<PAGE>
COLONIAL STRATEGIC INCOME FUND SEMIANNUAL REPORT
June 30, 1997
--------------------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
--------------------------------
COLONIAL STRATEGIC INCOME FUND HIGHLIGHTS
JANUARY 1, 1997 - JUNE 30, 1997
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: "Colonial Strategic Income Fund's advantage is
that it can invest in the fixed income sector currently providing what we
consider the best mixture of total return, yield and risk. Because high yield
corporates continue to outperform, the portfolio is overweighted there."
-- Carl Ericson
COLONIAL STRATEGIC INCOME FUND PERFORMANCE
CLASS A CLASS B
- --------------------------------------------------------------------------------
Inception dates 4/21/77(1) 5/15/9(2)
- --------------------------------------------------------------------------------
Distributions declared per share $0.288 $0.261
- --------------------------------------------------------------------------------
SEC Yields on 6/30/972 6.57% 6.27%
- --------------------------------------------------------------------------------
6-month total returns, assuming 3.07% 2.69%
reinvestment of all distributions and
no sales charge or contingent deferred
sales charge (CDSC)
- --------------------------------------------------------------------------------
Net asset value per share on 6/30/97 $7.24 $7.24
- --------------------------------------------------------------------------------
(1) Colonial Strategic Income Fund adopted its current investment objective on
9/18/91.
(2) The 30-day SEC yields 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(3) PORTFOLIO STRUCTURE(3)
(as of 6/30/97) (as of 6/30/97)
- --------------------------------------------------------------------------------
U.S. Treasury Notes 14.9% Corporate Bonds 42.1%
U.S. Treasury Bonds 5.3% Foreign Gov't Bonds 28.1%
U.K. Treasury Bonds 5.0% U.S. Gov't Bonds 23.9%
Treasury Corp. Victoria 4.1% Other 5.9%
Spanish Gov't Bonds 2.9%
(3) 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.
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PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
I'm pleased to present your Fund's semiannual report for the six months ended
June 30, 1997.
- ---------------------------
[Photo of Harold W. Cogger]
- ---------------------------
As you know, your Colonial Strategic Income Fund invests in a mixture of U.S.
Treasury bonds, high yield U.S. corporate securities and bonds issued by foreign
governments, principally in Europe. These markets move somewhat independently,
which means your portfolio is very diversified. If one market isn't doing well,
we can shift investments to another that we believe will do better.
During the first half of 1997, the best performer of these three markets was
high yield corporate bonds. High yield bonds do better in a strong economy like
the one we have now, in which corporate profits are growing and unemployment is
low.
However, investors in U.S. Treasurys see a strong economy differently. They know
that Treasurys are backed by the U.S. government, and so creditworthiness is not
the issue. But if the economy is too strong, investors worry about inflation.
Although actual inflation is minimal, interest rates were higher on June 30,
1997 compared to January 1, 1997. Since U.S. Treasury bond prices have
historically moved inversely to interest rates, bond
prices declined.
Internationally, the U.S. dollar strengthened against local currencies, which
means U.S. investors received fewer dollars for their investments overseas.
These adverse currency movements overshadowed good news about interest rates
throughout the world.
Because your portfolio manager has these three choices, Colonial Strategic
Income Fund continued to provide strong income, particularly compared to
inflation.
This report provides you with a closer look at your Fund's performance, as well
as the portfolio manager's investment strategy. In addition, the report lists
each security in the portfolio as of June 30, 1997, organized by the three
markets.
Thank you for the opportunity to help you meet your investment goals.
Sincerely,
/s/ Harold W. Cogger
Harold W. Cogger
President
August 12, 1997
Because market conditions change frequently, there can be no assurance that the
trends described here will continue.
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.
In a period of generally rising interest rates and robust economic growth, fixed
income investors who only invested in U.S. Treasury bonds would have received
very modest returns. The advantage of Colonial Strategic Income Fund is that it
can direct assets to other fixed income markets when it is appropriate to do so.
Because high yield corporates continue to outperform, the portfolio is currently
overweighted there.
HIGH YIELD CORPORATES GET A BOOST FROM THE ECONOMY
The U.S. economy grew at an annual rate of approximately 3.5% during the first
half of 1997, a strong overall performance. A strong economy helps high yield
issuers meet their debt commitments. Because credit quality is such an important
element in this market, it tends to overshadow other factors. Rising interest
rates -- so crucial to most bonds -- had less of a negative impact on high yield
bonds. At June 30, 1997, about 42% of the portfolio was invested in high yield
bonds.
HIGH YIELD WINNERS IN THE PORTFOLIO
Cablevision Systems recently sold some of their cable properties to Time/Warner
for a healthy price. It made investors more confident in the cable television
industry in general, which faces competition from satellites and other methods
of program delivery. Cablevision Systems offered to buy back our 10.75% bonds at
a premium because they wanted to reduce debt. There's always the possibility
that a high yield company will get stronger financially and buy back your bonds
at a higher price.
Another goal is to pick a company that ultimately gets acquired. Food Brands,
which distributes to delicatessens and restaurants, was acquired by Iowa Beef
Processors, an investment grade company. When debt is upgraded from high yield
to investment grade, its price appreciates.
U.S. TREASURYS -- MORE VOLATILE THAN THE 1980S
From January 1, 1997 to June 30, 1997, yields on 30-year Treasurys only changed
from 6.64% to 6.79%. But there were substantial fluctuations between those dates
due to heightened uncertainty about inflation and a fear that the Federal
Reserve Board would raise interest rates to slow the economy. Yields on the
30-year bond reached 7.17% in April before easing later in the spring. As we've
seen, smooth-sailing economic times do not translate into calm Treasury markets.
Ironically, in the 1980s, there were more ups and downs in economic growth
rates; yet, the 30-year Treasury bond was actually less volatile. However, in
the 1990s, investors are more nervous, reacting to the slightest bits of
economic data because this economic cycle has been so prolonged. At June 30,
1997, 24% of the portfolio was invested in U.S. Treasurys.
INTERNATIONAL -- MOVING TOWARDS A SINGLE CURRENCY IN EUROPE
In Europe, the new Socialist government in France has increased the likelihood
that the more peripheral countries would be included in the European Monetary
Union (EMU). The French have been reluctant to make drastic changes in
government spending because of the adverse impact on unemployment, thus
"lowering the bar" for other countries. This has benefited our holdings in
Spain, because there had been some question as to whether Spain would be
included. However, these less stringent requirements hurt European currencies in
relation to the dollar, which weakened our returns when local currencies were
converted to dollars. At June 30, 1997, 28% of the portfolio was invested in
international bonds.
TOTAL RETURN AND INCOME ARE STRONG
The total return for Class A shares, based on net asset value, was 3.07%. In
comparison, the Lehman Brothers Government/Corporate Bond Index, an unmanaged
index that tracks the performance of the U.S. bond market, posted a return of
2.74%. At the close of the period, your portfolio offered a SEC yield or income
of 6.57%.
LOOKING FORWARD
The Federal Reserve Board boosted interest rates by only 0.25% in March. We
think that the Fed will increase interest rates at least one more time between
now and the end of the year, if economic growth continues to be strong. As a
result, we expect that the Treasury market will continue to be volatile.
In the current economic environment, companies issuing high yield bonds should
continue to have strong cash flows and be able to pay their debts. In addition,
as long-term interest rates decline towards 6%, traditional investment grade
buyers such as insurance companies may buy high yield bonds, as they look for
ways to get more income. The impact: higher bond prices due to greater demand.
In Europe, we believe that the move towards a single currency will be
successful. However, we expect our investments in Britain, Australia and Latin
America will provide us with additional diversification which would reduce the
impact if the EMU unravels.
A major advantage of this portfolio is that we can favor the fixed income sector
that provides what we believe is the best mixture of total return, yield and
risk. We will continue to assess the benefits and risks of U.S. Treasurys, high
yield bonds and international bonds -- and invest accordingly.
COLONIAL STRATEGIC INCOME FUND INVESTMENT PERFORMANCE VS.
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX
Change in Value of $10,000 from 6/30/87 - 6/30/97
Based on NAV and MOP for Class A Shares
NAV MOP LEHMAN GOV'T/CORPORATE
Jun 30, 87 10,000.00 9,525.00 10,000.00
Sep 30, 87 10,392.88 9,899.215 9,708.00
Dec 31, 87 8,693.018 8,280.10 10,274.00
Mar 31, 88 9,533.964 9.081.101 10,642.00
Jun 30, 88 9,943.64 9,471.316 10,747.00
Sep 30, 88 9,811.879 9,345.814 10,948.00
Dec 31, 88 10,140.87 9,659.178 11,053.00
Mar 31, 89 10,432.77 9,937.213 11,175.00
Jun 30, 89 10,748.59 10,238.03 12,073.00
Sep 30, 89 11,102.92 10,575.54 12,187.00
Dec 31, 89 11,148.68 10,619.12 12,627.00
Mar 31, 90 10,811.60 10,298.04 12,482.00
Jun 30, 90 11,191.22 10,659.64 12,932.00
Sep 30, 90 10,466.19 9,969.043 13,010.00
Dec 30, 90 10,363.41 9,871.147 13,673.00
Mar 31, 91 11,274.49 10,738.96 14,041.00
Jun 30, 91 11,802.16 11,241.56 14,253.00
Sep 30, 91 12,562.37 11,965.66 15,073.00
Dec 31, 91 13,307.89 12,675.77 15,877.00
Mar 31, 92 13,615.28 12,968.56 15,639.00
Jun 30, 92 14,222.47 13,546.90 16,273.00
Sep 30, 92 14,739.23 14,039.11 17,068.00
Dec 31, 92 14,608.56 13,914.65 17,081.00
Mar 31, 93 15,382.02 14,651.38 17,875.00
Jun 30, 93 15,894.78 15,139.78 18,412.00
Sep 30, 93 16,241.29 15,469.83 19,021.00
Dec 31, 93 16,792.19 15,994.56 18,965.00
Mar 31, 94 16,354.03 15,577.21 18,372.00
Jun 30, 94 16,140.58 15,373.90 18,143.00
Sep 30, 94 16,181.18 15,412.57 18,233.00
Dec 31, 94 16,175.33 15,407.00 18,300.00
Mar 31, 95 17,066.62 16,255.96 19,212.00
Jun 30, 95 17,994.22 17,139.50 20,459.00
Sep 30, 95 18,602.82 17,719.19 20,850.00
Dec 31, 95 19,437.68 18,514.39 21,821.00
Mar 31, 96 19,527.71 18,600.14 21,311.00
Jun 30, 96 19,817.56 18,876.22 21,411.00
Sep 30, 96 20,619.02 19,639.62 21,789.00
Dec 31, 96 21,428.85 20,410.98 22,455.00
Mar 31, 97 21,173.34 20,167.60 22,261.00
Jun 30, 97 22,087.78 21,038.61 23,071.00
A hypothetical $10,000 investment in Class B shares made on May 15, 1992, at net
asset value (NAV) would have grown to $15,285 on June 30, 1997. The same
investment after deducting the applicable contingent deferred sales charge
(CDSC) would have been valued at $15,185 on June 30, 1997. 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. Unlike mutual funds, indexes are not
investments, do not incur fees or expenses and it is not possible to invest in
an index.
AVERAGE ANNUAL TOTAL RETURNS
As of June 30, 1997 (Most Recent Quarter End)
- -------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
INCEPTION 4/21/77(4) 5/15/92
NAV MOP NAV w/CDSC
- -------------------------------------------------------------------------------
1 YEAR 11.46% 6.16% 10.63% 5.63%
- -------------------------------------------------------------------------------
5 YEARS 9.20% 8.15% 8.43% 8.14%
- -------------------------------------------------------------------------------
10 YEARS 8.25% 7.72% -- --
- -------------------------------------------------------------------------------
SINCE INCEPTION 10.28% 10.02% 8.62% 8.48%
- -------------------------------------------------------------------------------
Returns 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. 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, 2% for five years and 1% since inception. Effective 7/1/97, the
Fund began offering Class C shares.
(4) Current investment objective adopted 9/18/91.
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO
JUNE 30, 1997 (UNAUDITED, IN THOUSANDS)
BONDS & NOTES - 94.1%
- -----------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - 42.1% PAR VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION - 0.4%
BUILDING CONSTRUCTION
Falcon Building Products Co., Inc.,
stepped coupon,
(10.500% 06/15/02) (a) 06/15/07 (b) $ 1,500 $ 900
U.S. Home Corp.,
9.750% 06/15/03 4,500 4,703
-----------
5,603
-----------
- ----------------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.1%
NONDEPOSITORY CREDIT INSTITUTIONS
Drum Financial Corp.,
12.875% 09/15/99 (c)(d) 1,000 10
DVI, Inc.,
9.875% 02/01/04 1,250 1,259
-----------
1,269
-----------
- ----------------------------------------------------------------------------------------
MANUFACTURING - 16.1%
CHEMICALS & ALLIED PRODUCTS - 2.3%
Agricultural Minerals Co., L.P.,
10.750% 09/30/03 7,200 7,650
Revlon Consumer Products Corp.:
9.375% 04/01/01 2,000 2,057
10.500% 02/15/03 5,270 5,626
Revlon Worldwide Corp.:
(e) 03/15/98 4,000 3,790
(e) 03/15/01 13,000 8,808
Sterling Chemicals, Inc.,
11.250% 04/01/07 (b) 6,900 7,331
Texas Petrochemical Corp.,
11.125% 07/01/06 1,600 1,712
-----------
36,974
-----------
ELECTRONIC & ELECTRICAL EQUIPMENT - 1.7%
Advanced Micro Devices, Inc.,
11.000% 08/01/03 3,000 3,338
Amphenol Corp.,
9.875% 05/15/07 750 774
Delco Remy International, Inc.,
10.625% 08/01/06 (b) 1,600 1,704
K&F Industries, Inc.,
10.375% 09/01/04 5,995 6,445
L-3 Communications Corp.,
10.375% 05/01/07 (b) 1,250 1,325
LDM Technologies, Inc.,
10.750% 01/15/07 6,825 7,217
Unisys Corp.,
11.750% 10/15/04 6,000 6,510
-----------
27,313
-----------
FABRICATED METAL - 1.2%
Euramax International, PLC,
11.250% 10/01/06 (f) 8,000 8,600
Renco Metals, Inc.,
11.500% 07/01/03 6,000 6,420
U.S. Can Corp.,
10.125% 10/15/06 4,000 4,260
-----------
19,280
-----------
FOOD & KINDRED PRODUCTS - 0.9%
Chiquita Brands International, Inc.,
10.250% 11/01/06 3,750 3,975
FoodBrands America, Inc.,
10.750% 05/15/06 2,750 3,194
Pilgrim's Pride Corp.,
10.875% 08/01/03 1,950 2,018
Sun World International Corp.,
11.250% 04/15/04 (b) 3,350 3,492
Windy Hill Pet Food Co.,
9.750% 05/15/07 (b) 1,000 1,000
-----------
13,679
-----------
LUMBER & WOOD PRODUCTS - 0.4%
Triangle Pacific Corp.,
10.500% 08/01/03 6,000 6,360
-----------
MACHINERY & COMPUTER EQUIPMENT - 0.5%
IMO Industries, Inc.,
11.750% 05/01/06 6,750 8,075
-----------
MEASURING & ANALYZING INSTRUMENTS - 0.1%
Intertek Finance, PLC,
10.250% 11/01/06 2,000 2,085
-----------
MISCELLANEOUS MANUFACTURING - 2.6%
American Standard Co.,
stepped coupon,
(10.500% 06/01/98) (a) 06/01/05 11,000 10,780
Borg Warner Security Corp.,
9.625% 03/15/07 (b) 4,900 4,973
Building Materials Corp. of America,
stepped coupon,
(11.750% 07/01/99) (a) 07/01/04 7,000 6,353
Coleman Escrow Corp.,
(e) 05/15/01 (b) 3,000 1,890
Dade International, Inc.,
11.125% 05/01/06 2,250 2,509
ISP Holdings, Inc.,
9.750% 02/15/02 7,000 7,420
Polymer Group, Inc.,
9.000% 07/01/07 3,500 3,444
Shop Vac Corp.,
10.625% 09/01/03 3,000 3,195
-----------
40,564
-----------
PAPER PRODUCTS - 2.2%
Container Corp. of America,
Series A,
11.250% 05/01/04 7,500 8,175
Florida Coast Paper, LLC,
12.750% 06/01/03 3,350 3,467
Gaylord Container Corp.:
9.750% 06/15/07 1,500 1,504
12.750% 05/15/05 5,000 5,469
Ivaco, Inc.,
11.500% 09/15/05 1,500 1,597
Stone Container Corp.:
10.750% 10/01/02 6,750 7,028
11.875% 12/01/98 3,750 3,947
12.625% 07/15/98 1,000 1,034
Stone Container Corp. Units,
12.250% 04/01/02 (g) 3,000 3,090
-----------
35,311
-----------
PETROLEUM REFINING - 0.4%
Flores & Rucks, Inc.:
9.750% 10/01/06 1,500 1,579
13.500% 12/01/04 3,825 4,580
-----------
6,159
-----------
PRIMARY METAL - 1.5%
Algoma Steel, Inc.,
12.375% 07/15/05 8,000 8,860
Kaiser Aluminum & Chemical Corp.,
10.875% 10/15/06 8,000 8,600
UCAR Global Enterprises, Inc.,
12.000% 01/15/05 1,870 2,108
WCI Steel, Inc.,
10.000% 12/01/04 4,400 4,576
-----------
24,144
-----------
PRINTING & PUBLISHING - 0.1%
Hollinger International Publishing,
Inc.,
9.250% 03/15/07 2,000 2,050
-----------
RUBBER & PLASTIC - 0.3%
Berry Plastics Corp.,
12.250% 04/15/04 3,000 3,300
Portola Packaging, Inc.,
10.750% 10/01/05 2,000 2,030
-----------
5,330
-----------
STONE, CLAY, GLASS & CONCRETE - 0.8%
Anchor Glass Container Corp.,
11.250% 04/01/05 2,250 2,408
Owens-Illinois, Inc.,
9.950% 10/15/04 9,500 10,046
-----------
12,454
-----------
TEXTILE MILL PRODUCTS - 0.0%
Collins & Aikman Products Co.,
10.000% 01/15/07 450 456
-----------
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 3,011 3,357
Blue Bird Body Co.,
10.750% 11/15/06 1,375 1,464
Collins & Aikman Products Co.,
11.500% 04/15/06 (b) 7,000 7,928
-----------
12,749
-----------
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MINING & ENERGY - 4.2%
CRUDE PETROLEUM & NATURAL GAS - 0.7%
Ferrellgas Finance Corp., L.P.,
10.000% 08/01/01 3,215 3,344
Ferrellgas Partners, L.P.,
9.375% 06/15/06 2,500 2,575
TransAmerica Energy Corp.,
stepped coupon,
(13.000% 06/15/99) (a) 06/15/02 (b) 6,250 4,562
-----------
10,481
-----------
OIL & GAS EXTRACTION - 2.5%
DI Industries, Inc.,
8.875% 07/01/07 2,250 2,216
Falcon Drilling Co., Inc.,
Series B,
8.875% 03/15/03 1,100 1,111
Forcenergy, Inc.,
9.500% 11/01/06 2,175 2,246
Gulf Canada Resources Ltd.:
9.250% 01/15/04 (h) 7,875 8,259
9.625% 07/01/05 (h) 700 756
Mariner Energy Corp.,
10.500% 08/01/06 6,000 6,285
Maxus Energy Corp.,
9.875% 10/15/02 3,000 3,150
Nuevo Energy Co.,
9.500% 04/15/06 8,350 8,684
United Meridian Corp.,
10.375% 10/15/05 7,125 7,713
-----------
40,420
-----------
OIL & GAS FIELD SERVICES - 1.0%
Falcon Drilling Co., Inc.,
Series B,
9.750% 01/15/01 5,300 5,486
Magnum Hunter Resources, Inc.,
10.000% 06/01/07 (b) 1,750 1,739
Parker Drilling Corp.,
9.750% 11/15/06 8,000 8,380
-----------
15,605
-----------
- ----------------------------------------------------------------------------------------
RETAIL TRADE - 3.5%
APPAREL & ACCESSORY STORES - 0.1%
Specialty Retailers, Inc.,
9.000% 07/15/07 750 754
William Carter Co.,
10.375% 12/01/06 250 264
-----------
1,018
-----------
FOOD STORES - 2.4%
Di Giorgio Corp.,
10.000% 06/15/07 1,800 1,782
Pathmark Stores, Inc.:
9.625% 05/01/03 2,250 2,166
stepped coupon,
(10.750% 11/01/99) (a) 11/01/03 13,500 9,315
Ralphs Grocery Co.,
10.450% 06/15/04 10,000 10,725
Shoppers Food Warehouse Corp.,
9.750% 06/15/04 (b) 3,750 3,740
Smiths Food & Drug,
11.250% 05/15/07 8,280 9,729
-----------
37,457
-----------
HOME FURNISHINGS & EQUIPMENT - 0.2%
Syratech Corp.,
11.000% 04/15/07 2,500 2,656
-----------
MISCELLANEOUS RETAIL - 0.8%
Brylane Capital Corp.,
Series B,
10.000% 09/01/03 5,000 5,350
Finlay Fine Jewelry Corp.,
10.625% 05/01/03 6,650 7,032
-----------
12,382
-----------
- ----------------------------------------------------------------------------------------
SERVICES - 4.1%
AMUSEMENT & RECREATION - 1.7%
Alliance Gaming Corp.,
12.875% 06/30/03 1,750 1,977
Empress River Casino Finance Corp.,
10.750% 04/01/02 4,000 4,240
E & S Holdings Corp.,
10.375% 10/01/06 4,000 4,200
Harvey Casinos Resorts,
10.625% 06/01/06 7,750 8,331
Horseshoe Gaming, LLC,
9.375% 06/15/07 (b) 2,500 2,522
Majestic Star Casino, LLC,
12.750% 05/15/03 1,875 2,063
Prime Hospitality Corp.,
9.250% 01/15/06 3,000 3,113
-----------
26,446
-----------
BUSINESS SERVICES - 0.2%
Pierce Leahy Corp.:
9.125% 07/15/07 1,000 1,000
11.125% 07/15/06 2,500 2,750
-----------
3,750
-----------
HEALTH SERVICES - 0.5%
Maxxim Medical, Inc.,
10.500% 08/01/06 2,500 2,644
Tenet Healthcare Corp.,
10.125% 03/01/05 5,000 5,475
-----------
8,119
-----------
HOTELS, CAMPS & LODGING - 1.5%
Eldorado Resorts Corp.,
10.500% 08/15/06 6,200 6,665
HMC Acquisition Properties,
9.000% 12/15/07 6,500 6,581
HMH Properties, Inc.,
9.500% 05/15/05 5,100 5,304
Station Casinos, Inc.,
10.125% 03/15/06 3,250 3,283
Wyndham Hotel Corp.,
10.500% 05/15/06 2,000 2,260
-----------
24,093
-----------
OTHER SERVICES - 0.2%
Citadel Broadcasting Co.,
10.250% 07/01/07 1,500 1,500
TV Azteca SA de C.V.,
10.500% 02/15/07 (b) 1,500 1,538
-----------
3,038
-----------
- ----------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 13.7%
AIR TRANSPORTATION - 0.9%
Continental Airlines, Inc.,
9.500% 12/15/01 1,500 1,567
Greenwich Air Services, Inc.,
10.500% 06/01/06 3,625 4,169
U.S. Air, Inc.,
10.375% 03/01/13 8,000 8,860
-----------
14,596
-----------
BROADCASTING - 1.5%
Allbritton Communications Co.,
11.500% 08/15/04 7,000 7,350
Heritage Media Corp.,
11.000% 06/15/02 1,500 1,584
NWCG Holding Corp.,
(e) 06/15/99 3,000 2,633
Sullivan Broadcasting, Inc.,
10.250% 12/15/05 5,000 5,100
Young Broadcasting Corp.:
10.125% 02/15/05 3,000 3,150
11.750% 11/15/04 4,000 4,420
-----------
24,237
-----------
CABLE - 2.7%
Bell Cablemedia, PLC,
stepped coupon,
(11.950% 07/15/99) (a) 07/15/04 (f) 6,000 5,400
Comcast UK Cable Partners Ltd.,
stepped coupon,
(11.200% 11/15/00) (a) 11/15/07 6,500 4,941
International CableTel, Inc.,
stepped coupon,
(12.750% 04/15/00) (a) 04/15/05 5,500 4,235
Le Groupe Videotron,
10.625% 02/15/05 (h) 6,000 6,690
Marcus Cable Co.,
stepped coupon,
(13.500% 08/01/99) (a) 08/01/04 3,500 3,023
Rogers Cablesystems, Inc.,
10.000% 03/15/05 3,000 3,255
Rogers Communications, Inc.,
10.875% 04/15/04 3,000 3,142
Telewest Communication, PLC,
stepped coupon,
(11.000% 10/01/00) (a) 10/01/07 (f) 3,500 2,538
Videotron Holding, PLC, stepped coupon:
(11.000% 08/15/00) (a) 08/15/05 (f) 4,000 3,320
(11.125% 07/01/99) (a) 07/01/04 (f) 6,750 6,016
-----------
42,560
-----------
COMMUNICATIONS - 2.2%
Allbritton Communications Co.,
9.750% 11/30/07 2,650 2,630
Comcast Cellular Corp.,
9.500% 05/01/07 (b) 3,750 3,778
Diamond Cable Communications, PLC,
stepped coupon,
(10.750% 02/15/02) (a) 02/15/07 (b) 3,000 1,770
Intermedia Communications, Inc.,
stepped coupon,
(12.500% 05/15/01) (a) 05/15/06 6,000 4,170
Lodgenet Entertainment Corp.,
10.250% 12/15/06 2,000 2,025
Pricellular Wireless Corp.,
10.750% 11/01/04 2,500 2,587
PTC International Finance BV,
stepped coupon,
(10.750% 07/01/02) (a) 07/01/07 (b) 1,700 1,037
Sprint Spectrum, L.P.,
stepped coupon,
(12.500% 08/15/01) (a) 08/15/06 12,900 9,353
Teleport Communications, Inc.,
stepped coupon,
(11.125% 07/01/01) (a) 07/01/07 6,520 4,711
UNC, Inc.,
11.000% 06/01/06 2,500 2,931
-----------
34,992
-----------
ELECTRIC, GAS & SANITARY SERVICES - 0.6%
Allied Waste Industries, Inc.,
stepped coupon,
(11.300% 06/01/02) (a) 06/01/07 (b) 2,000 1,255
Mesa Operating Co.,
stepped coupon,
(11.625% 07/01/01) (a) 07/01/06 10,500 8,111
-----------
9,366
-----------
ELECTRIC SERVICES - 0.2%
California Energy Co., Inc.,
9.500% 09/15/06 2,000 2,140
System Energy Resources, Inc.,
11.375% 09/01/16 688 737
-----------
2,877
-----------
GAS SERVICES - 1.3%
California Energy Co., Inc.,
9.875% 06/30/03 6,600 7,062
HS Resources, Inc.,
9.250% 11/15/06 13,500 13,568
-----------
20,630
-----------
MOTOR FREIGHT & WAREHOUSING - 0.1%
Ryder Trucks,
Inc.,
10.000% 12/01/06 1,050 1,082
-----------
SANITARY SERVICES - 0.6%
Allied Waste North America, Inc.,
10.250% 12/01/06 (b) 9,475 10,126
-----------
TELECOMMUNICATION - 3.4%
Brooks Fiber Properties, Inc.,
stepped coupon,
(10.875% 03/01/01) (a) 03/01/06 3,500 2,380
Cencall Communications Corp.,
stepped coupon,
(10.125% 01/15/99) (a) 01/15/04 6,000 4,680
Clearnet Communications, Inc.,
stepped coupon,
(14.750% 12/15/00) (a) 12/15/05 7,500 4,969
EchoStar Communications Corp.,
stepped coupon,
(12.875% 06/01/99) (a) 06/01/04 11,500 9,660
Hyperion Telecommunications, Inc.,
stepped coupon,
(13.000% 04/15/01) (a) 04/15/03 3,250 1,665
ICG Holding,
Inc.,
stepped coupon,
(13.500% 09/15/00) (a) 09/15/05 5,000 3,807
IntelCom Group (USA), Inc.,
stepped coupon,
(12.500% 05/01/01) (a) 05/01/06 2,000 1,372
MFS Communications Co., Inc.,
stepped coupon,
(9.375% 01/15/99) (a) 01/15/04 7,750 7,242
PanAmSat Corp.,
stepped coupon,
(11.375% 08/01/98) (a) 08/01/03 8,000 7,760
PriCellular Wireless Corp.,
stepped coupon,
(14.000% 11/15/97) (a) 11/15/01 6,000 6,390
Shared Technologies Fairchild, Inc.,
stepped coupon,
(12.250% 03/01/99) (a) 03/01/06 5,000 4,488
WinStar Communications, Inc.,
stepped coupon,
(14.000% 10/15/00) (a) 10/15/05 250 139
-----------
54,552
-----------
TRANSPORTATION SERVICES - 0.2%
Moog, Inc.,
10.000% 05/01/06 1,125 1,200
Williams Scotsman, Inc.,
9.875% 06/01/07 (b) 1,500 1,492
-----------
2,692
-----------
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES (cost of $637,305)
667,210
-----------
CORPORATE CONVERTIBLE BONDS & NOTES - 0.0%
- ----------------------------------------------------------------------------------------
MANUFACTURING - 0.0%
Electronic & Electrical Equipment
Kollmorgen Corp.
(cost of $511) 8.750% 05/01/09 562 568
-----------
FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS - 28.1% CURRENCY
- ---------------------------------------------------------------------------------------
Argentina Global Bonds:
9.250% 02/23/01 (i) 11,000 11,509
11.000% 10/09/06 (i) 10,750 11,939
11.375% 01/30/17 (i) 8,900 9,907
Government of Sweden,
10.250% 05/05/03 SK 230,000 35,878
Italian Government Bonds,
10.000% 08/01/03 IL 66,100,000 45,363
Kingdom of Denmark:
8.000% 05/15/03 DK $98,000 16,668
8.000% 03/15/06 DK 118,896 20,104
Mexican Brady Bonds,
6.250% 12/31/19 (j) 5,000 3,862
Mexican Global Bonds:
9.750% 02/06/01 (j) 6,550 6,910
11.375% 09/15/16 (j) 22,850 25,692
Poland Non-U.S. Global Registered Bond,
6.938% 10/27/24 (k) 19,239 18,818
Republic of Argentina Bonos del Tesoro,
8.750% 05/09/02 (i) 7,800 7,796
Republic of Poland (Brady),
Past Due Interest,
stepped coupon,
(5.000% 10/27/98) 4.000% 10/27/14 (l) 22,500 19,181
Republic of South Africa Yankee,
8.500% 06/23/17 (m) 15,000 14,963
Republic of Venezuela Par Brady,
6.750% 03/31/20 (n) 9,500 7,481
Spanish Government Bonds:
10.000% 02/28/05 SP 3,650,000 30,489
10.500% 10/30/03 SP 1,785,000 15,001
United Kingdom Treasury:
9.500% 04/18/05 KB 8,335 15,815
10.000% 09/08/03 KB 33,630 63,620
Venezuela Government Euro-Dollar,
9.125% 06/18/07 (b)(n) 1,000 1,001
Victoria Treasury Corp:
10.250% 11/15/06 A$ 48,280 43,992
12.500% 10/15/03 A$ 21,500 20,901
-----------
TOTAL FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS (cost of $444,297)
446,890
-----------
U.S. GOVERNMENT &
AGENCY OBLIGATIONS - 23.9%
- ----------------------------------------------------------------------------------------
Maturities
Coupon From/To
----------------- -----------------
Federal Home Loan Mortgage Corp.:
7.500% 2017
239 242
8.000% 2006-2016
1,433 1,483
8.500% 2007-2010
1,332 1,398
8.750% 2005-2008
532 558
9.000% 2004-2022
1,712 1,812
9.250% 2008-2016 1,079 1,144
9.500% 2008-2016 1,112 1,193
9.750% 2008-2016 134 144
10.000% 2009-2019 1,588 1,737
10.500% 2011-2024 1,177 1,296
10.750% 2010-2013 1,362 1,519
11.250% 2010-2015 798 892
-----------
13,418
-----------
Federal National Mortgage Association:
7.500% 2003-2011 735 744
8.000% 2002-2009 989 1,019
8.250% 2007-2009 407 416
8.500% 2008-2021 2,717 2,838
9.000% 2003-2021 4,641 4,912
9.250% 2016 360 380
10.000% 2013-2016 1,361 1,480
10.500% 2007-2016 2,083 2,273
-----------
14,062
-----------
Government National Mortgage Association:
8.500% 2006 58 61
9.000% 2008-2017 15,787 16,937
9.500% 2009-2017 6,827 7,382
10.000% 2000-2021 2,486 2,729
10.500% 2001-2021 621 691
11.000% 2009-2016 3,256 3,655
11.750% 2013-2015 105 119
12.000% 2014 6 7
-----------
31,581
-----------
U.S. Treasury Bonds:
8.750% 05/15/17 14,080 16,940
11.625% 11/15/04 (o) 17,334 22,458
12.000% 08/15/13 (o) 32,091 45,173
-----------
84,571
-----------
U.S. Treasury Notes:
9.125% 05/15/99 (o) 16,770 17,658
10.375% 11/15/12 (o) 72,131 91,561
11.875% 11/15/03 (o) 99,610 127,361
-----------
236,580
-----------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS (cost of $387,287) 380,212
-----------
TOTAL BONDS & NOTES (cost of $1,469,400) 1,494,880
-----------
COMMON STOCKS - 0.4% (p) SHARES VALUE
- ----------------------------------------------------------------------------------------
CONSTRUCTION - 0.1%
BUILDING CONSTRUCTION
Calton, Inc. 356 $223
U.S. Home Corp. 31 829
-----------
1,052
-----------
- ----------------------------------------------------------------------------------------
MANUFACTURING - 0.0%
FOOD & KINDRED PRODUCTS
Darling International, Inc. 27 668
-----------
- ----------------------------------------------------------------------------------------
MINING & ENERGY - 0.0%
OIL & GAS EXTRACTION
Forest Oil Corp. 16 240
-----------
- ----------------------------------------------------------------------------------------
RETAIL TRADE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
Federated Department Stores, Inc. 30 1,053
-----------
MISCELLANEOUS RETAIL - 0.0%
Pharmhouse Corp. 4 34
-----------
- ----------------------------------------------------------------------------------------
SERVICES - 0.1%
HEALTH SERVICES
Total Renal Care Holdings, Inc. 33 1,326
-----------
- ----------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
GAS SERVICES - 0.0%
United Gas Holdings Corp. (c) 30 416
-----------
LOCAL & SUBURBAN TRANSIT - 0.0%
Greyhound Lines, Inc., 12.50% Escrow
Receipt (c) 1 (q)
-----------
MOTOR FREIGHT & WAREHOUSING - 0.0%
St. Johnsbury Trucking Co. (c) 31 32
Sun Carriers, Inc. (c) 130 1
-----------
33
-----------
- ----------------------------------------------------------------------------------------
WHOLESALE TRADE - 0.1%
DURABLE GOODS
Continental Health Affiliates, Inc. 530 1,526
-----------
TOTAL COMMON STOCKS (cost of $5,401) 6,348
-----------
- ----------------------------------------------------------------------------------------
PREFERRED STOCKS - 1.2% SHARES VALUE
- ----------------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.1%
DEPOSITORY INSTITUTIONS - 0.1%
California Federal Bancorp, Inc.,
9.125%, Series A 59 $1,516
-----------
HOLDING & OTHER INVESTMENT OFFICES - 0.0%
Riggs National Corp., 10.750% 19 548
-----------
- ----------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 1.1%
CABLE - 1.0%
Cablevision Systems Corp.:
11.125%, PIK, Series M 49 4,899
11.750%, PIK, Series H 21 2,136
Time Warner, Inc.,
10.250%, Series M 8 8,383
-----------
COMMUNICATIONS - 0.1% 15,418
-----------
K-III Communications, 10.000% 15 1,519
-----------
TOTAL PREFERRED STOCKS (cost of $18,788) 19,001
-----------
WARRANTS - 0.0% (p)
- ----------------------------------------------------------------------------------------
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 (q)
-----------
- ----------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
COMMUNICATIONS
Clearnet Communications, Inc., expires 09/15/05 25 111
Hyperion Telecommunications, Inc.,
expires 04/15/01 3 98
Wireless One, Inc., expires 10/19/01 14 (q)
-----------
209
-----------
TOTAL WARRANTS (cost of $303) 269
-----------
- ----------------------------------------------------------------------------------------
RIGHTS - 0.0% (p) SHARES VALUE
- ----------------------------------------------------------------------------------------
PUBLIC ADMINISTRATION - 0.0%
GENERAL GOVERNMENT
Mexican Government Rights W/ Series A&B (c) 5,000 $ (q)
Venezuela Government Rights W/ Series A&B (c) 48 (q)
-----------
TOTAL RIGHTS (cost of $0) (q)
-----------
TOTAL INVESTMENTS (cost of $1,493,892)(r) 1,520,498
-----------
SHORT-TERM OBLIGATIONS - 2.7% CURRENCY
- ----------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS - 0.3%
Egyptian T-Bill,
9.250% (discount rate) 07/10/97 EP $15,000 4,399
-----------
DISCOUNT NOTES - 2.4%
Federal Home Loan Mortgage Corp.,
6.000%(s) 07/01/97 38,702 38,702
-----------
TOTAL SHORT-TERM OBLIGATIONS (cost of $43,105)(r) 43,101
-----------
FORWARD CURRENCY CONTRACTS - 0.0% (t) (131)
- ----------------------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - 1.6% 26,033
- ----------------------------------------------------------------------------------------
NET ASSETS - 100.0% $1,589,501
==========
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) 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 June 30, 1997, the value of these securities
amounted to $65,103 or of 4.1% of net assets.
(c) Represents fair value as determined in good faith under the direction of the Trustees.
(d) This issuer is in default of certain debt covenants. Income is not being accrued.
(e) Zero coupon bond.
(f) This is a British security. Par amount is stated in U.S. dollars.
(g) Unit consists of a 10.750% bond and a 1.500% supplemental interest certificate.
(h) This is a Canadian security. Par amount is stated in U.S. dollars.
(i) This is an Argentinean security. Par amount is stated in U.S. dollars.
(j) This is a Mexican security. Par amount is stated in U.S. dollars.
(k) This is a Polish security. Par amount is stated in U.S. dollars.
(l) 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.
(m) This is a South African security. Par amount is stated in U.S. dollars.
(n) This is a Venezuelan security. Par amount is stated in U.S. dollars.
(o) These securities, or a portion thereof, with a total market value of $272,516, are
being used to collateralize the forward currency contracts shown below.
(p) Non-income producing.
(q) Rounds to less than one.
(r) Cost for federal income tax purposes of total investments and short-term obligations
is $1,537,188.
(s) Rate represents yield at date of purchase.
(t) As of June 30, 1997, the Fund had entered into the following forward currency exchange
contracts:
</TABLE>
Net Unrealized
Appreciation
Appreciation
Contracts In Exchange Settlement (Depreciation)
to Deliver For Date (U.S. $)
- ---------------- ---------- -------- --------
DM 39,500 US$ 23,177 07/02/97 $ 547
US$ 22,658 DM 39,500 07/02/97 (28)
IL 26,613,400 US$ 15,655 07/03/97 18
SP 2,881,801 US$ 15,490 07/03/97 23
KB 36,120 US$ 59,145 07/14/97 (953)
DK 187,000 US$ 28,407 07/22/97 215
FF 277,000 US$ 47,582 07/22/97 405
US$ 10,558 FF 62,000 07/22/97 1
SK 210,000 US$ 27,066 07/23/97 (158)
A$ 77,000 US$ 57,829 07/28/97 (224)
DM 62,425 US$ 35,881 08/04/97 23
------
$ (131)
======
<PAGE>
Investment Portfolio/June 30, 1997
- -------------------------------------------------------------------------------
Summary of Securities
by Currency Currency Value % of Total
------------------------------------------------------------------------------
United States $1,070,731 68.5
United Kingdom KB 105,309 6.7
Australia A$ 64,893 4.2
Spain SP 45,490 2.9
Italy IL 45,363 2.9
Argentina 41,151 2.6
Poland 37,999 2.4
Denmark DK 36,772 2.4
Mexico 36,464 2.3
Sweden SK 35,878 2.3
Canada 15,705 1.0
South Africa 14,963 1.0
Venezuela 8,482 0.5
Egypt EP 4,399 0.3
---------- -----
$1,563,599 100.0
========== =====
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
Acronym Name
-------- ----
PIK Payment-In-Kind
DM Deutschemarks
FF French Francs
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1997 (UNAUDITED)
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $1,493,892) $1,520,498
Short-term obligations (cost of $43,105) 43,101
----------
1,563,599
Cash $ 3,861
Receivable for:
Investments sold 37,589
Dividends 26,339
Fund shares sold 3,197
Interest 172
Other 64 71,222
------- ----------
Total Assets 1,634,821
LIABILITIES
Unrealized depreciation on forward
currency contracts 131
Payable for:
Investments purchased 32,764
Distributions 9,952
Fund shares repurchased 2,347
Accrued:
Deferred Trustees fees 13
Other 113
-------
Total Liabilities 45,320
----------
NET ASSETS $1,589,501
==========
Net asset value & redemption price per share -
Class A ($780,854/107,853) $7.24
==========
Maximum offering price per share - Class A
($7.24/0.9525) $7.60 (a)
==========
Net asset value & offering price per share -
Class B ($808,647/111,692) $7.24 (b)
==========
(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.
<PAGE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(in thousands)
INVESTMENT INCOME
Interest $ 68,832
Dividends 903
----------
Total investment income 69,735
EXPENSES
Management fee $ 4,883
Service fee 1,787
Distribution fee - Class B 2,964
Transfer agent 1,882
Bookkeeping fee 248
Trustees fee 39
Custodian fee 140
Audit fee 31
Legal fee 8
Registration fee 60
Reports to shareholders 17
Other 50 12,109
------- ----------
Net Investment Income 57,626
----------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments (16,704)
Foreign currency transactions 19,639
------
Net Realized Gain 2,935
Net unrealized depreciation
during the period on:
Investments (15,726)
Foreign currency transactions (486)
------
Net Unrealized Depreciation (16,212)
----------
Net Loss (13,277)
----------
Net Increase in Net Assets From Operations $ 44,349
==========
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
Six months Year ended
(in thousands) ended June 30 December 31
------------- -----------
INCREASE (DECREASE) IN NET ASSETS 1997 1996
Operations:
Net investment income $ 57,626 $ 111,153
Net realized gain 2,935 35,512
Net unrealized depreciation (16,212) (9,144)
---------- ----------
Net Increase from Operations 44,349 137,521
Distributions: (a)
From net investment income - Class A (30,123) (61,787)
From net investment income - Class B (28,619) (57,474)
---------- ----------
(14,393) 18,260
---------- ----------
Fund Share Transactions:
Receipts for shares sold - Class A 90,549 109,361
Value of distributions reinvested - Class A 13,060 32,115
Cost of shares repurchased - Class A (70,988) (109,964)
---------- ----------
32,621 31,512
---------- ----------
Receipts for shares sold - Class B 82,332 156,886
Value of distributions reinvested - Class B 11,443 27,196
Cost of shares repurchased - Class B (61,474) (123,892)
---------- ----------
32,301 60,190
---------- ----------
Net Increase from Fund
Share Transactions 64,922 91,702
---------- ----------
Total Increase 50,529 109,962
NET ASSETS
Beginning of period 1,538,972 1,429,010
---------- ----------
End of period (including undistributed net
investment income of $12,423 and $10,314,
respectively) $1,589,501 $1,538,972
========== ==========
NUMBER OF FUND SHARES
Sold - Class A 12,551 15,235
Issued for distributions reinvested - Class A 1,818 4,471
Repurchased - Class A (9,860) (15,336)
---------- ----------
4,509 4,370
---------- ----------
Sold - Class B 11,421 21,852
Issued for distributions reinvested - Class B 1,593 3,785
Repurchased - Class B (8,537) (17,276)
---------- ----------
4,477 8,361
---------- ----------
(a) Distributions from income include currency gains and gains on securities
treated as ordinary income for tax purposes.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (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, 1997, 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, 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.
Notes to Financial Statements/June 30, 1997
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 (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) 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 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 securities transactions,
gains (losses) arising from the disposition of foreign currency and currency
gains (losses) between the accrual and payment dates on dividends and interest
income and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included
with the net realized and unrealized gains (losses) on investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities. The Fund
may also enter into forward currency contracts to hedge certain other foreign
currency denominated assets. The contracts are used to minimize the exposure to
foreign exchange rate fluctuations during the period between trade and
settlement date of the contracts. All contracts are marked-to-market daily,
resulting in unrealized gains (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:
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:
Average Net Assets Annual Fee Rate
------------------ ---------------
First $50 million No charge
Next $950 million 0.035%
Next $1 billion 0.025%
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. During the six months ended June 30, 1997, the Fund has
been advised that the Distributor retained net underwriting discounts of
$318,652 on sales of the Fund's Class A shares and received contingent deferred
sales charges (CDSC) of $1,040,479 on Class B share redemptions.
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:
Value of shares Annual
outstanding on the 20th of Fee
each month which were issued Rate
----------------------------- ------
Prior to January 1, 1993 0.15%
On or after January 1, 1993 0.25%
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, 1997, purchases and
sales of investments, other than short-term obligations, were $869,792,795 and
$827,882,520, respectively, of which $127,589,148 and $129,178,203,
respectively, were U.S. government securities.
Unrealized appreciation (depreciation) at June 30, 1997, based on cost of
investments for federal income tax purposes was:
Gross unrealized appreciation $ 52,956,620
Grow unrealized depreciation (26,545,854)
------------
Net unrealized appreciation $ 26,410,766
============
Capital loss carryforwards: At December 31, 1996, capital loss carry-forwards
available (to the extent provided in regulations) to offset future realized
gains were approximately as follows:
Year of Capital loss
expiration carryforward
---------- ------------
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
============
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.
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 offshore loan
rate plus 1/2 of 1%. There were no borrowings under the line of credit during
the six months ended June 30, 1997.
NOTE 6. COMPOSITION OF NET ASSETS
- -------------------------------------------------------------------------------
At June 30, 1997, net assets consisted of:
Capital paid in $ 1,802,899
Undistributed net investment income 12,423
Accumulated net realized loss (252,204)
Net unrealized appreciation (depreciation) on:
Investments 26,602
Foreign currency transactions (219)
-----------
$ 1,589,501
===========
<PAGE>
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
------------------------------ ----------------------------------------------
1997 1996
Class A Class B Class A Class B
............ ............ .................. .......................
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $7.310 $7.310 $7.220 $7.220
------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.296 0.269 0.623 0.569
Net realized and
unrealized gain (loss) (0.078) (0.078) 0.081 0.081
------ ------ ------ ------
Total from Investment
Operations 0.218 0.191 0.704 0.650
------ ------ ------ ------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment
income (0.288) (0.261) (0.614)(a) (0.560)(a)
In excess of net
investment income - - - -
------ ------ ------ ------
Total Distributions
Declared to Shareholders (0.288) (0.261) (0.614) (0.560)
------ ------ ------ ------
Net asset value -
End of period $7.240 $7.240 $7.310 $7.310
====== ====== ====== ======
Total return (b) 3.07%(c) 2.69%(c) 10.24% 9.43%
====== ====== ====== ======
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.18%(d)(e) 1.93%(d)(e) 1.18%(d) 1.93%(d)
Net investment income 7.85%(d)(e) 7.10%(d)(e) 8.01%(d) 7.26%(d)
Portfolio turnover 56%(c) 56% (c) 110% 110%
Net assets at end
of period (000) $780,854 $808,647 $755,352 $783,620
(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) Not 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.
(e) Annualized.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Year ended December 31
- ----------------------------------------------------------------------
1995 1994
Class A Class B Class A Class B
-------- -------- -------- -------
$6.530 $6.530 $7.390 $7.390
------ ------ ------ ------
0.621 0.569 0.580 0.529
0.650 0.650 (0.848) (0.849)
------ ------ ------ ------
1.271 1.219 (0.268) (0.320)
------ ------ ------ ------
(0.581) (0.529) (0.580) (0.529)
- - (0.012) (0.011)
------ ------ ------ ------
(0.581) (0.529) (0.592) (0.540)
------ ------ ------ ------
$7.220 $7.220 $6.530 $6.530
====== ====== ====== ======
20.17% 19.29% (3.67)% (4.40)%
====== ====== ====== ======
1.18% (d) 1.97% (d) 1.21% 1.96%
8.42% (d) 7.63% (d) 8.38% 7.63%
83% 83% 78% 78%
$714,961 $714,049 $636,824 $608,348
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------
1993 1992
Class A Class B Class A Class B(a)
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $7.010 $7.010 $7.020 $7.080
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income
0.565 0.511 0.669 0.385
Net realized and
unrealized gain (loss) 0.448 0.448 (0.004) (0.067)
------ ------ ------ ------
Total from Investment
Operations 1.013 0.959 0.665 0.318
------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.585) (0.535) (0.673) (0.388)
In excess of net investment
income (0.048) (0.044) (0.002) -
------ ------ ------ ------
Total Distributions
Declared to Shareholders (0.633) (0.579) (0.675) (0.388)
------ ------ ------ ------
Net asset value -
End of period $7.390 $7.390 $7.010 $7.010
------ ------ ------ ------
Total return (b) 14.95% 14.11% 9.77% 2.48% (c)
------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.19% 1.94% 1.18% 1.93% (d)
Net investment income 8.42% 7.67% 9.39% 8.64% (d)
Portfolio turnover 138% 138% 96% 96%
Net assets at end
of period (000) $660,654 $475,141 $437,380 $37,935
(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.
</TABLE>
<PAGE>
SHAREHOLDER SERVICES
TO MAKE INVESTING EASIER
Colonial has one of the most extensive selections of shareholder services
available. Your financial advisor 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(1): 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(1): 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 calendar day of each month unless the 10th falls on a
non-business day or the first business day of the week. If this occurs, the
payable date will be the previous business day. 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.
COLONIAL RETIREMENT PLANS: Choose from a broad range of retirement plans,
including IRAs.
(1) 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
Class C shares (for applicable funds), or $1 million or more of Class A
shares, may be subject to a contingent deferred sales charge.
<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 a.m. to 8:00 p.m. ET, and Saturdays from February through
mid-April, 10:00 a.m. to 2:00 p.m. ET.
COLONIAL TELEPHONE TRANSACTION DEPARTMENT - 1-800-422-3737
To purchase, exchange or sell shares by telephone, call Monday to Friday, 9:00
a.m. to 7:00 p.m. 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 a.m. to
6:30 p.m. ET.
BY MAIL
COLONIAL INVESTORS SERVICE CENTER, INC.
P.O. BOX 1722
BOSTON, MA 02105-1722
<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.
<PAGE>
[LOGO] COLONIAL
MUTUAL FUNDS
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, CS First Boston
Merchant Bank; and President and Chief Executive Officer, The First Boston
Corporation)
JAMES L. MOODY, JR.
Retired (formerly Chairman of the Board and 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
Retired Partner, Peat Marwick Main & Co. (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-03/833D-0697 M (8/97)
