<Page>
-----------------------------
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Expires: November 30, 2005
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hours per response....... 5.0
-----------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-2214
---------------------------------------------
Liberty Funds Trust I
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Russell L. Kane, Esq.
Columbia Management Group, Inc.
One Financial Center
Boston, MA 02111
- -------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-426-3363
----------------------------
Date of fiscal year end: May 31, 2003
--------------------------
Date of reporting period: May 31, 2003
-------------------------
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW, Washington, DC 20549-0609. The OMB has reviewed this collection of
information under the clearance requirements of 44 U.S.C. Section 3507.
<Page>
[GRAPHIC]
LIBERTY HIGH YIELD
SECURITIES FUND
ANNUAL REPORT
MAY 31, 2003
ELIMINATE CLUTTER IN TWO EASY STEPS.
POINT. CLICK. LIBERTY eDelivery.
FOR MORE INFORMATION ABOUT RECEIVING YOUR SHAREHOLDER REPORTS ELECTRONICALLY,
CALL US AT 800-345-6611. TO SIGN UP FOR eDelivery, VISIT US ONLINE AT
www.libertyfunds.com.
<Page>
[GRAPHIC]
LIBERTY HIGH YIELD
SECURITIES FUND
ANNUAL REPORT
MAY 31, 2003
ELIMINATE CLUTTER IN TWO EASY STEPS.
POINT. CLICK. LIBERTY eDelivery.
TO SIGN UP FOR eDelivery, GO TO www.icsdelivery.com.
<Page>
PRESIDENT'S MESSAGE
[PHOTO OF JOSEPH R. PALOMBO]
Dear Shareholder:
Please note that the fiscal year end for Liberty High Yield Securities Fund
changed from December 31 to May 31. As a result, all commentary, including this
letter, covers the five-month period that ended May 31, 2003.
The US bond market continued to reward investors with solid returns throughout
the period covered by this report. Bonds reported gains across all sectors as
interest rates declined. However, leadership rotated from higher quality bonds,
which were the top performers in the previous period, to lower quality bonds.
Corporate and high-yield bonds rebounded as investors became more willing to
take on risk.
The following report will provide you with more detailed information about the
performance of Liberty High Yield Securities Fund and the strategies used by the
fund's managers -- Thomas A. LaPointe, Kevin L. Cronk and June M. Giroux.
CONSOLIDATION AND A NEW NAME: COLUMBIA
I am pleased to announce that, effective April 1, 2003, six of the asset
management firms brought together when Columbia Management Group, Inc. was
formed were consolidated and renamed Columbia Management Advisors, Inc.
(Columbia Management). This consolidation does not affect the management or
investment objectives of your fund and is the next step in our efforts to create
a consistent identity and to streamline our organization. By consolidating these
firms, we are able to create a more efficient organizational structure and
strengthen certain key functions, such as research. Although the name of the
asset manager familiar to you has changed, what hasn't changed is the commitment
of our specialized investment teams to a multi-disciplined approach to
investing, focused on our goal of offering shareholders the best products and
services.
As always, we thank you for investing in Liberty funds and for giving us the
opportunity to help you build a strong financial future.
Sincerely,
/s/ Joseph R. Palombo
Joseph R. Palombo
President
MEET THE NEW PRESIDENT
Joseph R. Palombo, president and chairman of the Board of Trustees for Liberty
Funds, is also chief operating officer and executive vice president of Columbia
Management. Mr. Palombo has over 19 years of experience in the financial
services industry. Prior to joining Columbia Management, he was chief operating
officer and chief compliance officer for Putnam Mutual Funds. Prior to that, he
was a partner at Coopers & Lybrand. Mr. Palombo received his degree in
economics/accounting from the College of the Holy Cross, where he was a member
of Phi Beta Kappa. He earned his master's degree in taxation from Bentley
College and participated in the Executive Program at the Amos B. Tuck School at
Dartmouth College.
Not FDIC May Lose Value
Insured -----------------
No Bank Guarantee
Economic and market conditions change frequently. There is no assurance that the
trends described in this report will continue or commence.
<Page>
PERFORMANCE INFORMATION
VALUE OF A $10,000 INVESTMENT 5/31/93 - 5/31/03
PERFORMANCE OF A $10,000 INVESTMENT 5/31/93 - 5/31/03 ($)
<Table>
<Caption>
WITHOUT WITH
SALES SALES
CHARGE CHARGE
- -------------------------------------
Class A 16,464 15,682
- -------------------------------------
Class B 15,273 15,273
- -------------------------------------
Class C 15,715 15,715
- -------------------------------------
Class Z 16,646 n/a
</Table>
[CHART]
<Table>
<Caption>
CLASS A SHARES CLASS A SHARES CS FIRST BOSTON
WITHOUT SALES CHARGE WITH SALES CHARGE HIGH YIELD INDEX
5/31/1993 $ 10,000 $ 9,525 $ 10,000
6/30/1993 $ 10,216 $ 9,731 $ 10,181
7/31/1993 $ 10,299 $ 9,810 $ 10,287
8/31/1993 $ 10,367 $ 9,874 $ 10,374
9/30/1993 $ 10,405 $ 9,911 $ 10,433
10/31/1993 $ 10,689 $ 10,181 $ 10,624
11/30/1993 $ 10,806 $ 10,292 $ 10,758
12/31/1993 $ 10,939 $ 10,419 $ 10,894
1/31/1994 $ 11,214 $ 10,682 $ 11,088
2/28/1994 $ 11,218 $ 10,685 $ 11,104
3/31/1994 $ 10,965 $ 10,444 $ 10,778
4/30/1994 $ 10,791 $ 10,278 $ 10,633
5/31/1994 $ 10,843 $ 10,328 $ 10,694
6/30/1994 $ 10,895 $ 10,377 $ 10,622
7/31/1994 $ 10,898 $ 10,380 $ 10,672
8/31/1994 $ 10,901 $ 10,383 $ 10,749
9/30/1994 $ 10,921 $ 10,402 $ 10,792
10/31/1994 $ 10,908 $ 10,390 $ 10,800
11/30/1994 $ 10,810 $ 10,296 $ 10,674
12/31/1994 $ 10,899 $ 10,382 $ 10,787
1/31/1995 $ 11,006 $ 10,483 $ 10,901
2/28/1995 $ 11,289 $ 10,753 $ 11,169
3/31/1995 $ 11,362 $ 10,823 $ 11,295
4/30/1995 $ 11,632 $ 11,079 $ 11,546
5/31/1995 $ 11,885 $ 11,321 $ 11,871
6/30/1995 $ 11,942 $ 11,375 $ 11,950
7/31/1995 $ 12,144 $ 11,567 $ 12,135
8/31/1995 $ 12,165 $ 11,587 $ 12,169
9/30/1995 $ 12,351 $ 11,764 $ 12,309
10/31/1995 $ 12,502 $ 11,908 $ 12,446
11/30/1995 $ 12,578 $ 11,980 $ 12,504
12/31/1995 $ 12,823 $ 12,214 $ 12,663
1/31/1996 $ 13,051 $ 12,431 $ 12,903
2/29/1996 $ 13,166 $ 12,541 $ 12,972
3/31/1996 $ 13,050 $ 12,430 $ 12,937
4/30/1996 $ 13,129 $ 12,505 $ 13,007
5/31/1996 $ 13,227 $ 12,599 $ 13,112
6/30/1996 $ 13,227 $ 12,599 $ 13,141
7/31/1996 $ 13,306 $ 12,674 $ 13,259
8/31/1996 $ 13,546 $ 12,902 $ 13,404
9/30/1996 $ 13,909 $ 13,248 $ 13,634
10/31/1996 $ 13,909 $ 13,248 $ 13,749
11/30/1996 $ 14,175 $ 13,501 $ 13,963
12/31/1996 $ 14,391 $ 13,708 $ 14,236
1/31/1997 $ 14,517 $ 13,827 $ 14,339
2/28/1997 $ 14,830 $ 14,126 $ 14,609
3/31/1997 $ 14,535 $ 13,845 $ 14,445
4/30/1997 $ 14,683 $ 13,986 $ 14,574
5/31/1997 $ 15,048 $ 14,333 $ 14,867
6/30/1997 $ 15,285 $ 14,559 $ 15,069
7/31/1997 $ 15,654 $ 14,910 $ 15,389
8/31/1997 $ 15,697 $ 14,952 $ 15,472
9/30/1997 $ 16,071 $ 15,308 $ 15,778
10/31/1997 $ 16,071 $ 15,308 $ 15,776
11/30/1997 $ 16,204 $ 15,435 $ 15,888
12/31/1997 $ 16,388 $ 15,609 $ 16,033
1/31/1998 $ 16,727 $ 15,932 $ 16,306
2/28/1998 $ 16,819 $ 16,020 $ 16,433
3/31/1998 $ 17,026 $ 16,217 $ 16,515
4/30/1998 $ 17,072 $ 16,261 $ 16,639
5/31/1998 $ 17,096 $ 16,284 $ 16,689
6/30/1998 $ 17,166 $ 16,350 $ 16,724
7/31/1998 $ 17,373 $ 16,548 $ 16,841
8/31/1998 $ 16,228 $ 15,458 $ 15,697
9/30/1998 $ 16,089 $ 15,325 $ 15,696
10/31/1998 $ 15,809 $ 15,058 $ 15,383
11/30/1998 $ 16,848 $ 16,047 $ 16,163
12/31/1998 $ 16,741 $ 15,946 $ 16,126
1/31/1999 $ 17,019 $ 16,211 $ 16,278
2/28/1999 $ 17,040 $ 16,230 $ 16,244
3/31/1999 $ 17,377 $ 16,552 $ 16,391
4/30/1999 $ 17,680 $ 16,840 $ 16,754
5/31/1999 $ 17,349 $ 16,525 $ 16,573
6/30/1999 $ 17,450 $ 16,621 $ 16,581
7/31/1999 $ 17,504 $ 16,672 $ 16,589
8/31/1999 $ 17,425 $ 16,597 $ 16,442
9/30/1999 $ 17,343 $ 16,519 $ 16,315
10/31/1999 $ 17,372 $ 16,547 $ 16,235
11/30/1999 $ 17,664 $ 16,825 $ 16,456
12/31/1999 $ 17,776 $ 16,931 $ 16,655
1/31/2000 $ 17,578 $ 16,743 $ 16,588
2/29/2000 $ 17,845 $ 16,998 $ 16,691
3/31/2000 $ 17,574 $ 16,739 $ 16,441
4/30/2000 $ 17,460 $ 16,631 $ 16,416
5/31/2000 $ 17,126 $ 16,313 $ 16,154
6/30/2000 $ 17,265 $ 16,445 $ 16,515
7/31/2000 $ 17,440 $ 16,611 $ 16,671
8/31/2000 $ 17,612 $ 16,776 $ 16,782
9/30/2000 $ 17,318 $ 16,496 $ 16,628
10/31/2000 $ 16,561 $ 15,775 $ 16,111
11/30/2000 $ 15,611 $ 14,869 $ 15,476
12/31/2000 $ 15,943 $ 15,186 $ 15,787
1/31/2001 $ 17,201 $ 16,384 $ 16,733
2/28/2001 $ 17,251 $ 16,432 $ 16,902
3/31/2001 $ 16,587 $ 15,799 $ 16,565
4/30/2001 $ 16,199 $ 15,429 $ 16,393
5/31/2001 $ 16,348 $ 15,571 $ 16,721
6/30/2001 $ 15,642 $ 14,899 $ 16,462
7/31/2001 $ 15,629 $ 14,887 $ 16,638
8/31/2001 $ 15,745 $ 14,997 $ 16,871
9/30/2001 $ 14,482 $ 13,794 $ 15,807
10/31/2001 $ 15,005 $ 14,292 $ 16,167
11/30/2001 $ 15,533 $ 14,795 $ 16,689
12/31/2001 $ 15,500 $ 14,764 $ 16,699
1/31/2002 $ 15,661 $ 14,918 $ 16,854
2/28/2002 $ 15,384 $ 14,654 $ 16,735
3/31/2002 $ 15,650 $ 14,907 $ 17,118
4/30/2002 $ 15,782 $ 15,032 $ 17,390
5/31/2002 $ 15,567 $ 14,828 $ 17,329
6/30/2002 $ 14,790 $ 14,088 $ 16,725
7/31/2002 $ 14,381 $ 13,698 $ 16,246
8/31/2002 $ 14,431 $ 13,746 $ 16,457
9/30/2002 $ 14,301 $ 13,622 $ 16,255
10/31/2002 $ 14,152 $ 13,480 $ 16,156
11/30/2002 $ 14,733 $ 14,033 $ 17,010
12/31/2002 $ 14,839 $ 14,134 $ 17,218
1/31/2003 $ 15,131 $ 14,412 $ 17,686
2/28/2003 $ 15,314 $ 14,587 $ 17,948
3/31/2003 $ 15,611 $ 14,870 $ 18,408
4/30/2003 $ 16,401 $ 15,622 $ 19,346
5/31/2003 $ 16,464 $ 15,682 $ 19,627
</Table>
MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT www.libertyfunds.com FOR
DAILY PERFORMANCE UPDATES.
Past performance is no guarantee of future investment results. The principal
value and investment returns will fluctuate, resulting in a gain or loss on
sale. The above illustration assumes a $10,000 investment made on May 31, 1993
and reinvestment of income and capital gains distributions. The CS First Boston
High Yield Index is a broad-based, unmanaged index that tracks the performance
of high-yield bonds. Unlike the fund, indices are not investments, do not incur
fees or expenses, and are not professionally managed. It is not possible to
invest directly in an index. Securities in the fund may not match those in an
index.
AVERAGE ANNUAL TOTAL RETURN AS OF 5/31/03 (%)
<Table>
<Caption>
SHARE CLASS A B C Z
INCEPTION 10/21/71 6/8/92 1/15/96 1/8/99
- --------------------------------------------------------------------------------------------------------
WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES SALES SALES SALES
CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE
- --------------------------------------------------------------------------------------------------------
5-month (cumulative) 11.01 5.74 10.67 5.67 10.74 9.74 11.12
- --------------------------------------------------------------------------------------------------------
1-year 5.82 0.80 5.04 0.21 5.19 4.23 6.08
- --------------------------------------------------------------------------------------------------------
5-year -0.74 -1.70 -1.49 -1.74 -1.34 -1.34 -0.52
- --------------------------------------------------------------------------------------------------------
10-year 5.11 4.60 4.33 4.33 4.62 4.62 5.23
- --------------------------------------------------------------------------------------------------------
</Table>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/03 (%)
<Table>
<Caption>
SHARE CLASS A B C Z
- --------------------------------------------------------------------------------------------------------
WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES SALES SALES SALES
CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE
- --------------------------------------------------------------------------------------------------------
5-month (cumulative) 10.30 5.06 9.97 4.97 10.04 9.04 10.41
- --------------------------------------------------------------------------------------------------------
1-year -0.26 -4.99 -1.00 -5.54 -0.85 -1.76 -0.01
- --------------------------------------------------------------------------------------------------------
5-year -1.72 2.67 -2.47 2.72 -2.31 2.31 -1.51
- --------------------------------------------------------------------------------------------------------
10-year 4.86 4.35 4.08 4.08 4.38 4.38 4.97
- --------------------------------------------------------------------------------------------------------
</Table>
Past performance is no guarantee of future investment results. The principal
value and investment returns will fluctuate, resulting in a gain or loss on
sale. All results shown assume reinvestment of distributions. The graph and
table do not reflect the deduction of taxes that a shareholder would pay on fund
distributions or redemption of fund shares. The "with sales charge" returns
include the maximum 4.75% charge for class A shares, the appropriate class B
contingent deferred sales charge for the holding period after purchase as
follows: through first year - 5%, second year - 4%, third year - 3%, fourth year
- - 3%, fifth year - 2%, sixth year - 1%, thereafter - 0%, and the class C
contingent deferred sales charge of 1% for the first year only. Performance for
different share classes will vary based on differences in sales charges and fees
associated with each class.
Performance results reflect any voluntary waivers or reimbursement of fund
expenses by the advisor or its affiliates. Absent these waivers or reimbursement
arrangements, performance results would have been lower.
Classes C and Z share (newer class shares) performance information includes
returns of the fund's class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These class A share
returns are not restated to reflect any expense differential (e.g., rule 12b-1
fees) between class A shares and the newer class shares. Had the expense
differential been reflected, the returns for the periods prior to the inception
of class C shares would have been lower, and class Z shares would have been
higher.
1
<Page>
SEC YIELDS AS OF 5/31/03 (%)(1)
<Table>
Class A 7.54
Class B 7.16
Class C 7.31
Class Z 8.18
</Table>
(1) The 30-day SEC yields reflect the portfolio's earning power net of expenses,
expressed as an annualized percentage of the public offering price per
share. If the advisor or its affiliates had not waived certain fund
expenses, the SEC yield for class C shares would have been 7.16%
TOP 10 ISSUERS AS OF 5/31/03 (%)
<Table>
Huntsman ICI 1.9
Allied Waste North America 1.7
Nextel Communications 1.7
Charter Communications Holdings 1.3
Qwest Corp. 1.3
CSC Holdings 1.2
D.R. Horton, Inc. 1.0
AES Corp. 1.0
Quebecor Media 0.9
Amscan Holdings 0.9
</Table>
QUALITY BREAKDOWN AS OF 5/31/03 (%)
<Table>
AAA 2.5
BBB 1.6
BB 20.1
B 48.8
CCC 14.9
CC 5.3
D 0.4
Not rated 1.3
Equity, preferred stock 2.6
Other net assets 2.5
</Table>
Portfolio holdings and quality breakdown are calculated as a percentage of net
assets. Because the fund is actively managed, there can be no guarantee the fund
will continue to maintain the same portfolio holdings and quality breakdown in
the future.
Ratings shown in the quality breakdown represent the highest rating assigned to
a particular bond by one of the following nationally-recognized rating agencies:
Standard and Poor's Corporation, Moody's Investor Service, Inc. The "Other"
category represents the total of other assets and liabilities.
PORTFOLIO MANAGERS' REPORT
The Board of Trustees for Liberty High Yield Securities Fund approved the change
of the fund's fiscal year end from December to May. As a result, this report
covers the five-month period since the last shareholder report. The next report
you will receive will be a semiannual report for the six-month period through
November 2003.
For the five-month period ended May 31, 2003, the class A shares of Liberty High
Yield Securities Fund returned 11.01% without sales charge. This return was
lower than the fund's benchmark. The CS First Boston High Yield Index returned
13.99% for the period. The fund's underweight exposure to the top-performing
utilities, fiber and long-distance and information technology sectors was lower
than its benchmark and hurt the fund's relative performance. We believe the fund
fell short of the average return of its peer group for the same reason. The
Lipper High Current Yield Funds Category average was 11.75% for the same
period.(1)
HIGH-YIELD BONDS CATCH A WAVE
At the beginning of the period, investors were nervous about the impending war
in Iraq and the war's potentially negative impact on an already vulnerable US
economy. Investor concern was heightened by widely publicized reports of
corporate malfeasance, including allegations of insider trading and accounting
irregularities. These factors also weighed on the high-yield market. At the end
of 2002, investors required a yield premium of more than nine percentage points
over comparable-maturity Treasuries to invest in high-yield bonds. By the end of
the period, after a swift resolution to the Iraqi conflict, that premium had
compressed by almost two percentage points, and high-yield bond prices rose.
Banks exhibited a strong willingness to lend, and even companies with relatively
high debt loads had easier access to cash. In this environment, high-yield
securities looked attractive to many investors who might otherwise have pursued
stocks. The inflow of money into the sector outpaced the issuance of new bonds,
and this wave of positive influences buoyed high-yield bonds to attractive
returns. Investments in CCC-rated bonds yielded the greatest returns during the
period, and the fund's relative underweight in these distressed securities also
contributed to its underperformance.
- ----------
(1) Lipper Inc., a widely respected data provider in the industry, calculates an
average total return for mutual funds with similar investment objectives as
those of the fund.
2
<Page>
CATCHING UP WITH THE RALLY
In February 2003, we began to increase the fund's exposure to the utility, fiber
and long distance and information technology sectors. As banks became more
accommodating in their lending policies, the probability of default for the
issuers in these sectors came down and made these investments more attractive.
While the fund did not fully participate in the rally in these securities, we
did capture incremental return by making these portfolio shifts. Even so, the
fund's exposure to utilities continues to be lower than the benchmark's 11%
weighting because we believe that the downside risk of such an industry
concentration is significant.
CONTINUING OPPORTUNITY AMID ECONOMIC UNCERTAINTY
We expect the environment for high-yield bonds to remain favorable if the US
economy meets our expectation for gradual growth. We expect the default rate to
continue to decline as corporate profits stabilize and lenders continue to
provide easy access to credit. We expect to continue to build our portfolio
around single-B rated bonds, but we will likely also seek opportunities in
lower-rated issues when we think we are being adequately compensated for the
risk. While the yield premium has narrowed from the beginning of the year, we
believe the high-yield market continues to offer attractive return potential.
/s/ Thomas A. LaPointe,
/s/ June M. Giroux
/s/ Kevin L. Cronk
Thomas A. LaPointe, CFA, June M. Giroux, CFA, and Kevin L. Cronk, CFA are vice
presidents of Columbia Management Advisors, Inc. (Columbia Management). The
three are members of the firm's high-yield portfolio management team and have
co-managed the fund since February 2003. Mr. LaPointe joined Columbia Management
in February 1999, Mr. Cronk in August 1999 and Ms. Giroux in September 2000.
Prior to February 2003, Scott B. Richards was the fund's manager.
NET ASSET VALUE PER SHARE as of 5/31/03 ($)
<Table>
class A 4.30
class B 4.30
class C 4.30
class Z 4.30
</Table>
DISTRIBUTIONS DECLARED PER SHARE
1/1/03 - 5/31/03 ($)
<Table>
class A 0.15
class B 0.13
class C 0.13
class Z 0.15
</Table>
PORTFOLIO STRUCTURE AS OF 5/31/03 (%)
<Table>
Corporate bonds 92.2
Cash & equivalents 2.4
Preferred stock 1.8
Common stock 0.8
Warrants 0.3
</Table>
Portfolio structure is calculated as a percentage of net assets.
[CHART]
MATURITY BREAKDOWN AS OF 5/31/03 (%)
<Table>
0 - 3 years 1.1%
3 - 5 years 15.7%
5 - 7 years 32.6%
7 - 10 years 40.6%
10 - 15 years 2.2%
20 - 30 years 0.3%
Equity, preferred stock 2.6%
Repurchase agreement 2.4%
Other net assets 2.5%
</Table>
Maturity breakdown is based on each security's effective maturity, which
reflects pre-refundings, mandatory puts and other conditions that affect a
bond's maturity. Maturity breakdown is calculated as a percentage of net assets.
Because the fund is actively managed, there can be no guarantee the fund will
continue to maintain these maturity breakdowns in the future.
Investing in high-yield securities offers the potential for high current income
and attractive total return, but involves certain risks. Lower-rated bond risks
include default of the issuer, rising interest rates and risk associated with
investing in securities of foreign and emerging markets, including currency
exchange rate fluctuations and economic and political change. Bond investing
also involves interest rate risk, which means that bond prices may change as
interest rates increase or decrease. Foreign investments involve market,
political, accounting and currency risks not associated with other investments.
Investing in emerging markets involves certain risks as they may be subject to a
greater degree of social, political, currency and economic instability.
3
<Page>
INVESTMENT PORTFOLIO
May 31, 2003
<Table>
<Caption>
CORPORATE FIXED-INCOME
BONDS & NOTES - 92.2% PAR VALUE
- --------------------------------------------------------------------------------------
CONSTRUCTION - 3.0%
BUILDING CONSTRUCTION - 3.0%
Associated Materials, Inc.,
9.750% 04/15/12 $ 2,585,000 $ 2,804,725
Atrium Companies, Inc.,
10.500% 05/01/09 1,655,000 1,721,200
D.R. Horton, Inc.,
9.750% 09/15/10 7,400,000 8,177,000
K. Hovnanian Enterprises, Inc.:
8.875% 04/01/12 1,435,000 1,535,450
10.500% 10/01/07 2,930,000 3,398,800
Standard Pacific Corp.,
9.250% 04/15/12 3,425,000 3,647,625
William Lyon Homes, Inc.,
10.750% 04/01/13 1,730,000 1,790,550
---------------
23,075,350
---------------
CONSUMER STAPLES - 0.6%
HOUSEHOLD PRODUCTS - 0.6%
Armkell LLC,
9.500% 08/15/09 1,540,000 1,724,800
Playtex Products, Inc.,
9.375% 06/01/11 3,055,000 3,268,850
---------------
4,993,650
---------------
FINANCE, INSURANCE & REAL ESTATE - 1.7%
FINANCIAL SERVICES - 0.6%
MDP Acquisitions PLC,
9.625% 10/01/12 4,600,000 4,899,000
---------------
INSURANCE AGENTS & BROKERS - 0.4%
Willis Corroon Corp.,
9.000% 02/01/09 2,400,000 2,568,000
---------------
REAL ESTATE - 0.7%
Forest City Enterprises, Inc.,
7.625% 06/01/15 1,390,000 1,417,800
iStar Financial, Inc.,
8.750% 08/15/08 1,925,000 2,069,375
Thornburg Mortgage, Inc.,
8.000% 05/15/13 2,085,000 2,085,000
---------------
5,572,175
---------------
INDUSTRIALS - 0.7%
CONSTRUCTION & FARM MACHINERY - 0.4%
Cummins, Inc.,
9.500% 12/01/10 2,410,000 2,614,850
---------------
INDUSTRIAL CONGLOMERATE - 0.3%
SPX Corp.,
7.500% 01/01/13 2,285,000 2,444,950
---------------
MANUFACTURING - 29.0%
APPAREL - 0.8%
Levi Strauss & Co.,
12.250% 12/15/12 (a) $ 2,250,000 $ 1,867,500
Phillips Van-Heusen,
8.125% 05/01/13 (a) 1,000,000 1,020,000
William Carter Co.,
10.875% 08/15/11 2,950,000 3,333,500
---------------
6,221,000
---------------
AUTO PARTS & EQUIPMENT - 0.7%
Accuride Corp., Series 1998 B,
9.250% 02/01/08 1,075,000 962,125
Rexnord Corp.,
10.125% 12/15/12 (a) 1,105,000 1,215,500
TRW Automotive, Inc.,
11.000% 02/15/13 (a) 3,000,000 3,120,000
---------------
5,297,625
---------------
CHEMICALS & ALLIED PRODUCTS - 6.0%
Avecia Group PLC,
11.000% 07/01/09 2,805,000 2,580,600
Equistar Chemical Funding LP,
10.125% 09/01/08 1,985,000 2,014,775
FMC Corp.,
10.250% 11/01/09 3,510,000 3,975,075
Huntsman ICI Chemicals,
10.125% 07/01/09 2,550,000 2,416,125
Huntsman ICI Holdings LLC,
(b) 12/31/09 30,775,000 12,310,000
Koppers Industries, Inc.,
9.875% 12/01/07 4,060,000 4,141,200
Lyondell Chemical Co.,
9.625% 05/01/07 5,560,000 5,490,500
MacDermid, Inc.,
9.125% 07/15/11 3,075,000 3,397,875
Polyone Corp.,
10.625% 05/15/10 (a) 2,125,000 2,082,500
Terra Capital, Inc.,
12.875% 10/15/08 5,345,000 5,879,500
Texas Petrochemicals Corp.,
11.125% 07/01/06 7,850,000 2,669,000
---------------
46,957,150
---------------
ELECTRONIC & ELECTRICAL EQUIPMENT - 1.5%
Amkor Technology, Inc.:
7.750% 05/15/13 (a) 1,045,000 992,750
9.250% 02/15/08 3,260,000 3,406,700
10.500% 05/01/09 2,230,000 2,218,850
Flextronics International Ltd.,
9.875% 07/01/10 4,500,000 4,950,000
---------------
11,568,300
---------------
</Table>
See notes to investment portfolio.
4
<Page>
<Table>
<Caption>
PAR VALUE
- --------------------------------------------------------------------------------------
FABRICATED METAL - 0.4%
Earle M. Jorgensen Co.,
9.750% 06/01/12 $ 3,400,000 $ 3,553,000
---------------
FOOD & KINDRED PRODUCTS - 2.8%
Constellation Brands, Inc.,
8.125% 01/15/12 2,000,000 2,095,000
Del Monte Corp.,
9.250% 05/15/11 1,925,000 2,093,437
Dole Food Co., Inc.,
8.625% 05/01/09 3,530,000 3,741,800
Premier International Foods PLC,
12.000% 09/01/09 5,750,000 6,325,000
Roundy's, Inc.,
8.875% 06/15/12 3,475,000 3,648,750
Smithfield Foods, Inc.,
8.000% 10/15/09 3,665,000 3,765,788
---------------
21,669,775
---------------
FURNITURE & FIXTURES - 0.7%
Congoleum Corp.,
8.625% 08/01/08 1,755,000 1,009,125
Juno Lighting, Inc.,
11.875% 07/01/09 2,340,000 2,480,400
Simmons Co.,
10.250% 03/15/09 1,735,000 1,856,450
---------------
5,345,975
---------------
LUMBER & WOOD PRODUCTS - 0.7%
Georgia-Pacific Corp.:
8.875% 02/01/10 4,580,000 4,774,650
8.875% 05/15/31 400,000 374,000
---------------
5,148,650
---------------
MACHINERY & COMPUTER EQUIPMENT - 0.3%
United Rentals, Inc.,
10.750% 04/15/08 2,150,000 2,289,750
---------------
MEASURING & ANALYZING INSTRUMENTS - 0.4%
Fisher Scientific International, Inc.:
8.125% 05/01/12 (a) 550,000 589,875
8.125% 05/01/12 2,475,000 2,654,437
---------------
3,244,312
---------------
MISCELLANEOUS MANUFACTURING - 4.5%
Actuant Corp.,
13.000% 05/01/09 3,006,000 3,517,020
Agco Corp.,
9.500% 05/01/08 3,100,000 3,379,000
Amscan Holdings, Inc.,
9.875% 12/15/07 7,000,000 7,000,000
Applied Extrusion Technologies, Inc.,
10.750% 07/01/11 2,295,000 1,744,200
Flowserve Corp.,
12.250% 08/15/10 $ 2,759,000 $ 3,172,850
Hexcel Corp.:
9.750% 01/15/09 1,800,000 1,741,500
9.875% 10/01/08 (a) 525,000 559,125
Owens-Illinois, Inc.:
7.150% 05/15/06 1,265,000 1,265,000
7.350% 05/15/08 3,050,000 2,973,750
8.100% 05/15/07 1,000,000 1,000,000
Tekni-Plex, Inc.,
12.750% 06/15/10 6,025,000 5,889,438
Terex Corp., Series 2001 B,
10.375% 04/01/11 2,815,000 2,997,975
---------------
35,239,858
---------------
PAPER PRODUCTS - 2.0%
Buckeye Technologies, Inc.,
9.250% 09/15/08 1,980,000 1,861,200
Caraustar Industries, Inc.,
9.875% 04/01/11 3,675,000 3,785,250
Norske Skog Canada Ltd.,
8.625% 06/15/11 (a) 1,200,000 1,236,000
Riverwood International Corp.,
10.875% 04/01/08 4,525,000 4,655,094
Smurfit-Stone Container Corp.,
8.250% 10/01/12 2,175,000 2,283,750
Tembec Industries, Inc.,
8.500% 02/01/11 1,860,000 1,832,100
---------------
15,653,394
---------------
PRIMARY METAL - 0.6%
Kaiser Aluminum &
Chemical Corp.,
10.875% 10/15/06 (c) 5,400,000 3,618,000
WCI Steel, Inc.,
10.000% 12/01/04 (d) 4,615,000 1,153,750
Wheeling-Pittsburgh Corp.,
9.250% 11/15/07 (c) 10,150,000 50,750
---------------
4,822,500
---------------
PRINTING & PUBLISHING - 4.3%
American Greetings Corp.,
11.750% 07/15/08 2,580,000 2,915,400
Dex Media East LLC,
12.125% 11/15/12 4,435,000 5,211,125
Hollinger, Inc.,
11.875% 03/01/11 (a) 2,445,000 2,555,025
Moore North America
Finance, Inc.,
7.875% 01/15/11 1,385,000 1,454,250
PriMedia, Inc.,
8.875% 05/15/11 4,665,000 4,851,600
</Table>
See notes to investment portfolio.
5
<Page>
<Table>
<Caption>
PAR VALUE
- --------------------------------------------------------------------------------------
PRINTING & PUBLISHING (CONTINUED)
Quebecor Media, Inc.,
11.125% 07/15/11 $ 6,360,000 $ 7,059,600
Von Hoffman Corp.,
10.250% 03/15/09 3,750,000 3,900,000
Yell Finance BV,
10.750% 08/01/11 4,715,000 5,257,225
---------------
33,204,225
---------------
STONE, CLAY, GLASS & CONCRETE - 0.5%
Crown European Holdings SA,
10.875% 03/01/13 (a) 2,550,000 2,690,250
Owens-Brockway Glass
Container,
8.250% 05/15/13 (a) 1,045,000 1,050,225
---------------
3,740,475
---------------
TRANSPORTATION EQUIPMENT - 2.8%
Allied Holdings, Inc.,
Series 1997 B,
8.625% 10/01/07 1,835,000 1,412,950
Collins & Aikman Products Co.:
9.750% 02/15/10 1,600,000 1,632,000
10.750% 12/31/11 4,805,000 4,156,325
Dana Corp.:
9.000% 08/15/11 1,860,000 1,939,050
10.125% 03/15/10 2,075,000 2,246,187
Dura Operating Corp.:
8.625% 04/15/12 2,875,000 2,867,812
9.000% 05/01/09 2,000,000 1,770,000
Lear Corp.,
8.110% 05/15/09 4,680,000 5,253,300
Newcor, Inc.,
6.000% 01/31/13 (e) 847,510 367,997
---------------
21,645,621
---------------
MINING & ENERGY - 5.7%
METALS & MINING - 1.2%
Metallurg, Inc.,
11.000% 12/01/07 8,700,000 5,220,000
TriMas Corp.:
9.875% 06/15/12 (a) 1,355,000 1,382,100
9.875% 06/15/12 2,905,000 2,963,100
---------------
9,565,200
---------------
OIL & GAS EXTRACTION - 3.6%
Benton Oil & Gas Co.,
9.375% 11/01/07 2,565,000 2,205,900
Chesapeake Energy Corp.:
7.750% 01/15/15 2,455,000 2,577,750
8.125% 04/01/11 915,000 974,475
CIA Petrolifera Marlim,
13.125% 12/17/04 (a) 100,000 106,000
Citgo Petroleum Corp.,
11.375% 02/01/11 (a) $ 1,000,000 $ 1,115,000
Compton Petroleum Corp.,
9.900% 05/15/09 2,575,000 2,793,875
Denbury Resources, Inc.,
7.500% 04/01/13 (a) 1,410,000 1,452,300
Encore Acquisition Co.,
8.375% 06/15/12 2,870,000 3,042,200
Forest Oil Corp.,
8.000% 06/15/08 3,160,000 3,333,800
Frontier Escrow Corp.,
8.000% 04/15/13 (a) 700,000 721,000
Magnum Hunter Resources, Inc.,
9.600% 03/15/12 2,135,000 2,327,150
Mariner Energy, Inc.,
10.500% 08/01/06 2,920,000 2,927,300
Pioneer Natural Resources Co.,
7.500% 04/15/12 920,000 1,030,400
Stone Energy Corp.,
8.250% 12/15/11 1,690,000 1,808,300
TransTexas Gas Corp.,
15.000% 03/15/05 (d) 475,296 142,589
Trico Marine Services, Inc.,
8.875% 05/15/12 2,110,000 1,856,800
---------------
28,414,839
---------------
OIL & GAS FIELD SERVICES - 0.9%
Newpark Resources, Inc.,
8.625% 12/15/07 2,450,000 2,450,000
Premcor Refining Group:
9.250% 02/01/10 (a) 1,365,000 1,501,500
9.500% 02/01/13 (a) 1,700,000 1,895,500
Tesoro Petroleum Corp.,
8.000% 04/15/08 890,000 890,000
---------------
6,737,000
---------------
RETAIL TRADE - 2.9%
APPAREL & ACCESSORY STORES - 0.5%
Gap, Inc.,
8.800% 12/15/08 2,330,000 2,819,300
Saks, Inc.,
8.250% 11/15/08 870,000 922,200
---------------
3,741,500
---------------
FOOD STORES - 0.5%
Michael Foods, Inc.,
11.750% 04/01/11 1,250,000 1,421,875
Winn Dixie Stores, Inc.,
8.875% 04/01/08 2,665,000 2,864,875
---------------
4,286,750
---------------
MISCELLANEOUS RETAIL - 1.5%
JC Penney Co., Inc.,
8.000% 03/01/10 3,435,000 3,503,700
</Table>
See notes to investment portfolio.
6
<Page>
<Table>
<Caption>
PAR VALUE
- --------------------------------------------------------------------------------------
MISCELLANEOUS RETAIL (CONTINUED)
Rite Aid Corp.:
8.125% 05/01/10 (a) $ 1,955,000 $ 1,994,100
9.250% 06/01/13 (a) 2,950,000 2,854,125
Steinway Musical
Instruments, Inc.,
8.750% 04/15/11 3,400,000 3,315,000
---------------
11,666,925
---------------
RESTAURANTS - 0.4%
Yum! Brands, Inc.,
7.700% 07/01/12 2,775,000 3,101,063
---------------
SERVICES - 16.5%
AMUSEMENT & RECREATION - 8.2%
Ameristar Casinos, Inc.,
10.750% 02/15/09 3,185,000 3,535,350
Argosy Gaming Co.,
10.750% 06/01/09 3,895,000 4,245,550
Boyd Gaming Corp.,
8.750% 04/15/12 1,090,000 1,166,300
Circus & Eldorado/Silver
Legacy Capital Corp.,
10.125% 03/01/12 4,040,000 3,853,150
Coast Hotels & Casinos, Inc.,
9.500% 04/01/09 4,375,000 4,637,500
Hollywood Casino Shreveport,
13.000% 08/01/06 5,130,000 3,693,600
Hollywood Entertainment Corp.,
9.625% 03/15/11 2,925,000 3,115,125
Hollywood Park, Inc.,
9.500% 08/01/07 225,000 218,250
Horseshoe Gaming LLC,
8.625% 05/15/09 400,000 422,000
Majestic Investor Holdings,
11.653% 11/30/07 1,700,000 1,683,000
Mohegan Tribal Gaming
Authority:
8.000% 04/01/12 2,325,000 2,452,875
8.375% 07/01/11 1,450,000 1,540,625
Park Place Entertainment Corp.,
9.375% 02/15/07 3,290,000 3,569,650
Penn National Gaming, Inc.,
11.125% 03/01/08 3,330,000 3,663,000
Pinnacle Entertainment, Inc.,
9.250% 02/15/07 (a) 6,750,000 6,522,187
Regal Cinemas, Inc.,
9.375% 02/01/12 4,625,000 5,006,563
Six Flags, Inc.,
9.500% 02/01/09 6,475,000 6,458,813
Town Sports International,
9.625% 04/15/11 (a) 1,400,000 1,452,500
Venetian Casino Resort LLC,
11.000% 06/15/10 (a) $ 3,660,000 $ 3,998,550
Wynn Las Vegas LLC,
12.000% 11/01/10 2,500,000 2,700,000
---------------
63,934,588
---------------
BUSINESS SERVICES - 0.2%
Iron Mountain, Inc.,
7.750% 01/15/15 1,590,000 1,697,325
---------------
FUNERAL SERVICES - 1.0%
Service Corp. International,
7.700% 04/15/09 5,010,000 5,085,150
Stewart Enterprises, Inc.,
10.750% 07/01/08 2,575,000 2,871,125
---------------
7,956,275
---------------
HEALTH SERVICES - 4.9%
AmerisourceBergen Corp.:
7.250% 11/15/12 (a) 1,720,000 1,857,600
8.125% 09/01/08 3,140,000 3,446,150
Coventry Health Care, Inc.,
8.125% 02/15/12 4,190,000 4,525,200
HCA, Inc.,
8.750% 09/01/10 2,920,000 3,514,074
IASIS Healthcare Corp.,
13.000% 10/15/09 2,665,000 2,958,150
InSight Health Services Corp.:
9.875% 11/01/11 2,900,000 2,827,500
Magellan Health Services, Inc.,
9.375% 11/15/07 (a)(c) 3,080,000 2,972,200
MedQuest, Inc.,
11.875% 08/15/12 (a) 4,200,000 4,095,000
PacifiCare Health
Systems, Inc.,
10.750% 06/01/09 4,395,000 4,834,500
Tenet Healthcare Corp.,
6.375% 12/01/11 3,625,000 3,516,250
United Surgical Partners
International, Inc.,
10.000% 12/15/11 3,600,000 3,888,000
---------------
38,434,624
---------------
HOTELS, CAMPS & LODGING - 1.3%
Hard Rock Hotel, Inc.,
8.875% 06/01/13 (a) 1,260,000 1,294,650
Host Marriott LP,
9.500% 01/15/07 2,750,000 2,911,563
Royal Caribbean Cruises,
8.000% 05/15/10 1,050,000 1,050,000
Starwood Hotels & Resorts
Worldwide, Inc.,
7.875% 05/01/12 (a) 4,750,000 5,035,000
---------------
10,291,213
---------------
</Table>
See notes to investment portfolio.
7
<Page>
<Table>
<Caption>
PAR VALUE
- --------------------------------------------------------------------------------------
OTHER SERVICES - 0.9%
Advanstar Communications, Inc.,
12.000% 02/15/11 $ 4,050,000 $ 3,650,063
Corrections Corp.,
9.875% 05/01/09 (a) 2,340,000 2,591,550
---------------
6,241,613
---------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 32.1%
AEROSPACE - 1.8%
BE Aerospace, Inc.,
8.875% 05/01/11 3,130,000 2,284,900
Condor Systems, Inc.,
11.875% 05/01/09 (c) 4,000,000 880,000
L-3 Communications Corp.,
7.625% 06/15/12 3,550,000 3,860,625
Sequa Corp.,
8.875% 04/01/08 1,670,000 1,753,500
TransDigm, Inc.,
10.375% 12/01/08 4,750,000 4,999,375
---------------
13,778,400
---------------
AIR TRANSPORTATION - 0.7%
Northwest Airlines Corp.,
9.875% 03/15/07 3,845,000 2,922,200
U.S. Airways, Inc.,
10.375% 03/01/13 (d) 11,034,000 2,758,500
---------------
5,680,700
---------------
BROADCASTING - 2.1%
Canwest Media, Inc.,
10.625% 05/15/11 4,775,000 5,395,750
Corus Entertainment, Inc.,
8.750% 03/01/12 1,465,000 1,556,562
Emmis Communications Corp.,
(f) 03/15/11
(12.500% 03/15/06) 3,325,000 2,842,875
Sinclair Broadcast Group, Inc.,
8.750% 12/15/11 1,000,000 1,082,500
TV Azteca SA de CV,
10.500% 02/15/07 5,970,000 5,850,600
---------------
16,728,287
---------------
CABLE - 4.7%
Charter Communications
Holdings LLC:
(f) 04/01/11
(9.920% 04/01/04) 15,210,000 9,430,200
10.000% 04/01/09 1,515,000 1,090,800
Comcast UK Cable Partners Ltd.,
11.200% 11/15/07 5,800,000 5,278,000
CSC Holdings, Inc.,
7.625% 04/01/11 $ 2,405,000 $ 2,453,100
DirecTV Holdings Finance LLC,
8.375% 03/15/13 (a) 2,395,000 2,646,475
EchoStar DBS Corp.:
9.125% 01/15/09 1,725,000 1,919,062
9.375% 02/01/09 2,000,000 2,145,000
Insight Communications Co.,
(f) 02/15/11
(12.250% 02/15/06) 4,045,000 3,114,650
Insight Midwest,
9.750% 10/01/09 (a) 2,955,000 3,102,750
Northland Cable Television, Inc.,
10.250% 11/15/07 5,945,000 5,499,125
---------------
36,679,162
---------------
COMMUNICATIONS - 0.3%
XM Satellite Radio
Holdings, Inc.,
(f) 12/31/09
(14.000% 12/31/05) 3,858,930 2,788,077
---------------
COMMUNICATIONS SERVICES - 1.0%
Crown Castle International Corp.:
(f) 05/15/11
(10.375% 05/15/04) 1,465,000 1,311,175
10.750% 08/01/11 3,430,000 3,558,625
SBA Communications, Inc.,
10.250% 02/01/09 3,315,000 2,784,600
---------------
7,654,400
---------------
ELECTRIC, GAS & SANITARY SERVICES - 2.9%
Allied Waste North America, Inc.:
Series 1999 B,
10.000% 08/01/09 4,955,000 5,202,750
Series 2001 B,
8.500% 12/01/08 7,500,000 7,931,250
HydroChem Industrial Services,
10.375% 08/01/07 5,605,000 4,203,750
Illinova Corp.,
11.500% 12/15/10 (a) 1,875,000 2,100,000
Mirant Americas
Generation, Inc.,
8.300% 05/01/11 4,015,000 2,549,525
Mission Energy Holding Co.,
13.500% 07/15/08 1,050,000 682,500
---------------
22,669,775
---------------
ELECTRIC SERVICES - 4.8%
AES Corp.:
9.000% 05/15/15 (a) 2,265,000 2,310,300
9.375% 09/15/10 78,000 73,710
9.500% 06/01/09 5,408,000 5,137,600
Beaver Valley Funding Corp.,
9.000% 06/01/17 2,710,000 3,282,352
</Table>
See notes to investment portfolio.
8
<Page>
<Table>
<Caption>
PAR VALUE
- --------------------------------------------------------------------------------------
ELECTRIC SERVICES (CONTINUED)
Caithness Coso Funding Corp.,
Series 1999 B,
9.050% 12/15/09 $ 3,944,629 $ 4,112,276
Calpine Corp.:
8.500% 02/15/11 7,220,000 4,909,600
8.625% 08/15/10 1,710,000 1,154,250
CMS Energy Corp.,
8.900% 07/15/08 3,600,000 3,582,000
Edison Mission Energy,
9.875% 04/15/11 2,440,000 2,086,200
Nevada Power Co.,
10.875% 10/15/09 (a) 2,765,000 3,055,325
Orion Power Holdings, Inc.,
12.000% 05/01/10 1,400,000 1,515,500
PSE&G Energy Holdings, Inc.,
8.625% 02/15/08 2,955,000 3,191,400
UCAR Finance, Inc.,
10.250% 02/15/12 2,890,000 2,759,950
---------------
37,170,463
---------------
MARINE TRANSPORTATION - 0.2%
Teekay Shipping Corp.,
8.875% 07/15/11 1,435,000 1,535,450
---------------
MOTOR FREIGHT & WAREHOUSING - 0.2%
QDI LLC:
12.000% 06/15/09 PIK (a) 794,876 118,238
12.500% 06/15/08 PIK 3,342,000 1,332,623
---------------
1,450,861
---------------
PIPELINES - 3.0%
Coastal Corp.,
7.750% 06/15/10 4,740,000 4,171,200
Dynegy Holdings, Inc.,
8.750% 02/15/12 2,475,000 2,178,000
El Paso Corp.,
7.750% 06/01/13 2,750,000 2,743,125
Gulfterra Energy Partners:
8.500% 06/01/10 (a) 1,580,000 1,682,700
8.500% 06/01/11 675,000 718,875
Northwest Pipeline Corp.,
8.125% 03/01/10 1,040,000 1,144,302
Sonat, Inc.,
7.625% 07/15/11 2,710,000 2,317,050
Southern Natural Gas,
8.875% 03/15/10 2,030,000 2,202,550
Williams Companies, Inc.,
8.125% 03/15/12 5,980,000 5,920,200
---------------
23,078,002
---------------
POLLUTION CONTROL - 0.2%
Envirosource, Inc.,
14.000% 12/15/08 1,710,534 1,539,481
---------------
RADIO & TELEPHONE COMMUNICATIONS - 3.4%
Airgate PCS, Inc.,
(f) 10/01/09
(13.500% 10/01/04) $ 3,080,000 $ 1,416,800
Horizon PCS, Inc.,
13.750% 06/15/11 3,300,000 396,000
Nextel Communications, Inc.:
9.375% 11/15/09 10,520,000 11,216,950
9.750% 10/31/07 275,000 282,563
Nextel Partners, Inc.,
11.000% 03/15/10 3,250,000 3,493,750
Rogers Cantel, Inc.,
9.750% 06/01/16 5,140,000 5,782,500
Triton PCS, Inc.,
8.750% 11/15/11 1,650,000 1,551,000
US Unwired, Inc.,
(f) 11/01/09
(13.375% 11/01/04) 6,130,000 2,268,100
---------------
26,407,663
---------------
RAILROAD - 0.6%
Kansas City Southern,
7.500% 06/15/09 1,620,000 1,636,200
Railworks Corp.,
11.500% 04/15/09 (d) 600,000 30,000
TFM SA de CV,
12.500% 06/15/12 (a) 3,030,000 3,226,950
---------------
4,893,150
---------------
TELECOMMUNICATIONS - 5.3%
American Tower Escrow Corp.,
(b) 08/01/08 (a) 870,000 550,275
AT&T Wireless Services, Inc.,
7.875% 03/01/11 1,710,000 2,034,113
Avaya, Inc.,
11.125% 04/01/09 1,880,000 2,056,250
Carrier1 International SA,
13.250% 02/15/09 (c) 6,000,000 180,000
Colt Telecom Group PLC,
(f) 12/15/06 1,795,000 1,723,200
(12.000% 07/03/03)
Fairpoint Communications,
11.875% 03/01/10 2,150,000 2,451,000
Level 3 Communications, Inc.,
(f) 12/01/08
(10.500% 12/01/03) 6,455,000 4,744,425
Lucent Technologies, Inc.:
6.450% 03/15/29 2,890,000 2,023,000
7.250% 07/15/06 2,015,000 1,914,250
Nortel Networks Ltd.,
6.125% 02/15/06 4,185,000 4,059,450
</Table>
See notes to investment portfolio.
9
<Page>
<Table>
<Caption>
PAR VALUE
- --------------------------------------------------------------------------------------
TELECOMMUNICATIONS (CONTINUED)
Qwest Corp.:
8.875% 03/15/12 (a) $ 3,400,000 $ 3,825,000
13.500% 12/15/10 5,250,000 5,985,000
Spectrasite, Inc.,
8.250% 05/15/10 (a) 1,200,000 1,197,000
Time Warner Telecom, Inc.:
9.750% 07/15/08 4,460,000 4,014,000
10.125% 02/01/11 2,770,000 2,493,000
Vivendi Universal,
9.250% 04/15/10 (a) 2,095,000 2,378,433
---------------
41,628,396
---------------
TRANSPORTATION SERVICES - 0.9%
Petroleum Helicopters, Inc.,
9.375% 05/01/09 4,125,000 4,537,500
Stena AB,
9.625% 12/01/12 (a) 2,055,000 2,250,225
---------------
6,787,725
---------------
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES
(cost of $756,308,695) 718,308,492
---------------
<Caption>
PREFERRED STOCKS - 1.8% SHARES
- --------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 1.8%
BROADCASTING - 0.6%
Sinclair Capital,
11.625% PIK 38,150 4,034,362
---------------
CABLE - 0.9%
CSC Holdings Ltd.:
11.125% 9,180 957,015
11.750% 59,441 6,241,305
NTL Europe, Inc., Series A,
10.000% 23 71
---------------
7,198,391
---------------
COMMUNICATIONS - 0.3%
Dobson Communication Corp.,
12.250% PIK 2,778 2,527,980
---------------
POLLUTION CONTROL - 0.0%
EnviroSource, Inc.,
7.250% 5,804 268,704
---------------
TOTAL PREFERRED STOCKS
(cost of $15,965,953) 14,029,437
---------------
MANUFACTURING - 0.2%
COMMUNICATIONS EQUIPMENT - 0.2%
EchoStar Communications Corp.,
Class A (g) 50,000 $ 1,679,000
---------------
MATERIALS - 0.0%
CHEMICALS - 0.0%
Crompton Corp. 14,233 101,766
---------------
MINING & ENERGY - 0.0%
CRUDE PETROLEUM & NATURAL GAS - 0.0%
Coho Energy, Inc. (g)(h) 750 --
---------------
OIL & GAS EXTRACTION - 0.0%
Orion Refining Corp. (g)(h) 10 --
---------------
SERVICES - 0.0%
HOTELS, CAMPS & LODGING - 0.0%
Host Marriott Corp. (g) 8,174 73,566
---------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 0.6%
CABLE - 0.1%
NTL, Inc. (g) 46,154 1,257,696
Ono Finance PLC (a)(g) 5,700 6
---------------
1,257,702
---------------
COMMUNICATIONS - 0.0%
Song Networks Holding AB,
ADR (e)(g) 35,144 703
---------------
ELECTRIC SERVICES - 0.0%
BayCorp Holdings Ltd. (g) 3 42
---------------
POLLUTION CONTROL - 0.0%
EnviroSource, Inc. (g) 50,004 11,501
Fairlane Management
Corp. (e)(g)(h) 50,004 --
---------------
11,501
---------------
TELECOMMUNICATIONS - 0.5%
Colt Telecom Group
PLC (a)(g) EUR 2,190,000 2,009,356
Nextel Communications, Inc.,
Class A (g) USD 100,000 1,499,000
RCN Corp. 9,257 14,348
---------------
3,522,704
---------------
TOTAL COMMON STOCKS
(cost of $11,681,086) 6,646,984
---------------
</Table>
See notes to investment portfolio.
10
<Page>
<Table>
<Caption>
WARRANTS (g) - 0.3% UNITS VALUE
- --------------------------------------------------------------------------------------
MANUFACTURING - 0.0%
RUBBER & PLASTICS - 0.0%
Loral Space & Communications Ltd.,
expires 01/15/07 12,000 $ 120
---------------
RETAIL STORES - 0.0%
FOOD STORES - 0.0%
Pathmark Stores, Inc.,
expires 09/19/10 58,758 65,809
---------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 0.3%
CABLE - 0.0%
Cable Satisfaction International, Inc.,
expires 03/01/05 7,550 75
Ono Finance PLC,
expires 02/15/11 (a) 1,200 12
---------------
87
---------------
COMMUNICATIONS - 0.3%
UbiquiTel, Inc.,
expires 04/15/10 (a) 5,250 52
XM Satellite Radio Holdings, Inc.:
expires 12/31/09 2,855 2,005,637
expires 03/15/10 (a) 2,435 243
---------------
2,005,932
---------------
COMMUNICATIONS SERVICES - 0.0%
IPCS, Inc.,
expires 07/15/10 (a) 2,500 625
---------------
MOTOR FREIGHT & WAREHOUSING - 0.0%
QDI LLC,
expires 01/15/07 (a)(h) 10,207 --
---------------
TELECOMMUNICATIONS - 0.0%
Carrier 1 International SA,
expires 02/19/09 (a)(c) 2,780 28
Horizon PCS, Inc.,
expires 10/01/10 (a) 4,705 5
Jazztel PLC,
expires 07/15/10 (a)(h) EUR 1,435 --
MetroNet Communications Corp.,
expires 08/15/07 (a)(e)(h) USD 1,250 --
33
---------------
TOTAL WARRANTS
(cost of $8,220,915) 2,072,606
---------------
<Caption>
SHORT-TERM OBLIGATION - 2.4% PAR VALUE
- --------------------------------------------------------------------------------------
Repurchase agreement with
State Street Bank & Trust
Co., dated 05/30/03, due
06/02/03 at 1.190%,
collateralized by a U.S.
Treasury Bond maturing
02/15/23, market value
$19,320,938 (repurchase
proceeds $18,938,878)
(cost of $18,937,000) $ 18,937,000 $ 18,937,000
---------------
TOTAL INVESTMENTS - 97.5%
(cost of $811,113,649) (i) 759,994,519
---------------
OTHER ASSETS & LIABILITIES, NET - 2.5% 19,245,679
- --------------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 779,240,198
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) This security is exempt from registration under Rule 144A of the Securities
Act of 1933 and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At May 31, 2003, the value of
these securities amounted to $92,273,610 which represents 11.8% of net
assets.
(b) Zero coupon bond.
(c) As of May 31, 2003, the Fund held securities of certain issuers that have
filed for bankruptcy protection under Chapter 11, representing 1.0% of net
assets. These issuers are in default of certain debt covenants. Income is
not being accrued.
(d) This issuer is in default of certain debt covenants. Income is not being
accrued.
(e) Represents fair value as determined in good faith under the direction of the
Board of Trustees.
(f) Stepped coupon bond. Currently accruing at zero. Shown parenthetically is
the next interest rate to be paid and the date the Fund will begin accruing
this rate.
(g) Non-income producing.
(h) Rounds to less than $1.
(i) Cost for federal income tax purposes is $811,280,872.
Forward foreign currency contracts outstanding at May 31, 2003 are as
follows:
<Table>
<Caption>
NET
CONTRACTS IN EXCHANGE SETTLEMENT UNREALIZED
TO DELIVER FOR DATE DEPRECIATION
- -----------------------------------------------------------
EUR 402,000 USD 434,562 06/06/03 $ (38,216)
EUR 284,400 USD 308,858 06/06/03 (25,615)
EUR 720,000 USD 804,240 06/06/03 (42,527)
----------
$ (106,358)
==========
</Table>
<Table>
<Caption>
ACRONYM NAME
- ---------------------------------------------------
ADR American Depositary Receipt
EUR European Currency
PIK Payment-In-Kind
USD United States Dollar
</Table>
See notes to financial statements.
11
<Page>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2003
<Table>
ASSETS:
Investments, at cost $ 811,113,649
----------------
Investments, at value $ 759,994,519
Cash 166,204
Receivable for:
Investments sold 1,484,943
Fund shares sold 10,058,627
Interest 17,988,427
Dividends 110,873
Expense reimbursement due from
Transfer Agent 13,838
Deferred Trustees' compensation plan 19,841
----------------
Total Assets 789,837,272
----------------
LIABILITIES:
Unrealized depreciation on forward
foreign currency contracts 106,358
Payable for:
Investments purchased 2,240,014
Fund shares repurchased 5,078,376
Distributions 2,304,637
Management fee 407,736
Transfer agent fee 337,014
Pricing and bookkeeping fees 33,582
Trustees' fees 367
Deferred Trustees' fees 19,841
Other liabilities 69,149
----------------
Total Liabilities 10,597,074
----------------
NET ASSETS $ 779,240,198
================
COMPOSITION OF NET ASSETS:
Paid-in capital $ 1,242,842,475
Overdistributed net investment income (2,035,796)
Accumulated net realized loss (410,341,368)
Net unrealized depreciation on:
Investments (51,119,130)
Foreign currency translations (105,983)
----------------
NET ASSETS $ 779,240,198
================
CLASS A:
Net assets $ 376,944,494
Shares outstanding 87,565,380
================
Net asset value per share $ 4.30(a)
================
Maximum offering price per share
($4.30/0.9525) $ 4.51(b)
================
CLASS B:
Net assets $ 305,021,455
Shares outstanding 70,853,462
================
Net asset value and offering price per share $ 4.30(a)
================
CLASS C:
Net assets $ 51,470,831
Shares outstanding 11,956,107
================
Net asset value and offering price per share $ 4.30(a)
================
CLASS Z:
Net assets $ 45,803,418
Shares outstanding 10,646,131
================
Net asset value, offering and redemption
price per share $ 4.30
================
</Table>
(a) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
See notes to financial statements.
12
<Page>
STATEMENT OF OPERATIONS
For the Period Ended May 31, 2003 (a)
<Table>
INVESTMENT INCOME:
Interest $ 29,199,099
Dividends 512,690
Other income 72,309
----------------
Total Investment Income (net of
foreign taxes withheld of $3,233) 29,784,098
----------------
EXPENSES:
Management fee 1,873,517
Distribution fee:
Class B 901,897
Class C 151,225
Service fee:
Class A 389,449
Class B 300,632
Class C 50,325
Pricing and bookkeeping fees 123,907
Transfer agent fee 1,107,667
Trustees' fees 16,771
Custody fee 12,582
Other expenses 135,215
----------------
Total Expenses 5,063,187
Fees waived by Distributor - Class C (30,444)
Fees waived by Transfer Agent (14,791)
Custody earnings credit (1,665)
----------------
Net Expenses 5,016,287
----------------
Net Investment Income 24,767,811
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized loss on:
Investments (17,631,485)
Foreign currency transactions (1,270)
----------------
Net realized loss (17,632,755)
----------------
Net change in unrealized appreciation/
depreciation on:
Investments 72,833,609
Foreign currency translations (105,719)
----------------
Net change in unrealized
appreciation/depreciation 72,727,890
----------------
Net Gain 55,095,135
----------------
Net Increase in Net Assets from
Operations $ 79,862,946
================
</Table>
(a) The Fund has changed its fiscal year end from December 31 to May 31.
For the Year Ended December 31, 2002
<Table>
INVESTMENT INCOME:
Interest $ 65,469,707
Dividends 2,161,451
----------------
Total Investment Income 67,631,158
----------------
EXPENSES:
Management fee 4,397,366
Distribution fee:
Class B 2,315,081
Class C 372,655
Service fee:
Class A 894,256
Class B 771,694
Class C 124,222
Pricing and bookkeeping fees 295,108
Transfer agent fee 2,845,669
Trustees' fees 30,913
Custody fee 30,292
Merger costs 18,133
Other expenses 177,538
----------------
Total Expenses 12,272,927
Fees waived by Distributor - Class C (74,523)
Custody earnings credit (8,642)
----------------
Net Expenses 12,189,762
----------------
Net Investment Income 55,441,396
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized loss on:
Investments (148,052,637)
Foreign currency transactions (40,853)
----------------
Net realized loss (148,093,490)
----------------
Net change in unrealized appreciation/
depreciation on:
Investments 60,425,459
Foreign currency translations (6,145)
----------------
Net change in unrealized
appreciation/depreciation 60,419,314
----------------
Net Loss (87,674,176)
----------------
Net Decrease in Net Assets from
Operations $ (32,232,780)
----------------
</Table>
See notes to financial statements.
13
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
PERIOD
ENDED YEAR ENDED DECEMBER 31,
INCREASE (DECREASE) MAY 31, --------------------------------
IN NET ASSETS: 2003(a) 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 24,767,811 $ 55,441,396 $ 84,783,386
Net realized loss on investments and foreign currency transactions (17,632,755) (148,093,490) (159,973,325)
Net change in unrealized appreciation/depreciation on investments
and foreign currency translations 72,727,890 60,419,314 48,093,338
-------------- -------------- --------------
Net Increase (Decrease) from Operations 79,862,946 (32,232,780) (27,096,601)
-------------- -------------- --------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (13,142,914) (32,236,809) (39,830,596)
Class B (9,273,542) (25,717,885) (37,093,395)
Class C (1,580,199) (4,204,933) (5,053,446)
Class Z (1,396,747) (1,529,375) (429,510)
Return of capital:
Class A -- (2,748,971) (3,463,624)
Class B -- (2,193,075) (3,225,600)
Class C -- (358,573) (439,441)
Class Z -- (130,416) (37,350)
-------------- -------------- --------------
Total Distributions Declared to Shareholders (25,393,402) (69,120,037) (89,572,962)
-------------- -------------- --------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 123,761,289 235,835,725 198,346,266
Proceeds received in connection with merger -- 175,784 --
Distributions reinvested 6,982,957 17,448,294 20,470,907
Redemptions (143,095,138) (211,467,498) (185,822,015)
-------------- -------------- --------------
Net Increase (Decrease) (12,350,892) 41,992,305 32,995,158
-------------- -------------- --------------
Class B:
Subscriptions 31,442,432 88,840,756 126,106,357
Distributions reinvested 4,268,763 12,563,965 17,864,128
Redemptions (31,579,170) (127,327,785) (173,793,977)
-------------- -------------- --------------
Net Increase (Decrease) 4,132,025 (25,923,064) (29,823,492)
-------------- -------------- --------------
Class C:
Subscriptions 9,708,920 22,531,723 29,875,107
Distributions reinvested 984,268 2,835,915 3,544,156
Redemptions (9,260,789) (23,747,996) (22,638,431)
-------------- -------------- --------------
Net Increase 1,432,399 1,619,642 10,780,832
-------------- -------------- --------------
Class Z:
Subscriptions 18,835,360 20,514,243 7,109,992
Proceeds received in connection with merger -- 36,830,189 --
Distributions reinvested 1,244,797 1,500,998 465,882
Redemptions (12,632,407) (24,679,597) (5,587,806)
-------------- -------------- --------------
Net Increase 7,447,750 34,165,833 1,988,068
-------------- -------------- --------------
Net Increase from Share Transactions 661,282 51,854,716 15,940,566
-------------- -------------- --------------
Total Increase (Decrease) in Net Assets 55,130,826 (49,498,101) (100,728,997)
-------------- -------------- --------------
NET ASSETS:
Beginning of period 724,109,372 773,607,473 874,336,470
-------------- -------------- --------------
End of period (including undistributed (overdistributed) net investment
income of $(2,035,796), $(1,587,777) and $5,381,589, respectively) $ 779,240,198 $ 724,109,372 $ 773,607,473
-------------- -------------- --------------
</Table>
(a) The Fund has changed its fiscal year end from December 31 to May 31.
See notes to financial statements.
14
<Page>
<Table>
<Caption>
PERIOD
ENDED YEAR ENDED DECEMBER 31,
INCREASE (DECREASE) MAY 31, --------------------------------
IN NET ASSETS: 2003(a) 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
CHANGES IN SHARES:
Class A:
Subscriptions 30,064,102 56,148,431 38,923,252
Issued in connection with merger -- 43,511 --
Issued for distributions reinvested 1,670,630 4,119,471 4,114,587
Redemptions (34,371,342) (49,928,762) (36,904,850)
-------------- -------------- --------------
Net Increase (Decrease) (2,636,610) 10,382,651 6,132,989
-------------- -------------- --------------
Class B:
Subscriptions 7,579,882 20,864,519 24,896,772
Issued for distributions reinvested 1,022,266 2,954,382 3,581,341
Redemptions (7,619,970) (29,746,409) (34,482,255)
-------------- -------------- --------------
Net Increase (Decrease) 982,178 (5,927,508) (6,004,142)
-------------- -------------- --------------
Class C:
Subscriptions 2,356,861 5,278,283 5,940,784
Issued for distributions reinvested 235,678 668,879 713,547
Redemptions (2,247,443) (5,607,906) (4,601,135)
-------------- -------------- --------------
Net Increase 345,096 339,256 2,053,196
-------------- -------------- --------------
Class Z:
Subscriptions 4,570,300 5,020,578 1,405,985
Issued in connection with merger -- 9,116,388 --
Issued for distributions reinvested 297,518 374,230 94,092
Redemptions (3,077,369) (6,084,044) (1,178,312)
-------------- -------------- --------------
Net Increase 1,790,449 8,427,152 321,765
-------------- -------------- --------------
</Table>
(a) The Fund has changed its fiscal year end from December 31 to May 31.
See notes to financial statements.
15
<Page>
NOTES TO FINANCIAL STATEMENTS
May 31, 2003
NOTE 1. ACCOUNTING POLICIES
ORGANIZATION:
Liberty High Yield Securities Fund (the "Fund"), a series of Liberty Funds Trust
I, is a diversified portfolio of a Massachusetts business trust, registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund's investment goal is to seek high current income
and total return. The Fund may issue an unlimited number of shares. The Fund
offers four classes of shares: Class A, Class B, Class C and Class Z. Class A
shares are sold with a front-end sales charge. A 1.00% contingent deferred sales
charge ("CDSC") is assessed to Class A shares purchased without an initial sales
charge on redemptions made within eighteen months on an original purchase of $1
million to $25 million. Class B shares are subject to a CDSC. Class B shares
will convert to Class A shares in three, four or eight years after purchase,
depending on the program under which shares were purchased. Class C shares are
subject to a CDSC on redemptions made within one year after purchase. Class Z
shares are offered continuously at net asset value. There are certain
restrictions on the purchase of Class Z shares, as described in the Fund's
prospectus.
Effective February 11, 2003, the Board of Trustees had approved a change in the
fiscal year end of the Fund from December 31 to May 31. Accordingly, the Fund's
2003 fiscal year ended on May 31, 2003.
As of the end of business on July 29, 2002, the Stein Roe High Yield Fund merged
into the Fund as follows:
<Table>
<Caption>
NET ASSETS UNREALIZED
SHARES ISSUED RECEIVED DEPRECIATION(1)
- ------------------------------------------------------------
9,159,899 $ 37,005,973 $ (5,857,438)
</Table>
<Table>
<Caption>
NET ASSETS NET ASSETS OF NET ASSETS
OF THE FUND STEIN ROE HIGH YIELD OF THE FUND
PRIOR TO FUND IMMEDIATELY IMMEDIATELY AFTER
COMBINATION PRIOR TO COMBINATION COMBINATION
- ------------------------------------------------------------
$ 653,647,815 $ 37,005,973 $ 690,653,788
</Table>
(1) Unrealized depreciation is included in the Net Assets Received amount shown
above.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements.
SECURITY VALUATION AND TRANSACTIONS:
Debt securities generally are valued by a pricing service based upon market
transactions for normal, institutional-size trading units of similar securities.
When management deems it appropriate, an over-the-counter or exchange bid
quotation is used.
Equity securities generally are valued at the last sale price or, in the case of
unlisted or listed securities for which there were no sales during the day, at
the current quoted bid price.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
Forward currency contracts are valued based on the weighted value of
exchange-traded contracts with similar durations.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange ("NYSE"). The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the customary
trading session of the NYSE, which would not be reflected in the computation of
the Fund's net asset value. If events materially affecting the value of such
securities and such exchange rates occur during such period, then these
securities will be valued at their fair value as determined in good faith by or
under the supervision of the Board of Trustees.
The value of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value under
procedures approved by the Board of Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains (losses) are based upon
16
<Page>
the specific identification method for both financial statement and federal
income tax purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS:
All income, expenses (other than Class A, Class B and Class C service fees and
Class B and Class C distribution fees), and realized and unrealized gains
(losses) are allocated to each class proportionately on a daily basis for
purposes of determining the net asset value of each class.
Class A, Class B and Class C per share data and ratios are calculated by
adjusting the expense and net investment income per share data and ratios for
the Fund for the entire period by the service fee applicable to Class A, Class B
and Class C shares and the distribution fee applicable to Class B and Class C
shares only.
FEDERAL INCOME TAXES:
Consistent with the Fund's policy to qualify as a regulated investment company
and to distribute all of its taxable income, no federal income tax has been
accrued.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM:
Interest income is recorded on the accrual basis. Premium and discount are being
amortized and accreted, respectively, for all debt securities.
The value of additional securities received as an interest payment is recorded
as income and as an increase to the cost basis of such securities.
DISTRIBUTIONS TO SHAREHOLDERS:
The Fund declares and records distributions daily and pays monthly.
FOREIGN CURRENCY TRANSACTIONS:
Net realized and unrealized gains (losses) on foreign currency transactions and
translations include the fluctuation in exchange rates between trade and
settlement dates on securities transactions, gains (losses) arising from the
disposition of foreign currency and currency gains (losses) between the accrual
and payment dates on dividends and interest income and foreign withholding
taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) on investments.
FORWARD CURRENCY CONTRACTS:
The Fund may enter into forward currency contracts to purchase or sell foreign
currencies at predetermined exchange rates in connection with the settlement of
purchases and sales of securities. The Fund may also enter into forward currency
contracts to hedge certain other foreign currency denominated assets. The
contracts are used to minimize the exposure to foreign exchange rate
fluctuations during the period between trade and settlement date of the
contracts. All contracts are marked-to-market daily, resulting in unrealized
gains and losses which become realized at the time the forward currency
contracts are closed or mature. Realized and unrealized gains (losses) arising
from such transactions are included in net realized and unrealized gains
(losses) on foreign currency transactions and translations. Forward currency
contracts do not eliminate fluctuations in the prices of the Fund's portfolio
securities. While the maximum potential loss from such contracts is the
aggregate face value in U.S. dollars at the time the contract was opened,
exposure is typically limited to the change in value of the contract (in U.S.
dollars) over the period it remains open. Risks may also arise if counterparties
fail to perform their obligations under the contracts.
OTHER:
Corporate actions and dividend income are recorded on the ex-date (except for
certain foreign securities which are recorded as soon after ex-date as the Fund
becomes aware of such), net of non-reclaimable tax withholdings. Where a high
level of uncertainty as to collection exists, income on securities is recorded
net of all tax withholdings with any rebates recorded when received.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-market
daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
17
<Page>
NOTE 2. FEDERAL TAX INFORMATION
Income and capital gain distributions are determined in accordance with income
tax regulations, which may differ from accounting principles generally accepted
in the United States of America. These differences are primarily due to
differing treatments for deferral of losses from wash sales, discount
accretion/premium amortization on debt securities, capital loss carryforwards,
non-deductible expenses, marked-to-market on forward currency contracts and
current year distribution payables. Reclassifications are made to the Fund's
capital accounts to reflect income and gains available for distribution (or
available capital loss carryforwards) under income tax regulations.
For the period ended May 31, 2003, permanent items identified and reclassified
among the components of net assets are as follows:
<Table>
<Caption>
OVERDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED PAID-IN
INCOME LOSS CAPITAL
- -------------------------------------------------------
$ 177,572 $ 11,532,217 $ (11,709,789)
</Table>
Net investment income, net realized gains (losses) and net assets were not
affected by this reclassification. The tax character of distributions paid was
as follows:
<Table>
<Caption>
YEAR ENDED
PERIOD DECEMBER 31,
ENDED ----------------------------
MAY 31, 2003 2002 2001
- ------------------------------------------------------------------
Distributions
paid from:
Ordinary
income $ 25,393,402 $ 63,689,002 $ 82,406,947
Return of capital - 5,431,035 7,166,015
------------ ------------ ------------
$ 25,393,402 $ 69,120,037 $ 89,572,962
============ ============ ============
</Table>
As of May 31, 2003, the components of distributable earnings on a tax basis were
as follows:
<Table>
<Caption>
UNDISTRIBUTED UNREALIZED
ORDINARY INCOME DEPRECIATION*
- ---------------------------------------------
$ 498,656 $ (51,286,353)
</Table>
* The difference between book-basis and tax-basis unrealized depreciation is
attributable primarily to the tax deferral of losses on wash sales and
amortization/accretion tax elections on fixed income securities.
The following capital loss carryforwards, determined as of May 31, 2003, are
available to reduce taxable income arising from future net realized gains on
investments, if any, to the extent permitted by the Internal Revenue Code:
<Table>
<Caption>
CAPITAL LOSS
YEAR OF EXPIRATION CARRYFORWARD
- -------------------------------------------------
2005 $ 757,799
2006 738,934
2007 13,268,889
2008 44,818,986
2009 161,087,717
2010 171,019,187
2011 18,463,873
-------------
$ 410,155,385
=============
</Table>
Utilization of the capital loss carryforwards above could be subject to
limitations imposed by the Internal Revenue Code.
NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE:
On April 1, 2003, Colonial Management Associates, Inc. ("Colonial"), the
previous investment advisor to the Fund, merged into Columbia Management
Advisors, Inc. ("Columbia"), formerly known as Columbia Management Co., an
indirect, wholly-owned subsidiary of FleetBoston Financial Corporation. At the
time of the merger, Columbia assumed the obligations of Colonial with respect to
the Fund. The merger did not change the way the Fund is managed, the investment
personnel assigned to manage the Fund or the fees paid by the Fund to Columbia.
Columbia is the investment advisor of the Fund and furnishes accounting and
other services and office facilities for a monthly fee based on the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- -------------------------------------------------
First $1.5 billion 0.60%
Over $1.5 billion 0.55%
</Table>
PRICING AND BOOKKEEPING FEES:
Columbia is responsible for providing pricing and bookkeeping services to the
Fund under a Pricing and Bookkeeping Agreement. Under a separate agreement (the
"Outsourcing Agreement"), Columbia has delegated those functions to State Street
Bank and Trust Company ("State Street"). Columbia pays fees to State Street
under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000, paid monthly, and in any month that
the Fund's average daily net assets are more than $50 million, a monthly fee
equal to the average daily net
18
<Page>
assets of the Fund for that month multiplied by a fee rate that is calculated by
taking into account the fees payable to State Street under the Outsourcing
Agreement. For the period ended May 31, 2003, the annualized net asset based fee
rate was 0.034%. The Fund also pays out-of-pocket costs for pricing services.
TRANSFER AGENT FEE:
Liberty Funds Services, Inc. (the "Transfer Agent"), an affiliate of Columbia,
provides shareholder services for a monthly fee equal to 0.06% annually of the
Fund's average daily net assets plus charges based on the number of shareholder
accounts and transactions. The Transfer Agent also receives reimbursement for
certain out-of-pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES:
Liberty Funds Distributor, Inc. (the "Distributor"), an affiliate of Columbia,
is the Fund's principal underwriter. During the period ended May 31, 2003, the
Fund has been advised that the Distributor retained net underwriting discounts
of $14,689 on sales of the Fund's Class A shares and received CDSC of $106,
$327,486 and $5,018 on Class A, Class B and Class C share redemptions,
respectively.
The Fund has adopted a 12b-1 plan (the "Plan") which requires the payment of a
monthly service fee to the Distributor equal to 0.25% annually of the average
daily net assets attributable to Class A, Class B and Class C shares as of the
20th of each month. The Plan also requires the payment of a monthly distribution
fee to the Distributor equal to 0.75% annually of the average daily net assets
attributable to Class B and Class C shares only. The Distributor has voluntarily
agreed to waive a portion of the Class C share distribution fee so that it will
not exceed 0.60% annually.
The CDSC and the fees received from the Plan are used principally as repayment
to the Distributor for amounts paid by the Distributor to dealers who sold such
shares.
OTHER:
The Fund pays no compensation to its officers, all of whom are employees of
Columbia or its affiliates.
The Fund's Independent Trustees may participate in a deferred compensation plan
which may be terminated at any time. Obligations of the plan will be paid solely
out of the Fund's assets.
The Fund has an agreement with its custodian bank under which $1,665 of custody
fees were reduced by balance credits for the period ended May 31, 2003. The Fund
could have invested a portion of the assets utilized in connection with the
expense offset arrangement in an income-producing asset if it had not entered
into such an agreement.
EXPENSE LIMIT:
Columbia has voluntarily agreed, until further notice, to waive a portion of the
transfer agent fee so that the transfer agent fee will not exceed 0.23% annually
of the Fund's average daily net assets. This agreement may be terminated by
Columbia at any time.
NOTE 4. PORTFOLIO INFORMATION
INVESTMENT ACTIVITY:
For the period ended May 31, 2003, purchases and sales of investments, other
than short-term obligations, were $329,300,909 and $318,294,816, respectively.
Unrealized appreciation (depreciation) at May 31, 2003, based on cost of
investments for federal income tax purposes, was:
<Table>
Gross unrealized appreciation $ 46,053,078
Gross unrealized depreciation (97,339,431)
-------------
Net unrealized depreciation $ (51,286,353)
=============
</Table>
OTHER:
There are certain additional risks involved when investing in foreign securities
that are not inherent with investments in domestic securities. These risks may
involve foreign currency exchange rate fluctuations, adverse political and
economic developments and the possible prevention of foreign currency exchange
or other foreign governmental laws or restrictions. In addition, concentration
of investments in a single region or country may result in greater volatility.
Investing in high yield securities offers the potential for high current income
and attractive total return, but involves certain risks. Bond investing also
involves interest rate risk, which means that bond prices may change as interest
rate increases or decreases.
Investing in emerging markets involves certain risks as they may be subject to a
greater degree of social, political, currency and economic instability.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 5. LINE OF CREDIT
The Fund and other affiliated funds participate in a $350,000,000 credit
facility which is used for temporary or emergency purposes to facilitate
portfolio liquidity. Interest is charged to the Fund based on its borrowings. In
addition, the Fund has agreed to pay commitment fees on its pro-rata portion of
the line of credit. The commitment fee is included in "Other expenses" on the
Statement of Operations. Prior to April 26, 2003, the Fund participated in a
separate credit agreement with similar terms to its existing agreement. For the
period ended May 31, 2003, the Fund did not borrow under these agreements.
19
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
PERIOD
ENDED YEAR ENDED DECEMBER 31,
MAY 31, -----------------------------------
CLASS A SHARES 2003 (a) 2002 2001
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 4.01 $ 4.62 $ 5.30
---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.14(b) 0.34(b) 0.52(b)(c)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.30 (0.53) (0.65)(c)
---------- ---------- ----------
Total from Investment Operations 0.44 (0.19) (0.13)
---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.15) (0.39) (0.51)
Return of capital -- (0.03) (0.04)
---------- ---------- ----------
Total Distributions Declared
to Shareholders (0.15) (0.42) (0.55)
---------- ---------- ----------
NET ASSET VALUE,
END OF PERIOD $ 4.30 $ 4.01 $ 4.62
========== ========== ==========
Total return (e) 11.01%(f) (4.27)% (2.78)%
========== ========== ==========
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (g) 1.29%(h) 1.31% 1.22%
Net investment income (g) 8.24%(h) 7.92% 10.34%(c)
Waiver/reimbursement --%(h)(i) -- --
Portfolio turnover rate 45%(f) 63% 62%
Net assets, end of period (000's) $ 376,944 $ 361,780 $ 369,043
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------
CLASS A SHARES 2000 1999 1998
- --------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 6.55 $ 6.76 $ 7.23
---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.61(d) 0.60(d) 0.63
Net realized and unrealized gain (loss)
on investments and foreign currency (1.24) (0.20) (0.48)
---------- ---------- ----------
Total from Investment Operations (0.63) 0.40 0.15
---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.62) (0.61) (0.62)
Return of capital -- -- --
---------- ---------- ----------
Total Distributions Declared
to Shareholders (0.62) (0.61) (0.62)
---------- ---------- ----------
NET ASSET VALUE,
END OF PERIOD $ 5.30 $ 6.55 $ 6.76
========== ========== ==========
Total return (e) (10.28)% 6.17% 2.12%
========== ========== ==========
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (g) 1.16% 1.21% 1.21%
Net investment income (g) 10.00% 9.02% 8.81%
Waiver/reimbursement -- -- --
Portfolio turnover rate 28% 42% 97%
Net assets, end of period (000's) $ 390,917 $ 540,201 $ 568,125
</Table>
(a) The Fund has changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change, for the year ended December 31, 2001, was to increase net investment
income per share by $0.05, decrease net realized and unrealized loss per
share by $0.05 and increase the ratio of net investment income to average
net assets from 9.76% to 10.34%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) Rounds to less than 0.01%.
20
<Page>
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
PERIOD
ENDED YEAR ENDED DECEMBER 31,
MAY 31, -----------------------------------
CLASS B SHARES 2003 (a) 2002 2001
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 4.01 $ 4.62 $ 5.30
---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.13(b) 0.31(b) 0.48(b)(c)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.29 (0.54) (0.65)(c)
---------- ---------- ----------
Total from Investment Operations 0.42 (0.23) (0.17)
---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.13) (0.35) (0.47)
Return of capital -- (0.03) (0.04)
---------- ---------- ----------
Total Distributions Declared
to Shareholders (0.13) (0.38) (0.51)
---------- ---------- ----------
NET ASSET VALUE,
END OF PERIOD $ 4.30 $ 4.01 $ 4.62
========== ========== ==========
Total return (e) 10.67%(f) (4.99)% (3.51)%
========== ========== ==========
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (g) 2.04%(h) 2.06% 1.97%
Net investment income (g) 7.49%(h) 7.17% 9.59%(c)
Waiver/reimbursement --%(h)(i) -- --
Portfolio turnover rate 45%(f) 63% 62%
Net assets, end of period (000's) $ 305,021 $ 280,220 $ 350,464
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------
CLASS B SHARES 2000 1999 1998
- --------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 6.55 $ 6.76 $ 7.23
---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.56(d) 0.55(d) 0.58
Net realized and unrealized gain (loss)
on investments and foreign currency (1.24) (0.20) (0.48)
---------- ---------- ----------
Total from Investment Operations (0.68) 0.35 0.10
---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.57) (0.56) (0.57)
Return of capital -- -- --
---------- ---------- ----------
Total Distributions Declared
to Shareholders (0.57) (0.56) (0.57)
---------- ---------- ----------
NET ASSET VALUE,
END OF PERIOD $ 5.30 $ 6.55 $ 6.76
========== ========== ==========
Total return (e) (10.96)% 5.38% 1.36%
========== ========== ==========
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (g) 1.91% 1.96% 1.96%
Net investment income (g) 9.25% 8.27% 8.06%
Waiver/reimbursement -- -- --
Portfolio turnover rate 28% 42% 97%
Net assets, end of period (000's) $ 433,949 $ 627,057 $ 573,626
</Table>
(a) The Fund has changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change, for the year ended December 31, 2001, was to increase net investment
income per share by $0.05, decrease net realized and unrealized loss per
share by $0.05 and increase the ratio of net investment income to average
net assets from 9.02% to 9.59%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) Rounds to less than 0.01%.
21
<Page>
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
PERIOD
ENDED YEAR ENDED DECEMBER 31,
MAY 31, ---------------------------------
CLASS C SHARES 2003 (a) 2002 2001
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 4.01 $ 4.62 $ 5.30
---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.13(b) 0.31(b) 0.49(b)(c)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.29 (0.53) (0.65)(c)
---------- ---------- ----------
Total from Investment Operations 0.42 (0.22) (0.16)
---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.13) (0.36) (0.48)
Return of capital -- (0.03) (0.04)
---------- ---------- ----------
Total Distributions Declared
to Shareholders (0.13) (0.39) (0.52)
---------- ---------- ----------
NET ASSET VALUE,
END OF PERIOD $ 4.30 $ 4.01 $ 4.62
========== ========== ==========
Total return (e)(f) 10.74%(g) (4.85)% (3.37)%
========== ========== ==========
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h) 1.89%(i) 1.91% 1.82%
Net investment income (h) 7.64%(i) 7.32% 9.74%(c)
Waiver/reimbursement 0.15%(i) 0.15% 0.15%
Portfolio turnover rate 45%(g) 63% 62%
Net assets, end of period (000's) $ 51,471 $ 46,568 $ 52,122
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------
CLASS C SHARES 2000 1999 1998
- --------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 6.55 $ 6.76 $ 7.23
---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.57(d) 0.56(d) 0.58
Net realized and unrealized gain (loss)
on investments and foreign currency (1.24) (0.20) (0.47)
---------- ---------- ----------
Total from Investment Operations (0.67) 0.36 0.11
---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.58) (0.57) (0.58)
Return of capital -- -- --
---------- ---------- ----------
Total Distributions Declared
to Shareholders (0.58) (0.57) (0.58)
---------- ---------- ----------
NET ASSET VALUE,
END OF PERIOD $ 5.30 $ 6.55 $ 6.76
========== ========== ==========
Total return (e)(f) (10.78)% 5.54% 1.51%
========== ========== ==========
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h) 1.76% 1.81% 1.81%
Net investment income (h) 9.40% 8.42% 8.21%
Waiver/reimbursement 0.15% 0.15% 0.15%
Portfolio turnover rate 28% 42% 97%
Net assets, end of period (000's) $ 48,904 $ 56,068 $ 34,302
</Table>
(a) The Fund has changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change, for the year ended December 31, 2001, was to increase net investment
income per share by $0.05, decrease net realized and unrealized loss per
share by $0.05 and increase the ratio of net investment income to average
net assets from 9.16% to 9.74%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(f) Had the Distributor not waived a portion of expenses, total return would
have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
22
<Page>
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
PERIOD
ENDED YEAR ENDED DECEMBER 31,
MAY 31, ----------------------------------------------------------------
CLASS Z SHARES 2003 (a) 2002 2001 2000 1999 (b)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 4.01 $ 4.62 $ 5.30 $ 6.55 $ 6.79
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.15(c) 0.33(c) 0.53(c)(d) 0.62(e) 0.60(e)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.29 (0.51) (0.65)(d) (1.24) (0.23)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.44 (0.18) (0.12) (0.62) 0.37
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.15) (0.40) (0.52) (0.63) (0.61)
Return of capital -- (0.03) (0.04) -- --
---------- ---------- ---------- ---------- ----------
Total Distributions Declared
to Shareholders (0.15) (0.43) (0.56) (0.63) (0.61)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE,
END OF PERIOD $ 4.30 $ 4.01 $ 4.62 $ 5.30 $ 6.55
========== ========== ========== ========== ==========
Total return (f) 11.12%(g) (4.03)% (2.53)% (10.06)% 5.83%(g)
========== ========== ========== ========== ==========
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h) 1.04%(i) 1.06% 0.97% 0.91% 0.95%(i)
Net investment income (h) 8.49%(i) 8.17% 10.59%(d) 10.25% 9.22%(i)
Waiver/reimbursement --%(i)(j) -- -- -- --
Portfolio turnover rate 45%(g) 63% 62% 28% 42%
Net assets, end of period (000's) $ 45,803 $ 35,541 $ 1,978 $ 566 $ 418
</Table>
(a) The Fund has changed its fiscal year end from December 31 to May 31.
(b) Class Z shares were initially offered on January 8, 1999. Per share data and
total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change, for the year ended December 31, 2001, was to increase net investment
income per share by $0.05, decrease net realized and unrealized loss per
share by $0.05 and increase the ratio of net investment income to average
net assets from 10.01% to 10.59%. Per share data and ratios for periods
prior to December 31, 2001 have not been restated to reflect this change in
presentation.
(e) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(f) Total return at net asset value assuming all distributions reinvested.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
23
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF LIBERTY FUNDS TRUST I
AND THE SHAREHOLDERS OF LIBERTY HIGH YIELD SECURITIES FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Liberty High Yield Securities Fund
(the "Fund") (a series of Liberty Funds Trust I), at May 31, 2003, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at May 31,
2003 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 21, 2003
24
<Page>
TRUSTEES
The Trustees serve terms of indefinite duration. The names, addresses and ages
of the Trustees and officers of Liberty Funds, the year each was first elected
or appointed to office, their principal business occupations during at least the
last five years, the number of portfolios overseen by each Trustee, and other
directorships they hold are shown below. Each officer listed below serves as an
officer of each of the Liberty funds. The Statement of Additional Information
(SAI) contains additional information about the Trustees and is available
without charge upon request by calling the fund's distributor at 800-345-6611.
<Table>
<Caption>
YEAR FIRST NUMBER OF
ELECTED OR PORTFOLIOS IN FUND OTHER
POSITION WITH APPOINTED PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN DIRECTORSHIPS
NAME, ADDRESS AND AGE LIBERTY FUNDS(1) TO OFFICE DURING PAST FIVE YEARS BY TRUSTEE HELD
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker (age 47 ) Trustee 1996 Executive Vice 85 None
c/o Liberty Funds Group LLC President-Strategy of United
One Financial Center Airlines (airlines) since
Boston, MA 02111 December 2002 (formerly
President of UAL Loyalty
Services (airline) from
September 2001 to December
2002; (Executive Vice President
and Chief Financial Officer
from March 1993 to September
2001 of United Airlines);
Senior Vice President and Chief
Financial Officer of UAL, Inc.
prior thereto
Janet Langford Kelly (age 45) Trustee 1996 Executive Vice 85 None
c/o Liberty Funds Group LLC President-Corporate Development
One Financial Center and Administration, General
Boston, MA 02111 Counsel and Secretary, Kellogg
Company (food manufacturer),
since September 1999; Senior
Vice President, Secretary and
General Counsel, Sara Lee
Corporation (branded, packaged,
consumer-products manufacturer)
prior thereto
Richard W. Lowry (age 67) Trustee 1995 Private Investor since 1987 87*** None
c/o Liberty Funds Group LLC (formerly Chairman and Chief
One Financial Center Executive Officer, U.S. Plywood
Boston, MA 02111 Corporation (building products
manufacturer))
Charles R. Nelson (age 60) Trustee 1981 Professor of Economics, 120* None
c/o Liberty Funds Group LLC University of Washington, since
One Financial Center January 1976; Ford and Louisa
Boston, MA 02111 Van Voorhis Professor of
Political Economy, University
of Washington, since September
1993; Director, Institute for
Economic Research, University
of Washington, since September
2001; Adjunct Professor of
Statistics, University of
Washington, since September
1980; Associate Editor, Journal
of Money Credit and Banking,
since September, 1993; Trustee,
Columbia Funds since July 2002;
consultant on econometric and
statistical matters
John J. Neuhauser (age 60) Trustee 1985 Academic Vice President and 88*** Saucony, Inc.
c/o Liberty Funds Group LLC Dean of Faculties since (athletic footwear)
One Financial Center August 1999, Boston College and SkillSoft Corp.
Boston, MA 02111 (formerly Dean, Boston College (e-learning)
School of Management from
September 1977 to September 1999)
Thomas E. Stitzel (age 67) Trustee 1998 Business Consultant since 1999 85 None
c/o Liberty Funds Group LLC (formerly Professor of Finance
One Financial Center from 1975 to 1999 and Dean from
Boston, MA 02111 1977 to 1991, College of
Business, Boise State
University); Chartered
Financial Analyst
</Table>
25
<Page>
<Table>
<Caption>
YEAR FIRST NUMBER OF
ELECTED OR PORTFOLIOS IN FUND OTHER
POSITION WITH APPOINTED PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN DIRECTORSHIPS
NAME, ADDRESS AND AGE LIBERTY FUNDS(1) TO OFFICE DURING PAST FIVE YEARS BY TRUSTEE HELD
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald (age 66) Trustee 1996 Managing Director, William 85 Anixter
c/o Liberty Funds Group LLC Blair Capital Partners (private International
One Financial Center equity investing) since (network support
Boston, MA 02111 September 1994 (formerly Chief equipment
Executive Officer and Chairman distributor), Jones
of the Board of Directors, Lang LaSalle (real
Continental Bank Corporation estate management
prior thereto) services) and MONY
Group (life
insurance)
Anne-Lee Verville*** (age 58) Trustee 1998 Author and speaker on 86 Chairman of the
c/o Liberty Funds Group LLC educational systems needs Board of Directors,
One Financial Center (formerly General Manager, Enesco Group,
Boston, MA 02111 Global Education Industry from Inc.(designer,
1994 to 1997, and President, importer and
Applications Solutions Division distributor of
from 1991 to 1994, IBM giftware and
Corporation (global education collectibles)
and global applications))
INTERESTED TRUSTEES
William E. Mayer** (age 63) Trustee 1994 Managing Partner, Park Avenue 87*** Lee Enterprises
c/o Liberty Funds Group LLC Equity Partners (private (print media),
One Financial Center equity) since February 1999 WR Hambrecht + Co.
Boston, MA 02111 (formerly Founding Partner, (financial service
Development Capital LLC from provider), and First
November 1996 to February 1999; Health (health care)
Dean and Professor, College of
Business and Management,
University of Maryland from
October 1992 to November 1996)
Joseph R. Palombo** (age 50) Trustee, 2000 President of Galaxy Funds since 86 None
One Financial Center Chairman of the February 2003 (formerly Vice
Boston, MA 02111 Board and President from September 2002
President to February 2003); Executive
Vice President and Chief
Operating Officer of Columbia
Management Group, Inc.
(Columbia Management Group)
since November 2001; Director,
Executive Vice President and
Chief Operating Officer of
Columbia Management Advisors,
Inc.; formerly Chief Operations
Officer of Mutual Funds,
Liberty Financial Companies,
Inc. from August 2000 to
November 2001; Executive Vice
President of Stein Roe &
Farnham, Incorporated (Stein
Roe) from April 1999 to April
2003; Executive Vice President
and Director of Colonial
Management Associates, Inc.
from April 1999 to April 2003;
Director of Stein Roe from
September 2000 to April 2003;
Trustee and Chairman of the
Board of Stein Roe Mutual Funds
from October 2000; Manager of
Stein Roe Floating Rate Limited
Liability Company since October
2000; Director of Columbia
Management Multi-Strategy Hedge
Fund, LLC since December 2002;
(formerly Vice President of
Liberty Funds from April 1999
to August 2000; Chief Operating
Officer and Chief Compliance
Officer, Putnam Mutual Funds
from December 1993 to March 1999)
</Table>
(1) In December 2000, the boards of each of the Liberty Funds and Stein Roe
Funds were combined into one board of trustees with common membership. The
date shown is the earliest date on which a trustee was elected to either the
Liberty Funds board or the former Stein Roe Funds board.
* In addition to serving as a disinterested trustee of Liberty Funds,
Mr. Nelson serves as a disinterested director or trustee of Columbia Funds
and CMG Funds, currently consisting of 15 funds and 20 funds, respectively,
which are advised by an affiliate of the Advisor.
** Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940 ("1940 Act")) by reason of his affiliation with WR Hambrecht +
Co., a registered broker-dealer. In addition to serving as an interested
trustee of the Liberty Funds, Mr. Palombo serves as an interested director
of Columbia Management Multi-Strategy Hedge Fund, LLC which is advised by
the Advisor.
*** In addition to serving as a trustee of Liberty Funds, Mr. Lowry,
Mr. Neuhauser and Mr. Mayer each serve as a director/trustee of Liberty
All-Star Funds, currently consisting of 2 funds, which are advised by an
affiliate of the Advisor. Mr. Neuhauser and Ms. Vervilla serve as
disinterested directors of Columbia Management Multi-Strategy Hedge
Fund, LLC which is advised by the Advisor.
26
<Page>
<Table>
<Caption>
YEAR FIRST
ELECTED OR
POSITION WITH APPOINTED
NAME, ADDRESS AND AGE LIBERTY FUNDS TO OFFICE PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Vicki L. Benjamin (age 41) Chief 2001 Controller of the Liberty Funds and Liberty All-Star Funds
One Financial Center Accounting since May 2002; Chief Accounting Officer of Liberty Funds and
Boston, MA 02111 Officer and Liberty All-Star Funds since June 2001; Controller and Chief
Controller Accounting Officer of Galaxy Funds since September 2002;
(formerly Vice President, Corporate Audit, State Street Bank
and Trust Company from May 1998 to April 2001; Audit Manager
from July 1994 to June 1997; Senior Audit Manager from July
1997 to May 1998, Coopers & Lybrand, LLP)
J. Kevin Connaughton (age 39) Treasurer 2000 Treasurer of the Liberty Funds and Liberty All-Star Funds
One Financial Center since December 2000; Vice President of Columbia Management
Boston, MA 02111 Advisors, Inc. since April 2003 (formerly Controller of the
Liberty Funds and Liberty All-Star Funds from February 1998
to October 2000); Treasurer of Galaxy Funds since September
2002; Treasurer, Columbia Management Multi-Strategy Hedge
Fund, LLC since December 2002 (formerly Vice President of
Colonial Management Associates, Inc. from February 1998 to
October 2000; Senior Tax Manager, Coopers & Lybrand, LLP
from April 1996 to January 1998)
</Table>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Liberty High Yield Securities Fund is:
Liberty Funds Services, Inc.
P.O. Box 8081
Boston, MA 02266-8081
The fund mails one shareholder report to each shareholder address. If you would
like more than one report, please call shareholder services at 800-345-6611 and
additional reports will be sent to you.
This report has been prepared for shareholders of Liberty High Yield Securities
Fund. This report may also be used as sales literature when preceded or
accompanied by the current prospectus which provides details of sales charges,
investment objectives and operating policies of the fund and with the most
recent copy of the Liberty Funds Performance Update.
Annual Report:
LIBERTY HIGH YIELD SECURITIES FUND
<Page>
LIBERTY HIGH YIELD SECURITIES FUND ANNUAL REPORT, MAY 31, 2003
PRSRT STD
U.S. Postage
PAID
Holliston, MA
Permit NO. 20
[LIBERTYFUNDS LOGO]
A MEMBER OF COLUMBIA MANAGEMENT GROUP
(C) 2003 LIBERTY FUNDS DISTRIBUTOR, INC.
A MEMBER OF COLUMBIA MANAGEMENT GROUP
ONE FINANCIAL CENTER, BOSTON, MA 02111-2621
730-02/2380-0503 (07/03) 03/1831
<Page>
[GRAPHIC]
LIBERTY STRATEGIC INCOME FUND
ANNUAL REPORT
MAY 31, 2003
ELIMINATE CLUTTER IN TWO EASY STEPS.
POINT. CLICK. LIBERTY eDELIVERY.
FOR MORE INFORMATION ABOUT RECEIVING YOUR SHAREHOLDER REPORTS ELECTRONICALLY,
CALL US AT 800-345-6611. TO SIGN UP FOR eDELIVERY, VISIT US ONLINE AT
www.libertyfunds.com.
<Page>
[GRAPHIC]
LIBERTY STRATEGIC INCOME FUND
ANNUAL REPORT
MAY 31, 2003
ELIMINATE CLUTTER IN TWO EASY STEPS.
POINT. CLICK. LIBERTY eDELIVERY.
TO SIGN UP FOR eDELIVERY.GO TO www.icsdelivery.com
<Page>
PRESIDENT'S MESSAGE
[PHOTO OF JOSEPH R. PALOMBO]
Dear Shareholder:
Please note that the fiscal year end for Liberty Strategic Income Fund changed
from December 31 to May 31. As a result, all commentary, including this letter,
cover the five-month period that ended May 31, 2003.
The US bond market continued to reward investors with solid returns throughout
the period covered by this report. Bonds reported gains across all sectors as
interest rates declined. However, leadership rotated from higher quality bonds,
which were the top performers in the previous period, to lower quality bonds.
Corporate, high-yield and foreign bonds rebounded as investors became more
willing to take on risk. Mortgage bonds generally lagged as low interest rates
ignited a new round of mortgage refinancing.
The following report will provide you with more detailed information about fund
performance and the strategies used by the fund's portfolio manager Laura A.
Ostrander.
CONSOLIDATION AND A NEW NAME: COLUMBIA
I am pleased to announce that, effective April 1, 2003, six of the asset
management firms brought together when Columbia Management Group, Inc. was
formed were consolidated and renamed Columbia Management Advisors, Inc.
(Columbia Management). This consolidation does not affect the management or
investment objectives of your fund and is the next step in our efforts to create
a consistent identity and to streamline our organization. By consolidating these
firms, we are able to create a more efficient organizational structure and
strengthen certain key functions, such as research. Although the name of the
asset manager familiar to you has changed, what hasn't changed is the commitment
of our specialized investment teams to a multi-disciplined approach to
investing, focused on our goal of offering shareholders the best products and
services.
As always, we thank you for investing in Liberty funds and for giving us the
opportunity to help you build a strong financial future.
Sincerely,
/s/ Joseph R. Palombo
Joseph R. Palombo
President
MEET THE NEW PRESIDENT
Joseph R. Palombo, president and chairman of the Board of Trustees for Liberty
Funds, is also chief operating officer and executive vice president of
Columbia Management. Mr. Palombo has over 19 years of experience in the
financial services industry. Prior to joining Columbia Management, he was
chief operating officer and chief compliance officer for Putnam Mutual Funds.
Prior to that, he was a partner at Coopers & Lybrand. Mr. Palombo received his
degree in economics/accounting from the College of the Holy Cross, where he
was a member of Phi Beta Kappa. He earned his master's degree in taxation from
Bentley College and participated in the Executive Program at the Amos B. Tuck
School at Dartmouth College.
Not FDIC May Lose Value
Insured No Bank Guarantee
Economic and market conditions change frequently. There is no assurance that the
trends described in this report will continue or commence.
<Page>
PERFORMANCE INFORMATION
VALUE OF A $10,000 INVESTMENT
5/31/93 - 5/31/03
PERFORMANCE OF A $10,000 INVESTMENT
5/31/93 - 5/31/03 ($)
<Table>
<Caption>
WITHOUT WITH
SALES SALES
CHARGE CHARGE
- -----------------------------------
Class A 19,413 18,491
- -----------------------------------
Class B 18,017 18,017
- -----------------------------------
Class C 18,740 18,740
- -----------------------------------
Class J 19,095 18,522
- -----------------------------------
Class Z 19,502 n/a
</Table>
[CHART]
<Table>
<Caption>
CLASS A SHARES WITHOUT SALES CHARGE CLASS A SHARES WITH SALES CHARGE LEHMAN BROTHERS GOVERNMENT/CREDIT BOND INDEX
5/31/1993 $ 10,000 $ 9,525 $ 10,000
6/30/1993 $ 10,142 $ 9,660 $ 10,227
7/31/1993 $ 10,202 $ 9,717 $ 10,292
8/31/1993 $ 10,374 $ 9,881 $ 10,529
9/30/1993 $ 10,365 $ 9,873 $ 10,566
10/31/1993 $ 10,568 $ 10,066 $ 10,609
11/30/1993 $ 10,544 $ 10,043 $ 10,489
12/31/1993 $ 10,717 $ 10,208 $ 10,536
1/31/1994 $ 10,949 $ 10,429 $ 10,694
2/28/1994 $ 10,774 $ 10,262 $ 10,461
3/31/1994 $ 10,436 $ 9,940 $ 10,204
4/30/1994 $ 10,332 $ 9,842 $ 10,120
5/31/1994 $ 10,331 $ 9,841 $ 10,101
6/30/1994 $ 10,299 $ 9,810 $ 10,078
7/31/1994 $ 10,344 $ 9,852 $ 10,280
8/31/1994 $ 10,357 $ 9,865 $ 10,284
9/30/1994 $ 10,325 $ 9,835 $ 10,128
10/31/1994 $ 10,370 $ 9,878 $ 10,117
11/30/1994 $ 10,275 $ 9,787 $ 10,099
12/31/1994 $ 10,321 $ 9,831 $ 10,166
1/31/1995 $ 10,431 $ 9,935 $ 10,361
2/28/1995 $ 10,684 $ 10,177 $ 10,601
3/31/1995 $ 10,891 $ 10,374 $ 10,672
4/30/1995 $ 11,132 $ 10,603 $ 10,822
5/31/1995 $ 11,456 $ 10,912 $ 11,275
6/30/1995 $ 11,486 $ 10,940 $ 11,365
7/31/1995 $ 11,614 $ 11,063 $ 11,321
8/31/1995 $ 11,661 $ 11,107 $ 11,466
9/30/1995 $ 11,875 $ 11,311 $ 11,583
10/31/1995 $ 12,041 $ 11,469 $ 11,753
11/30/1995 $ 12,173 $ 11,595 $ 11,947
12/31/1995 $ 12,409 $ 11,820 $ 12,123
1/31/1996 $ 12,611 $ 12,012 $ 12,198
2/29/1996 $ 12,504 $ 11,910 $ 11,939
3/31/1996 $ 12,465 $ 11,873 $ 11,839
4/30/1996 $ 12,550 $ 11,954 $ 11,757
5/31/1996 $ 12,582 $ 11,984 $ 11,737
6/30/1996 $ 12,650 $ 12,049 $ 11,894
7/31/1996 $ 12,718 $ 12,114 $ 11,921
8/31/1996 $ 12,895 $ 12,282 $ 11,891
9/30/1996 $ 13,164 $ 12,539 $ 12,103
10/31/1996 $ 13,343 $ 12,709 $ 12,385
11/30/1996 $ 13,653 $ 13,004 $ 12,613
12/31/1996 $ 13,681 $ 13,032 $ 12,473
1/31/1997 $ 13,677 $ 13,028 $ 12,488
2/28/1997 $ 13,787 $ 13,132 $ 12,514
3/31/1997 $ 13,516 $ 12,874 $ 12,365
4/30/1997 $ 13,665 $ 13,016 $ 12,545
5/31/1997 $ 13,911 $ 13,250 $ 12,662
6/30/1997 $ 14,100 $ 13,431 $ 12,814
7/31/1997 $ 14,447 $ 13,761 $ 13,206
8/31/1997 $ 14,385 $ 13,702 $ 13,058
9/30/1997 $ 14,697 $ 13,999 $ 13,263
10/31/1997 $ 14,653 $ 13,957 $ 13,475
11/30/1997 $ 14,729 $ 14,030 $ 13,547
12/31/1997 $ 14,860 $ 14,155 $ 13,689
1/31/1998 $ 15,100 $ 14,382 $ 13,882
2/28/1998 $ 15,157 $ 14,437 $ 13,854
3/31/1998 $ 15,277 $ 14,551 $ 13,897
4/30/1998 $ 15,355 $ 14,625 $ 13,967
5/31/1998 $ 15,413 $ 14,681 $ 14,116
6/30/1998 $ 15,408 $ 14,677 $ 14,260
7/31/1998 $ 15,546 $ 14,807 $ 14,272
8/31/1998 $ 14,902 $ 14,194 $ 14,550
9/30/1998 $ 15,204 $ 14,482 $ 14,966
10/31/1998 $ 15,179 $ 14,458 $ 14,860
11/30/1998 $ 15,631 $ 14,889 $ 14,949
12/31/1998 $ 15,626 $ 14,884 $ 14,986
1/31/1999 $ 15,733 $ 14,985 $ 15,093
2/28/1999 $ 15,528 $ 14,790 $ 14,734
3/31/1999 $ 15,747 $ 14,999 $ 14,807
4/30/1999 $ 15,967 $ 15,209 $ 14,844
5/31/1999 $ 15,624 $ 14,882 $ 14,691
6/30/1999 $ 15,619 $ 14,878 $ 14,646
7/31/1999 $ 15,613 $ 14,872 $ 14,605
8/31/1999 $ 15,540 $ 14,802 $ 14,593
9/30/1999 $ 15,582 $ 14,842 $ 14,724
10/31/1999 $ 15,577 $ 14,837 $ 14,763
11/30/1999 $ 15,714 $ 14,968 $ 14,754
12/31/1999 $ 15,827 $ 15,076 $ 14,664
E1/31/00 $ 15,655 $ 14,911 $ 14,659
E2/29/00 $ 15,891 $ 15,136 $ 14,843
E3/31/00 $ 15,812 $ 15,061 $ 15,058
E4/30/00 $ 15,660 $ 14,916 $ 14,984
E5/31/00 $ 15,483 $ 14,748 $ 14,971
E6/30/00 $ 15,800 $ 15,050 $ 15,276
E7/31/00 $ 15,920 $ 15,164 $ 15,438
E8/31/00 $ 16,043 $ 15,281 $ 15,656
E9/30/00 $ 15,860 $ 15,107 $ 15,715
E10/31/00 $ 15,522 $ 14,785 $ 15,814
E11/30/00 $ 15,234 $ 14,510 $ 16,085
E12/31/00 $ 15,723 $ 14,976 $ 16,401
E1/31/01 $ 16,372 $ 15,594 $ 16,677
E2/28/01 $ 16,393 $ 15,615 $ 16,849
E3/31/01 $ 16,015 $ 15,254 $ 16,926
E4/30/01 $ 15,843 $ 15,091 $ 16,799
E5/31/01 $ 15,940 $ 15,183 $ 16,897
E6/30/01 $ 15,739 $ 14,991 $ 16,978
E7/31/01 $ 15,838 $ 15,086 $ 17,401
E8/31/01 $ 16,104 $ 15,339 $ 17,623
E9/30/01 $ 15,576 $ 14,836 $ 17,785
E10/31/01 $ 16,029 $ 15,268 $ 18,237
E11/30/01 $ 16,230 $ 15,459 $ 17,938
E12/31/01 $ 16,204 $ 15,434 $ 17,796
E1/31/02 $ 16,234 $ 15,463 $ 17,926
E2/28/02 $ 16,265 $ 15,493 $ 18,079
E3/31/02 $ 16,317 $ 15,542 $ 17,712
E4/30/02 $ 16,634 $ 15,844 $ 18,055
E5/31/02 $ 16,717 $ 15,923 $ 18,221
E6/30/02 $ 16,443 $ 15,662 $ 18,376
E7/31/02 $ 16,249 $ 15,477 $ 18,597
E8/31/02 $ 16,509 $ 15,725 $ 19,013
E9/30/02 $ 16,588 $ 15,800 $ 19,422
E10/31/02 $ 16,623 $ 15,833 $ 19,236
E11/30/02 $ 16,995 $ 16,188 $ 19,247
E12/31/02 $ 17,493 $ 16,662 $ 19,757
E1/31/03 $ 17,745 $ 16,902 $ 19,757
E2/28/03 $ 18,061 $ 17,203 $ 20,109
E3/31/03 $ 18,224 $ 17,358 $ 20,083
E4/30/03 $ 18,923 $ 18,025 $ 20,298
E5/31/03 $ 19,413 $ 18,491 $ 20,874
</Table>
MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT www.libertyfunds.com FOR
DAILY PERFORMANCE UPDATES.
Past performance is no guarantee of future investment results. The principal
value and investment returns will fluctuate, resulting in a gain or loss on
sale. The above illustration assumes a $10,000 investment made on May 31, 1993
and reinvestment of all income and capital gains. The Lehman Brothers
Government/Credit Bond Index is an unmanaged index that tracks the performance
of US government and US corporate bonds. Unlike mutual funds, indices are not
investments, do not incur fees or expenses, and are not professionally managed.
It is not possible to invest directly in an index. Securities in the fund may
not match those in an index.
AVERAGE ANNUAL TOTAL RETURN AS OF 5/31/03 (%)
<Table>
<Caption>
SHARE CLASS A B C J Z
INCEPTION 4/21/77 5/15/92 7/1/97 11/2/98 1/29/99
- --------------- ------------------------ ---------------------- ----------------------- ----------------------- -------------
WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES SALES SALES SALES SALES SALES
CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE
- --------------- ------------------------ ---------------------- ----------------------- ----------------------- -------------
5-month
(cumulative) 11.10 5.82 10.95 5.95 10.82 9.82 10.97 7.64 11.29
- --------------- ------------------------ ---------------------- ----------------------- ----------------------- -------------
1-year 16.26 10.74 15.39 10.39 15.56 14.56 15.89 12.42 16.23
- --------------- ------------------------ ---------------------- ----------------------- ----------------------- -------------
5-year 4.74 3.72 3.96 3.67 4.11 4.11 4.39 3.76 4.83
- --------------- ------------------------ ---------------------- ----------------------- ----------------------- -------------
10-year 6.86 6.34 6.06 6.06 6.48 6.48 6.68 6.36 6.91
- --------------- ------------------------ ---------------------- ----------------------- ----------------------- -------------
</Table>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/03 (%)
<Table>
<Caption>
SHARE CLASS A B C J Z
- --------------- ------------------------ ---------------------- ----------------------- ------------------------ ------------
WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES SALES SALES SALES SALES SALES
CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE CHARGE
- --------------- ------------------------ ---------------------- ----------------------- ------------------------ ------------
5-month
(cumulative) 9.63 4.42 9.10 4.10 9.35 8.35 9.49 6.20 9.40
- --------------- ------------------------ ---------------------- ----------------------- ------------------------ ------------
1-year 11.69 6.39 10.67 5.67 11.02 10.02 11.32 7.99 11.62
- --------------- ------------------------ ---------------------- ----------------------- ------------------------ ------------
5-year 3.58 2.58 2.77 2.49 2.96 2.96 3.25 2.62 3.66
- --------------- ------------------------ ---------------------- ----------------------- ------------------------ ------------
10-year 6.37 5.86 5.56 5.56 6.01 6.01 6.20 5.88 6.41
- --------------- ------------------------ ---------------------- ----------------------- ------------------------ ------------
</Table>
Past performance is no guarantee of future investment results. The principal
value and investment returns will fluctuate, resulting in a gain or loss on
sale. All results shown assume reinvestment of distributions. The graph and
table do not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. The "with sales charge" returns
include the maximum 4.75% charge for class A shares, and 3% for class J shares,
the appropriate class B contingent deferred sales charge for the holding period
after purchase as follows: through first year - 5%, second year - 4%, third year
- - 3%, fourth year - 3%, fifth year - 2%, sixth year - 1%, thereafter - 0%, and
the class C contingent deferred sales charge of 1% for the first year only.
Performance for different share classes will vary based on differences in sales
charges and the fees associated with each class.
Performance reflects any voluntary waivers or reimbursements of fund expenses by
the advisor or its affiliates. Absent these waivers or reimbursement
arrangements, performance would have been lower.
The share performance information for classes C, J and Z (newer class shares)
includes returns of the fund's class A shares (the oldest existing fund class)
for periods prior to the inception of the newer classes of shares. These class A
share returns are not restated to reflect any expense differential (e.g., Rule
12b-1 fees) between class A shares and the newer class shares. Had the expense
differential been reflected, the returns for periods prior to the inception of
class C and J shares would have been lower, and the returns for the class Z
shares would have been higher.
1
<Page>
SEC YIELDS ON 5/31/03 (%)
<Table>
CLASS A 5.21
CLASS B 4.72
CLASS C 4.87
CLASS J 4.88
CLASS Z 5.58
</Table>
The 30-day SEC yields reflect the portfolio's earning power net of expenses,
expressed as an annualized percentage of the public offering price per share. If
the advisor or its affiliates had not waived certain fund expenses, the SEC
yield for class C shares would have been 4.72%.
TOP 5 COUNTRIES AS OF 5/31/03 (%)
<Table>
USA 71.1
NEW ZEALAND 3.5
CANADA 3.2
SWEDEN 2.8
UNITED KINGDOM 2.6
</Table>
Holdings are calculated as a percentage of net assets. Because the fund is
actively managed, there is no guarantee the fund will continue to maintain these
holdings in the future.
NET ASSET VALUE PER SHARE as of 5/31/03 ($)
<Table>
Class A 6.09
Class B 6.09
Class C 6.09
Class J 6.08
Class Z 6.05
</Table>
DISTRIBUTIONS DECLARED PER SHARE
1/1/03 - 5/31/03 ($)
<Table>
Class A 0.16
Class B 0.14
Class C 0.14
Class J 0.15
Class Z 0.16
</Table>
PORTFOLIO MANAGER'S REPORT
Because the Board of Trustees approved changing the Liberty Strategic Income
Fund's fiscal year end from December to May, this report covers only a
five-month period. The next report you receive will be a semiannual report for
the period through November 2003.
For the five-month period ended May 31, 2003, the class A shares of Liberty
Strategic Income Fund returned 11.10% without sales charge. Fund performance was
better than its benchmark, the Lehman Brothers Government/Credit Bond Index,
which returned 5.65% for the period. The fund's allocation to high-yield bonds,
emerging-markets debt, non-US government bonds and non-US dollar currencies
accounted for its superior performance. The fund also outperformed its peers, as
indicated by the average return of 9.61% for the Lipper Multi-Sector Income
Funds Category.(1)
EQUITY-WARY INVESTORS SEEK HIGHER YIELDS
At the outset of the period, investors remained wary of equities as issues over
corporate governance and accounting scandals undermined confidence, and
corporate profits showed little growth. Uncertainty about the outcome of a
confrontation with Iraq also hung over the financial markets. But as the war
came to a relatively swift conclusion and as yields on US Treasuries reached a
40-year low, many investors were willing to take on additional risk in order to
get additional yield. Low interest rates and an accommodating attitude on the
part of banks also helped the environment for high-yield bonds. Emerging markets
debt benefited from the reduced uncertainty that followed the war with Iraq as
well as the low global interest rates. And the US dollar, long felt to be
overvalued against other world currencies, fell sharply.
We increased our exposure to high-yield bonds, which benefited performance. The
timing of our decision allowed us to participate significantly in the high-yield
rally that began in the fourth quarter of 2002. Our emerging-market debt also
performed well as investors looked outside the United States in search of
additional yield. Yields of non-US government bonds generally performed in line
with US Treasuries. However, as the value of the US dollar declined, the
non-US government bonds outperformed US Treasuries. The fund's exposure
- ----------
(1) Lipper Inc., a widely respected data provider in the industry, calculates
an average total return for mutual funds with similar investment objectives
as those of the fund.
2
<Page>
to bonds denominated in the Australian dollar, the New Zealand dollar, and the
euro all helped performance as the US dollar declined sharply against other
world currencies. At the end of the period, the fund's assets were divided
roughly as follows: 40% high-yield bonds, 26% US Treasuries and other US
government bonds and 34% non-US developed, emerging-markets debt and preferred
stock. We kept our currency exposure stable during the period.
LOOKING AHEAD
We expect to maintain our exposure to high-yield bonds around current levels as
we expect to see firmer economic growth in the second half of 2003. We are
unlikely to increase exposure beyond the current level because much of this view
is already priced into the market at current levels. Emerging market bonds
continue to offer value at current levels. Although the pace of current levels
outperformance should slow. We also believe that the pace of the US dollar's
decline versus other currencies will slow and we will take this into
consideration in managing our currency exposure going forward.
/s/ Laura A. Ostrander
Laura A. Ostrander is the portfolio manager of Liberty Strategic Income Fund and
a senior vice president of Columbia Management Advisors, Inc. Ms. Ostrander has
over 15 years experience in the money management business. Prior to joining a
predecessor of the firm in 1996, she was a global fixed-income portfolio manager
with American Express Financial Advisers in Minneapolis.
QUALITY BREAKDOWN AS OF 5/31/03 (%)
<Table>
AAA 47.6
AA 2.2
A 4.6
BBB 3.8
BB 13.4
B 21.9
CCC 6.9
CC 2.2
D 0.2
Non-rated 0.6
Equity, preferred stocks 0.6
Other net assets -4.0
</Table>
Quality breakdown is calculated as a percentage of net assets. Ratings shown in
the quality breakdown represent the highest rating assigned to a particular bond
by one of the following nationally-recognized rating agencies: Standard & Poor's
Corporation, Moody's Investors Service, Inc. or Fitch Investors Service, Inc.
The "Other" category represents the total of other assets and liabilities.
[CHART]
PORTFOLIO STRUCTURE AS OF 5/31/03 (%)
<Table>
Corporate bonds 40.10%
Foreign gov't notes/bonds 32.90%
US gov't notes/bonds 20.80%
US agencies 5.20%
Cash & equivalents 4.30%
Equity, preferred stocks 0.60%
Warrants 0.10%
Other -4.00%
</Table>
Portfolio structure is calculated as a percentage of net assets. The "Other"
category represents the total of other assets and liabilities. Because the fund
is actively managed, there can be no guarantee the fund will continue to
maintain these breakdowns and structure in the future.
Investing in high-yield securities offers the potential for high current income
and attractive total return, but involves certain risks. Lower-rated bond risks
include default of the issuer, rising interest rates and risk associated with
investing in securities of foreign and emerging markets, including currency
exchange rate fluctuations and economic and political change. Bond investing
also involves interest rate risk, which means that bond prices may change as
interest rates increase or decrease. Foreign investments involve market,
political, accounting and currency risks not associated with other investments.
Investing in emerging markets involves certain risks as they may be subject to a
greater degree of social, political, currency and economic instability.
3
<Page>
INVESTMENT PORTFOLIO
May 31, 2003
<Table>
<Caption>
BONDS & NOTES - 99.1% PAR VALUE
- --------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - 40.0%
CONSTRUCTION - 1.4%
BUILDING CONSTRUCTION - 1.4%
Associated Materials Inc.,
9.750% 04/15/12 $ 1,995,000 $ 2,164,575
Atrium Companies, Inc.,
10.500% 05/01/09 1,445,000 1,502,800
Congoleum Corp.,
8.625% 08/01/08 1,305,000 750,375
D.R. Horton, Inc.,
9.750% 09/15/10 6,355,000 7,022,275
K. Hovnanian
Enterprises, Inc.:
8.875% 04/01/12 1,270,000 1,358,900
10.500% 10/01/07 2,420,000 2,807,200
Standard Pacific Corp.,
9.250% 04/15/12 2,470,000 2,630,550
William Lyon Homes, Inc.,
10.750% 04/01/13 1,245,000 1,288,575
---------------
19,525,250
---------------
CONSUMER STAPLES - 0.3%
HOUSEHOLD PRODUCTS - 0.3%
Armkel LLC,
9.500% 08/15/09 1,150,000 1,288,000
Playtex Products, Inc.,
9.375% 06/01/11 2,950,000 3,156,500
---------------
4,444,500
---------------
FINANCE, INSURANCE & REAL ESTATE - 0.8%
FINANCIAL SERVICES - 0.3%
MDP Acquisitions PLC,
9.625% 10/01/12 3,300,000 3,514,500
Orion Power Holdings, Inc.,
12.000% 05/01/10 700,000 757,750
---------------
4,272,250
---------------
INSURANCE AGENTS & BROKERS - 0.2%
Willis Corroon Corp.,
9.000% 02/01/09 1,855,000 1,984,850
---------------
REAL ESTATE - 0.3%
Forest City Enterprises, Inc.,
7.625% 06/01/15 1,020,000 1,040,400
iStar Financial, Inc.,
8.750% 08/15/08 1,330,000 1,429,750
Thornburg Mortgage, Inc.,
8.000% 05/15/13 1,545,000 1,545,000
---------------
4,015,150
---------------
MANUFACTURING - 10.6%
APPAREL - 0.2%
Levi Strauss & Co.,
12.250% 12/15/12 (a) $ 1,300,000 $ 1,079,000
William Carter Co.,
10.875% 08/15/11 1,400,000 1,582,000
---------------
2,661,000
---------------
AUTO PARTS & EQUIPMENT - 0.2%
Rexnord Corp.,
10.125% 12/15/12 (a) 850,000 935,000
TRW Automotive, Inc.
11.000% 02/15/13 (a) 2,020,000 2,100,800
---------------
3,035,800
---------------
CHEMICALS & ALLIED PRODUCTS - 2.2%
Avecia Group PLC,
11.000% 07/01/09 2,375,000 2,185,000
Equistar Chemical Funding LP,
10.125% 09/01/08 1,285,000 1,304,275
FMC Corp.,
10.250% 11/01/09 2,700,000 3,057,750
Huntsman ICI
Holdings LLC,
(b) 12/31/09 26,310,000 10,524,000
Lyondell Chemical Co.,
9.625% 05/01/07 4,230,000 4,177,125
MacDermid, Inc.,
9.125% 07/15/11 2,600,000 2,873,000
Polyone Corp
10.625% 05/15/10 (a) 1,610,000 1,577,800
Terra Capital, Inc.,
12.875% 10/15/08 3,825,000 4,207,500
Texas Petrochemical Corp.,
11.125% 07/01/06 3,015,000 1,025,100
---------------
30,931,550
---------------
ELECTRONIC & ELECTRICAL EQUIPMENT - 1.0%
Amkor Technology, Inc.:
7.750% 05/15/13 (a) 795,000 755,250
9.250% 02/15/08 1,800,000 1,881,000
10.500% 05/01/09 1,700,000 1,691,500
Condor Systems, Inc.,
11.875% 05/01/09 (d) 4,000,000 880,000
Flextronics International Ltd.,
9.875% 07/01/10 3,670,000 4,037,000
TransDigm, Inc.,
10.375% 12/01/08 4,150,000 4,367,875
---------------
13,612,625
---------------
FABRICATED METAL - 0.2%
Earle M. Jorgensen & Co.,
9.750% 06/01/12 2,800,000 2,926,000
---------------
</Table>
See notes to investment portfolio.
4
<Page>
<Table>
<Caption>
BONDS & NOTES (CONTINUED) PAR VALUE
- --------------------------------------------------------------------------------------
FOOD & KINDRED PRODUCTS - 1.1%
Del Monte Corp.,
9.250% 05/15/11 $ 1,600,000 $ 1,740,000
Dole Food Co., Inc.,
8.625% 05/01/09 2,485,000 2,634,100
Michael Foods, Inc.,
11.750% 04/01/11 1,250,000 1,421,875
Premier International
Foods PLC,
12.000% 09/01/09 5,600,000 6,160,000
Smithfield Foods, Inc.,
8.000% 10/15/09 2,835,000 2,912,963
---------------
14,868,938
---------------
FURNITURE & FIXTURES - 0.2%
Juno Lighting, Inc.,
11.875% 07/01/09 1,920,000 2,035,200
Simmons Co.,
10.250% 03/15/09 280,000 299,600
---------------
2,334,800
---------------
MACHINERY & COMPUTER EQUIPMENT - 0.1%
Cummins, Inc.,
9.500% 12/01/10 1,785,000 1,936,725
---------------
MEASURING & ANALYZING INSTRUMENTS - 0.1%
Fisher Scientific
International, Inc.,
8.125% 05/01/12 1,000,000 1,072,500
---------------
MISCELLANEOUS MANUFACTURING - 2.4%
Actuant Corp.,
13.000% 05/01/09 2,340,000 2,737,800
Agco Corp.,
9.500% 05/01/08 2,430,000 2,648,700
Amscan Holdings, Inc.,
9.875% 12/15/07 2,750,000 2,750,000
Applied Extrusion
Technologies, Inc.,
10.750% 07/01/11 2,325,000 1,767,000
Crown European
Holdings SA, (a)
10.875% 03/01/13 1,800,000 1,899,000
Flowserve Corp.,
12.250% 08/15/10 2,389,000 2,747,350
Hexcel Corp.:
9.750% 01/15/09 1,305,000 1,262,587
9.875% 10/01/08 (a) 380,000 404,700
Koppers Industries, Inc.,
9.875% 12/01/07 3,085,000 3,146,700
Newcor, Inc.,
6.000% 01/31/13 (f) 847,510 367,997
Owens-Illinois, Inc.:
7.150% 05/15/05 $ 925,000 $ 925,000
7.350% 05/15/08 1,950,000 1,901,250
8.100% 05/15/07 1,000,000 1,000,000
SPX Corp.,
7.500% 01/01/13 1,575,000 1,685,250
Tekni-Plex, Inc.,
12.750% 06/15/10 6,190,000 6,050,725
Terex Corp., Series 2001 B,
10.375% 04/01/11 2,000,000 2,130,000
---------------
33,424,059
---------------
PAPER PRODUCTS - 0.9%
Georgia-Pacific Corp
8.875% 02/01/10 1,900,000 1,980,750
Norske Skog Canada Ltd.,
8.625% 06/15/11 (a) 850,000 875,500
Riverwood International Corp.,
10.875% 04/01/08 6,760,000 6,954,350
Smurfit-Stone Container, Corp.,
8.250% 10/01/12 1,600,000 1,680,000
Tembec Industries, Inc.,
8.500% 02/01/11 1,400,000 1,379,000
---------------
12,869,600
---------------
POLLUTION CONTROL - 0.0%
EnviroSource, Inc.,
14.000% 12/15/08 526,803 474,123
---------------
PRIMARY METAL - 0.4%
Bayou Steel Corp.,
9.500% 05/15/08 (c) 3,000,000 555,000
Kaiser Aluminum &
Chemical Corp.,
10.875% 10/15/06 (d) 4,715,000 3,159,050
Metallurg, Inc.,
11.000% 12/01/07 2,200,000 1,320,000
WCI Steel, Inc.,
10.000% 12/01/04 (c) 3,915,000 978,750
Wheeling-Pittsburgh Corp.,
9.250% 11/15/07 (d) 8,500,000 42,500
---------------
6,055,300
---------------
PRINTING & PUBLISHING - 1.4%
American Greetings Corp.,
11.750% 07/15/08 1,575,000 1,779,750
Dex Media East LLC,
12.125% 11/15/12 3,580,000 4,206,500
Hollinger, Inc.,
11.875% 03/01/11 (a) 1,780,000 1,860,100
Primedia, Inc.,
8.875% 05/15/11 3,600,000 3,744,000
Von Hoffman Corp.,
10.250% 03/15/09 3,200,000 3,328,000
</Table>
See notes to investment portfolio.
5
<Page>
<Table>
<Caption>
BONDS & NOTES (CONTINUED) PAR VALUE
- --------------------------------------------------------------------------------------
PRINTING & PUBLISHING (CONTINUED)
Yell Finance BV,
10.750% 08/01/11 $ 4,400,000 $ 4,906,000
---------------
19,824,350
---------------
STONE, CLAY, GLASS & CONCRETE - 0.0%
Owens-Brockway Glass
Container
8.250% 05/15/13 (a) 340,000 341,700
---------------
TEXTILE MILL PRODUCTS - 0.1%
Collins & Aikman Floor
Covering, Inc.,
9.750% 02/15/10 1,400,000 1,428,000
---------------
TRANSPORTATION EQUIPMENT - 0.1%
Sequa Corp.,
8.875% 04/01/08 1,160,000 1,218,000
Teekay Shipping Corp.,
8.875% 07/15/11 700,000 749,000
---------------
1,967,000
---------------
MINING & ENERGY - 5.4%
METAL MINING - 0.3%
TriMas Corp.,
9.875% 06/15/12 (a) 1,310,000 1,336,200
9.875% 06/15/12 2,115,000 2,157,300
---------------
3,493,500
---------------
OIL & GAS EXTRACTION - 4.9%
Benton Oil & Gas Co.,
9.375% 11/01/07 2,445,000 2,102,700
Chesapeake Energy Corp.:
7.750% 01/15/15 1,800,000 1,890,000
8.125% 04/01/11 770,000 820,050
Coastal Corp.,
7.750% 06/15/10 3,550,000 3,124,000
Compton Petroleum Corp.,
9.900% 05/15/09 2,200,000 2,387,000
Denbury Resources, Inc.,
7.500% 04/01/13 (a) 1,000,000 1,030,000
Dynegy Holdings Inc.,
8.750% 02/15/12 1,895,000 1,667,600
El Paso Corp.:
7.750% 06/01/13 1,950,000 1,945,125
8.500% 06/01/10 1,050,000 1,118,250
8.500% 06/01/11 625,000 665,625
Encore Acquisition Co.,
8.375% 06/15/12 1,885,000 1,998,100
Forest Oil Corp.,
8.000% 06/15/08 2,405,000 2,537,275
Magnum Hunter
Resources, Inc.,
9.600% 03/15/12 2,100,000 2,289,000
Mariner Energy, Inc.,
10.500% 08/01/06 2,610,000 2,616,525
Northwest Pipeline Corp
8.125% 03/01/10 $ 760,000 $ 836,220
PDVSA Finance Ltd.:
6.250% 02/15/06 EUR 4,105,500 4,056,613
6.650% 02/15/06 $ 2,550,000 2,397,000
Pemex Project Funding
Master Trust:
7.375% 12/15/14 (a) 2,520,000 2,790,900
9.125% 10/13/10 8,865,000 10,815,300
Pioneer Natural Resources, Co.,
7.500% 04/15/12 220,000 246,400
Pogo Producing Co.,
8.250% 04/15/11 5,350,000 5,885,000
Premcor Refining Group:
9.250% 02/01/10 950,000 1,045,000
9.500% 02/01/13 1,200,000 1,338,000
Sonat, Inc.,
7.625% 07/15/11 1,310,000 1,120,050
Southern Natural Gas Co.,
8.875% 03/15/10 1,335,000 1,448,475
Stone Energy Corp.,
8.250% 12/15/11 1,475,000 1,578,250
Tesoro Petroleum Corp.,
8.000% 04/15/08 670,000 670,000
TransTexas Gas Corp.,
15.000% 03/15/05 (c) 465,296 139,589
Williams Companies, Inc.,
8.125% 03/15/12 4,125,000 4,083,750
XTO Energy, Inc.,
7.500% 04/15/12 2,800,000 3,094,000
---------------
67,735,797
---------------
OIL & GAS FIELD SERVICES - 0.2%
Frontier Escrow Corp.,
8.000% 04/15/13 (a) 535,000 551,050
Newpark Resources, Inc.,
8.625% 12/15/07 1,860,000 1,860,000
---------------
2,411,050
---------------
RETAIL TRADE - 1.3%
FOOD & KINDRED PRODUCTS - 0.3%
Constellation Brands,
8.125% 01/15/12 1,175,000 1,230,812
Roundy's, Inc.,
8.875% 06/15/12 2,615,000 2,745,750
---------------
3,976,562
---------------
MISCELLANEOUS RETAIL - 0.8%
Gap, Inc.,
8.800% 12/15/08 1,725,000 2,087,250
JC Penney Co., Inc.,
8.000% 03/01/10 2,580,000 2,631,600
</Table>
See notes to investment portfolio.
6
<Page>
<Table>
<Caption>
BONDS & NOTES (CONTINUED) PAR VALUE
- --------------------------------------------------------------------------------------
MISCELLANEOUS RETAIL (CONTINUED)
Rite Aid Corp.:
8.125% 05/01/10 (a) $ 875,000 $ 892,500
9.250% 06/01/13 (a) 2,680,000 2,592,900
Saks, Inc.,
8.250% 11/15/08 670,000 710,200
Steinway Musical
Instruments, Inc.,
8.750% 04/15/11 2,600,000 2,535,000
---------------
11,449,450
---------------
RESTAURANTS - 0.2%
Yum! Brands, Inc.,
7.700% 07/01/12 1,925,000 2,151,188
---------------
SERVICES - 8.0%
AMUSEMENT & RECREATION - 3.5%
Ameristar Casinos, Inc.,
10.750% 02/15/09 2,650,000 2,941,500
Argosy Gaming Co.,
10.750% 06/01/09 2,955,000 3,220,950
Boyd Gaming Corp.,
8.750% 04/15/12 780,000 834,600
Circus & Eldorado/Silver
Legacy Capital Corp.,
10.125% 03/01/12 2,855,000 2,722,956
Coast Hotels & Casinos, Inc.,
9.500% 04/01/09 3,050,000 3,233,000
Corus Entertainment Inc.,
8.750% 03/01/12 1,275,000 1,354,687
Hollywood Casino Shreveport,
13.000% 08/01/06 4,230,000 3,045,600
Hollywood
Entertainment Corp.,
9.625% 03/15/11 2,225,000 2,369,625
Majestic Investor
Holdings,
11.653% 11/30/07 1,550,000 1,534,500
Mohegan Tribal
Gaming Authority:
8.000% 04/01/12 3,500,000 3,692,500
8.375% 07/01/11 1,285,000 1,365,313
Park Place
Entertainment Corp.,
9.375% 02/15/07 2,690,000 2,918,650
Penn National Gaming, Inc.,
11.125% 03/01/08 2,850,000 3,135,000
Pinnacle Entertainment, Inc.,
9.250% 02/15/07 (a) 5,575,000 5,386,844
Regal Cinemas, Inc.,
9.375% 02/01/12 3,380,000 3,658,850
Six Flags, Inc.,
9.500% 02/01/09 3,960,000 3,950,100
Town Sports International, Inc.,
9.625% 04/15/11 (a) $ 1,075,000 $ 1,115,313
Venetian Casino Resort LLC,
11.000% 06/15/10 (a) 1,975,000 2,157,688
---------------
48,637,676
---------------
AUTO EQUIPMENT & RENTAL SERVICES - 1.0%
Accuride Corp.,
9.250% 02/01/08 675,000 604,125
Collins & Aikman Products Co.,
10.750% 12/31/11 2,685,000 2,322,525
Dana Corp.:
9.000% 08/15/11 1,375,000 1,433,437
10.125% 03/15/10 1,190,000 1,288,175
Dura Operating Corp.,
8.625% 04/15/12 2,170,000 2,164,575
Lear Corp.,
8.110% 05/15/09 3,350,000 3,760,375
United Rentals, Inc.,
10.750% 04/15/08 1,640,000 1,746,600
---------------
13,319,812
---------------
BUSINESS SERVICES - 0.2%
Iron Mountain, Inc.,
7.750% 01/15/15 1,225,000 1,307,688
Moore North America,
7.875% 01/15/11 995,000 1,044,750
---------------
2,352,438
---------------
FUNERAL SERVICES - 0.5%
Service Corp. International,
7.700% 04/15/09 3,860,000 3,917,900
Stewart Enterprises, Inc.,
10.750% 07/01/08 2,695,000 3,004,925
---------------
6,922,825
---------------
HEALTH SERVICES - 2.2%
AmerisourceBergen Corp.:
7.250% 11/15/12 (a) 1,390,000 1,501,200
8.125% 09/01/08 2,500,000 2,743,750
Coventry Health Care, Inc.,
8.125% 02/15/12 2,550,000 2,754,000
HCA, Inc.,
8.750% 09/01/10 3,500,000 4,212,075
IASIS Healthcare Corp.,
13.000% 10/15/09 1,655,000 1,837,050
Insight Health Services Corp.,
9.875% 11/01/11 2,160,000 2,106,000
Magellan Health Services, Inc.,
9.375% 11/15/07 (a) (d) 2,550,000 2,460,750
MedQuest, Inc.,
11.875% 08/15/12 (a) 3,000,000 2,925,000
</Table>
See notes to investment portfolio.
7
<Page>
<Table>
<Caption>
BONDS & NOTES (CONTINUED) PAR VALUE
- --------------------------------------------------------------------------------------
HEALTH SERVICES (CONTINUED)
Pacificare Health Systems, Inc.,
10.750% 06/01/09 $ 3,140,000 $ 3,454,000
Tenet Healthcare Corp.,
6.375% 12/01/11 3,930,000 3,812,100
United Surgical Partners
International, Inc.,
10.000% 12/15/11 2,235,000 2,413,800
---------------
30,219,725
---------------
HOTELS, CAMPS & LODGING - 0.6%
Hard Rock Hotel, Inc.,
8.875% 06/01/13 (a) 865,000 888,787
Host Marriott LP,
9.500% 01/15/07 2,100,000 2,223,375
Royal Caribbean Cruises Ltd.,
8.000% 05/15/10 780,000 780,000
Starwood Hotels & Resorts
Worldwide, Inc.,
7.875% 05/01/12 (a) 3,750,000 3,975,000
---------------
7,867,162
---------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 12.2%
AEROSPACE - 0.3%
BE Aerospace, Inc.,
8.875% 05/01/11 2,000,000 1,460,000
L-3 Communications Corp.,
7.625% 06/15/12 2,700,000 2,936,250
---------------
4,396,250
---------------
AIR TRANSPORTATION - 0.5%
Northwest Airlines, Inc.,
9.875% 03/15/07 2,485,000 1,888,600
Petroleum Helicopters, Inc.,
9.375% 05/01/09 2,710,000 2,981,000
U.S. Airways, Inc.,
10.375% 03/01/13 (c) 9,400,000 2,350,000
---------------
7,219,600
---------------
BROADCASTING - 1.5%
Advanstar
Communications, Inc.,
12.000% 02/15/11 3,395,000 3,059,744
Canwest Media, Inc.,
10.625% 05/15/11 3,690,000 4,169,700
Emmis Communications Corp.,
(e) 03/15/11
(12.500% 03/15/06) 3,613,000 3,089,115
Quebecor Media, Inc.,
11.125% 07/15/11 4,000,000 4,440,000
Sinclair Broadcast Group, Inc.,
8.750% 12/15/11 960,000 1,039,200
TV Azteca SA de CV,
10.500% 02/15/07 4,505,000 4,414,900
---------------
20,212,659
---------------
CABLE - 1.9%
Charter Communications
Holding LLC:
(e) 04/01/11
(9.920% 04/01/04) $ 10,185,000 $ 6,314,700
10.000% 04/01/09 1,925,000 1,386,000
Comcast UK Cable
Partners Ltd.,
11.200% 11/15/07 5,140,000 4,677,400
CSC Holdings, Inc.,
7.625% 04/01/11 1,885,000 1,922,700
DirecTV Holdings
Finance LLC,
8.375% 03/15/13 (a) 1,800,000 1,989,000
EchoStar DBS Corp.,
9.125% 01/15/09 2,595,000 2,886,937
Insight Communications, Inc.,
(e) 02/15/11
(12.250% 02/15/06) 3,340,000 2,571,800
Northland Cable
Television, Inc.,
10.250% 11/15/07 4,780,000 4,421,500
---------------
26,170,037
---------------
COMMUNICATIONS - 0.5%
American Tower Escrow Corp.,
(b) 08/01/08 (a) 660,000 417,450
Level 3 Communications,
(e) 12/01/08
(10.500% 12/01/03) 3,820,000 2,807,700
Vivendi Universal,
9.250% 04/15/10 (a) 1,605,000 1,822,140
XM Satellite Radio, Inc.,
(e) 12/31/09
(14.000% 12/31/05) 2,843,285 2,054,273
---------------
7,101,563
---------------
COMMUNICATIONS SERVICES - 0.8%
Colt Telecom Group PLC,
(e) 12/15/06
(12.000% 07/03/03) 2,290,000 2,129,786
Crown Castle
International Corp.:
(e) 05/15/11
(10.375% 05/01/04) 1,850,000 1,655,750
10.750% 08/01/11 1,200,000 1,245,000
Fairpoint Communications,
11.875% 03/01/10 1,100,000 1,254,000
Lucent Technologies, Inc.,
6.450% 03/15/29 2,100,000 1,470,000
7.250% 07/15/06 1,430,000 1,358,500
SBA Communications Corp.,
10.250% 02/01/09 2,710,000 2,276,400
---------------
11,389,436
---------------
</Table>
See notes to investment portfolio.
8
<Page>
<Table>
<Caption>
BONDS & NOTES (CONTINUED) PAR VALUE
- --------------------------------------------------------------------------------------
ELECTRIC, GAS & SANITARY SERVICES - 1.2%
Allied Waste North America, Inc.,
Series 1999 B
10.000% 08/01/09 $ 9,175,000 $ 9,633,750
Series 2001 B
8.500% 12/01/08 3,400,000 3,595,500
HydroChem Industrial
Services, Inc.,
10.375% 08/01/07 5,120,000 3,840,000
---------------
17,069,250
---------------
ELECTRIC SERVICES - 2.1%
AES Corp.:
9.000% 05/15/15 (a) 1,335,000 1,361,700
9.500% 06/01/09 4,071,000 3,867,450
Beaver Valley Funding Corp.,
9.000% 06/01/17 2,260,000 2,737,312
Caithness Coso Funding Corp.,
9.050% 12/15/09 3,016,481 3,144,681
Calpine Corp.:
8.500% 02/15/11 3,795,000 2,580,600
8.625% 08/15/10 1,520,000 1,026,000
CMS Energy Corp.,
8.900% 07/15/08 2,340,000 2,328,300
Edison Mission Energy,
9.875% 04/15/11 1,850,000 1,581,750
Illinova Power Co.,
11.500% 12/15/10 (a) 850,000 952,000
Mirant Americas
Generation, Inc.,
8.300% 05/01/11 2,845,000 1,806,575
Mission Energy Holdings Co.,
13.500% 07/15/08 (f) 740,000 481,000
Nevada Power Co.,
10.875% 10/15/09 (a) 2,025,000 2,237,625
PSE&G Energy Holdings, Inc.,
8.625% 02/15/08 2,495,000 2,694,600
UCAR Finance, Inc.,
10.250% 02/15/12 2,200,000 2,101,000
---------------
28,900,593
---------------
MARINE SERVICES - 0.2%
Stena AB,
9.625% 12/01/12 (a) 1,650,000 1,806,750
Trico Marine Services, Inc.,
8.875% 05/15/12 1,625,000 1,430,000
---------------
3,236,750
---------------
MOTOR FREIGHT & WAREHOUSING - 0.2%
Allied Holdings, Inc.,
8.625% 10/01/07 1,410,000 1,085,700
QDI LLC:
12.000% 06/15/09 PIK (a) 922,056 137,156
12.500% 06/15/08 3,877,000 1,545,954
---------------
2,768,810
---------------
RADIO & TELEPHONE COMMUNICATIONS - 1.4%
AirGate PCS, Inc.,
(e) 10/01/09
(13.500% 10/01/04) $ 2,300,000 $ 1,058,000
Avaya, Inc.,
11.125% 04/01/09 1,395,000 1,525,781
Horizon PCS, Inc.,
13.750% 06/15/11 2,975,000 357,000
Nextel Communications, Inc.:
9.375% 11/15/09 4,235,000 4,515,569
9.750% 10/31/07 1,230,000 1,263,825
Nextel Partners, Inc.,
11.000% 03/15/10 1,425,000 1,531,875
Nortel Networks Ltd.,
6.125% 02/15/06 3,085,000 2,992,450
Rogers Cantel, Inc.,
9.750% 06/01/16 4,225,000 4,753,125
US Unwired, Inc.,
(e) 11/01/09
(13.375% 11/01/04) 5,535,000 2,047,950
---------------
20,045,575
---------------
RAILROAD - 0.3%
Kansas City Southern,
7.500% 06/15/09 1,410,000 1,424,100
TFM SA de CV,
12.500% 06/15/12 (a) 2,210,000 2,353,650
---------------
3,777,750
---------------
TELECOMMUNICATIONS - 1.3%
AT&T Wireless Services, Inc.,
7.875% 03/01/11 1,285,000 1,528,559
Carrier1 International SA,
13.250% 02/15/09 (d) 6,000,000 180,000
Insight Midwest,
9.750% 10/01/09 (a) 2,080,000 2,184,000
Qwest Corp.:
8.875% 03/15/12 (a) 2,575,000 2,896,875
13.500% 12/15/10 3,100,000 3,534,000
Spectrasite, Inc.,
8.250% 05/15/10 (a) 880,000 877,800
Time Warner Telecom LLC:
9.750% 07/15/08 3,300,000 2,970,000
10.125% 02/01/11 2,300,000 2,070,000
Triton PCS, Inc.,
8.750% 11/15/11 1,220,000 1,146,800
---------------
17,388,034
---------------
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES
(cost of $560,399,061) 554,219,562
---------------
</Table>
See notes to investment portfolio.
9
<Page>
<Table>
<Caption>
BONDS & NOTES (CONTINUED) PAR VALUE
- --------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES &
OBLIGATIONS - 26.0%
FEDERAL HOME LOAN MORTGAGE CORP:
7.500% 03/01/16 $ 22,980 $ 24,018
8.000% 04/01/06-05/01/16 174,380 183,820
8.500% 02/01/07-07/01/10 162,269 172,679
8.750% 05/01/05-07/01/08 33,309 35,344
9.000% 09/01/04-01/01/22 196,492 215,501
9.250% 08/01/08-05/01/16 140,225 153,749
9.500% 11/01/08-08/01/16 160,546 174,200
9.750% 12/01/08-09/01/16 22,451 25,093
10.000% 07/01/09-11/01/19 218,615 245,276
10.500% 11/01/11-10/01/24 109,821 127,502
10.750% 05/01/10-09/01/13 267,619 304,754
11.250% 10/01/10-11/01/15 185,260 214,083
---------------
1,876,019
---------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION:
6.500% TBA (g) 60,590,000 63,146,171
7.500% 11/01/03-11/01/11 96,294 99,809
8.000% 07/01/08-07/01/09 104,715 109,982
8.250% 11/01/07 42,091 44,079
8.500% 05/01/08-09/01/21 300,662 321,043
9.000% 11/01/08-08/01/21 785,909 861,484
9.250% 05/01/16 102,203 113,476
10.000% 11/01/13-03/01/16 371,963 428,891
10.500% 09/01/07-03/01/16 357,264 409,962
---------------
65,534,897
---------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION:
8.500% 02/15/06 6,807 7,252
9.000% 08/15/08-12/15/17 2,470,906 2,745,630
9.500% 06/15/09-11/15/17 1,130,138 1,255,199
10.000% 06/15/04-09/15/21 290,197 332,634
10.500% 12/15/10-04/15/21 85,046 98,896
11.000% 12/15/09-12/15/15 426,199 496,810
11.750% 08/15/13 9,586 11,259
12.000% 05/15/14 839 995
---------------
4,948,675
---------------
U.S. TREASURY NOTES/BONDS:
7.500% 11/15/24 12,000,000 17,220,937
8.875% 02/15/19 14,000,000 21,819,770
10.375% 11/15/12 62,000,000 83,482,008
10.625% 08/15/15 29,415,000 49,567,717
11.625% 11/15/04 23,600,000 27,126,170
12.000% 08/15/13 60,248,000 88,524,555
---------------
287,741,157
---------------
TOTAL U.S. GOVERNMENT
AGENCIES & OBLIGATIONS
(cost of $354,750,620) 360,100,748
---------------
FOREIGN GOVERNMENT OBLIGATIONS - 32.9%
European Investment Bank,
7.625% 12/07/07 GBP 5,110,000 $ 9,651,716
Government of Australia:
6.250% 04/15/15 AUD 16,075,000 11,523,379
7.500% 08/15/08 28,200,000 20,652,245
Government of Canada:
5.500% 06/01/10 CAD 9,245,000 7,287,065
10.000% 06/01/08 24,110,000 22,513,633
Government of New Zealand:
6.000% 11/15/11 NZD 53,110,000 31,997,067
6.500% 04/15/13 27,600,000 17,259,959
Government of Sweden:
5.500% 10/08/12 SEK 108,600,000 15,361,801
6.750% 05/05/14 136,800,000 21,278,629
Republic of France:
5.000% 10/25/16 EUR 8,060,000 10,315,829
5.500% 10/25/10 3,465,000 4,628,207
Kingdom of Norway:
6.000% 05/16/11 NOK 129,800,000 21,117,915
6.750% 01/15/07 84,360,000 13,693,256
Ministry Finance Russia,
12.750% 06/24/28 USD 3,730,000 6,316,755
Poland Government Bond,
8.500% 05/12/07 PLN 44,615,000 13,478,027
Republic of Brazil:
11.000% 08/17/40 USD 5,270,000 4,887,925
11.500% 04/02/09 8,500,000 9,963,558
14.500% 10/15/09 8,200,000 9,409,500
Republic of Bulgaria,
7.500% 01/15/13 11,100,000 14,512,782
Republic of Colombia:
9.750% 04/09/11 7,553,030 8,519,818
10.000% 01/23/12 5,523,000 6,158,145
Republic of Germany,
5.375% 01/04/10 EUR 8,110,000 10,708,078
Republic of Greece:
5.350% 05/18/11 GRD 10,000,000 13,160,766
8.600% 03/26/08 3,492,296 5,131,585
Republic of Hungary,
8.500% 10/12/05 HUF 2,611,700 12,900,641
Republic of Italy,
5.250% 08/01/11 EUR 22,800,000 29,988,497
Republic of Peru,
9.875% 02/06/15 USD 4,100,000 4,694,500
Republic of South Africa:
5.250% 05/16/13 EUR 4,950,000 5,808,712
13.000% 08/31/10 ZAR 128,625,000 18,920,769
Republic of Venezuela,
9.250% 09/15/27 USD 9,945,000 7,110,675
</Table>
See notes to investment portfolio.
10
<Page>
<Table>
<Caption>
BONDS & NOTES (CONTINUED) PAR VALUE
- --------------------------------------------------------------------------------------
Russian Federation:
5.000% 03/31/30 USD 17,610,000 $ 17,257,800
11.000% 07/24/18 5,752,000 8,282,880
United Kingdom Treasury,
5.000% 03/07/12 GBP 4,840,000 8,470,571
9.000% 07/12/11 4,750,000 10,455,644
United Mexican States:
7.500% 03/08/10 EUR 3,740,000 4,993,277
8.300% 08/15/31 USD 3,560,000 4,213,260
11.375% 09/15/16 8,920,000 13,067,800
---------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(cost of $388,484,272) 455,692,666
---------------
TOTAL BONDS & NOTES
(cost of $1,303,633,953) 1,370,012,976
---------------
<Caption>
PREFERRED STOCKS - 0.6% SHARES
- -------------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.1%
FINANCIAL SERVICES - 0.1%
Sinclair Capital,
11.625% 9,000 951,750
---------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 0.5%
CABLE - 0.4%
CSC Holdings Ltd., PIK:
11.125% 30,244 3,152,937
11.750% 23,529 2,470,545
---------------
5,623,482
---------------
COMMUNICATIONS - 0.1%
Dobson Communication Corp.,
12.250% PIK 2,093 1,904,630
---------------
POLLUTION CONTROL - 0.0%
EnviroSource, Inc.,
7.250% 1,787 82,731
---------------
TELECOMMUNICATIONS - 0.0%
NTL Europe, Inc., Series A,
10.000% 52 161
XO Communications, Inc.,
13.500% PIK 3,169 4
---------------
165
---------------
TOTAL PREFERRED STOCKS
(cost of $11,833,339) 8,562,758
---------------
<Caption>
COMMON STOCKS - 0.1% SHARES VALUE
- --------------------------------------------------------------------------------------
MINING & ENERGY - 0.0%
OIL & GAS EXTRACTION - 0.0%
Forest Oil Corp. 8,215 $ 200,692
Orion Refining Corp. (a)(h)(i) 10 --
---------------
200,692
---------------
SERVICES - 0.0%
HEALTH SERVICES - 0.0%
Kuala Healthcare Affiliates, Inc. 176,666 177
---------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 0.1%
COMMUNICATIONS - 0.1%
NTL, Inc. (h) 31,451 857,040
Ono Finance PLC (a)(h) 8,000 8
Song Networks
Holding AB, ADR (f)(g) 28,100 562
Telus Corp 1 15
---------------
857,625
---------------
POLLUTION CONTROL - 0.0%
EnviroSource, Inc. (h) 15,400 3,542
Fairlane Management Corp. (f)(i) 15,400 --
---------------
3,542
---------------
TELECOMMUNICATIONS - 0.0%
Adelphia Business Solutions, Inc.,
Class B (h) 19,695 433
Nextel Communications, Inc.,
Class A (h) 18,590 278,664
---------------
279,097
---------------
TOTAL COMMON STOCKS
(cost of $8,368,799) 1,341,133
---------------
</Table>
See notes to investment portfolio.
11
<Page>
<Table>
<Caption>
WARRANTS (h) - 0.1% UNITS VALUE
- --------------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.0%
DEPOSITORY INSTITUTIONS - 0.0%
KMC Telecom Holdings, Inc.,
Expires 04/15/08 (a) 2,000 $ 20
---------------
RETAIL TRADE - 0.0%
FOOD STORES - 0.0%
Pathmark Stores, Inc.,
Expires 09/19/10 32,317 36,195
---------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 0.1%
CABLE - 0.0%
Cable Satisfaction International, Inc.,
Expires 03/01/05 6,080 61
Ono Finance PLC,
Expires 02/15/11 (a) 2,050 20
---------------
81
---------------
COMMUNICATIONS - 0.1%
Splitrock Services, Inc.,
Expires 07/15/08 2,000 20,250
UbiquiTel, Inc.,
Expires 04/15/10 (a) 4,300 43
XM Satellite Radio Holdings, Inc.,
Expires 12/31/09 2,205 1,549,013
Expires 03/15/10 (a) 2,000 200
---------------
1,569,506
---------------
COMMUNICATION SERVICES - 0.0%
IPCS, Inc.,
Expires 07/15/10 (a) 2,500 625
---------------
MOTOR FREIGHT & WAREHOUSING - 0.0%
QDI LLC,
Expires 01/15/07 (a) 11,840 --
---------------
TELECOMMUNICATIONS - 0.0%
Carrier1 International SA,
Expires 02/19/09 (a) (d) 2,780 28
Horizon PCS, Inc.,
Expires 10/01/10 (a) 3,875 4
Jazztel PLC,
Expires 02/01/10 (a) 1,250 --
MetroNet Communications Corp.,
Expires 08/15/07 (a)(f) 1,250 --
---------------
32
---------------
TOTAL WARRANTS
(cost of $3,417,820) 1,606,459
---------------
<Caption>
SHORT-TERM OBLIGATION - 4.3% PAR VALUE
- --------------------------------------------------------------------------------------
Repurchase agreement with
State Street Bank & Trust Co.,
dated 05/31/03, due
06/02/03 at 1.190%,
collateralized by U.S.
Treasury Bonds with various
maturities to 05/15/30,
market value $60,275,094
(repurchase proceeds
$59,092,859)
(cost of $59,087,000) $ 59,087,000 $ 59,087,000
---------------
TOTAL INVESTMENTS - 104.0%
(cost of $1,386,340,911) (j) 1,440,610,326
---------------
OTHER ASSETS & LIABILITIES, NET - (4.0)% (56,029,989)
- --------------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 1,384,580,337
===============
</Table>
NOTES TO INVESTMENT PORTFOLIO:
(a) This security is exempt from registration under Rule 144A of the Securities
Act of 1933 and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At May 31, 2003, the value of
these securities amounted to $60,470,076 or 4.4% of net assets.
(b) Zero coupon bond.
(c) This issuer is in default of certain debt covenants. Income is not being
accrued.
(d) As of May 31, 2003, the Fund held securities of certain issuers that have
filed for bankrupcy protection under Chapter 11, representing 0.5% of net
assets. These issuers are in default of certain debt covenants. Income is
not being fully accrued.
(e) Stepped coupon bonds. Currently accruing at zero. Shown parenthetically is
the next interest rate to be paid and the date the Trust will begin
accruing this rate.
(f) Represents fair value as determined in good faith under the direction of
the Board of Trustees.
(g) This security, or a portion thereof, has been purchased on a delayed
delivery basis whereby the terms that are fixed are the purchase price,
interest rate and settlement date. The exact quanity purchased may be
slightly more or less than the amount shown.
(h) Non-income producing.
(i) Rounds to less than $1.
(j) Cost of federal income tax purposes is $1,409,423,050.
See notes to financial statements.
12
<Page>
As of May 31, 2003, the Fund had entered into the following forward
currency contracts:
<Table>
<Caption>
NET UNREALIZED
CONTRACTS IN EXCHANGE SETTLEMENT APPRECIATION
TO DELIVER FOR DATE (DEPRECIATION)
- ---------------------------------------------------------------
EUR 1,039,800 USD 1,144,668 06/06/03 $ (78,205)
CAD 7,502,000 USD 5,080,935 06/10/03 (389,387)
NZD 25,200,000 USD 14,403,816 06/19/03 (93,987)
EUR 55,238,500 USD 59,531,271 06/23/03 (5,401,398)
GBP 3,450,000 USD 5,401,457 06/23/03 (245,809)
NOK 78,031,000 USD 10,641,108 06/23/03 (994,419)
SEK 62,935,000 USD 7,405,599 06/23/03 (691,233)
USD 19,285,019 EUR 17,250,000 06/23/03 992,297
--------------
$ (6,902,141)
==============
</Table>
<Table>
<Caption>
ACRONYM NAME
- ---------------------------------------------------------
ADR American Depositary Receipt
AUD Australian Dollar
CAD Canadian Dollar
EUR European Currency
GBP Great Britain Pound
GRD Greek Drachma
HUF Hungarian Forint
NOK Norwegian Krone
NZD New Zealand Dollar
PIK Payment-In-Kind
PLN Polish Zloty
SEK Swedish Krona
TBA To Be Announced
USD United States Dollar
ZAR South African Rand
</Table>
See notes to financial statements.
13
<Page>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2003
<Table>
ASSETS:
Investments, at cost $ 1,386,340,911
---------------
Investments, at value $ 1,440,610,326
Cash 347,149
Foreign currency (cost of $2,023,958) 2,057,155
Receivable for:
Investments sold 1,533,515
Fund shares sold 2,527,872
Interest 25,659,909
Dividends 26,156
Deferred Trustees' compensation plan 29,526
Other assets 252,679
---------------
Total Assets 1,473,044,287
---------------
LIABILITIES:
Net unrealized depreciation on forward
foreign currency contracts 6,902,141
Payable for:
Investments purchased 14,344,529
Investments purchased on a
delayed delivery basis 63,240,812
Fund shares repurchased 2,600,334
Management fee 745,604
Transfer agent fee 456,466
Pricing and bookkeeping fees 58,753
Custody fee 48,576
Other liabilities 37,209
Deferred Trustees' fee 29,526
---------------
Total Liabilities 88,463,950
---------------
NET ASSETS $ 1,384,580,337
===============
COMPOSITION OF NET ASSETS:
Paid-in capital $ 1,707,333,854
Overdistributed net investment income (11,558,453)
Accumulated net realized loss (358,931,767)
Net unrealized appreciation (depreciation) on:
Investments 54,269,415
Foreign currency translations (6,532,712)
---------------
NET ASSETS $ 1,384,580,337
===============
CLASS A:
Net assets $ 595,222,891
Shares outstanding 97,751,313
===============
Net asset value per share $ 6.09(a)
===============
Maximum offering price
per share ($6.09/0.9525) $ 6.39(b)
===============
CLASS B:
Net assets $ 484,540,494
Shares outstanding 79,622,411
===============
Net asset value and offering price per share $ 6.09(a)
===============
CLASS C:
Net assets $ 45,572,089
Shares outstanding 7,483,827
===============
Net asset value and offering price per share $ 6.09(a)
===============
CLASS J:
Net assets $ 258,057,351
Shares outstanding 42,446,128
===============
Net asset value and offering price per share $ 6.08(a)
===============
Maximum offering price
per share ($6.08/0.9700) $ 6.27(b)
===============
CLASS Z:
Net assets $ 1,187,512
Shares outstanding 196,399
===============
Net asset value, redemption and offering
price per share $ 6.05
===============
</Table>
(a) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
See notes to financial statements.
14
<Page>
STATEMENT OF OPERATIONS
For the Period Ended May 31, 2003 (a)
<Table>
INVESTMENT INCOME:
Interest $ 42,430,680
Dividends 327,560
Dollar roll fee income 346,470
Other Income 88,190
---------------
Total Investment Income (net of foreign taxes
withheld of $21) 43,192,900
---------------
EXPENSES:
Management fee 3,534,476
Distribution fee:
Class B 1,444,305
Class C 130,020
Class J 383,204
Service fee:
Class A 557,377
Class B 457,066
Class C 40,873
Class J 261,142
Pricing and bookkeeping fees 210,671
Transfer agent fee 1,633,900
Trustees' fee 27,397
Custody fee 157,846
Other expenses 142,571
---------------
Total Expenses 8,980,848
Fees waived by Distributor - Class C (26,004)
Custody earnings credit (2,140)
---------------
Net Expenses 8,952,704
---------------
Net Investment Income 34,240,196
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain (loss) on:
Investments 16,843,025
Foreign currency transactions (3,399,422)
---------------
Net realized gain 13,443,603
---------------
Net change in unrealized appreciation/
depreciation on:
Investments 97,784,295
Foreign currency translations (5,179,983)
---------------
Net change in unrealized appreciation/
depreciation 92,604,312
---------------
Net Gain 106,047,915
---------------
Net Increase in Net Assets from Operations $ 140,288,111
===============
</Table>
For the Year Ended December 31, 2002
<Table>
INVESTMENT INCOME:
Interest $ 104,072,755
Dividends 1,903,893
Dollar roll fee income 3,256,772
---------------
Total Investment Income (net of
foreign taxes withheld of $746,080) 109,233,420
---------------
EXPENSES:
Management fee 8,711,239
Distribution fee:
Class B 3,606,040
Class C 297,430
Class J 992,769
Service fee:
Class A 1,339,445
Class B 1,134,067
Class C 93,648
Class J 671,619
Pricing and bookkeeping fees 552,515
Transfer agent fee 3,887,964
Trustees' fee 51,616
Custody fee 274,271
Other expenses 151,451
---------------
Total Expenses 21,764,074
Fees waived by Distributor - Class C (59,478)
Custody earnings credit (5,664)
---------------
Net Expenses 21,698,932
---------------
Net Investment Income 87,534,488
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized loss on:
Investments (90,892,105)
Foreign currency transactions (12,106,212)
---------------
Net realized loss (102,998,317)
---------------
Net change in unrealized appreciation/
depreciation on:
Investments 112,953,334
Foreign currency translations 106,906
---------------
Net change in unrealized appreciation/
depreciation 113,060,240
---------------
Net Gain 10,061,923
---------------
Net Increase in Net Assets from Operations $ 97,596,411
===============
</Table>
(a) The Fund has changed its fiscal year end from December 31 to May 31.
See notes to financial statements.
15
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
PERIOD
ENDED YEAR ENDED DECEMBER 31
INCREASE (DECREASE) MAY 31, ----------------------------------
IN NET ASSETS: 2003 (a) 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 34,240,196 $ 87,534,488 $ 128,724,944
Net realized gain (loss) on investments and foreign currency transactions 13,443,603 (102,998,317) (136,322,509)
Net change in unrealized appreciation/depreciation on investments
and foreign currency translations 92,604,312 113,060,240 49,984,576
--------------- --------------- ---------------
Net Increase from Operations 140,288,111 97,596,411 42,387,011
--------------- --------------- ---------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income:
Class A (15,184,183) (42,003,370) (46,691,586)
Class B (10,942,373) (32,234,724) (48,801,551)
Class C (1,015,241) (2,719,136) (3,544,584)
Class J (6,687,799) (20,199,908) (34,229,039)
Class Z (12,062) (44,973) (295,153)
Return of capital:
Class A -- (2,370,220) (3,956,036)
Class B -- (1,818,983) (4,134,808)
Class C -- (153,439) (300,322)
Class J -- (1,139,866) (2,900,123)
Class Z -- (2,538) (25,007)
--------------- --------------- ---------------
Total Distributions Declared to Shareholders (33,841,658) (102,687,157) (144,878,209)
--------------- --------------- ---------------
SHARE TRANSACTIONS:
Class A:
Subscriptions 28,881,303 76,999,338 159,940,369
Distributions reinvested 7,792,998 22,577,921 26,051,063
Redemptions (39,518,059) (120,669,061) (112,725,586)
--------------- --------------- ---------------
Net Increase (Decrease) (2,843,758) (21,091,802) 73,265,846
--------------- --------------- ---------------
Class B:
Subscriptions 32,599,690 66,402,147 104,249,304
Distributions reinvested 5,920,067 18,557,348 28,021,493
Redemptions (47,619,346) (159,845,033) (252,987,306)
--------------- --------------- ---------------
Net Decrease (9,099,589) (74,885,538) (120,716,509)
--------------- --------------- ---------------
Class C:
Subscriptions 6,567,113 10,711,255 15,490,383
Distributions reinvested 547,933 1,596,012 2,286,312
Redemptions (3,831,655) (16,138,332) (15,558,670)
--------------- --------------- ---------------
Net Increase (Decrease) 3,283,391 (3,831,065) 2,218,025
--------------- --------------- ---------------
Class J:
Subscriptions 4,260,615 7,970,201 59,847,670
Redemptions (38,576,078) (59,088,986) (218,210,654)
--------------- --------------- ---------------
Net Decrease (34,315,463) (51,118,785) (158,362,984)
--------------- --------------- ---------------
</Table>
See notes to financial statements.
16
<Page>
<Table>
<Caption>
PERIOD
ENDED YEAR ENDED DECEMBER 31
MAY 31, ----------------------------------
2003 (a) 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Class Z:
Subscriptions $ 1,247,878 $ 31,748 $ 4,246,282
Distributions reinvested 11,438 47,503 320,160
Redemptions (108,415) (1,932,379) (2,482,595)
--------------- --------------- ---------------
Net Increase (Decrease) 1,150,901 (1,853,128) 2,083,847
--------------- --------------- ---------------
Net Decrease from Share Transactions (41,824,518) (152,780,318) (201,511,775)
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 64,621,935 (157,871,064) (304,002,973)
NET ASSETS:
Beginning of period 1,319,958,402 1,477,829,466 1,781,832,439
--------------- --------------- ---------------
End of period (including overdistributed net
investment income of $(11,558,453), $(25,578,478)
and $(23,536,368), respectively) $ 1,384,580,337 $ 1,319,958,402 $ 1,477,829,466
=============== =============== ===============
CHANGES IN SHARES:
Class A:
Subscriptions 4,991,280 13,798,283 27,518,050
Issued for distributions reinvested 1,347,649 4,075,545 4,492,051
Redemptions (6,828,570) (21,765,079) (19,289,781)
--------------- --------------- ---------------
Net Increase (Decrease) (489,641) (3,891,251) 12,720,320
--------------- --------------- ---------------
Class B:
Subscriptions 5,624,733 11,996,584 17,729,660
Issued for distributions reinvested 1,023,970 3,358,728 4,821,532
Redemptions (8,229,830) (28,815,674) (43,530,569)
--------------- --------------- ---------------
Net Decrease (1,581,127) (13,460,362) (20,979,377)
--------------- --------------- ---------------
Class C:
Subscriptions 1,130,031 1,930,151 2,623,088
Issued for distributions reinvested 94,722 287,824 393,676
Redemptions (658,217) (2,910,443) (2,663,083)
--------------- --------------- ---------------
Net Increase (Decrease) 566,536 (692,468) 353,681
--------------- --------------- ---------------
Class J:
Subscriptions 724,787 1,438,451 10,070,910
Redemptions (6,646,170) (10,581,690) (37,264,380)
--------------- --------------- ---------------
Net Decrease (5,921,383) (9,143,239) (27,193,470)
--------------- --------------- ---------------
Class Z:
Subscriptions 212,751 5,811 711,730
Issued for distributions reinvested 1,948 8,620 55,323
Redemptions (18,781) (344,889) (436,308)
--------------- --------------- ---------------
Net Increase (Decrease) 195,918 (330,458) 330,745
--------------- --------------- ---------------
</Table>
(a) The Fund has changed its fiscal year end from December 31 to May 31.
See notes to financial statements.
17
<Page>
NOTES TO FINANCIAL STATEMENTS
May 31, 2003
NOTE 1. ACCOUNTING POLICIES
ORGANIZATION:
Liberty Strategic Income Fund (the "Fund"), a series of Liberty Funds Trust I,
is a diversified portfolio of a Massachusetts business trust, registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund's investment goal is to seek current income
consistent with prudent risk. The Fund also seeks maximum total return. The Fund
may issue an unlimited number of shares. The Fund offers five classes of shares:
Class A, Class B, Class C, Class J and Class Z. Class A shares are sold with a
front-end sales charge. A 1.00% contingent deferred sales charge ("CDSC") is
assessed on redemptions made within eighteen months on an original purchase of
$1 million to $25 million. Class B shares are subject to a CDSC. Class B shares
will convert to Class A shares in three, four, or eight years after purchase,
depending on the program under which the shares were purchased. Class C shares
are subject to a CDSC on redemptions made within one year after purchase. Class
J shares are sold with a front-end sales charge and are available for purchase
only by residents or citizens of Japan. Class Z shares are offered continuously
at net asset value. In addition, there are certain restrictions on the purchase
of Class Z shares, as described in the Fund's prospectus.
Effective February 11, 2003, the Board of Trustees had approved a change in the
fiscal year end of the Fund from December 31 to May 31. Accordingly, the Fund's
2003 fiscal year ended on May 31, 2003.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements.
SECURITY VALUATION AND TRANSACTIONS:
Debt securities generally are valued by a pricing service based upon market
transactions for normal, institutional-size trading units of similar securities.
When management deems it appropriate, an over-the-counter or exchange bid
quotation is used.
Equity securities generally are valued at the last sale price or, in the case of
unlisted or listed securities for which there were no sales during the day, at
the current quoted bid price.
Forward currency contracts are valued based on the weighted value of the
exchange-traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
The values of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange ("NYSE"). The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the customary
trading session of the NYSE, which would not be reflected in the computation of
the Fund's net asset value. If events materially affecting the value of such
securities and such exchange rates occur during such period, then these
securities will be valued at their fair value as determined in good faith by or
under the supervision of the Board of Trustees.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value under
procedures approved by the Board of Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains (losses) are based upon the specific identification
method for both financial statement and federal income tax purposes.
18
<Page>
The Fund may enter into mortgage dollar roll transactions. A mortgage dollar
roll transaction involves a sale by the Fund of securities that it holds with an
agreement by the Fund to repurchase substantially similar securities at an
agreed upon price and date. During the period between the sale and repurchase,
the Fund will not be entitled to accrue interest and receive principal payments
on the securities sold. Mortgage dollar roll transactions involve the risk that
the market value of the securities sold by the Fund may decline below the
repurchase price of those securities. In the event the buyer of the securities
under a mortgage dollar roll transaction files for bankruptcy or becomes
insolvent, the Fund's use of proceeds of the transaction may be restricted
pending a determination by or with respect to the other party.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS:
All income, expenses (other than Class A, Class B, Class C and Class J services
fees and Class B, Class C and Class J distribution fees), and realized and
unrealized gains (losses) are allocated to each class proportionately on a daily
basis for purposes of determining the net asset value of each class.
Class A, Class B, Class C and Class J per share data and ratios are calculated
by adjusting the expense and net investment income per share data and ratios for
the Fund for the entire period by the service fee applicable to Class A, Class
B, Class C and Class J shares and distribution fee applicable to Class B, Class
C and Class J shares only.
FEDERAL INCOME TAXES:
Consistent with the Fund's policy to qualify as a regulated investment company
and to distribute all of its taxable income, no federal income tax has been
accrued.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM:
Interest income is recorded on the accrual basis. Premium and discount are being
amortized and accreted respectively, for all debt securities.
The value of additional securities received as an interest payment is recorded
as income and as an increase to the cost basis of such securities.
DISTRIBUTIONS TO SHAREHOLDERS:
The Fund declares, records, and pays distributions monthly.
FOREIGN CURRENCY TRANSACTIONS:
Net realized and unrealized gains (losses) on foreign currency transactions and
translations includes gains (losses) arising from the fluctuation in exchange
rates between trade and settlement dates on securities transactions, gains
(losses) arising from the disposition of foreign currency and currency gains
(losses) between the accrual and payment dates on dividends, interest income and
foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) on investments.
FORWARD CURRENCY CONTRACTS:
The Fund may enter into forward currency contracts to purchase or sell foreign
currencies at predetermined exchange rates in connection with the settlement of
purchases and sales of securities. The Fund may also enter into forward currency
contracts to hedge certain other foreign currency denominated assets. The
contracts are used to minimize the exposure to foreign exchange rate
fluctuations during the period between trade and settlement date of the
contracts. All contracts are marked-to-market daily, resulting in unrealized
gains (losses) which become realized at the time the forward currency contracts
are closed or mature. Realized and unrealized gains (losses) arising from such
transactions are included in net realized and unrealized gains (losses) on
forward foreign currency transactions and translations. Forward currency
contracts do not eliminate fluctuations in the prices of the Fund's portfolio
securities. While the maximum potential loss from such contracts is the
aggregate face value in U.S. dollars at the time the contract was opened,
exposure is typically
19
<Page>
limited to the change in value of the contract (in U.S. dollars) over the period
it remains open. Risks may also arise if counterparties fail to perform their
obligations under the contracts.
OTHER:
Corporate actions and dividend income are recorded on the ex-date (except for
certain foreign securities which are recorded as soon after ex-date as the Fund
becomes aware of such), net of non-reclaimable tax withholdings. Where a high
level of uncertainty as to collection exists, income on securities is recorded
net of all tax withholdings with any rebates recorded when received.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-market
daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
NOTE 2. FEDERAL TAX INFORMATION
Income and capital gain distributions are determined in accordance with income
tax regulations, which may differ from accounting principles generally accepted
in the United States of America. These differences are primarily due to
differing treatments for deferral of losses from wash sales, discount
accretion/premium amortization on debt securities, marked-to-market on foreign
currency transactions, capital loss carryforwards, interest on defaulted bonds
and non-deductible expenses. Reclassifications are made to the Fund's capital
accounts to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
For the period ended May 31, 2003, permanent items identified and reclassified
among the components of net assets are as follows:
<Table>
<Caption>
OVERDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED PAID-IN
INCOME LOSS CAPITAL
- -------------------------------------------------------
$ 13,621,487 $ 5,203,409 $ (18,824,896)
</Table>
Net investment income, net realized gain (loss) and net assets were not affected
by this reclassification.
The tax character of distributions paid was as follows:
<Table>
<Caption>
PERIOD YEAR ENDED
ENDED DECEMBER 31,
MAY 31, ---------------------------------
2003 2002 2001
- ------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 33,841,658 $ 97,202,111 $ 133,561,913
Return of capital -- 5,485,046 11,316,296
--------------- --------------- ---------------
$ 33,841,658 $ 102,687,157 $ 144,878,209
=============== =============== ===============
</Table>
As of May 31, 2003, the components of distributable earnings on a tax basis were
as follows:
<Table>
<Caption>
UNDISTRIBUTED
ORDINARY UNREALIZED
INCOME APPRECIATION*
- ------------------------------------------------------------
$ 3,720,265 $ 31,187,276
</Table>
* The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales and
amortization/accretion tax elections on fixed income securities.
The following capital loss carryforwards, determined as of May 31, 2003, are
available to reduce taxable income arising from future net realized gains on
investments, if any, to the extent permitted by the Internal Revenue Code:
<Table>
<Caption>
CAPITAL LOSS
YEAR OF EXPIRATION CARRYFORWARD
- ------------------------------------------------------------
2007 $ 21,541,689
2008 63,518,542
2009 136,912,288
2010 135,415,014
2011 318,608
-------------
$ 357,706,141
=============
</Table>
Expired capital loss carryforwards, if any, are recorded as a reduction in
paid-in capital.
20
<Page>
NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE:
On April 1, 2003, Colonial Management Associates, Inc. ("Colonial"), the
previous investment advisor to the Fund, merged into Columbia Management
Advisors, Inc. ("Columbia"), formerly known as Columbia Management Co., an
indirect, wholly-owned subsidiary of Fleet Boston Financial Corporation. At the
time of the merger, Columbia assumed the obligations of Colonial with respect to
the Fund. The merger did not change the way the Fund is managed, the investment
personnel assigned to manage the Fund or the fees paid by the Fund to Columbia.
Columbia is the investment advisor of the Fund and furnishes accounting and
other services and office facilities for a monthly fee based on the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
- ------------------------------------------------------------
First $1 billion 0.65%
Next $1 billion 0.60%
Over $2 billion 0.55%
</Table>
PRICING AND BOOKKEEPING FEES:
Columbia is responsible for providing pricing and bookkeeping services to the
Fund under a Pricing and Bookkeeping Agreement. Under a separate agreement (the
"Outsourcing Agreement"), Columbia has delegated those functions to State Street
Bank and Trust Company ("State Street"). Columbia pays fees to State Street
under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000, paid monthly, and in any month that
the Fund's average daily net assets are more than $50 million, a monthly fee
equal to the average daily net assets of the Fund for that month multiplied by a
fee rate that is calculated by taking into account the fees payable to State
Street under the Outsourcing Agreement. For the period ended May 31, 2003, the
annualized net asset based fee rate was 0.032%. The Fund also pays out-of-pocket
costs for pricing services.
TRANSFER AGENT FEE:
Liberty Funds Services, Inc. (the "Transfer Agent"), an affiliate of Columbia,
provides shareholder services for a monthly fee comprised of 0.06% annually of
the Fund's average daily net assets plus charges based on the number of
shareholder accounts and transactions.
The Transfer Agent also receives reimbursement for certain out-of-pocket
expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES:
Liberty Funds Distributor, Inc. (the "Distributor"), an affiliate of Columbia,
is the Fund's principal underwriter. For the period ended May 31, 2003, the Fund
has been advised that the Distributor retained net underwriting discounts of
$20,805 on sales of the Fund's Class A shares and received CDSC of $2,049,
$537,202 and $3,414 on Class A, Class B and Class C share redemptions,
respectively.
The Fund has adopted a 12b-1 plan (the "Plan") for its Class A, Class B, Class C
and Class J shares, which requires the payment of a monthly service fee to the
Distributor. The fee is calculated by adding: (1) 0.15% of the average daily net
assets attributable to outstanding Class A and Class B shares issued prior to
January 1, 1993 and (2) 0.25% of the average daily net assets attributable to
outstanding Class A, Class B, Class C and Class J shares issued thereafter. This
arrangement results in a rate of service fee payable by the Fund that is a blend
between the 0.15% and 0.25% rates. For the period ended May 31, 2003, the Fund's
annualized service fee rate was 0.24%.
The Plan also requires the payment of a monthly distribution fee to the
Distributor equal to 0.75% annually of the Fund's average daily net assets
attributable to Class B and Class C shares and 0.35% annually of the Fund's
average daily net assets attributable to Class J shares. The Distributor has
voluntarily agreed, until further notice, to waive a portion of the Class C
distribution fee so that it does not exceed 0.60% annually.
The CDSC and the fees received from the Plan are used principally as repayment
to the Distributor for amounts paid by the Distributor to dealers who sold such
shares.
OTHER:
The Fund pays no compensation to its officers, all of whom are employees of
Columbia or its affiliates.
The Fund's Independent Trustees may participate in a deferred compensation plan
which may be terminated at any time. Obligations of the plan will be paid solely
out of the Fund's assets.
The Fund has an agreement with its custodian bank under which $2,140 of custody
fees were reduced by balance credits for the period ended May 31, 2003. The Fund
could have invested a portion of the assets utilized
21
<Page>
in connection with the expense offset arrangement in an income-producing asset
if it had not entered into such an agreement.
NOTE 4. PORTFOLIO INFORMATION
INVESTMENT ACTIVITY:
For the period ended May 31, 2003, purchases and sales of investments, other
than short-term obligations, were $757,758,576 and $829,340,026, respectively,
of which $339,385,759 and $336,072,273, respectively, were U.S. Government
securities.
Unrealized appreciation (depreciation) at May 31, 2003, based on cost of
investments for federal income tax purposes, was:
<Table>
Gross unrealized appreciation $ 116,158,449
Gross unrealized depreciation (84,971,173)
-------------
Net unrealized appreciation $ 31,187,276
=============
</Table>
OTHER:
There are certain additional risks involved when investing in foreign securities
that are not inherent with investments in domestic securities. These risks may
involve foreign currency exchange rate fluctuations, adverse political and
economic developments and the possible prevention of foreign currency exchange
or the imposition of other foreign governmental laws or restrictions.
Investing in high yield securities offer the potential for high current income
and attractive total return, but involves certain risks. Bond investing also
involves interest rate risk, which means that bond prices may change as interest
rates increase or decrease.
Investing in emerging markets involves certain risks as they may be subject to a
greater degree of social, political, currency and economic instability.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 5. LINE OF CREDIT
The Fund and other affiliated funds participate in a $350,000,000 credit
facility, which is used for temporary or emergency purposes to facilitate
portfolio liquidity. Interest is charged to the Fund based on its borrowings. In
addition, the Fund has agreed to pay commitment fees on its pro-rata portion of
the line of credit. The commitment fee is included in "Other expenses" on the
Statement of Operations. Prior to April 26, 2003, the Fund participated in a
separate credit agreement with similar terms to its existing agreement. For the
period ended May 31, 2003, the Fund did not borrow under these agreements.
22
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
PERIOD
ENDED YEAR ENDED DECEMBER 31,
MAY 31, ---------------------------------------------------------------------------
CLASS A SHARES 2003 (a) 2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 5.63 $ 5.64 $ 6.00 $ 6.62 $ 7.11 $ 7.32
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.16(b) 0.38(b) 0.48(b)(c) 0.58(d) 0.57(d) 0.56
Net realized and unrealized gain
(loss) on investments and
foreign currency 0.46 0.05 (0.30)(c) (0.62) (0.48) (0.19)
--------- --------- --------- --------- --------- ---------
Total from Investment Operations 0.62 0.43 0.18 (0.04) 0.09 0.37
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.16) (0.42) (0.50) (0.53) (0.58)(e) (0.58)(e)
Return of capital -- (0.02) (0.04) (0.05) -- --
--------- --------- --------- --------- --------- ---------
Total Distributions Declared
to Shareholders (0.16) (0.44) (0.54) (0.58) (0.58) (0.58)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $ 6.09 $ 5.63 $ 5.64 $ 6.00 $ 6.62 $ 7.11
========= ========= ========= ========= ========= =========
Total return (f) 11.10%(g) 7.97% 3.07% (0.68)% 1.28% 5.17%
========= ========= ========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h) 1.27%(i) 1.23% 1.21% 1.17% 1.19% 1.15%
Net investment income (h) 6.52%(i) 6.75% 8.22%(c) 9.12% 8.30% 7.88%
Portfolio turnover rate 59%(g) 62% 106% 35% 44% 64%
Net assets, end of period (000's) $ 595,223 $ 552,737 $ 575,791 $ 536,481 $ 669,795 $ 787,461
</Table>
(a) The Fund has changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to decrease net investment
income per share by $0.02, increase net realized and unrealized loss per
share by $0.02 and decrease the ratio of net investment income to average
net assets from 8.60% to 8.22%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e) Distributions from income include currency gains and gains on securities
treated as ordinary income for tax purposes.
(f) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
23
<Page>
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
PERIOD
ENDED YEAR ENDED DECEMBER 31,
MAY 31, ---------------------------------------------------------------------------
CLASS B SHARES 2003 (a) 2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 5.62 $ 5.63 $ 6.00 $ 6.62 $ 7.11 $ 7.32
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.14(b) 0.34(b) 0.44(b)(c) 0.53(d) 0.51(d) 0.51
Net realized and unrealized gain
(loss) on investments and
foreign currency 0.47 0.04 (0.32)(c) (0.62) (0.48) (0.20)
--------- --------- --------- --------- --------- ---------
Total from Investment Operations 0.61 0.38 0.12 (0.09) 0.03 0.31
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.14) (0.37) (0.45) (0.48) (0.52)(e) (0.52)(e)
Return of capital -- (0.02) (0.04) (0.05) -- --
--------- --------- --------- --------- --------- ---------
Total Distributions Declared
to Shareholders (0.14) (0.39) (0.49) (0.53) (0.52) (0.52)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $ 6.09 $ 5.62 $ 5.63 $ 6.00 $ 6.62 $ 7.11
========= ========= ========= ========= ========= =========
Total return (f) 10.95%(g) 7.17% 2.12% (1.41)% 0.52% 4.38%
========= ========= ========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h) 2.02%(i) 1.98% 1.96% 1.92% 1.94% 1.90%
Net investment income (h) 5.77%(i) 6.00% 7.47%(c) 8.37% 7.55% 7.13%
Portfolio turnover rate 59%(g) 62% 106% 35% 44% 64%
Net assets, end of period (000's) $ 484,540 $ 456,563 $ 533,406 $ 693,733 $ 914,145 $ 919,740
</Table>
(a) The Fund has changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to decrease net investment
income per share by $0.02, increase net realized and unrealized loss per
share by $0.02 and decrease the ratio of net investment income to average
net assets from 7.85% to 7.47%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e) Distributions from income include currency gains and gains on securities
treated as ordinary income for tax purposes.
(f) Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
24
<Page>
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
PERIOD
ENDED YEAR ENDED DECEMBER 31,
MAY 31, ----------------------------------------------------------------------------
CLASS C SHARES 2003 (a) 2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 5.63 $ 5.64 $ 6.00 $ 6.62 $ 7.11 $ 7.32
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.14(b) 0.35(b) 0.45(b)(c) 0.54(d)(e) 0.52(d)(e) 0.52(d)
Net realized and unrealized gain
(loss) on investments and
foreign currency 0.46 0.04 (0.31)(c) (0.62) (0.48) (0.20)
--------- --------- --------- --------- --------- ---------
Total from Investment Operations 0.60 0.39 0.14 (0.08) 0.04 0.32
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.14) (0.38) (0.46) (0.49) (0.53)(f) (0.53)(f)
Return of capital -- (0.02) (0.04) (0.05) -- --
--------- --------- --------- --------- --------- ---------
Total Distributions Declared
to Shareholders (0.14) (0.40) (0.50) (0.54) (0.53) (0.53)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $ 6.09 $ 5.63 $ 5.64 $ 6.00 $ 6.62 $ 7.11
========= ========= ========= ========= ========= =========
Total return (g) 10.82%(h)(i) 7.32%(h) 2.45% (1.26)%(h) 0.67%(h) 4.54%(h)
========= ========= ========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (j) 1.87%(k) 1.83% 1.81% 1.77%(d) 1.79%(d) 1.75%(d)
Net investment income (j) 5.92%(k) 6.15% 7.62%(c) 8.52%(d) 7.70%(d) 7.28%(d)
Waiver/reimbursement 0.15%(k) 0.15% -- 0.15% 0.15% 0.15%
Portfolio turnover rate 59%(i) 62% 106% 35% 44% 64%
Net assets, end of period (000's) $ 45,572 $ 38,923 $ 42,906 $ 43,538 $ 57,246 $ 36,918
</Table>
(a) The Fund has changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to decrease net investment
income per share by $0.02, increase net realized and unrealized loss per
share by $0.02 and decrease the ratio of net investment income to average
net assets from 8.00% to 7.62%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) Net of fees waived by the Distributor which amounted to $0.02, $0.01 and
$0.01 per share and 0.15%, 0.15% and 0.15% for the periods ended December
31, 2000, 1999 and 1998, respectively.
(e) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(f) Distributions from income include currency gains and gains on securities
treated as ordinary income for tax purposes.
(g) Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(h) Had the Distributor not waived a portion of expenses, total return would
have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
25
<Page>
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
PERIOD
ENDED YEAR ENDED DECEMBER 31,
MAY 31, ----------------------------------------------------------------------------
CLASS J SHARES 2003 (a) 2002 2001 2000 1999 1998(b)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 5.62 $ 5.63 $ 6.00 $ 6.62 $ 7.10 $ 7.00
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.15(c) 0.36(c) 0.46(c)(d) 0.55(e) 0.54(e) 0.08
Net realized and unrealized gain
(loss) on investments and
foreign currency 0.46 0.05 (0.31)(d) (0.62) (0.47) 0.11(f)
--------- --------- --------- --------- --------- ---------
Total from Investment Operations 0.61 0.41 0.15 (0.07) 0.07 0.19
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.15) (0.40) (0.48) (0.50) (0.55)(g) (0.09)(g)
Return of capital -- (0.02) (0.04) (0.05) -- --
--------- --------- --------- --------- --------- ---------
Total Distributions Declared
to Shareholders (0.15) (0.42) (0.52) (0.55) (0.55) (0.09)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $ 6.08 $ 5.62 $ 5.63 $ 6.00 $ 6.62 $ 7.10
========= ========= ========= ========= ========= =========
Total return (h) 10.97%(i) 7.61% 2.56% (1.02)% 1.07% 2.74%(i)
========= ========= ========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (j) 1.62%(k) 1.58% 1.56% 1.52% 1.54% 1.49%(k)
Net investment income (j) 6.17%(k) 6.40% 7.87%(d) 8.77% 7.95% 7.76%(k)
Portfolio turnover rate 59%(i) 62% 106% 35% 44% 64%
Net assets, end of period (000's) $ 258,057 $ 271,733 $ 323,866 $ 508,079 $ 568,311 $ 49,143
</Table>
(a) The Fund has changed its fiscal year end from December 31 to May 31.
(b) Class J shares were initially offered on November 2, 1998. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to decrease net investment
income per share by $0.02, increase net realized and unrealized loss per
share by $0.02 and decrease the ratio of net investment income to average
net assets from 8.25% to 7.87%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(e) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(f) The amount shown for a share outstanding does not correspond with the
aggregate net gain on investments for the period due to the timing of sales
and repurchases of Fund shares in relation to fluctuating market values of
the investments of the Fund.
(g) Distributions from income include currency gains and gains on securities
treated as ordinary income for tax purposes.
(h) Total return at net asset value assuming all distributions reinvested and no
initial sales charge.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
26
<Page>
Selected data for a share outstanding throughout each period is as follows:
<Table>
<Caption>
PERIOD
ENDED YEAR ENDED DECEMBER 31,
MAY 31, ------------------------------------------------------------
CLASS Z SHARES 2003 (a) 2002 2001 2000 1999(b)
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 5.59 $ 5.62 $ 5.99 $ 6.62 $ 7.10
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.17(c) 0.39(c) 0.49(c)(d) 0.59(e) 0.53(e)
Net realized and unrealized gain
(loss) on investments and
foreign currency 0.45 0.03 (0.31)(d) (0.63) (0.47)
--------- --------- --------- --------- ---------
Total from Investment Operations 0.62 0.42 0.18 (0.04) 0.06
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.16) (0.43) (0.51) (0.54) (0.54)(f)
Return of capital -- (0.02) (0.04) (0.05) --
--------- --------- --------- --------- ---------
Total Distributions Declared
to Shareholders (0.16) (0.45) (0.55) (0.59) (0.54)
--------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $ 6.05 $ 5.59 $ 5.62 $ 5.99 $ 6.62
========= ========= ========= ========= =========
Total return (g) 11.29%(h) 7.87% 3.14% (0.59)% 1.50%(h)
========= ========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (i) 1.03%(j) 0.99% 0.98% 0.93% 0.95%(j)
Net investment income (i) 6.76%(j) 6.99% 8.45%(d) 9.36% 8.54%(j)
Portfolio turnover rate 59%(h) 62% 106% 35% 44%
Net assets, end of period (000's) $ 1,188 $ 3 $ 1,860 $ 1 $ 4,928
</Table>
(a) The Fund has changed its fiscal year end from December 31 to May 31.
(b) Class Z shares were initially offered on January 29, 1999. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to decrease net investment
income per share by $0.02, decrease net realized and unrealized loss per
share by $0.02 and decrease the ratio of net investment income to average
net assets from 8.84% to 8.45%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(e) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(f) Distributions from income include currency gains and gains on securities
treated as ordinary income for tax purposes.
(g) Total return at net asset value assuming all distributions reinvested.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
27
<Page>
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES OF LIBERTY FUNDS TRUST I
AND THE SHAREHOLDERS OF LIBERTY STRATEGIC INCOME FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Liberty Strategic Income Fund (the
"Fund") (a series of Liberty Funds Trust I) at May 31, 2003, and the results of
its operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at May 31,
2003 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 21, 2003
28
<Page>
TRUSTEES
The Trustees serve terms of indefinite duration. The names, addresses and ages
of the Trustees and officers of Liberty Funds, the year each was first elected
or appointed to office, their principal business occupations during at least the
last five years, the number of portfolios overseen by each Trustee, and other
directorships they hold are shown below. Each officer listed below serves as an
officer of each of the Liberty funds. The Statement of Additional Information
(SAI) contains additional information about the Trustees and is available
without charge upon request by calling the fund's distributor at 800-345-6611.
<Table>
<Caption>
YEAR FIRST NUMBER OF
ELECTED OR PORTFOLIOS IN FUND OTHER
POSITION WITH APPOINTED PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN DIRECTORSHIPS
NAME, ADDRESS AND AGE LIBERTY FUNDS(1) TO OFFICE DURING PAST FIVE YEARS BY TRUSTEE HELD
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker (age 47) Trustee 1996 Executive Vice 85 None
c/o Liberty Funds Group LLC President-Strategy of United
One Financial Center Airlines (airlines) since
Boston, MA 02111 December 2002 (formerly
President of UAL Loyalty
Services (airline) from
September 2001 to December
2002; (Executive Vice
President and Chief Financial
Officer from March 1993 to
September 2001 of United
Airlines); Senior Vice
President and Chief Financial
Officer of UAL, Inc. prior
thereto
Janet Langford Kelly (age 45) Trustee 1996 Executive Vice 85 None
c/o Liberty Funds Group LLC President-Corporate
One Financial Center Development and
Boston, MA 02111 Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), since
September 1999; Senior Vice
President, Secretary and
General Counsel, Sara Lee
Corporation (branded,
packaged, consumer-products
manufacturer) prior thereto
Richard W. Lowry (age 67) Trustee 1995 Private Investor since 1987 87*** None
c/o Liberty Funds Group LLC (formerly Chairman and Chief
One Financial Center Executive Officer, U.S.
Boston, MA 02111 Plywood Corporation (building
products manufacturer))
Charles R. Nelson (age 60) Trustee 1981 Professor of Economics, 120* None
c/o Liberty Funds Group LLC University of Washington,
One Financial Center since January 1976; Ford and
Boston, MA 02111 Louisa Van Voorhis Professor
of Political Economy,
University of Washington,
since September 1993;
Director, Institute for
Economic Research, University
of Washington, since
September 2001; Adjunct
Professor of Statistics,
University of Washington,
since September 1980;
Associate Editor, Journal of
Money Credit and Banking,
since September, 1993;
Trustee, Columbia Funds since
July 2002; consultant on
econometric and statistical
matters
John J. Neuhauser (age 60) Trustee 1985 Academic Vice President and 88*** Saucony, Inc.
c/o Liberty Funds Group LLC Dean of Faculties since (athletic
One Financial Center August 1999, Boston College footwear) and
Boston, MA 02111 (formerly Dean, Boston SkillSoft Corp.
College School of Management (e-learning)
from September 1977 to
September 1999)
Thomas E. Stitzel (age 67) Trustee 1998 Business Consultant since 85 None
c/o Liberty Funds Group LLC 1999 (formerly Professor of
One Financial Center Finance from 1975 to 1999 and
Boston, MA 02111 Dean from 1977 to 1991,
College of Business, Boise
State University); Chartered
Financial Analyst
</Table>
29
<Page>
<Table>
<Caption>
YEAR FIRST NUMBER OF
ELECTED OR PORTFOLIOS IN FUND OTHER
POSITION WITH APPOINTED PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN DIRECTORSHIPS
NAME, ADDRESS AND AGE LIBERTY FUNDS(1) TO OFFICE DURING PAST FIVE YEARS BY TRUSTEE HELD
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald (age 66) Trustee 1996 Managing Director, William 85 Anixter
c/o Liberty Funds Group LLC Blair Capital Partners International
One Financial Center (private equity investing) (network support
Boston, MA 02111 since September 1994 equipment
(formerly Chief Executive distributor),
Officer and Chairman of the Jones Lang LaSalle
Board of Directors, (real estate
Continental Bank Corporation management
prior thereto) services) and MONY
Group (life
insurance)
Anne-Lee Verville*** (age 58) Trustee 1998 Author and speaker on 86 Chairman of the
c/o Liberty Funds Group LLC educational systems needs Board of
One Financial Center (formerly General Manager, Directors, Enesco
Boston, MA 02111 Global Education Industry Group,
from 1994 to 1997, and Inc. (designer,
President, Applications importer and
Solutions Division from 1991 distributor of
to 1994, IBM Corporation giftware and
(global education and global collectibles)
applications))
INTERESTED TRUSTEES
William E. Mayer** (age 63) Trustee 1994 Managing Partner, Park Avenue 87*** Lee Enterprises
c/o Liberty Funds Group LLC Equity Partners (private (print media), WR
One Financial Center equity) since February 1999 Hambrecht + Co.
Boston, MA 02111 (formerly Founding Partner, (financial service
Development Capital LLC from provider), and
November 1996 to February First Health
1999; Dean and Professor, (health care)
College of Business and
Management, University of
Maryland from October 1992 to
November 1996)
Joseph R. Palombo** (age 50) Trustee, 2000 President of Galaxy Funds 86 None
One Financial Center Chairman of the since February 2003 (formerly
Boston, MA 02111 Board and Vice President from September
President 2002 to February 2003);
Executive Vice President and
Chief Operating Officer of
Columbia Management Group,
Inc. (Columbia Management
Group) since November 2001;
Director, Executive Vice
President and Chief Operating
Officer of Columbia
Management Advisors, Inc.;
formerly Chief Operations
Officer of Mutual Funds,
Liberty Financial Companies,
Inc. from August 2000 to
November 2001; Executive Vice
President of Stein Roe &
Farnham, Incorporated (Stein
Roe) from April 1999 to April
2003; Executive Vice
President and Director of
Colonial Management
Associates, Inc. from April
1999 to April 2003; Director
of Stein Roe from September
2000 to April 2003; Trustee
and Chairman of the Board of
Stein Roe Mutual Funds from
October 2000; Manager of
Stein Roe Floating Rate
Limited Liability Company
since October 2000; Director
of Columbia Management
Multi-Strategy Hedge Fund,
LLC since December 2002;
(formerly Vice President of
Liberty Funds from April 1999
to August 2000; Chief
Operating Officer and Chief
Compliance Officer, Putnam
Mutual Funds from December
1993 to March 1999)
</Table>
(1) In December 2000, the boards of each of the Liberty Funds and Stein Roe
Funds were combined into one board of trustees with common membership. The
date shown is the earliest date on which a trustee was elected to either the
Liberty Funds board or the former Stein Roe Funds board.
* In addition to serving as a disinterested trustee of Liberty Funds,
Mr. Nelson serves as a disinterested director or trustee of Columbia Funds
and CMG Funds, currently consisting of 15 funds and 20 funds, respectively,
which are advised by an affiliate of the Advisor.
** Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940 ("1940 Act")) by reason of his affiliation with
WR Hambrecht + Co., a registered broker-dealer. In addition to serving as an
interested trustee of the Liberty Funds, Mr. Palombo serves as an interested
director of Columbia Management Multi-Strategy Hedge Fund, LLC which is
advised by the Advisor.
*** In addition to serving as a trustee of Liberty Funds, Mr. Lowry,
Mr. Neuhauser and Mr. Mayer each serve as a director/trustee of Liberty
All-Star Funds, currently consisting of 2 funds, which are advised by an
affiliate of the Advisor. Mr. Neuhauser and Ms. Verville serve as
disinterested directors of Columbia Management Multi-Strategy Hedge Fund,
LLC which is advised by the Advisor.
30
<Page>
OFFICERS AND TRANSFER AGENT
<Table>
<Caption>
YEAR FIRST
ELECTED OR
POSITION WITH APPOINTED
NAME, ADDRESS AND AGE LIBERTY FUNDS TO OFFICE PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
Vicki L. Benjamin (age 41) Chief 2001 Controller of the Liberty Funds and Liberty All-Star
One Financial Center Accounting Funds since May 2002; Chief Accounting Officer of Liberty
Boston, MA 02111 Officer and Funds and Liberty All-Star Funds since June 2001;
Controller Controller and Chief Accounting Officer of Galaxy Funds
since September 2002; (formerly Vice President, Corporate
Audit, State Street Bank and Trust Company from May 1998
to April 2001; Audit Manager from July 1994 to June 1997;
Senior Audit Manager from July 1997 to May 1998, Coopers
& Lybrand, LLP)
J. Kevin Connaughton (age 39) Treasurer 2000 Treasurer of the Liberty Funds and Liberty All-Star Funds
One Financial Center since December 2000; Vice President of Columbia
Boston, MA 02111 Management Advisors, Inc. since April 2003 (formerly
Controller of the Liberty Funds and Liberty All-Star
Funds from February 1998 to October 2000); Treasurer of
Galaxy Funds since September 2002; Treasurer, Columbia
Management Multi-Strategy Hedge Fund, LLC since December
2002 (formerly Vice President of Colonial Management
Associates, Inc. from February 1998 to October 2000;
Senior Tax Manager, Coopers & Lybrand, LLP from April
1996 to January 1998)
</Table>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Liberty Strategic Income Fund is:
Liberty Funds Services, Inc.
P.O. Box 8081
Boston, MA 02266-8081
The fund mails one shareholder report to each shareholder address. If you would
like more than one report, please call shareholder services at 800-345-6611 and
additional reports will be sent to you.
This report has been prepared for shareholders of Liberty Strategic Income Fund.
This report may also be used as sales literature when preceded or accompanied by
the current prospectus which provides details of sales charges, investment
objectives and operating policies of the fund and with the most recent copy of
the Liberty Funds Performance Update.
Annual Report:
LIBERTY STRATEGIC INCOME FUND
<Page>
LIBERTY STRATEGIC INCOME FUND ANNUAL REPORT, MAY 31, 2003
PRSRT STD
U.S. POSTAGE
PAID
HOLLISTON, MA
PERMIT NO. 20
[LIBERTY FUNDS LOGO]
A MEMBER OF COLUMBIA MANAGEMENT GROUP
(C) 2003 LIBERTY FUNDS DISTRIBUTOR, INC.
A MEMBER OF COLUMBIA MANAGEMENT GROUP
ONE FINANCIAL CENTER, BOSTON, MA 02111-2621
716-02/239O-0503 (07/03) 03/1833
<Page>
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable at this time.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The Registrant's Chief Executive Officer and Chief Financial Officer, based
on their evaluation of the Registrant's disclosure controls and procedures as of
June 20, 2003, have concluded that such controls and procedures are adequately
designed to ensure that information required to be disclosed by the Registrant
in its reports that it files or submits under the Securities Exchange Act of
1934, as amended, is accumulated and communicated to the Registrant's
management, including the Chief Executive Officer and Chief Financial Officer,
or persons performing similar functions, as appropriate, to allow timely
decisions regarding required disclosure.
(b) There were no significant changes in the registrant's internal controls
or in other factors that could affect these controls subsequent to the date
of our evaluation.
ITEM 10. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable
at this time.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant as required by Rule 30a-2 under the Act (17
CSR 270.30a-2) in the exact form set forth below: Attached hereto.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Liberty Funds Trust I
-------------------------------------------------------------------
By (Signature and Title)* /s/ Joseph R. Palombo
------------------------------------------------------
Joseph R. Palombo, President
Date August 6, 2003
---------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Joseph R. Palombo
------------------------------------------------------
Joseph R. Palombo, President
Date August 6, 2003
---------------------------------------------------------------------------
By (Signature and Title)* /s/ J. Kevin Connaughton
------------------------------------------------------
J. Kevin Connaughton, Chief Financial Officer
Date August 6, 2003
---------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.