<PAGE>
COLONIAL
INCOME FUND
[PICTURE OF A CHILD AND A GRANDMA]
SEMIANNUAL REPORT
JUNE 30, 1997
NOT FDIC - MAY LOSE VALUE
INSURED NO BANK GUARANTEE
<PAGE>
COLONIAL INCOME FUND HIGHLIGHTS
JANUARY 1, 1997 - JUNE 30, 1997
INVESTMENT OBJECTIVE: Colonial Income Fund seeks as high a level of current
income and total return, as is consistent with prudent risk, by investing
primarily in corporate debt securities.
THE FUND IS DESIGNED TO OFFER:
X High monthly income
X Opportunity for growth over time
X A portfolio of quality bonds
PORTFOLIO MANAGER COMMENTARY: "The first half of 1997 was marked by
volatility in both the domestic and foreign fixed-income markets, although the
environment improved in May and June. In this environment, we continued to
focus on high quality investment grade corporate bonds that may have been
overlooked by others." -- Richard Stevens
COLONIAL INCOME FUND PERFORMANCE
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
Inception dates 12/1/69 5/15/92
Six-month distributions declared per share $ 0.222 $ 0.198
SEC yields on 6/30/97 (1) 6.25% 5.79%
Six-month total returns, assuming 2.60% 2.22%
reinvestment of all distributions and
no sales charge or contingent
deferred sales charge (CDSC)
Net asset value per share on 6/30/97 $ 6.35 $ 6.35
</TABLE>
(1) 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.
<TABLE>
<CAPTION>
PORTFOLIO STRUCTURE QUALITY BREAKDOWN
(as of 6/30/97) (as of 6/30/97)
<S> <C> <C> <C>
1. Corporate Bonds ........... 62.1% AAA .......................... 30.6%
2. U.S. Government Bonds .... 21.8% AA ........................... 2.5%
3. Foreign Government Bonds .. 13.4% A ............................ 1.9%
4. Net Cash & Equivalents .... 2.7% BBB .......................... 45.3%
5. Preferred Stocks .......... 0.8% BB and Below ................. 19.7%
</TABLE>
Because the Fund is actively managed, portfolio structure and quality breakdown
will change. Portfolio structure and quality breakdown are based on total net
assets.
2
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
I am pleased to present your Fund's semiannual report for the period ended June
30, 1997. This report reflects on the investment environment of the last six
months and on the performance of your Fund.
[PHOTO OF HAROLD W. COGGER]
The Federal Reserve Board's decision in March to raise short-term interest rates
as a preemptive strike against inflation created volatility in both the bond and
stock markets. Additionally, concerns that the impending European Monetary Union
would be delayed had a negative effect on foreign bonds in the first quarter of
the year. Since then, stocks and bonds have improved, as recent reports
indicated no inflationary threat.
During the last six months, your Fund has continued to provide income generated
by well-researched investments in top quality corporate and government bonds.
For the rest of the year, we expect moderate economic growth and continued low
inflation in the U.S., and further progress toward the European Monetary Union,
resulting in a favorable investment environment.
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.
Respectfully,
/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.
3
<PAGE>
PORTFOLIO MANAGEMENT REPORT
RICHARD STEVENS is portfolio manager of the Colonial Income Fund and is vice
president of Colonial Management Associates, Inc.
A TOUGH BOND ENVIRONMENT AT HOME AND ABROAD
With rising interest rates in the U.S. and a major decline in European bond
prices, Colonial Income Fund operated in an especially challenging environment
over the first half of 1997. The Federal Reserve Board made a preemptive strike
against inflation in late March by raising short-term interest rates by 0.25%,
leading to a decline in bond prices. In Europe, the bond markets were negatively
affected by concerns that some countries would not enter into the European
Monetary Union as scheduled. Conditions in the U.S. and Europe improved in the
second quarter of the year, as there was no evidence of inflation in the
American economy, and several European governments lowered their budget
deficits.
Against this background, the Fund generated a total return for the period of
2.60% for Class A shares. Some of the reasons for this return included:
1. FINDING VALUE AMONG INVESTMENT-GRADE CORPORATE BONDS
The bulk of the Fund's portfolio is invested in investment-grade corporate
bonds. We carefully research both fundamental and technical factors to determine
which bonds have strong price appreciation potential not yet recognized by the
market at large. In this period, the Fund benefited from investments in a wide
range of sectors, including financial services, energy, transportation and
retail. In the financial sector, Great Western Financial Corp. performed well as
the result of a recent takeover. In the energy sector, our investment in
Petrozuarta Finance, Inc. bonds, issued by a partnership of Conoco and the
government of Venezuela, posted impressive returns late in the period. The
transportation company CSX Corp. and retailers Limited, Inc. and Stop and Shop
Companies also were among the Fund's strong performers.
2. PROTECTION THROUGH DIVERSIFICATION
While corporate debt securities represent the majority of the Fund's holdings,
shareholders are protected by a diversified portfolio that reduces the effect of
a downturn in any one sector. In addition to the corporate bonds, the Fund also
holds U.S. Treasury securities and bonds of foreign governments. In the last six
months, the Fund purchased bonds of Australia, Canada and the United Kingdom,
limiting its exposure to bonds affected by the decline in the European market.
IMPROVING CONDITIONS IN THE SECOND HALF OF 1997
Trends in the U.S. and abroad should favor bondholders over the rest of the
year. At home, we expect slowing economic growth and low inflation. While the
Federal Reserve Board may again raise interest rates this year, the balanced
budget agreement reached in Washington should contribute
4
<PAGE>
to a more stable environment. The European Monetary Union is now back on track,
and several European governments have reduced their budget deficits,
contributing to a more stable bond market there. In light of these improving
conditions, the Fund's investment strategy is not expected to change
significantly over the second half of the year.
COLONIAL INCOME FUND INVESTMENT PERFORMANCE VS.
THE 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
[GRAPH OF INVESTMENT PERFORMANCE VS. BOND INDEX]
Label CIF Class A NAV MOP Lehman
- ----- ------------ --- --- ------
1 Jun 30, 87 10000 9525 10000
2 Sep 30, 87 9771.719 9307.563 9708
3 Dec 31, 87 9873.623 9404.626 10274
4 Mar 31, 88 10360.22 9868.109 10642
5 Jun 30, 88 10611.75 10107.69 10747
6 Sep 30, 88 10886.59 10369.48 10948
7 Dec 31, 88 11103.63 10576.2 11053
8 Mar 31, 89 11219.93 10686.98 11175
9 Jun 30, 89 11827.49 11265.68 12073
10 Sep 30, 89 11964.6 11396.28 12187
11 Dec 31, 89 11949.36 11381.77 12627
12 Mar 31, 90 11868.26 11304.52 12482
13 Jun 30, 90 12125.82 11549.84 12932
14 Sep 30, 90 11834.1 11271.98 13010
15 Dec 31, 90 12265.87 11683.24 13673
16 Mar 31, 91 12933.89 12319.53 14041
17 Jun 30, 91 13312.95 12680.59 14253
18 Sep 30, 91 13944.92 13282.54 15073
19 Dec 31, 91 14571.69 13879.54 15877
20 Mar 31, 92 14619.57 13925.14 15639
21 Jun 30, 92 15155.86 14435.95 16273
22 Sep 30, 92 15803.29 15052.64 17068
23 Dec 31, 92 15859.04 15105.73 17081
24 Mar 31, 93 16691.85 15898.99 17875
25 Jun 30, 93 17162.33 16347.12 18412
26 Sep 30, 93 17762.14 16918.44 19021
27 Dec 31, 93 17769.65 16925.6 18965
28 Mar 31, 94 17155.4 16340.52 18372
29 Jun 30, 94 16831.17 16031.69 18143
30 Sep 30, 94 16911.79 16108.48 18233
31 Dec 31, 94 17042.73 16233.2 18300
32 Mar 31, 95 17935.61 17083.68 19212
33 Jun 30, 95 19137.04 18228.03 20459
34 Sep 30, 95 19616.79 18685 20850
35 Dec 31, 95 20501.81 19527.97 21821
36 Mar 31, 96 19993.15 19043.48 21311
37 Jun 30, 96 19999.69 19049.71 21411
38 Sep 30, 96 20517.96 19543.36 21789
39 Dec 31, 96 21237.74 20228.95 22455
40 Mar 31, 97 20972.54 19976.35 22261
41 Jun 30, 97 21789.54 20754.53 23071
A $10,000 investment in Class B shares made on 5/15/92 (inception) at net asset
value (NAV) would have been valued at $14,085 on 6/30/97. The same investment
after deducting the applicable contingent deferred sales charge (CDSC) would
have grown to $13,985 on 6/30/97.
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 are not professionally managed.
AVERAGE ANNUAL TOTAL RETURNS
As of 6/30/97 (most recent quarter end)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
INCEPTION 12/1/69 5/15/92
NAV MOP NAV W/CDSC
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year 8.95% 3.77% 8.14% 3.14%
- --------------------------------------------------------------------------------
5 years 7.53 6.49 6.74 6.43
- --------------------------------------------------------------------------------
10 years 8.10 7.57 -- --
- --------------------------------------------------------------------------------
Since inception -- -- 6.90 6.75
- --------------------------------------------------------------------------------
</TABLE>
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. MOP returns include the maximum sales charge of
4.75%. The CDSC returns reflect the maximum charges of 5% for one year, 2% for
five years and 1% since inception.
Effective August 1, 1997, the Fund began offering Class C shares.
5
<PAGE>
INVESTMENT PORTFOLIO
JUNE 30, 1997 (UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
BONDS & NOTES - 97.3%
- ------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - 62.1% PAR VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION - 0.6%
Building Construction
Centex Corp.,
7.375% 06/01/05 $ 1,000 $ 1,001
-------
FINANCE, INSURANCE & REAL ESTATE - 10.6%
Depository Institutions - 4.0%
Great Western Financial Corp.,
8.600% 02/01/02 3,000 3,201
Mercantile Bancorp,
7.050% 06/15/04 3,000 3,006
-------
6,207
-------
Insurance Agents & Brokers - 1.9%
Metropolitan Life Insurance Co.,
7.700% 11/01/15 (a) 3,000 2,989
-------
Security Brokers & Dealers - 4.7%
Lehman Brothers Holdings, Inc.,
8.500% 05/01/07 3,000 3,226
Paine Webber Group, Inc.,
7.625% 10/15/08 2,000 2,028
Salomon, Inc.,
6.700% 07/05/00 2,000 1,994
-------
7,248
-------
MANUFACTURING - 15.0%
Chemicals & Allied Products - 2.8%
Agricultural Minerals Co., L.P.,
10.750% 09/30/03 1,500 1,594
Sterling Chemicals, Inc.,
11.750% 08/15/06 1,000 1,080
Texas Petrochemical Corp.,
11.125% 07/01/06 1,500 1,605
-------
4,279
-------
Fabricated Metal - 1.7%
Euramax International PLC,
11.250% 10/0106 (b) 1,500 1,613
US Can Corp.,
10.125% 10/15/06 1,000 1,065
-------
2,678
-------
</TABLE>
6
<PAGE>
<TABLE>
Investment Portfolio/June 30, 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Food & Kindred Products - 2.8%
Stop & Shop Companies,
9.750% 02/01/02 $ 4,000 $ 4,416
-------
Machinery & Computer Equipment - 0.4%
IMO Industries, Inc.,
11.750% 05/01/06 500 598
-------
Measuring & Analyzing Instruments - 1.9%
Polaroid Corp.,
6.750% 01/15/02 3,000 2,975
-------
Miscellaneous Manufacturing - 0.6%
Building Materials Corp. of America,
(11.750% 07/01//99) (c) 07/01/04 1,000 908
-------
Petroleum Refining - 2.8%
Pennzoil Co.,
10.125% 11/15/09 2,025 2,494
YPF Sociedad Anonima,
7.000% 10/26/02 (d) 1,926 1,929
-------
4,423
-------
Primary Metal - 0.7%
Algoma Steel, Inc.,
12.375% 07/15/05 1,000 1,108
-------
Printing & Publishing - 1.3%
Time Warner Entertainment Corp.,
7.250% 09/01/08 (a) 2,000 1,980
-------
MINING & ENERGY - 9.9%
Crude Petroleum & Natural Gas - 4.5%
CSW Energy,
6.875% 10/01/01 (a) 3,000 3,001
Petrozuata Finance, Inc.:
7.630% 04/01/09 (a)(e) 2,000 2,011
8.220% 04/01/17 (a)(e) 2,000 2,029
-------
7,041
-------
Metal & Mining - 1.9%
Freeport McMoran Resource Partners,
7.000% 02/15/08 3,000 2,916
-------
Oil & Gas Extraction - 3.5%
Mariner Energy Corp.,
10.500% 08/01/06 1,000 1,048
Nuevo Energy Co.,
9.500% 04/15/06 1,000 1,040
</TABLE>
7
<PAGE>
Investment Portfolio/June 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------------------------
PAR VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MINING & ENERGY - Cont.
Oil & Gas Extraction - Cont.
Occidental Petroleum Corp.,
11.125% 08/01/10 $ 2,500 $ 3,283
-------
5,371
-------
RETAIL TRADE - 8.5%
Apparel & Accessory Stores - 2.0%
Limited, Inc.,
7.800% 05/15/02 3,000 3,083
-------
Building, Hardware & Garden Supply - 2.3%
IMC Fertilizer,
9.450% 12/15/11 3,000 3,533
-------
General Merchandise Stores - 2.3%
Dayton Hudson Co.,
9.625% 02/01/08 3,000 3,511
-------
Miscellaneous Retail - 1.9%
Harmen International Industries,
7.320% 07/01/07 (f) 3,000 2,992
-------
SERVICES - 2.4%
Amusement & Recreation - 1.4%
Harvey Casinos Resorts,
10.625% 06/01/06 1,000 1,075
Showboat, Inc.,
13.000% 08/01/09 1,000 1,150
-------
2,225
-------
Business Services - 0.7%
Pierce Leahy Corp.,
11.125% 07/15/06 1,000 1,100
-------
Hotels, Camps & Lodging - 0.3%
Station Casinos, Inc.,
10.125% 03/15/06 500 505
-------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 15.1%
Air Transportation - 0.7%
U.S. Air, Inc.,
10.375% 03/01/13 1,000 1,108
-------
Broadcasting - 3.2%
News America Holding Corp.,
8.150% 10/17/36 4,000 3,946
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/June 30, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sullivan Broadcasting, Inc.,
10.250% 12/15/05 $ 1,000 $ 1,020
-------
4,966
-------
Cable - 1.4%
Continental Cablevision, Inc.,
8.875% 09/15/05 2,000 2,202
-------
Communications - 1.3%
U.S. West Capital Funding, Inc.,
7.300% 01/15/07 2,000 2,003
-------
Electric, Gas & Sanitary Services - 2.3%
Allied Waste Industries,
stepped coupon,
(11.300% 06/02/02) (c) 06/01/07 (a) 1,500 941
Mesa Operating Co.,
10.625% 07/01/06 2,250 2,557
-------
3,498
-------
Gas Services - 1.0%
HS Resources, Inc.,
9.250% 11/15/06 1,500 1,508
-------
Railroad - 3.3%
CSX Corp.,
7.450% 05/01/07 (a) 3,000 3,055
Union Pacific Corp.,
7.250% 11/01/08 2,000 1,996
-------
5,051
-------
Sanitary Services - 0.7%
Allied Waste North America,
10.250% 12/01/06 (a) 1,000 1,069
-------
Telecommunications - 1.2%
MFS Communications Cos., Inc.,
stepped coupon, (9.375% 07/15/97),
(c) 01/15/04 1,000 934
PanAmSat Corp., stepped coupon,
(11.375% 08/01//98) (c) 08/01/03 1,000 970
-------
1,904
-------
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES (cost of $94,631) 96,396
=======
</TABLE>
9
<PAGE>
Investment Portfolio/June 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
U.S. GOVERNMENT
& AGENCY OBLIGATIONS - 21.8% PAR VALUE
- --------------------------------------------------------------------------------------------
Maturities
Coupon From/to
<S> <C> <C>
Federal National Mortgage Association:
9.000% 07/01/19 $ 1,127 $ 1,193
11.000% 01/01/16 (g) 1,508 1,689
--------
2,882
--------
Government National Mortgage Association:
10.000% 2017-2019 42 46
10.500% 2016-2020 338 377
11.500% 2013 67 76
12.500% 2010-2014 231 270
13.000% 2011 27 32
14.000% 2011 5 6
--------
807
--------
U.S. Treasury Bonds:
8.750% 05/15/17 (g) 5,073 6,103
11.625% 11/15/02 4,000 4,933
--------
11,036
--------
U.S. Treasury Notes:
6.625% 03/31/02 1,000 1,009
7.000% 07/15/06 2,000 2,057
9.125% 05/15/99 (g) 8,000 8,424
10.375% 11/15/12 (g) 6,000 7,616
--------
19,106
--------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS (cost of $34,332) 33,831
========
</TABLE>
<TABLE>
<CAPTION>
FOREIGN GOVERNMENT
& AGENCY OBLIGATIONS - 13.4% CURRENCY
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australia FNMA Global,
6.500% 07/10/02 (f) A$ 5,900 4,442
Bonos Del Tesoro Government Bond,
8.750% 05/09/02 (d) 2,000 1,999
Canada Government Bond,
8.000% 06/01/23 C$ 2,485 2,041
Italian Government Bonds,
10.000% 08/01/03 IL 2,800,000 1,922
Republic of Poland (Brady),
Past Due Interest, stepped coupon,
(5.000% 10/27/98) (c) 10/27/14 (h) 3,000 2,558
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/June 30, 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Republic of South Africa Yankee,
8.500% 06/23/17 (i) $ 2,000 $ 1,995
United Kingdom Treasury,
10.000% 09/08/03 UK 2,600 4,919
Venezuela Government Euro-Dollar,
9.125% 06/18/07 (a)(e) 1,000 1,001
--------
TOTAL FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS (cost of $20,642) 20,877
--------
TOTAL BONDS & NOTES (cost of $149,605) 151,104
========
</TABLE>
<TABLE>
<CAPTION>
PREFERRED STOCKS - 0.8% SHARES
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.8%
Gas Services
Enron Corp., 8.000% (cost of $1,250) 50 1,256
--------
WARRANTS - 0.0%
- ------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES
Communications
American Telecasting, Inc.
(cost of $30) (a) 1 (j)
--------
TOTAL INVESTMENTS - 98.1% (cost of $150,885)(k) 152,360
========
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM OBLIGATION - 2.7% PAR
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Mortgage Corp.
6.000% (l) 07/01/97 $ 4,259 4,259
FORWARD CURRENCY CONTRACTS - (0.0)% (m) (55)
- ------------------------------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES - (0.8)% (1,325)
- ------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $155,239
========
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30, 1997,
the value of these securities amounted to $18,076 or 11.6% of net assets.
(b) This is a British security. Par amount is stated in U.S. dollars.
11
<PAGE>
Investment Portfolio/June 30, 1997
- ----------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO - CONT.
(c) Currently zero coupon. Shown parenthetically is the interest rate to be
paid and the date the Fund will begin accruing this rate.
(d) This is an Argentinean security. Par amount is stated in U.S. dollars.
(e) This is an Venezualan security. Par amount is stated in U.S. dollars.
(f) These securities have been purchased on a delayed delivery basis for
settlement at a future date beyond the customary settlement date.
(g) These securities, or a portion thereof, with a total market value of
$20,727 are being used to collateralize the delayed delivery purchases
indicated in note (f) above and the forward currency contracts shown below.
(h) This is a Polish security. Par amount is stated in U.S. dollars.
(i) This is a South African security. Par amount is stated in U.S. dollars.
(j) Rounds to less than one.
(k) Cost for federal income tax purposes is $150,908.
(l) Rate represents yield at date of purchase.
(m) As of June 30, 1997, the Fund had entered into the following forward
currency exchange contracts:
<TABLE>
<CAPTION>
Net Unrealized
Contracts In Exchange Settlement Appreciation (Depreciation)
to Deliver For Date (U.S. $)
<S> <C> <C> <C>
A$ 26,497 US $ 19,873 07/10/1997 (j)
A$ 4,699,522 US $ 3,529,341 07/28/1997 (14)
A$ 590,478 US $ 443,526 07/28/1997 (2)
UK 434,000 US $ 710,775 07/14/1997 (11)
UK 1,816,200 US $ 3,022,469 07/14/1997 (49)
DM 2,586,000 US $ 1,501,498 07/02/1997 20
DM 2,620,000 US $ 1,505,972 08/04/1997 1
------
(55)
======
</TABLE>
<TABLE>
<CAPTION>
Summary of Securities
by Country Country/Currency Value % of Total
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ $ 123,901 81.3
United Kingdom UK 6,532 4.3
Venezuala VB 5,041 3.3
Australia A$ 4,442 2.9
Argentina AP 3,928 2.6
Poland PZ 2,558 1.7
Canada C$ 2,041 1.3
South Africa SA 1,995 1.3
Italy IL 1,922 1.3
--------- -----
$ 152,360 100.0
========= =====
</TABLE>
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
See notes to financial statements.
12
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $150,885) $ 152,360
Short-term obligations 4,259
---------
156,619
Cash held in foreign banks (cost $1,483) $ 1,482
Receivable for:
Investments sold 4,451
Interest 2,566
Fund shares sold 105
Other 15 8,619
--------- ---------
Total Assets 165,238
LIABILITIES
Payable for:
Investments purchased 8,898
Distributions 888
Fund shares repurchased 153
Unrealized depreciation on forward
currency contracts 55
Accrued:
Deferred Trustees fees 3
Other 2
---------
Total Liabilities 9,999
---------
NET ASSETS $ 155,239
=========
Net asset value & redemption price per share -
Class A ($120,620/18,990) $ 6.35
---------
Maximum offering price per share - Class A
($6.35/0.9525) $ 6.67
---------
Net asset value & offering price per share -
Class B ($34,619/5,450) $ 6.35
---------
COMPOSITION OF NET ASSETS
Capital paid in $ 172,085
Overdistributed net investment income (31)
Accumulated net realized loss (18,252)
Net unrealized appreciation (depreciation) on:
Investments 1,475
Foreign currency transactions (38)
---------
$ 155,239
=========
</TABLE>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
See notes to financial statements.
13
<PAGE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<S> <C> <C>
(in thousands)
INVESTMENT INCOME
Interest $ 6,415
Dividends 50
---------
6,465
EXPENSES
Management fee $ 396
Service fee 198
Distribution fee - Class B 130
Transfer agent 180
Bookkeeping fee 32
Trustees fee 9
Custodian fee 4
Audit fee 18
Legal fee 5
Registration fee 12
Reports to shareholders 4
Other 15 1,003
--------- ---------
Net Investment Income 5,462
=========
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments (773)
Foreign currency transactions 844
---------
Net Realized Gain 71
Net unrealized depreciation
during the period on:
Investments (1,669)
Foreign currency transactions (63)
---------
Net Unrealized Depreciation (1,732)
---------
Net Loss (1,661)
---------
Net Increase in Net Assets from Operations $ 3,801
=========
</TABLE>
See notes to financial statements.
14
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(Unaudited)
Six months
ended Year ended
(in thousands) June 30 December 31
--------- ---------
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 5,462 $ 11,851
Net realized gain 71 717
Net unrealized depreciation (1,732) (7,114)
--------- ---------
Net Increase from Operations 3,801 5,454
Distributions:
From net investment income - Class A (4,322) (9,496)
In excess of net investment income - Class A (25) --
From net investment income - Class B (1,078) (2,285)
In excess of net investment income - Class B (6) --
--------- ---------
(1,630) (6,327)
--------- ---------
Fund Share Transactions:
Receipts for shares sold - Class A 2,635 9,095
Value of distributions reinvested - Class A 1,903 4,879
Cost of shares repurchased - Class A (12,305) (23,147)
--------- ---------
(7,767) (9,173)
--------- ---------
Receipts for shares sold - Class B 3,024 12,249
Value of distributions reinvested - Class B 495 1,243
Cost of shares repurchased - Class B (4,334) (14,578)
--------- ---------
(815) (1,086)
--------- ---------
Net Decrease from
Fund Share Transactions (8,582) (10,259)
--------- ---------
Total Decrease (10,212) (16,586)
NET ASSETS
Beginning of period 165,451 182,037
--------- ---------
End of period (net of overdistributed and
including undistributed net investment
income of $31 and $322, respectively) $ 155,239 $ 165,451
--------- ---------
NUMBER OF FUND SHARES
Sold - Class A 417 1,428
Issued for distributions reinvested - Class A 301 767
Repurchased - Class A (1,947) (3,647)
--------- ---------
(1,229) (1,452)
--------- ---------
Sold - Class B 479 1,907
Issued for distributions reinvested - Class B 78 195
Repurchased - Class B (684) (2,281)
--------- ---------
(127) (179)
--------- ---------
</TABLE>
See notes to financial statements.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
NOTE 1. INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In the opinion of management of Colonial 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 investing primarily in 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.
16
<PAGE>
Notes to Financial Statements/June 30, 1997
- --------------------------------------------------------------------------------
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class B distribution fee), realized and unrealized
gains (losses), are allocated to each class proportionately on a daily basis for
purposes of determining the net asset value of each class.
Class B per share data and ratios are calculated by adjusting the expense and
net investment income 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; market
discount is not accreted. Premium is amortized against interest income with a
corresponding decrease in the cost basis.
DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions daily
and pays monthly.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. 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
17
<PAGE>
Notes to Financial Statements/June 30, 1997
- --------------------------------------------------------------------------------
NOTE 2. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
due to changes in market prices of the investments. Such fluctuations are
included with the net realized gains (losses) on investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities. The Fund
may also enter into forward currency contracts to hedge certain other foreign
currency denominated assets. The contracts are used to minimize the exposure to
foreign exchange rate fluctuations during the period between trade and
settlement date of the contracts. All contracts are marked-to-market daily,
resulting in unrealized gains or losses which become realized at the time the
forward currency contracts are closed or mature. Realized and unrealized gains
(losses) arising from such transactions are included in net realized and
unrealized gains (losses) on foreign currency transactions. Forward currency
contracts do not eliminate fluctuations in the prices of the Fund's portfolio
securities. While the maximum potential loss from such contracts is the
aggregate face value in U.S. dollars at the time the contract was opened,
exposure is typically limited to the change in value of the contract (in U.S.
dollars) over the period it remains open. Risks may also arise if counterparties
fail to perform their obligations under the contracts.
OTHER: 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 equal to 0.50% annually of the Fund's
average net assets.
BOOKKEEPING FEE: The Adviser provides bookkeeping and pricing services for
$27,000 per year plus 0.035% of the Fund's average net assets over $50 million.
TRANSFER AGENT: Colonial Investors Service Center, Inc. (the Transfer Agent), an
affiliate of the Adviser, provides shareholder services for a monthly fee equal
to 0.18% annually of the Fund's average net assets and receives reimbursement
for certain out of pocket expenses.
Effective January 1, 1997 and continuing through calender year 1997, the
Transfer Agent fee will be reduced by 0.01% in cumulative monthly increments,
resulting in a decrease in the fee from 0.18% to 0.17% annually.
18
<PAGE>
Notes to Financial Statements/June 30, 1997
- --------------------------------------------------------------------------------
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. For the six months ended June 30, 1997, the Fund has been
advised that the Distributor retained net underwriting discounts of $32,480 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $47,745 on Class B share redemptions.
The Fund has adopted a 12b-1 plan which requires it to pay the Distributor a
service fee equal to 0.25% annually of the Fund's net assets as of the 20th of
each month. The plan also requires the payment of a distribution fee to the
Distributor equal to 0.75% of the average net assets attributable to Class B
shares.
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
OTHER: The Fund pays no compensation to its officers, all of whom are employees
of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
NOTE 4. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the six months ended June 30, 1997, purchases and
sales of investments, other than short-term obligations, were $229,930,528, and
$236,387,412, respectively, of which $88,494,459 and $89,807,813, respectively,
were U.S. government securities.
Unrealized appreciation (depreciation) at June 30, 1997, based on cost of
investments for federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 2,433,318
Gross unrealized depreciation (980,764)
-----------
Net unrealized appreciation $ 1,452,554
===========
</TABLE>
CAPITAL LOSS CARRYFORWARDS: At December 31, 1996, capital loss carryforwards
available (to the extent provided in regulations) to offset future realized
gains were approximately as follows:
<TABLE>
<CAPTION>
Year of Capital loss
expiration carryforward
---------- -----------
<S> <C>
1997 $ 2,536,000
1998 4,686,000
1999 10,466,000
2002 1,007,000
-----------
$18,695,000
===========
</TABLE>
19
<PAGE>
Notes to Financial Statements/June 30, 1997
- --------------------------------------------------------------------------------
NOTE 4. PORTFOLIO INFORMATION - CONT.
- --------------------------------------------------------------------------------
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.
20
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period
are as follows:
<TABLE>
<CAPTION>
(Unaudited)
Six months ended Year ended
June 30 December 31
1997 1996
------------------------------------ -------------------------------
Class A Class B Class A Class B
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 6.410 $ 6.410 $ 6.640 $ 6.640
------------- ------------- ------------- ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.223 0.199 0.460 0.412
Net realized and
unrealized gain (loss) (0.061) (0.061) (0.240) (0.240)
------------- ------------- ------------- ------------
Total from Investment
Operations 0.162 0.138 0.220 0.172
------------- ------------- ------------- ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net
investment income (0.221) (0.197) (0.450) (0.402)
In excess of net
investment income (0.001) (0.001) -- --
------------- ------------- ------------- ------------
Total Distributions
Declared to Shareholders (0.222) (0.198) (0.450) (0.402)
------------- ------------- ------------- ------------
Net asset value -
End of period $ 6.350 $ 6.350 $ 6.410 $ 6.410
============= ============= ============= ============
Total return (a) 2.60%(b) 2.22%(b) 3.59% 2.82%
============= ============= ============= ============
RATIOS TO AVERAGE NET ASSETS
Expenses (c) 1.10%(d) 1.85%(d) 1.10% 1.85%
Net investment income (c) 7.07%(d) 6.32%(d) 7.12% 6.37%
Portfolio turnover 151%(b) 151%(b) 253% 253%
Net assets at end
of period (000) $ 120,620 $ 34,619 $ 129,681 $ 35,770
</TABLE>
(a) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(b) Not annualized.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(d) Annualized.
21
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------------------
1995 1994
Class A Class B Class A Class B
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 5.950 $ 5.950 $ 6.720 $ 6.720
--------- -------- --------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.472 0.425 0.487 0.440
Net realized and
unrealized gain (loss) 0.698 0.698 (0.761) (0.761)
--------- -------- --------- --------
Total from Investment
Operations 1.170 1.123 (0.274) (0.321)
--------- -------- --------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net
investment income (0.480) (0.433) (0.496) (0.449)
--------- -------- --------- --------
Net asset value -
End of period $ 6.640 $ 6.640 $ 5.950 $ 5.950
========= ======== ========= ========
Total return (b) 20.30% 19.42% (4.09%) (4.82%)
========= ======== ========= ========
RATIOS TO AVERAGE NET ASSETS
Expenses 1.09%(d) 1.84%(d) 1.11% 1.86%
Net investment income 7.45%(d) 6.70%(d) 7.80% 7.05%
Portfolio turnover 85% 85% 16% 16%
Net assets at end
of period (000) $ 143,834 $ 38,203 $ 129,560 $ 22,805
</TABLE>
(a) Class B shares were initially offered on May 15, 1992. Per share amounts
reflect activity from that date.
(b) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(c) Not annualized.
(d) 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.
22
<PAGE>
FINANCIAL HIGHLIGHTS - continued
<TABLE>
<CAPTION>
Year ended December 31
- ------------------------------------------------------
1993 1992
Class A Class B Class A Class B (a)
- --------- -------- --------- --------
<S> <C> <C> <C>
$ 6.460 $ 6.460 $ 6.460 $ 6.390
- --------- -------- --------- --------
0.501 0.451 0.546 0.290
0.261 0.261 0.001 0.088
- --------- -------- --------- --------
0.762 0.712 0.547 0.378
- --------- -------- --------- --------
(0.502) (0.452) (0.547) (0.308)
- --------- -------- --------- --------
$ 6.720 $ 6.720 $ 6.460 $ 6.460
========= ======== ========= ========
12.05% 11.23% 8.83% 6.00%(c)
========= ======== ========= ========
1.10% 1.85% 1.24% 1.99%(e)
7.45% 6.70% 8.49% 7.74%(e)
46% 46% 68% 68%
$ 155,543 $ 19,787 $ 149,309 $ 6,092
</TABLE>
23
<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.
24
<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
25
<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.)
26
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Income Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial 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 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 objective
and operating policies of the Fund.
27
<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
IF-03/836D-0697 M (8/97)
