COLONIAL STRATEGIC INCOME FUND SEMIANNUAL REPORT
JUNE 30, 1998
Not FDIC | May Lose Value
Insured | No Bank Guarantee
<PAGE>
COLONIAL STRATEGIC INCOME FUND HIGHLIGHTS
JANUARY 1, 1998 - JUNE 30, 1998
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: "Relative to its peers, the Fund performed well
for investors during the past six months. The heaviest weighting remains in high
yield corporate bonds because they have continued to offer strong performance."
-- Carl Ericson
COLONIAL STRATEGIC INCOME FUND PERFORMANCE
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Inception dates 4/21/77 5/15/92 7/1/97
Distributions declared per share $0.288 $0.260 $0.266
SEC yields on 6/30/98(1) 6.36% 5.90% 6.04%
Six-month total returns, assuming 3.69% 3.31% 3.38%(2)
reinvestment of all distributions and
no sales charge or contingent deferred
sales charge (CDSC)
Net asset value per share on 6/30/98 $7.30 $7.30 $7.30
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS(3)
(as of 6/30/98)
<S> <C>
U.S. Treasury Obligations............... 25.8%
United Kingdom Treasury................. 5.8%
Treasury Corp. Victoria................. 2.6%
Swedish Gov't Bonds..................... 2.4%
Republic of Brazil...................... 1.7%
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO STRUCTURE(3)
(as of 6/30/98)
<S> <C>
Corporate Bonds......................... 39.3%
U.S. Gov't Notes/Bonds.................. 25.0%
Foreign Gov't Bonds..................... 24.8%
U.S. Agencies........................... 2.6%
Other................................... 8.3%
</TABLE>
(1) The 30-day SEC yields reflect the portfolio's earning power, net of
expenses, expressed as an annualized percentage of the public offering
price per share at the end of the period. If the Distributor had not
waived certain Fund expenses, the SEC yield for Class C shares would have
been 5.89%.
(2) Performance results reflect any voluntary waiver of Fund expenses by the
Distributor. Absent this waiver, performance results would have been
lower.
(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.
2
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[PICTURE OMITTED]
In June 1998, Harold Cogger retired as president of Colonial Strategic Income
Fund. I would like to take this opportunity to thank him for his guidance over
the past few years and wish him well. As the new president of the Fund, I am
pleased to present the semiannual report for Colonial Strategic Income Fund for
the six-month period ended June 30, 1998.
Although overshadowed by very strong equity market returns, fixed-income markets
enjoyed considerable success during the past six months, particularly in the
last six-weeks of the period. In the first half of 1998, the economy has shown
signs of slowing. As interest rates dropped, bond prices finished the period on
a positive note.
The Fund continues to be an attractive choice for fixed-income investors because
it is diversified in a mixture of U.S. Treasury bonds, high yield U.S. corporate
securities and bonds issued by foreign governments. By investing in a
combination of these three bond markets, the Fund is able to pursue favorable
yields from all three sectors -- while reducing the risk of investing in a
single sector of the bond market.
Because it can diversify within the bond market, Colonial Strategic Income Fund
remains a sensible option for investors seeking a high level of current income
and total return consistent with prudent risk. The following portfolio
management report expands on these issues, provides details on the Fund's
strategies and performance, and offers some insight for the investment period
ahead.
Respectfully,
/s/ Stephen E. Gibson
- -----------------------------
Stephen E. Gibson
President
August 11, 1998
Because economic and market conditions change frequently, there can be no
assurance that the trends described above or on the following pages will
continue.
3
<PAGE>
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.
FUND CAPITALIZED ON FAVORABLE INTEREST RATE ENVIRONMENT
Overall, conditions for bonds over the past six months have been relatively
favorable. Typically, as interest rates rise, bond prices tend to fall.
Conversely, as interest rates fall, bond prices tend to rise. Interest rates
have been on a downward trend. In the past six months, low inflation and modest
economic growth helped push interest rates even lower. In turn, bond prices
continued their general upward climb.
Capitalizing on this favorable environment, the Fund generated a total return of
3.69% for Class A shares, based on net asset value for the six months ended June
30, 1998. This compares favorably with the performance of the average Lipper
peer group return of 2.71% for the same period. (1)
HIGH YIELD BONDS CONTINUE TO HOLD THEIR OWN
The high yield corporate sector of the bond market continues to account for the
highest percentage of the portfolio, approximately 40%. High yield corporates
were the leading performers in the portfolio during the first part of the
period; however, during the last six weeks, this segment of the bond market did
not perform to its fullest extent. Part of the slowdown stems from some industry
consolidation. Nevertheless, the outlook for value remains attractive because
high yield bonds tend to perform well in a steadily growing economy.
The Fund is diversified across 175 different high yield issues, with the largest
position accounting for less than two percent of the entire portfolio. In the
past six months, as the rate of growth in the economy slowed, the Fund reduced
cyclical holdings sensitive to economic movement. Telecommunication companies,
such as Nextel (1.43% of the portfolio), Time/Warner (0.80% of the portfolio),
and EchoStar Communications (0.87% of the portfolio), continue to be high on the
Fund's list of holdings. These companies have the ability to participate in the
explosive growth potential of personal communications, but can also fall back on
their more established business units in the event of an economic downturn.
In addition, we maintain strong positions in Stone Container Corp. (0.71% of the
portfolio) and Allied Waste North America, Inc. (0.70% of the portfolio).
U.S. TREASURYS BALANCE THE PORTFOLIO
The next heaviest weighting in the Fund's portfolio is U.S. Treasurys, which
account for approximately 30% of the total portfolio. The average effective
duration of these bonds is about five years, an intermediate time horizon that
has served the Fund well, particularly in the last quarter. In May and June, the
U.S. government market rallied strongly, and the Fund was positioned to benefit
from the rally.
4
<PAGE>
At the end of the period, approximately 10% of Treasury holdings were in
mortgage paper. These securities provide some cushion during market declines
because they are not as quick to react to interest rate movements as Treasury
securities.
Going forward, we believe the outlook for Treasurys remains the same. Inflation
has subdued, growth has slowed and bond prices are rising. The Fund has already
capitalized on this environment but foresees opportunity for further gains.
FOREIGN HOLDINGS ROUND OUT THE PORTFOLIO
Europe continues to be the Fund's investment of choice in the international
arena. Our investments in Spain performed particularly well, and the Fund
recently sold these holdings for a sizable profit. Part of the success of these
issues can be attributed to the anticipated introduction of the Euro, the common
currency for the European Economic Community. The European market has become
more unified and yields have converged closer to those of Germany, the strongest
economy in Europe. Along with more unity, the investment choices have and will
continue to narrow. As a result, the Fund is monitoring the market for
developing opportunities.
The portfolio's European investments include Greece, Poland, Sweden, Denmark and
the United Kingdom. The Fund also invests in Latin America, but has no exposure
in Asia.
POSITIVE OUTLOOK FOR 1998
Our outlook continues to be positive. A modest interest rate decline coupled
with slowing growth in the economy creates a favorable environment. We are
committed to investing at least 20% but no more than 50% in three bond sectors
- -- high yield bonds, U.S. Treasurys, and international bonds. These ranges allow
us to seek out the best performing bonds while maintaining diversification. For
the immediate future, we expect a continuation of what we have seen in the first
six months of 1998 and expect to maintain allocations similar to where the Fund
is now. Should the current economic and market climate change, we will assess
the benefits and risks and shift assets to the fixed-income sector we believe
has the most promising combination of total return, yield and risk.
(1) Source: Lipper Analytical Services, Inc. Lipper rankings are based on the
Lipper Multi-Sector Income Funds Category. The Fund's Class A share
ranking is in the first quartile for the six-month period (ranked 10 out
of 95 funds), for the one-year period is in the first quartile (9 out of
83 funds), in the first quartile for the five-year period (ranked 2 out of
20 funds) and in the second quartile for the ten-year period (ranked 2 out
of 5 funds). Rankings do not include any sales charges. Performance for
different share classes will vary with fees associated with each class.
Past performance cannot guarantee future results.
5
<PAGE>
Colonial Strategic Income Fund Investment Performance vs.
Lehman Brothers Government/Corporate Bond Index
Change in Value of $10,000 from 6/30/88 - 6/30/98
[GRAPH OMITTED]
[PLOT POINTS IN PCN 6.01]
Change in Value of $10,000 from 6/30/88 - 6/30/98
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Class A Class B Class C
NAV POP NAV w/CDSC NAV w/CDSC
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$24,271 $23,118 $23,199 $23,199 $24,126 $24,126
- ------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
As of 6/30/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
Inception 4/21/77 5/15/92 7/1/97
NAV POP NAV w/CDSC NAV w/CDSC
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 year 9.27% 4.08% 8.46% 3.46% 8.62% 7.62%
5 years 8.71 7.66 7.91 7.61 8.58 8.58
10 years 9.27 8.74 8.78 8.78 9.21 9.21
Since inception 10.24 9.98 10.00 10.00 10.20 10.20
- --------------------------------------------------------------------------------------------------
</TABLE>
Past performance cannot predict future results. Returns and value of an
investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. Net asset value (NAV) returns do not
include sales charges or contingent deferred sales charges (CDSC). The public
offering price (POP) returns include the maximum charges of 5.75% for Class A
shares. The CDSC returns reflect the maximum applicable charges of 5% for one
year and 2% for five years for Class B shares and 1% for one year for Class C
shares.
Performance results reflect any voluntary waivers or reimbursement of Fund
expenses by the Distributor. Absent these waivers or reimbursement arrangements,
performance results would have been lower. Performance for different share
classes will vary based on differences in sales charges and fees associated with
each class.
Class B and Class C share (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These Class A share
returns are not restated to reflect any expense differential (e.g., Rule 12b-1
fees) between Class A shares and the newer class shares. Had the expense
differential been reflected, the returns for periods prior to inception of the
newer class shares would have been lower.
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, are not professionally managed and
it is not possible to invest in an index.
6
<PAGE>
PLOT POINTS FOR OMITTED GRAPH, PAGE 6
COLONIAL STRATEGIC INCOME FUND INVESTMENT PERFORMANCE VS.
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX
Change in Value of $10,000 from 6/30/88 - 6/30/98
<TABLE>
<CAPTION>
[arrow] Label A B C D E
- ----------------------------------------------------------------------------
Label AS OF DATE NAV POP Lehman Govt/Cp
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Jun 30, 88 10000 9525 10000
- ----------------------------------------------------------------------------
2 Sep 30, 88 9867 9399 10187
- ----------------------------------------------------------------------------
3 Dec 30, 88 10198 9714 10285
- ----------------------------------------------------------------------------
4 Mar 31, 89 10492 9994 10399
- ----------------------------------------------------------------------------
5 Jun 30, 89 10810 10296 11234
- ----------------------------------------------------------------------------
6 Sep 29, 89 11166 10635 11340 CSIF mt
- ----------------------------------------------------------------------------
7 Dec 29, 89 11212 10679 11749
- ----------------------------------------------------------------------------
8 Mar 30, 90 10873 10356 11614
- ----------------------------------------------------------------------------
9 Jun 29, 90 11255 10720 12033
- ----------------------------------------------------------------------------
10 Sep 28, 90 10526 10026 12106
- ----------------------------------------------------------------------------
11 Dec 31, 90 10422 9927 12722
- ----------------------------------------------------------------------------
12 Mar 28, 91 11338 10800 13065
- ----------------------------------------------------------------------------
13 Jun 28, 91 11869 11305 13262
- ----------------------------------------------------------------------------
14 Sep 30, 91 12634 12033 14025
- ----------------------------------------------------------------------------
15 Dec 31, 91 13383 12748 14774
- ----------------------------------------------------------------------------
16 Mar 31, 92 13692 13042 14552
- ----------------------------------------------------------------------------
17 Jun 30, 92 14303 13624 15141
- ----------------------------------------------------------------------------
18 Sep 30, 92 14823 14119 15881
- ----------------------------------------------------------------------------
19 Dec 31, 92 14691 13994 15894
- ----------------------------------------------------------------------------
20 Mar 31, 93 15469 14734 16633
- ----------------------------------------------------------------------------
21 Jun 30, 93 15985 15226 17132
- ----------------------------------------------------------------------------
22 Sep 30, 93 16333 15558 17699
- ----------------------------------------------------------------------------
23 Dec 31, 93 16887 16085 17647
- ----------------------------------------------------------------------------
24 Mar 31, 94 16447 15666 17094
- ----------------------------------------------------------------------------
25 Jun 30, 94 16232 15461 16882
- ----------------------------------------------------------------------------
26 Sep 30, 94 16273 15500 16965
- ----------------------------------------------------------------------------
27 Dec 30, 94 16267 15494 17028
- ----------------------------------------------------------------------------
28 Mar 31, 95 17163 16348 17876
- ----------------------------------------------------------------------------
29 Jun 30, 95 18096 17237 19036
- ----------------------------------------------------------------------------
30 Sep 29, 95 18708 17820 19401
- ----------------------------------------------------------------------------
31 Dec 29, 95 19548 18619 20304
- ----------------------------------------------------------------------------
32 Mar 29, 96 19638 18706 19829
- ----------------------------------------------------------------------------
33 Jun 28, 96 19930 18983 19923
- ----------------------------------------------------------------------------
34 Sep 30, 96 20736 19751 20274
- ----------------------------------------------------------------------------
35 Dec 31, 96 21550 20527 20894
- ----------------------------------------------------------------------------
36 Mar 31, 97 21293 20282 20714
- ----------------------------------------------------------------------------
37 Jun 30, 97 22212 21157 21467
- ----------------------------------------------------------------------------
38 Sep 30, 97 23150 22050 22220
- ----------------------------------------------------------------------------
39 Dec 31, 97 23406 22294 22933
- ----------------------------------------------------------------------------
40 Mar 31, 98 24062 22919 23280
- ----------------------------------------------------------------------------
41 Jun 30, 98 24271 23118 23889
- ----------------------------------------------------------------------------
</TABLE>
<PAGE>
INVESTMENT PORTFOLIO
JUNE 30, 1998 (UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
BONDS & NOTES - 92.5%
- ------------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - 39.3% PAR
VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSTRUCTION - 0.2%
BUILDING CONSTRUCTION
Falcon Building Products Co., Inc.,
stepped coupon,
(10.500% 06/15/02) (a) 06/15/07 $ 3,500 $
2,327
Kevco, Inc.,
10.375% 12/01/07 1,500
1,560
- -------
3,887
- -------
- ------------------------------------------------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.2%
FINANCIAL SERVICES - 0.2%
U.S. Timberlands,
9.625% 11/15/07 4,000
4,060
- -------
NONDEPOSITORY CREDIT INSTITUTIONS - 0.0%
Drum Financial Corp.,
12.875% 09/15/99(b)(c) 1,000
10
- -------
- ------------------------------------------------------------------------------------------------------------------------
MANUFACTURING - 15.6%
CHEMICALS & ALLIED PRODUCTS - 2.0%
Agricultural Minerals Co., L.P.,
10.750% 09/30/03 7,200
7,695
Climachem, Inc.,
10.750% 12/01/07 (d) 2,000
2,075
Hydrochem Industrial Services, Inc.,
10.375% 08/01/07 4,420
4,508
LaRoche Industries, Inc.,
9.500% 09/15/07 6,250
6,063
PCI Chemicals Canada, Inc.,
9.250% 10/15/07 1,250
1,219
Sterling Chemicals, Inc.,
11.250% 04/01/07 6,900
6,831
Texas Petrochemical Corp.,
11.125% 07/01/06 1,600
1,736
Trans-Resources,
10.750% 03/15/08 4,000
4,130
- -------
34,257
- -------
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.1%
Amphenol Corp.,
9.875% 05/15/07 750
789
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/June 30, 1998
- -----------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR
VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANUFACTURING - CONT.
ELECTRONIC & ELECTRICAL EQUIPMENT - CONT.
L-3 Communications Corp.,
10.375% 05/01/07 $ 1,250 $
1,380
- -------
2,169
- -------
FABRICATED METAL - 1.2%
Earle M. Jorgensen Co.,
9.500% 04/01/05 (d) 1,000
980
Euramax International, PLC,
11.250% 10/01/06 (e) 8,000
8,640
Renco Metals, Inc.,
11.500% 07/01/03 6,000
6,420
U.S. Can Corp.,
10.125% 10/15/06 4,000
4,150
- -------
20,190
- -------
FOOD & KINDRED PRODUCTS - 0.9%
Chattem, Inc.,
8.750% 04/01/08 (d) 3,500
3,447
Chiquita Brands International, Inc.,
10.250% 11/01/06 3,750
4,036
Pilgrim's Pride Corp.,
10.875% 08/01/03 1,950
2,023
Sun World International Corp.,
11.250% 04/15/04 3,350
3,668
Windy Hill Pet Food Co.,
9.750% 05/15/07 1,000
1,045
- -------
14,219
- -------
LUMBER & WOOD PRODUCTS - 0.4%
Triangle Pacific Corp.,
10.500% 08/01/03 6,000
6,240
- -------
MACHINERY & COMPUTER EQUIPMENT - 0.5%
IMO Industries, Inc.,
11.750% 05/01/06 6,750
7,594
- -------
MEASURING & ANALYZING INSTRUMENTS - 0.1%
Intertek Finance, PLC,
10.250% 11/01/06 (e) 2,000
2,090
- -------
MISCELLANEOUS MANUFACTURING - 2.7%
AEI Holding Co.,
10.000% 11/15/07 (d) 3,500
3,491
Alliance Laundry Systems,
9.625% 05/01/08 (d) 3,000
3,026
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/June 30, 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Amscan Holdings, Inc.,
9.875% 12/15/07 $ 1,000 $
1,010
Associated Materials, Inc.,
9.250% 03/01/08 1,000
1,025
Compass Aerospace,
10.125% 04/15/05 (d) 1,000
1,025
Dade International, Inc.,
11.125% 05/01/06 2,250
2,531
Eagle-Picher Industries, Inc.,
9.375% 03/01/08 (d) 2,750
2,777
ISP Holdings, Inc.,
9.750% 02/15/02 5,000
5,250
JTM Industries, Inc.,
10.000% 04/15/08 (d) 1,250
1,269
Koppers Industries, Inc.,
9.875% 12/01/07 1,975
2,015
Moll Industries,
10.500% 07/01/08 (d) 1,500
1,530
MTL, Inc.,
10.000% 06/15/06 (d) 1,000
990
Newcor, Inc.,
9.875% 03/01/08 (d) 3,000
3,038
Polymer Group, Inc.,
9.000% 07/01/07 2,500
2,538
Shop Vac Corp.,
10.625% 09/01/03 3,000
3,278
Tekni-Plex, Inc.,
9.250% 03/01/08 2,000
2,000
The Imperial Home Decor Group, Inc.,
11.000% 03/15/08 (d) 2,750
2,846
Thermadyne MFG,
9.875% 06/01/08 (d) 2,750
2,771
Werner Holding Co.,
10.000% 11/15/07 (d) 2,250
2,340
- -------
44,750
- -------
PAPER PRODUCTS - 2.7%
Container Corp. of America,
Series A,
11.250% 05/01/04 7,500
8,100
Florida Coast Paper, LLC,
12.750% 06/01/03 3,350
3,718
Gaylord Container Corp.,
9.750% 06/15/07 4,500
4,410
Repap New Brunswick, Inc.,
10.625% 04/15/05 6,000
6,060
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO/JUNE 30, 1998
- ------------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR
VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANUFACTURING - CONT.
PAPER PRODUCTS - CONT.
Riverwood International Corp.:
10.625% 08/01/07 $ 6,000 $
6,240
10.875% 04/01/08 5,000
5,050
Stone Container Corp.:
10.750% 10/01/02 6,750
7,163
11.875% 12/01/98 3,750
3,788
Stone Container Corp. Units,
12.250% 04/01/02 (f) 1,000
1,026
- -------
45,555
- -------
PETROLEUM REFINING - 0.4%
Benton Oil & Gas Co.,
9.375% 11/01/07 1,200
1,176
Chiles Offshore,
10.000% 05/01/08 (d) 1,500
1,447
Flores & Rucks, Inc.,
9.750% 10/01/06 1,500
1,635
Northern Offshore ASA,
10.000% 05/15/05 3,000
2,910
- -------
7,168
- --------
PRIMARY METAL - 2.5%
Algoma Steel, Inc.,
12.375% 07/15/05 8,000
8,960
Bayou Steel Corp.,
9.500% 05/15/08 (d) 2,000
1,980
Insilco Corp.,
10.250% 08/15/07 1,200
1,254
Ivaco, Inc.,
11.500% 09/15/05 1,500
1,643
Kaiser Aluminum & Chemical Corp.,
10.875% 10/15/06 8,000
8,640
Keystone Consolidated Industries, Inc.,
9.625% 08/01/07 6,500
6,671
WCI Steel, Inc.,
10.000% 12/01/04 6,900
7,107
WHX Corp.,
10.500% 04/15/05 (d) 5,750
5,836
- -------
42,091
- -------
PRINTING & PUBLISHING - 0.3%
American Lawyer Media, Inc.,
9.750% 12/15/07 (d) 3,000
3,112
Hollinger International Publishing, Inc.,
9.250% 03/15/07 2,000
2,090
- -------
5,202
- -------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/June 30, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RUBBER & PLASTIC - 0.4%
Berry Plastics Corp.,
12.250% 04/15/04 $ 3,000 $
3,262
Burke Industries, Inc.,
10.000% 08/15/07 1,200
1,221
Portola Packaging, Inc.,
10.750% 10/01/05 2,000
2,110
- -------
6,593
- -------
STONE, CLAY, GLASS & CONCRETE - 0.1%
Anchor Glass Container Corp.,
11.250% 04/01/05 2,250
2,419
- -------
TRANSPORTATION EQUIPMENT - 1.3%
Blue Bird Body Co.,
10.750% 11/15/06 1,375
1,499
Collins & Aikman Products Co.,
11.500% 04/15/06 7,000
7,796
Delco Remy International, Inc.,
10.625% 08/01/06 1,600
1,728
Johnstown America Industries, Inc.,
11.750% 08/15/05 4,000
4,430
LDM Technologies, Inc.,
10.750% 01/15/07 6,825
7,098
- -------
22,551
- -------
- ------------------------------------------------------------------------------------------------------------------------
MINING & ENERGY - 3.0%
CRUDE PETROLEUM & NATURAL GAS - 0.7%
Ferrellgas Finance Corp., L.P.,
10.000% 08/01/01 3,215
3,360
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 6,250
5,109
- -------
11,044
- -------
OIL & GAS EXTRACTION - 1.8%
Forcenergy, Inc.,
9.500% 11/01/06 2,175
2,186
Magnum Hunter Resources, Inc.,
10.000% 06/01/07 1,750
1,794
Mariner Energy Corp.,
10.500% 08/01/06 6,000
6,120
Nuevo Energy Co.,
9.500% 04/15/06 5,350
5,564
Ocean Energy, Inc.,
10.375% 10/15/05 7,125
7,838
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO/JUNE 30, 1998
- -----------------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR
VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MINING & ENERGY - CONT.
OIL & GAS EXTRACTION - CONT.
Petsec Energy, Inc.,
9.500% 06/15/07 $ 4,000 $
4,040
Pool Energy Services Co.,
8.625% 04/01/08 (d) 2,500
2,363
- -------
29,905
- -------
OIL & GAS FIELD SERVICES - 0.5%
Parker Drilling Corp.,
9.750% 11/15/06 8,000
8,180
- -------
- ------------------------------------------------------------------------------------------------------------------------
RETAIL TRADE - 1.5%
APPAREL & ACCESSORY STORES - 0.2%
Galey & Lord Inc.,
9.125% 03/01/08 2,500
2,412
Specialty Retailers, Inc.,
9.000% 07/15/07 750
778
- -------
3,190
- -------
FOOD STORES - 0.9%
Friendly Ice Cream Corp.,
10.500% 12/01/07 2,000
2,115
Pathmark Stores, Inc.:
9.625% 05/01/03 2,250
2,278
stepped coupon,
(10.750% 11/01/99) (a) 11/01/03 10,500
8,846
Richmont Marketing,
10.125% 12/15/07 (d) 2,000
2,030
- -------
15,269
- -------
HOME FURNISHINGS & EQUIPMENT - 0.1%
Sealy Mattress Co.,
9.875% 12/15/07 (d) 1,000
1,020
- -------
MISCELLANEOUS RETAIL - 0.3%
Brylane Capital Corp.,
Series B,
10.000% 09/01/03 5,000
5,262
- -------
- ------------------------------------------------------------------------------------------------------------------------
SERVICES - 4.2%
AMUSEMENT & RECREATION - 0.8%
Hard Rock Hotel, Inc.,
9.250% 04/01/05 (d) 1,900
1,952
Hollywood Casino Corp.,
12.750% 11/01/03 1,000
1,108
</TABLE>
12
<PAGE>
Investment Portfolio/June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Hollywood Park, Inc.,
9.500% 08/01/07 $ 1,500 $ 1,545
Prime Hospitality Corp.,
9.250% 01/15/06 3,000 3,180
Regal Cinemas,
9.500% 06/01/08 (d) 5,000 5,050
-------
12,835
-------
BUSINESS SERVICES - 0.6%
Psinet Inc.,
10.000% 02/15/05 (d) 2,500 2,556
Unisys Corp.,
11.750% 10/15/04 6,000 6,923
-------
9,479
-------
HEALTH SERVICES - 0.6%
Allegiance Telecom Inc.,
stepped coupon,
(11.750% 02/15/03) (a) 02/15/08 (d) 2,000 980
Conmed Corp.,
9.000% 03/15/08 (d) 2,000 1,990
Global Health Sciences,
11.000% 05/01/08 (d) 2,250 2,227
Hudson Respiratory Care,
9.125% 04/15/08 (d) 1,500 1,425
Maxxim Medical, Inc.,
10.500% 08/01/06 2,500 2,725
-------
9,347
-------
HOTELS, CAMPS & LODGING - 1.6%
Eldorado Resorts Corp.,
10.500% 08/15/06 7,850 8,674
Harvey Casinos Resorts,
10.625% 06/01/06 7,750 8,602
HMH Properties, Inc.,
9.500% 05/15/05 5,100 5,559
Horseshoe Gaming LLC,
9.375% 06/15/07 4,300 4,580
-------
27,415
-------
MOTION PICTURES - 0.1%
United Artists Theatre,
9.750% 04/15/08 (d) 1,500 1,485
-------
OTHER SERVICES - 0.3%
Borg Warner Security Corp.,
9.625% 03/15/07 4,900 5,488
-------
</TABLE>
13
<PAGE>
Investment Portfolio/June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SERVICES - CONT.
PERSONAL SERVICES - 0.2%
Styling Technology Corp.,
10.875% 07/01/08 $ 2,000 $ 2,005
Williams Scotsman, Inc.,
9.875% 06/01/07 1,500 1,549
-------
3,554
-------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 14.3%
AIR TRANSPORTATION - 0.8%
Continental Airlines, Inc.,
9.500% 12/15/01 1,500 1,582
Trans World Airlines, Inc.,
11.375% 03/01/06 (d) 2,500 2,506
U.S. Airways Group, Inc., Pass-Through
Certificates,
10.375% 03/01/13 8,000 9,060
-------
13,148
-------
BROADCASTING - 1.6%
Allbritton Communications Co.,
9.750% 11/30/07 7,650 8,415
LIN Holding Corp.,
stepped coupon,
(10.000% 03/01/03) (a) 03/01/08 (d) 1,500 1,007
LIN Television Corp.,
8.375% 03/01/08 (d) 2,250 2,289
Renaissance Media Group,
stepped coupon,
(10.000% 04/15/03) (a) 04/15/08 4,000 2,460
Sullivan Broadcasting, Inc.,
10.250% 12/15/05 5,000 5,701
Young Broadcasting Corp.:
10.125% 02/15/05 3,000 3,240
11.750% 11/15/04 4,000 4,400
-------
27,512
-------
CABLE - 3.0%
Adelphia Communications Corp.,
8.375% 02/01/08 2,500 2,500
Comcast UK Cable Partners Ltd.,
stepped coupon,
(11.200% 11/15/00) (a) 11/15/07 7,425 6,200
Diamond Cable Communications PLC,
stepped coupon,
(10.750% 02/15/02) (a) 02/15/07 (e) 5,910 4,344
</TABLE>
14
<PAGE>
Investment Portfolio/June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
EchoStar Communications Corp.,
stepped coupon,
(12.875% 06/01/99) (a) 06/01/04 $ 6,000 $ 5,843
EchoStar Satellite Broadcasting Corp.,
stepped coupon,
(13.125% 03/15/00) (a) 03/15/04 8,000 7,360
International CableTel, Inc.,
stepped coupon,
(12.750% 04/15/00) (a) 04/15/05 5,500 4,840
Northland Cable Television, Inc.,
10.250% 11/15/07 4,500 4,815
Rogers Cablesystems, Inc.,
10.000% 03/15/05 3,000 3,330
Shop At Home, Inc.,
11.000% 04/01/05 1,250 1,319
Telewest Communication, PLC,
stepped coupon,
(11.000% 10/01/00) (a) 10/01/07 (e) 11,000 9,075
-------
49,626
-------
COMMUNICATIONS - 0.8%
Diamond Holdings, PLC,
9.125% 02/01/08 (d)(e) 750 784
Firstworld Communications Units,
stepped coupon,
(13.000% 04/15/03) (a) 04/15/08 (g) 2,200 968
Focal Communications Corp.,
stepped coupon,
(12.125% 02/15/03) (a) 02/15/08 (d) 2,000 1,205
GCI Inc.,
9.750% 08/01/07 1,250 1,297
Metronet Communications,
stepped coupon,
(9.950% 06/15/03) (a) 06/15/08 (d) 4,500 2,784
Onepoint Communication Corp. Units,
14.500% 06/01/08 (d)(h) 4,000 3,760
Orbital Imaging Group,
11.625% 03/01/05 (d) 1,000 1,020
PTC International Finance BV,
stepped coupon,
(10.750% 07/01/02) (a) 07/01/07 1,700 1,156
-------
12,974
-------
ELECTRIC SERVICES - 0.4%
California Energy Co., Inc.,
9.500% 09/15/06 2,000 2,158
</TABLE>
15
<PAGE>
Investment Portfolio/June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
ELECTRIC SERVICES - CONT.
System Energy Resources, Inc.,
11.375% 09/01/16 $ 344 $ 367
WESCO Distribution, Inc.,
9.125% 06/01/08 (d) 5,000 4,950
-------
7,475
-------
GAS SERVICES - 0.4%
California Energy Co., Inc.,
9.875% 06/30/03 6,600 7,144
-------
MOTOR FREIGHT & WAREHOUSING - 0.1%
Pierce Leahy Corp.,
11.125% 07/15/06 1,625 1,836
-------
SANITARY SERVICES - 0.7%
Allied Waste Industries, Inc.,
stepped coupon,
(11.300% 06/01/02) (a) 06/01/07 2,000 1,465
Allied Waste North America, Inc.,
10.250% 12/01/06 9,475 10,387
-------
11,852
-------
TELECOMMUNICATION - 6.2%
21st Century Telecom Group Inc.,
stepped coupon,
(12.250% 02/15/03) (a) 02/15/08 (d) 2,500 1,413
Arch Communications Inc.,
12.750% 07/01/07 1,000 1,010
Cencall Communications Corp.,
stepped coupon,
(10.125% 01/15/99) (a) 01/15/04 6,000 5,865
Clearnet Communications, Inc.,
stepped coupon,
(14.750% 12/15/00) (a) 12/15/05 7,500 6,300
Comcast Cellular Corp.,
9.500% 05/01/07 7,250 7,576
Esprit Telecom Group PLC,
11.500% 12/15/07 (e) 1,500 1,543
GST Telecom,
stepped coupon,
(10.500% 05/01/03) (a) 05/01/08 (d) 4,000 2,420
ICG Holding, Inc.,
stepped coupon,
(13.500% 09/15/00) (a) 09/15/05 5,000 4,244
</TABLE>
16
<PAGE>
Investment Portfolio/June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
ICG Services, Inc.,
stepped coupon,
(10.000% 02/15/03) (a) 02/15/08 (d) $ 5,000 $ 3,000
IntelCom Group (USA), Inc.,
stepped coupon,
(12.500% 05/01/01) (a) 05/01/06 2,000 1,568
Intermedia Communications, Inc.,
stepped coupon,
(11.250% 07/15/02) (a) 07/15/07 5,000 3,650
Intermedia Communications of
Florida, Inc.,
stepped coupon,
(12.500% 05/15/01) (a) 05/15/06 6,000 4,920
IXC Communications Inc.,
9.000% 04/15/08 (d) 1,500 1,504
KMC Telecom Holdings,
stepped coupon,
(12.500% 02/15/03) (a) 02/15/08 (d)(i) 2,000 1,180
Level 3 Communications
9.125% 05/01/08 (d) 6,000 5,850
McleodUSA, Inc.:
stepped coupon,
(10.500% 03/01/02) (a) 03/01/07 6,000 4,470
8.375% 03/15/08 2,000 1,995
Metrocall Inc.,
9.750% 11/01/07 250 255
MetroNet Communications Corp.,
12.000% 08/15/07 1,250 1,406
MJD Communication Inc.,
9.500% 05/01/08 (d) 1,500 1,530
Nextel Communications, Inc.,
stepped coupon:
(9.750% 02/15/99) (a) 08/15/04 10,000 9,700
(9.750% 10/31/02) (a) 10/31/07 6,000 3,900
(9.950% 02/15/03) (a) 02/15/08 (d) 5,000 3,219
Nextel International, Inc.,
stepped coupon,
(12.125% 04/15/03) (a) 04/15/08 (d) 3,000 1,748
Price Communications Wireless,
9.125% 12/15/06 2,250 2,250
RCN Corp.,
stepped coupon,
(11.125% 10/15/02) (a) 10/15/07 2,750 1,767
Sprint Spectrum, L.P.,
stepped coupon,
(12.500% 08/15/01) (a) 08/15/06 9,650 8,347
</TABLE>
17
<PAGE>
Investment Portfolio/June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
TELECOMMUNICATION - CONT.
Teleport Communications Group, Inc.,
stepped coupon,
(11.125% 07/01/01) (a) 07/01/07 $ 8,470 $ 7,274
Teligent Inc.,
11.500% 12/01/07 3,000 3,023
Verio, Inc.
10.375% 04/01/05 (d) 1,000 1,030
WinStar Communications, Inc.,
stepped coupon,
(14.000% 10/15/00) (a) 10/15/05 250 209
--------
104,166
--------
TRANSPORTATION SERVICES - 0.1%
Moog, Inc.,
10.000% 05/01/06 1,125 1,209
--------
WATER TRANSPORTATION - 0.2%
American Commercial Lines,
10.250% 06/30/08 (d) 4,000 4,060
--------
- ----------------------------------------------------------------------------------------
WHOLESALE TRADE - 0.3%
NONDURABLE GOODS
AmeriServe Food Co.,
10.125% 07/15/07 2,500 2,572
U.S. Office Products Co.,
9.750% 06/15/08 (d) 2,500 2,516
--------
5,088
--------
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES (cost of $638,666) 660,608
--------
CORPORATE CONVERTIBLE BONDS & NOTES - 0.8%
- ----------------------------------------------------------------------------------------
MANUFACTURING - 0.0%
ELECTRONIC & ELECTRICAL EQUIPMENT
Kollmorgen Corp.,
8.750% 05/01/09 532 551
--------
- ----------------------------------------------------------------------------------------
MINING & ENERGY - 0.8%
OIL & GAS EXTRACTION
HS Resources, Inc.,
9.250% 11/15/06 13,500 13,635
--------
TOTAL CORPORATE CONVERTIBLE
BONDS & NOTES (cost of $14,262) 14,186
--------
</TABLE>
18
<PAGE>
Investment Portfolio/June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT &
AGENCY OBLIGATIONS - 27.6% PAR VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GOVERNMENT AGENCIES - 2.6%
Maturities
Coupon From/To
--------------- -----------------
Federal Home Loan Mortgage Corp.:
7.500% 2016 $ 189 $ 196
8.000% 2006-2016 1,028 1,077
8.500% 2007-2010 1,007 1,063
8.750% 2005-2008 381 402
9.000% 2004-2022 1,255 1,330
9.250% 2007-2016 847 902
9.500% 2008-2016 838 899
9.750% 2008-2016 118 127
10.000% 2009-2019 1,179 1,283
10.500% 2020-2024 480 531
10.750% 2010-2013 963 1,085
11.250% 2010-2015 513 580
-------
9,475
-------
Federal National Mortgage Association:
7.500% 2003-2011 546 564
8.000% 2002-2009 739 769
8.250% 2007-2009 206 213
8.500% 2008-2021 1,977 2,074
9.000% 2003-2021 3,589 3,815
9.250% 2016 282 299
10.000% 2013-2016 1,207 1,332
10.500% 2007-2016 1,554 1,718
-------
10,784
-------
Government National Mortgage Association:
8.500% 2006 52 56
9.000% 2008-2017 11,974 12,873
9.500% 2009-2017 5,090 5,523
10.000% 2000-2021 1,778 1,951
10.500% 2001-2021 435 484
11.000% 2009-2016 2,570 2,890
11.750% 2013-2015 68 77
12.000% 2014 4 5
-------
23,859
-------
GOVERNMENT OBLIGATIONS - 25.0%
U.S. Treasury Bonds:
8.750% 05/15/17 11,754 15,829
11.625% 11/15/04 49,006 64,803
</TABLE>
19
<PAGE>
Investment Portfolio/June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
U.S. GOVERNMENT &
AGENCY OBLIGATIONS - CONT. PAR VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GOVERNMENT OBLIGATIONS - CONT.
U.S. Treasury Bonds - Cont.
12.000% 08/15/13 $ 46,196 $ 68,493
--------
149,125
--------
U.S. Treasury Notes:
8.875% 02/15/19 34,204 47,111
10.375% 11/15/12 (j) 72,131 96,588
11.875% 11/15/03 99,610 128,372
--------
272,071
--------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS (cost of $459,708) 465,314
--------
FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS - 24.8% CURRENCY
- -----------------------------------------------------------------------------------------------------
Argentina Global Bonds,
11.375% 01/30/17 (k) 14,550 15,459
Government of Sweden,
10.250% 05/05/03 SK 256,000 39,723
Hellenic Republic:
8.600% 03/26/08 GD 5,000,000 17,272
8.900% 03/21/04 GD 5,360,000 17,812
Kingdom of Denmark,
8.000% 03/15/06 DK 98,000 17,012
Mexican Global Bonds:
9.750% 02/06/01 (l) 17,310 18,024
11.375% 09/15/16 (l) 16,220 18,045
Ministry of Finance Russia Government
Bonds:
9.375% 03/31/05 (d)(m) G 30,480 13,740
10.000% 06/26/07 17,000 12,962
Poland Non-U.S. Global Registered Bond,
6.688% 10/27/24 (n) 12,419 12,194
Republic of Argentina,
11.250% 04/10/06 (o) G 15,350 9,636
Republic of Brazil,
10.125% 05/15/27 (p) 33,600 28,938
Republic of Poland (Brady),
Past Due Interest,
stepped coupon,
(5.000% 10/27/98) 4.000% 10/27/14 (q) 22,500 20,306
United Kingdom Treasury:
9.000% 08/06/12 KB 12,455 27,108
9.500% 04/18/05 KB 17,085 33,746
10.000% 09/08/03 KB 19,495 37,704
</TABLE>
20
<PAGE>
Investment Portfolio/June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
United Mexican States,
10.375% 01/29/03 (r) G $ 12,800 $ 7,894
Victoria Treasury Corp:
10.250% 11/15/06 A$ 35,555 28,493
12.500% 10/15/03 A$ 18,161 14,753
Western Australia Treasury Corp.,
8.000% 10/15/07 A$ 37,519 26,774
----------
TOTAL FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS (cost of $427,547) 417,595
----------
TOTAL BONDS & NOTES (cost of $1,540,183) 1,557,703
----------
COMMON STOCKS - 0.3% (s) SHARES
- -------------------------------------------------------------------------------------------------------
CONSTRUCTION - 0.1%
BUILDING CONSTRUCTION
Calton, Inc. 356 245
U.S. Home Corp. 31 1,288
----------
1,533
----------
- -------------------------------------------------------------------------------------------------------
MANUFACTURING - 0.0%
FOOD & KINDRED PRODUCTS
Darling International, Inc. 80 591
----------
- -------------------------------------------------------------------------------------------------------
MINING & ENERGY - 0.0%
OIL & GAS EXTRACTION
Forest Oil Corp. 16 235
----------
- -------------------------------------------------------------------------------------------------------
RETAIL TRADE - 0.0%
MISCELLANEOUS RETAIL
Pharmhouse Corp. 4 16
----------
- -------------------------------------------------------------------------------------------------------
SERVICES - 0.2%
BUSINESS SERVICES - 0.0%
Iron Mountain Inc. 1 44
----------
HEALTH SERVICES - 0.2%
Kuala Healthcare Inc. 177 1,325
Total Renal Care Holdings, Inc. 55 1,898
----------
3,223
----------
</TABLE>
21
<PAGE>
Investment Portfolio/June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
COMMON STOCKS - CONT. SHARES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
LOCAL & SUBURBAN TRANSIT - 0.0%
Greyhound Lines, Inc., 12.50% Escrow
Receipt (b) 1 $ (t)
---------------
MOTOR FREIGHT & WAREHOUSING - 0.0%
St. Johnsbury Trucking Co. (b) 31 (t)
Sun Carriers, Inc. (b) 130 1
---------------
1
---------------
TELECOMMUNICATION - 0.0%
Nextel Communications, Inc. 9 231
---------------
TOTAL COMMON STOCKS (cost of $4,593) 5,874
---------------
PREFERRED STOCKS - 2.2%
- ---------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.1%
DEPOSITORY INSTITUTIONS - 0.1%
California Federal Bancorp, Inc.,
9.125%, Series A 59 1,600
---------------
HOLDING & OTHER INVESTMENT COMPANIES - 0.0%
Riggs National Corp., 10.750% 19 524
---------------
- ---------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 2.1%
BROADCASTING - 0.2%
Primedia Inc.:
9.20% 12 1,224
10.00% 15 1,560
---------------
2,784
---------------
CABLE - 1.4%
CSC Holdings Inc.:
11.125%, PIK, Series M 37 4,305
11.750%, PIK, Series H 40 4,688
EchoStar Communications Corp., 12.125% 1 1,509
Time Warner, Inc.,
10.250%, Series M 12 13,411
---------------
23,913
---------------
TELECOMMUNICATION - 0.5%
Concentric Network Corp.,
13.50%, PIK 2 2,022
</TABLE>
22
<PAGE>
Investment Portfolio/June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Nextel Communications, Inc.:
11.125%, PIK 2 $ 2,120
13.00%, PIK 4 4,920
----------
9,062
----------
TOTAL PREFERRED STOCKS (cost of $36,334) 37,883
----------
WARRANTS - 0.0% (s)
- ------------------------------------------------------------------------------
MANUFACTURING - 0.0%
RUBBER & PLASTIC
BPC Holdings Corp., expires 04/15/04 (b) 3 60
----------
- ------------------------------------------------------------------------------
SERVICES - 0.0%
HEALTH SERVICES - 0.0%
Allegiance Telecom Inc.,
expires 02/03/08 2 (t)
----------
HOTELS, CAMPS, & LODGING - 0.0%
Capital Gaming International, Inc.,
expires 02/01/99 (b) 6 (t)
----------
- ------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
CABLE - 0.0%
Wireless One, Inc., expires 10/19/01 (b) 14 (t)
----------
COMMUNICATIONS - 0.0%
Orbital Imaging Corp., expires 03/01/05 (d) 1 45
----------
TELECOMMUNICATION - 0.0%
Clearnet Communications, Inc., expires 09/15/05 25 229
Hyperion Telecommunications, Inc.,
expires 04/15/01 (d) 3 325
MetroNet Communications, Inc.,
expires 08/15/07 (d) 1 60
----------
614
----------
TOTAL WARRANTS (cost of $354) 719
----------
TOTAL INVESTMENTS (cost of $1,581,464)(u) 1,602,179
----------
</TABLE>
23
<PAGE>
Investment Portfolio/June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 2.7% PAR VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Repurchase agreement with ABN AMRO Chicago Corp.,
dated 06/30/98, due 7/01/98 at 6.100%
collateralized by U.S. Treasury notes
with various maturities to 2027,
market value $46,011 (repurchase proceeds $45,043) $ 45,035 $ 45,035
-----------
FORWARD CURRENCY CONTRACTS - 0.0% (v) (904)
- --------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - 2.3% 39,420
- --------------------------------------------------------------------------
NET ASSETS - 100.0% $ 1,685,730
-----------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Currently zero coupon. Shown parenthetically is the interest
rate to be paid and the date the Fund will begin accruing this rate.
(b) Represents fair value as determined in good faith under the direction
of the Trustees.
(c) This issuer is in default of certain debt covenants. Income is not
being accrued.
(d) 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, 1998, the value of these securities amounted to $131,003
or 7.8% of net assets.
(e) This is a British security. Par amount is stated in U.S. dollars.
(f) Unit consists of a 10.750% bond and a 1.500% supplemental interest
certificate.
(g) Unit consists of a bond and a warrant for every 1,000 bonds to buy
7.9002 shares of series B common stock at $0.01 per share.
(h) Unit consists of a bond and a warrant for every 1,000 bonds to buy
0.635 shares of common stock at $0.01 per share.
(i) Unit consists of a bond and a warrant for every 1,000 bonds to buy
0.21785 shares of common stock at $0.01 per share.
(j) This security, or a portion thereof, with a total market value of
$96,412, is being used to collateralize the forward currency contracts
shown on the following page.
(k) This is an Argentinean security. Par amount is stated in U.S. dollars.
(l) This is a Mexican security. Par amount is stated in U.S. dollars.
(m) This is a Russian security. Par amount is stated in German
Deutschemarks.
(n) This is a Polish security. Par amount is stated in U.S. dollars.
Interest rate shown is a floating rate coupon which changes every six
months.
(o) This is an Argentinean security. Par amount is stated in German
Deutschemarks.
(p) This is a Brazilian security. Par amount is stated in U.S. dollars.
(q) 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.
(r) This is a Mexican security. Par amount is stated in German
Deutschemarks.
(s) Non-income producing.
24
<PAGE>
Investment Portfolio/June 30, 1998
- --------------------------------------------------------------------------------
(t) Rounds to less than one.
(u) Cost for federal income tax purposes of total investments is
$1,581,501.
(v) As of June 30, 1998, the Fund had entered into the following forward
currency exchange contracts:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Contracts In Exchange Settlement (Depreciation)
to Deliver For Date (U.S. $)
- ---------------- ----------- --------- --------------
<S> <C> <C> <C>
SK 166,230 US$ 20,865 07/09/98 $ 72
US$ 10,857 SK 83,100 07/09/98 (463)
DK 79,320 US$ 11,372 07/14/98 (150)
US$ 11,692 DK 79,320 07/14/98 (169)
UK 45,240 US$ 75,616 07/23/98 264
A$ 114,340 US$ 70,432 08/04/98 (458)
--------------
$ (904)
==============
</TABLE>
<TABLE>
<CAPTION>
Summary of Securities
by Country Currency Value % of Total
- -------------------------------------------------------------
<S> <C> <C> <C>
United States $ 1,158,108 72.3
United Kingdom KB 125,034 7.8
Australia A$ 70,020 4.4
Mexico 43,963 2.7
Sweden SK 39,723 2.5
Greece GD 35,084 2.2
Poland 32,500 2.0
Brazil 28,938 1.8
Russia 26,702 1.6
Argentina 25,095 1.6
Denmark DK 17,012 1.1
----------- ---------
$ 1,602,179 100.0
=========== =========
</TABLE>
Certain securities are listed by country of underlying exposure but may
trade predominantly on other exchanges.
<TABLE>
<CAPTION>
Acronym Name
------- ----
<S> <C>
PIK Payment-In-Kind
A$ Australian Dollars
DK Danish Kroner
GD Greek Drachmas
KB British Pounds
SK Swedish Kroner
</TABLE>
See notes to financial statements.
25
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $1,581,464) $1,602,179
Short-term obligations 45,035
-----------
1,647,214
Cash held in foreign banks (cost $2) $ 2
Receivable for:
Interest 27,769
Investments sold 20,302
Fund shares sold 4,965
Dividends 148
Other 92 53,278
-------- -----------
Total Assets 1,700,492
LIABILITIES
Payable for:
Distributions 10,494
Fund shares repurchased 2,096
Investments purchased 1,250
Unrealized depreciation on forward
currency contracts 904
Accrued deferred trustees fees 18
--------
Total Liabilities 14,762
-----------
NET ASSETS $1,685,730
-----------
Net asset value & redemption price per share -
Class A ($810,217/111,017) $ 7.30
-----------
Maximum offering price per share - Class A
($7.30/0.9525) $ 7.66(a)
-----------
Net asset value & offering price per share -
Class B ($852,024/116,746) $ 7.30(b)
-----------
Net asset value & offering price per share -
Class C ($23,489/3,218) $ 7.30(b)
-----------
</TABLE>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements.
26
<PAGE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
(in thousands)
INVESTMENT INCOME
Interest $ 72,763
Dividends 1,985
---------
Total investment income 74,748
EXPENSES
Management fee $ 5,277
Service fee 1,939
Distribution fee - Class B 3,169
Distribution fee - Class C 43
Transfer agent 1,850
Bookkeeping fee 264
Trustees fee 54
Custodian fee 38
Audit fee 20
Other 151 12,805
-------- ---------
Net Investment Income 61,943
=========
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain on:
Investments 2,978
Foreign currency transactions 5,971
--------
Net Realized Gain 8,949
Net unrealized depreciation
during the period on:
Investments (9,434)
Foreign currency transactions (3,482)
--------
Net Unrealized Depreciation (12,916)
---------
Net Loss (3,967)
---------
Increase in Net Assets From Operations $ 57,976
=========
</TABLE>
See notes to financial statements.
27
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(Unaudited)
Six months Year ended
(in thousands) ended June 30 December 31
------------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS 1998 1997 (a)
Operations:
Net investment income $ 61,943 $ 117,469
Net realized gain 8,949 17,807
Net unrealized depreciation (12,916) (9,879)
----------- -----------
Net Increase from Operations 57,976 125,397
Distributions: (b)
From net investment income - Class A (31,905) (63,388)
From net investment income - Class B (29,858) (59,855)
From net investment income - Class C (511) (124)
----------- -----------
(4,298) 2,030
----------- -----------
Fund Share Transactions:
Receipts for shares sold - Class A 61,698 152,305
Value of distributions reinvested - Class A 14,708 33,842
Cost of shares repurchased - Class A (72,441) (134,241)
----------- -----------
3,965 51,906
----------- -----------
Receipts for shares sold - Class B 77,872 147,889
Value of distributions reinvested - Class B 12,326 29,039
Cost of shares repurchased - Class B (69,911) (127,760)
----------- -----------
20,287 49,168
----------- -----------
Receipts for shares sold - Class C 18,554 6,263
Value of distributions reinvested - Class C 225 59
Cost of shares repurchased - Class C (1,308) (93)
----------- -----------
17,471 6,229
----------- -----------
Net Increase from Fund
Share Transactions 41,723 107,303
----------- -----------
Total Increase 37,425 109,333
NET ASSETS
Beginning of period 1,648,305 1,538,972
----------- -----------
End of period (including undistributed net
investment income of $8,384 and $7,673,
respectively) $ 1,685,730 $ 1,648,305
=========== ===========
</TABLE>
(a) Class C shares were initially offered on July 1, 1997.
(b) Distributions from income include currency gains and gains on securities
treated as ordinary income for tax purposes.
See notes to financial statements.
28
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS - CONT.
<TABLE>
<CAPTION>
(Unaudited)
Six months Year ended
(in thousands) ended June 30 December 31
------------- -----------
<S> <C> <C>
NUMBER OF FUND SHARES 1998 1997 (a)
Sold - Class A 8,376 20,964
Issued for distributions reinvested - Class A 1,996 4,650
Repurchased - Class A (9,834) (18,479)
------- -------
538 7,135
------- -------
Sold - Class B 10,573 20,354
Issued for distributions reinvested - Class B 1,672 3,991
Repurchased - Class B (9,487) (17,572)
------- -------
2,758 6,773
------- -------
Sold - Class C 2,516 854
Issued for distributions reinvested - Class C 31 8
Repurchased - Class C (178) (13)
------- -------
2,369 849
------- -------
</TABLE>
(a) Class C shares were initially offered on July 1, 1997.
See notes to financial statements.
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (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, 1998, 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 three classes of shares: Class A,
Class B, and Class C. Class A shares are sold with a front-end sales charge and
Class B shares 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. Class C shares are subject to a
contingent deferred sales charge on redemptions made within one year after
purchase and an annual distribution fee.
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 generally 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
30
<PAGE>
Notes to Financial Statements/June 30, 1998
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 for which market quotations are not readily available are
valued at fair value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class B and Class C distribution fees) 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 and Class C 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 and Class C
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.
31
<PAGE>
Notes to Financial Statements/June 30, 1998
NOTE 2. ACCOUNTING POLICIES - CONT.
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
contracts are used to minimize the exposure to foreign exchange rate
fluctuations during the period between trade and settlement date of the
contracts. The Fund may also enter into forward currency contracts to hedge
certain other foreign currency denominated assets. 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.
32
<PAGE>
Notes to Financial Statements/June 30, 1998
NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser) is
the investment Adviser of the Fund and furnishes accounting and other
services and office facilities for a monthly fee based on the Fund's average
net assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Average Net Assets Annual Fee Rate
------------------ ---------------
First $1 billion 0.65%
Over $1 billion 0.60%
</TABLE>
BOOKKEEPING FEE: The Adviser provides bookkeeping and pricing services for
$27,000 per year plus a percentage of the Fund's average net assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Average Net Assets Annual Fee Rate
------------------ ---------------
First $50 million No charge
Next $950 million 0.035%
Next $1 billion 0.025%
</TABLE>
TRANSFER AGENT: Colonial Investors Service Center, Inc. (the Transfer Agent),
an affiliate of the Adviser, provides shareholder services for a monthly fee
equal to 0.20% annually of the Fund's average net assets and receives
reimbursement for certain out-of-pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Liberty Funds Distributor
Inc., formerly Liberty Financial Investments, Inc. (the Distributor), a
subsidiary of the Adviser, is the Fund's principal underwriter. For the six
months ended June 30, 1998, the Fund has been advised that the Distributor
retained net underwriting discounts of $105,047 on sales of the Fund's Class A
shares and received contingent deferred sales charges (CDSC) of $953,391 and
$4,614 on Class B and Class C share redemptions, respectively.
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 and Class C shares only. The Distributor has voluntarily
agreed, until further notice, to waive a portion of the Class C share
distribution fee so that it does not exceed 0.60% annually. The plan also
requires the payment of a service fee to the Distributor as follows:
<TABLE>
<CAPTION>
<S> <C>
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%
</TABLE>
33
<PAGE>
Notes to Financial Statements/June 30, 1998
NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES - CONT.
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: For the six months ended June 30, 1998, purchases and sales
of investments, other than short-term obligations, were $543,335,595 and
$527,257,918, respectively, of which $30,025,594 and $51,021,789, respectively,
were U.S. government securities.
Unrealized appreciation (depreciation) at June 30, 1998, based on cost of
investments for federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 54,053,809
Gross unrealized depreciation (33,375,633)
------------
Net unrealized appreciation $ 20,678,176
============
</TABLE>
CAPITAL LOSS CARRYFORWARDS: At December 31, 1997, 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>
1998 $ 5,118,000
1999 36,511,000
2000 23,761,000
2001 3,442,000
2002 42,652,000
2003 18,825,000
------------
$130,309,000
============
</TABLE>
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.
34
<PAGE>
Notes to Financial Statements/June 30, 1998
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 33 1/3% 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, 1998.
NOTE 6. COMPOSITION OF NET ASSETS
<TABLE>
<S> <C>
At June 30, 1998, net assets consisted of:
Capital paid in $ 1,780,139
Undistributed net investment income 8,384
Accumulated net realized loss (122,593)
Net unrealized appreciation (depreciation) on:
Investments 20,716
Foreign currency transactions (916)
------------
$ 1,685,730
============
</TABLE>
35
<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
--------------------------------------------------
1998
Class A Class B Class C
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value -
Beginning of period $ 7.320 $ 7.320 $ 7.320
------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.290 0.262 0.268 (b)
Net realized and
unrealized gain (loss) (0.022) (0.022) (0.022)
------------ ------------ ------------
Total from Investment
Operations 0.268 0.240 0.246
------------ ------------ ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (c) (0.288) (0.260) (0.266)
------------ ------------ ------------
Net asset value -
End of period $ 7.300 $ 7.300 $ 7.300
------------ ------------ ------------
Total return (d) 3.69% (e) 3.31% (e) 3.38% (e)
------------ ------------ ------------
RATIOS TO AVERAGE NET ASSETS
Expenses (f) 1.14% (g) 1.89% (g) 1.74% (b)(g)
Net investment income (f) 7.78% (g) 7.03% (g) 7.18% (b)(g)
Portfolio turnover 33% (e) 33% (e) 33% (e)
Net assets at end
of period (000) $ 810,217 $ 852,024 $ 23,489
</TABLE>
(a) Class C shares were initially offered on July 1, 1997. Per share amounts
reflect activity from that date.
(b) Net of fees waived by the Distributor which amounted to $0.011 per share and
0.15% (annualized).
(c) Distributions from income include currency gains and gains on securities
treated as ordinary income for tax purposes.
(d) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(g) Annualized.
36
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
<TABLE>
<CAPTION>
Year ended December 31
- ------------------------------------------------------------
1997
Class A Class B Class C (a)
- ------------ ------------ ------------
<S> <C> <C>
$ 7.310 $ 7.310 $ 7.240
- ------------ ------------ ------------
0.578 0.524 0.271
0.025 0.025 0.092
- ------------ ------------ ------------
0.603 0.549 0.363
- ------------ ------------ ------------
(0.593) (0.539) (0.283)
- ------------ ------------ ------------
$ 7.320 $ 7.320 $ 7.320
- ------------ ------------ ------------
8.61% 7.81% 5.06% (e)
- ------------ ------------ ------------
1.18% 1.93% 1.78% (g)
7.78% 7.03% 7.13% (g)
111% 111% 111%
$ 808,228 $ 833,865 $ 6,212
</TABLE>
37
<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
---------------------------------------------------------------------
1996 1995
Class A Class B Class A Class B
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 7.220 $ 7.220 $ 6.530 $ 6.530
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.623 0.569 0.621 0.569
Net realized and
unrealized gain (loss) 0.081 0.081 0.650 0.650
------------ ------------ ------------ ------------
Total from Investment
Operations 0.704 0.650 1.271 1.219
------------ ------------ ------------ ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.614) (a) (0.560) (a) (0.581)
(0.529)
From capital paid in -- -- -- --
------------ ------------ ------------ ------------
Total Distributions
Declared to Shareholders (0.614) (0.560) (0.581)
(0.529)
------------ ------------ ------------ ------------
Net asset value -
End of period $ 7.310 $ 7.310 $ 7.220 $ 7.220
------------ ------------ ------------ ------------
Total return (b) 10.24% 9.43% 20.17%
19.29%
------------ ------------ ------------ ------------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.18% (c) 1.93% (c) 1.18% (c)
1.97% (c)
Net investment income 8.01% (c) 7.26% (c) 8.42% (c)
7.63% (c)
Portfolio turnover 110% 110% 83%
83%
Net assets at end
of period (000) $ 755,352 $ 783,620 $ 714,961 $ 714,049
</TABLE>
(a) Distributions from income include currency gains and gains on securities
treated as ordinary income for tax purposes.
(b) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(d) The data presented for periods prior to November 30, 1994, represent
operations under an earlier objective.
38
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
<TABLE>
<CAPTION>
Year ended December 31
- ------------------------------------------------------------------------
1994 (d) 1993 (d)
Class A Class B Class A Class B
- ------------ ------------ ------------ ------------
<S> <C> <C> <C>
$ 7.390 $ 7.390 $ 7.010 $ 7.010
- ------------ ------------ ------------ ------------
0.580 0.529 0.565 0.511
(0.848) (0.849) 0.448 0.448
- ------------ ------------ ------------ ------------
(0.268) (0.320) 1.013 0.959
- ------------ ------------ ------------ ------------
(0.580) (0.529) (0.585) (0.535)
(0.012) (0.011) (0.048) (0.044)
- ------------ ------------ ------------ ------------
(0.592) (0.540) (0.633) (0.579)
- ------------ ------------ ------------ ------------
$ 6.530 $ 6.530 $ 7.390 $ 7.390
============ ============ ============ ============
(3.67)% (4.40)% 14.95% 14.11%
============ ============ ============ ============
1.21% 1.96% 1.19% 1.94%
8.38% 7.63% 8.42% 7.67%
78% 78% 138% 138%
$ 636,824 $ 608,348 $ 660,654 $ 475,141
</TABLE>
39
<PAGE>
SHAREHOLDER SERVICES
TO MAKE INVESTING EASIER
Your Fund 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 Investors Service Center 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 fund distributed by Liberty Funds Distributor, Inc. 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 within one year, you can reinvest in any fund
distributed by Liberty Funds Distributor 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 Fund 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
processing 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 fund
with a balance of $5,000 into the same share class of up to four other funds
distributed by Liberty Funds Distributor. Minimum for each transfer is $100.
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 the Transfer Agent. 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 C shares, or $1 million or more of Class A shares, may be subject
to a contingent deferred sales charge.
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HOW TO REACH COLONIAL
BY PHONE OR BY MAIL
BY TELEPHONE
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 service 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 fund distributed by Liberty Funds Distributor, 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
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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
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.
LIBERTY FUNDS DISTRIBUTOR INVESTOR OPPORTUNITIES: 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.)
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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 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 and the most recent
copy of Liberty Funds Distributor's Performance Update.
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TRUSTEES
ROBERT J. BIRNBAUM
Consultant (formerly Special Counsel, Dechert, Price & Rhoads; President and
Chief Operating Officer, New York Stock Exchange, Inc.; President, American
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, & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
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, Chief Executive Officer and Director,
Hannaford Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
ROBERT L. SULLIVAN
Retired Partner, KPMG Peat Marwick LLP (formerly Management Consultant, Saatchi
and Saatchi Consulting Ltd. and Principal and International Practice Director,
Management Consulting, Peat Marwick Main & Co.)
[LIBERTY LOGO]
Liberty Funds Distributor, Inc. (C) 1998
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
Visit us at www.libertyfunds.com
SI-03/691F-0798 (8/98) 98/805
