COLONIAL
STRATEGIC INCOME FUND
[GRAPHIC]
SEMIANNUAL REPORT
JUNE 30, 1996
NOT FDIC-| MAY LOSE VALUE
INSURED | NO BANK GUARANTEE
COLONIAL STRATEGIC INCOME FUND HIGHLIGHTS
JANUARY 1, 1996 - JUNE 30, 1996
INVESTMENT OBJECTIVE: Colonial Strategic Income Fund seeks 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 IS DESIGNED TO OFFER:
X Opportunity for higher income
X Diversification
X Experienced, professional management
PORTFOLIO MANAGER COMMENTARY: "The environment for fixed income investments has
been volatile over the past several years. Despite a challenging environment
during the first half of 1996, the diversification strategy the Fund employs
provided lower interest rate sensitivity. This diversification should continue
to provide competitive returns and income for investors committed to staying
through the full interest rate cycle." -- Carl Ericson
COLONIAL STRATEGIC INCOME FUND PERFORMANCE
<TABLE>
<CAPTION>
CLASS A CLASS B
Inception dates 4/21/77* 5/15/92
<S> <C> <C>
Distributions declared per share $0.288 $0.261
SEC Yields on 6/30/96** 7.29% 6.88%
Total returns, assuming reinvestment
of all distributions and no sales charge
or contingent deferred sales charge (CDSC)
6 months 1.95% 1.57%
Net asset value per share at 6/30/96 $7.07 $7.07
</TABLE>
* Colonial Strategic Income Fund adopted its current investment objective on
9/18/91.
**The 30-day SEC yields on June 30, 1996, reflect the portfolio's earning power,
net of expenses, expressed as an annualized percentage of the maximum offering
price per share at the end of the period.
TOP FIVE HOLDINGS PORTFOLIO STRUCTURE
(as of 6/30/96) (as of 6/30/96)
Kingdom of Denmark .......... 9.8% Corporate Bonds ............. 43.5%
Spanish Government .......... 5.6% Foreign Gov't Bonds ......... 32.1%
U.S. Treasury Bonds ......... 4.8% U.S. Government ............. 21.2%
Victoria Treasury Corp. ..... 4.2% Other ....................... 3.2%
Western Australia Treasury .. 3.7%
Because the Fund is actively managed, portfolio holdings and structure will
change.
2
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
I am pleased to present your Fund's semiannual report for the period ended June
30, 1996. First, however, I would like to extend my thanks to President John A.
McNeice, Jr., who has retired after a career with Colonial that spanned 40
years. We look forward to his continued involvement on the executive committee
of the board of directors at our parent company, Liberty Financial Companies,
Inc.
[PHOTO]
Harold W. Cogger
President
In my new position, I am directing Colonial's focus on the delivery of
investment performance over the long term. To achieve this mission, we will
continue to seek the optimal combination of talented people and effective
investment disciplines.
The receipt of your semiannual report is a good time to reflect on market
conditions and the performance of your Fund during the past six months. Interest
rates rose fairly steadily during the first half of 1996. This increase was
caused in part by unemployment statistics that proved to be lower than
anticipated, causing a decline in bond prices.
While there may be some current stock market volatility, we expect
corporate earnings to continue to make progress, but at a slower pace than in
1995. We also anticipate growth opportunities in certain foreign markets. In the
following pages, you'll find detailed information on your Fund's performance as
well as an in-depth discussion with the portfolio manager.
With over 12 years of service at Colonial and more than 25 years in the
industry, I am enthusiastic about -- and dedicated to achieving -- Colonial's
mission of providing you with superior investment returns. In my new role, I
look forward to communicating with you about your Colonial investment. We
appreciate the opportunity to help you meet your investment goals.
Respectfully,
/s/Harold W. Cogger
- -----------------------
Harold W. Cogger
President
August 12, 1996
Because market conditions change frequently, there can be no assurance that the
trends described here will continue, come to pass or affect Fund performance.
3
PORTFOLIO MANAGEMENT REPORT
CARL ERICSON is the portfolio manager of Colonial Strategic Income Fund. Mr.
Ericson is senior vice president of Colonial Management Associates, Inc. and
Director of the Taxable Fixed Income Department.
Q: WHAT WAS THE FUND'S INVESTMENT STRATEGY DURING THE FIRST HALF OF 1996?
A: The Fund continued to be well diversified among its three major market
components: high yield corporate bonds, international bonds, and U.S. Government
securities. This diversification paid off for shareholders as stronger than
expected economic reports sent interest rates suddenly and sharply higher early
in the period. Investments in the high yield and international sectors posted
higher total returns with lower volatility than investments in the U.S.
Government sector, the smallest component of the Fund during the period. We also
decreased the duration of the portfolio from about 5.2 years to 4.7 years,
further insulating the Fund from losses associated with rising interest rates.
Duration measures a fund's sensitivity to Treasury interest rates; the shorter
the duration, the smaller the losses when Treasury interest rates rise.
Q: WHAT INVESTMENTS HELPED THE FUND'S PERFORMANCE DURING THE PERIOD?
A: We increased our investments in high yield corporate bonds from about 40% to
44%. These holdings benefited from expectations of a strengthening economy as
anticipation of increased revenues, cash flows and price increases all
translated into strong performance. We also added to our holdings in cable
television, satellite communication, paging and cellular companies, none of
which are traditional cyclical industries and should perform well regardless of
the economic environment. The Fund also benefited from its international
investments, which continued to account for about one-third of the Fund's assets
at June 30, 1996. Most overseas bond markets exhibited positive characteristics
when compared to domestic government markets. Low inflation and economic growth
rates that lagged those of the U.S. positioned these countries for strong
performance. We favored investments in conservatively governed nations such as
Spain, Denmark, and Norway, as well as in selected emerging markets such as
Poland and Argentina.
Q: HOW DID THE FUND PERFORM OVER THE PAST SIX MONTHS?
A: The Fund outperformed the Lehman Brothers Government/Corporate Bond Index, an
unmanaged index that tracks the performance of a selection of U.S. government,
Treasury and investment-grade corporate bonds. The total return for Class A
shares, based on net asset value, was 1.95%, while the Index posted a total
return down 1.88%. The Fund was able to outperform the Index primarily due to
its ability to invest in high yield and international bonds.
Q: WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 1996?
A: Despite stronger than expected economic activity to date, we do not believe
that the consumer can sustain the economy through the end of the year.
Consequently, we believe that we saw the worst of the bond market
4
during the first half of 1996. While we expect continued volatility through the
third quarter, we believe that many issues of concern to the market will be
resolved during the fourth quarter and are hopeful that interest rates will be
lower by year-end.
COLONIAL STRATEGIC INCOME FUND INVESTMENT PERFORMANCE VS.
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX
Change in Value of $10,000 from 6/30/86 - 6/30/96
Based on Net Asset Value (NAV) and
Maximum Offering Price (MOP) for Class A Shares
<TABLE>
<CAPTION>
Label A B C
Label CSIF - A Pre-load Post-load Lehman
<S> <C> <C> <C> <C>
1 Jun 30, 86 10000 9525 10000
2 9486 9036 10201.55
3 9879 9410 10514.44
4 11502 10956 10669.86
5 11790 11230 10468.31
6 12253 11671 10162.47
7 10249 9762 10755.65
8 11240 10706 11140.52
9 11723 11166 11250.4
10 11568 11018 11460.46
11 11956 11388 11570.93
12 12300 11716 11698.73
13 12672 12070 12638.88
14 13090 12468 12757.58
15 13144 12519 13217.96
16 12746 12141 13066.66
17 13194 12567 13537.32
18 12339 11753 13619.29
19 12218 11638 14312.94
20 13292 12661 14698.7
21 13914 13253 14920.81
22 14810 14107 15778.99
23 15689 14944 16621.01
24 16052 15289 16371.57
25 16768 15971 17034.67
26 17377 16551 17867
27 17223 16405 17881.11
28 18135 17273 18712.56
29 18739 17849 19274.3
30 19148 18238 19911.84
31 19797 18857 19853.67
32 19281 18365 19231.99
33 19029 18125 18992.83
34 19077 18171 19086.85
35 19070 18164 19157.07
36 20121 19165 20111.61
37 21214 20207 21416.66
38 21932 20890 21826.51
39 22916 21828 22843.34
40 23022 21929 22308.93
41 23363 22253 22413.82
</TABLE>
A $10,000 investment in Class B shares made on 5/15/92, at NAV would have been
valued at $13,816 on 6/30/96. The same investment after deducting the applicable
contingent deferred sales charge (CDSC) would have grown to $13,616 on 6/30/96.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
As of 6/30/96 (Most Recent Quarter End)
- --------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
Inception 4/21/77* Inception 5/15/92
NAV MOP NAV w/CDSC
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR 10.13% 4.90% 9.31% 4.31%
- --------------------------------------------------------------------------------
5 YEARS 10.92% 9.85% -- --
- --------------------------------------------------------------------------------
10 YEARS 8.86% 8.33% -- --
- --------------------------------------------------------------------------------
SINCE INCEPTION 10.22% 9.94% 8.14% 7.76%
- --------------------------------------------------------------------------------
</TABLE>
The Lehman Brothers Government/Corporate Bond Index is an unmanaged index that
tracks the performance of a selection of U.S. government agency, Treasury and
investment-grade corporate bonds. The Lehman Mutual Fund General Bond Index
(used previously to track performance) ceased to exist in May, 1995. The Lehman
Brothers Government/Corporate Bond Index is the Index that mirrors that Index's
performance. Unlike mutual funds, indexes are not investments, do not incur fees
or expenses and are not professionally managed.
Return and value of an investment will vary, resulting in a gain or loss on
sale. All results shown assume reinvestment of distributions. NAV returns do not
include sales charges or CDSC. MOP returns includes the maximum sales charge of
4.75%. The CDSC returns reflects the maximum charge of 5% for one year and 2%
since inception.
*Current investment objective adopted 9/18/91.
5
INVESTMENT PORTFOLIO
JUNE 30, 1996 (UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
BONDS & NOTES - 97.2% PAR VALUE
- --------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - 43.7%
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION - 0.9%
BUILDING CONSTRUCTION - 0.5%
Toll Corp.,
10.500% 03/15/02 $ 3,000 $ 3,105
U.S. Home Corp.,
9.750% 06/15/03 4,500 4,376
----------
7,481
----------
SPECIAL TRADE CONTRACTORS - 0.4%
Building Materials Corp. of America,
stepped coupon, (11.750% 07/01/99)
(a) 07/01/04 7,000 5,250
----------
................................................................................
FINANCE, INSURANCE & REAL ESTATE - 0.0%
NONDEPOSITORY CREDIT INSTITUTIONS - 0.0%
Drum Financial Corp., (b)(c)
12.875% 09/15/99 1,000 10
----------
................................................................................
MANUFACTURING - 11.3%
BUILDING & HOUSING - 0.1%
Clark-Schewebel, Inc.,
10.500% 04/15/06 1,000 1,025
----------
CHEMICALS - 1.5%
Agricultural Minerals Co., L.P.,
10.750% 09/30/03 7,200 7,560
Energy Ventures, Inc.,
10.250% 03/15/04 2,500 2,581
G-I Holdings, Inc.,
10.000% 02/15/06 4,000 3,920
N.L. Industries, Inc.,
11.750% 10/15/03 6,340 6,483
Revlon Consumer Products Corp.,
10.500% 02/15/03 1,000 1,006
----------
21,550
----------
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.7%
Amphenol Corp.:
10.450% 11/01/01 6,000 6,390
12.750% 12/15/02 2,500 2,753
Kollmorgen Corp.,
8.750% 05/01/09 592 591
----------
9,734
----------
</TABLE>
6
Investment Portfolio/June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
FABRICATED METAL - 0.1%
Renco Metals, Inc.,
11.500% 07/01/03 $ 1,500 $ 1,500
----------
FOOD & KINDRED PRODUCTS - 0.7%
Foodbrands America, Inc.,
10.750% 05/15/06 2,750 2,760
Pilgrim's Pride Corp.,
10.875% 08/01/03 1,950 1,853
Van De Kamps, Inc.,
12.000% 09/15/05 5,250 5,578
----------
10,191
----------
LUMBER & WOOD PRODUCTS - 0.4%
Triangle Pacific Corp.,
10.500% 08/01/03 6,000 6,210
----------
MACHINERY & COMPUTER EQUIPMENT - 0.5%
IMO Industries, Inc.,
11.750% 05/01/06 (d) 6,750 6,885
----------
MISCELLANEOUS MANUFACTURING - 1.2%
American Standard Co.,
stepped coupon, (10.500% 06/01/98)
(a) 06/01/05 11,000 9,570
Coleman Holdings Co., Series B,
(e) 05/27/98 6,000 4,995
Dade International, Inc.,
11.125% 05/01/06 2,250 2,329
----------
16,894
----------
PAPER PRODUCTS - 2.9%
Container Corp. of America,
Series A,
11.250% 05/01/04 7,500 7,706
Florida Coast Paper LLC,
12.750% 06/01/03 (d) 4,650 4,836
Four M Corp.,
12.000% 06/01/06 (d) 3,750 3,834
Gaylord Container Corp.,
12.750% 05/15/05 5,000 5,256
Riverwood International Corp.,
10.250% 04/01/06 7,000 6,948
Repap Wisconsin, Inc.,
9.875% 05/01/06 6,000 5,340
Stone Container Corp.:
10.750% 10/01/02 2,000 2,018
11.875% 12/01/98 3,750 3,900
12.625% 07/15/98 1,000 1,050
----------
40,888
----------
</TABLE>
7
Investment Portfolio/June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - CONT.
PETROLEUM REFINING - 0.4%
Flores & Rucks, Inc.,
13.500% 12/01/04 $ 3,825 $ 4,418
Texas Petrochemical Corp.,
11.125% 07/01/06 (d) 1,600 1,624
----------
6,042
----------
PRIMARY METAL - 0.5%
A.K. Steel Corp.,
10.750% 04/01/04 5,000 5,400
UCAR Global Enterprises, Inc.,
12.000% 01/15/05 1,870 2,122
----------
7,522
----------
PRINTING & PUBLISHING - 0.4%
K-III Communications Corp.,
10.625% 05/01/02 5,000 5,213
----------
RUBBER & PLASTIC - 0.4%
Berry Plastics Corp.,
12.250% 04/15/04 3,000 3,225
Portola Packaging, Inc.,
10.750% 10/01/05 2,000 2,010
----------
5,235
----------
STONE, CLAY, GLASS & CONCRETE - 0.4%
Owens-Illinois, Inc.,
9.950% 10/15/04 6,000 6,023
----------
TEXTILE MILL PRODUCTS - 0.0%
Guilford Mills, Inc.,
6.000% 09/15/12 700 684
----------
TOBACCO PRODUCTS - 0.3%
Consolidated Cigar Corp.,
10.500% 03/01/03 4,000 4,180
----------
TRANSPORTATION EQUIPMENT - 0.8%
Aftermarket Technology Corp., Series B,
12.000% 08/01/04 3,500 3,780
Collins & Aikman Products,
11.500% 04/15/06 5,500 5,590
Hayes Wheels International, Inc.,
11.000% 07/15/06 1,000 1,010
Lear Seating Corp.,
11.250% 07/15/00 1,500 1,554
----------
11,934
----------
................................................................................
</TABLE>
8
Investment Portfolio/June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
MINING & ENERGY - 4.0%
CRUDE PETROLEUM & NATURAL GAS - 0.2%
Ferrellgas Finance Corp., L.P.,
10.000% 08/01/01 $ 2,500 $ 2,569
----------
METAL MINING - 0.2%
Freeport-McMoRan Resource
Partners,
8.750% 02/15/04 3,500 3,426
----------
OIL & GAS EXTRACTION - 2.8%
Falcon Drilling Co., Inc.:
8.875% 03/15/03 1,100 1,089
Series B,
9.750% 01/15/01 5,300 5,360
Global Marine, Inc.,
12.750% 12/15/99 3,000 3,247
Gulf Canada Resources Ltd.: (f)
9.250% 01/15/04 7,875 7,658
9.625% 07/01/05 700 691
Maxus Energy Corp.,
9.875% 10/15/02 3,000 2,970
Nuevo Energy Co.,
9.500% 04/15/06 4,850 4,753
Rowan Companies, Inc.,
11.875% 12/01/01 4,000 4,300
Santa Fe Energy Resources, Inc.,
11.000% 05/15/04 7,000 7,525
Trident NGL, Inc.,
10.250% 04/15/03 2,500 2,788
----------
40,381
----------
OIL & GAS FIELD SERVICES - 0.8%
Tuboscope Vetco International
Corp.,
10.750% 04/15/03 4,000 4,080
United Meridian Corp.,
10.375% 10/15/05 7,125 7,303
----------
11,383
----------
................................................................................
RETAIL TRADE - 2.1%
AUTO DEALERS & GAS STATIONS - 0.0%
Iroquois Brands Ltd., (b)(g)
12.000% 09/15/99 1,000 10
----------
</TABLE>
9
Investment Portfolio/June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
RETAIL TRADE - CONT.
FOOD STORES - 1.4%
Dominick's Finer Foods, Inc.,
10.875% 05/01/05 $ 5,750 $ 6,066
Pathmark Stores, Inc.:
9.625% 05/01/03 2,250 2,109
stepped coupon, (10.750% 11/01/99)
(a) 11/01/03 13,500 8,168
Smiths Food & Drug, Inc.,
11.250% 05/15/07 4,000 4,050
----------
20,393
----------
MISCELLANEOUS RETAIL - 0.7%
Brylane Capital Corp., Series B,
10.000% 09/01/03 5,000 4,800
Finlay Fine Jewelry Corp.,
10.625% 05/01/03 5,000 4,975
----------
9,775
----------
................................................................................
SERVICES - 7.2%
AMUSEMENT & RECREATION - 3.9%
Alliance Gaming Corp.,
12.875% 06/30/03 1,750 1,737
Bally's Grand, Inc., Series B,
10.375% 12/15/03 10,650 11,688
Boyd Gaming Corp.,
10.750% 09/01/03 3,000 3,157
Empress River Casino Finance Corp.,
10.750% 04/01/02 4,000 4,200
Falcon Holdings PLC, PIK,
11.000% 09/15/03 4,806 4,589
GNF Corp.,
10.625% 04/01/03 7,000 7,612
Grand Casinos, Inc.,
10.125% 12/01/03 5,500 5,624
Harvey Casinos Resorts,
10.625% 06/01/06 7,750 7,769
Majestic Star Casino,
12.750% 05/15/03 1,875 2,025
Trump Atlantic City Associates,
11.250% 05/01/06 6,375 6,392
----------
54,793
----------
BUSINESS SERVICES - 0.2%
Darling International, Inc.,
11.000% 07/15/00 401 397
Figgie International, Inc.,
9.875% 10/01/99 3,000 3,007
----------
3,404
----------
</TABLE>
10
Investment Portfolio/June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
HEALTH SERVICES - 1.8%
Community Health Systems, Inc.,
10.250% 11/30/03 $ 6,000 $ 6,540
GranCare, Inc.,
9.375% 09/15/05 5,750 5,506
OrNda Health Corp.:
11.375% 08/15/04 2,500 2,763
12.250% 05/15/02 3,000 3,244
Prime Hospitality Corp.,
9.250% 01/15/06 3,000 2,835
Tenet Healthcare Corp.,
10.125% 03/01/05 5,000 5,262
----------
26,150
----------
HOTELS, CAMPS & LODGING - 1.3%
California Hotel Finance,
11.000% 12/01/02 5,000 5,269
HMC Acquisition Properties,
9.000% 12/15/07 6,500 5,947
HMH Properties, Inc.,
9.500% 05/15/05 5,100 4,858
Wyndham Hotel Corp.,
10.500% 05/15/06 2,000 1,988
----------
18,062
----------
................................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 17.6%
AIR TRANSPORTATION - 0.5%
Greenwich Air Services, Inc.,
10.500% 06/01/06 3,325 3,304
U.S. Air, Inc.,
10.375% 03/01/13 4,000 3,960
----------
7,264
----------
COMMUNICATIONS - 15.5%
Allbritton Communications Co.:
9.750% 11/30/07 2,650 2,431
11.500% 08/15/04 7,000 7,140
Arch Communications Group, Inc.,
(e) 03/15/08 4,500 2,318
Bell Cablemedia PLC,
stepped coupon, (11.950% 07/15/99)
(a) 07/15/04 (h) 6,000 4,222
Brooks Fiber Properties, Inc.,
stepped coupon, (10.875% 03/01/01)
(a) 03/01/06 3,500 1,864
CAI Wireless Systems, Inc.,
12.250% 09/15/02 8,000 8,360
</TABLE>
11
Investment Portfolio/June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
COMMUNICATIONS - CONT.
Cablevision Systems Corp.,
10.750% 04/01/04 $ 5,000 $ 5,144
Cellular Communications Units,
(e) 8/15/00 (i) 2,500 1,562
Cencall Communications Corp.,
stepped coupon, (10.125% 01/15/99)
(a) 01/15/04 6,000 3,645
Chancellor Broadcasting Co.,
9.375% 10/01/04 1,500 1,414
Clearnet Communications Units,
stepped coupon, (14.750% 12/15/00)
(a) 12/15/05 (j) 7,500 4,650
Comcast Cable Partners Ltd.,
stepped coupon, (11.200% 11/15/00)
(a) 11/15/07 (h) 6,500 3,770
Continental Cablevision, Inc.,
11.000% 06/01/07 10,000 11,317
CS Wireless Systems, Inc.,
stepped coupon, (11.375% 03/01/01)
(a) 03/01/06 5,500 2,832
Echostar Communications Corp.,
stepped coupon, (12.875% 06/01/99)
(a) 06/01/04 11,500 8,452
GST Telecommunications,
stepped coupon, (13.875% 12/15/00):
(a) 12/15/05 (d) 1,140 1,140
(a) 12/15/05 9,120 5,153
Heritage Media Corp.,
11.000% 06/15/02 1,500 1,586
Hyperion Communications, Inc.,
stepped coupon, (13.000% 04/15/01)
(a) 04/15/03 6,250 3,484
Intelcom Group, Inc.,
stepped coupon:
(12.500% 05/01/01) (a) 09/15/05 5,000 3,000
(13.500% 09/15/00) (a) 05/01/06 (d) 4,000 2,200
Intercel, Inc.,
stepped coupon, (12.000% 05/01/01)
(a) 05/01/06 4,000 2,180
Intermedia Communications of Florida,
stepped coupon, (12.500% 05/15/01)
(a) 05/15/06 6,000 3,360
International CableTel, Inc.,
stepped coupon, (12.750% 04/15/00)
(a) 04/15/05 5,500 3,527
</TABLE>
12
Investment Portfolio/June 30, 1996
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<TABLE>
<S> <C> <C>
Jones Intercable, Inc.:
10.500% 03/01/08 $ 2,500 $ 2,612
11.500% 07/15/04 2,500 2,737
Le Groupe Videotron,
10.625% 02/15/05 6,000 6,262
MFS Communications Company, Inc.,
stepped coupon, (9.375% 01/15/99)
(a) 01/15/04 7,750 5,842
MFS Communications, Inc.,
(e) 01/15/06 2,500 1,519
Metrocall, Inc.,
10.375% 10/01/07 1,500 1,395
Millicom International Cellular, Inc.,
stepped coupon, (13.500% 06/01/01)
(a) 06/01/06 (d) 3,750 1,983
Mobilemedia Communications, Inc.,
stepped coupon, (9.375% 01/15/99)
(a) 12/01/03 3,500 2,485
Mobilemedia Corp.,
9.375% 11/01/07 4,000 3,560
NWCG Holding Corp.,
(e) 06/15/99 6,000 4,410
Nextlink Communications LLC,
12.500% 04/15/06 (d) 4,000 3,985
Paging Network, Inc.,
10.125% 08/01/07 4,500 4,432
PanAmSat Corp.,
stepped coupon, (11.375% 08/01/98)
(a) 08/01/03 8,000 6,960
PriCellular Wireless Corp.,
stepped coupon, (14.000% 11/15/97)
(a) 11/15/01 6,000 5,400
Rogers Cablesystems, Inc.:
10.000% 03/15/05 3,000 2,978
10.875% 04/15/04 3,000 3,053
SCI Television, Inc.,
11.000% 06/30/05 5,000 5,194
Shared Technologies Fairchild, Inc.,
stepped coupon, (12.250% 03/01/99)
(a) 03/01/06 (d) 5,000 3,775
Sullivan Broadcasting, Inc.,
10.250% 12/15/05 8,500 8,139
Telewest Communication PLC,
stepped coupon, (11.000% 10/01/00)
(a) 10/01/07 (h) 9,000 5,310
UNC, Inc.,
11.000% 06/01/06 (d) 2,500 2,525
</TABLE>
13
Investment Portfolio/June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
COMMUNICATIONS - CONT.
USA Mobile Communications
Holdings, Inc.:
9.500% 02/01/04 $ 3,000 $ 2,738
14.000% 11/01/04 3,000 3,360
Videotron Holding PLC,
stepped coupon:
(11.125% 07/01/99) (a) 07/01/04 (h) 13,000 9,555
(11.000% 08/15/00) (a) 08/15/05 (h) 4,000 2,555
Western Wireless Corp.,
10.500% 06/01/06 1,750 1,746
Winstar Communications, Inc.,
stepped coupon, (14.000% 10/15/00):
(a) 10/15/05 (d) 5,600 3,808
(a) 10/15/05 11,200 6,272
Wireless One, Inc.,
13.000% 10/15/03 4,500 4,725
Young Broadcasting Corp.:
10.125% 02/15/05 3,000 2,873
11.750% 11/15/04 4,000 4,190
----------
221,129
----------
ELECTRIC SERVICES - 0.5%
System Energy Resources, Inc.,
11.375% 09/01/16 1,123 1,206
Mesa Operating Co.,
stepped coupon, (11.625% 07/01/01)
(a) 07/01/06 10,500 6,143
----------
7,349
----------
GAS SERVICES - 0.5%
California Energy Co., Inc.,
9.875% 06/30/03 6,600 6,699
----------
TRANSPORTATION SERVICES - 0.6%
Moog, Inc.,
10.000% 05/01/06 (d) 1,125 1,136
S.D. Warren Co.,
12.00% 12/15/04 6,500 6,825
----------
7,961
----------
................................................................................
WHOLESALE TRADE - 0.6%
NONDURABLE GOODS
Revlon Consumer Products Corp.,
9.375% 04/01/01 2,000 1,960
Revlon Worldwide Corp.,
(e) 03/15/98 7,500 6,225
----------
8,185
----------
</TABLE>
14
Investment Portfolio/June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
TOTAL CORPORATE FIXED - INCOME
BONDS & NOTES (cost of $617,395) $ 623,384
----------
<CAPTION>
FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS - 32.2% CURRENCY
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Argentina Par Brady,
stepped coupon, (5.500% 03/31/97)
5.250% 03/31/23 (k) 55,750 30,593
Government of Finland Bond,
9.500% 03/15/04 FN 174,000 42,771
Kingdom of Denmark,
8.000% 05/15/03 DK 771,045 139,400
Norwegian Government Bond,
9.500% 10/31/02 No 112,000 19,768
Republic of Poland (Brady),
Past Due Interest,
stepped coupon, (4.000% 10/27/96)
3.750% 10/27/14 (l) 45,000 34,538
Spanish Government Bond,
12.250% 03/25/00 Sp 9,102 80,651
Treasury Corp. of Victoria,
12.500% 10/15/03 A$ 63,267 59,363
Western Australia Treasury,
12.000% 08/01/01 A$ 59,000 52,438
----------
TOTAL FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS (cost of $456,571) 459,522
----------
<CAPTION>
U.S. GOVERNMENT &
AGENCY OBLIGATIONS - 21.3%
- --------------------------------------------------------------------------------
Maturities
Coupon From/To
------ -------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corp.:
7.500% 2016 $ 308 312
8.000% 2006-2017 1,749 1,787
8.500% 2007-2010 1,679 1,743
8.750% 2005-2008 670 695
9.000% 2004-2022 2,096 2,192
9.250% 2007-2016 1,414 1,477
9.500% 2008-2016 1,300 1,395
9.750% 2008-2016 156 166
10.000% 2009-2019 1,907 2,054
10.500% 2011-2024 1,341 1,470
10.750% 2010-2013 1,838 2,044
11.250% 2010-2015 1,302 1,450
----------
16,785
----------
</TABLE>
15
Investment Portfolio/June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT &
AGENCY OBLIGATIONS - CONT. PAR VALUE
- --------------------------------------------------------------------------------
Maturities
Coupon From/To
------ -------
<S> <C> <C> <C> <C>
Federal National Mortgage Association:
7.500% 2003-2011 $ 916 $ 925
8.000% 2002-2009 1,250 1,281
8.250% 2007-2009 467 471
8.500% 2008-2021 3,339 3,460
9.000% 2003-2021 5,524 5,802
9.250% 2016 366 383
10.000% 2013-2016 1,819 1,981
10.500% 2007-2016 2,511 2,740
----------
17,043
----------
Government National Mortgage Association:
8.500% 2006 67 69
9.000% 2006-2017 17,737 18,739
9.500% 2009-2017 8,322 8,950
10.000% 2000-2021 3,189 3,463
10.500% 2001-2021 871 969
11.000% 2009-2016 3,917 4,351
11.750% 2013-2015 161 186
12.000% 2014 7 8
----------
36,735
----------
U.S. Treasury Bonds:
8.000% 1999 (m) 65,825 68,828
11.625% 2004 5,334 6,995
12.000% 2013 32,091 45,238
----------
121,061
----------
U.S. Treasury Notes:
8.500% 1997 (m) 10,000 10,210
10.375% 2012 (m) 40,531 51,455
11.875% 2003 (m) 39,257 51,059
----------
112,724
----------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS (cost of $310,134) 304,348
----------
TOTAL BONDS & NOTES (cost of $1,384,100) 1,387,254
----------
<CAPTION>
COMMON STOCKS - 0.6% SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION - 0.1%
BUILDING CONSTRUCTION
Calton, Inc. (n) 356 155
U.S. Home Corp. (n) 31 769
----------
924
----------
................................................................................
</TABLE>
16
Investment Portfolio/June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
................................................................................
MANUFACTURING - 0.2%
FOOD & KINDRED PRODUCTS - 0.1%
Darling International, Inc. (n) 27 $ 665
FoodBrands America, Inc. (n) 14 179
Spreckels Industries, Inc. (n) 70 1,085
----------
1,929
----------
PRIMARY METAL - 0.1%
Texas Industries, Inc. 15 998
----------
RUBBER & PLASTIC - 0.0%
BPC Holdings Corp. 3 60
----------
................................................................................
RETAIL TRADE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
Federated Department Stores, Inc. 30 1,034
----------
MISCELLANEOUS RETAIL - 0.0%
Pharmhouse Corp. 4 17
----------
................................................................................
SERVICES - 0.1%
HEALTH SERVICES
Total Renal Care Holdings, Inc. 33 1,394
----------
................................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC
GAS & SANITARY SERVICES - 0.0%
GAS SERVICES - 0.0%
United Gas Holdings Corp. (b)(d)(n) 30 416
----------
LOCAL & SUBURBAN TRANSIT - 0.0%
Greyhound Lines, Inc., 12.500% Escrow
Receipts (b)(n) 1 (o)
----------
MOTOR FREIGHT & WAREHOUSING - 0.0%
St. Johnsbury Trucking Co. 31 31
Sun Carriers, Inc. (b)(d)(n) 130 1
----------
32
----------
................................................................................
WHOLESALE TRADE - 0.1%
DURABLE GOODS
Continental Health Affiliates, Inc. (n) 530 1,076
----------
TOTAL COMMON STOCKS (cost of $7,382) 7,880
----------
PREFERRED STOCKS - 0.8%
- --------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.0%
HOLDING & OTHER INVESTMENT COMPANIES
Riggs National Corporation, 10.750%
19 531
----------
................................................................................
</TABLE>
17
Investment Portfolio/June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCKS - CONT. SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.8%
COMMUNICATIONS
Cablevision Systems Corp.,
11.125% PIK, Series L 103 $ 9,651
K-III Communications Corp. (d) 15 1,373
----------
11,024
----------
TOTAL PREFERRED STOCKS (cost of $12,123) 11,555
----------
WARRANTS - 0.0% (n)
- --------------------------------------------------------------------------------
MINING & ENERGY - 0.0%
OIL & GAS EXTRACTION
Forest Oil Corp. 82 36
----------
................................................................................
SERVICES - 0.0%
HOTELS, CAMPS & LODGING
Capital Gaming International, Inc. 6 1
----------
................................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
COMMUNICATIONS
Wireless One, Inc. 14 101
----------
TOTAL WARRANTS (cost of $164) 138
----------
TOTAL INVESTMENTS (cost of $1,403,769)(p) 1,406,827
----------
<CAPTION>
SHORT-TERM OBLIGATIONS - 1.0% PAR
- --------------------------------------------------------------------------------
<S> <C> <C>
Repurchase agreement with Chase
Securities, Inc., dated 06/28/96 due 07/01/96
at 5.400%, collateralized by U.S. Treasury
notes with various maturities to 1998, market
value $14,815 (repurchase proceeds $14,498) $ 14,491 14,491
----------
FORWARD CURRENCY CONTRACTS - (0.0)% (q) (1,019)
- --------------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - 0.4% 6,048
- --------------------------------------------------------------------------------
NET ASSETS - 100% $1,426,347
----------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Currently zero coupon. Shown parenthetically is the interest rate to be paid
and date the Fund will begin accruing this rate.
(b) Represents fair value as determined in good faith under the direction of the
Trustees.
18
Investment Portfolio/June 30, 1996
- --------------------------------------------------------------------------------
(c) This issuer is in default of certain debt covenants. Income is not
being accrued.
(d) Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
1996, the value of these securities amounted to $37,731 or 2.6% of net
assets.
(e) Zero coupon bond.
(f) This is a Canadian security. Par amount is stated in U.S. dollars.
(g) This issuer has filed under Chapter 11 of the Federal Bankruptcy Code.
Income is not being accrued.
(h) This is a British security. Par amount is stated in U.S. dollars.
(i) Each unit consists of one senior discount note and one warrant.
(j) Each unit consists of ten senior discount notes and thirty-three
warrants.
(k) This is an Argentinean security. Shown parenthetically is the interest
rate to be paid and the date the Fund will begin accruing this rate.
Par amount is stated in U.S. dollars.
(l) This is a Polish security. Shown parenthetically is the interest rate
to be paid and the date the Fund will begin accruing this rate. Par
amount is stated in U.S. dollars.
(m) These securities, or a portion thereof, with a total market value of
$181,552 are being used to collateralize open forward contracts.
(n) Non-income producing.
(o) Rounds to less than one.
(p) Cost for federal income tax purposes is $1,403,806.
(q) As of June 30, 1996, 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 466,522 USD 78,938 07/10/96 (534)
DK 98,847 USD 16,782 07/11/96 (57)
DK 98,847 USD 16,780 07/11/96 (59)
FF 122,873 USD 23,707 07/08/96 (147)
FF 111,375 USD 21,525 07/08/96 (97)
FF 27,123 USD 5,242 07/08/96 (24)
FF 57,791 USD 11,169 07/08/96 (50)
FM 99,759 USD 21,556 07/25/96 40
NK 35,121 USD 5,357 07/11/96 (49)
NK 67,770 USD 10,368 07/08/96 (42)
------
(1,019)
------
</TABLE>
19
Investment Portfolio/June 30, 1996
- --------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO - CONT.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Summary of Securities
by Currency Currency Value % of Total
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 930,964 66.2
Denmark DK 139,400 9.9
Australia A$ 111,801 7.9
Spanish Sp 80,651 5.7
Finland FN 42,771 3.0
Poland PL 34,538 2.5
Argentina AR 30,593 2.2
Norway No 19,768 1.4
Canada Ca 8,349 0.6
United Kingdom UK 7,992 0.6
---------- -----
$1,406,827 100.0
---------- -----
</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.
20
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996 (UNAUDITED)
(in thousands except for per share amounts and footnotes)
<TABLE>
ASSETS
<S> <C> <C>
Investments at value (cost $1,403,769) $1,406,827
Short-term obligations 14,491
----------
1,421,318
Receivable for:
Interest $ 25,798
Investments sold 2,930
Fund shares sold 2,154
Other 115 30,997
---------- ----------
Total Assets 1,452,315
LIABILITIES
Unrealized depreciation on forward
currency contracts 1,019
Payable for:
Investments purchased 10,197
Distributions 9,256
Fund shares repurchased 5,407
Accrued:
Deferred Trustees fees 8
Other 81
----------
Total Liabilities 25,968
----------
NET ASSETS $1,426,347
----------
Net asset value & redemption price per share -
Class A ($706,913/99,988) $ 7.07
----------
Maximum offering price per share - Class A
($7.07/0.9525) $ 7.42(a)
----------
Net asset value & offering price per share -
Class B ($719,434/101,760) $ 7.07(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.
21
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(in thousands)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest $ 65,358
Dividends 374
--------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $3) 65,732
EXPENSES
Management fee $ 4,546
Service fee 1,652
Distribution fee - Class B 2,695
Transfer agent 1,724
Bookkeeping fee 234
Trustees fee 37
Custodian fee 152
Audit fee 34
Legal fee 8
Registration fee 48
Reports to shareholders 15
Other 50 11,195
-------- --------
Net Investment Income 54,537
--------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain on:
Investments 10,334
Foreign currency transactions 8,992
--------
Net Realized Gain 19,326
Net unrealized depreciation
during the period on:
Investments (49,620)
Foreign currency transactions (44)
--------
Net Unrealized Depreciation (49,664)
--------
Net Loss (30,338)
--------
Net Increase in Net Assets From Operations $ 24,199
--------
</TABLE>
See notes to financial statements.
22
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(Unaudited)
Six months Year ended
(in thousands) ended June 30 December 31
------------- -----------
INCREASE (DECREASE) IN NET ASSETS 1996 1995
------------- -----------
<S> <C> <C>
Operations:
Net investment income $ 54,537 $ 107,022
Net realized gain (loss) 19,326 (1,278)
Net unrealized appreciation (depreciation) (49,664) 133,828
----------- -----------
Net Increase from Operations 24,199 239,572
Distributions:
From net investment income - Class A (28,736) (56,681)
From net investment income - Class B (26,259) (50,315)
----------- -----------
(30,796) 132,576
----------- -----------
Fund Share Transactions:
Receipts for shares sold - Class A 52,642 76,500
Value of distributions reinvested - Class A 12,104 28,865
Cost of shares repurchased - Class A (57,473) (94,406)
----------- -----------
7,273 10,959
----------- -----------
Receipts for shares sold - Class B 70,425 112,405
Value of distributions reinvested - Class B 10,018 23,759
Cost of shares repurchased - Class B (59,583) (95,861)
----------- -----------
20,860 40,303
----------- -----------
Net Increase from Fund Share
Share Transactions 28,133 51,262
----------- -----------
Total Increase (Decrease) (2,663) 183,838
NET ASSETS
Beginning of period 1,429,010 1,245,172
----------- -----------
End of period (including undistributed net
investment income of $14,367 and $7,974,
respectively) $ 1,426,347 $ 1,429,010
----------- -----------
NUMBER OF FUND SHARES
Sold - Class A 7,365 11,030
Issued for distributions reinvested - Class A 1,697 4,151
Repurchased - Class A (8,048) (13,680)
----------- -----------
1,014 1,501
----------- -----------
Sold - Class B 9,845 16,221
Issued for distributions reinvested - Class B 1,404 3,417
Repurchased - Class B (8,343) (13,902)
----------- -----------
2,906 5,736
----------- -----------
</TABLE>
See notes to financial statements.
23
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED)
NOTE 1. INTERIM FINANCIAL STATEMENTS
In the opinion of management of Colonial Strategic Income Fund (the Fund), a
series of Colonial Trust I, the accompanying financial statements contain all
normal and recurring adjustments necessary for the fair presentation of the
financial position of the Fund at June 30, 1996, and the results of its
operations, the changes in its net assets and the financial highlights for the
six months then ended.
NOTE 2. ACCOUNTING POLICIES
ORGANIZATION: The Fund is a diversified portfolio of a Massachusetts business
trust, registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Fund's investment objective is to
seek as high a level of current income and total return as is consistent with
prudent risk. 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 preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
SECURITY VALUATION AND TRANSACTIONS: Debt securities generally are valued by a
pricing service based upon market transactions for normal, institutional-size
trading units of similar securities. When management deems it appropriate, an
over-the-counter or exchange bid quotation is used.
Equity securities 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.
24
Notes to Financial Statements/June 30, 1996
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains (losses) are based upon the specific identification
method for both financial statement and federal income tax purposes.
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 annualized 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 amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made 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
25
Notes to Financial Statements/June 30, 1996
NOTE 2. ACCOUNTING POLICIES - CONT.
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 included in net realized and
unrealized gains (losses) on foreign currency transactions. Forward currency
contracts do not eliminate fluctuations in the prices of the Fund's portfolio
securities. While the maximum potential loss from such contracts is the
aggregate face value in U.S. dollars at the time the contract was opened,
exposure is typically limited to the change in value of the contract (in U.S.
dollars) over the period it remains open. Risks may also arise if counterparties
fail to perform their obligations under the contracts.
OTHER: Corporate actions are recorded on the ex-date (except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware of
such), net of nonrebatable tax withholdings. Where a high level of uncertainty
as to collection exists, income on securities is recorded net of all tax
withholdings with any rebates recorded when received.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-market
daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser) is the
investment Adviser of the Fund and furnishes accounting and other services and
office facilities for a monthly fee based on the Fund's average net assets as
follows:
<TABLE>
<CAPTION>
Average Net Assets Annual Fee Rate
------------------ ---------------
<S> <C>
First $1 billion 0.65%
Over $1 billion 0.60%
</TABLE>
26
Notes to Financial Statements/June 30, 1996
BOOKKEEPING FEE: The Adviser provides bookkeeping and pricing services for
$27,000 per year plus a percentage of the Fund's average net assets as follows:
<TABLE>
<CAPTION>
Average Net Assets Annual Fee Rate
------------------ ---------------
<S> <C>
First $50 million No charge
Next $950 million 0.035%
Next $1 billion 0.025%
</TABLE>
TRANSFER AGENT: Colonial Investors Service Center, Inc. (the Transfer Agent), an
affiliate of the Adviser, provides shareholder services for a monthly fee equal
to 0.20% annually of the Fund's average net assets and receives a reimbursement
for certain out of pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. For the six months ended June 30, 1996, the Fund has been
advised that the Distributor retained net underwriting discounts of $133,443 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $1,050,885 on Class B share redemptions.
The Fund has adopted a 12b-1 plan which requires it to pay the Distributor a
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 4. PORTFOLIO INFORMATION
INVESTMENT ACTIVITY: During the six months ended June 30, 1996, purchases and
sales of investments, other than short-term obligations, were $697,103,618 and
$636,487,748, respectively, of which $39,290,685 and $30,694,448, respectively,
were U.S. government securities.
27
Notes to Financial Statements/June 30, 1996
NOTE 4. PORTFOLIO INFORMATION - CONT.
Unrealized appreciation (depreciation) at June 30, 1996, based on cost of
investments for federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 40,489,886
Gross unrealized depreciation (37,468,753)
-------------------
Net unrealized appreciation $ 3,021,133
-------------------
</TABLE>
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>
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 5. LINE OF CREDIT
The Fund may borrow up to 10% of its net assets under a line of credit for
temporary or emergency purposes. Any borrowings bear interest at one of the
following options determined at the inception of the loan: (1) federal funds
rate plus 1/2 of 1%, (2) the lending bank's base rate or (3) IBOR
28
Notes to Financial Statements/June 30, 1996
offshore loan rate plus 1/2 of 1%. There were no borrowings under the line of
credit during the six months ended June 30, 1996.
NOTE 6. COMPOSITION OF NET ASSETS
<TABLE>
<S> <C>
At June 30, 1996, net assets consisted of:
Capital paid in $ 1,723,400
Undistributed net investment income 14,367
Accumulated net realized loss (313,929)
Net unrealized appreciation (depreciation) on:
Investments 3,058
Foreign currency transactions (549)
------------
$ 1,426,347
------------
</TABLE>
29
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
(Unaudited)
Six
months ended
June 30 Year ended December 31
----------------------- -----------------------
1996 1995
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 7.220 $ 7.220 $ 6.530 $ 6.530
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.319 0.292 0.621 0.569
Net realized and
unrealized gain (loss) (0.181) (0.181) 0.650 0.650
------- ------- ------- -------
Total from Investment
Operations 0.138 0.111 1.271 1.219
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.288) (0.261) (0.581) (0.529)
From capital paid in -- -- -- --
------- ------- ------- -------
Total Distributions
Declared to Shareholders (0.288) (0.261) (0.581) (0.529)
------- ------- ------- -------
Net asset value -
End of period $ 7.070 $ 7.070 $ 7.220 $ 7.220
------- ------- ------- -------
Total return (a) 1.95% (b) 1.57% (b) 20.17% 19.29%
------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.19% (c)(d) 1.94% (c)(d) 1.18% 1.97%
Net investment income 7.99% (c)(d) 7.24% (c)(d) 8.42% 7.63%
Portfolio turnover 46% (b) 46% (b) 83% 83%
Net assets at end
of period (000) $706,913 $719,434 $714,961 $714,049
</TABLE>
(a) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(b) Not annualized.
(c) Annualized.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
30
FINANCIAL HIGHLIGHTS - continued
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------------------
1994 1993
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 7.390 $ 7.390 $ 7.010 $ 7.010
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.580 0.529 0.565 0.511
Net realized and
unrealized gain (loss) (0.848) (0.849) 0.448 0.448
------- ------- ------- -------
Total from Investment
Operations (0.268) (0.320) 1.013 0.959
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.580) (0.529) (0.585) (0.535)
From capital paid in (0.012) (0.011) (0.048) (0.044)
------- ------- ------- -------
Total Distributions
Declared to Shareholders (0.592) (0.540) (0.633) (0.579)
------- ------- ------- -------
Net asset value -
End of period $ 6.530 $ 6.530 $ 7.390 $ 7.390
------- ------- ------- -------
Total return (a) (3.67)% (4.40)% 14.95% 14.11%
------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.21% 1.96% 1.19% 1.94%
Net investment income 8.38% 7.63% 8.42% 7.67%
Portfolio turnover 78% 78% 138% 138%
Net assets at end
of period (000) $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.
31
FINANCIAL HIGHLIGHTS
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) -- --
-------- -------- --------
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.
32
HOW TO REACH COLONIAL
BY PHONE OR BY MAIL
BY TELEPHONE
COLONIAL CUSTOMER CONNECTION - 1-800-345-6611
For 24-hour account information, call from your touch-tone phone. (Rotary
callers will be automatically connected to a representative during business
hours.) A recorded message will guide you through the menu:
For fund prices, dividends, and capital gains information ......... press 1
For account information ........................................... press 2
To speak to a Colonial representative ............................. press 3
For yield and total return information ............................ press 4
For duplicate statements or new supply of checks .................. press 5
To order duplicate tax forms and year-end statements .............. press 6
(February through May)
To review your options at any time during your call ............... press 7
To speak with a shareholder services representative about your account, call
Monday to Friday, 8:00 am to 8:00 pm ET, and Saturdays from February through
mid-April, 10:00 am to 2:00 pm ET.
COLONIAL TELEPHONE TRANSACTION DEPARTMENT - 1-800-422-3737
To purchase, exchange, or sell shares by telephone, call Monday to Friday, 9:00
am to 8:00 pm ET. Transactions received after the close of the New York Stock
Exchange will receive the next business day's closing price.
COLONIAL LITERATURE DEPARTMENT - 1-800-248-2828
To request literature on any Colonial fund, call Monday to Friday, 8:30 am to
6:30 pm ET.
BY MAIL
COLONIAL INVESTORS SERVICE CENTER, INC.
P.O. BOX 1722
BOSTON, MA 02105-1722
33
SHAREHOLDER COMMUNICATIONS
TO KEEP YOU INFORMED
To make recordkeeping easy and keep you up-to-date on the performance of your
investments, you can expect to receive the following information about your
Colonial account:
TRANSACTION CONFIRMATIONS: Each time you make a purchase, sale, or exchange, you
receive a confirmation statement within just a few days.
QUARTERLY STATEMENTS: Every three months, if any transactions are made that
affect your share balance, this statement reports on your account activity
during the quarter (including any reinvestment of dividends). This statement
also provides year-to-date information.
COLONIAL SHAREHOLDER NEWS: Mailed with your quarterly account statements, this
newsletter highlights timely investment strategies, portfolio manager
commentary, and shareholder service updates.
TAX FORMS AND YEAR-END TAX GUIDE: Easy-to-use forms and timely information are
designed to make tax reporting simpler. (Usually mailed in January.)
AVERAGE COST BASIS STATEMENTS: If you sold or exchanged shares during the year,
this statement may help you calculate your gain/loss for tax purposes. (Usually
mailed in February.)
34
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.
35
[LOGO]
COLONIAL
MUTUAL FUNDS
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
COLONIAL INVESTMENT SERVICES, INC., Distributor (C) 1996
One Financial Center, Boston, Massachusetts 02111-2621, 617-426-3750
SI-03/518C-0696 M (8/96)
