<PAGE>
LETTER FROM THE PRESIDENT
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present Colonial Income Fund's annual report for the
12 months ended December 31, 1994. The Fund offers investors the opportunity
for high current income though investments primarily in investment-grade
corporate bonds. The Fund's flexible investment strategy also allows it to
supplement income with investments in high yield, high risk corporate bonds and
U.S. government securities.(1)
<TABLE>
<CAPTION>
FUND PERFORMANCE (1/1/94 - 12/31/94)(2)
CLASS A CLASS B
INCEPTION 12/1/69 5/15/92
- ------------------------------------------------------------
<S> <C> <C>
Distributions declared
per share $0.496 $0.449
- ------------------------------------------------------------
SEC yield on 12/31/94 7.64% 7.27%
- ------------------------------------------------------------
Total return assuming
reinvestment of all distributions
and no sales charge or CDSC -4.09% -4.82%
- ------------------------------------------------------------
Net asset value per share
on 12/31/94 $5.95 $5.95
- ------------------------------------------------------------
</TABLE>
ECONOMIC OVERVIEW
The U.S. economy expanded at rapid pace during 1994 -- the preliminary
estimate for 1994's GDP stands at 4.0%. Although this was welcome news after
several years of often lackadaisical growth, the robust economy also heightened
inflation fears. During the fiscal year the Federal Reserve Board raised
short-term interest rates six times in an effort to keep inflation under
control, and yields for long-term fixed-income securities moved higher as well.
The U.S. government sector of the bond market felt the greatest impact from
rising interest rates, but investment-grade corporate bonds -- the bonds that
are your Fund's primary focus -- were also adversely affected.
[PHOTO OF JOHN A. McNEICE, JR.]
INVESTMENT STRATEGY
One measure used to determine a portfolio's exposure to risk over time
is duration. Portfolios with longer durations generally provide greater
returns, but with more risk and price volatility. To reduce the impact of
volatility in the U.S. government sector, the Fund's average duration was
reduced from 8.2 to 6.8 years. Another step that was taken to minimize the
impact of unfavorable market conditions was to maintain high yield, high risk
corporate bonds near the allowable limit of 20% of anvestKents. These
securities benefited as the economy strengthened, reflecting improving
conditions for their issuing corporations. Investment-grade corporate bonds
underperformed U.S. Treasury securities when the market declined i
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 investing primarily in corporate debt
securities.
(2) Refer to the mountain chart on page two.
<PAGE>
REPORT FROM COLONIAL MANAGEMENT
- -------------------------------------------------------------------------------
Unlike funds with greater single-sector emphasis, Colonial Income Fund's
ability to invest assets in more than one sector of the bond market may help
reduce the impact of volatility in any one sector. The changes in the
individual sector weightings from the beginning to the end of the fiscal year
are illustrated in the chart at the right.
PORTFOLIO PROFILES
The Fund maintains a portfolio diversified across different sectors of
the bond market and a variety of securities within those sectors. However, Lead
Portfolio Manager Carl Ericson did find certain industries and companies to be
particularly attractive.
ENERGY RELATED
This industry produces the petroleum and natural gas products we use
every day. These bonds may therefore be more reliable than securities from more
cyclical industries.
SUN CO. is a petroleum refiner that distributes its products in the
Northeast and Midwest through its popular Sunoco chain of gas stations. The
company has implemented changes to concentrate on refining and marketing
operations.
MCDERMOTT INTERNATIONAL is a multinational company that builds power
generation systems for industry, utilities, and governments, as well as marine
production and transportation facilities. A restructuring program has
consolidated its marine exploration operations.
ELECTRIC SERVICES
The utilities industry is currently benefiting from an improved
regulatory environment. A number of the companies whose bonds were owned by the
Fund have already benefited from recent developments, and others may do so in
the future.
CONNECTICUT LIGHT & POWER CO. provides electricity and natural gas to
eastern, central, and western Connecticut, servicing more than 1,000,000
customers in 149 communities. In July 1994, CL&P began deferring payments to
independent power producers, a move that should help improve the company's
earnings outlook.
COMMONWEALTH EDISON, a subsidiary of Unicom, is an electric utility
holding company that owns and operates the nation's largest network of nuclear
power plants. As a result of reasonable rate decisions from the Illinois
Commerce Commission, it is anticipated that earnings will increase significantly
during 1995.
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/94
<CAPTION>
CLASS A CLASS B
NAV MOP NAV W/CDSC
<S> <C> <C> <C> <C>
1 year -4.09% -8.65% -4.82% -9.24%
5 years 7.36% 6.32% -- --
10 years 8.96% 8.43% -- --
Since inception -- -- 4.48% 3.48%
</TABLE>
<TABLE>
CHANGES IN BOND MARKET SECTOR WEIGHTINGS
AS A PERCENTAGE OF TOTAL INVESTMENTS
12/31/93 - 12/31/94
<CAPTION>
12/93 12/94
----- -----
<S> <C> <C>
CASH/OTHER 2.9% 5.5%
HIGH YIELD CORPORATE 20.5% 18.9%
US GOVERNMENT 25.3% 27.4%
INV.-GRADE CORPORATE 51.3% 48.2%
</TABLE>
<TABLE>
COMPARISON OF THE CHANGE IN VALUE OF $10,000
INVESTED IN COLONIAL INCOME FUND AND
THE LEHMAN BROTHERS CORPORATE DEBT
BBB RATED INDEX
12/31/84 - 12/31/94
<CAPTION>
CIF MOP NAV LEHMAN
<S> <C> <C> <C>
12/84 9,525 10,000 10,000
3/85 9,756 10,243 10,158
6/85 10,519 11,043 11,260
9/85 10,823 11,363 11,571
12/85 11,526 12,100 12,166
3/86 12,076 12,678 13,265
6/86 12,360 12,976 13,918
9/86 12,548 13,173 14,229
12/86 12,948 13,594 14,809
3/87 13,307 13,970 15,161
6/87 13,178 13,835 14,808
9/87 12,877 13,519 14,271
12/87 13,011 13,660 15,188
3/88 13,652 14,333 15,862
6/88 13,984 14,681 16,038
9/88 14,346 15,061 16,417
12/88 14,632 15,361 16,589
3/89 14,785 15,522 16,787
6/89 15,586 16,363 18,118
9/89 15,766 16,553 18,354
12/89 15,747 16,532 18,927
3/90 15,640 16,420 18,761
6/90 15,979 16,776 19,493
9/90 15,595 16,373 19,489
12/90 16,164 16,970 20,262
3/91 17,044 17,894 21,127
6/91 17,544 18,419 21,547
9/91 18,376 19,293 22,812
12/91 19,202 20,160 24,015
3/92 19,265 20,226 23,839
6/92 19,972 20,968 24,875
9/92 20,825 21,864 26,050
12/92 20,899 21,941 26,101
3/93 21,996 23,093 27,419
6/93 22,616 23,744 28,335
9/93 23,407 24,574 29,320
12/93 23,417 24,584 29,276
3/94 22,607 23,735 28,245
6/94 22,180 23,286 27,801
9/94 22,286 23,398 28,005
12/94 22,459 23,579 28,127
</TABLE>
The Lehman Brothers Corporate Debt BBB Rated Index is an unmanaged index that
tracks the performance of a selection of corporate bonds with ratings of BBB
from the major bond rating agencies. The 30-day SEC yield on December 31,
1994, of 7.64% for Class A shares and 7.27% 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 7.39% for Class A shares and
7.01% for Class B shares. Because Fund performance reflects the impact of
brokerage costs, fees, and expenses, the performance of the Fund may differ
from that of the Index. 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% for one
year and 3% since inception.
2
<PAGE>
INVESTMENT PORTFOLIO (IN THOUSANDS) DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BONDS & NOTES - 93.7% PAR VALUE
- -------------------------------------------------------------------
CORPORATE BONDS & NOTES - 66.3%
- -------------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION - 1.4%
BUILDING CONSTRUCTION - 0.9%
USG Corp.,
9.250% 09/15/01. . . . . . . . $ 1,500 $ 1,425
--------
SPECIAL TRADE CONTRACTORS - 0.5%
Overhead Door, Inc.,
12.250% 02/01/00. . . . . . . . 750 758
- -------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 6.7%
DEPOSITORY INSTITUTIONS - 0.5%
Great Western Financial,
8.600% 02/01/02. . . . . . . . 700 695
--------
INSURANCE CARRIERS - 4.1%
American General Corp.,
9.625% 02/01/18. . . . . . . . 3,000 3,169
Penn Central Corp.,
10.625% 04/15/00. . . . . . . . 3,000 3,136
--------
6,305
--------
NONDEPOSITORY CREDIT INSTITUTIONS - 2.1%
Green Tree Financial,
10.250% 06/01/02. . . . . . . . 3,000 3,201
- -------------------------------------------------------------------
MANUFACTURING - 30.1%
CHEMICALS- 4.0%
Huntsman Corp.,
11.000% 04/15/04. . . . . . . . 1,250 1,300
Methanex Corp.,
8.875% 11/15/01. . . . . . . . 1,000 975
Rohm & Haas Co.,
9.375% 11/15/19. . . . . . . . 2,000 2,070
Union Carbide Corp.,
7.875% 04/01/23. . . . . . . . 2,000 1,749
--------
6,094
--------
ENGINE & TURBINES - 1.7%
McDermott, Inc.,
9.375% 03/15/02. . . . . . . . 2,500 2,537
--------
FABRICATED METAL- 1.3%
Masco Corp.,
9.000% 10/01/01. . . . . . . . 2,000 2,030
--------
FOOD & KINDRED PRODUCTS - 4.3%
Coca-Cola Bottling Co.,
9.000% 11/15/03. . . . . . . . 1,500 1,316
ConAgra, Inc.,
9.750% 03/01/21. . . . . . . . 3,000 3,171
Ralston Purina Co.,
9.300% 05/01/21. . . . . . . . 2,000 2,026
--------
6,513
--------
MACHINERY & COMPUTER EQUIPMENT - 1.4%
Tenneco Corp.,
10.000% 03/15/08. . . . . . . . 2,000 2,189
--------
PAPER PRODUCTS - 3.5%
James River Corp.,
9.250% 11/15/21. . . . . . . . 1,000 1,008
Riverwood International Corp.,
11.250% 06/15/02. . . . . . . . 1,500 1,541
Scott Paper Co.,
10.000% 03/15/05. . . . . . . . 1,200 1,281
Stone Container Corp.,
11.500% 10/01/04. . . . . . . . 1,500 1,508
--------
5,338
--------
PETROLEUM REFINING - 3.8%
Chevron Corp.,
9.750% 07/15/17. . . . . . . . 2,000 2,208
Kerr-McGee Corp.,
7.000% 11/01/11. . . . . . . . 2,000 1,715
Pennzoil Co.,
10.125% 11/15/09. . . . . . . . 525 560
Sun Co., Inc.,
9.375% 06/01/16. . . . . . . . 1,300 1,319
--------
5,802
--------
PRIMARY METAL - 2.8%
International Minerals & Chemical
Corp.,
9.875% 03/15/11. . . . . . . . 2,000 2,126
Magma Copper Co.,
12.000% 12/15/01. . . . . . . . 2,000 2,160
--------
4,286
--------
PRINTING & PUBLISHING - 1.1%
Knight-Ridder, Inc.,
9.875% 04/15/09. . . . . . . . 1,500 1,688
--------
RUBBER & PLASTIC - 2.2%
Armstrong World Industries, Inc.,
9.750% 04/15/08. . . . . . . . 2,050 2,221
Premark International, Inc.,
10.500% 09/15/00. . . . . . . . 1,000 1,054
--------
3,275
--------
STONE, GLASS, CLAY & CONCRETE - 1.3%
Owens-Illinois, Inc.,
10.000% 08/01/02. . . . . . . . 2,000 1.955
--------
</TABLE>
See note to investment portfolio.
<PAGE>
INVESTMENT PORTFOLIO - CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BONDS & NOTES - CONT. PAR VALUE
- --------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - CONT.
TOBACCO PRODUCTS - 2.7%
American Brands, Inc.,
9.125% 03/01/16. . . . . . $ 2,300 $ 2,275
RJR Nabisco, Inc.,
9.250% 08/15/13. . . . . . 2,000 1,799
--------
4,074
- --------------------------------------------------------------
MINING- 3.8%
CRUDE PETROLEUM & NATURAL GAS - 1.1%
Coastal Corp.,
10.750% 10/01/10. . . . . . 1,500 1,682
--------
METAL MINING - 1.2%
Freeport-McMoRan Resource Partners,
Limited Partnership,
8.750% 02/15/04. . . . . . 2,000 1,790
--------
OIL & GAS EXTRACTION - 1.5%
Occidental Petroleum,
11.125% 08/01/10. . . . . . 2,000 2,328
- --------------------------------------------------------------
RETAIL TRADE - 1.2%
GENERAL MERCHANDISE STORES
May Department Stores Co.,
8.375% 10/01/22. . . . . . 2,000 1,892
- --------------------------------------------------------------
SERVICE - 1.1%
MOTION PICTURES
Paramount Communications, Inc.,
8.250% 08/01/22. . . . . . 2,000 1,655
- --------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES - 22.0%
AIR TRANSPORTATION - 1.9%
AMR Corp.,
9.880% 06/15/20. . . . . . 1,000 948
United Air Lines, Inc.,
9.760% 05/27/06. . . . . . 1,975 1,869
--------
2,817
--------
COMMUNICATIONS- 8.2%
CBS, Inc.,
8.875% 06/01/22. . . . . . 2,000 1,912
Cablevision Industries Corp.,
10.750% 01/30/02. . . . . . 2,000 1,990
Heritage Media Corp.,
11.000% 06/15/02. . . . . . 1,500 1,522
Jones Intercable, Inc.:
10.500% 03/01/08. . . . . . 1,000 980
11.500% 07/15/04. . . . . . 1,000 1,035
MCI Communications Corp.,
7.750% 03/15/24. . . . . . 2,000 1,762
Rogers Communications, Inc.,
10.875% 04/15/04. . . . . . 1,500 1,523
Tele-Communications, Inc.,
9.250% 01/15/23. . . . . . 2,000 1,814
-------
12,538
-------
ELECTRIC SERVICES - 8.8%
Boston Edison Co.,
9.875% 06/01/20. . . . . . 2,000 2,004
Cincinnati Gas & Electric Co.,
10.200% 12/01/20. . . . . . 2,000 2,181
Commonwealth Edison Co.:
8.000% 04/15/23. . . . . . 1,000 853
9.875% 06/15/20. . . . . . 1,000 1,040
Connecticut Light & Power Co.,
7.500% 07/01/23. . . . . . 1,500 1,290
Houston Lighting & Power Co.,
7.500% 07/01/23. . . . . . 1,100 953
Illinois Power Co.,
8.000% 02/15/23. . . . . . 2,000 1,781
Mississippi Power & Light Co.,
8.650% 01/15/23. . . . . . 2,000 1,849
Utilicorp United, Inc.,
9.000% 11/15/21. . . . . . 1,500 1,446
-------
13,397
-------
GAS SERVICES - 1.3%
Williams Companies, Inc.,
9.375% 11/15/21. . . . . . 2,000 2,031
-------
RAILROAD - 1.8%
Burlington Northern, Inc.,
7.500% 07/15/23. . . . . . 2,000 1,717
Union Pacific Corp.,
8.500% 01/15/17. . . . . . 1,000 969
-------
2,686
- --------------------------------------------------------------
Total corporate bonds & notes (cost $102,741) 100,981
- --------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 27.4%
- --------------------------------------------------------------
GOVERNMENT AGENCIES- 5.9%
Federal Farm Credit Bank,
11.900% 10/20/97. . . . . . 5,000 5,502
-------
See note to investment portfolio.
<PAGE>
INVESTMENT PORTFOLIO - CONTINUED
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
BONDS & NOTES - CONT. PAR VALUE
- -------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - CONT.
GOVERNMENT AGENCIES - CONT.
<S> <C> <C>
Federal National Mortgage Association,
10.350% 12/10/15 . . . . . . . . $ 2,000 $ 2,398
--------
Government National Mortgage Association:
Maturities
Coupon from/to
-------------------------------------
10.000% 2017-2019 . . . . . . . . 68 71
10.500% 2020 . . . . . . . . 303 323
11.500% 2013 . . . . . . . . 126 138
12.500% 2010-2014 . . . . . . . . 474 532
13.000% 2011 . . . . . . . . 58 67
14.000% 2011-2012 . . . . . . . . 16 19
--------
1,150
- -------------------------------------------------------------------
Total government agencies (cost $9,323) 9,050
- -------------------------------------------------------------------
GOVERNMENT BONDS & NOTES- 21.5%
U.S. Treasury bonds:
7.875% 04/15/98 . . . . . . . . 700 701
8.500% 04/15/97 . . . . . . . . 4,133 4,195
10.500% 08/15/95 . . . . . . . . 7,983 8,155
11.875% 11/15/03 . . . . . . . . 2,634 3,294
--------
16,345
U.S. Treasury notes:
8.125% 08/15/19 . . . . . . . . 7,937 8,042
11.500% 11/15/95 . . . . . . . . 3,961 4,106
12.000% 08/15/13 . . . . . . . . 3,167 4,211
--------
16,359
- -------------------------------------------------------------------
Total government bonds & notes (cost $37,713) 32,704
- -------------------------------------------------------------------
Total U.S. government & agency obligations
(cost $47,036) 41,754
- -------------------------------------------------------------------
PREFERRED STOCKS - 0.7% SHARES
- -------------------------------------------------------------------
GAS SERVICE - 0.7%
Enron Corporation, 8.00%
(cost $1,250) . . . . . . . . . . . . . . . . . 50 1,088
- -------------------------------------------------------------------
Total investments - 94.4%
(cost $151,027) (a) 143,823
- -------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 3.3% PAR
- -------------------------------------------------------------------
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 1998, market value $5,058
(repurchase proceeds $4,956) . . . . . . . . $ 4,953 4,953
- -------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - 2.3% 3,589
- -------------------------------------------------------------------
NET ASSETS - 100.0% $152,365
- -------------------------------------------------------------------
</TABLE>
Note to investment portfolio:
(a) Cost for federal income tax purposes is approximately the same.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
Colonial 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 securities for which there were no sales during the day, at
current quoted bid prices.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
Portfolio positions which cannot be valued as set forth above are valued at
fair value under procedures approved by the Trustees.
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
December 31, 1994
(in thousands except for per share amounts and footnote)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments at value (cost $151,027)................................... $ 143,823
Short-term investments................................................. 4,953
----------
148,776
Receivable for:
Interest............................................. $ 3,531
Fund shares sold..................................... 232
Dividends............................................ 8
Other................................................... 35 3,806
------- ----------
Total assets.................................................. 152,582
LIABILITIES
Payable for Fund shares
repurchased........................................... 200
Accrued:
Deferred Trustees fees............................... 3
Other................................................ 14
-------
Total liabilities............................................. 217
----------
NET ASSETS............................................................. $ 152,365
==========
Net asset value & redemption price per share -
Class A ($129,560/21,776).......................................... $ 5.95
==========
Maximum offering price per share - Class A
($5.95/0.9525)...................................................... $ 6.25*
==========
Net asset value & offering price per share -
Class B ($22,805/3,833)............................................ $ 5.95
==========
COMPOSITION OF NET ASSETS
Capital paid in..................................................... $ 179,403
Undistributed net investment income................................. 253
Accumulated net realized loss....................................... (20,087)
Net unrealized depreciation......................................... (7,204)
==========
$ 152,365
==========
</TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1994
(in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C>
Interest............................................................... $ 14,397
Dividends.............................................................. 100
----------
14,497
EXPENSES
Management fee.......................................... $ 814
Service fee............................................. 406
Distribution fee - Class B.............................. 161
Transfer agent.......................................... 377
Bookkeeping fee......................................... 67
Trustees fees........................................... 18
Custodian fee........................................... 5
Audit fee............................................... 40
Legal fee............................................... 5
Registration fees....................................... 28
Reports to shareholders................................. 8
Other................................................... 35 1,964
------- ----------
Net investment income.......................................... 12,533
----------
NET REALIZED AND UNREALIZED LOSS
ON PORTFOLIO POSITIONS
Net realized loss...................................................... (1,616)
Net unrealized depreciation
during the period .................................................. (18,562)
----------
Net loss....................................................... (20,178)
----------
Net decrease in net assets from
operations.......................................................... $ (7,645)
==========
</TABLE>
* On sales of $50,000 or more the offering price is reduced.
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................................................ $ 12,533 $ 12,611
Net realized gain (loss)............................................. (1,616) 2,087
Net unrealized appreciation (depreciation)........................... (18,562) 4,128
-------- --------
Net increase (decrease) from operations........................ (7,645) 18,826
Distributions
From net investment income - Class A................................. (11,213) (11,715)
From net investment income - Class B................................. (1,553) (888)
-------- --------
(20,411) 6,223
-------- --------
Fund share transactions
Receipts for shares sold - Class A................................... 10,341 22,295
Value of distributions reinvested - Class A.......................... 5,653 5,810
Cost of shares repurchased - Class A................................. (24,102) (27,912)
-------- --------
(8,108) 193
-------- --------
Receipts for shares sold - Class B................................... 9,212 16,261
Value of distributions reinvested - Class B.......................... 834 522
Cost of shares repurchased - Class B................................. (4,402) (3,360)
-------- --------
5,644 13,423
-------- --------
Net increase (decrease) from Fund share transactions........... (2,464) 13,616
-------- --------
Total increase (decrease)................................ (22,875) 19,839
NET ASSETS
Beginning of period.................................................. 175,240 155,401
-------- --------
End of period (including undistributed
net investment income of $253 and $471, respectively)............... $152,365 $175,240
======== ========
NUMBER OF FUND SHARES
Sold - Class A....................................................... 1,620 3,287
Issued for distributions reinvested - Class A........................ 914 863
Repurchased - Class A................................................ (3,874) (4,129)
-------- --------
(1,340) 21
-------- --------
Sold - Class B....................................................... 1,470 2,415
Issued for distributions reinvested - Class B........................ 135 77
Repurchased - Class B................................................ (714) (493)
-------- --------
891 1,999
-------- --------
Net increase (decrease) in shares outstanding.................. (449) 2,020
Outstanding at
Beginning of period............................................... 26,058 24,038
-------- --------
End of period..................................................... 25,609 26,058
======== ========
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 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; market discount is not accreted. Premium is
amortized against interest income with a corresponding decrease in the cost
basis.
- --------------------------------------------------------------------------------
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
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 equal to 0.50% annually of the Fund's average net
assets.
- --------------------------------------------------------------------------------
BOOKKEEPING FEE
The Adviser provides bookkeeping and pricing services for $27,000 per year
plus 0.035% of the Fund's average net assets over $50 million.
- --------------------------------------------------------------------------------
TRANSFER AGENT
Colonial Investors Service Center, Inc. (the Transfer Agent), an affiliate
of the Adviser, provides shareholder services for a monthly fee equal to 0.18%
annually of the Fund's average net assets, and receives a reimbursement for
certain out of pocket expenses.
- --------------------------------------------------------------------------------
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 $22,077 on sales of the
Fund's Class A shares and received contingent deferred sales charges (CDSC) of
$60,499 on Class B share redemptions.
The Fund has adopted a 12b-1 plan which requires it to pay the Distributor
a service fee equal to 0.25% annually of the Fund's net assets as of the 20th of
each month. The plan also requires the payment of a distribution fee to the
Distributor equal to 0.75% of the average net assets attributable to Class B
shares.
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 $25,724,404 and
$33,074,082, respectively, of which $5,230,273 and $2,022,728, respectively,
were U.S. government securities.
Unrealized appreciation (depreciation) at December 31, 1994, based on cost
of investments for both financial statement and federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation.... $ 2,495,055
Gross unrealized depreciation.... $ (9,699,230)
-------------
Net unrealized depreciation... $ (7,204,175)
=============
</TABLE>
- --------------------------------------------------------------------------------
CAPITAL LOSS CARRYFORWARDS
At December 31, 1994, capital loss carryforwards available (to the extent
provided in regulations) to offset future realized gains were approximately as
follows:
<TABLE>
<CAPTION>
Year of Capital loss
expiration carryforward
---------- ------------
<S> <C>
1996.............. $ 491,000
1997.............. 2,834,000
1998.............. 4,686,000
1999.............. 10,466,000
2002.............. 1,007,000
------------
$ 19,484,000
============
</TABLE>
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
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
- --------------------------------------------------------------------------------
<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
-------------------- -------------------- -------------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B (a) CLASS A CLASS A
-------- -------- --------- ------- -------- ------- -------- --------
Net asset value - Beginning
of period....................... $ 6.720 $ 6.720 $ 6.460 $ 6.460 $ 6.460 $ 6.390 $ 5.970 $ 6.430
-------- -------- --------- ------- -------- ------- -------- --------
Income (loss) from investment
operations:
Net investment income ......... 0.487 0.440 0.501 0.451 0.546 0.290 0.587 0.632
Net realized and
unrealized gain (loss)
on investments................. (0.761) (0.761) 0.261 0.261 0.001 0.088 0.487 (0.477)
-------- -------- --------- ------- -------- ------- -------- --------
Total from investment
operations..................... (0.274) (0.321) 0.762 0.712 0.547 0.378 1.074 0.155
-------- -------- --------- ------- -------- ------- -------- --------
Less distributions declared
to shareholders:
From net investment income...... (0.496) (0.449) (0.502) (0.452) (0.547) (0.308) (0.584) (0.615)
-------- -------- --------- ------- -------- ------- -------- --------
Net asset value - End of period.. $ 5.950 $ 5.950 $ 6.720 $ 6.720 $ 6.460 $ 6.460 $ 6.460 $ 5.970
======== ======== ========= ======= ======== ======= ======== ========
Total return (b)................. (4.09)% (4.82)% 12.05% 11.23% 8.83% 6.00%(c) 18.80% 2.65%
======== ======== ========= ======= ======== ======= ======== ========
Ratios to average net assets:
Expenses........................ 1.11% 1.86% 1.10% 1.85% 1.24% 1.99%(d) 1.25% 1.23%
Net investment income........... 7.80% 7.05% 7.45% 6.70% 8.49% 7.74%(d) 9.46% 10.30%
Portfolio turnover............... 16% 16% 46% 46% 68% 68% 44% 29%
Net assets at end of period
(000)........................... $129,560 $22,805 $155,543 $19,787 $149,309 $ 6,092 $146,905 $141,467
</TABLE>
(a) Class B shares were initially offered on May 5, 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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF COLONIAL TRUST I AND THE SHAREHOLDERS OF COLONIAL 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 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, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 10, 1995
<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.
- --------------------------------------------------------------------------------
Colonial 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
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
SS-03/575A-1294
