<PAGE>
LETTER FROM THE PRESIDENT
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present Colonial Strategic Income Fund's annual report
for the 12 months ended December 31, 1994. Your Fund is designed to provide
investors with a high level of current income through investments in U.S.
government bonds, high yield, high risk corporate bonds, and foreign government
bonds.(1)
FUND PERFORMANCE (1/1/94 - 12/31/94)(2)
<TABLE>
<CAPTION>
CLASS A CLASS B
INCEPTION 4/21/77 5/15/92
- ------------------------------------------------------------
<S> <C> <C>
Distributions declared
per share(3) $0.592 $0.540
- ------------------------------------------------------------
SEC yield on 12/31/94 8.70% 8.39%
- ------------------------------------------------------------
12-month total return assuming
reinvestment of all distributions
and no sales charge or CDSC -3.67% -4.40%
- ------------------------------------------------------------
Net asset value per share
on 12/31/94 $6.53 $6.53
- ------------------------------------------------------------
</TABLE>
ECONOMIC/MARKET OVERVIEW
The strength of the U.S. economy during 1994 exceeded the expectations
of most analysts -- the preliminary estimate for 1994's GDP stands at 4.0%. In
this environment, investors (and the Federal Reserve Board) became concerned
about inflation. The Fed raised short-term interest rates six times during the
year, and yields for long-term securities followed suit. Although the impact
of mounting inflation fears was felt across the bond market, U.S. government
securities were especially hard hit. However, improving conditions for high
yield corporate and international bonds over the second half of the year helped
reduce the impact of declining prices from U.S. government investments.
U.S. GOVERNMENT MARKET
The Fed's tight monetary policy had a negative impact on this sector of
the bond market. Price declines were the worst in many years, and the market
is in its longest period of negative returns since 1969. In this environment,
the Fund's U.S. government investments were maintained near the allowable
minimum of 20%.
FOREIGN MARKET
Price declines in European markets from January through June were more
a reflection of the strength of the U.S. economy than economic conditions
abroad. Over the first half of 1994, European and other international economies
began to firm up, a development that was reflected in higher interest rates and
lower bond prices. There was a reversal in this trend late in the year,
bringing some price improvement. Performance was also helped by the relative
strength of foreign currencies versus the U.S. dollar. Foreign investments
were gradually increased, from approximately 20% of total investments at
mid-year to 30% at fiscal year end. Denmark, the United Kingdom, and Australia
were the top three countries represented in the portfolio, reflecting their
improving bond markets. Investments in emerging markets were reduced in the
first half of 1994 because of heightened economic volatility.
[PHOTO OF JOHN A. McNEICE, JR.]
HIGH YIELD U.S. CORPORATE MARKET
Like most fixed-income securities, the performance of high yield bonds
reflected the impact of higher interest rates. However, these bonds performed
somewhat better than their U.S. government and foreign counterparts. In fact,
economic conditions in the United States actually helped the performance of
these securities. As the prospects for the corporations that issue these
securities improved, so too did high yield bonds. This sector was maintained
as the largest in the portfolio, accounting for over 44% of net assets.
It appears that the Fed's monetary policy finally began to take effect
during the final two months of the fiscal year. There may be further
tightening, and the economy should begin to slow sometime during 1995. This
should help create a more favorable climate for all fixed-income securities.
Sincerely,
/s/ John A. McNeice, Jr.
John A. McNeice, Jr.
President
February 10, 1995
(1) The Fund's Trustees recently approved modifications to the wording of your
Fund's objective to more precisely describe the Fund's investment approach. No
Fund policies or practices were changed. As of 11/30/94, the Fund's modified
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 bonds and high yield, high risk corporate debt securities.
(2) Refer to the mountain chart on page two. (3) Includes a return of capital
of $.012 for Class A shares and $.011 for Class B shares.
1
<PAGE>
REPORT FROM COLONIAL MANAGEMENT
- -------------------------------------------------------------------------------
Although the U.S. government sector suffered its worse declines in many
years, the negative impact of these investments was partially offset by the
performance of the Fund's high yield and international investments. The bar
chart at the right illustrates the change in sector weightings from the
beginning to the end of the fiscal year.
Although the Fund's performance reflects its broadly diversified
investment portfolio, Carl Ericson, your Fund's Lead Portfolio Manager, did
find certain companies and countries to be especially attractive.
HIGH YIELD CORPORATE SECTOR
Healthcare companies continue to benefit from greater cost controls and
consolidation within this industry. Many healthcare securities owned by the
Fund have already benefited from this trend, and more will do so in the future.
Among these are MEDIPLEX GROUP, which provided a wide range of subacute
healthcare services and merged with Sun Healthcare Group, Inc. earlier this
year.
The chemical industry, where revenues have been growing faster than
expenses, has also contributed to the Fund's performance. HUNTSMAN CORP. is a
chemical producer whose revenues have reflected the increased profitability of
its industry.
INTERNATIONAL SECTOR
At the end of the fiscal year, there were five foreign countries
represented in the portfolio. Among these investments, AUSTRALIA and DENMARK
provided some of the strongest returns. Australia's bond market posted
declines during much of 1994. However, in the closing months of the fiscal
year, Australian bonds outperformed the U.S. Treasury market, and the
Australian dollar strengthened versus the U.S. dollar. Denmark, whose economy
is ahead of other European countries in the economic cycle, also made a strong
contribution to performance. This country currently has a budget surplus and
inflation is running at just 2.0%. The Danish economy is expected to slow in
1995, a development that should support bond prices and keep inflation under
control.
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/94
<TABLE>
<CAPTION>
CLASS A CLASS B
NAV MOP NAV W/CDSC
<S> <C> <C> <C> <C>
1 year -3.67% -8.25% -4.40% -8.82%
5 years 7.73% 6.68% -- --
10 years 9.29% 8.76% -- --
Since inception 9.87% 9.57% 5.11% 4.14%
</TABLE>
CHANGES IN BOND MARKET
SECTOR WEIGHTINGS
AS A PERCENTAGE OF NET ASSETS
12/31/84 - 12/31/94
<TABLE>
<CAPTION>
12/93 12/94
----- -----
<S> <C> <C>
CASH/OTHER 4.1% 4.3%
HIGH YIELD CORPORATE 47.7% 44.5%
US GOVERNMENT 21.6% 21.1%
INV.-GRADE CORPORATE 26.6% 30.1%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF $10,000
INVESTED IN COLONIAL STRATEGIC INCOME FUND AND THE
LEHMAN BROTHERS MUTUAL FUND GENERAL BOND INDEX
12/31/84 - 12/31/94
<TABLE>
<CAPTION>
CSIF MOP NAV LEHMAN
<S> <C> <C> <C>
12/84 9525 10000 10000
3/85 10087 10590 10215
6/85 10440 10961 11056
9/85 10225 10735 11276
12/85 11457 12028 12131
3/86 12068 12670 13165
6/86 12148 12754 13339
9/86 11524 12099 13608
12/86 12002 12600 14025
3/87 13973 14670 14232
6/87 14322 15036 13964
9/87 14885 15627 13557
12/87 12450 13071 14348
3/88 13655 14336 14862
6/88 14242 14952 15009
9/88 14053 14754 15290
12/88 14524 15248 15437
3/89 14942 15687 15606
6/89 15394 16162 16861
9/89 15902 16695 17019
12/89 15967 16764 17633
3/90 15485 16257 17432
6/90 16028 16828 18060
9/90 14990 15737 18169
12/90 14843 15583 19096
3/91 16148 16953 19610
6/91 16903 17746 19907
9/91 17992 18889 21052
12/91 19060 20010 22175
3/92 19500 20473 21842
6/92 20370 21386 22728
9/92 21110 22163 23837
12/92 20923 21966 23855
3/93 22031 23129 24967
6/93 22765 23900 25717
9/93 23261 24421 26570
12/93 24050 25250 26493
3/94 23423 24591 25660
6/94 23117 24270 25343
9/94 23175 24331 25469
12/94 23167 24322 25563
</TABLE>
The Lehman Brothers Mutual Fund General Bond Index is an unmanaged
index that tracks the performance of a selection of U.S. government agency and
Treasury bonds and investment-grade corporate bonds. The 30-day SEC yield on
December 31, 1994, of 8.70% for Class A shares and 8.39% for Class B shares
reflects the portfolio's earning power, net of expenses, and does not include
changes in Fund price. SEC yield on January 31, 1995, was 8.73% for Class A
shares and 8.42% for Class B shares. Past performance cannot predict future
results. Return and value of an investment will vary, resulting in a gain or
loss on sale. All results shown assume reinvestment of distributions. Net
asset value (NAV) return does not include sales charges or contingent deferred
sales charges (CDSC). Maximum offering price (MOP) return includes the
maximum sales charge of 4.75%. The CDSC return reflects the maximum charge of
5.00% for one year and 3.00% since inception.
2
<PAGE>
INVESTMENT PORTFOLIO (in thousands) DECEMBER 31, 1994
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENCY
BONDS & NOTES(a)-95.7% ABBREV. PAR VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE FIXED-INCOME BONDS
& NOTES - 43.9%
- ----------------------------------------------------------------------------
CONSTRUCTION - 1.7%
BUILDING CONSTRUCTION - 1.3%
Hovnanian Enterprises, Inc.,
11.250% 04/15/02 $ 1,000 835
Nortek, Inc.,
9.875% 03/01/04 $ 3,500 3,115
Toll Corp.,
10.500% 03/15/02 $ 3,000 2,760
U.S. Home Corp.,
9.750% 06/15/03 $ 4,500 3,893
USG Corp.,
9.250% 09/15/01 $ 6,000 5,700
------
16,303
------
SPECIAL TRADE CONTRACTORS - 0.4%
Overhead Door, Inc.,
12.250% 02/01/00 $ 5,000 5,050
- ----------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 1.2%
FINANCIAL SERVICES - 0.6%
Comdata Network, Inc.,
13.250% 12/15/02 $ 7,000 7,700
------
HOLDING & OTHER INVESTMENT OFFICES - 0.0%
Iroquois Brands Ltd.,
12.000% 09/15/99(b) $ 1,000 10
INSURANCE CARRIERS - 0.4% ------
Reliance Group Holdings Co.,
9.750% 11/15/03 $ 6,000 5,250
------
NONDEPOSITORY CREDIT INSTITUTION - 0.0%
Drum Financial Corp.,
12.875% 09/15/99(b) $ 1,000 10(c)
------
REAL ESTATE - 0.2%
Residential Trust Co.,
10.500% 10/15/03 $ 2,500 2,366
- ----------------------------------------------------------------------------
MANUFACTURING - 19.1%
CHEMICALS - 3.1%
Agricultural Minerals and Chemicals Co.,
Limited Partnership,
10.750% 09/30/03 $ 7,200 7,272
Energy Ventures, Inc.,
10.250% 03/15/04 $ 2,500 2,350
Georgia Gulf Co.,
15.000% 04/15/00 $ 346 355
Huntsman Corp.,
11.000% 04/15/04 $ 7,000 7,280
N.L. Industries, Inc.,
11.750% 10/15/03 $ 6,340 6,340
OSI Special Holding Co.,
stepped-coupon, (11.500%
04/15/99) 04/15/04 (d) $ 6,000 3,660
Polymer Group, Inc.,
12.250% 07/15/02 $ 3,500 3,360
Revlon Consumer Products Corp.,
Series B,
9.375% 04/01/01 $ 2,000 1,790
Rexene Corp.,
11.750% 12/01/04 $ 2,000 2,000
UCC Investors Holdings, Inc.,
11.000% 05/01/03 $ 4,000 3,940
------
38,347
------
ELECTRONIC & ELECTRICAL EQUIPMENT - 1.6%
Amphenol Corp.:
10.450% 11/01/01 $ 6,000 6,360
12.750% 12/15/02 $ 2,500 2,800
Exide Corp.,
10.750% 12/15/02 $ 3,500 3,500
International Semi-Tech Microelectronics,
Inc., stepped-coupon, (11.500%
08/15/00) 08/15/03 (d) $ 12,000 5,160
Lamson & Sessions Co.,
14.000% 06/01/97 $ 1,500 1,526
------
19,346
------
FABRICATED METAL - 0.1%
Haynes International, Inc.,
13.500% 08/15/99 $ 3,000 1,770
------
FOOD & KINDRED PRODUCTS - 0.8%
Pilgrim's Pride Corp.,
10.875% 08/01/03 $ 6,000 5,655
Specialty Foods Corp., Series B,
11.250% 08/15/03 $ 5,000 4,350
------
10,005
------
LUMBER & WOOD PRODUCTS - 0.7%
Southwest Forest Industries,
12.125% 09/15/01 $ 3,000 3,015
Triangle Pacific Corp.,
10.500% 08/01/03 $ 6,000 5,745
------
8,760
------
MACHINERY & COMPUTER EQUIPMENT - 0.3%
SPX, Inc.,
11.750% 06/01/02 $ 4,000 3,980
------
Measuring & analyzing instruments - 0.3%
Sola Group Ltd., stepped-coupon,
6.000% (9.625% 12/15/98)
12/15/03(e) $ 5,000 3,875
-----
MISCELLANEOUS MANUFACTURING - 1.4%
American Standard Co.:
9.875% 06/01/01 $ 1,500 1,455
stepped-coupon, (10.500%
06/01/98) 06/01/05 (d) $ 3,250 2,088
11.375% 05/15/04 $ 2,500 2,562
</TABLE>
See notes to investment portfolio.
3
<PAGE>
INVESTMENT PORTFOLIO - CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENCY
BONDS & NOTES(a)-CONT. ABBREV. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING - CONT.
MISCELLANEOUS MANUFACTURING - CONT.
Coleman Holdings Co., Series B,
(f) 05/27/98 $ 6,000 $ 4,035
Eagle Industries, Inc., stepped-
coupon, (10.500% 07/15/98)
07/15/03 (d) $ 11,250 7,313
---------
17,453
---------
PAPER PRODUCTS - 3.4%
Container Corporation of America,
Series A,
11.250% 05/01/04 $ 7,500 7,687
Domtar, Inc.,
12.000% 04/15/01 $ 1,500 1,560
Fort Howard Corp.:
9.000% 02/01/06 $ 3,000 2,580
10.000% 03/15/03 $ 2,000 1,870
Gaylord Container Corp., stepped-
coupon, (12.750% 05/15/96)
05/15/05 (d) $ 3,000 2,655
Repap Wisconsin, Inc.,
9.875% 05/01/06 $ 7,000 6,107
Riverwood International Corp.,
11.250% 06/15/02 $ 3,000 3,082
SD Warren Co.,
12.000% 12/15/04 $ 3,500 3,588
Stone Container Corp.:
9.875% 02/01/01 $ 7,000 6,580
11.500% 10/01/04 $ 2,000 2,010
11.875% 12/01/98 $ 3,750 3,881
12.625% 07/15/98 $ 1,000 1,048
---------
42,648
---------
PETROLEUM REFINING - 0.2%
Flores & Rucks, Inc.,
13.500% 12/01/04 $ 3,000 3,008
---------
Primary metal - 0.9%
A.K. Steel Corp.,
10.750% 04/01/04 $ 5,000 4,950
Jorgensen, Earle M. Co.,
10.750% 03/01/00 $ 6,000 5,760
---------
10,710
---------
PRINTING & PUBLISHING - 1.2%
Affiliated Newspaper,
stepped-coupon, (13.250%
07/01/99) 07/01/06 (d) $ 5,000 2,500
American Media Operations, Inc.,
11.625% 11/15/04 $ 2,000 2,050
K-III Communications Corp.,
10.625% 05/01/02 $ 5,000 4,850
Marvel Entertainment Group, Inc.,
(f) 04/15/98 $ 8,250 5,074
---------
14,474
---------
RUBBER & PLASTIC - 0.7%
Atlantis Group, Inc.,
11.000% 02/15/03 $ 6,300 6,111
Berry Plastics Corp.,
12.250% 04/15/04 $ 3,000 2,895
---------
9,006
---------
TEXTILE MILL PRODUCTS - 1.2%
Bibb Co.,
14.000% 10/01/99 $ 1,250 663
Consoltex Group, Inc., Series B,
11.000% 10/01/03 $ 3,500 3,220
Fieldcrest Cannon, Inc.,
11.250% 06/15/04 $ 3,000 3,000
NTC/BIBB Group, Inc.,
13.875% 08/01/99 $ 4,800 2,304
Westpoint Stevens, Inc.,
9.375% 12/15/05 $ 6,850 6,199
---------
15,386
---------
TOBACCO PRODUCTS - 0.1%
Consolidated Cigar Corp.,
10.500% 03/01/03 $ 1,000 900
---------
Transportation equipment - 3.1%
Aftermarket Technology Corp.,
12.000% 08/01/04 $ 2,500 2,575
Fairfield Manufacturing, Inc.,
11.375% 07/01/01 $ 7,000 6,580
ICON Health & Fitness, Inc., Unit,
13.000% 07/15/02 (g) $ 3,500 3,448
JPS Automotive Products Corp.,
11.125% 06/15/01 $ 3,500 3,360
Lear Seating Corp.,
11.250% 07/15/00 $ 1,500 1,530
Motor Wheel Corp., Series B,
11.500% 03/01/00 $ 4,500 4,162
PMI Acquisition Corp.,
10.250% 09/01/03 $ 1,750 1,610
Roadmaster Industries, Inc.,
11.750% 07/15/02 $ 5,500 5,280
UNC, Inc.,
9.125% 07/15/03 $ 5,000 4,450
Venture Holdings Trust Co.,
9.750% 04/01/04 $ 6,000 5,100
---------
38,095
- ----------------------------------------------------------------------------
MINING - 4.8%
Crude petroleum & natural gas - 0.6%
Triton Energy Corp.:
stepped-coupon, (9.750%
12/15/96) 12/15/00 (d) $ 4,500 3,358
(f) 11/01/97 $ 5,000 3,675
---------
7,033
---------
</TABLE>
See notes to investment portfolio.
4
<PAGE>
INVESTMENT PORTFOLIO - CONTINUED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENCY
BONDS & NOTES(a)-CONT. ABBREV. PAR VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
MINING - CONT.
METAL MINING - 0.3%
Freeport-McMoRan Resource
Partners, Limited Partnership,
8.750% 02/15/04 $ 3,500 $ 3,133
----------
Oil & gas extraction - 3.6%
Dual Drilling Co.,
9.875% 01/15/04 $ 3,500 3,115
Falcon Drilling Co., Inc.,
9.750% 01/15/01 $ 5,000 4,750
Global Marine, Inc.,
12.75 12/15/99 $ 3,000 3,225
Gulf Canada Resources Ltd.,
9.250% 01/15/04 $ 7,000 6,423
Maxus Energy Corp.,
9.875% 10/15/02 $ 3,000 2,610
Mesa Capital Corp., stepped-
coupon, (12.750% 06/30/95)
06/30/98 (d) $ 4,000 3,450
Occidental Petroleum Corp.,
11.75 03/15/11 $ 1,000 1,082
Plains Resources, Inc.,
12.00 10/01/99 $ 4,000 3,860
Rowan Companies, Inc.,
11.87 12/01/01 $ 4,000 4,120
Santa Fe Energy Resources, Inc.,
11.00 05/15/04 $ 7,000 7,105
TransTexas Gas Corp.,
10.50 09/01/00 $ 3,000 2,865
Trident NGL, Inc.,
10.25 04/15/03 $ 2,500 2,506
---------
45,111
---------
OIL & GAS FIELD SERVICES - 0.3%
Tuboscope Vetco International
Corp.,
10.75 04/15/03 $ 4,000 3,920
- -----------------------------------------------------------------------------
RETAIL TRADE - 2.8%
FOOD STORES - 0.7%
Pathmark Stores, Inc.:
9.625% 05/01/03 $ 2,250 2,003
stepped-coupon, (10.750%
11/01/99) 11/01/03 (d) $ 13,500 6,885
---------
8,888
---------
HOME FURNISHINGS & EQUIPMENT - 0.4%
Levitz Furniture, Inc.:
9.625% 07/15/03 $ 4,000 3,200
12.37 04/15/97 $ 1,500 1,545
---------
4,745
---------
MISCELLANEOUS RETAIL - 1.7%
Barry's Jewelers, Inc.,
12.62 05/15/96 $ 10 10(c)
10(c) Brylane Capital Corp.,
Series B,
10.00 09/01/03 $ 7,000 6,860
Eye Care Centers of America,
12.00 10/01/03 $ 2,000 1,560
Ferrellgas Limited Partnership/
Finance Corp.,
10.00 08/01/01 $ 2,500 2,463
Finlay Fine Jewelry Corp.,
10.62 05/01/03 $ 5,000 4,700
Thrifty Payless Holdings, Inc.,
11.75 04/15/03 $ 6,000 5,880
---------
21,473
- -----------------------------------------------------------------------------
SERVICES - 5.7%
Amusement & recreation - 1.0%
Bally's Grand, Inc., Series B,
10.37 12/15/03 $ 7,500 6,525
Empress River Casino Finance Corp.,
10.75 04/01/02 $ 4,000 3,660
Harrah's Jazz Co.,
14.25 11/15/01 $ 2,000 2,092
---------
12,277
---------
BUSINESS SERVICES - 0.0%
Darling International, Inc., stepped-
coupon, 13.750% (11.000%
01/01/95) 07/15/00 (e) $ 401 368
---------
HEALTH SERVICES - 3.0%
Abbey Health Care Group, Inc.,
9.500% 11/01/02 $ 7,000 6,300
American Medical International, Inc.,
9.500% 11/15/01 $ 400 400
Community Health Systems, Inc.,
10.25 11/30/03 $ 6,000 5,940
HealthSouth Rehabilitation Corp.,
9.500% 04/01/01 $ 3,500 3,369
Hillhaven Corp.,
10.12 09/01/01 $ 3,500 3,500
Integrated Health Services, Inc.,
10.75 07/15/04 $ 3,000 3,000
Mediplex Group, Inc.,
11.75 10/01/02 $ 1,500 1,680
OrNda Health Corp.:
11.37 08/15/04 $ 2,500 2,562
12.25 05/15/02 $ 3,000 3,210
Surgical Health Corp.,
11.50 07/15/04 $ 3,250 3,250
</TABLE>
See notes to investment portfolio.
5
<PAGE>
INVESTMENT PORTFOLIO - CONTINUED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENCY
BONDS & NOTES(a)-CONT. ABBREV. PAR VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
SERVICES - CONT.
HEALTH SERVICES - CONT.
Total Renal Care, Inc., Unit, stepped-
coupon, (12.000% 08/15/97)
08/15/04 (d)(g) $ 5,500 $ 4,125
---------
37,336
---------
HOTELS, CAMPS & LODGING - 1.3%
California Hotel Finance Corp.,
11.000% 12/01/02 $ 5,000 4,600
Host Marriott Hospitality, Inc.:
10.500% 05/01/06 $ 3,698 3,680
11.000% 05/01/07 $ 4,000 4,000
MGM Grand Hotels Finance Corp.,
12.000% 05/01/02 $ 2,000 2,160
Santa Fe Hotel, Inc.,
11.000% 12/15/00 $ 2,000 1,800
---------
16,240
---------
MISCELLANEOUS REPAIR SERVICES - 0.1%
Universal Outdoor, Inc.,
11.000% 11/15/03 $ 1,500 1,350
---------
MOTION PICTURES - 0.3%
Plitt Theatres, Inc.,
10.875% 06/15/04 $ 4,500 4,185
- -------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 8.6%
AIR TRANSPORTATION - 0.2%
Pan American World Airways, Inc.,
15.000% 04/15/04(h) $ 1,000 5
World Corporation, Inc.,
13.875% 08/15/97 $ 2,500 2,450
---------
2,455
---------
COMMUNICATIONS - 7.3%
Adelphia Communications Corp.:
9.500% 02/15/04,PIK $ 5,231 3,766
9.875% 03/01/05 $ 4,000 3,200
Allbritton Communications Co.,
11.500% 08/15/04 $ 7,000 7,035
Cablevision Systems Corp.,
10.750% 04/01/04 $ 5,000 5,000
Cencall Communications Corp.,
stepped-coupon, (10.125%
01/15/99) 01/15/04 (d) $ 6,000 2,100
Continental Cablevision, Inc.,
11.000% 06/01/07 $ 6,000 6,090
Diamond Cable Co., stepped-
coupon, (13.250% 09/30/99)
09/30/04 (d) $ 7,250 3,552
Falcon Holdings Group, PIK,
11.000% 09/15/03 $ 4,093 3,438
Heritage Media Corp.,
11.000% 06/15/02 $ 1,500 1,522
Jones Intercable, Inc.:
10.500% 03/01/08 $ 2,500 2,450
11.500% 07/15/04 $ 2,500 2,587
MFS Communications Co., Inc.,
stepped-coupon, (9.375% 01/15/99)
01/15/04 (d) $ 7,750 4,572
Mobilemedia Communications, Inc.,
stepped-coupon, (10.500% 12/01/98)
12/01/03 (d) $ 3,500 1,995
NWCG Holding Corp.,
(f) 06/15/99 $ 6,000 3,060
Paging Network, Inc.:
8.875% 02/01/06 $ 2,000 1,560
11.750% 05/15/02 $ 2,500 2,475
Panamsat Limited Partnership,
9.750% 08/01/00 $ 1,750 1,649
Pricellular Wireless Corp., stepped-
coupon, (14.000% 11/15/97)
11/15/01 (d) $ 6,000 3,960
Rogers Communications, Inc.,
10.875% 04/15/04 $ 3,000 3,045
SCI Television, Inc.,
11.000% 06/30/05 $ 5,000 5,050
Sinclair Broadcast Group, Inc.,
10.000% 12/15/03 $ 2,975 2,767
USA Mobile Communications
Holdings, Inc.:
9.500% 02/01/04 $ 3,000 2,430
14.000% 11/01/04 $ 3,000 3,060
Viacom International, Inc.,
8.000% 07/07/06 $ 4,000 3,430
Videotron Holdings Co., stepped-
coupon, (11.125% 01/01/99)
07/01/04 (d) $ 13,000 6,825
Young Broadcasting, Inc.,
11.750% 11/15/04 $ 4,000 4,040
---------
90,658
---------
ELECTRIC SERVICES - 0.1%
System Energy Resources, Inc.,
11.375% 09/01/16 $ 1,123 1,185
---------
GAS SERVICES - 0.3%
Transco Energy Co.,
11.250% 07/01/99 $ 3,500 3,723
---------
MOTOR FREIGHT & WAREHOUSING - 0.4%
Trism, Inc.,
10.750% 12/15/00 $ 5,500 5,225
---------
WATER TRANSPORTATION - 0.3%
Sea Containers Ltd.,
9.500% 07/01/03 $ 4,000 3,640
- -------------------------------------------------------------------------------
Total corporate fixed-income bonds & notes
(cost $633,465) 547,397
- -------------------------------------------------------------------------------
</TABLE>
See notes to investment portfolio.
6
<PAGE>
INVESTMENT PORTFOLIO - CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENCY
BONDS & NOTES(a)-CONT. ABBREV. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE CONVERTIBLE BONDS & NOTES- 0.6%
- --------------------------------------------------------------------------------
MANUFACTURING - 0.2%
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.1%
Kollmorgen Corp.,
8.750% 05/01/09 $ 622 $ 529
M/A-Communications, Inc.,
9.250% 05/15/06 $ 650 603
---------
1,132
---------
Machinery & computer equipment - 0.0%
Kulicke & Soffa Industries, Inc.,
8.000% 03/01/08 $ 300 321
---------
TEXTILE MILL PRODUCTS - 0.1%
Guilford Mills, Inc.,
6.000% 09/15/12 $ 700 606
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.4%
COMMUNICATIONS - 0.4%
Bell Cablemedia, stepped-coupon,
(11.950% 07/15/99)
07/15/04 (d) $ 10,000 5,350
- --------------------------------------------------------------------------------
Total corporate convertible bonds & notes
(cost $2,205) 7,409
- --------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 21.0%
FEDERAL HOME LOAN MORTGAGE CORPORATION:
7.500% 03/01/16 $ 428 402
8.000% with various maturities
to 2016 $ 2,216 2,125
8.500% with various maturities
to 2010 $ 2,365 2,320
8.750% with various maturities
to 2008 $ 936 916
9.000% with various maturities
to 2022 $ 2,371 2,382
9.250% with various maturities
to 2016 $ 2,373 2,374
9.500% with various maturities
to 2016 $ 787 805
9.750% with various maturities
to 2016 $ 188 191
10.000% 11/01/19 $ 457 477
10.500% 01/01/20 $ 85 90
10.750% with various maturities
to 2013 $ 1,995 2,123
11.250% with various maturities
to 2015 $ 1,761 1,875
Federal National Mortgage Association:
7.500% with various maturities
to 2011 $ 1,318 1,239
8.000% with various maturities
to 2009 $ 1,865 1,811
8.250% with various maturities
to 2009 $ 548 526
8.500% with various maturities
to 2021 $ 4,447 4,431
9.000% with various maturities
to 2021 $ 6,080 6,118
10.000% with various maturities
to 2016 $ 2,166 2,271
10.500% 03/01/14 $ 57 61
11.700% 05/10/95 $ 10,000 10,169
Government National Mortgage Association:
8.500% 02/15/06 $ 83 84
9.000% with various maturities
to 2009 $ 1,564 1,594
9.500% with various maturities
to 2009 $ 6,574 6,845
10.000% with various maturities
to 2021 $ 4,012 4,216
10.500% with various maturities
to 2021 $ 1,272 1,357
11.750% with various maturities
to 2015 $ 259 283
12.000% with various maturities
to 2014 $ 62 69
U.S. Treasury Bonds:
9.875% 11/15/15 $ 27,430 32,578
12.00 08/15/13 $ 5,591 7,434
13.12 05/15/01 $ 5,455 6,888
U.S. Treasury Notes:
7.875% 04/15/98 $ 39,000 39,037
8.500% 04/15/97 $ 28,055 28,475
9.250% 01/15/96 $ 48,405 49,328
11.25 05/15/95 $ 14,545 14,797
11.87 11/15/03 $ 20,517 25,659
- --------------------------------------------------------------------------------
Total U.S. government & agency obligations
(cost $285,038) 261,350
- --------------------------------------------------------------------------------
FOREIGN GOVERNMENT & AGENCY OBLIGATIONS - 30.2%
- --------------------------------------------------------------------------------
Argentina Par Brady,
4.250% 03/31/23(h) AP 80,000 34,600
Kingdom of Denmark,
9.000% 11/15/00 DK 765,835 126,250
Spanish Government Bonds,(i)
12.25 03/25/00 SP 6,131,000 47,786
Treasury Corp. of Victoria:
12.00 10/22/98 A$ 80,926 65,994
12.00 09/22/01 A$ 28,485 23,682
United Kingdom Treasury,
9.750% 08/27/02 UK 46,966 77,113
- --------------------------------------------------------------------------------
Total foreign government & agency obligations
(cost $346,629) 375,425
- --------------------------------------------------------------------------------
Total bonds & notes (cost $1,267,337) 1,191,581
- --------------------------------------------------------------------------------
</TABLE>
See notes to investment portfolio.
7
<PAGE>
INVESTMENT PORTFOLIO - CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCKS - 0.8% SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCE, INSURANCE & REAL ESTATE - 0.8%
DEPOSITORY INSTITUTIONS - 0.4%
California Federal Bank, 10.625% 45 $ 4,500
Guardian Savings Bank,
Series A, PIK (b)(c) 4,337 43
---------
4,543
---------
HOLDING & OTHER INVESTMENT OFFICES - 0.4%
First Nationwide Bank, 11.500% (b) 55 5,363
Riggs National Corp., 10.750% 19 474
---------
5,837
- ------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (COST $12,846) 10,380
- ------------------------------------------------------------------------------
COMMON STOCKS - 0.7%
- ------------------------------------------------------------------------------
CONSTRUCTION - 0.1%
BUILDING CONSTRUCTION
Calton, Inc. (b) 356 356
U.S. Home Corp. (b) 31 503
---------
859
- ------------------------------------------------------------------------------
MANUFACTURING - 0.2%
FOOD & KINDRED PRODUCTS - 0.1%
Doskocil Companies, Inc. (b) 14 104
Spreckels Industries, Inc. (b) 164 1,371
---------
1,475
---------
MACHINERY & COMPUTER EQUIPMENT - 0.0%
Thermadyne Holdings Corp. (b) 2 22
---------
PRIMARY METAL - 0.1%
LTV Corp. (b) 38 616
Texas Industries, Inc. 15 513
---------
1,129
---------
PRINTING & PUBLISHING - 0.0%
Affiliated Newspapers, Class B (b) 5 125
---------
TOBACCO PRODUCTS - 0.0%
RJR Nabisco Holdings Corp. (b) 5 29
- ------------------------------------------------------------------------------
MINING - 0.0%
Oil & gas extraction
Mesa, Inc. (b) 70 342
- ------------------------------------------------------------------------------
RETAIL TRADE - 0.2%
FOOD STORES - 0.0%
National Convenience Stores, Inc. (b) (j) 2
---------
GENERAL MERCHANDISE STORES - 0.0%
Federated Department Stores, Inc. (b) 30 583
---------
MISCELLANEOUS RETAIL - 0.2%
Hanover Direct, Inc. (b) 568 2,129
Pharmhouse Corp. (b) 4 2
---------
2,131
- ------------------------------------------------------------------------------
SERVICES - 0.1%
BUSINESS SERVICES - 0.0%
Darling International, Inc. (b) 27 344
---------
HEALTH SERVICES - 0.1%
Continental Health Affiliates, Inc. (b) 530 729
- ------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
GAS SERVICES - 0.0%
United Gas Holdings Corp. (b)(c) 30 386
---------
LOCAL & SUBURBAN TRANSIT - 0.0%
Greyhound Lines, Inc., 12.50% Escrow
Receipt (b)(c) 1 (j)
---------
MOTOR FREIGHT & WAREHOUSING - 0.0%
St. Johnsbury Trucking Co. (b)(c) 31 189
Sun Carriers, Inc. (b)(c) 130 1
---------
190
- ------------------------------------------------------------------------------
Total common stocks (cost $12,135) 8,346
- ------------------------------------------------------------------------------
WARRANTS (b) - 0.0%
- ------------------------------------------------------------------------------
BPC Holdings Corp., expires 04/15/04 3 45
Capital Gaming International,
expires 02/01/99 6 4
Eye Care Centers of America,
expires 10/01/03 2 10
Forest Oil Corp., expires 10/01/96 82 46
National Convenience Stores, Inc.,
expires 03/09/98 (j) (j)
OSI Specialties Holdings Co.,
expires 04/15/99 10 90
- ------------------------------------------------------------------------------
Total warrants (cost $157) 195
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS - 97.2%
(cost $1,292,475) (k) 1,210,502
- ------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 0.6% PAR
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 0.6%
Repurchase agreement with Lehman Government
Securities, Inc., dated 12/30/94, due 01/03/95
at 5.850% collateralized by U.S. Treasury
notes with various maturities to 1999,
market value $7,016 (repurchase
proceeds $6,875) $6,871 6,871
- ------------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET 2.2% 27,799
- ------------------------------------------------------------------------------
NET ASSETS - 100.0% $1,245,172
- ------------------------------------------------------------------------------
<FN>
Notes to investment portfolio:
(a) Par of each bond or note is shown in its issued currency according to the
abbreviations shown below. Value of all securities is shown in U.S. dollars.
(b) Non-income producing.
(c) Represents fair value as determined in good faith under the direction of
the Trustees.
(d) Currently zero coupon. Shown parenthetically is the interest rate to be
paid and the date the Fund will begin accruing this rate.
</TABLE>
See notes to investment portfolio.
8
<PAGE>
INVESTMENT PORTFOLIO - CONTINUED
- --------------------------------------------------------------------------------
Notes to investment portfolio - cont.
(e) Shown parenthetically is the next interest rate to be paid and the date the
Fund will begin accruing this rate.
(f) Zero coupon bond.
(g) This security consists of one bond and one warrant per unit.
(h) The interest rate shown is the average rate over the life of the security.
(i) Par shown in millions.
(j) Rounds to less than one.
(k) Cost for federal income tax purposes is $1,292,578.
Acronym Name
------- ---------------
PIK Payment-In-Kind
SUMMARY OF SECURITIES BY COUNTRY/CURRENCY
<TABLE>
<CAPTION>
% OF TOTAL
CURRENCY SECURITIES
COUNTRY ABBREV. VALUE AT VALUE
- -------------- -------- ---------- ----------
<S> <C> <C> <C>
United States $ $ 835,077 69.0
Denmark DK 126,250 10.4
Australia A$ 89,676 7.4
United Kingdom UK 77,113 6.4
Spain SP 47,786 3.9
Argentina AP 34,600 2.9
---------- -----
$1,210,502 100.0
========== =====
</TABLE>
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
See notes to financial statements.
9
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF ASSETS & LIABILITIES
December 31, 1994
(in thousands except for per share amounts and footnote)
- ------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments at value (cost $1,292,475)................................. $1,210,502
Short-term obligations................................................. 6,871
----------
1,217,373
Receivable for:
Interest............................................. $28,602
Fund shares sold..................................... 2,119
Dividends............................................ 239
Other................................................... 154 31,114
------- ----------
Total assets.................................................. 1,248,487
LIABILITIES
Payable for:
Fund shares repurchased.............................. 3,109
Investments purchased................................ 108
Accrued:
Deferred Trustees fees............................... 7
Other................................................ 91
-------
Total liabilities............................................. 3,315
----------
NET ASSETS............................................................. $1,245,172
==========
Net asset value & redemption price per share -
Class A ($636,824/97,473).......................................... $ 6.53
==========
Maximum offering price per share - Class A
($6.53/0.9525)...................................................... $ 6.86*
==========
Net asset value & offering price per share -
Class B ($608,348/93,118).......................................... $ 6.53
==========
COMPOSITION OF NET ASSETS
Capital paid in..................................................... $1,644,034
Overdistributed net investment income............................... (23)
Accumulated net realized loss....................................... (316,751)
Net unrealized depreciation on:
Investments........................................................ (81,973)
Foreign currency transactions...................................... (115)
==========
$1,245,172
==========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended December 31, 1994
(in thousands)
- ------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest............................................................... $ 120,983
Dividends.............................................................. 974
----------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $377)................................................... 121,957
EXPENSES
Management fee.......................................... $ 8,132
Service fee............................................. 2,862
Distribution fee - Class B.............................. 4,501
Transfer agent.......................................... 3,065
Bookkeeping fee......................................... 428
Trustees fees........................................... 62
Custodian fee........................................... 295
Audit fee............................................... 68
Legal fee............................................... 10
Reports to shareholders................................. 34
Registration fees....................................... 311
Other................................................... 93 19,861
------- ----------
Net investment income.......................................... 102,096
----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments........................................... (52,852)
Foregin currency transactions......................... 783
----------
Net realized loss.................................................. (52,069)
Net unrealized depreciation
during the period on:
Investments......................................... (104,137)
Foreign currency transactions....................... (115)
----------
Net unrealized depreciation.................................... (104,252)
----------
Net loss....................................................... (156,321)
----------
Net decrease in net assets from operations............................. $ (54,225)
==========
<FN>
* On sales of $50,000 or more the offering price is reduced.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
- -------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
----------------------------
1994 1993
---------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income................................................ $ 102,096 $ 58,557
Net realized loss.................................................... (52,069) (4,240)
Net unrealized appreciation (depreciation)........................... (104,252) 37,175
---------- ----------
Net increase (decrease) from operations........................ (54,225) 91,492
Distributions
From net investment income - Class A................................. (56,419) (41,462)
From capital paid in - Class A....................................... (1,168) (3,420)
In excess of net investment income - Class A......................... (13) (4)
From net investment income - Class B................................. (45,965) (13,456)
From capital paid in - Class B....................................... (951) (1,110)
In excess of net investment income - Class B......................... (10) (1)
---------- ----------
(158,751) 32,039
---------- ----------
Fund share transactions
Receipts for shares sold - Class A................................... 139,735 235,716
Value of distributions reinvested - Class A.......................... 29,165 23,087
Cost of shares repurchased - Class A................................. (109,086) (61,069)
---------- ----------
59,814 197,734
---------- ----------
Receipts for shares sold - Class B................................... 285,091 439,633
Value of distributions reinvested - Class B.......................... 22,255 6,883
Cost of shares repurchased - Class B................................. (99,032) (15,809)
---------- ----------
208,314 430,707
---------- ----------
Net increase from Fund share transactions...................... 268,128 628,441
---------- ----------
Total increase........................................... 109,377 660,480
NET ASSETS
Beginning of period.................................................. 1,135,795 475,315
---------- ----------
End of period (net of overdistributed net
investment income of $23 and $5, respectively)...................... $1,245,172 $1,135,795
---------- ----------
NUMBER OF FUND SHARES
Sold - Class A....................................................... 19,709 32,242
Issued for distributions reinvested - Class A........................ 4,270 3,164
Repurchased - Class A................................................ (15,921) (8,401)
---------- ----------
8,058 27,005
---------- ----------
Sold - Class B....................................................... 40,112 60,117
Issued for distributions reinvested - Class B........................ 3,267 938
Repurchased - Class B................................................ (14,569) (2,160)
---------- ----------
28,810 58,895
---------- ----------
Net increase in shares outstanding............................. 36,868 85,900
Outstanding at
Beginning of period............................................... 153,723 67,823
---------- ----------
End of period..................................................... 190,591 153,723
---------- ----------
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
Colonial Strategic Income Fund (the Fund), a series of Colonial Trust I, is
a Massachusetts business trust, registered under the Investment Company Act of
1940, as amended, as a diversified, open-end, management investment company. The
Fund may issue an unlimited number of shares. The Fund offers Class A shares
sold with a front-end sales charge and Class B shares which are subject to an
annual distribution fee and a contingent deferred sales charge. Class B shares
will convert to Class A shares when they have been outstanding approximately
eight years. The following significant accounting policies are consistently
followed by the Fund in the preparation of its financial statements and conform
to generally accepted accounting principles.
- --------------------------------------------------------------------------------
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 are valued at the last sale price or, in the case of
unlisted or listed secur- ities 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 which cannot be valued as set forth above are valued at
fair value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased or sold.
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 B distribution fee), 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 B 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 distribution fee applicable to Class B 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.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 has adopted Statement of Position 93-4, Foreign Currency
Accounting and Financial Statement Presentation for Investment Companies.
Accordingly, net realized and unrealized gain(loss) on foreign currency
transactions includes the fluctuation in exchange rates on gains and losses
between trade and settlement dates on securities transactions, gains and losses
arising from the disposition of foreign currency, and currency gains and losses
between the accrual and payment dates on dividend and interest income and
foreign withholding taxes.
The Fund does not distinguish that portion of gains and 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 and losses from investments.
The Fund may enter into forward currency contracts to purchase or sell
foreign currencies at predetermined exchange rates in connection with the
settlement of purchases and sales of securities. The Fund may also enter into
forward currency contracts to hedge certain other foreign currency denominated
assets. The contracts are used to minimize the exposure to foreign exchange
rate fluctuations during the period between trade and settlement date of the
contracts. All contracts are marked-to-market daily, resulting in unrealized
gains or 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, the actual 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.
The Fund's custodian takes possession through the federal book-entry system
of securities collateralizing repurchase agreements. Collateral is
marked-to-market daily to ensure that the market value of the underlying assets
remains sufficient to protect the Fund. The Fund may experience costs and delays
in liquidating the collateral if the issuer defaults or enters bankruptcy.
- --------------------------------------------------------------------------------
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE
Colonial Management Associates, Inc. (the Adviser) is the investment
adviser 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:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS ANNUAL FEE RATE
------------------ ---------------
<S> <C>
First $1 billion...................... 0.65%
Over $1 billion....................... 0.60%
- ------------------------------------------------------------
</TABLE>
13
<PAGE>
NOTES TO FINANCIAL STAEMENTS - CONTINUED
- --------------------------------------------------------------------------------
BOOKKEEPING FEE
The Adviser provides bookkeeping and pricing services for $27,000 per year
plus a percentage of the Fund's average net assets as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS ANNUAL FEE RATE
------------------ ---------------
<S> <C>
First $50 million....................... No charge
Next $950 million....................... 0.035%
Next $1 billion......................... 0.025%
</TABLE>
- --------------------------------------------------------------------------------
TRANSFER AGENT
Colonial Investors Service Center, Inc. (the Transfer Agent), an affiliate
of the Adviser, provides shareholder services for a monthly fee equal to 0.20%
annually of the Fund's average net assets, and receives a reimbursement for
certain out of pocket expenses.
- --------------------------------------------------------------------------------
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES
The Adviser, through its Colonial Investment Services (the Distributor)
division (effective March 1, 1995 a separate subsidiary of the Adviser), is the
Fund's principal underwriter. During the year ended December 31, 1994, the
Distributor retained net underwriting discounts of $347,697 on sales of the
Fund's Class A shares and received contingent deferred sales charges (CDSC) of
$2,267,397 on Class B share redemptions.
<TABLE>
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 shares. The plan also requires the payment of a
service fee to the Distributor as follows:
<CAPTION>
VALUE OF SHARES ANNUAL
OUTSTANDING ON THE 20TH OF FEE
EACH MONTH WHICH WERE ISSUED RATE
---------------------------- ------
<S> <C>
Prior to January 1, 1993 ...................... 0.15%
On or after January 1, 1993.................... 0.25%
</TABLE>
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.
- --------------------------------------------------------------------------------
OTHER
The Fund pays no compensation to its officers, all of whom are employees of
the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which
may be terminated at any time. Obligations of the plan will be paid solely out
of the Fund's assets.
- --------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION
During the year ended December 31, 1994, purchases and sales of
investments, other than short-term obligations, were $1,544,747,496 and
$1,227,761,652, respectively, of which $237,827,645 and $191,045,336,
respectively, were U.S. government securities.
<TABLE>
Unrealized appreciation(depreciation) at December 31, 1994, based on cost
of investments for federal income tax purposes was:
<S> <C>
Gross unrealized appreciation..................... $ 7,167,902
Gross unrealized depreciation..................... (89,244,372)
-------------
Net unrealized depreciation................... $ (82,076,470)
=============
</TABLE>
- --------------------------------------------------------------------------------
CAPITAL LOSS CARRYFORWARDS
<TABLE>
At December 31, 1994, capital loss carryforwards available (to the extent
provided in regulations) to offset future realized gains were approximately as
follows:
<CAPTION>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ---------- -------------
<S> <C>
1996................ $106,389,000
1997................ 122,574,000
1998................ 5,118,000
1999................ 36,511,000
2000................ 23,761,000
2001................ 3,442,000
2002................ 42,652,000
------------
$340,447,000
============
</TABLE>
Of the loss carryforwards expiring in 1996 and 1997, $31,908,027 and
$1,549,000, respectively, were acquired in the merger with Colonial Income Plus
Fund.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 currency exchange or
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.
15
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
------------------- ------------------- -------------------- -------- -------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B(a) CLASS A CLASS A
-------- -------- -------- -------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value -
Beginning of period...................... $ 7.390 $ 7.390 $ 7.010 $ 7.010 $ 7.020 $ 7.080 $ 6.050 $ 7.250
-------- -------- -------- -------- -------- ------- -------- --------
Income (loss) from investment
operations:
Net investment income.................. 0.580 0.529 0.565 0.511 0.669 0.385 0.684 0.697
Net realized and unrealized
gain (loss) on investments........ (0.848) (0.849) 0.448 0.448 (0.004) (0.067) 0.966 (1.177)
-------- -------- -------- -------- -------- ------- -------- --------
Total from investment
operations............... (0.268) (0.320) 1.013 0.959 0.665 0.318 1.650 (0.480)
-------- -------- -------- -------- -------- ------- -------- --------
Less distributions declared to
shareholders:
From net investment income........... (0.580) (0.529) (0.585) (0.535) (0.673) (0.388) (0.680) (0.697)
In excess of net investment
income -- -- -- -- (0.002) -- -- --
From capital paid in................. (0.012) (0.011) (0.048) (0.044) -- -- -- (0.023)
-------- -------- -------- -------- -------- ------- -------- --------
Total distributions declared
to shareholders.......... (0.592) (0.540) (0.633) (0.579) (0.675) (0.388) (0.680) (0.720)
-------- -------- -------- -------- -------- ------- -------- --------
Net asset value - End of period........... $ 6.530 $ 6.530 $ 7.390 $ 7.390 $ 7.010 $ 7.010 $ 7.020 $ 6.050
-------- -------- -------- -------- -------- ------- -------- --------
Total return (b)........................... (3.67)% (4.40)% 14.95% 14.11% 9.77% 2.48%(c) 28.41% (7.04)%
-------- -------- -------- -------- -------- ------- -------- --------
Ratios to average net assets:
Expenses................................. 1.21% 1.96% 1.19% 1.94% 1.18% 1.93%(d) 1.12% 1.12%
Net investment income.................... 8.38% 7.63% 8.42% 7.67% 9.39% 8.64%(d) 10.27% 10.27%
Portfolio turnover......................... 78% 78% 138% 138% 96% 96% 48% 2%
Net assets at end of period (000).......... $636,824 $608,348 $660,654 $475,141 $437,380 $37,935 $424,824 $410,270
<FN>
(a) Class B shares were initially offered on May 15, 1992. Per share amounts
reflect activity from that date.
(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or CDSC.
(c) Not annualized.
(d) Annualized.
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ------------------------------------------------------------------------------
TO THE TRUSTEES OF COLONIAL TRUST I AND THE SHAREHOLDERS OF COLONIAL STRATEGIC
INCOME FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Colonial Strategic Income Fund (a
series of Colonial Trust I) at December 31, 1994, the results of its operations,
the changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and the financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of portfolio positions
at December 31, 1994 by correspondence with the custodian and brokers, and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 10, 1995
17
<PAGE>
TRUSTEES
- --------------------------------------------------------------------------------
TOM BLEASDALE
Trustee (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
WILLIAM D. IRELAND, JR.
Trustee (formerly Chairman of the Board, Bank of New England - Worcester)
WILLIAM E. MAYER
Dean, College of Business and Management, University of Maryland (formerly Dean,
Simon Graduate School of Business, University of Rochester; Chairman and Chief
Executive Officer, C.S. First Boston Merchant Bank; and President and Chief
Executive Officer, The First Boston Corporation)
JOHN A. MCNEICE, JR.
Chairman of the Board, Chief Executive Officer and Director, The Colonial Group,
Inc. and Colonial Management Associates, Inc.
JAMES L. MOODY, JR.
Chairman of the Board, Hannaford Bros. Co. (formerly Chief Executive Officer,
Hannaford Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
GEORGE L. SHINN
Financial Consultant (formerly Chairman, Chief Executive Officer and Consultant,
The First Boston Corporation)
ROBERT L. SULLIVAN
Management Consultant
SINCLAIR WEEKS, JR.
Chairman of the Board, Reed & Barton Corporation
<PAGE>
- --------------------------------------------------------------------------------
[FIGURE 1]
ABOUT OUR COVER...
The symbol on the cover of this Report represents the Fund's primary investment
focus on corporate bonds, and U.S. and foreign government bonds.
- --------------------------------------------------------------------------------
Colonial Strategic Income Fund mails one shareholder report to each shareholder
address. If you would like more than one report, please call our Literature
Department at 1-800-248-2828 and additional reports will be sent to you.
SHAREHOLDER SERVICES AND TRANSFER AGENT
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
This material may be used with potential investors if it is preceded or
accompanied by a current Fund prospectus containing more complete information
including fees, risks, and expenses.
<PAGE>
[COLONIAL MUTUAL FUNDS LOGO]
COLONIAL
STRATEGIC
INCOME FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1994
[COLONIAL MUTUAL FUNDS LOGO]
COLONIAL INVESTMENT SERVICES (C)1995
One Financial Center, Boston, Massachusetts 02111-2621
Printed on recycled paper
SI-02/612A-1294
