<PAGE>
COLONIAL STRATEGIC INCOME FUND HIGHLIGHTS
JANUARY 1, 1995 - DECEMBER 31, 1995
INVESTMENT OBJECTIVE: Colonial Strategic Income Fund seeks as high a level of
current income and total return as is consistent with prudent risk.
STRATEGY: The Fund pursues its objective by diversifying investments primarily
in U.S. and foreign government and lower rated corporate debt securities.
THE FUND IS DESIGNED TO OFFER:
- Opportunity for higher income
- Diversification
- Monthly distributions
PORTFOLIO MANAGER COMMENTARY: "U.S. investment-grade bond prices were strongest
earlier in the year due to the favorable economic setting of low inflation and
falling interest rates. Later in the period, we experienced better performance
from our non-investment grade corporate and foreign government bonds which tend
to lag the U.S. government investment grade market."
COLONIAL STRATEGIC INCOME FUND PERFORMANCE
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
Inception date 4/21/77* 5/15/92
Distributions declared per share $0.581 $0.529
SEC Yield on 12/31/95 6.86% 6.44%
12-month total return, assuming
reinvestment of all distributions and
no sales charge or contingent deferred
sales charge (CDSC) 20.17% 19.29%
Net asset value per share at 12/31/95 $ 7.22 $ 7.22
</TABLE>
* Colonial Strategic Income Fund adopted its current objective on 11/30/94.
The 30-day SEC yield on December 31, 1995 reflects the Fund's earning power, net
of expenses, expressed as an annualized percentage of the maximum offering price
per share at the end of the period.
<TABLE>
<CAPTION>
TOP FIVE SECTORS PORTFOLIO STRUCTURE
(as of 12/31/95) (as of 12/31/95)
<S> <C>
1. Kingdom of Denmark (2003) U.S. Government........... 21.9%
2. United Kingdom Treasury (2003) Foreign Government........ 35.1%
3. U.S. Treasury Notes (2012) Corporate Bonds........... 38.8%
4. Treasury Corp. of Victoria (2001) Other..................... 4.2%
5. U.S. Treasury Notes (2003)
</TABLE>
Because the Fund is actively managed, there can be no guarantee that it will
continue to hold these securities or maintain these sector weightings.
2
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[Photo of John A. McNeice, Jr.]
As your Fund's fiscal year ends, it is a good time to examine some facts that
contributed to a memorable year for most mutual fund investors.
In general, equity investors were rewarded with unexpectedly strong corporate
earnings that sent the stock market to new highs in 1995. 1996 is likely to be a
good year as well, although a more modest one.
Conditions in the fixed-income and municipal markets were also favorable. Those
investors who stayed the course through 1994's difficult environment were amply
rewarded.
Falling interest rates and controlled inflation helped the economy to grow at a
comfortable pace -- a positive environment for financial markets. We expect this
rate of growth and low inflation to continue into 1996. It is likely that
further reductions in interest rates will take place in the first half of this
year as the Federal Reserve keeps a watchful eye on inflation.
We do expect some sluggishness in the economy in the first half of the year,
with some pick up in the second half of 1996. This will reflect several factors.
Housing should benefit from lower interest rates and excess inventories of
consumer and manufactured goods should be liquidated. Also, the pace of exports
is likely to improve due to anticipated economic growth in Europe and Japan.
In foreign markets, we continue to find that the Pacific Rim offers the best
combination of value and continued good earnings. In general, foreign markets
lagged the U.S. market last year. In 1996, we could see that gap narrow.
This year, investors will pay close attention to the 1996 Presidential election.
Usually, during an election year, incumbents will try to stimulate economic
growth, although this familiar pattern may be altered by the current budget
controversy.
Please remember that bull markets are a normal part of investing, but so are
bear markets. By leaving your money invested over the long term and following a
regular investment plan, you can avoid the difficulties of trying to predict
short-term market movements.
With this update, I encourage you to read the following report on your Fund. We
appreciate the opportunity to help you meet your investment goals.
Respectfully,
/s/ John A. McNeice, Jr.
- -----------------------------
John A. McNeice, Jr.
President
February 9, 1996
Because market conditions change frequently, there can be no assurance that the
trends described here will continue.
3
<PAGE>
PORTFOLIO MANAGEMENT REPORT
CARL ERICSON is Vice President of Colonial Management Associates, Inc. and
Portfolio Manager of the Colonial Strategic Income Fund. Carl has been managing
the Fund since 1991. He also manages three other Colonial funds.
Q: WHAT WERE THE PREVAILING ECONOMIC CONDITIONS DURING THE FUND'S FISCAL YEAR?
A: Both the stock and bond markets were bolstered by favorable economic
conditions over the past 12 months. Lowered interest rates and moderate U.S.
economic growth set the stage for an extended bond rally over the year. Because
non-investment grade and foreign bonds tend to lag the U.S. government market,
we experienced strong performance from those sectors later in the period.
Q: DURING THE PERIOD 1/1/95 TO 12/31/95, HOW HAS THE FUND PERFORMED?
A: The Fund's Class A shares had a total return of 20.17% compared to 18.02% for
the average income fund in the General Bond category tracked by Lipper
Analytical Services, Inc., an independent mutual fund rating service.
Q: HOW DID THE FUND PERFORM RELATIVE TO THE LEHMAN BROTHERS MUTUAL FUND GENERAL
BOND INDEX AND WHY?
A: During the period, the Fund outperformed the Lehman Mutual Fund General Bond
Index, which tracks the performance of general income funds. The total return
for the Fund's Class A shares, based on net asset value, was 20.17%, while the
Lehman Mutual Fund General Bond Index posted a return of 19.25%. Colonial
Strategic Income Fund outperformed the Index by virtue of its multi-market
diversification, whereas the Index represents only U.S. issues.
Q: WHAT STRATEGIES HELPED THE FUND'S PERFORMANCE DURING THE PERIOD?
A: Early in 1995 we were able to participate in the U.S. bond rally via the
Treasury market. Mid-year we dropped our cash position to 2% from 6% and
increased our exposure to foreign bonds to 35% from 30%. Because foreign markets
tend to lag the U.S. markets, we were able to capture some gains later in the
year by virtue of this move. That is the advantage of the flexibility offered by
a multi-market diversified fund like Colonial Strategic Income Fund - when a
sector slides a bit, other sectors of the Fund may pick up in its place.
Another positive trend that emerged this year was that a number of corporate
bond issuers bought back bonds (called in) at a premium. The economy and lower
interest rates have had a positive influence on cash flows of these companies,
enabling them to reduce their debt. This trend played a role in increasing the
Fund's net asset value during the year.
4
<PAGE>
Q: WHAT IS YOUR OUTLOOK FOR THE COMING YEAR?
A: While we continue to have a positive outlook for the U.S. government bond
market, it is currently the smallest of the three sectors in which the Fund
invests. The Fund currently has 22% of its assets invested in U.S. government
obligations. Moving forward, we are optimistic about the potential in high yield
corporate and foreign bond markets.
COLONIAL STRATEGIC INCOME FUND INVESTMENT PERFORMANCE VS.
LEHMAN MUTUAL FUND GENERAL BOND INDEX
Change in Value of $10,000 from 12/31/85 - 12/31/95
Based on Net Asset Value (NAV) and
Maximum Offering Price (MOP) for Class A Shares
[GRAPH 1]
copy to come
LEHMAN
$25,118
$24,299
MOP
$23,145
12/85 12/95
A $10,000 investment in Class B shares made on May 15, 1992 (inception) at net
asset value would have been valued at $13,602 on December 31, 1995. The same
investment after deducting the applicable CDSC would have grown to $13,302 on
December 31, 1995.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1995 (MOST RECENT QUARTER END)
- --------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
Inception 4/21/77* Inception 5/15/92
NAV MOP NAV w/CDSC
- --------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1 YEAR 20.17% 14.46% 19.29% 14.29%
- --------------------------------------------------------------------------------
5 YEARS 13.40% 12.31% -- --
- --------------------------------------------------------------------------------
10 YEARS 9.28% 8.75% -- --
- --------------------------------------------------------------------------------
SINCE INCEPTION 10.39% 10.11% 8.84% 8.17%
- --------------------------------------------------------------------------------
</TABLE>
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. NAV return does not include sales charges
or CDSC. 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.
Performance for different share classes will vary based on differences in sales
charges and fees associated with each class.
*Current objective adopted 11/30/94.
5
<PAGE>
[CAPTION]
<TABLE>
Label A B C
----- - - -
Label CSIF NAV MOP Lehman
- ----- ---- --- --- ------
<S> <C> <C> <C> <C>
1 12/85 10000 9525 10000
2 9928 9456 10059.12
3 10371 9879 10481.36
4 10533 10033 10852.56
5 10546 10045 10901.99
6 10861 10345 10686.19
7 10603 10100 10996
8 9908 9437 11067.72
9 10619 10115 11359.12
10 20059 9581 11217.62
11 10579 10076 11380.44
12 10752 10241 11519.68
13 12/86 10476 9978 11561.68
14 11498 10952 11719.66
15 11897 11332 11796.87
16 12196 11617 11732.58
17 12153 11576 11419.86
18 12267 11684 11369.79
19 12501 11907 11510.97
20 12925 12311 11485.13
21 13187 12561 11420.52
22 12992 12375 11174.67
23 10619 10115 11594
24 10354 9862 11667.33
25 12/87 10867 10351 11826.92
26 11198 10666 12232.04
27 11790 11230 12372.57
28 11918 11352 12250.13
29 12063 11490 12179.38
30 12111 11536 12097.97
31 12430 11840 12370.96
32 12281 11698 12300.53
33 12082 11508 12332.19
34 12266 11683 12601.95
35 12589 11991 12825.51
36 12572 11975 12680.46
37 12/88 12677 12075 12723.43
38 12973 12357 12893.04
39 12991 12374 12795.48
40 13042 12422 12863.97
41 13221 12593 13136.31
42 13238 12610 13459.37
43 13437 12799 13897.76
44 13839 13182 14186.58
45 13785 13130 13966.9
46 13880 13220 14028.28
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Label A B C
- ----------------------------------------
<S> <C> <C> <C> <C>
47 13636 12988 14383
48 13805 13149 14512.87
49 12/89 13937 13275 14534.52
50 13610 12964 14335.19
51 13437 12799 14367.17
52 13516 12874 14368.14
53 13377 12742 14235.68
54 13811 13155 14649.2
55 13990 13326 14885.68
56 14233 13557 15070.47
57 13707 13056 14852.4
58 13084 12462 14975.81
59 13021 12403 15174.17
60 13063 12442 15504.34
61 12/90 12955 12340 15738.56
62 13127 12503 15915.27
63 13790 13135 16051.92
64 14094 13425 15162.73
65 14556 13865 16348.81
66 14732 14032 16424.73
67 14754 14035 16406.96
68 15182 14461 16612.75
69 15476 14741 16995.58
70 15704 14958 17350.62
71 16074 15311 17505.69
72 16282 15509 17680.14
73 16636 15846 18276.51
74 16819 16020 18005.46
75 16980 16173 18101.09
76 17020 16212 18002.23
77 17206 16389 18109.49
78 17492 16661 18460.98
79 17779 16935 18731.38
80 18167 17304 19210.48
81 18383 17510 19382.03
82 18425 17550 19646.02
83 18161 17299 19346.82
84 18073 17215 19331.31
85 12/92 18262 17395 19662.12
86 18634 17749 20089.85
87 18904 18006 20506.92
88 19229 18316 20576.38
89 19397 18475 20734.68
90 19592 18661 20723.7
91 19870 18926 21194.08
92 19987 19037 21329.44
93 20325 19359 21819.2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Label A B C
<S> <C> <C> <C> <C>
94 20303 19339 21895.12
95 20702 19719 21984.61
96 20653 19672 21736.18
97 12/93 20992 19995 21831.16
98 21447 20429 22159.71
99 21105 20103 21677.7
100 20444 19473 21147.56
101 20242 19281 20972.46
102 20239 19277 20933.69
103 20177 19219 20884.58
104 20263 19301 21301.97
105 20290 19327 21310.69
106 20228 19267 20987.95
107 20317 19351 20964.69
108 20131 19175 20927.21
109 12/94 20221 19260 21065.16
110 20434 19463 21469.63
111 20931 19936 21967.47
112 21335 20321 22114.79
113 21805 20769 22423.31
114 22438 21372 23363.09
115 22494 21426 23549.82
116 22746 21666 23459.04
117 22837 21752 23759.16
118 23255 22151 24000.49
119 23578 22458 24352.95
120 23837 22704 24753.87
121 12/95 24299 23145 25118.61
</TABLE>
<PAGE>
INVESTMENT PORTFOLIO
DECEMBER 31, 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
BONDS & NOTES - 95.8% PAR VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE FIXED-INCOME BONDS & NOTES - 38.8%
- -------------------------------------------------------------------------------------------
CONSTRUCTION - 1.3%
BUILDING CONSTRUCTION - 1.0%
Toll Corp.,
10.500% 03/15/02 $3,000 $ 3,158
USG Corp.,
9.250% 09/15/01 6,000 6,390
U.S. Home Corp.,
9.750% 06/15/03 4,500 4,601
-------
14,149
-------
SPECIAL TRADE CONTRACTORS - 0.3%
Building Materials Corp. of America,
stepped coupon, (11.750% 07/01/99)
(a) 07/01/04 7,000 4,760
-------
- -------------------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.0%
NONDEPOSITORY CREDIT INSTITUTIONS
Drum Financial Corp., (b)(c)
12.875% 09/15/99 1,000 10
-------
- -------------------------------------------------------------------------------------------
MANUFACTURING - 10.1%
CHEMICALS - 1.8%
Agricultural Minerals Co., L.P.,
10.750% 09/30/03 7,200 7,884
Energy Ventures, Inc.,
10.250% 03/15/04 2,500 2,650
Huntsman Corp.,
11.000% 04/15/04 7,000 8,024
N.L. Industries, Inc.,
11.750% 10/15/03 6,340 6,768
-------
25,326
-------
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.7%
Amphenol Corp.:
10.450% 11/01/01 6,000 6,600
12.750% 12/15/02 2,500 2,850
Kollmorgen Corp.,
8.750% 05/01/09 622 619
-------
10,069
-------
FABRICATED METAL - 0.1%
Haynes International, Inc.,
13.500% 08/15/99 3,000 1,980
-------
</TABLE>
6
<PAGE>
Investment Portfolio/December 31, 1995
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
FOOD & KINDRED PRODUCTS - 0.6%
Pilgrim's Pride Corp.,
10.875% 08/01/03 $ 4,600 $ 4,221
Van De Kamps, Inc.,
12.000% 09/15/05 3,750 3,881
-------
8,102
-------
LUMBER & WOOD PRODUCTS - 0.5%
Triangle Pacific Corp.,
10.500% 08/01/03 6,000 6,360
-------
MISCELLANEOUS MANUFACTURING - 1.0%
American Standard Co.,
stepped coupon, (10.500% 06/01/98)
(a) 06/01/05 11,000 9,432
Coleman Holdings Co., Series B,
(d) 05/27/98 6,000 4,845
-------
14,277
-------
PAPER PRODUCTS - 2.5%
Container Corp. of America,
Series A,
11.250% 05/01/04 7,500 7,706
Gaylord Container Corp,
stepped coupon, (12.750% 05/15/96)
(a) 05/15/05 5,000 4,900
Repap Wisconsin, Inc.,
9.875% 05/01/06 9,000 8,505
SD Warren Co.,
12.000% 12/15/04 6,500 7,118
Stone Container Corp.:
10.750% 10/01/02 2,000 2,065
11.875% 12/01/98 3,750 3,928
12.625% 07/15/98 1,000 1,060
-------
35,282
-------
PETROLEUM REFINING - 0.3%
Flores & Rucks, Inc.,
13.500% 12/01/04 3,825 4,351
-------
PRIMARY METAL - 0.5%
A.K. Steel Corp.,
10.750% 04/01/04 5,000 5,537
UCAR Global Enterprises, Inc.,
12.000% 01/15/05 1,870 2,146
-------
7,683
-------
</TABLE>
7
<PAGE>
Investment Portfolio/December 31, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANUFACTURING - CONT
PRINTING & PUBLISHING - 0.4%
K-III Communications Corp.,
10.625% 05/01/02 $5,000 $ 5,325
-------
RUBBER & PLASTIC - 0.6%
Atlantis Group, Inc.,
11.000% 02/15/03 3,100 2,697
Berry Plastics Corp.,
12.250% 04/15/04 3,000 3,210
Calmar, Inc.,
11.500% 08/15/05(e) 1,000 1,015
Portola Packaging, Inc.,
10.750% 10/01/05 2,000 2,060
-------
8,982
-------
STONE, CLAY, GLASS & CONCRETE - 0.4%
Owens-Illinois, Inc.,
9.950% 10/15/04 6,000 6,360
-------
TEXTILE MILL PRODUCTS - 0.0%
Guilford Mills, Inc.,
6.000% 09/15/12 700 661
-------
TOBACCO PRODUCTS - 0.1%
Consolidated Cigar Corp.,
10.500% 03/01/03 1,000 1,030
-------
TRANSPORTATION EQUIPMENT - 0.6%
Aftermarket Technology Corp.,
Series B,
12.000% 08/01/04 2,500 2,637
Harvard Industries, Inc.,
11.125% 08/01/05 4,000 4,020
Lear Seating Corp.,
11.250% 07/15/00 1,500 1,584
-------
8,241
-------
- ----------------------------------------------------------------------------
MINING & ENERGY - 4.9%
CRUDE PETROLEUM & NATURAL GAS - 0.8%
Ferrellgas Finance Corp., L.P.,
10.000% 08/01/01 2,500 2,675
Triton Energy Corp.:
stepped coupon,
(d) 11/01/97 5,000 4,313
(d) 12/15/00 4,500 4,230
-------
11,218
-------
</TABLE>
8
<PAGE>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
METAL MINING - 0.3%
Freeport-McMoRan Resource
Partners,
8.750% 02/15/04 $3,500 $ 3,587
-------
OIL & GAS EXTRACTION - 3.2%
Falcon Drilling Co., Inc., Series B,
9.750% 01/15/01 5,000 5,100
Global Marine, Inc.,
12.750% 12/15/99 3,000 3,322
Gulf Canada Resources Ltd.,
9.250% 01/15/04 7,500 7,725
Maxus Energy Corp.,
9.875% 10/15/02 3,000 3,007
Mesa Capital Corp.,
12.750% 06/30/98 4,000 3,550
Occidental Petroleum Corp.,
11.750% 03/15/11 1,000 1,060
Plains Resources, Inc.,
12.000% 10/01/99 4,000 4,190
Rowan Companies, Inc.,
11.875% 12/01/01 4,000 4,340
Santa Fe Energy Resources, Inc.,
11.000% 05/15/04 7,000 7,726
TransTexas Gas Corp.
11.500% 06/15/02 3,500 3,605
Trident NGL, Inc.,
10.250% 04/15/03 2,500 2,775
-------
46,400
-------
OIL & GAS FIELD SERVICES - 0.6%
Tuboscope Vetco International
Corp.,
10.750% 04/15/03 4,000 3,960
United Meridian Corp.,
10.375% 10/15/05 3,750 3,956
-------
7,916
-------
- -------------------------------------------------------------------------------------
RETAIL TRADE - 2.1%
AUTO DEALERS & GAS STATIONS - 0.0%
Iroquois Brands Ltd., (b)(f)
12.000% 09/15/99 1,000 10
-------
FOOD STORES - 1.0%
Dominick's Finer Foods, Inc.,
10.875% 05/01/05 4,000 4,260
</TABLE>
9
<PAGE>
Investment Portfolio/December 31, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - CONT PAR VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RETAIL TRADE - CONT
FOOD STORES - CONT
Pathmark Stores, Inc.:
stepped coupon,
(10.750% 11/01/99) (a) 11/01/03 $13,500 $ 8,269
9.625% 05/01/03 2,250 2,183
-------
14,712
-------
MISCELLANEOUS RETAIL - 1.1%
Barry's Jewelers, Inc.,
12.625% 05/15/96 3 3
Brylane Capital Corp., Series B,
10.000% 09/01/03 5,000 4,425
Finlay Fine Jewelry Corp.,
10.625% 05/01/03 5,000 4,750
Thrifty Payless Holdings, Inc.,
11.750% 04/15/03 6,000 6,510
-------
15,688
-------
SERVICES - 6.8%
AMUSEMENT & RECREATION - 2.8%
Bally's Grand, Inc., Series B,
10.375% 12/15/03 7,500 7,650
Boyd Gaming Corp.,
10.750% 09/01/03 3,000 3,135
Empress River Casino Finance Corp.,
10.750% 04/01/02 4,000 4,100
Falcon Holdings, PIK,
11.000% 09/15/03 4,555 4,373
GNF Corp.,
10.625% 04/01/03 7,000 6,510
Grand Casinos, Inc.,
10.125% 12/01/03 5,500 5,734
Trump Taj Mahal Funding, Inc., PIK,
11.350% 11/15/99 9,000 8,663
-------
40,165
-------
BUSINESS SERVICES - 0.2%
Darling International, Inc.,
11.000% 07/15/00 401 401
Figgie International, Inc.,
9.875% 10/01/99 3,000 2,992
-------
3,393
-------
HEALTH SERVICES - 2.8%
Abbey Healthcare Group, Inc.,
9.500% 11/01/02 7,000 7,455
Community Health Systems, Inc.,
10.250% 11/30/03 6,000 6,480
</TABLE>
10
<PAGE>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Genesis Health Ventures,
9.750% 06/15/05 $ 1,500 $ 1,582
GranCare, Inc.,
9.375% 09/15/05 5,750 5,807
HealthSouth Rehabilitation Corp.,
9.500% 04/01/01 3,500 3,732
Integrated Health Services, Inc.,
10.750% 07/15/04 3,000 3,210
OrNda Health Corp.:
11.375% 08/15/04 2,500 2,806
12.250% 05/15/02 3,000 3,300
Tenet Healthcare Corp.,
10.125% 03/01/05 5,000 5,538
-------
39,910
-------
HOTELS, CAMPS & LODGING - 1.0%
California Hotel Finance,
11.000% 12/01/02 5,000 5,300
HMC Acquisition Properties,
9.000% 12/15/07(e) 3,500 3,535
HMH Properties, Inc.,
9.500% 05/15/05 5,100 5,202
-------
14,037
-------
- ----------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 13.1%
AIR TRANSPORTATION - 0.2%
World Corp., Inc.,
13.875% 08/15/97 2,500 2,506
-------
COMMUNICATIONS - 12.6%
Act III Broadcasting,
10.250% 12/15/05 8,500 8,691
Allbritton Communications Co.,
11.500% 08/15/04 7,000 7,385
Bell Cablemedia PLC,
stepped coupon,
(11.950% 07/15/99) (a) 07/15/04(g) 10,000 7,075
CAI Wireless Systems, Inc.,
12.250% 09/15/02 8,000 8,560
Cablevision Systems Corp.,
10.750% 04/01/04 5,000 5,275
Cellular Communications Units,
(d) 08/15/00(h) 2 1,537
Cencall Communications Corp.,
stepped coupon, (10.125% 01/15/99)
(a) 01/15/04 6,000 3,390
</TABLE>
11
<PAGE>
Investment Portfolio/December 31, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - CONT PAR VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT
COMMUNICATIONS - CONT
Clearnet Communicatons Units,
stepped coupon,
(14.750% 12/15/00) (a) 12/15/05 (i) $ 7 $ 3,900
Comcast Cable Partners Ltd.,
stepped coupon,
(11.200% 11/15/00) (a) 11/15/07 (g) 6,500 3,770
Comcast Corp.,
9.125% 10/15/06 2,000 2,082
Continental Cablevision, Inc.,
11.000% 06/01/07 10,000 11,187
GST Telecommunications Units,
stepped coupon,
(13.875% 12/15/00) (a) 12/15/05 (e)(j) 1 5,472
Heritage Media Corp.,
11.000% 06/15/02 1,500 1,609
International CableTel, Inc.,
stepped coupon,
(12.750% 04/15/00) (a) 04/15/05 5,500 3,492
Jones Intercable, Inc.:
9.625% 03/15/02 2,000 2,150
10.500% 03/01/08 2,500 2,737
11.500% 07/15/04 2,500 2,775
Le Groupe Videotron,
10.625% 02/15/05 3,000 3,225
Lenfest Communications, Inc.,
8.375% 11/01/05 3,750 3,750
MFS Communications Company, Inc.,
stepped coupon,
(9.375% 01/15/99) (a) 01/15/04 7,750 6,239
Metrocall, Inc.,
10.375% 10/01/07 1,500 1,598
Mobilemedia Communications, Inc.,
stepped coupon,
(10.500% 12/1/98) (a) 12/01/03 3,500 2,704
Mobilemedia Corp.,
9.375% 11/01/07 4,000 4,100
NWCG Holding Corp.,
(d) 06/15/99 6,000 4,140
Paging Network, Inc.:
8.875% 02/01/06 2,000 2,050
10.125% 08/01/07 2,000 2,180
11.750% 05/15/02 2,500 2,769
PanAmSat Corp.,
stepped coupon,
(11.375% 08/01/98) (a) 08/01/03 6,000 4,890
</TABLE>
12
<PAGE>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PriCellular Wireless Corp.,
stepped coupon,
(14.000% 11/15/97) (a) 11/15/01 $ 6,000 $ 5,220
Rogers Cablesystems, Inc.:
10.000% 03/15/05 3,000 3,221
10.875% 04/15/04 3,000 3,135
SCI Television, Inc.,
11.000% 06/30/05 5,000 5,313
Telewest Communication PLC,
stepped coupon,
(11.000% 10/01/00) (a) 10/01/07 (g) 9,000 5,411
USA Mobile Communications
Holdings, Inc.:
9.500% 02/01/04 3,000 2,970
14.000% 11/01/04 3,000 3,503
Viacom International, Inc.,
8.000% 07/07/06 4,000 4,080
Videotron Holding PLC,
stepped coupon:
(11.125% 07/01/99) (a) 07/01/04 (g) 13,000 9,035
(11.000% 08/15/00) (a) 08/15/05 (g) 4,000 2,490
Winstar Communications, Inc. Units,
stepped coupon,
(14.000% 10/15/00) (a) 10/15/05 (e)(k) 5 7,354
Wireless One, Inc.,Units,
13.000% 10/15/03 (l) 1 1,590
Young Broadcasting Corp.:
10.125% 02/15/05 3,000 3,169
11.750% 11/15/04 4,000 4,475
--------
179,698
--------
ELECTRIC SERVICES - 0.1%
System Energy Resources, Inc.,
11.375% 09/01/16 1,123 1,206
--------
GAS SERVICES - 0.2%
California Energy Co., Inc.,
9.875% 06/30/03 3,600 3,762
--------
- -------------------------------------------------------------------------------------------------------
WHOLESALE TRADE - 0.5%
NONDURABLE GOODS
Revlon Consumer Products Corp.,
Series B,
9.375% 04/01/01 2,000 2,025
Revlon Worldwide Corp.,
(d) 03/15/98 7,500 5,550
--------
7,575
--------
</TABLE>
13
<PAGE>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES (cost of $591,131) $554,731
--------
</TABLE>
<TABLE>
<CAPTION>
FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS - 35.1% CURRENCY PAR VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Argentina Par Brady,
stepped coupon,
(5.250% 04/01/96) 5.000% 03/31/23(m) AR 55,750 31,638
Government of Finland Bond:
9.500% 03/15/04 FN 155,000 40,188
10.000% 09/15/01 FN 77,000 20,406
Kingdom of Denmark,
8.000% 05/15/03 DK 850,473 162,685
Republic of Poland (Brady),
Past Due Interest,
stepped coupon,
(4.000% 10/27/96) 3.750% 10/27/14(m) PL 45,000 28,912
Republic of South Africa,
12.000% 02/28/05 SA 110,000 26,786
Treasury Corp. of Victoria.,
12.000% 09/22/01 A$ 75,414 66,142
United Kingdom Treasury,
10.000% 09/08/03 UK 48,301 86,840
Western Australia Treasury,
12.000% 08/01/01 A$ 43,500 38,060
-------
TOTAL FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS (cost of $424,100) 501,657
-------
</TABLE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT &
AGENCY OBLIGATIONS - 21.9%
- --------------------------------------------------------------------------------------------
Maturities
Coupon From/To
------ -------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corp.:
7.500% 2016 $ 355 369
8.000% 2006-2016 1,815 1,888
8.500% 2007-2010 1,940 2,034
8.750% 2005-2008 787 819
9.000% 2004-2022 2,164 2,279
9.250% 2007-2016 1,773 1,859
9.500% 2008-2016 1,505 1,613
9.750% 2008-2016 163 172
10.000% 2009-2019 2,207 2,411
10.500% 2011-2024 1,976 2,190
10.750% 2008-2013 2,013 2,246
11.250% 2010-2015 1,422 1,591
------
19,471
------
</TABLE>
14
<PAGE>
Investment Portfolio/December 31, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
U.S. GOVERNMENT &
AGENCY OBLIGATIONS - CONT.
- -----------------------------------------------------------------------------------------------
Maturities
Coupon From/To
------ -------
<S> <C> <C> <C> <C>
Federal National Mortgage Association:
7.500% 2003-2011 $ 1,147 $ 1,193
8.000% 2002-2009 1,467 1,532
8.250% 2007-2009 488 505
8.500% 2008-2021 3,685 3,883
9.000% 2003-2021 6,118 6,501
9.250% 2016 478 505
10.000% 2013-2016 2,016 2,215
10.500% 2007-2016 2,780 3,066
---------
19,400
---------
Government National Mortgage Association:
8.500% 2006 73 78
9.000% 2008-2017 19,616 20,937
9.500% 2009-2017 9,251 10,048
10.000% 2000-2021 3,558 3,901
10.500% 2001-2021 1,002 1,119
11.000% 2009-2016 4,309 4,870
11.750% 2013-2015 239 273
12.000% 2014 16 19
---------
41,245
---------
U.S. Treasury Bonds:
8.000% 1999 45,725 49,683
10.750% 2003 5,741 7,529
12.000% 2013 32,091 49,445
---------
106,657
---------
U.S. Treasury Notes:
10.375% 2012 50,531 69,859
11.875% 2003 40,517 56,603
---------
126,462
---------
TOTAL U.S. GOVERMENT &
AGENCY OBLIGATIONS (cost of $300,773) 313,235
---------
TOTAL BONDS & NOTES (cost of $1,316,004) 1,369,623
---------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS - 0.5% SHARES VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION - 0.1%
BUILDING CONSTRUCTION
Calton, Inc. (c) 356 156
U.S. Home Corp. (c) 31 909
-----
1,065
-----
</TABLE>
15
<PAGE>
Investment Portfolio/December 31, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
COMMON STOCKS - CONT. SHARES VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - 0.2%
FOOD & KINDRED PRODUCTS - 0.1%
Darling International, Inc. (c) 27 $ 726
FoodBrands America, Inc. (c) 14 167
Spreckels Industries, Inc. (c) 70 958
------
1,851
------
PRIMARY METAL - 0.1%
LTV Corp. (c) 20 275
Texas Industries, Inc. 15 771
------
1,046
------
RETAIL TRADE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
Federated Department Stores, Inc. (c) 30 833
------
MISCELLANEOUS RETAIL - 0.0%
Pharmhouse Corp. (c) 4 13
------
- -----------------------------------------------------------------------------------
SERVICES - 0.1%
HEALTH SERVICES
Total Renal Care Holdings, Inc. (c) 33 974
------
- -----------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
GAS SERVICES - 0.0%
United Gas Holdings Corp. (b)(c)(e) 30 416
------
LOCAL & SUBURBAN TRANSIT - 0.0%
Greyhound Lines, Inc., 12.50% Escrow
Receipts (b)(c) 1 (n)
------
MOTOR FREIGHT & WAREHOUSING - 0.0%
St. Johnsbury Trucking Co. (b)(c) 31 63
Sun Carriers, Inc. (b)(c)(e) 130 1
------
64
------
WHOLESALE TRADE - 0.0%
DURABLE GOODS
Continental Health Affiliates, Inc. (c) 530 563
------
TOTAL COMMON STOCKS (cost of $7,803) 6,825
------
PREFERRED STOCK - 0.0%
- -----------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.0%
HOLDING & OTHER INVESTMENT OFFICES
Riggs National Corp., 10.75%
(cost of $474) 19 527
------
</TABLE>
16
<PAGE>
Investment Portfolio/December 31, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
WARRANTS - 0.0% (c)
- -----------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - 0.0%
RUBBER & PLASTIC
BPC Holdings Corp. 3 $ 38
----------
- -----------------------------------------------------------------------------
MINING & ENERGY - 0.0%
OIL & GAS EXTRACTION
Forest Oil Corp. 82 72
----------
- -----------------------------------------------------------------------------
SERVICES - 0.0%
HOTELS, CAMPS & LODGING
Capital Gaming International, Inc. (e) 6 1
----------
- -----------------------------------------------------------------------------
TOTAL WARRANTS (cost of $127) 111
TOTAL INVESTMENTS - 96.3% (cost of $1,324,408)(o) 1,377,086
----------
<CAPTION>
SHORT-TERM OBLIGATIONS - 0.9% PAR
- -----------------------------------------------------------------------------
<S> <C> <C>
Repurchase agreement with Bankers Trust
Securities Corp., dated 12/29/95, due 01/02/96
at 5.700%, collateralized by U.S. Treasury notes
with various maturities to 2000, market
value $8,372 (repurchase proceeds $8,201) $ 8,196 8,196
Repurchase agreement with Chase Securities
Corp., dated 12/29/95, due 01/02/96 at 5.500%,
collateralized by a U.S. Treasury note
maturing in 1996, market value $4,236
(repurchase proceeds $4,146) 4,143 4,143
----------
12,339
----------
FORWARD CURRENCY CONTRACTS - 0.0%(p) (833)
- -----------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - 2.8% 40,418
- -----------------------------------------------------------------------------
NET ASSETS - 100% $1,429,010
----------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- -----------------------------------------------------------------------------
(a) Currently zero coupon. Shown parenthetically is the interest rate to be
paid and the date the Fund will begin accruing this rate.
(b) Represents fair value as determined in good faith under the direction of
the Trustees.
(c) This issuer is in default of certain debt covenants. Income is not being
accrued.
(d) Zero coupon bond.
17
<PAGE>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO - CONT.:
- --------------------------------------------------------------------------------
(e) Securities exempt from registration under Rule 144A of the
Securities Act of 1993. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 1995, the value of these
securities amounted to $17,794 or 1.2% of net assets.
(f) This issuer has filed under Chapter 11 of the Federal Bankruptcy Code.
Income is not being accrued.
(g) This is a British security. Par amount is stated in U.S. dollars.
(h) Each unit consists of one senior discount note and one warrant.
(i) Each unit consists of ten senior discount notes and thirty-three warrants.
(j) Each unit consists of eight senior discount notes and one convertible
bond.
(k) Each unit consists of two senior discount notes and one convertible bond.
(l) Each unit consists of one senior discount note and three warrants.
(m) Shown parenthetically is the interest rate to be paid and the date the
Fund will begin accruing this rate.
(n) Rounds to less than one.
(o) Cost for federal income tax purposes is $1,324,445.
(p) As of December 31, 1995, the Fund had entered into the following forward
currency exchange contracts:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Contracts In Exchange Settlement (Depreciation)
to Deliver For Date (U.S. $)
---------- ----------- ---------- --------------
<S> <C> <C> <C>
DK 233,390 USD 41,666 01/04/96 (213)
USD 41,833 DK 233,390 01/04/96 46
UK 14,154 USD 21,636 01/04/96 (182)
USD 21,776 UK 14,154 01/04/96 43
UK 14,154 USD 21,650 01/04/96 (169)
USD 21,776 UK 14,154 01/04/96 42
DK 233,132 USD 41,687 01/05/96 (200)
FM 69,448 USD 16,174 01/05/96 249
DK 233,390 USD 41,858 02/05/96 (111)
UK 28,308 USD 43,518 02/05/96 (338)
-----
$(833)
-----
</TABLE>
18
<PAGE>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO - CONT.:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Summary of Securities
by Currency Currency Value % of Total
- -------------------------------------------------------
<S> <C> <C> <C>
United States $ 875,428 63.6
Denmark DK 162,685 11.8
Australia A$ 104,202 7.6
United Kingdom UK 86,840 6.3
Finland FN 60,594 4.4
Argentina AR 31,638 2.3
Poland PL 28,913 2.1
South Africa SA 26,786 1.9
---------- -----
$1,377,086 100.0
---------- -----
</TABLE>
Certain securities are listed by country of underlying exposure but may
trade predominantly on other exchanges.
Acronym Name
------- ----
PIK Payment-In-Kind
See notes to financial statements.
19
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
(in thousands except for per share amounts and footnotes)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $1,324,408) $ 1,377,086
Short-term obligations 12,339
----------
1,389,425
Receivable for:
Interest $ 33,431
Investments sold 6,846
Fund shares sold 1,649
Other 91 42,017
----------- ----------
Total Assets 1,431,442
LIABILITIES
Unrealized depreciation on forward
currency contracts $ 833
Payable for:
Fund shares repurchased 1,446
Accrued:
Deferred Trustees fees 7
Transfer agent Out-of-Pocket fees 40
Other 106
-----------
Total Liabilities 2,432
----------
NET ASSETS $1,429,010
----------
Net asset value & redemption price per share -
Class A ($714,961/98,974) $7.22
----------
Maximum offering price per share - Class A
($7.22/0.9525) $7.58(a)
----------
Net asset value & offering price per share -
Class B ($714,049/98,854) $7.22(b)
----------
</TABLE>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements.
20
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
(in thousands)
INVESTMENT INCOME
Interest $127,595
Dividends 341
--------
127,936
EXPENSES
Management fee $ 8,488
Service fee - Class A 1,424
Service fee - Class B 1,617
Distribution fee - Class B 4,931
Transfer agent 3,254
Bookkeeping fee 442
Trustees fee 77
Custodian fee 337
Audit fee 70
Legal fee 15
Registration fee 37
Reports to shareholders 32
Other 190 20,914
-------- --------
Net Investment Income 107,022
--------
NET REALIZED & UNREALIZED GAIN
(LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 586
Foreign currency transactions (1,864)
--------
Net Realized Loss (1,278)
Net unrealized appreciation (depreciation)
during the period on:
Investments 134,651
Foreign currency transactions (823)
--------
Net Unrealized Appreciation 133,828
--------
Net Gain 132,550
--------
Net Increase in Net Assets From Operations $239,572
--------
</TABLE>
See notes to financial statements.
21
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(in thousands) Year ended December 31
-------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
----------- ------------
<S> <C> <C>
Operations:
Net investment income $ 107,022 $ 102,096
Net realized loss (1,278) (52,069)
Net unrealized appreciation (depreciation) 133,828 (104,252)
----------- ------------
Net Increase (Decrease) from Operations 239,572 (54,225)
Distributions:
From net investment income - Class A (56,681) (56,419)
From capital Paid in - Class A -- (1,168)
In excess of net investment income - Class A -- (13)
From net investment income - Class B (50,315) (45,965)
From capital Paid in - Class B -- (951)
In excess of net investment income - Class B -- (10)
----------- ------------
132,576 (158,751)
----------- ------------
Fund Share Transactions:
Receipts for shares sold - Class A 76,500 139,735
Value of distributions reinvested - Class A 28,865 29,165
Cost of shares repurchased - Class A (94,406) (109,086)
----------- ------------
10,959 59,814
----------- ------------
Receipts for shares sold - Class B 112,405 285,091
Value of distributions reinvested - Class B 23,759 22,255
Cost of shares repurchased - Class B (95,861) (99,032)
----------- ------------
40,303 208,314
----------- ------------
Net Increase from Fund Share Transactions 51,262 268,128
----------- ------------
Total Increase 183,838 109,377
----------- ------------
NET ASSETS
Beginning of period 1,245,172 1,135,795
----------- ------------
End of period (including undistributed and net of
overdistributed net investment income of $7,974
and $23, respectively) $ 1,429,010 $ 1,245,172
----------- ------------
NUMBER OF FUND SHARES
Sold - Class A 11,030 19,709
Issued for distributions reinvested - Class A 4,151 4,270
Repurchased - Class A (13,680) (15,921)
----------- ------------
1,501 8,058
----------- ------------
Sold - Class B 16,221 40,112
Issued for distributions reinvested - Class B 3,417 3,267
Repurchased - Class B (13,902) (14,569)
----------- ------------
5,736 28,810
----------- ------------
</TABLE>
See notes to financial statements.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION: Colonial Strategic Income Fund (the Fund), a series of Colonial
Trust I, is a diversified portfolio of a Massachusetts business trust,
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund's objective is to seek as high a level
of current income and total return as is consistent with prudent risk, by
diversifying investments primarily in U.S. and foreign government and lower
rated corporate debt securities. The Fund may issue an unlimited number of
shares. The Fund offers 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 is a summary of
significant accounting policies followed by the Fund in the preparation of its
financial statements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities (and disclosure of
contingent assets and liabilities) at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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.
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, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
23
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements/December 31, 1995
- --------------------------------------------------------------------------------
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class B distribution fee and Class A and Class B
service fees), realized and unrealized gains (losses) are allocated to each
class proportionately on a daily basis for purposes of determining the net asset
value of each class.
Class A and 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 service fee applicable to both Class A and Class B shares
and 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.
DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions daily
and pays monthly.
The character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. Reclassifications are made to the Fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryforwards) under income tax regulations.
FOREIGN CURRENCY TRANSACTIONS: Net realized and unrealized gains (losses) on
foreign currency transactions includes the fluctuation in exchange rates on
gains (losses) between trade and settlement dates on security transactions,
gains (losses) arising from the disposition of foreign currency and currency
gains (losses) between the accrual and payment dates on dividends and interest
income and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) on investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities. The 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
24
<PAGE>
Notes to Financial Statements/December 31, 1995
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
included in net realized and unrealized gains (losses) on foreign currency
transactions. Forward currency contracts do not eliminate fluctuations in the
prices of the Fund's portfolio securities. While the maximum potential loss from
such contracts is the aggregate face value in U.S. dollars at the time the
contract was opened, exposure is typically limited to the change in value of the
contract (in U.S. dollars) over the period it remains open. Risks may also arise
if counterparties fail to perform their obligations under the contracts.
OTHER: Corporate actions are recorded on the ex-date (except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware of
such), net of nonrebatable tax withholdings. Where a high level of uncertainty
as to collection exists, income on securities is recorded net of all tax
withholdings with any rebates recorded when received.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-market
daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
NOTE 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 $2 billion........ 0.60%
</TABLE>
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 and receives 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: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. For the year ended December 31, 1995, the Fund has been
advised that the Distributor retained net underwriting discounts of $177,196 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $2,035,407 on Class B share redemptions.
The Fund has adopted a 12b-1 plan which requires it to pay the Distributor a
25
<PAGE>
Notes to Financial Statements/December 31, 1995
- --------------------------------------------------------------------------------
distribution fee equal to 0.75% annually of the average net assets attributable
to Class B shares. The plan also requires the payment to the Distributor of a
service fee on Class A and Class B shares as follows:
<TABLE>
<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
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended December 31, 1995, purchases and
sales of investments, other than short-term obligations, were $1,086,646,751 and
$1,067,653,832, respectively, of which $225,683,153 and $198,957,157,
respectively, were U.S. government securities.
Unrealized appreciation (depreciation) at December 31, 1995, based on cost of
investments for federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 66,190,195
Gross unrealized depreciation (13,549,253)
------------
Net unrealized appreciation $ 52,640,942
------------
</TABLE>
CAPITAL LOSS CARRYFORWARDS: At December 31, 1995, 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 $ 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
2003 18,825,000
-------------
$ 359,272,000
-------------
</TABLE>
26
<PAGE>
Notes to Financial Statements/December 31, 1995
- --------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION - CONT.
- --------------------------------------------------------------------------------
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.
Expired capital loss carryforwards, if any, are recorded as a reduction of
capital paid in.
To the extent loss carryforwards are used to offset any future realized gains,
it is unlikely that such gains would be distributed since they may be taxable to
shareholders as ordinary income.
OTHER: There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities. These
risks may involve foreign currency exchange rate fluctuations, adverse political
and economic developments and the possible prevention of foreign currency
exchange or the imposition of other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 4. COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
At December 31, 1995, net assets consisted of:
Capital paid in $1,695,271
Undistributed net investment income 7,974
Accumulated net realized loss (326,408)
Net unrealized appreciation (depreciation) on:
Investments 52,678
Foreign currency transactions (505)
----------
$1,429,010
----------
</TABLE>
27
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 6.530 $ 6.530 $ 7.390 $ 7.390 $ 7.010 $ 7.010
--------- --------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income 0.621 0.569 0.580 0.529 0.565 0.511
Net realized and
unrealized gain (loss) 0.650 0.650 (0.848) (0.849) 0.448 0.448
--------- --------- -------- -------- -------- --------
Total from Investment
Operations 1.271 1.219 (0.268) (0.320) 1.013 0.959
--------- --------- -------- -------- -------- --------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment
income (0.581) (0.529) (0.580) (0.529) (0.585) (0.535)
In excess of net
investment income -- -- -- -- -- --
From capital paid in -- -- (0.012) (0.011) (0.048) (0.044)
--------- --------- -------- -------- -------- --------
Total distributions
declared to
shareholders (0.581) (0.529) (0.592) (0.540) (0.633) (0.579)
--------- --------- -------- -------- -------- --------
Net asset value -
End of period $ 7.220 $ 7.220 $ 6.530 $ 6.530 $ 7.390 $ 7.390
--------- --------- -------- -------- -------- --------
Total return (a) 20.17% 19.29% (3.67)% (4.40)% 14.95% 14.11%
--------- --------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.18%(b) 1.97%(b) 1.21% 1.96% 1.19% 1.94%
Net investment
income 8.42%(b) 7.63%(b) 8.38% 7.63% 8.42% 7.67%
Portfolio turnover 83% 83% 78% 78% 138% 138%
Net assets at end
of period (000) $ 714,961 $ 714,049 $636,824 $608,348 $660,654 $475,141
</TABLE>
(a) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(b) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year ratios are net of benefits
received, if any.
28
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------
1992 1991
Class A Class B(a) Class A
--------- ------- --------
<S> <C> <C> <C>
Net asset value -
Beginning of period $ 7.020 $ 7.080 $ 6.050
--------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.669 0.385 0.684
Net realized and
unrealized gain (loss) (0.004) (0.067) 0.966
--------- ------- --------
Total from Investment
Operations 0.665 0.318 1.650
--------- ------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.673) (0.388) (0.680)
In excess of net investment
income (0.002) -- --
From capital paid in -- -- --
--------- ------- --------
Total distributions
declared to shareholders (0.675) (0.388) (0.680)
--------- ------- --------
Net asset value -
End of period $ 7.010 $ 7.010 $ 7.020
--------- ------- --------
Total return (b) 9.77% 2.48%(c) 28.41%
--------- ------- --------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.18% 1.93%(d) 1.12%
Net investment income 9.39% 8.64%(d) 10.27%
Portfolio turnover 96% 96% 48%
Net assets at end
of period (000) $ 437,380 $37,935 $424,824
</TABLE>
(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 contingent deferred sales charge.
(c) Not annualized.
(d) Annualized.
29
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Strategic Income Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
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.
This report has been prepared for shareholders of Colonial Strategic Income
Fund. This report may also be used as sales literature when preceded or
accompanied by the current prospectus which provides details of sales charges,
investment objectives and operating policies of the Fund.
31
<PAGE>
[COLONIAL MUTUAL FUNDS LOGO]
Mutual Funds for
Planned Portfolios
TRUSTEES
ROBERT J. BIRNBAUM
Trustee (formerly Special Counsel, Dechert, Price & Rhoads; President and Chief
Operating Officer, New York Stock Exchange, Inc.)
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
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
WILLIAM D. IRELAND, JR.
Trustee (formerly Chairman of the Board, Bank of New England-Worcester)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
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)
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 (formerly Management Consultant, Saatchi and Saatchi
Consulting Ltd. and Principal and International Practice Director, Management
Consulting, Peat Marwick Main & Co.)
SINCLAIR WEEKS, JR.
Chairman of the Board, Reed & Barton Corporation
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
COLONIAL INVESTMENT SERVICES, INC., Distributor (C) 1996
One Financial Center, Boston, Massachusetts 02111-2621, 617-426-3750
SI-02/623B-1295 (2/96)
<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, 1995, 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, 1995 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 9, 1996
