N-CSR 1 file001.txt LIBERTY FLOATING RATE ADVANTAGE FUND 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 811-9709 --------------------- Liberty Floating Rate Advantage Fund ------------------------------------------------------------------------------ (Exact name of registrant as specified in charter) One Financial Center, Boston, Massachusetts 02111 ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip code) Jean S. Loewenberg, 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: 1-617-426-3750 ------------------- Date of fiscal year end: August 31, 2003 ------------------ Date of reporting period: February 28, 2003 ----------------- 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. ss. 3507. ITEM 1. REPORTS TO STOCKHOLDERS. LIBERTY FLOATING RATE ADVANTAGE FUND Semiannual Report February 28, 2003 [photo of man playing with child] 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 ADVANTAGE FUND Semiannual Report February 28, 2003 [photo of man playing with child] 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 Joseph R. Palombo] Dear Shareholder: The environment for the syndicated loan market, which comprises large corporate loans made by a group or syndicate of banks and institutional investors, remained volatile over the past six months. The second half was markedly better than the first half of the period. Bankruptcy filings by high-profile companies, which led to a general widening of loan credit risk premiums, peaked late in 2002. Then, as default rates started to come down and investors began to move back into riskier segments of the fixed income markets, the environment for the syndicated loan market improved. Better performance from the high yield bond sector also helped this market. Declining interest rates, which are generally positive for stocks and bonds, were a negative factor for the fund throughout the six-month period because yields on floating-rate loans adjust downward to reflect lower current rates. Nevertheless, an improving credit environment offset the impact of declining rates and helped the syndicated loan market achieve positive returns for the period. In the following report, portfolio managers Brian Good and Jim Fellows talk in greater detail about the performance of Liberty Floating Rate Advantage Fund and the decisions they made in managing the fund. As always, thank you for investing in Liberty Funds. We look forward to helping you build a strong financial future. Sincerely, /s/ Joseph R. Palombo Joseph R. Palombo President -------------------------------------------------------------------------------- MEET THE NEW PRESIDENT Joseph R. Palombo, president and chairman of the Board of Trustees for Liberty Funds, is also chief operating officer of Columbia Management Group. Mr. Palombo has over 19 years of experience in the financial services industry. Prior to joining Columbia Management, he was chief operating officer and chief compliance officer for Putnam Mutual Funds. Prior to that, he was a partner at Coopers & Lybrand. Mr. Palombo received his degree in economics/accounting from the College of the Holy Cross, where he was a member of Phi Beta Kappa. He earned his master's degree in taxation from Bentley College and participated in the Executive Program at the Amos B. Tuck School at Dartmouth College. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Net asset value per share as of 2/28/03 ($) Class A 10.40 Class B 10.40 Class C 10.40 Class Z 10.40 Distributions declared per share 9/1/02-2/28/03 ($) Class A 0.42 Class B 0.41 Class C 0.40 Class Z 0.44 -------------------------------------------------------------------------------- Not FDIC Insured May Lose Value No Bank Guarantee Economic and market conditions change frequently. There is no assurance that the trends described in this report will continue or commence. Performance Information Value of a $10,000 investment 1/13/00 - 2/28/03 Performance of a $10,000 investment 1/13/00 - 2/28/03 ($) without with sales sales charge charge ------------------------------------ Class A 11,247 10,853 ------------------------------------ Class B 11,130 11,000 ------------------------------------ Class C 11,081 11,081 ------------------------------------ Class Z 11,366 n/a ------------------------------------ [mountain chart data} : Lehman Bros. Class A shares Class A shares Intermediate US without sales charge with sales charge Government Bond Index 1/2000 $10,000.0 $ 9,650.0 $10,000.0 10,050.0 9,698.0 10,033.0 10,141.0 9,787.0 9,954.0 10,151.0 9,795.0 9,990.0 10,210.0 9,853.0 10,073.0 10,316.0 9,955.0 10,135.0 10,420.0 10,055.0 10,208.0 10,521.0 10,153.0 10,260.0 10,604.0 10,233.0 10,293.0 10,696.0 10,322.0 10,298.0 10,778.0 10,400.0 10,321.0 10,821.0 10,442.0 10,393.0 10,895.0 10,514.0 10,455.0 10,998.0 10,613.0 10,545.0 11,049.0 10,663.0 10,558.0 11,020.0 10,634.0 10,540.0 10,915.0 10,533.0 10,513.0 11,027.0 10,641.0 10,639.0 11,041.0 10,654.0 10,651.0 11,176.0 10,785.0 10,678.0 11,316.0 10,920.0 10,763.0 11,128.0 10,739.0 10,558.0 10,873.0 10,493.0 10,393.0 11,007.0 10,622.0 10,556.0 11,176.0 10,784.0 10,666.0 11,344.0 10,947.0 10,725.0 11,274.0 10,879.0 10,684.0 11,493.0 11,090.0 10,808.0 11,652.0 11,245.0 10,924.0 11,683.0 11,274.0 10,916.0 11,455.0 11,054.0 10,751.0 11,051.0 10,664.0 10,588.0 10,878.0 10,497.0 10,557.0 10,723.0 10,347.0 10,580.0 10,621.0 10,249.0 10,438.0 10,806.0 10,427.0 10,618.0 11,067.0 10,680.0 10,785.0 11,232.0 10,839.0 10,930.0 2/2003 11,247.0 10,853.0 11,094.0 MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT LIBERTYFUNDS.COM FOR DAILY PERFORMANCE UPDATES. Past performance is no guarantee of future investment results. The principal value and investment returns will fluctuate, resulting in a gain or loss on sale. The graph and table do not reflect the deduction of taxes a shareholder would pay on fund distributions or the redemption of fund shares. The CSFB Leveraged Loan Index is an unmanaged index that tracks the performance of senior floating rate bank loans. Unlike mutual funds, an index is not an investment, does not incur fees or charges and is not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in an index. Index performance is from December 31, 1999.
Average annual total return as of 2/28/03 (%) Share class A B C Z Inception 1/13/00 1/13/00 1/13/00 1/13/00 ------------------------------------------------------------------------------------------------------------------- without with without with without with without sales sales sales sales sales sales sales charge charge charge charge charge charge charge ------------------------------------------------------------------------------------------------------------------- 6-month (cumulative) 3.39 -0.22 3.22 -0.01 3.14 2.15 3.57 ------------------------------------------------------------------------------------------------------------------- 1-year -0.23 -3.73 -0.58 -3.58 -0.73 -1.65 0.12 ------------------------------------------------------------------------------------------------------------------- Life 3.83 2.65 3.49 3.10 3.34 3.34 4.18 ------------------------------------------------------------------------------------------------------------------- Average annual total return as of 12/31/02 (%) 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 ------------------------------------------------------------------------------------------------------------------- 6-month (cumulative) -3.39 -6.77 -3.56 -6.57 -3.63 -4.55 -3.21 ------------------------------------------------------------------------------------------------------------------- 1-year -0.98 -4.44 -1.32 -4.30 -1.47 -2.39 -0.63 ------------------------------------------------------------------------------------------------------------------- Life 3.47 2.24 3.13 2.58 2.98 2.98 3.82 -------------------------------------------------------------------------------------------------------------------
Past performance is no guarantee of future investment results. The principal value and investment returns will fluctuate, 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 shares 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 shares EWC of 1.00% 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. 1 Portfolio Managers' Report 30-day SEC yield as of 2/28/03 After reimbursement (%) Class A 6.67 Class B 6.56 Class C 6.41 Class Z 7.27 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 6.48% for class A shares, 6.13% for class B shares, 5.97% for class C shares and 6.83% for class Z shares. Top 10 issuers as of 2/28/03 (%) Washington Group International 5.0% Century Cable Holdings 4.3 Mission Energy Holdings 3.0 Vought Aircraft Industries 2.8 Olympus Cable Holdings 2.5 1424666 Ontario Ltd. 2.4 Loews Cineplex Entertainment 2.2 Huntsman Co. 2.1 Alliance Gaming 2.0 Calpine 2.0 Holdings are calculated as a percentage of net assets. Since the fund is actively managed, there is no guarantee that the fund will continue to maintain this breakdown in the future. For the six-month period that ended February 28, 2003, the class A shares of Liberty Floating Rate Advantage Fund returned 3.39%, without sales charge. That was lower than the return of the fund's benchmark, the CSFB Leveraged Loan Index, which was up 4.07% for the period. The fund was negatively affected in the fall of 2002 by its holdings in the hotel and lodging sectors, businesses that have suffered from an ongoing decline in air travel. However, the environment for floating rate securities became more favorable toward the end of 2002, and the fund made up some of its lost ground. The leveraged portion of the fund's assets, which had hurt results as interest rates came down earlier in 2002, became a slight advantage as conditions improved. LOWER DEFAULT RATES HELP FIXED-INCOME MARKETS One of the most important developments during the six-month period was a significant reduction in the incidence of corporate defaults. Default rates among high-yield bond issuers had been running at unusually high levels--between 12% and 13%--during the summer of 2002. Toward the end of the year default rates came down to the 7% level. Investors concluded that the lower-rated segments of the fixed-income markets had become less risky, so they were willing to put more money into high-yield instruments. In turn, more high-yield bonds were issued in order to meet growing investor demand. The result of this market shift was not only that companies were repaying high-yield bank loans, but also that senior lenders emerged with an improved credit position. These trends were favorable for the fund's primary markets. EARLY VOLATILITY HURTS PERFORMANCE Most of the fund's shortfall in performance can be traced to the first two months of the six-month period. In addition to weakness in the hotel and lodging sectors, one specific holding that had a negative impact on fund performance was the engineering and construction company Washington Group International (5.0% of net assets).1 The fund had received a piece of equity in the company in lieu of a restructuring, and it declined sharply in September and October of 2002. The fund's cable and wireless holdings also remained under pressure. However, cable and wireless improved later in the period, at which time several other bright spots ------------ 1 Holdings are disclosed as of February 28, 2003, and are subject to change. 2 emerged. Our investment in the troubled conglomerate Tyco Corp. was closed out at a profit. We had been able to purchase a sizable term loan at a five percentage point discount last year, amid the negative publicity surrounding some of Tyco's accounting practices. Since then, the company was able to refinance its loan, and our entire position was repaid at par. The gain, though not large in percentage terms, was important because Tyco Corp. was the fund's biggest position at that time. The fund also benefited when electric utility AES Corp. (1.4% of net assets) underwent a major restructuring, resulting in enhanced collateral to the loan group and a partial cash payment to bondholders. CAUTIOUS OPTIMISM FOR 2003 By period end, as geopolitical uncertainty mounted, the attention of the nation and the financial markets focused squarely on the developing events in Iraq. While the course of war and peace is impossible to predict with any confidence, the overall environment for floating-rate securities is more to our liking than it was a year ago. Interest rates appear unlikely to decline meaningfully from their current levels, while corporate default rates, having moved in the right direction, appear to be stabilizing rather than going back up. For several months now, the market for corporate bonds and other syndicated loans has held up well relative to other financial markets. We see that trend continuing in the year ahead. /s/ Brian Good /s/ Jim Fellows Brian Good and Jim Fellows, CFA, are senior vice presidents of Stein Roe & Farnham Incorporated, an affiliate of Columbia Management Group, Inc. They have been portfolio managers of the Liberty Floating Rate Advantage Fund since its inception. Portfolio quality breakdown as of 2/28/03 (dollar-weighted %) [pie chart data]: Ba1: 0.6% Ba2: 5.5 Ba3: 19.1 B1: 17.5 B2: 12.8 B3: 7.9 Caa1: 8.5 Caa2: 0.6 Ca: 1.0 Non-rated: 17.4 Withdrawn: 1.4 Other: 7.7 Quality breakdowns are calculated as a percentage of total investments. Because the fund is actively managed, there is no guarantee that the fund will continue to maintain these quality breakdowns in the future. Top 5 sectors as of 2/28/03 (%) [bar chart data]: Wireless telecommunications 10.0% Cable television 10.0 Electric utilities 7.7 Movies/entertainment 6.5 Health care 6.3 Sector breakdowns are calculated as a percentage of net assets. Because the fund is actively managed, there is 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 on the loans in the portfolio could reduce the fund's net asset value (NAV) 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 use of leverage for investment purposes creates opportunities for greater total returns, but at the same time involves certain risks, such as greater volatility of the NAV of the fund's shares and the nonpayment of dividends. 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 February 28, 2003 (Unaudited) VARIABLE RATE SENIOR LOAN INTERESTS (a) - 121.3% PAR VALUE -------------------------------------------------------- AEROSPACE/DEFENSE - 3.4% Integrated Defense Technologies, Term Loan B 03/04/08 $ 997,497 $ 991,701 Vought Aircraft Industries, Inc.: Term Loan A 06/30/06 1,144,928 1,109,580 Term Loan B 06/30/07 851,777 828,247 Term Loan C 06/30/08 2,010,440 1,960,052 Term Loan X 12/31/06 1,075,000 1,044,094 ----------- 5,933,674 ----------- AUTO PARTS - 3.5% 1424666 Ontario Ltd. Term Loan B 08/10/07 4,377,140 4,307,037 Federal-Mogul Corp.: Supplemental Revolver 02/24/04 1,312,851 1,306,286 Term Loan C 02/24/04 573,404 570,537 ----------- 6,183,860 ----------- BROADCASTING - 4.7% Comcorp Broadcasting, Inc., Term Loan A2 03/31/03 1,813,479 1,727,339 GT Brands LLC, Term Loan 09/30/07 2,500,000 2,438,535 Quorum Broadcasting Co., Inc., Term Loan B 12/31/04 2,029,602 1,872,412 UPC Financing Partnership, Term Loan C2 03/31/09 3,000,000 2,058,750 White Knight Broadcasting, Inc., Term Loan A2 03/31/03 186,521 177,661 ----------- 8,274,697 ----------- BUILDING PRODUCTS - 0.8% Tapco International Corp.: Term Loan B 06/23/07 859,003 849,382 Term Loan C 06/23/08 614,280 607,399 ----------- 1,456,781 ----------- BUSINESS SERVICES - 0.8% HQ Global, (b) Term Loan B 11/06/05 1,849,805 1,156,502 NATG Holdings, LLC, (c) Revolver A 01/23/05 131,418 128,132 Term Loan A 01/23/09 127,805 51,141 Term Loan B1 01/23/10 86,523 34,622 Term Loan B2 01/23/10 84,238 67,403 ----------- 1,437,800 ----------- PAR VALUE -------------------------------------------------------- CABLE TELEVISION - 10.0% Century Cable Holdings, LLC, Term Loan 06/30/09 $10,500,000 $ 7,568,418 Charter Communications Operating, LLC, Term Loan B 03/18/08 2,295,990 1,933,430 CSC Holdings, Inc., (d) Revolver 06/30/06 2,246,250 2,090,295 Olympus Cable Holdings, LLC: Term Loan A 06/30/10 3,000,000 2,380,713 Term Loan B 09/30/10 2,500,000 2,027,840 RCN Corp., Term Loan B 06/03/07 2,241,000 1,636,617 ----------- 17,637,313 ----------- CASINOS/GAMBLING - 5.0% Aladdin Gaming, LLC: (b) Term Loan A 02/25/05 4,000,000 3,360,000 Term Loan B 08/26/06 1,250,000 1,037,500 Alliance Gaming Corp., Term Loan 12/31/06 3,473,750 3,495,369 Ameristar Casinos, Inc., Term Loan B 12/20/06 878,778 883,167 ----------- 8,776,036 ----------- CHEMICALS - 3.6% Huntsman Co., LLC, Term Loan A 03/31/07 3,041,137 2,502,236 Term Loan B 03/31/07 1,458,863 1,199,923 Huntsman International, LLC: Term Loan B 06/30/07 289,528 285,003 Term Loan C 06/30/08 249,987 245,944 Lyondell Chemical Co., Term Loan E 05/17/06 330,298 331,278 Messer Griesheim Industries, Inc.: Term Loan B 04/27/09 526,219 530,213 Term Loan C 04/27/10 973,781 979,291 Noveon, Inc.: (d) Revolver 03/31/07 1 6 Term Loan A 03/31/07 344,636 342,661 ----------- 6,416,555 ----------- COAL - 1.0% Headwaters, Inc., Term Loan B 08/30/07 1,805,211 1,834,882 ----------- CONSUMER SERVICES - 0.5% Alderwoods Group, Inc.: Note 5 Year 01/02/07 294,100 286,747 Note 7 Year 01/02/09 528,068 501,665 Loewen Group International, Inc., (b) Revolver 06/30/04 72,883 72,883 ----------- 861,295 ----------- See notes to investment portfolio. 4 Investment Portfolio (continued) February 28, 2003 (Unaudited) VARIABLE RATE SENIOR LOAN INTERESTS (a) - (CONTINUED) PAR VALUE ------------------------------------------------------- CONSUMER SPECIALTIES - 3.0% American Greetings Corp., Term Loan B 06/15/06 $ 1,477,014 $ 1,498,325 Church & Dwight Co., Inc., Term Loan B 09/30/07 995,000 1,001,758 Johnson Diversey, Inc., Term Loan B 11/03/09 2,321,667 2,337,238 Jostens, Inc., Term Loan A 05/31/06 390,678 383,683 ----------- 5,221,004 ----------- CONTAINERS/PACKAGING - 1.3% Pliant Corp., Term Loan B 05/31/08 2,257,275 2,232,307 Riverwood International Corp., (d) Revolver 12/31/06 125,000 121,549 ----------- 2,353,856 ----------- DIVERSIFIED COMMERCIAL SERVICES - 1.7% Outsourcing Solutions, Inc., (b)(c) Term Loan B 06/10/06 2,408,750 1,710,213 Transcore Holdings, Inc., Term Loan B 10/01/06 1,197,000 1,200,970 ----------- 2,911,183 ----------- DIVERSIFIED MANUFACTURING - 5.6% Enersys, Inc., Term Loan B 11/09/08 1,465,003 1,453,462 Jason, Inc., Term Loan B 06/30/07 1,398,814 1,335,217 Polymer Group, Inc.: Term Loan B 12/20/05 1,983,607 1,817,835 Term Loan C 12/20/06 1,000,000 919,167 Polypore, Inc.: Term Loan B 12/31/06 989,848 989,877 Term Loan C 12/31/07 2,481,250 2,490,121 Superior Telecom, Inc., Term Loan B 05/27/04 2,452,415 870,657 ----------- 9,876,336 ----------- ELECTRIC UTILITIES - 7.7% AES Corp., Term Loan C 07/15/05 2,513,974 2,415,402 Calpine Corp., Term Loan B 03/08/04 3,798,260 3,483,766 Mission Energy Holdings Co.: (c) Term Loan A 07/02/06 2,467,532 1,357,233 Term Loan B 07/02/06 7,032,468 3,868,115 Westar Energy, Inc., Term Loan 06/05/05 2,491,453 2,466,538 ----------- 13,591,054 ----------- PAR VALUE ------------------------------------------------------- ELECTRONIC COMPONENTS - 2.3% Sanmina SCI Corp., Term Loan B 12/21/07 $ 1,500,000 $ 1,523,232 Viasystems, Inc.: Term Loan B 09/30/08 3,717,921 2,574,823 ----------- 4,098,055 ----------- ENGINEERING & CONSTRUCTION - 3.1% Washington Group International, Revolver B 07/23/04 5,500,000 5,493,088 ----------- ENVIRONMENTAL SERVICES - 1.1% Environmental Systems Products Holdings, Tranche 1 12/31/04 2,043,451 1,951,495 ----------- FARMING/AGRICULTURE - 2.2% Scotts Company, Term Loan B 12/31/07 927,665 932,127 United Industries Corp., Term Loan B 01/20/06 2,959,028 2,969,494 ----------- 3,901,621 ----------- FINANCE COMPANIES - 0.3% Finova Group, Inc., Note 05/15/09 1,490,000 506,600 ----------- FOOD MANUFACTURING - 2.9% Commonwealth Brands, Inc., Term Loan 08/28/07 2,312,500 2,315,850 Merisant Co., Term Loan B 03/31/07 1,903,604 1,905,488 Michael Foods, Inc., Term Loan B 04/10/08 819,359 824,213 ----------- 5,045,551 ----------- HEALTH CARE - 6.3% Accredo Health, Inc., Term Loan B 03/31/09 1,488,750 1,492,315 Concentra Operating Corp.: Term Loan B 06/30/06 1,216,251 1,197,269 Term Loan C 06/30/07 608,126 598,635 Insight Health Services Group: (d) Term Loan B 10/17/08 1,481,250 1,493,267 Pacificare Health Systems, Inc., Term Loan A 01/03/05 1,290,182 1,291,392 PerkinElmer, Inc., Term Loan B 12/26/08 2,000,000 2,027,956 Team Health, Inc., Term Loan B 10/31/08 3,000,000 2,906,745 ----------- 11,007,579 ----------- See notes to investment portfolio. 5 Investment Portfolio (continued) February 28, 2003 (Unaudited) VARIABLE RATE SENIOR LOAN INTERESTS (a) - (CONTINUED) PAR VALUE ------------------------------------------------------- HOSPITAL MANAGEMENT - 0.9% Vanguard Health Systems, Incremental Term Loan 01/03/10 $ 1,600,000 $ 1,612,693 ----------- HOTELS/RESORTS - 2.8% Sunburst Hospitality Corp., Term Loan 12/30/05 1,697,853 1,693,028 Wyndham International, Inc.: IRL 06/30/04 688,768 519,719 Term Loan 06/30/06 3,640,253 2,640,767 ----------- 4,853,514 ----------- MEDIA CONGLOMERATES - 0.2% Bridge Information Systems: (b) Revolver 07/07/03 700,456 94,562 Term Loan A 07/07/03 285,350 38,522 Term Loan B 05/29/05 1,241,304 167,576 ----------- 300,660 ----------- MEDICAL SPECIALTIES - 1.1% Dade Behring, Inc., Term Loan A1 10/01/08 2,000,000 2,001,695 ----------- METAL FABRICATIONS - 1.1% OM Group, Term Loan C 04/01/06 1,994,987 1,913,421 ----------- METALS/MINING - 2.6% \ Dresser, Inc., Term Loan B 04/10/09 1,800,297 1,805,040 Stillwater Mining Co.: Term Loan A 12/30/05 921,370 889,150 Term Loan B 12/31/07 1,922,988 1,856,298 ----------- 4,550,488 ----------- MOVIES/ENTERTAINMENT - 6.1% AMF Bowling Worldwide, Inc., Term Loan 02/28/08 1,851,903 1,849,869 Carmike Cinemas, Inc., Term Loan 01/31/07 2,645,808 2,637,666 Loews Cineplex Entertainment, Term Loan 02/29/08 3,858,586 3,792,786 Metro-Goldwyn-Mayer Studios, Inc., Term Loan B 06/30/08 2,500,000 2,487,997 ----------- 10,768,318 ----------- OIL REFINING/MARKETING - 0.5% Tesoro Petroleum Corp., Term Loan B 12/31/07 895,411 854,659 ----------- PAR VALUE ------------------------------------------------------- PAPER - 1.6% Appleton Papers, Inc., Term Loan C 11/08/06 $ 1,179,284 $ 1,184,490 Port Townsend Paper Corp., Term Loan B 03/16/07 1,866,750 1,662,166 ----------- 2,846,656 ----------- PHARMACEUTICALS - 0.4% Medpointe, Inc., Term Loan B 09/30/08 774,878 709,269 ----------- PRINTING/PUBLISHING - 5.0% Bell Actimedia, Inc., Term Loan C 11/29/10 2,330,000 2,367,309 Canwest Media, Inc.: Term Loan B2 05/15/08 1,197,244 1,197,938 Term Loan C2 05/15/09 747,982 748,415 Qwest Dex, Inc., Term Loan A 08/30/04 3,333,333 3,454,237 Weekly Reader Corp., Term Loan B 11/17/06 969,925 952,476 ----------- 8,720,375 ----------- RAIL/SHIPPING - 2.1% American Commercial Lines: Term Loan B 06/30/06 775,443 624,356 Term Loan C 06/30/07 1,022,879 823,583 Helm Holding Corp., Term Loan B 10/18/06 2,435,389 2,257,509 ----------- 3,705,448 ----------- REAL ESTATE INVESTMENT TRUSTS - 0.9% Corrections Corp. of America, Term Loan A 03/31/06 1,593,750 1,592,077 ----------- RETAIL STORES - 1.1% CH Operating, LLC, Term Loan 06/21/07 1,965,517 1,950,884 ----------- SEMICONDUCTORS - 0.3% Semiconductors Components Industries, LLC: Term Loan B 08/04/06 160,344 145,285 Term Loan C 08/04/07 172,713 156,492 Term Loan D 08/04/07 333,057 302,883 ----------- 604,660 ----------- STEEL/IRON ORE - 3.3% Ispat Inland, LP.: Term Loan B 07/16/05 2,207,847 1,433,831 Term Loan C 07/16/06 2,207,847 1,433,831 UCAR Finance, Inc., Term Loan B 12/31/07 2,981,552 2,855,723 ----------- 5,723,385 ----------- See notes to investment portfolio. 6 Investment Portfolio (continued) February 28, 2003 (Unaudited) VARIABLE RATE SENIOR LOAN INTERESTS (a) - (CONTINUED) PAR VALUE ------------------------------------------------------- TELECOMMUNICATION SERVICES - 2.9% GT Group Telecom Services Corp., (b)(c) Vendor Term Loan06/30/08 $ 1,871,785 $ 37,436 Time Warner Telecom Holdings, Term Loan B 03/31/08 1,200,000 1,026,302 TSI Telecommunication Services, Term Loan B 12/31/06 1,897,727 1,813,516 Valor Telecommunications Enterprises, LCC, Term Loan B 06/30/08 2,435,793 2,148,136 ----------- 5,025,390 ----------- TELECOMMUNICATIONS INFRASTRUCTURE/EQUIPMENT - 0.9% Spectrasite Communications, Inc., Term Loan B 12/31/07 1,801,159 1,598,914 ----------- TEXTILES - 1.5% St. John's Knits, Term Loan B 07/31/07 2,658,195 2,663,337 ----------- TRANSPORTATION - 5.2% Evergreen International Aviation, Inc.: Term Loan B1 05/07/03 1,748,335 1,513,262 Term Loan B2 05/07/03 908,279 777,890 Motor Coach Industries International, Inc., Term Loan 06/16/05 2,807,981 2,171,551 Transportation Technologies Industries, Inc., Term Loan B 03/31/07 3,327,536 2,827,181 United Airlines, Term Loan B 07/01/04 2,000,000 1,920,282 ----------- 9,210,166 ----------- WIRELESS TELECOMMUNICATIONS - 10.0% American Cellular Corp.: Term Loan B 03/31/08 567,430 427,700 Term Loan C 03/31/09 647,873 488,335 Centennial Cellular Operating Co., LLC, Term Loan A 11/30/06 1,725,000 1,414,667 Centennial Puerto Rico Operations Corp.: Term Loan B 05/31/07 2,397,628 1,878,993 Term Loan C 11/30/07 1,549,945 1,215,171 Cricket Communications, Inc., (b) Vendor Term Loan06/30/07 10,000,000 2,200,000 Nextel Finance Co., Inc.: Term Loan B 06/30/08 1,246,875 1,191,811 Term Loan C 12/31/08 1,246,875 1,191,810 Nextel Partners, Term Loan B 01/29/08 3,500,000 3,251,890 Rural Cellular Corp.: Term Loan B 10/03/08 196,445 169,936 Term Loan C 04/03/09 196,445 169,936 Term Loan D 10/03/09 1,471,445 1,271,108 PAR VALUE -------------------------------------------------------- WIRELESS TELECOMMUNICATIONS (CONTINUED) Sygnet Wireless, Inc., Term Loan C 12/23/07 $ 2,030,344 $ 1,806,546 Ubiquitel Operating Co.: Term Loan A 09/30/07 938,776 662,257 Term Loan B 11/17/08 469,388 302,619 ----------- 17,642,779 ----------- TOTAL VARIABLE RATE SENIOR LOAN INTERESTS (cost of $233,778,830) 213,619,103 ----------- COMMON STOCKS (e) - 2.5% SHARES ------------------------------------------------------- BUSINESS SERVICES - 0.1% NATG Holdings, LLC (c) 40,800 204,000 ----------- CONSUMER SERVICES - 0.1% Alderwoods Group, Inc. 58,773 218,048 ----------- ENGINEERING & CONSTRUCTION - 1.9% Washington Group International 226,726 3,364,614 ----------- HEALTHCARE SERVICES - 0.0% Sun Healthcare Group, Inc. 90,559 24,903 ----------- MOVIES/ENTERTAINMENT - 0.4% AMF Bowling Worldwide, Inc., 29,759 565,421 ----------- TOTAL COMMON STOCKS (cost of $4,585,998) 4,376,986 ----------- SHORT-TERM OBLIGATIONS - 7.4% PAR ------------------------------------------------------- COMMERCIAL PAPER - 6.8% UBS America, Inc., 1.310% 03/03/03 $12,000,000 11,999,127 ----------- TIME DEPOSIT - 0.6% State Street Bank & Trust Co., 0.250% 03/03/03 1,100,000 1,100,000 ----------- TOTAL SHORT-TERM OBLIGATIONS (cost of $13,099,127) 13,099,127 ----------- TOTAL INVESTMENTS - 131.2% (cost of $251,463,955)(f) 231,095,216 ----------- OTHER ASSETS & LIABILITIES, NET - (31.2)% (55,012,331) ------------------------------------------------------- NET ASSETS - 100.0% $176,082,885 ============ See notes to investment portfolio. 7 Investment Portfolio (continued) February 28, 2003 (Unaudited) NOTES TO INVESTMENT PORTFOLIO: (a)Senior Loans in which the Fund invests generally pay interest at rates which are periodically redetermined 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 Fund ordinarily is contractually obligated to receive approval from the Agent Bank and/or borrower prior to the disposition of a Senior Loan. (b)These securities are in default of certain debt covenants. Income is not being accrued. (c)Represents fair value as determined in good faith under procedures approved by the Trustees. (d)Unfunded commitment, see note 8. (e)Non-income producing. (f)Cost for federal income tax purposes is $251,507,621. ACRONYM NAME -------------- -------------------- IRL Increasing Rate Loan See notes to financial statements. 8 Statement of Assets and Liabilities February 28, 2003 (Unaudited) ASSETS: Investments, at cost $251,463,955 ------------ Investments, at value $231,095,216 Cash 1,846 Receivable for: Investments sold 761 Fund shares sold 364,682 Interest and fees 1,707,864 Expense reimbursement due from Advisor 60,613 Deferred Trustees' compensation plan 1,435 Other assets 12,334 ------------ Total Assets 233,244,751 ------------ LIABILITIES: Deferred facility fees 285,280 Payable for: Distributions 349,104 Management fee 158,945 Administration fee 70,652 Transfer agent fee 97,452 Pricing and bookkeeping fees 33,320 Audit fee 25,620 Interest expense 74,503 Deferred Trustees' fee 1,435 Other liabilities 65,555 Notes payable 56,000,000 ------------ Total Liabilities 57,161,866 ------------ NET ASSETS $176,082,885 ------------ COMPOSITION OF NET ASSETS: Paid-in capital $212,835,775 Overdistributed net investment income (28,221) Accumulated net realized loss (16,355,930) Net unrealized depreciation on investments (20,368,739) ------------ NET ASSETS $176,082,885 ============ CLASS A: Net assets $ 58,988,473 Shares outstanding 5,673,554 ------------ Net asset value and redemption price per share $ 10.40(a) ============ Maximum offering price per share ($10.40/0.9650) $ 10.78(b) ============ CLASS B: Net assets $ 62,102,628 Shares outstanding 5,973,057 ------------ Net asset value and offering price per share $ 10.40(a) ============ CLASS C: Net assets $ 54,580,376 Shares outstanding 5,247,634 ------------ Net asset value and offering price per share $ 10.40(a) ============ CLASS Z: Net assets $ 411,408 Shares outstanding 39,554 ------------ Net asset value, offering and redemption price per share $ 10.40 ============ (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 Six Months Ended February 28, 2003 (Unaudited) INVESTMENT INCOME: Interest $ 9,424,290 Facility and other fees 430,992 ----------- Total Investment Income 9,855,282 EXPENSES: Management fee 567,554 Administration fee 252,245 Distribution fee: Class A 32,181 Class B 145,536 Class C 172,205 Service fee: Class A 80,453 Class B 80,854 Class C 71,752 Pricing and bookkeeping fees 99,960 Transfer agent fee 239,677 Trustees' fee 6,337 Custody fee 4,023 Other expenses 150,298 ----------- Total Operating Expenses 1,903,075 Fees and expenses waived or reimbursed by Advisor (360,094) Custody earnings credit (139) ----------- Net Operating Expenses 1,542,842 Interest expense 542,870 Commitment fee 207,145 ----------- Net Expenses 2,292,857 ----------- Net Investment Income 7,562,425 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss on investments (7,644,250) Net change in unrealized appreciation/ depreciation on investments 5,331,180 ----------- Net Loss (2,313,070) ----------- Net Increase in Net Assets from Operations $ 5,249,355 =========== See notes to financial statements. 9 Statement of Changes in Net Assets
(UNAUDITED) SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31, INCREASE (DECREASE) IN NET ASSETS: 2003 2002 ====================================================================================================================== OPERATIONS: Net investment income $ 7,562,425 $ 17,565,808 Net realized loss on investments (7,644,250) (4,422,545) Net change in unrealized appreciation/depreciation on investments 5,331,180 (24,393,222) ------------ ------------- Net Increase (Decrease) from Operations 5,249,355 (11,249,959) ------------ ------------- DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income: Class A (2,668,270) (7,229,439) Class B (2,567,044) (5,772,702) Class C (2,234,671) (4,574,186) Class Z (12,935) (212,723) ------------ ------------- Total Distributions Declared to Shareholders (7,482,920) (17,789,050) ------------ ------------- SHARE TRANSACTIONS: Class A: Subscriptions 1,760,000 18,572,509 Distributions reinvested 1,811,020 4,678,393 Redemptions (13,519,485) (50,701,801) ------------ ------------- Net Decrease (9,948,465) (27,450,899) ------------ ------------- Class B: Subscriptions 3,044,228 22,463,001 Distributions reinvested 1,602,592 3,580,288 Redemptions (9,989,956) (28,971,192) ------------ ------------- Net Decrease (5,343,136) (2,927,903) ------------ ------------- Class C: Subscriptions 3,867,665 28,691,771 Distributions reinvested 1,630,775 3,074,908 Redemptions (12,003,713) (26,047,239) ------------ ------------- Net Increase (Decrease) (6,505,273) 5,719,440 ------------ ------------- Class Z: Subscriptions 273,195 159,842 Distributions reinvested 249 212,723 Redemptions -- (2,766,176) ------------ ------------- Net Increase (Decrease) 273,444 (2,393,611) ------------ ------------- Net Decrease from Share Transactions (21,523,430) (27,052,973) ------------ ------------- Total Decrease in Net Assets (23,756,995) (56,091,982) NET ASSETS: Beginning of period 199,839,880 255,931,862 ------------ ------------- End of period (including overdistributed net investment income of $(28,221) and $(107,726), respectively) $176,082,885 $ 199,839,880 ============ =============
See notes to financial statements. 10 Statement of Changes in Net Assets (continued)
(UNAUDITED) SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31, 2003 2002 ====================================================================================================================== CHANGES IN SHARES: Class A: Subscriptions 170,249 1,648,681 Issued for distributions reinvested 175,689 413,072 Redemptions (1,324,281) (4,646,687) ------------ ------------- Net Decrease (978,343) (2,584,934) ------------ ------------- Class B: Subscriptions 294,251 1,986,627 Issued for distributions reinvested 155,452 316,278 Redemptions (978,001) (2,670,279) ------------ ------------- Net Decrease (528,298) (367,374) ------------ ------------- Class C: Subscriptions 373,814 2,534,958 Issued for distributions reinvested 158,192 271,691 Redemptions (1,180,470) (2,370,615) ------------ ------------- Net Increase (Decrease) (648,464) 436,034 ------------ ------------- Class Z: Subscriptions 26,197 13,333 Issued for distributions reinvested 24 19,606 Redemptions -- (262,457) ------------ ------------- Net Increase (Decrease) 26,221 (229,518) ------------ -------------
See notes to financial statements. 11 Statement of Cash Flows (UNAUDITED) FOR THE SIX MONTHS ENDED INCREASE (DECREASE) FEBRUARY 28, IN CASH 2003 ====================================================== CASH FLOWS FROM OPERATING ACTIVITIES: Net investment Income $ 7,562,425 Adjustments to reconcile net investment income to net cash provided by operating activities: Purchase of investment securities (75,472,112) Proceeds from disposition of investment securities 115,795,955 Purchase of short-term portfolio investments, net (100,483) Increase in interest and fees receivable (30,469) Increase in receivable for expense reimbursement (31,582) Decrease in receivable for investments sold 210,970 Decrease in other assets 46,527 Decrease in deferred facility fees (24,044) Increase in payable for accrued expenses 157,602 Net amortization of premium (discount) (1,428,611) Decrease in payable for investments purchased (95,829) Decrease in other liabilities (11,654) ------------ Net cash provided by operating activities 46,578,695 CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in notes payable (18,000,000) Decrease in interest payable (34,942) Proceeds from shares sold 9,161,509 Payment of shares redeemed (35,513,694) Distributions paid in cash (3,318,517) ------------ Net cash flows used for financing activities (47,705,644) ------------ Net decrease in cash (1,126,949) CASH: Cash at beginning of period 1,128,795 ------------ Cash at end of period $ 1,846 ============ See notes to financial statements. 12 Notes to Financial Statements February 28, 2003 (Unaudited) NOTE 1. ACCOUNTING POLICIES ORGANIZATION: Liberty Floating Rate Advantage Fund (the "Fund"), is a Massachusetts business trust, registered under the Investment Company Act of 1940, as amended, as a non-diversified, closed-end management investment company. The Fund's investment goal is 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. Class A shares are sold with a front-end sales charge. 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 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 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. INVESTMENT 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. 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 Fund'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 February 28, 2003. 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 fee per share applicable to Class A, Class B and Class C shares. 13 Notes to Financial Statements (continued) February 28, 2003 (Unaudited) FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a regulated investment company and to distribute all of its taxable income, no federal income tax has been accrued. INTEREST INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is recorded on the accrual basis. Facility fees received are treated as market discounts. Premiums and discounts are amortized over the estimated life of each applicable security. Unamortized facility fees are reflected as deferred fees on the Statement of Assets and Liabilities. DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions daily and pays monthly. 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. 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. The following capital loss carryforwards, determined as of August 31, 2002, 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 CARRYFORWARDS ------------------ -------------------------- 2009 $ 22,035 2010 3,814,328 ---------- Total $3,836,363 ========== NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES MANAGEMENT FEE: The Advisor receives a monthly fee equal to 0.45% annually of the Fund's average daily managed assets. ADMINISTRATION FEE: Colonial Management Associates, Inc. (the "Administrator"), an affiliate of the Advisor, provides accounting and other services for a monthly fee equal to 0.20% annually of the Fund's average daily managed assets. PRICING AND BOOKKEEPING FEES: The Advisor is responsible for providing pricing and bookkeeping services to the 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 Fund, the Advisor 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 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 six months ended February 28, 2003, the net asset based fee rate was 0.0329%. The Fund also pays out-of-pocket costs for pricing services. TRANSFER AGENT FEE: Liberty Funds Services, Inc. (the "Transfer Agent"), an affiliate of the Administrator, 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. UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Liberty Funds Distributor, Inc. (the "Distributor"), an affiliate of the Administrator, is the Fund's principal underwriter. For the six months ended February 28, 2003, the Fund has been advised that the Distributor retained net underwriting discounts of $2,346 on sales of the Fund's Class A shares and received early withdrawal charges (EWC) of $958, $162,406 and $16,642 on Class A, Class B and Class C share redemptions, respectively. The Fund has adopted a 12b-1 plan (the "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. 14 Notes to Financial Statements (continued) February 28, 2003 (Unaudited) The EWC 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. EXPENSE LIMITS: The Advisor has voluntarily agreed, until further notice, to waive fees and bear certain Fund expenses to the extent that certain expenses (exclusive of management fees, administration fees, service fees, distribution fees, brokerage commissions, interest, commitment fees, leverage fees, taxes and extraordinary expenses, if any) exceed 0.15% of average daily net assets. OTHER: The Fund pays no compensation to its officers, all of whom are employees of the Advisor, Administrator or any of their affiliates. The Fund's Independent 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. The Fund has an agreement with its custodian bank under which $139 of custody fees were reduced by balance credits for the six months ended February 28, 2003. 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. NOTE 4. PORTFOLIO INFORMATION INVESTMENT ACTIVITY: During the six months ended February 28, 2003, purchases and sales of investments, other than short-term obligations, were $75,472,112 and $115,795,955, respectively. Unrealized appreciation (depreciation) at February 28, 2003, based on cost of investments for federal income tax purposes, was: Gross unrealized appreciation $ 5,394,024 Gross unrealized depreciation (25,806,429) ------------- Net unrealized depreciation $ (20,412,405) ============= OTHER: The Fund 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 15(th) day of February, May, and August, and November each year, or the next business day if the 15(th) 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 six months ended February 28, 2003, there were two tender offers in November and February. For each tender, the Fund offered to repurchase 15% and 17%, respectively, of its shares, and 12.57% and 5.71%, respectively, of shares outstanding were tendered. NOTE 6. SENIOR LOAN PARTICIPATION COMMITMENTS The Fund 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 Fund may incur certain costs and delays in receiving payment or may suffer a loss of principal and/or interest. When the Fund purchases a participation of a senior loan interest, the Fund 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 Fund assumes the credit risk of the Borrower, Selling Participant or other persons interpositioned between the Fund and the Borrower. At February 28, 2003, 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 --------- ------- ----- Citibank: CSC Holdings, Inc. Revolver $2,246,250 $2,090,295 15 Notes to Financial Statements (continued) February 28, 2003 (Unaudited) NOTE 7. LOAN AGREEMENT At February 28, 2003, the Fund had one term loan outstanding with Citicorp North America, Inc., totaling $56,000,000 which bore interest at 1.34 % per annum, due September 18, 2003. The Fund may borrow up to $150,000,000. The average daily loan balance was $66,107,735 at a weighted average interest rate of 2.97%. The Fund is required to maintain certain asset coverage with respect to the loans. NOTE 8. UNFUNDED LOAN COMMITMENTS As of February 28, 2003, the Fund had unfunded loan commitments of $5,252,500, which could be extended at the option of the Borrower. Unfunded Borrower Commitments -------- ----------- CSC Holdings, Inc. $ 502,500 Insight Health Services Corp. 3,000,000 Noveon, Inc. 625,000 Riverwood International Corp. 1,125,000 ---------- $5,252,500 NOTE 9: SUBSEQUENT EVENT: On April 1, 2003, the Advisor and Administrator merged into Columbia Management Advisers, Inc. ("Columbia"), a direct subsidiary of Columbia Management Group, Inc., which subsequently became the investment advisor of the Fund. The merger will not change the way the Fund is managed, the investment personnel assigned to manage the Fund or the fees paid by the Fund to Columbia. 16 Financial Highlights Selected data for a share outstanding throughout each period is as follows:
(UNAUDITED) SIX MONTHS YEAR ENDED ENDED AUGUST 31, PERIOD ENDED FEBRUARY 28, ----------------------------------- AUGUST 31, CLASS A SHARES 2003 2002 2001 2000(a) =========================================================================================================================== NET ASSET VALUE, BEGINNING OF PERIOD $ 10.48 $ 11.74 $ 12.09 $ 12.00 ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.44(b) 0.83(b)(c) 1.10(b) 0.64 Net realized and unrealized gain (loss) on investments (0.10) (1.26)(c) (0.32) 0.07 ------- ------- ------- ------- Total from Investment Operations 0.34 (0.43) 0.78 0.71 ------- ------- ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.42) (0.83) (1.13) (0.62) From net realized gains -- -- --(d) -- ------- ------- ------- ------- Total Distributions Declared to Shareholders (0.42) (0.83) (1.13) (0.62) ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 10.40 $ 10.48 $ 11.74 $ 12.09 ======= ======= ======= ======= Total return (e)(f) 3.39%(g) (3.88)% 6.71% 6.04%(g) ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Operating expenses (h) 1.38%(i) 1.38% 1.37% 1.01%(i) Interest and commitment fees expenses 0.80%(i) 0.99% 2.04% 1.91%(i) Net expenses (h) 2.18%(i) 2.37% 3.41% 2.92%(i) Net investment income (h) 8.37%(i) 7.25%(c) 9.24% 9.49%(i) Waiver/reimbursement 0.39%(i) 0.32% 0.32% 1.41%(i) Portfolio turnover rate 32%(g) 98% 65% 8%(g) Net assets, end of period (000's) $ 58,988 $ 69,733 $108,399 $ 54,402
(a)The Fund commenced investment operations on January 13, 2000. (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 and net realized and unrealized loss per share was less than $0.01. The impact to the ratio of net investment income to average net assets was less than 0.01%. 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)Total return at net asset value assuming all distributions reinvested and no initial sales charge or early withdrawal charge. (f)Had the Advisor not waived or reimbursed 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. 17 Financial Highlights (continued) Selected data for a share outstanding throughout each period is as follows:
(UNAUDITED) SIX MONTHS YEAR ENDED ENDED AUGUST 31, PERIOD ENDED FEBRUARY 28, ----------------------------------- AUGUST 31, CLASS B SHARES 2003 2002 2001 2000(a) =========================================================================================================================== NET ASSET VALUE, BEGINNING OF PERIOD $ 10.48 $ 11.74 $ 12.07 $ 12.00 ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.41(b) 0.78(b)(c) 1.05(b) 0.62 Net realized and unrealized gain (loss) on investments (0.08) (1.25)(c) (0.30) 0.05 ------- ------- ------- ------- Total from Investment Operations 0.33 (0.47) 0.75 0.67 ------- ------- ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.41) (0.79) (1.08) (0.60) From net realized gains -- -- --(d) -- ------- ------- ------- ------- Total Distributions Declared to Shareholders (0.41) (0.79) (1.08) (0.60) ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 10.40 $ 10.48 $ 11.74 $ 12.07 ======= ======= ======= ======= Total return (e)(f) 3.22%(g) (4.22)% 6.52% 5.69%(g) ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Operating expenses (h) 1.73%(i) 1.73% 1.72% 1.36%(i) Interest and commitment fees expenses 0.80%(i) 0.99% 2.04% 1.91%(i) Net expenses (h) 2.53%(i) 2.72% 3.76% 3.27%(i) Net investment income (h) 8.02%(i) 6.90%(c) 8.89% 9.14%(i) Waiver/reimbursement 0.39%(i) 0.32% 0.32% 1.41%(i) Portfolio turnover rate 32%(g) 98% 65% 8%(g) Net assets, end of period (000's) $ 62,103 $ 68,157 $ 80,609 $ 19,964
(a)The Fund commenced investment operations on January 13, 2000. (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 and net realized and unrealized loss per share was less than $0.01. The impact to the ratio of net investment income to average net assets was less than 0.01%. 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)Total return at net asset value assuming all distributions reinvested and no early withdrawal charge. (f)Had the Advisor not waived or reimbursed 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. 18 Financial Highlights (continued) Selected data for a share outstanding throughout each period is as follows:
(UNAUDITED) SIX MONTHS YEAR ENDED ENDED AUGUST 31, PERIOD ENDED FEBRUARY 28, ----------------------------------- AUGUST 31, CLASS C SHARES 2003 2002 2001 2000(a) =========================================================================================================================== NET ASSET VALUE, BEGINNING OF PERIOD $ 10.48 $ 11.74 $ 12.07 $ 12.00 ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.40(b) 0.76(b)(c) 1.03(b) 0.61 Net realized and unrealized gain (loss) on investments (0.08) (1.25)(c) (0.30) 0.05 ------- ------- ------- ------- Total from Investment Operations 0.32 (0.49) 0.73 0.66 ------- ------- ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.40) (0.77) (1.06) (0.59) From net realized gains -- -- --(d) -- ------- ------- ------- ------- Total Distributions Declared to Shareholders (0.40) (0.77) (1.06) (0.59) ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 10.40 $ 10.48 $ 11.74 $ 12.07 ======= ======= ======= ======= Total return (e)(f) 3.14%(g) (4.36)% 6.35% 5.62%(g) ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Operating expenses (h) 1.88%(i) 1.88% 1.87% 1.51%(i) Interest and commitment fees expenses 0.80%(i) 0.99% 2.04% 1.91%(i) Net expenses (h) 2.68%(i) 2.87% 3.91% 3.42%(i) Net investment income (h) 7.87%(i) 6.75%(c) 8.74% 8.99%(i) Waiver/reimbursement 0.39%(i) 0.32% 0.32% 1.41%(i) Portfolio turnover rate 32%(g) 98% 65% 8%(g) Net assets, end of period (000's) $ 54,580 $ 61,811 $ 64,074 $ 13,013
(a)The Fund commenced investment operations on January 13, 2000. (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 and net realized and unrealized loss per share was less than $0.01. The impact to the ratio of net investment income to average net assets was less than 0.01%. 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)Total return at net asset value assuming all distributions reinvested and no early withdrawal charge. (f)Had the Advisor not waived or reimbursed 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. 19 Financial Highlights (continued) Selected data for a share outstanding throughout each period is as follows:
(UNAUDITED) SIX MONTHS YEAR ENDED ENDED AUGUST 31, PERIOD ENDED FEBRUARY 28, ----------------------------------- AUGUST 31, CLASS Z SHARES 2003 2002 2001 2000(a) =========================================================================================================================== NET ASSET VALUE, BEGINNING OF PERIOD $ 10.48 $ 11.74 $ 12.08 $ 12.00 ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.45(b) 0.86(b)(c) 1.14(b) 0.67 Net realized and unrealized gain (loss) on investments (0.09) (1.25)(c) (0.31) 0.05 ------- ------- ------- ------- Total from Investment Operations 0.36 (0.39) 0.83 0.72 ------- ------- ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.44) (0.87) (1.17) (0.64) From net realized gains -- -- --(d) -- ------- ------- ------- ------- Total Distributions Declared to Shareholders (0.44) (0.87) (1.17) (0.64) ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 10.40 $ 10.48 $ 11.74 $ 12.08 ======= ======= ======= ======= Total return (e)(f) 3.57%(g) (3.53)% 7.17% 6.11%(g) ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Operating expenses (h) 1.03%(i) 1.03% 1.02% 0.66%(i) Interest and commitment fees expenses 0.80%(i) 0.99% 2.04% 1.91%(i) Net expenses (h) 1.83%(i) 2.02% 3.06% 2.57%(i) Net investment income (h) 8.72%(i) 7.60%(c) 9.59% 9.84%(i) Waiver/reimbursement 0.39%(i) 0.32% 0.32% 1.41%(i) Portfolio turnover rate 32%(g) 98% 65% 8%(g) Net assets, end of period (000's) $ 411 $ 140 $ 2,850 $ 2,656
(a)The Fund commenced investment operations on January 13, 2000. (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 and net realized and unrealized loss per share was less than $0.01. The impact to the ratio of net investment income to average net assets was less than 0.01%. 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)Total return at net asset value assuming all distributions reinvested. (f)Had the Advisor not waived or reimbursed 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. 20 Transfer Agent IMPORTANT INFORMATION ABOUT THIS REPORT The Transfer Agent for Liberty Floating Rate Advantage Fund is: Liberty Funds Services, Inc. P.O. Box 8081 Boston, MA 02266-8081 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 Advantage 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. Semiannual Report: Liberty Floating Rate Advantage Fund Liberty Floating Rate Advantage Fund SEMIANNUAL REPORT, FEBRUARY 28, 2003 [eagle head logo] LibertyFunds A Member of Columbia Management Group (C)2003 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. 20 762-03/080N-0303 (04/03) 03/0814 ITEM 2. CODE OF ETHICS. Not applicable at this time. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable at this time. ITEMS 4-6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES Not applicable at this time. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) Not applicable at this time. (b) There were no significant changes in the registrant's internal controls or in other factors that could affect these controls subsequent to the date of our evaluation. ITEM 10. EXHIBITS. File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated. (a) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Not applicable. (b) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2) in the exact form set forth below: Attached hereto. 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) Liberty Floating Rate Advantage Fund ----------------------------------------------------------- By (Signature and Title)* /s/ Joseph R. Palombo ---------------------------------------------- Joseph R. Palombo, President Date April 25, 2003 ------------------------------------------------------------------- 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/ Joseph R. Palombo ---------------------------------------------- Joseph R. Palombo, President Date April 25, 2003 ------------------------------------------------------------------- By (Signature and Title)* /s/ J. Kevin Connaughton ---------------------------------------------- J. Kevin Connaughton, Treasurer Date April 25, 2003 ------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature.