-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KCMul/sgxgiim5g2381uwrTiB+M0sLRTVAGu1CrmZ+jEsXP9fFqqbWLm8K/LlAvw FPImfqw/9hb5fg3dqwhcVQ== 0000891804-02-002193.txt : 20021105 0000891804-02-002193.hdr.sgml : 20021105 20021105143244 ACCESSION NUMBER: 0000891804-02-002193 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020831 FILED AS OF DATE: 20021105 EFFECTIVENESS DATE: 20021105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY FLOATING RATE FUND CENTRAL INDEX KEY: 0001068200 IRS NUMBER: 364251182 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-08953 FILM NUMBER: 02809657 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CTR CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 8003382550 MAIL ADDRESS: STREET 1: ONE FINANCIAL CTR CITY: BOSTON STATE: MA ZIP: 02111 FORMER COMPANY: FORMER CONFORMED NAME: STEIN ROE FLOATING RATE INCOME TRUST DATE OF NAME CHANGE: 19980929 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY STEIN ROE ADVISOR FLOATING RATE FUND DATE OF NAME CHANGE: 19991025 N-30D 1 file001.txt LIBERTY FLOATING RATE FUND 8/31/02 LIBERTY FLOATING RATE FUND Annual Report August 31, 2002 [photo of woman smiling] ELIMINATE CLUTTER IN TWO EASY STEPS: POINT. CLICK. LIBERTY eDELIVERY. For more information about receiving your shareholder reports electronically, call us at 800-345-6611. To sign up for eDelivery, visit us online at www.libertyfunds.com. LIBERTY FLOATING RATE FUND Annual Report August 31, 2002 [photo of woman smiling] ELIMINATE CLUTTER IN TWO EASY STEPS: POINT. CLICK. LIBERTY eDELIVERY. To sign up for eDelivery, go to www.icsdelivery.com President's Message [photo of Keith T. Banks] Dear Shareholder: Over the past 12 months, the environment for the syndicated loan market was shaped primarily by high default rates in the corporate bond market, which hit record levels during the period. Bankruptcies of bellwether companies -- WorldCom in the telecommunications industry and Enron in the utilities industry, neither of which were in Liberty Floating Rate Fund's portfolio--put pressure on loan prices in both sectors. Declining interest rates, which are generally positive for stocks and bonds, were also a negative factor because yields on floating-rate loans were adjusted downward to reflect lower current rates. Yet the negative returns recorded by floating rate funds and their corresponding index were relatively small compared to the losses in the stock and high yield bond markets. As such, the fund provided investors with a degree of insulation from a much more volatile capital market environment and continued to pay an attractive dividend. In the report that follows, portfolio managers Brian Good and Jim Fellows provide more detailed information about the market and their strategy in managing the fund during the year. As always, we thank you for choosing Liberty Funds. Sincerely, /s/ Keith T. Banks Keith T. Banks President Net asset value per share as of 8/31/02 ($) Class A 8.83 Class B 8.83 Class C 8.83 Class Z 8.83 Distributions declared per share 9/1/01-8/31/02 ($) Class A 0.54 Class B 0.51 Class C 0.50 Class Z 0.58 o NOT FDIC INSURED o MAY LOSE VALUE o NO BANK GUARANTEE As economic and market conditions change frequently, there can be no assurance that the trends described in this report will continue or come to pass. Performance Information Value of an $10,000 investment 12/17/98--8/31/02 Performance of a $10,000 investment 12/17/98--8/31/02 ($) without sales with sales charge charge - ----------------------------------------- Class A 11,587 11,184 - ----------------------------------------- Class B 11,458 11,325 - ----------------------------------------- Class C 11,409 11,409 - ----------------------------------------- Class Z 11,703 n/a - ----------------------------------------- [mountain chart data]: Class A shares Class A shares CSFB Leveraged without sales charge with sales charge Loan Index 12/1998 $10,000.0 $9,650.0 10,011.0 9,660.6 $10,000.0 10,084.1 9,731.1 10,026.1 10,157.7 9,802.2 9,982.4 10,249.1 9,890.4 10,043.4 10,325.0 9,963.6 10,116.2 10,386.9 10,023.4 10,246.4 10,457.5 10,091.5 10,338.9 10,521.3 10,153.1 10,407.8 10,553.9 10,184.6 10,370.1 10,615.2 10,243.6 10,345.7 10,661.9 10,288.7 10,330.8 10,706.6 10,331.9 10,397.8 10,779.5 10,402.2 10,469.0 10,856.0 10,476.0 10,570.9 10,939.6 10,556.7 10,605.8 10,974.6 10,590.5 10,521.9 11,051.4 10,664.6 10,560.4 11,132.1 10,742.5 10,648.8 11,223.4 10,830.5 10,713.9 11,309.8 10,913.9 10,790.4 11,386.7 10,988.1 10,846.1 11,457.3 11,056.3 10,880.7 11,498.5 11,096.1 10,885.9 11,527.3 11,123.8 10,910.0 11,571.1 11,166.1 10,986.3 11,671.8 11,263.2 11,052.5 11,700.9 11,291.4 11,148.2 11,655.3 11,247.4 11,161.0 11,541.1 11,137.1 11,114.6 11,654.2 11,246.3 11,247.7 11,663.5 11,255.3 11,261.2 11,795.3 11,382.5 11,289.9 11,905.0 11,488.3 11,380.6 11,783.6 11,371.1 11,162.8 11,586.8 11,181.2 10,988.1 11,693.4 11,284.1 11,161.4 11,798.6 11,385.7 11,277.1 11,955.5 11,537.1 11,338.8 11,851.5 11,436.7 11,295.7 11,996.1 11,576.2 11,426.6 12,134.1 11,709.4 11,548.9 12,177.8 11,751.5 11,541.0 12,013.4 11,592.9 11,367.3 11,693.8 11,284.5 11,194.7 8/31/02 11,587.0 11,184.0 11,162.0 MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT LIBERTYFUNDS.COM FOR DAILY PERFORMANCE UPDATES. Past performance cannot predict future investment results. Returns and value of an investment will vary, resulting in a gain or loss on sale. The CSFB Leveraged Loan Index is an unmanaged index that tracks the performance of senior floating rate bank loans. Unlike mutual funds, indexes are not investments and do not incur fees or charges. It is not possible to invest in an index. Securities in the fund may not match those in the index. Index performance is from 12/31/98.
Average annual total return as of 8/31/02 (%) Share class A B C Z Inception 11/2/99 11/2/99 11/2/99 12/17/98 - ------------------------------------------------------------------------------------------------------------------- without with without with without with without sales sales sales sales sales sales sales charge charge charge charge charge charge charge - ------------------------------------------------------------------------------------------------------------------- 1-year -2.67 -6.09 -3.02 -6.00 -3.16 -4.08 -2.33 - ------------------------------------------------------------------------------------------------------------------- Life 4.06 3.07 3.74 3.42 3.63 3.63 4.34 - ------------------------------------------------------------------------------------------------------------------- Average annual total return as of 6/30/02 (%) Share class A B C Z - ------------------------------------------------------------------------------------------------------------------- without with without with without with without sales sales sales sales sales sales sales charge charge charge charge charge charge charge - ------------------------------------------------------------------------------------------------------------------- 1-year 3.02 -0.62 2.66 -0.49 2.51 1.54 3.38 - ------------------------------------------------------------------------------------------------------------------- Life 5.34 4.29 5.02 4.67 4.90 4.90 5.62 - -------------------------------------------------------------------------------------------------------------------
Past performance cannot predict future investment results. Returns and value of an investment will vary, resulting in a gain or loss on sale. All results shown assume reinvestment of distributions. The "with sales charge" returns include the maximum 3.50% sales charge for class A shares, the appropriate class B share early withdrawal charge (EWC) for the holding period after purchase as follows: first year - 3.25%, second year - 3.00%, third year - 2.00%, fourth year - 1.50%, fifth year - 1.00%, thereafter - 0% and the class C share EWC of 1% for the first year only. Performance results reflect any voluntary waivers or reimbursement of fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. Performance for different share classes will vary based on differences in sales charges and fees associated with each class. Class A, B and C share (newer class shares) performance information includes returns of the fund's class Z shares (the oldest existing fund class) for periods prior to the inception of the newer class shares. These class Z share returns are not restated to reflect any expense differential (e.g., Rule 12b-1 fees) between class Z shares and the newer class shares. Had the expense differential been reflected, the returns for the periods prior to the inception of class A, B and C shares would have been lower. 1 Portfolio Managers' Report 30-day SEC yield as of 8/31/02 (%) After reimbursement Class A 5.90 Class B 5.74 Class C 5.60 Class Z 6.48 The 30-day SEC yield reflects the portfolio's earning power, net of expenses, expressed as an annualized percentage of the public offering price at the end of the period. If the advisor or its affiliates had not waived certain fund expenses, the 30-day SEC yield would have been 5.62% for class A shares, 5.46% for class B shares, 5.32% for class C shares and 6.20% for class Z shares. Top 10 issuers as of 8/31/02 (%) Century Cable Holdings 1.8 Tyco International Group 1.7 Allied Waste North America 1.5 Washington Group International 1.4 Mission Energy Holding 1.3 1424666 Ontario Ltd. 1.3 Vought Aircraft Industries 1.2 Riverwood International 1.2 Gray Communications Systems 1.1 Aladdin Gaming 1.1 Holdings are calculated as a percentage of net assets. Since the fund is actively managed, there can be no guarantee that the fund will continue to maintain this breakdown in the future. For the 12-month period that ended August 31, 2002, Liberty Floating Rate Fund class A shares delivered a total return of negative 2.67% without a sales charge. That was lower than the return of the fund's benchmark, the CSFB Leveraged Loan Index, which was negative 1.92% for the period. The fund also underperformed its peers, as indicated by a 12-month return of negative 1.68% for the Lipper Loan Participation Funds Average.1 PRESSURE ON KEY SECTORS HURT PERFORMANCE Corporate scandals and high default rates in the cable television and wireless telecommunications sectors hurt the fund's returns, especially in the second half of the 12-month reporting period. In general, the fund's relatively high weighting in the cable industry, which came under severe pressure during the year, brought performance down relative to our benchmark. The fund's investments in Charter Communications (0.9% of net assets) and in Adelphia subsidiaries, Century Cable Holdings LLC (1.8% of net assets) and Olympus Cable Holdings (0.6% of net assets), were a drag on performance.2 Although Adelphia's stock has lost most of its value, we held onto our loan positions and added to them as their prices declined because we believe that the companies' assets support the loans that are outstanding. Adelphia continues to make the interest payments on its loans. And as owners of senior secured debt, we have the benefit of the underlying operations, which is the real cash-producing entity inside the company. OPPORTUNISTIC STRATEGY TARGETS UNDERVALUED INDUSTRIES In fact, the volatility that has beset the telecommunications sector, in general, has given us reason to become more opportunistic in our strategy. In that vein, we increased our exposure to wireless communications and cable during the period because we believe both industries offer value. In addition, we believe that our investments in wireless providers, such as Nextel Finance (0.9% of net assets), and cable companies, such as Charter Communications, have the potential to benefit from further consolidation within both industries. We expect the trend toward consolidation to be aided by the outcome of the Federal Communications Commission's current review of rules that govern concentration in radio and cable industries and by a recent decision to - ----------------- 1 Lipper Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as the fund. 2 Holdings are disclosed as of August 31, 2002 and are subject to change. 2 eliminate certain types of licenses in the wireless industry, which could spark a new wave of consolidation among larger carriers. We also established a position in Tyco, the multinational conglomerate that is being investigated for fraudulent management practices. We bought the loans after their prices came down and they were essentially flat performers during the period. LOOKING AHEAD Pressure on the syndicated loan market is likely to continue as long as corporate bond default rates remain high and the economy struggles to gain solid footing. However, if interest rates have bottomed and default rates have peaked, which we believe they have, there are reasons to be optimistic that the loan environment has the potential to turn around. We believe that the fund is well positioned for such a recovery because we have taken a long-term view on opportunities offered by undervalued loans in undervalued industries. /s/ Brian Good /s/ Jim Fellows Brian Good Jim Fellows Brian Good and Jim Fellows, senior vice presidents of Stein Roe & Farnham Incorporated, have been portfolio managers of the Liberty Floating Rate Fund since its inception. Portfolio quality breakdown as of 8/31/02 (dollar-weighted %) [pie chart data]: Baa2: 0.2 Ba1: 0.8 Ba2: 8.2 Ba3: 23.4 B1: 20.4 B2: 10.0 B3: 7.7 Caa1: 3.6 Caa2: 3.3 Non-rated: 5.3 Withdrawn: 0.9 Other: 16.2 Quality breakdowns are calculated as a percentage of total investments. Since the fund is actively managed, there can be no guarantee that the fund will continue to maintain these quality breakdowns in the future. Source: Moody's Credit Rating TOP 5 SECTORS as of 8/31/02 (%) [bar chart data]: Diversified manufacturing 6.0 Wireless telecommunications 5.8 Healthcare services 4.0 Cable television 4.0 Auto parts 3.8 Sector breakdowns are calculated as a percentage of net assets. Since the fund is actively managed, there can be no guarantee that the fund will continue to maintain this breakdown in the future. Just like any other investment, floating rate loan investments present financial risks. Defaults of the loans in the portfolio could reduce the fund's net asset value and its distributions, as could nonpayment of scheduled interest and principal. Prepayment of principal by a borrower could mean that the fund managers have to replace the loan with a lower- yielding security, which could affect the valuation of the portfolio's holdings. The fund is a continuously offered, closed-end management investment company and provides limited liquidity through a quarterly tender offer for between 5% and 25% of outstanding shares. Each quarter, the fund's trustees must approve the actual tender amount. Please read the prospectus carefully for more details. The fund may invest a high percentage of assets in a limited number of loans, so the default of any individual holding can have a greater impact on the fund's NAV than could a default in a more diversified portfolio. Unlike floating rate loans, some fixed-income investments may be covered by FDIC insurance or other guarantees relating to timely payment of principal and interest. Some may also provide tax benefits. 3 Investment Portfolio August 31, 2002 VARIABLE RATE SENIOR LOAN INTERESTS (a) - 83.8% PAR VALUE - ------------------------------------------------------- AEROSPACE/DEFENSE - 2.5% DeCrane Aircraft Holdings, Inc., Term Loan B 09/30/05 $ 2,897,432 $ 2,855,506 DRS Technologies, Term Loan 09/30/08 1,985,000 2,000,645 Titan Corp., Term Loan B 06/30/09 2,000,000 2,009,391 Vought Aircraft Industries, Inc.: Term Loan A 06/30/06 572,464 559,781 Term Loan B 06/30/07 2,645,356 2,600,480 Term Loan C 06/30/08 2,196,298 2,159,281 Term Loan X 12/31/06 1,075,000 1,057,531 ------------ 13,242,615 ------------ APPAREL - 0.5% The William Carter Co., Term Loan B 09/30/08 2,481,250 2,515,988 ------------ AUTO PARTS - 3.8% 1424666 Ontario Ltd., Term Loan B 08/10/07 6,860,228 6,705,840 Aftermarket Technology Corp.: Term Loan B1 02/08/08 420,000 421,002 Term Loan B2 02/08/08 577,500 579,030 Federal-Mogul Corp.: Term Loan B 02/24/05 1,960,000 1,150,683 Term Loan C 02/24/04 485,000 478,979 J.L. French Automotive Castings, Inc., Term Loan B 10/21/06 1,494,537 1,274,538 Key Plastics LLC: (b) Jr. Sec. Sub Notes04/30/07 42,956 42,956 Sr. Sec. Sub Notes04/30/07 101,433 101,433 Meridian Automotive Systems, Inc., Term Loan B 03/31/07 3,916,554 3,256,756 Metaldyne Co., LLC, Term Loan D 12/31/09 3,750,000 3,678,410 Venture Holdings Co., LLC, Term Loan B 04/01/05 3,345,117 2,485,980 ------------ 20,175,607 ------------ BROADCASTING - 3.2% Comcorp/WhiteKnight, Term Loan A2 03/31/03 2,000,713 1,640,578 Emmis Communications Corp., Term Loan A 02/28/09 2,055,811 2,051,569 Gray Communications Systems, Inc., Term Loan 09/30/09 6,000,000 6,015,310 Hughes Electronics Corp., Term Loan A 12/05/02 660,000 657,684 Quorum Broadcasting Co., Inc., Term Loan B 09/30/07 2,046,555 1,657,804 PAR VALUE - ------------------------------------------------------- UPC Financing Partnership, Term Loan C2 03/31/09 $ 7,000,000 $ 5,020,426 ------------ 17,043,371 ------------ BUILDING PRODUCTS - 0.8% Tapco International Corp.: Term Loan B 06/23/07 2,542,262 2,529,869 Term Loan C 06/23/08 1,773,761 1,765,175 ------------ 4,295,044 ------------ BUSINESS SERVICES - 1.4% NATG Holdings, LLC: (b) Term Loan B 12/15/06 3,855,304 1,729,279 Term Loan C 12/15/07 3,940,000 1,772,242 Relizon Co., Term Loan B 12/31/07 1,969,620 1,955,872 Transaction Network Services, Inc., Term Loan B 04/03/07 2,145,309 2,145,786 ------------ 7,603,179 ------------ CABLE TELEVISION - 4.0% Cablevision Systems Corp., Revolver 06/30/06 1,375,833 1,214,709 Century Cable Holdings, LLC: Discretionary Term12/31/09 5,500,000 3,870,744 Term Loan 06/30/09 8,000,000 5,633,724 Charter Communications Operating, LLC, Term Loan B 03/18/08 5,486,250 4,738,427 Olympus Cable Holdings, LLC: Term Loan A 06/30/10 2,000,000 1,605,714 Term Loan B 09/30/10 2,000,000 1,604,546 RCN Corp., Term Loan B 06/03/07 4,500,000 2,800,609 ------------ 21,468,473 ------------ CASINOS/GAMBLING - 1.9% Aladdin Gaming, LLC: (c) Term Loan A 02/25/05 6,000,000 4,950,000 Term Loan B 08/26/06 1,250,000 1,037,500 Alliance Gaming Corp., Term Loan 12/31/06 3,491,250 3,521,886 Ameristar Casinos, Inc., Term Loan B 12/20/06 883,275 888,698 ------------ 10,398,084 ------------ CHEMICALS - 2.0% Huntsman Corp.: Term Loan B 06/30/04 3,010,539 2,643,694 Term Loan C 12/31/05 3,489,461 3,069,055 See notes to investment portfolio. 4 Investment Portfolio (continued) VARIABLE RATE SENIOR LOAN INTERESTS (A) (CONTINUED) PAR VALUE - ------------------------------------------------------- CHEMICALS (CONTINUED) Huntsman International, LLC: Term Loan B 06/30/07 $ 375,300 $ 376,029 Term Loan C 06/30/08 1,006,030 1,007,914 Lyondell Chemical Co., Term Loan E 05/17/06 374,402 375,106 Messer Griesheim Industries: Term Loan B 04/27/09 877,032 884,644 Term Loan C 04/27/10 1,622,968 1,637,007 Noveon, Inc.: Revolver (g) 03/31/07 -- 979 Term Loan A 03/31/07 551,250 548,051 ------------ 10,542,479 ------------ CONSUMER SERVICES - 0.9% Alderwoods Group, Inc.: Note 5 Year 01/02/07 510,400 510,356 Note 7 Year 01/02/09 880,114 862,512 Loewen Group, Inc., (c) Revolver 06/18/02 121,471 121,471 Stewart Enterprises, Inc., Term Loan 06/29/06 3,068,542 3,101,400 ------------ 4,595,739 ------------ CONSUMER SPECIALTIES - 2.0% American Greetings Corp., Term Loan B 06/15/06 2,969,676 3,019,737 Church & Dwight Co., Inc., Term Loan B 09/30/07 1,000,000 1,008,754 Johnson Diversey, Inc., Term Loan B 11/03/09 2,333,333 2,351,007 Jostens, Inc., Term Loan A 05/31/06 632,345 622,469 Mary Kay Corp., Term Loan B 10/03/07 3,704,656 3,716,469 ------------ 10,718,436 ------------ CONTAINERS/PACKAGING - 1.2% Riverwood International Corp.: Revolver 12/31/06 195,833 197,541 Term Loan B 12/31/06 2,500,000 2,502,346 Term Loan B2 03/31/07 3,500,000 3,500,170 U.S. Can Co., Term Loan B 10/04/08 461,852 437,761 ------------ 6,637,818 ------------ DIVERSIFIED COMMERCIAL SERVICES - 1.0% Enterprise Profit Solutions Corp., (b)(c) Term Loan A 06/14/01 498,039 -- Outsourcing Solutions, Inc., Term Loan B 12/10/06 5,797,946 5,654,849 ------------ 5,654,849 ------------ PAR VALUE - ------------------------------------------------------- DIVERSIFIED MANUFACTURING - 6.0% Enersys, Term Loan B 11/09/08 $ 4,949,968 $ 4,961,865 Flowserve Corp., Term Loan C 06/30/09 1,000,000 1,000,202 Freedom Forge Corp., (b) Term Loan 12/17/04 244,736 -- General Cable Corp., Term Loan B 05/25/07 1,652,205 1,336,214 Gentek, Inc., Term Loan C 10/31/07 4,892,573 2,926,629 Jason, Inc., Term Loan B 06/30/07 4,322,348 3,933,150 Polymer Group, Inc.: Term Loan B 12/20/05 2,975,410 2,735,253 Term Loan C 12/20/06 3,387,500 3,112,531 Polypore, Inc., Term Loan B 12/31/06 1,875,205 1,867,945 Superior Telecom, Inc., Term Loan B 11/27/05 2,493,253 918,339 Tyco International Group SA, Term Loan 02/26/03 10,000,000 9,319,889 ------------ 32,112,017 ------------ ELECTRIC UTILITIES - 2.8% AES EDC Funding II, LLC, Term Loan 10/06/03 5,000,000 3,550,916 Calpine Corp., Term Loan B 03/08/04 4,000,000 3,490,876 Michigan Electric Transmission Co., Term Loan 05/01/07 1,000,000 1,003,833 Mission Energy Holding Co.: Term Loan A 07/02/06 3,246,754 1,777,757 Term Loan B 07/02/06 9,253,246 5,066,608 ------------ 14,889,990 ------------ ELECTRONIC COMPONENTS - 1.3% IPC Acquisition Corp., Term Loan 12/31/06 2,193,750 2,222,775 Viasystems, Inc.: Term Loan B 03/31/07 3,190,167 2,413,946 Term Loan B Chips 03/31/07 3,233,278 2,446,511 ------------ 7,083,232 ------------ ENGINEERING & CONSTRUCTION - 1.9% URS Corp., Term Loan B 08/22/08 3,000,000 3,009,332 Washington Group International, Revolver B 07/23/04 7,500,000 7,354,996 ------------ 10,364,328 ------------ See notes to investment portfolio. 5 Investment Portfolio (continued) VARIABLE RATE SENIOR LOAN INTERESTS (a) (CONTINUED) PAR VALUE - ------------------------------------------------------- ENVIRONMENTAL SERVICES - 3.2% Allied Waste North America, Inc.: Term Loan A 07/21/05 $ 748,460 $ 729,862 Term Loan B 07/21/06 3,409,092 3,340,675 Term Loan C 07/21/07 4,090,908 4,009,405 Environmental Systems Products Holdings, Inc.: Tranche 1 12/31/04 3,778,181 3,485,395 Tranche 2 12/31/04 638,812 483,111 Synagro Technologies, Inc., Term Loan 05/07/08 5,000,000 5,017,283 ------------ 17,065,731 ------------ FARMING/AGRICULTURE - 1.2% Hines Nurseries, Inc., Term Loan B 02/28/05 2,283,993 2,276,841 Quality Stores, Inc., (b)(c) Term Loan B 04/30/06 1,605,977 96,359 United Industries Corp., Term Loan B 01/20/06 3,964,106 3,986,368 ------------ 6,359,568 ------------ FINANCE COMPANIES - 0.1% Finova Group, Inc., Note 11/15/09 2,250,000 686,250 ------------ FOOD CHAINS - 0.3% Carrols Corp., Term Loan B 12/31/07 1,432,937 1,429,145 ------------ FOOD MANUFACTURING - 3.6% American Seafoods Group, LLC, Term Loan B 03/31/09 3,478,125 3,498,686 CP Kelco US, Inc.: Term Loan B 03/31/08 1,357,406 1,222,715 Term Loan C 09/30/08 450,013 405,361 Del Monte Corp., Term Loan 03/31/08 524,555 528,593 International Multifoods Corp., Term Loan B 02/28/08 2,970,000 2,986,678 Merisant Corp., Term Loan B 03/31/07 2,936,547 2,947,710 Michael Foods, Inc., Term Loan B 04/10/08 1,136,929 1,143,947 Otis Spunkmeyer, Inc., Term Loan B 01/21/09 3,000,000 2,947,500 Pinnacle Foods Holding Corp., Term Loan 05/22/08 500,000 503,045 Southern Wine & Spirits of America, Inc., Term Loan B 07/02/08 3,000,000 3,006,531 ------------ 19,190,766 ------------ PAR VALUE - ------------------------------------------------------- HEALTHCARE SERVICES - 4.0% Alliance Imaging, Inc., Term Loan A 11/02/06 $ 2,977,099 $ 2,907,438 Concentra Operating Corp.: Term Loan B 06/30/06 3,252,930 3,262,800 Term Loan C 06/30/07 1,626,465 1,630,587 Davita, Inc., Term Loan B 03/31/09 3,981,529 4,000,211 Insight Health Services Corp.: Delayed Draw Term Loan (g) 10/17/08 -- 8,589 Term Loan B 10/17/08 3,970,000 4,002,232 Pacificare Health Systems, Inc., Term Loan A 01/03/05 2,667,198 2,669,281 Team Health Inc., Term Loan B 10/31/08 3,000,000 3,009,137 ------------ 21,490,275 ------------ HOME FURNISHINGS - 0.1% Simmons Co., Term Loan B 10/29/05 309,367 309,927 ------------ HOSPITAL MANAGEMENT - 1.0% Community Health Systems, Inc., Term Loan B 07/16/10 2,000,000 2,006,527 Iasis Healthcare Corp., Term Loan B 09/30/06 3,410,769 3,412,638 ------------ 5,419,165 ------------ HOTELS/RESORT - 1.4% Extended Stay America, Inc., Term Loan B 01/15/08 2,386,449 2,394,430 Wyndham International, Inc., Term Loan 06/30/06 5,871,617 4,863,645 ------------ 7,258,075 ------------ INSURANCE BROKER/SERVICE - 0.8% Conseco, Inc., Term Loan 09/30/03 5,476,096 3,326,931 Hilb, Rogal & Hamilton Co., Term Loan B 06/30/07 1,000,000 1,003,714 ------------ 4,330,645 ------------ MEDIA CONGLOMERATES - 0.1% Bridge Information Systems: (c) Multidraw Term Loan07/07/03 560,789 89,726 Revolver 07/07/03 360,689 57,710 Term Loan A 07/07/03 1,175,492 188,079 Term Loan B 05/29/05 3,336,016 533,762 ------------ 869,277 ------------ See notes to investment portfolio. 6 Investment Portfolio (continued) VARIABLE RATE SENIOR LOAN INTERESTS (a) (CONTINUED) PAR VALUE - ------------------------------------------------------- METAL FABRICATIONS - 0.4% Mueller Group, Inc., Term Loan 05/31/08 $ 2,000,000 $ 2,002,535 ------------ METALS/MINING - 1.4% Copperweld Corp., Term Loan A 05/16/03 2,154,167 1,744,855 LTV Corp., DIP Revolver 06/30/02 100,739 100,235 Steel Dynamics, Inc., Term Loan B 03/26/08 2,166,667 2,172,953 Stillwater Mining Co., Term Loan B 12/31/07 3,865,976 3,770,615 ------------ 7,788,658 ------------ MOVIES/ENTERTAINMENT - 3.2% AMF Bowling Worldwide, Inc., Term Loan 02/28/08 4,965,517 4,975,290 Carmike Cinemas, Inc., Term Loan 01/15/07 3,807,688 3,789,569 Loews Cineplex Entertainment Corp., Term Loan 02/29/08 5,847,818 5,774,997 Metro-Goldwyn-Mayer Studios, Inc., Term Loan B 06/30/08 2,500,000 2,501,657 ------------ 17,041,513 ------------ OIL REFINING/MARKETING - 1.2% Premcor Refining Group, Tranche 1 08/23/03 2,000,000 1,988,013 Tesoro Petroleum Corp., Term Loan B 12/31/07 4,977,024 4,556,799 ------------ 6,544,812 ------------ PAPER - 1.1% Appleton Papers, Inc., Term Loan C 11/08/06 2,165,933 2,175,427 Bear Island Paper Co., Term Loan 12/31/05 271,038 264,290 Grant Forest Products, Inc., Term Loan B 10/12/08 1,816,479 1,821,356 Port Townsend Paper Corp., Term Loan B 03/16/07 1,975,000 1,931,654 ------------ 6,192,727 ------------ PHARMACEUTICAL - 1.5% Alpharma Operating Corp., Term Loan B 10/05/08 4,145,106 3,837,804 Medpointe, Inc., Term Loan B 09/30/08 3,970,000 3,997,461 ------------ 7,835,265 ------------ PAR VALUE - ------------------------------------------------------- PRINTING/PUBLISHING - 2.1% Canwest Media, Inc.: Term Loan B2 05/15/08 $ 1,811,122 $ 1,819,367 Term Loan C2 05/15/09 1,131,504 1,136,654 DIMAC Holdings: (c) Term Loan A 12/31/05 246,193 27,081 Term Loan B 09/30/02 72,581 62,057 DIMAC Marketing Partners, Inc.: (c) Revolver 07/01/03 27,443 2,972 Term Loan B 01/01/05 194,455 21,536 Muzak, LLC, Term Loan B 12/31/06 2,449,950 2,343,792 Weekly Reader Corp., Term Loan B 11/17/06 5,857,047 5,848,185 ------------ 11,261,644 ------------ RAIL/SHIPPING - 2.4% American Commercial Lines: Term Loan B 06/30/06 1,968,878 1,813,066 Term Loan C 06/30/07 2,551,622 2,349,693 Dakota Minnesota Eastern Rail Corp., Term Loan 07/25/07 2,000,000 2,010,639 Helm Financial Corp., Term Loan B 10/18/06 5,522,656 5,013,182 RailAmerica Transportation Corp.: AUD Term Loan 05/23/09 280,000 280,913 CDN Term Loan 05/23/09 233,333 234,094 US$ Term Loan 05/23/09 1,236,667 1,240,699 ------------ 12,942,286 ------------ REAL ESTATE INVESTMENT TRUST - 2.1% Aimco Properties, LP, Term Loan 03/11/04 1,010,394 1,017,313 Corrections Corp. of America, Term Loan B 03/31/08 4,987,500 5,003,814 Macerich Partnership, LP, Term Loan 07/26/05 5,500,000 5,499,589 ------------ 11,520,716 ------------ RENTAL/LEASING COMPANIES - 0.2% NationsRent, Inc.: Revolver 07/20/04 474,300 123,312 Term Loan B 07/20/06 3,508,114 806,819 ------------ 930,131 ------------ RETAIL STORES - 0.4% CH Operating LLC, Term Loan 06/30/07 2,379,310 2,356,152 ------------ See notes to investment portfolio. 7 Investment Portfolio (continued) VARIABLE RATE SENIOR LOAN INTERESTS (a) (CONTINUED) PAR VALUE - ------------------------------------------------------- SEMICONDUCTORS - 0.3% Semiconductor Components Industries, LLC: Term Loan B 08/04/06 $ 322,350 $ 290,671 Term Loan C 08/04/07 347,146 313,030 Term Loan D 08/04/07 870,344 781,674 ------------ 1,385,375 ------------ STEEL/IRON ORE - 1.9% Ispat Inland, LP: Term Loan B 07/16/05 3,926,577 2,757,229 Term Loan C 07/16/06 3,926,577 2,757,229 UCAR Finance, Inc., Term Loan B 12/31/07 4,443,135 4,453,639 ------------ 9,968,097 ------------ TELECOMMUNICATIONS INFRASTRUCTURE EQUIPMENT - 1.1% Global Crossing Holdings, Inc., (c) Term Loan B 06/30/06 2,242,727 344,166 Spectrasite Communications, Inc., Term Loan B 12/31/07 6,500,000 5,385,755 ------------ 5,729,921 ------------ TELECOMMUNICATIONS SERVICES - 2.3% GT Group Telecom Services Corp., (b)(c) Vendor Term Loan 06/30/08 5,000,000 2,500,000 ICG Communications, Inc., Term Loan B 03/31/06 479,809 458,218 KMC Telecom, Inc.: Term Loan 07/01/07 1,987,977 1,143,204 13.5% Sr. Disc. Notes 05/15/09 44,000 440 12.5% Sr. Disc. Notes 02/15/08 168,000 1,530 Time Warner Telecom, Term Loan B 03/31/08 3,500,000 2,818,787 TSI Telecommunication Services, Inc., Term Loan B 12/31/06 1,000,000 950,915 Valor Telecommunications Enterprises, LLC, Term Loan B 06/30/08 4,912,500 4,704,198 ------------ 12,577,292 ------------ TEXTILES - 0.7% Springs Industries, Inc., Term Loan B 09/05/08 2,498,510 2,499,440 St. John's Knits, Term Loan B 07/31/07 1,040,479 1,040,056 ------------ 3,539,496 ------------ PAR VALUE - ------------------------------------------------------- TRANSPORTATION - 2.7% Evergreen International Aviation, Inc.: Term Loan B1 05/07/03 $ 887,964 $ 830,287 Term Loan B2 05/07/04 3,598,135 3,363,458 Motor Coach Industries, Inc., Term Loan 06/16/06 5,181,438 4,533,908 Transportation Technology, Term Loan B 03/31/07 6,475,701 5,882,564 ------------ 14,610,217 ------------ WIRELESS TELECOMMUNICATION - 5.8% American Cellular Corp.: Term Loan B 03/31/08 583,630 401,120 Term Loan C 03/31/09 666,370 457,986 Centennial Cellular Operating Co., LLC, Term Loan A 11/30/06 2,775,000 1,865,196 Centennial Puerto Rico Operations Corp.: Term Loan B 05/31/07 1,748,388 1,184,383 Term Loan C 11/30/07 1,205,605 818,692 Cricket Communications, Inc., Vendor Term Loan 06/30/08 10,000,000 2,193,077 Microcell Connexions, Inc., Term Loan F 02/22/07 3,000,000 967,478 Nextel Finance Co.: Term Loan B 06/30/08 2,000,000 1,750,415 Term Loan C 12/31/08 2,000,000 1,750,415 Term Loan D 03/31/09 1,500,000 1,271,062 Nextel Partners, Inc., Term Loan B 01/29/08 6,000,000 5,175,277 Rural Cellular Corp.: Term Loan B 10/03/08 2,663,316 2,132,339 Term Loan C 04/03/09 2,663,316 2,132,339 Sygnet Wireless, Inc.: Term Loan B 03/23/07 832,496 732,637 Term Loan C 12/23/07 3,815,962 3,358,398 Ubiquitel Operating Co.: Term Loan A 09/30/07 1,000,000 740,589 Term Loan B 11/17/08 4,500,000 3,097,837 Western Wireless Corp., Term Loan A 03/31/08 2,000,000 1,212,601 ------------ 31,241,841 ------------ TOTAL VARIABLE RATE SENIOR LOAN INTERESTS (cost of $504,564,882) 449,218,751 ------------ See notes to investment portfolio. 8 Investment Portfolio (continued) COMMON STOCKS (d) - 1.9% SHARES VALUE - ------------------------------------------------------- CONSUMER SERVICES - 0.1% Alderwoods Group, Inc. 97,955 $ 627,891 ------------ ENGINEERING & CONSTRUCTION - 1.2% Washington Group International, Inc. 442,949 6,201,286 ------------ ENVIRONMENTAL SERVICES - 0.0% Environmental Systems Products Holdings 3,445 -- ------------ HEALTHCARE SERVICES - 0.2% Sun Healthcare Group 182,213 1,330,155 ------------ MOVIES/ENTERTAINMENT - 0.4% AMF Bowling Worldwide, Inc. 19,918 547,745 United Artists Theatre Co. 113,730 1,592,225 ------------ 2,139,970 ------------ TOTAL COMMON STOCKS (cost of $7,527,760) 10,299,302 ------------ PREFERRED STOCKS (b)(d) - 0.0% - ------------------------------------------------------- ENVIRONMENTAL SERVICES - 0.0% Dimac Inc. (e) 483 -- Environmental Systems 602 7,223 Key Plastics (e) 13 -- ------------ TOTAL PREFERRED STOCKS (cost of $697,302) 7,223 ------------ WARRANTS (B)(D) - 0.0% UNITS - ------------------------------------------------------- Dimac Holdings, expires 4/4/25 483 -- KAC Mezzanine Holdings, Co.: (Key Plastics) Class A, expires 4/26/11 8 -- Class B, expires 4/26/11 7 -- ------------ -- ------------ TOTAL WARRANTS (cost of $0) -- ------------ SHORT-TERM OBLIGATIONS - 13.5% PAR VALUE - ------------------------------------------------------- COMMERCIAL PAPER - 13.5% 7-Eleven, 1.870% 09/03/02 $ 7,500,000 $ 7,499,221 Corporate Asset Funding, 1.880% 09/03/02 35,000,000 34,996,345 UBS Financial, 1.800% 09/03/02 10,000,000 9,999,000 Walmart Stores, 1.750% 09/04/02 20,000,000 19,997,083 ------------ TOTAL SHORT TERM OBLIGATIONS (cost of $72,491,649) 72,491,649 ------------ TOTAL INVESTMENTS - 99.2% (cost of $585,281,593)(f) 532,016,925 ------------ OTHER ASSETS & LIABILITIES, NET - 0.8% 4,470,737 - ------------------------------------------------------- NET ASSETS - 100.0% $536,487,662 ============ NOTES TO INVESTMENT PORTFOLIO: (a) Senior Loans in which the Portfolio invests generally pay interest at rates which are periodically predetermined by reference to a base lending rate plus a premium. These base lending rates are generally (i) the prime rate offered by one or more major United States banks, (ii) the lending rate offered by one or more European banks such as the London Inter-Bank Offered Rate (`LIBOR') and (iii) the certificate of deposit rate. Senior loans are generally considered to be restricted in that the Portfolio ordinarily is contractually obligated to receive approval from the Agent Bank and/or borrower prior to the disposition of a Senior Loan. (b) Represents fair value as determined in good faith under procedures approved by the Trustees. (c) This issuer is in default of certain debt covenants. Income is not being accrued. (d) Non-income producing. (e) Shares were received as part of a settlement due to the default status of a loan. There is no market value for these shares at this time. (f) Cost for generally accepted accounting principles is $585,281,593. Cost for federal income tax purposes is $585,534,553. The difference between cost for generally accepted accounting principles and cost on a tax basis is related to amortization/accretion tax elections and deferral of losses from wash sales on fixed income securities. (g) Unfunded commitment, see Note 8. Acronym Name ------- -------------------- DIP Debtor in Possession See notes to financial statements. 9 Stein Roe Floating Rate Limited Liability Company Statement of Assets and Liabilities August 31, 2002 ASSETS: Investments, at cost $585,281,593 ------------ Investments, at value $532,016,925 Cash 2,320,305 Receivable for: Investments sold 138,090 Interest and fees 2,923,697 Deferred Trustees' compensation plan 324 Other assets 11,250 ------------ Total Assets 537,410,591 ------------ LIABILITIES: Deferred facility fees 524,779 Payable for: Investments purchased 159,716 Management fee 198,642 Transfer agent fee 500 Custody fee 3,374 Trustees' fee 137 Other liabilities 35,457 Deferred Trustees' fee 324 ------------ Total Liabilities 922,929 ------------ NET ASSETS $536,487,662 ============ Statement of Operations For the Year Ended August 31, 2002 INVESTMENT INCOME: Interest $40,121,765 Facility and other fees 1,318,112 ------------ Total Investment Income 41,439,877 EXPENSES: Management fee 2,666,322 Transfer agent fee 6,000 Trustees' fee 5,538 Custody fee 24,365 Pricing and bookkeeping fees 325,675 Other expenses 246,733 ------------ Total Operating Expenses 3,274,633 Custodian earnings credit (4,799) ------------ Net Operating Expenses 3,269,834 Interest expense 154,049 ------------ Net Expenses 3,423,883 ------------ Net Investment Income 38,015,994 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS: Net realized loss on investments (12,166,254) Net change in unrealized appreciation/depreciation on investments (37,403,502) ------------ Net Loss (49,569,756) ------------ Net Decrease in Net Assets from Operations $(11,553,762) ============ See notes to financial statements. 10
Stein Roe Floating Rate Limited Liability Company Statement of Changes in Net Assets YEAR ENDED YEAR ENDED AUGUST 31, AUGUST 31, INCREASE (DECREASE) IN NET ASSETS: 2002 2001 - -------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 38,015,994 $ 58,251,242 Net realized loss on investments (12,166,254) (10,920,726) Net change in unrealized appreciation/depreciation on investments (37,403,502) (14,498,371) ------------- ------------- Net Increase (Decrease) from Operations (11,553,762) 32,832,145 ------------- ------------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST: Contributions 80,963,660 373,685,346 Withdrawals (200,374,089) (246,730,943) ------------- ------------- Net Increase (Decrease) from Transactions in Investors' Beneficial Interest (119,410,429) 126,954,403 ------------- ------------- Total Increase (Decrease) in Net Assets (130,964,191) 159,786,548 NET ASSETS: Beginning of period 667,451,853 507,665,305 ------------- ------------- End of period $ 536,487,662 $ 667,451,853 ============= =============
See notes to financial statements. 11 Stein Roe Floating Rate Limited Liability Company Statement of Cash Flows For the Year Ended August 31, 2002 INCREASE (DECREASE) IN CASH - ------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Investment Income $ 38,015,994 Adjustments to reconcile net investment income to net cash provided by operating activities: Purchase of investment securities (382,287,473) Proceeds from disposition of investment securities 511,316,629 Purchase of short-term portfolio investments, net (47,997,832) Decrease in interest and fees receivable 1,400,337 Increase in receivable for investments sold (117,199) Decrease in other assets 70,160 Decrease in deferred facility fees (588,223) Decrease in payable for accrued expenses (40,315) Net amortization of premium (discount) (629,166) Increase in payable for investments purchased 158,912 Increase in other liabilities 22,461 ------------- Net cash provided by operating activities 119,324,285 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from capital contributions 80,963,660 Payment of capital withdrawals (200,374,089) ------------- Net cash used for financing activities (119,410,429) ------------- Net decrease in cash (86,144) CASH: Beginning of year 2,406,449 ------------- End of year $ 2,320,305 ============= See notes to financial statements. 12 Liberty Floating Rate Fund Statement of Assets and Liabilities August 31, 2002 ASSETS: Investment in Portfolio, at cost $477,547,229 ------------- Investment in Portfolio, at value $434,952,428 Receivable for: Fund shares sold 803,480 Expense reimbursement due from Advisor 110,190 Deferred Trustees' compensation plan 1,659 Other assets 127,477 ------------- Total Assets 435,995,234 ------------- LIABILITIES: Payable for: Distributions 2,143,606 Administration fee 71,436 Transfer agent fee 91,996 Pricing and bookkeeping fees 14,580 Trustees' fee 286 Custody fee 200 Deferred Trustees' fee 1,659 Other liabilities 46,800 ------------- Total Liabilities 2,370,563 ------------- NET ASSETS $433,624,671 ============= COMPOSITION OF NET ASSETS: Paid-in capital $493,064,016 Overdistributed net investment income (68,416) Accumulated net realized loss allocated from Portfolio (16,776,128) Net unrealized depreciation on investments allocated from Portfolio (42,594,801) ------------- NET ASSETS $433,624,671 ============= CLASS A: Net assets $108,583,374 Shares outstanding 12,294,015 ------------- Net asset value and redemption price per share $ 8.83(a) ============= Maximum offering price per share ($8.83/0.9650) $ 9.15(b) ============= CLASS B: Net assets $174,707,142 Shares outstanding 19,780,675 ------------- Net asset value and offering price per share $ 8.83(a) ============= CLASS C: Net assets $137,097,689 Shares outstanding 15,522,461 ------------- Net asset value and offering price per share $ 8.83(a) ============= CLASS Z: Net assets $ 13,236,466 Shares outstanding 1,498,658 ------------- Net asset value, offering and redemption price per share $ 8.83 ============= (a) Redemption price per share is equal to net asset value less any applicable early withdrawal charge. (b) On sales of $100,000 or more the offering price is reduced. Statement of Operations For the Year Ended August 31, 2002 INVESTMENT INCOME: Interest and fees allocated from Portfolio $ 33,471,731 EXPENSES: Expenses allocated from Portfolio 2,642,764 Administration fee 955,550 Distribution fee: Class A 123,991 Class B 844,816 Class C 947,834 Service fee: Class A 303,929 Class B 470,083 Class C 392,577 Pricing and bookkeeping fees 179,138 Transfer agent fee 1,111,899 Trustees' fee 19,642 Custody fee 1,191 Other expenses 243,352 ------------- Total Operating Expenses 8,236,766 Fees and expenses waived or reimbursed by Advisor (1,347,061) ------------- Net Operating Expenses 6,889,705 Interest expense allocated from Portfolio 123,979 ------------- Net Expenses 7,013,684 ------------- Net Investment Income 26,458,047 ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM PORTFOLIO: Net realized loss on investments allocated from Portfolio (8,907,633) Net change in unrealized appreciation/depreciation on investments allocated from Portfolio (30,883,851) ------------- Net Loss (39,791,484) ------------- Net Decrease in Net Assets from Operations $(13,333,437) ============= See notes to financial statements. 13 Liberty Floating Rate Fund Statement of Changes in Net Assets YEAR YEAR ENDED ENDED INCREASE (DECREASE) AUGUST 31, AUGUST 31, IN NET ASSETS: 2002 2001 - ------------------------------------------------------ OPERATIONS: Net investment income $ 26,458,047 $ 39,466,869 Net realized loss on investments allocated from Portfolio (8,907,633) (7,917,994) Net change in unrealized appreciation/depreciation on investments allocated from Portfolio (30,883,851) (11,309,126) ------------ ----------- Net Increase (Decrease) from Operations (13,333,437) 20,239,749 ------------ ----------- DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income: Class A (7,104,057) (13,676,545) Class B (10,221,673) (12,178,768) Class C (8,408,033) (12,668,851) Class Z (809,139) (784,653) From net realized capital gains: Class A (456) (32,655) Class B (655) (29,079) Class C (539) (30,249) Class Z (52) (1,873) ------------ ----------- Total Distributions Declared to Shareholders (26,544,604) (39,402,673) ------------ ----------- SHARE TRANSACTIONS: Class A: Subscriptions 28,944,806 78,582,954 Distributions reinvested 4,435,355 9,007,906 Redemptions (52,671,603) (90,167,061) ------------ ----------- Net Decrease (19,291,442) (2,576,201) ------------ ----------- Class B: Subscriptions 20,986,672 134,596,895 Distributions reinvested 5,846,660 6,505,834 Redemptions (32,352,200) (23,060,369) ------------ ----------- Net Increase (Decrease) (5,518,868) 118,042,360 ------------ ----------- Class C: Subscriptions 29,374,992 143,300,030 Distributions reinvested 5,754,828 8,431,860 Redemptions (69,520,549) (52,579,082) ------------ ----------- Net Increase (Decrease) (34,390,729) 99,152,808 ------------ ----------- Class Z: Subscriptions 5,244,801 6,172,570 Distributions reinvested 74,304 134,010 Redemptions (2,625,789) (1,165,711) ------------ ----------- Net Increase 2,693,316 5,140,869 ------------ ----------- YEAR YEAR ENDED ENDED AUGUST 31, AUGUST 31, 2002 2001 - ------------------------------------------------------- Net Increase (Decrease) from Share Transactions $(56,507,723) $219,759,836 ------------ ----------- Total Increase (Decrease) in Net Assets (96,385,764) 200,596,912 NET ASSETS: Beginning of period 530,010,435 329,413,523 ------------ ----------- End of period (including overdistributed net investment income of $(68,416) and undistributed net investment income of $129,272, respectively)$433,624,671 $530,010,435 ============ ============ CHANGES IN SHARES: Class A: Subscriptions 3,083,643 7,972,222 Issued for distributions reinvested 473,895 919,080 Redemptions (5,608,115) (9,268,387) ------------ ----------- Net Decrease (2,050,577) (377,085) ------------ ----------- Class B: Subscriptions 2,248,559 13,694,219 Issued for distributions reinvested 624,817 667,028 Redemptions (3,446,281) (2,377,099) ------------ ----------- Net Increase (Decrease) (572,905) 11,984,148 ------------ ----------- Class C: Subscriptions 3,143,271 14,547,796 Issued for distributions reinvested 614,545 863,496 Redemptions (7,394,823) (5,418,989) ------------ ----------- Net Increase (Decrease) (3,637,007) 9,992,303 ------------ ----------- Class Z: Subscriptions 560,381 632,966 Issued for distributions reinvested 7,930 13,700 Redemptions (281,403) (119,162) ------------ ----------- Net Increase 286,908 527,504 ------------ ----------- See notes to financial statements. 14 Notes to Financial Statements August 31, 2002 NOTE 1. ACCOUNTING POLICIES ORGANIZATION: Liberty Floating Rate Fund (the "Fund") is a non-diversified, closed-end management investment company organized as a Massachusetts business trust. The Fund invests all of its investable assets in Stein Roe Floating Rate Limited Liability Company (the "Portfolio"), which seeks to provide a high-level of current income, consistent with preservation of capital. The Fund authorized an unlimited number of shares. The Fund offers four classes of shares: Class A, Class B, Class C and Class Z shares. Class A shares are sold with a front end sales charge and an annual distribution fee. A 1.00% early withdrawal charge is assessed to Class A shares purchased without an initial sales charge on redemptions made within eighteen months on an original purchase of $1 million to $25 million. Class B shares are subject to an annual distribution fee and an early withdrawal charge. Class B shares will convert to Class A shares eight years after purchase. Class C shares are subject to an early withdrawal charge on redemptions made within one year after purchase and an annual distribution fee. Class Z shares are offered continuously at net asset value. There are certain restrictions on the purchase of Class Z shares, as described in the Fund's prospectus. The Portfolio is a non-diversified, closed-end management investment company organized as a Delaware limited liability company. The Portfolio allocates income, expenses, realized and unrealized gains and losses to each investor on a daily basis, based on methods approved by the Internal Revenue Service. At August 31, 2002, Liberty Floating Rate Fund and Liberty-Stein Roe Institutional Floating Rate Income Fund owned 81.1% and 18.9%, respectively, of the Portfolio. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. SECURITY VALUATION AND TRANSACTIONS The value of the Portfolio is determined in accordance with guidelines established, and periodically reviewed, by the Board of Trustees. Senior loans are generally valued using market prices or quotations provided by banks, dealers or pricing services with respect to secondary market transactions. The prices provided by these principal market makers may differ from the value that would be realized if the loans were sold and the differences could be material to the financial statements. In the absence of actual market values, senior loans will be valued by Stein Roe & Farnham Incorporated (the "Advisor"), an indirect, wholly-owned subsidiary of Columbia Management Group Inc., at fair value, which is intended to approximate market value, pursuant to procedures approved by the Board of Trustees. In determining fair value, the Advisor will consider on an ongoing basis, among other factors, (i) the creditworthiness of the Borrower; (ii) the current interest rate, the interest rate redetermination period and maturity of such senior loan interests; and (iii) recent prices in the market for instruments of similar quality, rate and interest rate redetermination period and maturity. Because of uncertainty inherent in the valuation process, the estimated value of a senior loan interest may differ significantly from the value that would have been used had there been market activity for that senior loan interest. Equity securities generally are valued at the last sale price or, in the case of unlisted or listed securities for which there were no sales during the last day, at the current quoted bid price. Short-term obligations with a maturity of 60 days or less are valued at amortized cost. Security transactions are accounted for on the date the securities are purchased, sold or mature. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes. DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income, expenses (other than the Class A, Class B and Class C service and distribution fees), and realized and unrealized gains (losses) are allocated to each class proportionately on a daily basis for purposes of determining the net asset value of each class. Class A, Class B and Class C per share data and ratios are calculated by adjusting the expense and net investment income per share data and ratios for the Fund for the entire period by the service and distribution fees per share applicable to Class A, Class B and Class C shares. 15 Notes to Financial Statements (continued) FEDERAL INCOME TAXES: No provision is made for federal income taxes since (a) the Fund elects to be taxed as a "regulated investment company" and make distributions to its shareholders to be relieved of all federal income taxes under provisions of current federal tax law; and (b) the Portfolio is treated as a partnership for federal income tax purposes and all of its income is allocated to its owners based on methods approved by the Internal Revenue Service. INTEREST INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is recorded on the accrual basis. Facility fees received are treated as market discounts. Market premiums and discounts are amortized over the estimated life of each applicable loan. Unamortized facility fees are reflected as deferred fees on the Statement of Assets and Liabilities. Effective September 1, 2001, the Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing discount and premium on all debt securities. The cumulative effect of this change did not impact total net assets of the Portfolio and the Fund, but resulted in reclassifications as follows: Decrease in Decrease Net Unrealized In Cost Depreciation -------- -------------- Stein Roe Floating Rate Limited Liability Company $(77,713) $77,713 Liberty Floating Rate Fund (61,782) 61,782 The effect of this change for the year ended August 31, 2002 is as follows: Increase in Increase in Increase in Net Investment Net Unrealized Net Realized Income Depreciation Loss -------- -------------- ------------ Stein Roe Floating Rate Limited Liability Company $83,184 ($19,346) $(63,838) Liberty Floating Rate Fund 66,522 (15,471) (51,051) The Statement of Changes in Net Assets and the Financial Highlights for prior periods have not been restated to reflect this change. DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions daily and pays monthly. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations. STATEMENT OF CASH FLOWS: Information on financial transactions which have been settled through the receipt or disbursement of cash is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows is the amount included in the Portfolio's Statement of Assets and Liabilities and represents cash on hand at its custodian bank account and does not include any short-term investments at August 31, 2002. NOTE 2. FEDERAL TAX INFORMATION Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to deferral of losses from wash sales, post-October losses, non-deductible expenses, discount accretion/premium amortization on debt securities and capital loss carryforwards. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations. For the year ended August 31, 2002, permanent items identified and reclassified among the components of net assets are as follows: Overdistributed Accumulated Net Investment Net Realized Paid-In Income Loss Capital --------------- ------------ ------- $(51,051) $51,201 $(150) Net investment income, net realized gains (losses), and net assets were not affected by this reclassification. 16 Notes to Financial Statements (continued) The tax character of distributions paid during the year ended August 31, 2002, was as follows: Ordinary Long-term Income Capital Gains ----------- ------------- $26,542,902 $1,702 As of August 31, 2002, the components of distributable earnings on a tax basis were as follows: Undistributed Unrealized Ordinary Income Depreciation* --------------- ------------- $2,164,021 $(42,798,876) - ------------------ * The difference between book-basis and tax-basis unrealized appreciation (depreciation), if applicable, is attributable primarily to amortization/accretion tax elections and losses from wash sales on fixed income securities. The following capital loss carryforwards are available to reduce taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code: Year of Expiration Capital Loss Carryforward - ------------------ ------------------------- 2010 $7,156,391 Under current tax rules, certain capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of August 31, 2002, for federal income tax purposes, post-October losses of $9,461,973 were deferred to September 1, 2002. NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES MANAGEMENT FEE: The Advisor receives a monthly fee equal to 0.45% annually of the Portfolio's average daily net assets. On November 1, 2001, Liberty Financial Companies, Inc., the former parent of the Advisor, completed the sale of its asset management business, including the Advisor, to a subsidiary of FleetBoston Financial Corporation. This transaction resulted in a change of control of the Advisor and, therefore, an assignment of the Advisor's investment advisory contract with the Portfolio. The Portfolio had obtained approval of a new investment advisory contract by the Portfolio's Board of Trustees and shareholders which became effective upon completion of the sale. The new contract is identical to the prior contract in all material respects except for its effective and termination dates. ADMINISTRATION FEE: The Advisor provides accounting and other services for a monthly fee equal to 0.20% annually of the Fund's average daily net assets. BOOKKEEPING FEE: The Administrator is responsible for providing pricing and bookkeeping services to the Portfolio and Fund under a Pricing and Bookkeeping Agreement. Under a separate agreement (the "Outsourcing Agreement"), the Advisor has delegated those functions to State Street Bank and Trust Company ("State Street"). The Advisor pays fees to State Street under the Outsourcing Agreement. Under its pricing and bookkeeping agreement with the Portfolio and Fund, the Advisor receives from the Portfolio and Fund an annual flat fee of $10,000 and $5,000 respectively, paid monthly, and in any month that the Fund's average daily net assets are more than $50 million, a monthly fee equal to the average daily net assets of the Fund for that month multiplied by a fee rate that is calculated by taking into account the fees payable to State Street under the Outsourcing Agreement. For the year ended August 31, 2002, the net asset based fee was 0.036%. The Portfolio also pays out-of-pocket costs for pricing services. TRANSFER AGENT FEE: Liberty Funds Services, Inc. (the "Transfer Agent"), an affiliate of the Advisor, provides shareholder services for a monthly fee comprised of 0.06% annually of the Fund's average daily net assets plus charges based on the number of shareholder accounts and transactions. The Transfer Agent also receives reimbursement for certain out-of-pocket expenses. The Portfolio pays the Transfer Agent a monthly fee equal to $6,000 annually. UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Liberty Funds Distributor, Inc. (the "Distributor"), an affiliate of the Advisor, is the Fund's principal underwriter. For the year ended August 31, 2002, the Fund has been advised that the Distributor retained $11,892 net underwriting discounts on sales of the Fund's Class A shares and received early withdrawal charges (EWC) of $37,093, $694,638 and $88,474 on Class A, Class B and Class C share redemptions, respectively. 17 Notes to Financial Statements (continued) The Fund has adopted a 12b-1 plan which requires it to pay the Distributor a monthly service fee equal to 0.25% annually on Class A, Class B and Class C net assets as of the 20th of each month. The plan also requires the payment of a monthly distribution fee to the Distributor equal to 0.10%, 0.45% and 0.60% annually of the average daily net assets attributable to Class A, Class B and Class C shares only. The EWC and the fees received from the 12b-1 plan are used principally as repayment to the Distributor for amounts paid by the Distributor to dealers who sold such shares. EXPENSE LIMITS: The Advisor has agreed, until further notice, to waive fees and bear certain Fund expenses to the extent that total expenses (inclusive of allocated Portfolio expenses but exclusive of service fees, distribution fees, brokerage commissions, interest, commitment fees, taxes and extraordinary expenses, if any) exceed 0.80% of the Fund's average daily net assets. OTHER: The Portfolio and Fund pays no compensation to their officers, all of whom are employees of the Advisor. The Portfolio has an agreement with its custodian bank under which $4,799 of custody fees were reduced by balance credits for the year ended August 31, 2002. The Portfolio could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement. NOTE 4. PORTFOLIO INFORMATION INVESTMENT ACTIVITY: During the year ended August 31, 2002, purchases and sales of investments, other than short-term obligations, were $382,287,473 and $511,316,629, respectively. Unrealized appreciation (depreciation) at August 31, 2002, based on cost for federal tax purposes, was: Gross unrealized appreciation $ 4,418,513 Gross unrealized depreciation (57,936,141) ------------ Net unrealized depreciation $(53,517,628) ------------ OTHER: The Portfolio may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified. NOTE 5. TENDER OF SHARES The Board of Trustees has adopted a policy of making tender offers on a quarterly basis. The Board has designated the 15th day of March, June, September and December, each year, or the next business day if the 15th is not a business day as the Repurchase Request Deadline. Tender offers are made for a portion of the Fund's then outstanding shares at the net asset value of the shares as of the Repurchase Pricing Date. The tender offer amount, which is determined by the Board of Trustees, will be at least 5% and no more than 25% of the total number of shares outstanding on the Repurchase Request Deadline. The Fund may repurchase an additional amount of shares up to 2% of the shares outstanding on the Repurchase Request Deadline. During the year ended August 31, 2002, there were four tender offers in September, December, March and June. The Fund offered to repurchase 10%, 10%, 15% and 15% of its shares and 6.40%, 10.32%, 7.75% and 6.52%, respectively, of shares outstanding were tendered. Through specific dates in the year 2000, certain classes of the Fund's shares sold were not registered with the Securities and Exchange Commission under the Securities Act of 1933. The Fund offered to repurchase these shares at their original sale price in a rescission offer, of which 4,016,173 shares were repurchased. The Advisor reimbursed these shareholders for any decline in net asset value from the sale date and refunded underwriting discounts on Class A shares repurchased. NOTE 6. SENIOR LOAN PARTICIPATION COMMITMENTS The Portfolio invests primarily in participations and assignments, or acts as a party to the primary lending syndicate of a Variable Rate Senior Loan interest to United States corporations, partnerships, and other entities. If the lead lender in a typical lending syndicate becomes insolvent, enters FDIC receivership or, if not FDIC insured, enters into bankruptcy, the Portfolio may incur certain costs and delays in receiving payment or may suffer a loss of principal and/or interest. When the Portfolio purchases a participation of a Senior Loan interest, the Portfolio typically enters into a contractual agreement with the lender or other third party selling the participation, but not with the borrower directly. As such, the Portfolio assumes the credit risk of the Borrower, Selling Participant or other persons interpositioned between the Portfolio and the Borrower. 18 Notes to Financial Statements (continued) At August 31, 2002, the following sets forth the selling participants with respect to interests in Senior Loans purchased by the Portfolio on a participation basis. Selling Principal Participant Amount Value - ----------- --------- ----- Goldman Sachs Credit Partners, LP: Bridge Information Systems, Multi-Draw Term Loan $ 560,789 $ 89,726 Simmons Co., Term Loan B 309,367 309,927 Citibank: Cablevision Systems Corp., Revolver 1,375,833 1,214,709 Tyco International Group, Term Loan 2,000,000 1,864,000 The ability of borrowers to meet their obligations may be affected by economic developments in a specific industry. NOTE 7. LINE OF CREDIT The Portfolio is one of several investment companies that participate in an unsecured line of credit agreement provided by the custodian bank. The line of credit entitles the Portfolio and the other investment companies to borrow from the custodian at any time upon notice. The borrowings available through this credit facility are $200 million. Borrowings may be made to temporarily finance the repurchase of Fund shares. Interest is charged to the Portfolio based on its borrowings. In addition, a commitment fee of 0.10% per annum on the Portfolio's unused commitment shall be paid quarterly by the Portfolio based on the relative asset size of the Portfolio to the other investment companies participating in the agreement. The commitment fee is included in "Other expenses" on the Statement of Operations. Because several investment companies participate in this credit facility, there is no assurance that the Portfolio will have access to the entire line of credit at any particular time. For the year ended August 31, 2002, the average daily loan balance on days where borrowings existed was $46,853,659 at a weighted average interest rate of 2.76%. NOTE 8. UNFUNDED LOAN COMMITMENTS As of August 31, 2002, the Portfolio had unfunded loan commitments of $5,356,426, which could be extended at the option of the Borrower, pursuant to the following loan agreements: Unfunded Borrower Commitments - ---------------------------------------------------- Cablevision Systems Corp. $ 624,167 Dimac Marketing Partners, Inc. 426 Insight Health Services Corp. 3,000,000 LTV Corp. 52,666 Noveon, Inc. 625,000 Riverwood International Corp. 1,054,167 ---------- $5,356,426 19
Stein Roe Floating Rate Limited Liability Company--Financial Highlights Selected data for a share outstanding throughout each period is as follows: YEAR ENDED AUGUST 31, PERIOD ENDED ----------------------------------------- AUGUST 31, 2002 2001 2000 1999 (a) - ----------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Operating expenses 0.55%(b) 0.53%(b) 0.55% 0.96%(c) Interest expense 0.03% -- -- -- Net investment income 6.42%(b)(d) 8.94%(b) 9.26% 7.59%(c) Portfolio turnover rate 70% 63% 21% 17%
(a) From commencement of operations on December 17, 1998. (b) The benefits derived from custody credits, if applicable, had no impact. (c) Annualized. (d) Effective September 1, 2001, the Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium and discount on all debt securities. The effect of this change for the year ended August 31, 2002, was to increase the ratio of net investment income to average net assets from 6.41% to 6.42%. Ratios for the periods prior to August 31, 2002 have not been restated to reflect this change in presentation. 20
Liberty Floating Rate Fund -- Financial Highlights Selected data for a share outstanding throughout each period is as follows: YEAR ENDED AUGUST 31, PERIOD ENDED ---------------------- AUGUST 31, CLASS A SHARES 2002 2001 2000 (a) - ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.62 $ 10.00 $ 10.05 - ----------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (b) 0.54(c) 0.81 0.71 Net realized and unrealized loss allocated from Portfolio (0.79)(c) (0.37) (0.05) - ----------------------------------------------------------------------------------------------------------------------- Total from Investment Operations (0.25) 0.44 0.66 - ----------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.54) (0.82) (0.71) From net realized gains --(d) --(d) --(d) - ----------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.54) (0.82) (0.71) - ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 8.83 $ 9.62 $ 10.00 ======================================================================================================================= Total return (e)(f) (2.67)% 4.56% 6.79%(g) ======================================================================================================================= RATIOS TO AVERAGE NET ASSETS: Operating expenses 1.15% 1.15% 1.15%(h) Interest expense allocated from Portfolio 0.03% -- -- Net expenses 1.18% 1.15% 1.15%(h) Net investment income 5.83%(c) 8.28% 8.53%(h) Waiver/reimbursement 0.28% 0.18% 0.13%(h) Net assets, end of period (000's) $108,583 $138,058 $147,209
(a) Class A shares were initially offered on November 2, 1999. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium and discount on all debt securities. The effect of this change for the year ended August 31, 2002, to the net investment income per share and net realized and unrealized loss per share was less than $0.01 and increase the ratio of net investment income to average net assets from 5.82% to 5.83%. Per share data and ratios for periods prior to August 31, 2002 have not been restated to reflect this change in presentation. (d) Rounds to less than $0.01. (e) Had the Advisor not waived or reimbursed a portion of expenses, total return would have been reduced. (f) Total return at net asset value assuming all distributions reinvested and no initial sales charge or early withdrawal charge. (g) Not Annualized. (h) Annualized. 21
Liberty Floating Rate Fund-- Financial Highlights (continued) Selected data for a share outstanding throughout each period is as follows: YEAR ENDED AUGUST 31, PERIOD ENDED ------------------------ AUGUST 31, CLASS B SHARES 2002 2001 2000 (a) - ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.62 $ 10.00 $ 10.05 - ----------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (b) 0.51(c) 0.77 0.67 Net realized and unrealized loss allocated from Portfolio (0.79)(c) (0.37) (0.05) - ----------------------------------------------------------------------------------------------------------------------- Total from Investment Operations (0.28) 0.40 0.62 - ----------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.51) (0.78) (0.67) From net realized gains --(d) --(d) --(d) - ----------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.51) (0.78) (0.67) - ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 8.83 $ 9.62 $ 10.00 ======================================================================================================================= Total return (e)(f) (3.02)% 4.19% 6.35%(g) ======================================================================================================================= RATIOS TO AVERAGE NET ASSETS: Operating expenses 1.50% 1.50% 1.50%(h) Interest expense allocated from Portfolio 0.03% -- -- Net expenses 1.53% 1.50% 1.50%(h) Net investment income 5.48%(c) 7.93% 8.18%(h) Waiver/reimbursement 0.28% 0.18% 0.13%(h) Net assets, end of period (000's) $174,707 $195,891 $ 83,695
(a) Class B shares were initially offered on November 2, 1999. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium and discount on all debt securities. The effect of this change for the year ended August 31, 2002, to the net investment income per share and net realized and unrealized loss per share was less than $0.01 and increase the ratio of net investment income to average net assets from 5.47% to 5.48%. Per share data and ratios for periods prior to August 31, 2002 have not been restated to reflect this change in presentation. (d) Rounds to less than $0.01. (e) Had the Advisor not waived or reimbursed a portion of expenses, total return would have been reduced. (f) Total return at net asset value assuming all distributions reinvested and early withdrawal charge. (g) Not Annualized. (h) Annualized. 22
Liberty Floating Rate Fund-- Financial Highlights (continued) Selected data for a share outstanding throughout each period is as follows: YEAR ENDED AUGUST 31, PERIOD ENDED ------------------------ AUGUST 31, CLASS C SHARES 2002 2001 2000 (a) - ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.62 $ 10.00 $ 10.05 - ----------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (b) 0.50(c) 0.76 0.66 Net realized and unrealized loss allocated from Portfolio (0.79)(c) (0.37) (0.05) - ----------------------------------------------------------------------------------------------------------------------- Total from Investment Operations (0.29) 0.39 0.61 - ----------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.50) (0.77) (0.66) From net realized gains --(d) --(d) --(d) - ----------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.50) (0.77) (0.66) - ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 8.83 $ 9.62 $ 10.00 ======================================================================================================================= Total return (e)(f) (3.16)% 4.04% 6.20%(g) ======================================================================================================================= Ratios to Average Net Assets: Operating expenses 1.65% 1.65% 1.65%(h) Interest expense allocated from Portfolio 0.03% -- -- Net expenses 1.68% 1.65% 1.65%(h) Net investment income 5.33%(c) 7.78% 8.03%(h) Waiver/reimbursement 0.28% 0.18% 0.13%(h) Net assets, end of period (000's) $137,098 $184,399 $ 91,664
(a) Class C shares were initially offered on November 2, 1999. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium and discount on all debt securities. The effect of this change for the year ended August 31, 2002, to the net investment income per share and net realized and unrealized loss per share was less than $0.01 and increase the ratio of net investment income to average net assets from 5.32% to 5.33%. Per share data and ratios for periods prior to August 31, 2002 have not been restated to reflect this change in presentation. (d) Rounds to less than $0.01. (e) Had the Advisor not waived or reimbursed a portion of expenses, total return would have been reduced. (f) Total return at net asset value assuming all distributions reinvested and no early withdrawal charge. (g) Not Annualized. (h) Annualized. 23
Liberty Floating Rate Fund-- Financial Highlights (continued) Selected data for a share outstanding throughout each period is as follows: YEAR ENDED AUGUST 31, PERIOD ENDED ------------------------------------------ AUGUST 31, CLASS Z SHARES 2002 2001 2000 1999 (a) - ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.62 $ 10.00 $ 10.07 $ 10.00 - ----------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (b) 0.57(c) 0.84 0.87 0.47 Net realized and unrealized gain (loss) allocated from Portfolio (0.78)(c) (0.37) (0.07) 0.07 - ----------------------------------------------------------------------------------------------------------------------- Total from Investment Operations (0.21) 0.47 0.80 0.54 - ----------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.58) (0.85) (0.87) (0.47) In excess of net investment income -- -- -- --(d) From net realized gains --(d) --(d) --(d) -- - ----------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.58) (0.85) (0.87) (0.47) - ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 8.83 $ 9.62 $ 10.00 $ 10.07 ======================================================================================================================= Total return (e)(f) (2.33)% 4.89% 8.23% 5.43%(g) ======================================================================================================================= RATIOS TO AVERAGE NET ASSETS: Operating expenses 0.80% 0.80% 0.80% 1.30%(h) Interest expense allocated from Portfolio 0.03% -- -- -- Net expenses 0.83% 0.80% 0.80% 1.30%(h) Net investment income 6.18%(c) 8.63% 8.94% 7.10%(h) Waiver/reimbursement 0.28% 0.18% 0.39% 55.49%(h) Net assets, end of period (000's) $ 13,236 $ 11,662 $ 6,845 $ 893
(a) From commencement of operations on December 17, 1998. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium and discount on all debt securities. The effect of this change for the year ended August 31, 2002, to the net investment income per share and net realized and unrealized loss per share was less than $0.01 and increase the ratio of net investment income to average net assets from 6.17% to 6.18%. Per share data and ratios for periods prior to August 31, 2002 have not been restated to reflect this change in presentation. (d) Rounds to less than $0.01. (e) Had the Advisor not waived or reimbursed a portion of expenses, total return would have been reduced. (f) Total return at net asset value assuming all distributions reinvested. (g) Not Annualized. (h) Annualized. 24 Report of Independent Accountants TO THE TRUSTEES AND SHAREHOLDERS OF LIBERTY FLOATING RATE FUND AND THE TRUSTEES OF STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY In our opinion, the accompanying statements of assets and liabilities, including the investment portfolio, and the related statements of operations, changes in net assets, and cash flows and the financial highlights present fairly, in all material respects, the financial position of Liberty Floating Rate Fund (the "Fund") and Stein Roe Floating Rate Limited Liability Company (the "Portfolio") at August 31, 2002, and the results of each of their operations, the changes in each of their net assets, and the Portfolio's cash flows and each of their 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 Portfolio's and Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of portfolio positions at August 31, 2002 by correspondence with the custodian and lending or agent banks, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts October 22, 2002 25 Trustees The Trustees serve terms of indefinite duration. The names, addresses and ages of the Trustees and officers of The Liberty Funds, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee, and other directorships they hold are shown below. Each officer listed below serves as an officer of each of the Liberty funds. The Statement of Additional Information (SAI) contains additional information about the Trustees and is available without charge upon request by calling the fund's distributor at 800-345-6611.
Year first Number of elected or portfolios in fund Other Position with appointed Principal occupation(s) complex overseen directorships Name, address and age Liberty Funds to office during past five years by trustee held - ------------------------------------------------------------------------------------------------------------------------------------ DISINTERESTED TRUSTEES Douglas A. Hacker (age 46) Trustee 2000 President of UAL Loyalty Services and Executive 81 None c/o Liberty Funds Group LLC Vice President of United Airlines (airline) since One Financial Center September 2001 (formerly Executive Vice Boston, MA 02111 President from July 1999 to September 2001); Chief Financial Officer of United Airlines since July 1999; Senior Vice President and Chief Financial Officer of UAL, Inc. prior thereto Janet Langford Kelly (age 44) Trustee 2000 Executive Vice President-Corporate Development 81 None c/o Liberty Funds Group LLC and Administration, General Counsel and One Financial Center Secretary, Kellogg Company (food manufacturer), Boston, MA 02111 since September 1999; Senior Vice President, Secretary and General Counsel, Sara Lee Corporation (branded, packaged, consumer- products manufacturer) prior thereto Richard W. Lowry (age 66) Trustee 1995 Private Investor since 1987 (formerly 83 None c/o Liberty Funds Group LLC Chairman and Chief Executive Officer, U.S. One Financial Center Plywood Corporation [building products Boston, MA 02111 manufacturer]) Salvatore Macera (age 71) Trustee 1998 Private Investor since 1981 (formerly Executive 81 None c/o Liberty Funds Group LLC Vice President and Director of Itek Corporation One Financial Center (electronics) from 1975 to 1981) Boston, MA 02111 Charles R. Nelson (age 59) Trustee 2000 Professor of Economics, University of Washington, 81 None c/o Liberty Funds Group LLC since January 1976; Ford and Louisa Van Voorhis One Financial Center Professor of Political Economy, University of Boston, MA 02111 Washington, since September 1993; Director, Institute for Economic Research, University of Washington, since September 2001; Adjunct Professor of Statistics, University of Washington, since September 1980; Associate Editor, Journal of Money Credit and Banking, since September, 1993; consultant on economic and statistical matters. John J. Neuhauser (age 59) Trustee 1985 Academic Vice President and Dean of Faculties 83 Saucony, Inc. c/o Liberty Funds Group LLC since August 1999, Boston College (formerly (athletic footwear) One Financial Center Dean, Boston College School of Management and SkillSoft Corp. Boston, MA 02111 from September 1977 to September 1999) (e-learning) Thomas E. Stitzel (age 66) Trustee 1998 Business Consultant since 1999 (formerly 81 None c/o Liberty Funds Group LLC Professor of Finance from 1975 to 1999 and Dean One Financial Center from 1977 to 1991, College of Business, Boise State Boston, MA 02111 University); Chartered Financial Analyst Thomas C. Theobald (age 65) Trustee 2000 Managing Director, William Blair Capital Partners 81 Xerox Corporation c/o Liberty Funds Group LLC (private equity investing) since 1994 (formerly (business products One Financial Center Chief Executive Officer and Chairman of the and services), Anixter Boston, MA 02111 Board of Directors, Continental Bank International (network Corporation) support equipment distributor), Jones Lang LaSalle (real estate management services) and MONY Group (life insurance) 26 TRUSTEES (CONTINUED) Year first Number of elected or portfolios in fund Other Position with appointed Principal occupation(s) complex overseen directorships Name, address and age Liberty Funds to office during past five years by trustee held - ------------------------------------------------------------------------------------------------------------------------------------ DISINTERESTED TRUSTEES Anne-Lee Verville (age 57) Trustee 1998 Author and speaker on educational systems needs 81 Chairman of the Board c/o Liberty Funds Group LLC (formerly General Manager, Global Education of Directors, Enesco One Financial Center Industry from 1994 to 1997, and President, Group, Inc. (designer, Boston, MA 02111 Applications Solutions Division from 1991 to importer and 1994, IBM Corporation [global education and distributor of giftware global applications]) and collectibles) INTERESTED TRUSTEES William E. Mayer* (age 62) Trustee 1994 Managing Partner, Park Avenue Equity Partners 83 Lee Enterprises (print c/o Liberty Funds Group LLC (private equity fund) since February 1999 and online media), WR One Financial Center (formerly Founding Partner, Development Capital Hambrecht + Co. Boston, MA 02111 LLC from November 1996 to February 1999; (financial service and Dean and Professor, College of Business and provider), First Management, University of Maryland from Health (health care) October 1992 to November 1996) Systech Retail Systems (retail industry technology provider) Joseph R. Palombo* (age 49) Trustee 2000 Chief Operating Officer of Columbia 81 None One Financial Center and Management Group, Inc. (Columbia Management Boston, MA 02111 Chairman Group) since November 2001; formerly Chief of the Operations Officer of Mutual Funds, Liberty Board Financial Companies, Inc. from August 2000 to November 2001; Executive Vice President of the advisor since April 1999; Executive Vice President and Director of Colonial Management Associates, Inc. since April 1999; Executive Vice President and Chief Administrative Officer of Liberty Funds Group LLC (LFG) since April 1999; Director of the advisor since September 2000; Trustee and Chairman of the Board of Stein Roe Mutual Funds since October 2000; Manager of Stein Roe Floating Rate Limited Liability Company since October 2000 (formerly Vice President of Liberty Funds from April 1999 to August 2000; Chief Operating Officer and Chief Compliance Officer, Putnam Mutual Funds from December 1993 to March 1999) * 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, a registered broker-dealer. Mr. Palombo is an interested person as an employee of an affiliate of the Advisor.
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OFFICERS AND TRANSFER AGENT Year first elected or Position with appointed Name, address and age Liberty Funds to office Principal occupation(s) during past five years - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS Keith T. Banks (age 46) President 2001 President of Liberty Funds since November 2001; President, Chief Investment Columbia Management Group, Inc. Officer and Chief Executive Officer of Columbia Management Group since 2001; 590 Madison Avenue, 36th Floor President, Chief Executive Officer and Chief Investment Officer of Fleet Mail Stop NY EH 30636A Investment Advisors Inc. since 2000 (formerly Managing Director and Head of U.S. New York, NY 10022 Equity, J.P. Morgan Investment Management from November 1996 to August 2000) Vicki L. Benjamin (age 41) Chief 2001 Controller of the Liberty Funds and Liberty All-Star Funds since May 2002; Chief One Financial Center Accounting Accounting Officer of the Liberty Funds and Liberty All-Star Funds since June Boston, MA 02111 Officer and 2001; Vice President of LFG since April 2001 (formerly Vice President, Corporate Controller Audit, State Street Bank and Trust Company from May 1998 to April 2001; Audit Manager from July 1994 to June 1997; Senior Audit Manager from July 1997 to May 1998, Coopers & Lybrand, LLP) J. Kevin Connaughton Treasurer 2000 Treasurer of the Liberty Funds and Liberty All-Star Funds since December 2000 (age 38) (formerly Controller of the Liberty Funds and Liberty All-Star Funds from One Financial Center February 1998 to October 2000); Treasurer of Stein Roe Funds since February 2001 Boston, MA 02111 (formerly Controller from May 2000 to February 2001); Senior Vice President of LFG since January 2001 (formerly Vice President from April 2000 to January 2001; Vice President of Colonial Management Associates, Inc. from February 1998 to October 2000; Senior Tax Manager; Coopers & Lybrand, LLP from April 1996 to January 1998) Jean S. Loewenberg Secretary 2002 Secretary of Liberty Funds and Liberty All-Star Funds since February 2002; (age 57) Senior Vice President and Group Senior Counsel, Fleet National Bank since One Financial Center November 1996 Boston, MA 02111
IMPORTANT INFORMATION ABOUT THIS REPORT The Transfer Agent for Liberty Floating Rate Fund is: Liberty Funds Services, Inc. PO Box 8081 Boston, MA 02266-8081 800-345-6611 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 Liberty Floating Rate 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 Liberty Funds Performance Update. Annual Report: Liberty Floating Rate Fund Liberty Floating Rate Fund ANNUAL REPORT, AUGUST 31, 2002 [logo]:LIBERTY FUNDS A MEMBER OF COLUMBIA MANAGEMENT GROUP (C)2002 LIBERTY FUNDS DISTRIBUTOR, INC. A MEMBER OF COLUMBIA MANAGEMENT GROUP ONE FINANCIAL CENTER, BOSTON, MA 02111-2621 PRSRT STD U.S. POSTAGE PAID HOLLISTON, MA PERMIT NO. 20 761-02/993K-0802 (10/02) 02/2135 -----END PRIVACY-ENHANCED MESSAGE-----