-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IulGgGbNJmArJ39N0FiB+MHuZzjLTTDVLYwyqS7okt7dUroQKFuDSgwsppl6csqK APRCMIYxsLrsRDdPT0SVyw== 0000950135-01-500969.txt : 20010504 0000950135-01-500969.hdr.sgml : 20010504 ACCESSION NUMBER: 0000950135-01-500969 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010228 FILED AS OF DATE: 20010503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY FUNDS TRUST II CENTRAL INDEX KEY: 0000315665 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 046452949 FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-03009 FILM NUMBER: 1620986 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CTR CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6174263750 FORMER COMPANY: FORMER CONFORMED NAME: COLONIAL TRUST II / DATE OF NAME CHANGE: 19950926 FORMER COMPANY: FORMER CONFORMED NAME: COLONIAL MONEY MARKET FUND DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: COLONIAL TRUST II DATE OF NAME CHANGE: 19920505 N-30D 1 b38782msn-30d.txt LIBERTY FUND DISTRIBUTORS 1 QUALITY GOVERNMENT BONDS CAN ADD DIVERSIFICATION TO YOUR PORTFOLIO. LIBERTY GOVERNMENT FUNDS SEMIANNUAL REPORT - -------------------------------------------------------------------------------- FEBRUARY 28, 2001 - - LIBERTY INTERMEDIATE GOVERNMENT FUND - - LIBERTY FEDERAL SECURITIES FUND 2 PRESIDENT'S MESSAGE DEAR SHAREHOLDER: With stocks in the doldrums, bonds held the spotlight, generating strong performance during the six-month period ended February 28, 2001. A dramatically slowing economy, falling interest rates and the continued downturn in the stock market helped fuel renewed investor interest in bonds. Many fixed-income indexes produced strong positive returns for the six-month period, while many equity indexes fell into negative territory. For example, the Lehman Brothers Aggregate Bond Index returned 7.50%, while the S&P 500 Index was down 17.83% for the period. The average return for the Lipper Intermediate US Government Funds Category was 7.13%, while the average return for the Lipper Large-Cap Core Funds Category was -18.53%. The market activity of the last six months illustrates the potential benefit of a well-rounded investment portfolio. Historically, stocks and bonds often had an inverse relationship; when one asset class enjoyed a rally, the other has often struggled. Consequently, maintaining a diversified portfolio of stocks and bonds has been beneficial to long-term performance. On the following pages, you'll find commentary on how the economic and market climates of the last six months influenced your fund managers' investment strategies. You'll also discover how those strategies proved effective, generating strong returns for your fund. Thank you for including the Liberty Government Funds in your investment portfolio. As always, we appreciate the opportunity to help you achieve your investment goals. Respectfully, /s/ Stephen E. Gibson Stephen E. Gibson President April 11, 2001 The Lehman Brothers Aggregate Bond Index is an unmanaged index that tracks the performance of investment grade bonds. The Standard & Poor's 500 Index is an unmanaged index that tracks the performance of 500 widely held, large-capitalization US stocks. The Lehman Brothers Intermediate US Government Bond Index is an unmanaged index that tracks the performance of US government securities. Lipper, Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives. Unlike the fund, indexes are not investments, do not incur fees or expenses and are not professionally managed. Securities in the fund may not match those in the index. It is not possible to invest directly in an index. These results do not represent past, current or future performance of the fund. Because economic and market conditions change, there can be no assurance that the trends described in this report will continue or come to pass. - ----------------------------- Not FDIC May Lose Value ----------------- Insured No Bank Guarantee - ----------------------------- 3 HIGHLIGHTS - - FED CUTS RATES In response to signs of weakening economic growth in the United States and abroad, the Federal Reserve lowered interest rates twice in January. The timing of the first of the two 50-basis-point cuts took investors by surprise, as the Fed took action weeks before its regularly scheduled meeting. - - YIELD CURVE RETURNS TO NORMAL The yield curve, which had been inverted for most of 2000 and into early 2001, steepened on the heels of the Fed rate cuts and in anticipation of additional cuts. As short-term rates dropped, the curve took on a more typical slope, with yields on longer-term securities higher than yields on shorter-term securities. - - FUNDS POST STRONG PERFORMANCE We are pleased to report that both Liberty Intermediate Government Fund and Liberty Federal Securities Fund enjoyed positive results during the period, outperforming their respective Lipper peer groups and performing well in comparison to their benchmark, the Lehman Brothers Intermediate US Government Bond Index. AVERAGE TOTAL RETURN 8/31/00 - 2/28/01 [BAR GRAPH] Liberty intermediate Government Fund Class A Shares (without sales charge) 7.25% - -------------------------------------------------------------------------------- Liberty Federal Securities Fund Class A Shares (without sales charge) 8.16% - -------------------------------------------------------------------------------- Lehman Brothers Intermediate U.S. Government Bond Index 7.25% - --------------------------------------------------------------------------------
The Lehman Brothers Intermediate US Government Bond Index is an unmanaged index that tracks the performance of U.S. government securities. Unlike mutual funds, indexes are not investments and do not incur fees or charges. It is not possible to invest in an index. Lipper, Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as the fund. Past performance cannot predict future results. 1 4 LIBERTY INTERMEDIATE GOVERNMENT FUND - -------------------------------------------------------------------------------- PORTFOLIO DURATION (YEARS) 2/28/01 3.90 - -------------------------------------------------------------------------------- 8/31/00 5.49 - --------------------------------------------------------------------------------
30-DAY SEC YIELDS (%) Class A 4.96 - -------------------------------------------------------------------------------- Class B 4.45 - -------------------------------------------------------------------------------- Class C 4.58 - -------------------------------------------------------------------------------- Class Z 5.47 - --------------------------------------------------------------------------------
The 30-day SEC yields reflect the portfolio's earning power, net of expenses, expressed as an annualized percentage of the public offering price at the end of the period. If the advisor or its affiliates had not waived certain fund expenses, the 30-day SEC yield would have been 4.45% for class C shares. FUND POSTS STRONG RETURN The six-month period ended February 28, 2001 saw strong performance in the bond market. Bond prices increased as interest rates declined. The strategies we implemented during this period proved effective, as class A shares of the Liberty Intermediate Government Fund posted a total return of 7.25% for the six months without a sales charge. In fact, the fund performed well in comparison to both its Lipper peer group(1) and the Lehman Brothers Intermediate US Government Bond Index, which showed returns of 7.13% and 7.25%, respectively. DURATION STRATEGY BOOSTS PERFORMANCE The fund's comparatively favorable performance was primarily due to its duration, or interest rate risk, relative to its peers and benchmark. Throughout most of the six-month period, the fund's duration was longer than that of its peers in anticipation of declining interest rates. In the declining rate environment of the last six months, funds with longer durations experienced greater price appreciation. Toward the end of the six-month period, however, we shortened duration. We believed that much of the anticipated economic weakening had already been reflected in the market, so we were comfortable easing up a bit on the fund's interest rate exposure. Additionally, as mortgage prepayments increased, durations on the fund's holdings in mortgage-backed securities declined. FUND BENEFITS FROM YIELD CURVE POSITIONING Our efforts to increase the fund's exposure to the short end of the yield curve also helped the fund's performance, both on an absolute basis and relative to its peer group and benchmark index. Throughout most of 2000, the yield curve had been inverted, an unusual posture that occurs when yields on short-term securities are higher than yields on long-term securities. But, as short-term rates declined early in 2001, the curve shifted back to a normal slope, and yields on longer-term securities were higher than yields on shorter-term securities. This movement caused the shorter end of the curve to perform very well. (1) Lipper, Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as the fund. Past performance cannot predict future results. 2 5 LIBERTY INTERMEDIATE GOVERNMENT FUND (CONTINUED) - -------------------------------------------------------------------------------- PORTFOLIO ASSET ALLOCATION STABLE The portfolio's asset-class weightings remained fairly constant during the six-month period. We continued to hold mortgage-backed securities, which represented 45% of the portfolio at the end of the period. Despite the challenges this sector faced during the last six months, we believe mortgage securities continue to provide the potential for attractive yield benefits and long-term performance advantages. The fund's focus on its overall interest rate sensitivity and its yield curve exposure proved beneficial during the period. OUTLOOK REMAINS FAVORABLE The Fed seems willing to be aggressive with its monetary policy to maintain economic growth. We expect the Fed to continue easing until the economy stabilizes and consumer confidence has been restored. Nevertheless, we expect the economy to remain weak through most of 2001, when the effects of the Fed's interest rate cuts should begin to take hold. This anticipated environment of slow growth and low interest rates should bode well for the bond market. /s/ Leslie W. Finnemore /s/ Ann T. Peterson /s/ Michael R. Bissonnette Leslie W. Finnemore Ann T. Peterson Michael R. Bissonnette LESLIE W. FINNEMORE, ANN T. PETERSON and MICHAEL R. BISSONNETTE are co-portfolio managers of Liberty Intermediate Government Fund. Ms. Finnemore and Mr. Bissonnette are senior vice presidents and Ms. Peterson is a vice president of Colonial Management Associates, Inc. Government investing offers attractive income and total return opportunities, but also involves certain risks. The value of an investment in the fund will fluctuate with changes in interest rates. AVERAGE LIFE BREAKDOWN (%) 0-2 years 15.08 - -------------------------------------------------------------------------------- 2-4 years 38.26 - -------------------------------------------------------------------------------- 4-6 years 18.17 - -------------------------------------------------------------------------------- 6-8 years 3.58 - -------------------------------------------------------------------------------- 8-10 years 14.36 - -------------------------------------------------------------------------------- 10-15 years 2.37 - -------------------------------------------------------------------------------- 15-20 years 4.74 - -------------------------------------------------------------------------------- Greater than 20 years 3.44 - --------------------------------------------------------------------------------
Average life is the expected maturity of a bond and is calculated as a percentage of senior securities. SECTOR BREAKDOWN 2/28/01 VS. 8/31/00 (%) [BAR GRAPH]
2/28/01 8/31/00 FNMAs 28.32 19.94 GNMAs 13.89 21.57 Treasury securities 37.12 33.46 FHLMCs 2.41 2.41 Agency 18.26 22.62
Sector breakdowns are calculated as a percentage of senior securities. Because the fund is actively managed, there can be no guarantee that the fund will continue to maintain the sector breakdown or average life shown in the future. 3 6 PERFORMANCE - -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE, AS OF 2/28/01 ($) Class A 6.55 - -------------------------------------------------------------------------------- Class B 6.55 - -------------------------------------------------------------------------------- Class C 6.55 - -------------------------------------------------------------------------------- Class Z 6.55 - --------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED, PER SHARE 8/31/00 - 2/28/01 ($) Class A 0.180 - -------------------------------------------------------------------------------- Class B 0.156 - -------------------------------------------------------------------------------- Class C 0.161 - -------------------------------------------------------------------------------- Class Z 0.187 - --------------------------------------------------------------------------------
AVERAGE SIX-MONTH TOTAL RETURNS AS OF 2/28/01 (%)
Share class (A) (B) (C) (Z) inception 3/30/84 6/8/92 8/1/97 1/11/97 - --------------------------------------------------------------------------------------------------------------------------------- w/o sales with sales w/o sales with sales w/o sales with sales w/o sales charge charge charge charge charge charge charge - --------------------------------------------------------------------------------------------------------------------------------- 6-month cumulative 7.25 2.16 6.86 1.86 6.94 5.94 7.38 - --------------------------------------------------------------------------------------------------------------------------------- 1 year 12.30 6.97 11.47 6.47 11.64 10.64 12.58 - --------------------------------------------------------------------------------------------------------------------------------- 5 years 6.02 4.99 5.23 4.90 5.54 5.54 6.13 - --------------------------------------------------------------------------------------------------------------------------------- 10 years 6.17 5.65 5.48 5.48 5.93 5.93 6.22 - ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE SIX-MONTH TOTAL RETURNS AS OF 12/31/00 (%)
(A) (B) (C) (Z) - --------------------------------------------------------------------------------------------------------------------------------- w/o sales with sales w/o sales with sales w/o sales with sales w/o sales charge charge charge charge charge charge charge - --------------------------------------------------------------------------------------------------------------------------------- 6-month cumulative 7.46 2.35 7.08 2.08 7.16 6.16 7.58 - --------------------------------------------------------------------------------------------------------------------------------- 1 year 10.55 5.30 9.73 4.73 9.89 8.89 10.82 - --------------------------------------------------------------------------------------------------------------------------------- 5 years 5.43 4.41 4.65 4.33 4.99 4.99 5.53 - --------------------------------------------------------------------------------------------------------------------------------- 10 years 6.13 5.62 5.46 5.46 5.91 5.91 6.18 - ---------------------------------------------------------------------------------------------------------------------------------
Past performance cannot predict future investment results. Returns and value of an investment will vary, resulting in a gain or loss on sale. All results shown assume reinvestment of distributions. The "with sales charge" returns include the maximum 4.75% sales charge for class A shares, the appropriate class B contingent deferred sales charge for the holding period after purchase as follows: 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 results reflect any voluntary waivers or reimbursement of Fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. Class B, 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 B and class C shares would have been lower. 4 7 LIBERTY FEDERAL SECURITIES FUND - -------------------------------------------------------------------------------- FUND OFFERED STRONG PERFORMANCE Strong returns for the government bond sector boosted fund performance over the 8% mark for the six-month period ended February 28, 2001. During the period, class A shares of the Liberty Federal Securities Fund posted a total return of 8.16% without a sales charge. In a market environment which favored the bond sector, the fund outperformed both its Lipper peer group(1) and benchmark index, the Lehman Brothers Intermediate US Government Bond Index, which posted returns of 7.12% and 7.25%, respectively. During the period, the fund benefited from a slowing economy, lower interest rates and a volatile stock market. STRATEGY CAPTURED BENEFITS OF FALLING RATES Much of the fund's solid performance, both on an absolute basis and relative to the peer group and benchmark index, was due to our duration strategy. Duration refers to the fund's price sensitivity to interest rate changes. A higher duration indicates greater sensitivity; a lower duration indicates less. For most of the six-month period, we maintained a higher-than-average duration relative to the fund's benchmark and its peer group in anticipation of declining interest rates. As such, the fund benefited nicely as interest rates declined and bond prices increased. Toward the end of the six-month period, the fund's duration was shortened somewhat. By the end of the period, we believed that much of the anticipated economic weakening was already reflected in the market, and we adjusted duration accordingly. In addition, the declining interest rate environment led to an increase in mortgage prepayments. This prepayment activity caused duration to decline on the fund's holdings in mortgage-backed securities. CURVE EXPOSURE ENHANCED RETURNS Another key strategy that contributed to the fund's absolute and relative performance advantages was our yield curve positioning. Anticipating a decline in short-term interest rates, we added exposure to the short end of the yield curve. Earlier in the period, the yield curve was inverted, an unusual situation in which PORTFOLIO DURATION (YEARS) 2/28/01 5.20 - -------------------------------------------------------------------------------- 8/31/00 6.71
30-DAY SEC YIELDS (%) Class A 4.96 - -------------------------------------------------------------------------------- Class B 4.45 - -------------------------------------------------------------------------------- Class C 4.60 - -------------------------------------------------------------------------------- Class Z 5.46 - --------------------------------------------------------------------------------
The 30-day SEC yields reflect the portfolio's earning power, net of expenses, expressed as an annualized percentage of the public offering price at the end of the period. If the Advisor or its affiliates had not waived certain fund expenses, the 30-day SEC yield would have been 4.45% for class C shares. (1) Lipper, Inc., a widely respected data provider in the industry, calculates an average total return for mutual funds with similar investment objectives as the fund. Past performance cannot predict future results. 5 8 LIBERTY FEDERAL SECURITIES FUND (CONTINUED) - -------------------------------------------------------------------------------- AVERAGE LIFE BREAKDOWN (%) 0-2 years 11.0 - -------------------------------------------------------------------------------- 2-4 years 31.0 - -------------------------------------------------------------------------------- 4-6 years 18.1 - -------------------------------------------------------------------------------- 6-8 years 7.0 - -------------------------------------------------------------------------------- 8-10 years 13.8 - -------------------------------------------------------------------------------- 10-15 years 0.2 - -------------------------------------------------------------------------------- 15-20 years 10.2 - -------------------------------------------------------------------------------- Greater than 20 years 8.7 - --------------------------------------------------------------------------------
Average life is the expected maturity of a bond and is calculated as a percentage of senior securities. SECTOR BREAKDOWN 2/28/01 VS. 8/31/00 (%) [BAR GRAPH]
2/28/01 8/31/00 FNMAs 22.4 20.0 GNMAs 6.5 8.3 Treasury Securities 31.8 34.0 FHLMCs 5.2 5.1 Agency 14.3 17.5 WI/ABS 19.8 15.1
Sector breakdowns are calculated as a percentage of senior securities. Because the fund is actively managed, there can be no guarantee that the fund will continue to maintain the sector breakdown or average life shown in the future. yields on shorter-term securities were higher than yields on longer-term securities. As short-term interest rates declined, the yield curve returned to a normal, positive-sloping posture. MORTGAGE FOCUS INTACT We continued to hold mortgage-backed securities, which comprised 58% of the fund's portfolio at the end of the six-month period. Although mortgage-backed securities suffered somewhat due to an increase in mortgage prepayments, we continue to favor these securities for their potential yield advantages and long-term performance opportunities. BOND OUTLOOK REMAINS POSITIVE We believe that the Fed is likely to continue easing monetary policy, but may do so at a slower pace than we've seen so far this year. Near term, we expect the economy to remain weak. Nevertheless, we see this situation improving, albeit slowly, during the second half of 2001 when the effects of the Fed's interest rate cuts begin to take hold. The slow-growth, low-interest-rate environment we anticipate should bode well for the bond market. /s/ Leslie W. Finnemore /s/ Ann T. Peterson /s/ Michael R. Bissonnette Leslie W. Finnemore Ann T. Peterson Michael R. Bissonnette LESLIE W. FINNEMORE, ANN T. PETERSON and MICHAEL R. BISSONNETTE are co-portfolio managers of Liberty Federal Securities Fund. Ms. Finnemore and Mr. Bissonnette are senior vice presidents and Ms. Peterson is a vice president of Colonial Management Associates, Inc. Government investing offers attractive income and total return opportunities, but also involves certain risks. The value of an investment in the fund will fluctuate with changes in interest rates. 6 9 PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 2/28/01 (%)
Share class (A) (B) (C) (Z) inception 3/30/84 6/8/92 8/1/97 1/11/97 - --------------------------------------------------------------------------------------------------------------------------------- w/o sales with sales w/o sales with sales w/o sales with sales w/o sales charge charge charge charge charge charge charge - --------------------------------------------------------------------------------------------------------------------------------- 6-month cumulative 8.16 3.02 7.76 2.76 7.85 6.85 8.33 - --------------------------------------------------------------------------------------------------------------------------------- 1 year 14.14 8.72 13.30 8.30 13.47 12.47 14.47 - --------------------------------------------------------------------------------------------------------------------------------- 5 years 6.30 5.27 5.51 5.19 5.83 5.83 6.43 - --------------------------------------------------------------------------------------------------------------------------------- 10 years 7.38 6.86 6.67 6.67 7.14 7.14 7.44 - ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/00 (%)
(A) (B) (C) (Z) - ------------------------------------------------------------------------------------------------------------------------------- w/o sales with sales w/o sales with sales w/o sales with sales w/o sales charge charge charge charge charge charge charge - ------------------------------------------------------------------------------------------------------------------------------- 6-month cumulative 8.66 3.50 8.17 3.17 8.36 7.36 8.83 - ------------------------------------------------------------------------------------------------------------------------------- 1 year 12.24 6.91 11.30 6.30 11.57 10.57 12.56 - ------------------------------------------------------------------------------------------------------------------------------- 5 years 5.39 4.37 4.59 4.28 4.95 4.95 5.50 - ------------------------------------------------------------------------------------------------------------------------------- 10 years 7.32 6.80 6.62 6.62 7.10 7.10 7.38 - -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE AS OF 2/28/01 ($) Class A 10.52 - -------------------------------------------------------------------------------- Class B 10.52 - -------------------------------------------------------------------------------- Class C 10.52 - -------------------------------------------------------------------------------- Class Z 10.52 - --------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED PER SHARE 8/31/00-2/28/01 ($) Class A 0.306 - -------------------------------------------------------------------------------- Class B 0.268 - -------------------------------------------------------------------------------- Class C 0.276 - -------------------------------------------------------------------------------- Class Z 0.323 - --------------------------------------------------------------------------------
Past performance cannot predict future investment results. Returns and value of an investment will vary, resulting in a gain or loss on sale. All results shown assume reinvestment of distributions. The "with sales charge" returns include the maximum 4.75% sales charge for class A shares, the appropriate class B contingent deferred sales charge for the holding period after purchase as follows: 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 results reflect any voluntary waivers or reimbursement of Fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. Class B, 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 B and class C shares would have been lower. 7 10 INVESTMENT PORTFOLIO - -------------------------------------------------------------------------------- February 28, 2001 (Unaudited) (In thousands)
LIBERTY INTERMEDIATE GOVERNMENT FUND U.S. GOVERNMENT & AGENCY OBLIGATIONS - 101.9% PAR VALUE - -------------------------------------------------------------------------------- GOVERNMENT AGENCIES - 64.1% MATURITIES COUPON FROM/TO - -------------------------------------------- FEDERAL FARM CREDIT BANK, 6,400% 2002 $ 250 $ 253 -------- FEDERAL HOME LOAN BANK: 5.720% 2003 500 507 6.096% 2018 78 78 6.577% 2018 119 119 6.811% 2018 304 307 7.391% 2019 152 151 -------- 1,162 -------- FEDERAL HOME LOAN MORTGAGE CORP.: 6.875% 2015 19,072 20,213 7.500% 2007-2016 530 543 7.590% 2005 50 54 8.000% 2003-2016 5,715 5,878 8.500% 2007-2017 1,264 1,326 8.750% 2005-2013 564 588 9.000% 2001-2018 981 1,033 9.250% 2008-2019 2,230 2,322 9.500% 2005-2016 754 799 9.750% 2016 149 154 10.000% 2019 254 275 10.250% 2009-2016 620 663 10.500% 2009-2021 994 1,102 11.250% 2005-2015 1,008 1,129 -------- 36,079 -------- FEDERAL NATIONAL MORTGAGE ASSOCIATION: 5.310% 2001 500 500 6.000% 2008-2026 59,323 59,135 6.375% 2002 12,612 12,922 6.390% 2027 94 94 6.500% 2007-2029 4,014 3,917 6.625% 2009 11,525 12,266 6.750% 2002 24,444 25,105 6.986% 2020 162 162 7.000% 2007-2023 34,571 34,822 7.121% 2018 568 574 7.250% 2010-2019 33,409 36,840 7.296% 2019 120 121 7.435% 2019 86 87 7.500% 2006-2023 77,452 79,135 7.583% 2003 58 57 7.614% 2020 64 64 7.995% 2022 40 40 7.998% 2031 284 289 FEDERAL NATIONAL MORTGAGE ASSOCIATION: 8.000% 2008-2009 1,314 $ 1,026 $ 1,026 8.105% 2017 40 40 8.250% 2008 287 296 8.366% 2019 65 66 8.500% 2003-2021 2,545 2,662 9.000% 2002-2022 6,708 7,055 9.500% 2006 18 19 10.000% 2001-2006 2,008 2,162 10.500% 2010-2016 1,428 1,567 11.000% 2015 346 393 -------- 281,416 -------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION: 6.500% 2023-2029 7,314 7,312 6.875% 2022 24 24 7.000% 2002-2029 35,018 35,533 7.375% 2023 177 179 7.500% 2007 102 105 8.000% 2004-2023 1,251 1,282 8.500% 2017 667 668 8.750% 2021 687 709 8.850% 2018-2020 1,641 1,744 9.000% 2008-2025 6,853 7,143 9.250% 2016-2022 2,989 3,151 9.500% 2004-2009 2,974 3,107 10.000% 2001-2024 1,099 1,161 10.250% 2018 186 200 10.500% 2002-2020 3,636 3,906 10.625% 2010 19 22 11.000% 2009-2021 3,987 4,600 11.250% 2015 69 77 11.500% 2010-2021 6,469 7,317 11.750% 2013-2015 95 107 12.000% 2011-2016 6,527 7,482 12.250% 2013-2014 350 395 12.500% 2010-2015 4,496 5,195 12.750% 2014 42 48 13.000% 2011-2016 1,769 2,060 13.500% 2010-2015 1,178 1,381 14.000% 2011-2012 70 83 14.500% 2012 16 19 15.000% 2011-2012 79 95 -------- 95,105 --------
See notes to investment portfolio. 8 11 INVESTMENT PORTFOLIO (CONTINUED) - -------------------------------------------------------------------------------- February 28, 2001 (Unaudited) (In thousands)
LIBERTY INTERMEDIATE GOVERNMENT FUND (CONTINUED) PAR VALUE - -------------------------------------------------------------------------------- MATURITIES COUPON FROM/TO - -------------------------------------------- U.S. SMALL BUSINESS ADMINISTRATION: 7.600% 01/01/12 $ 2,327 $ 2,436 8.200% 10/01/11 2,137 2,263 8.250% 11/01/11 4,812 5,107 8.650% 11/01/14 3,360 3,672 8.850% 08/01/11 602 645 9.150% 07/01/11 1,913 2,078 -------- 16,201 -------- TOTAL GOVERNMENT AGENCIES (cost of $417,666) 430,216 -------- GOVERNMENT OBLIGATIONS - 37.8% U.S. TREASURY BONDS: 7.125% 02/15/23 15,523 18,642 7.875% 02/15/21 25,241 32,435 10.750% 08/15/05 685 847 -------- 51,924 -------- U.S. TREASURY NOTES: 5.250% 08/15/03 1,822 1,851 5.500% 01/31/03 1,600 1,628 5.875% 2002-2005 61,211 62,595 6.500% 2010-2026(a) 48,739 53,947 6.625% 04/30/02 1,560 1,596 6.750% 05/15/05 22,897 24,760 7.500% 02/15/05 29,857 32,866 7.875% 2001-2004 20,676 22,784 -------- 202,027 -------- TOTAL GOVERNMENT OBLIGATIONS (cost of $244,153) 253,951 -------- TOTAL INVESTMENTS (cost $661,819)(b) 684,167 -------- SHORT-TERM OBLIGATIONS - 13.4 % - -------------------------------------------------------------------------------- Repurchase agreement with SBC Warburg Ltd., dated 02/28/01, due 03/01/01 at 5.370%, collateralized by U.S. Treasury notes with various maturities to 2028, market value $91,500 (repurchase proceeds $89,860) 89,847 89,847 OTHER ASSETS & Liabilities, Net - (15.3)% (102,514) - -------------------------------------------------------------------------------- Net Assets - 100.0% $671,500 --------
NOTES TO INVESTMENT PORTFOLIO: (a) This security, or a portion thereof, with a total market value of $4,856 is being used to collateralize open futures contracts. (b) The cost for federal income tax purposes is the same. Futures contracts open at February 28, 2001:
Par value Unrealized covered by Expiration appreciation Type contracts Month at 02/28/01 - -------------------------------------------------------------------------------- Treasury Bond $17,000 June $161
See notes to financial statements. 9 12 INVESTMENT PORTFOLIO - -------------------------------------------------------------------------------- February 28, 2001 (Unaudited) (In thousands)
LIBERTY FEDERAL SECURITIES FUND U.S. GOVERNMENT & AGENCY OBLIGATIONS - 88.1% PAR VALUE - -------------------------------------------------------------------------------- GOVERNMENT AGENCIES - 52.1% MATURITIES COUPON FROM/TO - --------------------------------------------- FEDERAL HOME LOAN MORTGAGE CORP.: 6.500% 2029 $24,835 $ 24,765 6.875% 2005 31,846 33,752 7.500% 2016 272 277 8.000% 2003-2016 1,432 1,484 8.500% 2007-2010(a) 995 1,043 8.750% 2004-2010 325 339 9.000% 2001-2022 2,238 2,350 9.250% 2008-2010 1,971 2,053 9.500% 2008-2016 878 930 9.750% 2008-2016 298 310 10.000% 2019 254 275 10.250% 2009-2013 520 556 10.500% 2017-2020 757 839 11.250% 2003-2015 578 647 11.500% 2015 87 98 12.000% 2013 4 4 -------- 69,722 -------- FEDERAL NATIONAL MORTGAGE ASSOCIATION: 6.000% 2008-2024 25,406 25,381 6.375% 2002 3,506 3,592 6.500% 2003-2029 4,685 4,677 6.625% 2009 19,245 20,483 6.750% 2002 8,658 8,892 7.000% 2010-2050(b) 26,222 26,527 7.250% 2010 29,550 32,741 7.500% 2002-2050(b) 87,336 89,200 8.000% 2008-2019 1,150 1,193 8.250% 2008-2011 470 483 8.500% 2008-2017 1,848 1,933 9.000% 2006-2021 6,097 6,404 9.500% 2008-2018 717 751 -------- 222,257 -------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION: 6.500% 2023-2029 9,006 9,004 7.000% 2022-2029 22,888 23,224 7.500% 2006-2007 419 430 8.000% 2005-2008 28 28 9.000% 2008-2017 3,384 3,531 10.000% 02/15/2003 2 2 10.500% 2013-2021 4,757 5,299 11.000% 2010 1 1 11.500% 2013 16 19 11.750% 2013-2015 96 107 12.000% 2012-2015 228 262 12.500% 2010-2014 2,238 2,595 13.000% 2011-2015 946 1,104 -------- 45,606 -------- TOTAL GOVERNMENT AGENCIES (cost of $235,833) 337,585 -------- GOVERNMENT OBLIGATIONS - 36.0% U.S. TREASURY BONDS: 6.875% 08/15/25 9,769 11,500 7.125% 02/15/23 21,129 25,375 7.250% 08/15/22 10,346 12,570 7.875% 02/15/21 19,617 25,208 8.750% 08/15/20 14,333 19,869 -------- 94,522 -------- U.S. TREASURY NOTES: 5.500% 05/15/29 14,530 15,023 5.875% 11/30/02 44,000 44,797 6.375% 08/15/02 9,665 9,916 6.500% 02/15/10 17,539 19,372 7.500% 02/15/05 19,889 21,893 7.875% 11/15/04 2,052 2,272 8.875% 02/15/19 18,758 26,000 -------- 139,273 -------- TOTAL GOVERNMENT OBLIGATIONS (cost of $218,435) 233,795 -------- TOTAL U.S. GOVERNMENT & Agency OBLIGATIONS (cost of $454,268) 571,380 --------
See notes to investment portfolio. 10 13 INVESTMENT PORTFOLIO (CONTINUED) - -------------------------------------------------------------------------------- February 28, 2001 (Unaudited) (In thousands)
LIBERTY FEDERAL SECURITIES FUND (CONTINUED) NON-AGENCY MORTGAGE-BACKED & ASSET-BACKED SECURITIES - 21.3% PAR VALUE - -------------------------------------------------------------------------------- NON-AGENCY MORTGAGE-BACKED SECURITIES - 10.1% CHASE MORTGAGE FINANCE CORP., 7.750% 04/25/30 $ 582 $ 583 COUNTRYWIDE MORTGAGE TRUST: 7.240% 04/25/28 1,940 1,929 7.250% 09/25/29 1,777 1,676 7.600% 04/25/23(a) 679 679 8.000% 07/25/30 10,139 10,679 8.450% 09/25/31 1,500 1,494 8.600% 03/31/31 5,930 6,203 9.000% 06/25/31 6,000 6,275 9.770% 03/25/31 5,000 5,014 CS FIRST BOSTON MORTGAGE SECURITIES CORP., 7.500% 06/01/20(c) 5,507 5,663 FIRST BOSTON MORTGAGE SECURITIES CORP., 6.150% 09/28/13 401 401 GE CAPITAL MORTGAGE SERVICES, INC., 8.000% 06/25/30 739 738 GMAC MORTGAGE CORP. LOAN TRUST, 7.500% 11/25/30 3,599 3,680 HEADLANDS MORTGAGE SECURITIES, INC.: 6.500% 11/25/28 488 439 7.750% 03/25/27 5,178 5,540 NORWEST ASSET SECURITIES CORP.: 6.750% 05/25/28 1,940 1,928 7.000% 04/25/12 2,166 2,159 PNC MORTGAGE SECURITIES CORP., 7.000% 05/25/27 2,150 2,143 RESIDENTIAL ASSET SECURITIZATION TRUST: 7.500% 11/25/11 968 980 7.500% 12/25/29 1,945 1,907 STRUCTURED MORTGAGE ASSET RESIDENTIAL TRUST, 8.375% 06/25/08 1,157 1,194 WASHINGTON MUTUAL: 6.530% 01/25/40 1,500 1,529 6.930% 01/25/40 2,500 2,548 -------- 65,381 -------- ASSET-BACKED SECURITIES - 11.2% CONSECO FINANCE, 8.383% 02/15/31 300 299 CONTIMORTAGE HOME EQUITY LOAN TRUST, 7.340% 04/15/28 2,531 2,420 DELTA FUNDING HOME EQUITY LOAN TRUST, 7.330% 10/25/28 7,588 7,413 GREEN TREE FINANCIAL CORP.: 7.320% 07/15/28 4,497 4,665 7.850% 08/15/25 9,100 8,213 INDYMAC MANUFACTURED HOUSING CONTRACT, 6.970% 02/25/28 4,288 4,389 THE MONEY STORE HOME EQUITY TRUST, 8.520% 06/15/25 2,800 3,041 PREFERRED MORTGAGE ASSET TRUST, 7.900% 05/25/12(c) 1,361 1,394 PRUDENTIAL HOME MORTGAGED SECURITIES, 6.456% 12/28/08(c) 1,150 1,143 RESIDENTIAL ACCREDITED LOANS, INC., 6.500% 05/25/29 4,121 3,784 SAXON ASSET SECURITIES TRUST: 6.870% 01/25/30 8,750 8,709 8.370% 07/25/30 11,449 12,063 8.664% 07/25/30 12,000 12,609 TRYON MORTGAGE FUNDING, INC., 7.500% 02/20/27 1,201 1,224 UCFC HOME EQUITY LOAN TRUST, 8.550% 01/10/20 1,314 1,335 -------- 72,701 -------- NON-AGENCY MORTGAGE-BACKED & ASSET-BACKED SECURITIES (cost $228,601) 138,082 -------- TOTAL INVESTMENTS (cost of $682,869) (d) 709,462 -------- SHORT-TERM OBLIGATIONS - 7.5% - -------------------------------------------------------------------------------- Repurchase agreement with SBC Warburg Ltd., dated 02/28/01, due 03/01/01 at 5.370%, collateralized by U.S. Treasury notes with various maturities to 2022, market value $49,338 (repurchase proceeds $48,453) 48,446 48,446 ------- --------- OTHER ASSETS & LIABILITIES, NET - (16.9)% (109,341) - -------------------------------------------------------------------------------- Net Assets - 100.0% $ 648,567 ---------
NOTES TO INVESTMENT PORTFOLIO: (a) These securities, or a portion thereof, with a total market value of $1,146, are being used to collateralize open futures contracts. (b) These securities have been purchased on a delayed delivery basis whereby the terms that are fixed are the purchase price, interest rate and the settlement date. The exact quantity purchased may be slightly more or less than the amount shown. (c) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At February 28, 2001, the value of these securities amounted to $8,200 or 1.3% of net assets. (d) Cost for federal income tax purposes is the same. Long futures contracts open on February 28, 2001:
Unrealized Par Value appreciation covered by Expiration (depreciation) Type contracts month at 02/28/01 - -------------------------------------------------------------------------------- Treasury Note $19,800 March $ 586 Treasury Note 13,100 March (273) Treasury Bond 13,600 June 134 ----- $ 447 =====
See notes to financial statements. 11 14 STATEMENT OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- February 28, 2001 (Unaudited) (In thousands except for per share amounts and footnotes)
LIGF LFSF - ------------------------------------------------------------------------------------------------------------------------------ ASSETS Investments at cost $ 661,819 $ 682,869 Appreciation/Depreciation 22,348 26,593 Investments at value 684,167 709,462 Short-term obligations 89,847 48,446 Investments held as collateral for loaned securities 205,813 199,060 ---------------- ---------------- 979,827 956,968 Receivable for: Investments sold $ 36,460 $ 49,073 Interest 5,274 4,560 Fund shares sold 1,535 237 Variation margin on futures contracts 189 154 Other 252 43,710 678 54,702 --------- ---------------- --------- ---------------- Total Assets 1,023,537 1,011,670 LIABILITIES Payable for: Investments purchased 143,624 161,885 Fund shares repurchased 773 532 Distributions 941 905 Collateral for securities at value 205,813 199,060 Payable to Advisor 13 -- Accrued: Management fee 2 -- Transfer Agent fee 416 316 Service fee 1 -- Deferred Trustees' fee 25 20 Other 429 385 --------- --------- Total Liabilities 352,037 363,103 ---------------- ---------------- NET ASSETS $ 671,500 $648,567 ================ ================ Net asset value & redemption price per share -- Class A 6.55(a) 10.52(a) ================ ================ ($539,042/82,247) ($591,231/56,178) Maximum offering price per share -- Class A 6.88(b) 11.04(b) ================ ================ ($6.55/0.9525) ($10.52/0.9525) Net asset value & offering price per share -- Class B 6.55(a) 10.52(a) ================ ================ ($128,303/19,582) ($52,755/5,013) Net asset value & offering price per share -- Class C 6.55(a) 10.52(a) ================ ================ ($4,077/622) ($4,580/436) Net asset value, offering & redemption price per share -- Class Z 6.55 10.52 ================ ================ ($78/12) ($1/(c)) COMPOSITION OF NET ASSETS Capital paid in $ 800,077 $ 788,976 Distributions in excess of net investment income (813) (2,350) Accumulated net realized loss (150,273) (165,099) Net unrealized appreciation (depreciation) on: Investments 22,348 26,593 Open futures contracts 161 447 ---------------- ---------------- $ 671,500 $ 648,567 ================ ================
(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 of LIGF or LFSF the offering price is reduced. (c) Rounds to less than one. See notes to financial statements. 12 15 STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- For the six months ended February 28, 2001 (Unaudited) (In thousands)
LIGF LFSF - -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Interest (including income on securities loaned of $215 and $187, respectively) $22,229 $22,435 Dollar roll fee income 673 543 ------- ------- 22,902 22,978 EXPENSES Management fee $ 1,957 $ 1,920 Service fee -- Class A 623 730 Service fee -- Class B 184 65 Service fee -- Class C 3 5 Distribution fee -- Class B 552 195 Distribution fee -- Class C 10 15 Transfer agent fee 989 848 Bookkeeping fee 119 117 Trustees' fee 15 14 Custodian fee 74 27 Audit fee 19 22 Legal fee 5 5 Registration fee 30 31 Reports to shareholders 55 34 Other 67 61 -------- -------- 4,702 4,089 Fees and expenses waived or borne by the Advisor (69) -- Fees waived by the Distributor -- Class C (2) 4,631 (3) 4,086 -------- ------- -------- ------- Net Investment Income 18,271 18,892 ======= ======= NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS Net realized gain (loss) on: Investments 4,991 (643) Closed future contracts 2,729 3,655 -------- -------- Net Realized Gain 7,720 3,012 ------- ------- Net change in unrealized appreciation/depreciation during the period on: Investments 20,448 29,666 Open future contracts (1,189) (1,146) -------- ------- Net change in unrealized appreciation/depreciation 19,259 28,520 ------- ------- Net Gain 26,979 31,532 ------- ------- Increase in Net Assets from Operations $45,250 $50,424 ======= =======
See notes to financial statements. 13 16 STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- (In thousands)
(Unaudited) (Unaudited) Six months Six months ended Year ended ended Year ended February 28, August 31, February 28, August 31, - ----------------------------------------------------------------------------------------------------------------------------------- LIGF LIGF LFSF LFSF - ----------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 2001 2000 2001 2000 Operations: Net investment income $ 18,271 $ 45,282 $ 18,892 $ 46,813 Net realized gain (loss) 7,720 (23,056) 3,012 (36,764) Net change in unrealized appreciation/depreciation 19,259 16,833 28,520 29,985 --------- --------- --------- --------- Net Increase from Operations 45,250 39,059 50,424 40,034 Distributions: From net investment income -- Class A (14,044) (29,837) (17,665) (42,603) In excess of net investment income -- Class A -- (360) -- (1,864) Return of capital -- Class A -- (553) -- (618) From net investment income -- Class B (3,615) (12,784) (1,379) (3,820) In excess of net investment income -- Class B -- (154) -- (167) Return of capital -- Class B -- (237) -- (55) From net investment income -- Class C -- (139) (109) (293) In excess of net investment income -- Class C (66) (2) -- (13) Return of capital -- Class C -- (3) -- (4) From net investment income -- Class Z (112) (437) (a) (a) In excess of net investment income -- Class Z -- (5) -- (a) Return of capital -- Class Z -- (8) -- (a) --------- --------- --------- --------- 27,413 (5,460) 31,271 (9,403) --------- --------- --------- --------- Fund Share Transactions: Receipts for shares sold -- Class A 153,462 103,062 18,735 24,593 Receipts for shares issues in connection with fund merger (Note 6) 13,491 -- -- -- Value of distributions reinvested -- Class A 8,695 18,966 9,311 23,606 Cost of shares repurchased -- Class A (123,703) (190,520) (47,917) (138,813) --------- --------- --------- --------- 51,945 (68,492) (19,871) (90,614) --------- --------- --------- --------- Receipts for shares sold -- Class B 10,667 11,745 8,903 9,936 Receipts for shares issues in connection with fund merger (Note 6) 7,831 -- -- -- Value of distributions reinvested -- Class B 2,166 7,377 832 2,452 Cost of shares repurchased -- Class B (81,862) (128,936) (13,247) (29,987) --------- --------- --------- --------- (61,198) (109,814) (3,512) (17,599) --------- --------- --------- --------- Receipts for shares sold -- Class C 3,982 457 1,110 980 Value of distributions reinvested -- Class C 66 109 79 258 Cost of shares repurchased -- Class C (2,006) (1,712) (330) (2,637) --------- --------- --------- --------- 2,042 (1,146) 859 (1,399) --------- --------- --------- --------- Receipts for shares sold -- Class Z 73 701 -- -- Value of distributions reinvested -- Class Z 124 450 (a) (a) Cost of shares repurchased -- Class Z (6,730) (2,019) -- -- --------- --------- --------- --------- (6,533) (868) (a) (a) --------- --------- --------- --------- Net Decrease from Fund Share Transactions (13,744) (180,320) (22,524) (109,612) --------- --------- --------- --------- Total Increase (Decrease) 13,669 (185,780) 8,747 (119,015) --------- --------- --------- --------- NET ASSETS Beginning of period 657,831 843,611 639,820 758,835 --------- --------- --------- --------- End of period $ 671,500 $ 657,831 $ 648,567 $ 639,820 --------- --------- --------- --------- Net of undistributed (overdistributed) net investment income (813) (1,247) (2,350) (2,089) --------- --------- --------- ---------
(a) Rounds to less than one. See notes to financial statements. 14 17 STATEMENT OF CHANGES IN NET ASSETS (CONTINUED) - -------------------------------------------------------------------------------- (In thousands)
(Unaudited) (Unaudited) Six months Six months ended Year ended ended Year ended February 28, August 31, February 28, August 31, - ------------------------------------------------------------------------------------------------------------------------------------ LIGF LIGF LFSF LFSF - ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF FUND SHARES 2001 2000 2001 2000 Sold -- Class A 23,968 16,579 1,819 2,469 Shares issued in connection with fund merger (Note 6) 2,066 -- -- -- Issued for distributions reinvested -- Class A 1,348 3,032 911 2,366 Repurchased -- Class A (19,273) (30,552) (4,677) (13,950) ------- ------- ------- ------- 8,109 (10,941) (1,947) (9,115) ------- ------- ------- ------- Sold -- Class B 1,648 1,888 867 995 Shares issued in connection with fund merger (Note 6) 1,199 -- -- -- Issued for distributions reinvested -- Class B 354 1,167 81 245 Repurchased -- Class B (12,863) (20,653) (1,300) (3,008) ------- ------- ------- ------- (9,662) (17,598) (352) (1,768) ------- ------- ------- ------- Sold -- Class C 612 73 109 98 Issued for distributions reinvested -- Class C 11 17 8 26 Repurchased -- Class C (308) (275) (32) (265) ------- ------- ------- ------- 315 (185) 85 (141) ------- ------- ------- ------- Sold -- Class Z 12 111 -- -- Issued for distributions reinvested -- Class Z 20 72 (a) (a) Repurchased -- Class Z (1,039) (322) -- -- ------- ------- ------- ------- (1,007) (139) (a) (a) ------- ------- ------- -------
(a) Rounds to less than one See notes to financial statements. 15 18 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- February 28, 2001 (Unaudited) NOTE 1. ACCOUNTING POLICIES ORGANIZATION: Liberty Intermediate Government Fund (LIGF) is a series of Liberty Trust II and Liberty Federal Securities Fund (LFSF) is a series of Liberty Trust III (the series collectively referred to as the "Funds" and are diversified portfolios). Liberty Trust II and Liberty Trust III are Massachusetts business trusts registered under the Investment Company Act of 1940, as amended, as open end management investment companies. LIGF's investment objective is to seek as high a level of current income and total return, as is consistent with prudent risk, by investing primarily in U.S. government securities. LFSF's investment objective is to seek as high a level of current income and total return, as is consistent with prudent longer-term investing, by investing primarily in U.S. government securities. The Funds may issue an unlimited number of shares. The Funds offer 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 contingent deferred sales charge is assessed to Class A shares purchased without an initial sales charge on redemptions made within eighteen months on an original purchase of $1 million to $25 million. Class B shares are subject to an annual distribution fee and a contingent deferred sales charge. 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 contingent deferred sales charge on redemptions made within one year after purchase and an annual distribution fee. Class Z shares are offered continuously at net asset value. There are certain restrictions on purchasing Class Z shares, as defined in the Fund's prospectus. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies that are consistently followed in the preparation of the Funds' financial statements. SECURITY VALUATION AND TRANSACTIONS: The Funds 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. Options are valued at the last reported sale price, or in the absence of a sale, the mean between the last quoted bid and asking price. Short-term obligations with a maturity of 60 days or less are valued at amortized cost. Portfolio positions for which market quotations are not readily available are valued at fair value under procedures approved by the 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. The Funds 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 Funds 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. The Funds maintain U.S. government securities or other liquid high grade debt obligations as collateral with respect to mortgage dollar roll transactions and securities traded on other than normal settlement terms. SECURITIES LENDING The Funds may lend its securities to certain qualified brokers who pay the Fund negotiated lender fees. These fees are included in interest income. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Funds may bear risk of delay of the loaned securities in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. At February 28, 2001, LIGF and LFSF loaned securities having a market value of $202,774,210 and $196,089,367, respectively, collateralized by securities issued by the U.S. Government and its agencies and cash which was invested in short-term instruments in the amount of $205,812,976 and $199,060,126, respectively. 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 ratios for each Fund for the entire period by the service fees for Class A, Class B, and Class C shares and the distribution fees for Class B and Class C shares only. 16 19 NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- FEDERAL INCOME TAXES: Consistent with each 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, FEE INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is recorded on the accrual basis. Fee income attributable to mortgage dollar roll transactions is recorded on the accrual basis over the term of the transaction. Original issue discount is accreted to interest income over the life of a security with a corresponding increase in the cost basis. Premium and market discount are not amortized or accreted. DISTRIBUTIONS TO SHAREHOLDERS: Each Fund declares and records distributions daily and pays monthly. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for mortgage backed securities for book and tax purposes and expired capital loss carryforwards. Permanent book and tax basis differences will result in reclassifications to capital accounts. OTHER: The Funds' 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. FEES AND COMPENSATION PAID TO AFFILIATES MANAGEMENT FEE: Colonial Management Associates, Inc. (the "Advisor") is the investment Advisor of each Fund and furnishes accounting and other services and office facilities for a monthly fee based on each Fund's average net assets as follows:
LIGF AVERAGE NET ASSETS ANNUAL FEE RATE - -------------------------------------------------------------------------------- First $1 billion 0.60% Next $500 million 0.55% Over $1.5 billion 0.50%
LFSF AVERAGE NET ASSETS ANNUAL FEE RATE - -------------------------------------------------------------------------------- First $1 billion 0.60% Next $1 billion 0.55% Next $1 billion 0.50% Over $3 billion 0.40%
BOOKKEEPING FEE: For each Fund the Advisor provides bookkeeping and pricing services for a monthly fee equal to $27,000 annually plus a percentage of the Fund's average net assets as follows:
AVERAGE NET ASSETS ANNUAL FEE RATE - -------------------------------------------------------------------------------- First $50 million No charge Next $950 million 0.035% Next $1 billion 0.025% Next $1 billion 0.015% Over $3 billion 0.000%
TRANSFER AGENT FEE: Liberty Funds Services, Inc. (the "Transfer Agent"), an affiliate of the Advisor, provided shareholder services for a monthly fee equal to 0.07% annually of average net assets plus charges based on the number of shareholder accounts and transactions. The Transfer Agent continues to receive reimbursements for certain-out-of-pocket expenses. UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Liberty Funds Distributor, Inc. (the "Distributor"), a subsidiary of the Advisor, is each Fund's principal underwriter. During the six months ended February 28, 2001, each Fund has been advised that the Distributor retained net underwriting discounts on LIGF and LFSF of $11,876 and $10,896, respectively, on sales of the Funds' Class A shares and received contingent deferred sales charges (CDSC) of $10,949 and $73 on Class A share redemptions, $111,804 and $73,709 on Class B share redemptions, and $166, and $861, on Class C share redemptions, respectively. Each Fund has adopted a 12b-1 plan which requires the payment of a service fee to the Distributor. The Funds pay a service fee equal to 0.25% annually on Class A, Class B and Class C net assets as of the 20th of each month. The plan also requires the payment of a distribution fee to the Distributor. The Funds each pay a distribution fee equal to 0.75% annually of the average net assets attributable to Class B and Class C shares. The Distributor has voluntarily agreed, until further notice, to waive a portion of the Class C share distribution fee so that it does not exceed 0.60% annually for LIGF and LFSF. The CDSC and the fees received from the 12b-1 plan are used principally as repayment to the Distributor for amounts paid by the Distributor to dealers who sold such shares. EXPENSE LIMITS: For LIGF, the Advisor has agreed, until further notice, to waive fees and bear certain Fund expenses to the extent that total expenses (exclusive of service and distribution fees, brokerage commissions, interest, taxes and extraordinary expenses, if any) exceed 1.00% annually of the Fund's average net assets. OTHER: The Funds pay no compensation to their officers, all of whom are employees of the Advisor. The Funds' 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 Funds' assets. 17 20 NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- NOTE 3. PORTFOLIO INFORMATION INVESTMENT ACTIVITY: For the six months ended February 28, 2001, purchases and sales of investments, other than short-term obligations and mortgage dollar roll transactions, were as follows:
PURCHASES SALES - -------------------------------------------------------------------------------- LIGF $694,313,728 $668,479,638 LFSF $799,437,603 $807,983,047
Unrealized appreciation (depreciation) at February 28, 2001, for both financial statement and federal income tax purposes was:
LIGF LFSF - -------------------------------------------------------------------------------- Gross unrealized appreciation $ 24,131,270 $ 28,811,947 Gross unrealized depreciation (1,783,411) (2,218,820) ------------ ------------ Net unrealized appreciation $ 22,347,859 $ 26,593,127 ------------ ------------
CAPITAL LOSS CARRYFORWARDS: At August 31, 2000, capital loss carryforwards available (to the extent provided in regulations) to offset future realized gains were approximately as follows:
YEAR OF CAPITAL LOSS EXPIRATION CARRYFORWARD* - -------------------------------------------------------------------------------- LIGF 2001 $ 4,910,000 2002 7,249,000 2003 67,291,000 2004 32,580,000 2005 18,973,000 2008 11,995,000 ------------ $142,998,000 ============
* May be subject to limitations. Of the LIGF loss carryforwards expiring in 2001 and 2002, $4,910,000 and $4,423,000, respectively, were acquired in the merger with Liberty Financial U.S. Government Securities Fund. Their availability for use in offsetting any future realized gains may be limited in a given year.
YEAR OF CAPITAL LOSS EXPIRATION CARRYFORWARD - -------------------------------------------------------------------------------- LFSF 2002 $ 84,302,000 2004 21,929,000 2008 24,031,000 ------------ $130,262,000 ============
Expired capital loss carryforwards, if any, are recorded as a reduction of capital paid in. To the extent loss carryforwards are used to offset any future realized gains, it is unlikely that such gains would be distributed since they may be taxable to shareholders as ordinary income. OTHER: The Funds may purchase or sell futures contracts and purchase and write options on futures and securities. The Funds will use these instruments to hedge against the effects of changes in the value of the portfolio securities due to anticipated changes in interest rates and/or market conditions and not for trading purposes. The Funds may also invest in these instruments for duration management. The use of futures contracts and options involves certain risks which include (1) the imperfect correlation between the price movement of the instruments and the underlying securities, (2) inability to close out a position due to different trading hours, or the absence of a liquid market for either the instrument or the underlying securities or (3) an inaccurate prediction by the Advisor of the future direction of interest rates. Any of these risks may involve amounts exceeding the variation margin, or option premium recorded in the Funds' Statement of Assets and Liabilities at any given time. NOTE 4. RESULTS OF SPECIAL MEETINGS OF SHAREHOLDERS On December 27, 2000, Special Meetings of Shareholders of the LIGF and LFSF were held to elect eleven Trustees. On September 29, 2000, the record date for the Meetings, LIGF and LFSF had shares of beneficial interest outstanding of 104,521,268 and 63,440,308, respectively. The votes cast were as follows:
AUTHORITY LIGF FOR WITHHELD - -------------------------------------------------------------------------------- To elect a Board of Trustees: Douglas Hacker 52,579,489 488,869 Janet Langford Kelly 52,565,304 503,054 Richard W. Lowry 52,582,804 485,554 Salvatore Macera 52,563,561 504,797 William E. Mayer 52,570,832 497,526 Charles R. Nelson 52,586,593 481,765 John J. Neuhauser 52,583,304 485,054 Joseph R. Palombo 52,559,841 508,517 Thomas E. Stitzel 52,575,137 493,221 Thomas C. Theobald 52,581,496 486,862 Anne-Lee Verville 52,567,810 500,548
AUTHORITY LFSF FOR WITHHELD - -------------------------------------------------------------------------------- To elect a Board of Trustees: Douglas Hacker 37,192,693 564,625 Janet Langford Kelly 37,181,334 575,984 Richard W. Lowry 37,196,707 560,611 Salvatore Macera 37,178,266 579,052 William E. Mayer 37,196,863 560,455 Charles R. Nelson 37,191,449 565,869 John J. Neuhauser 37,187,965 569,353 Joseph R. Palombo 37,191,680 565,638 Thomas E. Stitzel 37,198,251 559,067 Thomas C. Theobald 37,203,940 553,378 Anne-Lee Verville 37,193,042 564,276
18 21 NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- NOTE 5. REORGANIZATION On February 9, 2001, LIGF acquired all the net assets of Liberty Short Term Government Fund (LSTGF) pursuant to the Plan of Reorganization approved by LSTGF shareholders on January 25, 2001. The transaction was structured for tax purposes to qualify as a tax-free reorganization under the Internal Revenue Code. Under the Plan of Reorganization, shareholders of LSTGF received shares in LIGF with a value equal to their holdings in LSTGF. Holders of Class A Shares in LSTGF received Class A Shares of LIGF, holders of Class B Shares in LSTGF received Class B Shares in LIGF and holders of Class C Shares in LSTGF received Class A Shares of LIGF. The following is a summary of shares outstanding, net assets, net asset values per share and net unrealized appreciation immediately before and after the reorganization:
BEFORE AFTER REORGANIZATION REORGANIZATION LSTGF LIGF LIGF - -------------------------------------------------------------------------------- Class A Shares Shares Outstanding 1,011,745 78,846,617 80,912,568 Net Assets $ 9,870,285 $514,884,949 $528,375,607 Net Asset Value $ 9.76 $ 6.53 $ 6.53 Class B Shares Shares Outstanding 802,729 19,432,677 20,631,872 Net Assets $ 7,830,746 $126,897,134 $134,727,880 Net Asset Value $ 9.76 $ 6.53 $ 6.53 Class C Shares Shares Outstanding 371,110 572,153 572,153 Net Assets $ 3,620,373 $ 3,736,213 $ 3,736,213 Net Asset Value $ 9.76 $ 6.53 $ 6.53 Class Z Shares Shares Outstanding -- 11,862 11,862 Net Assets $ -- $ 77,459 $ 77,459 Net Asset Value $ -- $ 6.53 $ 6.53 Net Unrealized Appreciation $ 74,667 $ 19,930,598 $ 20,005,265
19 22 FINANCIAL HIGHLIGHTS LIGF - -------------------------------------------------------------------------------- Selected data for a share of each class outstanding throughout each period are as follows:
SIX MONTHS ENDED FEBRUARY 28, 2001 (UNAUDITED) ----------------------------------------------------------- CLASS A CLASS B CLASS C CLASS Z - ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.28 $ 6.28 $ 6.28 $ 6.28 ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (a) 0.18 0.16 0.16(b) 0.19 Net realized and unrealized gain 0.27 0.27 0.27 0.27 ------- ------- ------- ------- Total from Investment Operations 0.45 0.43 0.43 0.46 ------- ------- ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.18) (0.16) (0.16) (0.19) ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 6.55 $ 6.55 $ 6.55 $ 6.55 ======= ======= ======= ======= Total return (c)(d) 7.25% 6.86% 6.94%(g) 7.38% ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS Expenses (e)(f) 1.23% 1.98% 1.83%(b) 0.98% Net investment income (e)(f) 5.84% 5.09% 5.24%(b) 6.09% Fees and expenses waived or borne by the Advisor 0.02 0.02 0.02 0.02 Portfolio turnover (d) 105% 105% 105% 105% Net assets at end of period (in millions) $ 539 $ 128 $ 4 (h)
(a) Net of fees and expenses waived or borne by the advisor amounted to less than $0.01. (b) Net of fees waived by the Distributor which amounted to $0.01 per share and 0.15%. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Not annualized. (e) The benefits derived from custody credits and directed brokerage arrangements had no impact. (f) Annualized. (g) Had the Advisor/Distributor not waived a portion of the expenses, total return would have been reduced. (h) Rounds to less than one.
YEAR ENDED AUGUST 31, 2000 -------------------------------------------------------- CLASS A CLASS B CLASS C CLASS Z - ---------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.32 $ 6.32 $ 6.32 $ 6.32 INCOME FROM INVESTMENT OPERATIONS: Net investment income (a) 0.40 0.34 0.35(b) 0.41 ------- ------- ------- ------- Net realized and unrealized loss (0.04) (0.04) (0.04) (0.04) ------- ------- ------- ------- Total from Investment Operations 0.36 0.30 0.31 0.37 LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.38) (0.33) (0.34) (0.39) In excess of net investment income (0.01) + + (0.01) ------- ------- ------- ------- Return of capital (0.01) (0.01) (0.01) (0.01) ------- ------- ------- ------- Total Distributions Declared to Shareholders (0.40) (0.34) (0.35) (0.41) ======= ======= ======= ======= NET ASSET VALUE, END OF PERIOD $ 6.28 $ 6.28 $ 6.28 $ 6.28 ======= ======= ======= ======= Total return (c) 5.77% 4.98% 5.14%(e) 6.03% RATIOS TO AVERAGE NET ASSETS Expenses (d) 1.20% 1.95% 1.80%(b) 0.95% Net investment income (d) 6.35% 5.60% 5.75%(b) 6.60% Portfolio turnover 84% 84% 84% 84% Net assets at end of period (in millions) $ 466 $ 184 $ 2 $ 6
(a) The per share net investment income amounts do not reflect the period's reclassification of differences between book and tax basis net investment income. (b) Net of fees waived by the Distributor which amounted to $0.01 per share and 0.15%. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) The benefits derived from custody credits and directed brokerage arrangements had no impact. (e) Had the Distributor not waived a portion of the expenses, total return would have been reduced. + Rounds to less than $0.01. 20 23 FINANCIAL HIGHLIGHTS LIGF (CONTINUED) - -------------------------------------------------------------------------------- Selected data for a share of each class outstanding throughout each period are as follows:
YEAR ENDED AUGUST 31, 1999 ------------------------------------------------------------ CLASS A CLASS B CLASS C CLASS Z(a) - -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.73 $ 6.73 $ 6.73 $ 6.76 ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.38 0.33 0.34(b) 0.22 Net realized and unrealized loss (0.42) (0.42) (0.42) (0.43) ------- ------- ------- ------- Total from Investment Operations (0.04) (0.09) (0.08) (0.21) ------- ------- ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.37) (0.32) (0.33) (0.23) ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 6.32 $ 6.32 $ 6.32 $ 6.32 ======= ======= ======= ======= Total return (c) (0.70)% (1.44)% (1.29)%(d) (3.31)%(e) ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS Expenses (f) 1.15% 1.90% 1.75%(b) 0.92%(g) Net investment income (f) 6.10% 5.35% 5.50%(b) 6.35%(g) Portfolio turnover 62% 62% 62% 62% Net assets at end of period (in millions) $ 537 $ 296 $ 3 $ 7
(a) Class Z shares were initially offered on January 29, 1999. Per share data reflects activity from that date. (b) Net of fees waived by the Distributor which amounted to $0.01 per share and 0.15%. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Distributor not waived a portion of the expenses, total return would have been reduced. (e) Not annualized. (f) The benefits derived from custody credits and directed brokerage arrangements had no impact. (g) Annualized.
YEAR ENDED AUGUST 31, 1998 ----------------------------------------- CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.51 $ 6.51 $ 6.51 ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.42 0.37 0.38(a) Net realized and unrealized gain 0.21 0.21 0.21 ------- ------- ------- Total from Investment Operations 0.63 0.58 0.59 ------- ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.38) (0.33) (0.34) In excess of net investment income (0.03) (0.03) (0.03) ------- ------- ------- Total Distributions Declared to Shareholders (0.41) (0.36) (0.37) ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 6.73 $ 6.73 $ 6.73 ======= ======= ======= Total return (b) 9.87% 9.03% 9.20%(c) ======= ======= ======= RATIOS TO AVERAGE NET ASSETS Expenses (d) 1.12% 1.87% 1.72%(a) Net investment income (d) 6.02% 5.27% 5.42%(a) Portfolio turnover 214% 214% 214% Net assets at end of period (in millions) $ 651 $ 395 $ 1
(a) Net of fees waived by the Advisor or its affiliates to which amounted to $0.01 per share and 0.15%. (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Had the Distributor not waived a portion of expenses, total return would have been reduced. (d) The benefits derived from custody credits and directed brokerage arrangements had no impact. 21 24 FINANCIAL HIGHLIGHTS LIGF (CONTINUED) - -------------------------------------------------------------------------------- Selected data for a share of each class outstanding throughout each period are as follows:
YEAR ENDED AUGUST 31, 1997 ------------------------------------------ CLASS A CLASS B CLASS C(a) - -------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.37 $ 6.37 $ 6.59 ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.39 0.34 0.03 Net realized and unrealized gain (loss) 0.15 0.15 (0.08) ------- ------- ------- Total from Investment Operations 0.54 0.49 (0.05) ------- ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.40) (0.35) (0.03) ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 6.51 $ 6.51 $ 6.51 ======= ======= ======= Total return (b) 8.64% 7.83% (0.77)%(c) ======= ======= ======= RATIOS TO AVERAGE NET ASSETS Expenses (d) 1.13% 1.88% 1.78%(e) Net investment income (d) 6.43% 5.68% 5.85%(e) Portfolio turnover 61% 61% 61% Net assets at end of period (in millions) $ 731 $ 461 (f) (f)
(a) Class C Shares were initially offered on August 1, 1997 per share data reflects activity from that date. (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Not annualized. (d) The benefits derived from custody credits and directed brokerage commissions had no impact. (e) Annualized. (f) Rounds to less than one.
YEAR ENDED AUGUST 31, ------------------------ 1996 ------------------------ CLASS A CLASS B - -------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.55 $ 6.55 ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.39 0.34 Net realized and unrealized loss (0.16) (0.16) ------- ------- Total from Investment Operations 0.23 0.18 ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.39) (0.34) In excess of net investment income (0.02) (0.02) ------- ------- Total Distributions Declared to Shareholders (0.41) (0.36) ======= ======= NET ASSET VALUE, END OF PERIOD $ 6.37 $ 6.37 ======= ======= Total return (a) 3.51% 2.74% RATIOS TO AVERAGE NET ASSETS Expenses (b) 1.11% 1.86% Net investment income (b) 6.45% 5.70% Portfolio turnover 123% 123% Net assets at end of period (in millions) $ 921 $ 572
(a) Total return at net asset value assuming all distributions reinvested and no initial sales charges or contingent deferred sales charge. (b) The benefits derived from custody credits and directed brokerage arrangements had no impact. 22 25 FINANCIAL HIGHLIGHTS LFSF Selected data for a share of each class outstanding throughout each period are as follows:
SIX MONTHS ENDED FEBRUARY 28, 2001 (UNAUDITED) ----------------------------------------------------------- CLASS A CLASS B CLASS C CLASS Z - ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.02 $ 10.02 $ 10.02 $ 10.02 ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.30 0.26 0.27(a) 0.31 Net realized and unrealized gain 0.51 0.51 0.51 0.51 ------- ------- ------- ------- Total from Investment Operations 0.81 0.77 0.78 0.82 ------- ------- ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.31) (0.27) (0.28) (0.32) ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 10.52 $ 10.52 $ 10.52 $ 10.52 ======= ======= ======= ======= Total return (b)(c) 8.16% 7.76% 7.85%(e) 8.33% ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS Expenses (d)(f) 1.21% 1.96% 1.81%(a) 0.96% Net investment income (d)(f) 5.97% 5.22% 5.37%(a) 6.22% Portfolio turnover 113% 113% 113% 113% Net assets at end of period (in millions) $ 591 $ 53 $ 5 (g)
(a) Net of fees waived by the Distributor which amounted to $0.01 per share and 0.15% (annualized). (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Not annualized. (d) Annualized. (e) Had the Distributor not waived a portion of expenses, total return would have been reduced. (f) The benefits derived from custody credits and directed brokerage arrangements had no impact. (g) Rounds to less than one.
YEAR ENDED AUGUST 31, 2000 ----------------------------------------------------------- CLASS A CLASS B CLASS C CLASS Z - ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.14 $ 10.14 $ 10.14 $ 10.14 ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (a) 0.74 0.67 0.68(b) 0.77 Net realized and unrealized loss (0.14) (0.14) (0.14) (0.14) ------- ------- ------- ------- Total from Investment Operations 0.60 0.53 0.54 0.63 ------- ------- ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.68) (0.61) (0.62) (0.71) In excess of net investment income (0.03) (0.03) (0.03) (0.03) Return of capital (0.01) (0.01) (0.01) (0.01) ------- ------- ------- ------- Total Distributions Declared to Shareholders (0.72) (0.65) (0.66) (0.75) ======= ======= ======= ======= NET ASSET VALUE, END OF PERIOD $ 10.02 $ 10.02 $ 10.02 $ 10.02 ======= ======= ======= ======= Total return (c) 6.23% 5.44% 5.60%(d) 6.50% ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS Expenses (e) 1.17% 1.92% 1.77%(b) 0.92% Net investment income (e) 6.87% 6.12% 6.27%(b) 7.12% Portfolio turnover 96% 96% 96% 96% Net assets at end of period (in millions) $ 583 $ 54 $ 4 (f)
(a) The per share net investment income amounts do not reflect the period's reclassification of differences between book and tax basis net investment income. (b) Net of fees waived by the Distributor which amounted to $0.02 per share and 0.15%. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Distributor not waived a portion of expenses, total return would have been reduced. (e) The benefits derived from custody credits and directed brokerage arrangements had no impact. (f) Rounds to less than one. 23 26 FINANCIAL HIGHLIGHTS LFSF (CONTINUED) - -------------------------------------------------------------------------------- Selected data for a share of each class outstanding throughout each period are as follows:
YEAR ENDED AUGUST 31, 1999 ------------------------------------------------------------ CLASS A CLASS B CLASS C CLASS Z(a) - -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 11.08 $ 11.08 $ 11.08 $ 11.01 ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.70 0.62 0.64(b) 0.48 Net realized and unrealized loss (0.97) (0.97) (0.97) (0.89) ------- ------- ------- ------- Total from Investment Operations (0.27) (0.35) (0.33) (0.41) ------- ------- ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.67) (0.59) (0.61) (0.46) ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 10.14 $ 10.14 $ 10.14 $ 10.14 ======= ======= ======= ======= Total return (c) (2.56)% (3.30)% (3.15)%(d) (3.77)%(e) ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS Expenses (f) 1.15% 1.90% 1.79%(b) 0.91%(g) Net investment income (f) 6.58% 5.83% 5.98%(b) 7.19%(g) Portfolio turnover 42% 42% 42% 42% Net assets at end of period (in millions) $ 682 $ 72 $ 5 (h)
(a) Class Z shares were initially offered on January 11, 1999. Per share data reflects activity from that date. (b) Net of fees waived by the Distributor which amounted to $0.01 per share and 0.15%. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Had the Distributor not waived a portion of expenses, total return would have been reduced. (e) Not annualized. (f) The benefits derived from custody credits and directed brokerage arrangements had no impact. (g) Annualized. (h) Rounds to less than one.
YEAR ENDED AUGUST 31, 1998 ----------------------------------------- CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.52 $ 10.52 $ 10.52 ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.71 0.63 0.64(a) Net realized and unrealized gain 0.53 0.53 0.53 ------- ------- ------- Total from Investment Operations 1.24 1.16 1.17 ------- ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.68) (0.60) (0.61) ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 11.08 $ 11.08 $ 11.08 ======= ======= ======= Total return (b) 12.11% 11.26% 11.43%(c) ======= ======= ======= RATIOS TO AVERAGE NET ASSETS Expenses (d) 1.14% 1.89% 1.74%(a) Net investment income (d) 6.49% 5.74% 5.89%(a) Portfolio turnover 356% 356% 356% Net assets at end of period (in millions) $ 821 $ 72 $ 1
(a) Net of fees waived by the Distributor which amounted to $0.02 per share and 0.15%. (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Had the Distributor not waived a portion of expenses, total return would have been reduced. (d) The benefits derived from custody credits and directed brokerage arrangements had no impact. 24 27 FINANCIAL HIGHLIGHTS LFSF (CONTINUED) - -------------------------------------------------------------------------------- Selected data for a share of each class outstanding throughout each period are as follows:
PERIOD ENDED AUGUST 31, 1997(a) ----------------------------------------------- CLASS A CLASS B CLASS C(b) - ------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.53 $ 10.53 $ 10.71 ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.58 0.52 0.06 Net realized and unrealized loss (0.04) (0.04) (0.20) ------- ------- ------- Total from Investment Operations 0.54 0.48 0.14 ------- ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.55) (0.49) (0.05) ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 10.52 $ 10.52 $ 10.52 ======= ======= ======= Total return (c) 5.31%(d) 4.66%(d) (1.31)%(d) ======= ======= ======= RATIOS TO AVERAGE NET ASSETS Expenses (e) 1.19%(f) 1.94%(f) 1.82%(f) Net investment income (e) 6.71%(f) 5.96%(f) 6.55%(f) Portfolio turnover 79%(d) 79%(d) 79%(d) Net assets at end of period (in millions) $ 888 $ 64 (g)
(a) The Fund changed its fiscal year end from October 31 to August 31. Information presented is for the period November 1, 1996 through August 31, 1997. (b) Class C shares were initially offered on August 1, 1997. Per share data reflects activity from that date. (c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (d) Not annualized. (e) The benefits derived from custody credits and directed brokerage arrangements had no impact. (f) Annualized. (g) Rounds to less than one.
YEAR ENDED OCTOBER 31, -------------------------- 1996 -------------------------- CLASS A CLASS B - -------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.83 $ 10.83 --------- --------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.69 0.62 Net realized and unrealized loss (0.30) (0.30) --------- --------- Total from Investment Operations 0.39 0.32 --------- --------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.68) (0.61) From capital paid in (0.01) (0.01) --------- --------- Total Distributions Declared to Shareholders (0.69) (0.62) --------- --------- NET ASSET VALUE, END OF PERIOD $ 10.53 $ 10.53 ========= ========= Total return (a) 3.88% 3.11% ========= ========= RATIOS TO AVERAGE NET ASSETS Expenses (b) 1.18% 1.93% Net investment income (b) 6.62% 5.87% Portfolio turnover 125% 125% Net assets at end of period (in millions) $ 1,026 $ 73
(a) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (b) The benefits derived from custody credits and directed brokerage arrangements had no impact. 25 28 TRUSTEES & TRANSFER AGENT - -------------------------------------------------------------------------------- DOUGLAS A. HACKER Executive Vice President and Chief Financial Officer of UAL, Inc. (formerly Senior Vice President and Chief Financial Officer of UAL, Inc.) JANET LANGFORD KELLY Executive Vice President-Corporate Development, General Counsel, and Secretary, Kellogg Company (formerly Senior Vice President, Secretary and General Counsel, Sara Lee Corporation) RICHARD W. LOWRY Private Investor (formerly Chairman and Chief Executive Officer, US Plywood Corporation) SALVATORE MACERA Private Investor (formerly Executive Vice President of Itek Corp. and President of Itek Optical & Electronic Industries, Inc.) WILLIAM E. MAYER Managing Partner, Park Avenue Equity Partners (formerly Founding Partner, Development Capital LLC, Dean and Professor, College of Business and Management, University of Maryland) CHARLES R. NELSON Van Voorhis Professor, Department of Economics, University of Washington; consultant on economic and statistical matters (formerly Department Chairman and Director of the Institute for Economic Research) JOHN J. NEUHAUSER Academic Vice President and Dean of Faculties, Boston College (formerly Dean, Boston College School of Management) JOSEPH R. PALOMBO Chief Operations Officer, Mutual Funds, Liberty Financial Companies, Inc.; Executive Vice President and Director of Colonial Management Associates, Inc. and Stein Roe & Farnham Inc.; Executive Vice President and Chief Administrative Officer of Liberty Funds Group LLC (formerly Vice President of Liberty Mutual Funds, Stein Roe Mutual Funds and All-Star Funds, and Chief Operating Officer, Putnam Mutual Funds) THOMAS E. STITZEL Business Consultant and Chartered Financial Analyst (formerly Professor of Finance, College of Business, Boise State University) THOMAS C. THEOBALD Managing Director, William Blair Capital Partners (formerly Chief Executive Officer and Chairman of the Board of Directors, Continental Bank Corporation) ANNE-LEE VERVILLE Consultant (formerly General Manager, Global Education Industry, and President, Applications Solutions Division, IBM Corporation) - -------------------------------------------------------------------------------- IMPORTANT INFORMATION ABOUT THIS REPORT The Transfer Agent for Liberty Government Funds is: Liberty Funds Services, Inc. P.O. Box 1722 Boston, MA 02105-1722 800-345-6611 The funds mail one shareholder report to each shareholder address. If you would like more than one report, please call 800-426-3750 and additional reports will be sent to you. This report has been prepared for shareholders of Liberty Government Funds. 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 Funds and with the most recent copy of the Liberty Funds Distributor, Inc. Performance Update. SEMIANNUAL REPORT: LIBERTY GOVERNMENT FUNDS 29 CHOOSE LIBERTY - -------------------------------------------------------------------------------- BECAUSE NO SINGLE INVESTMENT MANAGER CAN BE ALL THINGS TO ALL INVESTORS.(SM) LIBERTY -------- FUNDS - -------------------------------------------------------------------------------- ALL-STAR INSTITUTIONAL MONEY MANAGEMENT APPROACH FOR INDIVIDUAL INVESTORS. - -------------------------------------------------------------------------------- COLONIAL FIXED INCOME AND VALUE-STYLE EQUITY INVESTING. - -------------------------------------------------------------------------------- CRABBE HUSON A CONTRARIAN APPROACH TO FIXED INCOME AND EQUITY INVESTING. - -------------------------------------------------------------------------------- NEWPORT A LEADER IN INTERNATIONAL INVESTING.(SM) - -------------------------------------------------------------------------------- STEIN ROE ADVISOR INNOVATIVE SOLUTIONS FOR GROWTH AND INCOME INVESTING. - -------------------------------------------------------------------------------- [KEYPORT LOGO] A LEADING PROVIDER OF INNOVATIVE ANNUITY PRODUCTS. - -------------------------------------------------------------------------------- Liberty's mutual funds are offered by prospectus through Liberty Funds Distributor, Inc. BEFORE YOU INVEST, CONSULT YOUR FINANCIAL ADVISOR. Your financial advisor can help you develop a long-term plan for reaching your financial goals. LIBERTY GOVERNMENT FUNDS SEMIANNUAL REPORT - -------------------------------------------------------------------------------- [LIBERTY FUNDS LETTERHEAD] ------------- PRSRT STD U.S. POSTAGE PAID HOLLISTON, MA PERMIT NO. 20 ------------- GOV-03/219F-0301 (4/01) 01/649 -----END PRIVACY-ENHANCED MESSAGE-----