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 811-4552
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Liberty-Stein Roe Funds Income Trust
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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)
Russell L. Kane, 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: 1-617-426-3363
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Date of fiscal year end: June 30, 2003
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Date of reporting period: June 30, 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 INTERMEDIATE
BOND FUND
Annual Report
June 30, 2003
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LIBERTY INTERMEDIATE
BOND FUND
Annual Report
June 30, 2003
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PRESIDENT'S MESSAGE
[photo of Joseph R. Palombo]
Dear Shareholder:
Despite the uncertainty that hung over the markets and the economy as the nation
prepared to go to war in Iraq, the twelve-month period ended on a high note.
Virtually all major segments of the stock and bond markets posted positive
returns for the period. The economy, though still struggling, has made progress
toward recovery. And, a new tax law is intended to boost consumer spending power
and make investing more attractive. The Jobs and Growth Tax Relief
Reconciliation Act of 2003 accelerates income tax rate cuts for virtually all
Americans and slashes the tax rates on dividends and long-term capital gains.
The government is counting on Americans to turn their good fortune into higher
spending. And the financial media has been full of advice on how to take
advantage of the new rate structure. As you debate what you will do if the lower
tax rate turns into a modest personal windfall, consider strategies that could
have a long-term impact on your portfolio. If your take-home pay increases as a
result of the tax break and any rebate check you are entitled to receive--and if
it's not eaten up by higher state taxesinvesting at least one third of it.
Consider adding it to your retirement account, using it to start an education
account for your child or setting it aside for an emergency. But make a
commitment and stick to it. Think of it as found money, because that is what it
is. You didn't have it before. But now that you've found it, you can put it to
work for a long-term goal.
And before you take advice from a television pundit or a magazine cover story
about how to take advantage of the recent tax changes, talk to your financial
advisor. There may be tax-related strategies that make sense for you. But there
are no one-size-fits-all solutions. Keep in mind that tax rates change, and many
of the provisions of this law are set to expire in just a few short years.
CONSOLIDATION AND A NEW NAME: COLUMBIA
On a separate note, I am pleased to announce that, effective April 1, 2003, six
of the asset management firms brought together when Columbia Management Group,
Inc. was formed were consolidated and renamed Columbia Management Advisors, Inc.
(Columbia Management). This consolidation does not affect the management or
investment objectives of your fund and is the next step in our efforts to create
a consistent identity and to streamline our organization. By consolidating these
firms, we are able to create a more efficient organizational structure and
strengthen certain key functions, such as research. Although the name of the
asset manager familiar to you has changed, what hasn't changed is the commitment
of our specialized investment teams to a multi-disciplined approach to
investing, focused on our goal of offering shareholders the best products and
services.
The following report will provide you with more detailed information about fund
performance and the strategies used by the fund's managers, Michael Kennedy and
Thomas LaPointe. As always, we thank you for investing in Liberty funds and for
giving us the opportunity to help you build a strong financial future.
Sincerely,
/s/ Joseph R. Palombo
Joseph R. Palombo
President
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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 and executive vice president of Columbia
Management. Mr. Palombo has over 19 years of experience in the financial
services industry. Prior to joining Columbia Management, he was chief operating
officer and chief compliance officer for Putnam Mutual Funds. Prior to that, he
was a partner at Coopers & Lybrand. Mr. Palombo received his degree in
economics/accounting from the College of the Holy Cross, where he was a member
of Phi Beta Kappa. He earned his master's degree in taxation from Bentley
College and participated in the Executive Program at the Amos B. Tuck School at
Dartmouth College.
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NET ASSET VALUE PER SHARE as of 6/30/03 ($)
Class A 9.18
Class B 9.18
Class C 9.18
Class Z 9.18
DISTRIBUTIONS DECLARED PER SHARE 7/1/02 - 6/30/03 ($)
Class A 0.48
Class B 0.41
Class C 0.43
Class Z 0.50
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The examples provided should be viewed as illustrations. They do not constitute
tax or legal advice. Neither Columbia Management Advisors, Inc., nor its
affiliates, including Liberty Funds Distributor, Inc., provide tax or legal
advice. A tax advisor or attorney can provide you with answers to specific
questions about taxes and other legal issues.
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
6/30/93 -- 6/30/03
PERFORMANCE OF A $10,000 INVESTMENT
6/30/93 -- 6/30/03 ($)
without with
sales sales
charge charge
- -------------------------------------
Class A 19,559 18,633
- -------------------------------------
Class B 19,354 19,354
- -------------------------------------
Class C 19,394 19,394
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Class Z 19,715 n/a
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[mountain chart data]:
Lehman Brothers
Class A shares Class A shares Aggregate
without sales charge with sales charge Bond Index
6/1993 $10,000 $ 9,525 $10,000
10,022 9,546 10,057
10,176 9,693 10,233
10,204 9,719 10,261
10,243 9,756 10,299
10,170 9,687 10,211
10,257 9,770 10,266
10,422 9,927 10,405
10,257 9,770 10,224
10,032 9,556 9,971
9,970 9,496 9,891
9,944 9,472 9,890
9,953 9,480 9,869
10,102 9,622 10,065
10,136 9,654 10,077
10,024 9,548 9,929
10,009 9,534 9,920
9,946 9,474 9,898
9,996 9,521 9,967
10,144 9,662 10,164
10,350 9,858 10,406
10,414 9,919 10,469
10,563 10,061 10,616
10,876 10,360 11,027
10,960 10,440 11,107
10,958 10,437 11,083
11,109 10,581 11,217
11,208 10,676 11,326
11,335 10,796 11,473
11,514 10,967 11,645
11,682 11,127 11,808
11,799 11,238 11,886
11,612 11,061 11,679
11,532 10,984 11,597
11,463 10,918 11,532
11,463 10,918 11,509
11,596 11,045 11,664
11,649 11,096 11,695
11,646 11,093 11,675
11,836 11,273 11,878
12,071 11,498 12,142
12,304 11,720 12,350
12,211 11,631 12,235
12,284 11,700 12,273
12,323 11,738 12,303
12,183 11,604 12,167
12,369 11,782 12,349
12,501 11,908 12,467
12,676 12,074 12,615
13,036 12,417 12,956
12,901 12,288 12,846
13,083 12,461 13,034
13,211 12,583 13,223
13,263 12,633 13,284
13,349 12,715 13,418
13,524 12,881 13,590
13,549 12,906 13,579
13,622 12,975 13,625
13,693 13,043 13,696
13,812 13,156 13,826
13,884 13,225 13,944
13,916 13,255 13,973
13,849 13,192 14,201
14,140 13,469 14,533
13,915 13,254 14,456
14,130 13,459 14,539
14,206 13,531 14,582
14,354 13,672 14,686
14,169 13,496 14,429
14,329 13,648 14,508
14,390 13,707 14,555
14,292 13,614 14,426
14,245 13,569 14,380
14,247 13,570 14,318
14,242 13,566 14,311
14,386 13,703 14,477
14,404 13,719 14,531
14,435 13,750 14,529
14,386 13,703 14,460
14,416 13,732 14,412
14,565 13,873 14,586
14,712 14,013 14,779
14,622 13,928 14,736
14,540 13,850 14,729
14,904 14,196 15,035
15,066 14,351 15,172
15,303 14,576 15,392
15,448 14,714 15,489
15,470 14,735 15,591
15,632 14,890 15,847
15,912 15,156 16,141
16,296 15,521 16,406
16,491 15,708 16,549
16,602 15,813 16,632
16,558 15,772 16,562
16,762 15,966 16,661
16,772 15,975 16,724
17,163 16,348 17,099
17,384 16,559 17,296
17,204 16,386 17,498
17,446 16,617 17,864
17,437 16,609 17,617
17,350 16,526 17,505
17,484 16,653 17,646
17,578 16,743 17,818
17,455 16,626 17,522
17,611 16,774 17,862
17,781 16,937 18,013
17,627 16,789 18,168
17,491 16,660 18,388
17,762 16,918 18,699
17,845 16,998 19,002
17,622 16,785 18,915
17,892 17,042 18,909
18,286 17,417 19,300
18,370 17,497 19,318
18,638 17,753 19,584
18,698 17,809 19,569
19,030 18,126 19,731
19,491 18,565 20,098
6/2003 19,559 18,633 20,064
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/03 (%)
Share class A B C Z
Inception 7/31/00 2/1/02 2/1/02 12/5/78
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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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1-year 11.03 5.70 10.21 5.21 10.37 9.37 11.30
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5-year 7.11 6.06 6.88 6.57 6.92 6.92 7.28
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10-year 6.94 6.42 6.83 6.83 6.85 6.85 7.02
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Past performance cannot predict future investment results. The principal value
and investment returns will fluctuate, resulting in a gain or loss on sale. All
results shown assume reinvestment of distributions. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. The "with sales charge" returns
include the maximum 4.75% charge for class A shares, the appropriate class B
contingent deferred sales charge for the holding period after purchase as
follows: through first year -- 5%, second year -- 4%, third year -- 3%, fourth
year -- 3%, fifth year -- 2%, sixth year -- 1%, thereafter -- 0%, and the class
C contingent deferred sales charge of 1% for the first year only. Performance
for different share classes will vary based on differences in sales charges and
fees associated with each class.
Performance results reflect any voluntary waivers or reimbursement of fund
expenses by the advisor or its affiliates. Absent these waivers or reimbursement
arrangements, performance results would have been lower.
Class A, B and C share (newer class shares) performance information includes
returns of the fund's class Z shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These class Z share
returns were not restated to reflect any expense differential (e.g., Rule 12b-1
fees) between class Z shares and the newer class shares. Had the expense
differential been reflected, the returns for the periods prior to the inception
of the newer class shares would have been lower.
1
SEC YIELDS AS OF 6/30/03 (%)
CLASS A 3.30
CLASS B 2.71
CLASS C 2.87
CLASS Z 3.71
The 30-day SEC yields reflect the portfolio's earning power net of expenses,
expressed as an annualized percentage of the public offering price per share. If
the advisor or its affiliates had not waived certain fund expenses, the SEC
yield would have been 3.20% and 2.72% for class A and class C, respectively.
[BAR CHART DATA]:
MATURITY BREAKDOWN AS OF 6/30/03 (%)
0-1 year 2.6
1-5 years 45.9
5-10 years 40.6
10-20 years 3.5
20+ years 7.4
Maturity breakdown is calculated as a percentage of total net assets, based on
each security's effective maturity and other conditions that affect a bond's
maturity. Because the fund is actively managed, there is no guarantee that the
fund will continue to maintain this maturity breakdown in the future
QUALITY BREAKDOWN
AS OF 6/30/03 (%)
AAA 27.0
AA 11.6
A 24.8
BBB 24.9
BB 10.0
B 1.7
Quality breakdown is calculated as a percentage of total net assets. Ratings
shown in the quality breakdown represent the highest rating assigned to a
particular bond by one of the following nationally-recognized rating agencies:
Standard & Poor's Corporation, Moody's Investors Service, Inc.or Fitch Investors
Service, Inc. Because the fund is actively managed, there is no guarantee that
the fund will continue to maintain this quality breakdown in the future.
PORTFOLIO MANAGERS' REPORT
For the 12 months ended June 30, 2003, class A shares of Liberty Intermediate
Bond Fund returned 11.03% without sales charge. The fund came out ahead of its
benchmark, the Lehman Aggregate Bond Index, which posted a total return of
10.40% for the same period. The fund also beat its peer group, the Lipper
Intermediate Investment Grade Bond Index, which had a total return of 9.99% for
the year.1 Our decision to emphasize corporate securities, including high-yield
issues, accounted for the fund's strong relative performance.
A STRONG PERIOD FOR BONDS
Expectations that low interest rates and large tax cuts would stimulate the
economy triggered a stock market rally in October that also set the tone for
corporate bonds. Money flowed from short-term commitments and government
obligations into equities and corporate bonds. Corporate issues rose across a
broad front through the end of the period, while Treasury issues failed to build
on earlier gains. High-yield bonds were especially strong after years of
declining prices, aided by lower default rates and less restrictive lending
practices by banks.
LOWER QUALITY ISSUES WERE BEST PERFORMERS
With demand for high-yield issues handily outstripping supply early in the year,
more aggressive strategies were rewarded. As a result, lower quality names
performed better than higher-rated issues. CSC Holdings (0.7% of net assets),2 a
cable and media company, saw its bonds rebound sharply following asset sales and
increased financial flexibility. We also retained our position in iStar
Financial (0.9% of net assets), a property developer, whose bonds suffered from
pessimistic real estate forecasts that proved unfounded.
UTILITIES REBOUNDED
The utility sector recovered significantly after scandals at Enron (not held by
the fund) had depressed the sector. We made a timely purchase of Northern States
Power's bonds (0.5% of net assets). The bonds' price decline reflected problems
at parent company Xcel Energy (0.2% of net assets). Because of their solid
collateral, the bonds later rose. Bonds of Oncor Electric Delivery (0.5% of net
assets) responded favorably when the company improved its balance sheet by
reducing debt and selling selected assets.
- --------------
1 Lipper Inc., a widely respected data provider in the industry, calculates
an average total return for mutual funds with similar investment objectives
as those of the fund.
2 Holdings are disclosed as of June 30, 2003, and are subject to change.
2
HEALTHSOUTH AND AIRLINE BONDS HURT RESULTS
We cut our losses and sold our investment in HealthSouth's bonds as news of
multi-pronged investigations into the company's finances and governance
surfaced. But we retained the equipment trust certificates of American Airlines,
United Airlines and Delta Airlines (0.7%, 0.3% and 1.0% of net assets,
respectively) after they fell. As investors recognized the value of the airlines
that make up the bonds' collateral, all three issues began to recover.
MANAGERS EXPECT ECONOMIC RECOVERY
With interest rates at the lowest levels in decades and tax cuts working their
way through the economy, we expect earnings to grow over the next 12 months. In
addition, corporate America's focus on strengthening balance sheets should
further enhance credit quality and bolster confidence in corporate bonds. For
these reasons, we believe that corporate bonds have good potential despite
recent gains. Price increases, however, may be harder to come by. Although any
recovery would push up interest rates, corporate issues may hold up better than
government obligations in an expanding economy because of their potential for
higher income. Therefore, we expect to maintain overweight positions versus our
benchmark in corporate bonds, with a focus primarily on investment-grade issues
but also some high-yield bonds.
/s/ Michael T. Kennedy
Michael T. Kennedy, CFA
/s/ Thomas A. LaPointe
Thomas A. LaPointe, CFA
Michael T. Kennedy, CFA and Thomas A. LaPointe, CFA are co-managers of Liberty
Intermediate Bond Fund. They have co-managed the fund since March 2003. Mr.
Kennedy joined Columbia Management in October 1988 and Mr. LaPointe in February
1999.
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Investing in high-yield bonds involves greater credit and other risks not
associated with investing in higher-quality bonds. Bond investing also involves
interest rate risk, which means that bond prices may change as interest rates
increase or decrease. Foreign investments involve market, political, accounting
and currency risks not associated with other investments. The Lehman Aggregate
Bond Index is an unmanaged group of bonds that vary in quality. Unlike the fund,
an index is not an investment, does not incur fees or expenses and is not
professionally managed. It is not possible to invest directly in an index.
Securities in the fund may not match those in the index.
PORTFOLIO STRUCTURE as of 6/30/03 (%)
Corporate Bonds 72.8
Government Agencies 9.5
Asset-Backed & Non-Agency
Mortgage Backed Securities 7.0
US Treasuries 7.0
Cash & Equivalents 3.7
Portfolio structure is calculated as a percentage of net assets. Because the
fund is actively managed, there is no guarantee the fund will continue to
maintain this structure.
3
INVESTMENT PORTFOLIO
June 30, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES - 72.8% PAR VALUE
- -------------------------------------------------------
AGRICULTURE, FORESTRY & FISHING - 0.7%
AGRICULTURAL SERVICES - 0.6%
Monsanto Co.,
7.375% 08/15/12 $ 5,000,000 $ 5,961,600
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FORESTRY - 0.1%
Tembec Industries, Inc.,
8.500% 02/01/11 1,000,000 990,000
-----------
- -------------------------------------------------------
CONSTRUCTION - 0.2%
BUILDING CONSTRUCTION - 0.2%
D.R. Horton, Inc.,
8.000% 02/01/09 2,000,000 2,220,000
-----------
- -------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 29.5%
DEPOSITORY INSTITUTIONS - 10.1%
Bank One Corp,
6.000% 08/01/08 (a) 11,888,000 13,571,341
Barclays Bank PLC,
7.375% 06/15/49 (b)(c) 5,000,000 5,989,750
First Massachusetts Bank,
7.625% 06/15/11 5,500,000 6,560,730
First Union National Bank,
7.125% 10/15/06 6,340,000 7,209,848
J.P. Morgan Chase & Co.,
5.350% 03/01/07 10,000,000 10,977,500
Popular, Inc.,
6.125% 10/15/06 8,250,000 9,042,825
Sovereign Bancorp, Inc.,
10.500% 11/15/06 7,645,000 9,514,967
Wachovia Corp.,
4.950% 11/01/06 9,500,000 10,346,545
Washington Mutual, Inc.,
7.500% 08/15/06 8,025,000 9,275,536
Wells Fargo Financial, Inc.,
4.875% 06/12/07 14,300,000 15,552,394
-----------
98,041,436
-----------
FINANCIAL SERVICES - 6.5%
Citicorp,
8.040% 12/15/19 (b) 10,750,000 12,976,862
Citigroup, Inc.,
5.000% 03/06/07 5,000,000 5,427,650
General Electric Capital Corp.,
5.375% 03/15/07 10,000,000 10,995,700
Goldman Sachs Group, Inc.,
6.600% 01/15/12 3,250,000 3,779,100
Hartford Financial Services Group,
4.700% 09/01/07 4,000,000 4,243,680
International Lease Finance Corp.,
6.375% 03/15/09 9,000,000 10,087,110
PAR VALUE
- -------------------------------------------------------
John Deere Capital Corp.,
7.000% 03/15/12 $ 9,000,000 $ 10,675,350
PF Export Receivables
Master Trust:
3.748% 06/01/13 (b) 3,250,000 3,276,306
6.436% 06/01/15 (b) 1,500,000 1,507,500
-----------
62,969,258
-----------
HOLDING & OTHER INVESTMENT OFFICES - 1.5%
HSBC Holdings PLC,
9.547% 12/31/49 (b)(c) 10,500,000 13,863,612
-----------
INSURANCE CARRIERS - 2.8%
Florida Windstorm Underwriting
Association,
7.125% 02/25/19 (b) 4,425,000 5,304,646
Fund American Companies, Inc.,
5.875% 05/15/13 4,250,000 4,442,185
Prudential Insurance
Co. of America,
7.650% 07/01/07 (b) 10,105,000 11,734,835
Travelers Property Casualty Corp.,
3.750% 03/15/08 4,750,000 4,899,388
-----------
26,381,054
-----------
NON-DEPOSITORY CREDIT INSTITUTIONS - 3.5%
Countrywide Home Loans, Inc.,
6.850% 06/15/04 8,500,000 8,931,460
Ford Motor Credit Co.,
7.375% 10/28/09 7,000,000 7,338,100
General Motors Acceptance Corp.:
4.500% 07/15/06 5,000,000 5,018,250
6.125% 01/22/08 3,500,000 3,622,990
Household Finance Corp.,
5.875% 02/01/09 8,200,000 9,198,104
-----------
34,108,904
-----------
REAL ESTATE - 2.4%
EOP Operating L.P.,
8.375% 03/15/06 11,000,000 12,670,350
iStar Financial, Inc.,
8.750% 08/15/08 8,000,000 8,800,000
LNR Property Corp.,
7.625% 07/15/13 (b) 2,000,000 2,010,000
-----------
23,480,350
-----------
SECURITY BROKERS & DEALERS - 2.7%
Credit Suisse First
Boston USA, Inc.:
4.625% 01/15/08 5,000,000 5,349,300
5.875% 08/01/06 7,750,000 8,575,917
Jefferies Group, Inc.,
7.750% 03/15/12 7,250,000 8,278,702
LaBranche & Co., Inc.,
12.000% 03/02/07 3,300,000 3,762,000
-----------
25,965,919
-----------
See notes to investment portfolio.
4
INVESTMENT PORTFOLIO (CONTINUED)
June 30, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
- -------------------------------------------------------
MANUFACTURING - 7.7%
APPAREL - 1.0%
Cintas Corp.:
5.125% 06/01/07 $ 5,315,000 $ 5,753,966
6.000% 06/01/12 3,250,000 3,673,183
-----------
9,427,149
-----------
AUTO PARTS & ACCESSORIES - 0.5%
Dana Corp.:
9.000% 08/15/11 3,200,000 3,464,000
10.125% 03/15/10 1,000,000 1,100,000
-----------
4,564,000
-----------
CHEMICALS & ALLIED PRODUCTS - 1.8%
Dow Chemical Co.,
5.750% 11/15/09 6,000,000 6,524,460
Eastman Chemical Co.,
3.250% 06/15/08 9,000,000 8,867,700
Rhodia SA,
8.875% 06/01/11 (b) 2,000,000 2,070,000
-----------
17,462,160
-----------
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.2%
Thomas & Betts Corp.,
7.250% 06/01/13 2,000,000 2,030,000
-----------
FOOD & KINDRED PRODUCTS - 0.2%
Land O'Lakes, Inc.,
8.750% 11/15/11 3,000,000 2,370,000
-----------
LUMBER & WOOD PRODUCTS - 0.6%
Georgia-Pacific Corp.,
7.500% 05/15/06 6,000,000 6,135,000
-----------
MACHINERY & COMPUTER EQUIPMENT - 1.0%
Briggs & Stratton Corp.,
8.875% 03/15/11 3,375,000 3,847,500
IBM Canada Credit Services Co.,
3.750% 11/30/07 (b) 6,000,000 6,162,840
-----------
10,010,340
-----------
MISCELLANEOUS MANUFACTURING - 1.3%
American Greetings Corp.,
6.100% 08/01/28 750,000 765,000
Hutchison Whampoa
International Ltd.,
6.500% 02/13/13 (b) 9,000,000 9,417,870
SPX Corp.,
7.500% 01/01/13 2,000,000 2,150,000
-----------
12,332,870
-----------
MOTOR VEHICLE TRANSPORTATION EQUIPMENT - 0.8%
Cascades, Inc.,
7.250% 02/15/13 (b) 6,000,000 6,330,000
Norampac, Inc.,
6.750% 06/01/13 (b) 1,000,000 1,040,000
-----------
7,370,000
-----------
PAR VALUE
- -------------------------------------------------------
PRIMARY METAL - 0.1%
United States Steel Corp.,
10.750% 08/01/08 $ 1,000,000 $ 1,055,000
-----------
PRINTING & PUBLISHING - 0.2%
Mail-Well, Inc.,
9.625% 03/15/12 1,500,000 1,586,250
-----------
- -------------------------------------------------------
MINING & ENERGY - 3.9%
METALS & MINING - 0.8%
Alcoa, Inc.,
6.000% 01/15/12 5,000,000 5,635,850
Freeport-McMoRan Copper
& Gold, Inc.,
10.125% 02/01/10 2,250,000 2,520,000
-----------
8,155,850
-----------
OIL & GAS EXTRACTION - 2.1%
Newfield Exploration Co.,
7.450% 10/15/07 1,500,000 1,646,250
Nexen, Inc.,
7.875% 03/15/32 5,250,000 6,491,415
Noble Drilling Corp.,
7.500% 03/15/19 4,245,000 4,855,346
Pemex Project Funding
Master Trust,
7.875% 02/01/09 6,000,000 6,840,000
-----------
19,833,011
-----------
OIL & GAS FIELD SERVICES - 1.0%
PDVSA Finance Ltd.:
7.400% 08/15/16 2,500,000 2,075,000
8.750% 02/15/04 679,000 676,454
Petrobas International
Finance Co.:
9.125% 02/01/07 3,000,000 3,210,000
9.750% 07/06/11 3,500,000 3,850,000
-----------
9,811,454
-----------
- -------------------------------------------------------
RETAIL TRADE - 2.6%
AUTO DEALERS & GAS STATIONS - 0.9%
DaimlerChrysler AG,
6.900% 09/01/04 8,706,000 9,168,637
-----------
DEPARTMENT STORES - 0.2%
JC Penney Co., Inc.,
8.000% 03/041/10 2,000,000 2,100,000
-----------
FOOD STORES - 0.5%
Winn-Dixie Stores, Inc.,
8.875% 04/01/08 4,250,000 4,547,500
-----------
RESTAURANTS - 1.0%
Yum! Brands, Inc.,
7.700% 07/01/12 8,250,000 9,363,750
-----------
- -------------------------------------------------------
See notes to investment portfolio.
5
INVESTMENT PORTFOLIO (CONTINUED)
June 30, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
- -------------------------------------------------------
SERVICES - 5.4%
AMUSEMENT & RECREATION - 0.2%
Steinway Musical
Instruments, Inc.,
8.750% 04/15/11 $ 2,000,000 $ 2,000,000
-----------
AUTO EQUIPMENT & RENTAL SERVICES - 0.4%
Hertz Corp.,
7.625% 06/01/12 4,250,000 4,350,003
-----------
BUSINESS SERVICES - 0.2%
FedEx Corp.,
7.530% 09/23/06 1,743,985 1,941,247
-----------
HEALTH SERVICES - 2.4%
HCA, Inc.,
7.125% 06/01/06 11,000,000 11,897,160
PacifiCare Health Systems, Inc.,
10.750% 06/01/09 3,500,000 4,007,500
Tenet Healthcare Corp.,
5.375% 11/15/06 7,250,000 7,032,500
-----------
22,937,160
-----------
HOTELS, CAMPS & LODGING - 1.3%
Hyatt Equities LLC,
6.875% 06/15/07 (b) 5,000,000 5,191,350
Starwood Hotels & Resorts
Worldwide, Inc.,
7.375% 05/01/07 7,000,000 7,385,000
-----------
12,576,350
-----------
MOTION PICTURES - 0.9%
Walt Disney Co.,
5.375% 06/01/07 8,000,000 8,718,800
-----------
- -------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 22.3%
AEROSPACE - 1.7%
Raytheon Co.,
8.300% 03/01/10 7,000,000 8,665,020
Systems 2001 Asset Trust:
6.664% 09/15/13 (b) 2,615,046 2,943,969
7.156% 12/15/11 (b) 4,518,097 5,049,744
-----------
16,658,733
-----------
AIR TRANSPORTATION - 3.6%
Air 2 US,
8.027% 10/01/19 (b) 5,992,741 4,015,137
American Airlines, Inc.,
7.024% 10/15/09 7,000,000 6,580,000
Continental Airlines, Inc.:
6.940% 10/15/13 1,209,155 1,112,423
7.461% 04/01/15 3,680,062 3,385,657
Delta Air Lines, Inc.:
7.570% 11/18/10 4,250,000 4,313,750
7.779% 11/18/05 6,250,000 5,125,000
PAR VALUE
- -------------------------------------------------------
Southwest Airlines Co.,
5.496% 11/01/06 $ 7,000,000 $ 7,586,390
United Airlines, Inc.:
7.783% 01/01/14 (d) 2,843,628 2,289,120
9.200% 03/22/08 (e) 2,399,897 527,977
-----------
34,935,454
-----------
BROADCASTING - 0.8%
Viacom, Inc.,
7.700% 07/30/10 6,500,000 8,049,015
-----------
CABLE - 1.7%
AT&T Broadband Corp.,
8.375% 03/15/13 7,214,000 9,022,117
CSC Holdings, Inc.:
7.875% 02/15/18 4,250,000 4,313,750
8.125% 07/15/09 2,000,000 2,065,000
Rogers Cable, Inc.,
6.250% 06/15/13 (b) 500,000 500,715
-----------
15,901,582
-----------
ELECTRIC SERVICES - 9.8%
Arizona Public Service Co.,
4.650% 05/15/15 3,250,000 3,255,623
Black Hills Corp.,
6.500% 05/15/13 2,525,000 2,528,409
Calpine Canada Energy
Finance ULC,
8.500% 05/01/08 3,000,000 2,347,500
CenterPoint Energy Houston
Electric LLC:
5.700% 03/15/13 (b) 3,250,000 3,521,635
6.950% 03/15/33 (b) 3,250,000 3,742,473
Duke Energy Corp.,
3.750% 03/05/08 (b) 4,000,000 4,137,440
Edison Mission Energy,
9.875% 04/15/11 1,100,000 1,034,000
FirstEnergy Corp.:
5.500% 11/15/06 5,000,000 5,357,650
7.375% 11/15/31 2,750,000 3,092,293
FPL Energy American
Wind LLC,
6.639% 06/20/23 (b) 4,670,000 4,779,838
Kansas City Power & Light,
6.000% 03/15/07 10,000,000 10,985,200
MidAmerican Energy
Holdings Co.:
3.500% 05/15/08 (b) 5,000,000 5,027,400
4.625% 10/01/07 5,000,000 5,244,700
5.875% 10/01/12 7,000,000 7,621,250
MSW Energy Holdings LLC,
8.500% 09/01/10 (b) 2,000,000 2,060,000
See notes to investment portfolio.
6
INVESTMENT PORTFOLIO (CONTINUED)
June 30, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
- -------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES (CONTINUED)
ELECTRIC SERVICES (CONTINUED)
Niagara Mohawk Power Corp.,
8.875% 05/15/07 $ 5,500,000 $ 6,536,805
Northern States Power Co.,
8.000% 08/28/12 3,750,000 4,733,475
Oglethorpe Power Corp.,
6.974% 06/30/11 3,011,000 3,336,640
Oncor Electric Delivery Co.,
7.250% 01/15/33 (b) 4,500,000 5,311,935
South Point Energy Center LLC,
8.400% 05/30/12 (b) 1,981,848 1,981,848
Southern Power Co.,
6.250% 07/15/12 5,000,000 5,631,600
Xcel Energy, Inc.,
3.400% 07/01/08 (b) 1,900,000 1,880,487
-----------
94,148,201
-----------
PIPELINES - 0.1%
El Paso Corp.,
6.750% 05/15/09 1,500,000 1,365,000
-----------
RAILROADS - 0.7% CSX Corp.,
6.250% 10/15/08 4,000,000 4,562,120
Kansas City Southern Railway,
7.500% 06/15/09 2,000,000 2,070,000
-----------
6,632,120
-----------
SANITARY SERVICES - 0.6%
Allied Waste North America, Inc.,
8.875% 04/01/08 5,500,000 5,981,250
-----------
TELECOMMUNICATIONS - 3.3%
AT&T Corp.,
7.000% 11/15/06 7,000,000 7,750,470
AT&T Wireless Services, Inc.,
7.875% 03/01/11 1,675,000 1,980,520
Rogers Cantel, Inc.,
9.750% 06/01/16 1,550,000 1,755,375
Sprint Corp.:
6.125% 11/15/08 3,800,000 4,133,450
8.750% 03/15/32 1,500,000 1,791,570
TPSA Finance BV,
7.750% 12/10/08 (b) 6,000,000 6,319,080
Verizon Wireless, Inc.,
5.375% 12/15/06 5,000,000 5,493,300
WorldCom, Inc.,
8.250% 05/15/31 (e) 7,850,000 2,335,375
-----------
31,559,140
-----------
- -------------------------------------------------------
PAR VALUE
- -------------------------------------------------------
WHOLESALE TRADE - 0.5%
NON-DURABLE GOODS - 0.5%
Lilly Del Mar, Inc.,
7.717% 08/01/29 (b)(c) $ 4,155,000 $ 4,369,543
-----------
TOTAL CORPORATE-FIXED INCOME
BONDS & NOTES
(cost of $662,958,614) 703,428,702
-----------
GOVERNMENT AGENCIES &
OBLIGATIONS - 16.5%
- -------------------------------------------------------
FOREIGN GOVERNMENT BOND - 0.7%
State of Qatar,
9.750% 06/15/30 (b) 5,000,000 6,900,000
-----------
U.S. GOVERNMENT
AGENCIES & OBLIGATIONS - 15.8%
Federal Home Loan
Mortgage Corporation,
12.000% 07/01/20 540,915 622,942
-----------
Federal National
Mortgage Association:
5.000% 07/25/15 - 05/01/18 48,255,752 50,094,594
5.500% 12/01/18 14,759,232 15,331,985
6.000% 04/01/09 - 03/01/24 6,303,447 6,599,711
6.500% 10/01/28 - 12/01/31 9,910,842 10,339,427
8.500% 09/01/03 - 11/01/03 1,909 1,934
9.250% 03/25/18 467,433 511,166
-----------
82,878,817
-----------
Government National
Mortgage Association:
5.750% 07/20/25 300,704 307,124
8.000% 01/15/08 - 07/15/08 734,288 792,791
9.000% 06/15/16 - 10/15/16 53,810 59,966
-----------
1,159,881
-----------
U.S. Treasury Bonds and Notes:
2.625% 05/15/08 13,675,000 13,798,896
3.625% 05/15/13 18,255,000 18,397,572
5.375% 02/15/31 31,470,000 35,436,950
-----------
67,633,418
-----------
TOTAL GOVERNMENT AGENCIES
& OBLIGATIONS
(cost of $156,408,723) 159,195,058
-----------
- -------------------------------------------------------
See notes to investment portfolio.
7
INVESTMENT PORTFOLIO (CONTINUED)
June 30, 2003
ASSET-BACKED & NON-AGENCY
MORTGAGE-BACKED
SECURITIES -- 7.0% PAR VALUE
- -------------------------------------------------------
American Mortgage Trust,
7.432% 09/27/22 $ 118,791 $ 106,912
California Infrastructure,
6.420% 12/26/09 10,000,000 11,416,300
Cigna CBO Ltd.,
6.460% 11/15/08 (b) 4,158,762 4,328,362
Diversified REIT Trust,
6.780% 03/18/11 (b)(c) 5,000,000 5,446,875
First Union National Bank:
5.585% 02/12/34 6,052,069 6,622,603
6.141% 02/12/34 8,000,000 9,175,228
GS Mortgage Securities Corp.,
7.750% 09/19/27 (b) 2,824,898 2,927,382
LB-UBS Commercial
Mortgage Trust,
6.510% 12/15/26 5,000,000 5,857,982
Merrill Lynch Mortgage
Investors, Inc.,
7.127% 12/26/25 (c) 964,913 1,000,894
Nomura Asset Securities Corp.,
7.120% 04/13/39 6,255,000 7,008,813
PNC Mortgage Securities Corp.,
7.500% 06/25/26 1,448,003 1,551,130
Structured Asset Securities Corp.,
1.869% 02/25/28 (c) 11,111,828 589,415
Wachovia Bank Commercial
Mortgage Trust,
3.989% 06/15/35 (f) 11,930,000 11,988,768
-----------
TOTAL ASSET-BACKED & NON-AGENCY
MORTGAGE-BACKED SECURITIES
(cost of $64,252,022) 68,020,664
-----------
SHORT-TERM OBLIGATION -- 5.6%
- -------------------------------------------------------
Repurchase agreement with State
Street Bank & Trust Co., dated
06/30/03, due 07/01/03 at 1.000%,
collateralized a U.S. Treasury
Note maturing 11/30/04,
market value $55,535,625
(repurchase proceeds
$54,446,512)
(cost of $54,445,000) 54,445,000 54,445,000
-----------
TOTAL INVESTMENTS - 101.9%
(cost of $938,064,359) (g) 985,089,424
-----------
OTHER ASSETS & LIABILITIES, NET -- (1.9%) (18,617,274)
- -------------------------------------------------------
NET ASSETS - 100.0% $966,472,150
------------
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) This security, or a portion thereof, with a market value of $2,051,455, is
being used to collateralize open futures contracts.
(b) This security is exempt from registration under Rule 144A of the Securities
Act of 1933 and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At June 30, 2003, the value of
these securities amounted to $162,119,434 which represents 16.8% of net
assets.
(c) Interest rates on variable rate securities change
periodically. The rate listed is as of June 30, 2003.
(d) As of June 30, 2003, the Fund held securities of certain issuers that have
filed for bankruptcy protection under Chapter 11 representing 0.2% of net
assets. These issuers are in default of certain debt covenants. Income is
being accrued.
(e) As of June 30, 2003, the Fund held securities of certain issuers that have
filed for bankruptcy protection under Chapter 11 representing 0.3% of net
assets. These issuers are in default of certain debt covenants. Income is
not being accrued.
(f) Security purchased on a delayed delivery basis.
(g) Cost for federal income tax purposes is $940,070,085.
Short futures contracts open at June 30, 2003:
PAR VALUE UNREALIZED
COVERED BY EXPIRATION APPRECIATION
TYPE CONTRACTS MONTH AT 6/30/03
- --------------------------------------------------------
5 Year U.S.
Treasury Note $21,000,000 Sept-2003 $ 183,994
10 Year U.S.
Treasury Note 18,700,000 Sept-2003 293,865
30 Year U.S.
Treasury Bond 47,500,000 Sept-2003 1,343,921
----------
$1,821,780
==========
See notes to financial statements.
8
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003
ASSETS:
Investments, at cost $ 938,064,359
--------------
Investments, at value $ 985,089,424
Receivable for:
Investments sold 28,191,013
Fund shares sold 3,588,392
Interest 12,316,325
Deferred Trustees' compensation plan 6,562
--------------
Total Assets 1,029,191,716
--------------
LIABILITIES:
Payable to custodian bank 1,169,024
Payable for:
Investments purchased 45,884,159
Investments purchased on a
delayed delivery basis 11,998,021
Fund shares repurchased 1,775,674
Futures variation margin 452,469
Distributions 554,076
Management fee 272,448
Administration fee 117,890
Transfer agent fee 348,336
Pricing and bookkeeping fees 39,235
Distribution and services fees 26,439
Deferred Trustees' fees 6,562
Other liabilities 75,233
--------------
Total Liabilities 62,719,566
--------------
NET ASSETS $ 966,472,150
==============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 939,370,894
Overdistributed net investment income (2,007,917)
Accumulated net realized loss (19,737,672)
Net unrealized appreciation on:
Investments 47,025,065
Futures contracts 1,821,780
--------------
NET ASSETS $ 966,472,150
==============
CLASS A:
Net assets $ 92,993,087
Shares outstanding 10,127,119
--------------
Net asset value per share $ 9.18(a)
==============
Maximum offering price per share
($9.18/0.9525) $ 9.64(b)
==============
CLASS B:
Net assets $ 103,880,249
Shares outstanding 11,313,010
--------------
Net asset value and offering
price per share $ 9.18(a)
==============
CLASS C:
Net assets $ 51,676,026
Shares outstanding 5,627,605
--------------
Net asset value and offering
price per share $ 9.18(a)
==============
CLASS Z:
Net assets $ 717,922,788
Shares outstanding 78,183,200
--------------
Net asset value, offering and
redemption price per share $ 9.18
==============
(a)Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b)On sales of $50,000 or more the offering price is reduced.
STATEMENT OF OPERATIONS
For the Year Ended June 30, 2003
INVESTMENT INCOME:
Interest $ 55,777,640
-------------
EXPENSES:
Expenses allocated from Portfolio 619,612
Management fee 2,515,761
Administration fee 1,331,433
Distribution fee:
Class A 64,939
Class B 561,827
Class C 246,000
Service fee:
Class A 161,861
Class B 187,275
Class C 81,617
Transfer agent fee 1,997,159
Pricing and bookkeeping fees 331,790
Trustees' fees 25,889
Custody fee 28,890
Other expenses 268,316
-------------
Total Operating Expenses 8,422,369
Fees waived by Distributor:
Class A (64,939)
Class C (50,123)
Custody earnings credit (2,583)
-------------
Net Operating Expenses 8,304,724
Interest expense 1,830
-------------
Net Expenses 8,306,554
-------------
Net Investment Income 47,471,086
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FUTURES CONTRACTS:
Net realized gain (loss) on:
Investments 16,149,207
Futures contracts (17,991,728)
-------------
Net realized loss (1,842,521)
-------------
Net change in unrealized
appreciation/depreciation on:
Investments 47,404,056
Futures contracts 2,989,426
-------------
Net change in unrealized
appreciation/depreciation 50,393,482
-------------
Net Gain 48,550,961
-------------
Net Increase in Net Assets
from Operations $ 96,022,047
=============
See notes to financial statements.
9
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED
JUNE 30,
INCREASE (DECREASE) -------------------
IN NET ASSETS: 2003 (a) 2002 (b)
- -------------------------------------------------------
OPERATIONS:
Net investment income $ 47,471,086 $ 40,582,815
Net realized loss on investments
and futures contracts (1,842,521) (3,112,703)
Net change in unrealized
appreciation/depreciation
on investments and
futures contracts 50,393,482 (6,652,968)
------------ ------------
Net Increase from Operations 96,022,047 30,817,144
------------ ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (3,487,025) (980,531)
Class B (3,467,410) (221,915)
Class C (1,549,430) (79,287)
Class Z (40,839,542) (40,976,904)
Return of capital:
Class A -- (4,063)
Class B -- (919)
Class C -- (329)
Class Z -- (169,791)
------------ ------------
Total Distributions Declared
to Shareholders (49,343,407) (42,433,739)
------------ ------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 93,406,890 26,788,516
Distributions reinvested 2,883,981 925,567
Redemptions (40,046,836) (7,089,601)
------------ ------------
Net Increase 56,244,035 20,624,482
------------ ------------
Class B:
Subscriptions 83,003,613 29,577,438
Distributions reinvested 2,442,195 157,274
Redemptions (15,335,796) (668,496)
------------ ------------
Net Increase 70,110,012 29,066,216
------------ ------------
Class C:
Subscriptions 48,689,817 12,356,180
Distributions reinvested 974,767 59,464
Redemptions (11,862,809) (636,168)
------------ ------------
Net Increase 37,801,775 11,779,476
------------ ------------
(a) Effective July 29, 2002, Stein Roe Intermediate Bond Fund Class S shares
were renamed Liberty Intermediate Bond Fund Class Z shares.
(b) Class B and Class C shares were initially offered on February 1, 2002, at
which time Stein Roe Intermediate Bond Fund was renamed Liberty Intermediate
Bond Fund with Class S shares renamed as Stein Roe Intermediated Bond Fund,
Class S.
YEAR ENDED
JUNE 30,
INCREASE (DECREASE) -------------------
IN NET ASSETS: 2003 (a) 2002 (b)
- --------------------------------------------------------
Class Z:
Subscriptions $ 269,095,613 $ 486,288,652
Distributions reinvested 35,988,674 36,918,397
Redemptions (351,929,592) (296,924,898)
------------ ------------
Net Increase (Decrease) (46,845,305) 226,282,151
------------ ------------
Net Increase from
Share Transactions 117,310,517 287,752,325
--------------------------
Total Increase in Net Assets 163,989,157 276,135,730
NET ASSETS:
Beginning of period 802,482,993 526,347,263
------------ ------------
End of period (overdistributed
net investment income of
$(2,007,917) and
$(1,514,400), respectively) $966,472,150 $802,482,993
============ ============
CHANGES IN SHARES:
Class A:
Subscriptions 10,637,329 3,030,795
Issued for distributions
reinvested 325,300 104,218
Redemptions (4,558,154) (800,927)
------------ ------------
Net Increase 6,404,475 2,334,086
------------ ------------
Class B:
Subscriptions 9,478,046 3,352,832
Issued for distributions
reinvested 275,656 17,903
Redemptions (1,735,505) (75,922)
------------ ------------
Net Increase 8,018,197 3,294,813
------------ ------------
Class C:
Subscriptions 5,533,514 1,400,267
Issued for distributions
reinvested 109,962 6,772
Redemptions (1,350,773) (72,137)
------------ ------------
Net Increase 4,292,703 1,334,902
------------ ------------
Class Z:
Subscriptions 30,633,958 54,642,619
Issued for distributions
reinvested 4,081,323 4,156,784
Redemptions (40,109,913) (33,398,899)
------------ ------------
Net Increase (Decrease) (5,394,632) 25,400,504
------------ ------------
See notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS
June 30, 2003
NOTE 1. ACCOUNTING POLICIES
ORGANIZATION:
Liberty Intermediate Bond Fund (the "Fund") (formerly, Stein Roe Intermediate
Bond Fund), a series of Liberty-Stein Roe Funds Income Trust (the "Trust"), is a
diversified portfolio of a Massachusetts business trust, registered under the
Investment Act of 1940, as amended, as an open-end management investment
company. The Fund's investment goal is to seek total return by pursuing current
income and opportunities for capital appreciation. The Fund may issue an
unlimited number of shares. The Fund offers four classes of shares: Class A,
Class B, Class C and Class Z. Class A shares are sold with a front-end sales
charge. A 1.00% contingent deferred sales charge ("CDSC") is assessed on
redemptions made within eighteen months on an original purchase of $1 million to
$25 million. Class B shares are subject to a CDSC. Class B shares will convert
to Class A shares in three, four or eight years after purchase, depending on the
program under which shares were purchased. Class C shares are subject to a CDSC
on redemptions made within one year after purchase. Effective July 29, 2002,
Stein Roe Intermediate Bond Fund's Class S shares were renamed Liberty
Intermediate Bond Fund Class Z shares. 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.
Prior to September 13, 2002, the Fund invested substantially all of its assets
in the SR&F Intermediate Bond Portfolio (the "Portfolio") as part of a
master/feeder structure. As of the close of business on September 12, 2002, the
Portfolio distributed all of its net assets to the Fund in exchange for the
Fund's interest in the Portfolio in complete liquidation of the Portfolio. The
Portfolio allocated income, expenses, realized and unrealized gains (losses) to
its investors on a daily basis, based on methods approved by the Internal
Revenue Service.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements.
SECURITY VALUATIONS AND TRANSACTIONS:
Debt securities generally are valued by a pricing service based upon market
transactions for normal, institutional-size trading units of similar securities.
Such services may use various pricing techniques which take into account
appropriate factors such as yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other data, as well as broker quotes. When
management deems it appropriate, an over-the-counter or exchange bid quotation
is used.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value under
procedures approved by the Board of Trustees.
Futures contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded.
Short-term obligations with a maturity of 60 day 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.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
The Fund maintains U.S. Government securities or other liquid high grade debt
obligations as collateral with respect to securities traded on other than normal
settlement terms.
DETERMINATION OF CLASS NET ASSET VALUES:
All income, expenses (other than Class A, Class B and Class C service fees and
Class A, 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.
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INVESTMENT INCOME, DEBT DISCOUNT
AND PREMIUM:
Interest income is recorded on the accrual basis. Premium and discount are being
amortized and accreted, respectively, for all debt securities.
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income are declared daily and paid monthly.
Capital gains distributions, if any, are distributed annually.
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.
FUTURES CONTRACTS:
The Fund may enter into futures contracts to either hedge against expected
declines of their portfolio securities or as a temporary substitute for the
purchase of individual bonds. Risks of entering into futures contracts include
the possibility that there may be an illiquid market at the time a fund seeks to
close out a contract, and changes in the value of the futures contract may not
correlate with changes in the value of the portfolio securities being hedged.
Upon entering into a futures contract, the Fund deposits cash or securities with
its custodian in an amount sufficient to meet the initial margin requirements.
Subsequent payments are made or received by the Fund equal to the daily change
in the contract value and are recorded as variation margin payable or receivable
and offset in unrealized gains or losses. The Fund recognizes a realized gain or
loss when the contract is closed or expires. Refer to the Fund's Investment
Portfolio for a summary of open futures contracts at June 30, 2003.
OTHER:
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-market
daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
NOTE 2. FEDERAL TAX INFORMATION
Income and capital gain distributions are determined in accordance with income
tax regulations, which may differ from accounting principles generally accepted
in the United States of America. These differences are primarily due to
differing treatments for deferral of losses from wash sales, premium
amortization on debt securities, straddle deferrals, mark-to-market on futures
contracts, current year distribution payable, capital loss carryforwards and
non-deductible expenses. Reclassifications are made to the Fund's capital
accounts to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
For the year ended June 30, 2003, permanent items identified and reclassified
among the components of net assets are as follows:
OVERDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED PAID-IN
INCOME LOSS CAPITAL
------ ---- -------
$1,378,804 $(1,378,804) $--
Net investment income, net realized gains (losses) and net assets were not
affected by this reclassification.
The tax character of distributions paid for the years ended June 30, 2003 and
2002 was as follows:
2003 2002
---- ----
Distributions paid from:
Ordinary income $49,343,407 $42,258,637
Tax return of capital -- 175,102
As of June 30, 2003, the components of distributable earnings on a tax basis
were as follows:
UNDISTRIBUTED
ORDINARY UNREALIZED
INCOME APPRECIATION
------ ------------
$190,961 $45,019,339
The following capital loss carryforwards are available to reduce taxable income
arising from future net realized gains on investments, if any, to the extent
permitted by the Internal Revenue Code:
YEAR OF EXPIRATION CAPITAL LOSS CARRYFORWARD
- ------------------ -------------------------
2004 $1,241,013
2005 1,289,388
2008 1,558,676
2009 3,689,913
----------
Total $7,778,990
==========
12
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Expired capital loss carryforwards, if any, are treated as a reduction of
paid-in-capital.
NOTE 3. FEES AND COMPENSATION
PAID TO AFFILIATES
On April 1, 2003, Stein Roe & Farnham Incorporated ("Stein Roe"), the investment
advisor and administrator to the Fund, merged into Columbia Management Advisors,
Inc. ("Columbia"), formerly known as Columbia Management Co., an indirect,
wholly-owned subsidiary of FleetBoston Financial Corporation. At the time of the
merger, Columbia assumed the obligations of Stein Roe with respect to the Fund.
The merger did not change the way the Fund is managed, the investment personnel
assigned to manage the Fund or the fees paid by the Fund.
MANAGEMENT FEE:
Columbia is the investment advisor of the Fund and receives a monthly fee equal
to 0.35% annually of the Fund's average daily net assets.
Prior to September 13, 2002, the management fee was paid by the Portfolio at the
same rate.
ADMINISTRATION FEE:
Columbia also provides accounting and other services for a monthly fee equal to
0.15% annually of the Fund's average daily net assets.
PRICING AND BOOKKEEPING FEES:
Columbia is responsible for providing pricing and bookkeeping services to the
Fund under Pricing and Bookkeeping Agreement. Under a separate agreement (the
"Outsourcing Agreement"), Columbia has delegated those functions to State Street
Bank and Trust Company ("State Street"). Columbia pays fees to State Street
under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000, paid monthly, and in any month that
the Fund's average daily net assets are more than $50 million, a monthly fee
equal to the average daily net assets of the Fund for that month multiplied by a
fee rate that is calculated by taking into account the fees payable to State
Street under the Outsourcing Agreement. For the year ended June 30, 2003, the
annualized net asset based fee rate was 0.034%. The Fund also pays out-of-pocket
costs for pricing services.
Prior to September 13, 2002, Columbia received from the Fund an annual flat fee
of $5,000.
TRANSFER AGENT FEES:
Liberty Funds Services, Inc. (the "Transfer Agent"), an affiliate of Columbia,
provides shareholder services for a monthly fee equal to 0.06% annually of the
Fund's average daily net assets plus charges based on the number of shareholder
accounts and transactions. The Transfer Agent also receives reimbursement for
certain out-of-pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND
DISTRIBUTION FEES:
Liberty Funds Distributor, Inc. (the "Distributor"), an affiliate of Columbia,
is the Fund's principal underwriter. For the year ended June 30, 2003, the Fund
has been advised that the Distributor retained net underwriting discounts of
$16,209 on sales of the Fund's Class A shares and received CDSC of $1,635,
$226,760 and $19,450 on Class A, Class B and Class C share redemptions,
respectively.
The Fund has adopted a 12b-1 (the "Plan") which requires the payment of a
monthly service fee to the Distributor equal to 0.25% annually of the average
daily net assets attributable to Class A, Class B and Class C shares. The Plan
also requires the payment of a monthly distribution fee to the Distributor equal
to 0.10%, 0.75% and 0.75% annually of the average daily net assets attributable
to Class A, Class B and Class C shares, respectively. The Distributor has
voluntarily agreed to waive the Class A distribution fee and a portion of the
Class C share distribution fee so that it does not exceed 0.60% annually.
The CDSC and the fees received from the Plan are used principally as repayment
to the Distributor for amounts paid by the Distributor to dealers who sold such
shares.
OTHER:
The Fund pays no compensation to its officers, all of whom are employees of
Columbia or its affiliates.
The Fund's Independent Trustees may participate in a deferred compensation plan
which may be terminated at any time. Obligations of the plan will be paid solely
out of the Fund's assets.
The Fund has an agreement with its custodian bank under which $2,583 of custody
fees were reduced by balance credits for the year ended June 30, 2003. The Fund
could have invested a portion of the assets
13
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
utilized in connection with the expense offset arrangement in an
income-producing asset if it had not entered into such an agreement.
Expenses allocated from the Portfolio on the Statement of Operations include
$605,543 paid to affiliates, prior to the liquidation of the Portfolio. These
affiliated fees include: management, pricing and bookkeeping, transfer agent and
trustees' fees.
NOTE 4. PORTFOLIO INFORMATION
INVESTMENT ACTIVITY:
For the year ended June 30, 2003, purchases and sales of investments, other than
short-term obligations, were $1,011,570,437 and $966,885,399, respectively, of
which $326,250,935 and $192,061,918 respectively, were U.S. Government
securities.
Unrealized appreciation/depreciation at June 30, 2003, based on cost of
investments for federal income tax purposes was:
Gross unrealized appreciation $ 60,624,150
Gross unrealized depreciation (15,604,811)
------------
Net unrealized appreciation $ 45,019,339
------------
OTHER:
Investing in high-yield securities offers the potential for high current income
and attractive total return, but involves greater credit and other risks not
associated with investing in higher-quality bonds. Bond investing also involves
interest rate risk, which means that bond prices may change as interest rates
increase or decrease.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 5. LINE OF CREDIT
The Fund and other affiliated funds participate in a $350,000,000 credit
facility which is used for temporary or emergency purposes to facilitate
portfolio liquidity. Interest is charged to the Fund based on its borrowings. In
addition, the Fund has agreed to pay commitment fees on its pro-rata portion of
the line of credit. The commitment fee is included in "Other expenses" on the
Statement of Operations. Prior to April 26, 2003, the Fund participated in a
separate credit agreement with similar terms to its existing agreement. For the
year ended June 30, 2003, the average daily loan balance outstanding on days
where borrowings existed was $2,224,399 at a dollar weighted average interest
rate of 2.28%.
14
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as follows:
YEAR ENDED PERIOD
JUNE 30, ENDED
---------------------------- JUNE 30,
CLASS A SHARES 2003 2002 2001 (a)
==========================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.73 $ 8.84 $ 8.46
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b)(c) 0.45 0.53(d) 0.56
Net realized and unrealized gain (loss) on investments and futures contracts 0.48 (0.08)(d) 0.36
------- ------- -------
Total from Investment Operations 0.93 0.45 0.92
------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.48) (0.56) (0.54)
Return of capital -- --(e) --
------- ------- -------
Total Distributions Declared to Shareholders (0.48) (0.56) (0.54)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.18 $ 8.73 $ 8.84
======= ======= =======
Total return (f) 11.03%(g) 5.10%(g) 11.19%(h)
======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Operating expenses (b)(i) 1.05% 1.04% 0.96%(j)
Interest expense --%(k) -- --
Expenses (b)(i) 1.05% 1.04% 0.96%(j)
Net investment income (b)(i) 5.13% 5.94%(d) 6.90%(j)
Waiver/reimbursement 0.10% 0.10% --
Portfolio turnover 114% 179%(l) 254%(l)
Net assets, end of period (000's) $ 92,993 $ 32,493 $ 12,279
(a)Class A shares were initially offered on July 31, 2000. Per share data and
total return reflect activity from that date.
(b)Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F
Intermediate Bond Portfolio, prior to the merger.
(c)Per share data was calculated using average shares outstanding during the
period.
(d)Effective July 1, 2001, the Portfolio adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended June 30, 2002, was to decrease net investment
income per share by $0.01, decrease net realized and unrealized loss per
share by $0.01 and decrease the ratio of net investment income to average
net assets from 6.10% to 5.94%. Per share data and ratios for period prior
to June 30, 2002 have not been restated to reflect this change in
presentation.
(e)Rounds to less than $0.01 per share.
(f)Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g)Had the Distributor not waived a portion of expenses, total return would
have been reduced.
(h)Not annualized.
(i)The benefits derived from custody credits and directed brokerage
arrangement, if applicable, had an impact of less than 0.01%.
(j)Annualized.
(k)Rounds to less than 0.01%.
(l)Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio.
15
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period is as follows:
YEAR PERIOD
ENDED ENDED
JUNE 30, JUNE 30,
CLASS B SHARES 2003 2002 (a)
==========================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.73 $ 8.89
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b)(c) 0.39 0.18(d)
Net realized and unrealized gain (loss) on investments and futures contracts 0.47 (0.13)(d)
------- -------
Total from Investment Operations 0.86 0.05
------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.41) (0.21)
Return of capital -- --(e)
------- -------
Total Distributions Declared to Shareholders (0.41) (0.21)
------- -------
NET ASSET VALUE, END OF PERIOD $ 9.18 $ 8.73
======= =======
Total return (f) 10.21% 0.51%(g)
======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Operating expenses (b)(h) 1.80% 1.83%(i)
Interest expense --%(j) --
Expenses (b)(h) 1.80% 1.83%(i)
Net investment income (b)(h) 4.38% 5.04%(d)(i)
Portfolio turnover 114% 179%(k)
Net assets, end of period (000's) $103,880 $ 28,758
(a)Class B shares were initially offered on February 1, 2002. Per share data
and total return reflect activity from that date.
(b)Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F
Intermediate Bond Portfolio, prior to the merger.
(c)Per share data was calculated using average shares outstanding during the
period.
(d)Effective July 1, 2001, the Portfolio adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended June 30, 2002, was to decrease net investment
income per share by $0.01, decrease net realized and unrealized loss per
share by $0.01 and decrease the ratio of net investment income to average net
assets from 5.19% to 5.04%.
(e)Rounds to less than $0.01 per share.
(f)Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(g)Not annualized.
(h)The benefits derived from custody credits and directed brokerage arrangement,
if applicable, had an impact of less than 0.01%.
(i)Annualized.
(j)Rounds to less than 0.01%.
(k)Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio.
16
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period is as follows:
YEAR PERIOD
ENDED ENDED
JUNE 30, JUNE 30,
CLASS C SHARES 2003 2002 (a)
==========================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.73 $ 8.89
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b)(c) 0.40 0.19(d)
Net realized and unrealized gain (loss) on investments and futures contracts 0.48 (0.14)(d)
------- -------
Total from Investment Operations 0.88 0.05
------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.43) (0.21)
Return of capital -- --(e)
------- -------
Total Distributions Declared to Shareholders (0.43) (0.21)
------- -------
NET ASSET VALUE, END OF PERIOD $ 9.18 $ 8.73
======= =======
Total return (f)(g) 10.37% 0.58%(h)
======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Operating expenses (b)(i) 1.65% 1.68%(j)
Interest expense --%(k) --
Expenses (b)(i) 1.65% 1.68%(j)
Net investment income (b)(i) 4.50% 5.19%(d)(j)
Waiver/reimbursement 0.15% 0.15%(j)
Portfolio turnover 114% 179%(l)
Net assets, end of period (000's) $ 51,676 $ 11,651
(a)Class C shares were initially offered on February 1, 2002. Per share data
and total return reflect activity from that date.
(b)Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F
Intermediate Bond Portfolio, prior to the merger.
(c)Per share data was calculated using average shares outstanding during the
period.
(d)Effective July 1, 2001, the Portfolio adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended June 30, 2002, was to decrease net investment
income per share by $0.01, increase net realized and unrealized gain per
share by $0.01 and decrease the ratio of net investment income to average net
assets from 5.34% to 5.19%.
(e)Rounds to less than $0.01 per share.
(f)Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(g)Had the Adviser not reimbursed a portion of expenses, total return would have
been reduced.
(h)Not annualized.
(i)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j)Annualized.
(k)Rounds to less than 0.01%.
(l)Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio.
17
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period is as follows:
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------
CLASS Z SHARES 2003 (a) 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.73 $ 8.84 $ 8.41 $ 8.63 $ 8.97
------- ------- ------- ------- -------
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income (b)(c) 0.49 0.55(d) 0.62 0.60 0.56
Net realized and unrealized gain (loss)
on investments and futures contracts 0.46 (0.08)(d) 0.43 (0.22) (0.33)
------- ------- ------- ------- -------
Total from Investment Operations 0.95 0.47 1.05 0.38 0.23
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.50) (0.58) (0.62) (0.60) (0.57)
Return of capital -- --(e) -- -- --
------- ------- ------- ------- -------
Total Distributions Declared
to Shareholders (0.50) (0.58) (0.62) (0.60) (0.57)
------- ------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD $ 9.18 $ 8.73 $ 8.84 $ 8.41 $ 8.63
======= ======= ======= ======= =======
Total return (f) 11.30% 5.36% 12.86% 4.62% 2.60%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Operating expenses (b)(g) 0.80% 0.79% 0.72% 0.72% 0.72%
Interest --%(h) -- -- -- --
Expenses (b)(g) 0.80% 0.79% 0.72% 0.72% 0.72%
Net investment income (b)(g) 5.51% 6.22%(d) 7.14% 7.16% 6.31%
Portfolio turnover rate 114% 179%(i) 254%(i) 356%(i) 253%(i)
Net assets, end of period (000's) $717,923 $729,580 $514,068 $406,216 $431,123
(a)Effective July 29, 2002, the Stein Roe Intermediate Bond Fund's Class S
shares were renamed Liberty Intermediate Bond Fund Class Z shares.
(b)Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F
Intermediate Bond Portfolio, prior to the merger.
(c)Per share data was calculated using average shares outstanding during the
period.
(d)Effective July 1, 2001, the Portfolio adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended June 30, 2002, was to decrease net investment
income per share by $0.02, decrease net realized and unrealized loss per
share by $0.02 and decrease the ratio of net investment income to average net
assets from 6.38% to 6.22%. Per share data and ratios for periods prior to
June 30, 2002 have not been restated to reflect this change in presentation.
(e)Rounds to less than $0.01 per share.
(f)Total return at net asset value assuming all distributions reinvested.
(g)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(h)Rounds to less than 0.01%.
(i)Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio.
18
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF LIBERTY-STEIN ROE FUNDS INCOME
TRUST LIBERTY INTERMEDIATE BOND FUND
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of Liberty Intermediate Bond Fund (formerly, Stein Roe
Intermediate Bond Fund) (the "Fund") (a series of Liberty-Stein Roe Funds Income
Trust) as of June 30, 2003, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements and financial highlights. Our
procedures included confirmation of securities owned as of June 30, 2003, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Liberty Intermediate Bond Fund (a series of Liberty-Stein Roe Funds Income
Trust) at June 30, 2003, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein,
in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Boston, Massachusetts
August 19, 2003
19
TRUSTEES AND OFFICERS
The Trustees serve terms of indefinite duration. The names, addresses and ages
of the Trustees and officers of the Liberty Funds, the year each was first
elected or appointed to office, their principal business occupations during at
least the last five years, the number of portfolios overseen by each Trustee and
other directorships they hold are shown below. Each officer listed below serves
as an officer of each of the Liberty Funds. The Statement of Additional
Information (SAI) contains additional information about the Trustees and is
available without charge upon request by calling the fund's distributor at
800-345-6611.
Number of
Year First Portfolios in
Elected or Liberty Funds Other
Position with Appointed Principal Occupation(s) Complex Overseen Directorships
Name, Address and Age Liberty Funds to Office1 During Past Five Years by Trustee Held
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker (Age 47) Trustee 1996 Executive Vice President - Strategy of United 85 None
P.O. Box 66100 Airlines (airline) since December, 2002 (formerly
Chicago, IL 60666 President of UAL Loyalty Services (airline) from
September, 2001 to December, 2002; Executive
Vice President and Chief Financial Officer of United
Airlines from March, 1993 to September, 2001; Senior
Vice President and Chief Financial Officer of UAL,
Inc. prior thereto).
Janet Langford Kelly (Age 45) Trustee 1996 Executive Vice President-Corporate Development 85 None
One Kellogg Square and Administration, General Counsel and Secretary,
Battle Creek, MI 49016 Kellogg Company (food manufacturer), since
September, 1999; Senior Vice President, Secretary and
General Counsel, Sara Lee Corporation (branded,
packaged, consumer-products manufacturer) from
January, 1995 to September, 1999.
Richard W. Lowry (Age 67) Trustee 1995 Private Investor since August, 1987 (formerly 87(4) None
10701 Charleston Drive Chairman and Chief Executive Officer, U.S. Plywood
Vero Beach, FL 32963 Corporation (building products manufacturer)).
Charles R. Nelson (Age 60) Trustee 1981 Professor of Economics, University of Washington, 120(2) None
Department of Economics since January, 1976; Ford and Louisa Van Voorhis
University of Washington Professor of Political Economy, University of
Seattle, WA 98195 Washington, since September, 1993; Director, Institute
for Economic Research, University of Washington, since
September, 2001; Adjunct Professor of Statistics,
University of Washington, since September, 1980;
Associate Editor, Journal of Money Credit and Banking,
since September, 1993; consultant on econometric and
statistical matters.
John J. Neuhauser (Age 60) Trustee 1985 Academic Vice President and Dean of Faculties since 88(4,5) Saucony, Inc.
84 College Road August, 1999, Boston College (formerly Dean, Boston (athletic
Chestnut Hill, MA 02467-3838 College School of Management from September, 1977 footwear);
to September, 1999. SkillSoft Corp.
(E-Learning)
Thomas E. Stitzel (Age 67) Trustee 1998 Business Consultant since 1999 (formerly Professor of 85 None
2208 Tawny Woods Place Finance from 1975 to 1999 and Dean from 1977 to 1991,
Boise, ID 83706 College of Business, Boise State University); Chartered
Financial Analyst.
20
TRUSTEES AND OFFICERS (CONTINUED)
Number of
Year First Portfolios in
Elected or Liberty Funds Other
Position with Appointed Principal Occupation(s) Complex Overseen Directorships
Name, Address and Age Liberty Funds to Office1 During Past Five Years by Trustee Held
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald (Age 66) Trustee 1996 Managing Director, William Blair Capital Partners 85 Anixter
27 West Monroe Street, Suite 3500 (private equity investing) since September, 1994 International
Chicago, IL 60606 (formerly Chief Executive Officer and Chairman (network support
of the Board of Directors, Continental Bank equipment
Corporation prior thereto). distributor),
Jones Lang
LaSalle (real
estate
management
services)
and MONY Group
(life insurance).
Anne-Lee Verville (Age 58) Trustee 1998 Author and speaker on educational systems needs 86(5) Chairman of
359 Stickney Hill Road (formerly General Manager, Global Education the Board of
Hopkinton, NH 03229 Industry from 1994 to 1997, and President, Directors,
Applications Solutions Division from 1991 to 1994, Enesco Group,
IBM Corporation (global education and Inc. (designer,
global applications)). importer and
distributor of
giftware and
collectibles).
INTERESTED TRUSTEES
William E. Mayer3 (Age 63) Trustee 1994 Managing Partner, Park Avenue Equity Partners 87(4) Lee Enterprises
399 Park Avenue (private equity) since February, 1999 (formerly (print media),
Suite 3204 Founding Partner, Development Capital LLC WR Hambrecht + Co.
New York, NY 10022 from November 1996 to February, 1999; Dean and (financial service
Professor, College of Business and Management, provider) and
University of Maryland from October, 1992 to First Health
November, 1996). (healthcare).
Joseph R. Palombo3 (Age 50) Trustee, 2000 Executive Vice President and Chief Operating Officer 86(6) None
One Financial Center Chairman of of Columbia Management Group, Inc. (Columbia
Boston, MA 02111 the Board and Management) since December, 2001 and Director,
President Executive Vice President and Chief Operating Officer of
the Advisor since April, 2003 (formerly Chief Operations
Officer of Mutual Funds, Liberty Financial Companies,
Inc. from August, 2000 to November, 2001; Executive
Vice President of Stein Roe & Farnham Incorporated
(Stein Roe) from April, 1999 to April, 2003; Director
of Colonial Management Associates, Inc. (Colonial)
from April, 1999 to April, 2003; Director of Stein Roe
from September, 2000 to April, 2003) President of
Liberty Funds and Galaxy Funds since February, 2003
(formerly Vice President from September 2002 to
February 2003); Manager of Stein Roe Floating Rate
Limited Liability Company since October, 2000;
(formerly Vice President of the Liberty Funds from
April, 1999 to August, 2000; Chief Operating Officer
and Chief Compliance Officer, Putnam Mutual Funds
from December, 1993 to March, 1999).
1 In December, 2000, the boards of each of the Liberty Funds and former Stein
Roe funds were combined into one board of trustees with common membership.
The date shown is the earliest date on which a trustee was elected to either
the Liberty Funds board or the former Stein Roe funds board.
2 In addition to serving as a disinterested Trustee of the Liberty Funds, Mr.
Nelson serves as a disinterested Director or Trustee of the Columbia Funds
and CMG Funds, currently consisting of 15 funds and 20 funds, respectively,
which are advised by the Advisor.
3 Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht +
Co. Mr. Palombo is an interested person as an employee of the Advisor.
4 In addition to serving as trustees of Liberty Funds, Messrs. Lowry, Neuhauser
and Mayer each serve as a director/trustee of the Liberty All-Star Funds,
currently consisting of 2 funds, which are advised by an affiliate of the
Advisor.
5 In addition to serving as disinterested trustees of the Liberty Funds, Mr.
Neuhauser and Ms. Verville serve as disinterested directors of Columbia
Management Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor.
6 In addition to serving as an interested trustee of the Liberty Funds, Mr.
Palombo serves as an interested director of Columbia Management
Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor.
21
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[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
OFFICERS AND TRANSFER AGENT
Year First
Elected or
Position with Appointed
Name, Address and Age Liberty Funds to Office Principal Occupation(s) During Past Five Years
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Vicki L. Benjamin (Age 41) Chief 2001 Controller of the Liberty Funds and of the Liberty All-Star Funds since May,
One Financial Center Accounting 2002; Chief Accounting Officer of the Liberty Funds and Liberty All-Star
Boston, MA 02111 Officer and Funds since June, 2001; Controller and Chief Accounting Officer of the
Controller Galaxy Funds since September, 2002 (formerly Vice President, Corporate
Audit, State Street Bank and Trust Company from May, 1998 to April, 2001;
Audit Manager from July, 1994 to June, 1997; Senior Audit Manager from July,
1997 to May, 1998, Coopers & Lybrand, LLP).
J. Kevin Connaughton (Age 39) Treasurer 2000 Treasurer of the Liberty Funds and of the Liberty All-Star Funds since
One Financial Center December, 2000; Vice President of the Advisor since April, 2003 (formerly
Boston, MA 02111 Controller of the Liberty Funds and of the Liberty All-Star Funds from
February, 1998 to October, 2000); Treasurer of the Galaxy Funds since
September, 2002; Treasurer, Columbia Management Multi-Strategy Hedge Fund,
LLC since December, 2002 (formerly Vice President of Colonial from February,
1998 to October, 2000 and Senior Tax Manager, Coopers & Lybrand, LLP from
April, 1996 to January, 1998).
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Liberty Intermediate Bond 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 Intermediate Bond
Fund. This report may also be used as sales literature when preceded or
accompanied by the current prospectus which provides details of sales charges,
investment objectives and operating policies of the fund and with the most
recent copy of the Liberty Funds Performance Update.
Annual Report:
Liberty Intermediate Bond Fund
Liberty Intermediate Bond Fund ANNUAL REPORT, JUNE 30, 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
713-02/620O-0603 (08/03) 03/2216
LIBERTY INCOME FUND
Annual Report
June 30, 2003
[photo of man and boy at beach]
ELIMINATE CLUTTER IN TWO EASY STEPS.
POINT. CLICK. LIBERTY eDELIVERY.
For more information about receiving your shareholder reports
electronically, call us at 800-345-6611. To sign up for eDelivery, visit us
online at www.libertyfunds.com.
LIBERTY INCOME FUND
Annual Report
June 30, 2003
[photo of man and boy at beach]
ELIMINATE CLUTTER IN TWO EASY STEPS.
POINT. CLICK. LIBERTY eDELIVERY.
To sign up for eDelivery, go to www.icsdelivery.com.
PRESIDENT'S MESSAGE
[photo of Joseph R. Palombo]
Dear Shareholder:
Despite the uncertainty that hung over the markets and the economy as the nation
prepared to go to war in Iraq, the twelve-month period ended on a high note.
Virtually all major segments of the stock and bond markets posted positive
returns for the period. The economy, though still struggling, has made progress
toward recovery. And, a new tax law is intended to boost consumer spending power
and make investing more attractive. The Jobs and Growth Tax Relief
Reconciliation Act of 2003 accelerates income tax rate cuts for virtually all
Americans and slashes the tax rates on dividends and long-term capital gains.
The government is counting on Americans to turn their good fortune into higher
spending. And the financial media has been full of advice on how to take
advantage of the new rate structure. As you debate what you will do if the lower
tax rate turns into a modest personal windfall, consider strategies that could
have a long-term impact on your portfolio. If your take-home pay increases as a
result of the tax break and any rebate check you are entitled to receive--and if
it's not eaten up by higher state taxesinvesting at least one third of it.
Consider adding it to your retirement account, using it to start an education
account for your child or setting it aside for an emergency. But make a
commitment and stick to it. Think of it as found money, because that is what it
is. You didn't have it before. But now that you've found it, you can put it to
work for a long-term goal.
And before you take advice from a television pundit or a magazine cover story
about how to take advantage of the recent tax changes, talk to your financial
advisor. There may be tax-related strategies that make sense for you. But there
are no one-size-fits-all solutions. Keep in mind that tax rates change, and many
of the provisions of this law are set to expire in just a few short years.
CONSOLIDATION AND A NEW NAME: COLUMBIA
On a separate note, I am pleased to announce that, effective April 1, 2003, six
of the asset management firms brought together when Columbia Management Group,
Inc. was formed were consolidated and renamed Columbia Management Advisors, Inc.
(Columbia Management). This consolidation does not affect the management or
investment objectives of your fund and is the next step in our efforts to create
a consistent identity and to streamline our organization. By consolidating these
firms, we are able to create a more efficient organizational structure and
strengthen certain key functions, such as research. Although the name of the
asset manager familiar to you has changed, what hasn't changed is the commitment
of our specialized investment teams to a multi-disciplined approach to
investing, focused on our goal of offering shareholders the best products and
services.
The following report will provide you with more detailed information about fund
performance and the strategies used by the fund's managers--Michael Kennedy,
Kevin Cronk, Thomas LaPointe and June Giroux. As always, we thank you for
investing in Liberty funds and for giving us the opportunity to help you build a
strong financial future.
Sincerely,
/s/ Joseph R. Palombo
Joseph R. Palombo
President
- --------------------------------------------------------------------------------
MEET THE NEW PRESIDENT
Joseph R. Palombo, president and chairman of the Board of Trustees for Liberty
Funds, is also chief operating officer and executive vice president of Columbia
Management. Mr. Palombo has over 19 years of experience in the financial
services industry. Prior to joining Columbia Management, he was chief operating
officer and chief compliance officer for Putnam Mutual Funds. Prior to that, he
was a partner at Coopers & Lybrand. Mr. Palombo received his degree in
economics/accounting from the College of the Holy Cross, where he was a member
of Phi Beta Kappa. He earned his master's degree in taxation from Bentley
College and participated in the Executive Program at the Amos B. Tuck School at
Dartmouth College.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE as of 6/30/03 ($)
Class A 10.10
Class B 10.10
Class C 10.10
Class Z 10.10
DISTRIBUTIONS DECLARED PER SHARE 7/1/02 - 6/30/03 ($)
Class A 0.54
Class B 0.45
Class C 0.47
Class Z 0.58
- --------------------------------------------------------------------------------
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
The examples provided should be viewed as illustrations. They do not constitute
tax or legal advice. Neither Columbia Management Advisors, Inc., nor its
affiliates, including Liberty Funds Distributor, Inc., provide tax or legal
advice. A tax advisor or attorney can provide you with answers to specific
questions about taxes and other legal issues.
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
6/30/93 -- 6/30/03
PERFORMANCE OF A $10,000 INVESTMENT
6/30/93 - 6/30/03 ($)
without with
sales sales
charge charge
- --------------------------------------
Class A 20,015 19,071
- --------------------------------------
Class B 19,866 19,866
- --------------------------------------
Class C 19,894 19,894
- --------------------------------------
Class Z 20,200 n/a
- --------------------------------------
[mountain chart data]:
Lehman Bros.
Class A shares Class A shares Intermediate Credit
without sales charge with sales charge Bond Index
6/1993 $10,000 $ 9,525 $10,000
10,040 9,563 10,040
10,270 9,782 10,235
10,326 9,836 10,280
10,413 9,919 10,319
10,289 9,800 10,238
10,388 9,895 10,302
10,549 10,048 10,466
10,351 9,859 10,267
10,057 9,579 10,020
9,949 9,477 9,939
9,946 9,474 9,944
9,930 9,459 9,943
10,080 9,601 10,137
10,135 9,653 10,179
10,014 9,538 10,046
10,002 9,527 10,031
9,945 9,473 9,982
9,989 9,514 10,030
10,155 9,672 10,223
10,427 9,931 10,468
10,516 10,017 10,565
10,683 10,175 10,728
11,101 10,574 11,138
11,202 10,670 11,228
11,206 10,673 11,215
11,336 10,797 11,354
11,460 10,916 11,459
11,600 11,049 11,594
11,786 11,226 11,788
11,964 11,395 11,938
12,083 11,509 12,049
11,898 11,333 11,856
11,790 11,230 11,771
11,728 11,171 11,704
11,715 11,158 11,685
11,847 11,284 11,829
11,872 11,308 11,858
11,886 11,322 11,852
12,107 11,532 12,058
12,370 11,783 12,325
12,630 12,030 12,534
12,544 11,948 12,412
12,608 12,009 12,462
12,704 12,100 12,497
12,537 11,942 12,361
12,679 12,077 12,526
12,876 12,264 12,652
13,070 12,449 12,791
13,478 12,838 13,130
13,317 12,685 13,015
13,512 12,870 13,197
13,550 12,906 13,320
13,612 12,965 13,350
13,747 13,094 13,452
13,899 13,239 13,631
13,933 13,271 13,632
14,014 13,348 13,680
14,091 13,421 13,758
14,172 13,499 13,876
14,209 13,534 13,952
14,265 13,587 13,989
13,959 13,296 14,088
14,254 13,577 14,509
13,959 13,296 14,393
14,211 13,536 14,505
14,295 13,616 14,568
14,415 13,731 14,684
14,198 13,523 14,435
14,358 13,676 14,569
14,486 13,798 14,626
14,335 13,654 14,463
14,282 13,604 14,450
14,237 13,560 14,404
14,207 13,532 14,394
14,350 13,669 14,552
14,390 13,707 14,608
14,477 13,789 14,643
14,472 13,785 14,591
14,507 13,818 14,529
14,667 13,970 14,648
14,832 14,128 14,772
14,672 13,975 14,687
14,602 13,908 14,679
14,989 14,277 14,985
15,187 14,465 15,122
15,419 14,687 15,316
15,481 14,745 15,465
15,409 14,677 15,479
15,553 14,814 15,663
15,887 15,132 15,970
16,254 15,482 16,307
16,477 15,694 16,466
16,553 15,766 16,603
16,538 15,752 16,572
16,718 15,924 16,698
16,766 15,970 16,771
17,132 16,318 17,163
17,341 16,517 17,359
17,022 16,213 17,467
17,291 16,469 17,778
17,310 16,488 17,641
17,216 16,399 17,528
17,349 16,525 17,638
17,410 16,583 17,772
17,323 16,500 17,499
17,674 16,835 17,742
17,782 16,937 17,983
17,695 16,854 18,053
17,589 16,753 18,113
17,842 16,994 18,462
18,040 17,183 18,810
17,668 16,829 18,659
18,050 17,193 18,814
18,453 17,576 19,305
18,567 17,685 19,359
18,890 17,993 19,700
18,899 18,002 19,741
19,374 18,454 20,012
19,889 18,944 20,522
6/2003 20,015 19,071 20,526
The Lehman Brothers Intermediate Credit Bond Index is an unmanaged group of
fixed income securities that may differ from the composition of the fund. Unlike
mutual funds, indexes are not investments and do not incur fees or expenses. It
is not possible to invest in an index.
Average annual total return as of 6/30/03 (%)
Share class A B C Z
Inception 7/31/00 7/15/02 7/15/02 3/5/86
- -------------------------------------------------------------------------------------------------------------------
without with without with without with without
sales sales sales sales sales sales sales
charge charge charge charge charge charge charge
- -------------------------------------------------------------------------------------------------------------------
1-year 13.18 7.81 12.34 7.34 12.50 11.50 13.61
- -------------------------------------------------------------------------------------------------------------------
5-year 7.10 6.06 6.94 6.63 6.97 6.97 7.30
- -------------------------------------------------------------------------------------------------------------------
10-year 7.19 6.67 7.11 7.11 7.12 7.12 7.28
- -------------------------------------------------------------------------------------------------------------------
MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT WWW.LIBERTYFUNDS.COM FOR
DAILY PERFORMANCE UPDATES.
Past performance cannot predict future investment results. Returns and value of
an investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. The graph and table do not reflect the
deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares. The "with sales charge" returns include the maximum
4.75% charge for class A shares, the appropriate class B contingent deferred
sales charge for the holding period after purchase as follows: through first
year -- 5%, second year -- 4%, third year -- 3%, fourth year -- 3%, fifth year
- -- 2%, sixth year -- 1%, thereafter -- 0%, and the class C contingent deferred
sales charge of 1% for the first year only. Performance for different share
classes will vary based on differences in sales charges and fees associated with
each class.
Performance results reflect any voluntary waivers or reimbursement of fund
expenses by the advisor or its affiliates. Absent these waivers or reimbursement
arrangements, performance results would have been lower.
Class A, B and C share (newer class shares) performance information includes
returns of the fund's class Z shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These class Z share
returns were not restated to reflect any expense differential (e.g., Rule 12b-1
fees) between class Z shares and the newer class shares. Had the expense
differential been reflected, the returns for the periods prior to the inception
of the newer class shares would have been lower.
1
SEC YIELDS AS OF 6/30/03 (%)
CLASS A 3.89
CLASS B 3.39
CLASS C 3.54
CLASS Z 4.48
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 SEC yield would have been 3.84%, 3.28% and 3.31% for Class A,
Class B and Class C, respectively.
Past performance cannot predict future results.
PORTFOLIO HOLDINGS AS OF 6/30/03 (%)
US TREASURY BOND, 5.375% 2/15/31 2.4
BANK ONE, 6.500% 2/1/06 1.6
CITIGROUP, 4.125% 6/30/05 1.6
SPIEKER PROPERTIES, 6.875% 2/1/05 1.3
MIDAMERICAN ENERGY, 5.875% 10/1/12 1.3
HCA, 7.125% 6/1/06 1.2
Portfolio holding breakdowns are calculated as a percentage of net assets. There
can be no guarantee the fund will continue to maintain these holdings in the
future since it is actively managed.
[BAR CHART DATA]:
MATURITY BREAKDOWN AS OF 6/30/03 (%)
0-1 year 5.5
1-5 years 32.2
5-10 years 45.5
10-20 years 5.8
Over 20 years 11.0
Maturity breakdown is calculated as a percentage of net assets. Maturity
breakdown is based on each security's effective maturity, which reflects
pre-refundings, mandatory puts and other conditions that affect a bond's
maturity.
PORTFOLIO MANAGERS' REPORT
For the 12-month period ended June 30, 2003, Liberty Income Fund's class A
shares returned 13.18% without sales charge. The fund performed in line with its
benchmark, the Lehman Intermediate Government/Credit Bond Index, which returned
13.73% for the same period. The fund's peer group, the Lipper Corporate BBB
Rated Debt Fund Category, averaged 12.89% for the 12-month period.1 An emphasis
on high-yield issues accounted for much of the fund's strong performance.
CORPORATE BONDS RALLIED STRONGLY
Economic uncertainty continued to weigh on the financial markets as the period
began, and accounting scandals were still in the news. As a result, investors
continued to prefer US government securities and avoided corporate issues. But
in October, amid expectations that a recovering economy would boost corporate
earnings, the stock market turned higher, leading the way for other financial
markets. Although there were no clear signs of economic recovery, earnings
trends turned more favorable and investors became less risk-averse. Cash flowed
out of short-term assets into equities and longer-term bonds, including
lower-rated high-yield sectors where our expertise is strongest.
HIGH-YIELD ISSUES AND UTILITIES WERE KEY
TO RESULTS
After several years of declines, high-yield issues produced exceptionally strong
returns during the last nine months. The default rate, a key indicator of credit
quality, fell sharply, further encouraging investors. Among the portfolio's
better performers were credit card issuer Capital One Financial (0.5% of net
assets), which benefited from an improving economic outlook, and iStar Financial
(0.9% of net assets), a property developer whose bonds recovered as concerns
over the real estate market proved exaggerated.2
We began adding to utility holdings late last year as the industry worked to
shake off its negative post-Enron (not held by the fund) image. Bonds of Oncor
Electric Delivery (0.6% of net assets) rose after the company restructured its
balance sheet by selling selected assets and paying down debt. Our decision to
maintain holdings in troubled utility Calpine (0.2% of net assets) also aided
results when the bonds recovered this year.
- ----------
1 Lipper Inc., a widely respected data provider in the industry, calculates
an average total return for mutual funds with similar investment objectives
as those of the fund.
2 Holdings are disclosed as of June 30, 2003, and are subject to change.
2
TREASURY SECURITIES AND COMPANY-SPECIFIC
PROBLEMS LIMITED PERFORMANCE
Our decision to retain a small stake in Treasury bonds hampered performance.
Government bonds had already risen significantly, leaving little room for
further gains. When investors switched to corporate issues, Treasury issues were
left behind. In addition, the fund suffered from its investment in HealthSouth
bonds, which we sold as a series of scandals produced multiple investigations
into the company's finances and governances. The portfolio's relatively low
sensitivity to interest rate changes hurt performance as rates continued to fall
and bond prices rose.
MANAGERS SEE RECOVERY AHEAD
We expect fairly strong growth in corporate earnings over the next year as lower
taxes and extremely low interest rates eventually stimulate the sputtering
economy. Corporate credit quality also continues to improve, thanks to greater
financial discipline on the part of company managements. For these reasons, we
have maintained a substantial exposure to high-yield and higher-quality
corporate bonds where we see potential for income and some appreciation.
Although a recovery may push interest rates higher, we believe corporate issues
will hold up better than government obligations in an expanding economy.
/s/ Michael T. Kennedy /s/ Kevin L. Cronk
Michael T. Kennedy, CFA Kevin L. Cronk, CFA
/s/ Thomas A. LaPointe /s/ June M. Giroux
Thomas A. LaPointe, CFA June M. Giroux, CFA
Michael T. Kennedy, CFA, Kevin L. Cronk, CFA, Thomas A. LaPointe, CFA, and June
M. Giroux, CFA are members of the firm's income portfolio management team and
have co-managed the fund since March 2003. Mr. Kennedy joined Columbia
Management in October 1988, Mr. Cronk in August 1999, Mr. LaPointe in February
1999 and Ms. Giroux in September 2000.
- ----------------
Investing in high yield bonds involves greater credit and other risks not
associated with investing in higher-quality bonds. Bond investing also involves
interest rate risk, which means that bond prices may change as interest rates
increase or decrease. Foreign investments involve market, political, accounting
and currency risks not associated with other investments. The Lehman
Intermediate/Credit Bond Index is an unmanaged group of bonds that vary in
quality. Unlike the fund, an index is not an investment, does not incur fees or
expenses, and is not professionally managed. It is not possible to invest
directly in an index. Securities in the fund may not match those in the index.
QUALITY BREAKDOWN AS OF 6/30/03 (%)
[bar chart data]:
AAA 9.0
AA 7.5
A 19.4
BBB 29.1
BB 22.6
B 9.0
Non-rated 3.4
Quality breakdowns are calculated as a percentage of net assets. Ratings shown
in the quality breakdown represent the lowest rating assigned to a particular
bond by one of the following respected rating agencies: Standard & Poor's,
Moody's or Fitch. Because the fund is actively managed, there can be no
guarantee the fund will continue to maintain these breakdowns and structure in
the future.
TOP 5 SECTORS AS OF 6/30/03 (%)
[bar chart data]:
Finance, Insurance & Real Estate 24.4
Transportation, Communications,
Electric, Gas & Sanitary Services 23.5
Manufacturing 15.8
Services 13.7
Mining & Energy 8.7
Sector breakdowns are calculated as a percentage of net assets. Since the fund
is actively managed, there is no guarantee the fund will continue to maintain
the portfolio holdings and sector breakdown in the future.
3
INVESTMENT PORTFOLIO
June 30, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES -- 90.7% PAR VALUE
- -------------------------------------------------------
AGRICULTURE, FORESTRY & FISHING - 1.2%
AGRICULTURAL SERVICES - 0.9%
Monsanto Co.,
7.375% 08/15/12 $ 4,350,000 $ 5,186,592
-----------
FORESTRY - 0.3%
Potlatch Corp.,
10.000% 07/15/11 500,000 555,000
Tembec Industries, Inc.,
8.500% 02/01/11 1,000,000 990,000
-----------
1,545,000
-----------
- -------------------------------------------------------
CONSTRUCTION - 1.6%
BUILDING CONSTRUCTION - 1.6%
D.R. Horton, Inc.:
9.750% 09/15/10 500,000 580,000
10.500% 04/01/05 2,000,000 2,205,000
KB Home,
8.625% 12/15/08 1,000,000 1,130,000
MCD Holdings, Inc.,
7.000% 12/01/12 4,500,000 5,067,900
-----------
8,982,900
-----------
- -------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 24.4%
DEPOSITORY INSTITUTIONS - 6.8%
Bank One Corp.,
6.500% 02/01/06 8,060,000 8,943,134
Barclays Bank PLC,
7.375% 06/15/49 (a)(b) 2,500,000 2,994,875
Credit Suisse First Boston
USA, Inc.:
7.125% 07/15/32 2,500,000 3,004,400
7.900% 05/29/49 (a)(b) 3,500,000 3,976,402
Export-Import Bank of Korea,
6.375% 02/15/06 2,000,000 2,173,060
North Fork Bancorporation, Inc.,
5.875% 08/15/12 4,000,000 4,464,320
Popular, Inc.,
6.125% 10/15/06 3,000,000 3,288,300
RBS Capital Trust I,
4.709% 12/29/49 (b) 5,500,000 5,538,555
Sovereign Bancorp, Inc.,
10.500% 11/15/06 2,500,000 3,111,500
-----------
37,494,546
-----------
FINANCIAL SERVICES - 3.4%
Capital One Financial Corp.,
8.750% 02/01/07 2,500,000 2,729,450
Citigroup, Inc.,
4.125% 06/30/05 8,500,000 8,930,185
International Lease Finance Corp.,
6.375% 03/15/09 5,000,000 5,603,950
PAR VALUE
- -------------------------------------------------------
PF Exempt Receivables Master Trust,
3.748% 06/01/13 (a) $ 1,750,000 $ 1,764,165
-----------
19,027,750
-----------
HOLDING & OTHER INVESTMENT OFFICES - 1.1%
HSBC Holdings PLC,
9.547% 12/31/49 (a)(b) 4,500,000 5,941,548
-----------
INSURANCE CARRIERS - 1.9%
Florida Windstorm Underwriting
Association,
7.125% 02/25/19 (a) 2,000,000 2,397,580
Fund American Companies, Inc.,
5.875% 05/15/13 2,500,000 2,613,050
Prudential Insurance Co.
of America,
7.650% 07/01/07 (a) 3,000,000 3,483,870
Travelers Property Casualty Corp.,
3.750% 03/15/08 2,250,000 2,320,763
-----------
10,815,263
-----------
NON-DEPOSITORY CREDIT INSTITUTIONS - 3.7%
Countrywide Home Loans, Inc.,
5.250% 06/15/04 6,000,000 6,214,320
Ford Motor Credit Co.,
6.875% 02/01/06 4,000,000 4,217,000
General Motors Acceptance Corp.:
6.125% 01/22/08 2,500,000 2,587,850
7.250% 03/02/11 2,000,000 2,043,220
Household Finance Corp.,
5.750% 01/30/07 5,000,000 5,522,300
-----------
20,584,690
-----------
REAL ESTATE - 5.1%
Host Marriott L.P.,
9.500% 01/15/07 1,000,000 1,082,500
iStar Financial, Inc.,
8.750% 08/15/08 4,680,000 5,148,000
Property Trust of America,
6.875% 02/15/08 1,250,000 1,379,625
Prudential Property
Separate Account:
6.625% 04/01/09 (a) 3,000,000 3,248,310
7.125% 07/01/07 (a) 4,000,000 4,460,920
Regency Centers L.P.,
6.750% 01/15/12 1,200,000 1,392,300
Spieker Properties L.P.,
6.875% 02/01/05 6,750,000 7,210,957
Thornburg Mortgage, Inc.,
8.000% 05/15/13 (a) 2,000,000 2,040,000
Ventas Realty L.P.,
9.000% 05/01/12 2,000,000 2,190,000
-----------
28,152,612
-----------
See notes to investment portfolio.
4
INVESTMENT PORTFOLIO (CONTINUED)
June 30, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
- -------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE (CONTINUED)
SECURITY BROKERS & DEALERS - 2.4%
Arch Western Finance,
6.750% 07/01/13 (a) $ 500,000 $ 511,250
Jefferies Group, Inc.,
7.750% 03/15/12 2,750,000 3,140,198
LaBranche & Co., Inc.,
12.000% 03/02/07 2,000,000 2,280,000
Morgan Stanley, Dean Witter,
& Co.,
6.600% 04/01/12 2,500,000 2,917,150
Spear Leeds & Kellogg L.P.,
8.250% 08/15/05 (a) 4,000,000 4,532,400
-----------
13,380,998
-----------
- -------------------------------------------------------
MANUFACTURING - 15.8%
APPAREL - 0.2%
Levi Strauss & Co.,
12.250% 12/15/12 1,500,000 1,248,750
-----------
AUTO PARTS & ACCESSORIES - 0.5%
Dana Corp.:
9.000% 08/15/11 1,100,000 1,190,750
10.125% 03/15/10 1,500,000 1,650,000
-----------
2,840,750
-----------
CHEMICALS & ALLIED PRODUCTS - 5.3%
Biovail Corp.,
7.875% 04/01/10 3,000,000 3,210,000
Dow Chemical Co.,
5.750% 11/15/09 4,500,000 4,893,345
Eastman Chemical Co.,
3.250% 06/15/08 5,550,000 5,468,415
EquiStar Chemical,
10.125% 09/01/08 2,000,000 2,055,000
Express Scripts, Inc.,
9.625% 06/15/09 5,000,000 5,462,500
Lyondell Chemical Co.,
9.750% 09/04/03 (a) 2,000,000 1,880,000
MacDermid, Inc.,
9.125% 07/15/11 1,000,000 1,120,000
Methanex Corp.,
7.750% 08/15/05 3,000,000 3,120,000
Rhodia SA,
8.875% 06/01/11 (a) 2,000,000 2,070,000
-----------
29,279,260
-----------
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.6%
AMETEK, Inc.,
7.200% 07/15/08 1,000,000 1,088,640
Thomas & Betts Corp.,
7.250% 06/01/13 2,000,000 2,030,000
-----------
3,118,640
-----------
PAR VALUE
- -------------------------------------------------------
FOOD & KINDRED PRODUCTS - 1.4%
Constellation Brands, Inc.,
8.125% 01/15/12 $ 1,000,000 $ 1,080,000
Dole Food Co., Inc.,
8.625% 05/01/09 (b) 2,000,000 2,120,000
Panamerican Beverages, Inc.,
7.250% 07/01/09 2,000,000 2,116,060
Pepsi-Gemex SA,
9.750% 03/30/04 1,500,000 1,590,000
Smithfield Foods, Inc.:
8.000% 10/15/09 500,000 538,750
8.000% 10/15/09 (a) 500,000 538,750
-----------
7,983,560
-----------
HOME FURNISHING & EQUIPMENT - 0.1%
Simmons Co.,
10.250% 03/15/09 750,000 802,500
-----------
LUMBER & WOOD PRODUCTS - 0.4%
Georgia-Pacific Corp.,
8.875% 05/15/31 2,400,000 2,352,000
-----------
MACHINERY & COMPUTER EQUIPMENT - 1.8%
Briggs & Stratton Corp.,
8.875% 03/15/11 3,400,000 3,876,000
Cincinnati Milacron, Inc.,
8.375% 03/15/04 2,000,000 1,950,000
IBM Canada Credit Services Co.,
3.750% 11/30/07 (a) 4,000,000 4,108,560
-----------
9,934,560
-----------
MISCELLANEOUS MANUFACTURING - 2.5%
American Greetings Corp.,
6.100% 08/01/28 750,000 765,000
Hutchison Whampoa
International Ltd.,
6.500% 02/13/13 (a) 6,250,000 6,540,188
Lear Corp.,
8.110% 05/15/09 400,000 461,000
SPX Corp.,
7.500% 01/01/13 2,000,000 2,150,000
Tyco International Group SA,
7.000% 06/15/28 4,250,000 4,335,000
-----------
14,251,188
-----------
PAPER PRODUCTS - 0.7%
Cascades, Inc.,
7.250% 02/15/13 (a) 3,500,000 3,692,500
-----------
PETROLEUM REFINING - 0.5%
Phillips Petroleum Co.,
9.375% 02/15/11 2,000,000 2,637,840
-----------
PRIMARY METAL - 0.2%
United States Steel Corp.,
10.750% 08/01/08 1,000,000 1,055,000
-----------
See notes to investment portfolio.
5
INVESTMENT PORTFOLIO (CONTINUED)
June 30, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
- -------------------------------------------------------
MANUFACTURING (CONTINUED)
STONE, CLAY, GLASS & CONCRETE - 0.6%
Owens-Brockway Glass
Container, Inc.,
8.875% 02/15/09 $3,000,000 $ 3,255,000
-----------
TOBACCO PRODUCTS - 1.0%
UST, Inc.:
6.625% 07/15/12 2,000,000 2,307,720
8.800% 03/15/05 3,000,000 3,339,270
-----------
5,646,990
-----------
- -------------------------------------------------------
MINING & ENERGY - 8.7%
METALS & MINING - 0.7%
Freeport-McMoRan Copper & Gold, Inc.,
10.125% 02/01/10 2,250,000 2,520,000
Newmont Mining Corp.,
8.625% 05/15/11 1,000,000 1,210,080
-----------
3,730,080
-----------
OIL & GAS EXTRACTION - 5.5%
Chesapeake Energy Corp.,
8.125% 04/01/11 1,000,000 1,077,500
Derlan Manufacturing, Inc.,
10.000% 01/15/07 1,019,000 1,019,000
Husky Oil Ltd.,
8.900% 08/15/28 (b) 3,000,000 3,465,000
Murphy Oil Corp.,
6.375% 05/01/12 2,250,000 2,593,305
Newfield Exploration Co.,
7.450% 10/15/07 1,500,000 1,646,250
Nexen, Inc.,
7.875% 03/15/32 3,500,000 4,327,610
Noble Drilling Corp.,
7.500% 03/15/19 3,500,000 4,003,230
Pemex Project Funding
Master Trust:
7.875% 02/01/09 2,000,000 2,280,000
9.125% 10/13/10 750,000 907,500
Pioneer Natural Resources Co.,
9.625% 04/01/10 1,000,000 1,225,000
Pogo Producing Co.,
8.250% 04/15/11 1,000,000 1,110,000
Transocean, Inc.,
9.500% 12/15/08 2,000,000 2,599,980
Western Oil Sands, Inc.,
8.375% 05/01/12 4,000,000 4,440,000
-----------
30,694,375
-----------
OIL & GAS FIELD SERVICES - 2.5%
Devon Financing Corp.,
7.875% 09/30/31 2,600,000 3,311,906
PAR VALUE
- -------------------------------------------------------
PDVSA Finance Ltd.,
7.400% 08/15/16 $ 2,500,000 $ 2,075,000
Petrobas International
Finance Co.,
9.750% 07/06/11 1,500,000 1,650,000
Premcor Refining Group,
7.500% 06/15/15 (a) 4,000,000 4,000,000
SESI LLC,
8.875% 05/15/11 1,750,000 1,881,250
XTO Energy, Inc.,
7.500% 04/15/12 1,000,000 1,145,000
-----------
14,063,156
-----------
- -------------------------------------------------------
RETAIL TRADE - 1.4%
DEPARTMENT STORES - 0.4%
JC Penney Co., Inc,
8.000% 03/01/10 2,000,000 2,100,000
-----------
FOOD STORES - 0.6%
Winn-Dixie Stores, Inc.,
8.875% 04/01/08 3,000,000 3,210,000
-----------
RESTAURANTS - 0.4%
Yum! Brands, Inc.,
7.700% 07/01/12 2,000,000 2,270,000
-----------
- -------------------------------------------------------
SERVICES - 13.7%
AMUSEMENT & RECREATION - 3.6%
Argosy Gaming Co.,
10.750% 06/01/09 3,000,000 3,277,500
Harrah's Operating Co., Inc.:
7.125% 06/01/07 3,750,000 4,212,600
7.875% 12/15/05 500,000 542,500
International Game Technology,
8.375% 05/15/09 1,000,000 1,220,000
Mohegan Tribal Gaming
Authority,
8.125% 01/01/06 2,000,000 2,170,000
Park Place Entertainment Corp.,
9.375% 02/15/07 2,500,000 2,762,500
Six Flags, Inc.,
9.500% 02/01/09 2,000,000 1,970,000
Speedway Motorsports, Inc.,
6.750% 06/01/13 (a) 1,750,000 1,802,500
Steinway Musical
Instruments, Inc.,
8.750% 04/15/11 2,000,000 2,000,000
-----------
19,957,600
-----------
AUTO EQUIPMENT & RENTAL SERVICES - 2.5%
Dura Operating Corp.,
9.000% 05/01/09 2,000,000 1,840,000
See notes to investment portfolio.
6
INVESTMENT PORTFOLIO (CONTINUED)
June 30, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
- -------------------------------------------------------
SERVICES (CONTINUED)
AUTO EQUIPMENT & RENTAL SERVICES (CONTINUED)
ERAC USA Finance Co.:
8.000% 01/15/11 (a) $ 3,000,000 $ 3,636,720
9.125% 12/15/04 (a) 2,000,000 2,194,280
Hertz Corp.,
7.625% 06/01/12 2,750,000 2,814,708
United Rentals, Inc.,
10.750% 04/15/08 3,000,000 3,277,500
-----------
13,763,208
-----------
BUSINESS SERVICES - 0.8%
World Color Press, Inc.,
8.375% 11/15/08 4,000,000 4,301,040
-----------
HEALTH SERVICES - 3.3%
Caremark RX, Inc.,
7.375% 10/01/06 5,000,000 5,362,500
Coventry Health Care, Inc.,
8.125% 02/15/12 1,000,000 1,090,000
HCA, Inc.,
7.125% 06/01/06 6,250,000 6,759,750
PerkinElmer, Inc.,
8.875% 01/15/13 2,000,000 2,205,000
Tenet Healthcare Corp.:
5.375% 11/15/06 2,000,000 1,940,000
7.375% 02/01/13 1,000,000 980,000
-----------
18,337,250
-----------
HOTELS, CAMPS & LODGING - 2.2%
Hyatt Equities LLC,
6.875% 06/15/07 (a) 2,000,000 2,076,540
Marriott International, Inc.,
6.875% 11/15/05 5,000,000 5,508,200
Meditrust Companies,
7.620% 09/13/05 2,200,000 2,222,000
Starwood Hotels & Resorts
Worldwide, Inc.:
7.375% 05/01/07 2,000,000 2,110,000
7.875% 05/01/12 500,000 547,500
-----------
12,464,240
-----------
MOTION PICTURES - 1.0%
Walt Disney Co.,
5.375% 06/01/07 5,000,000 5,449,250
-----------
RENTAL & LEASING SERVICES - 0.3%
Rent-A-Center, Inc.,
7.500% 05/01/10 (a) 1,500,000 1,575,000
-----------
- -------------------------------------------------------
PAR VALUE
- -------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 23.5%
AEROSPACE - 1.9%
Raytheon Co.,
5.500% 11/15/12 $ 6,000,000 $ 6,416,160
Systems 2001 Asset Trust:
6.664% 09/15/13 (a) 1,408,102 1,585,214
7.156% 12/15/11 (a) 2,140,151 2,391,984
-----------
10,393,358
-----------
AIR TRANSPORTATION - 2.8%
Air 2 US,
8.027% 10/01/19 (a) 2,288,894 1,533,559
American Airlines, Inc.:
7.024% 10/15/09 3,029,000 2,847,260
9.710% 01/02/07 1,739,422 956,682
Continental Airlines, Inc.,
7.461% 04/01/15 3,091,085 2,843,798
Delta Air Lines, Inc.,
7.779% 11/18/05 3,750,000 3,075,000
Federal Express Corp.,
9.650% 06/15/12 1,000,000 1,351,200
Southwest Airlines Co.,
5.496% 11/01/06 3,000,000 3,251,310
-----------
15,858,809
-----------
BROADCASTING - 1.0%
Sinclair Broadcast Group, Inc.,
8.750% 12/15/11 2,000,000 2,200,000
TV Azteca SA de CV,
10.500% 02/15/07 2,000,000 2,000,000
Vivendi Universal SA,
9.250% 04/15/10 (a) 1,080,000 1,252,800
-----------
5,452,800
-----------
CABLE - 1.2%
Comcast Corp.:
5.850% 01/15/10 2,500,000 2,745,250
6.500% 01/15/15 2,000,000 2,262,320
Continental Cablevision, Inc.,
8.875% 09/15/05 1,200,000 1,351,440
Rogers Cable, Inc.,
6.250% 06/15/13 (a) 500,000 500,715
-----------
6,859,725
-----------
ELECTRIC SERVICES - 10.5%
AEP Texas North Co.,
5.500% 03/01/13 (a) 1,500,000 1,595,775
AES Corp.,
8.750% 06/15/08 986,000 971,210
Arizona Public Service Co.,
4.650% 05/15/15 1,750,000 1,753,027
See notes to investment portfolio.
7
INVESTMENT PORTFOLIO (CONTINUED)
June 30, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
- -------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES (CONTINUED)
ELECTRIC SERVICES (CONTINUED)
Black Hills Corp.,
6.500% 05/15/13 $ 1,475,000 $ 1,476,991
Calpine Canada Energy
Finance ULC,
8.500% 05/01/08 1,500,000 1,173,750
Calpine Corp.,
8.500% 02/15/11 1,500,000 1,125,000
CenterPoint Energy Houston
Electric LLC:
5.700% 03/15/13 (a) 1,750,000 1,896,265
6.950% 03/15/33 (a) 1,750,000 2,015,177
CMS Energy Corp.,
8.375% 07/01/03 (b) 5,000,000 5,000,000
Columbus Southern Power Co.,
6.600% 03/01/33 (a) 1,000,000 1,109,946
Constellation Energy Group, Inc.,
6.125% 09/01/09 2,500,000 2,832,975
Dominion Resources, Inc.,
8.125% 06/15/10 2,000,000 2,467,480
Duke Energy Corp.:
3.750% 03/05/08 (a) 2,000,000 2,068,720
4.500% 04/01/10 1,000,000 1,038,730
Edison Mission Energy,
9.875% 04/15/11 500,000 470,000
FirstEnergy Corp.:
5.500% 11/15/06 2,000,000 2,143,060
7.375% 11/15/31 1,000,000 1,124,470
FPL Energy American
Wind LLC,
6.639% 06/20/23 (a) 2,550,000 2,609,976
GulfTerra Energy Partners L.P.,
8.500% 06/01/10 (a) 2,000,000 2,145,000
MidAmerican Energy
Holdings Co.,
5.875% 10/01/12 6,500,000 7,076,875
Northern States Power Co.,
8.000% 08/28/12 1,750,000 2,208,955
Oncor Electric Delivery Co.,
7.250% 01/15/33 (a) 3,000,000 3,541,290
Orion Power Holdings, Inc.,
12.000% 05/01/10 1,000,000 1,155,000
Pinnacle Partners,
8.830% 08/15/04 (a) 2,750,000 2,832,500
PSEG Power LLC,
7.750% 04/15/11 2,000,000 2,374,900
PAR VALUE
- -------------------------------------------------------
South Point Energy Center LLC,
8.400% 05/30/12 (a) $ 792,739 $ 792,739
Southern Power Co.,
6.250% 07/15/12 2,000,000 2,252,640
Xcel Energy, Inc.,
3.400% 07/01/08 (a) 1,100,000 1,088,702
-----------
58,341,153
-----------
RAILROAD - 0.8%
Burlington Northern Railroad Co.,
9.250% 10/01/06 2,000,000 2,375,980
Kansas City Southern Railway,
7.500% 06/15/09 2,000,000 2,070,000
-----------
4,445,980
-----------
SANITARY SERVICES - 0.7%
Allied Waste North America, Inc.:
7.625% 01/01/06 500,000 518,750
8.500% 12/01/08 500,000 538,750
8.875% 04/01/08 500,000 543,750
Waste Management, Inc.:
7.375% 08/01/10 1,250,000 1,493,900
7.750% 05/15/32 500,000 625,345
-----------
3,720,495
-----------
TELECOMMUNICATIONS - 4.6%
ALLTEL Corp.,
7.875% 07/01/32 3,000,000 3,938,220
AT&T Corp.,
7.000% 11/15/06 4,000,000 4,428,840
AT&T Wireless Services, Inc.,
7.875% 03/01/11 1,100,000 1,300,640
Comtel Brasileira Ltd.,
10.750% 09/26/04 (a) 2,000,000 2,120,000
Insight Midwest L.P.,
9.750% 10/01/09 (a) 4,000,000 4,240,000
News America Holdings, Inc.,
9.250% 02/01/13 2,000,000 2,653,120
Nextel Communications, Inc.,
9.375% 11/15/09 2,000,000 2,160,000
Rogers Cantel, Inc.,
9.750% 06/01/16 1,545,000 1,749,713
Sprint Corp.,
6.125% 11/15/08 2,500,000 2,719,375
-----------
25,309,908
-----------
- -------------------------------------------------------
WHOLESALE TRADE - 0.4%
NON-DURABLE GOODS - 0.4%
Lilly Del Mar, Inc.,
7.717% 08/01/29 (a)(b) 2,250,000 2,366,179
-----------
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES
(cost of $472,438,488) 503,874,043
-----------
See notes to investment portfolio.
8
INVESTMENT PORTFOLIO (CONTINUED)
June 30, 2003
GOVERNMENT AGENCIES
& OBLIGATIONS - 5.2% PAR VALUE
- -------------------------------------------------------
FOREIGN GOVERNMENT BOND - 0.7%
State of Qatar,
9.750% 06/15/30 (a) $ 2,750,000 $ 3,795,000
-----------
- -------------------------------------------------------
U.S. GOVERNMENT AGENCIES
& OBLIGATIONS - 4.5%
Federal National Mortgage
Association,
9.000% 07/01/19-06/01/20 111,825 123,341
-----------
Government National
Mortgage Association:
10.000% 10/15/17-01/15/19 6,379 7,341
10.500% 01/15/16-05/15/20 97,534 113,110
11.500% 05/15/13 11,991 14,012
12.500% 11/15/10-01/15/14 46,450 54,759
13.000% 04/15/11 4,543 5,380
14.000% 08/15/11 2,949 3,541
-----------
198,143
-----------
U.S. Treasury Bonds and Notes:
2.625% 05/15/08 3,980,000 4,016,059
3.625% 05/15/13 1,590,000 1,602,418
3.875% 02/15/13 5,780,000 5,947,753
5.375% 02/15/31 11,820,000 13,309,970
-----------
24,876,200
-----------
TOTAL GOVERNMENT AGENCIES
& OBLIGATIONS
(cost of $27,555,824) 28,992,684
-----------
ASSET-BACKED SECURITY - 0.3%
- -------------------------------------------------------
PF Exempt Receivables Master Trust,
6.436% 06/01/15 (a)
(cost of $1,500,000) 1,500,000 1,507,500
-----------
SHORT-TERM OBLIGATION - 2.2%
- -------------------------------------------------------
Repurchase agreement with State
Street Bank & Trust Co., dated
06/30/03, due 07/01/03 at 1.000%,
collateralized by a U.S. Treasury
Bond maturing 02/15/20, market
value $12,766,163 (repurchase
proceeds $12,511,348)
(cost of $12,511,000) 12,511,000 12,511,000
-----------
TOTAL INVESTMENTS - 98.4%
(cost of $514,005,312) (c) 546,885,227
-----------
OTHER ASSETS & LIABILITIES, NET - 1.6% 8,765,939
- -------------------------------------------------------
NET ASSETS - 100.0% $555,651,166
============
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) This security is exempt from registration under Rule 144A of the Securities
Act of 1933 and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At June 30, 2003, the value of
these securities amounted to $112,455,399, which represents 20.2% of net
assets.
(b) Interest rates on variable rate securities change periodically. The rate
listed is as of June 30, 2003.
(c) Cost for federal income tax purposes is $515,697,162.
See notes to financial statements.
9
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003
ASSETS:
Investments, at cost $514,005,312
------------
Investments, at value $546,885,227
Receivable for:
Investments sold 8,037,475
Fund shares sold 1,756,053
Interest 9,220,817
Expense reimbursement due from Advisor 2,828
Deferred Trustees' compensation plan 8,962
------------
Total Assets 565,911,362
------------
LIABILITIES:
Payable to custodian bank 631,702
Payable for:
Investments purchased 8,194,759
Fund shares repurchased 597,962
Distributions 293,857
Management fee 218,940
Administration fee 59,148
Transfer agent fee 164,735
Pricing and bookkeeping fees 29,259
Trustees' fees 1,141
Distribution and services fees 1,124
Deferred Trustees' fees 8,962
Other liabilities 58,607
------------
Total Liabilities 10,260,196
------------
NET ASSETS $555,651,166
============
COMPOSITION OF NET ASSETS:
Paid-in capital $555,691,560
Overdistributed net investment income (1,216,871)
Accumulated net realized loss (31,703,438)
Net unrealized appreciation on investments 32,879,915
------------
NET ASSETS $555,651,166
============
CLASS A:
Net assets $ 89,739,779
Shares outstanding 8,887,159
------------
Net asset value per share $ 10.10(a)
============
Maximum offering price per share
($10.10/0.9525) $ 10.60(b)
============
CLASS B:
Net assets $ 32,430,028
Shares outstanding 3,210,167
------------
Net asset value and offering
price per share $ 10.10(a)
============
CLASS C:
Net assets $ 5,522,124
Shares outstanding 546,625
------------
Net asset value and offering
price per share $ 10.10(a)
============
CLASS Z:
Net assets $427,959,235
Shares outstanding 42,361,253
------------
Net asset value, offering and redemption
price per share $ 10.10
============
(a)Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b)On sales of $50,000 or more the offering price is reduced.
STATEMENT OF OPERATIONS
For the Year Ended June 30, 2003
INVESTMENT INCOME:
Interest $ 30,799,067
------------
EXPENSES:
Expenses allocated from Portfolio 66,898
Management fee 2,263,883
Administration fee 631,184
Distribution fee:
Class B 234,129
Class C 32,871
Service fee:
Class A 213,879
Class B 78,797
Class C 10,936
Transfer agent fee:
Class A 279,968
Class B 122,841
Class C 16,165
Class Z 510,392
Pricing and bookkeeping fees 185,586
Trustees' fees 19,492
Custody fee 19,270
Other expenses 202,679
------------
Total Operating Expenses 4,888,970
Fees and expenses waived or reimbursed
by Advisor (77,965)
Fees waived by Distributor - Class C (6,411)
Custody earnings credit (1,040)
------------
Net Expenses 4,803,554
------------
Net Investment Income 25,995,513
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on:
Investments 3,417,955
Foreign currency transactions 9,655
------------
Net realized gain 3,427,610
------------
Net change in unrealized
appreciation/depreciation
on investments 33,226,182
------------
Net Gain 36,653,792
------------
Net Increase in Net Assets from
Operations $ 62,649,305
============
See notes to financial statements.
10
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED
JUNE 30,
INCREASE (DECREASE) ---------------------------
IN NET ASSETS: 2003 (a) 2002
- -------------------------------------------------------
OPERATIONS:
Net investment income $ 25,995,513 $ 18,767,145
Net realized gain (loss) on
investments and foreign
currency transactions 3,427,610 (2,281,856)
Net change in unrealized
appreciation/depreciation
on investments 33,226,182 (1,393,561)
------------ -----------
Net Increase from Operations 62,649,305 15,091,728
------------ -----------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (4,851,795) (336)
Class B (1,525,173) --
Class C (220,682) --
Class Z (21,848,537) (19,104,757)
Return of capital:
Class A -- (1)
Class Z -- (35,938)
------------ -----------
Total Distributions Declared
to Shareholders (28,446,187) (19,141,032)
------------ -----------
SHARE TRANSACTIONS:
Class A:
Subscriptions 13,307,884 408,267
Proceeds received in
connection with merger 92,697,100 --
Distributions reinvested 2,836,832 168
Redemptions (24,933,740) (204,204)
------------ -----------
Net Increase 83,908,076 204,231
------------ -----------
Class B:
Subscriptions 7,355,762 --
Proceeds received in
connection with merger 32,521,573 --
Distributions reinvested 951,704 --
Redemptions (10,486,433) --
------------ -----------
Net Increase 30,342,606 --
------------ -----------
Class C:
Subscriptions 2,990,400 --
Proceeds received in
connection with merger 3,795,846 --
Distributions reinvested 132,549 --
Redemptions (1,717,380) --
------------ -----------
Net Increase 5,201,415 --
------------ -----------
(a) Class B and Class C shares commenced operations on July 15, 2002.
YEAR ENDED
JUNE 30,
INCREASE (DECREASE) ---------------------------
IN NET ASSETS: 2003 (a) 2002
- -------------------------------------------------------
Class Z:
Subscriptions $140,602,354 $129,053,213
Distributions reinvested 20,689,189 17,598,485
Redemptions (86,620,640) (81,573,998)
------------ ------------
Net Increase 74,670,903 65,077,700
------------ ------------
Net Increase from Share
Transactions 194,123,000 65,281,931
------------ ------------
Total Increase in Net Assets 228,326,118 61,232,627
NET ASSETS:
Beginning of period 327,325,048 266,092,421
------------ ------------
End of period (overdistributed
net investment income
of $(1,216,871) and
$(420,053), respectively) $555,651,166 $327,325,048
============ ============
CHANGES IN SHARES:
Class A:
Subscriptions 1,404,563 42,979
Issued in connection
with merger 9,788,501 --
Issued for distributions
reinvested 295,360 18
Redemptions (2,622,883) (21,498)
------------ ------------
Net Increase 8,865,541 21,499
------------ ------------
Class B:
Subscriptions 772,472 --
Issued in connection
with merger 3,434,168 --
Issued for distributions
reinvested 99,099 --
Redemptions (1,095,572) --
------------ ------------
Net Increase 3,210,167 --
------------ ------------
Class C:
Subscriptions 311,006 --
Issued in connection
with merger 400,829 --
Issued for distributions
reinvested 13,770 --
Redemptions (178,980) --
------------ ------------
Net Increase 546,625 --
------------ ------------
Class Z:
Subscriptions 14,613,670 13,516,624
Issued for distributions
reinvested 2,140,928 1,844,361
Redemptions (9,059,989) (8,576,296)
------------ ------------
Net Increase 7,694,609 6,784,689
------------ ------------
See notes to financial statements.
11
NOTES TO FINANCIAL STATEMENTS
June 30, 2003
NOTE 1. ACCOUNTING POLICIES
ORGANIZATION:
Liberty Income Fund (the "Fund") (formerly, Stein Roe Income Fund), a series of
Liberty-Stein Roe Funds Income Trust (the "Trust"), is a diversified portfolio
of a Massachusetts business trust, registered under the Investment Act of 1940,
as amended, as an open-end management investment company. The Fund's investment
goal is to seek total return by investing for a high level of current income and
opportunities for capital appreciation. The Fund may issue an unlimited number
of shares. The Fund offers four classes of shares: Class A, Class B, Class C and
Class Z. Class A shares are sold with a front-end sales charge. A 1.00%
contingent deferred sales charge ("CDSC") is assessed on redemptions made within
eighteen months on an original purchase of $1 million to $25 million. Class B
shares are subject to a CDSC. Class B shares will convert to Class A shares in
three, four or eight years after purchase, depending on the program under which
shares were purchased. Class C shares are subject to a CDSC on redemptions made
within one year after purchase. Class Z shares are offered continuously at net
asset value. There are certain restrictions on the purchase of Class Z shares,
as described in the Fund's prospectus.
As of the end of business on July 12, 2002, the Stein Roe Income Fund acquired
all the net assets of Liberty Income Fund pursuant to a plan of reorganization
approved by Liberty Income Fund shareholders on June 28, 2002. All assets of
Liberty Income Fund were transferred to Stein Roe Income Fund in a tax-free
exchange and shareholders of Liberty Income Fund received shares of the Stein
Roe Income Fund in exchange for their shares as follows:
LIBERTY
STEIN ROE INCOME FUND
INCOME FUND NET ASSETS UNREALIZED
SHARES ISSUED RECEIVED DEPRECIATION1
------------- ----------- --------------
13,623,498 $129,014,519 $(883,393)
1 Unrealized depreciation is included in the Net Assets
Received amount shown above.
NET ASSETS NET ASSETS
NET ASSETS OF LIBERTY OF STEIN ROE
OF STEIN ROE INCOME FUND INCOME FUND
INCOME FUND IMMEDIATELY IMMEDIATELY
PRIOR TO PRIOR TO AFTER
COMBINATION COMBINATION COMBINATION
------------- ------------- -------------
$327,547,213 $129,014,519 $456,561,732
Prior to July 13, 2002, the Fund invested substantially all of its assets in the
SR&F Income Fund Portfolio (the "Portfolio"), as part of a master/feeder
structure. The Portfolio allocated income, expenses, realized and unrealized
gains (losses) to its investors on a daily basis, based on methods in compliance
with the Internal Revenue Service. Prior to reorganization described above, the
Fund's pro-rata share of the Portfolio were distributed to the Fund based on
allocation methods in compliance with the Internal Revenue Service.
Effective July 15, 2002, Stein Roe Income Fund was renamed Liberty Income Fund
and began offering Class B and Class C shares. The Class S shares were
subsequently redesignated as Class Z shares.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements.
SECURITY VALUATIONS AND TRANSACTIONS:
Debt securities generally are valued by a pricing service based upon market
transactions for normal, institutional-size trading units of similar securities.
Such services may use various pricing techniques which take into account
appropriate factors such as yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other data, as well as broker quotes. When
management deems it appropriate, an over-the-counter or exchange bid quotation
is used.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value under
procedures approved by the Board of Trustees.
Futures contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded.
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.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
12
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DETERMINATION OF CLASS NET ASSET VALUES:
All income, expenses (other than class specific 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.
INVESTMENT INCOME, DEBT DISCOUNT
AND PREMIUM:
Interest income is recorded on the accrual basis. Premium and discount are being
amortized and accreted, respectively, for all debt securities.
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income are declared daily and paid monthly.
Capital gains distributions, if any, are distributed annually.
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.
FUTURES CONTRACTS:
The Fund may enter into futures contracts to either hedge against expected
declines of their portfolio securities or as a temporary substitute for the
purchase of individual bonds. Risks of entering into futures contracts include
the possibility that there may be an illiquid market at the time a fund seeks to
close out a contract, and changes in the value of the futures contract may not
correlate with changes in the value of the portfolio securities being hedged.
Upon entering into a futures contract, the Fund deposits cash or securities with
its custodian in an amount sufficient to meet the initial margin requirements.
Subsequent payments are made or received by the Fund equal to the daily change
in the contract value and are recorded as variation margin payable or receivable
and offset in unrealized gains or losses. The Fund recognizes a realized gain or
loss when the contract is closed or expires. As of June 30, 2003, the Fund did
not have any open futures contracts.
FOREIGN CURRENCY TRANSACTIONS:
Net realized and unrealized gains (losses) on foreign currency transactions
includes gains (losses) arising from the fluctuations in exchange rates between
trade and settlement dates on securities transactions, gains (losses) arising
from the disposition of foreign currency and currency gains (losses) between the
accrual and payment dates on dividends and interest income and foreign
withholding taxes. The Fund does not distinguish that portion of gains (losses)
on investments which is due to changes in foreign exchange rates from that which
is due to changes in market prices of the investments. Such fluctuations are
included with the net realized and unrealized gains (losses) on investments.
OTHER:
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-market
daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
NOTE 2. FEDERAL TAX INFORMATION
Income and capital gain distributions are determined in accordance with income
tax regulations, which may differ from accounting principles generally accepted
in the United States of America. These differences are primarily due to
differing treatments for deferral of losses from wash sales, premium
amortization on debt securities, current year distribution payable, capital loss
carryforwards and non-deductible expenses. Reclassifications are made to the
Fund's capital accounts to reflect income and gains available for distribution
(or available capital loss carryforwards) under income tax regulations.
For the year ended June 30, 2003, permanent items identified and reclassified
among the components of net assets are as follows:
OVERDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED PAID-IN
INCOME LOSS CAPITAL
------------- ------------- -------------
$1,653,856 $(14,416,468) $12,762,612
Net investment income, net realized gains (losses) and net assets were not
affected by this reclassification. Included in the reclassification are book to
tax timing differences totaling $12,762,588 which were aquired as part of the
merger. These timing differences are mostly comprised of capital loss
carryforwards and premium amortization on debt securities.
The tax character of distributions paid for the years ended June 30, 2003 and
2002 was as follows:
2003 2002
---- ----
Distributions paid from:
Ordinary income $28,446,187 $19,105,093
Tax return of capital -- 35,939
13
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
As of June 30, 2003, the components of distributable earnings on a tax basis
were as follows:
UNDISTRIBUTED
ORDINARY UNREALIZED
INCOME APPRECIATION
------------- --------------
$562,345 $31,188,065
The following capital loss carryforwards, determined as of June 30, 2003, are
available to reduce taxable income arising from future net realized gains on
investments, if any, to the extent permitted by the Internal Revenue Code:
YEAR OF EXPIRATION CAPITAL LOSS CARRYFORWARD
- ------------------ -------------------------
2007 $ 7,930,476
2008 10,554,632
2009 8,620,038
2010 1,393,345
2011 2,985,140
-----------
$31,483,631
-----------
Of the capital loss carryforwards, $11,993,495 ($1,857,128 expiring June 30,
2007, $4,887,690 expiring June 30, 2008, $3,855,332 expiring June 30, 2009 and
$1,393,345 expiring June 30, 2010) was obtained in the merger with Liberty
Income Fund (See Note 1).
Utilization of Liberty Income Fund's capital loss carry- forwards could be
subject to merger limitations imposed by the Internal Revenue Code.
Expired capital loss carryforwards, if any, are treated as a reduction of
paid-in-capital.
NOTE 3. FEES AND COMPENSATION PAID
TO AFFILIATES
On April 1, 2003, Stein Roe & Farnham Incorporated ("Stein Roe"), the investment
advisor and administrator to the Fund, merged into Columbia Management Advisors
Inc. ("Columbia"), an indirect, wholly-owned subsidiary of FleetBoston Financial
Corporation. At the time of the merger, Columbia assumed the obligations of
Stein Roe with respect to the Fund. The merger did not change the way the Fund
is managed, the investment personnel assigned to manage the Fund or the fees
paid by the Fund.
MANAGEMENT FEE:
Columbia is the investment advisor of the Fund and receives a monthly fee as
follows:
AVERAGE DAILY ANNUAL
NET ASSETS FEE RATE
------------ ---------
First $100 million 0.500%
Over $100 million 0.475%
Prior to July 12, 2002, the management fee was paid by the Portfolio at the same
rates.
ADMINISTRATION FEE:
Columbia also provides accounting and other services for a monthly fee to the
Fund as follows:
AVERAGE DAILY ANNUAL
NET ASSETS FEE RATE
------------ ---------
First $100 million 0.150%
Over $100 million 0.125%
PRICING AND BOOKKEEPING FEES:
Columbia is responsible for providing pricing and bookkeeping services to the
Fund under Pricing and Bookkeeping Agreement. Under a separate agreement (the
"Outsourcing Agreement"), Columbia has delegated those functions to State Street
Bank and Trust Company ("State Street"). Columbia pays fees to State Street
under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000, paid monthly, and in any month that
the Fund's average daily net assets are more than $50 million, a monthly fee
equal to the average daily net assets of the Fund for that month multiplied by a
fee rate that is calculated by taking into account the fees payable to State
Street under the Outsourcing Agreement. For the year ended June 30, 2003, the
annualized net asset based fee rate was 0.035%. The Fund also pays out-of-pocket
costs for pricing services.
Prior to July 12, 2002, Columbia received from the Fund an annual flat fee of
$5,000.
TRANSFER AGENT FEES:
Liberty Funds Services, Inc. (the "Transfer Agent"), an affiliate of Columbia,
provides shareholder services for a monthly fee equal to 0.06% annually of the
Fund's average daily net assets plus charges based on the number of shareholder
accounts and transactions. The Transfer Agent also receives reimbursement for
certain out-of-pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND
DISTRIBUTION FEES:
Liberty Funds Distributor, Inc. (the "Distributor"), an affiliate of Columbia,
is the Fund's principal underwriter. For the year ended June 30, 2003, the Fund
has been advised that the Distributor retained net underwriting discounts of
$1,040 on sales of the Fund's Class A shares and received CDSC of $29,457,
$91,600 and $902 on Class A, Class B and Class C share redemptions,
respectively.
14
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Fund has adopted a 12b-1 (the "Plan"), which requires the payment of a
monthly service fee to the Distributor equal to 0.25% annually of the average
daily net assets attributable to Class A, Class B and Class C shares. The Plan
also requires the payment of a monthly distribution fee to the Distributor equal
to 0.75% annually of the average daily net assets attributable to Class B and
Class C shares only. The Distributor has voluntarily agreed to waive a portion
of the Class C share distribution fee so that it does not exceed 0.60% annually.
The CDSC and the fees received from the Plan are used principally as repayment
to the Distributor for amounts paid by the Distributor to dealers who sold such
shares.
EXPENSE LIMIT:
Effective July 15, 2002, Columbia has voluntarily agreed, until further notice,
to reimburse a portion of the Class A, Class B and Class C transfer agent fees
so that the Class A, Class B and Class C transfer agent expense will not exceed
0.23% annually of the Class A, Class B and Class C average daily net assets.
OTHER:
The Fund pays no compensation to its officers, all of whom are employees of
Columbia or its affiliates. The Fund's Independent Trustees may participate in a
deferred compensation plan which may be terminated at any time. Obligations of
the plan will be paid solely out of the Fund's assets.
The Fund has an agreement with its custodian bank under which $1,040 of custody
fees were reduced by balance credits for the year ended June 30, 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. Expenses allocated from the Portfolio on the Statement
of Operations include $61,944 paid to affiliates, prior to the liquidation of
the Portfolio. These affiliated fees include: management, pricing and
bookkeeping, transfer agent and trustees' fees.
NOTE 4. PORTFOLIO INFORMATION
INVESTMENT ACTIVITY:
For the year ended June 30, 2003, purchases and sales of investments, other than
short-term obligations, were $529,023,135 and $447,187,986, respectively, of
which $93,290,207 and $107,342,321, respectively, were U.S. Government
securities.
Unrealized appreciation/depreciation at June 30, 2003 based on cost of
investments, for federal income tax purposes was:
Gross unrealized appreciation $36,640,072
Gross unrealized depreciation (5,452,007)
-----------
Net unrealized appreciation $31,188,065
===========
OTHER:
Investing in high-yield securities offers the potential for high current income
and attractive total return, but involves greater credit and other risks not
associated with investing in higher-quality bonds. Bond investing also involves
interest rate risk, which means that bond prices may change as interest rates
increase or decrease.
There are certain additional risks involved when investing in foreign securities
that are not inherent with investments in domestic securities. These risks may
involve foreign currency exchange rate fluctuations, adverse political and
economic developments and the possible prevention of foreign currency exchange
or the imposition of other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 5. LINE OF CREDIT
The Fund and other affiliated funds participate in a $350,000,000 credit
facility which is used for temporary or emergency purposes to facilitate
portfolio liquidity. Interest is charged to the Fund based on its borrowings. In
addition, the Fund has agreed to pay commitment fees on its pro-rata portion of
the line of credit. The commitment fee is included in "Other expenses" on the
Statement of Operations. Prior to April 26, 2003, the Fund participated in a
separate credit agreement with similar terms to its existing agreement. For the
year ended June 30, 2003, there were no borrowings under this agreement.
15
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as follows:
YEAR ENDED PERIOD
JUNE 30, ENDED
-------------------------- JUNE 30,
CLASS A SHARES 2003 2002 2001 (a)
=======================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.44 $ 9.54 $ 9.21
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b)(c) 0.45 0.60(d) 0.61
Net realized and unrealized gain (loss) on investments and foreign currency 0.75 (0.08)(d) 0.32
------- ------- -------
Total from Investment Operations 1.20 0.52 0.93
------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.54) (0.62) (0.60)
Return of capital -- --(e) --
------- ------- -------
Total Distributions Declared to Shareholders (0.54) (0.62) (0.60)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.10 $ 9.44 $ 9.54
======= ======= =======
Total return (f) 13.18%(g) 5.53% 10.41%(h)
======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (b)(i) 1.23% 1.10% 1.12%(j)
Net investment income (b)(i) 5.12% 6.32%(d) 7.08%(j)
Waiver/reimbursement 0.05% -- --
Portfolio turnover rate 96% 136%(k) 128%(k)
Net assets, end of period (000's) $89,740 $ 204 $ 1
(a)Class A shares were initially offered on July 31, 2000. Per share data and
total return reflect activity from that date.
(b)Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F Income
Fund Portfolio, prior to the merger.
(c)Per share data was calculated using average shares outstanding during the
period.
(d)Effective July 1, 2001, the Portfolio adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended June 30, 2002, was to decrease net investment
income per share by $0.01, decrease net realized and unrealized loss per
share by $0.01 and decrease the ratio of net investment income to average net
assets from 6.40% to 6.32%. Per share data and ratios for periods prior to
June 30, 2002 have not been restated to reflect this change in presentation.
(e)Rounds to less than $0.01 per share.
(f)Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(g)Had the Advisor not reimbursed a portion of expenses, total return would have
been reduced.
(h)Not annualized.
(i)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j)Annualized.
(k)Portfolio turnover disclosed is for the SR&F Income Portfolio.
16
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout the period is as follows:
PERIOD
ENDED
JUNE 30,
CLASS B SHARES 2003 (a)
============================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.47
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b)(c) 0.40
Net realized and unrealized gain on investments and foreign currency 0.68
-------
Total from Investment Operations 1.08
-------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.45)
-------
NET ASSET VALUE, END OF PERIOD $ 10.10
=======
Total return (d)(e)(f) 11.78%
=======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (b)(g)(h) 1.99%
Net investment income (b)(g)(h) 4.39%
Waiver/reimbursement (h) 0.11%
Portfolio turnover rate 96%
Net assets, end of period (000's) $32,430
(a)Class B shares were initially offered on July 15, 2002. Per share data and
total return reflect activity from that date.
(b)Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F Income
Fund Portfolio, prior to the merger.
(c)Per share data was calculated using average shares outstanding during the
period.
(d)Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(e)Had the Advisor not reimbursed a portion of expenses, total return would have
been reduced.
(f)Not annualized.
(g)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(h)Annualized.
17
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout the period is as follows:
PERIOD
ENDED
JUNE 30,
CLASS C SHARES 2003 (a)
=====================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.47
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b)(c) 0.42
Net realized and unrealized gain on investments and foreign currency 0.68
-------
Total from Investment Operations 1.10
-------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.47)
-------
NET ASSET VALUE, END OF PERIOD $ 10.10
=======
Total return (d)(e)(f) 11.94%
=======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (b)(g)(h) 1.84%
Net investment income (b)(g)(h) 4.51%
Waiver/reimbursement (h) 0.23%
Portfolio turnover rate 96%
Net assets, end of period (000's) $ 5,522
(a)Class C shares were initially offered on July 15, 2002. Per share data and
total return reflect activity from that date.
(b)Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F Income
Fund Portfolio, prior to the merger.
(c)Per share data was calculated using average shares outstanding during the
period.
(d)Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(e)Had the Advisor/Distributor not reimbursed a portion of expenses, total
return would have been reduced.
(f)Not annualized.
(g)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(h)Annualized.
18
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period is as follows:
YEAR ENDED JUNE 30,
---------------------------------------------------------------
CLASS Z SHARES 2003 2002 2001 2000 1999
=======================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.44 $ 9.54 $ 9.15 $ 9.41 $ 10.03
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a)(b) 0.53 0.63(c) 0.69 0.70 0.67
Net realized and unrealized gain (loss) on
investments and foreign currency 0.71 (0.09)(c) 0.39 (0.26) (0.62)
------- ------- ------- ------- -------
Total from Investment Operations 1.24 0.54 1.08 0.44 0.05
------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.58) (0.64) (0.69) (0.70) (0.67)
Return of capital -- --(d) -- -- --
------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (0.58) (0.64) (0.69) (0.70) (0.67)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.10 $ 9.44 $ 9.54 $ 9.15 $ 9.41
======= ======= ======= ======= =======
Total return (e) 13.61% 5.80% 12.20% 4.92% 0.52%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Expenses (b)(f) 0.84% 0.85% 0.86% 0.86% 0.84%
Net investment income (b)(f) 5.51% 6.57%(c) 7.32% 7.58% 6.91%
Portfolio turnover rate 96% 136%(g) 128%(g) 205%(g) 203%(g)
Net assets, end of period (000's) $427,959 $327,121 $266,091 $227,090 $294,640
(a)Per share data was calculated using average shares outstanding during the
period.
(b)Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F Income Fund
Portfolio, prior to the merger.
(c)Effective July 1, 2001, the Portfolio adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended June 30, 2002, was to decrease net investment
income per share by $0.01, decrease net realized and unrealized loss per
share by $0.01 and decrease the ratio of net investment income to average net
assets from 6.65% to 6.57%. Per share data and ratios for periods prior to
June 30, 2002 have not been restated to reflect this change in presentation.
(d)Rounds to less than $0.01 per share.
(e)Total return at net asset value assuming all distributions reinvested.
(f)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(g)Portfolio turnover disclosed is for the SR&F Income Portfolio.
19
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF LIBERTY-STEIN ROE FUNDS INCOME
TRUST LIBERTY INCOME FUND
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of Liberty Income Fund (formerly, Stein Roe Income
Fund) (the "Fund") (a series of Liberty-Stein Roe Funds Income Trust) as of June
30, 2003, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of June 30, 2003, by correspondence with the
custodian and brokers or by other appropriate auditing procedures where replies
from brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Liberty Income Fund (a series of Liberty-Stein Roe Funds Income Trust) at June
30, 2003, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for each of the periods indicated therein, in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
August 19, 2003
20
TRUSTEES AND OFFICERS
The Trustees serve terms of indefinite duration. The names, addresses and ages
of the Trustees and officers of the Liberty Funds, the year each was first
elected or appointed to office, their principal business occupations during at
least the last five years, the number of portfolios overseen by each Trustee and
other directorships they hold are shown below. Each officer listed below serves
as an officer of each of the Liberty Funds. The Statement of Additional
Information (SAI) contains additional information about the Trustees and is
available without charge upon request by calling the fund's distributor at
800-345-6611.
Number of
Year First Portfolios in
Elected or Liberty Funds Other
Position with Appointed Principal Occupation(s) Complex Overseen Directorships
Name, Address and Age Liberty Funds to Office1 During Past Five Years by Trustee Held
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker (Age 47) Trustee 1996 Executive Vice President - Strategy of United 85 None
P.O. Box 66100 Airlines (airline) since December, 2002 (formerly
Chicago, IL 60666 President of UAL Loyalty Services (airline) from
September, 2001 to December, 2002; Executive
Vice President and Chief Financial Officer of United
Airlines from March, 1993 to September, 2001; Senior
Vice President and Chief Financial Officer of UAL,
Inc. prior thereto).
Janet Langford Kelly (Age 45) Trustee 1996 Executive Vice President-Corporate Development 85 None
One Kellogg Square and Administration, General Counsel and Secretary,
Battle Creek, MI 49016 Kellogg Company (food manufacturer), since
September, 1999; Senior Vice President, Secretary and
General Counsel, Sara Lee Corporation (branded,
packaged, consumer-products manufacturer) from
January, 1995 to September, 1999.
Richard W. Lowry (Age 67) Trustee 1995 Private Investor since August, 1987 (formerly 87(4) None
10701 Charleston Drive Chairman and Chief Executive Officer, U.S. Plywood
Vero Beach, FL 32963 Corporation (building products manufacturer)).
Charles R. Nelson (Age 60) Trustee 1981 Professor of Economics, University of Washington, 120(2) None
Department of Economics since January, 1976; Ford and Louisa Van Voorhis
University of Washington Professor of Political Economy, University of
Seattle, WA 98195 Washington, since September, 1993; Director, Institute
for Economic Research, University of Washington, since
September, 2001; Adjunct Professor of Statistics,
University of Washington, since September, 1980;
Associate Editor, Journal of Money Credit and Banking,
since September, 1993; consultant on econometric and
statistical matters.
John J. Neuhauser (Age 60) Trustee 1985 Academic Vice President and Dean of Faculties since 88(4,5) Saucony, Inc.
84 College Road August, 1999, Boston College (formerly Dean, Boston (athletic
Chestnut Hill, MA 02467-3838 College School of Management from September, 1977 footwear);
to September, 1999. SkillSoft Corp.
(E-Learning)
Thomas E. Stitzel (Age 67) Trustee 1998 Business Consultant since 1999 (formerly Professor of 85 None
2208 Tawny Woods Place Finance from 1975 to 1999 and Dean from 1977 to 1991,
Boise, ID 83706 College of Business, Boise State University); Chartered
Financial Analyst.
21
TRUSTEES AND OFFICERS (CONTINUED)
Number of
Year First Portfolios in
Elected or Liberty Funds Other
Position with Appointed Principal Occupation(s) Complex Overseen Directorships
Name, Address and Age Liberty Funds to Office1 During Past Five Years by Trustee Held
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald (Age 66) Trustee 1996 Managing Director, William Blair Capital Partners 85 Anixter
27 West Monroe Street, Suite 3500 (private equity investing) since September, 1994 International
Chicago, IL 60606 (formerly Chief Executive Officer and Chairman (network support
of the Board of Directors, Continental Bank equipment
Corporation prior thereto). distributor),
Jones Lang
LaSalle (real
estate
management
services)
and MONY Group
(life insurance).
Anne-Lee Verville (Age 58) Trustee 1998 Author and speaker on educational systems needs 86(5) Chairman of
359 Stickney Hill Road (formerly General Manager, Global Education the Board of
Hopkinton, NH 03229 Industry from 1994 to 1997, and President, Directors,
Applications Solutions Division from 1991 to 1994, Enesco Group,
IBM Corporation (global education and Inc. (designer,
global applications)). importer and
distributor of
giftware and
collectibles).
INTERESTED TRUSTEES
William E. Mayer3 (Age 63) Trustee 1994 Managing Partner, Park Avenue Equity Partners 87(4) Lee Enterprises
399 Park Avenue (private equity) since February, 1999 (formerly (print media),
Suite 3204 Founding Partner, Development Capital LLC WR Hambrecht + Co.
New York, NY 10022 from November 1996 to February, 1999; Dean and (financial service
Professor, College of Business and Management, provider) and
University of Maryland from October, 1992 to First Health
November, 1996). (healthcare).
Joseph R. Palombo3 (Age 50) Trustee, 2000 Executive Vice President and Chief Operating Officer 86(6) None
One Financial Center Chairman of of Columbia Management Group, Inc. (Columbia
Boston, MA 02111 the Board and Management) since December, 2001 and Director,
President Executive Vice President and Chief Operating Officer of
the Advisor since April, 2003 (formerly Chief Operations
Officer of Mutual Funds, Liberty Financial Companies,
Inc. from August, 2000 to November, 2001; Executive
Vice President of Stein Roe & Farnham Incorporated
(Stein Roe) from April, 1999 to April, 2003; Director
of Colonial Management Associates, Inc. (Colonial)
from April, 1999 to April, 2003; Director of Stein Roe
from September, 2000 to April, 2003) President of
Liberty Funds and Galaxy Funds since February, 2003
(formerly Vice President from September 2002 to
February 2003); Manager of Stein Roe Floating Rate
Limited Liability Company since October, 2000;
(formerly Vice President of the Liberty Funds from
April, 1999 to August, 2000; Chief Operating Officer
and Chief Compliance Officer, Putnam Mutual Funds
from December, 1993 to March, 1999).
1 In December, 2000, the boards of each of the Liberty Funds and former Stein
Roe funds were combined into one board of trustees with common membership.
The date shown is the earliest date on which a trustee was elected to either
the Liberty Funds board or the former Stein Roe funds board.
2 In addition to serving as a disinterested Trustee of the Liberty Funds, Mr.
Nelson serves as a disinterested Director or Trustee of the Columbia Funds
and CMG Funds, currently consisting of 15 funds and 20 funds, respectively,
which are advised by the Advisor.
3 Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht +
Co. Mr. Palombo is an interested person as an employee of the Advisor.
4 In addition to serving as trustees of Liberty Funds, Messrs. Lowry, Neuhauser
and Mayer each serve as a director/trustee of the Liberty All-Star Funds,
currently consisting of 2 funds, which are advised by an affiliate of the
Advisor.
5 In addition to serving as disinterested trustees of the Liberty Funds, Mr.
Neuhauser and Ms. Verville serve as disinterested directors of Columbia
Management Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor.
6 In addition to serving as an interested trustee of the Liberty Funds, Mr.
Palombo serves as an interested director of Columbia Management
Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor.
22
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OFFICERS AND TRANSFER AGENT
Year First
Elected or
Position with Appointed
Name, Address and Age Liberty Funds to Office Principal Occupation(s) During Past Five Years
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Vicki L. Benjamin (Age 41) Chief 2001 Controller of the Liberty Funds and of the Liberty All-Star Funds since May,
One Financial Center Accounting 2002; Chief Accounting Officer of the Liberty Funds and Liberty All-Star
Boston, MA 02111 Officer and Funds since June, 2001; Controller and Chief Accounting Officer of the
Controller Galaxy Funds since September, 2002 (formerly Vice President, Corporate
Audit, State Street Bank and Trust Company from May, 1998 to April, 2001;
Audit Manager from July, 1994 to June, 1997; Senior Audit Manager from July,
1997 to May, 1998, Coopers & Lybrand, LLP).
J. Kevin Connaughton (Age 39) Treasurer 2000 Treasurer of the Liberty Funds and of the Liberty All-Star Funds since
One Financial Center December, 2000; Vice President of the Advisor since April, 2003 (formerly
Boston, MA 02111 Controller of the Liberty Funds and of the Liberty All-Star Funds from
February, 1998 to October, 2000); Treasurer of the Galaxy Funds since
September, 2002; Treasurer, Columbia Management Multi-Strategy Hedge Fund,
LLC since December, 2002 (formerly Vice President of Colonial from February,
1998 to October, 2000 and Senior Tax Manager, Coopers & Lybrand, LLP from
April, 1996 to January, 1998).
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Liberty Income Fund is:
Liberty Funds Services, Inc.
P.O. Box 8081
Boston, MA 02266-8081
The fund mails one shareholder report to each shareholder address. If you would
like more than one report, please call shareholder services at 800-345-6611 and
additional reports will be sent to you. This report has been prepared for
shareholders of Liberty Income Fund. This report may also be used as sales
literature when preceded or accompanied by the current prospectus which provides
details of sales charges, investment objectives and operating policies of the
fund and with the most recent copy of the Liberty Funds Performance Update.
ANNUAL REPORT:
Liberty Income Fund
Liberty Income Fund ANNUAL REPORT, JUNE 30, 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
751-02/615O-0603 (08/03) 03/2215
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable at this time.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable at this time.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The Registrant's Chief Executive Officer and Chief Financial Officer, based
on their evaluation of the Registrant's disclosure controls and procedures as of
a date within 90 days of the filing date of this report, have concluded that
such controls and procedures are adequately designed to ensure that information
required to be disclosed by the Registrant in its reports that it files or
submits under the Securities Exchange Act of 1934, as amended, is accumulated
and communicated to the Registrant's management, including the Chief Executive
Officer and Chief Financial Officer, or persons performing similar functions, as
appropriate, to allow timely decisions regarding required disclosure.
(b) There was no change in the registrant's internal control over financial
reporting that occurred over the registrant's last fiscal half-year that has
affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 10. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable at
this time.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Investment Company Act of 1940 (17270.30a-2(a)). Attached hereto as
Exhibit 99.CERT.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant as required by Rule 30a-2(b) under the
Investment Company Act of 1940 (17270.30a-2(b)). Attached hereto as
Exhibit 99.906CERT.
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-Stein Roe Funds Income Trust
-----------------------------------------------------------
By (Signature and Title) /s/ Joseph R. Palombo
----------------------------------------------
Joseph R. Palombo, President
Date September 5, 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 September 5, 2003
-------------------------------------------------------------------
By (Signature and Title) /s/ J. Kevin Connaughton
----------------------------------------------
J. Kevin Connaughton, Treasurer
Date September 5, 2003
-------------------------------------------------------------------