<PAGE> 1
[Front Cover]
Liberty Floating Rate Advantage Fund
Annual Report
August 31, 2000
<PAGE> 2
PRESIDENT'S MESSAGE
STEVE GIBSON PHOTO
Dear Shareholder:
I am pleased to present the 2000 annual report for Liberty Floating Rate
Advantage Fund. You may have noticed that your Fund has a new name. As of July
14, the names of our funds were changed to include Liberty. Rest assured, the
investment objectives and strategies employed by the Fund's managers are not
affected by this name change. We believe the new name better reflects that your
Fund is part of Liberty Funds, a diverse family of funds representing a wide
selection of investment styles and specialized money management. The goal of all
Liberty funds is to help you reach for financial freedom--however you define it.
The United States economy moved at a fast pace during the fiscal year ended
August 31, 2000. Prompted by concerns that this rapid economic expansion could
lead to higher rates of inflation down the road, the Federal Reserve raised the
federal funds rate four times over the course of the fiscal year. These
increases had a generally positive effect on the floating-rate bank loan market
and the Funds. The reason: The coupons on floating-rate senior bank loans are
reset periodically to reflect current interest rates, so their income generally
rises when interest rates escalate.
Because their coupons adjust with short-term interest rates, the principal value
of floating-rate loans has historically remained relatively stable when compared
to fixed-rate bonds. These factors, as well as the portfolio managers' emphasis
on diversity and credit quality, should bode well for the Fund in the future.
On the following pages, you will find detailed information about the Fund's
performance in fiscal 2000 and the investment strategies used to achieve it.
As always, we thank you for the confidence you have shown in Liberty and our
funds.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
October 25, 2000
PERFORMANCE HIGHLIGHTS (AS OF 8/31/00)
<TABLE>
<S> <C> <C>
NET ASSET VALUE PER SHARE
CLASS A $12.09
CLASS B $12.07
CLASS C $12.07
CLASS Z $12.08
DISTRIBUTIONS DECLARED PER SHARE
(1/13/00-8/31/00)
CLASS A $0.621
CLASS B $0.600
CLASS C $0.591
CLASS Z $0.643
</TABLE>
Because market and economic conditions change, there can be no assurance that
the trends described in this report will continue or come to pass.
Past performance is no guarantee of future results.
<PAGE> 3
PERFORMANCE INFORMATION
Value of an Initial $10,000 Investment
1/31/00 - 8/31/00
PERFORMANCE OF A $10,000 INVESTMENT IN
ALL SHARE CLASSES 1/31/00-8/31/00
<TABLE>
<CAPTION>
Ending account Ending account
value without sales value with sales
charge charge
------------------------------------------------------
<S> <C> <C>
Class A $10,552 $10,182
------------------------------------------------------
Class B $10,525 $10,200
------------------------------------------------------
Class C $10,509 $10,409
------------------------------------------------------
Class Z $10,558 N/A
</TABLE>
[Performance Graph]
<TABLE>
<CAPTION>
DLJ LEVERAGED LOAN CLASS A SHARES WITHOUT CLASS A SHARES WITH SALES
INDEX PLUS SALES CHARGE CHARGE
------------------ ---------------------- -------------------------
<S> <C> <C> <C>
1/2000 10033.00 10091.20 9738.02
9954.00 10100.60 9747.09
9990.00 10160.20 9804.64
10074.00 10265.40 9906.11
10135.00 10368.70 10005.80
10208.00 10468.90 10102.50
8/2000 10260.00 10552.00 10182.00
</TABLE>
The DLJ Leveraged Loan Index Plus is an unmanaged index that tracks the
performance of senior floating rate bank loans. Unlike mutual funds, indexes are
not investments and do not incur fees or charges. It is not possible to invest
in an index.
Cumulative Total Returns as of 8/31/00
<TABLE>
<CAPTION>
Share Class A B C Z
Inception 1/13/00 1/13/00 1/13/00 1/13/00
-------------------------------------------------------------------------------------------------------------------
Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life 6.04% 2.33% 5.69% 2.44% 5.62% 4.62% 6.11%
</TABLE>
Cumulative Total Returns as of 6/30/00
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life 4.21% 0.56% 3.92% 0.67% 3.79% 2.79% 4.22%
-------------------------------------------------------------------------------------------------------------------
</TABLE>
Past performance cannot predict future investment results. Returns and value of
an investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. The "with sales charge" returns include
the maximum 3.50% sales charge for Class A shares; the appropriate Class B
shares early withdrawal charge (EWC) for the holding period after purchase as
follows: first year - 3.25%, second year - 3.00%, third year - 2.00%, fourth
year - 1.50%, fifth year - 1.00%, thereafter - 0%; and the Class C shares EWC of
1% for the first year only. Performance results reflect any voluntary waivers or
reimbursement of Fund expenses by the Advisor or its affiliates. Absent these
waivers or reimbursement arrangements, performance results would have been
lower. Performance for different share classes will vary based on differences in
sales charges and fees associated with each class.
1
<PAGE> 4
PORTFOLIO MANAGER'S REPORT
AN EXCELLENT START
Liberty Floating Rate Advantage Fund provided excellent performance in its first
seven-and-a-half months of operations. Between January 13 and August 31, 2000,
Class A shares of the Fund generated a total return of 6.04%, including
reinvested dividends and without sales charge. This compares to a total return
of 2.60% for the Fund's benchmark, the DLJ Leveraged Loan Index Plus, for the
seven months ended August 31, 2000. The Fund's current SEC yield as of August
31, 2000 was 10.38%.
RISING INTEREST RATES PLAYED A SIGNIFICANT ROLE
The Federal Reserve boosted key short-term interest rates by a total of 1.00%
over the seven-and-a-half month period, prompting a gain of 1.36% in the
three-month LIBOR. This helped to boost the Fund's yield, since floating-rate
bank loans reset their rates periodically to reflect changes in the LIBOR.
Rising interest rates also meant higher costs for the Fund, which may borrow an
amount equal to as much as one-third of its total assets to invest in loans. The
increased cost of borrowing had little impact on performance, however, since the
interest received on loans in the portfolio rose as well. Please keep in mind
that leverage, or the use of borrowed funds, may make the Fund's net asset value
(NAV) more volatile.
30-DAY SEC YIELDS AS OF 8/31/00
<TABLE>
<CAPTION>
AFTER
REIMBURSEMENT
<S> <C> <C>
CLASS A SHARES 10.38%
CLASS B SHARES 10.01%
CLASS C SHARES 9.86%
CLASS Z SHARES 10.71%
THE 30-DAY SEC YIELD REFLECTS THE
PORTFOLIO'S EARNING POWER, NET OF
EXPENSES, EXPRESSED AS AN ANNUALIZED
PERCENTAGE OF THE PUBLIC OFFERING PRICE AT
THE END OF THE PERIOD. IF THE ADVISOR OR
ITS AFFILIATES HAD NOT WAIVED CERTAIN FUND
EXPENSES, THE 30-DAY SEC YIELD WOULD HAVE
BEEN 9.37% FOR CLASS A SHARES, 9.00% FOR
CLASS B SHARES, 8.85% FOR CLASS C SHARES
AND 9.70% FOR CLASS Z SHARES.
</TABLE>
TOP FIVE SECTOR BREAKDOWNS (8/31/00)
[SECTOR BREAKDOWN GRAPH]
WIRELESS TELECOMMUNICATIONS 9.6%
DIVERSIFIED MANUFACTURING 6.4%
AUTO PARTS 6.1%
TELECOMMUNICATIONS INFRASTRUCTURE/EQUIPMENT 5.0%
CONTAINER SPECIALTIES 5.0%
SECTOR BREAKDOWNS ARE CALCULATED AS A PERCENTAGE OF TOTAL INVESTMENTS. BECAUSE
THE FUND IS ACTIVELY MANAGED, THERE CAN BE NO GUARANTEE THAT THE FUND WILL
CONTINUE TO MAINTAIN THIS BREAKDOWN IN THE FUTURE.
INITIAL PORTFOLIO STRESSED DIVERSIFICATION AND CREDIT QUALITY
The pace of new loan issuance was strong throughout much of the period. Although
it slowed slightly toward the end of the fiscal year, the abundance of loans
available allowed us to ensure that the portfolio got off to a well-diversified
start. As of the fiscal year-end, the portfolio held loans from 82 issuers in 42
industries, from both the "new economy" and more traditional "bricks-and-
mortar" sectors of the economy. Old economy or new, we generally selected loans
from the more creditworthy issuers.
A MATURING CORPORATE LOAN MARKET BODES WELL
The corporate loan market grew considerably in the past 18 months, fueled by
demand for financing from a wide variety of companies. In addition to providing
more loans to choose from, the expansion has attracted a more diverse investor
base, resulting in a more liquid and efficient market. Thus, it is now easier to
ascertain what the market will pay for a given loan under current market
conditions.
2
<PAGE> 5
STABILITY LIKELY IN COMING MONTHS
As of this writing, we believe that, due to the economic slowdown and stable
inflation rate, interest rates will remain largely unchanged through year-end
2000. The supply of floating-rate bank loans should be adequate, but default
rates may increase as lenders become more stringent about enforcing loan
requirements with delinquent borrowers. Under this scenario, higher-quality
issues will likely continue to offer better yields than in previous years, so we
will continue to focus on higher-quality loans and broad diversification.
/s/ Brian Good
BRIAN GOOD
/s/ Jim Fellows
JIM FELLOWS
BRIAN GOOD and JIM FELLOWS, senior vice presidents of the Advisor, have been
portfolio managers of Liberty Floating Rate Advantage Fund since its inception.
An investment in the Fund offers significant current income potential. However,
the following could have the effect of reducing the net asset value (NAV) and
distributions of the Fund: defaults on the loans held in the portfolio;
nonpayment of scheduled interest or principal payments; prepayment of principal
by borrowers resulting in a loan's replacement with a lower-yielding security.
The use of leverage for investment purposes creates opportunities for greater
total return, but at the same time involves certain risks, such as volatility of
the NAV of the Fund's shares and the nonpayment of dividends.
The Fund is a continuously offered, closed-end mutual fund and provides limited
liquidity through a quarterly tender offer between 5% and 25% of outstanding
shares. Each quarter, the Fund's Trustees must approve the actual tender amount.
Please read the prospectus carefully for more details.
3
<PAGE> 6
INVESTMENT PORTFOLIO
August 31, 2000
(In thousands)
<TABLE>
<CAPTION>
VARIABLE RATE SENIOR
LOAN INTERESTS(a)(b)(c) - 100.0% PAR VALUE
--------------------------------------------------------
<S> <C> <C>
AEROSPACE - 1.0%
Decrane Aircraft Holdings, Inc.,
Term B 9/30/05 $ 995 $ 999
--------
AUTO PARTS - 6.1%
Dura Automotive Systems, Inc.,
Term B 3/31/06 2,000 1,998
Meridian Automotive Systems,
Term B 3/31/07 1,000 1,001
Ontario Limited (Progressive),
Term B 8/10/07 1,000 997
Venture Holdings Trust,
Interim Term 11/27/00 2,190 2,187
--------
6,183
--------
BROADCASTING - 1.0%
Young Broadcasting Inc.,
Term B 12/31/06 1,000 1,007
--------
BUILDING SERVICES - 2.0%
Formica Corp.,
Term B 4/30/06 998 1,002
Therma-Tru Holdings, Inc.,
Term B 5/9/07 995 995
--------
1,997
--------
BUSINESS SERVICES - 1.5%
Encompass Services Corp.,
Term C 5/10/07 499 499
NATG Holdings LLC,
Term C 6/30/07 1,000 1,002
--------
1,501
--------
CABLE/TELEVISION - 3.5%
Century Cable Holdings, LLC,
Term B 6/30/09 500 501
Charter Communications Operating,
LLC:
Incremental Term B 12/30/08 500 499
Term B 6/30/08 1,500 1,496
RCN Corp.,
Term B 6/3/07 1,000 1,013
--------
3,509
--------
CASINOS/GAMBLING - 0.8%
Isle of Capri Casinos, Inc.:
Term B 3/2/06 426 428
Term C 3/2/07 372 375
--------
803
--------
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE
--------------------------------------------------------
--------------------------------------------------------
<S> <C> <C>
CHEMICALS, PLASTICS AND RUBBER - 3.8%
Huntsman ICI Chemicals, LLC:
Term B 6/30/07 $1,894 $ 1,908
Term C 6/30/08 383 385
Lyondell Petrochemical Co.,
Term B 6/30/05 1,485 1,507
--------
3,800
--------
CONSUMER SERVICES - 1.7%
AMF Bowling Worldwide, Inc.:
Axel A 3/31/03 1,149 1,011
Axel B 3/31/04 837 737
--------
1,748
--------
CONSUMER SPECIALTIES - 5.0%
American Safety Razor,
Term B 4/30/07 1,500 1,508
Doane Pet Care Company,
Term B 12/31/05 499 500
Jostens, Inc.,
Term B 5/31/08 1,000 1,002
Weight Watchers International,
Term B-1 9/29/06 1,990 1,998
--------
5,008
--------
CONTAINERS/PACKAGING - 2.6%
Gaylord Container Corp.,
Term 6/19/04 1,674 1,674
Huntsman Packaging Corp.,
Term B 5/31/08 1,000 981
--------
2,655
--------
DIVERSIFIED COMMERCIAL SERVICES - 2.5%
Outsourcing Solutions Inc.,
Term B 5/31/06 2,481 2,483
--------
DIVERSIFIED MANUFACTURING - 6.4%
Flowserve Corp.,
Term B 6/30/08 1,500 1,508
Gentek Inc.,
Term C 10/31/07 1,500 1,508
Jason Inc.,
Term B 6/30/07 1,000 1,005
MTD Products Inc.,
Term B 6/20/07 1,000 992
Superior Telecom Inc.,
Term B 11/27/05 988 981
Tekni-Plex Inc.,
Term B 6/23/08 500 504
--------
6,498
--------
</TABLE>
See notes to investment portfolio.
4
<PAGE> 7
INVESTMENT PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PAR VALUE
--------------------------------------------------------
<S> <C> <C>
ELECTRIC UTILITIES - 3.0%
AES New York Funding, LLC,
Term B 5/14/02 $1,000 $ 999
Western Resources, Inc.,
Term B 3/17/03 2,000 2,002
--------
3,001
--------
ELECTRONIC COMPONENTS - 0.5%
Viasystems, Inc.,
Term B 3/31/07 500 500
--------
ENGINEERING & CONSTRUCTION - 1.0%
Morrison Knudsen Corp.,
Term B 7/7/07 1,000 996
--------
ENVIRONMENTAL SERVICES - 4.4%
Allied Waste North America, Inc.:
Term B 7/23/06 1,364 1,316
Term C 7/23/07 1,636 1,579
Synagro Technologies, Inc.,
Term B 7/27/07 1,500 1,505
--------
4,400
--------
FOOD CHAINS - 1.0%
Big V Supermarkets, Inc. TLC,
Term C 8/10/03 993 998
--------
FOOD MANUFACTURER - 1.0%
American Seafoods Group, LLC,
Term B 12/31/05 1,000 1,007
--------
HEALTHCARE SERVICES - 2.0%
Iasis Healthcare Corp.,
Term B 7/30/06 2,000 2,000
--------
HOSPITAL MANAGEMENT - 2.0%
Community Health Systems,
Term B 12/31/03 1,000 1,009
Vanguard Health Systems,
Term B 2/1/06 995 997
--------
2,006
--------
HOTELS - 3.0%
Starwood Hotels and Resorts Worldwide, Inc.,
Tranche 2 2/23/03 2,000 2,010
Wyndham International,
IRL 6/30/04 1,000 1,008
--------
3,018
--------
INDUSTRIAL MACHINERY/COMPONENTS - 1.0%
Terex Corp.,
Term B 3/30/05 1,000 1,004
--------
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE
--------------------------------------------------------
<S> <C> <C>
MEDICAL SPECIALTIES - 1.0%
Dade Behring:
Term B 6/30/06 $ 499 $ 505
Term C 6/30/07 499 505
--------
1,010
--------
METAL FABRICATIONS - 1.0%
Mueller Group, Inc.,
Term D 8/16/07 499 505
OM Group, Inc.,
Term B 3/31/07 499 500
--------
1,005
--------
MILITARY/GOVERNMENT - 1.0%
Titan Corp.,
Term C 6/1/07 998 1,001
--------
MOVIES/ENTERTAINMENT - 4.4%
Metro-Goldwyn-Mayer Studios, Inc.,
Term B 3/31/06 2,000 1,997
Six Flags Theme Parks, Inc.,
Term B 9/30/05 1,500 1,506
Washington Football, Inc.,
Term C 1/14/05 1,000 1,006
--------
4,509
--------
OFFICE SUPPLIES - 1.0%
Mail-Well I Corp.,
Term B 2/22/07 998 998
--------
OIL REFINING/MARKETING - 1.5%
Port Arthur Finance Corp.,
Term B 6/15/07 1,500 1,498
--------
PAPER - 0.9%
Stone Container:
Term F 12/31/05 497 497
Term G 12/31/06 216 216
Term H 12/31/06 231 231
--------
944
--------
PRINTING/PUBLISHING - 2.0%
Merrill Communications, LLC,
Term B 11/30/07 993 996
Weekly Reader Corp.,
Term B 11/30/06 995 1,000
--------
1,996
--------
</TABLE>
See notes to investment portfolio.
5
<PAGE> 8
INVESTMENT PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PAR VALUE
--------------------------------------------------------
<S> <C> <C>
RAIL/SHIPPING - 2.0%
Kansas City Southern Railway,
Term B 12/31/06 $1,000 $ 1,006
Railamerica Transportation Corp.,
Term B 12/31/06 990 996
--------
2,002
--------
REAL ESTATE INVESTMENT TRUSTS - 2.3%
Felcor Lodging Trust
Term 3/31/04 1,500 1,499
Prison Realty Trust, Inc.,
Term B 12/31/02 995 846
--------
2,345
--------
RENTAL/LEASING COMPANIES - 1.0%
Rent-A-Center Inc.:
Term B 1/31/06 739 747
Term C 1/31/07 268 270
--------
1,017
--------
RETAIL STORES - 2.0%
Duane Reade,
Term B 2/15/05 975 974
SDM Corp.:
Term C 2/4/08 500 501
Term E 2/4/09 500 501
--------
1,976
--------
SEMICONDUCTORS - 2.0%
Amkor Technology, Inc.,
Term B 9/30/05 998 1,011
Semiconductor Components Industries, LLC:
Term B 8/4/06 241 243
Term C 8/4/07 259 262
Term D 8/4/07 500 503
--------
2,019
--------
STEEL/IRON ORE - 2.0%
Ispat Inland LP.:
Term B 7/16/05 497 497
Term C 7/16/06 497 497
Ucar Finance Inc.,
Term B 12/31/07 997 1,004
--------
1,998
--------
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE
--------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS
INFRASTRUCTURE/EQUIPMENT - 5.0%
Crown Castle Operating Co.,
Term B 2/28/08 $1,500 $ 1,503
Global Crossing Holdings, Inc.,
Term B 6/30/06 2,500 2,516
McLeod USA Inc.,
Term B 5/31/08 1,000 1,003
--------
5,022
--------
TELECOMMUNICATIONS SERVICES - 2.0%
American Towers, Inc.,
Term B 12/31/07 1,000 1,007
Nextlink Communications,
Term B 10/31/05 1,000 1,009
--------
2,016
--------
TRANSPORTATION - 1.0%
Evergreen International Aviation,
Inc.,
Term B-2 5/2/04 984 984
--------
TRANSPORTATION MANUFACTURER - 1.5%
Transportation Technologies Industries, Inc.,
Term B 3/31/07 1,496 1,502
--------
WIRELESS TELECOMMUNICATIONS - 9.6%
Centennial Cellular Operating Co., LLC,
Term B 5/31/07 497 501
Cook Inlet/Voicestream Operating Co., LLC,
Term B 12/31/08 1,000 1,009
Dobson Operating Co., LLC,
Term B 12/31/07 1,119 1,126
Nextel Finance Co., Inc.:
Term B 6/30/08 500 503
Term C 12/31/08 500 503
Nextel Partners,
Term 1/29/08 3,500 3,522
Rural Cellular Corp.:
Term B 10/3/08 250 250
Term C 4/3/09 250 250
Ubiquitel Operating Co.,
Term B 11/17/08 500 503
Voicestream PCS Holding LLC.:
Term B 2/25/09 500 499
Vendor A 6/30/09 1,000 1,004
--------
9,670
--------
Total Variable Rate Senior Loan
Interests (cost of $100,751)(d) 100,633
--------
</TABLE>
See notes to investment portfolio.
6
<PAGE> 9
INVESTMENT PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
SHORT-TERM OBLIGATIONS PAR VALUE
--------------------------------------------------------
<S> <C> <C>
Burlington Northern Santa Fe,
6.750% 9/1/00 $1,000 $ 1,000
Target Corp.,
6.630% 9/1/00 1,180 1,180
--------
Total Short-Term Obligations 2,180
--------
OTHER ASSETS & LIABILITIES, NET (12,778)
--------------------------------------------------------
NET ASSETS $ 90,035
========
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
(a) Senior Loans in the Fund generally are subject to mandatory and/or optional
prepayment. Because of these mandatory prepayment conditions and because
there may be significant economic incentives for a Borrower to prepay,
prepayments of Senior Loans may occur. As a result, the actual remaining
maturity of Senior Loans held may be substantially less than the stated
maturities shown. Although the Advisor is unable to accurately estimate the
actual remaining maturity of individual Senior Loans in the Fund, based on
historical experience, the Advisor believes that the actual economic
maturity of the Senior Loans held will be approximately 18-24 months.
(b) Senior Loans in which the Fund invests generally pay interest at rates which
are periodically redetermined by reference to a base lending rate plus a
premium. These base lending rates are generally (i) the prime rate offered
by one or more major United States banks, (ii) the lending rate offered by
one or more European banks such as the London Inter-Bank Offered Rate
("LIBOR") and (iii) the certificate of deposit rate. Senior Loans are
generally considered to be restricted in that the Fund ordinarily is
contractually obligated to receive approval from the Agent Bank and/or
borrower prior to the disposition of a Senior Loan.
(c) Industry classification percentages are based on total investments. Total
investments represent 111.8% of the Fund's net assets.
(d) Cost for federal income tax purposes is identical.
See notes to financial statements.
7
<PAGE> 10
STATEMENT OF ASSETS & LIABILITIES
August 31, 2000
(In thousands except for per share amounts and footnotes)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost
$100,751) $100,633
Short-term obligations 2,180
--------
102,813
Cash $ 7
Receivable for:
Interest & Fees 715
Fund shares sold 6,066
Investments sold 327
Expense reimbursement due from
Advisor/Administrator 200 7,315
------- --------
Total Assets 110,128
Liabilities
Deferred facility fees 211
Payable for:
Distributions 577
Accrued:
Management fees 35
Administration fees 15
Distribution fees - Class B 1
Distribution fees - Class C 1
Bookkeeping fees 2
Transfer agent fee 6
Interest expense 74
Commitment fee 3
Other 168
Notes payable 19,000
-------
Total Liabilities 20,093
--------
NET ASSETS $ 90,035
--------
--------
Net asset value & redemption price
per share - Class A
($54,402/4,500) $ 12.09(a)
--------
--------
Maximum offering price per share -
Class A ($12.09/.9650) $ 12.53(b)
--------
--------
Net asset value & offering price
per share - Class B
($19,964/1,654) $ 12.07(a)
--------
--------
Net asset value & offering price
per share - Class C
($13,013/1,078) $ 12.07(a)
--------
--------
Net asset value, offering &
redemption price per share - Class
Z ($2,656/220) $ 12.08
--------
--------
COMPOSITION OF NET ASSETS
Capital paid in $ 89,859
Undistributed net investment
income 289
Accumulated net realized gain 5
Net unrealized depreciation (118)
--------
$ 90,035
========
</TABLE>
(a) Redemption price per share is equal to net asset value less any applicable
early withdrawal charge.
(b) On sales of $100,000 or more the offering price is reduced.
STATEMENT OF OPERATIONS
For the Period Ended August 31, 2000(a)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest $3,012
Fee income 45
------
3,057
EXPENSES
Management fee $ 142
Administration fee 64
Service fee - Class A, Class B, Class
C 55
Distribution fee - Class A 12
Distribution fee - Class B 34
Distribution fee - Class C 20
Transfer agent fee 42
Bookkeeping fee 15
Trustees' fee 1
Custodian fee 29
Audit fee 25
Legal fee 79
Registration fee 90
Reports to Shareholders 9
Other 15
------
632
Fees and expenses waived or borne by
the Advisor (347)
------
Net operating expenses 285
Interest expense 464
Commitment fee 6 755
------ ------
Net Investment Income 2,302
------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO
POSITIONS
Net Realized Gain 5
Net Change in Unrealized
Appreciation/Depreciation (118)
------
Net Loss (113)
------
Increase in Net Assets from
Operations $2,189
------
------
(a) The Fund commenced investment operations on January
13, 2000.
</TABLE>
See notes to financial statements.
8
<PAGE> 11
STATEMENT OF CHANGES IN NET ASSETS
(In thousands)
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 2000(a)
---------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income 2,302
Net realized gain 5
Net change in unrealized
appreciation/depreciation (118)
-------
Net Increase from Operations 2,189
DISTRIBUTIONS:
From net investment income - Class A (1,074)
From net investment income - Class B (628)
From net investment income - Class C (285)
From net investment income - Class Z (138)
-------
64
-------
FUND SHARE TRANSACTIONS:
Receipts for shares sold - Class A 53,840
Value of distributions
reinvested - Class A 623
Cost of shares repurchased - Class A (70)
-------
54,393
-------
Receipts for shares sold - Class B 19,490
Value of distributions
reinvested - Class B 461
Cost of shares repurchased - Class B (15)
-------
19,936
-------
Receipts for shares sold - Class C 12,930
Value of distributions
reinvested - Class C 178
Cost of shares repurchased - Class C (106)
-------
13,002
-------
Receipts for shares sold - Class Z 2,525
Value of distributions
reinvested - Class Z 115
-------
2,640
-------
Net Increase from Fund Share
Transactions 89,971
-------
Total Increase 90,035
NET ASSETS
Beginning of period --
-------
End of period (including
undistributed net investment income
of $289) $90,035
=======
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 2000(a)
---------------------------------------------------------
<S> <C>
NUMBER OF FUND SHARES
Sold - Class A 4,455
Issued for distributions reinvested -
Class A 51
Repurchased - Class A (6)
-------
4,500
-------
Sold - Class B 1,617
Issued for distributions reinvested -
Class B 38
Repurchased - Class B (1)
-------
1,654
-------
Sold - Class C 1,072
Issued for distributions reinvested -
Class C 15
Repurchased - Class C (9)
-------
1,078
-------
Sold - Class Z 210
Issued for distributions reinvested -
Class Z 10
-------
220
-------
</TABLE>
(a) The Fund commenced investment operations on January 13, 2000.
See notes to financial statements.
9
<PAGE> 12
STATEMENT OF CASH FLOWS
August 31, 2000
(In thousands)
<TABLE>
<S> <C> <C>
CASH PROVIDED (USED) BY FINANCING
ACTIVITIES
Proceeds from capital
contributions $ 82,719
Payments for capital withdrawals (191)
Net borrowing 19,000
Distributions paid in cash (171)
---------
101,357
---------
CASH PROVIDED (USED) BY
OPERATIONS
Purchases of loan interests (104,316)
Proceeds from sales of loan
interests 3,570
Net purchases of short-term
portfolio securities (2,180)
Interest, fees and other income
received 3,057
Operating, interest and expenses
paid (755)
Net change in
receivables/payables related to
operations (726)
---------
(101,350)
---------
Net increase in cash 7
Cash, beginning of period --
---------
Cash, end of period 7
=========
</TABLE>
See notes to financial statements.
10
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
August 31, 2000
NOTE 1. ACCOUNTING POLICIES
ORGANIZATION:
Liberty Floating Rate Advantage Fund (formerly Liberty-Stein Roe Advisor
Floating Rate Advantage Fund) (the Fund), is a Massachusetts business trust,
registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end management investment company. The Fund's investment
objective is to provide a high level of current income, consistent with
preservation of capital. 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% early withdrawal charge
is assessed to Class A shares purchased without an initial sales charge on
redemptions made within eighteen months on an original purchase of $1 million to
$25 million. Class B shares are subject to an annual distribution fee and an
early withdrawal charge. Class B shares will convert to Class A shares in three,
four or eight years after purchase depending on the program under which shares
were purchased. Class C shares are subject to an early withdrawal charge on
redemptions made within one year after purchase and an annual distribution fee.
Class Z shares are offered continuously at net asset value. There are certain
restrictions on the purchase of Class Z shares, as described in the Fund's
prospectus.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies that are consistently followed by the Fund in the
preparation of its financial statements.
SECURITY VALUATION AND TRANSACTIONS:
Senior loans are generally valued using market prices or quotations provided by
banks, dealers or pricing services with respect to secondary market
transactions. In the absence of actual market values, Senior Loans will be
valued by Stein Roe & Farnham Inc. (the Advisor), an indirect, wholly-owned
subsidiary of Liberty Financial Companies, Inc. ("Liberty"), at fair value,
which is intended to approximate market value. In determining fair value, the
Advisor will consider on an ongoing basis, among other factors, (i) the
creditworthiness of the Borrower; (ii) the current interest rate, the interest
rate redetermination period and maturity of such Senior Loan interests; and
(iii) recent prices in the market for instruments of similar quality, rate and
interest rate redetermination period and maturity. Because of uncertainty
inherent in the valuation process, the estimated value of a Senior Loan interest
may differ significantly from the value that would have been used had there been
market activity for that Senior Loan interest.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
STATEMENT OF CASH FLOWS:
Information on financial transactions which have been settled through the
receipt or disbursement of cash is presented in the Statement of Cash Flows. The
cash amount shown in the Statement of Cash Flows is the amount included in the
Fund's Statement of Assets and Liabilities and represents cash on hand at its
custodian bank account and does not include any short-term investments at August
31, 2000.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS:
All income, expenses (other than the Class A, Class B and Class C service and
distribution fees), and realized and unrealized gains (losses) are allocated to
each class proportionately on a daily basis for purposes of determining the net
asset value of each class.
Class A, Class B and Class C per share data and ratios are calculated by
adjusting the expense and net investment income per share data and ratios for
the Fund for the entire period by the service and distribution fee per share
applicable to Class A, Class B and Class C shares.
FEDERAL INCOME TAXES:
Consistent with the Fund's policy to qualify as a regulated investment company
and to distribute all of its taxable income, no federal income tax has been
accrued.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM:
Interest income is recorded on the accrual basis. Facility fees received are
treated as market discounts.
11
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Market premiums and discounts are amortized over the estimated life of each
applicable security.
DISTRIBUTIONS TO SHAREHOLDERS:
Effective March 1, 2000, the Fund declares and records distributions daily and
pays monthly.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. 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.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE:
Stein Roe & Farnham, Inc. (the Advisor), is the investment Advisor of the Fund
and receives a monthly fee equal to 0.45% annually of the Fund's average daily
managed assets. Through April 30, 2000, the Advisor waived the entire management
fee.
ADMINISTRATION FEE:
Colonial Management Associates, Inc. (the Administrator), an affiliate of the
Advisor, provides accounting and other services for a monthly fee equal to 0.20%
annually of the Fund's average daily managed assets. Through April 30, 2000, the
Administrator waived the entire administration fee.
BOOKKEEPING FEE:
The Administrator provides bookkeeping and pricing services for a monthly fee
equal to $27,000 annually plus 0.035% annually of the Fund's average net assets
over $50 million.
TRANSFER AGENT FEE:
Liberty Funds Services, Inc. (the Transfer Agent), an affiliate of the
Administrator, provides shareholder services for a monthly fee comprised of
0.07% annually of average net assets plus charges based on the number of
shareholder accounts and transactions, and reimbursement of certain out of
pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES:
Liberty Funds Distributor, Inc. (the Distributor), a subsidiary of the
Administrator, is the Fund's principal underwriter. For the period ended August
31, 2000, the Fund has been advised that the Distributor retained net
underwriting discounts of $7,010 on sales of the Fund's Class A shares and
received early withdrawal charges (EWC) of none, $488 and $370 on Class A, Class
B and Class C share redemptions, respectively.
The Fund has adopted a 12b-1 plan which requires it to pay the Distributor a
service fee equal to 0.25% annually on Class A, Class B and Class C net assets
as of the 20th of each month. The plan also requires the payment of a monthly
distribution fee to the Distributor equal to 0.10%, 0.45% and 0.60% annually of
the average net assets attributable to Class A, Class B and Class C shares,
respectively.
The EWC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
EXPENSE LIMITS:
Beginning May 1, 2000 the Advisor has agreed, until further notice, to waive
fees and bear certain Fund expenses to the extent that total expenses (exclusive
of management fees, administration fees, service fees, distribution fees,
brokerage commissions, interest, commitment fees, taxes and extraordinary
expenses, if any) exceed 0.15% of average net assets.
For the period January 13, 2000 through April 30, 2000, the Advisor waived or
bore all expenses (exclusive of management fees, administration fees, service
fees, distribution fees, interest, commitment fees, taxes and extraordinary
expenses, if any).
OTHER:
The Fund pays no compensation to its officers, all of whom are employees of the
Advisor or Administrator.
The Fund's 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.
NOTE 3. PORTFOLIO INFORMATION
INVESTMENT ACTIVITY:
During the period ended August 31, 2000, purchases and sales of investments,
other than short-term obligations, were $104,316,244 and $3,570,006
respectively.
Unrealized appreciation (depreciation) at August 31, 2000, based on cost of
investments for both financial statement and federal income tax purposes was
approximately:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 285,000
Gross unrealized depreciation (403,000)
---------
Net unrealized depreciation $(118,000)
=========
</TABLE>
12
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OTHER:
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 4. TENDER OF SHARES
The Board of Trustees has adopted a policy of making tender offers on a
quarterly basis. The Board has designated the 15(th) day of March, June,
September and December, each year, or the next business day if the 15(th) is not
a business day as the Repurchase Request Deadline. Tender offers are made for a
portion of the Fund's then outstanding shares at the net asset value of the
shares as of the Repurchase Pricing Date. The tender offer amount, which is
determined by the Board of Trustees, will be at least 5% and no more than 25% of
the total number of shares outstanding on the Repurchase Request Deadline.
During the period ended August 31, 2000, there were two tender offers in May and
August. The Fund offered to repurchase 5.0% of its shares and 0.02% and 0.59%,
respectively, of shares outstanding were tendered.
NOTE 5. SENIOR LOAN PARTICIPATION COMMITMENTS
The Fund invests primarily in participations and assignments, or acts as a party
to the primary lending syndicate of a Variable Rate Senior Loan interest to
United States corporations, partnerships, and other entities. If the lead lender
in a typical lending syndicate becomes insolvent, enters FDIC receivership or,
if not FDIC insured, enters into bankruptcy, the Fund may incur certain costs
and delays in receiving payment or may suffer a loss of principal and/or
interest. When the Fund purchases a participation of a Senior Loan interest, the
Fund typically enters into a contractual agreement with the lender or other
third party selling the participation, but not with the borrower directly. As
such, the Fund assumes the credit risk of the Borrower, Selling Participant or
other persons interpositioned between the Fund and the Borrower.
NOTE 6. LOAN AGREEMENT
At August 31, 2000, the Fund had two term loans outstanding with Bank of America
Illinois, totaling $19,000,000, comprised of a $13,000,000 and a $6,000,000 term
loan both of which bear interest at 7.17% per annum, due September 11, 2000. The
average daily loan balance was $10,729,064 at a weighted average interest rate
of 7.79%. The Fund is required to maintain certain asset coverage with respect
to the loans.
NOTE 7. OTHER RELATED PARTY TRANSACTIONS
At August 31, 2000, the Fund had one shareholder, Liberty Financial Companies,
Inc., which is the indirect parent of the Advisor, who owned 29% of the Fund's
shares outstanding.
13
<PAGE> 16
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding
throughout each period are as follows:
<TABLE>
<CAPTION>
PERIOD ENDED AUGUST 31, 2000(b)
CLASS A CLASS B CLASS C CLASS Z
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE -- BEGINNING OF PERIOD $ 12.000 $ 12.000 $ 12.000 $ 12.000
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.645 0.624 0.615 0.667
Net realized and unrealized gain 0.066 0.046 0.046 0.056
-------- -------- -------- --------
Total from Investment Operations 0.711 0.670 0.661 0.723
-------- -------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.621) (0.600) (0.591) (0.643)
-------- -------- -------- --------
NET ASSET VALUE -- END OF PERIOD $ 12.090 $ 12.070 $ 12.070 $ 12.080
======== ======== ======== ========
Total return(c)(d)(e) 6.04% 5.69% 5.62% 6.11%
======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS
Operating expenses(f)(g) 1.01% 1.36% 1.51% 0.66%
Interest and commitment fees expenses(g) 1.91% 1.91% 1.91% 1.91%
Total expenses(f)(g) 2.92% 3.27% 3.42% 2.57%
Net investment income(f)(g) 9.49% 9.14% 8.99% 9.84%
Fees and expenses waived or borne by the Advisor(f)(g) 1.41% 1.41% 1.41% 1.41%
Portfolio turnover(e) 8% 8% 8% 8%
Net assets at end of period (000's) $ 54,402 $ 19,964 $ 13,013 $ 2,656
(a) Net of fees and expenses waived or borne by the
Advisor/Administrator which amounted to: $ 0.046 $ 0.046 $ 0.046 $ 0.046
</TABLE>
(b) The Fund commenced investment operations on January 13, 2000.
(c) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or early withdrawal sales charge.
(d) Had the Advisor not waived or reimbursed a portion of expenses, total return
would have been reduced.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(g) Annualized.
14
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE LIBERTY FLOATING RATE
ADVANTAGE FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations, changes in
net assets, cash flows and the financial highlights present fairly, in all
material respects, the financial position of the Liberty Floating Rate Advantage
Fund (the "Fund"), at August 31, 2000, and the results of its operations, the
changes in its net assets, its cash flows and its financial highlights for the
period January 13, 2000 (commencement of operations) through August 31, 2000, 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 audit. We conducted our audit 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 audit, which included
confirmation of securities at August 31, 2000 by correspondence with the
custodian and selling or agent banks, provides a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 25, 2000
15
<PAGE> 18
This page left intentionally blank.
<PAGE> 19
TRUSTEES & TRANSFER AGENT
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney (former Attorney, Kramer, Levin, Naftalis & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President -- Operations, The Rockport
Company)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
SALVATORE MACERA
Private Investor (formerly Executive Vice President of Itek Corp. and President
of Itek Optical & Electronic Industries, Inc.)
WILLIAM E. MAYER
Partner, Park Avenue Equity Partners (formerly Dean, College of Business and
Management, University of Maryland; Dean, Simon Graduate School of Business,
University of Rochester; Chairman and Chief Executive Officer, CS First Boston
Merchant Bank; and President and Chief Executive Officer, The First Boston
Corporation)
JAMES L. MOODY, JR.
Retired (formerly Chairman of the Board, Chief Executive Officer and Director,
Hannaford Bros. Co.)
JOHN J. NEUHAUSER
Academic Vice President and Dean of Faculties, Boston College (formerly Dean,
Boston College School of Management)
JOSEPH R. PALOMBO
Chief Operations Officer, Mutual Funds, Liberty Financial Companies, Inc.,
Executive Vice President and Director of Colonial Management Associates, Inc.
and Executive Vice President and Chief Administrative Officer of Liberty Funds
Group LLC (formerly Vice President of Liberty Funds Group -- Boston and Chief
Operating Officer, Putnam Mutual Funds)
THOMAS E. STITZEL
Business Consultant and Chartered Financial Analyst (formerly Professor of
Finance, College of Business, Boise State University)
ANNE-LEE VERVILLE
Consultant (formerly General Manager, Global Education Industry, and President,
Applications Solutions Division, IBM Corporation)
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Liberty Floating Rate Advantage Fund is:
Liberty Funds Services, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
The Fund mails one shareholder report to each shareholder address. If you would
like more than one report, please call 1-800-426-3750 and additional reports
will be sent to you. This report has been prepared for shareholders of Liberty
Floating Rate Advantage Fund.
This report may also be used as sales literature when preceded or accompanied by
the current prospectus which provides details of sales charges, investment
objectives and operating policies of the Funds and with the most recent copy of
the Liberty Funds Distributor, Inc. Performance Update.
Annual Report:
Liberty Floating Rate Advantage Fund
<PAGE> 20
[Back Cover]
GIVE ME LIBERTY.(R)
LIBERTY FUNDS BELIEVES IN FINANCIAL CHOICE
At Liberty, it's our job to help you achieve your financial goals. So whether
it's saving for your kids' education, building your retirement nest egg, or
managing your income... we can help. Liberty offers a diverse family of mutual
funds representing a wide selection of investment styles and specialized money
management. It's all designed to help you reach for financial freedom - however
you define it.
LIBERTY BELIEVES IN PROFESSIONAL ADVICE
Today's ever-changing financial markets can challenge even the most seasoned
investors. That's why we recommend working with a financial advisor. With an
advisor you have an experienced, knowledgeable professional looking out for your
best interests. Your advisor can help you establish a plan for reaching your
personal financial goals and help you stay on track over the long-term. It's a
relationship that's focused on you and your needs.
Liberty Floating Rate Advantage Fund Annual Report, August 31, 2000
Liberty Funds
Liberty Funds Distributor, Inc.(C)2000
One Financial Center, Boston, MA 02111-2621, 800-426-3750
www.libertyfunds.com
BULK RATE
U.S. POSTAGE
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HOLLISTON, MA
PERMIT NO. 20
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