UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-9709
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Liberty Floating Rate Advantage Fund
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(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
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(Address of principal executive offices) (Zip code)
Jean S. Loewenberg, Esq.
Columbia Management Group, Inc.
One Financial Center
Boston, MA 02111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-426-3750
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Date of fiscal year end: August 31, 2003
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Date of reporting period: February 28, 2003
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
LIBERTY FLOATING
RATE ADVANTAGE FUND
Semiannual Report
February 28, 2003
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LIBERTY FLOATING
RATE ADVANTAGE FUND
Semiannual Report
February 28, 2003
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President's Message
[photo of Joseph R. Palombo]
Dear Shareholder:
The environment for the syndicated loan market, which comprises large corporate
loans made by a group or syndicate of banks and institutional investors,
remained volatile over the past six months. The second half was markedly better
than the first half of the period. Bankruptcy filings by high-profile companies,
which led to a general widening of loan credit risk premiums, peaked late in
2002. Then, as default rates started to come down and investors began to move
back into riskier segments of the fixed income markets, the environment for the
syndicated loan market improved. Better performance from the high yield bond
sector also helped this market.
Declining interest rates, which are generally positive for stocks and bonds,
were a negative factor for the fund throughout the six-month period because
yields on floating-rate loans adjust downward to reflect lower current rates.
Nevertheless, an improving credit environment offset the impact of declining
rates and helped the syndicated loan market achieve positive returns for the
period.
In the following report, portfolio managers Brian Good and Jim Fellows talk in
greater detail about the performance of Liberty Floating Rate Advantage Fund and
the decisions they made in managing the fund. As always, thank you for investing
in Liberty Funds. We look forward to helping you build a strong financial
future.
Sincerely,
/s/ Joseph R. Palombo
Joseph R. Palombo
President
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MEET THE NEW PRESIDENT
Joseph R. Palombo, president and chairman of the Board of Trustees for Liberty
Funds, is also chief operating officer of Columbia Management Group. Mr. Palombo
has over 19 years of experience in the financial services industry. Prior to
joining Columbia Management, he was chief operating officer and chief compliance
officer for Putnam Mutual Funds. Prior to that, he was a partner at Coopers &
Lybrand. Mr. Palombo received his degree in economics/accounting from the
College of the Holy Cross, where he was a member of Phi Beta Kappa. He earned
his master's degree in taxation from Bentley College and participated in the
Executive Program at the Amos B. Tuck School at Dartmouth College.
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Net asset value per share as of 2/28/03 ($)
Class A 10.40
Class B 10.40
Class C 10.40
Class Z 10.40
Distributions declared per share 9/1/02-2/28/03 ($)
Class A 0.42
Class B 0.41
Class C 0.40
Class Z 0.44
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Not FDIC Insured
May Lose Value
No Bank Guarantee
Economic and market conditions change frequently. There is no assurance that the
trends described in this report will continue or commence.
Performance Information
Value of a $10,000 investment
1/13/00 - 2/28/03
Performance of a $10,000 investment
1/13/00 - 2/28/03 ($)
without with
sales sales
charge charge
- ------------------------------------
Class A 11,247 10,853
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Class B 11,130 11,000
- ------------------------------------
Class C 11,081 11,081
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Class Z 11,366 n/a
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[mountain chart data} :
Lehman Bros.
Class A shares Class A shares Intermediate US
without sales charge with sales charge Government Bond Index
1/2000 $10,000.0 $ 9,650.0 $10,000.0
10,050.0 9,698.0 10,033.0
10,141.0 9,787.0 9,954.0
10,151.0 9,795.0 9,990.0
10,210.0 9,853.0 10,073.0
10,316.0 9,955.0 10,135.0
10,420.0 10,055.0 10,208.0
10,521.0 10,153.0 10,260.0
10,604.0 10,233.0 10,293.0
10,696.0 10,322.0 10,298.0
10,778.0 10,400.0 10,321.0
10,821.0 10,442.0 10,393.0
10,895.0 10,514.0 10,455.0
10,998.0 10,613.0 10,545.0
11,049.0 10,663.0 10,558.0
11,020.0 10,634.0 10,540.0
10,915.0 10,533.0 10,513.0
11,027.0 10,641.0 10,639.0
11,041.0 10,654.0 10,651.0
11,176.0 10,785.0 10,678.0
11,316.0 10,920.0 10,763.0
11,128.0 10,739.0 10,558.0
10,873.0 10,493.0 10,393.0
11,007.0 10,622.0 10,556.0
11,176.0 10,784.0 10,666.0
11,344.0 10,947.0 10,725.0
11,274.0 10,879.0 10,684.0
11,493.0 11,090.0 10,808.0
11,652.0 11,245.0 10,924.0
11,683.0 11,274.0 10,916.0
11,455.0 11,054.0 10,751.0
11,051.0 10,664.0 10,588.0
10,878.0 10,497.0 10,557.0
10,723.0 10,347.0 10,580.0
10,621.0 10,249.0 10,438.0
10,806.0 10,427.0 10,618.0
11,067.0 10,680.0 10,785.0
11,232.0 10,839.0 10,930.0
2/2003 11,247.0 10,853.0 11,094.0
MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT LIBERTYFUNDS.COM FOR
DAILY PERFORMANCE UPDATES.
Past performance is no guarantee of future investment results. The principal
value and investment returns will fluctuate, resulting in a gain or loss on
sale. The graph and table do not reflect the deduction of taxes a shareholder
would pay on fund distributions or the redemption of fund shares. The CSFB
Leveraged Loan Index is an unmanaged index that tracks the performance of senior
floating rate bank loans. Unlike mutual funds, an index is not an investment,
does not incur fees or charges and is not professionally managed. It is not
possible to invest directly in an index. Securities in the fund may not match
those in an index. Index performance is from December 31, 1999.
Average annual total return as of 2/28/03 (%)
Share class A B C Z
Inception 1/13/00 1/13/00 1/13/00 1/13/00
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without with without with without with without
sales sales sales sales sales sales sales
charge charge charge charge charge charge charge
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6-month (cumulative) 3.39 -0.22 3.22 -0.01 3.14 2.15 3.57
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1-year -0.23 -3.73 -0.58 -3.58 -0.73 -1.65 0.12
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Life 3.83 2.65 3.49 3.10 3.34 3.34 4.18
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Average annual total return as of 12/31/02 (%)
Share class A B C Z
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without with without with without with without
sales sales sales sales sales sales sales
charge charge charge charge charge charge charge
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6-month (cumulative) -3.39 -6.77 -3.56 -6.57 -3.63 -4.55 -3.21
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1-year -0.98 -4.44 -1.32 -4.30 -1.47 -2.39 -0.63
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Life 3.47 2.24 3.13 2.58 2.98 2.98 3.82
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Past performance is no guarantee of future investment results. The principal
value and investment returns will fluctuate, resulting in a gain or loss on
sale. All results shown assume reinvestment of distributions. The "with sales
charge" returns include the maximum 3.50% sales charge for class A shares; the
appropriate class B shares early withdrawal charge (EWC) for the holding period
after purchase as follows: first year - 3.25%, second year - 3.00%, third year -
2.00%, fourth year - 1.50%, fifth year - 1.00%, thereafter - 0%; and the class C
shares EWC of 1.00% for the first year only. Performance results reflect any
voluntary waivers or reimbursement of fund expenses by the advisor or its
affiliates. Absent these waivers or reimbursement arrangements, performance
results would have been lower. Performance for different share classes will vary
based on differences in sales charges and fees associated with each class.
1
Portfolio Managers' Report
30-day SEC yield as of 2/28/03
After
reimbursement (%)
Class A 6.67
Class B 6.56
Class C 6.41
Class Z 7.27
The 30-day SEC yield reflects the portfolio's earning power, net of expenses,
expressed as an annualized percentage of the public offering price at the end of
the period. If the advisor or its affiliates had not waived certain fund
expenses, the 30-day SEC yield would have been 6.48% for class A shares, 6.13%
for class B shares, 5.97% for class C shares and 6.83% for class Z shares.
Top 10 issuers as of 2/28/03 (%)
Washington Group International 5.0%
Century Cable Holdings 4.3
Mission Energy Holdings 3.0
Vought Aircraft Industries 2.8
Olympus Cable Holdings 2.5
1424666 Ontario Ltd. 2.4
Loews Cineplex Entertainment 2.2
Huntsman Co. 2.1
Alliance Gaming 2.0
Calpine 2.0
Holdings are calculated as a percentage of net assets. Since the fund is
actively managed, there is no guarantee that the fund will continue to maintain
this breakdown in the future.
For the six-month period that ended February 28, 2003, the class A shares of
Liberty Floating Rate Advantage Fund returned 3.39%, without sales charge. That
was lower than the return of the fund's benchmark, the CSFB Leveraged Loan
Index, which was up 4.07% for the period. The fund was negatively affected in
the fall of 2002 by its holdings in the hotel and lodging sectors, businesses
that have suffered from an ongoing decline in air travel. However, the
environment for floating rate securities became more favorable toward the end of
2002, and the fund made up some of its lost ground. The leveraged portion of the
fund's assets, which had hurt results as interest rates came down earlier in
2002, became a slight advantage as conditions improved.
LOWER DEFAULT RATES HELP FIXED-INCOME MARKETS
One of the most important developments during the six-month period was a
significant reduction in the incidence of corporate defaults. Default rates
among high-yield bond issuers had been running at unusually high levels--between
12% and 13%--during the summer of 2002. Toward the end of the year default rates
came down to the 7% level. Investors concluded that the lower-rated segments of
the fixed-income markets had become less risky, so they were willing to put more
money into high-yield instruments. In turn, more high-yield bonds were issued in
order to meet growing investor demand. The result of this market shift was not
only that companies were repaying high-yield bank loans, but also that senior
lenders emerged with an improved credit position. These trends were favorable
for the fund's primary markets.
EARLY VOLATILITY HURTS PERFORMANCE
Most of the fund's shortfall in performance can be traced to the first two
months of the six-month period. In addition to weakness in the hotel and lodging
sectors, one specific holding that had a negative impact on fund performance was
the engineering and construction company Washington Group International (5.0% of
net assets).1 The fund had received a piece of equity in the company in lieu of
a restructuring, and it declined sharply in September and October of 2002. The
fund's cable and wireless holdings also remained under pressure.
However, cable and wireless improved later in the period, at which time several
other bright spots
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1 Holdings are disclosed as of February 28, 2003, and are subject to change.
2
emerged. Our investment in the troubled conglomerate Tyco Corp. was closed out
at a profit. We had been able to purchase a sizable term loan at a five
percentage point discount last year, amid the negative publicity surrounding
some of Tyco's accounting practices. Since then, the company was able to
refinance its loan, and our entire position was repaid at par. The gain, though
not large in percentage terms, was important because Tyco Corp. was the fund's
biggest position at that time. The fund also benefited when electric utility AES
Corp. (1.4% of net assets) underwent a major restructuring, resulting in
enhanced collateral to the loan group and a partial cash payment to bondholders.
CAUTIOUS OPTIMISM FOR 2003
By period end, as geopolitical uncertainty mounted, the attention of the nation
and the financial markets focused squarely on the developing events in Iraq.
While the course of war and peace is impossible to predict with any confidence,
the overall environment for floating-rate securities is more to our liking than
it was a year ago. Interest rates appear unlikely to decline meaningfully from
their current levels, while corporate default rates, having moved in the right
direction, appear to be stabilizing rather than going back up. For several
months now, the market for corporate bonds and other syndicated loans has held
up well relative to other financial markets. We see that trend continuing in the
year ahead.
/s/ Brian Good
/s/ Jim Fellows
Brian Good and Jim Fellows, CFA, are senior vice presidents of Stein Roe &
Farnham Incorporated, an affiliate of Columbia Management Group, Inc. They have
been portfolio managers of the Liberty Floating Rate Advantage Fund since its
inception.
Portfolio quality breakdown
as of 2/28/03 (dollar-weighted %)
[pie chart data]:
Ba1: 0.6%
Ba2: 5.5
Ba3: 19.1
B1: 17.5
B2: 12.8
B3: 7.9
Caa1: 8.5
Caa2: 0.6
Ca: 1.0
Non-rated: 17.4
Withdrawn: 1.4
Other: 7.7
Quality breakdowns are calculated as a percentage of total investments. Because
the fund is actively managed, there is no guarantee that the fund will continue
to maintain these quality breakdowns in the future.
Top 5 sectors as of 2/28/03 (%)
[bar chart data]:
Wireless telecommunications 10.0%
Cable television 10.0
Electric utilities 7.7
Movies/entertainment 6.5
Health care 6.3
Sector breakdowns are calculated as a percentage of net assets. Because the fund
is actively managed, there is no guarantee that the fund will continue to
maintain this breakdown in the future.
Just like any other investment, floating rate loan investments present financial
risks. Defaults on the loans in the portfolio could reduce the fund's net asset
value (NAV) and its distributions, as could nonpayment of scheduled interest and
principal. Prepayment of principal by a borrower could mean that the fund
managers have to replace the loan with a lower-yielding security, which could
affect the valuation of the portfolio's holdings.
The fund is a continuously offered, closed-end management investment company and
provides limited liquidity through a quarterly tender offer for between 5% and
25% of outstanding shares. Each quarter, the fund's trustees must approve the
actual tender amount. Please read the prospectus carefully for more details.
The use of leverage for investment purposes creates opportunities for greater
total returns, but at the same time involves certain risks, such as greater
volatility of the NAV of the fund's shares and the nonpayment of dividends.
The fund may invest a high percentage of assets in a limited number of loans, so
the default of any individual holding can have a greater impact on the fund's
NAV than could a default in a more diversified portfolio.
Unlike floating rate loans, some fixed-income investments may be covered by FDIC
insurance or other guarantees relating to timely payment of principal and
interest. Some may also provide tax benefits.
3
Investment Portfolio
February 28, 2003 (Unaudited)
VARIABLE RATE SENIOR LOAN
INTERESTS (a) - 121.3% PAR VALUE
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AEROSPACE/DEFENSE - 3.4%
Integrated Defense Technologies,
Term Loan B 03/04/08 $ 997,497 $ 991,701
Vought Aircraft Industries, Inc.:
Term Loan A 06/30/06 1,144,928 1,109,580
Term Loan B 06/30/07 851,777 828,247
Term Loan C 06/30/08 2,010,440 1,960,052
Term Loan X 12/31/06 1,075,000 1,044,094
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5,933,674
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AUTO PARTS - 3.5%
1424666 Ontario Ltd.
Term Loan B 08/10/07 4,377,140 4,307,037
Federal-Mogul Corp.:
Supplemental
Revolver 02/24/04 1,312,851 1,306,286
Term Loan C 02/24/04 573,404 570,537
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6,183,860
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BROADCASTING - 4.7%
Comcorp Broadcasting, Inc.,
Term Loan A2 03/31/03 1,813,479 1,727,339
GT Brands LLC,
Term Loan 09/30/07 2,500,000 2,438,535
Quorum Broadcasting Co., Inc.,
Term Loan B 12/31/04 2,029,602 1,872,412
UPC Financing Partnership,
Term Loan C2 03/31/09 3,000,000 2,058,750
White Knight Broadcasting, Inc.,
Term Loan A2 03/31/03 186,521 177,661
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8,274,697
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BUILDING PRODUCTS - 0.8%
Tapco International Corp.:
Term Loan B 06/23/07 859,003 849,382
Term Loan C 06/23/08 614,280 607,399
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1,456,781
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BUSINESS SERVICES - 0.8%
HQ Global, (b)
Term Loan B 11/06/05 1,849,805 1,156,502
NATG Holdings, LLC, (c)
Revolver A 01/23/05 131,418 128,132
Term Loan A 01/23/09 127,805 51,141
Term Loan B1 01/23/10 86,523 34,622
Term Loan B2 01/23/10 84,238 67,403
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1,437,800
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PAR VALUE
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CABLE TELEVISION - 10.0%
Century Cable Holdings, LLC,
Term Loan 06/30/09 $10,500,000 $ 7,568,418
Charter Communications
Operating, LLC,
Term Loan B 03/18/08 2,295,990 1,933,430
CSC Holdings, Inc., (d)
Revolver 06/30/06 2,246,250 2,090,295
Olympus Cable Holdings, LLC:
Term Loan A 06/30/10 3,000,000 2,380,713
Term Loan B 09/30/10 2,500,000 2,027,840
RCN Corp.,
Term Loan B 06/03/07 2,241,000 1,636,617
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17,637,313
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CASINOS/GAMBLING - 5.0%
Aladdin Gaming, LLC: (b)
Term Loan A 02/25/05 4,000,000 3,360,000
Term Loan B 08/26/06 1,250,000 1,037,500
Alliance Gaming Corp.,
Term Loan 12/31/06 3,473,750 3,495,369
Ameristar Casinos, Inc.,
Term Loan B 12/20/06 878,778 883,167
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8,776,036
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CHEMICALS - 3.6%
Huntsman Co., LLC,
Term Loan A 03/31/07 3,041,137 2,502,236
Term Loan B 03/31/07 1,458,863 1,199,923
Huntsman International, LLC:
Term Loan B 06/30/07 289,528 285,003
Term Loan C 06/30/08 249,987 245,944
Lyondell Chemical Co.,
Term Loan E 05/17/06 330,298 331,278
Messer Griesheim Industries, Inc.:
Term Loan B 04/27/09 526,219 530,213
Term Loan C 04/27/10 973,781 979,291
Noveon, Inc.: (d)
Revolver 03/31/07 1 6
Term Loan A 03/31/07 344,636 342,661
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6,416,555
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COAL - 1.0%
Headwaters, Inc.,
Term Loan B 08/30/07 1,805,211 1,834,882
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CONSUMER SERVICES - 0.5%
Alderwoods Group, Inc.:
Note 5 Year 01/02/07 294,100 286,747
Note 7 Year 01/02/09 528,068 501,665
Loewen Group International, Inc., (b)
Revolver 06/30/04 72,883 72,883
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861,295
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See notes to investment portfolio.
4
Investment Portfolio (continued)
February 28, 2003 (Unaudited)
VARIABLE RATE SENIOR LOAN
INTERESTS (a) - (CONTINUED) PAR VALUE
- -------------------------------------------------------
CONSUMER SPECIALTIES - 3.0%
American Greetings Corp.,
Term Loan B 06/15/06 $ 1,477,014 $ 1,498,325
Church & Dwight Co., Inc.,
Term Loan B 09/30/07 995,000 1,001,758
Johnson Diversey, Inc.,
Term Loan B 11/03/09 2,321,667 2,337,238
Jostens, Inc.,
Term Loan A 05/31/06 390,678 383,683
-----------
5,221,004
-----------
CONTAINERS/PACKAGING - 1.3%
Pliant Corp.,
Term Loan B 05/31/08 2,257,275 2,232,307
Riverwood International Corp., (d)
Revolver 12/31/06 125,000 121,549
-----------
2,353,856
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DIVERSIFIED COMMERCIAL SERVICES - 1.7%
Outsourcing Solutions, Inc., (b)(c)
Term Loan B 06/10/06 2,408,750 1,710,213
Transcore Holdings, Inc.,
Term Loan B 10/01/06 1,197,000 1,200,970
-----------
2,911,183
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DIVERSIFIED MANUFACTURING - 5.6%
Enersys, Inc.,
Term Loan B 11/09/08 1,465,003 1,453,462
Jason, Inc.,
Term Loan B 06/30/07 1,398,814 1,335,217
Polymer Group, Inc.:
Term Loan B 12/20/05 1,983,607 1,817,835
Term Loan C 12/20/06 1,000,000 919,167
Polypore, Inc.:
Term Loan B 12/31/06 989,848 989,877
Term Loan C 12/31/07 2,481,250 2,490,121
Superior Telecom, Inc.,
Term Loan B 05/27/04 2,452,415 870,657
-----------
9,876,336
-----------
ELECTRIC UTILITIES - 7.7% AES Corp.,
Term Loan C 07/15/05 2,513,974 2,415,402
Calpine Corp.,
Term Loan B 03/08/04 3,798,260 3,483,766
Mission Energy Holdings Co.: (c)
Term Loan A 07/02/06 2,467,532 1,357,233
Term Loan B 07/02/06 7,032,468 3,868,115
Westar Energy, Inc.,
Term Loan 06/05/05 2,491,453 2,466,538
-----------
13,591,054
-----------
PAR VALUE
- -------------------------------------------------------
ELECTRONIC COMPONENTS - 2.3%
Sanmina SCI Corp.,
Term Loan B 12/21/07 $ 1,500,000 $ 1,523,232
Viasystems, Inc.:
Term Loan B 09/30/08 3,717,921 2,574,823
-----------
4,098,055
-----------
ENGINEERING & CONSTRUCTION - 3.1%
Washington Group International,
Revolver B 07/23/04 5,500,000 5,493,088
-----------
ENVIRONMENTAL SERVICES - 1.1%
Environmental Systems
Products Holdings,
Tranche 1 12/31/04 2,043,451 1,951,495
-----------
FARMING/AGRICULTURE - 2.2%
Scotts Company,
Term Loan B 12/31/07 927,665 932,127
United Industries Corp.,
Term Loan B 01/20/06 2,959,028 2,969,494
-----------
3,901,621
-----------
FINANCE COMPANIES - 0.3%
Finova Group, Inc.,
Note 05/15/09 1,490,000 506,600
-----------
FOOD MANUFACTURING - 2.9%
Commonwealth Brands, Inc.,
Term Loan 08/28/07 2,312,500 2,315,850
Merisant Co.,
Term Loan B 03/31/07 1,903,604 1,905,488
Michael Foods, Inc.,
Term Loan B 04/10/08 819,359 824,213
-----------
5,045,551
-----------
HEALTH CARE - 6.3%
Accredo Health, Inc.,
Term Loan B 03/31/09 1,488,750 1,492,315
Concentra Operating Corp.:
Term Loan B 06/30/06 1,216,251 1,197,269
Term Loan C 06/30/07 608,126 598,635
Insight Health Services Group: (d)
Term Loan B 10/17/08 1,481,250 1,493,267
Pacificare Health Systems, Inc.,
Term Loan A 01/03/05 1,290,182 1,291,392
PerkinElmer, Inc.,
Term Loan B 12/26/08 2,000,000 2,027,956
Team Health, Inc.,
Term Loan B 10/31/08 3,000,000 2,906,745
-----------
11,007,579
-----------
See notes to investment portfolio.
5
Investment Portfolio (continued)
February 28, 2003 (Unaudited)
VARIABLE RATE SENIOR LOAN
INTERESTS (a) - (CONTINUED) PAR VALUE
- -------------------------------------------------------
HOSPITAL MANAGEMENT - 0.9%
Vanguard Health Systems,
Incremental Term
Loan 01/03/10 $ 1,600,000 $ 1,612,693
-----------
HOTELS/RESORTS - 2.8%
Sunburst Hospitality Corp.,
Term Loan 12/30/05 1,697,853 1,693,028
Wyndham International, Inc.:
IRL 06/30/04 688,768 519,719
Term Loan 06/30/06 3,640,253 2,640,767
-----------
4,853,514
-----------
MEDIA CONGLOMERATES - 0.2%
Bridge Information Systems: (b)
Revolver 07/07/03 700,456 94,562
Term Loan A 07/07/03 285,350 38,522
Term Loan B 05/29/05 1,241,304 167,576
-----------
300,660
-----------
MEDICAL SPECIALTIES - 1.1%
Dade Behring, Inc.,
Term Loan A1 10/01/08 2,000,000 2,001,695
-----------
METAL FABRICATIONS - 1.1%
OM Group,
Term Loan C 04/01/06 1,994,987 1,913,421
-----------
METALS/MINING - 2.6% \
Dresser, Inc.,
Term Loan B 04/10/09 1,800,297 1,805,040
Stillwater Mining Co.:
Term Loan A 12/30/05 921,370 889,150
Term Loan B 12/31/07 1,922,988 1,856,298
-----------
4,550,488
-----------
MOVIES/ENTERTAINMENT - 6.1%
AMF Bowling Worldwide, Inc.,
Term Loan 02/28/08 1,851,903 1,849,869
Carmike Cinemas, Inc.,
Term Loan 01/31/07 2,645,808 2,637,666
Loews Cineplex Entertainment,
Term Loan 02/29/08 3,858,586 3,792,786
Metro-Goldwyn-Mayer Studios, Inc.,
Term Loan B 06/30/08 2,500,000 2,487,997
-----------
10,768,318
-----------
OIL REFINING/MARKETING - 0.5%
Tesoro Petroleum Corp.,
Term Loan B 12/31/07 895,411 854,659
-----------
PAR VALUE
- -------------------------------------------------------
PAPER - 1.6%
Appleton Papers, Inc.,
Term Loan C 11/08/06 $ 1,179,284 $ 1,184,490
Port Townsend Paper Corp.,
Term Loan B 03/16/07 1,866,750 1,662,166
-----------
2,846,656
-----------
PHARMACEUTICALS - 0.4%
Medpointe, Inc.,
Term Loan B 09/30/08 774,878 709,269
-----------
PRINTING/PUBLISHING - 5.0%
Bell Actimedia, Inc.,
Term Loan C 11/29/10 2,330,000 2,367,309
Canwest Media, Inc.:
Term Loan B2 05/15/08 1,197,244 1,197,938
Term Loan C2 05/15/09 747,982 748,415
Qwest Dex, Inc.,
Term Loan A 08/30/04 3,333,333 3,454,237
Weekly Reader Corp.,
Term Loan B 11/17/06 969,925 952,476
-----------
8,720,375
-----------
RAIL/SHIPPING - 2.1%
American Commercial Lines:
Term Loan B 06/30/06 775,443 624,356
Term Loan C 06/30/07 1,022,879 823,583
Helm Holding Corp.,
Term Loan B 10/18/06 2,435,389 2,257,509
-----------
3,705,448
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.9%
Corrections Corp. of America,
Term Loan A 03/31/06 1,593,750 1,592,077
-----------
RETAIL STORES - 1.1%
CH Operating, LLC,
Term Loan 06/21/07 1,965,517 1,950,884
-----------
SEMICONDUCTORS - 0.3%
Semiconductors Components Industries, LLC:
Term Loan B 08/04/06 160,344 145,285
Term Loan C 08/04/07 172,713 156,492
Term Loan D 08/04/07 333,057 302,883
-----------
604,660
-----------
STEEL/IRON ORE - 3.3%
Ispat Inland, LP.:
Term Loan B 07/16/05 2,207,847 1,433,831
Term Loan C 07/16/06 2,207,847 1,433,831
UCAR Finance, Inc.,
Term Loan B 12/31/07 2,981,552 2,855,723
-----------
5,723,385
-----------
See notes to investment portfolio.
6
Investment Portfolio (continued)
February 28, 2003 (Unaudited)
VARIABLE RATE SENIOR LOAN
INTERESTS (a) - (CONTINUED) PAR VALUE
- -------------------------------------------------------
TELECOMMUNICATION SERVICES - 2.9%
GT Group Telecom Services Corp., (b)(c)
Vendor Term Loan06/30/08 $ 1,871,785 $ 37,436
Time Warner Telecom Holdings,
Term Loan B 03/31/08 1,200,000 1,026,302
TSI Telecommunication Services,
Term Loan B 12/31/06 1,897,727 1,813,516
Valor Telecommunications Enterprises, LCC,
Term Loan B 06/30/08 2,435,793 2,148,136
-----------
5,025,390
-----------
TELECOMMUNICATIONS INFRASTRUCTURE/EQUIPMENT - 0.9%
Spectrasite Communications, Inc.,
Term Loan B 12/31/07 1,801,159 1,598,914
-----------
TEXTILES - 1.5%
St. John's Knits,
Term Loan B 07/31/07 2,658,195 2,663,337
-----------
TRANSPORTATION - 5.2%
Evergreen International Aviation, Inc.:
Term Loan B1 05/07/03 1,748,335 1,513,262
Term Loan B2 05/07/03 908,279 777,890
Motor Coach Industries International, Inc.,
Term Loan 06/16/05 2,807,981 2,171,551
Transportation Technologies Industries, Inc.,
Term Loan B 03/31/07 3,327,536 2,827,181
United Airlines,
Term Loan B 07/01/04 2,000,000 1,920,282
-----------
9,210,166
-----------
WIRELESS TELECOMMUNICATIONS - 10.0%
American Cellular Corp.:
Term Loan B 03/31/08 567,430 427,700
Term Loan C 03/31/09 647,873 488,335
Centennial Cellular Operating Co., LLC,
Term Loan A 11/30/06 1,725,000 1,414,667
Centennial Puerto Rico Operations Corp.:
Term Loan B 05/31/07 2,397,628 1,878,993
Term Loan C 11/30/07 1,549,945 1,215,171
Cricket Communications, Inc., (b)
Vendor Term Loan06/30/07 10,000,000 2,200,000
Nextel Finance Co., Inc.:
Term Loan B 06/30/08 1,246,875 1,191,811
Term Loan C 12/31/08 1,246,875 1,191,810
Nextel Partners,
Term Loan B 01/29/08 3,500,000 3,251,890
Rural Cellular Corp.:
Term Loan B 10/03/08 196,445 169,936
Term Loan C 04/03/09 196,445 169,936
Term Loan D 10/03/09 1,471,445 1,271,108
PAR VALUE
- --------------------------------------------------------
WIRELESS TELECOMMUNICATIONS (CONTINUED)
Sygnet Wireless, Inc.,
Term Loan C 12/23/07 $ 2,030,344 $ 1,806,546
Ubiquitel Operating Co.:
Term Loan A 09/30/07 938,776 662,257
Term Loan B 11/17/08 469,388 302,619
-----------
17,642,779
-----------
TOTAL VARIABLE RATE SENIOR LOAN INTERESTS
(cost of $233,778,830) 213,619,103
-----------
COMMON STOCKS (e) - 2.5% SHARES
- -------------------------------------------------------
BUSINESS SERVICES - 0.1%
NATG Holdings, LLC (c) 40,800 204,000
-----------
CONSUMER SERVICES - 0.1%
Alderwoods Group, Inc. 58,773 218,048
-----------
ENGINEERING & CONSTRUCTION - 1.9%
Washington Group International 226,726 3,364,614
-----------
HEALTHCARE SERVICES - 0.0%
Sun Healthcare Group, Inc. 90,559 24,903
-----------
MOVIES/ENTERTAINMENT - 0.4%
AMF Bowling Worldwide, Inc., 29,759 565,421
-----------
TOTAL COMMON STOCKS
(cost of $4,585,998) 4,376,986
-----------
SHORT-TERM
OBLIGATIONS - 7.4% PAR
- -------------------------------------------------------
COMMERCIAL PAPER - 6.8%
UBS America, Inc.,
1.310% 03/03/03 $12,000,000 11,999,127
-----------
TIME DEPOSIT - 0.6%
State Street Bank & Trust Co.,
0.250% 03/03/03 1,100,000 1,100,000
-----------
TOTAL SHORT-TERM OBLIGATIONS
(cost of $13,099,127) 13,099,127
-----------
TOTAL INVESTMENTS - 131.2%
(cost of $251,463,955)(f) 231,095,216
-----------
OTHER ASSETS & LIABILITIES, NET - (31.2)% (55,012,331)
- -------------------------------------------------------
NET ASSETS - 100.0% $176,082,885
============
See notes to investment portfolio.
7
Investment Portfolio (continued)
February 28, 2003 (Unaudited)
NOTES TO INVESTMENT PORTFOLIO:
(a)Senior Loans in which the Fund invests generally pay interest at rates
which are periodically redetermined by reference to a base lending rate plus
a premium. These base lending rates are generally (i) the prime rate offered
by one or more major United States banks, (ii) the lending rate offered by
one or more European banks such as the London Inter-Bank Offered Rate
(`LIBOR') and (iii) the certificate of deposit rate. Senior loans are
generally considered to be restricted in that the Fund ordinarily is
contractually obligated to receive approval from the Agent Bank and/or
borrower prior to the disposition of a Senior Loan.
(b)These securities are in default of certain debt covenants. Income is not
being accrued.
(c)Represents fair value as determined in good faith under procedures approved
by the Trustees.
(d)Unfunded commitment, see note 8.
(e)Non-income producing.
(f)Cost for federal income tax purposes is $251,507,621.
ACRONYM NAME
-------------- --------------------
IRL Increasing Rate Loan
See notes to financial statements.
8
Statement of Assets and Liabilities
February 28, 2003 (Unaudited)
ASSETS:
Investments, at cost $251,463,955
------------
Investments, at value $231,095,216
Cash 1,846
Receivable for:
Investments sold 761
Fund shares sold 364,682
Interest and fees 1,707,864
Expense reimbursement due from Advisor 60,613
Deferred Trustees' compensation plan 1,435
Other assets 12,334
------------
Total Assets 233,244,751
------------
LIABILITIES:
Deferred facility fees 285,280
Payable for:
Distributions 349,104
Management fee 158,945
Administration fee 70,652
Transfer agent fee 97,452
Pricing and bookkeeping fees 33,320
Audit fee 25,620
Interest expense 74,503
Deferred Trustees' fee 1,435
Other liabilities 65,555
Notes payable 56,000,000
------------
Total Liabilities 57,161,866
------------
NET ASSETS $176,082,885
------------
COMPOSITION OF NET ASSETS:
Paid-in capital $212,835,775
Overdistributed net investment income (28,221)
Accumulated net realized loss (16,355,930)
Net unrealized depreciation on investments (20,368,739)
------------
NET ASSETS $176,082,885
============
CLASS A:
Net assets $ 58,988,473
Shares outstanding 5,673,554
------------
Net asset value and redemption
price per share $ 10.40(a)
============
Maximum offering price per share
($10.40/0.9650) $ 10.78(b)
============
CLASS B:
Net assets $ 62,102,628
Shares outstanding 5,973,057
------------
Net asset value and offering
price per share $ 10.40(a)
============
CLASS C:
Net assets $ 54,580,376
Shares outstanding 5,247,634
------------
Net asset value and offering
price per share $ 10.40(a)
============
CLASS Z:
Net assets $ 411,408
Shares outstanding 39,554
------------
Net asset value, offering and redemption
price per share $ 10.40
============
(a)Redemption price per share is equal to net asset value less any applicable
early withdrawal charge.
(b)On sales of $100,000 or more the offering price is reduced.
Statement of Operations
For the Six Months Ended February 28, 2003 (Unaudited)
INVESTMENT INCOME:
Interest $ 9,424,290
Facility and other fees 430,992
-----------
Total Investment Income 9,855,282
EXPENSES:
Management fee 567,554
Administration fee 252,245
Distribution fee:
Class A 32,181
Class B 145,536
Class C 172,205
Service fee:
Class A 80,453
Class B 80,854
Class C 71,752
Pricing and bookkeeping fees 99,960
Transfer agent fee 239,677
Trustees' fee 6,337
Custody fee 4,023
Other expenses 150,298
-----------
Total Operating Expenses 1,903,075
Fees and expenses waived or
reimbursed by Advisor (360,094)
Custody earnings credit (139)
-----------
Net Operating Expenses 1,542,842
Interest expense 542,870
Commitment fee 207,145
-----------
Net Expenses 2,292,857
-----------
Net Investment Income 7,562,425
-----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (7,644,250)
Net change in unrealized appreciation/
depreciation on investments 5,331,180
-----------
Net Loss (2,313,070)
-----------
Net Increase in Net Assets
from Operations $ 5,249,355
===========
See notes to financial statements.
9
Statement of Changes in Net Assets
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
INCREASE (DECREASE) IN NET ASSETS: 2003 2002
======================================================================================================================
OPERATIONS:
Net investment income $ 7,562,425 $ 17,565,808
Net realized loss on investments (7,644,250) (4,422,545)
Net change in unrealized appreciation/depreciation on investments 5,331,180 (24,393,222)
------------ -------------
Net Increase (Decrease) from Operations 5,249,355 (11,249,959)
------------ -------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (2,668,270) (7,229,439)
Class B (2,567,044) (5,772,702)
Class C (2,234,671) (4,574,186)
Class Z (12,935) (212,723)
------------ -------------
Total Distributions Declared to Shareholders (7,482,920) (17,789,050)
------------ -------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 1,760,000 18,572,509
Distributions reinvested 1,811,020 4,678,393
Redemptions (13,519,485) (50,701,801)
------------ -------------
Net Decrease (9,948,465) (27,450,899)
------------ -------------
Class B:
Subscriptions 3,044,228 22,463,001
Distributions reinvested 1,602,592 3,580,288
Redemptions (9,989,956) (28,971,192)
------------ -------------
Net Decrease (5,343,136) (2,927,903)
------------ -------------
Class C:
Subscriptions 3,867,665 28,691,771
Distributions reinvested 1,630,775 3,074,908
Redemptions (12,003,713) (26,047,239)
------------ -------------
Net Increase (Decrease) (6,505,273) 5,719,440
------------ -------------
Class Z:
Subscriptions 273,195 159,842
Distributions reinvested 249 212,723
Redemptions -- (2,766,176)
------------ -------------
Net Increase (Decrease) 273,444 (2,393,611)
------------ -------------
Net Decrease from Share Transactions (21,523,430) (27,052,973)
------------ -------------
Total Decrease in Net Assets (23,756,995) (56,091,982)
NET ASSETS:
Beginning of period 199,839,880 255,931,862
------------ -------------
End of period (including overdistributed net investment income of
$(28,221) and $(107,726), respectively) $176,082,885 $ 199,839,880
============ =============
See notes to financial statements.
10
Statement of Changes in Net Assets (continued)
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
2003 2002
======================================================================================================================
CHANGES IN SHARES:
Class A:
Subscriptions 170,249 1,648,681
Issued for distributions reinvested 175,689 413,072
Redemptions (1,324,281) (4,646,687)
------------ -------------
Net Decrease (978,343) (2,584,934)
------------ -------------
Class B:
Subscriptions 294,251 1,986,627
Issued for distributions reinvested 155,452 316,278
Redemptions (978,001) (2,670,279)
------------ -------------
Net Decrease (528,298) (367,374)
------------ -------------
Class C:
Subscriptions 373,814 2,534,958
Issued for distributions reinvested 158,192 271,691
Redemptions (1,180,470) (2,370,615)
------------ -------------
Net Increase (Decrease) (648,464) 436,034
------------ -------------
Class Z:
Subscriptions 26,197 13,333
Issued for distributions reinvested 24 19,606
Redemptions -- (262,457)
------------ -------------
Net Increase (Decrease) 26,221 (229,518)
------------ -------------
See notes to financial statements.
11
Statement of Cash Flows
(UNAUDITED)
FOR THE
SIX MONTHS
ENDED
INCREASE (DECREASE) FEBRUARY 28,
IN CASH 2003
======================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net investment Income $ 7,562,425
Adjustments to reconcile net investment
income to net cash provided by
operating activities:
Purchase of investment securities (75,472,112)
Proceeds from disposition of
investment securities 115,795,955
Purchase of short-term portfolio
investments, net (100,483)
Increase in interest and fees receivable (30,469)
Increase in receivable for expense
reimbursement (31,582)
Decrease in receivable for investments sold 210,970
Decrease in other assets 46,527
Decrease in deferred facility fees (24,044)
Increase in payable for accrued expenses 157,602
Net amortization of premium (discount) (1,428,611)
Decrease in payable for investments
purchased (95,829)
Decrease in other liabilities (11,654)
------------
Net cash provided by operating activities 46,578,695
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable (18,000,000)
Decrease in interest payable (34,942)
Proceeds from shares sold 9,161,509
Payment of shares redeemed (35,513,694)
Distributions paid in cash (3,318,517)
------------
Net cash flows used for
financing activities (47,705,644)
------------
Net decrease in cash (1,126,949)
CASH:
Cash at beginning of period 1,128,795
------------
Cash at end of period $ 1,846
============
See notes to financial statements.
12
Notes to Financial Statements
February 28, 2003 (Unaudited)
NOTE 1. ACCOUNTING POLICIES
ORGANIZATION:
Liberty Floating Rate Advantage Fund (the "Fund"), is a Massachusetts business
trust, registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end management investment company. The Fund's investment
goal is to provide a high level of current income, consistent with preservation
of capital. The Fund authorized an unlimited number of shares. The Fund offers
four classes of shares: Class A, Class B, Class C and Class Z. Class A shares
are sold with a front-end sales charge. A 1.00% early withdrawal charge is
assessed to Class A shares purchased without an initial sales charge on
redemptions made within eighteen months on an original purchase of $1 million to
$25 million. Class B shares are subject to an annual distribution fee and an
early withdrawal charge. Class B shares will convert to Class A shares eight
years after purchase. Class C shares are subject to an early withdrawal charge
on redemptions made within one year after purchase and an annual distribution
fee. Class Z shares are offered continuously at net asset value. There are
certain restrictions on the purchase of Class Z shares, as described in the
Fund's prospectus.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
INVESTMENT VALUATION AND TRANSACTIONS:
The value of the Portfolio is determined in accordance with guidelines
established, and periodically reviewed, by the Board of Trustees. Senior loans
are generally valued using market prices or quotations provided by banks,
dealers or pricing services with respect to secondary market transactions. The
prices provided by these principal market makers may differ from the value that
would be realized if the loans were sold and the differences could be material
to the financial statements. In the absence of actual market values, senior
loans will be valued by Stein Roe & Farnham Incorporated (the "Advisor"), an
indirect, wholly-owned subsidiary of Columbia Management Group, Inc., at fair
value, which is intended to approximate market value, pursuant to procedures
approved by the Board of Trustees. In determining fair value, the Advisor will
consider on an ongoing basis, among other factors, (i) the creditworthiness of
the Borrower; (ii) the current interest rate, the interest rate redetermination
period and maturity of such senior loan interests; and (iii) recent prices in
the market for instruments of similar quality, rate and interest rate
redetermination period and maturity. Because of uncertainty inherent in the
valuation process, the estimated value of a senior loan interest may differ
significantly from the value that would have been used had there been market
activity for that senior loan interest.
Equity securities generally are valued at the last sale price or, in the case of
unlisted or listed securities for which there were no sales during the last day,
at the current quoted bid price.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains (losses) are based upon the specific identification
method for both financial statement and federal income tax purposes.
STATEMENT OF CASH FLOWS:
Information on financial transactions which have been settled through the
receipt or disbursement of cash is presented in the Statement of Cash Flows. The
cash amount shown in the Statement of Cash Flows is the amount included in the
Fund's Statement of Assets and Liabilities and represents cash on hand at its
custodian bank account and does not include any short-term investments at
February 28, 2003.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS:
All income, expenses (other than the Class A, Class B and Class C service and
distribution fees), and realized and unrealized gains (losses) are allocated to
each class proportionately on a daily basis for purposes of determining the net
asset value of each class.
Class A, Class B and Class C per share data and ratios are calculated by
adjusting the expense and net investment income per share data and ratios for
the Fund for the entire period by the service and distribution fee per share
applicable to Class A, Class B and Class C shares.
13
Notes to Financial Statements (continued)
February 28, 2003 (Unaudited)
FEDERAL INCOME TAXES:
Consistent with the Fund's policy to qualify as a regulated investment company
and to distribute all of its taxable income, no federal income tax has been
accrued.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM:
Interest income is recorded on the accrual basis. Facility fees received are
treated as market discounts. Premiums and discounts are amortized over the
estimated life of each applicable security. Unamortized facility fees are
reflected as deferred fees on the Statement of Assets and Liabilities.
DISTRIBUTIONS TO SHAREHOLDERS:
The Fund declares and records distributions daily and pays monthly.
NOTE 2. FEDERAL TAX INFORMATION
Income and capital gain distributions are determined in accordance with income
tax regulations, which may differ from generally accepted accounting principles.
Reclassifications are made to the Fund's capital accounts to reflect income and
gains available for distribution (or available capital loss carryforwards) under
income tax regulations.
The following capital loss carryforwards, determined as of August 31, 2002, are
available to reduce taxable income arising from future net realized gains on
investments, if any, to the extent permitted by the Internal Revenue Code.
YEAR OF EXPIRATION CAPITAL LOSS CARRYFORWARDS
------------------ --------------------------
2009 $ 22,035
2010 3,814,328
----------
Total $3,836,363
==========
NOTE 3. FEES AND COMPENSATION PAID
TO AFFILIATES
MANAGEMENT FEE:
The Advisor receives a monthly fee equal to 0.45% annually of the Fund's average
daily managed assets.
ADMINISTRATION FEE:
Colonial Management Associates, Inc. (the "Administrator"), an affiliate of the
Advisor, provides accounting and other services for a monthly fee equal to 0.20%
annually of the Fund's average daily managed assets.
PRICING AND BOOKKEEPING FEES:
The Advisor is responsible for providing pricing and bookkeeping services to the
Fund under a Pricing and Bookkeeping Agreement. Under a separate agreement (the
"Outsourcing Agreement"), the Advisor has delegated those functions to State
Street Bank and Trust Company ("State Street"). The Advisor pays fees to State
Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, the Advisor receives
from the Fund an annual flat fee of $10,000, paid monthly, and in any month that
the Fund's average daily net assets are more than $50 million, a monthly fee
equal to the average daily net assets of the Fund for that month multiplied by a
fee rate that is calculated by taking into account the fees payable to State
Street under the Outsourcing Agreement. For the six months ended February 28,
2003, the net asset based fee rate was 0.0329%. The Fund also pays out-of-pocket
costs for pricing services.
TRANSFER AGENT FEE:
Liberty Funds Services, Inc. (the "Transfer Agent"), an affiliate of the
Administrator, provides shareholder services for a monthly fee comprised of
0.06% annually of the Fund's average daily net assets plus charges based on the
number of shareholder accounts and transactions. The Transfer Agent also
receives reimbursement for certain out-of-pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES:
Liberty Funds Distributor, Inc. (the "Distributor"), an affiliate of the
Administrator, is the Fund's principal underwriter. For the six months ended
February 28, 2003, the Fund has been advised that the Distributor retained net
underwriting discounts of $2,346 on sales of the Fund's Class A shares and
received early withdrawal charges (EWC) of $958, $162,406 and $16,642 on Class
A, Class B and Class C share redemptions, respectively. The Fund has adopted a
12b-1 plan (the "Plan") which requires it to pay the Distributor a monthly
service fee equal to 0.25% annually on Class A, Class B and Class C net assets
as of the 20th of each month. The Plan also requires the payment of a monthly
distribution fee to the Distributor equal to 0.10%, 0.45% and 0.60% annually of
the average daily net assets attributable to Class A, Class B and Class C shares
only.
14
Notes to Financial Statements (continued)
February 28, 2003 (Unaudited)
The EWC and the fees received from the Plan are used principally as repayment to
the Distributor for amounts paid by the Distributor to dealers who sold such
shares.
EXPENSE LIMITS:
The Advisor has voluntarily agreed, until further notice, to waive fees and bear
certain Fund expenses to the extent that certain expenses (exclusive of
management fees, administration fees, service fees, distribution fees, brokerage
commissions, interest, commitment fees, leverage fees, taxes and extraordinary
expenses, if any) exceed 0.15% of average daily net assets.
OTHER:
The Fund pays no compensation to its officers, all of whom are employees of the
Advisor, Administrator or any of their affiliates.
The Fund's Independent Trustees may participate in a deferred compensation plan
which may be terminated at any time. Obligations of the plan will be paid solely
out of the Fund's assets.
The Fund has an agreement with its custodian bank under which $139 of custody
fees were reduced by balance credits for the six months ended February 28, 2003.
The Fund could have invested a portion of the assets utilized in connection with
the expense offset arrangement in an income-producing asset if it had not
entered into such an agreement.
NOTE 4. PORTFOLIO INFORMATION
INVESTMENT ACTIVITY:
During the six months ended February 28, 2003, purchases and sales of
investments, other than short-term obligations, were $75,472,112 and
$115,795,955, respectively.
Unrealized appreciation (depreciation) at February 28, 2003, based on cost of
investments for federal income tax purposes, was:
Gross unrealized
appreciation $ 5,394,024
Gross unrealized
depreciation (25,806,429)
-------------
Net unrealized
depreciation $ (20,412,405)
=============
OTHER:
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 5. TENDER OF SHARES
The Board of Trustees has adopted a policy of making tender offers on a
quarterly basis. The Board has designated the 15(th) day of February, May, and
August, and November each year, or the next business day if the 15(th) is not a
business day as the Repurchase Request Deadline. Tender offers are made for a
portion of the Fund's then outstanding shares at the net asset value of the
shares as of the Repurchase Pricing Date. The tender offer amount, which is
determined by the Board of Trustees, will be at least 5% and no more than 25% of
the total number of shares outstanding on the Repurchase Request Deadline. The
Fund may repurchase an additional amount of shares up to 2% of the shares
outstanding on the Repurchase Request Deadline. During the six months ended
February 28, 2003, there were two tender offers in November and February. For
each tender, the Fund offered to repurchase 15% and 17%, respectively, of its
shares, and 12.57% and 5.71%, respectively, of shares outstanding were tendered.
NOTE 6. SENIOR LOAN PARTICIPATION COMMITMENTS
The Fund invests primarily in participations and assignments, or acts as a party
to the primary lending syndicate of a Variable Rate Senior Loan interest to
United States corporations, partnerships, and other entities. If the lead lender
in a typical lending syndicate becomes insolvent, enters FDIC receivership or,
if not FDIC insured, enters into bankruptcy, the Fund may incur certain costs
and delays in receiving payment or may suffer a loss of principal and/or
interest. When the Fund purchases a participation of a senior loan interest, the
Fund typically enters into a contractual agreement with the lender or other
third party selling the participation, but not with the borrower directly. As
such, the Fund assumes the credit risk of the Borrower, Selling Participant or
other persons interpositioned between the Fund and the Borrower.
At February 28, 2003, the following sets forth the selling participants with
respect to interests in senior loans purchased by the Portfolio on a
participation basis.
Selling Principal
Participant Amount Value
- --------- ------- -----
Citibank:
CSC Holdings, Inc.
Revolver $2,246,250 $2,090,295
15
Notes to Financial Statements (continued)
February 28, 2003 (Unaudited)
NOTE 7. LOAN AGREEMENT
At February 28, 2003, the Fund had one term loan outstanding with Citicorp North
America, Inc., totaling $56,000,000 which bore interest at 1.34 % per annum, due
September 18, 2003. The Fund may borrow up to $150,000,000. The average daily
loan balance was $66,107,735 at a weighted average interest rate of 2.97%. The
Fund is required to maintain certain asset coverage with respect to the loans.
NOTE 8. UNFUNDED LOAN COMMITMENTS
As of February 28, 2003, the Fund had unfunded loan commitments of $5,252,500,
which could be extended at the option of the Borrower.
Unfunded
Borrower Commitments
- -------- -----------
CSC Holdings, Inc. $ 502,500
Insight Health Services Corp. 3,000,000
Noveon, Inc. 625,000
Riverwood International Corp. 1,125,000
----------
$5,252,500
NOTE 9: SUBSEQUENT EVENT:
On April 1, 2003, the Advisor and Administrator merged into Columbia Management
Advisers, Inc. ("Columbia"), a direct subsidiary of Columbia Management Group,
Inc., which subsequently became the investment advisor of the Fund. The merger
will not change the way the Fund is managed, the investment personnel assigned
to manage the Fund or the fees paid by the Fund to Columbia.
16
Financial Highlights
Selected data for a share outstanding throughout each period is as follows:
(UNAUDITED)
SIX MONTHS YEAR ENDED
ENDED AUGUST 31, PERIOD ENDED
FEBRUARY 28, ----------------------------------- AUGUST 31,
CLASS A SHARES 2003 2002 2001 2000(a)
===========================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.48 $ 11.74 $ 12.09 $ 12.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.44(b) 0.83(b)(c) 1.10(b) 0.64
Net realized and unrealized gain (loss)
on investments (0.10) (1.26)(c) (0.32) 0.07
------- ------- ------- -------
Total from Investment Operations 0.34 (0.43) 0.78 0.71
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.42) (0.83) (1.13) (0.62)
From net realized gains -- -- --(d) --
------- ------- ------- -------
Total Distributions Declared to Shareholders (0.42) (0.83) (1.13) (0.62)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.40 $ 10.48 $ 11.74 $ 12.09
======= ======= ======= =======
Total return (e)(f) 3.39%(g) (3.88)% 6.71% 6.04%(g)
======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Operating expenses (h) 1.38%(i) 1.38% 1.37% 1.01%(i)
Interest and commitment fees expenses 0.80%(i) 0.99% 2.04% 1.91%(i)
Net expenses (h) 2.18%(i) 2.37% 3.41% 2.92%(i)
Net investment income (h) 8.37%(i) 7.25%(c) 9.24% 9.49%(i)
Waiver/reimbursement 0.39%(i) 0.32% 0.32% 1.41%(i)
Portfolio turnover rate 32%(g) 98% 65% 8%(g)
Net assets, end of period (000's) $ 58,988 $ 69,733 $108,399 $ 54,402
(a)The Fund commenced investment operations on January 13, 2000.
(b)Per share data was calculated using average shares outstanding during the
period.
(c)Effective September 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing and
accreting premium and discount on all debt securities. The effect of this
change for the year ended August 31, 2002, to the net investment income and
net realized and unrealized loss per share was less than $0.01. The impact to
the ratio of net investment income to average net assets was less than 0.01%.
Per share data and ratios for periods prior to August 31, 2002 have not been
restated to reflect this change in presentation.
(d)Rounds to less than $0.01.
(e)Total return at net asset value assuming all distributions reinvested and no
initial sales charge or early withdrawal charge.
(f)Had the Advisor not waived or reimbursed a portion of expenses, total return
would have been reduced.
(g)Not annualized.
(h)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i)Annualized.
17
Financial Highlights (continued)
Selected data for a share outstanding throughout each period is as follows:
(UNAUDITED)
SIX MONTHS YEAR ENDED
ENDED AUGUST 31, PERIOD ENDED
FEBRUARY 28, ----------------------------------- AUGUST 31,
CLASS B SHARES 2003 2002 2001 2000(a)
===========================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.48 $ 11.74 $ 12.07 $ 12.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.41(b) 0.78(b)(c) 1.05(b) 0.62
Net realized and unrealized gain (loss)
on investments (0.08) (1.25)(c) (0.30) 0.05
------- ------- ------- -------
Total from Investment Operations 0.33 (0.47) 0.75 0.67
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.41) (0.79) (1.08) (0.60)
From net realized gains -- -- --(d) --
------- ------- ------- -------
Total Distributions Declared to Shareholders (0.41) (0.79) (1.08) (0.60)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.40 $ 10.48 $ 11.74 $ 12.07
======= ======= ======= =======
Total return (e)(f) 3.22%(g) (4.22)% 6.52% 5.69%(g)
======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Operating expenses (h) 1.73%(i) 1.73% 1.72% 1.36%(i)
Interest and commitment fees expenses 0.80%(i) 0.99% 2.04% 1.91%(i)
Net expenses (h) 2.53%(i) 2.72% 3.76% 3.27%(i)
Net investment income (h) 8.02%(i) 6.90%(c) 8.89% 9.14%(i)
Waiver/reimbursement 0.39%(i) 0.32% 0.32% 1.41%(i)
Portfolio turnover rate 32%(g) 98% 65% 8%(g)
Net assets, end of period (000's) $ 62,103 $ 68,157 $ 80,609 $ 19,964
(a)The Fund commenced investment operations on January 13, 2000.
(b)Per share data was calculated using average shares outstanding during the
period.
(c)Effective September 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing and
accreting premium and discount on all debt securities. The effect of this
change for the year ended August 31, 2002, to the net investment income and
net realized and unrealized loss per share was less than $0.01. The impact to
the ratio of net investment income to average net assets was less than 0.01%.
Per share data and ratios for periods prior to August 31, 2002 have not been
restated to reflect this change in presentation.
(d)Rounds to less than $0.01.
(e)Total return at net asset value assuming all distributions reinvested and no
early withdrawal charge.
(f)Had the Advisor not waived or reimbursed a portion of expenses, total return
would have been reduced.
(g)Not annualized.
(h)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i)Annualized.
18
Financial Highlights (continued)
Selected data for a share outstanding throughout each period is as follows:
(UNAUDITED)
SIX MONTHS YEAR ENDED
ENDED AUGUST 31, PERIOD ENDED
FEBRUARY 28, ----------------------------------- AUGUST 31,
CLASS C SHARES 2003 2002 2001 2000(a)
===========================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.48 $ 11.74 $ 12.07 $ 12.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.40(b) 0.76(b)(c) 1.03(b) 0.61
Net realized and unrealized gain (loss)
on investments (0.08) (1.25)(c) (0.30) 0.05
------- ------- ------- -------
Total from Investment Operations 0.32 (0.49) 0.73 0.66
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.40) (0.77) (1.06) (0.59)
From net realized gains -- -- --(d) --
------- ------- ------- -------
Total Distributions Declared to Shareholders (0.40) (0.77) (1.06) (0.59)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.40 $ 10.48 $ 11.74 $ 12.07
======= ======= ======= =======
Total return (e)(f) 3.14%(g) (4.36)% 6.35% 5.62%(g)
======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Operating expenses (h) 1.88%(i) 1.88% 1.87% 1.51%(i)
Interest and commitment fees expenses 0.80%(i) 0.99% 2.04% 1.91%(i)
Net expenses (h) 2.68%(i) 2.87% 3.91% 3.42%(i)
Net investment income (h) 7.87%(i) 6.75%(c) 8.74% 8.99%(i)
Waiver/reimbursement 0.39%(i) 0.32% 0.32% 1.41%(i)
Portfolio turnover rate 32%(g) 98% 65% 8%(g)
Net assets, end of period (000's) $ 54,580 $ 61,811 $ 64,074 $ 13,013
(a)The Fund commenced investment operations on January 13, 2000.
(b)Per share data was calculated using average shares outstanding during the
period.
(c)Effective September 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing and
accreting premium and discount on all debt securities. The effect of this
change for the year ended August 31, 2002, to the net investment income and
net realized and unrealized loss per share was less than $0.01. The impact to
the ratio of net investment income to average net assets was less than 0.01%.
Per share data and ratios for periods prior to August 31, 2002 have not been
restated to reflect this change in presentation.
(d)Rounds to less than $0.01.
(e)Total return at net asset value assuming all distributions reinvested and no
early withdrawal charge.
(f)Had the Advisor not waived or reimbursed a portion of expenses, total return
would have been reduced.
(g)Not annualized.
(h)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i)Annualized.
19
Financial Highlights (continued)
Selected data for a share outstanding throughout each period is as follows:
(UNAUDITED)
SIX MONTHS YEAR ENDED
ENDED AUGUST 31, PERIOD ENDED
FEBRUARY 28, ----------------------------------- AUGUST 31,
CLASS Z SHARES 2003 2002 2001 2000(a)
===========================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.48 $ 11.74 $ 12.08 $ 12.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.45(b) 0.86(b)(c) 1.14(b) 0.67
Net realized and unrealized gain (loss)
on investments (0.09) (1.25)(c) (0.31) 0.05
------- ------- ------- -------
Total from Investment Operations 0.36 (0.39) 0.83 0.72
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.44) (0.87) (1.17) (0.64)
From net realized gains -- -- --(d) --
------- ------- ------- -------
Total Distributions Declared to Shareholders (0.44) (0.87) (1.17) (0.64)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.40 $ 10.48 $ 11.74 $ 12.08
======= ======= ======= =======
Total return (e)(f) 3.57%(g) (3.53)% 7.17% 6.11%(g)
======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Operating expenses (h) 1.03%(i) 1.03% 1.02% 0.66%(i)
Interest and commitment fees expenses 0.80%(i) 0.99% 2.04% 1.91%(i)
Net expenses (h) 1.83%(i) 2.02% 3.06% 2.57%(i)
Net investment income (h) 8.72%(i) 7.60%(c) 9.59% 9.84%(i)
Waiver/reimbursement 0.39%(i) 0.32% 0.32% 1.41%(i)
Portfolio turnover rate 32%(g) 98% 65% 8%(g)
Net assets, end of period (000's) $ 411 $ 140 $ 2,850 $ 2,656
(a)The Fund commenced investment operations on January 13, 2000.
(b)Per share data was calculated using average shares outstanding during the
period.
(c)Effective September 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing and
accreting premium and discount on all debt securities. The effect of this
change for the year ended August 31, 2002, to the net investment income and
net realized and unrealized loss per share was less than $0.01. The impact to
the ratio of net investment income to average net assets was less than 0.01%.
Per share data and ratios for periods prior to August 31, 2002 have not been
restated to reflect this change in presentation.
(d)Rounds to less than $0.01.
(e)Total return at net asset value assuming all distributions reinvested.
(f)Had the Advisor not waived or reimbursed a portion of expenses, total return
would have been reduced.
(g)Not annualized.
(h)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i)Annualized.
20
Transfer Agent
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Liberty Floating Rate Advantage Fund is:
Liberty Funds Services, Inc.
P.O. Box 8081
Boston, MA 02266-8081
The fund mails one shareholder report to each shareholder address. If you would
like more than one report, please call shareholder services at 800-345-6611 and
additional reports will be sent to you.
This report has been prepared for shareholders of Liberty Floating Rate
Advantage Fund. This report may also be used as sales literature when preceded
or accompanied by the current prospectus which provides details of sales
charges, investment objectives and operating policies of the fund and with the
most recent copy of the Liberty Funds Performance Update.
Semiannual Report:
Liberty Floating Rate Advantage Fund
Liberty Floating Rate Advantage Fund SEMIANNUAL REPORT, FEBRUARY 28, 2003
[eagle head logo]
LibertyFunds
A Member of Columbia Management Group
(C)2003 Liberty Funds Distributor, Inc.
A Member of Columbia Management Group
One Financial Center, Boston, MA 02111-2621
PRSRT STD
U.S. POSTAGE
PAID
HOLLISTON, MA
PERMIT NO. 20
762-03/080N-0303 (04/03) 03/0814
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEMS 4-6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable at this time.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Not applicable at this time.
(b) There were no significant changes in the registrant's internal controls or
in other factors that could affect these controls subsequent to the date of our
evaluation.
ITEM 10. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant as required by Rule 30a-2 under the Act (17
CFR 270.30a-2) in the exact form set forth below: Attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Liberty Floating Rate Advantage Fund
-----------------------------------------------------------
By (Signature and Title)* /s/ Joseph R. Palombo
----------------------------------------------
Joseph R. Palombo, President
Date April 25, 2003
-------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Joseph R. Palombo
----------------------------------------------
Joseph R. Palombo, President
Date April 25, 2003
-------------------------------------------------------------------
By (Signature and Title)* /s/ J. Kevin Connaughton
----------------------------------------------
J. Kevin Connaughton, Treasurer
Date April 25, 2003
-------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.