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LIBERTY STRATEGIC INCOME FUND Semiannual Report
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June 30, 2000
[COVER PHOTO]
<PAGE>
President's Message
Dear Shareholder:
You may have noticed that your Fund has a new name. Beginning July 14, the names
of our funds 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 the
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 financial freedom -- however you define it.
The first six months of 2000 proved to be a volatile time for bond markets, with
ongoing inflation worries and rising interest rates creating a generally
unfavorable environment. The U.S. economy continued to grow at a rapid pace,
which prompted the Federal Reserve Board (the Fed) to boost short-term interest
rates in an effort to keep the threat of inflation under control. This trend of
higher interest rates hurt the value of bonds.
High-yield bonds went through a particularly difficult period, as investors
seemed to shift their interest away from bonds with lower credit quality. By
contrast, bonds from some emerging market countries enjoyed solid performance,
and many of the economies represented in the Fund continued to grow. Long-term
U.S. Treasury bonds also posted solid returns as investors gained confidence in
the Fed's efforts to reduce the threat of higher inflation in our growing
economy and budget surpluses allowed the government to buy back outstanding debt
reducing the supply.
For the six-month period ended June 30, 2000, the Liberty Strategic Income Fund
returned (0.17)% for Class A shares, without a sales charge. By comparison, its
peer group average as measured by Lipper was 0.42%.1 The Fund employs a
diversified strategy, spreading its assets among bonds from three distinct
sectors: U.S. government bonds, high-yield corporate bonds and foreign bonds. It
is an approach that has worked well for shareholders over the long run, as the
Fund continues to generate above-average returns for the trailing three-year and
five-year periods.
The following report will provide you with more specific information about the
factors that affected the Fund's performance over the past six months, and the
outlook for the remainder of the fiscal year. We appreciate that you've chosen
Liberty Strategic Income Fund, and we look forward to continuing to help you
meet your investment needs.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
August 10, 2000
(1) Lipper, Inc., a widely respected data provider in the industry, calculates
an average total return for mutual funds with similar investment objectives as
the Fund. The total return calculated for Lipper High Current Yield Funds
Category was 0.42% for the 6 months ended June 30, 2000. The Fund's Class A
shares were ranked in the 3rd quartile for one year, (84 out of 122), in the 2nd
quartile for three years (25 out of 80), in the 2nd quartile for five years (21
out of 54), and in the 3rd quartile for ten years (6 out of 10). Past
performance cannot predict future results.
Because economic and market conditions change, there can be no assurance that
the trends described in this report will continue or come to pass.
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Not FDIC May Lose Value
Insured No Bank Guarantee
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<PAGE>
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Highlights
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o Economic strength has a mixed effect
Increased confidence that the U.S. economic growth would slow allowed
yields on 30-year Treasury bonds to drop. It signaled investor approval of
the Fed's aggressive efforts to keep inflation in check by raising
short-term interest rates. In addition, the U.S. Treasury used current
surpluses to buy back long-term debt securities. While this helped lower
interest rates on long-term government bonds, corporate bonds,
particularly in the high-yield sector, lagged during the period. Overseas,
developed markets were penalized by the strength of the U.S. dollar, while
a number of emerging bond markets showed continued strength relative to
most fixed-income asset classes.
o High-yield becomes a bigger focus
Although the Fund made no major changes in its allocation between
different sectors of the market, some assets were shifted back into
high-yield bonds. After enduring a difficult first half of the year, this
market looks particularly attractive. Currently, the spread between yields
on high-yield bonds and those of U.S. Treasury bonds is the widest we've
seen since the early 1990s. We believe the high-yield market should
experience some recovery in the coming months.
o Keeping an eye out for a soft landing
In general, capital has been flowing out of the bond market and into
equities. However, there are signs that the Fed's effort to slow the pace
of economic growth has been a success. If the economy does taper off, but
a recession is avoided and inflation remains under control, bond markets
should respond favorably, and investors are likely to begin recognizing
attractive values in many segments of that market.
Net asset value per share
as of 6/30/00
Class A $6.32
--------------------------------
Class B $6.32
--------------------------------
Class C $6.32
--------------------------------
Class J $6.32
--------------------------------
Class Z $6.32
--------------------------------
Distributions declared
per share from 1/1/00-6/30/00
Class A $0.288
--------------------------------
Class B $0.264
--------------------------------
Class C $0.269
--------------------------------
Class J $0.277
--------------------------------
Class Z $0.296
--------------------------------
SEC yields on 6/30/00(1)
Class A 8.95%
--------------------------------
Class B 8.63%
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Class C 8.78%
--------------------------------
Class J 8.77%
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Class Z 9.65%
--------------------------------
(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 8.62%.
1
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Portfolio Manager's Report
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Top sovereign credit exposure
as of 6/30/00
United States 27.6%
--------------------------------
Brazil 3.2%
--------------------------------
Mexico 2.9%
--------------------------------
Norway 2.4%
--------------------------------
Greece 2.3%
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Portfolio structure
as of 6/30/00 vs. 12/31/99
[The table below was depicted as a bar chart in the printed material.]
Fund as of 6/30/00 Fund as of 12/31/99
------------------ -------------------
Corporate Bonds 42.0% 41.0%
Foreign Gov't. Bonds 25.2% 27.7%
U.S. Gov't. Bonds/Notes 24.0% 22.5%
U.S. Agencies 3.6% 3.3%
Stocks 3.0% 2.8%
Other 1.0% 1.7%
Cash Equivalents 1.2% 1.0%
Portfolio credit exposure and structure 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 these breakdowns and structure in the future.
Diversification helps smooth a bumpy road
For the six-month period ended June 30, 2000, the Fund's Class A shares had a
total return of (0.17)%, not including the sales charge. This return was lower
than comparable income funds ranked by Lipper, which earned a return of 0.42%
for the same period.
While long-term U.S. Treasury bonds performed well, most other parts of the
domestic bond market struggled during the first half of the year. This was
particularly true in the high-yield sector, where bond prices suffered as yields
went higher. Overseas, developing market bonds were down slightly, but we saw
stronger performance from emerging market bonds. By owning a diversified
portfolio of bonds across all of these sectors, the Fund was able to weather a
difficult period.
High-yield bonds hardest hit
By far, the largest sector represented in the Fund is high-yield bonds. These
are bonds that have lower credit quality, but typically pay a yield premium for
the risk involved. We take advantage of our extensive internal research team to
identify bond issuers that we believe offer the greatest potential for the Fund
with reduced risk. Nevertheless, the relative weakness of high-yield bond market
worked against the Fund in the first half of 2000. Cash flows into high-yield
bonds declined as assets were shifted to equity markets.
By the end of the period, we increased our holdings in this sector. That's
because this segment of the market now offers very attractive value to
investors. We anticipate that high-yield bonds will begin to enjoy a rebound,
and our heavy weighting in these bonds should prove beneficial.
Growing interest in emerging markets
The Fund's exposure to overseas bonds has continued to feature emerging market
securities. Part of the reason has been the strength of the dollar compared to
many developed markets, which has a negative effect on the Fund's return from
investments abroad. This currency risk is not a factor with many emerging market
bonds, which are denominated in U.S. dollars. We see the best emerging market
opportunities coming out of Latin America. In particular, Mexico and Brazil
continue to be attractive markets. The economies of both countries are
performing well, and some positive political trends have occurred in both
markets.
2
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Portfolio Manager's Report (continued)
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Eastern European markets also have some appeal. Russia is recovering from the
uncertainty surrounding the devaluation of the ruble. This is due in large part
to the recent rise in oil prices and increasing political credibility, both
encouraging signs that Russia is righting itself. We also boosted the Fund's
exposure to bonds from Poland and Turkey.
Encouraging signs for the rest of 2000
The Fed has continued to increase short-term interest rates in an effort to slow
down U.S. economic growth. It appears that this strategy has had an impact. If
the economy is able to grow at a slower pace with little threat of higher
inflation, we look for better performance from bond markets.
The wider yield spreads on most corporate bonds compared to U.S. Treasury
securities seem to offer the greatest opportunity in the current market. Yields
on corporate debt, particularly among lower-grade bonds, are extremely
attractive in today's environment. High-yield corporate bonds continue to
represent the largest holding in the Fund. Still, the Fund will maintain its
highly diversified approach in order to take advantage of opportunities wherever
they may present themselves.
/s/ Carl C. Ericson
Carl C. Ericson is a senior vice president of Colonial Management Associates,
Inc. (Advisor) and director of the Taxable Fixed Income Department. Mr. Ericson
has managed the Fund since 1991 and has been employed by the Advisor as a
portfolio manager since 1985.
Strategic investing offers attractive income and total return opportunities, but
also involves certain risks. The value and return of your investment may
fluctuate as a result of changes in interest rates, the financial strength of
issuers of lower-rated bonds, foreign and domestic, political and economic
developments, and changes in currency exchange rates.
HELD
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Cable (6.8% of net assets) Even with the boom in the Internet and in satellite
dish technology, cable television companies like Adelphia Communications (0.5%
of net assets) continue to claim a place of prominence in the media and
telecommunications market. Most of these companies boast very stable cash flows,
which should assure timely payment of interest and principal, and are backed by
a valuable portfolio of assets.
HELD
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Nextel (1.9% of net assets) is a major player in the wireless communications
industry. The company has an established business with real assets and real
profits. The firm is executing its business plan effectively and seems
positioned to perform well through nearly every portion of the economic cycle.
SOLD
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Greek government bonds (2.3% of net assets) Greece will soon become part of the
European Monetary Union (EMU), and its bonds should begin to perform more in
line with those of other developed nations in Europe. That results in less
return potential for the Fund. As a result we reduced our position.
3
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Performance Information
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Average Annual Total Returns as of 6/30/00
<TABLE>
<CAPTION>
Share Class A B C J Z
Inception Date 4/21/77 5/15/92 7/1/97 11/1/98 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
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Six-month (0.17)% (4.91)% (0.54)% (5.32)% (0.47)% (1.42)% (0.34)% (3.33)% (0.04)%
(cumulative)
--------------------------------------------------------------------------------------------------------------------------
1 year 1.16 (3.65) 0.40 (4.23) 0.56 (0.37) 0.81 (2.21) 1.41
--------------------------------------------------------------------------------------------------------------------------
5 years 6.58 5.55 5.79 5.50 6.20 6.20 6.46 5.81 6.66
--------------------------------------------------------------------------------------------------------------------------
10 years 8.26 7.73 7.61 7.61 8.07 8.07 8.20 7.87 8.30
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
Past performance cannot predict future results. Returns and value of an
investment will vary resulting in a gain or a loss on sale. All results shown
assume reinvestment of distributions. The "with sales charge" returns include
the maximum 4.75% sales charge for Class A shares, the appropriate Class B
contingent deferred sales charge for the holding period after purchase as
follows: 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 reimbursements of Fund
expenses by the Advisor of its affiliates. Absent these waivers or reimbursement
arrangements, performance results would have been lower.
Classes B, C, J, and Z share (newer classes) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These Class A share
returns are not restated to reflect any expense differential (e.g. Rule 12b-1
fees) between Class A shares and the newer class shares. Had the expense
differential been reflected, the returns for the periods prior to the inception
of Class B, Class C, and Class J shares would have been lower, and Class Z
shares would have been higher.
4
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Investment Portfolio
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June 30, 2000 (Unaudited)
(In thousands)
Bonds & Notes - 94.7% PAR VALUE
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CORPORATE FIXED INCOME BONDS & NOTES - 42.1%
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CONSTRUCTION - 0.4%
Building Construction
Atrium Companies, Inc.,
10.500% 05/01/09 $ 1,900 $ 1,615
Morrison Knudsen Corp.,
11.000% 07/01/10 5,550 5,522
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7,137
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FINANCE, INSURANCE & REAL ESTATE - 0.6%
Depository Institutions - 0.2%
Sovereign Bancorp, Inc.,
10.500% 11/15/06 3,350 3,322
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Financial Services - 0.4%
PDVSA Finance Ltd.,
Series 1999-I,
9.750% 02/15/10 4,557 4,441
U.S. Timberlands,
9.625% 11/15/07 4,000 3,580
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8,021
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MANUFACTURING - 14.2%
Chemicals & Allied Products - 2.5%
Agricultural Minerals Co., L.P.,
10.750% 09/30/03 8,450 5,492
Allied Waste North America, Inc.,
10.000% 08/01/09 11,250 9,393
Bio-Rad Labs,
11.625% 02/15/07 2,200 2,266
Huntsman ICI Holdings L.L.C.,
(b) 12/31/09 18,010 5,763
Hydrochem Industrial Services,
10.375% 08/01/07 5,120 3,916
LaRoche Industries, Inc.,
9.500% 09/15/07 (c) 5,250 997
Lyondell Chemical Co.,
10.875% 05/01/09 4,500 4,455
PCI Chemicals Canada, Inc.,
9.250% 10/15/07 5,000 3,150
Sterling Chemicals, Inc.:
11.750% 08/15/06 5,000 4,100
11.250% 04/01/07 7,150 5,720
Terra Industries, Inc.,
10.500% 06/15/05 1,250 800
Texas Petrochemical Corp.,
11.125% 07/01/06 3,425 2,911
Trans Resources, Inc.,
10.750% 03/15/08 3,035 607
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49,570
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Electronic & Electrical Equipment - 0.7%
Amphenol Corp.,
9.875% 05/15/07 450 454
Condor Systems, Inc.,
11.875% 05/01/09 (a) 4,000 1,940
Flextronics International Ltd.,
9.875% 07/01/10 3,670 3,715
Gentek, Inc.,
11.000% 08/01/09 2,750 2,791
TransDigm, Inc.,
10.375% 12/01/08 6,500 5,525
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14,425
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Fabricated Metal - 0.7%
Earle M. Jorgensen Co.,
9.500% 04/01/05 1,250 1,125
Euramax International, PLC,
11.250% 10/01/06 (d) 8,450 8,027
US Can Corp.,
10.125% 10/15/06 4,150 4,269
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13,421
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Food & Kindred Products - 0.6%
Chattem, Inc.,
8.875% 04/01/08 5,250 4,200
New World Pasta Co.,
9.250% 02/15/09 2,000 1,160
Premier International Foods, PLC,
12.000% 09/01/09 (a) 6,750 6,007
-------
11,367
-------
Furniture & Fixtures - 0.1%
Juno Lighting, Inc.,
11.875% 07/01/09 3,000 2,490
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Machinery & Computer Equipment - 0.7%
Globix Corp.,
12.500% 02/01/10 2,500 2,062
IMO Industries, Inc.,
11.750% 05/01/06 5,680 5,680
Numatics, Inc.,
9.625% 04/01/08 3,000 2,310
Tritel PCS, Inc.,
stepped coupon, (12.750% 05/11/04)
(b) 05/15/09 5,500 3,630
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13,682
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Measuring & Analyzing Instruments - 0.1%
Envirosource, Inc.,
9.750% 06/15/03 3,850 1,733
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Miscellaneous Manufacturing - 2.5%
Amscan Holdings, Inc.,
9.875% 12/15/07 2,750 2,255
Associated Materials, Inc.,
9.250% 03/01/08 1,000 940
Blount, Inc.,
13.000% 08/01/09 6,700 6,834
Delco Remy International, Inc.,
10.625% 08/01/06 1,800 1,800
Eagle-Picher Industries, Inc.,
9.375% 03/01/08 2,485 2,099
ISG Resources, Inc.,
10.000% 04/15/08 1,250 1,140
Koppers Industries, Inc.,
9.875% 12/01/07 7,525 6,998
Moll Industries, Inc.,
10.500% 07/01/08 4,850 1,213
See notes to investment portfolio.
5
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Investment Portfolio (continued)
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June 30, 2000 (Unaudited)
(In thousands)
Bonds & Notes (continued) PAR VALUE
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Newcor, Inc.,
9.875% 03/01/08 $ 5,000 $ 1,500
Owens-Illinois, Inc.:
7.350% 05/15/08 4,300 3,790
7.500% 05/15/10 3,700 3,227
Pentacon, Inc.,
12.250% 04/01/09 4,000 2,200
Station Casinos,
9.875% 07/01/10 1,250 1,256
Special Devices, Inc.,
11.375% 12/15/08 2,000 700
Tekni-Plex, Inc.,
12.750% 06/15/10 3,450 3,441
Terex Corp.,
8.875% 04/01/08 3,780 3,402
Thermadyne Holdings Corp.,
9.875% 06/01/08 4,280 3,381
United Industries, Corp.,
9.875% 04/01/09 1,700 1,020
Werner Holding Co.,
10.000% 11/15/07 1,750 1,684
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48,880
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Paper Products - 2.2%
Container Corp. of America,
Series A,
11.250% 05/01/04 7,500 7,613
Gaylord Container Corp.,
9.750% 06/15/07 4,515 3,567
Repap New Brunswick, Inc.:
9.000% 06/01/04 4,000 3,840
10.625% 04/15/05 8,000 7,200
Riverwood International Corp.:
10.625% 08/01/07 6,000 5,820
10.875% 04/01/08 7,500 6,600
Stone Container Corp.:
10.750% 10/01/02 6,750 6,851
12.250% 04/01/02 1,000 1,013
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42,504
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Petroleum Refining - 0.2%
Benton Oil & Gas Co.:
9.375% 11/01/07 5,045 3,153
11.625% 05/01/03 1,405 1,019
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4,172
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Primary Metal - 1.8%
Bayou Steel Corp.,
9.500% 05/15/08 5,000 4,275
Ivaco, Inc.,
11.500% 09/15/05 1,500 1,590
Kaiser Aluminum & Chemical Corp.:
12.750% 02/01/03 2,000 1,800
10.875% 10/15/06 6,400 6,128
Keystone Consolidated Industries, Inc.,
9.625% 08/01/07 7,250 5,655
Renco Metals, Inc.,
11.500% 07/01/03 6,000 2,280
WCI Steel, Inc.,
10.000% 12/01/04 7,900 7,505
Wheeling-Pittsburgh Corp.,
9.250% 11/15/07 8,500 5,695
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34,928
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Printing & Publishing - 0.4%
American Lawyer Media, Inc.:
9.750% 12/15/07 4,275 3,880
stepped coupon, (12.250% 12/15/02)
(b) 12/15/08 2,700 1,721
Cable Satisfaction International, Inc.,
12.750% 03/01/10 2,500 2,475
-------
8,076
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Rubber & Plastic - 0.6%
Burke Industries, Inc.,
10.000% 08/15/07 775 310
Metromedia Fiber Network, Inc.:
10.000% 12/15/09 6,000 5,880
10.000% 12/15/09 US 4,000 3,743
Portola Packaging, Inc.,
10.750% 10/01/05 2,000 1,700
-------
11,633
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Stone, Clay, Glass & Concrete - 0.1%
Anchor Glass Container Corp.,
11.250% 04/01/05 2,250 1,665
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Textile Mill Products - 0.2%
Holmes Products Corp.,
9.875% 11/15/07 4,000 2,800
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Transportation Equipment - 0.8%
Collins & Aikman Products Co.:
10.000% 01/15/07 350 340
11.500% 04/15/06 7,000 6,703
Dura Operating Corp.,
9.000% 05/01/09 4,000 3,480
LDM Technologies, Inc.,
10.750% 01/15/07 6,100 4,789
-------
15,312
-------
--------------------------------------------------------------------------------
MINING & ENERGY - 2.6%
Coal Mining - 0.1%
AEI Resources, Inc.,
10.500% 12/15/05 7,650 1,530
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Crude Petroleum & Natural Gas - 0.1%
Ferrellgas Finance Corp., L.P.,
9.375% 06/15/06 2,500 2,413
TransAmerica Energy Corp.,
13.000% 06/15/02 (c) 6,250 (e)
-------
2,413
-------
Gold & Silver Mining - 0.1%
Callahan Nrh
14.000% 07/15/10 2,710 2,717
See notes to investment portfolio.
6
<PAGE>
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Investment Portfolio (continued)
--------------------------------------------------------------------------------
June 30, 2000 (Unaudited)
(In thousands)
PAR VALUE
--------------------------------------------------------------------------------
Metal Mining - 0.4%
JL French Automotive Castings, Inc.,
11.500% 06/01/09 $ 4,000 $ 3,640
LTV Corp.,
11.750% 11/15/09 2,000 1,680
Metallurg, Inc.,
11.000% 12/01/07 2,200 1,859
-------
7,179
-------
Oil & Gas Extraction - 1.5%
Gulf Canada Resources Ltd.,
8.350% 08/01/06 2,500 2,470
HS Resources, Inc.,
9.250% 11/15/06 9,850 9,604
Magnum Hunter Resources, Inc.,
10.000% 06/01/07 1,750 1,654
Mariner Energy, Inc.,
10.500% 08/01/06 9,195 8,459
Ocean Energy, Inc.,
8.875% 07/15/07 1,290 1,280
Petsec Energy, Inc.,
9.500% 06/15/07 (c) 4,000 1,560
Transtexas Gas Corp.,
15.000% 03/15/05 765 520
Vintage Petroleum:
9.000% 12/15/05 3,250 3,234
9.750% 06/30/09 1,685 1,706
-------
30,487
-------
Oil & Gas Field Services - 0.4%
Parker Drilling Corp.,
9.750% 11/15/06 3,500 3,378
Pioneer Natural Resources Co.,
9.625% 04/01/10 2,000 2,070
Western Gas Resources, Inc.,
10.000% 06/15/09 2,250 2,284
-------
7,732
-------
--------------------------------------------------------------------------------
RETAIL TRADE - 0.5%
Food Stores
Pathmark Stores, Inc.:
9.625% 05/01/03 (c) 11,350 7,832
10.750% 11/01/03 (c) 5,500 275
Richmont Marketing,
10.125% 12/15/07 2,000 1,000
-------
9,107
-------
Home Furnishings & Equipment - 0.0%
Sealy Mattress Co.,
9.875% 12/15/07 1,000 965
-------
--------------------------------------------------------------------------------
SERVICES - 3.7%
Amusement & Recreation - 1.8%
Boyd Gaming Corp.,
9.500% 07/15/07 5,000 4,788
Coast Hotels & Casinos, Inc.,
9.500% 04/01/09 3,000 2,865
Hollywood Casino Corp.,
11.250% 05/01/07 7,500 7,669
Hollywood Casino Shreveport,
13.000% 08/01/06 3,000 3,188
Hollywood Park, Inc.:
9.250% 02/15/07 4,000 3,990
9.500% 08/01/07 1,500 1,493
Horseshoe Gaming, LLC,
9.375% 06/15/07 8,315 8,232
Mohegan Tribal Gaming,
8.750% 01/01/09 3,345 3,178
-------
35,403
-------
Business Services - 0.3%
Unisys Corp.,
11.750% 10/15/04 6,000 6,390
-------
Health Services - 0.6%
InSight Health Services Corp.:
9.625% 06/15/08 800 716
Tenet Healthcare Corp.:
8.125% 12/01/08 1,500 1,380
8.625% 01/15/07 10,450 10,006
-------
12,102
-------
Hotels, Camps & Lodging - 0.4%
Eldorado Resorts Corp.,
10.500% 08/15/06 7,850 7,772
-------
Other Services - 0.3%
Intertek Finance, PLC,
10.250% 11/01/06 5,850 4,797
Packaging Corp. of America,
9.625% 04/01/09 2,000 1,993
-------
6,790
-------
--------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 20.0%
Air Transportation - 0.4%
U.S. Air, Inc.,
10.375% 03/01/13 9,400 8,554
-------
Broadcasting - 1.5%
Allbritton Communications Co.,
9.750% 11/30/07 7,650 7,421
Cumulus Media, Inc.,
10.375% 07/01/08 350 305
Fox Family Worldwide, Inc.,
9.250% 11/01/07 6,150 5,597
LIN Holding Corp.,
stepped coupon, (10.000% 03/01/03)
(b) 03/01/08 8,000 5,260
LIN Television Corp.,
8.375% 03/01/08 2,250 2,014
Sinclair Broadcast Group, Inc.:
9.000% 07/15/07 4,300 3,838
10.000% 09/30/05 2,850 2,732
Young Broadcasting Corp.,
10.125% 02/15/05 3,000 2,895
-------
30,062
-------
See notes to investment portfolio.
7
<PAGE>
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Investment Portfolio (continued)
--------------------------------------------------------------------------------
June 30, 2000 (Unaudited)
(In thousands)
Bonds & Notes (continued) PAR VALUE
--------------------------------------------------------------------------------
Cable - 5.5%
Adelphia Communications Corp.:
8.375% 02/01/08 $ 2,500 $ 2,206
9.875% 03/01/07 7,000 6,703
Charter Communications Holding L.L.C.,
stepped coupon, (9.920% 04/01/04)
(b) 04/01/11 26,775 15,195
Comcast UK Cable Partners Ltd.,
stepped coupon, (11.200% 11/15/00)
(b) 11/15/07 9,950 9,303
Diamond Cable Communications Corp.,
stepped coupon, (10.750% 02/15/02)
(b) 02/15/07 8,770 6,687
EchoStar Communication Corp.,
4.875% 01/01/07 (a) 2,000 1,894
EchoStar DBS Corp.:
9.250% 02/01/06 16,000 15,520
9.375% 02/01/09 4,000 3,880
FrontierVision Holdings L.P. :
stepped coupon, (11.875% 09/15/01)
(b) 09/15/07 6,465 5,608
(b) 09/15/07 1,000 868
International CableTel, Inc.,
stepped coupon, (12.750% 04/15/00)
(b) 04/15/05 5,500 5,638
NTL, Inc.:
10.000% 02/15/07 1,500 1,425
11.500% 10/01/08 1,750 1,750
stepped coupon, (9.750% 04/15/04)
(b) 04/15/09 13,550 10,280
Northland Cable Television, Inc.,
10.250% 11/15/07 8,150 6,765
Rogers Cablesystems, Inc.,
10.000% 03/15/05 3,000 3,075
Shop At Home, Inc.,
11.000% 04/01/05 1,250 1,225
Telewest Communication PLC,
stepped coupon, (11.000% 10/01/00)
(b) 10/01/07 12,000 11,475
--------
109,497
--------
Communications - 2.9%
Call-Net Enterprises, Inc.,
stepped coupon, (8.940% 08/01/03)
(b) 05/15/09 13,100 4,978
CapRock Communications Corp.,
11.500% 05/01/09 8,500 7,650
Centennial Cellular Corp.,
10.750% 12/15/08 5,125 5,125
Covad Communications Group, Inc.,
12.500% 02/15/09 1,000 870
Diamond Holdings, PLC,
9.125% 02/01/08 750 698
Exodus Communications, Inc.:
10.750% 12/15/09 3,600 3,474
11.625% 07/15/10 4,525 4,548
Focal Communications Corp.,
stepped coupon, (12.125% 02/15/03)
(b) 02/15/08 2,000 1,340
Grapes Communications NV,
13.500% 05/15/10 3,000 2,664
Grupo Iusacell S.A.,
14.250% 12/01/06 1,000 1,023
Metrocall, Inc.,
9.750% 11/01/07 1,370 904
Orbital Imaging Corp.,
11.625% 03/01/05 4,000 1,830
Orbcomm Global L.P.,
14.000% 08/15/04 750 585
PTC International Finance B.V
stepped coupon, (10.750% 07/01/02)
(b) 07/01/07 1,700 1,216
Spectrasite Holdings, Inc.:
(b) 04/15/09 4,625 2,683
10.750% 03/15/10 1,250 1,244
Tele1 Europe BV,
11.875% 12/01/09 (f) 2,250 2,084
Time Warner Telecom L.L.C.,
9.750% 07/15/08 4,100 3,977
United Pan-Europe Communications N.V.,
(b) 02/01/10 5,000 2,400
11.500% 02/01/10 4,790 4,263
Verio, Inc.,
11.250% 12/01/08 4,011 4,452
--------
58,008
--------
Electric Services - 0.3%
The AES Corp.,
9.500% 06/01/09 7,050 6,909
--------
Motor Freight & Warehousing - 0.2%
MTL, Inc.,
10.000% 06/15/06 6,250 4,688
--------
Telecommunication - 9.1%
AirGate PCS, Inc.,
stepped coupon, (13.500% 10/01/04)
(b) 10/01/09 6,975 4,115
Arch Communication Group, Inc.,
12.750% 07/01/07 3,000 2,400
Arch Escrow Corp.,
13.750% 04/15/08 1,000 820
Carrier1 International S.A.,
13.250% 02/15/09 6,000 5,910
Clearnet Communications, Inc.,
stepped coupon, (10.125% 12/15/00)
(b) 12/15/05 7,500 7,725
Covad Communications Group, Inc.,
12.000% 02/15/10 1,000 840
Crown Castle International Corp.:
stepped coupon, (10.375% 05/15/04)
(b) 05/15/11 7,955 4,852
10.750% 08/01/11 1,200 1,218
See notes to investment portfolio.
8
<PAGE>
--------------------------------------------------------------------------------
Investment Portfolio (continued)
--------------------------------------------------------------------------------
June 30, 2000 (Unaudited)
(In thousands)
PAR VALUE
--------------------------------------------------------------------------------
Flag Telecom Holdings Ltd.,
11.625% 03/30/10 $ 3,000 $ 2,750
Flag Telecom Holdings
11.625% 03/30/10 1,250 1,200
Global Crossing Holdngs Ltd.,
9.125% 11/15/06 8,075 7,772
Hyperion Telecommunications, Inc.,
stepped coupon, (13.000% 04/15/01)
(b) 04/15/03 (a) 4,000 3,720
ICG Services, Inc.,
stepped coupon, (10.000% 02/15/03)
(b) 02/15/08 4,000 2,204
IPCS Inc.,
(b) 07/15/10 2,500 1,363
IntelCom Group (USA), Inc.,
stepped coupon, (12.500% 05/01/01)
(b) 05/01/06 2,000 1,659
Jazztel PLC,
13.250% 12/15/09 (g) 2,250 1,998
KMC Telecom Holdings, Inc.:
13.500% 05/15/09 6,000 5,280
stepped coupon, (12.500% 02/15/03)
(b) 02/15/08 2,000 980
Level 3 Communications, Inc.:
9.125% 05/01/08 3,675 3,298
11.000% 03/15/08 (a) 4,850 4,801
McLeodUSA, Inc.,
stepped coupon, (10.500% 03/01/02)
(b) 03/01/07 10,400 8,580
Metrocall, Inc.,
10.375% 10/01/07 4,400 3,058
MetroNet Communications Corp.,
12.000% 08/15/07 (a) 1,250 1,415
Microcell Telecommunications, Inc.,
stepped coupon, (14.000% 12/01/01)
(b) 06/01/06 3,000 2,782
Nextlink Communications, Inc.,
10.750% 11/15/08 7,500 7,406
Nextel Communications, Inc.:
9.375% 11/15/09 14,000 13,440
stepped coupon, (9.750% 10/31/02)
(b) 10/31/07 6,000 4,470
stepped coupon, (9.950% 02/15/03)
(b) 02/15/08 5,000 3,662
Nextel International, Inc.,
stepped coupon, (12.175% 04/15/03)
(b) 04/15/08 3,450 2,248
Nextel Partners, Inc.,
11.000% 03/15/10 (a) 1,500 1,492
Ono Finance PLC:
13.000% 05/01/09 8,000 7,840
14.000% 07/15/10 3,200 3,055
RCN Corp.,
stepped coupon, (11.250% 10/15/02)
(b) 10/15/07 6,000 3,660
Rhythms NetConnections, Inc.,
12.750% 04/15/09 4,000 2,800
Rogers Cantel, Inc.,
9.750% 06/01/16 1,990 2,109
Sprint Spectrum L.P.,
stepped coupon, (12.500% 08/15/01)
(b) 08/15/06 5,650 5,396
TeleCorp PCS, Inc.,
stepped coupon, (11.625% 04/15/09)
(b) 04/15/09 14,250 9,369
US Unwired, Inc.,
stepped coupon, (00.000% 00/00/00)
(b) 11/01/09 5,000 2,750
UbiquiTel Operating Co.,
stepped coupon, (00.000% 00/00/00)
(b) 04/15/10 4,300 2,473
Viatel, Inc.,
11.500% 03/15/09 6,000 4,560
Williams Communications Group, Inc.,
10.875% 10/01/09 11,750 11,456
Winstar Communications Unit,
12.750% 04/15/10 1,200 1,158
WinStar Equipment Corp.,
12.500% 04/15/08 (a) 3,900 3,803
Worldwide Fiber, Inc.,
12.000% 08/01/09 4,500 4,275
XM Satellite Radio Holdings, Inc.,
14.000% 03/15/10 (a) 2,000 1,770
--------
179,932
--------
Transportation Services - 0.1%
Moog, Inc.,
10.000% 05/01/06 1,125 1,119
--------
Water Transportation - 0.2%
Azurix Corp.,
10.375% 02/15/07 1,500 1,448
Azurix Corp.,
10.750% 02/15/10 (a) 3,350 3,216
--------
4,664
--------
TOTAL CORPORATE FIXED INCOME
BONDS & NOTES
(Cost of $978,229) 829,158
--------
--------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 27.6%
Federal Home Loan Mortgage Corp.:
6.468% 2000 10,000 10,000
7.500% 2016 88 86
8.000% 2016 511 512
8.500% 2007 519 528
8.750% 2005-2008 167 171
9.000% 2004-2022 531 616
9.250% 2008-2014 444 456
9.500% 2008-2016 455 473
9.750% 2008-2016 54 55
10.000% 2016-2019 593 626
10.500% 2020 365 392
10.750% 2010-2013 569 616
11.250% 2010 303 329
--------
14,860
--------
See notes to investment portfolio.
9
<PAGE>
--------------------------------------------------------------------------------
Investment Portfolio (continued)
--------------------------------------------------------------------------------
June 30, 2000 (Unaudited)
(In thousands)
Bonds & Notes (continued) PAR VALUE
--------------------------------------------------------------------------------
Federal National Mortgage Association:
6.500% 2050 $ 8,000 $ 7,542
7.500% 2006 325 326
8.000% 2008 377 382
8.250% 2007 75 75
8.500% 2008-2015 925 946
9.000% 2009-2021 1,959 2,017
9.250% 2016 186 192
10.000% 2016 714 755
10.500% 2016 789 847
----------
13,082
----------
Government National Mortgage Association:
7.000% 2030 9,000 8,747
8.500% 2006 30 31
9.000% 2008-2016 6,262 6,515
9.500% 2009-2017 2,713 2,863
10.000% 2001-2015 709 752
10.500% 2001-2018 194 209
11.000% 2009-2015 1,085 1,184
11.750% 2013 35 38
12.000% 2014 2 2
----------
20,341
----------
Sallie Mae,
6.248% 2000 22,300 22,300
----------
U.S. Treasury Bonds:
11.625% 11/15/04 54,206 65,047
12.000% 08/15/13 (h) 100,248 135,335
----------
200,382
----------
U.S. Treasury Notes:
8.875% 02/15/19 46,314 59,608
10.375% 11/15/12 (h) 58,131 71,473
11.875% 11/15/03 120,415 140,096
----------
271,177
----------
TOTAL U.S. GOVERNMENT
& AGENCY OBLIGATIONS
(Cost of $558,172) 542,142
----------
CURRENCY
--------------------------------------------------------------------------------
FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS - 25.2%
Federal Republic of Brazil,
12.000% 11/17/06 BC 4,800 4,972
Government of Mexico,
11.375% 09/15/16 (i) 16,632 18,994
Hellenic Republic:
8.600% 03/26/08 GD 4,640,000 15,061
8.800% 06/19/07 GD 3,660,000 11,898
8.900% 03/21/04 GD 6,224,000 19,198
Kingdom of Norway:
6.750% 01/15/07 NK 103,400 12,300
9.500% 10/31/02 NK 283,270 34,669
Kingdom of Sweden,
10.250% 05/05/03 SK 150,000 19,272
Ministry Finance Russia,
9.000% 03/25/04 RU 8,880 3,880
Poland Government Bond,
8.500% 10/12/04 PZ 93,300 17,067
Republic of Argentina:
11.250% 04/10/06 (j) DM 19,375 9,837
11.375% 01/30/17 (k) 21,910 19,609
Republic of Brazil:
10.125% 05/15/27 (l) 28,935 22,714
12.750% 01/15/20 (l) 18,110 17,318
14.500% 10/15/09 (l) 16,690 17,858
Republic of Bulgaria,
6.500% 07/28/11 (m) 24,900 19,702
Republic of Colombia,
11.750% 02/25/20 (n) 16,015 13,102
Republic of South Africa:
9.125% 05/19/09 (o) 3,000 2,974
12.000% 02/28/05 SR 64,800 9,033
13.000% 08/31/10 SR 32,600 4,500
Republic of Turkey:
11.875% 11/05/04 (p) 14,730 15,264
12.375% 06/15/09 (p) 16,250 17,233
Republic of Venezuela,
9.250% 09/15/27 (q) 16,560 10,905
Russian Federation,
11.000% 07/24/18 (r) 54,261 40,560
Treasury Corp. of Victoria,
10.250% 11/15/06 A$ 26,530 18,895
United Kingdom Treasury
10.000% 09/08/03 KB 23,995 40,627
United Mexican States:
8.625% 03/12/08 26,548 25,552
10.375% 01/29/03 (s) DM 23,470 12,289
Western Australia Treasury Corp.,
12.000% 08/01/01 A$ 31,584 19,978
----------
TOTAL FOREIGN GOVERNMENT
& AGENCY OBLIGATIONS
(Cost of $526,955) 495,263
----------
TOTAL BONDS & NOTES
(Cost of $2,063,356) 1,866,563
----------
Preferred Stocks - 2.4% SHARES
--------------------------------------------------------------------------------
MANUFACTURING - 0.0%
Fabricated Metal
TransTexas Gas Corp. 823 82
----------
--------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 2.4%
Broadcasting - 0.4%
Granite Broadcasting,
12.75% PIK 3 2,774
PriMedia, Inc.:
8.625% 8 638
9.200% 12 1,092
10.000% 35 3,378
----------
7,882
----------
See notes to investment portfolio.
10
<PAGE>
--------------------------------------------------------------------------------
Investment Portfolio (continued)
--------------------------------------------------------------------------------
June 30, 2000 (Unaudited)
(In thousands)
SHARES VALUE
-------------------------------------------------------------------------------
Cable - 1.3%
CSC Holdings Ltd.:
11.250% PIK 181 $ 19,203
11.750% PIK 51 5,430
----------
24,633
----------
Communications - 0.1%
Dobson Communications, Inc.,
12.250% PIK 2 1,611
----------
Telecommunication - 0.7%
NEXTLINK Communications, Inc.
13.500% PIK 3 2,477
Nextel Communications, Inc.:
11.125% PIK 5 4,634
13.000% PIK 6 5,982
----------
13,093
----------
TOTAL PREFERRED STOCKS
(Cost of $49,481) 47,301
----------
Common Stocks (t) - 0.3%
-------------------------------------------------------------------------------
CONSTRUCTION - 0.0%
Building Construction
Calton, Inc. 71 320
----------
-------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.1%
Depository Institutions
California Federal Bancorp, Inc.
9.125%, Series A 59 1,261
----------
-------------------------------------------------------------------------------
MANUFACTURING - 0.0%
Fabricated Metal
TransTexas Gas Corp. Class A 4 20
----------
Food & Kindred Products - 0.0%
Darling International, Inc. 80 90
----------
-------------------------------------------------------------------------------
MINING & ENERGY - 0.0%
Oil & Gas Extraction - 0.0%
Forest Oil Corp. 16 262
----------
-------------------------------------------------------------------------------
SERVICES - 0.0%
Business Services
Iron Mountain Inc. 1 50
----------
Health Services - 0.0%
Kuala Healthcare Affiliates, Inc. 177 44
----------
Communications - 0.0%
Tele1 Europe Holding AB ADR 28 339
----------
Local & Suburban Transit - 0.0%
Greyhound Lines, Inc. 1 (e)
----------
Motor Freight & Warehousing - 0.0%
St. Johnsbury Trucking Co. 31 (e)
Sun Carriers, Inc. 130 1
----------
1
----------
-------------------------------------------------------------------------------
Telecommunication - 0.3%
Nextel Communications, Inc. Class A 19 1,137
Price Communications Corp. 180 4,232
----------
5,369
----------
TOTAL COMMON STOCKS
(Cost of $7,798) 7,756
----------
Warrants (t) - 0.2%
-------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.0%
Depository Institutions
KMC Telecom Holdings, Inc., 2 5
----------
-------------------------------------------------------------------------------
MANUFACTURING - 0.0%
Rubber & Plastic - 0.0%
BPC Holdings Corp. (u) 3 60
----------
-------------------------------------------------------------------------------
RETAIL TRADE - 0.1%
Food Stores - 0.1%
Ono Finance PLC (a) 8 1,200
----------
-------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITATARY SERVICES - 0.5%
Cable - 0.0%
Cable Satisfaction 3 3
Wireless One, Inc. (u) 14 (e)
----------
3
----------
Communications - 0.0%
Splitrock Services, Inc., (a) 2 379
----------
Telecommunication - 0.4%
AirGate PCS, Inc. 11 593
Carrier 1 International 3 917
Clearnet Communications, Inc. 25 693
Hyperion Telecommunications, Inc. 3 878
MetroNet Communications Corp. 1 113
----------
3,193
----------
TOTAL WARRANTS
(Cost of $1,626) 4,840
----------
TOTAL INVESTMENTS
(Cost of $2,122,261) (v) 1,926,460
----------
Short-Term Obligations - 1.2% PAR
-------------------------------------------------------------------------------
Repurchase agreement with SBC Warburg
Ltd., dated 6/30/00, due 7/03/00 at 6.60%,
collateralized by U.S. Treasury notes with
various maturities to 2026, market value
$24,017 (repurchase proceeds $23,536) $ 23,523 23,523
----------
Forward Currency Contracts (w) - (0.0%) (1,491)
-------------------------------------------------------------------------------
Other Assets & Liabilities - 1.0% 19,056
-------------------------------------------------------------------------------
NET ASSETS - 100.0% $1,967,548
==========
See notes to investment portfolio.
11
<PAGE>
--------------------------------------------------------------------------------
Investment Portfolio (continued)
--------------------------------------------------------------------------------
Notes to Investment Portfolio:
--------------------------------------------------------------------------------
(a) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
2000, the value of these securities amounted to $24,944 or 1.3% of net
assets.
(b) Zero coupon bond. Shown parenthetically, for stepped coupon bonds, is the
interest rate to be paid and the date the Fund will begin accruing this
rate.
(c) This issuer is in default of certain debt covenants. Income is not being
accrued.
(d) This is a British security. Par amount is stated in U.S. dollars.
(e) Rounds to less than one.
(f) This is a Netherland security. Par amount is stated in Euro dollars.
(g) This is a British security. Par amount is stated in Euro dollars.
(h) This security, or a portion thereof, with a total market value of $206,809
is being used to collateralize the forward currency contracts shown below.
(i) This is a Mexican security. Par amount is stated in U.S. dollars.
(j) This is an Argentinean security. Par amount is stated in German
Deutschemarks.
(k) This is an Argentinean security. Par amount is stated in U.S. dollars.
(l) This is a Brazilian security. Par amount is stated in U.S. dollars.
(m) This is a Bulgarian security. Par amount is stated in U.S. dollars.
(n) This is a Columbian security. Par amount is stated in U.S. dollars.
(o) This is a South African security. Par amount is stated in U.S. dollars.
(p) This is a Turkish security. Par amount is stated in U.S. dollars.
(q) This is a Venezuelan security. Par amount is stated in U.S. dollars.
(r) This is a Russian security. Par amount is stated in U.S. dollars.
(s) This is a Mexican security. Par amount is stated in German Deutschemarks.
(t) Non-income producing.
(u) Represents fair value as determined in good faith under the direction of
the Trustees.
(v) Cost for federal income tax purposes is the same.
(w) As of June 30, 2000, the Fund entered into the following forward currency
exchange contracts:
Net Unrealized
Appreciation
Contracts In Exchange Settlement (Depreciation)
to Deliver For Date (U.S. $)
--------------------------------------------------------------------------------
EU 47,696 US$ 10,521 41,108 9/26/00 $(1,727)
KB 32,750 US$ 82,356 50,134 8/08/00 404
NK 212,571 US$ 32,012 24,468 7/26/00 (307)
SK 153,500 US$ 21,401 17,721 9/29/00 139
-------
(1,491)
-------
Summary of Securities
by Country Country Value % of Total
--------------------------------------------------------------------------------
United States $1,419,089 73.7
Brazil BZ 62,862 3.3
Mexico Mx 56,835 3.0
United Kingdom KB 50,653 2.6
Norway No 46,969 2.4
Greece GD 46,157 2.4
Russia Ru 44,440 2.3
Australia Au 38,873 2.0
Turkey Tu 32,497 1.7
Argentina Ar 29,446 1.5
Bulgaria Bu 19,702 1.0
Sweden Sw 19,272 1.0
Poland Po 17,067 0.9
South Africa SA 16,507 0.9
Columbia Co 13,102 0.7
Venezuela Ve 10,905 0.6
Netherland Ne 2,084 0.1
---------- -----
$1,926,460 100.0
========== =====
Certain securities are listed by country of underlying exposure but may trade
predominately on other exchanges.
Acronym Name
----------- --------------------
A$ Australian Dollars
Eu Euro
GD Greek Drachmas
KB British Pounds
NK Norwegian Krone
NZ New Zealand Dollars
PIK Payment-In-Kind
SK Swedish Krona
DM German Deutschemarks
BC Brazilian Reals
RU Russian Ruble
PZ Polish Zloty
SR South African Rand
See notes to financial statements.
12
<PAGE>
--------------------------------------------------------------------------------
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
June 30, 2000 (Unaudited)
(In thousands except for per share amounts and footnotes)
Assets
Investments at value (cost $2,122,261) $ 1,926,460
Short-term obligations 23,523
-----------
1,949,983
Receivable for:
Interest $ 45,658
Investments sold 26,389
Fund shares sold 10,159
Dividends 334
Foreign tax reclaims 322
Other 377 83,239
----------- -----------
Total Assets 2,033,222
Liabilities
Payable due to custodian bank 713
Unrealized depreciation on forward
currency contracts 1,491
Payable for:
Investments purchased 54,497
Fund shares repurchased 6,221
Distributions 25
Accrued:
Management fee 1,023
Distribution fee - Class J 14
Bookkeeping fee 45
Transfer agent fee 311
Deferred Trustees fees 23
Other 1,311
-----------
Total Liabilities 65,674
-----------
Net Assets $ 1,967,548
-----------
Net asset value & redemption price per share -
Class A ($587,143/92,902) $ 6.32(a)
-----------
Maximum offering price per share - Class A
($6.32/0.9525) $ 6.64(b)
-----------
Net asset value & offering price per share -
Class B ($795,468/125,887) $ 6.32(a)
-----------
Net asset value & offering price per share -
Class C ($47,203/7,470) $ 6.32(a)
-----------
Maximum offering price per share -
Class J ($533,045/84,406) $ 6.32
-----------
Net asset value, redemption & offering price
per share - Class Z ($4,689/741) $ 6.32
-----------
Composition of Net Assets
Capital paid in $ 2,310,492
Undistributed net investment income 2,011
Accumulated net realized loss (146,948)
Net unrealized depreciation on:
Investments (195,801)
Foreign currency transactions (2,206)
-----------
$ 1,967,548
-----------
(a) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
--------------------------------------------------------------------------------
Statement of Operations
--------------------------------------------------------------------------------
For the Six Months Ended June 30, 2000 (Unaudited)
(In thousands)
Investment Income
Interest $ 103,009
Dividends 3,033
---------
Total investment income (net of nonreclaimable 106,042
foreign taxes withheld at source which
amounted to $137)
Expenses
Management fee $ 6,475
Service fee - Class A, B, C, J 2,494
Distribution fee - Class B 3,183
Distribution fee - Class C 195
Distribution fee - Class J 957
Transfer agent fee 2,252
Bookkeeping fee 305
Trustees fees 46
Custodian fee 129
Audit fee 21
Legal fee 7
Registration fee 41
Reports to shareholders 26
Other 133
---------
Total expenses 16,264
Fees waived by the Distributor - Class C (39)
---------
16,225
---------
Net Investment Income 89,817
---------
Net Realized & Unrealized Loss
on Portfolio Positions
Net realized loss on:
Investments (40,263)
Foreign currency transactions (3,917)
---------
Net Realized Loss (36,346)
Net change in unrealized
appreciation /depreciation during
the period on:
Investments (60,500)
Foreign currency transactions (2,034)
---------
Net change unrealized
appreciation/depreciation (62,534)
---------
Net Loss (98,880)
---------
Decrease in Net Assets from Operations $ (9,063)
=========
See notes to financial statements.
13
<PAGE>
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
(In thousands)
(Unaudited)
Six months
ended Year ended
June 30, December 31,
----------- ------------
Increase (Decrease) in Net Assets 2000 1999(a)
-------------------------------------------------------------------------------
Operations:
Net investment income $ 89,817 $ 163,635
Net realized loss (36,346) (18,013)
Net change in unrealized appreciation/
depreciation (62,534) (126,786)
----------- -----------
Net Increase (Decrease) from
Operations (9,063) 18,836
Distributions:
From net investment income - Class A (27,671) (60,735)
From net investment income - Class B (34,545) (72,238)
From net investment income - Class C (2,156) (4,063)
From net investment income - Class J (23,466) (29,151)
From net investment income - Class Z (219) (311)
----------- -----------
(97,120) (146,662)
----------- -----------
Fund Share Transactions:
Receipts for shares sold - Class A 20,738 81,985
Value of distributions reinvested - Class A 14,926 33,396
Cost of shares repurchased - Class A (89,213) (181,419)
----------- -----------
(53,549) (66,038)
----------- -----------
Receipts for shares sold - Class B 47,679 239,747
Value of distributions reinvested - Class B 18,540 38,770
Cost of shares repurchased - Class B (145,258) (216,394)
----------- -----------
(79,039) 62,123
----------- -----------
Receipts for shares sold - Class C 6,799 35,531
Value of distributions reinvested - Class C 1,426 2,870
Cost of shares repurchased - Class C (15,810) (14,349)
----------- -----------
(7,585) 24,052
----------- -----------
Receipts for shares sold - Class J 55,953 590,145
Value of distributions reinvested - Class J 1 8
Cost of shares repurchased - Class J (65,521) (46,669)
----------- -----------
(9,567) 543,484
----------- -----------
Receipts for shares sold - Class Z 262 6,758
Value of distributions reinvested - Class Z 218 311
Cost of shares repurchased - Class Z (497) (1,865)
----------- -----------
(17) 5,204
----------- -----------
Net Increase (Decrease) from Fund Share
Transaction (149,757) 568,825
----------- -----------
Total Increase (Decrease) (246,877) 421,163
----------- -----------
Net Assets
Beginning of period 2,214,425 1,793,262
----------- -----------
End of period (including undistributed
net investment income of $2,011 and $251,
respectively) $ 1,967,548 $ 2,214,425
=========== ===========
Number of Fund Shares
Sold - Class A 3,221 11,923
Issued for distributions reinvested -
Class A 2,323 4,891
Repurchased - Class A (13,804) (26,401)
----------- -----------
(8,260) (9,587)
----------- -----------
Sold - Class B 7,392 34,776
Issued for distributions reinvested -
Class B 2,885 5,686
Repurchased - Class B (22,493) (31,737)
----------- -----------
(12,216) 8,725
----------- -----------
Sold - Class C 1,052 5,149
Issued for distributions reinvested -
Class C 222 422
Repurchased - Class C (2,452) (2,116)
----------- -----------
(1,178) 3,455
----------- -----------
Sold - Class J 8,693 85,835
Issued for distributions reinvested -
Class J -- 1
Repurchased - Class J (10,182) (6,858)
----------- -----------
(1,489) 78,978
----------- -----------
Sold - Class Z 40 977
Issued for distributions reinvested -
Class Z 34 46
Repurchased - Class Z (77) (279)
----------- -----------
(3) 744
----------- -----------
(a) Class Z shares were initially offered on January 29, 1999.
See notes to financial statements.
14
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
June 30, 2000 (Unaudited)
Note 1. Interim Financial Statements
In the opinion of management of Liberty Strategic Income Fund (formerly Colonial
Strategic Income Fund) (the Fund), a series of Liberty Funds Trust I, the
accompanying financial statements contain all normal and recurring adjustments
necessary for the fair presentation of the financial position of the Fund at
June 30, 2000, and the results of its operations, the changes in its net assets
and the financial highlights for the six months then ended.
Note 2. Accounting Policies
Organization:
The Fund 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 objective is to seek as
high a level of current income and total return, as is consistent with prudent
risk, by diversifying investments primarily in U.S. and foreign government and
lower rated corporate debt securities. 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 is assessed to Class A shares purchased without
an initial sales charge on redemptions made within eighteen months on an
original purchase of $1 million to $25 million. Class B shares are subject to an
annual distribution fee and a contingent deferred sales charge. Class B shares
will convert to Class A shares as follows:
Converts to
Original purchase Class A shares
----------------- --------------
Less than $250,000 8 years
$250,000 to less than $500,000 4 years
$500,000 to less than $1,000,000 3 years
Class C shares are subject to a contingent deferred sales charge on redemptions
made within one year after purchase and an annual distribution fee. Class J
shares are subject to an annual distribution fee and are available for purchase
only by residents or citizens of Japan. Class Z shares are offered continuously
at net asset value. There are certain restrictions on the purchase of Class Z
shares, as defined in the Fund's prospectus.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported 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 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
current quoted bid prices.
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 value of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates.
Portfolio positions for which market quotations are not readily available are
valued at fair value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
Determination of class net asset values and financial highlights:
All income, expenses (other than the Class A, Class B, Class C and Class J
service fees and Class B, Class C and Class J distribution fees), 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 the 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. Original issue discount is
accreted to interest income over the life of a security with a corresponding
increase in the cost basis; premium and market discount are not amortized or
accreted.
The value of additional securities received as an interest payment is recorded
as income and as the cost basis of such securities.
Distributions to shareholders:
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
15
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
June 30, 2000 (Unaudited)
to the Fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryforwards) under income tax
regulations.
Foreign currency transactions:
Net realized and unrealized gains (losses) on foreign currency transactions
includes the fluctuation in exchange rates on gains (losses) 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 contracts are used to minimize the
exposure to foreign exchange rate fluctuations during the period between trade
and settlement date of the contracts. The Fund may also enter into forward
currency contracts to hedge certain other foreign currency denominated assets.
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 foreign currency
transactions. 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 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 nonrebatable 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 3. Fees and Compensation Paid to Affiliates
Management fee:
Colonial Management Associates, Inc. (the Advisor) 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 net assets as follows:
Average Net Assets Annual Fee Rate
------------------ ---------------
First $1 billion 0.65%
Over $1 billion 0.60%
Bookkeeping fee:
The Advisor provides bookkeeping and pricing services for a monthly fee equal to
$27,000 annually plus a percentage of the Fund's average net assets as follows:
Average Net Assets Annual Fee Rate
------------------ ---------------
First $50 million No charge
Next $950 million 0.035%
Next $1 billion 0.025%
Transfer agent:
Liberty Funds Services, Inc., (the Transfer Agent), an affiliate of the Advisor,
provides shareholder services for a monthly fee equal to 0.20% annually of the
Fund's average net assets and receives reimbursement for certain out-of-pocket
expenses through December 31, 1999.
Effective January 1, 2000, the Transfer Agent fee was changed to a fee comprised
of 0.07% annually of average net assets plus charges based on the number of
shareholder accounts and transactions. The Transfer Agent continues to receive
reimbursement for certain out-of-pocket expenses.
Underwriting discounts, service and distribution fees:
Liberty Funds Distributor Inc., (the Distributor), a subsidiary of the Advisor,
is the Fund's principal underwriter. For the six months ended June 30, 2000, the
Fund has been advised that the Distributor retained net underwriting discounts
of $25,913 on sales of the Fund's Class A shares and received contingent
deferred sales charges (CDSC) of $17,845, $1,654,076 and $15,117 on Class A,
Class B and Class C share redemptions, respectively.
The Fund has adopted a 12b-1 plan which requires the payment of a distribution
fee to the Distributor equal to 0.75% annually of the average net assets
attributable to Class B and Class C shares and 0.35% annually of the average net
assets attributable to Class J shares. The Distributor has voluntarily agreed,
until further notice, to waive a portion of the Class C share distribution fees
so that it does not exceed 0.60% annually. The plan also requires the payment of
a service fee to the Distributor as follows:
Value of shares Annual
outstanding on the 20th of Fee
each month which were issued Rate
---------------------------- ------
Prior to January 1, 1993 0.15%
On or after January 1, 1993 0.25%
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
16
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
Other:
The Fund pays no compensation to its officers, all of whom are employees of the
Advisor.
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 4. Portfolio Information
Investment activity:
For the six months ended June 30, 2000, purchases and sales of investments,
other than short-term obligations, were $490,363,509 and $576,602,954,
respectively, of which $126,611,108 and $96,644,262, respectively, were U.S.
government securities.
Unrealized appreciation (depreciation) at June 30, 2000, based on cost of
investments for both financial statement and federal income tax purposes was:
Gross unrealized appreciation $ 32,160,076
Gross unrealized depreciation (227,442,024)
-------------
Net unrealized depreciation $(195,281,948)
=============
Capital loss carryforwards:
At December 31, 1999, capital loss carry-forwards available (to the extent
provided in regulations) to offset future realized gains were approximately as
follows:
Year of Capital loss
expiration carryforward
---------- ------------
2000 $ 23,761,000
2001 3,442,000
2002 42,652,000
2003 18,825,000
2004 21,542,000
------------
$110,222,000
============
Expired capital loss carryforwards, if any, are recorded as a reduction of
capital paid in.
To the extent loss carryforwards are used to offset any future realized gains,
it is unlikely that such gains would be distributed since they may be taxable to
shareholders as ordinary income.
Other:
There are certain additional risks involved when investing in foreign securities
that are not inherent with investments in domestic securities. These risks may
involve foreign currency exchange rate fluctuations, adverse political and
economic developments and the possible prevention of foreign currency exchange
or the imposition of other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
Note 5. Line of Credit
The Fund may borrow up to 33 1/3% of its net assets under a line of credit for
temporary or emergency purposes. Any borrowings bear interest at one of the
following options determined at the inception of the loan: (1) federal funds
rate plus 1/2 of 1%, (2) the lending bank's base rate or (3) IBOR offshore loan
rate plus 1/2 of 1%. There were no borrowings under the line of credit during
the six months ended June 30, 2000.
17
<PAGE>
Financial Highlights
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
(Unaudited)
Six months ended June 30, 2000
---------------------------------------------------------------
Class A Class B Class C Class J Class Z
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $ 6.620 $ 6.620 $ 6.620 $ 6.620 $ 6.620
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (a) 0.292 0.268 0.273(b) 0.281 0.300
Net realized and unrealized loss (0.304) (0.304) (0.304) (0.304) (0.304)
-------- -------- -------- -------- --------
Total from Investment Operations (0.012) (0.036) (0.031) (0.023) (0.004)
-------- -------- -------- -------- --------
Less Distributions Declared to Shareholders:
From net investment income (0.288) (0.264) (0.269) (0.277) (0.296)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 6.320 $ 6.320 $ 6.320 $ 6.320 $ 6.320
======== ======== ======== ======== ========
Total return (c)(d) (0.17)% (0.54)% (0.47)%(e) (0.34)% (0.04)%
-------- -------- -------- -------- --------
Ratios to Average Net Assets
Expenses (f)(g) 1.16% 1.91% 1.76%(b) 1.51% 0.91%
Net investment income (f)(g) 9.06% 8.31% 8.46%(b) 8.71% 9.31%
Portfolio turnover (d) 22% 22% 22% 22% 22%
Net assets at end of period (000) $587,143 $795,468 $ 47,203 $533,045 $ 4,689
</TABLE>
(a) The per share net investment income amounts do not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(b) Net of fees waived by the Distributor which amounted to $0.005 per share
and 0.15% (annualized).
(c) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(d) Not annualized.
(e) Had the Distributor not waived a portion of expenses, total return would
have been reduced.
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(g) Annualized.
<TABLE>
<CAPTION>
Year ended December 31, 1999
----------------------------------------------------------------
Class A Class B Class C Class J Class Z(b)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $ 7.110 $ 7.110 $ 7.110 $ 7.100 $ 7.100
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (a) 0.563 0.511 0.522(c) 0.539 0.531
Net realized and unrealized loss (0.477) (0.477) (0.477) (0.467) (0.468)
-------- -------- -------- -------- --------
Total from Investment Operations 0.086 0.034 0.045 0.072 0.063
-------- -------- -------- -------- --------
Less Distributions Declared to Shareholders:
From net investment income (d) (0.576) (0.524) (0.535)(f) (0.552) (0.543)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 6.620 $ 6.620 $ 6.620 $ 6.620 $ 6.620
======== ======== ======== ======== ========
Total return (e) 1.28% 0.52% 0.67%(f) 1.07% 1.50%(f)(g)
-------- -------- -------- -------- --------
Ratios to Average Net Assets
Expenses (h) 1.19% 1.94% 1.79%(c) 1.54% 0.95%(i)
Net investment income (h) 8.30% 7.55% 7.70%(c) 7.95% 8.54%(i)
Portfolio turnover 44% 44% 44% 44% 44%
Net assets at end of period (000) $669,795 $914,145 $ 57,246 $568,311 $ 4,928
</TABLE>
(a) The per share net investment income amounts do not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(b) Class Z shares were initially offered on January 29, 1999. Per share
amounts reflect activity from that date.
(c) Net of fees waived by the Distributor for Class C shares which amounted to
$0.010 per share and 0.15%.
(d) Distributions from income include currency gains and gains on securities
treated as ordinary income for tax purposes.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or 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 had no impact.
(i) Annualized.
18
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------------------------------------------------------
1998
---------------------------------------------------
Class A Class B Class C Class J(a)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 7.320 $ 7.320 $ 7.320 $ 7.000
-------- -------- -------- --------
Income from Investment Operations:
Net investment income 0.561 0.506 0.517 (c) 0.083
Net realized and unrealized gain (loss) (0.195) (0.195) (0.195) 0.109(d)
-------- -------- -------- --------
Total from Investment Operations 0.366 0.311 0.322 0.192
-------- -------- -------- --------
Less Distributions Declared to Shareholders:
From net investment income (e) (0.576) (0.521) (0.532) (0.092)
-------- -------- -------- --------
Net Asset Value, End of Period $ 7.110 $ 7.110 $ 7.110 $ 7.100
======== ======== ======== ========
Total return (f) 5.17% 4.38% 4.54%(g) 2.74%(h)
-------- -------- -------- --------
Ratios to Average Net Assets
Expenses (i) 1.15% 1.90% 1.75%(c) 1.49%(j)
Net investment income (i) 7.88% 7.13% 7.28%(c) 7.76%(j)
Portfolio turnover 64% 64% 64% 64%
Net assets at end of period (000) $787,461 $919,740 $ 36,918 $ 49,143
<CAPTION>
Year ended December 31
----------------------------------------------------------------------------------
1997
-----------------------------------
Class A Class B Class C(b)
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 7.310 $ 7.310 $ 7.240
-------- -------- --------
Income from Investment Operations:
Net investment income 0.578 0.524 0.271
Net realized and unrealized gain (loss) 0.025 0.025 0.092
-------- -------- --------
Total from Investment Operations 0.603 0.549 0.363
-------- -------- --------
Less Distributions Declared to Shareholders:
From net investment income (e) (0.593) (0.539) (0.283)
-------- -------- --------
Net Asset Value, End of Period $ 7.320 $ 7.320 $ 7.320
======== ======== ========
Total return (f) 8.61% 7.81% 5.06%(h)
-------- -------- --------
Ratios to Average Net Assets
Expenses (i) 1.18% 1.93% 1.78%(j)
Net investment income (i) 7.78% 7.03% 7.13%(j)
Portfolio turnover 111% 111% 111%
Net assets at end of period (000) $808,228 $833,865 $ 6,212
</TABLE>
(a) Class J shares were initially offered on November 2, 1998. Per share data
reflects activity from that date.
(b) Class C shares were initially offered on July 1, 1997. Per share data
reflects activity from that date.
(c) Net of fees waived by the Distributor for Class C shares which amounted to
$0.011 per share and 0.15%.
(d) The amount shown for a share outstanding does not correspond with the
aggregate net loss on investments for the period due to the timing of
sales and repurchase of fund shares in relation to fluctuating market
values of the investments of the Fund.
(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) Had the Distributor not waived a portion of expenses, total return would
have been reduced.
(h) Not annualized.
(i) The benefits derived from custory credits and directed brokerage
arrangements had no impact.
(j) Annualized.
<TABLE>
<CAPTION>
Years ended December 31
---------------------------------------------------
1996 1995
----------------------- ---------------------
Class A Class B Class A Class B
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 7.220 $ 7.220 $ 6.530 $ 6.530
-------- -------- -------- --------
Income from Investment Operations:
Net investment income 0.623 0.569 0.621 0.569
Net realized and unrealized gain (loss) 0.081 0.081 0.650 0.650
-------- -------- -------- --------
Total from Investment Operations 0.704 0.650 1.271 1.219
-------- -------- -------- --------
Less Distributions Declared to Shareholders:
From net investment income (0.614)(a) (0.560)(a) (0.581) (0.529)
-------- -------- -------- --------
Net Asset Value, End of Period $ 7.310 $ 7.310 $ 7.220 $ 7.220
======== ======== ======== ========
Total return (b) 10.24% 9.43% 20.17% 19.29%
-------- -------- -------- --------
Ratios to Average Net Assets
Expenses (c) 1.18% 1.93% 1.18% 1.97%
Net investment income (c) 8.01% 7.26% 8.42% 7.63%
Portfolio turnover 110% 110% 83% 83%
Net assets at end of period (000) $755,352 $783,620 $714,961 $714,049
</TABLE>
(a) Distributions from income include currency gains and gains on securities
treated as ordinary income for tax purposes.
(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(c) The benefits derived from custory credits and directed brokerage
arrangements had no impact.
19
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
20
<PAGE>
Trustees & Transfer Agent
--------------------------------------------------------------------------------
Tom Bleasdale
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
Lora S. Collins
Attorney (formerly 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)
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 Strategic Income 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 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.
Semiannual Report:
Liberty Strategic Income Fund
<PAGE>
--------------------------------------------------------------------------------
Choose Liberty
--------------------------------------------------------------------------------
Because no single investment manager can be all things to all investors.(SM)
L I B E R T Y
---------------------------------
F U N D S
ALL-STAR Institutional money management approach for individual
investors.
COLONIAL Fixed income and value style equity investing.
CRABBE
HUSON A contrarian approach to fixed income and equity investing.
NEWPORT A leader in international investing.(SM)
STEIN ROE
ADVISOR Innovative solutions for growth and income investing.
[KEYPORT LOGO] A leading provider of innovative annuity products.
Liberty's mutual funds are offered by prospectus through Liberty Funds
Distributor, Inc.
Before you invest, consult your financial advisor.
Your financial advisor can help you develop a long-term plan for reaching your
financial goals.
--------------------------------------------------------------------------------
LIBERTY STRATEGIC INCOME FUND Semiannual Report
--------------------------------------------------------------------------------
[LOGO] L I B E R T Y
----------------------
F U N D S
ALL-STAR o COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)2000
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
-------------
BULK RATE
U.S. POSTAGE
PAID
HOLLISTON, MA
PERMIT NO. 20
-------------
716-03/248C-0700 (8/00) 00/1369
<PAGE>
--------------------------------------------------------------------------------
Choose Liberty
--------------------------------------------------------------------------------
Because no single investment manager can be all things to all investors.(SM)
L I B E R T Y
---------------------------------
F U N D S
ALL-STAR Institutional money management approach for individual
investors.
COLONIAL Fixed income and value style equity investing.
CRABBE
HUSON A contrarian approach to fixed income and equity investing.
NEWPORT A leader in international investing.(SM)
STEIN ROE
ADVISOR Innovative solutions for growth and income investing.
[KEYPORT LOGO] A leading provider of innovative annuity products.
Liberty's mutual funds are offered by prospectus through Liberty Funds
Distributor, Inc.
Before you invest, consult your financial advisor.
Your financial advisor can help you develop a long-term plan for reaching your
financial goals.
--------------------------------------------------------------------------------
LIBERTY STRATEGIC INCOME FUND Semiannual Report
--------------------------------------------------------------------------------
[LOGO] L I B E R T Y
----------------------
F U N D S
ALL-STAR o COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)2000
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
716-03/248C-0700 (8/00) 00/1369
<PAGE>
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Choose Liberty
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Because no single investment manager can be all things to all investors.(SM)
L I B E R T Y
---------------------------------
F U N D S
ALL-STAR Institutional money management approach for individual
investors.
COLONIAL Fixed income and value style equity investing.
CRABBE
HUSON A contrarian approach to fixed income and equity investing.
NEWPORT A leader in international investing.(SM)
STEIN ROE
ADVISOR Innovative solutions for growth and income investing.
[KEYPORT LOGO] A leading provider of innovative annuity products.
Liberty's mutual funds are offered by prospectus through Liberty Funds
Distributor, Inc.
Before you invest, consult your financial advisor.
Your financial advisor can help you develop a long-term plan for reaching your
financial goals.
--------------------------------------------------------------------------------
LIBERTY STRATEGIC INCOME FUND Semiannual Report
--------------------------------------------------------------------------------
[LOGO] L I B E R T Y
----------------------
F U N D S
ALL-STAR o COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR
716-03/248C-0700 (8/00) 00/1369
