170,000 1,240,200
TRANSDIGM, INC. 8.375% 07/15/11 (a) 1,660,000 1,676,600
VOUGHT AIRCRAFT INDUSTRIES, INC. 8.000% 07/15/11 (a) 1,295,000 1,239,962
-----------
Aerospace Total 6,402,362
AIR TRANSPORTATION - 1.3%
CONTINENTAL AIRLINES, INC. 7.568% 12/01/06 2,980,000 2,518,100
DELTA AIR LINES, INC. 7.900% 12/15/09 3,480,000 1,740,000
</Table>
See notes to investment portfolio.
14
<Page>
<Table>
<Caption>
PAR ($) VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - (CONTINUED)
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - (CONTINUED)
AIR TRANSPORTATION - (CONTINUED)
NORTHWEST AIRLINES CORP. 9.875% 03/15/07 2,905,000 2,149,700
UNITED AIRLINES 1.340% 03/02/49 (i) 2,380,905 2,226,146
-----------
Air Transportation Total 8,633,946
BROADCASTING - 2.2%
CANWEST MEDIA, INC. 10.625% 05/15/11 2,775,000 3,108,000
GRANITE BROADCASTING CORP. 9.750% 12/01/10 (a) 3,140,000 2,998,700
SINCLAIR BROADCAST GROUP, INC. 8.750% 12/15/11 800,000 856,000
SPANISH BROADCASTING SYSTEM 9.625% 11/01/09 560,000 590,800
TV AZTECA SA DE CV 10.500% 02/15/07 5,070,000 5,057,325
XM SATELLITE RADIO HOLDINGS, INC. 6.650% 05/01/09 (a)(i) 1,675,000 1,675,000
-----------
Broadcasting Total 14,285,825
CABLE - 4.9%
ATLANTIC BROADBAND FINANCIAL 9.375% 01/15/14 (a) 2,605,000 2,422,650
CABLEVISION SYSTEMS CORP. 5.670% 04/01/09 (a)(i) 1,945,000 1,983,900
CHARTER COMMUNICATIONS HOLDINGS LLC 9.920% 04/01/11 12,360,000 10,104,300
10.250% 09/15/10 (a) 1,500,000 1,522,500
CSC HOLDINGS, INC. 6.750% 04/15/12 (a) 1,130,000 1,084,800
7.625% 04/01/11 95,000 96,188
DIRECTV HOLDINGS FINANCE 8.375% 03/15/13 495,000 549,450
ECHOSTAR DBS CORP. 6.375% 10/01/11 (a) 685,000 667,875
INSIGHT COMMUNICATIONS, INC. (b) 02/15/11
(12.250% 02/15/06) 3,295,000 2,899,600
INSIGHT MIDWEST 9.750% 10/01/09 2,010,000 2,115,525
NORTHLAND CABLE TELEVISION, INC. 10.250% 11/15/07 3,650,000 3,586,125
NTL CABLE PLC 8.750% 04/15/14 (a) 1,770,000 1,796,550
PEGASUS SATELLITE COMMUNICATIONS, INC. 11.250% 01/15/10 (a)(f) 1,495,000 822,250
TELENET GROUP HOLDING NV (b) 06/15/14
(11.500% 12/15/08) (a) 3,045,000 1,872,675
-----------
Cable Total 31,524,388
</Table>
See notes to investment portfolio.
15
<Page>
<Table>
<Caption>
PAR ($) VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - (CONTINUED)
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - (CONTINUED)
ELECTRIC, GAS & SANITARY SERVICES - 1.0%
ALLIED WASTE NORTH AMERICA, INC. 6.500% 11/15/10 (a) 1,510,000 1,460,925
Series 2001 B,
8.500% 12/01/08 3,000,000 3,240,000
WASTE SERVICES, INC. 9.500% 04/15/14 (a) 1,480,000 1,491,100
-----------
Electric, Gas & Sanitary
Services Total 6,192,025
ELECTRIC SERVICES - 1.8%
BEAVER VALLEY FUNDING CORP. 9.000% 06/01/17 2,210,000 2,497,300
CMS ENERGY CORP. 8.900% 07/15/08 2,990,000 3,132,025
ILLINOVA POWER CORP. 11.500% 12/15/10 1,375,000 1,619,062
NEVADA POWER CO. 9.000% 08/15/13 (a) 985,000 1,065,031
10.875% 10/15/09 2,765,000 3,110,625
-----------
Electric Services Total 11,424,043
MARINE TRANSPORTATION - 1.2%
SHIP FINANCE INTERNATIONAL LTD. 8.500% 12/15/13 (a) 3,405,000 3,174,073
STENA AB 7.500% 11/01/13 1,220,000 1,226,100
9.625% 12/01/12 1,630,000 1,841,900
TEEKAY SHIPPING CORP. 8.875% 07/15/11 1,310,000 1,434,450
-----------
Marine Transportation Total 7,676,523
PIPELINES - 2.4%
COASTAL CORP. 7.750% 06/15/10 4,840,000 4,259,200
NORTHWEST PIPELINE CORP. 8.125% 03/01/10 1,040,000 1,116,700
SONAT, INC. 6.875% 06/01/05 1,500,000 1,503,750
7.625% 07/15/11 4,965,000 4,331,962
SOUTHERN NATURAL GAS 8.875% 03/15/10 1,630,000 1,768,550
WILLIAMS COMPANIES, INC. 8.125% 03/15/12 1,935,000 2,041,425
-----------
Pipelines Total 15,021,587
RADIO & TELEPHONE COMMUNICATIONS - 5.1%
AIRGATE PCS, INC. 9.375% 09/01/09 543,900 533,022
AMERICAN CELLULAR CORP. Series B,
10.000% 08/01/11 1,955,000 1,715,512
AMERICAN TOWERS, INC. 7.250% 12/01/11 (a) 1,060,000 1,054,700
DOBSON COMMUNICATIONS CORP. 8.875% 10/01/13 3,230,000 2,527,475
</Table>
See notes to investment portfolio.
16
<Page>
<Table>
<Caption>
PAR ($) VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - (CONTINUED)
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - (CONTINUED)
RADIO & TELEPHONE COMMUNICATIONS - (CONTINUED)
HORIZON PCS, INC. 13.750% 06/15/11 (f) 3,300,000 1,155,000
iPCS ESCROW CO. 11.500% 05/01/12 (a) 910,000 923,650
NEXTEL COMMUNICATIONS, INC. 7.375% 08/01/15 1,000,000 1,010,000
NEXTEL PARTNERS, INC. 8.125% 07/01/11 3,250,000 3,331,250
ROGERS CANTEL, INC. 9.750% 06/01/16 3,715,000 4,272,250
RURAL CELLULAR CORP. 8.250% 03/15/12 (a) 1,355,000 1,392,262
SBA COMMUNICATIONS, INC. (b) 12/15/11
(9.750% 12/15/07) (a) 800,000 586,000
10.250% 02/01/09 4,045,000 4,014,662
SPECTRASITE, INC. 8.250% 05/15/10 (a) 1,690,000 1,749,150
US UNWIRED, INC. (b) 11/01/09
(13.375% 11/01/04) 5,130,000 5,335,200
WESTERN WIRELESS CORP. 9.250% 07/15/13 2,660,000 2,749,775
-----------
Radio & Telephone Communications Total 32,349,908
RAILROAD - 0.8%
KANSAS CITY SOUTHERN 7.500% 06/15/09 1,620,000 1,636,200
RAILWORKS CORP. 11.500% 04/15/09 (h) 600,000 30,000
TFM SA DE CV 12.500% 06/15/12 3,030,000 3,211,800
-----------
Railroad Total 4,878,000
TELECOMMUNICATION SERVICES - 3.9%
AXTEL SA 11.000% 12/15/13 (a) 2,580,000 2,425,200
CARRIER1 INTERNATIONAL SA 13.250% 02/15/09 (f) 6,000,000 540,000
CINCINNATI BELL, INC. 8.375% 01/15/14 2,455,000 2,209,500
FAIRPOINT COMMUNICATIONS 11.875% 03/01/10 1,150,000 1,305,250
LEVEL 3 COMMUNICATIONS, INC. 10.500% 12/01/08 3,020,000 2,325,400
QWEST CAPITAL FUNDING 7.250% 02/15/11 6,375,000 5,275,313
7.750% 02/15/31 2,385,000 1,848,375
QWEST SERVICES CORP. 13.500% 12/15/10 (a) 5,445,000 6,268,556
TIME WARNER TELECOM, INC. 9.750% 07/15/08 1,460,000 1,365,100
10.125% 02/01/11 1,760,000 1,592,800
-----------
Telecommunication Services Total 25,155,494
</Table>
See notes to investment portfolio.
17
<Page>
<Table>
<Caption>
PAR ($) VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - (CONTINUED)
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - (CONTINUED)
TRANSPORTATION SERVICES - 0.7%
ALLIED HOLDINGS, INC. Series 1997 B,
8.625% 10/01/07 1,835,000 1,729,488
QDI CAPITAL CORP. 9.000% 11/15/10 (a) 2,810,000 2,641,400
-----------
Transportation Services Total 4,370,888
-----------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY
SERVICES TOTAL 167,914,989
UTILITY - 5.1%
INDEPENDENT POWER PRODUCERS - 5.1%
AES CORP. 9.000% 05/15/15 (a) 3,115,000 3,301,900
9.500% 06/01/09 1,253,000 1,303,120
CAITHNESS COSO FUNDING CORP. Series 1999 B,
9.050% 12/15/09 3,557,250 3,841,830
CALPINE CORP. 8.500% 07/15/10 (a) 2,750,000 2,303,125
CALPINE CANADA ENERGY FINANCE 8.500% 05/01/08 1,565,000 931,175
CALPINE GENERATING CO. 10.250% 04/01/11 (a)(i) 2,505,000 2,204,400
11.500% 04/01/11 (a) 2,785,000 2,395,100
DYNEGY HOLDINGS, INC. 6.875% 04/01/11 2,475,000 2,029,500
9.875% 07/15/10 (a) 1,230,000 1,291,500
EDISON MISSION ENERGY 9.875% 04/15/11 3,090,000 3,090,000
MSW ENERGY HOLDINGS FINANCE 7.375% 09/01/10 (a) 910,000 896,350
8.500% 09/01/10 (a) 2,260,000 2,339,100
NRG ENERGY, INC. 8.000% 12/15/13 (a) 1,070,000 1,070,000
ORION POWER HOLDINGS, INC. 12.000% 05/01/10 2,100,000 2,551,500
PSE&G ENERGY HOLDINGS, INC. 8.625% 02/15/08 2,955,000 3,176,625
-----------
Independent Power Producers Total 32,725,225
----------
UTILITY TOTAL 32,725,225
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES
(COST OF $592,644,455) 577,601,856
CONVERTIBLE BONDS - 1.9%
MANUFACTURING - 0.9%
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.9%
NORTEL NETWORKS LTD. 4.250% 09/01/08 6,240,000 5,717,587
-----------
Electronic &
Electrical Equipment Total 5,717,587
-----------
MANUFACTURING TOTAL 5,717,587
</Table>
See notes to investment portfolio.
18
<Page>
<Table>
<Caption>
PAR ($) VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS - (CONTINUED)
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 0.8%
COMMUNICATION SERVICES - 0.8%
COLT TELECOM GROUP PLC 2.000% 08/06/05 EUR 1,400,000 974,553
2.000% 03/29/06 (a) 2,190,000 2,901,399
2.000% 12/16/06 (a) 980,000 1,331,250
-----------
Communication Services Total 5,207,202
-----------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES TOTAL 5,207,202
UTILITY - 0.2%
INDEPENDENT POWER PRODUCERS - 0.2%
MIRANT CORP. 2.500% 06/15/21 (f) USD 2,125,000 1,180,204
-----------
Independent Power Producers Total 1,180,204
-----------
UTILITY TOTAL 1,180,204
TOTAL CONVERTIBLE BONDS
(COST OF $8,953,920) 12,104,993
<Caption>
SHARES
- ------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS - 1.8%
FINANCE, INSURANCE & REAL ESTATE - 0.7%
FINANCE - 0.7%
iStar Financial:
Series E,
7.875% 86,769 2,169,225
Series F,
7.800% 97,000 2,388,625
-----------
Finance Total 4,557,850
-----------
FINANCE, INSURANCE & REAL ESTATE TOTAL 4,557,850
MANUFACTURING - 0.6%
PRINTING & PUBLISHING - 0.6%
PriMedia, Inc.:
Series D,
10.000% 17,700 1,601,850
Series F,
9.200% 20,390 1,784,125
Series H,
8.625% 220 18,975
-----------
Printing & Publishing Total 3,404,950
-----------
MANUFACTURING TOTAL 3,404,950
</Table>
See notes to investment portfolio.
19
<Page>
<Table>
<Caption>
SHARES VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS - (CONTINUED)
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 0.5%
BROADCASTING - 0.5%
Spanish Broadcasting
System, Inc., 10.750% 3,370 3,403,700
-----------
Broadcasting Total 3,403,700
COMMUNICATION SERVICES - 0.0%
PTV, Inc. 19 143
-----------
Communication Services Total 143
-----------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES TOTAL 3,403,843
TOTAL PREFERRED STOCKS
(COST OF $11,604,480) 11,366,643
COMMON STOCKS (j) - 2.5%
MANUFACTURING - 0.6%
COMMUNICATIONS EQUIPMENT - 0.3%
EchoStar Communications
Corp., Class A 50,000 1,608,000
-----------
Communications Equipment Total 1,608,000
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.2%
Amkor Technology, Inc. 105,000 1,079,400
-----------
Electronic & Electrical
Equipment Total 1,079,400
PRINTING & PUBLISHING - 0.1%
Haights Cross
Communications, Inc. 18,220 892,780
-----------
Printing & Publishing Total 892,780
-----------
MANUFACTURING TOTAL 3,580,180
MINING & ENERGY - 0.0%
CRUDE PETROLEUM & NATURAL GAS - 0.0%
Coho Energy, Inc. (k) 750 --
Horizon Natural
Resources Co. (g) 16,000 16
-----------
Crude Petroleum & Natural Gas Total 16
OIL & GAS EXTRACTION - 0.0%
Orion Refining Corp. (g)(l) 10 --
-----------
Oil & Gas Extraction Total --
-----------
MINING & ENERGY TOTAL 16
</Table>
See notes to investment portfolio.
20
<Page>
<Table>
<Caption>
SHARES VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (j) - (CONTINUED)
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 1.7%
CABLE - 0.4%
NTL, Inc. 46,154 2,727,701
Ono Finance PLC (a)(g)(l) 5,700 --
-----------
Cable Total 2,727,701
ELECTRIC, GAS & SANITARY SERVICES - 0.1%
Allied Waste Industries, Inc. 72,500 961,350
-----------
Electric,
Gas & Sanitary Services Total 961,350
ELECTRIC SERVICES - 0.0%
BayCorp Holdings Ltd. 3 40
-----------
Electric Services Total 40
POLLUTION CONTROL - 0.6%
EnviroSource, Inc. (g) 50,004 4,000,320
Fairlane Management Corp. (g)(l) 50,004 --
-----------
Pollution Control Total 4,000,320
RADIO & TELEPHONE COMMUNICATIONS - 0.6%
Airgate PCS, Inc. 22,468 415,433
Nextel Communications,
Inc., Class A 100,000 2,313,000
SBA Communications Corp. 235,910 910,613
-----------
Radio & Telephone
Communications Total 3,639,046
-----------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY
SERVICES TOTAL 11,328,457
UTILITY - 0.2%
INDEPENDENT POWER PRODUCERS - 0.2%
Dynegy, Inc., Class A 233,000 1,022,870
-----------
Independent Power
Producers Total 1,022,870
-----------
UTILITY TOTAL 1,022,870
TOTAL COMMON STOCKS
(COST OF $14,073,688) 15,931,523
</Table>
See notes to investment portfolio.
21
<Page>
<Table>
<Caption>
UNITS VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
WARRANTS (j) - 0.0%
MANUFACTURING - 0.0%
PRINTING & PUBLISHING - 0.0%
Haights Cross Communications, Inc.:
expires 12/10/11 (k) 20 --
expires 12/10/12 18,044 361
Printing & Publishing Total 361
-----------
MANUFACTURING TOTAL 361
RETAIL TRADE - 0.0%
FOOD STORES - 0.0%
Pathmark Stores, Inc.,
expires 09/19/10 58,758 43,481
-----------
Food Stores Total 43,481
-----------
RETAIL TRADE TOTAL 43,481
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 0.0%
AEROSPACE - 0.0%
Loral Space & Communications Ltd.,
expires 01/15/07 12,000 120
Aerospace Total 120
BROADCASTING - 0.0%
XM Satellite Radio Holdings, Inc.,
expires 03/15/10 (a) 2,435 121,750
-----------
Broadcasting Total 121,750
CABLE - 0.0%
Cable Satisfaction International, Inc.,
expires 03/01/05 (g)(l) 7,550 --
Ono Finance PLC,
expires 02/15/11 (a)(g)(l) 1,200 --
-----------
Cable Total --
TRANSPORTATION SERVICES - 0.0%
QDI LLC,
expires 01/15/07 (a)(g) 10,207 42,869
-----------
Transportation Services Total 42,869
RADIO & TELEPHONE COMMUNICATIONS - 0.0%
Carrier1 International SA,
expires 02/19/09 (a)(g)(f)(l) 2,780 --
iPCS, Inc.,
expires 07/15/10 (a)(g)(l) 2,500 --
</Table>
See notes to investment portfolio.
22
<Page>
<Table>
<Caption>
UNITS VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
WARRANTS (j) - (CONTINUED)
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - (CONTINUED)
RADIO & TELEPHONE COMMUNICATIONS - (CONTINUED)
MetroNet Communications Corp.,
expires 08/15/07 (a)(g)(l) 1,250 --
UbiquiTel, Inc.,
expires 04/15/10 (a)(g)(l) 5,250 --
-----------
Radio & Telephone
Communications Total --
TELECOMMUNICATION SERVICES - 0.0%
Horizon PCS, Inc.,
expires 10/01/10 (a)(g)(l) 4,705 --
Jazztel PLC,
expires 07/15/10 (a)(g)(l) EUR 1,435 --
-----------
Telecommunication
Services Total --
-----------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY
SERVICES TOTAL 164,739
TOTAL WARRANTS
(COST OF $8,220,915) 208,581
<Caption>
PAR ($)
- ------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATION - 2.0%
Repurchase agreement with State Street
Bank & Trust Co., dated 05/28/04,
due 06/01/04 at 0.930%, collateralized
by a U.S. Treasury Bond maturing
02/15/16, market value $13,138,838
(repurchase proceeds $12,878,331)
(Cost of $12,877,000) 12,877,000 12,877,000
TOTAL INVESTMENTS - 98.7%
(COST OF $648,374,458) (M) 630,090,596
OTHER ASSETS & LIABILITIES, NET - 1.3% 8,498,156
NET ASSETS - 100.0% 638,588,752
</Table>
See notes to investment portfolio.
23
<Page>
NOTES TO INVESTMENT PORTFOLIO:
(a) Security exempt from registration pursuant to Rule 144A under the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
May 31, 2004, these securities amounted to $194,205,144, which represents
30.4% of net assets.
(b) Step bond. This security is currently accruing at zero. Shown
parenthetically is the interest rate to be paid and the date the Fund will
begin accruing at this rate.
(c) Security purchased on a delayed delivery basis.
(d) Zero coupon bond.
(e) The issuer has filed for bankruptcy protection under Chapter 11 and is in
default of certain debt covenants, however, under the issuer's plan of
reorganization, the issuer has guaranteed all interest due and therefore
income is still being accrued. As of May 31, 2004, the value of this
security represents 0.2% of net assets.
(f) The issuer has filed for bankruptcy protection under Chapter 11, and is in
default of certain debt covenants. Income is not being accrued. As of May
31, 2004, the value of these securities amounted to $6,338,604, which
represents 1.0% of net assets.
(g) Represents fair value as determined in good faith under procedures approved
by the Board of Trustees.
(h) The issuer is in default of certain debt covenants. Income is not being
accrued. As of May 31, 2004, the value of these securities amounted to
$5,247,005, which represents 0.8% of net assets.
(i) Variable rate security. The interest rate shown reflects the rate as of May
31, 2004.
(j) Non-income producing security.
(k) Rounds to less than $1.
(l) Security has no value.
(m) Cost for federal income tax purposes is $647,517,473.
As of May 31, 2004, the Fund had entered into the following forward
currency exchange contracts:
<Table>
<Caption>
FORWARD CURRENCY AGGREGATE SETTLEMENT UNREALIZED
CONTRACTS TO BUY VALUE FACE VALUE DATE APPRECIATION
-----------------------------------------------------------------------------------
EUR 1,020,000 $ 1,245,653 $ 1,230,630 06/10/04 $ 15,023
<Caption>
FORWARD CURRENCY AGGREGATE SETTLEMENT UNREALIZED
CONTRACTS TO SELL VALUE FACE VALUE DATE DEPRECIATION
-----------------------------------------------------------------------------------
EUR 5,199,000 $ 6,349,164 $ 6,272,593 06/10/04 $ (76,571)
</Table>
<Table>
<Caption>
ACRONYM NAME
-----------------------------------------------------------------------------------
EUR Euro Currency
PIK Payment-In-Kind
USD United States Dollar
</Table>
See notes to financial statements.
24
<Page>
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2004 COLUMBIA HIGH YIELD OPPORTUNITY FUND
<Table>
<Caption>
($)
- -------------------------------------------------------------------------------------------------------------------
ASSETS Investments, at cost 648,374,458
Investments, at value 630,090,596
Receivable for:
Investments sold 3,154,384
Fund shares sold 6,967,246
Interest 13,787,717
Dividends 89,410
Expense reimbursement due from
Investment Advisor 96,308
Deferred Trustees' compensation plan 31,327
Other assets 5,192
-----------
Total Assets 654,222,180
LIABILITIES Payable to custodian bank 472,191
Net unrealized depreciation on foreign
forward currency contracts 61,548
Payable for:
Investments purchased 7,208,527
Investments purchased on a delayed
delivery basis 3,829,798
Fund shares repurchased 1,547,356
Distributions 1,497,944
Investment advisory fee 323,868
Transfer agent fee 216,390
Pricing and bookkeeping fees 20,051
Trustees' fees 183
Custody fee 4,872
Distribution and service fees 322,372
Deferred Trustees' fees 31,327
Other liabilities 97,001
-----------
Total Liabilities 15,633,428
NET ASSETS 638,588,752
COMPOSITION OF NET ASSETS Paid-in capital 1,056,995,550
Undistributed net investment income 3,139,574
Accumulated net realized loss (403,201,359)
Net unrealized depreciation on:
Investments (18,283,862)
Foreign currency translations (61,151)
NET ASSETS 638,588,752
CLASS A Net assets 325,657,513
Shares outstanding 71,730,397
Net asset value per share 4.54(a)
Maximum offering price per share
($4.54/0.9525) 4.77(b)
CLASS B Net assets 252,414,873
Shares outstanding 55,598,819
Net asset value and offering price per share 4.54(a)
CLASS C Net assets 46,322,303
Shares outstanding 10,202,877
Net asset value and offering price per share 4.54(a)
CLASS Z Net assets 14,194,063
Shares outstanding 3,126,222
Net asset value, offering and redemption
price per share 4.54
</Table>
(a) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
See notes to financial statements.
25
<Page>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 2004 COLUMBIA HIGH YIELD OPPORTUNITY FUND
<Table>
<Caption>
($)
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME Interest 63,927,232
Dividends 1,661,388
-----------
Total Investment Income (net of foreign
taxes withheld of $584) 65,588,620
EXPENSES Investment advisory fee 4,453,431
Distribution fee:
Class B 2,230,924
Class C 405,905
Service fee:
Class A 911,449
Class B 743,641
Class C 135,304
Transfer agent fee 1,980,330
Pricing and bookkeeping fees 234,786
Trustees' fees 26,926
Custody fee 36,096
Non-recurring costs (See Note 7) 19,145
Other expenses 316,638
-----------
Total Expenses 11,494,575
Fees and expenses waived or reimbursed by Investment Advisor (37,548)
Fees waived by Distributor - Class C (81,176)
Non-recurring costs assumed by Investment Advisor (See Note 7) (19,145)
Custody earnings credit (6,029)
-----------
Net Expenses 11,350,677
-----------
Net Investment Income 54,237,943
NET REALIZED AND UNREALIZED GAIN (LOSS) ON Net realized gain (loss) on:
INVESTMENTS AND FOREIGN CURRENCY Investments 8,566,815
Foreign currency transactions (296,069)
-----------
Net realized gain 8,270,746
Net change in unrealized
appreciation/depreciation on:
Investments 32,835,268
Foreign currency translations 44,832
-----------
Net change in unrealized appreciation/depreciation 32,880,100
-----------
Net Gain 41,150,846
-----------
Net Increase in Net Assets from Operations 95,388,789
</Table>
See notes to financial statements.
26
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
COLUMBIA HIGH YIELD OPPORTUNITY FUND
<Table>
<Caption>
YEAR ENDED PERIOD ENDED YEAR ENDED
MAY 31, MAY 31, DECEMBER 31,
2004 ($) 2003(a)($) 2002 ($)
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS Net investment income 54,237,943 24,767,811 55,441,396
Net realized gain (loss) on
investments and foreign
currency transactions 8,270,746 (17,632,755) (148,093,490)
Net change in unrealized
appreciation/depreciation on
investments and foreign
currency translations 32,880,100 72,727,890 60,419,314
------------ ------------- ------------
Net Increase (Decrease)
from Operations 95,388,789 79,862,946 (32,232,780)
DISTRIBUTIONS DECLARED TO SHAREHOLDERS From net investment income:
Class A (25,897,731) (13,142,914) (32,236,809)
Class B (18,878,503) (9,273,542) (25,717,885)
Class C (3,515,106) (1,580,199) (4,204,933)
Class Z (1,901,969) (1,396,747) (1,529,375)
Return of capital:
Class A -- -- (2,748,971)
Class B -- -- (2,193,075)
Class C -- -- (358,573)
Class Z -- -- (130,416)
------------ ------------- ------------
Total Distributions
Declared to Shareholders (50,193,309) (25,393,402) (69,120,037)
SHARE TRANSACTIONS Class A:
Subscriptions 189,024,773 123,761,289 235,835,725
Proceeds received in
connection with merger -- -- 175,784
Distributions reinvested 13,650,967 6,982,957 17,448,294
Redemptions (276,813,657) (143,095,138) (211,467,498)
------------ ------------- ------------
Net Increase (Decrease) (74,137,917) (12,350,892) 41,992,305
Class B:
Subscriptions 41,567,784 31,442,432 88,840,756
Distributions reinvested 8,876,772 4,268,763 12,563,965
Redemptions (120,128,028) (31,579,170) (127,327,785)
------------ ------------- ------------
Net Increase (Decrease) (69,683,472) 4,132,025 (25,923,064)
Class C:
Subscriptions 26,520,739 9,708,920 22,531,723
Distributions reinvested 2,226,590 984,268 2,835,915
Redemptions (37,179,218) (9,260,789) (23,747,996)
------------ ------------- ------------
Net Increase (Decrease) (8,431,889) 1,432,399 1,619,642
Class Z:
Subscriptions 31,287,165 18,835,360 20,514,243
Proceeds received in
connection with merger -- -- 36,830,189
Distributions reinvested 1,483,445 1,244,797 1,500,998
Redemptions (66,364,258) (12,632,407) (24,679,597)
------------ ------------- ------------
Net Increase (Decrease) (33,593,648) 7,447,750 34,165,833
Net Increase (Decrease) from
Share Transactions (185,846,926) 661,282 51,854,716
------------ ------------- ------------
Total Increase (Decrease)
in Net Assets (140,651,446) 55,130,826 (49,498,101)
</Table>
(a) The Fund changed its fiscal year end from December 31 to May 31.
See notes to financial statements.
27
<Page>
<Table>
<Caption>
YEAR ENDED PERIOD ENDED YEAR ENDED
MAY 31, MAY 31, DECEMBER 31,
2004 ($) 2003(a)($) 2002 ($)
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
Net Assets Beginning of period 779,240,198 724,109,372 773,607,473
End of period (including
undistribued (overdistributed)
net investment income of
$3,139,574, $(2,035,796) and
$(1,587,777), respectively) 638,588,752 779,240,198 724,109,372
Changes in Shares Class A:
Subscriptions 42,769,227 30,064,102 56,148,431
Issued in connection with
merger -- -- 43,511
Issued for distributions
reinvested 3,017,589 1,670,630 4,119,471
Redemptions (61,621,799) (34,371,342) (49,928,762)
------------ ------------- ------------
Net Increase (Decrease) (15,834,983) (2,636,610) 10,382,651
Class B:
Subscriptions 9,297,993 7,579,882 20,864,519
Issued for distributions
reinvested 1,963,545 1,022,266 2,954,382
Redemptions (26,516,181) (7,619,970) (29,746,409)
------------ ------------- ------------
Net Increase (Decrease) (15,254,643) 982,178 (5,927,508)
Class C:
Subscriptions 5,944,258 2,356,861 5,278,283
Issued for distributions
reinvested 492,263 235,678 668,879
Redemptions (8,189,751) (2,247,443) (5,607,906)
------------ ------------- ------------
Net Increase (Decrease) (1,753,230) 345,096 339,256
Class Z:
Subscriptions 7,069,802 4,570,300 5,020,578
Issued in connection with
merger -- -- 9,116,388
Issued for distributions
reinvested 327,668 297,518 374,230
Redemptions (14,917,379) (3,077,369) (6,084,044)
------------ ------------- ------------
Net Increase (Decrease) (7,519,909) 1,790,449 8,427,152
</Table>
(a) The Fund changed its fiscal year end from December 31 to May 31.
See notes to financial statements.
28
<Page>
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2004 COLUMBIA HIGH YIELD OPPORTUNITY FUND
NOTE 1. ORGANIZATION
Columbia High Yield Opportunity Fund (the "Fund"), a series of Columbia Funds
Trust I (the "Trust"), is a diversified portfolio. The Trust is a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company.
INVESTMENT GOAL
The Fund seeks high current income and total return.
FUND SHARES
The Fund may issue an unlimited number of shares and offers four classes of
shares: Class A, Class B, Class C and Class Z. Each share class has its own
sales charge and expense structure.
Class A shares are subject to a maximum front-end sales charge of 4.75% based on
the amount of initial investment. Class A shares purchased without an initial
sales charge are subject to a 1.00% contingent deferred sales charge ("CDSC") on
shares sold within eighteen months on an original purchase of $1 million to $25
million. Class B shares are subject to a maximum CDSC of 5.00% based upon the
holding period after purchase. Class B shares will convert to Class A shares in
a certain number of years after purchase, depending on the program under which
shares were purchased. Class C shares are subject to a 1.00% CDSC on shares sold
within one year after purchase. Class Z shares are offered continuously at net
asset value. There are certain restrictions on the purchase of Class Z shares,
as described in the Fund's prospectus.
Effective October 13, 2003, the Fund changed its name from Liberty High Yield
Securities Fund to Columbia High Yield Opportunity Fund. Also on that date, the
Trust changed its name from Liberty Funds Trust I to Columbia Funds Trust I.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements.
SECURITY VALUATION
Debt securities generally are valued by a pricing service approved by the Fund's
Board of Trustees, based upon market transactions for normal, institutional-size
trading units of similar securities. The services may use various pricing
techniques which take into account appropriate factors such as yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other data, as
well as broker quotes. Debt securities for which quotations are readily
available are valued at an over-the-counter or exchange bid quotation. Certain
debt securities, which tend to be more thinly traded and of lesser quality, are
priced based on fundamental analysis of the financial condition of the issuer
and the estimated value of any collateral. Valuations developed through pricing
techniques may vary from the actual amounts realized upon sale of the
securities, and the potential variation may be greater for those securities
valued using fundamental analysis.
Equity securities are valued at the last sale price on the principal exchange on
which they trade, except for securities traded on the NASDAQ, which are valued
at the NASDAQ official close price. Unlisted securities or listed securities for
which there were no sales during the day are valued at the closing bid price on
such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Forward currency exchange contracts are valued at the prevailing forward
exchange rate of the underlying currencies.
Foreign securities are generally valued at the last sale price on the foreign
exchange or market on which they trade. If any foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local shares in the principal market in
which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close
29
<Page>
of the New York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates are generally determined at 2:00 p.m.
Eastern (U.S.) time. Occasionally, events affecting the values of such foreign
securities and such exchange rates may occur between the times at which they are
determined and the close of the customary trading session of the NYSE, which
would not be reflected in the computation of the Fund's net asset value. If
events materially affecting the values of such foreign securities occur and it
is determined that market quotations are not reliable, then these foreign
securities will be valued at their fair value using procedures approved by the
Board of Trustees.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value under
procedures approved by the Board of Trustees.
SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date. Cost is determined
and gains (losses) are based upon the specific identification method for both
financial statement and federal income tax purposes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward foreign currency exchange contracts are agreements to exchange one
currency for another at a future date at a specified price. These contracts are
used to minimize the exposure to foreign exchange rate fluctuations during the
period between trade and settlement date of the contracts. The Fund may utilize
forward foreign currency exchange contracts in connection with the settlement of
purchases and sales of securities. The Fund may also enter into these contracts
to hedge certain other foreign currency denominated assets. Contracts to buy
generally are used to acquire exposure to foreign currencies, while contracts to
sell are used to hedge the Fund's investments against currency fluctuations.
Forward currency contracts are valued daily at the forward exchange rate of the
underlying currency, resulting in unrealized gains (losses) which become
realized at the time the foreign currency contracts are closed or mature.
Realized and unrealized gains (losses) arising from such transactions are
included in net realized and unrealized gains (losses) on foreign currency
transactions. The use of forward currency contracts does not eliminate
fluctuations in the prices of the Fund's portfolio securities. While the maximum
potential loss from such contracts is the aggregate face value in U.S. dollars
at the time the contract was opened, exposure is typically limited to the change
in value of the contract (in U.S. dollars) over the period it remains open. The
Fund could also be exposed to risk if the counterparties of the contracts are
unable to fulfill the terms of the contracts.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions with institutions that
the Fund's investment advisor has determined are creditworthy. The Fund, through
its custodian, receives delivery of underlying securities collateralizing a
repurchase agreement. Collateral is at least equal, at all times, to the value
of the repurchase obligation including interest. A repurchase agreement
transaction involves certain risks in the event of default or insolvency of the
counterparty. These risks include possible delays or restrictions upon the
Fund's ability to dispose of the underlying securities and a possible decline in
the value of the underlying securities during the period while the Fund seeks to
assert its rights.
DELAYED DELIVERY SECURITIES
The Fund may trade securities on other than normal settlement terms, including
securities purchased or sold on a "when-issued" basis. This may increase the
risk if the other party to the transaction fails to deliver and causes the Fund
to subsequently invest at less advantageous prices. The Fund identifies cash or
liquid portfolio securities as segregated with the custodian in an amount equal
to the delayed delivery commitment.
INCOME RECOGNITION
Interest income is recorded on the accrual basis. Premium and discount are
amortized and accreted, respectively, on all debt securities. Corporate actions
and dividend income are recorded on the ex-date. The value of additional
securities received as an income payment is recorded as income and as the cost
basis of such securities.
FOREIGN CURRENCY TRANSACTIONS
The values of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates. Net realized and
unrealized gains (losses) on foreign currency transactions include gains
(losses) arising from the fluctuation in exchange rates between trade and
settlement dates on securities transactions, gains (losses) arising from the
disposition
30
<Page>
of foreign currency and currency gains (losses) between the accrual and payment
dates on dividends, interest income and foreign withholding taxes.
For financial statement purposes, the Fund does not distinguish that portion of
gains (losses) on investments which is due to changes in foreign exchange rates
from that which is due to changes in market prices of the investments. Such
fluctuations are included with the net realized and unrealized gains (losses) on
investments.
DETERMINATION OF CLASS NET ASSET VALUES
All income, expenses (other than class-specific expenses, as shown on the
Statement of Operations) and realized and unrealized gains (losses) are
allocated to each class of the Fund on a daily basis for purposes of determining
the net asset value of each class. Income and expenses are allocated to each
class based on the settled shares method, while realized and unrealized gains
(losses) are allocated based on the relative net assets of each class.
FEDERAL INCOME TAX STATUS
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code, as amended, and will distribute
substantially all of its taxable or tax-exempt income, if any, for its tax year,
and as such will not be subject to federal income taxes. In addition, the Fund
intends to distribute in each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, such that
the Fund should not be subject to federal excise tax. Therefore, no federal
income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared daily and paid monthly. Net
realized capital gains, if any, are distributed at least annually.
NOTE 3. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined
in accordance with income tax regulations, which may differ from GAAP.
Reclassifications are made to the Fund's capital accounts for permanent tax
differences to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
For the year ended May 31, 2004, permanent differences resulting primarily from
differing treatments for market discount reclassifications, Section 988
reclassifications for foreign currency and amortization/accretion adjustments
were identified and reclassified among the components of the Fund's net assets
as follows:
<Table>
<Caption>
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED PAID-IN
INCOME LOSS CAPITAL
- --------------------------------------------------------------------
$ 1,130,736 $ (1,130,737) $ 1
</Table>
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the year ended May 31, 2004, the
period ended May 31, 2003 and the year ended December 31, 2002 was as follows:
<Table>
<Caption>
MAY 31, MAY 31, DECEMBER 31,
2004 2003 2002
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income* $ 50,193,309 $ 25,393,402 $ 63,689,002
Long-term capital gains -- -- --
Tax return of capital -- -- 5,431,035
</Table>
*For tax purposes short-term capital gains distributions, if any, are considered
ordinary income distributions.
As of May 31, 2004, the components of distributable earnings on a tax basis were
as follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS DEPRECIATION*
- --------------------------------------------------------------------
$ 4,718,009 $ -- $ (17,426,480)
</Table>
*The differences between book-basis and tax-basis net unrealized depreciation
are primarily due to deferral of losses from wash sales and discount
accretion/premium amortization on debt securities.
Unrealized appreciation and depreciation at May 31, 2004, based on cost of
investments for federal income tax purposes was:
<Table>
Unrealized appreciation $ 31,980,244
- ------------------------------------------------------------------
Unrealized depreciation (49,407,121)
-------------
Net unrealized depreciation $ (17,426,877)
</Table>
The following capital loss carryforwards may be available to reduce taxable
income arising from future
31
<Page>
net realized gains on investments, if any, to the extent permitted by the
Internal Revenue Code:
<Table>
<Caption>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------------
2007 $ 7,774,983
2008 44,818,986
2009 161,087,717
2010 171,019,187
2011 18,463,873
-------------
$ 403,164,746
</Table>
Capital loss carryforwards of $6,990,639 were utilized and/or expired during the
year ended May 31, 2004 for the Fund. Expired capital loss carryforwards are
recorded as a reduction of paid-in capital.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the
Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary
of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004,
FleetBoston, including the Fund's investment advisor, transfer agent and
distributor, was acquired by Bank of America Corporation ("BOA"). The
acquisition did not change the way the Fund is managed, the investment personnel
assigned to manage the Fund or the fees paid by the Fund.
INVESTMENT ADVISORY FEE
Columbia provides administrative and other services to the Fund in addition to
investment advisory services. Columbia receives a monthly investment advisory
fee based on the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------------------------------------------
First $1 billion 0.60%
Next $1 billion 0.55%
Over $2 billion 0.50%
</Table>
Prior to November 1, 2003, Columbia was entitled to receive a monthly investment
advisory fee based on the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------------------------------------------
First $1.5 billion 0.60%
Over $1.5 billion 0.55%
</Table>
PRICING AND BOOKKEEPING FEES
Columbia is responsible for providing pricing and bookkeeping services to the
Fund under a pricing and bookkeeping agreement. Under a separate agreement (the
"Outsourcing Agreement"), Columbia has delegated those functions to State Street
Corporation ("State Street"). As a result, Columbia pays the total fees received
to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average daily net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average daily net assets of the Fund for that month. The Fund also pays
additional fees for pricing services based on the number of securities held by
the Fund. For the year ended May 31, 2004, the Fund's effective pricing and
bookkeeping fee rate was 0.032%.
TRANSFER AGENT FEE
Columbia Funds Services, Inc. (the "Transfer Agent"), an indirect, wholly owned
subsidiary of BOA, provides shareholder services to the Fund. For such services,
the Transfer Agent receives a fee, paid monthly, at the annual rate of $34.00
per open account. The Transfer Agent also receives reimbursement for certain
out-of-pocket expenses.
Columbia has voluntarily agreed to waive a portion of the transfer agent fee so
that the transfer agent fee will not exceed 0.23% (exclusive of out-of-pocket
expenses) annually of the Fund's average daily net assets. Columbia, at its
discretion, may revise or discontinue this arrangement any time.
Prior to November 1, 2003, the Transfer Agent was entitled to receive a monthly
transfer agent fee at the annual rate of 0.06% of the Fund's average daily net
assets plus flat-rate charges based on the number of shareholder accounts and
transactions. The Transfer Agent was also entitled to receive reimbursement for
certain out-of-pocket expenses.
For the year ended May 31, 2004, the Fund's effective transfer agent fee rate,
inclusive of out-of-pocket fees, was 0.27%.
Effective October 13, 2003, Liberty Funds Services, Inc. was renamed Columbia
Funds Services, Inc.
32
<Page>
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES
Columbia Funds Distributor, Inc. (the "Distributor"), an indirect, wholly owned
subsidiary of BOA, is the principal underwriter of the Fund. For the year ended
May 31, 2004, the Distributor has retained net underwriting discounts of $33,672
on sales of the Fund's Class A shares and received CDSC fees of $109,308,
$960,376 and $18,468 on Class A, Class B and Class C share redemptions,
respectively.
The Fund has adopted a 12b-1 plan (the "Plan") which requires the payment of a
monthly service fee to the Distributor equal to 0.25% annually of the average
daily net assets attributable to Class A, Class B and Class C shares. The Plan
also requires the payment of a monthly distribution fee to the Distributor equal
to 0.75% annually of the average daily net assets attributable to Class B and
Class C shares only. The Distributor has voluntarily agreed to waive a portion
of the Class C share distribution fee so that it will not exceed 0.60% annually.
The CDSC and the fees received from the Plan are used principally as repayment
to the Distributor for amounts paid by the Distributor to dealers who sold such
shares.
Effective October 13, 2003, Liberty Funds Distributor, Inc. was renamed Columbia
Funds Distributor, Inc.
CUSTODY CREDITS
The Fund has an agreement with its custodian bank under which custody fees may
be reduced by balance credits. The Fund could have invested a portion of the
assets utilized in connection with the expense offset arrangement in an
income-producing asset if it had not entered into such an agreement.
FEES PAID TO OFFICERS AND TRUSTEES
The Fund pays no compensation to its officers, all of whom are employees of
Columbia or its affiliates.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER
Columbia provides certain services to the Fund related to Sarbanes-Oxley
compliance. For the year ended May 31, 2004, the Fund paid $2,498 to Columbia
for such services. This amount is included in "Other expenses" on the Statement
of Operations.
NOTE 5. PORTFOLIO INFORMATION
For the year ended May 31, 2004, the cost of purchases and proceeds from sales
of securities, excluding short-term obligations, were $542,529,846 and
$712,277,833, respectively.
NOTE 6. LINE OF CREDIT
The Fund and other affiliated funds participate in a $350,000,000 credit
facility, which is used for temporary or emergency purposes to facilitate
portfolio liquidity. Interest is charged to the Fund based on its borrowings. In
addition, the Fund has agreed to pay commitment fees on its pro-rata portion of
the unutilized line of credit. The commitment fee is included in "Other
expenses" on the Statement of Operations. For the year ended May 31, 2004, the
Fund did not borrow under this arrangement.
NOTE 7. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
INDUSTRY FOCUS
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
HIGH-YIELD SECURITIES
Investing in high-yield securities may involve greater credit risk and
considerations not typically associated with investing in U.S. Government bonds
and other higher quality fixed income securities. These securities are
non-investment grade securities, often referred to as "junk bonds." Economic
downturns may disrupt the high yield market and impair the ability of issuers to
repay principal and interest. Also, an increase in interest rates would likely
have an adverse impact on the value of such obligations. Moreover, high-yield
securities may be less liquid to the extent there is no established secondary
market.
FOREIGN SECURITIES
There are certain additional risks involved when investing in foreign securities
that are not inherent with investments in domestic securities. These risks may
involve foreign currency exchange rate fluctuations, adverse political and
economic developments and the possible prevention of currency exchange or other
foreign governmental laws or
33
<Page>
restrictions. In addition, the liquidity of foreign securities may be more
limited than that of domestic securities.
Investments in emerging market countries are subject to additional risk. The
risk of foreign investments is typically increased in less developed countries.
These countries are also more likely to experience high levels of inflation,
deflation or currency devaluation which could hurt their economies and
securities markets.
LEGAL PROCEEDINGS
Columbia, the Distributor, and certain of their affiliates (collectively, "The
Columbia Group") have received information requests and subpoenas from various
regulatory and law enforcement authorities in connection with their
investigations of late trading and market timing in mutual funds as well as
other industry wide issues. The Columbia Group has not uncovered any instances
where Columbia or the Distributor were knowingly involved in late trading of
mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against Columbia and the Distributor, alleging that they had
violated certain provisions of the federal securities laws in connection with
trading activity in mutual fund shares. Also on February 24, 2004, the New York
Attorney General ("NYAG") filed a civil complaint in New York Supreme Court,
County of New York against Columbia and the Distributor alleging that Columbia
and the Distributor had violated certain New York anti-fraud statutes. If either
Columbia or the Distributor is unsuccessful in its defense of these proceedings,
it could be barred from serving as an investment advisor or distributor for any
investment company registered under the Investment Company Act of 1940, as
amended (a "registered investment company"). Such results could prevent
Columbia, the Distributor or any company that is an affiliated person of
Columbia and the Distributor from serving as an investment advisor or
distributor for any registered investment company, including your fund. Your
fund has been informed by Columbia and the Distributor that, if these results
occur, they will seek exemptive relief from the SEC to permit them to continue
to serve as your fund's investment advisor and distributor. There is no
assurance that such exemptive relief will be granted. On March 15, 2004,
Columbia and the Distributor entered into agreements in principle with the SEC
Division of Enforcement and NYAG in settlement of the charges. Under the
agreements, Columbia and the Distributor agreed, among other things, to the
following conditions: payment of $70 million in disgorgement; payment of $70
million in civil penalties; an order requiring Columbia and the Distributor to
cease and desist from violations of the antifraud provisions and other
provisions of the federal securities laws; governance changes designed to
maintain the independence of the mutual fund boards of trustees and ensure
compliance with securities laws and their fiduciary duties; and retention of an
independent consultant to review Columbia's and the Distributor's compliance
policies and procedures. The agreement requires the final approval of the SEC.
In a separate agreement with the NYAG, the Columbia Group has agreed to reduce
mutual fund fees by $80 million over a five-year period.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or FleetBoston (and
affiliated entities). These suits and certain regulatory investigations are
ongoing. Accordingly, an estimate of the financial impact of this litigation on
any fund, if any, cannot currently be made.
For the year ended May 31, 2004, Columbia has assumed $19,145 of legal,
consulting services and Trustees' fees incurred by the Fund in connection with
these matters.
34
<Page>
FINANCIAL HIGHLIGHTS
COLUMBIA HIGH YIELD OPPORTUNITY FUND
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<Table>
<Caption>
PERIOD
YEAR ENDED ENDED
MAY 31, MAY 31, YEAR ENDED DECEMBER 31,
CLASS A SHARES 2004 2003(a) 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 $ 6.76
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.35(b) 0.14(b) 0.34(b) 0.52(b)(c) 0.61(d) 0.60(d)
Net realized and unrealized
gain (loss) on investments and
foreign currency 0.21 0.30 (0.53) (0.65)(c) (1.24) (0.20)
---------- --------- --------- --------- --------- ---------
Total from Investment
Operations 0.56 0.44 (0.19) (0.13) (0.63) 0.40
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.32) (0.15) (0.39) (0.51) (0.62) (0.61)
Return of capital -- -- (0.03) (0.04) -- --
---------- --------- --------- --------- --------- ---------
Total Distributions Declared
to Shareholders (0.32) (0.15) (0.42) (0.55) (0.62) (0.61)
NET ASSET VALUE, END OF PERIOD $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55
Total return (e) 13.30%(f) 11.01%(f)(g) (4.27)% (2.78)% (10.28)% 6.17%
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h) 1.19% 1.29%(i) 1.31% 1.22% 1.16% 1.21%
Net investment income (h) 7.65% 8.24%(i) 7.92% 10.34%(c) 10.00% 9.02%
Waiver/reimbursement 0.01% --%(i)(j) -- -- -- --
Portfolio turnover rate 75% 45%(g) 63% 62% 28% 42%
Net assets, end of
period (000's) $ 325,658 $ 376,944 $ 361,780 $ 369,043 $ 390,917 $ 540,201
</Table>
(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to increase net investment
income per share by $0.05, decrease net realized and unrealized loss per
share by $0.05 and increase the ratio of net investment income to average
net assets from 9.76% to 10.34%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(f) Had the Investment Advisor not waived a portion of expenses, total return
would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
35
<Page>
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<Table>
<Caption>
PERIOD
YEAR ENDED ENDED
MAY 31, MAY 31, YEAR ENDED DECEMBER 31,
CLASS B SHARES 2004 2003(a) 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 $ 6.76
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.31(b) 0.13(b) 0.31(b) 0.48(b)(c) 0.56(d) 0.55(d)
Net realized and unrealized
gain (loss) on investments and
foreign currency 0.22 0.29 (0.54) (0.65)(c) (1.24) (0.20)
---------- --------- --------- --------- --------- ---------
Total from Investment
Operations 0.53 0.42 (0.23) (0.17) (0.68) 0.35
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.29) (0.13) (0.35) (0.47) (0.57) (0.56)
Return of capital -- -- (0.03) (0.04) -- --
---------- --------- --------- --------- --------- ---------
Total Distributions Declared
to Shareholders (0.29) (0.13) (0.38) (0.51) (0.57) (0.56)
NET ASSET VALUE, END OF PERIOD $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55
Total return (e) 12.46%(f) 10.67%(f)(g) (4.99)% (3.51)% (10.96)% 5.38%
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h) 1.94% 2.04%(i) 2.06% 1.97% 1.91% 1.96%
Net investment income (h) 6.90% 7.49%(i) 7.17% 9.59%(c) 9.25% 8.27%
Waiver/reimbursement 0.01% --%(i)(j) -- -- -- --
Portfolio turnover rate 75% 45%(g) 63% 62% 28% 42%
Net assets, end of
period (000's) $ 252,415 $ 305,021 $ 280,220 $ 350,464 $ 433,949 $ 627,057
</Table>
(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to increase net investment
income per share by $0.05, decrease net realized and unrealized loss per
share by $0.05 and increase the ratio of net investment income to average
net assets from 9.02% to 9.59%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(f) Had the Investment Advisor not waived a portion of expenses, total return
would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
36
<Page>
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<Table>
<Caption>
PERIOD
YEAR ENDED ENDED
MAY 31, MAY 31, YEAR ENDED DECEMBER 31,
CLASS C SHARES 2004 2003(a) 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 $ 6.76
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.32(b) 0.13(b) 0.31(b) 0.49(b)(c) 0.57(d) 0.56(d)
Net realized and unrealized
gain (loss) on investments and
foreign currency 0.21 0.29 (0.53) (0.65)(c) (1.24) (0.20)
---------- --------- --------- --------- --------- ---------
Total from Investment
Operations 0.53 0.42 (0.22) (0.16) (0.67) 0.36
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.29) (0.13) (0.36) (0.48) (0.58) (0.57)
Return of capital -- -- (0.03) (0.04) -- --
---------- --------- --------- --------- --------- ---------
Total Distributions Declared
to Shareholders (0.29) (0.13) (0.39) (0.52) (0.58) (0.57)
NET ASSET VALUE, END OF PERIOD $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55
Total return (e)(f) 12.63% 10.74%(g) (4.85)% (3.37)% (10.78)% 5.54%
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h) 1.79% 1.89%(i) 1.91% 1.82% 1.76% 1.81%
Net investment income (h) 7.05% 7.64%(i) 7.32% 9.74%(c) 9.40% 8.42%
Waiver/reimbursement 0.16% 0.15%(i) 0.15% 0.15% 0.15% 0.15%
Portfolio turnover rate 75% 45%(g) 63% 62% 28% 42%
Net assets, end of
period (000's) $ 46,322 $ 51,471 $ 46,568 $ 52,122 $ 48,904 $ 56,068
</Table>
(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to increase net investment
income per share by $0.05, decrease net realized and unrealized loss per
share by $0.05 and increase the ratio of net investment income to average
net assets from 9.16% to 9.74%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(f) Had the Investment Advisor and/or Distributor not waived a portion of
expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
37
<Page>
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<Table>
<Caption>
PERIOD
YEAR ENDED ENDED
MAY 31, MAY 31, YEAR ENDED DECEMBER 31,
CLASS Z SHARES 2004 2003(a) 2002 2001 2000 1999(b)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 $ 6.79
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.36(c) 0.15(c) 0.33(c) 0.53(c)(d) 0.62(e) 0.60(e)
Net realized and unrealized
gain (loss) on investments and
foreign currency 0.21 0.29 (0.51) (0.65)(d) (1.24) (0.23)
---------- --------- --------- --------- --------- ---------
Total from Investment
Operations 0.57 0.44 (0.18) (0.12) (0.62) 0.37
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.33) (0.15) (0.40) (0.52) (0.63) (0.61)
Return of capital -- -- (0.03) (0.04) -- --
---------- --------- --------- --------- --------- ---------
Total Distributions Declared
to Shareholders (0.33) (0.15) (0.43) (0.56) (0.63) (0.61)
NET ASSET VALUE, END OF PERIOD $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55
Total return (f) 13.58%(g) 11.12%(g)(h) (4.03)% (2.53)% (10.06)% 5.83%(h)
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (i) 0.94% 1.04%(j) 1.06% 0.97% 0.91% 0.95%(j)
Net investment income (i) 7.92% 8.49%(j) 8.17% 10.59%(d) 10.25% 9.22%(j)
Waiver/reimbursement 0.01% --%(j)(k) -- -- -- --
Portfolio turnover rate 75% 45%(h) 63% 62% 28% 42%
Net assets, end of
period (000's) $ 14,194 $ 45,803 $ 35,541 $ 1,978 $ 566 $ 418
</Table>
(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Class Z shares were initially offered on January 8, 1999. Per share data and
total returns reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to increase net investment
income per share by $0.05, decrease net realized and unrealized loss per
share by $0.05 and increase the ratio of net investment income to average
net assets from 10.01% to 10.59%. Per share data and ratios for periods
prior to December 31, 2001 have not been restated to reflect this change in
presentation.
(e) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(f) Total return at net asset value assuming all distributions reinvested.
(g) Had the Investment Advisor not waived a portion of expenses, total return
would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
38
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
COLUMBIA HIGH YIELD OPPORTUNITY FUND
TO THE TRUSTEES OF THE COLUMBIA FUNDS TRUST I AND THE SHAREHOLDERS OF COLUMBIA
HIGH YIELD OPPORTUNITY FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Columbia High Yield Opportunity
Fund (the "Fund") (a series of Columbia Funds Trust I) at May 31, 2004, the
results of its operations, the changes in its net assets and its financial
highlights for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States), which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at May 31, 2004 by correspondence with the custodian and brokers,
provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 19, 2004
39
<Page>
TRUSTEES
COLUMBIA HIGH YIELD OPPORTUNITY FUND
Effective October 8, 2003, Patrick J. Simpson and Richard L. Woolworth were
appointed to the Board of Trustees of the Fund. Messrs. Simpson and Woolworth
had been directors of 15 Columbia Funds and 20 funds in the CMG Fund Trust. Also
effective October 8, 2003, the incumbent trustees of the Fund were elected as
directors of the 15 Columbia Funds and as trustees of the 20 funds in the CMG
Fund Trust. The new combined Board of Trustees/Directors of the Fund now
oversees 118 funds in the Columbia Funds Complex (including the former Liberty
Funds, former Stein Roe Funds, Columbia Funds and CMG Funds). Several of these
trustees/directors also serve on the Boards of other funds in the Columbia Funds
Complex.
The Trustees/Directors serve terms of indefinite duration. The names, addresses
and ages of the Trustees/Directors and officers of the Funds in the Columbia
Funds complex, the year each was first elected or appointed to office, their
principal business occupations during at least the last five years, the number
of portfolios overseen by each Trustee/Director and other directorships they
hold are shown below. Each officer listed below serves as an officer of each
Fund in the Columbia Funds Complex.
<Table>
<Caption>
NAME, ADDRESS AND AGE, POSITION WITH FUNDS, PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN COLUMBIA
YEAR FIRST ELECTED OR APPOINTED TO OFFICE(1) FUNDS COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD
DISINTERESTED TRUSTEES
DOUGLAS A. HACKER (age 48) Executive Vice President-Strategy of United Airlines (airline) since December
P.O. Box 66100 2002 (formerly President of UAL Loyalty Services (airline) from September 2001
Chicago, IL 60666 to December 2002; Executive Vice President and Chief Financial Officer of
Trustee (since 1996) United Airlines from July 1999 to September 2001; Senior Vice
President-Finance from March 1993 to July 1999). Oversees 118, Orbitz (online
travel company)
JANET LANGFORD KELLY (age 46) Private Investor since March 2004 (formerly Chief Administrative Officer and
9534 W. Gull Lake Drive Senior Vice President, Kmart Holding Corporation (consumer goods) from
Richland, MI 49083-8530 September 2003 to March 2004; Executive Vice President-Corporate Development
Trustee (since 1996) and Administration, General Counsel and Secretary, Kellogg Company (food
manufacturer), from September 1999 to August 2003; Senior Vice President,
Secretary and General Counsel, Sara Lee Corporation (branded, packaged,
consumer-products manufacturer) from January 1995 to September 1999). Oversees
118, None
RICHARD W. LOWRY (age 68) Private Investor since August 1987 (formerly Chairman and Chief Executive
10701 Charleston Drive Officer, U.S. Plywood Corporation (building products manufacturer). Oversees
Vero Beach, FL 32963 120(3), None
Trustee (since 1995)
CHARLES R. NELSON (age 61) Professor of Economics, University of Washington, since January 1976; Ford and
Department of Economics Louisa Van Voor his Professor of Political Economy, University of Washington,
University of Washington since September 1993; (formerly Director, Institute for Economic Research,
Seattle, WA 98195 University of Washington from September 2001 to June 2003) Adjunct Professor
Trustee (since 1981) of Statistics, University of Washington, since September 1980; Associate
Editor, Journal of Money Credit and Banking, since September 1993; consultant
on econometric and statistical matters. Oversees 118, None
</Table>
(1) In December 2000, the boards of each of the former Liberty Funds and former
Stein Roe Funds were combined into one board of trustees responsible for
the oversight of both fund groups (collectively, the "Liberty Board"). In
October 2003, the trustees on the Liberty Board were elected to the boards
of the Columbia Funds (the "Columbia Board") and of the CMG Fund Trust (the
"CMG Funds Board"); simultaneous with that election, Patrick J. Simpson and
Richard L. Woolworth, who had been directors on the Columbia Board and
trustees on the CMG Funds Board, were appointed to serve as trustees of the
Liberty Board. The date shown is the earliest date on which a
trustee/director was elected or appointed to the board of a Fund in the
Columbia Funds complex.
40
<Page>
<Table>
<Caption>
NAME, ADDRESS AND AGE, POSITION WITH FUNDS, PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN COLUMBIA
YEAR FIRST ELECTED OR APPOINTED TO OFFICE(1) FUNDS COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD
DISINTERESTED TRUSTEES
JOHN J. NEUHAUSER (age 61) Academic Vice President and Dean of Faculties since August 1999, Boston College
84 College Road (formerly Dean, Boston College School of Management from September 1977 to
Chestnut Hill, MA 02467-3838 September 1999). Oversees 121(3),(4), Saucony, Inc. (athletic footwear and
Trustee (since 1985) apparel)
PATRICK J. SIMPSON (age 59) Partner, Perkins Coie L.L.P. (law firm). Oversees 118, None
1120 N.W. Couch Street
Tenth Floor Portland, OR 97209-4128
Trustee (since 2000)
THOMAS E. STITZEL (age 68) Business Consultant since 1999 (formerly Professor of Finance from 1975 to
2208 Tawny Woods Place 1999, College of Business, Boise State University); Chartered Financial
Boise, ID 83706 Analyst. Oversees 118, None
Trustee (since 1998)
THOMAS C. THEOBALD (age 67) Managing Director, William Blair Capital Partners (private equity investing)
227 West Monroe Street, since September 1994. Oversees 118, Anixter International (network support
Suite 3500 equipment distributor), Jones Lang LaSalle (real estate management services),
Chicago, IL 60606 MONY Group (life insurance) and Ventas, Inc (real estate investment trust)
Trustee and Chairman of the Board(5)
(since 1996)
ANNE-LEE VERVILLE (age 58) Retired since 1997 (formerly General Manager, Global Education Industry, IBM
359 Stickney Hill Road Corporation (computer and technology) from 1994 to 1997). Oversees 119(4),
Hopkinton, NH 03229 Chairman of the Board of Directors, Enesco Group, Inc. (designer, importer and
Trustee (since 1998) distributor of giftware and collectibles)
RICHARD L. WOOLWORTH (age 63) Retired since December 2003 (formerly Chairman and Chief Executive Officer,
100 S.W. Market Street #1500 The Regence Group (regional health insurer); Chairman and Chief Executive
Portland, OR 97207 Officer, BlueCross BlueShield of Oregon; Certified Public Accountant. Oversees
Trustee (since 1991) 118, Northwest Natural Gas Co. (natural gas service provider)
INTERESTED TRUSTEES
WILLIAM E. MAYER(2) (age 64) Managing Partner, Park Avenue Equity Partners (private equity) since February
399 Park Avenue 1999 (formerly Founding Partner, Development Capital LLC from November 1996 to
Suite 3204 February 1999). Oversees 120(3), Lee Enterprises (print media), WR Hambrecht +
New York, NY 10022 Co. (financial service provider), First Health (healthcare), Reader's Digest
Trustee (since 1994) (publishing) and OPENFIELD Solutions (retail industry technology provider)
</Table>
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht +
Co.
(3) Messrs. Lowry, Neuhauser and Mayer each also serve as a director/trustee of
the All-Star Funds, currently consisting of 2 funds, which are advised by
an affiliate of the Advisor.
(4) Mr. Neuhauser and Ms. Verville also serve as disinterested directors of
Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the
Advisor.
(5) Mr. Theobald was appointed as Chairman of the Board effective December 10,
2003.
41
<Page>
OFFICERS
COLUMBIA HIGH YIELD OPPORTUNITY FUND
<Table>
<Caption>
NAME, ADDRESS AND AGE, POSITION WITH COLUMBIA PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
FUNDS, YEAR FIRST ELECTED OR APPOINTED TO OFFICE
VICKI L. BENJAMIN (age 42) Chief Accounting Officer of the Columbia Funds and Liberty All-Star Funds
One Financial Center since June 2001; Assistant Treasurer of Liberty Acorn and Wanger Funds since
Boston, MA 02111 June 2004 (formerly Controller of the Columbia Funds and of the Liberty
Chief Accounting Officer (since 2001) All-Star Funds from May 2002 to May 2004); Controller and Chief Accounting
Officer of the Galaxy Funds since September 2002 (formerly Vice President,
Corporate Audit, State Street Bank and Trust Company from May 1998 to April
2001).
MICHAEL CLARKE (age 34) Controller of the Columbia Funds and of the Liberty All-Star Funds since 2004;
One Financial Center Assistant Treasurer of Liberty Acorn and Wanger Funds since June 2004
Boston, MA 02111 (formerly Assistant Treasurer from June 2002 to May 2004; Vice President,
Controller (since 2004) Product Strategy & Development of Liberty Funds Group from February 2001 to
June 2002; Assistant Treasurer of the Liberty Funds and of the Liberty
All-Star Funds from August 1999 to February 2001; Audit Manager at Deloitte &
Touche LLP from May 1997 to August 1999).
J. KEVIN CONNAUGHTON (age 40) President of the Columbia Funds since February 27, 2004; Treasurer of the
One Financial Center Columbia Funds and of the Liberty All-Star Funds since December 2000; Vice
Boston, MA 02111 President of the Advisor since April 2003 (formerly Chief Accounting Officer
Treasurer (since 2000) and and Controller of the Liberty Funds and Liberty All-Star Funds from February
President (since 2004) 1998 to October 2000); Treasurer of the Galaxy Funds since September 2002;
Treasurer, Columbia Management Multi-Strategy Hedge Fund, LLC since December
2002 (formerly Vice President of Colonial from February 1998 to October 2000).
DAVID A. ROZENSON (age 49) Secretary of the Columbia Funds and of the Liberty All-Star Funds since
One Financial Center December 2003; Senior Counsel, Bank of America Corporation (formerly FleetBoston
Boston, MA 02111 Financial Corporation) since January 1996; Associate General Counsel, Management
Secretary (since 2003) Group since November 2002.
</Table>
42
<Page>
IMPORTANT INFORMATION ABOUT THIS REPORT
COLUMBIA HIGH YIELD OPPORTUNITY FUND
TRANSFER AGENT
Columbia Funds Services, Inc.
P.O. Box 8081
Boston MA 02266-8081
800.345.6611
DISTRIBUTOR
Columbia Funds Distributor, Inc.
One Financial Center
Boston MA 02111
INVESTMENT ADVISOR
Columbia Management Advisors, Inc.
100 Federal Street
Boston MA 02110
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
125 High Street
Boston, MA 02110
The fund mails one shareholder report to each shareholder address. If you
would like more than one report, please call shareholder services at
800-345-6611 and additional reports will be sent to you.
This report has been prepared for shareholders of Columbia High Yield
Opportunity Fund. This report may also be used as sales literature when preceded
or accompanied by the current prospectus which provides details of sales
charges, investment objectives and operating policies of the fund and with the
most recent copy of the Columbia Funds Performance Update.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to its portfolio securities is available (i) without
charge, upon request, by calling 800-345-6611 and (ii) on the Securities and
Exchange Commission's website at http://www.sec.gov.
43
<Page>
COLUMBIA FUNDS
COLUMBIA HIGH YIELD OPPORTUNITY FUND
LARGE GROWTH Columbia Common Stock
Columbia Growth
Columbia Growth Stock
Columbia Large Cap Growth
Columbia Tax-Managed Growth
Columbia Tax-Managed Growth II
Columbia Young Investor
LARGE VALUE Columbia Disciplined Value
Columbia Growth & Income
Columbia Large Cap Core
Columbia Tax-Managed Value
MIDCAP GROWTH Columbia Acorn Select
Columbia Mid Cap Growth
Columbia Tax-Managed Aggressive Growth
MIDCAP VALUE Columbia Dividend Income
Columbia Mid Cap
Columbia Strategic Investor
SMALL GROWTH Columbia Acorn
Columbia Acorn USA
Columbia Small Company Equity
SMALL VALUE Columbia Small Cap
Columbia Small Cap Value
BALANCED Columbia Asset Allocation
Columbia Balanced
Columbia Liberty Fund
SPECIALTY Columbia Real Estate Equity
Columbia Technology
Columbia Utilities
TAXABLE FIXED-INCOME Columbia Contrarian Income
Columbia Corporate Bond
Columbia Federal Securities
Columbia Fixed Income Securities
Columbia High Yield
Columbia High Yield Opportunities
Columbia Income
Columbia Intermediate Bond
Columbia Intermediate Government Income
Columbia Quality Plus Bond
Columbia Short Term Bond
Columbia Strategic Income
FLOATING RATE Columbia Floating Rate
Columbia Floating Rate Advantage
TAX EXEMPT Columbia High Yield Municipal
Columbia Intermediate Tax-Exempt Bond
Columbia Managed Municipals
Columbia National Municipal Bond
Columbia Tax-Exempt
Columbia Tax-Exempt Insured
44
<Page>
SINGLE STATE TAX EXEMPT Columbia California Tax-Exempt
Columbia Connecticut Intermediate Municipal Bond
Columbia Connecticut Tax-Exempt
Columbia Florida Intermediate Municipal Bond
Columbia Massachusetts Intermediate Municipal Bond
Columbia Massachusetts Tax-Exempt
Columbia New Jersey Intermediate Municipal Bond
Columbia New York Intermediate Municipal Bond
Columbia New York Tax-Exempt
Columbia Oregon Municipal Bond
Columbia Pennsylvania Intermediate Municipal Bond
Columbia Rhode Island Intermediate Municipal Bond
MONEY MARKET Columbia Money Market
Columbia Municipal Money Market
INTERNATIONAL/GLOBAL Columbia Acorn International
Columbia Acorn International Select
Columbia Europe
Columbia Global Equity
Columbia International Equity
Columbia International Stock
Columbia Newport Asia Pacific
Columbia Newport Greater China
Columbia Newport Tiger
INDEX Columbia Large Company Index
Columbia Small Company Index
Columbia U.S. Treasury Index
Please consider the investment objectives, risks, charges and expenses of a
mutual fund carefully before investing. Contact us at 800-345-6611 for a
prospectus which contains this and other important information about the fund.
Read it carefully before you invest.
For complete product information on any Columbia fund, visit our website at
www.columbiafunds.com.
Columbia Management Group and Columbia Management refer collectively to the
various investment advisory subsidiaries of Columbia Management Group, including
Columbia Management Advisors, Inc., the registered investment advisor, and
Columbia Funds Distributor, Inc.
45
<Page>
[GRAPHIC]
Help your fund reduce printing and postage costs! Elect to get your shareholder
reports by electronic delivery. With Columbia's eDelivery program, you receive
an e-mail message when your shareholder report becomes available online. If your
fund account is registered with Columbia Funds, you can sign up quickly and
easily on our website at www.columbiafunds.com.
Please note -- if you own your fund shares through a financial institution,
contact the institution to see if it offers electronic delivery. If you own your
fund shares through a retirement plan, electronic delivery may not be available
to you.
COLUMBIA HIGH YIELD OPPORTUNITY FUND ANNUAL REPORT, MAY 31, 2004 PRSRT STD
U.S. POSTAGE
PAID
HOLLISTON, MA
PERMIT NO. 20
[COLUMBIAFUNDS(R) LOGO]
A MEMBER OF COLUMBIA MANAGEMENT GROUP
(C)2004 COLUMBIA FUNDS DISTRIBUTOR, INC.
ONE FINANCIAL CENTER, BOSTON, MA 02111-2621
800.345.6611 www.columbiafunds.com
730-02/064S-0504 (07/04) 04/1520
<Page>
ITEM 2. CODE OF ETHICS.
(a) The registrant has, as of the end of the period covered by this
report, adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party.
(b) During the period covered by this report, there were not any
amendments to a provision of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, there were not any waivers
or implicit waivers to a provision of the code of ethics adopted in
2(a) above.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that Douglas A. Hacker, Thomas
E. Stitzel, Anne-Lee Verville and Richard L. Woolworth, each of whom are members
of the registrant's Board of Trustees and Audit Committee, each qualify as an
audit committee financial expert. Mr. Hacker, Mr. Stitzel, Ms. Verville and Mr.
Woolworth are each independent trustees, as defined in paragraph (a)(2) of this
item's instructions and collectively constitute the entire Audit Committee.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Fee information below is disclosed in aggregate for the series of the registrant
whose reports to stockholders are included in this annual filing.
(a) Aggregate Audit Fees billed by the principal accountant for professional
services rendered during the fiscal years ended May 31, 2004 and May 31, 2003
are approximately as follows:
<Table>
<Caption>
2004 2003
$77,100 $82,000
</Table>
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.
<Page>
(b) Aggregate Audit-Related Fees billed by the principal accountant for
professional services rendered during the fiscal years ended May 31, 2004 and
May 31, 2003 are approximately as follows:
<Table>
<Caption>
2004 2003
$8,000 $0
</Table>
Audit-Related Fees include amounts for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported in Audit Fees
above. In fiscal year 2004, Audit-Related Fees include certain agreed-upon
procedures performed for semi-annual shareholder reports.
The "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X became effective on May 6, 2003. For the registrant, the
percentage of Audit-Related services that were approved under the "de minimis"
exception during the fiscal years ended May 31, 2004 and May 31, 2003 was zero.
The pre-approval requirements for services to the investment adviser (not
including any sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser) and any entity
controlling, controlled by, or under common control with the adviser that
provides ongoing services to the registrant under paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X became effective on May 6, 2003. During the fiscal years
ended May 31, 2004 and May 31, 2003, there were no Audit-Related Fees that were
approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.
The percentage of Audit-Related fees required to be approved under paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X that were approved under the "de
minimis" exception during the fiscal years ended May 31, 2004 and May 31, 2003
was zero.
(c) Aggregate Tax Fees billed by the principal accountant for professional
services rendered during the fiscal years ended May 31, 2004 and May 31, 2003
are approximately as follows:
<Table>
<Caption>
2004 2003
$7,200 $7,700
</Table>
Tax Fees include amounts for professional services by the principal accountant
for tax compliance, tax advice and tax planning. Tax Fees in both fiscal years
2004 and 2003 include the review of annual tax returns and research on technical
tax matters, while fiscal year 2003 also includes the review of calculations of
required shareholder distributions for certain series of the registrant.
<Page>
The "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X became effective on May 6, 2003. For the registrant, the
percentage of Tax Fees that were approved under the "de minimis" exception
during the fiscal years ended May 31, 2004 and May 31, 2003 was zero.
The pre-approval requirements for services to the investment adviser (not
including any sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser) and any entity
controlling, controlled by, or under common control with the adviser that
provides ongoing services to the registrant under paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X became effective on May 6, 2003. During the fiscal years
ended May 31, 2004 and May 31, 2003, there were no Tax Fees that were approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.
The percentage of Tax fees required to be approved under paragraph (c)(7)(ii) of
Rule 2-01 of Regulation S-X that were approved under the "de minimis" exception
during the fiscal years ended May 31, 2004 and May 31, 2003 was zero.
(d) Aggregate All Other Fees billed by the principal accountant for
professional services rendered during the fiscal years ended May 31, 2004 and
May 31, 2003 are as follows:
<Table>
<Caption>
2004 2003
$0 $0
</Table>
All Other Fees include amounts for products and services provided by the
principal accountant, other than the services reported in (a)-(c) above.
The "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X became effective on May 6, 2003. For the registrant, the
percentage of All Other Fees that were approved under the "de minimis"
exception during the fiscal years ended May 31, 2004 and May 31, 2003 was
zero.
The pre-approval requirements for services to the investment adviser (not
including any sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser) and any entity
controlling, controlled by, or under common control with the adviser that
provides ongoing services to the registrant under paragraph (c)(7)(ii) of
Rule 2-01 of Regulation S-X became effective on May 6, 2003. During the
fiscal year ended May 31, 2004, All Other Fees that were approved pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X were approximately
$95,000. During the fiscal year ended May 31, 2004, All Other Fees that
would have been subject to pre-approval had paragraph (c)(7)(ii) of Rule 2-01
of Regulation S-X been applicable at the time the services were provided,
were approximately $95,000. For both fiscal years, All Other Fees relate to
internal controls reviews of the registrant's transfer agent.
The percentage of All Other Fees required to be approved under paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X that were approved under the "de
minimis" exception during the fiscal years ended May 31, 2004 and May 31,
2003 was zero.
(e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
<Page>
I. GENERAL OVERVIEW
The Audit Committee of the registrant has adopted a formal policy (the "Policy")
which sets forth the procedures and the conditions pursuant to which the Audit
Committee will pre-approve (i) all audit and non-audit (including audit related,
tax and all other) services provided by the registrant's independent auditor to
the registrant and individual funds (collectively "Fund Services"), and (ii) all
non-audit services provided by the registrant's independent auditor to the
funds' adviser or a control affiliate of the adviser, that relate directly to
the funds' operations and financial reporting (collectively "Fund-related
Adviser Services"). A "control affiliate" is an entity controlling, controlled
by, or under common control with the adviser that provides ongoing services to
the funds, and the term "adviser" is deemed to exclude any unaffiliated
sub-adviser whose role is primarily portfolio management and is sub-contracted
or overseen by another investment adviser. The adviser and control affiliates
are collectively referred to as "Adviser Entities."
The Audit Committee uses a combination of specific (on a case-by-case basis as
potential services are contemplated) and general (pre-determined list of
permitted services) pre-approvals. Unless a type of service has received general
pre-approval, it will require specific pre-approval by the Audit Committee if it
is to be provided by the independent auditor.
The Policy does not delegate the Audit Committee's responsibilities to
pre-approve services performed by the independent auditor to management.
II. GENERAL PROCEDURES
On an annual basis, the Fund Treasurer and/or Director of Trustee Administration
shall submit to the Audit Committee a schedule of the types of Fund Services and
Fund-related Adviser Services that are subject to general pre-approval.
These schedules will provide a description of each type of service that is
subject to general pre-approval and, where possible, will provide estimated fees
for each instance of providing each service. This general pre-approval and
related fees (where provided) will generally cover a one-year period (for
example, from July 1 through June 30 of the following year). The Audit Committee
will review and approve the types of services and review the projected fees for
the next one-year period and may add to, or subtract from, the list of general
pre-approved services from time to time, based on subsequent determinations.
This approval acknowledges that the Audit Committee is in agreement with the
specific types of services that the independent auditor will be permitted to
perform. The fee amounts will be updated to the extent necessary at other
regularly scheduled meetings of the Audit Committee.
In addition to the fees for each individual service, the Audit Committee has the
authority to implement a fee cap on the aggregate amount of non-audit services
provided to an individual fund.
<Page>
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.
<Page>
IV. REPORTING TO THE AUDIT COMMITTEE
The Fund Treasurer or Director of Trustee Administration shall report to the
Audit Committee at each of its regular meetings regarding all Fund Services or
Fund-related Adviser Services initiated since the last such report was rendered,
including:
- A general description of the services, and
- Actual billed and projected fees, and
- The means by which such Fund Services or Fund-related Adviser Services
were pre-approved by the Audit Committee.
In addition, the independent auditor shall report to the Audit Committee
annually, and no more than 90 days prior to the filing of audit reports with the
SEC, all non-audit services provided to entities in the funds' "investment
company complex," as defined by SEC rules, that did not require pre-approval
under the Policy.
V. Amendments; Annual Approval by Audit Committee
The Policy may be amended from time to time by the Audit Committee. Prompt
notice of any amendments will be provided to the independent auditor, Fund
Treasurer and Director of Trustee Administration. The Policy shall be reviewed
and approved at least annually by the Audit Committee.
*****
(e)(2) This information has been included in items (b)-(d) above.
(f) Not applicable.
(g) All non-audit fees billed by the registrant's accountant for services
rendered to the registrant for the fiscal years ended May 31, 2004 and May
31, 2003 are disclosed in (b)-(d) above.
All non-audit fees billed by the registrant's accountant for services
rendered to the registrant's investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser) and any entity controlling,
controlled by, or under common control with the adviser that provides ongoing
services to the registrant for the fiscal years ended May 31, 2004 and May 31,
2003 are also disclosed in (b)-(d) above. Such fees were approximately
$95,000 and $95,000, respectively.
(h) The registrant's Audit Committee of the Board of Directors has considered
whether the provision of non-audit services that were rendered to the
registrant's adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that
<Page>
provides ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, is compatible with
maintaining the principal accountant's independence. The Audit Committee
determined that the provision of such services is compatible with maintaining
the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable at this time.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant has not filed Schedule 14A subsequent to the effective date of
that Schedule's Item 7(d)(2)(ii)(G). However, it is the registrant's policy to
consider candidates for the Board of Trustees/Directors who are recommend by
shareholders. A Fund shareholder who wishes to nominate a candidate to the Board
may send information regarding prospective candidates to the Fund's Governance
Committee, care of the Fund's Secretary. The information should include evidence
of the shareholder's Fund ownership, a full listing of the proposed candidate's
education, experience, current employment, date of birth, names and addresses of
at least three professional references, information as to whether the candidate
is not an "interested person" under the 1940 Act and "independent" under NYSE
Listing Standards in relation to the Fund, and such other information as may be
helpful to the independent trustees/directors in evaluating the candidate. All
satisfactorily completed information packages regarding a candidate will be
forwarded to an independent trustee/director for consideration.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer, based on his evaluation of the registrant's disclosure
controls and procedures as of a date within 90 days of the filing of
this report, has concluded that such controls and procedures are
adequately designed to ensure that information required to be
<Page>
disclosed by the registrant in Form N-CSR is accumulated and
communicated to the registrant's management, including the principal
executive officer and principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
(b) There were no changes in the registrant's internal control over
financial reporting that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
ITEM 11. EXHIBITS.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR
attached hereto as Exhibit 99.CODE ETH.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of
1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
<Page>
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
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By (Signature and Title) /s/ J. Kevin Connaughton
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J. Kevin Connaughton, President and Treasurer
Date August 3, 2004
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By (Signature and Title) /s/ J. Kevin Connaughton
----------------------------------------------------
J. Kevin Connaughton, President and Treasurer
Date August 3, 2004
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