N-30D 1 file001.txt LIBERTY MANAGED MUNICIPALS FUND LIBERTY MANAGED MUNICIPALS FUND Semiannual Report December 31, 2002 [Photo of man] ELIMINATE CLUTTER IN TWO EASY STEPS. POINT. CLICK. LIBERTY EDELIVERY. For more information about receiving your shareholder reports electronically, call us at 800-345-6611. To sign up for eDelivery, visit us online at www.libertyfunds.com. LIBERTY MANAGED MUNICIPALS FUND Semiannual Report December 31, 2002 [Photo of man] ELIMINATE CLUTTER IN TWO EASY STEPS. POINT. CLICK. LIBERTY EDELIVERY. To sign up for eDelivery, go to www.icsdelivery.com. PRESIDENT'S MESSAGE [Photo of Keith T. Banks] Dear Shareholder: The municipal bond market generated positive results despite a mixed environment over the past six months. Declining interest rates in the first half of the period were favorable for municipal bonds, which also benefited from investor interest in the sector's relative stability and attractive after-tax returns. However, the environment weakened as interest rates rose in the final three months of the period and investors began to fear the pressures that tax cuts and a weaker-than-expected economy could have on revenues for states and municipalities. The following report will provide you with more detailed information about the performance of Liberty Managed Municipals Fund and the strategies used by the fund's manager. As always, we thank you for investing in Liberty funds and for giving us the opportunity to help you build a strong financial future. Sincerely, /s/ Keith T. Banks Keith T. Banks President NET ASSET VALUE PER SHARE as of 12/31/02 ($) Class A 9.14 Class B 9.14 Class C 9.14 Class Z 9.14 DISTRIBUTIONS DECLARED PER SHARE 7/1/02 - 12/31/02 ($) Class A 0.06 Class B 0.05 Class C 0.06 Class Z 0.20 o NOT FDIC INSURED o MAY LOSE VALUE o NO BANK GUARANTEE Economic and market conditions change frequently. There is no assurance that the trends described in this report will continue or commence. PERFORMANCE INFORMATION Value of a $10,000 investment 12/31/92 - 12/31/02 PERFORMANCE OF A $10,000 INVESTMENT 12/31/92 - 12/31/02 ($) without with sales sales charge charge -------------------------------------- Class A 18,135 17,275 -------------------------------------- Class B 18,114 18,114 -------------------------------------- Class C 18,122 18,122 -------------------------------------- Class Z 18,147 n/a [mountain chart data]: Class A shares Class A shares Lehman Bros. without sales charge with sales charge Municipal Bond Index 12/1992 $10,000 $ 9,525 $10,000 10,114 9,634 10,116 10,529 10,029 10,482 10,386 9,892 10,371 10,489 9,991 10,476 10,526 10,026 10,535 10,665 10,158 10,710 10,667 10,160 10,724 10,887 10,370 10,947 11,004 10,482 11,072 11,019 10,495 11,093 10,917 10,399 10,996 11,127 10,599 11,228 11,259 10,725 11,356 10,962 10,442 11,062 10,543 10,043 10,611 10,593 10,090 10,702 10,680 10,173 10,795 10,633 10,128 10,729 10,782 10,270 10,925 10,822 10,308 10,963 10,677 10,169 10,802 10,506 10,007 10,610 10,335 9,844 10,418 10,527 10,027 10,647 10,834 10,320 10,952 11,099 10,571 11,270 11,203 10,671 11,400 11,192 10,660 11,414 11,516 10,969 11,778 11,390 10,849 11,675 11,470 10,926 11,786 11,603 11,052 11,936 11,695 11,140 12,011 11,881 11,317 12,185 12,132 11,555 12,387 12,279 11,695 12,506 12,360 11,772 12,601 12,209 11,629 12,516 12,009 11,438 12,356 11,968 11,399 12,321 11,982 11,413 12,316 12,104 11,529 12,450 12,214 11,634 12,562 12,201 11,621 12,560 12,394 11,805 12,736 12,547 11,951 12,880 12,796 12,188 13,115 12,742 12,137 13,060 12,757 12,151 13,085 12,880 12,268 13,205 12,697 12,094 13,030 12,796 12,188 13,139 12,997 12,380 13,338 13,140 12,516 13,480 13,530 12,888 13,854 13,385 12,750 13,723 13,563 12,919 13,887 13,638 12,990 13,976 13,710 13,059 14,058 13,932 13,271 14,263 14,066 13,398 14,410 14,045 13,378 14,415 14,031 13,365 14,428 13,969 13,306 14,363 14,196 13,521 14,590 14,240 13,563 14,646 14,271 13,593 14,683 14,501 13,812 14,911 14,667 13,971 15,097 14,621 13,926 15,097 14,664 13,968 15,150 14,698 14,000 15,188 14,886 14,179 15,368 14,772 14,070 15,301 14,772 14,070 15,322 14,831 14,126 15,361 14,718 14,019 15,271 14,478 13,790 15,052 14,529 13,839 15,106 14,385 13,702 14,985 14,350 13,669 14,991 14,172 13,499 14,829 14,284 13,606 14,986 14,193 13,519 14,874 14,089 13,420 14,808 14,282 13,604 14,980 14,587 13,894 15,307 14,480 13,792 15,216 14,360 13,678 15,137 14,749 14,049 15,538 14,969 14,258 15,754 15,238 14,515 15,997 15,098 14,381 15,914 15,270 14,545 16,087 15,441 14,708 16,210 15,968 15,209 16,610 16,059 15,296 16,774 16,155 15,388 16,828 16,276 15,503 16,979 15,860 15,106 16,796 16,071 15,307 16,978 16,246 15,474 17,091 16,657 15,866 17,344 17,070 16,259 17,630 16,901 16,098 17,570 17,207 16,389 17,780 16,835 16,035 17,630 16,574 15,787 17,463 16,892 16,090 17,765 17,154 16,339 17,978 16,686 15,893 17,626 17,095 16,283 17,969 17,196 16,379 18,079 17,393 16,567 18,271 17,593 16,758 18,506 17,775 16,930 18,728 18,210 17,345 19,138 17,764 16,920 18,821 17,647 16,808 18,742 12/2002 18,135 17,275 19,137 MUTUAL FUND PERFORMANCE CHANGES OVER TIME. PLEASE VISIT LIBERTYFUNDS.COM FOR DAILY PERFORMANCE UPDATES. Past performance is no guarantee of future investment results. The principal value and investment returns will fluctuate, resulting in a gain or loss on sale. The above illustration assumes a $10,000 investment made on December 31, 1992 and reinvestment of income and capital gains distributions. The Lehman Brothers Municipal Bond Index is a broad-based, unmanaged index that tracks the performance of high-yield bonds. Unlike the fund, indexes are not investments, do not incur fees or expenses and are not professionally managed. It is not possible to invest directly in an index. Securities in the fund may not match those in an index.
Average annual total return as of 12/31/02 (%) Share class A B C Z Inception 11/1/02 11/1/02 11/1/02 2/23/77 ------------------------------------------------------------------------------------------------------------------- without with without with without with without sales sales sales sales sales sales sales charge charge charge charge charge charge charge ------------------------------------------------------------------------------------------------------------------- 6-month (cumulative) 4.33 -0.67 4.20 -0.80 4.25 3.25 4.40 ------------------------------------------------------------------------------------------------------------------- 1-year 9.48 4.23 9.36 4.36 9.41 8.41 9.56 ------------------------------------------------------------------------------------------------------------------- 5-year 5.42 4.40 5.40 5.08 5.41 5.41 5.44 ------------------------------------------------------------------------------------------------------------------- 10-year 6.13 5.62 6.12 6.12 6.13 6.13 6.14 -------------------------------------------------------------------------------------------------------------------
Past performance is no guarantee of future investment results. The principal value and investment returns will fluctuate, resulting in a gain or loss on sale. All results shown assume reinvestment of distributions. The "with sales charge" returns include the maximum 4.75% charge for class A shares, the appropriate class B contingent deferred sales charge for the holding period after purchase as follows: through first year-5%, second year-4%, third year-3%, fourth year-3%, fifth year-2%, sixth year-1%, thereafter-0%, and the class C contingent deferred sales charge of 1% for the first year only. Performance for different share classes will vary based on differences in sales charges and fees associated with each class. Performance results reflect any voluntary waivers or reimbursement of fund expenses by the advisor or its affiliates. Absent these waivers or reimbursement arrangements, performance results would have been lower. Classes A, B, and C shares (newer class shares) performance information includes returns of the fund's class Z shares (the oldest existing fund class) for periods prior to the inception of the newer class shares. These class Z share returns are not restated to reflect any expense differential (e.g., rule 12b-1 fees) between class Z shares and the newer class shares. Had the expense differential been reflected, the returns for the periods prior to the inception of classes A,B and C would have been lower. 1 SEC YIELDS AS OF 12/31/02 (%) CLASS A 3.49 CLASS B 2.92 CLASS C 3.21 CLASS Z 3.86 The 30-day SEC yields reflect the portfolio's earning power, net of expenses, expressed as an annualized percentage of the public offering price at the of the period. MATURITY BREAKDOWN AS OF 12/31/02 (%) [bar chart data]: 0-1 years 0.9 1-3 years 0.2 3-5 years 1.5 5-7 years 8.7 7-10 years 15.6 10-15 years 28.8 15-20 years 27.0 20-25 years 8.3 25 years and over 6.7 Net cash & equivalents 2.3 Maturity breakdown is calculated as a percentage of net assets, including short-term obligations. Maturity breakdown is based on each security's effective maturity, which reflects pre-refundings, mandatory puts and other conditions that affect a bond's maturity. Because the fund is actively managed, there can be no guarantee the fund will continue to maintain these quality and maturity breakdowns in the future. TAXABLE-EQUIVALENT SEC YIELDS AS OF 12/31/02 (%) CLASS A 5.68 CLASS B 4.76 CLASS C 5.23 CLASS Z 6.29 Taxable-equivalent SEC yields are based on the maximum effective 38.60% federal and state income tax rate. This tax rate does not reflect the phase out of exemptions or the reduction of otherwise allowable deductions that occur when adjusted gross income exceeds certain levels. PORTFOLIO MANAGER'S REPORT For the six-month period that ended December 31, 2002, class A shares of Liberty Managed Municipals Fund returned 4.33% without a sales charge. This performance slightly lagged the fund's benchmark, the Lehman Brothers Municipal Bond Index, which returned 4.75% for the same period. However, the fund outperformed its peer group. The average return for the Lipper General Municipal Debt Fund Category was 4.00% at the end of the period.1 The fund's investment in airline bonds accounted for its slight underperformance relative to its benchmark. Airline bonds were hurt by lackluster economic growth, rising oil prices and heightened fears of global terrorism. MARKET REMAINED VOLATILE During the second half of 2002, the fixed-income markets experienced much volatility, even as interest rates generally moved lower. We initially anticipated economic growth to be moderate and uneven. Early in the summer, however, the absence of increased business spending, coupled with geopolitical uncertainty, a soft labor market and corporate governance scandals raised fears of further economic weakness. In November, the Federal Reserve Board lowered the federal funds rate to 1.25%, a 41-year low, in an effort to avert a double-dip recession and reduce concerns about deflation. INTERMEDIATE MATURITY, NON-CALLABLE BONDS BOOSTED RETURNS Given this environment, investments in bonds with intermediate maturities (12-18 years) helped the fund achieve solid returns. Bond investors reacted to lower short-term interest rates by moving into intermediate-term bonds, increasing demand and pushing up bond prices in the sector. In addition, a steep yield curve offers more generous yield on intermediate bonds than usual, creating a more attractive risk reward profile for this maturity range. Intermediate bonds offered much of the incremental yield of long-term bonds without as much added volatility. Within the intermediate maturity area, we focused on premium coupon bonds that have good call protection or are non-callable. (A non-call provision means that issuers cannot redeem the bonds prior to -------------- 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. 2 maturity. Non-callable bonds issued at a premium have a higher-than-market-rate coupon or stated interest rate.) Intermediate-term non-callable bonds are more sensitive to declines in long-term interest rates than similar bonds that are callable. The fundholdings of zero coupon bonds also added to performance. A zero coupon bond is purchased at a deep discount to its face value and only pays interest at maturity. Like non-callable bonds, zero coupon bonds are highly sensitive to declining interest rates. As interest rates fell at the end of the period, zero coupon bonds and non-callable bonds rallied. OHIO ASSETS ENHANCED FUND'S PORTFOLIO In November, Liberty Ohio Tax-Exempt Fund was merged into Liberty Managed Municipals Fund. As a result, the fund's exposure to Ohio is now its largest geographic concentration, at approximately 14.02% of net assets.2 We believe the merger to be a good fit, as Liberty Ohio Tax-Exempt Fund generally emphasized intermediate, non-callable, high-quality bonds, which Liberty Managed Municipals Fund also favors. YIELDS REMAIN ATTRACTIVE FOR INVESTORS IN HIGH TAX BRACKETS In the year ahead, we anticipate irregular economic growth, a sluggish recovery and minimal inflationary pressures. Our investment strategy will continue to focus on the intermediate maturity range in premium bonds that have good call protection or are non-callable. For sector selection, we will target essential services such as water and sewer revenue bonds, and those that are backed by dedicated revenue streams from user fees. With heavy municipal bond issuance expected in 2003, we will continue to emphasize credit research. /s/ Kimberly A. Campbell The fund is managed by Kimberly A. Campbell. In addition to serving as the fund's portfolio manager, Kimberly has been chief trader for municipal investments of Colonial Management Associates, Inc. and Stein Roe & Farnham Incorporated since 1995. Both Colonial and Stein Roe are affiliates of Columbia Management Group. ------------------ Tax-exempt investing offers current tax-free income, but it also involves certain risks. Investing in high yield bonds involves greater credit than investing in higher-quality bonds. The value of the fund will be affected by interest rate changes and the creditworthiness of issues held in the fund. The municipal bond management team seeks to identify opportunities and attempts to react quickly to market changes QUALITY BREAKDOWN AS OF 12/31/02 (%) [bar chart data]: AAA 61.7 AA 11.9 A 9.5 BBB 6.9 BB 0.4 B 0.4 CCC 0.2 CC 0.3 Non-rated 6.4 Net cash & equivalent 2.3 Quality breakdown is calculated as a percentage of net assets. Ratings shown in the quality breakdown represent the lowest rating assigned to a particular bond by one of the following respected rating agencies: Standard & Poor's, Moody's or Fitch. Because the fund is actively managed, there can be no guarantee the fund will continue to maintain this breakdown in the future. 2 Sector breakdown is disclosed as of December 31, 2002, and is subject to change 3 INVESTMENT PORTFOLIO December 31, 2002 (Unaudited) MUNICIPAL BONDS - 96.1% PAR VALUE -------------------------------------------------------- EDUCATION - 4.8% EDUCATION - 4.1% CA State Educational Facilities Authority, Loyola Marymount University, Series 2001 A, (a) 10/01/20 $ 1,000,000 $ 412,610 MA State Development Finance Agency, Boston University, Series 1999 P, 5.450% 05/15/59 1,000,000 991,610 MA State Industrial Finance Agency, Tufts University, Series 1998 H, 4.750% 02/15/28 1,750,000 1,737,978 OH State, University of Akron, Series 1999, 5.750% 01/01/12 1,000,000 1,137,790 OH State Higher Educational Facilities Reserve, Case Western Reserve University, Series 1994, 6.250% 10/01/17 4,340,000 5,353,867 TX State, University of Texas, Series 2002 A: 5.250% 08/15/16 4,875,000 5,460,926 5.250% 08/15/19 1,500,000 1,654,740 VA State College Building Authority, Washington and Lee University, Series 2001, 5.375% 01/01/21 2,000,000 2,224,840 WV State University, Series 2000 A, (a) 04/01/18 3,800,000 1,829,776 ------------ 20,804,137 ------------ STUDENT LOAN - 0.7% ME State Educational Loan Marketing Corp., Series 1994 B-1, 6.500% 11/01/09 3,000,000 3,354,240 ------------ ------------------------------------------------------- HEALTHCARE - 7.5% CONGREGATE CARE RETIREMENT - 1.0% FL Capital Project Finance Authority, Glenridge on Palmer Ranch, Series 2002 A, 8.000% 06/01/32 500,000 480,675 OH Hamilton County Health Care Facilities Revenue, Twin Towers, Series 1998 A, 5.125% 10/01/18 500,000 469,935 PAR VALUE -------------------------------------------------------- OH Marion County Health Care Facilities Revenue United Church Homes, Inc., Series 1993, 6.375% 11/15/10 $ 740,000 $ 761,830 PA Montgomery County Industrial Development Authority, Adult Communities Total Services, Series 1996 B, 5.750% 11/15/17 3,500,000 3,611,265 ------------ 5,323,705 ------------ HEALTH SERVICES - 0.4% MA State Development Finance Agency, Boston Biomedical Research Institute, Series 1999, 5.650% 02/01/19 310,000 292,783 WI State Health & Educational Facilities Authority, Marshfield Clinic, Series 1999, 6.250% 02/15/29 1,600,000 1,755,952 ------------ 2,048,735 ------------ HOSPITAL - 5.7% FL Citrus County Capital Improvement Revenue, Citrus Memorial Hospital, Series 2002, 6.375% 08/15/32 750,000 745,485 FL West Orange Healthcare District, Series 2001 A, 5.650% 02/01/22 1,050,000 1,054,232 IL State Development Finance Authority, Adventist Health System, Series 1999, 5.500% 11/15/20 2,650,000 2,642,050 IL State Health Facilities Authority, Swedish American Hospital, Series 2000, 6.875% 11/15/30 1,000,000 1,073,640 LA State Public Facilities Authority, Touro Infirmary, Series 1999, 5.625% 08/15/29 1,740,000 1,724,462 MA State Health & Educational Facilities Authority: Dana Farber Cancer Institute, Series 1995 G-1, 6.250% 12/01/22 3,265,000 3,415,419 Massachusetts General Hospital, Series 1992 F, 6.250% 07/01/12 5,750,000 6,820,650 See notes to investment portfolio. 4 INVESTMENT PORTFOLIO (CONTINUED) December 31, 2002 (Unaudited) MUNICIPAL BONDS (CONTINUED) PAR VALUE -------------------------------------------------------- HEALTHCARE (CONTINUED) HOSPITAL (CONTINUED) South Shore Hospital, Series 1999 F: 5.625% 07/01/19 $ 1,000,000 $ 1,018,590 5.750% 07/01/29 2,500,000 2,513,350 MD State Health & Educational Facilities Authority, University of Maryland Medical System, 6.750% 07/01/30 500,000 542,280 MI Dickinson County, Series 1999, 5.800% 11/01/24 1,000,000 1,107,170 NV Henderson, Catholic Healthcare West, Series 1999 A, 6.750% 07/01/20 1,000,000 1,055,840 OH Belmont County, Ohio Valley Medical Center, Inc., Series 1998, 5.700% 01/01/13 500,000 429,630 OH Green Springs Health Care Facilities, St. Francis Health Care Center Project, Series 1994 A, 7.000% 05/15/04 370,000 368,305 OH Highland County Joint Township Hospital District, Series 1999, 6.750% 12/01/29 485,000 455,764 OH Miami County Hospital Facilities Revenue, Upper Valley Medical Center, Series 1996 C, 6.000% 05/15/06 1,000,000 1,065,410 OH Montgomery County, Franciscan Sisters of the Poor, Series 1985 B-1, 8.100% 07/01/18 455,000 546,564 Grafton Associates, Ltd., Series 1986, 9.750% 12/01/16 705,000 677,279 TX Richardson Hospital Authority, Baylor Richardson Medical Center, Series 1998, 5.625% 12/01/28 500,000 500,130 PAR VALUE -------------------------------------------------------- WI State Health & Educational Facilities Authority, Wheaton Franciscan Services, Series 2002, 5.750% 08/15/30 $ 900,000 $ 909,567 WV State Hospital Finance Authority, Charlestown Area Medical Center, Series 2000 A, 6.750% 09/01/30 390,000 423,973 ------------ 29,089,790 ------------ INTERMEDIATE CARE FACILITIES - 0.4% IN State Health Facilities Financing Authority, Hoosier Care, Inc., Series 1999 A, 7.125% 06/01/34 2,435,000 2,072,867 ------------ NURSING HOME - 0.0% IN State Health Facilities Financing Authority, Metro Health Indiana, Inc., Series 1998, 6.400% 12/01/33 (b) 1,400,000 241,500 ------------ ------------------------------------------------------- HOUSING - 2.8% MULTI-FAMILY - 2.0% FL Broward County Housing Finance Authority, Chaves Lake Apartment Project, Series 2000, 7.500% 07/01/40 1,500,000 1,538,805 FL Clay County Housing Finance Authority, Madison Commons Apartments, Series 2000 A, 7.450% 07/01/40 745,000 764,318 FL Orange County Housing Finance Authority, Palms at Brentwood Apartments, Series 1998 K, 6.500% 12/01/34 1,975,000 1,828,277 IL State Development Finance Authority, Catholic Charities Housing Development Corp., Series 1993 C, 5.950% 01/01/09 1,450,000 1,504,955 Municipal Mortgage & Equity LLC, 7.750% 11/01/10 (c) 2,000,000 2,197,500 OH Capital Corporation for Housing, Series 1990, 7.500% 01/01/24 335,000 335,553 See notes to investment portfolio. 5 INVESTMENT PORTFOLIO (CONTINUED) December 31, 2002 (Unaudited) MUNICIPAL BONDS (CONTINUED) PAR VALUE -------------------------------------------------------- HOUSING (CONTINUED) MULTI-FAMILY (CONTINUED) OH Lake County, North Madison Properties, Ltd. Project, Series 1993, 8.819% 09/01/11 $ 190,000 $ 184,068 OH State Building Authority, Juvenile Corrections, Series 1999 A, 5.250% 10/01/16 1,105,000 1,198,848 RI State Housing & Mortgage Finance Corp., Series 1988, 7.550% 10/01/22 515,000 519,419 ------------ 10,071,743 ------------ SINGLE FAMILY - 0.8% ID State Housing Agency, Series 1990 E, 7.875% 07/01/24 465,000 465,786 NM State Mortgage Finance Authority, Series 2000 A-2, 7.100% 09/01/30 1,430,000 1,618,817 NV State Housing Division, Series 1991 A-2, 7.750% 04/01/22 895,000 899,958 OH Housing Finance Agency: Series 1994 B-2, 6.700% 03/01/25 210,000 218,679 Series 1997 A-1, 6.050% 09/01/17 955,000 1,010,629 ------------ 4,213,869 ------------ ------------------------------------------------------- INDUSTRIAL - 7.0% FOOD PRODUCTS - 3.3% GA Cartersville Development Authority, Anheuser Busch Companies., Inc., Series 1999, 7.375% 5/1/2009 (d) 9,000,000 10,884,330 IN Hammond, American Maize Products Co., Series 1994, 8.000% 12/01/24 4,560,000 5,012,261 MI State Strategic Fund, Michigan Sugar Co., Carollton Project: Series 1998 B, 6.450% 11/01/25 700,000 504,546 Series 1998 C, 6.550% 11/01/25 800,000 576,392 ------------ 16,977,529 ------------ PAR VALUE -------------------------------------------------------- FOREST PRODUCTS - 3.3% LA De Soto Parish, International Paper Company, Series 1994 A, 7.700% 11/01/18 $ 2,000,000 $ 2,129,440 SC Richland County, Union Camp Corp., Series 1991 B, 7.125% 09/01/21 5,000,000 5,057,250 WA Port Longview Industrial Development Corp., Weyerhaeuser Corp., Series 1992, 6.875% 10/01/08 8,750,000 9,408,787 ------------ 16,595,477 ------------ MANUFACTURING - 0.4% MO State Development Finance Board, Proctor & Gamble Co., Series 1999, 5.200% 03/15/29 1,000,000 1,042,420 NM Albuquerque Industrial Development Authority, Motorola, Inc., Series 1983 A, 10.000% 06/01/13 1,000,000 1,020,220 ------------ 2,062,640 ------------ ------------------------------------------------------- OTHER - 9.1% REFUNDED/ESCROWED (E) - 9.1% CA Foothill/Eastern Transportation Corridor Agency, Series 1995 A, (a) 01/01/18 10,000,000 4,974,300 CA Southern California Public Power Authority, Southern Transmission Project, Series 1988 A, (a) 07/01/14 8,155,000 5,030,738 FL State, Jacksonville Transportation Authority, Series 1985, 9.200% 01/01/15 2,000,000 2,889,920 GA State Municipal Electric Authority, Series 1991, 6.600% 01/01/18 3,600,000 4,505,868 GA Fulton County, Series 1992, 6.375% 01/01/14 13,270,000 16,219,788 NC Eastern Municipal Power Agency, Series 1991 A, 6.500% 01/01/18 4,315,000 5,433,362 See notes to investment portfolio. 6 INVESTMENT PORTFOLIO (CONTINUED) December 31, 2002 (Unaudited) MUNICIPAL BONDS (CONTINUED) PAR VALUE -------------------------------------------------------- OTHER (CONTINUED) REFUNDED/ESCROWED (E) (CONTINUED) OH Strongville, Series 1996, 6.500% 12/01/13 $ 1,335,000 $ 1,586,194 SC Calhoun County, Solid Waste Disposal Facilities, Eastman Kodak Co., Series 1992, 6.750% 05/01/17 3,000,000 3,759,120 TX State Municipal Power Agency, Series 1989, (a) 09/01/08 55,000 46,037 WV State Hospital Finance Authority, Charleston Area Medical Center, Series 2000, 6.750% 09/01/30 1,610,000 2,003,774 ------------ 46,449,101 ------------ ------------------------------------------------------- OTHER REVENUE - 0.7% RECREATION - 0.5% FL Capital Trust Agency, Seminole Tribe Convention Center, Series 2002 A, 10.000% 10/01/33 1,500,000 1,555,305 OH Hamilton County Sales Tax Revenue, Series 2000 B, (a) 12/01/20 2,000,000 856,460 ------------ 2,411,765 ------------ RETAIL - 0.2% NJ State Economic Development Authority, Glimcher Properties L.P. Project, Series 1998, 6.000% 11/01/28 850,000 853,051 ------------ ------------------------------------------------------- RESOURCE RECOVERY - 0.4% DISPOSAL - 0.4% IL Development Finance Authority, Waste Management, Inc., Series 1997, 5.050% 01/01/10 500,000 487,640 MI State Strategic Fund, United Waste Systems, Inc., Series 1995, 5.200% 04/01/10 500,000 492,550 OH State Air Quality Development Authority, JMG Funding Ltd. Project, Series 1997, 5.625% 01/01/23 1,000,000 1,041,820 ------------ 2,022,010 ------------ PAR VALUE ------------------------------------------------------- RESOURCE RECOVERY - 0.0% OH State Economic Development Revenue, Burrows Enterprises, Inc., Series 1991-6 7.450% 06/01/03 $ 90,000 $ 91,315 ------------ ------------------------------------------------------- TAX-BACKED - 35.6% LOCAL APPROPRIATED - 2.6% CA San Bernardino County, Series 2002 A, 5.000% 07/01/15 2,210,000 2,441,785 FL Orange County School Board, Series 2002 A, 5.250% 08/01/15 1,000,000 1,118,220 IL Chicago Board of Education, Series 1992 A, 6.000% 01/01/16 5,000,000 5,938,850 IN Crown Point School Building Corp., Series 2000: (a) 01/15/18 1,550,000 753,625 (a) 01/15/19 1,665,000 760,006 SC Greenville County School District, Series 2002, 5.875% 12/01/17 2,000,000 2,247,920 ------------ 13,260,406 ------------ LOCAL GENERAL OBLIGATIONS - 15.7% AK North Slope Borough: Series 1999 B, (a) 06/30/10 2,515,000 1,902,824 Series 2000 B, (a) 06/30/10 2,000,000 1,513,180 Series 2001 A, (a) 06/30/12 5,000,000 3,392,450 CA Golden West School Financing Authority, Series 1999 A, (a) 08/01/15 1,500,000 850,110 CA Los Angeles Unified School District, Series 2002, 5.750% 07/01/16 400,000 472,936 CA Union Elementary School District, Series 1999 A, (a) 09/01/17 2,300,000 1,155,336 CA West Contra Costa Unified School District, Series 2001 B, 6.000% 08/01/24 465,000 554,182 CA Yuba City Unified School District, Series 2000, (a) 09/01/18 1,160,000 546,859 See notes to investment portfolio. 7 INVESTMENT PORTFOLIO (CONTINUED) December 31, 2002 (Unaudited) MUNICIPAL BONDS (CONTINUED) PAR VALUE ------------------------------------------------------- TAX-BACKED (CONTINUED) LOCAL GENERAL OBLIGATIONS (CONTINUED) IL Champaign County, Series 1999, 8.250% 01/01/20 $ 1,015,000 $ 1,443,371 IL Chicago Board of Education: Series 1996, 6.250% 12/01/12 2,500,000 3,030,850 Series 1998 B-1: (a) 12/01/21 1,500,000 572,205 (a) 12/01/22 3,000,000 1,066,650 (a) 12/01/23 5,000,000 1,660,550 IL Chicago Emergency Telephone System, Series 1999, 5.500% 01/01/23 2,250,000 2,506,658 IL Chicago Public Building Commission, Series 1999 B, 5.250% 12/01/18 2,000,000 2,212,420 IL Coles & Cumberland County's Unified School District, Series 2000, (a) 12/01/13 3,120,000 1,961,294 IL Cook County School District No. 102, Series 2001, (a) 12/01/20 3,065,000 1,251,991 IL Will County Community Unit School District No. 365 Valley View, Series 1999 B, (a) 11/01/18 1,900,000 886,654 IL Will County Forest Preservation District, Series 1999, (a) 12/01/16 1,000,000 525,290 LA New Orleans, Series 1991, (a) 09/01/12 6,250,000 4,237,812 MO Springfield School District No.R-12, Series 1991 B, 9.500% 03/01/07 600,000 770,094 OH Adams County Ohio Valley Local School District, Series 1995, 7.000% 12/01/15 3,000,000 3,862,080 OH Amherst Exempt Village School District, Series 2001, 5.500% 12/01/16 1,300,000 1,453,270 OH Beavercreek Local School District, Series 1996, 6.600% 12/01/15 2,500,000 3,144,825 PAR VALUE ------------------------------------------------------- OH Brecksville-Broadview Heights City School District, Series 1996, 6.500% 12/01/16 $ 1,750,000 $ 2,043,493 OH Columbus, Series1998 A, 5.000% 05/01/14 1,000,000 1,107,980 OH Crooksville Exempt Village School District, Series 1986, 7.375% 12/01/07 25,000 29,920 OH Cuyahoga County, Series1993 A, (a) 10/01/12 1,000,000 678,180 OH Dublin City School District, Series 1997, (a) 12/01/11 900,000 635,994 OH Eastern Local School District Brown & Highland Counties, Series 1995, 6.250% 12/01/17 1,160,000 1,433,261 OH Gahanna-Jefferson City School District, Series 1993, (a) 12/01/11 795,000 561,795 OH Hilliard School District: Series 1995 A, (a) 12/01/12 2,505,000 1,686,767 Series 2000, 5.750% 12/01/24 1,000,000 1,095,060 OH Kings Local School District, Series 1995, 7.500% 12/01/16 2,110,000 2,859,556 OH Lakota Local School District, Series 2001, 5.500% 12/01/18 1,460,000 1,674,970 OH London City School District, Series 2001, 5.500% 12/01/15 1,000,000 1,121,900 OH Massillion City School District, Series 2002: (a) 12/01/09 900,000 710,964 (a) 12/01/11 1,000,000 706,660 OH Monroe Local School District, Series 2002, 5.750% 12/01/19 1,195,000 1,398,556 OH North Fork Local School District, Series 2001, 5.750% 12/01/17 510,000 602,560 OH Northwest Local School District, Series 1998, 6.000% 12/01/13 1,030,000 1,234,373 OH Olmsted Falls City School District, Series 1999, 5.500% 12/31/03 400,000 413,040 See notes to investment portfolio. 8 INVESTMENT PORTFOLIO (CONTINUED) December 31, 2002 (Unaudited) MUNICIPAL BONDS (CONTINUED) PAR VALUE ------------------------------------------------------- TAX-BACKED (CONTINUED) LOCAL GENERAL OBLIGATIONS (CONTINUED) OH Pickerington Local School District, Series 2001, (a) 12/01/16 $ 1,340,000 $ 725,288 OH Plain Local School District, Series 2000, (a) 12/01/27 1,315,000 375,485 OH River Valley Local School District, Series 2001, 5.250% 11/01/23 500,000 542,525 OH Shaker Heights City School District, Series 1990, 7.100% 12/15/10 685,000 820,274 OH Southwest Licking Local School District, Series 1999, 5.750% 12/01/16 400,000 469,916 OH Strongville, Series 1996, 6.500% 12/01/13 165,000 193,760 OH Tri-County North Local School District, Series 1986, 8.125% 12/01/06 75,000 90,158 OH West Chester Township, Series 2002, 5.750% 12/01/20 1,000,000 1,164,740 PA Philadelphia School District, Series 2002 B, 5.625% 08/01/16 500,000 563,285 PA Pittsburgh School District, Series 2002 A, 5.500% 09/01/17 1,500,000 1,726,080 PR Puerto Rico Commonwealth, Series 1998, 6.000% 07/01/16 2,000,000 2,423,480 TX Galveston County, Series 2001: (a) 02/01/20 1,500,000 639,840 (a) 02/01/22 3,070,000 1,146,184 TX Hurst Euless Bedford Independent School District, Series 1998, 4.500% 08/15/25 5,000,000 4,741,200 TX Houston, Series 2000, 6.400% 06/01/27 2,000,000 2,267,640 WA Clark County School District No. 37, Series 2001 C, (a) 12/01/20 1,150,000 469,752 ------------ 79,328,527 ------------ PAR VALUE ------------------------------------------------------- SPECIAL NON-PROPERTY TAX - 3.5% IL Metropolitan Pier & Exposition Authority, Series 1996 A: (a) 06/15/12 $ 5,000,000 $ 3,400,989 (a) 12/15/12 8,850,000 5,874,453 IL State, Series 2002-2, 5.500% 06/15/15 2,000,000 2,294,120 MA State, Series 2002 A, 5.500% 06/01/15 1,000,000 1,148,810 NY State Local Government Assistance Corp., Series 1993 E, 5.000% 04/01/21 1,000,000 1,060,430 PR Commonwealth of Puerto Rico, Public Building Authority, Series 2002 C, 5.500% 07/01/15 1,000,000 1,122,320 TX Houston Hotel Occupancy Tax & Special Revenue, Series 2001 B, (a) 09/01/19 3,460,000 1,529,112 WA Central Puget Sound Regional Transportation Authority, Series 1998, 5.250% 02/01/21 1,500,000 1,632,300 ------------ 18,062,534 ------------ SPECIAL PROPERTY TAX - 0.7% CA Huntington Beach Community Facilities District, Grand Coast Resort, Series 2001, 6.450% 09/01/31 500,000 518,270 CA Santa Margarita Water District, Series 1999, 6.250% 09/01/29 750,000 769,050 FL Double Branch Community Development District, Series 2002 A, 6.700% 05/01/34 400,000 401,212 IL State Sports Facilities Authority, Series 2001, (a) 06/15/18 1,000,000 480,050 TX Dallas County Flood Control District, Series 2002, 7.250% 04/01/32 1,500,000 1,502,985 ------------ 3,671,567 ------------ See notes to investment portfolio. 9 INVESTMENT PORTFOLIO (CONTINUED) December 31, 2002 (Unaudited) MUNICIPAL BONDS (CONTINUED) PAR VALUE ------------------------------------------------------- TAX-BACKED (CONTINUED) STATE APPROPRIATED - 2.0% KY State Turnpike Authority, Series 1992, (a) 01/01/10 $ 7,500,000 $ 5,829,600 MI State, 525 Redevco, Inc., Series 2000, (a) 06/01/21 1,000,000 397,690 UT State Building Ownership Authority, Series 1998 C, 5.500% 05/15/19 3,450,000 3,906,676 ------------ 10,133,966 ------------ STATE GENERAL OBLIGATIONS - 11.1% CO State Department of Transportation, Series 2002, 5.500% 06/15/15 2,000,000 2,304,760 MA Massachusetts Bay Transportation Authority: Series 1992 B, 6.200% 03/01/16 9,825,000 11,952,407 Series 1994 A: 7.000% 03/01/14 3,150,000 4,022,298 7.000% 03/01/19 2,500,000 3,243,950 Series 1998 A, 4.500% 03/01/26 3,805,000 3,651,354 MA State College Building Authority Project: Series A, 7.500% 05/01/11 1,500,000 1,925,325 Series 1994 A, 7.500% 05/01/14 3,500,000 4,619,790 NJ State Transportation Trust Fund Authority, Series 1999 A: 5.750% 06/15/18 5,000,000 5,862,000 5.750% 06/15/20 1,000,000 1,161,930 OH State, Series 1992, 6.100% 08/01/12 380,000 458,979 OH State Turnpike Commission, Series 1998 A, 5.500% 02/15/17 1,300,000 1,490,567 PA State, Series 1992-2, 6.250% 07/01/12 9,200,000 11,188,304 PR Commonwealth of Puerto Rico, Series 2001 A, 5.500% 07/01/16 3,815,000 4,424,790 ------------ 56,306,454 ------------ ------------------------------------------------------- TRANSPORTATION - 7.7% AIR TRANSPORTATION - 1.5% IL Chicago O'Hare International Airport, United Airlines, Inc., Series 2000 A, 6.750% 11/01/11 (f) 1,600,000 229,824 PAR VALUE ------------------------------------------------------- IN Indianapolis Airport Authority, United Airlines Project, Series 1995 A, 6.500% 11/15/31 (f) $ 3,000,000 $ 1,282,500 KY Kenton County Airport Board, Delta Airlines, Inc., Series 1992 A, 7.500% 02/01/20 1,000,000 822,780 MN Minneapolis & St. Paul Metropolitan Airports Commission, Northwest Airlines: Series 2001 A, 7.000% 04/01/25 1,250,000 916,087 Series 2001 B, 6.500% 04/01/25 500,000 475,480 NC Charlotte/Douglas International Airport, U.S. Airways, Inc.: Series 1998, 5.600% 7/1/2027 (f) 1,000,000 467,620 Series 2000, 7.750% 02/01/28 (f) 1,000,000 500,140 NJ State Economic Development Authority, Continental Airlines, Inc., Series 1999, 6.250% 09/15/29 2,000,000 1,415,380 OH Cleveland Airport Special Revenue, Continental Airlines, Inc., Series 1999, 5.700% 12/01/19 900,000 519,984 OH Dayton Special Facilities Revenue, Emery Air Freight Corp., Series 1993 F, 6.050% 10/01/09 500,000 458,505 TN Memphis-Shelby County Airport Authority, Federal Express Corp., Series 2002, 5.050% 09/01/12 500,000 521,615 ------------ 7,609,915 ------------ AIRPORT - 0.2% MA State Port Authority, Series 1999, 9.990% 07/01/29 1,000,000 1,163,520 ------------ PORTS - 0.3% WA Port of Seattle, Series 1999, 5.500% 09/01/17 1,445,000 1,659,337 ------------ RAILROAD - 0.0% OH Cleveland-Cuyahoga County Port Authority, Oglebay Northern Co. Project, Series 1997-1, 200,000 218,874 ------------ See notes to investment portfolio. 10 INVESTMENT PORTFOLIO (CONTINUED) December 31, 2002 (Unaudited) MUNICIPAL BONDS (CONTINUED) PAR VALUE ------------------------------------------------------- TRANSPORTATION (CONTINUED) TOLL FACILITIES - 4.1% CO E-470 Public Highway Authority, Series 2000 B: (a) 09/01/18 $ 4,600,000 $ 2,167,888 (a) 09/01/19 3,500,000 1,546,790 NY Triborough Bridge & Tunnel Authority: Series 1991 X, 6.625% 01/01/12 4,915,000 6,049,529 Series 1992 Y, 6.125% 01/01/21 5,500,000 6,588,065 Series 2002 E, 5.500% 11/15/20 550,000 625,037 VA Richmond Metropolitan Authority: Series 1998, 5.250% 07/15/22 1,100,000 1,198,945 Series 2002, 5.250% 07/15/22 2,485,000 2,708,526 ------------ 20,884,780 ------------ TRANSPORTATION - 1.6% GA Metropolitan Atlanta Rapid Transit Authority, Series 1992 P, 6.250% 07/01/20 4,000,000 4,891,040 NV State Department of Business & Industry, Las Vegas Monorail Project, Series 2000: 7.375% 01/01/30 650,000 639,015 7.375% 01/01/40 500,000 487,900 OH Toledo-Lucas County Port Authority, CSX Transportation, Inc., Series 1992, 6.450% 12/15/21 2,000,000 2,132,720 ------------ 8,150,675 ------------ ------------------------------------------------------- UTILITY - 20.5% INDEPENDENT POWER PRODUCER - 0.6% NY Suffolk County Industrial Development Agency, Nissequogue Cogen Partners, Series 1998, 5.500% 01/01/23 1,000,000 906,210 PR Commonwealth of Puerto Rico Industrial, Educational, Medical & Environmental Cogeneration Facilities, AES Project, Series 2000, 6.625% 06/01/26 650,000 673,459 PAR VALUE ------------------------------------------------------- VA Pittsylvania County Industrial Development Authority, Multitrade of Pittsyvania, Series 1994 A, 7.550% 01/01/19$ 1,500,000 $ 1,526,685 ------------ 3,106,354 ------------ INVESTOR OWNED - 1.3% IN Michigan City, Northern Indiana Public Service Co., Series 1973 A, 5.700% 10/01/03 1,105,000 1,116,072 IN Petersburg, Series 1995 C, 5.950% 12/01/29 1,500,000 1,348,485 IN State Development Finance Authority, Series 1999, 5.950% 08/01/30 1,000,000 898,110 OH State Air Quality Development Authority, Cleveland Electric Illuminating Co., Series 2002 A, 6.000% 12/01/13 2,500,000 2,560,450 TX Brazos River Authority, Texas Utilities Electric Co. Project, Series 2001, 5.750% 05/01/36 500,000 475,015 ------------ 6,398,132 ------------ JOINT POWER AUTHORITY - 8.1% GA State Municipal Electric Authority, Series 1991, 6.600% 01/01/18 17,700,000 22,161,993 MN Southern Minnesota Municipal Power Agency, Series 2002 A, 5.250% 01/01/17 2,000,000 2,243,160 NC Eastern Municipal Power Agency, Series 1991 A, 6.500% 01/01/18 2,185,000 2,470,995 NC State Municipal Power Agency, Catawba No. 1, Series 1992, (a) 01/01/09 2,260,000 1,850,465 OH State Municipal Electricity Generation Agency, Series 2001: (a) 02/15/25 2,000,000 659,260 (a) 02/15/29 3,000,000 800,910 TX State Municipal Power Agency, Series 1989, (a) 09/01/08 1,420,000 1,187,262 WA State Public Power Supply System: Nuclear Project No. 2, Series 1992 A, 6.300% 07/01/12 3,500,000 4,161,535 See notes to investment portfolio. 11 INVESTMENT PORTFOLIO (CONTINUED) December 31, 2002 (Unaudited) MUNICIPAL BONDS (CONTINUED) PAR VALUE ------------------------------------------------------- UTILITY (CONTINUED) JOINT POWER AUTHORITY (CONTINUED) Nuclear Project No. 3, Series 1989 B, (a) 07/01/08 $ 7,000,000 $ 5,837,300 ------------ 41,372,880 ------------ MUNICIPAL ELECTRIC - 4.1% NC University of North Carolina at Chapel Hill, Series 1997, (a) 08/01/20 1,750,000 752,220 NY Long Island Power Authority, Series 2000 A, (a) 06/01/20 450,000 200,025 OH Cleveland Public Power System Revenue, Series 1994 A, (a) 11/15/13 2,000,000 1,280,180 PA Westmoreland County Municipal Authority, Series 2000 A, (a) 08/15/23 1,400,000 489,608 PR Puerto Rico Electric Power Authority: Series 2002 JJ, 5.375% 07/01/17 1,000,000 1,137,160 Series 2002 KK, 5.500% 07/01/16 2,000,000 2,319,680 SD Heartland Consumers Power District, Series 1992, 6.000% 01/01/17 8,000,000 9,550,160 TX Austin Electric Utility Systems Revenue, Series 2002, 5.500% 11/15/16 1,000,000 1,139,890 TX Austin Financial Service Department, Series 1998, 5.250% 05/15/25 3,710,000 3,979,680 ------------ 20,848,603 ------------ WATER & SEWER - 6.4% AZ Mesa Utility System Revenue, Series 2002, 5.250% 07/01/15 1,600,000 1,805,328 DE State Economic Development Authority, General Waterworks Corp., Series 1992 B, 6.450% 12/01/07 1,160,000 1,347,340 GA Atlanta Water & Wastewater Revenue: Series 1999 A, 5.500% 11/01/22 1,225,000 1,363,940 Series 2001 A, 5.500% 11/01/27 1,500,000 1,676,325 PAR VALUE ------------------------------------------------------- Fulton County, Series 1992, 6.375% 01/01/14 $ 430,000 $ 518,791 OH Cleveland Waterworks Revenue, Series 1993, 5.500% 01/01/21 3,000,000 3,351,600 OH Lakewood Water Systems Revenue, Series 1995, 5.850% 07/01/20 2,405,000 2,824,288 OH State Water Development Authority: Series 1990-1, 6.000% 12/01/16 1,000,000 1,182,440 Series 1991 B, 5.500% 06/01/18 1,000,000 1,145,180 OH Warren Waterworks Revenue, Series 1997, 5.500% 11/01/15 500,000 574,680 PA Allegheny County Sanitation Authority, Series 1991 A, (a) 06/01/07 2,370,000 2,106,717 PA Dauphin County Industrial Development Authority, Dauphin Water Supply Co., Series 1992 A, 6.900% 06/01/24 3,400,000 4,195,770 TX Houston Water & Sewer System Revenue: Series 1998, (a) 12/01/23 3,500,000 1,171,870 Series 1991 C: (a) 12/01/08 4,000,000 3,308,440 (a) 12/01/09 4,000,000 3,140,560 (a) 12/01/10 3,750,000 2,781,862 ------------ 32,495,131 ------------ TOTAL MUNICIPAL BONDS (cost of $442,256,336) 489,355,129 ------------ MUNICIPAL PREFERRED STOCKS - 0.4% SHARES ------------------------------------------------------- HOUSING - 0.4% MULTI-FAMILY - 0.4% Charter Municipal Mortgage Acceptance Co., 6.625% 6/30/2009 (c) (cost of $2,000,000) 2,000,000 2,117,500 ------------ SHORT-TERM OBLIGATIONS - 2.3% ------------------------------------------------------- MUTUAL FUND - 0.1% Federated Tax Free Obligations Fund, 600,000 600,000 ------------ See notes to investment portfolio. 12 INVESTMENT PORTFOLIO (CONTINUED) December 31, 2002 (Unaudited) SHORT-TERM OBLIGATIONS (CONTINUED) PAR VALUE ------------------------------------------------------- VARIABLE RATE DEMAND NOTES (g) - 2.2% AZ Phoenix Industrial Development Authority, Valley of the Sun YMCA Project, Series 2002, 1.850% 01/01/31 $ 1,100,000 $ 1,100,000 IA Woodbury County, Siouxland Regional Cancer Center, Series 1998 A, 1.600% 12/01/14 200,000 200,000 IA Woodbury County Educational Facilities Revenue, Siouxland Medical Educational Foundation, Series 1996, 1.650% 11/01/16 300,000 300,000 IL Health Facilities Authority Revenue: Bromenn Healthcare, Inc., Series 2002, 1.800% 08/15/32 800,000 800,000 OSF Healthcare System, Series 2002, 1.750% 11/15/27 600,000 600,000 IN Health Facility Financing Authority, Pathfinder Services, Inc., Series 1996, 1.600% 11/01/19 100,000 100,000 MI Strategic Funding, Detroit Symphony Orchestra, Series 2001 A, 1.800% 06/01/31 1,100,000 1,100,000 MN Mankato Revenue, Bethany Lutheran College, Series 2000 B, 1.850% 11/02/15 600,000 600,000 NM Albuquerque Educational Facilities Revenue, Menaul School, Series 1998, 1.700% 05/01/18 300,000 300,000 NY Long Island Power Authority, Series 1998-2 B, 1.700% 05/01/33 1,200,000 1,200,000 NY New York City, Series 1993 A: 1.550% 08/01/16 600,000 600,000 1.700% 08/01/21 1,500,000 1,500,000 1.700% 08/01/22 1,000,000 1,000,000 NY New York City Municipal Water Finance Authority, Series 1994, 1.700% 06/15/24 200,000 200,000 WI State Health & Educational Facilities Authority, Prohealth Care Inc., Series 2001 B, 1.850% 08/15/30 400,000 400,000 PAR VALUE ------------------------------------------------------- WI Uinta County Pollution Control Revenue, Chevron Corp, Series 1992, 1.700% 12/01/22 $ 300,000 $ 300,000 WY Lincoln County Pollution Control Revenue, Exxon Corp. Project, Series 1984 B, 1.480% 11/01/14 800,000 800,000 ------------ 11,100,000 ------------ TOTAL SHORT-TERM OBLIGATIONS (cost of $11,700,000) 11,700,000 ------------ TOTAL INVESTMENTS - 98.8% (cost of $455,956,336)(h) 503,172,629 ------------ OTHER ASSETS & LIABILITIES, NET - 1.2% 6,225,372 ------------------------------------------------------- NET ASSETS - 100.0% $509,398,001 ============ NOTES TO INVESTMENT PORTFOLIO: -------------------------------------------------------------------------------- (a) Zero coupon bond. (b) As of December 31, 2002, the Fund held securities of certain issuers that have filled for bankruptcy protection under Chapter 11 representing 0.1% of net assets. These issuers are in default of certain debt covenants. Income is not being accrued. (c) These securities are exempt from registration under Rule 144A of the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the value of these securities amounted to $4,315,000, which represents 0.8% of net assets. (d) This security, or a portion there of, with a total market value of $3,507,173 are being used to collateralize open futures contracts. (e) The fund has been informed that each issuer has placed direct obligations of the U.S. Government in an irrevocable trust solely for the purpose of the payment principal and income. (f) As of December 31, 2002, the Fund held securities of certain issuers that have filled for bankruptcy protection under Chapter 11 representing 0.5% of net assets. Income is being fully accrued as these instruments are collateralized by certain lease obligations. (g) Variable rate security. The rate reported is the rate in effect at December 31, 2002. (h) Cost for federal income tax purposes is $454,602,561. Variable rate demand notes are considered short-term obligations. Interest rates change periodically on specified dates. These securities are payable on demand and are secured either by letters of credits or other credit support agreements from banks. The rates listed are as of December 31, 2002. Short futures contracts open at December 31, 2002: PAR VALUE UNREALIZED COVERED BY EXPIRATION DEPRECIATION TYPE CONTRACTS MONTH AT 12/31/02 ------------------------------------------------------- 10 Year U.S. Treasury Note $16,200,000 March $(388,172) See notes to financial statements. 13 STATEMENT OF ASSETS AND LIABILITIES December 31, 2002 (Unaudited) ASSETS: Investments, at cost $455,956,336 ------------ Investments, at value $503,172,629 Cash 97,892 Receivable for: Fund shares sold 573,142 Interest 6,931,412 Futures variation margin 35,438 Deferred Trustees' compensation plan 5,109 Other assets 23,562 ------------ Total Assets 510,839,184 ------------ LIABILITIES: Payable for: Fund shares repurchased 404,323 Distributions 671,424 Management fee 161,801 Administration fee 43,584 Transfer agent fee 67,346 Pricing and bookkeeping fees 8,624 Merger expense 54,970 Trustees' fee 408 Deferred Trustees' fee 5,109 Other liabilities 23,594 ------------ Total Liabilities 1,441,183 ------------ NET ASSETS $509,398,001 ============ COMPOSITION OF NET ASSETS: Paid-in capital $460,832,384 Undistributed net investment income 451,267 Accumulated net realized gain 1,286,229 Net unrealized appreciation (depreciation) on: Investments 47,216,293 Futures contracts (388,172) ------------ NET ASSETS $509,398,001 ============ CLASS A: Net assets $ 54,885,861 Shares outstanding 6,007,601 ------------ Net asset value per share $ 9.14(a) ============ Maximum offering price per share ($9.14/0.9525) $ 9.60(b) ============ CLASS B: Net assets $ 9,904,905 Shares outstanding 1,084,153 ------------ Net asset value and offering price per share $ 9.14(a) ============ CLASS C: Net assets $ 1,412,416 Shares outstanding 154,571 ------------ Net asset value and offering price per share $ 9.14(a) ============ CLASS Z: Net assets $443,194,819 Shares outstanding 48,507,985 ------------ Net asset value, offering and redemption price per share $ 9.14 ============ (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 December 31, 2002 (Unaudited) INVESTMENT INCOME: Interest $12,736,579 ------------ EXPENSES: Management fee 985,791 Administration fee 274,804 Distribution fee: Class B 11,903 Class C 1,863 Service fee: Class A 17,319 Class B 3,176 Class C 486 Pricing and bookkeeping fees 106,167 Transfer agent fee 326,104 Trustees' fee 10,173 Custody fee 7,158 Merger expense 13,409 Other expenses 57,403 ------------ Total Expenses 1,815,756 Fees waived by Distributor - Class C (770) Custody earnings credit (67) ------------ Net Expenses 1,814,919 ------------ Net Investment Income 10,921,660 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS: Net realized gain (loss) on: Investments 6,015,453 Futures contracts (3,072,091) ------------ Net realized gain 2,943,362 ------------ Net change in unrealized appreciation/depreciation on: Investments 7,144,496 Futures contracts (169,469) ------------ Net change in unrealized appreciation/depreciation 6,975,027 ------------ Net Gain 9,918,389 ------------ Net Increase in Net Assets from Operations $20,840,049 ------------ See notes to financial statements. 14 STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED) SIX MONTHS ENDED YEAR ENDED INCREASE (DECREASE) DECEMBER 31, JUNE 30, IN NET ASSETS: 2002 2002 ------------------------------------------------------- OPERATIONS: Net investment income $ 10,921,660 $ 21,899,146 Net realized gain on investments and futures contracts 2,943,362 9,604,311 Net change in unrealized appreciation/depreciation on investments and futures contracts 6,975,027 (90,194) ------------ ------------ Net Increase from Operations 20,840,049 31,413,263 ------------ ------------ DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income: Class A (388,568) -- Class B (59,119) -- Class C (9,834) -- Class Z (9,913,659) (21,918,700) From net realized gains: Class Z -- (10,784,241) ------------ ------------ Total Distributions Declared to Shareholders (10,371,180) (32,702,941) ------------ ------------ SHARE TRANSACTIONS: Class A: Subscriptions 657,958 -- Proceeds received in connection with merger 56,105,119 -- Distributions reinvested 224,965 -- Redemptions (2,961,498) -- ------------ ------------ Net Increase 54,026,544 -- ------------ ------------ Class B: Subscriptions 12,274 -- Proceeds received in connection with merger 10,260,711 -- Distributions reinvested 38,738 -- Redemptions (564,735) -- ------------ ------------ Net Increase 9,746,988 -- ------------ ------------ Class C: Subscriptions 38,241 -- Proceeds received in connection with merger 1,808,445 -- Distributions reinvested 7,005 -- Redemptions (465,676) -- ------------ ------------ Net Increase 1,388,015 -- ------------ ------------ Class Z: Subscriptions 66,263,726 123,618,485 Distributions reinvested 7,540,512 20,950,871 Redemptions (82,696,965) (154,985,466) ------------ ------------ Net Decrease (8,892,727) (10,416,110) ------------ ------------ Net Increase (Decrease) from Share Transactions 56,268,820 (10,416,110) ------------ ------------ Total Increase (Decrease) in Net Assets 66,737,689 (11,705,788) (UNAUDITED) SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2002 2002 ---------------------------------------------------- NET ASSETS: Beginning of period $442,660,312 $454,366,100 ------------ ------------ End of period (including undistributed net investment income and overdistributed net investment income of $451,267 and $(99,213), respectively) $509,398,001 $442,660,312 ============ ============ CHANGES IN SHARES: Class A: Subscriptions 58,141 -- Issued in connection with merger 6,242,810 -- Issued for distributions reinvested 24,902 -- Redemptions (318,252) -- ------------ ------------ Net Increase 6,007,601 -- ------------ ------------ Class B: Subscriptions 1,358 -- Issued in connection with merger 1,138,644 -- Issued for distributions reinvested 4,289 -- Redemptions (60,138) -- ------------ ------------ Net Increase 1,084,153 -- ------------ ------------ Class C: Subscriptions 4,220 -- Issued in connection with merger 201,173 -- Issued for distributions reinvested 775 -- Redemptions (51,597) -- ------------ ------------ Net Increase 154,571 -- ------------ ------------ Class Z: Subscriptions 7,329,150 13,747,862 Issued for distributions reinvested 833,054 2,355,595 Redemptions (9,127,230) (17,188,343) ------------ ------------ Net Decrease (965,026) (1,084,886) ------------ ------------ (a) On July 29, 2002, the Stein Roe Managed Municipal Fund was redesignated Liberty Managed Municipal Fund, Class Z. Class A, Class B and Class C shares were initially offered on November 1, 2002. See notes to financial statements. 15 NOTES TO FINANCIAL STATEMENTS December 31, 2002 (Unaudited) NOTE 1. ACCOUNTING POLICIES ORGANIZATION: Liberty Managed Municipals Fund (the "Fund") (formerly, Stein Roe Managed Municipals Fund), a series of Liberty-Stein Roe Funds Municipal Trust (the "Trust"), is a diversified, open-end management investment company organized as a Massachusetts business trust. The Fund's investment goal is to seek a high level of total return consistent with prudent risk, consisting of current income exempt from federal income tax and opportunities for capital appreciation. The Fund may issue an unlimited number of shares. The Fund offers four classes of shares: Class A, Class B, Class C and Class Z. Class A shares are sold with a front-end sales charge. A 1.00% contingent deferred sales charge is assessed on redemptions made within eighteen months on an original purchase of $1 million to $25 million. Class B shares are subject to a contingent deferred sales 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 a contingent deferred sales charge on redemptions made within one year after purchase. Class Z shares are offered continuously at net asset value. There are certain restrictions on the purchase of Class Z shares, as described in the Fund's prospectus. On July 29, 2002, Stein Roe Managed Municipals Fund was renamed Liberty Managed Municipals Fund and the Fund's existing shares were redesignated as Class Z shares. The Fund began offering Class A, Class B and Class C shares on November 1, 2002. As of the end of business on November 1, 2002, the Fund acquired all the net assets of Liberty Ohio Tax-Exempt Fund pursuant to a plan of reorganization. All assets of Liberty Ohio Tax-Exempt Fund were transferred to the Fund in a tax-free exchange and shareholders of Liberty Ohio Tax-Exempt Fund received shares of Liberty Managed Municipals Fund in exchange for their shares as follows: LIBERTY LIBERTY OHIO MANAGED TAX-EXEMPT MUNICIPALS FUND FUND NET UNREALIZED SHARES ISSUED ASSETS RECEIVED APPRECIATION1 ------------- -------------- -------------- 7,582,627 $68,174,275 $5,973,554 1 Unrealized Appreciation is included in the Net Assets Received amount above. NET ASSETS NET ASSETS NET ASSETS OF LIBERTY OHIO OF LIBERTY OF LIBERTY TAX-EXEMPT MANAGED MANAGED FUND MUNICIPALS FUND MUNICIPALS FUND IMMEDIATELY IMMEDIATELY PRIOR TO PRIOR TO AFTER COMBINATION COMBINATION COMBINATION ------------- ------------- ------------- $443,275,288 $68,174,275 $511,449,563 Differing amortization policies between the Liberty Ohio Tax-Exempt Fund and the Liberty Managed Municipal Fund resulted in reclassification as follows: UNREALIZED PAID-IN APPRECIATION CAPITAL ------------- -------------- $(1,264,703) $1,264,703 The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses for 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: Municipal securities are valued at a fair value using a procedure determined in good faith by the Board of Trustees, which has authorized the use of bid valuations provided by a pricing service. Futures contracts are valued based on the difference between the last sale price and the opening price of the contract. Other securities and assets are valued at fair value as determined in good faith by or under the direction of the Board of Trustees. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Short-term obligations with a maturity of 60 day or less are valued at amortized cost. Security transactions are accounted for on the date the securities are purchased, sold or mature. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes. DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income, expenses (other than Class A, Class B and Class C service fees and Class B and Class C distribution fees), and realized and unrealized gains (losses) are 16 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 2002 (Unaudited) 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 fees applicable to Class A, Class B and Class C shares and the distribution fees applicable to Class B and Class C shares, only. INTEREST INCOME: Interest income is recorded on the accrual basis. Premium and discount are being amortized for all debt securities. DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income are declared daily and paid monthly. Capital gains distributions, if any, are distributed annually. FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a regulated investment company and to distribute all of its taxable income, no federal income tax has been accrued. FUTURES CONTRACTS: The Fund may enter into futures contracts to either hedge against expected declines of their portfolio securities or as a temporary substitute for the purchase of individual bonds. Risks of entering into futures contracts include the possibility that there may be an illiquid market at the time a fund seeks to close out a contract, and changes in the value of the futures contract may not correlate with changes in the value of the portfolio securities being hedged. Upon entering into a futures contract, the Fund deposits cash or securities with its custodian in an amount sufficient to meet the initial margin requirements. Subsequent payments are made or received by the Fund equal to the daily change in the contract value and are recorded as variation margin payable or receivable and offset in unrealized gains or losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. Refer to the Fund's Investment Portfolio for a summary of open futures contracts at December 31, 2002. NOTE 2. FEDERAL TAX INFORMATION Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations. The estimated capital loss carryforward obtained from the Liberty Ohio Tax-Exempt Fund was: $1,512,102. Utilization of Liberty Ohio Tax-Exempt Fund's capital loss carryforwards could be subject to merger limitations imposed by the Internal Revenue Code. NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES MANAGEMENT FEE: Stein Roe & Farnham Incorporated (the "Advisor") is the investment advisor of the Fund and receives a monthly fee based on the Fund's average daily net assets as follows: AVERAGE DAILY NET ASSETS ANNUAL FEE RATE ------------------------ --------------- First $100 million 0.450% Next $100 million 0.425% Over $200 million 0.400% ADMINISTRATION FEE: The Advisor also provides accounting and other services for a monthly fee to the Fund as follows: AVERAGE DAILY NET ASSETS ANNUAL FEE RATE ------------------------ --------------- First $100 million 0.150% Next $100 million 0.125% Over $200 million 0.100% PRICING AND BOOKKEEPING FEES: The Advisor is responsible for providing pricing and bookkeeping services to the Fund under a Pricing and Bookkeeping Agreement. Under a separate agreement (the "Outsourcing Agreement"), the Advisor has delegated those functions to State Street Bank and Trust Company ("State Street"). The Advisor pays fees to State Street under the Outsourcing Agreement. Under its pricing and bookkeeping agreements with the Fund, the Advisor receives from the Fund an annual flat fee of $10,000, paid monthly, and in any month that the Fund's average daily net assets are more than $50 million, a monthly fee equal to the average daily net assets of the Fund for that month multiplied by a fee rate that is calculated by taking into account the fees payable to State Street under the Outsourcing Agreement. For the six months ended December 31, 2002, the annualized net asset based fee rate was 0.036%. The Fund also pays out-of-pocket costs for pricing services. TRANSFER AGENT FEE: Liberty Funds Services, Inc. (the "Transfer Agent"), an affiliate of the Advisor, provides shareholder services for a monthly fee equal to 0.06% annually of the Fund's 17 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 2002 (Unaudited) average daily net assets plus charges based on the number of shareholder accounts and transactions. The Transfer Agent also receives reimbursement for certain out-of-pocket expenses. UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Liberty Funds Distributor, Inc. (the "Distributor"), an affiliate of the Advisor, is the Fund's principal underwriter. For the period ended December 31, 2002, the Fund has been advised that the Distributor retained net underwriting discounts of $404 on sales of the Fund's Class A shares and received contingent deferred sales charges ("CDSC") of $2,516 and $1,250 on Class B and Class C share redemptions, respectively. The Fund has adopted a 12b-1 (the "Plan"), for its Class A, Class B and Class C shares which requires the payment of a monthly service fee to the Distributor. The fee is calculated by adding (1) 0.10% on net assets attributable to shares of the Liberty Ohio Tax-Exempt Fund issued prior to December 1994 and (2) 0.25% on net assets attributable to all other shares. This arrangement results in a rate of service fee payable by Class A, Class B and Class C shares that is a blend between the 0.10% and 0.25% rates. For the period ended December 31, 2002, the annualized service fee for Class A was 0.19%, for Class B was 0.19% and for Class C was 0.19%. The Plan also requires the payment of a monthly distribution fee to the Distributor equal to 0.75% annually of the average daily net assets attributable to Class B and Class C shares only. The Distributor has voluntarily agreed to waive a portion of the Class C share distribution fee so that it does not exceed 0.23% annually. The CDSC and the fees received from the Plan are used principally as repayment to the Distributor for amounts paid by the Distributor to dealers who sold such shares. OTHER: The Fund pays no compensation to its officers, all of whom are employees of the Advisor or its affiliates. The Fund's Independent Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund's assets. The Fund has an agreement with its custodian bank under which $67 of custody fees were reduced by balance credits for the six months ended December 31, 2002. The Fund could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement. NOTE 4. PORTFOLIO INFORMATION INVESTMENT ACTIVITY: During the six months ended December 31, 2002, purchases and sales of investments, other than short-term obligations, were $156,127,116 and $123,194,087, respectively. Unrealized appreciation (depreciation) at December 31, 2002, for federal income tax purposes was: Gross unrealized appreciation $55,659,763 Gross unrealized depreciation (7,089,695) ----------- Net unrealized appreciation $48,570,068 =========== OTHER There are certain risks arising from geographic concentration in any state. Certain revenue or tax related events in a state may impair the ability of certain issuers of municipal securities to pay principal and interest on their obligations. At December 31, 2002, the Fund had a significant concentration in Ohio representing 14% of net assets. 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 has a fundamental policy which allows it to borrow from banks, other affiliated funds and other entities to the extent permitted by applicable law, provided that the Fund's borrowings shall not exceed 33 1/3% of the value of its total net assets (exclusive of borrowings). The Fund is part of a $200,000,000 credit facility that has been set up as a means of borrowing. 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%. Other investment companies managed by the Advisor also participate in the line of credit on the same terms. In addition, a commitment fee of 0.10% per annum on the Fund's unused commitment shall be paid quarterly by each fund based on the relative asset size of each fund to the Trust as a whole. The commitment fee is included in "Other expenses" on the Statement of Operations. Because several investment companies participate, there is no assurance that an individual fund will have access to the entire $200,000,000 at any particular time. For the six months ended December 31, 2002, there were no borrowings under the agreement. 18
FINANCIAL HIGHLIGHTS Selected data for a share outstanding throughout the period is as follows: (UNAUDITED) PERIOD ENDED ECEMBER 31, CLASS A SHARES 2002 (a) -------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 8.95 ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (b) 0.06 Net realized and unrealized gain on investments and futures contracts 0.19 ----------- Total from Investment Operations 0.25 ----------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.06) ----------- NET ASSET VALUE, END OF PERIOD $ 9.14 =========== Total return (c)(d) 4.33% =========== RATIOS/SUPPLEMENTAL DATA: Expenses (e)(f) 0.94% Net investment income (e)(f) 4.49% Portfolio turnover rate 31% Net assets, end of period (000's) $ 54,886
(a) Class A shares were initially offered on November 1, 2002. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (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) The benefits derived from custody credits and directed brokerage arrangement, if applicable, had an impact of less than 0.01%. (f) Annualized. 19
FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for a share outstanding throughout the period is as follows: (UNAUDITED) PERIOD ENDED DECEMBER 31, CLASS B SHARES 2002 (a) ----------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 8.95 ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (b) 0.05 Net realized and unrealized gain on investments and futures contracts 0.19 ----------- Total from Investment Operations 0.24 ----------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.05) ----------- NET ASSET VALUE, END OF PERIOD $ 9.14 =========== Total return (c)(d) 4.20% =========== RATIOS/SUPPLEMENTAL DATA: Expenses (e)(f) 1.69% Net investment income (e)(f) 3.74% Portfolio turnover rate 31% Net assets, end of period (000's) $ 9,905
(a) Class B shares were initially offered on November 1, 2002. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (d) Not annualized. (e) The benefits derived from custody credits and directed brokerage arrangement, if applicable, had an impact of less than 0.01%. (f) Annualized. 20
FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for a share outstanding throughout the period is as follows: (UNAUDITED) PERIOD ENDED DECEMBER 31, CLASS C SHARES 2002 (a) ---------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 8.95 ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (b) 0.06 Net realized and unrealized gain on investments and futures contracts 0.19 ----------- Total from Investment Operations 0.25 ----------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.06) ----------- NET ASSET VALUE, END OF PERIOD $ 9.14 =========== Total return (c)(d)(e) 4.25% =========== RATIOS/SUPPLEMENTAL DATA: Expenses (f)(g) 1.43% Net investment income (f)(g) 4.00% Waiver/reimbursement (g) 0.52% Portfolio turnover rate 31% Net assets, end of period (000's) $ 1,412
(a) Class C shares were initially offered on November 1, 2002. Per share data reflects activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge. (d) Had the Distributor not waived a portion of expenses, total return would have been reduced. (e) Not annualized. (f) The benefits derived from custody credits and directed brokerage arrangement, if applicable, had an impact of less than 0.01%. (g) Annualized. 21
FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for a share outstanding throughout each period is as follows: (UNAUDITED) SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------------------------------------------------------- CLASS Z SHARES 2002 (a) 2002 2001 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 8.95 $ 8.99 $ 8.65 $ 9.07 $ 9.38 $ 9.11 ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.21(b) 0.43(b)(c) 0.45(b) 0.47 0.47 0.48 Net realized and unrealized gain (loss) on investments and futures contracts 0.18 0.18(c) 0.41 (0.32) (0.31) 0.27 ------ ------ ------ ------ ------ ------ Total from Investment Operations 0.39 0.61 0.86 0.15 0.16 0.75 ------ ------ ------ ------ ------ ------ LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.20) (0.44) (0.45) (0.47) (0.47) (0.48) From net realized gains -- (0.21) (0.07) (0.10) -- -- ------ ------ ------ ------ ------ ------ Total Distributions Declared to Shareholders (0.20) (0.65) (0.52) (0.57) (0.47) (0.48) ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 9.14 $ 8.95 $ 8.99 $ 8.65 $ 9.07 $ 9.38 ====== ====== ====== ====== ====== ====== Total return (d) 4.40%(e) 7.06% 10.13% 1.86% 1.67% 8.37% ====== ====== ====== ====== ====== ====== RATIOS/SUPPLEMENTAL DATA: Expenses (f) 0.75%(g) 0.76% 0.74% 0.69% 0.72% 0.72% Net investment income (f) 4.62%(g) 4.82%(c) 5.07% 5.39% 5.02% 5.14% Portfolio turnover rate 31% 17% 17% 19% 17% 12% Net assets, end of period (000's) $443,195 $442,660 $454,366 $458,205 $538,322 $583,138
(a) On July 29, 2002, the Fund's existing shares were redesignated Class Z shares. (b) Per share was calculated using average shares outstanding during the period. (c) Effective July 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium and discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to increase the ratio of investment income to average net assets from 4.81% to 4.82%. The impact to net investment income and net realized and unrealized gain was less than $0.01. Per share data and ratios for periods prior to June 30, 2002, have not been restated to reflect this change in presentation. (d) Total return at net asset value assuming all distributions reinvested. (e) Not annualized. (f) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (g) Annualized. 22 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] TRANSFER AGENT IMPORTANT INFORMATION ABOUT THIS REPORT The Transfer Agent for Liberty Managed Municipals Fund is: Liberty Funds Services, Inc. P.O. Box 8081 Boston, MA 02266-8081 The fund mails one shareholder report to each shareholder address. If you would like more than one report, please call shareholder services at 800-345-6611 and additional reports will be sent to you. This report has been prepared for shareholders of Liberty Managed Municipals 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 Managed Municipals Fund Liberty Managed Municipals Fund SEMIANNUAL REPORT, DECEMBER 31, 2002 [eagle head logo] LibertyFunds A Member of Columbia Managment Group (C)2003 Liberty Funds Distributor, Inc. A Member of Columbia Management Group One Financial Center, Boston, MA 02111-2621 PRSRT STD U.S. POSTAGE PAID HOLLISTON, MA PERMIT NO. 20 798-03/472M-0103 (02/03) 03/0238