N-CSR 1 a2115376zn-csr.txt N-CSR ----------------------------- OMB APPROVAL ----------------------------- OMB Number: 3235-0570 Expires: November 30, 2005 Estimated average burden hours per response....... 5.0 ----------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-2214 --------------------------------------------- Liberty Funds Trust I ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) One Financial Center, Boston, Massachusetts 02111 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Russell L. Kane, 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: 1-617-426-3363 ---------------------------- Date of fiscal year end: May 31, 2003 -------------------------- Date of reporting period: May 31, 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. Section 3507. [GRAPHIC] LIBERTY HIGH YIELD SECURITIES FUND ANNUAL REPORT MAY 31, 2003 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. [GRAPHIC] LIBERTY HIGH YIELD SECURITIES FUND ANNUAL REPORT MAY 31, 2003 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: Please note that the fiscal year end for Liberty High Yield Securities Fund changed from December 31 to May 31. As a result, all commentary, including this letter, covers the five-month period that ended May 31, 2003. The US bond market continued to reward investors with solid returns throughout the period covered by this report. Bonds reported gains across all sectors as interest rates declined. However, leadership rotated from higher quality bonds, which were the top performers in the previous period, to lower quality bonds. Corporate and high-yield bonds rebounded as investors became more willing to take on risk. The following report will provide you with more detailed information about the performance of Liberty High Yield Securities Fund and the strategies used by the fund's managers -- Thomas A. LaPointe, Kevin L. Cronk and June M. Giroux. CONSOLIDATION AND A NEW NAME: COLUMBIA I am pleased to announce that, effective April 1, 2003, six of the asset management firms brought together when Columbia Management Group, Inc. was formed were consolidated and renamed Columbia Management Advisors, Inc. (Columbia Management). This consolidation does not affect the management or investment objectives of your fund and is the next step in our efforts to create a consistent identity and to streamline our organization. By consolidating these firms, we are able to create a more efficient organizational structure and strengthen certain key functions, such as research. Although the name of the asset manager familiar to you has changed, what hasn't changed is the commitment of our specialized investment teams to a multi-disciplined approach to investing, focused on our goal of offering shareholders the best products and services. As always, we thank you for investing in Liberty funds and for giving us the opportunity to help 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 and executive vice president of Columbia Management. 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. Not FDIC May Lose Value Insured ----------------- 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 5/31/93 - 5/31/03 PERFORMANCE OF A $10,000 INVESTMENT 5/31/93 - 5/31/03 ($)
WITHOUT WITH SALES SALES CHARGE CHARGE ------------------------------------- Class A 16,464 15,682 ------------------------------------- Class B 15,273 15,273 ------------------------------------- Class C 15,715 15,715 ------------------------------------- Class Z 16,646 n/a
[CHART]
CLASS A SHARES CLASS A SHARES CS FIRST BOSTON WITHOUT SALES CHARGE WITH SALES CHARGE HIGH YIELD INDEX 5/31/1993 $ 10,000 $ 9,525 $ 10,000 6/30/1993 $ 10,216 $ 9,731 $ 10,181 7/31/1993 $ 10,299 $ 9,810 $ 10,287 8/31/1993 $ 10,367 $ 9,874 $ 10,374 9/30/1993 $ 10,405 $ 9,911 $ 10,433 10/31/1993 $ 10,689 $ 10,181 $ 10,624 11/30/1993 $ 10,806 $ 10,292 $ 10,758 12/31/1993 $ 10,939 $ 10,419 $ 10,894 1/31/1994 $ 11,214 $ 10,682 $ 11,088 2/28/1994 $ 11,218 $ 10,685 $ 11,104 3/31/1994 $ 10,965 $ 10,444 $ 10,778 4/30/1994 $ 10,791 $ 10,278 $ 10,633 5/31/1994 $ 10,843 $ 10,328 $ 10,694 6/30/1994 $ 10,895 $ 10,377 $ 10,622 7/31/1994 $ 10,898 $ 10,380 $ 10,672 8/31/1994 $ 10,901 $ 10,383 $ 10,749 9/30/1994 $ 10,921 $ 10,402 $ 10,792 10/31/1994 $ 10,908 $ 10,390 $ 10,800 11/30/1994 $ 10,810 $ 10,296 $ 10,674 12/31/1994 $ 10,899 $ 10,382 $ 10,787 1/31/1995 $ 11,006 $ 10,483 $ 10,901 2/28/1995 $ 11,289 $ 10,753 $ 11,169 3/31/1995 $ 11,362 $ 10,823 $ 11,295 4/30/1995 $ 11,632 $ 11,079 $ 11,546 5/31/1995 $ 11,885 $ 11,321 $ 11,871 6/30/1995 $ 11,942 $ 11,375 $ 11,950 7/31/1995 $ 12,144 $ 11,567 $ 12,135 8/31/1995 $ 12,165 $ 11,587 $ 12,169 9/30/1995 $ 12,351 $ 11,764 $ 12,309 10/31/1995 $ 12,502 $ 11,908 $ 12,446 11/30/1995 $ 12,578 $ 11,980 $ 12,504 12/31/1995 $ 12,823 $ 12,214 $ 12,663 1/31/1996 $ 13,051 $ 12,431 $ 12,903 2/29/1996 $ 13,166 $ 12,541 $ 12,972 3/31/1996 $ 13,050 $ 12,430 $ 12,937 4/30/1996 $ 13,129 $ 12,505 $ 13,007 5/31/1996 $ 13,227 $ 12,599 $ 13,112 6/30/1996 $ 13,227 $ 12,599 $ 13,141 7/31/1996 $ 13,306 $ 12,674 $ 13,259 8/31/1996 $ 13,546 $ 12,902 $ 13,404 9/30/1996 $ 13,909 $ 13,248 $ 13,634 10/31/1996 $ 13,909 $ 13,248 $ 13,749 11/30/1996 $ 14,175 $ 13,501 $ 13,963 12/31/1996 $ 14,391 $ 13,708 $ 14,236 1/31/1997 $ 14,517 $ 13,827 $ 14,339 2/28/1997 $ 14,830 $ 14,126 $ 14,609 3/31/1997 $ 14,535 $ 13,845 $ 14,445 4/30/1997 $ 14,683 $ 13,986 $ 14,574 5/31/1997 $ 15,048 $ 14,333 $ 14,867 6/30/1997 $ 15,285 $ 14,559 $ 15,069 7/31/1997 $ 15,654 $ 14,910 $ 15,389 8/31/1997 $ 15,697 $ 14,952 $ 15,472 9/30/1997 $ 16,071 $ 15,308 $ 15,778 10/31/1997 $ 16,071 $ 15,308 $ 15,776 11/30/1997 $ 16,204 $ 15,435 $ 15,888 12/31/1997 $ 16,388 $ 15,609 $ 16,033 1/31/1998 $ 16,727 $ 15,932 $ 16,306 2/28/1998 $ 16,819 $ 16,020 $ 16,433 3/31/1998 $ 17,026 $ 16,217 $ 16,515 4/30/1998 $ 17,072 $ 16,261 $ 16,639 5/31/1998 $ 17,096 $ 16,284 $ 16,689 6/30/1998 $ 17,166 $ 16,350 $ 16,724 7/31/1998 $ 17,373 $ 16,548 $ 16,841 8/31/1998 $ 16,228 $ 15,458 $ 15,697 9/30/1998 $ 16,089 $ 15,325 $ 15,696 10/31/1998 $ 15,809 $ 15,058 $ 15,383 11/30/1998 $ 16,848 $ 16,047 $ 16,163 12/31/1998 $ 16,741 $ 15,946 $ 16,126 1/31/1999 $ 17,019 $ 16,211 $ 16,278 2/28/1999 $ 17,040 $ 16,230 $ 16,244 3/31/1999 $ 17,377 $ 16,552 $ 16,391 4/30/1999 $ 17,680 $ 16,840 $ 16,754 5/31/1999 $ 17,349 $ 16,525 $ 16,573 6/30/1999 $ 17,450 $ 16,621 $ 16,581 7/31/1999 $ 17,504 $ 16,672 $ 16,589 8/31/1999 $ 17,425 $ 16,597 $ 16,442 9/30/1999 $ 17,343 $ 16,519 $ 16,315 10/31/1999 $ 17,372 $ 16,547 $ 16,235 11/30/1999 $ 17,664 $ 16,825 $ 16,456 12/31/1999 $ 17,776 $ 16,931 $ 16,655 1/31/2000 $ 17,578 $ 16,743 $ 16,588 2/29/2000 $ 17,845 $ 16,998 $ 16,691 3/31/2000 $ 17,574 $ 16,739 $ 16,441 4/30/2000 $ 17,460 $ 16,631 $ 16,416 5/31/2000 $ 17,126 $ 16,313 $ 16,154 6/30/2000 $ 17,265 $ 16,445 $ 16,515 7/31/2000 $ 17,440 $ 16,611 $ 16,671 8/31/2000 $ 17,612 $ 16,776 $ 16,782 9/30/2000 $ 17,318 $ 16,496 $ 16,628 10/31/2000 $ 16,561 $ 15,775 $ 16,111 11/30/2000 $ 15,611 $ 14,869 $ 15,476 12/31/2000 $ 15,943 $ 15,186 $ 15,787 1/31/2001 $ 17,201 $ 16,384 $ 16,733 2/28/2001 $ 17,251 $ 16,432 $ 16,902 3/31/2001 $ 16,587 $ 15,799 $ 16,565 4/30/2001 $ 16,199 $ 15,429 $ 16,393 5/31/2001 $ 16,348 $ 15,571 $ 16,721 6/30/2001 $ 15,642 $ 14,899 $ 16,462 7/31/2001 $ 15,629 $ 14,887 $ 16,638 8/31/2001 $ 15,745 $ 14,997 $ 16,871 9/30/2001 $ 14,482 $ 13,794 $ 15,807 10/31/2001 $ 15,005 $ 14,292 $ 16,167 11/30/2001 $ 15,533 $ 14,795 $ 16,689 12/31/2001 $ 15,500 $ 14,764 $ 16,699 1/31/2002 $ 15,661 $ 14,918 $ 16,854 2/28/2002 $ 15,384 $ 14,654 $ 16,735 3/31/2002 $ 15,650 $ 14,907 $ 17,118 4/30/2002 $ 15,782 $ 15,032 $ 17,390 5/31/2002 $ 15,567 $ 14,828 $ 17,329 6/30/2002 $ 14,790 $ 14,088 $ 16,725 7/31/2002 $ 14,381 $ 13,698 $ 16,246 8/31/2002 $ 14,431 $ 13,746 $ 16,457 9/30/2002 $ 14,301 $ 13,622 $ 16,255 10/31/2002 $ 14,152 $ 13,480 $ 16,156 11/30/2002 $ 14,733 $ 14,033 $ 17,010 12/31/2002 $ 14,839 $ 14,134 $ 17,218 1/31/2003 $ 15,131 $ 14,412 $ 17,686 2/28/2003 $ 15,314 $ 14,587 $ 17,948 3/31/2003 $ 15,611 $ 14,870 $ 18,408 4/30/2003 $ 16,401 $ 15,622 $ 19,346 5/31/2003 $ 16,464 $ 15,682 $ 19,627
MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT www.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 above illustration assumes a $10,000 investment made on May 31, 1993 and reinvestment of income and capital gains distributions. The CS First Boston High Yield Index is a broad-based, unmanaged index that tracks the performance of high-yield bonds. Unlike the fund, indices are not investments, do not incur fees or expenses, and are not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in an index. AVERAGE ANNUAL TOTAL RETURN AS OF 5/31/03 (%)
SHARE CLASS A B C Z INCEPTION 10/21/71 6/8/92 1/15/96 1/8/99 -------------------------------------------------------------------------------------------------------- WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT SALES SALES SALES SALES SALES SALES SALES CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE -------------------------------------------------------------------------------------------------------- 5-month (cumulative) 11.01 5.74 10.67 5.67 10.74 9.74 11.12 -------------------------------------------------------------------------------------------------------- 1-year 5.82 0.80 5.04 0.21 5.19 4.23 6.08 -------------------------------------------------------------------------------------------------------- 5-year -0.74 -1.70 -1.49 -1.74 -1.34 -1.34 -0.52 -------------------------------------------------------------------------------------------------------- 10-year 5.11 4.60 4.33 4.33 4.62 4.62 5.23 --------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/03 (%)
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 -------------------------------------------------------------------------------------------------------- 5-month (cumulative) 10.30 5.06 9.97 4.97 10.04 9.04 10.41 -------------------------------------------------------------------------------------------------------- 1-year -0.26 -4.99 -1.00 -5.54 -0.85 -1.76 -0.01 -------------------------------------------------------------------------------------------------------- 5-year -1.72 2.67 -2.47 2.72 -2.31 2.31 -1.51 -------------------------------------------------------------------------------------------------------- 10-year 4.86 4.35 4.08 4.08 4.38 4.38 4.97 --------------------------------------------------------------------------------------------------------
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 graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares. The "with sales charge" returns include the maximum 4.75% charge for class A shares, the appropriate class B contingent deferred sales charge for the holding period after purchase as follows: through first year - 5%, second year - 4%, third year - 3%, fourth year - 3%, fifth year - 2%, sixth year - 1%, thereafter - 0%, and the class C contingent deferred sales charge of 1% for the first year only. Performance for different share classes will vary based on differences in sales charges and fees associated with each class. Performance results reflect any voluntary waivers or reimbursement of fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. Classes C and Z share (newer class shares) performance information includes returns of the fund's class A shares (the oldest existing fund class) for periods prior to the inception of the newer class shares. These class A share returns are not restated to reflect any expense differential (e.g., rule 12b-1 fees) between class A shares and the newer class shares. Had the expense differential been reflected, the returns for the periods prior to the inception of class C shares would have been lower, and class Z shares would have been higher. 1 SEC YIELDS AS OF 5/31/03 (%)(1) Class A 7.54 Class B 7.16 Class C 7.31 Class Z 8.18
(1) The 30-day SEC yields reflect the portfolio's earning power net of expenses, expressed as an annualized percentage of the public offering price per share. If the advisor or its affiliates had not waived certain fund expenses, the SEC yield for class C shares would have been 7.16% TOP 10 ISSUERS AS OF 5/31/03 (%) Huntsman ICI 1.9 Allied Waste North America 1.7 Nextel Communications 1.7 Charter Communications Holdings 1.3 Qwest Corp. 1.3 CSC Holdings 1.2 D.R. Horton, Inc. 1.0 AES Corp. 1.0 Quebecor Media 0.9 Amscan Holdings 0.9
QUALITY BREAKDOWN AS OF 5/31/03 (%) AAA 2.5 BBB 1.6 BB 20.1 B 48.8 CCC 14.9 CC 5.3 D 0.4 Not rated 1.3 Equity, preferred stock 2.6 Other net assets 2.5
Portfolio holdings and quality breakdown are calculated as a percentage of net assets. Because the fund is actively managed, there can be no guarantee the fund will continue to maintain the same portfolio holdings and quality breakdown in the future. Ratings shown in the quality breakdown represent the highest rating assigned to a particular bond by one of the following nationally-recognized rating agencies: Standard and Poor's Corporation, Moody's Investor Service, Inc. The "Other" category represents the total of other assets and liabilities. PORTFOLIO MANAGERS' REPORT The Board of Trustees for Liberty High Yield Securities Fund approved the change of the fund's fiscal year end from December to May. As a result, this report covers the five-month period since the last shareholder report. The next report you will receive will be a semiannual report for the six-month period through November 2003. For the five-month period ended May 31, 2003, the class A shares of Liberty High Yield Securities Fund returned 11.01% without sales charge. This return was lower than the fund's benchmark. The CS First Boston High Yield Index returned 13.99% for the period. The fund's underweight exposure to the top-performing utilities, fiber and long-distance and information technology sectors was lower than its benchmark and hurt the fund's relative performance. We believe the fund fell short of the average return of its peer group for the same reason. The Lipper High Current Yield Funds Category average was 11.75% for the same period.(1) HIGH-YIELD BONDS CATCH A WAVE At the beginning of the period, investors were nervous about the impending war in Iraq and the war's potentially negative impact on an already vulnerable US economy. Investor concern was heightened by widely publicized reports of corporate malfeasance, including allegations of insider trading and accounting irregularities. These factors also weighed on the high-yield market. At the end of 2002, investors required a yield premium of more than nine percentage points over comparable-maturity Treasuries to invest in high-yield bonds. By the end of the period, after a swift resolution to the Iraqi conflict, that premium had compressed by almost two percentage points, and high-yield bond prices rose. Banks exhibited a strong willingness to lend, and even companies with relatively high debt loads had easier access to cash. In this environment, high-yield securities looked attractive to many investors who might otherwise have pursued stocks. The inflow of money into the sector outpaced the issuance of new bonds, and this wave of positive influences buoyed high-yield bonds to attractive returns. Investments in CCC-rated bonds yielded the greatest returns during the period, and the fund's relative underweight in these distressed securities also contributed to its underperformance. ---------- (1) Lipper Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as those of the fund. 2 CATCHING UP WITH THE RALLY In February 2003, we began to increase the fund's exposure to the utility, fiber and long distance and information technology sectors. As banks became more accommodating in their lending policies, the probability of default for the issuers in these sectors came down and made these investments more attractive. While the fund did not fully participate in the rally in these securities, we did capture incremental return by making these portfolio shifts. Even so, the fund's exposure to utilities continues to be lower than the benchmark's 11% weighting because we believe that the downside risk of such an industry concentration is significant. CONTINUING OPPORTUNITY AMID ECONOMIC UNCERTAINTY We expect the environment for high-yield bonds to remain favorable if the US economy meets our expectation for gradual growth. We expect the default rate to continue to decline as corporate profits stabilize and lenders continue to provide easy access to credit. We expect to continue to build our portfolio around single-B rated bonds, but we will likely also seek opportunities in lower-rated issues when we think we are being adequately compensated for the risk. While the yield premium has narrowed from the beginning of the year, we believe the high-yield market continues to offer attractive return potential. /s/ Thomas A. LaPointe, /s/ June M. Giroux /s/ Kevin L. Cronk Thomas A. LaPointe, CFA, June M. Giroux, CFA, and Kevin L. Cronk, CFA are vice presidents of Columbia Management Advisors, Inc. (Columbia Management). The three are members of the firm's high-yield portfolio management team and have co-managed the fund since February 2003. Mr. LaPointe joined Columbia Management in February 1999, Mr. Cronk in August 1999 and Ms. Giroux in September 2000. Prior to February 2003, Scott B. Richards was the fund's manager. NET ASSET VALUE PER SHARE as of 5/31/03 ($) class A 4.30 class B 4.30 class C 4.30 class Z 4.30
DISTRIBUTIONS DECLARED PER SHARE 1/1/03 - 5/31/03 ($) class A 0.15 class B 0.13 class C 0.13 class Z 0.15
PORTFOLIO STRUCTURE AS OF 5/31/03 (%) Corporate bonds 92.2 Cash & equivalents 2.4 Preferred stock 1.8 Common stock 0.8 Warrants 0.3
Portfolio structure is calculated as a percentage of net assets. [CHART] MATURITY BREAKDOWN AS OF 5/31/03 (%) 0 - 3 years 1.1% 3 - 5 years 15.7% 5 - 7 years 32.6% 7 - 10 years 40.6% 10 - 15 years 2.2% 20 - 30 years 0.3% Equity, preferred stock 2.6% Repurchase agreement 2.4% Other net assets 2.5%
Maturity breakdown is based on each security's effective maturity, which reflects pre-refundings, mandatory puts and other conditions that affect a bond's maturity. Maturity breakdown is calculated as a percentage of net assets. Because the fund is actively managed, there can be no guarantee the fund will continue to maintain these maturity breakdowns in the future. Investing in high-yield securities offers the potential for high current income and attractive total return, but involves certain risks. Lower-rated bond risks include default of the issuer, rising interest rates and risk associated with investing in securities of foreign and emerging markets, including currency exchange rate fluctuations and economic and political change. Bond investing also involves interest rate risk, which means that bond prices may change as interest rates increase or decrease. Foreign investments involve market, political, accounting and currency risks not associated with other investments. Investing in emerging markets involves certain risks as they may be subject to a greater degree of social, political, currency and economic instability. 3 INVESTMENT PORTFOLIO May 31, 2003
CORPORATE FIXED-INCOME BONDS & NOTES - 92.2% PAR VALUE -------------------------------------------------------------------------------------- CONSTRUCTION - 3.0% BUILDING CONSTRUCTION - 3.0% Associated Materials, Inc., 9.750% 04/15/12 $ 2,585,000 $ 2,804,725 Atrium Companies, Inc., 10.500% 05/01/09 1,655,000 1,721,200 D.R. Horton, Inc., 9.750% 09/15/10 7,400,000 8,177,000 K. Hovnanian Enterprises, Inc.: 8.875% 04/01/12 1,435,000 1,535,450 10.500% 10/01/07 2,930,000 3,398,800 Standard Pacific Corp., 9.250% 04/15/12 3,425,000 3,647,625 William Lyon Homes, Inc., 10.750% 04/01/13 1,730,000 1,790,550 --------------- 23,075,350 --------------- CONSUMER STAPLES - 0.6% HOUSEHOLD PRODUCTS - 0.6% Armkell LLC, 9.500% 08/15/09 1,540,000 1,724,800 Playtex Products, Inc., 9.375% 06/01/11 3,055,000 3,268,850 --------------- 4,993,650 --------------- FINANCE, INSURANCE & REAL ESTATE - 1.7% FINANCIAL SERVICES - 0.6% MDP Acquisitions PLC, 9.625% 10/01/12 4,600,000 4,899,000 --------------- INSURANCE AGENTS & BROKERS - 0.4% Willis Corroon Corp., 9.000% 02/01/09 2,400,000 2,568,000 --------------- REAL ESTATE - 0.7% Forest City Enterprises, Inc., 7.625% 06/01/15 1,390,000 1,417,800 iStar Financial, Inc., 8.750% 08/15/08 1,925,000 2,069,375 Thornburg Mortgage, Inc., 8.000% 05/15/13 2,085,000 2,085,000 --------------- 5,572,175 --------------- INDUSTRIALS - 0.7% CONSTRUCTION & FARM MACHINERY - 0.4% Cummins, Inc., 9.500% 12/01/10 2,410,000 2,614,850 --------------- INDUSTRIAL CONGLOMERATE - 0.3% SPX Corp., 7.500% 01/01/13 2,285,000 2,444,950 --------------- MANUFACTURING - 29.0% APPAREL - 0.8% Levi Strauss & Co., 12.250% 12/15/12 (a) $ 2,250,000 $ 1,867,500 Phillips Van-Heusen, 8.125% 05/01/13 (a) 1,000,000 1,020,000 William Carter Co., 10.875% 08/15/11 2,950,000 3,333,500 --------------- 6,221,000 --------------- AUTO PARTS & EQUIPMENT - 0.7% Accuride Corp., Series 1998 B, 9.250% 02/01/08 1,075,000 962,125 Rexnord Corp., 10.125% 12/15/12 (a) 1,105,000 1,215,500 TRW Automotive, Inc., 11.000% 02/15/13 (a) 3,000,000 3,120,000 --------------- 5,297,625 --------------- CHEMICALS & ALLIED PRODUCTS - 6.0% Avecia Group PLC, 11.000% 07/01/09 2,805,000 2,580,600 Equistar Chemical Funding LP, 10.125% 09/01/08 1,985,000 2,014,775 FMC Corp., 10.250% 11/01/09 3,510,000 3,975,075 Huntsman ICI Chemicals, 10.125% 07/01/09 2,550,000 2,416,125 Huntsman ICI Holdings LLC, (b) 12/31/09 30,775,000 12,310,000 Koppers Industries, Inc., 9.875% 12/01/07 4,060,000 4,141,200 Lyondell Chemical Co., 9.625% 05/01/07 5,560,000 5,490,500 MacDermid, Inc., 9.125% 07/15/11 3,075,000 3,397,875 Polyone Corp., 10.625% 05/15/10 (a) 2,125,000 2,082,500 Terra Capital, Inc., 12.875% 10/15/08 5,345,000 5,879,500 Texas Petrochemicals Corp., 11.125% 07/01/06 7,850,000 2,669,000 --------------- 46,957,150 --------------- ELECTRONIC & ELECTRICAL EQUIPMENT - 1.5% Amkor Technology, Inc.: 7.750% 05/15/13 (a) 1,045,000 992,750 9.250% 02/15/08 3,260,000 3,406,700 10.500% 05/01/09 2,230,000 2,218,850 Flextronics International Ltd., 9.875% 07/01/10 4,500,000 4,950,000 --------------- 11,568,300 ---------------
See notes to investment portfolio. 4
PAR VALUE -------------------------------------------------------------------------------------- FABRICATED METAL - 0.4% Earle M. Jorgensen Co., 9.750% 06/01/12 $ 3,400,000 $ 3,553,000 --------------- FOOD & KINDRED PRODUCTS - 2.8% Constellation Brands, Inc., 8.125% 01/15/12 2,000,000 2,095,000 Del Monte Corp., 9.250% 05/15/11 1,925,000 2,093,437 Dole Food Co., Inc., 8.625% 05/01/09 3,530,000 3,741,800 Premier International Foods PLC, 12.000% 09/01/09 5,750,000 6,325,000 Roundy's, Inc., 8.875% 06/15/12 3,475,000 3,648,750 Smithfield Foods, Inc., 8.000% 10/15/09 3,665,000 3,765,788 --------------- 21,669,775 --------------- FURNITURE & FIXTURES - 0.7% Congoleum Corp., 8.625% 08/01/08 1,755,000 1,009,125 Juno Lighting, Inc., 11.875% 07/01/09 2,340,000 2,480,400 Simmons Co., 10.250% 03/15/09 1,735,000 1,856,450 --------------- 5,345,975 --------------- LUMBER & WOOD PRODUCTS - 0.7% Georgia-Pacific Corp.: 8.875% 02/01/10 4,580,000 4,774,650 8.875% 05/15/31 400,000 374,000 --------------- 5,148,650 --------------- MACHINERY & COMPUTER EQUIPMENT - 0.3% United Rentals, Inc., 10.750% 04/15/08 2,150,000 2,289,750 --------------- MEASURING & ANALYZING INSTRUMENTS - 0.4% Fisher Scientific International, Inc.: 8.125% 05/01/12 (a) 550,000 589,875 8.125% 05/01/12 2,475,000 2,654,437 --------------- 3,244,312 --------------- MISCELLANEOUS MANUFACTURING - 4.5% Actuant Corp., 13.000% 05/01/09 3,006,000 3,517,020 Agco Corp., 9.500% 05/01/08 3,100,000 3,379,000 Amscan Holdings, Inc., 9.875% 12/15/07 7,000,000 7,000,000 Applied Extrusion Technologies, Inc., 10.750% 07/01/11 2,295,000 1,744,200 Flowserve Corp., 12.250% 08/15/10 $ 2,759,000 $ 3,172,850 Hexcel Corp.: 9.750% 01/15/09 1,800,000 1,741,500 9.875% 10/01/08 (a) 525,000 559,125 Owens-Illinois, Inc.: 7.150% 05/15/06 1,265,000 1,265,000 7.350% 05/15/08 3,050,000 2,973,750 8.100% 05/15/07 1,000,000 1,000,000 Tekni-Plex, Inc., 12.750% 06/15/10 6,025,000 5,889,438 Terex Corp., Series 2001 B, 10.375% 04/01/11 2,815,000 2,997,975 --------------- 35,239,858 --------------- PAPER PRODUCTS - 2.0% Buckeye Technologies, Inc., 9.250% 09/15/08 1,980,000 1,861,200 Caraustar Industries, Inc., 9.875% 04/01/11 3,675,000 3,785,250 Norske Skog Canada Ltd., 8.625% 06/15/11 (a) 1,200,000 1,236,000 Riverwood International Corp., 10.875% 04/01/08 4,525,000 4,655,094 Smurfit-Stone Container Corp., 8.250% 10/01/12 2,175,000 2,283,750 Tembec Industries, Inc., 8.500% 02/01/11 1,860,000 1,832,100 --------------- 15,653,394 --------------- PRIMARY METAL - 0.6% Kaiser Aluminum & Chemical Corp., 10.875% 10/15/06 (c) 5,400,000 3,618,000 WCI Steel, Inc., 10.000% 12/01/04 (d) 4,615,000 1,153,750 Wheeling-Pittsburgh Corp., 9.250% 11/15/07 (c) 10,150,000 50,750 --------------- 4,822,500 --------------- PRINTING & PUBLISHING - 4.3% American Greetings Corp., 11.750% 07/15/08 2,580,000 2,915,400 Dex Media East LLC, 12.125% 11/15/12 4,435,000 5,211,125 Hollinger, Inc., 11.875% 03/01/11 (a) 2,445,000 2,555,025 Moore North America Finance, Inc., 7.875% 01/15/11 1,385,000 1,454,250 PriMedia, Inc., 8.875% 05/15/11 4,665,000 4,851,600
See notes to investment portfolio. 5
PAR VALUE -------------------------------------------------------------------------------------- PRINTING & PUBLISHING (CONTINUED) Quebecor Media, Inc., 11.125% 07/15/11 $ 6,360,000 $ 7,059,600 Von Hoffman Corp., 10.250% 03/15/09 3,750,000 3,900,000 Yell Finance BV, 10.750% 08/01/11 4,715,000 5,257,225 --------------- 33,204,225 --------------- STONE, CLAY, GLASS & CONCRETE - 0.5% Crown European Holdings SA, 10.875% 03/01/13 (a) 2,550,000 2,690,250 Owens-Brockway Glass Container, 8.250% 05/15/13 (a) 1,045,000 1,050,225 --------------- 3,740,475 --------------- TRANSPORTATION EQUIPMENT - 2.8% Allied Holdings, Inc., Series 1997 B, 8.625% 10/01/07 1,835,000 1,412,950 Collins & Aikman Products Co.: 9.750% 02/15/10 1,600,000 1,632,000 10.750% 12/31/11 4,805,000 4,156,325 Dana Corp.: 9.000% 08/15/11 1,860,000 1,939,050 10.125% 03/15/10 2,075,000 2,246,187 Dura Operating Corp.: 8.625% 04/15/12 2,875,000 2,867,812 9.000% 05/01/09 2,000,000 1,770,000 Lear Corp., 8.110% 05/15/09 4,680,000 5,253,300 Newcor, Inc., 6.000% 01/31/13 (e) 847,510 367,997 --------------- 21,645,621 --------------- MINING & ENERGY - 5.7% METALS & MINING - 1.2% Metallurg, Inc., 11.000% 12/01/07 8,700,000 5,220,000 TriMas Corp.: 9.875% 06/15/12 (a) 1,355,000 1,382,100 9.875% 06/15/12 2,905,000 2,963,100 --------------- 9,565,200 --------------- OIL & GAS EXTRACTION - 3.6% Benton Oil & Gas Co., 9.375% 11/01/07 2,565,000 2,205,900 Chesapeake Energy Corp.: 7.750% 01/15/15 2,455,000 2,577,750 8.125% 04/01/11 915,000 974,475 CIA Petrolifera Marlim, 13.125% 12/17/04 (a) 100,000 106,000 Citgo Petroleum Corp., 11.375% 02/01/11 (a) $ 1,000,000 $ 1,115,000 Compton Petroleum Corp., 9.900% 05/15/09 2,575,000 2,793,875 Denbury Resources, Inc., 7.500% 04/01/13 (a) 1,410,000 1,452,300 Encore Acquisition Co., 8.375% 06/15/12 2,870,000 3,042,200 Forest Oil Corp., 8.000% 06/15/08 3,160,000 3,333,800 Frontier Escrow Corp., 8.000% 04/15/13 (a) 700,000 721,000 Magnum Hunter Resources, Inc., 9.600% 03/15/12 2,135,000 2,327,150 Mariner Energy, Inc., 10.500% 08/01/06 2,920,000 2,927,300 Pioneer Natural Resources Co., 7.500% 04/15/12 920,000 1,030,400 Stone Energy Corp., 8.250% 12/15/11 1,690,000 1,808,300 TransTexas Gas Corp., 15.000% 03/15/05 (d) 475,296 142,589 Trico Marine Services, Inc., 8.875% 05/15/12 2,110,000 1,856,800 --------------- 28,414,839 --------------- OIL & GAS FIELD SERVICES - 0.9% Newpark Resources, Inc., 8.625% 12/15/07 2,450,000 2,450,000 Premcor Refining Group: 9.250% 02/01/10 (a) 1,365,000 1,501,500 9.500% 02/01/13 (a) 1,700,000 1,895,500 Tesoro Petroleum Corp., 8.000% 04/15/08 890,000 890,000 --------------- 6,737,000 --------------- RETAIL TRADE - 2.9% APPAREL & ACCESSORY STORES - 0.5% Gap, Inc., 8.800% 12/15/08 2,330,000 2,819,300 Saks, Inc., 8.250% 11/15/08 870,000 922,200 --------------- 3,741,500 --------------- FOOD STORES - 0.5% Michael Foods, Inc., 11.750% 04/01/11 1,250,000 1,421,875 Winn Dixie Stores, Inc., 8.875% 04/01/08 2,665,000 2,864,875 --------------- 4,286,750 --------------- MISCELLANEOUS RETAIL - 1.5% JC Penney Co., Inc., 8.000% 03/01/10 3,435,000 3,503,700
See notes to investment portfolio. 6
PAR VALUE -------------------------------------------------------------------------------------- MISCELLANEOUS RETAIL (CONTINUED) Rite Aid Corp.: 8.125% 05/01/10 (a) $ 1,955,000 $ 1,994,100 9.250% 06/01/13 (a) 2,950,000 2,854,125 Steinway Musical Instruments, Inc., 8.750% 04/15/11 3,400,000 3,315,000 --------------- 11,666,925 --------------- RESTAURANTS - 0.4% Yum! Brands, Inc., 7.700% 07/01/12 2,775,000 3,101,063 --------------- SERVICES - 16.5% AMUSEMENT & RECREATION - 8.2% Ameristar Casinos, Inc., 10.750% 02/15/09 3,185,000 3,535,350 Argosy Gaming Co., 10.750% 06/01/09 3,895,000 4,245,550 Boyd Gaming Corp., 8.750% 04/15/12 1,090,000 1,166,300 Circus & Eldorado/Silver Legacy Capital Corp., 10.125% 03/01/12 4,040,000 3,853,150 Coast Hotels & Casinos, Inc., 9.500% 04/01/09 4,375,000 4,637,500 Hollywood Casino Shreveport, 13.000% 08/01/06 5,130,000 3,693,600 Hollywood Entertainment Corp., 9.625% 03/15/11 2,925,000 3,115,125 Hollywood Park, Inc., 9.500% 08/01/07 225,000 218,250 Horseshoe Gaming LLC, 8.625% 05/15/09 400,000 422,000 Majestic Investor Holdings, 11.653% 11/30/07 1,700,000 1,683,000 Mohegan Tribal Gaming Authority: 8.000% 04/01/12 2,325,000 2,452,875 8.375% 07/01/11 1,450,000 1,540,625 Park Place Entertainment Corp., 9.375% 02/15/07 3,290,000 3,569,650 Penn National Gaming, Inc., 11.125% 03/01/08 3,330,000 3,663,000 Pinnacle Entertainment, Inc., 9.250% 02/15/07 (a) 6,750,000 6,522,187 Regal Cinemas, Inc., 9.375% 02/01/12 4,625,000 5,006,563 Six Flags, Inc., 9.500% 02/01/09 6,475,000 6,458,813 Town Sports International, 9.625% 04/15/11 (a) 1,400,000 1,452,500 Venetian Casino Resort LLC, 11.000% 06/15/10 (a) $ 3,660,000 $ 3,998,550 Wynn Las Vegas LLC, 12.000% 11/01/10 2,500,000 2,700,000 --------------- 63,934,588 --------------- BUSINESS SERVICES - 0.2% Iron Mountain, Inc., 7.750% 01/15/15 1,590,000 1,697,325 --------------- FUNERAL SERVICES - 1.0% Service Corp. International, 7.700% 04/15/09 5,010,000 5,085,150 Stewart Enterprises, Inc., 10.750% 07/01/08 2,575,000 2,871,125 --------------- 7,956,275 --------------- HEALTH SERVICES - 4.9% AmerisourceBergen Corp.: 7.250% 11/15/12 (a) 1,720,000 1,857,600 8.125% 09/01/08 3,140,000 3,446,150 Coventry Health Care, Inc., 8.125% 02/15/12 4,190,000 4,525,200 HCA, Inc., 8.750% 09/01/10 2,920,000 3,514,074 IASIS Healthcare Corp., 13.000% 10/15/09 2,665,000 2,958,150 InSight Health Services Corp.: 9.875% 11/01/11 2,900,000 2,827,500 Magellan Health Services, Inc., 9.375% 11/15/07 (a)(c) 3,080,000 2,972,200 MedQuest, Inc., 11.875% 08/15/12 (a) 4,200,000 4,095,000 PacifiCare Health Systems, Inc., 10.750% 06/01/09 4,395,000 4,834,500 Tenet Healthcare Corp., 6.375% 12/01/11 3,625,000 3,516,250 United Surgical Partners International, Inc., 10.000% 12/15/11 3,600,000 3,888,000 --------------- 38,434,624 --------------- HOTELS, CAMPS & LODGING - 1.3% Hard Rock Hotel, Inc., 8.875% 06/01/13 (a) 1,260,000 1,294,650 Host Marriott LP, 9.500% 01/15/07 2,750,000 2,911,563 Royal Caribbean Cruises, 8.000% 05/15/10 1,050,000 1,050,000 Starwood Hotels & Resorts Worldwide, Inc., 7.875% 05/01/12 (a) 4,750,000 5,035,000 --------------- 10,291,213 ---------------
See notes to investment portfolio. 7
PAR VALUE -------------------------------------------------------------------------------------- OTHER SERVICES - 0.9% Advanstar Communications, Inc., 12.000% 02/15/11 $ 4,050,000 $ 3,650,063 Corrections Corp., 9.875% 05/01/09 (a) 2,340,000 2,591,550 --------------- 6,241,613 --------------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 32.1% AEROSPACE - 1.8% BE Aerospace, Inc., 8.875% 05/01/11 3,130,000 2,284,900 Condor Systems, Inc., 11.875% 05/01/09 (c) 4,000,000 880,000 L-3 Communications Corp., 7.625% 06/15/12 3,550,000 3,860,625 Sequa Corp., 8.875% 04/01/08 1,670,000 1,753,500 TransDigm, Inc., 10.375% 12/01/08 4,750,000 4,999,375 --------------- 13,778,400 --------------- AIR TRANSPORTATION - 0.7% Northwest Airlines Corp., 9.875% 03/15/07 3,845,000 2,922,200 U.S. Airways, Inc., 10.375% 03/01/13 (d) 11,034,000 2,758,500 --------------- 5,680,700 --------------- BROADCASTING - 2.1% Canwest Media, Inc., 10.625% 05/15/11 4,775,000 5,395,750 Corus Entertainment, Inc., 8.750% 03/01/12 1,465,000 1,556,562 Emmis Communications Corp., (f) 03/15/11 (12.500% 03/15/06) 3,325,000 2,842,875 Sinclair Broadcast Group, Inc., 8.750% 12/15/11 1,000,000 1,082,500 TV Azteca SA de CV, 10.500% 02/15/07 5,970,000 5,850,600 --------------- 16,728,287 --------------- CABLE - 4.7% Charter Communications Holdings LLC: (f) 04/01/11 (9.920% 04/01/04) 15,210,000 9,430,200 10.000% 04/01/09 1,515,000 1,090,800 Comcast UK Cable Partners Ltd., 11.200% 11/15/07 5,800,000 5,278,000 CSC Holdings, Inc., 7.625% 04/01/11 $ 2,405,000 $ 2,453,100 DirecTV Holdings Finance LLC, 8.375% 03/15/13 (a) 2,395,000 2,646,475 EchoStar DBS Corp.: 9.125% 01/15/09 1,725,000 1,919,062 9.375% 02/01/09 2,000,000 2,145,000 Insight Communications Co., (f) 02/15/11 (12.250% 02/15/06) 4,045,000 3,114,650 Insight Midwest, 9.750% 10/01/09 (a) 2,955,000 3,102,750 Northland Cable Television, Inc., 10.250% 11/15/07 5,945,000 5,499,125 --------------- 36,679,162 --------------- COMMUNICATIONS - 0.3% XM Satellite Radio Holdings, Inc., (f) 12/31/09 (14.000% 12/31/05) 3,858,930 2,788,077 --------------- COMMUNICATIONS SERVICES - 1.0% Crown Castle International Corp.: (f) 05/15/11 (10.375% 05/15/04) 1,465,000 1,311,175 10.750% 08/01/11 3,430,000 3,558,625 SBA Communications, Inc., 10.250% 02/01/09 3,315,000 2,784,600 --------------- 7,654,400 --------------- ELECTRIC, GAS & SANITARY SERVICES - 2.9% Allied Waste North America, Inc.: Series 1999 B, 10.000% 08/01/09 4,955,000 5,202,750 Series 2001 B, 8.500% 12/01/08 7,500,000 7,931,250 HydroChem Industrial Services, 10.375% 08/01/07 5,605,000 4,203,750 Illinova Corp., 11.500% 12/15/10 (a) 1,875,000 2,100,000 Mirant Americas Generation, Inc., 8.300% 05/01/11 4,015,000 2,549,525 Mission Energy Holding Co., 13.500% 07/15/08 1,050,000 682,500 --------------- 22,669,775 --------------- ELECTRIC SERVICES - 4.8% AES Corp.: 9.000% 05/15/15 (a) 2,265,000 2,310,300 9.375% 09/15/10 78,000 73,710 9.500% 06/01/09 5,408,000 5,137,600 Beaver Valley Funding Corp., 9.000% 06/01/17 2,710,000 3,282,352
See notes to investment portfolio. 8
PAR VALUE -------------------------------------------------------------------------------------- ELECTRIC SERVICES (CONTINUED) Caithness Coso Funding Corp., Series 1999 B, 9.050% 12/15/09 $ 3,944,629 $ 4,112,276 Calpine Corp.: 8.500% 02/15/11 7,220,000 4,909,600 8.625% 08/15/10 1,710,000 1,154,250 CMS Energy Corp., 8.900% 07/15/08 3,600,000 3,582,000 Edison Mission Energy, 9.875% 04/15/11 2,440,000 2,086,200 Nevada Power Co., 10.875% 10/15/09 (a) 2,765,000 3,055,325 Orion Power Holdings, Inc., 12.000% 05/01/10 1,400,000 1,515,500 PSE&G Energy Holdings, Inc., 8.625% 02/15/08 2,955,000 3,191,400 UCAR Finance, Inc., 10.250% 02/15/12 2,890,000 2,759,950 --------------- 37,170,463 --------------- MARINE TRANSPORTATION - 0.2% Teekay Shipping Corp., 8.875% 07/15/11 1,435,000 1,535,450 --------------- MOTOR FREIGHT & WAREHOUSING - 0.2% QDI LLC: 12.000% 06/15/09 PIK (a) 794,876 118,238 12.500% 06/15/08 PIK 3,342,000 1,332,623 --------------- 1,450,861 --------------- PIPELINES - 3.0% Coastal Corp., 7.750% 06/15/10 4,740,000 4,171,200 Dynegy Holdings, Inc., 8.750% 02/15/12 2,475,000 2,178,000 El Paso Corp., 7.750% 06/01/13 2,750,000 2,743,125 Gulfterra Energy Partners: 8.500% 06/01/10 (a) 1,580,000 1,682,700 8.500% 06/01/11 675,000 718,875 Northwest Pipeline Corp., 8.125% 03/01/10 1,040,000 1,144,302 Sonat, Inc., 7.625% 07/15/11 2,710,000 2,317,050 Southern Natural Gas, 8.875% 03/15/10 2,030,000 2,202,550 Williams Companies, Inc., 8.125% 03/15/12 5,980,000 5,920,200 --------------- 23,078,002 --------------- POLLUTION CONTROL - 0.2% Envirosource, Inc., 14.000% 12/15/08 1,710,534 1,539,481 --------------- RADIO & TELEPHONE COMMUNICATIONS - 3.4% Airgate PCS, Inc., (f) 10/01/09 (13.500% 10/01/04) $ 3,080,000 $ 1,416,800 Horizon PCS, Inc., 13.750% 06/15/11 3,300,000 396,000 Nextel Communications, Inc.: 9.375% 11/15/09 10,520,000 11,216,950 9.750% 10/31/07 275,000 282,563 Nextel Partners, Inc., 11.000% 03/15/10 3,250,000 3,493,750 Rogers Cantel, Inc., 9.750% 06/01/16 5,140,000 5,782,500 Triton PCS, Inc., 8.750% 11/15/11 1,650,000 1,551,000 US Unwired, Inc., (f) 11/01/09 (13.375% 11/01/04) 6,130,000 2,268,100 --------------- 26,407,663 --------------- RAILROAD - 0.6% Kansas City Southern, 7.500% 06/15/09 1,620,000 1,636,200 Railworks Corp., 11.500% 04/15/09 (d) 600,000 30,000 TFM SA de CV, 12.500% 06/15/12 (a) 3,030,000 3,226,950 --------------- 4,893,150 --------------- TELECOMMUNICATIONS - 5.3% American Tower Escrow Corp., (b) 08/01/08 (a) 870,000 550,275 AT&T Wireless Services, Inc., 7.875% 03/01/11 1,710,000 2,034,113 Avaya, Inc., 11.125% 04/01/09 1,880,000 2,056,250 Carrier1 International SA, 13.250% 02/15/09 (c) 6,000,000 180,000 Colt Telecom Group PLC, (f) 12/15/06 1,795,000 1,723,200 (12.000% 07/03/03) Fairpoint Communications, 11.875% 03/01/10 2,150,000 2,451,000 Level 3 Communications, Inc., (f) 12/01/08 (10.500% 12/01/03) 6,455,000 4,744,425 Lucent Technologies, Inc.: 6.450% 03/15/29 2,890,000 2,023,000 7.250% 07/15/06 2,015,000 1,914,250 Nortel Networks Ltd., 6.125% 02/15/06 4,185,000 4,059,450
See notes to investment portfolio. 9
PAR VALUE -------------------------------------------------------------------------------------- TELECOMMUNICATIONS (CONTINUED) Qwest Corp.: 8.875% 03/15/12 (a) $ 3,400,000 $ 3,825,000 13.500% 12/15/10 5,250,000 5,985,000 Spectrasite, Inc., 8.250% 05/15/10 (a) 1,200,000 1,197,000 Time Warner Telecom, Inc.: 9.750% 07/15/08 4,460,000 4,014,000 10.125% 02/01/11 2,770,000 2,493,000 Vivendi Universal, 9.250% 04/15/10 (a) 2,095,000 2,378,433 --------------- 41,628,396 --------------- TRANSPORTATION SERVICES - 0.9% Petroleum Helicopters, Inc., 9.375% 05/01/09 4,125,000 4,537,500 Stena AB, 9.625% 12/01/12 (a) 2,055,000 2,250,225 --------------- 6,787,725 --------------- TOTAL CORPORATE FIXED-INCOME BONDS & NOTES (cost of $756,308,695) 718,308,492 --------------- PREFERRED STOCKS - 1.8% SHARES -------------------------------------------------------------------------------------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 1.8% BROADCASTING - 0.6% Sinclair Capital, 11.625% PIK 38,150 4,034,362 --------------- CABLE - 0.9% CSC Holdings Ltd.: 11.125% 9,180 957,015 11.750% 59,441 6,241,305 NTL Europe, Inc., Series A, 10.000% 23 71 --------------- 7,198,391 --------------- COMMUNICATIONS - 0.3% Dobson Communication Corp., 12.250% PIK 2,778 2,527,980 --------------- POLLUTION CONTROL - 0.0% EnviroSource, Inc., 7.250% 5,804 268,704 --------------- TOTAL PREFERRED STOCKS (cost of $15,965,953) 14,029,437 --------------- MANUFACTURING - 0.2% COMMUNICATIONS EQUIPMENT - 0.2% EchoStar Communications Corp., Class A (g) 50,000 $ 1,679,000 --------------- MATERIALS - 0.0% CHEMICALS - 0.0% Crompton Corp. 14,233 101,766 --------------- MINING & ENERGY - 0.0% CRUDE PETROLEUM & NATURAL GAS - 0.0% Coho Energy, Inc. (g)(h) 750 -- --------------- OIL & GAS EXTRACTION - 0.0% Orion Refining Corp. (g)(h) 10 -- --------------- SERVICES - 0.0% HOTELS, CAMPS & LODGING - 0.0% Host Marriott Corp. (g) 8,174 73,566 --------------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 0.6% CABLE - 0.1% NTL, Inc. (g) 46,154 1,257,696 Ono Finance PLC (a)(g) 5,700 6 --------------- 1,257,702 --------------- COMMUNICATIONS - 0.0% Song Networks Holding AB, ADR (e)(g) 35,144 703 --------------- ELECTRIC SERVICES - 0.0% BayCorp Holdings Ltd. (g) 3 42 --------------- POLLUTION CONTROL - 0.0% EnviroSource, Inc. (g) 50,004 11,501 Fairlane Management Corp. (e)(g)(h) 50,004 -- --------------- 11,501 --------------- TELECOMMUNICATIONS - 0.5% Colt Telecom Group PLC (a)(g) EUR 2,190,000 2,009,356 Nextel Communications, Inc., Class A (g) USD 100,000 1,499,000 RCN Corp. 9,257 14,348 --------------- 3,522,704 --------------- TOTAL COMMON STOCKS (cost of $11,681,086) 6,646,984 ---------------
See notes to investment portfolio. 10
WARRANTS (g) - 0.3% UNITS VALUE -------------------------------------------------------------------------------------- MANUFACTURING - 0.0% RUBBER & PLASTICS - 0.0% Loral Space & Communications Ltd., expires 01/15/07 12,000 $ 120 --------------- RETAIL STORES - 0.0% FOOD STORES - 0.0% Pathmark Stores, Inc., expires 09/19/10 58,758 65,809 --------------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 0.3% CABLE - 0.0% Cable Satisfaction International, Inc., expires 03/01/05 7,550 75 Ono Finance PLC, expires 02/15/11 (a) 1,200 12 --------------- 87 --------------- COMMUNICATIONS - 0.3% UbiquiTel, Inc., expires 04/15/10 (a) 5,250 52 XM Satellite Radio Holdings, Inc.: expires 12/31/09 2,855 2,005,637 expires 03/15/10 (a) 2,435 243 --------------- 2,005,932 --------------- COMMUNICATIONS SERVICES - 0.0% IPCS, Inc., expires 07/15/10 (a) 2,500 625 --------------- MOTOR FREIGHT & WAREHOUSING - 0.0% QDI LLC, expires 01/15/07 (a)(h) 10,207 -- --------------- TELECOMMUNICATIONS - 0.0% Carrier 1 International SA, expires 02/19/09 (a)(c) 2,780 28 Horizon PCS, Inc., expires 10/01/10 (a) 4,705 5 Jazztel PLC, expires 07/15/10 (a)(h) EUR 1,435 -- MetroNet Communications Corp., expires 08/15/07 (a)(e)(h) USD 1,250 -- 33 --------------- TOTAL WARRANTS (cost of $8,220,915) 2,072,606 --------------- SHORT-TERM OBLIGATION - 2.4% PAR VALUE -------------------------------------------------------------------------------------- Repurchase agreement with State Street Bank & Trust Co., dated 05/30/03, due 06/02/03 at 1.190%, collateralized by a U.S. Treasury Bond maturing 02/15/23, market value $19,320,938 (repurchase proceeds $18,938,878) (cost of $18,937,000) $ 18,937,000 $ 18,937,000 --------------- TOTAL INVESTMENTS - 97.5% (cost of $811,113,649) (i) 759,994,519 --------------- OTHER ASSETS & LIABILITIES, NET - 2.5% 19,245,679 -------------------------------------------------------------------------------------- NET ASSETS - 100.0% $ 779,240,198 ===============
NOTES TO INVESTMENT PORTFOLIO: (a) This security is exempt from registration under Rule 144A of the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At May 31, 2003, the value of these securities amounted to $92,273,610 which represents 11.8% of net assets. (b) Zero coupon bond. (c) As of May 31, 2003, the Fund held securities of certain issuers that have filed for bankruptcy protection under Chapter 11, representing 1.0% of net assets. These issuers are in default of certain debt covenants. Income is not being accrued. (d) This issuer is in default of certain debt covenants. Income is not being accrued. (e) Represents fair value as determined in good faith under the direction of the Board of Trustees. (f) Stepped coupon bond. Currently accruing at zero. Shown parenthetically is the next interest rate to be paid and the date the Fund will begin accruing this rate. (g) Non-income producing. (h) Rounds to less than $1. (i) Cost for federal income tax purposes is $811,280,872. Forward foreign currency contracts outstanding at May 31, 2003 are as follows:
NET CONTRACTS IN EXCHANGE SETTLEMENT UNREALIZED TO DELIVER FOR DATE DEPRECIATION ----------------------------------------------------------- EUR 402,000 USD 434,562 06/06/03 $ (38,216) EUR 284,400 USD 308,858 06/06/03 (25,615) EUR 720,000 USD 804,240 06/06/03 (42,527) ---------- $ (106,358) ==========
ACRONYM NAME --------------------------------------------------- ADR American Depositary Receipt EUR European Currency PIK Payment-In-Kind USD United States Dollar
See notes to financial statements. 11 STATEMENT OF ASSETS AND LIABILITIES May 31, 2003 ASSETS: Investments, at cost $ 811,113,649 ---------------- Investments, at value $ 759,994,519 Cash 166,204 Receivable for: Investments sold 1,484,943 Fund shares sold 10,058,627 Interest 17,988,427 Dividends 110,873 Expense reimbursement due from Transfer Agent 13,838 Deferred Trustees' compensation plan 19,841 ---------------- Total Assets 789,837,272 ---------------- LIABILITIES: Unrealized depreciation on forward foreign currency contracts 106,358 Payable for: Investments purchased 2,240,014 Fund shares repurchased 5,078,376 Distributions 2,304,637 Management fee 407,736 Transfer agent fee 337,014 Pricing and bookkeeping fees 33,582 Trustees' fees 367 Deferred Trustees' fees 19,841 Other liabilities 69,149 ---------------- Total Liabilities 10,597,074 ---------------- NET ASSETS $ 779,240,198 ================ COMPOSITION OF NET ASSETS: Paid-in capital $ 1,242,842,475 Overdistributed net investment income (2,035,796) Accumulated net realized loss (410,341,368) Net unrealized depreciation on: Investments (51,119,130) Foreign currency translations (105,983) ---------------- NET ASSETS $ 779,240,198 ================ CLASS A: Net assets $ 376,944,494 Shares outstanding 87,565,380 ================ Net asset value per share $ 4.30(a) ================ Maximum offering price per share ($4.30/0.9525) $ 4.51(b) ================ CLASS B: Net assets $ 305,021,455 Shares outstanding 70,853,462 ================ Net asset value and offering price per share $ 4.30(a) ================ CLASS C: Net assets $ 51,470,831 Shares outstanding 11,956,107 ================ Net asset value and offering price per share $ 4.30(a) ================ CLASS Z: Net assets $ 45,803,418 Shares outstanding 10,646,131 ================ Net asset value, offering and redemption price per share $ 4.30 ================
(a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. (b) On sales of $50,000 or more the offering price is reduced. See notes to financial statements. 12 STATEMENT OF OPERATIONS For the Period Ended May 31, 2003 (a) INVESTMENT INCOME: Interest $ 29,199,099 Dividends 512,690 Other income 72,309 ---------------- Total Investment Income (net of foreign taxes withheld of $3,233) 29,784,098 ---------------- EXPENSES: Management fee 1,873,517 Distribution fee: Class B 901,897 Class C 151,225 Service fee: Class A 389,449 Class B 300,632 Class C 50,325 Pricing and bookkeeping fees 123,907 Transfer agent fee 1,107,667 Trustees' fees 16,771 Custody fee 12,582 Other expenses 135,215 ---------------- Total Expenses 5,063,187 Fees waived by Distributor - Class C (30,444) Fees waived by Transfer Agent (14,791) Custody earnings credit (1,665) ---------------- Net Expenses 5,016,287 ---------------- Net Investment Income 24,767,811 ---------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: Net realized loss on: Investments (17,631,485) Foreign currency transactions (1,270) ---------------- Net realized loss (17,632,755) ---------------- Net change in unrealized appreciation/ depreciation on: Investments 72,833,609 Foreign currency translations (105,719) ---------------- Net change in unrealized appreciation/depreciation 72,727,890 ---------------- Net Gain 55,095,135 ---------------- Net Increase in Net Assets from Operations $ 79,862,946 ================
(a) The Fund has changed its fiscal year end from December 31 to May 31. For the Year Ended December 31, 2002 INVESTMENT INCOME: Interest $ 65,469,707 Dividends 2,161,451 ---------------- Total Investment Income 67,631,158 ---------------- EXPENSES: Management fee 4,397,366 Distribution fee: Class B 2,315,081 Class C 372,655 Service fee: Class A 894,256 Class B 771,694 Class C 124,222 Pricing and bookkeeping fees 295,108 Transfer agent fee 2,845,669 Trustees' fees 30,913 Custody fee 30,292 Merger costs 18,133 Other expenses 177,538 ---------------- Total Expenses 12,272,927 Fees waived by Distributor - Class C (74,523) Custody earnings credit (8,642) ---------------- Net Expenses 12,189,762 ---------------- Net Investment Income 55,441,396 ---------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: Net realized loss on: Investments (148,052,637) Foreign currency transactions (40,853) ---------------- Net realized loss (148,093,490) ---------------- Net change in unrealized appreciation/ depreciation on: Investments 60,425,459 Foreign currency translations (6,145) ---------------- Net change in unrealized appreciation/depreciation 60,419,314 ---------------- Net Loss (87,674,176) ---------------- Net Decrease in Net Assets from Operations $ (32,232,780) ----------------
See notes to financial statements. 13 STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED YEAR ENDED DECEMBER 31, INCREASE (DECREASE) MAY 31, -------------------------------- IN NET ASSETS: 2003(a) 2002 2001 ---------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 24,767,811 $ 55,441,396 $ 84,783,386 Net realized loss on investments and foreign currency transactions (17,632,755) (148,093,490) (159,973,325) Net change in unrealized appreciation/depreciation on investments and foreign currency translations 72,727,890 60,419,314 48,093,338 -------------- -------------- -------------- Net Increase (Decrease) from Operations 79,862,946 (32,232,780) (27,096,601) -------------- -------------- -------------- DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income: Class A (13,142,914) (32,236,809) (39,830,596) Class B (9,273,542) (25,717,885) (37,093,395) Class C (1,580,199) (4,204,933) (5,053,446) Class Z (1,396,747) (1,529,375) (429,510) Return of capital: Class A -- (2,748,971) (3,463,624) Class B -- (2,193,075) (3,225,600) Class C -- (358,573) (439,441) Class Z -- (130,416) (37,350) -------------- -------------- -------------- Total Distributions Declared to Shareholders (25,393,402) (69,120,037) (89,572,962) -------------- -------------- -------------- SHARE TRANSACTIONS: Class A: Subscriptions 123,761,289 235,835,725 198,346,266 Proceeds received in connection with merger -- 175,784 -- Distributions reinvested 6,982,957 17,448,294 20,470,907 Redemptions (143,095,138) (211,467,498) (185,822,015) -------------- -------------- -------------- Net Increase (Decrease) (12,350,892) 41,992,305 32,995,158 -------------- -------------- -------------- Class B: Subscriptions 31,442,432 88,840,756 126,106,357 Distributions reinvested 4,268,763 12,563,965 17,864,128 Redemptions (31,579,170) (127,327,785) (173,793,977) -------------- -------------- -------------- Net Increase (Decrease) 4,132,025 (25,923,064) (29,823,492) -------------- -------------- -------------- Class C: Subscriptions 9,708,920 22,531,723 29,875,107 Distributions reinvested 984,268 2,835,915 3,544,156 Redemptions (9,260,789) (23,747,996) (22,638,431) -------------- -------------- -------------- Net Increase 1,432,399 1,619,642 10,780,832 -------------- -------------- -------------- Class Z: Subscriptions 18,835,360 20,514,243 7,109,992 Proceeds received in connection with merger -- 36,830,189 -- Distributions reinvested 1,244,797 1,500,998 465,882 Redemptions (12,632,407) (24,679,597) (5,587,806) -------------- -------------- -------------- Net Increase 7,447,750 34,165,833 1,988,068 -------------- -------------- -------------- Net Increase from Share Transactions 661,282 51,854,716 15,940,566 -------------- -------------- -------------- Total Increase (Decrease) in Net Assets 55,130,826 (49,498,101) (100,728,997) -------------- -------------- -------------- NET ASSETS: Beginning of period 724,109,372 773,607,473 874,336,470 -------------- -------------- -------------- End of period (including undistributed (overdistributed) net investment income of $(2,035,796), $(1,587,777) and $5,381,589, respectively) $ 779,240,198 $ 724,109,372 $ 773,607,473 -------------- -------------- --------------
(a) The Fund has changed its fiscal year end from December 31 to May 31. See notes to financial statements. 14
PERIOD ENDED YEAR ENDED DECEMBER 31, INCREASE (DECREASE) MAY 31, -------------------------------- IN NET ASSETS: 2003(a) 2002 2001 ---------------------------------------------------------------------------------------------------------------------------- CHANGES IN SHARES: Class A: Subscriptions 30,064,102 56,148,431 38,923,252 Issued in connection with merger -- 43,511 -- Issued for distributions reinvested 1,670,630 4,119,471 4,114,587 Redemptions (34,371,342) (49,928,762) (36,904,850) -------------- -------------- -------------- Net Increase (Decrease) (2,636,610) 10,382,651 6,132,989 -------------- -------------- -------------- Class B: Subscriptions 7,579,882 20,864,519 24,896,772 Issued for distributions reinvested 1,022,266 2,954,382 3,581,341 Redemptions (7,619,970) (29,746,409) (34,482,255) -------------- -------------- -------------- Net Increase (Decrease) 982,178 (5,927,508) (6,004,142) -------------- -------------- -------------- Class C: Subscriptions 2,356,861 5,278,283 5,940,784 Issued for distributions reinvested 235,678 668,879 713,547 Redemptions (2,247,443) (5,607,906) (4,601,135) -------------- -------------- -------------- Net Increase 345,096 339,256 2,053,196 -------------- -------------- -------------- Class Z: Subscriptions 4,570,300 5,020,578 1,405,985 Issued in connection with merger -- 9,116,388 -- Issued for distributions reinvested 297,518 374,230 94,092 Redemptions (3,077,369) (6,084,044) (1,178,312) -------------- -------------- -------------- Net Increase 1,790,449 8,427,152 321,765 -------------- -------------- --------------
(a) The Fund has changed its fiscal year end from December 31 to May 31. See notes to financial statements. 15 NOTES TO FINANCIAL STATEMENTS May 31, 2003 NOTE 1. ACCOUNTING POLICIES ORGANIZATION: Liberty High Yield Securities Fund (the "Fund"), a series of Liberty Funds Trust I, is a diversified portfolio of a Massachusetts business trust, registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Fund's investment goal is to seek high current income and total return. The Fund may issue 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% contingent deferred sales charge ("CDSC") 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 a CDSC. Class B shares will convert to Class A shares in three, four or eight years after purchase, depending on the program under which shares were purchased. Class C shares are subject to a CDSC on redemptions made within one year after purchase. Class Z shares are offered continuously at net asset value. There are certain restrictions on the purchase of Class Z shares, as described in the Fund's prospectus. Effective February 11, 2003, the Board of Trustees had approved a change in the fiscal year end of the Fund from December 31 to May 31. Accordingly, the Fund's 2003 fiscal year ended on May 31, 2003. As of the end of business on July 29, 2002, the Stein Roe High Yield Fund merged into the Fund as follows:
NET ASSETS UNREALIZED SHARES ISSUED RECEIVED DEPRECIATION(1) ------------------------------------------------------------ 9,159,899 $ 37,005,973 $ (5,857,438)
NET ASSETS NET ASSETS OF NET ASSETS OF THE FUND STEIN ROE HIGH YIELD OF THE FUND PRIOR TO FUND IMMEDIATELY IMMEDIATELY AFTER COMBINATION PRIOR TO COMBINATION COMBINATION ------------------------------------------------------------ $ 653,647,815 $ 37,005,973 $ 690,653,788
(1) Unrealized depreciation is included in the Net Assets Received amount shown above. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. SECURITY VALUATION AND TRANSACTIONS: Debt securities generally are valued by a pricing service based upon market transactions for normal, institutional-size trading units of similar securities. When management deems it appropriate, an over-the-counter or exchange bid quotation is used. 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 day, at the current quoted bid price. Short-term obligations with a maturity of 60 days or less are valued at amortized cost. Forward currency contracts are valued based on the weighted value of exchange-traded contracts with similar durations. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange ("NYSE"). The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the customary trading session of the NYSE, which would not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities and such exchange rates occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Trustees. The value of all assets and liabilities quoted in foreign currencies are translated into U.S. dollars at that day's exchange rates. Investments for which market quotations are not readily available, or quotations which management believes are not appropriate, are valued at fair value under procedures approved by the Board of Trustees. Security transactions are accounted for on the date the securities are purchased, sold or mature. Cost is determined and gains (losses) are based upon 16 the specific identification method for both financial statement and federal income tax purposes. The Fund may trade securities on other than normal settlement terms. This may increase the risk if the other party to the transaction fails to deliver and causes the Fund to subsequently invest at less advantageous prices. DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income, expenses (other than Class A, Class B and Class C service fees and Class B and Class C 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 fee applicable to Class A, Class B and Class C shares and the distribution fee applicable to Class B and Class C shares only. 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. Premium and discount are being amortized and accreted, respectively, for all debt securities. The value of additional securities received as an interest payment is recorded as income and as an increase to the cost basis of such securities. DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions daily and pays monthly. FOREIGN CURRENCY TRANSACTIONS: Net realized and unrealized gains (losses) on foreign currency transactions and translations include the fluctuation in exchange rates between trade and settlement dates on securities transactions, gains (losses) arising from the disposition of foreign currency and currency gains (losses) between the accrual and payment dates on dividends and interest income and foreign withholding taxes. The Fund does not distinguish that portion of gains (losses) on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the net realized and unrealized gains (losses) on investments. FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency contracts to purchase or sell foreign currencies at predetermined exchange rates in connection with the settlement of purchases and sales of securities. The Fund may also enter into forward currency contracts to hedge certain other foreign currency denominated assets. The contracts are used to minimize the exposure to foreign exchange rate fluctuations during the period between trade and settlement date of the contracts. All contracts are marked-to-market daily, resulting in unrealized gains and losses which become realized at the time the forward currency contracts are closed or mature. Realized and unrealized gains (losses) arising from such transactions are included in net realized and unrealized gains (losses) on foreign currency transactions and translations. Forward currency contracts do not eliminate fluctuations in the prices of the Fund's portfolio securities. While the maximum potential loss from such contracts is the aggregate face value in U.S. dollars at the time the contract was opened, exposure is typically limited to the change in value of the contract (in U.S. dollars) over the period it remains open. Risks may also arise if counterparties fail to perform their obligations under the contracts. OTHER: Corporate actions and dividend income are recorded on the ex-date (except for certain foreign securities which are recorded as soon after ex-date as the Fund becomes aware of such), net of non-reclaimable tax withholdings. Where a high level of uncertainty as to collection exists, income on securities is recorded net of all tax withholdings with any rebates recorded when received. The Fund's custodian takes possession through the federal book-entry system of securities collateralizing repurchase agreements. Collateral is marked-to-market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund. The Fund may experience costs and delays in liquidating the collateral if the issuer defaults or enters bankruptcy. 17 NOTE 2. FEDERAL TAX INFORMATION Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatments for deferral of losses from wash sales, discount accretion/premium amortization on debt securities, capital loss carryforwards, non-deductible expenses, marked-to-market on forward currency contracts and current year distribution payables. 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 period ended May 31, 2003, 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 ------------------------------------------------------- $ 177,572 $ 11,532,217 $ (11,709,789)
Net investment income, net realized gains (losses) and net assets were not affected by this reclassification. The tax character of distributions paid was as follows:
YEAR ENDED PERIOD DECEMBER 31, ENDED ---------------------------- MAY 31, 2003 2002 2001 ------------------------------------------------------------------ Distributions paid from: Ordinary income $ 25,393,402 $ 63,689,002 $ 82,406,947 Return of capital - 5,431,035 7,166,015 ------------ ------------ ------------ $ 25,393,402 $ 69,120,037 $ 89,572,962 ============ ============ ============
As of May 31, 2003, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNREALIZED ORDINARY INCOME DEPRECIATION* --------------------------------------------- $ 498,656 $ (51,286,353)
* The difference between book-basis and tax-basis unrealized depreciation is attributable primarily to the tax deferral of losses on wash sales and amortization/accretion tax elections on fixed income securities. The following capital loss carryforwards, determined as of May 31, 2003, 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:
CAPITAL LOSS YEAR OF EXPIRATION CARRYFORWARD ------------------------------------------------- 2005 $ 757,799 2006 738,934 2007 13,268,889 2008 44,818,986 2009 161,087,717 2010 171,019,187 2011 18,463,873 ------------- $ 410,155,385 =============
Utilization of the capital loss carryforwards above could be subject to limitations imposed by the Internal Revenue Code. NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES MANAGEMENT FEE: On April 1, 2003, Colonial Management Associates, Inc. ("Colonial"), the previous investment advisor to the Fund, merged into Columbia Management Advisors, Inc. ("Columbia"), formerly known as Columbia Management Co., an indirect, wholly-owned subsidiary of FleetBoston Financial Corporation. At the time of the merger, Columbia assumed the obligations of Colonial with respect to the Fund. The merger did 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. Columbia is the investment advisor of the Fund and furnishes accounting and other services and office facilities for a monthly fee based on the Fund's average daily net assets as follows:
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE ------------------------------------------------- First $1.5 billion 0.60% Over $1.5 billion 0.55%
PRICING AND BOOKKEEPING FEES: Columbia is responsible for providing pricing and bookkeeping services to the Fund under a Pricing and Bookkeeping Agreement. Under a separate agreement (the "Outsourcing Agreement"), Columbia has delegated those functions to State Street Bank and Trust Company ("State Street"). Columbia pays fees to State Street under the Outsourcing Agreement. Under its pricing and bookkeeping agreement with the Fund, Columbia receives from the Fund an annual flat fee of $10,000, paid monthly, and in any month that the Fund's average daily net assets are more than $50 million, a monthly fee equal to the average daily net 18 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 period ended May 31, 2003, the annualized net asset based fee rate was 0.034%. The Fund also pays out-of-pocket costs for pricing services. TRANSFER AGENT FEE: Liberty Funds Services, Inc. (the "Transfer Agent"), an affiliate of Columbia, provides shareholder services for a monthly fee equal to 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 Columbia, is the Fund's principal underwriter. During the period ended May 31, 2003, the Fund has been advised that the Distributor retained net underwriting discounts of $14,689 on sales of the Fund's Class A shares and received CDSC of $106, $327,486 and $5,018 on Class A, Class B and Class C share redemptions, respectively. The Fund has adopted a 12b-1 plan (the "Plan") which requires the payment of a monthly service fee to the Distributor equal to 0.25% annually of the average daily net assets attributable to Class A, Class B and Class C shares as of the 20th of each month. The Plan also requires the payment of a monthly distribution fee to the Distributor equal to 0.75% annually of the average daily net assets attributable to Class B and Class C shares only. The Distributor has voluntarily agreed to waive a portion of the Class C share distribution fee so that it will not exceed 0.60% annually. The CDSC and the fees received from the Plan are used principally as repayment to the Distributor for amounts paid by the Distributor to dealers who sold such shares. OTHER: The Fund pays no compensation to its officers, all of whom are employees of Columbia or its 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 $1,665 of custody fees were reduced by balance credits for the period ended May 31, 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. EXPENSE LIMIT: Columbia has voluntarily agreed, until further notice, to waive a portion of the transfer agent fee so that the transfer agent fee will not exceed 0.23% annually of the Fund's average daily net assets. This agreement may be terminated by Columbia at any time. NOTE 4. PORTFOLIO INFORMATION INVESTMENT ACTIVITY: For the period ended May 31, 2003, purchases and sales of investments, other than short-term obligations, were $329,300,909 and $318,294,816, respectively. Unrealized appreciation (depreciation) at May 31, 2003, based on cost of investments for federal income tax purposes, was: Gross unrealized appreciation $ 46,053,078 Gross unrealized depreciation (97,339,431) ------------- Net unrealized depreciation $ (51,286,353) =============
OTHER: There are certain additional risks involved when investing in foreign securities that are not inherent with investments in domestic securities. These risks may involve foreign currency exchange rate fluctuations, adverse political and economic developments and the possible prevention of foreign currency exchange or other foreign governmental laws or restrictions. In addition, concentration of investments in a single region or country may result in greater volatility. Investing in high yield securities offers the potential for high current income and attractive total return, but involves certain risks. Bond investing also involves interest rate risk, which means that bond prices may change as interest rate increases or decreases. Investing in emerging markets involves certain risks as they may be subject to a greater degree of social, political, currency and economic instability. The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified. NOTE 5. LINE OF CREDIT The Fund and other affiliated funds participate in a $350,000,000 credit facility which is used for temporary or emergency purposes to facilitate portfolio liquidity. Interest is charged to the Fund based on its borrowings. In addition, the Fund has agreed to pay commitment fees on its pro-rata portion of the line of credit. The commitment fee is included in "Other expenses" on the Statement of Operations. Prior to April 26, 2003, the Fund participated in a separate credit agreement with similar terms to its existing agreement. For the period ended May 31, 2003, the Fund did not borrow under these agreements. 19 FINANCIAL HIGHLIGHTS Selected data for a share outstanding throughout each period is as follows:
PERIOD ENDED YEAR ENDED DECEMBER 31, MAY 31, ----------------------------------- CLASS A SHARES 2003 (a) 2002 2001 ------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 4.01 $ 4.62 $ 5.30 ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.14(b) 0.34(b) 0.52(b)(c) Net realized and unrealized gain (loss) on investments and foreign currency 0.30 (0.53) (0.65)(c) ---------- ---------- ---------- Total from Investment Operations 0.44 (0.19) (0.13) ---------- ---------- ---------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.15) (0.39) (0.51) Return of capital -- (0.03) (0.04) ---------- ---------- ---------- Total Distributions Declared to Shareholders (0.15) (0.42) (0.55) ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD $ 4.30 $ 4.01 $ 4.62 ========== ========== ========== Total return (e) 11.01%(f) (4.27)% (2.78)% ========== ========== ========== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (g) 1.29%(h) 1.31% 1.22% Net investment income (g) 8.24%(h) 7.92% 10.34%(c) Waiver/reimbursement --%(h)(i) -- -- Portfolio turnover rate 45%(f) 63% 62% Net assets, end of period (000's) $ 376,944 $ 361,780 $ 369,043 YEAR ENDED DECEMBER 31, -------------------------------------------- CLASS A SHARES 2000 1999 1998 -------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.55 $ 6.76 $ 7.23 ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.61(d) 0.60(d) 0.63 Net realized and unrealized gain (loss) on investments and foreign currency (1.24) (0.20) (0.48) ---------- ---------- ---------- Total from Investment Operations (0.63) 0.40 0.15 ---------- ---------- ---------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.62) (0.61) (0.62) Return of capital -- -- -- ---------- ---------- ---------- Total Distributions Declared to Shareholders (0.62) (0.61) (0.62) ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD $ 5.30 $ 6.55 $ 6.76 ========== ========== ========== Total return (e) (10.28)% 6.17% 2.12% ========== ========== ========== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (g) 1.16% 1.21% 1.21% Net investment income (g) 10.00% 9.02% 8.81% Waiver/reimbursement -- -- -- Portfolio turnover rate 28% 42% 97% Net assets, end of period (000's) $ 390,917 $ 540,201 $ 568,125
(a) The Fund has changed its fiscal year end from December 31 to May 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change, for the year ended December 31, 2001, was to increase net investment income per share by $0.05, decrease net realized and unrealized loss per share by $0.05 and increase the ratio of net investment income to average net assets from 9.76% to 10.34%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (d) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (e) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. (i) Rounds to less than 0.01%. 20 Selected data for a share outstanding throughout each period is as follows:
PERIOD ENDED YEAR ENDED DECEMBER 31, MAY 31, ----------------------------------- CLASS B SHARES 2003 (a) 2002 2001 ------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 4.01 $ 4.62 $ 5.30 ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.13(b) 0.31(b) 0.48(b)(c) Net realized and unrealized gain (loss) on investments and foreign currency 0.29 (0.54) (0.65)(c) ---------- ---------- ---------- Total from Investment Operations 0.42 (0.23) (0.17) ---------- ---------- ---------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.13) (0.35) (0.47) Return of capital -- (0.03) (0.04) ---------- ---------- ---------- Total Distributions Declared to Shareholders (0.13) (0.38) (0.51) ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD $ 4.30 $ 4.01 $ 4.62 ========== ========== ========== Total return (e) 10.67%(f) (4.99)% (3.51)% ========== ========== ========== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (g) 2.04%(h) 2.06% 1.97% Net investment income (g) 7.49%(h) 7.17% 9.59%(c) Waiver/reimbursement --%(h)(i) -- -- Portfolio turnover rate 45%(f) 63% 62% Net assets, end of period (000's) $ 305,021 $ 280,220 $ 350,464 YEAR ENDED DECEMBER 31, -------------------------------------------- CLASS B SHARES 2000 1999 1998 -------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.55 $ 6.76 $ 7.23 ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.56(d) 0.55(d) 0.58 Net realized and unrealized gain (loss) on investments and foreign currency (1.24) (0.20) (0.48) ---------- ---------- ---------- Total from Investment Operations (0.68) 0.35 0.10 ---------- ---------- ---------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.57) (0.56) (0.57) Return of capital -- -- -- ---------- ---------- ---------- Total Distributions Declared to Shareholders (0.57) (0.56) (0.57) ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD $ 5.30 $ 6.55 $ 6.76 ========== ========== ========== Total return (e) (10.96)% 5.38% 1.36% ========== ========== ========== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (g) 1.91% 1.96% 1.96% Net investment income (g) 9.25% 8.27% 8.06% Waiver/reimbursement -- -- -- Portfolio turnover rate 28% 42% 97% Net assets, end of period (000's) $ 433,949 $ 627,057 $ 573,626
(a) The Fund has changed its fiscal year end from December 31 to May 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change, for the year ended December 31, 2001, was to increase net investment income per share by $0.05, decrease net realized and unrealized loss per share by $0.05 and increase the ratio of net investment income to average net assets from 9.02% to 9.59%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (d) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (h) Annualized. (i) Rounds to less than 0.01%. 21 Selected data for a share outstanding throughout each period is as follows:
PERIOD ENDED YEAR ENDED DECEMBER 31, MAY 31, --------------------------------- CLASS C SHARES 2003 (a) 2002 2001 ---------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 4.01 $ 4.62 $ 5.30 ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.13(b) 0.31(b) 0.49(b)(c) Net realized and unrealized gain (loss) on investments and foreign currency 0.29 (0.53) (0.65)(c) ---------- ---------- ---------- Total from Investment Operations 0.42 (0.22) (0.16) ---------- ---------- ---------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.13) (0.36) (0.48) Return of capital -- (0.03) (0.04) ---------- ---------- ---------- Total Distributions Declared to Shareholders (0.13) (0.39) (0.52) ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD $ 4.30 $ 4.01 $ 4.62 ========== ========== ========== Total return (e)(f) 10.74%(g) (4.85)% (3.37)% ========== ========== ========== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (h) 1.89%(i) 1.91% 1.82% Net investment income (h) 7.64%(i) 7.32% 9.74%(c) Waiver/reimbursement 0.15%(i) 0.15% 0.15% Portfolio turnover rate 45%(g) 63% 62% Net assets, end of period (000's) $ 51,471 $ 46,568 $ 52,122 YEAR ENDED DECEMBER 31, -------------------------------------------- CLASS C SHARES 2000 1999 1998 -------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.55 $ 6.76 $ 7.23 ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.57(d) 0.56(d) 0.58 Net realized and unrealized gain (loss) on investments and foreign currency (1.24) (0.20) (0.47) ---------- ---------- ---------- Total from Investment Operations (0.67) 0.36 0.11 ---------- ---------- ---------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.58) (0.57) (0.58) Return of capital -- -- -- ---------- ---------- ---------- Total Distributions Declared to Shareholders (0.58) (0.57) (0.58) ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD $ 5.30 $ 6.55 $ 6.76 ========== ========== ========== Total return (e)(f) (10.78)% 5.54% 1.51% ========== ========== ========== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (h) 1.76% 1.81% 1.81% Net investment income (h) 9.40% 8.42% 8.21% Waiver/reimbursement 0.15% 0.15% 0.15% Portfolio turnover rate 28% 42% 97% Net assets, end of period (000's) $ 48,904 $ 56,068 $ 34,302
(a) The Fund has changed its fiscal year end from December 31 to May 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change, for the year ended December 31, 2001, was to increase net investment income per share by $0.05, decrease net realized and unrealized loss per share by $0.05 and increase the ratio of net investment income to average net assets from 9.16% to 9.74%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (d) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (f) Had the Distributor not waived a portion of expenses, total return would have been reduced. (g) Not annualized. (h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (i) Annualized. 22 Selected data for a share outstanding throughout each period is as follows:
PERIOD ENDED YEAR ENDED DECEMBER 31, MAY 31, ---------------------------------------------------------------- CLASS Z SHARES 2003 (a) 2002 2001 2000 1999 (b) ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 4.01 $ 4.62 $ 5.30 $ 6.55 $ 6.79 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.15(c) 0.33(c) 0.53(c)(d) 0.62(e) 0.60(e) Net realized and unrealized gain (loss) on investments and foreign currency 0.29 (0.51) (0.65)(d) (1.24) (0.23) ---------- ---------- ---------- ---------- ---------- Total from Investment Operations 0.44 (0.18) (0.12) (0.62) 0.37 ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.15) (0.40) (0.52) (0.63) (0.61) Return of capital -- (0.03) (0.04) -- -- ---------- ---------- ---------- ---------- ---------- Total Distributions Declared to Shareholders (0.15) (0.43) (0.56) (0.63) (0.61) ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55 ========== ========== ========== ========== ========== Total return (f) 11.12%(g) (4.03)% (2.53)% (10.06)% 5.83%(g) ========== ========== ========== ========== ========== RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (h) 1.04%(i) 1.06% 0.97% 0.91% 0.95%(i) Net investment income (h) 8.49%(i) 8.17% 10.59%(d) 10.25% 9.22%(i) Waiver/reimbursement --%(i)(j) -- -- -- -- Portfolio turnover rate 45%(g) 63% 62% 28% 42% Net assets, end of period (000's) $ 45,803 $ 35,541 $ 1,978 $ 566 $ 418
(a) The Fund has changed its fiscal year end from December 31 to May 31. (b) Class Z shares were initially offered on January 8, 1999. Per share data and total return reflect activity from that date. (c) Per share data was calculated using average shares outstanding during the period. (d) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change, for the year ended December 31, 2001, was to increase net investment income per share by $0.05, decrease net realized and unrealized loss per share by $0.05 and increase the ratio of net investment income to average net assets from 10.01% to 10.59%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (e) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (f) Total return at net asset value assuming all distributions reinvested. (g) Not annualized. (h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (i) Annualized. (j) Rounds to less than 0.01%. 23 REPORT OF INDEPENDENT AUDITORS TO THE TRUSTEES OF LIBERTY FUNDS TRUST I AND THE SHAREHOLDERS OF LIBERTY HIGH YIELD SECURITIES FUND In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Liberty High Yield Securities Fund (the "Fund") (a series of Liberty Funds Trust I), at May 31, 2003, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with 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 securities at May 31, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts July 21, 2003 24 TRUSTEES The Trustees serve terms of indefinite duration. The names, addresses and ages of the Trustees and officers of 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(1) TO OFFICE DURING PAST FIVE YEARS BY TRUSTEE HELD ------------------------------------------------------------------------------------------------------------------------------------ DISINTERESTED TRUSTEES Douglas A. Hacker (age 47 ) Trustee 1996 Executive Vice 85 None c/o Liberty Funds Group LLC President-Strategy of United One Financial Center Airlines (airlines) since Boston, MA 02111 December 2002 (formerly President of UAL Loyalty Services (airline) from September 2001 to December 2002; (Executive Vice President and Chief Financial Officer from March 1993 to September 2001 of United Airlines); Senior Vice President and Chief Financial Officer of UAL, Inc. prior thereto Janet Langford Kelly (age 45) Trustee 1996 Executive Vice 85 None c/o Liberty Funds Group LLC President-Corporate Development One Financial Center and Administration, General Boston, MA 02111 Counsel and Secretary, Kellogg Company (food manufacturer), since September 1999; Senior Vice President, Secretary and General Counsel, Sara Lee Corporation (branded, packaged, consumer-products manufacturer) prior thereto Richard W. Lowry (age 67) Trustee 1995 Private Investor since 1987 87*** None c/o Liberty Funds Group LLC (formerly Chairman and Chief One Financial Center Executive Officer, U.S. Plywood Boston, MA 02111 Corporation (building products manufacturer)) Charles R. Nelson (age 60) Trustee 1981 Professor of Economics, 120* None c/o Liberty Funds Group LLC University of Washington, since One Financial Center January 1976; Ford and Louisa Boston, MA 02111 Van Voorhis Professor of Political Economy, University of 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; Trustee, Columbia Funds since July 2002; consultant on econometric and statistical matters John J. Neuhauser (age 60) Trustee 1985 Academic Vice President and 88*** Saucony, Inc. c/o Liberty Funds Group LLC Dean of Faculties since (athletic footwear) One Financial Center August 1999, Boston College and SkillSoft Corp. Boston, MA 02111 (formerly Dean, Boston College (e-learning) School of Management from September 1977 to September 1999) Thomas E. Stitzel (age 67) Trustee 1998 Business Consultant since 1999 85 None c/o Liberty Funds Group LLC (formerly Professor of Finance One Financial Center from 1975 to 1999 and Dean from Boston, MA 02111 1977 to 1991, College of Business, Boise State University); Chartered Financial Analyst
25
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(1) TO OFFICE DURING PAST FIVE YEARS BY TRUSTEE HELD ------------------------------------------------------------------------------------------------------------------------------------ DISINTERESTED TRUSTEES Thomas C. Theobald (age 66) Trustee 1996 Managing Director, William 85 Anixter c/o Liberty Funds Group LLC Blair Capital Partners (private International One Financial Center equity investing) since (network support Boston, MA 02111 September 1994 (formerly Chief equipment Executive Officer and Chairman distributor), Jones of the Board of Directors, Lang LaSalle (real Continental Bank Corporation estate management prior thereto) services) and MONY Group (life insurance) Anne-Lee Verville*** (age 58) Trustee 1998 Author and speaker on 86 Chairman of the c/o Liberty Funds Group LLC educational systems needs Board of Directors, One Financial Center (formerly General Manager, Enesco Group, Boston, MA 02111 Global Education Industry from Inc.(designer, 1994 to 1997, and President, importer and Applications Solutions Division distributor of from 1991 to 1994, IBM giftware and Corporation (global education collectibles) and global applications)) INTERESTED TRUSTEES William E. Mayer** (age 63) Trustee 1994 Managing Partner, Park Avenue 87*** Lee Enterprises c/o Liberty Funds Group LLC Equity Partners (private (print media), One Financial Center equity) since February 1999 WR Hambrecht + Co. Boston, MA 02111 (formerly Founding Partner, (financial service Development Capital LLC from provider), and First November 1996 to February 1999; Health (health care) Dean and Professor, College of Business and Management, University of Maryland from October 1992 to November 1996) Joseph R. Palombo** (age 50) Trustee, 2000 President of Galaxy Funds since 86 None One Financial Center Chairman of the February 2003 (formerly Vice Boston, MA 02111 Board and President from September 2002 President to February 2003); Executive Vice President and Chief Operating Officer of Columbia Management Group, Inc. (Columbia Management Group) since November 2001; Director, Executive Vice President and Chief Operating Officer of Columbia Management Advisors, Inc.; formerly Chief Operations Officer of Mutual Funds, Liberty Financial Companies, Inc. from August 2000 to November 2001; Executive Vice President of Stein Roe & Farnham, Incorporated (Stein Roe) from April 1999 to April 2003; Executive Vice President and Director of Colonial Management Associates, Inc. from April 1999 to April 2003; Director of Stein Roe from September 2000 to April 2003; Trustee and Chairman of the Board of Stein Roe Mutual Funds from October 2000; Manager of Stein Roe Floating Rate Limited Liability Company since October 2000; Director of Columbia Management Multi-Strategy Hedge Fund, LLC since December 2002; (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)
(1) In December 2000, the boards of each of the Liberty Funds and Stein Roe Funds were combined into one board of trustees with common membership. The date shown is the earliest date on which a trustee was elected to either the Liberty Funds board or the former Stein Roe Funds board. * In addition to serving as a disinterested trustee of Liberty Funds, Mr. Nelson serves as a disinterested director or trustee of Columbia Funds and CMG Funds, currently consisting of 15 funds and 20 funds, respectively, which are advised by an affiliate of the Advisor. ** 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. In addition to serving as an interested trustee of the Liberty Funds, Mr. Palombo serves as an interested director of Columbia Management Multi-Strategy Hedge Fund, LLC which is advised by the Advisor. *** In addition to serving as a trustee of Liberty Funds, Mr. Lowry, Mr. Neuhauser and Mr. Mayer each serve as a director/trustee of Liberty All-Star Funds, currently consisting of 2 funds, which are advised by an affiliate of the Advisor. Mr. Neuhauser and Ms. Vervilla serve as disinterested directors of Columbia Management Multi-Strategy Hedge Fund, LLC which is advised by the Advisor. 26
YEAR FIRST ELECTED OR POSITION WITH APPOINTED NAME, ADDRESS AND AGE LIBERTY FUNDS TO OFFICE PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS ----------------------------------------------------------------------------------------------------------------------------------- OFFICERS Vicki L. Benjamin (age 41) Chief 2001 Controller of the Liberty Funds and Liberty All-Star Funds One Financial Center Accounting since May 2002; Chief Accounting Officer of Liberty Funds and Boston, MA 02111 Officer and Liberty All-Star Funds since June 2001; Controller and Chief Controller Accounting Officer of Galaxy Funds since September 2002; (formerly Vice President, Corporate 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 (age 39) Treasurer 2000 Treasurer of the Liberty Funds and Liberty All-Star Funds One Financial Center since December 2000; Vice President of Columbia Management Boston, MA 02111 Advisors, Inc. since April 2003 (formerly Controller of the Liberty Funds and Liberty All-Star Funds from February 1998 to October 2000); Treasurer of Galaxy Funds since September 2002; Treasurer, Columbia Management Multi-Strategy Hedge Fund, LLC since December 2002 (formerly 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)
IMPORTANT INFORMATION ABOUT THIS REPORT The Transfer Agent for Liberty High Yield Securities 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 High Yield Securities 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 HIGH YIELD SECURITIES FUND LIBERTY HIGH YIELD SECURITIES FUND ANNUAL REPORT, MAY 31, 2003 PRSRT STD U.S. Postage PAID Holliston, MA Permit NO. 20 [LIBERTYFUNDS LOGO] 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 730-02/2380-0503 (07/03) 03/1831 [GRAPHIC] LIBERTY STRATEGIC INCOME FUND ANNUAL REPORT MAY 31, 2003 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. [GRAPHIC] LIBERTY STRATEGIC INCOME FUND ANNUAL REPORT MAY 31, 2003 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: Please note that the fiscal year end for Liberty Strategic Income Fund changed from December 31 to May 31. As a result, all commentary, including this letter, cover the five-month period that ended May 31, 2003. The US bond market continued to reward investors with solid returns throughout the period covered by this report. Bonds reported gains across all sectors as interest rates declined. However, leadership rotated from higher quality bonds, which were the top performers in the previous period, to lower quality bonds. Corporate, high-yield and foreign bonds rebounded as investors became more willing to take on risk. Mortgage bonds generally lagged as low interest rates ignited a new round of mortgage refinancing. The following report will provide you with more detailed information about fund performance and the strategies used by the fund's portfolio manager Laura A. Ostrander. CONSOLIDATION AND A NEW NAME: COLUMBIA I am pleased to announce that, effective April 1, 2003, six of the asset management firms brought together when Columbia Management Group, Inc. was formed were consolidated and renamed Columbia Management Advisors, Inc. (Columbia Management). This consolidation does not affect the management or investment objectives of your fund and is the next step in our efforts to create a consistent identity and to streamline our organization. By consolidating these firms, we are able to create a more efficient organizational structure and strengthen certain key functions, such as research. Although the name of the asset manager familiar to you has changed, what hasn't changed is the commitment of our specialized investment teams to a multi-disciplined approach to investing, focused on our goal of offering shareholders the best products and services. As always, we thank you for investing in Liberty funds and for giving us the opportunity to help 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 and executive vice president of Columbia Management. 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. Not FDIC May Lose Value Insured 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 5/31/93 - 5/31/03 PERFORMANCE OF A $10,000 INVESTMENT 5/31/93 - 5/31/03 ($)
WITHOUT WITH SALES SALES CHARGE CHARGE ----------------------------------- Class A 19,413 18,491 ----------------------------------- Class B 18,017 18,017 ----------------------------------- Class C 18,740 18,740 ----------------------------------- Class J 19,095 18,522 ----------------------------------- Class Z 19,502 n/a
[CHART]
CLASS A SHARES WITHOUT SALES CHARGE CLASS A SHARES WITH SALES CHARGE LEHMAN BROTHERS GOVERNMENT/CREDIT BOND INDEX 5/31/1993 $ 10,000 $ 9,525 $ 10,000 6/30/1993 $ 10,142 $ 9,660 $ 10,227 7/31/1993 $ 10,202 $ 9,717 $ 10,292 8/31/1993 $ 10,374 $ 9,881 $ 10,529 9/30/1993 $ 10,365 $ 9,873 $ 10,566 10/31/1993 $ 10,568 $ 10,066 $ 10,609 11/30/1993 $ 10,544 $ 10,043 $ 10,489 12/31/1993 $ 10,717 $ 10,208 $ 10,536 1/31/1994 $ 10,949 $ 10,429 $ 10,694 2/28/1994 $ 10,774 $ 10,262 $ 10,461 3/31/1994 $ 10,436 $ 9,940 $ 10,204 4/30/1994 $ 10,332 $ 9,842 $ 10,120 5/31/1994 $ 10,331 $ 9,841 $ 10,101 6/30/1994 $ 10,299 $ 9,810 $ 10,078 7/31/1994 $ 10,344 $ 9,852 $ 10,280 8/31/1994 $ 10,357 $ 9,865 $ 10,284 9/30/1994 $ 10,325 $ 9,835 $ 10,128 10/31/1994 $ 10,370 $ 9,878 $ 10,117 11/30/1994 $ 10,275 $ 9,787 $ 10,099 12/31/1994 $ 10,321 $ 9,831 $ 10,166 1/31/1995 $ 10,431 $ 9,935 $ 10,361 2/28/1995 $ 10,684 $ 10,177 $ 10,601 3/31/1995 $ 10,891 $ 10,374 $ 10,672 4/30/1995 $ 11,132 $ 10,603 $ 10,822 5/31/1995 $ 11,456 $ 10,912 $ 11,275 6/30/1995 $ 11,486 $ 10,940 $ 11,365 7/31/1995 $ 11,614 $ 11,063 $ 11,321 8/31/1995 $ 11,661 $ 11,107 $ 11,466 9/30/1995 $ 11,875 $ 11,311 $ 11,583 10/31/1995 $ 12,041 $ 11,469 $ 11,753 11/30/1995 $ 12,173 $ 11,595 $ 11,947 12/31/1995 $ 12,409 $ 11,820 $ 12,123 1/31/1996 $ 12,611 $ 12,012 $ 12,198 2/29/1996 $ 12,504 $ 11,910 $ 11,939 3/31/1996 $ 12,465 $ 11,873 $ 11,839 4/30/1996 $ 12,550 $ 11,954 $ 11,757 5/31/1996 $ 12,582 $ 11,984 $ 11,737 6/30/1996 $ 12,650 $ 12,049 $ 11,894 7/31/1996 $ 12,718 $ 12,114 $ 11,921 8/31/1996 $ 12,895 $ 12,282 $ 11,891 9/30/1996 $ 13,164 $ 12,539 $ 12,103 10/31/1996 $ 13,343 $ 12,709 $ 12,385 11/30/1996 $ 13,653 $ 13,004 $ 12,613 12/31/1996 $ 13,681 $ 13,032 $ 12,473 1/31/1997 $ 13,677 $ 13,028 $ 12,488 2/28/1997 $ 13,787 $ 13,132 $ 12,514 3/31/1997 $ 13,516 $ 12,874 $ 12,365 4/30/1997 $ 13,665 $ 13,016 $ 12,545 5/31/1997 $ 13,911 $ 13,250 $ 12,662 6/30/1997 $ 14,100 $ 13,431 $ 12,814 7/31/1997 $ 14,447 $ 13,761 $ 13,206 8/31/1997 $ 14,385 $ 13,702 $ 13,058 9/30/1997 $ 14,697 $ 13,999 $ 13,263 10/31/1997 $ 14,653 $ 13,957 $ 13,475 11/30/1997 $ 14,729 $ 14,030 $ 13,547 12/31/1997 $ 14,860 $ 14,155 $ 13,689 1/31/1998 $ 15,100 $ 14,382 $ 13,882 2/28/1998 $ 15,157 $ 14,437 $ 13,854 3/31/1998 $ 15,277 $ 14,551 $ 13,897 4/30/1998 $ 15,355 $ 14,625 $ 13,967 5/31/1998 $ 15,413 $ 14,681 $ 14,116 6/30/1998 $ 15,408 $ 14,677 $ 14,260 7/31/1998 $ 15,546 $ 14,807 $ 14,272 8/31/1998 $ 14,902 $ 14,194 $ 14,550 9/30/1998 $ 15,204 $ 14,482 $ 14,966 10/31/1998 $ 15,179 $ 14,458 $ 14,860 11/30/1998 $ 15,631 $ 14,889 $ 14,949 12/31/1998 $ 15,626 $ 14,884 $ 14,986 1/31/1999 $ 15,733 $ 14,985 $ 15,093 2/28/1999 $ 15,528 $ 14,790 $ 14,734 3/31/1999 $ 15,747 $ 14,999 $ 14,807 4/30/1999 $ 15,967 $ 15,209 $ 14,844 5/31/1999 $ 15,624 $ 14,882 $ 14,691 6/30/1999 $ 15,619 $ 14,878 $ 14,646 7/31/1999 $ 15,613 $ 14,872 $ 14,605 8/31/1999 $ 15,540 $ 14,802 $ 14,593 9/30/1999 $ 15,582 $ 14,842 $ 14,724 10/31/1999 $ 15,577 $ 14,837 $ 14,763 11/30/1999 $ 15,714 $ 14,968 $ 14,754 12/31/1999 $ 15,827 $ 15,076 $ 14,664 E1/31/00 $ 15,655 $ 14,911 $ 14,659 E2/29/00 $ 15,891 $ 15,136 $ 14,843 E3/31/00 $ 15,812 $ 15,061 $ 15,058 E4/30/00 $ 15,660 $ 14,916 $ 14,984 E5/31/00 $ 15,483 $ 14,748 $ 14,971 E6/30/00 $ 15,800 $ 15,050 $ 15,276 E7/31/00 $ 15,920 $ 15,164 $ 15,438 E8/31/00 $ 16,043 $ 15,281 $ 15,656 E9/30/00 $ 15,860 $ 15,107 $ 15,715 E10/31/00 $ 15,522 $ 14,785 $ 15,814 E11/30/00 $ 15,234 $ 14,510 $ 16,085 E12/31/00 $ 15,723 $ 14,976 $ 16,401 E1/31/01 $ 16,372 $ 15,594 $ 16,677 E2/28/01 $ 16,393 $ 15,615 $ 16,849 E3/31/01 $ 16,015 $ 15,254 $ 16,926 E4/30/01 $ 15,843 $ 15,091 $ 16,799 E5/31/01 $ 15,940 $ 15,183 $ 16,897 E6/30/01 $ 15,739 $ 14,991 $ 16,978 E7/31/01 $ 15,838 $ 15,086 $ 17,401 E8/31/01 $ 16,104 $ 15,339 $ 17,623 E9/30/01 $ 15,576 $ 14,836 $ 17,785 E10/31/01 $ 16,029 $ 15,268 $ 18,237 E11/30/01 $ 16,230 $ 15,459 $ 17,938 E12/31/01 $ 16,204 $ 15,434 $ 17,796 E1/31/02 $ 16,234 $ 15,463 $ 17,926 E2/28/02 $ 16,265 $ 15,493 $ 18,079 E3/31/02 $ 16,317 $ 15,542 $ 17,712 E4/30/02 $ 16,634 $ 15,844 $ 18,055 E5/31/02 $ 16,717 $ 15,923 $ 18,221 E6/30/02 $ 16,443 $ 15,662 $ 18,376 E7/31/02 $ 16,249 $ 15,477 $ 18,597 E8/31/02 $ 16,509 $ 15,725 $ 19,013 E9/30/02 $ 16,588 $ 15,800 $ 19,422 E10/31/02 $ 16,623 $ 15,833 $ 19,236 E11/30/02 $ 16,995 $ 16,188 $ 19,247 E12/31/02 $ 17,493 $ 16,662 $ 19,757 E1/31/03 $ 17,745 $ 16,902 $ 19,757 E2/28/03 $ 18,061 $ 17,203 $ 20,109 E3/31/03 $ 18,224 $ 17,358 $ 20,083 E4/30/03 $ 18,923 $ 18,025 $ 20,298 E5/31/03 $ 19,413 $ 18,491 $ 20,874
MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT www.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 above illustration assumes a $10,000 investment made on May 31, 1993 and reinvestment of all income and capital gains. The Lehman Brothers Government/Credit Bond Index is an unmanaged index that tracks the performance of US government and US corporate bonds. Unlike mutual funds, indices are not investments, do not incur fees or expenses, and are not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in an index. AVERAGE ANNUAL TOTAL RETURN AS OF 5/31/03 (%)
SHARE CLASS A B C J Z INCEPTION 4/21/77 5/15/92 7/1/97 11/2/98 1/29/99 --------------- ------------------------ ---------------------- ----------------------- ----------------------- ------------- WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT SALES SALES SALES SALES SALES SALES SALES SALES SALES CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE --------------- ------------------------ ---------------------- ----------------------- ----------------------- ------------- 5-month (cumulative) 11.10 5.82 10.95 5.95 10.82 9.82 10.97 7.64 11.29 --------------- ------------------------ ---------------------- ----------------------- ----------------------- ------------- 1-year 16.26 10.74 15.39 10.39 15.56 14.56 15.89 12.42 16.23 --------------- ------------------------ ---------------------- ----------------------- ----------------------- ------------- 5-year 4.74 3.72 3.96 3.67 4.11 4.11 4.39 3.76 4.83 --------------- ------------------------ ---------------------- ----------------------- ----------------------- ------------- 10-year 6.86 6.34 6.06 6.06 6.48 6.48 6.68 6.36 6.91 --------------- ------------------------ ---------------------- ----------------------- ----------------------- -------------
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/03 (%)
SHARE CLASS A B C J Z --------------- ------------------------ ---------------------- ----------------------- ------------------------ ------------ WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT SALES SALES SALES SALES SALES SALES SALES SALES SALES CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE --------------- ------------------------ ---------------------- ----------------------- ------------------------ ------------ 5-month (cumulative) 9.63 4.42 9.10 4.10 9.35 8.35 9.49 6.20 9.40 --------------- ------------------------ ---------------------- ----------------------- ------------------------ ------------ 1-year 11.69 6.39 10.67 5.67 11.02 10.02 11.32 7.99 11.62 --------------- ------------------------ ---------------------- ----------------------- ------------------------ ------------ 5-year 3.58 2.58 2.77 2.49 2.96 2.96 3.25 2.62 3.66 --------------- ------------------------ ---------------------- ----------------------- ------------------------ ------------ 10-year 6.37 5.86 5.56 5.56 6.01 6.01 6.20 5.88 6.41 --------------- ------------------------ ---------------------- ----------------------- ------------------------ ------------
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 graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The "with sales charge" returns include the maximum 4.75% charge for class A shares, and 3% for class J shares, the appropriate class B contingent deferred sales charge for the holding period after purchase as follows: through first year - 5%, second year - 4%, third year - 3%, fourth year - 3%, fifth year - 2%, sixth year - 1%, thereafter - 0%, and the class C contingent deferred sales charge of 1% for the first year only. Performance for different share classes will vary based on differences in sales charges and the fees associated with each class. Performance reflects any voluntary waivers or reimbursements of fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance would have been lower. The share performance information for classes C, J and Z (newer class shares) includes returns of the fund's class A shares (the oldest existing fund class) for periods prior to the inception of the newer classes of shares. These class A share returns are not restated to reflect any expense differential (e.g., Rule 12b-1 fees) between class A shares and the newer class shares. Had the expense differential been reflected, the returns for periods prior to the inception of class C and J shares would have been lower, and the returns for the class Z shares would have been higher. 1 SEC YIELDS ON 5/31/03 (%) CLASS A 5.21 CLASS B 4.72 CLASS C 4.87 CLASS J 4.88 CLASS Z 5.58
The 30-day SEC yields reflect the portfolio's earning power net of expenses, expressed as an annualized percentage of the public offering price per share. If the advisor or its affiliates had not waived certain fund expenses, the SEC yield for class C shares would have been 4.72%. TOP 5 COUNTRIES AS OF 5/31/03 (%) USA 71.1 NEW ZEALAND 3.5 CANADA 3.2 SWEDEN 2.8 UNITED KINGDOM 2.6
Holdings are calculated as a percentage of net assets. Because the fund is actively managed, there is no guarantee the fund will continue to maintain these holdings in the future. NET ASSET VALUE PER SHARE as of 5/31/03 ($) Class A 6.09 Class B 6.09 Class C 6.09 Class J 6.08 Class Z 6.05
DISTRIBUTIONS DECLARED PER SHARE 1/1/03 - 5/31/03 ($) Class A 0.16 Class B 0.14 Class C 0.14 Class J 0.15 Class Z 0.16
PORTFOLIO MANAGER'S REPORT Because the Board of Trustees approved changing the Liberty Strategic Income Fund's fiscal year end from December to May, this report covers only a five-month period. The next report you receive will be a semiannual report for the period through November 2003. For the five-month period ended May 31, 2003, the class A shares of Liberty Strategic Income Fund returned 11.10% without sales charge. Fund performance was better than its benchmark, the Lehman Brothers Government/Credit Bond Index, which returned 5.65% for the period. The fund's allocation to high-yield bonds, emerging-markets debt, non-US government bonds and non-US dollar currencies accounted for its superior performance. The fund also outperformed its peers, as indicated by the average return of 9.61% for the Lipper Multi-Sector Income Funds Category.(1) EQUITY-WARY INVESTORS SEEK HIGHER YIELDS At the outset of the period, investors remained wary of equities as issues over corporate governance and accounting scandals undermined confidence, and corporate profits showed little growth. Uncertainty about the outcome of a confrontation with Iraq also hung over the financial markets. But as the war came to a relatively swift conclusion and as yields on US Treasuries reached a 40-year low, many investors were willing to take on additional risk in order to get additional yield. Low interest rates and an accommodating attitude on the part of banks also helped the environment for high-yield bonds. Emerging markets debt benefited from the reduced uncertainty that followed the war with Iraq as well as the low global interest rates. And the US dollar, long felt to be overvalued against other world currencies, fell sharply. We increased our exposure to high-yield bonds, which benefited performance. The timing of our decision allowed us to participate significantly in the high-yield rally that began in the fourth quarter of 2002. Our emerging-market debt also performed well as investors looked outside the United States in search of additional yield. Yields of non-US government bonds generally performed in line with US Treasuries. However, as the value of the US dollar declined, the non-US government bonds outperformed US Treasuries. The fund's exposure ---------- (1) Lipper Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as those of the fund. 2 to bonds denominated in the Australian dollar, the New Zealand dollar, and the euro all helped performance as the US dollar declined sharply against other world currencies. At the end of the period, the fund's assets were divided roughly as follows: 40% high-yield bonds, 26% US Treasuries and other US government bonds and 34% non-US developed, emerging-markets debt and preferred stock. We kept our currency exposure stable during the period. LOOKING AHEAD We expect to maintain our exposure to high-yield bonds around current levels as we expect to see firmer economic growth in the second half of 2003. We are unlikely to increase exposure beyond the current level because much of this view is already priced into the market at current levels. Emerging market bonds continue to offer value at current levels. Although the pace of current levels outperformance should slow. We also believe that the pace of the US dollar's decline versus other currencies will slow and we will take this into consideration in managing our currency exposure going forward. /s/ Laura A. Ostrander Laura A. Ostrander is the portfolio manager of Liberty Strategic Income Fund and a senior vice president of Columbia Management Advisors, Inc. Ms. Ostrander has over 15 years experience in the money management business. Prior to joining a predecessor of the firm in 1996, she was a global fixed-income portfolio manager with American Express Financial Advisers in Minneapolis. QUALITY BREAKDOWN AS OF 5/31/03 (%) AAA 47.6 AA 2.2 A 4.6 BBB 3.8 BB 13.4 B 21.9 CCC 6.9 CC 2.2 D 0.2 Non-rated 0.6 Equity, preferred stocks 0.6 Other net assets -4.0
Quality breakdown is calculated as a percentage of net assets. Ratings shown in the quality breakdown represent the highest rating assigned to a particular bond by one of the following nationally-recognized rating agencies: Standard & Poor's Corporation, Moody's Investors Service, Inc. or Fitch Investors Service, Inc. The "Other" category represents the total of other assets and liabilities. [CHART] PORTFOLIO STRUCTURE AS OF 5/31/03 (%) Corporate bonds 40.10% Foreign gov't notes/bonds 32.90% US gov't notes/bonds 20.80% US agencies 5.20% Cash & equivalents 4.30% Equity, preferred stocks 0.60% Warrants 0.10% Other -4.00%
Portfolio structure is calculated as a percentage of net assets. The "Other" category represents the total of other assets and liabilities. Because the fund is actively managed, there can be no guarantee the fund will continue to maintain these breakdowns and structure in the future. Investing in high-yield securities offers the potential for high current income and attractive total return, but involves certain risks. Lower-rated bond risks include default of the issuer, rising interest rates and risk associated with investing in securities of foreign and emerging markets, including currency exchange rate fluctuations and economic and political change. Bond investing also involves interest rate risk, which means that bond prices may change as interest rates increase or decrease. Foreign investments involve market, political, accounting and currency risks not associated with other investments. Investing in emerging markets involves certain risks as they may be subject to a greater degree of social, political, currency and economic instability. 3 INVESTMENT PORTFOLIO May 31, 2003
BONDS & NOTES - 99.1% PAR VALUE -------------------------------------------------------------------------------------- CORPORATE FIXED-INCOME BONDS & NOTES - 40.0% CONSTRUCTION - 1.4% BUILDING CONSTRUCTION - 1.4% Associated Materials Inc., 9.750% 04/15/12 $ 1,995,000 $ 2,164,575 Atrium Companies, Inc., 10.500% 05/01/09 1,445,000 1,502,800 Congoleum Corp., 8.625% 08/01/08 1,305,000 750,375 D.R. Horton, Inc., 9.750% 09/15/10 6,355,000 7,022,275 K. Hovnanian Enterprises, Inc.: 8.875% 04/01/12 1,270,000 1,358,900 10.500% 10/01/07 2,420,000 2,807,200 Standard Pacific Corp., 9.250% 04/15/12 2,470,000 2,630,550 William Lyon Homes, Inc., 10.750% 04/01/13 1,245,000 1,288,575 --------------- 19,525,250 --------------- CONSUMER STAPLES - 0.3% HOUSEHOLD PRODUCTS - 0.3% Armkel LLC, 9.500% 08/15/09 1,150,000 1,288,000 Playtex Products, Inc., 9.375% 06/01/11 2,950,000 3,156,500 --------------- 4,444,500 --------------- FINANCE, INSURANCE & REAL ESTATE - 0.8% FINANCIAL SERVICES - 0.3% MDP Acquisitions PLC, 9.625% 10/01/12 3,300,000 3,514,500 Orion Power Holdings, Inc., 12.000% 05/01/10 700,000 757,750 --------------- 4,272,250 --------------- INSURANCE AGENTS & BROKERS - 0.2% Willis Corroon Corp., 9.000% 02/01/09 1,855,000 1,984,850 --------------- REAL ESTATE - 0.3% Forest City Enterprises, Inc., 7.625% 06/01/15 1,020,000 1,040,400 iStar Financial, Inc., 8.750% 08/15/08 1,330,000 1,429,750 Thornburg Mortgage, Inc., 8.000% 05/15/13 1,545,000 1,545,000 --------------- 4,015,150 --------------- MANUFACTURING - 10.6% APPAREL - 0.2% Levi Strauss & Co., 12.250% 12/15/12 (a) $ 1,300,000 $ 1,079,000 William Carter Co., 10.875% 08/15/11 1,400,000 1,582,000 --------------- 2,661,000 --------------- AUTO PARTS & EQUIPMENT - 0.2% Rexnord Corp., 10.125% 12/15/12 (a) 850,000 935,000 TRW Automotive, Inc. 11.000% 02/15/13 (a) 2,020,000 2,100,800 --------------- 3,035,800 --------------- CHEMICALS & ALLIED PRODUCTS - 2.2% Avecia Group PLC, 11.000% 07/01/09 2,375,000 2,185,000 Equistar Chemical Funding LP, 10.125% 09/01/08 1,285,000 1,304,275 FMC Corp., 10.250% 11/01/09 2,700,000 3,057,750 Huntsman ICI Holdings LLC, (b) 12/31/09 26,310,000 10,524,000 Lyondell Chemical Co., 9.625% 05/01/07 4,230,000 4,177,125 MacDermid, Inc., 9.125% 07/15/11 2,600,000 2,873,000 Polyone Corp 10.625% 05/15/10 (a) 1,610,000 1,577,800 Terra Capital, Inc., 12.875% 10/15/08 3,825,000 4,207,500 Texas Petrochemical Corp., 11.125% 07/01/06 3,015,000 1,025,100 --------------- 30,931,550 --------------- ELECTRONIC & ELECTRICAL EQUIPMENT - 1.0% Amkor Technology, Inc.: 7.750% 05/15/13 (a) 795,000 755,250 9.250% 02/15/08 1,800,000 1,881,000 10.500% 05/01/09 1,700,000 1,691,500 Condor Systems, Inc., 11.875% 05/01/09 (d) 4,000,000 880,000 Flextronics International Ltd., 9.875% 07/01/10 3,670,000 4,037,000 TransDigm, Inc., 10.375% 12/01/08 4,150,000 4,367,875 --------------- 13,612,625 --------------- FABRICATED METAL - 0.2% Earle M. Jorgensen & Co., 9.750% 06/01/12 2,800,000 2,926,000 ---------------
See notes to investment portfolio. 4
BONDS & NOTES (CONTINUED) PAR VALUE -------------------------------------------------------------------------------------- FOOD & KINDRED PRODUCTS - 1.1% Del Monte Corp., 9.250% 05/15/11 $ 1,600,000 $ 1,740,000 Dole Food Co., Inc., 8.625% 05/01/09 2,485,000 2,634,100 Michael Foods, Inc., 11.750% 04/01/11 1,250,000 1,421,875 Premier International Foods PLC, 12.000% 09/01/09 5,600,000 6,160,000 Smithfield Foods, Inc., 8.000% 10/15/09 2,835,000 2,912,963 --------------- 14,868,938 --------------- FURNITURE & FIXTURES - 0.2% Juno Lighting, Inc., 11.875% 07/01/09 1,920,000 2,035,200 Simmons Co., 10.250% 03/15/09 280,000 299,600 --------------- 2,334,800 --------------- MACHINERY & COMPUTER EQUIPMENT - 0.1% Cummins, Inc., 9.500% 12/01/10 1,785,000 1,936,725 --------------- MEASURING & ANALYZING INSTRUMENTS - 0.1% Fisher Scientific International, Inc., 8.125% 05/01/12 1,000,000 1,072,500 --------------- MISCELLANEOUS MANUFACTURING - 2.4% Actuant Corp., 13.000% 05/01/09 2,340,000 2,737,800 Agco Corp., 9.500% 05/01/08 2,430,000 2,648,700 Amscan Holdings, Inc., 9.875% 12/15/07 2,750,000 2,750,000 Applied Extrusion Technologies, Inc., 10.750% 07/01/11 2,325,000 1,767,000 Crown European Holdings SA, (a) 10.875% 03/01/13 1,800,000 1,899,000 Flowserve Corp., 12.250% 08/15/10 2,389,000 2,747,350 Hexcel Corp.: 9.750% 01/15/09 1,305,000 1,262,587 9.875% 10/01/08 (a) 380,000 404,700 Koppers Industries, Inc., 9.875% 12/01/07 3,085,000 3,146,700 Newcor, Inc., 6.000% 01/31/13 (f) 847,510 367,997 Owens-Illinois, Inc.: 7.150% 05/15/05 $ 925,000 $ 925,000 7.350% 05/15/08 1,950,000 1,901,250 8.100% 05/15/07 1,000,000 1,000,000 SPX Corp., 7.500% 01/01/13 1,575,000 1,685,250 Tekni-Plex, Inc., 12.750% 06/15/10 6,190,000 6,050,725 Terex Corp., Series 2001 B, 10.375% 04/01/11 2,000,000 2,130,000 --------------- 33,424,059 --------------- PAPER PRODUCTS - 0.9% Georgia-Pacific Corp 8.875% 02/01/10 1,900,000 1,980,750 Norske Skog Canada Ltd., 8.625% 06/15/11 (a) 850,000 875,500 Riverwood International Corp., 10.875% 04/01/08 6,760,000 6,954,350 Smurfit-Stone Container, Corp., 8.250% 10/01/12 1,600,000 1,680,000 Tembec Industries, Inc., 8.500% 02/01/11 1,400,000 1,379,000 --------------- 12,869,600 --------------- POLLUTION CONTROL - 0.0% EnviroSource, Inc., 14.000% 12/15/08 526,803 474,123 --------------- PRIMARY METAL - 0.4% Bayou Steel Corp., 9.500% 05/15/08 (c) 3,000,000 555,000 Kaiser Aluminum & Chemical Corp., 10.875% 10/15/06 (d) 4,715,000 3,159,050 Metallurg, Inc., 11.000% 12/01/07 2,200,000 1,320,000 WCI Steel, Inc., 10.000% 12/01/04 (c) 3,915,000 978,750 Wheeling-Pittsburgh Corp., 9.250% 11/15/07 (d) 8,500,000 42,500 --------------- 6,055,300 --------------- PRINTING & PUBLISHING - 1.4% American Greetings Corp., 11.750% 07/15/08 1,575,000 1,779,750 Dex Media East LLC, 12.125% 11/15/12 3,580,000 4,206,500 Hollinger, Inc., 11.875% 03/01/11 (a) 1,780,000 1,860,100 Primedia, Inc., 8.875% 05/15/11 3,600,000 3,744,000 Von Hoffman Corp., 10.250% 03/15/09 3,200,000 3,328,000
See notes to investment portfolio. 5
BONDS & NOTES (CONTINUED) PAR VALUE -------------------------------------------------------------------------------------- PRINTING & PUBLISHING (CONTINUED) Yell Finance BV, 10.750% 08/01/11 $ 4,400,000 $ 4,906,000 --------------- 19,824,350 --------------- STONE, CLAY, GLASS & CONCRETE - 0.0% Owens-Brockway Glass Container 8.250% 05/15/13 (a) 340,000 341,700 --------------- TEXTILE MILL PRODUCTS - 0.1% Collins & Aikman Floor Covering, Inc., 9.750% 02/15/10 1,400,000 1,428,000 --------------- TRANSPORTATION EQUIPMENT - 0.1% Sequa Corp., 8.875% 04/01/08 1,160,000 1,218,000 Teekay Shipping Corp., 8.875% 07/15/11 700,000 749,000 --------------- 1,967,000 --------------- MINING & ENERGY - 5.4% METAL MINING - 0.3% TriMas Corp., 9.875% 06/15/12 (a) 1,310,000 1,336,200 9.875% 06/15/12 2,115,000 2,157,300 --------------- 3,493,500 --------------- OIL & GAS EXTRACTION - 4.9% Benton Oil & Gas Co., 9.375% 11/01/07 2,445,000 2,102,700 Chesapeake Energy Corp.: 7.750% 01/15/15 1,800,000 1,890,000 8.125% 04/01/11 770,000 820,050 Coastal Corp., 7.750% 06/15/10 3,550,000 3,124,000 Compton Petroleum Corp., 9.900% 05/15/09 2,200,000 2,387,000 Denbury Resources, Inc., 7.500% 04/01/13 (a) 1,000,000 1,030,000 Dynegy Holdings Inc., 8.750% 02/15/12 1,895,000 1,667,600 El Paso Corp.: 7.750% 06/01/13 1,950,000 1,945,125 8.500% 06/01/10 1,050,000 1,118,250 8.500% 06/01/11 625,000 665,625 Encore Acquisition Co., 8.375% 06/15/12 1,885,000 1,998,100 Forest Oil Corp., 8.000% 06/15/08 2,405,000 2,537,275 Magnum Hunter Resources, Inc., 9.600% 03/15/12 2,100,000 2,289,000 Mariner Energy, Inc., 10.500% 08/01/06 2,610,000 2,616,525 Northwest Pipeline Corp 8.125% 03/01/10 $ 760,000 $ 836,220 PDVSA Finance Ltd.: 6.250% 02/15/06 EUR 4,105,500 4,056,613 6.650% 02/15/06 $ 2,550,000 2,397,000 Pemex Project Funding Master Trust: 7.375% 12/15/14 (a) 2,520,000 2,790,900 9.125% 10/13/10 8,865,000 10,815,300 Pioneer Natural Resources, Co., 7.500% 04/15/12 220,000 246,400 Pogo Producing Co., 8.250% 04/15/11 5,350,000 5,885,000 Premcor Refining Group: 9.250% 02/01/10 950,000 1,045,000 9.500% 02/01/13 1,200,000 1,338,000 Sonat, Inc., 7.625% 07/15/11 1,310,000 1,120,050 Southern Natural Gas Co., 8.875% 03/15/10 1,335,000 1,448,475 Stone Energy Corp., 8.250% 12/15/11 1,475,000 1,578,250 Tesoro Petroleum Corp., 8.000% 04/15/08 670,000 670,000 TransTexas Gas Corp., 15.000% 03/15/05 (c) 465,296 139,589 Williams Companies, Inc., 8.125% 03/15/12 4,125,000 4,083,750 XTO Energy, Inc., 7.500% 04/15/12 2,800,000 3,094,000 --------------- 67,735,797 --------------- OIL & GAS FIELD SERVICES - 0.2% Frontier Escrow Corp., 8.000% 04/15/13 (a) 535,000 551,050 Newpark Resources, Inc., 8.625% 12/15/07 1,860,000 1,860,000 --------------- 2,411,050 --------------- RETAIL TRADE - 1.3% FOOD & KINDRED PRODUCTS - 0.3% Constellation Brands, 8.125% 01/15/12 1,175,000 1,230,812 Roundy's, Inc., 8.875% 06/15/12 2,615,000 2,745,750 --------------- 3,976,562 --------------- MISCELLANEOUS RETAIL - 0.8% Gap, Inc., 8.800% 12/15/08 1,725,000 2,087,250 JC Penney Co., Inc., 8.000% 03/01/10 2,580,000 2,631,600
See notes to investment portfolio. 6
BONDS & NOTES (CONTINUED) PAR VALUE -------------------------------------------------------------------------------------- MISCELLANEOUS RETAIL (CONTINUED) Rite Aid Corp.: 8.125% 05/01/10 (a) $ 875,000 $ 892,500 9.250% 06/01/13 (a) 2,680,000 2,592,900 Saks, Inc., 8.250% 11/15/08 670,000 710,200 Steinway Musical Instruments, Inc., 8.750% 04/15/11 2,600,000 2,535,000 --------------- 11,449,450 --------------- RESTAURANTS - 0.2% Yum! Brands, Inc., 7.700% 07/01/12 1,925,000 2,151,188 --------------- SERVICES - 8.0% AMUSEMENT & RECREATION - 3.5% Ameristar Casinos, Inc., 10.750% 02/15/09 2,650,000 2,941,500 Argosy Gaming Co., 10.750% 06/01/09 2,955,000 3,220,950 Boyd Gaming Corp., 8.750% 04/15/12 780,000 834,600 Circus & Eldorado/Silver Legacy Capital Corp., 10.125% 03/01/12 2,855,000 2,722,956 Coast Hotels & Casinos, Inc., 9.500% 04/01/09 3,050,000 3,233,000 Corus Entertainment Inc., 8.750% 03/01/12 1,275,000 1,354,687 Hollywood Casino Shreveport, 13.000% 08/01/06 4,230,000 3,045,600 Hollywood Entertainment Corp., 9.625% 03/15/11 2,225,000 2,369,625 Majestic Investor Holdings, 11.653% 11/30/07 1,550,000 1,534,500 Mohegan Tribal Gaming Authority: 8.000% 04/01/12 3,500,000 3,692,500 8.375% 07/01/11 1,285,000 1,365,313 Park Place Entertainment Corp., 9.375% 02/15/07 2,690,000 2,918,650 Penn National Gaming, Inc., 11.125% 03/01/08 2,850,000 3,135,000 Pinnacle Entertainment, Inc., 9.250% 02/15/07 (a) 5,575,000 5,386,844 Regal Cinemas, Inc., 9.375% 02/01/12 3,380,000 3,658,850 Six Flags, Inc., 9.500% 02/01/09 3,960,000 3,950,100 Town Sports International, Inc., 9.625% 04/15/11 (a) $ 1,075,000 $ 1,115,313 Venetian Casino Resort LLC, 11.000% 06/15/10 (a) 1,975,000 2,157,688 --------------- 48,637,676 --------------- AUTO EQUIPMENT & RENTAL SERVICES - 1.0% Accuride Corp., 9.250% 02/01/08 675,000 604,125 Collins & Aikman Products Co., 10.750% 12/31/11 2,685,000 2,322,525 Dana Corp.: 9.000% 08/15/11 1,375,000 1,433,437 10.125% 03/15/10 1,190,000 1,288,175 Dura Operating Corp., 8.625% 04/15/12 2,170,000 2,164,575 Lear Corp., 8.110% 05/15/09 3,350,000 3,760,375 United Rentals, Inc., 10.750% 04/15/08 1,640,000 1,746,600 --------------- 13,319,812 --------------- BUSINESS SERVICES - 0.2% Iron Mountain, Inc., 7.750% 01/15/15 1,225,000 1,307,688 Moore North America, 7.875% 01/15/11 995,000 1,044,750 --------------- 2,352,438 --------------- FUNERAL SERVICES - 0.5% Service Corp. International, 7.700% 04/15/09 3,860,000 3,917,900 Stewart Enterprises, Inc., 10.750% 07/01/08 2,695,000 3,004,925 --------------- 6,922,825 --------------- HEALTH SERVICES - 2.2% AmerisourceBergen Corp.: 7.250% 11/15/12 (a) 1,390,000 1,501,200 8.125% 09/01/08 2,500,000 2,743,750 Coventry Health Care, Inc., 8.125% 02/15/12 2,550,000 2,754,000 HCA, Inc., 8.750% 09/01/10 3,500,000 4,212,075 IASIS Healthcare Corp., 13.000% 10/15/09 1,655,000 1,837,050 Insight Health Services Corp., 9.875% 11/01/11 2,160,000 2,106,000 Magellan Health Services, Inc., 9.375% 11/15/07 (a) (d) 2,550,000 2,460,750 MedQuest, Inc., 11.875% 08/15/12 (a) 3,000,000 2,925,000
See notes to investment portfolio. 7
BONDS & NOTES (CONTINUED) PAR VALUE -------------------------------------------------------------------------------------- HEALTH SERVICES (CONTINUED) Pacificare Health Systems, Inc., 10.750% 06/01/09 $ 3,140,000 $ 3,454,000 Tenet Healthcare Corp., 6.375% 12/01/11 3,930,000 3,812,100 United Surgical Partners International, Inc., 10.000% 12/15/11 2,235,000 2,413,800 --------------- 30,219,725 --------------- HOTELS, CAMPS & LODGING - 0.6% Hard Rock Hotel, Inc., 8.875% 06/01/13 (a) 865,000 888,787 Host Marriott LP, 9.500% 01/15/07 2,100,000 2,223,375 Royal Caribbean Cruises Ltd., 8.000% 05/15/10 780,000 780,000 Starwood Hotels & Resorts Worldwide, Inc., 7.875% 05/01/12 (a) 3,750,000 3,975,000 --------------- 7,867,162 --------------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 12.2% AEROSPACE - 0.3% BE Aerospace, Inc., 8.875% 05/01/11 2,000,000 1,460,000 L-3 Communications Corp., 7.625% 06/15/12 2,700,000 2,936,250 --------------- 4,396,250 --------------- AIR TRANSPORTATION - 0.5% Northwest Airlines, Inc., 9.875% 03/15/07 2,485,000 1,888,600 Petroleum Helicopters, Inc., 9.375% 05/01/09 2,710,000 2,981,000 U.S. Airways, Inc., 10.375% 03/01/13 (c) 9,400,000 2,350,000 --------------- 7,219,600 --------------- BROADCASTING - 1.5% Advanstar Communications, Inc., 12.000% 02/15/11 3,395,000 3,059,744 Canwest Media, Inc., 10.625% 05/15/11 3,690,000 4,169,700 Emmis Communications Corp., (e) 03/15/11 (12.500% 03/15/06) 3,613,000 3,089,115 Quebecor Media, Inc., 11.125% 07/15/11 4,000,000 4,440,000 Sinclair Broadcast Group, Inc., 8.750% 12/15/11 960,000 1,039,200 TV Azteca SA de CV, 10.500% 02/15/07 4,505,000 4,414,900 --------------- 20,212,659 --------------- CABLE - 1.9% Charter Communications Holding LLC: (e) 04/01/11 (9.920% 04/01/04) $ 10,185,000 $ 6,314,700 10.000% 04/01/09 1,925,000 1,386,000 Comcast UK Cable Partners Ltd., 11.200% 11/15/07 5,140,000 4,677,400 CSC Holdings, Inc., 7.625% 04/01/11 1,885,000 1,922,700 DirecTV Holdings Finance LLC, 8.375% 03/15/13 (a) 1,800,000 1,989,000 EchoStar DBS Corp., 9.125% 01/15/09 2,595,000 2,886,937 Insight Communications, Inc., (e) 02/15/11 (12.250% 02/15/06) 3,340,000 2,571,800 Northland Cable Television, Inc., 10.250% 11/15/07 4,780,000 4,421,500 --------------- 26,170,037 --------------- COMMUNICATIONS - 0.5% American Tower Escrow Corp., (b) 08/01/08 (a) 660,000 417,450 Level 3 Communications, (e) 12/01/08 (10.500% 12/01/03) 3,820,000 2,807,700 Vivendi Universal, 9.250% 04/15/10 (a) 1,605,000 1,822,140 XM Satellite Radio, Inc., (e) 12/31/09 (14.000% 12/31/05) 2,843,285 2,054,273 --------------- 7,101,563 --------------- COMMUNICATIONS SERVICES - 0.8% Colt Telecom Group PLC, (e) 12/15/06 (12.000% 07/03/03) 2,290,000 2,129,786 Crown Castle International Corp.: (e) 05/15/11 (10.375% 05/01/04) 1,850,000 1,655,750 10.750% 08/01/11 1,200,000 1,245,000 Fairpoint Communications, 11.875% 03/01/10 1,100,000 1,254,000 Lucent Technologies, Inc., 6.450% 03/15/29 2,100,000 1,470,000 7.250% 07/15/06 1,430,000 1,358,500 SBA Communications Corp., 10.250% 02/01/09 2,710,000 2,276,400 --------------- 11,389,436 ---------------
See notes to investment portfolio. 8
BONDS & NOTES (CONTINUED) PAR VALUE -------------------------------------------------------------------------------------- ELECTRIC, GAS & SANITARY SERVICES - 1.2% Allied Waste North America, Inc., Series 1999 B 10.000% 08/01/09 $ 9,175,000 $ 9,633,750 Series 2001 B 8.500% 12/01/08 3,400,000 3,595,500 HydroChem Industrial Services, Inc., 10.375% 08/01/07 5,120,000 3,840,000 --------------- 17,069,250 --------------- ELECTRIC SERVICES - 2.1% AES Corp.: 9.000% 05/15/15 (a) 1,335,000 1,361,700 9.500% 06/01/09 4,071,000 3,867,450 Beaver Valley Funding Corp., 9.000% 06/01/17 2,260,000 2,737,312 Caithness Coso Funding Corp., 9.050% 12/15/09 3,016,481 3,144,681 Calpine Corp.: 8.500% 02/15/11 3,795,000 2,580,600 8.625% 08/15/10 1,520,000 1,026,000 CMS Energy Corp., 8.900% 07/15/08 2,340,000 2,328,300 Edison Mission Energy, 9.875% 04/15/11 1,850,000 1,581,750 Illinova Power Co., 11.500% 12/15/10 (a) 850,000 952,000 Mirant Americas Generation, Inc., 8.300% 05/01/11 2,845,000 1,806,575 Mission Energy Holdings Co., 13.500% 07/15/08 (f) 740,000 481,000 Nevada Power Co., 10.875% 10/15/09 (a) 2,025,000 2,237,625 PSE&G Energy Holdings, Inc., 8.625% 02/15/08 2,495,000 2,694,600 UCAR Finance, Inc., 10.250% 02/15/12 2,200,000 2,101,000 --------------- 28,900,593 --------------- MARINE SERVICES - 0.2% Stena AB, 9.625% 12/01/12 (a) 1,650,000 1,806,750 Trico Marine Services, Inc., 8.875% 05/15/12 1,625,000 1,430,000 --------------- 3,236,750 --------------- MOTOR FREIGHT & WAREHOUSING - 0.2% Allied Holdings, Inc., 8.625% 10/01/07 1,410,000 1,085,700 QDI LLC: 12.000% 06/15/09 PIK (a) 922,056 137,156 12.500% 06/15/08 3,877,000 1,545,954 --------------- 2,768,810 --------------- RADIO & TELEPHONE COMMUNICATIONS - 1.4% AirGate PCS, Inc., (e) 10/01/09 (13.500% 10/01/04) $ 2,300,000 $ 1,058,000 Avaya, Inc., 11.125% 04/01/09 1,395,000 1,525,781 Horizon PCS, Inc., 13.750% 06/15/11 2,975,000 357,000 Nextel Communications, Inc.: 9.375% 11/15/09 4,235,000 4,515,569 9.750% 10/31/07 1,230,000 1,263,825 Nextel Partners, Inc., 11.000% 03/15/10 1,425,000 1,531,875 Nortel Networks Ltd., 6.125% 02/15/06 3,085,000 2,992,450 Rogers Cantel, Inc., 9.750% 06/01/16 4,225,000 4,753,125 US Unwired, Inc., (e) 11/01/09 (13.375% 11/01/04) 5,535,000 2,047,950 --------------- 20,045,575 --------------- RAILROAD - 0.3% Kansas City Southern, 7.500% 06/15/09 1,410,000 1,424,100 TFM SA de CV, 12.500% 06/15/12 (a) 2,210,000 2,353,650 --------------- 3,777,750 --------------- TELECOMMUNICATIONS - 1.3% AT&T Wireless Services, Inc., 7.875% 03/01/11 1,285,000 1,528,559 Carrier1 International SA, 13.250% 02/15/09 (d) 6,000,000 180,000 Insight Midwest, 9.750% 10/01/09 (a) 2,080,000 2,184,000 Qwest Corp.: 8.875% 03/15/12 (a) 2,575,000 2,896,875 13.500% 12/15/10 3,100,000 3,534,000 Spectrasite, Inc., 8.250% 05/15/10 (a) 880,000 877,800 Time Warner Telecom LLC: 9.750% 07/15/08 3,300,000 2,970,000 10.125% 02/01/11 2,300,000 2,070,000 Triton PCS, Inc., 8.750% 11/15/11 1,220,000 1,146,800 --------------- 17,388,034 --------------- TOTAL CORPORATE FIXED-INCOME BONDS & NOTES (cost of $560,399,061) 554,219,562 ---------------
See notes to investment portfolio. 9
BONDS & NOTES (CONTINUED) PAR VALUE -------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCIES & OBLIGATIONS - 26.0% FEDERAL HOME LOAN MORTGAGE CORP: 7.500% 03/01/16 $ 22,980 $ 24,018 8.000% 04/01/06-05/01/16 174,380 183,820 8.500% 02/01/07-07/01/10 162,269 172,679 8.750% 05/01/05-07/01/08 33,309 35,344 9.000% 09/01/04-01/01/22 196,492 215,501 9.250% 08/01/08-05/01/16 140,225 153,749 9.500% 11/01/08-08/01/16 160,546 174,200 9.750% 12/01/08-09/01/16 22,451 25,093 10.000% 07/01/09-11/01/19 218,615 245,276 10.500% 11/01/11-10/01/24 109,821 127,502 10.750% 05/01/10-09/01/13 267,619 304,754 11.250% 10/01/10-11/01/15 185,260 214,083 --------------- 1,876,019 --------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION: 6.500% TBA (g) 60,590,000 63,146,171 7.500% 11/01/03-11/01/11 96,294 99,809 8.000% 07/01/08-07/01/09 104,715 109,982 8.250% 11/01/07 42,091 44,079 8.500% 05/01/08-09/01/21 300,662 321,043 9.000% 11/01/08-08/01/21 785,909 861,484 9.250% 05/01/16 102,203 113,476 10.000% 11/01/13-03/01/16 371,963 428,891 10.500% 09/01/07-03/01/16 357,264 409,962 --------------- 65,534,897 --------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION: 8.500% 02/15/06 6,807 7,252 9.000% 08/15/08-12/15/17 2,470,906 2,745,630 9.500% 06/15/09-11/15/17 1,130,138 1,255,199 10.000% 06/15/04-09/15/21 290,197 332,634 10.500% 12/15/10-04/15/21 85,046 98,896 11.000% 12/15/09-12/15/15 426,199 496,810 11.750% 08/15/13 9,586 11,259 12.000% 05/15/14 839 995 --------------- 4,948,675 --------------- U.S. TREASURY NOTES/BONDS: 7.500% 11/15/24 12,000,000 17,220,937 8.875% 02/15/19 14,000,000 21,819,770 10.375% 11/15/12 62,000,000 83,482,008 10.625% 08/15/15 29,415,000 49,567,717 11.625% 11/15/04 23,600,000 27,126,170 12.000% 08/15/13 60,248,000 88,524,555 --------------- 287,741,157 --------------- TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS (cost of $354,750,620) 360,100,748 --------------- FOREIGN GOVERNMENT OBLIGATIONS - 32.9% European Investment Bank, 7.625% 12/07/07 GBP 5,110,000 $ 9,651,716 Government of Australia: 6.250% 04/15/15 AUD 16,075,000 11,523,379 7.500% 08/15/08 28,200,000 20,652,245 Government of Canada: 5.500% 06/01/10 CAD 9,245,000 7,287,065 10.000% 06/01/08 24,110,000 22,513,633 Government of New Zealand: 6.000% 11/15/11 NZD 53,110,000 31,997,067 6.500% 04/15/13 27,600,000 17,259,959 Government of Sweden: 5.500% 10/08/12 SEK 108,600,000 15,361,801 6.750% 05/05/14 136,800,000 21,278,629 Republic of France: 5.000% 10/25/16 EUR 8,060,000 10,315,829 5.500% 10/25/10 3,465,000 4,628,207 Kingdom of Norway: 6.000% 05/16/11 NOK 129,800,000 21,117,915 6.750% 01/15/07 84,360,000 13,693,256 Ministry Finance Russia, 12.750% 06/24/28 USD 3,730,000 6,316,755 Poland Government Bond, 8.500% 05/12/07 PLN 44,615,000 13,478,027 Republic of Brazil: 11.000% 08/17/40 USD 5,270,000 4,887,925 11.500% 04/02/09 8,500,000 9,963,558 14.500% 10/15/09 8,200,000 9,409,500 Republic of Bulgaria, 7.500% 01/15/13 11,100,000 14,512,782 Republic of Colombia: 9.750% 04/09/11 7,553,030 8,519,818 10.000% 01/23/12 5,523,000 6,158,145 Republic of Germany, 5.375% 01/04/10 EUR 8,110,000 10,708,078 Republic of Greece: 5.350% 05/18/11 GRD 10,000,000 13,160,766 8.600% 03/26/08 3,492,296 5,131,585 Republic of Hungary, 8.500% 10/12/05 HUF 2,611,700 12,900,641 Republic of Italy, 5.250% 08/01/11 EUR 22,800,000 29,988,497 Republic of Peru, 9.875% 02/06/15 USD 4,100,000 4,694,500 Republic of South Africa: 5.250% 05/16/13 EUR 4,950,000 5,808,712 13.000% 08/31/10 ZAR 128,625,000 18,920,769 Republic of Venezuela, 9.250% 09/15/27 USD 9,945,000 7,110,675
See notes to investment portfolio. 10
BONDS & NOTES (CONTINUED) PAR VALUE -------------------------------------------------------------------------------------- Russian Federation: 5.000% 03/31/30 USD 17,610,000 $ 17,257,800 11.000% 07/24/18 5,752,000 8,282,880 United Kingdom Treasury, 5.000% 03/07/12 GBP 4,840,000 8,470,571 9.000% 07/12/11 4,750,000 10,455,644 United Mexican States: 7.500% 03/08/10 EUR 3,740,000 4,993,277 8.300% 08/15/31 USD 3,560,000 4,213,260 11.375% 09/15/16 8,920,000 13,067,800 --------------- TOTAL FOREIGN GOVERNMENT OBLIGATIONS (cost of $388,484,272) 455,692,666 --------------- TOTAL BONDS & NOTES (cost of $1,303,633,953) 1,370,012,976 --------------- PREFERRED STOCKS - 0.6% SHARES ------------------------------------------------------------------------------------- FINANCE, INSURANCE & REAL ESTATE - 0.1% FINANCIAL SERVICES - 0.1% Sinclair Capital, 11.625% 9,000 951,750 --------------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 0.5% CABLE - 0.4% CSC Holdings Ltd., PIK: 11.125% 30,244 3,152,937 11.750% 23,529 2,470,545 --------------- 5,623,482 --------------- COMMUNICATIONS - 0.1% Dobson Communication Corp., 12.250% PIK 2,093 1,904,630 --------------- POLLUTION CONTROL - 0.0% EnviroSource, Inc., 7.250% 1,787 82,731 --------------- TELECOMMUNICATIONS - 0.0% NTL Europe, Inc., Series A, 10.000% 52 161 XO Communications, Inc., 13.500% PIK 3,169 4 --------------- 165 --------------- TOTAL PREFERRED STOCKS (cost of $11,833,339) 8,562,758 --------------- COMMON STOCKS - 0.1% SHARES VALUE -------------------------------------------------------------------------------------- MINING & ENERGY - 0.0% OIL & GAS EXTRACTION - 0.0% Forest Oil Corp. 8,215 $ 200,692 Orion Refining Corp. (a)(h)(i) 10 -- --------------- 200,692 --------------- SERVICES - 0.0% HEALTH SERVICES - 0.0% Kuala Healthcare Affiliates, Inc. 176,666 177 --------------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 0.1% COMMUNICATIONS - 0.1% NTL, Inc. (h) 31,451 857,040 Ono Finance PLC (a)(h) 8,000 8 Song Networks Holding AB, ADR (f)(g) 28,100 562 Telus Corp 1 15 --------------- 857,625 --------------- POLLUTION CONTROL - 0.0% EnviroSource, Inc. (h) 15,400 3,542 Fairlane Management Corp. (f)(i) 15,400 -- --------------- 3,542 --------------- TELECOMMUNICATIONS - 0.0% Adelphia Business Solutions, Inc., Class B (h) 19,695 433 Nextel Communications, Inc., Class A (h) 18,590 278,664 --------------- 279,097 --------------- TOTAL COMMON STOCKS (cost of $8,368,799) 1,341,133 ---------------
See notes to investment portfolio. 11
WARRANTS (h) - 0.1% UNITS VALUE -------------------------------------------------------------------------------------- FINANCE, INSURANCE & REAL ESTATE - 0.0% DEPOSITORY INSTITUTIONS - 0.0% KMC Telecom Holdings, Inc., Expires 04/15/08 (a) 2,000 $ 20 --------------- RETAIL TRADE - 0.0% FOOD STORES - 0.0% Pathmark Stores, Inc., Expires 09/19/10 32,317 36,195 --------------- TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS & SANITARY SERVICES - 0.1% CABLE - 0.0% Cable Satisfaction International, Inc., Expires 03/01/05 6,080 61 Ono Finance PLC, Expires 02/15/11 (a) 2,050 20 --------------- 81 --------------- COMMUNICATIONS - 0.1% Splitrock Services, Inc., Expires 07/15/08 2,000 20,250 UbiquiTel, Inc., Expires 04/15/10 (a) 4,300 43 XM Satellite Radio Holdings, Inc., Expires 12/31/09 2,205 1,549,013 Expires 03/15/10 (a) 2,000 200 --------------- 1,569,506 --------------- COMMUNICATION SERVICES - 0.0% IPCS, Inc., Expires 07/15/10 (a) 2,500 625 --------------- MOTOR FREIGHT & WAREHOUSING - 0.0% QDI LLC, Expires 01/15/07 (a) 11,840 -- --------------- TELECOMMUNICATIONS - 0.0% Carrier1 International SA, Expires 02/19/09 (a) (d) 2,780 28 Horizon PCS, Inc., Expires 10/01/10 (a) 3,875 4 Jazztel PLC, Expires 02/01/10 (a) 1,250 -- MetroNet Communications Corp., Expires 08/15/07 (a)(f) 1,250 -- --------------- 32 --------------- TOTAL WARRANTS (cost of $3,417,820) 1,606,459 --------------- SHORT-TERM OBLIGATION - 4.3% PAR VALUE -------------------------------------------------------------------------------------- Repurchase agreement with State Street Bank & Trust Co., dated 05/31/03, due 06/02/03 at 1.190%, collateralized by U.S. Treasury Bonds with various maturities to 05/15/30, market value $60,275,094 (repurchase proceeds $59,092,859) (cost of $59,087,000) $ 59,087,000 $ 59,087,000 --------------- TOTAL INVESTMENTS - 104.0% (cost of $1,386,340,911) (j) 1,440,610,326 --------------- OTHER ASSETS & LIABILITIES, NET - (4.0)% (56,029,989) -------------------------------------------------------------------------------------- NET ASSETS - 100.0% $ 1,384,580,337 ===============
NOTES TO INVESTMENT PORTFOLIO: (a) This security is exempt from registration under Rule 144A of the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At May 31, 2003, the value of these securities amounted to $60,470,076 or 4.4% of net assets. (b) Zero coupon bond. (c) This issuer is in default of certain debt covenants. Income is not being accrued. (d) As of May 31, 2003, the Fund held securities of certain issuers that have filed for bankrupcy protection under Chapter 11, representing 0.5% of net assets. These issuers are in default of certain debt covenants. Income is not being fully accrued. (e) Stepped coupon bonds. Currently accruing at zero. Shown parenthetically is the next interest rate to be paid and the date the Trust will begin accruing this rate. (f) Represents fair value as determined in good faith under the direction of the Board of Trustees. (g) This security, or a portion thereof, has been purchased on a delayed delivery basis whereby the terms that are fixed are the purchase price, interest rate and settlement date. The exact quanity purchased may be slightly more or less than the amount shown. (h) Non-income producing. (i) Rounds to less than $1. (j) Cost of federal income tax purposes is $1,409,423,050. See notes to financial statements. 12 As of May 31, 2003, the Fund had entered into the following forward currency contracts:
NET UNREALIZED CONTRACTS IN EXCHANGE SETTLEMENT APPRECIATION TO DELIVER FOR DATE (DEPRECIATION) --------------------------------------------------------------- EUR 1,039,800 USD 1,144,668 06/06/03 $ (78,205) CAD 7,502,000 USD 5,080,935 06/10/03 (389,387) NZD 25,200,000 USD 14,403,816 06/19/03 (93,987) EUR 55,238,500 USD 59,531,271 06/23/03 (5,401,398) GBP 3,450,000 USD 5,401,457 06/23/03 (245,809) NOK 78,031,000 USD 10,641,108 06/23/03 (994,419) SEK 62,935,000 USD 7,405,599 06/23/03 (691,233) USD 19,285,019 EUR 17,250,000 06/23/03 992,297 -------------- $ (6,902,141) ==============
ACRONYM NAME --------------------------------------------------------- ADR American Depositary Receipt AUD Australian Dollar CAD Canadian Dollar EUR European Currency GBP Great Britain Pound GRD Greek Drachma HUF Hungarian Forint NOK Norwegian Krone NZD New Zealand Dollar PIK Payment-In-Kind PLN Polish Zloty SEK Swedish Krona TBA To Be Announced USD United States Dollar ZAR South African Rand
See notes to financial statements. 13 STATEMENT OF ASSETS AND LIABILITIES May 31, 2003 ASSETS: Investments, at cost $ 1,386,340,911 --------------- Investments, at value $ 1,440,610,326 Cash 347,149 Foreign currency (cost of $2,023,958) 2,057,155 Receivable for: Investments sold 1,533,515 Fund shares sold 2,527,872 Interest 25,659,909 Dividends 26,156 Deferred Trustees' compensation plan 29,526 Other assets 252,679 --------------- Total Assets 1,473,044,287 --------------- LIABILITIES: Net unrealized depreciation on forward foreign currency contracts 6,902,141 Payable for: Investments purchased 14,344,529 Investments purchased on a delayed delivery basis 63,240,812 Fund shares repurchased 2,600,334 Management fee 745,604 Transfer agent fee 456,466 Pricing and bookkeeping fees 58,753 Custody fee 48,576 Other liabilities 37,209 Deferred Trustees' fee 29,526 --------------- Total Liabilities 88,463,950 --------------- NET ASSETS $ 1,384,580,337 =============== COMPOSITION OF NET ASSETS: Paid-in capital $ 1,707,333,854 Overdistributed net investment income (11,558,453) Accumulated net realized loss (358,931,767) Net unrealized appreciation (depreciation) on: Investments 54,269,415 Foreign currency translations (6,532,712) --------------- NET ASSETS $ 1,384,580,337 =============== CLASS A: Net assets $ 595,222,891 Shares outstanding 97,751,313 =============== Net asset value per share $ 6.09(a) =============== Maximum offering price per share ($6.09/0.9525) $ 6.39(b) =============== CLASS B: Net assets $ 484,540,494 Shares outstanding 79,622,411 =============== Net asset value and offering price per share $ 6.09(a) =============== CLASS C: Net assets $ 45,572,089 Shares outstanding 7,483,827 =============== Net asset value and offering price per share $ 6.09(a) =============== CLASS J: Net assets $ 258,057,351 Shares outstanding 42,446,128 =============== Net asset value and offering price per share $ 6.08(a) =============== Maximum offering price per share ($6.08/0.9700) $ 6.27(b) =============== CLASS Z: Net assets $ 1,187,512 Shares outstanding 196,399 =============== Net asset value, redemption and offering price per share $ 6.05 ===============
(a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. (b) On sales of $50,000 or more the offering price is reduced. See notes to financial statements. 14 STATEMENT OF OPERATIONS For the Period Ended May 31, 2003 (a) INVESTMENT INCOME: Interest $ 42,430,680 Dividends 327,560 Dollar roll fee income 346,470 Other Income 88,190 --------------- Total Investment Income (net of foreign taxes withheld of $21) 43,192,900 --------------- EXPENSES: Management fee 3,534,476 Distribution fee: Class B 1,444,305 Class C 130,020 Class J 383,204 Service fee: Class A 557,377 Class B 457,066 Class C 40,873 Class J 261,142 Pricing and bookkeeping fees 210,671 Transfer agent fee 1,633,900 Trustees' fee 27,397 Custody fee 157,846 Other expenses 142,571 --------------- Total Expenses 8,980,848 Fees waived by Distributor - Class C (26,004) Custody earnings credit (2,140) --------------- Net Expenses 8,952,704 --------------- Net Investment Income 34,240,196 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: Net realized gain (loss) on: Investments 16,843,025 Foreign currency transactions (3,399,422) --------------- Net realized gain 13,443,603 --------------- Net change in unrealized appreciation/ depreciation on: Investments 97,784,295 Foreign currency translations (5,179,983) --------------- Net change in unrealized appreciation/ depreciation 92,604,312 --------------- Net Gain 106,047,915 --------------- Net Increase in Net Assets from Operations $ 140,288,111 ===============
For the Year Ended December 31, 2002 INVESTMENT INCOME: Interest $ 104,072,755 Dividends 1,903,893 Dollar roll fee income 3,256,772 --------------- Total Investment Income (net of foreign taxes withheld of $746,080) 109,233,420 --------------- EXPENSES: Management fee 8,711,239 Distribution fee: Class B 3,606,040 Class C 297,430 Class J 992,769 Service fee: Class A 1,339,445 Class B 1,134,067 Class C 93,648 Class J 671,619 Pricing and bookkeeping fees 552,515 Transfer agent fee 3,887,964 Trustees' fee 51,616 Custody fee 274,271 Other expenses 151,451 --------------- Total Expenses 21,764,074 Fees waived by Distributor - Class C (59,478) Custody earnings credit (5,664) --------------- Net Expenses 21,698,932 --------------- Net Investment Income 87,534,488 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: Net realized loss on: Investments (90,892,105) Foreign currency transactions (12,106,212) --------------- Net realized loss (102,998,317) --------------- Net change in unrealized appreciation/ depreciation on: Investments 112,953,334 Foreign currency translations 106,906 --------------- Net change in unrealized appreciation/ depreciation 113,060,240 --------------- Net Gain 10,061,923 --------------- Net Increase in Net Assets from Operations $ 97,596,411 ===============
(a) The Fund has changed its fiscal year end from December 31 to May 31. See notes to financial statements. 15 STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED YEAR ENDED DECEMBER 31 INCREASE (DECREASE) MAY 31, ---------------------------------- IN NET ASSETS: 2003 (a) 2002 2001 --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 34,240,196 $ 87,534,488 $ 128,724,944 Net realized gain (loss) on investments and foreign currency transactions 13,443,603 (102,998,317) (136,322,509) Net change in unrealized appreciation/depreciation on investments and foreign currency translations 92,604,312 113,060,240 49,984,576 --------------- --------------- --------------- Net Increase from Operations 140,288,111 97,596,411 42,387,011 --------------- --------------- --------------- DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income: Class A (15,184,183) (42,003,370) (46,691,586) Class B (10,942,373) (32,234,724) (48,801,551) Class C (1,015,241) (2,719,136) (3,544,584) Class J (6,687,799) (20,199,908) (34,229,039) Class Z (12,062) (44,973) (295,153) Return of capital: Class A -- (2,370,220) (3,956,036) Class B -- (1,818,983) (4,134,808) Class C -- (153,439) (300,322) Class J -- (1,139,866) (2,900,123) Class Z -- (2,538) (25,007) --------------- --------------- --------------- Total Distributions Declared to Shareholders (33,841,658) (102,687,157) (144,878,209) --------------- --------------- --------------- SHARE TRANSACTIONS: Class A: Subscriptions 28,881,303 76,999,338 159,940,369 Distributions reinvested 7,792,998 22,577,921 26,051,063 Redemptions (39,518,059) (120,669,061) (112,725,586) --------------- --------------- --------------- Net Increase (Decrease) (2,843,758) (21,091,802) 73,265,846 --------------- --------------- --------------- Class B: Subscriptions 32,599,690 66,402,147 104,249,304 Distributions reinvested 5,920,067 18,557,348 28,021,493 Redemptions (47,619,346) (159,845,033) (252,987,306) --------------- --------------- --------------- Net Decrease (9,099,589) (74,885,538) (120,716,509) --------------- --------------- --------------- Class C: Subscriptions 6,567,113 10,711,255 15,490,383 Distributions reinvested 547,933 1,596,012 2,286,312 Redemptions (3,831,655) (16,138,332) (15,558,670) --------------- --------------- --------------- Net Increase (Decrease) 3,283,391 (3,831,065) 2,218,025 --------------- --------------- --------------- Class J: Subscriptions 4,260,615 7,970,201 59,847,670 Redemptions (38,576,078) (59,088,986) (218,210,654) --------------- --------------- --------------- Net Decrease (34,315,463) (51,118,785) (158,362,984) --------------- --------------- ---------------
See notes to financial statements. 16
PERIOD ENDED YEAR ENDED DECEMBER 31 MAY 31, ---------------------------------- 2003 (a) 2002 2001 --------------------------------------------------------------------------------------------------------------------------------- Class Z: Subscriptions $ 1,247,878 $ 31,748 $ 4,246,282 Distributions reinvested 11,438 47,503 320,160 Redemptions (108,415) (1,932,379) (2,482,595) --------------- --------------- --------------- Net Increase (Decrease) 1,150,901 (1,853,128) 2,083,847 --------------- --------------- --------------- Net Decrease from Share Transactions (41,824,518) (152,780,318) (201,511,775) --------------- --------------- --------------- Total Increase (Decrease) in Net Assets 64,621,935 (157,871,064) (304,002,973) NET ASSETS: Beginning of period 1,319,958,402 1,477,829,466 1,781,832,439 --------------- --------------- --------------- End of period (including overdistributed net investment income of $(11,558,453), $(25,578,478) and $(23,536,368), respectively) $ 1,384,580,337 $ 1,319,958,402 $ 1,477,829,466 =============== =============== =============== CHANGES IN SHARES: Class A: Subscriptions 4,991,280 13,798,283 27,518,050 Issued for distributions reinvested 1,347,649 4,075,545 4,492,051 Redemptions (6,828,570) (21,765,079) (19,289,781) --------------- --------------- --------------- Net Increase (Decrease) (489,641) (3,891,251) 12,720,320 --------------- --------------- --------------- Class B: Subscriptions 5,624,733 11,996,584 17,729,660 Issued for distributions reinvested 1,023,970 3,358,728 4,821,532 Redemptions (8,229,830) (28,815,674) (43,530,569) --------------- --------------- --------------- Net Decrease (1,581,127) (13,460,362) (20,979,377) --------------- --------------- --------------- Class C: Subscriptions 1,130,031 1,930,151 2,623,088 Issued for distributions reinvested 94,722 287,824 393,676 Redemptions (658,217) (2,910,443) (2,663,083) --------------- --------------- --------------- Net Increase (Decrease) 566,536 (692,468) 353,681 --------------- --------------- --------------- Class J: Subscriptions 724,787 1,438,451 10,070,910 Redemptions (6,646,170) (10,581,690) (37,264,380) --------------- --------------- --------------- Net Decrease (5,921,383) (9,143,239) (27,193,470) --------------- --------------- --------------- Class Z: Subscriptions 212,751 5,811 711,730 Issued for distributions reinvested 1,948 8,620 55,323 Redemptions (18,781) (344,889) (436,308) --------------- --------------- --------------- Net Increase (Decrease) 195,918 (330,458) 330,745 --------------- --------------- ---------------
(a) The Fund has changed its fiscal year end from December 31 to May 31. See notes to financial statements. 17 NOTES TO FINANCIAL STATEMENTS May 31, 2003 NOTE 1. ACCOUNTING POLICIES ORGANIZATION: Liberty Strategic Income Fund (the "Fund"), a series of Liberty Funds Trust I, is a diversified portfolio of a Massachusetts business trust, registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Fund's investment goal is to seek current income consistent with prudent risk. The Fund also seeks maximum total return. The Fund may issue an unlimited number of shares. The Fund offers five classes of shares: Class A, Class B, Class C, Class J and Class Z. Class A shares are sold with a front-end sales charge. A 1.00% contingent deferred sales charge ("CDSC") is assessed on redemptions made within eighteen months on an original purchase of $1 million to $25 million. Class B shares are subject to a CDSC. Class B shares will convert to Class A shares in three, four, or eight years after purchase, depending on the program under which the shares were purchased. Class C shares are subject to a CDSC on redemptions made within one year after purchase. Class J shares are sold with a front-end sales charge and are available for purchase only by residents or citizens of Japan. Class Z shares are offered continuously at net asset value. In addition, there are certain restrictions on the purchase of Class Z shares, as described in the Fund's prospectus. Effective February 11, 2003, the Board of Trustees had approved a change in the fiscal year end of the Fund from December 31 to May 31. Accordingly, the Fund's 2003 fiscal year ended on May 31, 2003. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. SECURITY VALUATION AND TRANSACTIONS: Debt securities generally are valued by a pricing service based upon market transactions for normal, institutional-size trading units of similar securities. When management deems it appropriate, an over-the-counter or exchange bid quotation is used. 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 day, at the current quoted bid price. Forward currency contracts are valued based on the weighted value of the exchange-traded contracts with similar durations. Short-term obligations with a maturity of 60 days or less are valued at amortized cost. The values of all assets and liabilities quoted in foreign currencies are translated into U.S. dollars at that day's exchange rates. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange ("NYSE"). The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of the customary trading session of the NYSE, which would not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities and such exchange rates occur during such period, then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board of Trustees. Investments for which market quotations are not readily available, or quotations which management believes are not appropriate, are valued at fair value under procedures approved by the Board of Trustees. Security transactions 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. 18 The Fund may enter into mortgage dollar roll transactions. A mortgage dollar roll transaction involves a sale by the Fund of securities that it holds with an agreement by the Fund to repurchase substantially similar securities at an agreed upon price and date. During the period between the sale and repurchase, the Fund will not be entitled to accrue interest and receive principal payments on the securities sold. Mortgage dollar roll transactions involve the risk that the market value of the securities sold by the Fund may decline below the repurchase price of those securities. In the event the buyer of the securities under a mortgage dollar roll transaction files for bankruptcy or becomes insolvent, the Fund's use of proceeds of the transaction may be restricted pending a determination by or with respect to the other party. The Fund may trade securities on other than normal settlement terms. This may increase the risk if the other party to the transaction fails to deliver and causes the Fund to subsequently invest at less advantageous prices. DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income, expenses (other than Class A, Class B, Class C and Class J services fees and Class B, Class C and Class J 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, Class C and Class J 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 fee applicable to Class A, Class B, Class C and Class J shares and distribution fee applicable to Class B, Class C and Class J shares only. 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. Premium and discount are being amortized and accreted respectively, for all debt securities. The value of additional securities received as an interest payment is recorded as income and as an increase to the cost basis of such securities. DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares, records, and pays distributions monthly. FOREIGN CURRENCY TRANSACTIONS: Net realized and unrealized gains (losses) on foreign currency transactions and translations includes gains (losses) arising from the fluctuation in exchange rates between trade and settlement dates on securities transactions, gains (losses) arising from the disposition of foreign currency and currency gains (losses) between the accrual and payment dates on dividends, interest income and foreign withholding taxes. The Fund does not distinguish that portion of gains (losses) on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the net realized and unrealized gains (losses) on investments. FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency contracts to purchase or sell foreign currencies at predetermined exchange rates in connection with the settlement of purchases and sales of securities. The Fund may also enter into forward currency contracts to hedge certain other foreign currency denominated assets. The contracts are used to minimize the exposure to foreign exchange rate fluctuations during the period between trade and settlement date of the contracts. All contracts are marked-to-market daily, resulting in unrealized gains (losses) which become realized at the time the forward currency contracts are closed or mature. Realized and unrealized gains (losses) arising from such transactions are included in net realized and unrealized gains (losses) on forward foreign currency transactions and translations. Forward currency contracts do not eliminate fluctuations in the prices of the Fund's portfolio securities. While the maximum potential loss from such contracts is the aggregate face value in U.S. dollars at the time the contract was opened, exposure is typically 19 limited to the change in value of the contract (in U.S. dollars) over the period it remains open. Risks may also arise if counterparties fail to perform their obligations under the contracts. OTHER: Corporate actions and dividend income are recorded on the ex-date (except for certain foreign securities which are recorded as soon after ex-date as the Fund becomes aware of such), net of non-reclaimable tax withholdings. Where a high level of uncertainty as to collection exists, income on securities is recorded net of all tax withholdings with any rebates recorded when received. The Fund's custodian takes possession through the federal book-entry system of securities collateralizing repurchase agreements. Collateral is marked-to-market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund. The Fund may experience costs and delays in liquidating the collateral if the issuer defaults or enters bankruptcy. NOTE 2. FEDERAL TAX INFORMATION Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatments for deferral of losses from wash sales, discount accretion/premium amortization on debt securities, marked-to-market on foreign currency transactions, capital loss carryforwards, interest on defaulted bonds and non-deductible expenses. 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 period ended May 31, 2003, 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 ------------------------------------------------------- $ 13,621,487 $ 5,203,409 $ (18,824,896)
Net investment income, net realized gain (loss) and net assets were not affected by this reclassification. The tax character of distributions paid was as follows:
PERIOD YEAR ENDED ENDED DECEMBER 31, MAY 31, --------------------------------- 2003 2002 2001 ------------------------------------------------------------------------------ Distributions paid from: Ordinary income $ 33,841,658 $ 97,202,111 $ 133,561,913 Return of capital -- 5,485,046 11,316,296 --------------- --------------- --------------- $ 33,841,658 $ 102,687,157 $ 144,878,209 =============== =============== ===============
As of May 31, 2003, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED ORDINARY UNREALIZED INCOME APPRECIATION* ------------------------------------------------------------ $ 3,720,265 $ 31,187,276
* The difference between book-basis and tax-basis unrealized appreciation is attributable primarily to the tax deferral of losses on wash sales and amortization/accretion tax elections on fixed income securities. The following capital loss carryforwards, determined as of May 31, 2003, 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:
CAPITAL LOSS YEAR OF EXPIRATION CARRYFORWARD ------------------------------------------------------------ 2007 $ 21,541,689 2008 63,518,542 2009 136,912,288 2010 135,415,014 2011 318,608 ------------- $ 357,706,141 =============
Expired capital loss carryforwards, if any, are recorded as a reduction in paid-in capital. 20 NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES MANAGEMENT FEE: On April 1, 2003, Colonial Management Associates, Inc. ("Colonial"), the previous investment advisor to the Fund, merged into Columbia Management Advisors, Inc. ("Columbia"), formerly known as Columbia Management Co., an indirect, wholly-owned subsidiary of Fleet Boston Financial Corporation. At the time of the merger, Columbia assumed the obligations of Colonial with respect to the Fund. The merger did 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. Columbia is the investment advisor of the Fund and furnishes accounting and other services and office facilities for a monthly fee based on the Fund's average daily net assets as follows:
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE ------------------------------------------------------------ First $1 billion 0.65% Next $1 billion 0.60% Over $2 billion 0.55%
PRICING AND BOOKKEEPING FEES: Columbia is responsible for providing pricing and bookkeeping services to the Fund under a Pricing and Bookkeeping Agreement. Under a separate agreement (the "Outsourcing Agreement"), Columbia has delegated those functions to State Street Bank and Trust Company ("State Street"). Columbia pays fees to State Street under the Outsourcing Agreement. Under its pricing and bookkeeping agreement with the Fund, Columbia receives from the Fund an annual flat fee of $10,000, paid monthly, and in any month that the Fund's average daily net assets 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 period ended May 31, 2003, the annualized net asset based fee rate was 0.032%. The Fund also pays out-of-pocket costs for pricing services. TRANSFER AGENT FEE: Liberty Funds Services, Inc. (the "Transfer Agent"), an affiliate of Columbia, 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 Columbia, is the Fund's principal underwriter. For the period ended May 31, 2003, the Fund has been advised that the Distributor retained net underwriting discounts of $20,805 on sales of the Fund's Class A shares and received CDSC of $2,049, $537,202 and $3,414 on Class A, Class B and Class C share redemptions, respectively. The Fund has adopted a 12b-1 plan (the "Plan") for its Class A, Class B, Class C and Class J shares, which requires the payment of a monthly service fee to the Distributor. The fee is calculated by adding: (1) 0.15% of the average daily net assets attributable to outstanding Class A and Class B shares issued prior to January 1, 1993 and (2) 0.25% of the average daily net assets attributable to outstanding Class A, Class B, Class C and Class J shares issued thereafter. This arrangement results in a rate of service fee payable by the Fund that is a blend between the 0.15% and 0.25% rates. For the period ended May 31, 2003, the Fund's annualized service fee rate was 0.24%. The Plan also requires the payment of a monthly distribution fee to the Distributor equal to 0.75% annually of the Fund's average daily net assets attributable to Class B and Class C shares and 0.35% annually of the Fund's average daily net assets attributable to Class J shares. The Distributor has voluntarily agreed, until further notice, to waive a portion of the Class C distribution fee so that it does not exceed 0.60% annually. The CDSC and the fees received from the Plan are used principally as repayment to the Distributor for amounts paid by the Distributor to dealers who sold such shares. OTHER: The Fund pays no compensation to its officers, all of whom are employees of Columbia or its 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 $2,140 of custody fees were reduced by balance credits for the period ended May 31, 2003. The Fund could have invested a portion of the assets utilized 21 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: For the period ended May 31, 2003, purchases and sales of investments, other than short-term obligations, were $757,758,576 and $829,340,026, respectively, of which $339,385,759 and $336,072,273, respectively, were U.S. Government securities. Unrealized appreciation (depreciation) at May 31, 2003, based on cost of investments for federal income tax purposes, was: Gross unrealized appreciation $ 116,158,449 Gross unrealized depreciation (84,971,173) ------------- Net unrealized appreciation $ 31,187,276 =============
OTHER: There are certain additional risks involved when investing in foreign securities that are not inherent with investments in domestic securities. These risks may involve foreign currency exchange rate fluctuations, adverse political and economic developments and the possible prevention of foreign currency exchange or the imposition of other foreign governmental laws or restrictions. Investing in high yield securities offer the potential for high current income and attractive total return, but involves certain risks. Bond investing also involves interest rate risk, which means that bond prices may change as interest rates increase or decrease. Investing in emerging markets involves certain risks as they may be subject to a greater degree of social, political, currency and economic instability. The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified. NOTE 5. LINE OF CREDIT The Fund and other affiliated funds participate in a $350,000,000 credit facility, which is used for temporary or emergency purposes to facilitate portfolio liquidity. Interest is charged to the Fund based on its borrowings. In addition, the Fund has agreed to pay commitment fees on its pro-rata portion of the line of credit. The commitment fee is included in "Other expenses" on the Statement of Operations. Prior to April 26, 2003, the Fund participated in a separate credit agreement with similar terms to its existing agreement. For the period ended May 31, 2003, the Fund did not borrow under these agreements. 22 FINANCIAL HIGHLIGHTS Selected data for a share outstanding throughout each period is as follows:
PERIOD ENDED YEAR ENDED DECEMBER 31, MAY 31, --------------------------------------------------------------------------- CLASS A SHARES 2003 (a) 2002 2001 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 5.63 $ 5.64 $ 6.00 $ 6.62 $ 7.11 $ 7.32 --------- --------- --------- --------- --------- --------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.16(b) 0.38(b) 0.48(b)(c) 0.58(d) 0.57(d) 0.56 Net realized and unrealized gain (loss) on investments and foreign currency 0.46 0.05 (0.30)(c) (0.62) (0.48) (0.19) --------- --------- --------- --------- --------- --------- Total from Investment Operations 0.62 0.43 0.18 (0.04) 0.09 0.37 --------- --------- --------- --------- --------- --------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.16) (0.42) (0.50) (0.53) (0.58)(e) (0.58)(e) Return of capital -- (0.02) (0.04) (0.05) -- -- --------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.16) (0.44) (0.54) (0.58) (0.58) (0.58) --------- --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 6.09 $ 5.63 $ 5.64 $ 6.00 $ 6.62 $ 7.11 ========= ========= ========= ========= ========= ========= Total return (f) 11.10%(g) 7.97% 3.07% (0.68)% 1.28% 5.17% ========= ========= ========= ========= ========= ========= RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (h) 1.27%(i) 1.23% 1.21% 1.17% 1.19% 1.15% Net investment income (h) 6.52%(i) 6.75% 8.22%(c) 9.12% 8.30% 7.88% Portfolio turnover rate 59%(g) 62% 106% 35% 44% 64% Net assets, end of period (000's) $ 595,223 $ 552,737 $ 575,791 $ 536,481 $ 669,795 $ 787,461
(a) The Fund has changed its fiscal year end from December 31 to May 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share by $0.02, increase net realized and unrealized loss per share by $0.02 and decrease the ratio of net investment income to average net assets from 8.60% to 8.22%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (d) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (e) Distributions from income include currency gains and gains on securities treated as ordinary income for tax purposes. (f) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (g) Not annualized. (h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (i) Annualized. 23 Selected data for a share outstanding throughout each period is as follows:
PERIOD ENDED YEAR ENDED DECEMBER 31, MAY 31, --------------------------------------------------------------------------- CLASS B SHARES 2003 (a) 2002 2001 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 5.62 $ 5.63 $ 6.00 $ 6.62 $ 7.11 $ 7.32 --------- --------- --------- --------- --------- --------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.14(b) 0.34(b) 0.44(b)(c) 0.53(d) 0.51(d) 0.51 Net realized and unrealized gain (loss) on investments and foreign currency 0.47 0.04 (0.32)(c) (0.62) (0.48) (0.20) --------- --------- --------- --------- --------- --------- Total from Investment Operations 0.61 0.38 0.12 (0.09) 0.03 0.31 --------- --------- --------- --------- --------- --------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.14) (0.37) (0.45) (0.48) (0.52)(e) (0.52)(e) Return of capital -- (0.02) (0.04) (0.05) -- -- --------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.14) (0.39) (0.49) (0.53) (0.52) (0.52) --------- --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 6.09 $ 5.62 $ 5.63 $ 6.00 $ 6.62 $ 7.11 ========= ========= ========= ========= ========= ========= Total return (f) 10.95%(g) 7.17% 2.12% (1.41)% 0.52% 4.38% ========= ========= ========= ========= ========= ========= RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (h) 2.02%(i) 1.98% 1.96% 1.92% 1.94% 1.90% Net investment income (h) 5.77%(i) 6.00% 7.47%(c) 8.37% 7.55% 7.13% Portfolio turnover rate 59%(g) 62% 106% 35% 44% 64% Net assets, end of period (000's) $ 484,540 $ 456,563 $ 533,406 $ 693,733 $ 914,145 $ 919,740
(a) The Fund has changed its fiscal year end from December 31 to May 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share by $0.02, increase net realized and unrealized loss per share by $0.02 and decrease the ratio of net investment income to average net assets from 7.85% to 7.47%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (d) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (e) Distributions from income include currency gains and gains on securities treated as ordinary income for tax purposes. (f) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (g) Not annualized. (h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (i) Annualized. 24 Selected data for a share outstanding throughout each period is as follows:
PERIOD ENDED YEAR ENDED DECEMBER 31, MAY 31, ---------------------------------------------------------------------------- CLASS C SHARES 2003 (a) 2002 2001 2000 1999 1998 -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 5.63 $ 5.64 $ 6.00 $ 6.62 $ 7.11 $ 7.32 --------- --------- --------- --------- --------- --------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.14(b) 0.35(b) 0.45(b)(c) 0.54(d)(e) 0.52(d)(e) 0.52(d) Net realized and unrealized gain (loss) on investments and foreign currency 0.46 0.04 (0.31)(c) (0.62) (0.48) (0.20) --------- --------- --------- --------- --------- --------- Total from Investment Operations 0.60 0.39 0.14 (0.08) 0.04 0.32 --------- --------- --------- --------- --------- --------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.14) (0.38) (0.46) (0.49) (0.53)(f) (0.53)(f) Return of capital -- (0.02) (0.04) (0.05) -- -- --------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.14) (0.40) (0.50) (0.54) (0.53) (0.53) --------- --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 6.09 $ 5.63 $ 5.64 $ 6.00 $ 6.62 $ 7.11 ========= ========= ========= ========= ========= ========= Total return (g) 10.82%(h)(i) 7.32%(h) 2.45% (1.26)%(h) 0.67%(h) 4.54%(h) ========= ========= ========= ========= ========= ========= RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (j) 1.87%(k) 1.83% 1.81% 1.77%(d) 1.79%(d) 1.75%(d) Net investment income (j) 5.92%(k) 6.15% 7.62%(c) 8.52%(d) 7.70%(d) 7.28%(d) Waiver/reimbursement 0.15%(k) 0.15% -- 0.15% 0.15% 0.15% Portfolio turnover rate 59%(i) 62% 106% 35% 44% 64% Net assets, end of period (000's) $ 45,572 $ 38,923 $ 42,906 $ 43,538 $ 57,246 $ 36,918
(a) The Fund has changed its fiscal year end from December 31 to May 31. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share by $0.02, increase net realized and unrealized loss per share by $0.02 and decrease the ratio of net investment income to average net assets from 8.00% to 7.62%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (d) Net of fees waived by the Distributor which amounted to $0.02, $0.01 and $0.01 per share and 0.15%, 0.15% and 0.15% for the periods ended December 31, 2000, 1999 and 1998, respectively. (e) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (f) Distributions from income include currency gains and gains on securities treated as ordinary income for tax purposes. (g) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (h) Had the Distributor not waived a portion of expenses, total return would have been reduced. (i) Not annualized. (j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (k) Annualized. 25 Selected data for a share outstanding throughout each period is as follows:
PERIOD ENDED YEAR ENDED DECEMBER 31, MAY 31, ---------------------------------------------------------------------------- CLASS J SHARES 2003 (a) 2002 2001 2000 1999 1998(b) -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 5.62 $ 5.63 $ 6.00 $ 6.62 $ 7.10 $ 7.00 --------- --------- --------- --------- --------- --------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.15(c) 0.36(c) 0.46(c)(d) 0.55(e) 0.54(e) 0.08 Net realized and unrealized gain (loss) on investments and foreign currency 0.46 0.05 (0.31)(d) (0.62) (0.47) 0.11(f) --------- --------- --------- --------- --------- --------- Total from Investment Operations 0.61 0.41 0.15 (0.07) 0.07 0.19 --------- --------- --------- --------- --------- --------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.15) (0.40) (0.48) (0.50) (0.55)(g) (0.09)(g) Return of capital -- (0.02) (0.04) (0.05) -- -- --------- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.15) (0.42) (0.52) (0.55) (0.55) (0.09) --------- --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 6.08 $ 5.62 $ 5.63 $ 6.00 $ 6.62 $ 7.10 ========= ========= ========= ========= ========= ========= Total return (h) 10.97%(i) 7.61% 2.56% (1.02)% 1.07% 2.74%(i) ========= ========= ========= ========= ========= ========= RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (j) 1.62%(k) 1.58% 1.56% 1.52% 1.54% 1.49%(k) Net investment income (j) 6.17%(k) 6.40% 7.87%(d) 8.77% 7.95% 7.76%(k) Portfolio turnover rate 59%(i) 62% 106% 35% 44% 64% Net assets, end of period (000's) $ 258,057 $ 271,733 $ 323,866 $ 508,079 $ 568,311 $ 49,143
(a) The Fund has changed its fiscal year end from December 31 to May 31. (b) Class J shares were initially offered on November 2, 1998. Per share data and total return reflect activity from that date. (c) Per share data was calculated using average shares outstanding during the period. (d) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share by $0.02, increase net realized and unrealized loss per share by $0.02 and decrease the ratio of net investment income to average net assets from 8.25% to 7.87%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (e) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (f) The amount shown for a share outstanding does not correspond with the aggregate net gain on investments for the period due to the timing of sales and repurchases of Fund shares in relation to fluctuating market values of the investments of the Fund. (g) Distributions from income include currency gains and gains on securities treated as ordinary income for tax purposes. (h) Total return at net asset value assuming all distributions reinvested and no initial sales charge. (i) Not annualized. (j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (k) Annualized. 26 Selected data for a share outstanding throughout each period is as follows:
PERIOD ENDED YEAR ENDED DECEMBER 31, MAY 31, ------------------------------------------------------------ CLASS Z SHARES 2003 (a) 2002 2001 2000 1999(b) ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 5.59 $ 5.62 $ 5.99 $ 6.62 $ 7.10 --------- --------- --------- --------- --------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.17(c) 0.39(c) 0.49(c)(d) 0.59(e) 0.53(e) Net realized and unrealized gain (loss) on investments and foreign currency 0.45 0.03 (0.31)(d) (0.63) (0.47) --------- --------- --------- --------- --------- Total from Investment Operations 0.62 0.42 0.18 (0.04) 0.06 --------- --------- --------- --------- --------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.16) (0.43) (0.51) (0.54) (0.54)(f) Return of capital -- (0.02) (0.04) (0.05) -- --------- --------- --------- --------- --------- Total Distributions Declared to Shareholders (0.16) (0.45) (0.55) (0.59) (0.54) --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 6.05 $ 5.59 $ 5.62 $ 5.99 $ 6.62 ========= ========= ========= ========= ========= Total return (g) 11.29%(h) 7.87% 3.14% (0.59)% 1.50%(h) ========= ========= ========= ========= ========= RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (i) 1.03%(j) 0.99% 0.98% 0.93% 0.95%(j) Net investment income (i) 6.76%(j) 6.99% 8.45%(d) 9.36% 8.54%(j) Portfolio turnover rate 59%(h) 62% 106% 35% 44% Net assets, end of period (000's) $ 1,188 $ 3 $ 1,860 $ 1 $ 4,928
(a) The Fund has changed its fiscal year end from December 31 to May 31. (b) Class Z shares were initially offered on January 29, 1999. Per share data and total return reflect activity from that date. (c) Per share data was calculated using average shares outstanding during the period. (d) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to decrease net investment income per share by $0.02, decrease net realized and unrealized loss per share by $0.02 and decrease the ratio of net investment income to average net assets from 8.84% to 8.45%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (e) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (f) Distributions from income include currency gains and gains on securities treated as ordinary income for tax purposes. (g) Total return at net asset value assuming all distributions reinvested. (h) Not annualized. (i) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (j) Annualized. 27 REPORT OF INDEPENDENT AUDITORS TO THE TRUSTEES OF LIBERTY FUNDS TRUST I AND THE SHAREHOLDERS OF LIBERTY STRATEGIC INCOME FUND In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Liberty Strategic Income Fund (the "Fund") (a series of Liberty Funds Trust I) at May 31, 2003, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with 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 securities at May 31, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts July 21, 2003 28 TRUSTEES The Trustees serve terms of indefinite duration. The names, addresses and ages of the Trustees and officers of 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(1) TO OFFICE DURING PAST FIVE YEARS BY TRUSTEE HELD ------------------------------------------------------------------------------------------------------------------------------------ DISINTERESTED TRUSTEES Douglas A. Hacker (age 47) Trustee 1996 Executive Vice 85 None c/o Liberty Funds Group LLC President-Strategy of United One Financial Center Airlines (airlines) since Boston, MA 02111 December 2002 (formerly President of UAL Loyalty Services (airline) from September 2001 to December 2002; (Executive Vice President and Chief Financial Officer from March 1993 to September 2001 of United Airlines); Senior Vice President and Chief Financial Officer of UAL, Inc. prior thereto Janet Langford Kelly (age 45) Trustee 1996 Executive Vice 85 None c/o Liberty Funds Group LLC President-Corporate One Financial Center Development and Boston, MA 02111 Administration, General Counsel and Secretary, Kellogg Company (food manufacturer), since September 1999; Senior Vice President, Secretary and General Counsel, Sara Lee Corporation (branded, packaged, consumer-products manufacturer) prior thereto Richard W. Lowry (age 67) Trustee 1995 Private Investor since 1987 87*** None c/o Liberty Funds Group LLC (formerly Chairman and Chief One Financial Center Executive Officer, U.S. Boston, MA 02111 Plywood Corporation (building products manufacturer)) Charles R. Nelson (age 60) Trustee 1981 Professor of Economics, 120* None c/o Liberty Funds Group LLC University of Washington, One Financial Center since January 1976; Ford and Boston, MA 02111 Louisa Van Voorhis Professor of Political Economy, University of 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; Trustee, Columbia Funds since July 2002; consultant on econometric and statistical matters John J. Neuhauser (age 60) Trustee 1985 Academic Vice President and 88*** Saucony, Inc. c/o Liberty Funds Group LLC Dean of Faculties since (athletic One Financial Center August 1999, Boston College footwear) and Boston, MA 02111 (formerly Dean, Boston SkillSoft Corp. College School of Management (e-learning) from September 1977 to September 1999) Thomas E. Stitzel (age 67) Trustee 1998 Business Consultant since 85 None c/o Liberty Funds Group LLC 1999 (formerly Professor of One Financial Center Finance from 1975 to 1999 and Boston, MA 02111 Dean from 1977 to 1991, College of Business, Boise State University); Chartered Financial Analyst
29
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(1) TO OFFICE DURING PAST FIVE YEARS BY TRUSTEE HELD ------------------------------------------------------------------------------------------------------------------------------------ DISINTERESTED TRUSTEES Thomas C. Theobald (age 66) Trustee 1996 Managing Director, William 85 Anixter c/o Liberty Funds Group LLC Blair Capital Partners International One Financial Center (private equity investing) (network support Boston, MA 02111 since September 1994 equipment (formerly Chief Executive distributor), Officer and Chairman of the Jones Lang LaSalle Board of Directors, (real estate Continental Bank Corporation management prior thereto) services) and MONY Group (life insurance) Anne-Lee Verville*** (age 58) Trustee 1998 Author and speaker on 86 Chairman of the c/o Liberty Funds Group LLC educational systems needs Board of One Financial Center (formerly General Manager, Directors, Enesco Boston, MA 02111 Global Education Industry Group, from 1994 to 1997, and Inc. (designer, President, Applications importer and Solutions Division from 1991 distributor of to 1994, IBM Corporation giftware and (global education and global collectibles) applications)) INTERESTED TRUSTEES William E. Mayer** (age 63) Trustee 1994 Managing Partner, Park Avenue 87*** Lee Enterprises c/o Liberty Funds Group LLC Equity Partners (private (print media), WR One Financial Center equity) since February 1999 Hambrecht + Co. Boston, MA 02111 (formerly Founding Partner, (financial service Development Capital LLC from provider), and November 1996 to February First Health 1999; Dean and Professor, (health care) College of Business and Management, University of Maryland from October 1992 to November 1996) Joseph R. Palombo** (age 50) Trustee, 2000 President of Galaxy Funds 86 None One Financial Center Chairman of the since February 2003 (formerly Boston, MA 02111 Board and Vice President from September President 2002 to February 2003); Executive Vice President and Chief Operating Officer of Columbia Management Group, Inc. (Columbia Management Group) since November 2001; Director, Executive Vice President and Chief Operating Officer of Columbia Management Advisors, Inc.; formerly Chief Operations Officer of Mutual Funds, Liberty Financial Companies, Inc. from August 2000 to November 2001; Executive Vice President of Stein Roe & Farnham, Incorporated (Stein Roe) from April 1999 to April 2003; Executive Vice President and Director of Colonial Management Associates, Inc. from April 1999 to April 2003; Director of Stein Roe from September 2000 to April 2003; Trustee and Chairman of the Board of Stein Roe Mutual Funds from October 2000; Manager of Stein Roe Floating Rate Limited Liability Company since October 2000; Director of Columbia Management Multi-Strategy Hedge Fund, LLC since December 2002; (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)
(1) In December 2000, the boards of each of the Liberty Funds and Stein Roe Funds were combined into one board of trustees with common membership. The date shown is the earliest date on which a trustee was elected to either the Liberty Funds board or the former Stein Roe Funds board. * In addition to serving as a disinterested trustee of Liberty Funds, Mr. Nelson serves as a disinterested director or trustee of Columbia Funds and CMG Funds, currently consisting of 15 funds and 20 funds, respectively, which are advised by an affiliate of the Advisor. ** 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. In addition to serving as an interested trustee of the Liberty Funds, Mr. Palombo serves as an interested director of Columbia Management Multi-Strategy Hedge Fund, LLC which is advised by the Advisor. *** In addition to serving as a trustee of Liberty Funds, Mr. Lowry, Mr. Neuhauser and Mr. Mayer each serve as a director/trustee of Liberty All-Star Funds, currently consisting of 2 funds, which are advised by an affiliate of the Advisor. Mr. Neuhauser and Ms. Verville serve as disinterested directors of Columbia Management Multi-Strategy Hedge Fund, LLC which is advised by the Advisor. 30 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 ------------------------------------------------------------------------------------------------------------------------------------ Vicki L. Benjamin (age 41) Chief 2001 Controller of the Liberty Funds and Liberty All-Star One Financial Center Accounting Funds since May 2002; Chief Accounting Officer of Liberty Boston, MA 02111 Officer and Funds and Liberty All-Star Funds since June 2001; Controller Controller and Chief Accounting Officer of Galaxy Funds since September 2002; (formerly Vice President, Corporate 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 (age 39) Treasurer 2000 Treasurer of the Liberty Funds and Liberty All-Star Funds One Financial Center since December 2000; Vice President of Columbia Boston, MA 02111 Management Advisors, Inc. since April 2003 (formerly Controller of the Liberty Funds and Liberty All-Star Funds from February 1998 to October 2000); Treasurer of Galaxy Funds since September 2002; Treasurer, Columbia Management Multi-Strategy Hedge Fund, LLC since December 2002 (formerly 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)
IMPORTANT INFORMATION ABOUT THIS REPORT The Transfer Agent for Liberty Strategic Income 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 Strategic Income Fund. This report may also be used as sales literature when preceded or accompanied by the current prospectus which provides details of sales charges, investment objectives and operating policies of the fund and with the most recent copy of the Liberty Funds Performance Update. Annual Report: LIBERTY STRATEGIC INCOME FUND LIBERTY STRATEGIC INCOME FUND ANNUAL REPORT, MAY 31, 2003 PRSRT STD U.S. POSTAGE PAID HOLLISTON, MA PERMIT NO. 20 [LIBERTY FUNDS LOGO] 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 716-02/239O-0503 (07/03) 03/1833 ITEM 2. CODE OF ETHICS. Not applicable at this time. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable at this time. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable at this time. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable at this time. ITEM 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) The Registrant's Chief Executive Officer and Chief Financial Officer, based on their evaluation of the Registrant's disclosure controls and procedures as of June 20, 2003, have concluded that such controls and procedures are adequately designed to ensure that information required to be disclosed by the Registrant in its reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the Registrant's management, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. (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 at this time. (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 CSR 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 Funds Trust I ------------------------------------------------------------------- By (Signature and Title)* /s/ Joseph R. Palombo ------------------------------------------------------ Joseph R. Palombo, President Date August 6, 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 August 6, 2003 --------------------------------------------------------------------------- By (Signature and Title)* /s/ J. Kevin Connaughton ------------------------------------------------------ J. Kevin Connaughton, Chief Financial Officer Date August 6, 2003 --------------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature.