<PAGE>
[LOGO]
COLONIAL
STRATEGIC INCOME FUND
FPO
ANNUAL REPORT
DECEMBER 31, 1996
NOT FDIC- | MAY LOSE VALUE
INSURED | NO BANK GUARANTEE
<PAGE>
COLONIAL STRATEGIC INCOME FUND HIGHLIGHTS
JANUARY 1, 1996 - DECEMBER 31, 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 investment environment of 1996 provided a
classic illustration of the value of diversification. The Fund's ability to
invest in both the high yield corporate and international bond markets generated
higher total returns with lower volatility when compared to fund's whose
investments are more limited to the U.S. government and investment grade
corporate market." -- Carl Ericson
COLONIAL STRATEGIC INCOME FUND PERFORMANCE
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
Inception dates 4/21/77* 5/15/92
Distributions declared per share $ 0.614 $ 0.560
SEC Yields on 12/31/96** 6.55% 6.10%
12-month total returns, assuming reinvest- 10.24% 9.43%
ment of all distributions and no sales charge
or contingent deferred sales charge (CDSC)
Net asset value per share at 12/31/96 $ 7.31 $ 7.31
</TABLE>
* Colonial Strategic Income Fund adopted its current investment objective on
11/30/94.
**The 30-day SEC yields on December 31, 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 12/31/96) (as of 12/31/96)
U.S. Treasury Notes ............. 12.3% Corporate Bonds .............. 40.0%
U.S. Treasury Bonds ............. 8.7% Foreign Gov't Bonds .......... 31.2%
Spanish Government Bonds ........ 5.5% U.S. Government Bonds ........ 25.2%
Swedish Government Bonds ........ 4.7% Other ........................ 3.6%
Kingdom of Denmark Bonds ........ 4.7%
Portfolio holdings and structure are calculated as a percentage of total net
assets. Because the Fund is actively managed, there can be no guarantee the Fund
will continue to maintain these portfolio holdings and structure in the future.
Industry sectors in the following financial statements are based upon the
standard industrial classifications (SIC) as published by the U.S. Office of
Management and Budget. The sector classifications used on this page are based
upon Colonial's defined criteria as used in the investment process.
2
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[PHOTO]
Harold W. Cogger
President
I am pleased to present your Fund's annual report for the fiscal year ended
December 31, 1996. This report reflects on the investment environment of the
past 12 months and on the performance of your Fund.
While the Federal Reserve Board lowered short-term interest rates early in the
period, stronger than expected economic reports in February 1996 brought the
Fed's easing trend to a halt. As a result, long-term interest rates were rising
during most of the period, having a negative effect on fixed income investments.
However, with recent statistics suggesting an easing pace of economic activity
and a continued benign inflation outlook, we are hopeful that bond market
volatility will be somewhat reduced in the months ahead.
There was some good news for the tax-exempt sector. Low supply and strong retail
market support enabled municipal bonds to outperform Treasury bonds for much of
the year. The post-election conditions should promote a period of stability for
the tax-exempt market as the flat tax initiative is now a receding memory.
In the domestic stock market, generally favorable conditions prevailed until
July, when a price-based correction took place. Since then, the market has
rebounded nicely with the Dow Jones Industrial Average setting several new
records. Internationally, the Tiger countries of the Pacific Rim continue to
offer a good combination of growth and value. In the European markets,
short-term interest rates continue to be much lower than long-term rates. We
expect these conditions to prevail until we see an increase in economic
activity.
Our economic expectations include growth continuing at a slower, but more
sustainable rate, and our outlook for 1997 is relatively bright.
The following report will provide you with specific information on your Fund's
performance as well as an in-depth discussion with your portfolio manager. As
always, we thank you for the opportunity to help you meet your investment goals
through the Colonial family of funds.
Respectfully,
/s/Harold W. Cogger
- ----------------------
Harold W. Cogger
President
February 10, 1997
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
<PAGE>
PORTFOLIO MANAGEMENT REPORT
CARL ERICSON is 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 1996?
A. The volatile investment environment of 1996 led us to strategically manage
the Fund's diversification throughout the year. Our ability to invest in three
major bond markets - high yield corporate, foreign and U.S. government - allowed
shareholders to benefit from the effects of diversification because each of
these market segments has unique characteristics. The high yield market
generated attractive returns because it was able to capitalize on the strong
economy. Many high yield companies were able to increase cash flows and
implement debt reduction programs that improved their financial position. The
foreign market outperformed the U.S. market because many European countries
benefited from increased conviction that the European Economic Union would
proceed. In addition, a lack of accelerating economic growth led to declining
interest rates in many nations, a positive factor for their bond prices. The
U.S. government sector, the Fund's third major component, posted the weakest
performance as a result of stronger than anticipated economic reports early in
the year. Long-term interest rates moved suddenly higher, inflation fears
accelerated and the high grade markets sold off sharply. This volatility
continued throughout much of the period despite a third quarter rally when
economic indicators pointed to moderating growth and continued low inflation.
However, our diversification strategy allowed us to preserve shareholders'
assets and enhance returns by reducing the Fund's investments in government
securities relative to high yield and international bonds.
Q. HOW DID THE FUND PERFORM OVER THE PAST TWELVE MONTHS?
A. The Fund outperformed the Lehman Brothers Government/Corporate Bond Index.
The total return for Class A shares, based on net asset value, was 10.24%, while
the Index posted a total return of 2.90%. The Fund was able to outperform the
Index primarily due to its ability to invest in market sectors less closely
related to U.S. interest rate activity and expectations, namely domestic high
yield corporate bonds and international bonds.
Q. WHAT INVESTMENTS HELPED TO GENERATE SUCH GOOD PERFORMANCE?
A. Our investments in high yield corporate bonds made a large contribution to
the Fund's total return. During the year, we increased our holdings in this
sector, anticipating that many of these companies would benefit from a stronger
economy. We also focused much of our activity on the emerging technology and
telecommunications sector. Later in the year, we became
4
<PAGE>
more selective in this growth area and recognized profits by selling
technology-based holdings with less visible cash flow potential, viewing them as
unlikely to have long-term staying power. At the same time, we increased our
exposure to the high yield energy sector. We focused our purchases on companies
that were taking advantage of a high point in the energy cycle to reduce debt
and improve their capital structure. Gulf Canada Resources and Mariner Energy,
two of the Fund's holdings, met these criteria.
The Fund also benefited from its international bond investments, accounting for
about one-third of the portfolio during the year. Most overseas markets
outperformed the U.S. government market as a result of lower inflation and
economic growth rates. In addition, double-digit unemployment rates in many
European nations led to ongoing reductions in short-term interest rates,
positioning their bonds for strong performance. We continued to favor
investments in the Scandinavian nations, and in selected emerging markets such
as Argentina and Poland.
Q. WHAT IS YOUR OUTLOOK FOR 1997?
A. We are anticipating reasonably modest economic growth with continuing low
levels of inflation. As a result, we do not see a near-term threat that the
Federal Reserve Board will tighten, or increase interest rates. We do believe,
however, that we will need to be increasingly sensitive to the Board's
inclination as the year goes along. We expect to see domestic market volatility
continue in 1997, although we believe that investors will be better compensated
for it. As a result, we anticipate that strong investor interest in markets
providing good levels of income should provide ongoing support for corporate and
international bonds. We expect that the degree they outperform Treasury bonds
may be less dramatic than in 1996. We will continue to diversify the Fund,
focusing on the market sectors that are generating the most attractive,
risk-adjusted returns.
5
<PAGE>
COLONIAL STRATEGIC INCOME FUND INVESTMENT PERFORMANCE VS.
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX
Change in Value of $10,000 from 12/31/86 - 12/31/96
Based on NAV and MOP for Class A Shares
<TABLE>
<CAPTION>
Label A B C
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Label csifa NAV MOP
1 Dec 31, 86 10000 9525 10000
2 Mar 31, 87 11642.28 11089.28 10148
3 Jun 30, 87 11933.45 11366.61 9956
4 Sep 30, 87 12402.28 11813.17 9665
5 Dec 31, 87 10373.77 9881.012 10229
6 Mar 31, 88 11377.3 10836.88 10595
7 Jun 30, 88 11866.19 11302.54 10700
8 Sep 30, 88 11708.95 11152.78 10900
9 Dec 31, 88 12101.55 11526.73 11005
10 Mar 31, 89 12449.89 11858.52 11126
11 Jun 30, 89 12826.77 12217.5 12021
12 Sep 30, 89 13249.61 12620.26 12133
13 Dec 31, 89 13304.22 12672.27 12571
14 Mar 31, 90 12901.96 12289.12 12427
15 Jun 30, 90 13354.98 12720.62 12875
16 Sep 30, 90 12489.77 11896.5 12953
17 Dec 31, 90 12367.12 11779.68 13613
18 Mar 31, 91 13454.35 12815.27 13980
19 Jun 30, 91 14084.04 13415.05 14191
20 Sep 30, 91 14991.24 14279.16 15007
21 Dec 31, 91 15880.9 15126.56 15808
22 Mar 31, 92 16247.72 15475.96 15571
23 Jun 30, 92 16972.31 16166.12 16201
24 Sep 30, 92 17588.98 16753.5 16993
25 Dec 31, 92 17433.04 16604.97 17006
26 Mar 31, 93 18356.05 17484.14 17797
27 Jun 30, 93 18967.95 18066.97 18331
28 Sep 30, 93 19381.45 18460.83 18938
29 Dec 31, 93 20038.87 19087.03 18882
30 Mar 31, 94 19515.99 18588.98 18291
31 Jun 30, 94 19261.27 18346.36 18064
32 Sep 30, 94 19309.72 18392.51 18153
33 Dec 31, 94 19302.74 18385.86 18220
34 Mar 31, 95 20366.36 19398.96 19128
35 Jun 30, 95 21473.3 20453.32 20369
36 Sep 30, 95 22199.58 21145.1 20759
37 Dec 31, 95 23195.85 22094.05 21726
38 Mar 31, 96 23303.29 22196.38 21217
39 Jun 30, 96 23649.18 22525.84 21317
40 Sep 30, 96 24605.59 23436.83 21693
41 Dec 31, 96 25572 24357.33 22356
</TABLE>
A hypothetical $10,000 investment in Class B shares made on May 15, 1992, at NAV
would have been valued at $14,885 on December 31, 1996. The same investment
after deducting the applicable contingent deferred sales charge (CDSC) would
have grown to $14,685 on December 31, 1996.
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/96 (Most Recent Quarter End)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
INCEPTION 4/21/77* 5/15/92
NAV MOP NAV w/CDSC
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR 10.24% 5.01% 9.43% 4.43%
- --------------------------------------------------------------------------------
5 YEARS 10.00% 8.93% -- --
- --------------------------------------------------------------------------------
10 YEARS 9.84% 9.31% -- --
- --------------------------------------------------------------------------------
SINCE INCEPTION 10.39% 10.11% 8.96% 8.64%
- --------------------------------------------------------------------------------
</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 most closely parallel that Index's
performance. Unlike mutual funds, indexes are not investments, do not incur fees
or expenses and it is not possible to invest in an index.
Return and value of an investment will vary, resulting in a gain or loss on
sale. All results shown assume reinvestment of distributions. Net asset value
(NAV) returns do not include sales charges or CDSC. Maximum offering price (MOP)
returns include the maximum sales charge of 4.75%. The CDSC returns reflect the
maximum charge of 5% for one year and 2% since inception.
*Current investment objective adopted 11/30/94.
6
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<TABLE>
INVESTMENT PORTFOLIO
DECEMBER 31, 1996 (IN THOUSANDS)
<CAPTION>
BONDS & NOTES - 96.4%
- --------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - 40.0% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <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 4,669
--------
7,774
--------
SPECIAL TRADE CONTRACTORS - 0.4%
Building Materials Corp. of America,
stepped coupon,
(11.750% 07/01/99) (a) 07/01/04 7,000 6,073
--------
- --------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.0%
NONDEPOSITORY CREDIT INSTITUTIONS
Drum Financial Corp.,
12.875% 09/15/99(b)(c) 1,000 10
--------
- --------------------------------------------------------------------------------
MANUFACTURING - 13.8%
CHEMICALS & ALLIED PRODUCTS - 1.2%
Agricultural Minerals Co., L.P.,
10.750% 09/30/03 7,200 7,677
Revlon Consumer Products Corp.:
9.375% 04/01/01 2,000 2,047
10.500% 02/15/03 5,270 5,534
Revlon Worldwide Corp.,
(d) 03/15/98 4,000 3,440
--------
18,698
--------
ELECTRONIC & ELECTRICAL EQUIPMENT - 1.6%
Amphenol Corp. Notes:
10.450% 11/01/01 6,000 6,473
12.750% 12/15/02 2,500 2,741
Advanced Micro Devices, Inc.,
11.000% 08/01/03 3,000 3,255
Delco Remy International, Inc.,
10.625% 08/01/06(e) 1,600 1,696
K&F Industries, Inc.,
10.375% 09/01/04 4,300 4,536
Unisys Corp.,
11.750% 10/15/04 6,000 6,405
--------
25,106
--------
</TABLE>
7
<PAGE>
<TABLE>
Investment Portfolio/December 31, 1996
- --------------------------------------------------------------------------------
<CAPTION>
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANUFACTURING - CONT.
FABRICATED METAL - 1.5%
Euramax International, PLC,
11.250% 10/01/06(e) $ 8,000 $ 8,280
Kaiser Aluminum & Chemical Corp.,
10.875% 10/15/06(e) 8,000 8,480
Renco Metals, Inc.,
11.500% 07/01/03 5,750 6,016
--------
22,776
--------
FOOD & KINDRED PRODUCTS - 1.0%
Chiquita Brands International, Inc.,
10.250% 11/01/06 3,750 3,994
FoodBrands America, Inc.,
10.750% 05/15/06 2,750 2,929
Pilgrim's Pride Corp.,
10.875% 08/01/03 1,950 1,943
Van De Kamps, Inc.,
12.000% 09/15/05 5,250 5,788
--------
14,654
--------
LUMBER & WOOD PRODUCTS - 0.4%
Triangle Pacific Corp.,
10.500% 08/01/03 6,000 6,397
--------
MACHINERY & COMPUTER EQUIPMENT - 0.6%
IMO Industries, Inc.,
11.750% 05/01/06 6,750 6,311
Shop Vac Corp.,
10.625% 09/01/03(e) 3,000 3,157
--------
9,468
--------
MEASURING & ANALYZING INSTRUMENTS - 0.2%
Intertek Finance, PLC,
10.250% 11/01/06(e) 2,000 2,080
Mettler Toledo, Inc.,
9.750% 10/01/06 1,000 1,052
--------
3,132
--------
MISCELLANEOUS MANUFACTURING - 1.2%
American Standard Co.,
stepped coupon,
(10.500% 06/01/98) (a) 06/01/05 11,000 10,299
Coleman Holdings Co.,
Series B,
(d) 05/27/98 6,000 5,002
</TABLE>
8
<PAGE>
<TABLE>
Investment Portfolio/December 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dade International, Inc.,
11.125% 05/01/06 $ 2,250 $ 2,436
--------
17,737
--------
PAPER PRODUCTS - 2.4%
Container Corp. of America,
Series A,
11.250% 05/01/04 7,500 8,147
Florida Coast Paper, LLC,
12.750% 06/01/03 7,650 8,300
Four M Corp.,
12.000% 06/01/06 3,750 3,919
Gaylord Container Corp.,
12.750% 05/15/05 5,000 5,537
Ivaco, Inc.,
11.500% 09/15/05 1,500 1,500
Repap Wisconsin, Inc.,
9.875% 05/01/06 3,000 3,030
Stone Container Corp.:
10.750% 10/01/02 2,000 2,105
11.875% 12/01/98 3,750 3,951
12.625% 07/15/98 1,000 1,060
--------
37,549
--------
PETROLEUM REFINING - 0.5%
Flores & Rucks, Inc.:
9.750% 10/01/06 1,500 1,586
13.500% 12/01/04 3,825 4,571
Texas Petrochemical Corp.,
11.125% 07/01/06 1,600 1,724
--------
7,881
--------
PRIMARY METAL - 1.3%
Algoma Steel, Inc.,
12.375% 07/15/05 8,000 8,660
UCAR Global Enterprises, Inc.,
12.000% 01/15/05 1,870 2,153
US Can Corp.,
10.125% 10/15/06(e) 4,000 4,200
WCI Steel, Inc.,
10.000% 12/01/04(e) 4,400 4,477
--------
19,490
--------
</TABLE>
9
<PAGE>
<TABLE>
Investment Portfolio/December 31, 1996
- --------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANUFACTURING - CONT.
RUBBER & PLASTIC - 0.3%
Berry Plastics Corp.,
12.250% 04/15/04 $ 3,000 $ 3,289
Portola Packaging, Inc.,
10.750% 10/01/05 2,000 2,077
--------
5,366
--------
STONE, CLAY, GLASS & CONCRETE - 0.5%
Owens-Illinois, Inc.:
9.950% 10/15/04 6,000 6,345
10.000% 08/01/02 800 841
Safelite Glass Corp.,
9.875% 12/15/06(e) 650 669
--------
7,855
--------
TOBACCO PRODUCTS - 0.3%
Consolidated Cigar Corp.,
10.500% 03/01/03 4,000 4,160
--------
TRANSPORTATION EQUIPMENT - 0.8%
Aftermarket Technology Corp.,
Series B,
12.000% 08/01/04 3,500 3,911
Collins & Aikman Products Co.,
11.500% 04/15/06 7,000 7,665
--------
11,576
--------
- --------------------------------------------------------------------------------
MINING & ENERGY - 3.9%
CRUDE PETROLEUM & NATURAL GAS - 0.4%
Ferrellgas Finance Corp., L.P.,
10.000% 08/01/01 3,215 3,380
Ferrellgas Partners, L.P.,
9.375% 06/15/06 2,500 2,540
--------
5,920
--------
OIL & GAS EXTRACTION - 3.0%
Falcon Drilling Co., Inc.,
Series B:
8.875% 03/15/03 1,100 1,112
9.750% 01/15/01 5,300 5,552
Forcenergy, Inc.,
9.500% 11/01/06 2,175 2,267
Gulf Canada Resources Ltd.:
9.250% 01/15/04(f) 7,875 8,328
9.625% 07/01/05(f) 700 755
</TABLE>
10
<PAGE>
<TABLE>
Investment Portfolio/December 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mariner Energy Corp.,
10.500% 08/01/06(e) $ 6,000 $ 6,360
Maxus Energy Corp.,
9.875% 10/15/02 3,000 3,082
Nuevo Energy Co.,
9.500% 04/15/06 8,350 8,851
Parker Drilling Corp.,
9.750% 11/15/06(e) 2,000 2,100
Santa Fe Energy Resources, Inc.,
11.000% 05/15/04 7,000 7,735
--------
46,142
--------
OIL & GAS FIELD SERVICES - 0.5%
United Meridian Corp.,
10.375% 10/15/05 7,125 7,820
--------
- --------------------------------------------------------------------------------
RETAIL TRADE - 3.5%
APPAREL & ACCESSORY STORES - 0.0%
William Carter Co.,
10.375% 12/01/06(e) 750 787
--------
BUILDING, HARDWARE & GARDEN SUPPLY - 0.5%
ISP Holdings, Inc.,
9.750% 02/15/02(e) 7,000 7,324
--------
FOOD STORES - 2.2%
Dominick's Finer Foods, Inc.,
10.875% 05/01/05 5,750 6,354
Pathmark Stores, Inc.:
9.625% 05/01/03 2,250 2,154
stepped coupon,
(10.750% 11/01/99) (a) 11/01/03 13,500 8,775
Ralphs Grocery Co.,
10.450% 06/15/04 8,000 8,500
Smiths Food & Drug,
11.250% 05/15/07 7,280 8,044
--------
33,827
--------
MISCELLANEOUS RETAIL - 0.8%
Brylane Capital Corp.,
Series B,
10.000% 09/01/03 5,000 5,125
Finlay Fine Jewelry Corp.,
10.625% 05/01/03 6,650 6,966
--------
12,091
--------
- --------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
Investment Portfolio/December 31, 1996
- --------------------------------------------------------------------------------
<CAPTION>
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SERVICES - 4.9%
AMUSEMENT & RECREATION - 0.6%
Alliance Gaming Corp.,
12.875% 06/30/03 $ 1,750 $ 1,868
E&S Holdings Corp.,
10.375% 10/01/06(e) 4,000 4,190
Prime Hospitality Corp.,
9.250% 01/15/06 3,000 3,007
--------
9,065
--------
BUSINESS SERVICES - 0.4%
Darling International, Inc.,
11.000% 07/15/00 401 393
Figgie International, Inc.,
9.875% 10/01/99 3,000 3,120
Pierce Leahy Corp.,
11.125% 07/15/06 2,500 2,737
--------
6,250
--------
HEALTH SERVICES - 0.9%
Maxxim Medical, Inc.
10.500% 08/01/06 2,500 2,612
OrNda Health Corp.:
11.375% 08/15/04 2,500 2,894
12.250% 05/15/02 3,000 3,199
Tenet Healthcare Corp.,
10.125% 03/01/05 5,000 5,525
--------
14,230
--------
HOTELS, CAMPS & LODGING - 2.5%
Eldorado Resorts Corp.,
10.500% 08/15/06(e) 6,200 6,541
Empress River Casino Finance Corp.,
10.750% 04/01/02 4,000 4,345
Grand Casinos, Inc.,
10.125% 12/01/03 3,750 3,769
Harvey Casinos Resorts,
10.625% 06/01/06 7,750 8,273
HMC Acquisition Properties,
9.000% 12/15/07 6,500 6,500
HMH Properties, Inc.,
9.500% 05/15/05 5,100 5,323
Majestic Star Casino, LLC,
12.750% 05/15/03 1,875 2,016
Wyndham Hotel Corp.,
10.500% 05/15/06 2,000 2,130
--------
38,897
--------
</TABLE>
12
<PAGE>
<TABLE>
Investment Portfolio/December 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Private Households - 0.5%
Allied Waste Industries, Inc.,
10.250% 12/01/06(e) $ 6,975 $ 7,324
--------
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 13.0%
AIR TRANSPORTATION - 0.9%
Continental Airlines, Inc.,
9.500% 12/15/01(e) 1,500 1,530
Greenwich Air Services, Inc.,
10.500% 06/01/06 3,325 3,558
U.S. Air, Inc.,
10.375% 03/01/13 8,000 8,340
--------
13,428
--------
BROADCASTING - 1.7%
Allbritton Communications Co.,
11.500% 08/15/04 7,000 7,385
Heritage Media Corp.,
11.000% 06/15/02 1,500 1,594
NWCG Holding Corp.,
(d) 06/15/99 6,000 4,995
Sullivan Broadcasting, Inc.,
10.250% 12/15/05 5,000 5,062
Young Broadcasting Corp.:
10.125% 02/15/05 3,000 3,105
11.750% 11/15/04 4,000 4,400
--------
26,541
--------
Cable - 2.7%
Bell Cablemedia, PLC,
stepped coupon,
(11.950% 07/15/99) (a) 07/15/04(g) 6,000 5,250
Cablevision Systems Corp.,
10.750% 04/01/04 5,000 5,163
Comcast Cable Partners Ltd.,
stepped coupon,
(11.200% 11/15/00) (a) 11/15/07(g) 6,500 4,599
International CableTel, Inc.,
stepped coupon,
(12.750% 04/15/00) (a) 04/15/05 5,500 4,111
Le Groupe Videotron,
10.625% 02/15/05(f) 6,000 6,600
Rogers Cablesystems, Inc.,
10.000% 03/15/05 3,000 3,203
</TABLE>
13
<PAGE>
<TABLE>
Investment Portfolio/December 31, 1996
- --------------------------------------------------------------------------------
<CAPTION>
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
CABLE - CONT.
Rogers Communications, Inc.,
10.875% 04/15/04 $ 3,000 $ 3,157
Videotron Holding, PLC,
stepped coupon:
(11.000% 08/15/00) (a) 08/15/05(g) 4,000 3,220
(11.125% 07/01/99) (a) 07/01/04(g) 6,750 5,906
--------
41,209
--------
COMMUNICATIONS - 0.8%
Allbritton Communications Co.,
9.750% 11/30/07 2,650 2,564
Intermedia Communications of Florida,
stepped coupon,
(12.500% 05/15/01) (a) 05/15/06 6,000 3,945
Lodgenet Entertainment Corp.,
10.250% 12/15/06(e) 2,000 2,000
Sprint Spectrum, L.P.,
stepped coupon,
(12.500% 08/15/01) (a) 08/15/06 2,000 1,350
UNC, Inc.,
11.000% 06/01/06 2,500 2,675
--------
12,534
--------
ELECTRIC, GAS & SANITARY SERVICES - 0.5%
Mesa Operating Co.,
stepped coupon,
(11.625% 07/01/01) (a) 07/01/06 10,500 7,271
ELECTRIC SERVICES - 0.2%
California Energy Co.,
9.500% 09/15/06 2,000 2,055
System Energy Resources, Inc.,
11.375% 09/01/16 688 736
--------
2,791
--------
GAS SERVICES - 0.6%
California Energy Co., Inc.,
9.875% 06/30/03 6,600 6,864
HS Resources, Inc.,
9.250% 11/15/06(e) 2,750 2,826
--------
9,690
--------
</TABLE>
14
<PAGE>
<TABLE>
Investment Portfolio/December 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MOTOR FREIGHT & WAREHOUSING - 0.2%
Blue Bird Body Co.,
10.750% 11/15/06(e) $ 1,375 $ 1,437
Ryder Trucks, Inc.,
10.000% 12/01/06(e) 1,600 1,664
--------
3,101
--------
PIPELINES - 0.1%
Costilla Energy, Inc.,
10.250% 10/01/06 1,400 1,470
TELECOMMUNICATIONS - 5.2%
Brooks Fiber Properties, Inc.,
stepped coupon,
(10.875% 03/01/01) (a) 03/01/06 3,500 2,336
Cencall Communications Corp.,
stepped coupon,
(10.125% 01/15/99) (a) 01/15/04 6,000 4,080
Clearnet Communications, Inc.,
stepped coupon,
(14.750% 12/15/00) (a) 12/15/05 7,500 4,659
Echostar Communications Corp.,
stepped coupon,
(12.875% 06/01/99) (a) 06/01/04 11,500 9,545
Hyperion Telecommunications, Inc.,
stepped coupon,
(13.000% 04/15/01) (a) 04/15/03 6,250 3,563
ICG Holding, Inc.,
stepped coupon:
(13.500% 09/15/00) (a) 09/15/05 5,000 3,587
IntelCom Group (USA), Inc.,
stepped coupon:
(12.500% 05/01/01) (a) 05/01/06 4,000 2,670
MFS Communications Co., Inc.,
stepped coupon:
( 8.875% 01/15/01) (a) 01/15/06 2,500 1,828
( 9.375% 01/15/99) (a) 01/15/04 7,750 6,742
Nextlink Communications, LLC,
12.500% 04/15/06 4,000 4,300
Omnipoint Corp.,
11.625% 08/15/06 6,750 7,037
Paging Network, Inc.,
10.125% 08/01/07 4,500 4,596
</TABLE>
15
<PAGE>
<TABLE>
Investment Portfolio/December 31, 1996
- --------------------------------------------------------------------------------
<CAPTION>
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
TELECOMMUNICATIONS - CONT.
PanAmSat Corp.,
stepped coupon,
(11.375% 08/01/98) (a) 08/01/03 $ 8,000 $ 7,420
PriCellular Wireless Corp.:
10.750% 11/01/04(e) 2,500 2,603
stepped coupon,
(14.000% 11/15/97) (a) 11/15/01 6,000 5,940
Shared Technologies Fairchild,
stepped coupon,
(12.250% 03/01/99) (a) 03/01/06 5,000 4,175
USA Mobile Communications Holdings, Inc.,
14.000% 11/01/04 3,000 3,394
WinStar Communications, Inc.,
stepped coupon,
(14.000% 10/15/00) (a) 10/15/05 2,750 1,681
--------
80,156
--------
TRANSPORTATION SERVICES - 0.1%
Moog, Inc.,
10.000% 05/01/06 1,125 1,181
--------
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES (cost of $587,423) 614,751
--------
CORPORATE CONVERTIBLE BONDS & NOTES - 0.0%
- --------------------------------------------------------------------------------
MANUFACTURING
ELECTRONIC & ELECTRICAL EQUIPMENT
Kollmorgen Corp. (cost of $511)
8.750% 05/01/09 592 586
--------
</TABLE>
<TABLE>
<CAPTION>
FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS - 31.2% CURRENCY
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Argentina Par Brady,
stepped coupon, (5.500% 03/31/97)
5.250% 03/31/23(h) 35,750 22,612
Argentina Global Bonds,
11.000% 10/09/06(h) 10,750 11,266
Government of Finland Bonds,
7.250% 04/18/06 FM 293,000 68,159
Kingdom of Denmark:
8.000% 05/15/03 DK 179,728 33,790
8.000% 03/15/06 DK 208,896 38,919
</TABLE>
16
<PAGE>
<TABLE>
Investment Portfolio/December 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Republic of Poland (Brady),
Past Due Interest,
stepped coupon, (5.000% 10/27/98)
4.000% 10/27/14(i) 45,000 $ 37,969
Spanish Government Bonds,
11.300% 01/15/02 SP 9,019,080 84,608
Swedish Government Bonds,
10.250% 05/05/03 SK 411,600 72,996
Treasury Corp. Victoria,
10.250% 11/15/06 A$ 71,888 67,502
Western Australia Treasury,
12.000% 08/01/01 A$ 45,280 42,861
--------
TOTAL FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS (cost of $463,870) 480,682
--------
</TABLE>
<TABLE>
U.S. GOVERNMENT &
AGENCY OBLIGATIONS - 25.2%
- --------------------------------------------------------------------------------
<CAPTION>
Maturities
Coupon From/To
------ ----------
<S> <C> <C>
Federal Home Loan Mortgage Corp.:
7.500% 2016 $ 268 271
8.000% 2006-2017 1,586 1,640
8.500% 2007-2010 1,513 1,589
8.750% 2005-2008 590 622
9.000% 2004-2022 1,918 2,031
9.250% 2007-2016 1,283 1,363
9.500% 2008-2016 1,212 1,317
9.750% 2008-2016 141 153
10.000% 2009-2019 1,758 1,926
10.500% 2011-2024 1,238 1,369
10.750% 2010-2013 1,529 1,708
11.250% 2010-2015 1,070 1,199
--------
15,188
--------
Federal National Mortgage Association:
7.500% 2003-2011 807 826
8.000% 2002-2009 1,137 1,178
8.250% 2007-2009 448 456
8.500% 2008-2021 3,058 3,201
9.000% 2003-2021 5,058 5,371
9.250% 2016 363 384
10.000% 2013-2016 1,687 1,855
10.500% 2007-2016 2,196 2,424
--------
15,695
--------
</TABLE>
17
<PAGE>
<TABLE>
Investment Portfolio/December 31, 1996
- --------------------------------------------------------------------------------
U.S. GOVERNMENT &
AGENCY OBLIGATIONS - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Government National Mortgage Association:
8.500% 2006 $ 64 $ 67
9.000% 2006-2017 16,079 17,244
9.500% 2009-2017 7,543 8,192
10.000% 2000-2021 2,816 3,085
10.500% 2001-2021 751 841
11.000% 2009-2016 3,580 4,046
11.750% 2013-2015 147 171
12.000% 2014 6 8
----------
33,654
----------
U.S. Treasury Bonds:
8.750% 05/15/17(j) 66,575 81,232
12.000% 08/15/13(j) 32,091 45,905
11.625% 11/15/04 5,334 7,043
----------
134,180
----------
U.S. Treasury Notes:
11.875% 11/15/03(j) 66,107 86,239
8.500% 04/15/97 10,000 10,087
10.375% 11/15/12(j) 72,131 92,891
----------
189,217
----------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS (cost of $389,647) 387,934
----------
TOTAL BONDS & NOTES (cost of $1,441,451) 1,483,953
----------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS - 0.5% SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION - 0.1%
BUILDING CONSTRUCTION
Calton, Inc. (l) 356 134
U.S. Home Corp. (l) 31 812
----------
946
----------
- --------------------------------------------------------------------------------
MANUFACTURING - 0.1%
FOOD & KINDRED PRODUCTS - 0.1%
Darling International, Inc. (l) 27 797
Foodbrands America, Inc. (l) 14 191
----------
988
----------
</TABLE>
18
<PAGE>
<TABLE>
Investment Portfolio/December 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY METAL - 0.0%
Texas Industries, Inc. 15 $ 736
----------
- --------------------------------------------------------------------------------
MINING & ENERGY - 0.0%
OIL & GAS EXTRACTION
Forest Oil Corp. (l) 16 290
----------
- --------------------------------------------------------------------------------
RETAIL TRADE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
Federated Department Stores, Inc. (l) 30 1,034
----------
MISCELLANEOUS RETAIL - 0.0%
Pharmhouse Corp. (l) 4 34
----------
- --------------------------------------------------------------------------------
SERVICES - 0.1%
HEALTH SERVICES
Total Renal Care Holdings, Inc. (l) 33 1,196
----------
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
GAS SERVICES - 0.0%
United Gas Holdings Corp. (b)(l) 30 416
----------
LOCAL & SUBURBAN TRANSIT - 0.0%
Greyhound Lines, Inc., 12.500% Escrow
Receipt, (b)(l) 1 (k)
----------
MOTOR FREIGHT & WAREHOUSING - 0.0%
St. Johnsbury Trucking Co. (b)(l) 31 31
Sun Carriers, Inc. (b)(l) 130 1
----------
32
----------
- --------------------------------------------------------------------------------
WHOLESALE TRADE - 0.1%
DURABLE GOODS
Continental Health Affiliates, Inc. (l) 530 1,659
----------
TOTAL COMMON STOCKS (cost of $6,727) 7,331
----------
PREFERRED STOCKS - 0.7%
- --------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.0%
HOLDING & OTHER INVESTMENT OFFICES
Riggs National Corp., 10.750% 19 541
----------
- --------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
Investment Portfolio/December 31, 1996
- --------------------------------------------------------------------------------
<CAPTION>
PREFERRED STOCKS - CONT. SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.7%
COMMUNICATIONS
Cablevision Systems Corp.,
11.125% Series PIK 96 $ 8,618
K-III Communications Corp., 10.000% 15 1,463
----------
10,081
----------
TOTAL PREFERRED STOCKS (cost of $11,408) 10,622
----------
WARRANTS - 0.0% (l)
- --------------------------------------------------------------------------------
MANUFACTURING - 0.0%
RUBBER & PLASTIC
BPC Holdings Corp., expires 04/15/04 3 60
----------
SERVICES - 0.0%
HOTELS, CAMPS & LODGING
Capital Gaming International, Inc.,
expires 02/01/99 6 (k)
----------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
COMMUNICATIONS
Clearnet Communications, Inc., expires 09/15/05 25 142
Hyperion Telecommunications, Inc.,
Wireless One, Inc., expires 10/19/01 14 14
----------
----------
TOTAL WARRANTS (cost of $333) 341
----------
TOTAL INVESTMENTS - 97.6% (cost of $1,459,919)(m) 1,502,247
----------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM OBLIGATIONS - 0.8% PAR
- --------------------------------------------------------------------------------
<S> <C> <C>
Repurchase agreement with Lehman Brothers, Inc.,
dated 12/31/96, due 01/02/97 at 6.900%,
collateralized by U.S. Treasury notes with
various maturities to 2022, market value
$11,586 (repurchase proceeds $11,434) $11,429 11,429
----------
FORWARD CURRENCY CONTRACTS - 0.0% (n) 371
- --------------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - 1.6% 24,925
- --------------------------------------------------------------------------------
NET ASSETS - 100.0% $1,538,972
==========
</TABLE>
20
<PAGE>
Investment Portfolio/December 31, 1996
- --------------------------------------------------------------------------------
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.
(e) Security is 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 December 31,
1996, the value of these securities amounted to $79,850 or 5.2% of net
assets.
(f) This is a Canadian security. Par amount is stated in U.S. dollars.
(g) This is a British security. Par amount is stated in U.S. dollars.
(h) This is an Argentinean security. Par amount is stated in U.S. dollars.
(i) This is a Polish security. Par amount is stated in U.S. dollars. Shown
parenthetically is the interest rate to be paid and the date the Fund will
begin accruing this rate.
(j) These securities, or a portion thereof, with a total market value of
$198,701, are being used to collateralize the forward currency contracts
shown below.
(k) Rounds to less than one.
(l) Non-income producing.
(m) Cost for federal income tax purposes is $1,459,956.
(n) As of December 31, 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. $)
---------- --- ---- --------
<S> <C> <C> <C>
DK 6,017 US$ 1,029 01/08/1997 $ 6
FF 113,667 US$ 22,003 01/08/1997 94
FM 109,037 US$ 23,754 01/08/1997 66
SK 120,446 US$ 18,038 01/08/1997 448
FF 118,569 US$ 22,614 01/13/1997 (247)
FM 27,723 US$ 5,974 01/13/1997 (50)
DK 215,395 US$ 36,505 01/16/1997 (67)
FF 4,889 US$ 937 01/16/1997 (6)
FM 24,581 US$ 5,331 01/16/1997 (12)
SK 134,572 US$ 19,785 01/16/1997 125
A$ 34,859 US$ 27,713 01/23/1997 14
-----
$ 371
=====
</TABLE>
21
<PAGE>
<TABLE>
Investment Portfolio/December 31, 1996
- --------------------------------------------------------------------------------
<CAPTION>
Summary of Securities
by Country Currency Value % of Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 986,907 65.7
Australia A$ 110,363 7.4
Spain SP 84,608 5.6
Sweden SK 72,996 4.9
Denmark DK 72,709 4.8
Finland FM 68,159 4.5
Poland 37,969 2.5
Argentina 33,878 2.3
United Kingdom 18,975 1.3
Canada 15,683 1.0
---------- -----
$1,502,247 100.0
========== =====
</TABLE>
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
Acronym Name
------- ----
PIK Payment-In-Kind
FF French Francs
See notes to financial statements.
22
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
<TABLE>
DECEMBER 31, 1996
<CAPTION>
(in thousands except for per share amounts and footnotes)
<S> <C> <C>
ASSETS
Investments at value (cost $1,459,919) $1,502,247
Short-term obligations 11,429
----------
1,513,676
Receivable for:
Interest $38,334
Fund shares sold 2,399
Investments sold 190
Unrealized appreciation on forward
currency contracts 371
Other 58 41,352
------ ---------
Total Assets 1,555,028
LIABILITIES
Payable for:
Investments purchased 14,385
Fund shares repurchased 1,407
Distributions 2
Accrued:
Transfer Agent Fees 81
Deferred Trustees fees 22
Other 159
------
Total Liabilities 16,056
------
NET ASSETS $1,538,972
==========
Net asset value & redemption price per share -
Class A ($755,352/103,344) $ 7.31
==========
Maximum offering price per share - Class A
($7.31/0.9525) $ 7.67(a)
==========
Net asset value & offering price per share -
Class B ($783,620/107,215) $ 7.31(b)
==========
<FN>
(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.
</FN>
</TABLE>
See notes to financial statements.
23
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<CAPTION>
(in thousands)
<S> <C> <C>
INVESTMENT INCOME
Interest $132,686
Dividends 1,213
--------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $24) 133,899
EXPENSES
Management fee $9,243
Service fee 3,370
Distribution fee - Class B 5,514
Transfer agent 3,464
Bookkeeping fee 474
Trustees fee 90
Custodian fee 287
Audit fee 63
Legal fee 14
Registration fee 113
Reports to shareholders 37
Other 77 22,746
---------- -------
Net Investment Income 111,153
-------
<CAPTION>
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain on:
Investments 26,655
Foreign currency transactions 8,857
-------
Net Realized Gain 35,512
Net unrealized appreciation (depreciation)
during the period on:
Investments (10,350)
Foreign currency transactions 1,206
-------
Net Unrealized Depreciation (9,144)
--------
Net Gain 26,368
--------
Net Increase in Net Assets From Operations $137,521
========
</TABLE>
See notes to financial statements.
24
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
(in thousands) Year ended December 31
----------------------
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 111,153 $ 107,022
Net realized gain (loss) 35,512 (1,278)
Net unrealized appreciation (depreciation) (9,144) 133,828
---------- ----------
Net Increase from Operations 137,521 239,572
Distributions: (a)
From net investment income - Class A (61,787) (56,681)
From net investment income - Class B (57,474) (50,315)
---------- ----------
18,260 132,576
---------- ----------
Fund Share Transactions:
Receipts for shares sold - Class A 109,361 76,500
Value of distributions reinvested - Class A 32,115 28,865
Cost of shares repurchased - Class A (109,964) (94,406)
---------- ----------
31,512 10,959
---------- ----------
Receipts for shares sold - Class B 156,886 112,405
Value of distributions reinvested - Class B 27,196 23,759
Cost of shares repurchased - Class B (123,892) (95,861)
---------- ----------
60,190 40,303
---------- ----------
Net Increase from Fund
Share Transactions 91,702 51,262
---------- ----------
Total Increase 109,962 183,838
NET ASSETS
Beginning of period 1,429,010 1,245,172
---------- ----------
End of period (including undistributed net
investment income of $10,314 and $7,974,
respectively) $1,538,972 $1,429,010
========== ==========
NUMBER OF FUND SHARES
Sold - Class A 15,235 11,030
Issued for distributions reinvested - Class A 4,471 4,151
Repurchased - Class A (15,336) (13,680)
---------- ----------
4,370 1,501
---------- ----------
Sold - Class B 21,852 16,221
Issued for distributions reinvested - Class B 3,785 3,417
Repurchased - Class B (17,276) (13,902)
---------- ----------
8,361 5,736
---------- ----------
<FN>
(a) Distributions from income include currency gains and gains on
securities treated as ordinary income for tax purposes.
</FN>
</TABLE>
See notes to financial statements.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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 investment 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 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.
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.
26
<PAGE>
Notes to Financial Statements/December 31, 1996
- --------------------------------------------------------------------------------
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,
expense (other than the Class B distribution fee) and realized and unrealized
gains (losses) are allocated to each class proportionately on a daily basis for
purposes of determining the net asset value of each class.
Class B per share data and ratios are calculated by adjusting the expense and
net investment income per share data and ratios for the Fund for the entire
period by the distribution fee applicable to Class B shares only.
FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a
regulated investment company and to distribute all of its taxable income, no
federal income tax has been accrued.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is recorded on the
accrual basis. Original issue discount is accreted to interest income over the
life of a security with a corresponding increase in the cost basis; premium and
market discount are not amortized or accreted.
The value of additional securities received as an interest payment is recorded
as income and as the cost basis of such securities.
DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions dally
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
27
<PAGE>
Notes to Financial Statements/December 31, 1996
- --------------------------------------------------------------------------------
NOTE 1. 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 securities. The Fund may
also enter into forward currency contracts 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. Contracts are marked-to-market daily, resulting in unrealized
gains (losses) which become realized at the time the forward currency
contract, 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 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 as 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
- --------------------------------------------------------------------------------
<TABLE>
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser)
is the investment Adviser of the Fund and furnishes accounting
other services and office facilities for a monthly fee based on the Fund's
average net assets as follows:
<CAPTION>
Average Net Assets Annual Fee Rate
------------------ ---------------
<S> <C>
First $1 billion 0.65%
Over $1 billion 0.60%
</TABLE>
28
<PAGE>
Notes to Financial Statements/December 31, 1996
- --------------------------------------------------------------------------------
<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:
<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 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, 1996, the Fund has been
advised that the Distributor retained net underwriting discounts of $268,485 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $2,179,828 on Class B share redemptions.
<TABLE>
The Fund has adopted a 12b-1 plan which requires the payment of a distribution
fee to the Distributor equal to 0.75% annually of the average net assets
attributable to Class B shares. The plan also requires the payment of a service
fee to the Distributor as follows:
<CAPTION>
Value of shares Annual
outstanding on the 20th of Fee
each month which were issued Rate
---------------------------- ----
<S> <C>
Prior to January 1, 1993 0.15%
On or after January 1, 1993 0.25%
</TABLE>
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
OTHER: The Fund pays no compensation to its officers, all of whom are employees
of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended December 31, 1996, purchases and
sales of investments, other than short-term obligations,
29
<PAGE>
Notes to Financial Statements/December 31, 1996
- --------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION - CONT.
- --------------------------------------------------------------------------------
<TABLE>
were $1,628,401,764 and $1,536,986,360, respectively, of which $196,098,939 and
$106,009,427, respectively, were U.S. government securities.
Unrealized appreciation (depreciation) at December 31, 1996 based on cost of
investments for federal income tax purposes was:
<S> <C>
Gross unrealized appreciation $ 60,728,881
Gross unrealized depreciation (18,437,776)
------------
Net unrealized appreciation $ 42,291,105
============
</TABLE>
<TABLE>
At December 31, 1996, capital loss carryforwards available (to the extent
provided in regulations) to offset future realized gains were approximately as
follows:
<CAPTION>
Year of Capital loss
expiration carryforward
---------- ------------
<S> <C>
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
------------
$252,883,000
============
</TABLE>
Of the loss carryforward expiring in 1997, $1,549,000 was 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.
30
<PAGE>
Notes to Financial Statements/December 31, 1996
- --------------------------------------------------------------------------------
NOTE 4. 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 offshore loan
rate plus 1/2 of 1%. There were no borrowings under the line of credit during
the year ended December 31, 1996.
NOTE 5. COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
At December 31, 1996, net assets consisted of:
<S> <C>
Capital paid in $1,737,995
Undistributed net investment income 10,314
Accumulated net realized loss (251,932)
Net unrealized appreciation on:
Investments 42,328
Foreign currency transactions 267
----------
$1,588,972
==========
</TABLE>
31
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period
are as follows:
<CAPTION>
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 0.623 0.569 0.621 0.569
Net realized and
unrealized gain (loss) 0.081 0.081 0.650 0.650
-------- -------- -------- --------
Total from Investment
Operations 0.704 0.650 1.271 1.219
-------- -------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.614)(a) (0.560) (0.581) (0.529)
From capital paid in -- -- -- --
-------- -------- -------- --------
Total Distributions
Declared to Shareholders (0.614) (0.560) (0.581) (0.529)
-------- -------- -------- --------
Net asset value -
End of period $ 7.310 $ 7.310 $ 7.220 $ 7.220
======== ======== ======== ========
Total return (b) 10.24% 9.43% 20.17% 19.29%
======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS
Expenses 1.18%(c) 1.93%(c) 1.18%(c) 1.97%(c)
Net investment income 8.01%(c) 7.26%(c) 8.42%(c) 7.63%(c)
Portfolio turnover 110% 110% 83% 83%
Net assets at end
of period (000) $755,352 $783,620 $714,961 $714,049
<FN>
(a) Distributions from income include currency gains and gains on securities treated as ordinary income for tax purposes.
(b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales
charge.
(c) The benefits derived from custody credits and directed brokerage arrangements had no impact. Prior years' ratios are net of
benefits received, if any.
(d) The data presented for periods prior to November 30, 1994, represent operations under an earlier objective.
</FN>
</TABLE>
32
<PAGE>
FINANCIAL HIGHLIGHTS - continued
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------------------
1994 (d) 1993 (d)
Class A Class B Class A Class B
----------- ------------ ----------- -----------
<S> <C> <C> <C>
$ 7.390 $ 7.390 $ 7.010 $ 7.010
-------- -------- -------- --------
0.580 0.529 0.565 0.511
(0.848) (0.849) 0.448 0.448
-------- -------- -------- --------
(0.268) (0.320) 1.013 0.959
-------- -------- -------- --------
(0.580) (0.529) (0.585) (0.535)
(0.012) (0.011) (0.048) (0.044)
-------- -------- -------- --------
(0.592) (0.540) (0.633) (0.579)
-------- -------- -------- --------
$ 6.530 $ 6.530 $ 7.390 $ 7.390
======== ======== ======== ========
(3.67)% (4.40)% 14.95% 14.11%
======== ======== ======== ========
1.21% 1.96% 1.19% 1.94%
8.38% 7.63% 8.42% 7.67%
78% 78% 138% 138%
$636,824 $608,348 $660,654 $475,141
</TABLE>
33
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<CAPTION>
Year ended December 31
------------------------------
1992 (a)
Class A Class B (b)
------------ ------------
<S> <C> <C>
Net asset value -
Beginning of period $ 7.020 $ 7.080
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.669 0.385
Net realized and
unrealized loss (0.004) (0.067)
------- -------
Total from Investment
Operations 0.665 0.318
------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.673) (0.388)
In excess of net investment
income (0.002) --
------- -------
Total Distributions
Declared to Shareholders (0.675) (0.388)
------- -------
Net asset value -
End of period $ 7.010 $ 7.010
======= =======
Total return (c) 9.77% 2.48%(d)
======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.18% 1.93%(e)
Net investment income 9.39% 8.64%(e)
Portfolio turnover 96% 96%
Net assets at end
of period (000) $437,380 $ 37,935
<FN>
(a) The data presented for periods prior to November 30, 1994,
represent operations under an earlier objective.
(b) Class B shares were initially offered on May 15, 1992. Per share
amounts reflect activity from that date.
(c) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or contingent deferred sales
charge.
(d) Not annualized.
(e) Annualized.
</FN>
</TABLE>
34
<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,
(the "Fund") (a series of Colonial Trust I) at December 31, 1996, the results of
its operations the changes in its net assets and the financial highlights for
the period 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, 1996 by correspondence with
the custodian and brokers, and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 10, 1997
35
<PAGE>
SHAREHOLDER SERVICES
TO MAKE INVESTING EASIER
Colonial has one of the most extensive selections of shareholder services
available. Your financial adviser can help you arrange for any of these
services, or you can call Colonial directly at 1-800-345-6611.
AFFORDABLE ADDITIONAL INVESTMENTS: Add to your account with as little as $50 on
most funds; $25 for an IRA account.
FREE EXCHANGES*: Exchange all or part of your account into the same share class
of another Colonial fund, by phone or mail.
EASY ACCESS TO YOUR MONEY*: Make withdrawals from your account by phone, by mail
or, for certain funds, by check.
ONE-YEAR REINSTATEMENT PRIVILEGE: If you need access to your money, but then
choose to return it to Colonial within one year, you can reinvest in any
Colonial fund of the same share class without any penalty or sales charge.
FUNDAMATIC: Make periodic investments as low as $50 from your checking account
to your Colonial account.
SYSTEMATIC WITHDRAWAL PLAN (SWP): Receive monthly, quarterly or semiannual
payments via check or bank transmission. There is a $5,000 account value
required, but no minimum for the payment amount. The maximum annual withdrawal
is 12% of account balance at time SWP is established. SWPs by check are
processed on the 10th of each month. Dividends and capital gains must be
reinvested.
AUTOMATED DOLLAR COST AVERAGING: Transfer money on a monthly basis from any
Colonial fund with a balance of $5,000 into the same share class of up to four
other Colonial funds. Minimum for each transfer is $100.
LOW COST IRAs: Choose from a broad range of retirement plans,
including IRAs.
* Redemptions and exchanges are made at the next determined net asset value
after the request is received by Colonial. Proceeds may be more or less than
your original cost. The exchange privilege may be terminated at any time.
Exchanges are not available on all funds. Investors who purchase Class B or D
shares (for applicable funds), or $1 million or more of Class A shares, may be
subject to a contingent deferred sales charge.
36
<PAGE>
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 *
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 7:00 pm ET. Transactions received after the close of the New York Stock
Exchange will receive the next business day's closing price.
LITERATURE - 1-800-426-3750
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
37
<PAGE>
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.)
38
<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
Colonial at 1-800-426-3750 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.
39
<PAGE>
[COLONIAL MUTUAL FUNDS LOGO]
Mutual Funds for
Planned Portfolios
TRUSTEES
ROBERT J. BIRNBAUM
Retired (formerly Special Counsel, Dechert, Price & Rhoads; President and Chief
Operating Officer, New York Stock Exchange, Inc.)
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President - Operations, The Rockport
Company)
WILLIAM D. IRELAND, JR.
Retired (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
Partner, Development Capital, L.L.C. (formerly Dean, College of Business and
Management, University of Maryland; 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) 1997
A Liberty Financial Company (NYSE:L)
One Financial Center, Boston, Massachusetts 02111-2621, 617-426-3750
SI-02/236D-1296 M (2/97)
