<PAGE> 1
COLONIAL HIGH YIELD SECURITIES FUND Annual Report
December 31, 1998
Not FDIC May Lose Value
Insured No Bank Guarantee
<PAGE> 2
COLONIAL HIGH YIELD SECURITIES FUND HIGHLIGHTS
JANUARY 1, 1998 - DECEMBER 31, 1998
INVESTMENT OBJECTIVE: Colonial High Yield Securities Fund seeks high current
income and total return by investing primarily in lower-rated corporate debt
securities.
PORTFOLIO MANAGER COMMENTARY:(1) "Significant volatility in the
high-yield bond market during 1998 presented investors with a number of
challenges, particularly during the second half of the year, when investors'
demand for high-yield bonds diminished and bond prices were seriously depressed.
Despite these hurdles, the Fund's reasonably conservative structure generated
good performance relative to its competitors.(2)" -- Carl Ericson
COLONIAL HIGH YIELD SECURITIES FUND PERFORMANCE
CLASS A CLASS B CLASS C
-------- ------- -------
Inception dates 10/21/71(3) 6/8/92 1/15/96
12-month distributions declared per share $0.624 $0.570 $0.581
SEC yields on 12/31/98(4) 8.75% 8.42% 8.57%
12-month total returns, assuming reinvestment 2.12% 1.36% 1.51%(5)
of all distributions and no sales charge or
contingent deferred sales charge (CDSC)
Net asset value per share on 12/31/98 $6.76 $6.76 $6.76
TOP FIVE HOLDINGS BY ISSUER(6)
(AS OF 12/31/98)
- --------------------------------------------
EchoStar Communications ................ 4.6%
CSC Holdings, Inc ...................... 3.9%
Nextel Communications .................. 3.3%
Pathmark Stores ........................ 2.7%
U.S. Air, Inc .......................... 2.3%
TOP FIVE BOND SECTORS(6)
(AS OF 12/31/98)
- --------------------------------------------
Manufacturing ......................... 18.6%
Telecommunications .................... 15.7%
Trans., Elec., Gas &
Sanitation Services .................... 9.4%
Cable .................................. 8.3%
Mining & Energy ........................ 5.3%
(1) Effective January 26, 1999, Andrea Feingold no longer manages Colonial High
Yield Securities Fund. Carl Ericson, the director of Colonial's Taxable Fixed
Income Department, now manages the Fund. The Fund continues to be managed by a
team with 10 years,on average, of investment experience. We do not anticipate
any changes in the Fund's investment style.
(2) Please see page 3 for complete Lipper rankings.
(3) Colonial High Yield Securities Fund adopted its current investment policies
on 3/31/80.
(4) The 30-day SEC yields reflect the portfolio's earning power, net of
expenses, expressed as an annualized percentage of the public offering price at
the end of the period. If the Advisor or its affiliates had not waived certain
Fund expenses, the SEC yield for Class C shares would have been 8.42%.
(5) Performance results reflect any voluntary waiver of Fund expenses by the
Advisor or its affiliates. Absent this waiver, performance results would have
been lower.
(6) Portfolio holdings and sector breakdowns 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 the same portfolio holdings and
sector breakdown in the future. Industry sectors in the following financial
statements are based upon the standard industrial classifications (SIC) as
published by the U.S. Office of Management and Budget. The sector
classifications used on this page are based upon Colonial's defined criteria as
used in the investment process.
2
<PAGE> 3
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
I am pleased to present the annual report for Colonial
High Yield Securities Fund for the 12-month period ended
December 31, 1998.
The past 12 months presented investor
with a number of challenges. Lingering concern about [Photograph Pres.]
Asia's weakening economies and the possibility of slower
economic growth around the world had a negative impact on
many markets. However, the U.S. economy continued to have well-balanced growth
with few signs of inflation, which resulted in companies posting strong cash
flows and earnings growth. Economic problems in emerging markets created a
flight to quality during the summer, causing global investors to shift assets to
high-quality U.S. stocks and bonds. Volatility increased as investors sold
small-company stocks, emerging market securities and high-yield bonds, and
sought relatively stable investments such as U.S. Treasurys and the household
names of large-cap stocks.
In the fall, the Federal Reserve Board lowered interest rates, a move that
investors generally concluded would stimulate the economy. Proposals submitted
by the world's largest industrial nations designed to stimulate global economies
and help countries prevent financial panic encouraged recovery in the markets.
For investors seeking competitive levels of current income and long-term
appreciation potential, Colonial High Yield Securities Fund remains a viable
investment option for their portfolios. Thank you for choosing Colonial High
Yield Securities Fund and for giving us the opportunity to serve your investment
needs.
Respectfully,
/s/ STEPHEN E. GIBSON
- ------------------------
Stephen E. Gibson
President
February 11, 1999
Because economic and market conditions change frequently, there can be no
assurance that the trends described above or on the following pages will
continue.
(1) Lipper, Inc., a widely respected data provider in the industry,
calculates an average total return for mutual funds with similar investment
objectives as the Fund. The total return calculated for the Lipper High Current
Yield Category was negative 0.44% for the 12 months ended December 31, 1998. The
Fund's Class A shares were ranked in the second quartile for 1 year (77 out of
246 funds), in the first quartile for 5 years (13 out of 87 funds) and in the
first quartile for 10 years (9 out of 53 funds). Rankings do not include sales
charges. Performance for different share classes will vary with fees associated
with each class. Past performance cannot predict future results.
3
<PAGE> 4
PORTFOLIO MANAGEMENT REPORT
CARL ERICSON is portfolio manager of Colonial High Yield Securities Fund. Mr.
Ericson is senior vice president of Colonial Management Associates, Inc. and
is a chartered financial analyst.
MIXED INVESTMENT ENVIRONMENT FOR HIGH-YIELD BONDS IN 1998
The investment environment for high-yield bonds was mixed during the year. The
first six months were characterized by steady economic growth, low inflation and
low unemployment. Companies continued to generate strong revenue, earnings and
cash flow, helping both bond and stock markets. Furthermore, market demand for
high-yield bonds was strong, with broad market support for all types of new
issues.
However, during July and August, the economy slowed down, stock prices dropped
and concerns about unstable conditions in Asia resurfaced. Market conditions
became increasingly volatile as Russia experienced a major economic and
political crisis. Investors feared that other emerging markets might also have
potentially serious problems. As volatility increased sharply, investors made a
full-fledged flight to quality, seeking relatively stable investments such as
U.S. Treasury securities and the household names of large-cap stocks. In
response, high-yield bond prices fell and market liquidity declined, producing
one of the weakest high-yield markets in almost a decade. However, three
successive interest rate cuts by the Federal Reserve Board in the fall convinced
investors that the economy would continue to grow. Based on a belief that
high-yield companies would still be able to generate sufficient cash flows to
meet their debt obligations, the high-yield market recovered nicely, posting its
largest one-month gain in history during November.
FUND BENEFITED FROM A CONSERVATIVE STRUCTURE
Despite significant market volatility during the period, particularly during the
past six months, the Fund provided relatively good performance, generating a
12-month total return of 2.12% for Class A shares, based on net asset value.
This compared favorably with the Fund's Lipper group average, which had a total
return of negative 0.44% for the same period.(1)
We attribute this performance to maintaining quality credit research and a
relatively conservative structure. First, the portfolio's diversified holdings
are concentrated in the mid-quality segment of the high-yield market. These
issues are typically over $100 million in size and are traded by at least two
major firms -- characteristics that may make trading easier during difficult
market conditions. Second, the portfolio has a lower-than-average exposure to
deferred-pay securities, such as zero-coupon bonds, that don't provide
investors with any income flows until maturity. This type of bond had weaker
performance during the second half of the year than those bonds which typically
pay interest semi-annually.
(1) Please see page 3 for complete Lipper rankings.
4
<PAGE> 5
CABLE, BROADCAST, AND MEDIA SECTORS PROVIDED ATTRACTIVE GAINS
We continued to invest a significant proportion of the Fund's assets in
well-managed cable, broadcast and media companies (28.3% of net assets).
Companies in these sectors performed well throughout the period. For example, we
own CSC Holdings (3.9% of net assets), which reported strong financial results
in the midst of the market setback. Based in New York, CSC owns both
distribution and programming assets through a strong cable TV franchise on the
East Coast. The company also owns Madison Square Garden and all its broadcast
rights. Another contributor to the Fund's good performance was its largest
holding, EchoStar Communications (4.6% of net assets). EchoStar is the
established market leader in direct broadcast satellite (DBS), with a higher
growth rate and larger channel capacity than any of its competitors. In
addition, the company recently announced that it would refinance its debt at a
lower cost, taking advantage of its improved credit quality to obtain more
favorable terms on its loans. When financing is completed, EchoStar intends to
repurchase bonds held in its portfolio at an attractive premium, a scenario that
could generate a gain for shareholders.
POSITIVE OUTLOOK FOR IMPROVEMENT IN HIGH-YIELD MARKET CONDITIONS
We have a favorable outlook for improving conditions in the high-yield bond
market in the months ahead. We expect moderate economic growth, low interest
rates and low inflation to continue. These conditions all increase the
likelihood that high-yield companies will be able to generate strong cash flows,
setting the stage for further improvement in high-yield bond prices. However,
even in an environment that offers little price appreciation, such as we
experienced during the second and third quarters of 1998, the relatively high
income levels offered by high-yield bonds may provide shareholders with
attractive total returns.
5
<PAGE> 6
COLONIAL HIGH YIELD SECURITIES FUND'S INVESTMENT PERFORMANCE
VS. THE CS FIRST BOSTON HIGH YIELD INDEX
Change in Value of $10,000 from 12/31/88 - 12/31/98
First
Class A Shares Boston
$30,000 Based on NAV and POP $27,744
$25,000
$20,000 [MOUNTAIN CHART] NAV
$15,000 $27,193
$10,000
POP
$25,901
12/88 12/98
VALUE OF A $10,000 INVESTMENT MADE ON 12/31/88
As of 12/31/98
----------------------------------------------
Class A Class B Class C
NAV POP NAV w/CDSC NAV w/CDSC
------------------ ------------------- --------------------
$27,193 $25,901 $25,922 $25,922 $26,664 $26,664
------------------ ------------------- --------------------
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/98
----------------------------
Class A Shares Class B Shares Class C Shares
Inception 10/21/71 6/8/92 1/15/96
NAV POP NAV w/CDSC NAV w/CDSC
-------------- -------------- ----------------
1 YEAR 2.12% (2.73)% 1.36% (3.32)% 1.51% 0.57%
5 YEARS 8.88 7.82 8.07 7.78 8.45 8.45
10 YEARS 10.52 9.98 9.99 9.99 10.30 10.30
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). Public
offering price (POP) returns include the maximum sales charge of 4.75% for Class
A shares. CDSC returns reflect the maximum 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 Advisor or its affiliates. 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 were 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 the inception of
the newer class shares would have been lower.
The CS First Boston High Yield Index is a broad-based, unmanaged index that
tracks the performance of high-yield bonds. Unlike mutual funds, indexes are not
investments and do not incur fees or expenses. It is not possible to invest
directly in an index.
6
<PAGE> 7
INVESTMENT PORTFOLIO
DECEMBER 31, 1998 (IN THOUSANDS)
BONDS & NOTES - 86.1% PAR VALUE
- ---------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS & NOTES - 85.2%
- ---------------------------------------------------------------------------
CONSTRUCTION - 1.6%
BUILDING CONSTRUCTION
Falcon Building Products, Inc.,
stepped coupon, (10.500% 06/15/02)
(a)06/15/07 $ 12,000 $ 7,080
Nortek, Inc.,
9.875% 03/01/04 11,000 11,468
--------
18,548
--------
...........................................................................
MANUFACTURING - 29.6%
CHEMICALS & ALLIED PRODUCTS - 4.4%
ClimaChem, Inc.,
10.750% 12/01/07 2,000 2,020
Huntsman Corp.,
9.500% 07/01/07 (b) 3,000 2,985
Hydrochem Industrial Services, Inc.,
10.375% 08/01/07 4,225 4,056
LaRoche Industries, Inc.,
9.500% 09/15/07 5,000 4,000
PCI Chemicals Canada, Inc.,
9.250% 10/15/07 4,000 3,240
Sterling Chemicals, Inc.,
11.750% 08/15/06 12,000 10,320
Texas Petrochemical Corp.,
11.125% 07/01/06 11,500 11,328
Trans Resources, Inc.:
stepped coupon, (12.000% 03/01/03)
(a)03/15/08 7,000 3,710
10.750% 03/15/08 10,000 9,950
--------
51,609
--------
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.7%
Amphenol Corp.,
9.875% 05/15/07 7,000 7,245
TransDigm, Inc.,
10.375% 12/01/08 (b) 1,000 1,000
--------
8,245
--------
FABRICATED METAL - 0.4%
Earle M. Jorgensen & Co.,
9.500% 04/01/05 4,500 4,140
--------
7
<PAGE> 8
Investment Portfolio/December 31, 1998
- ---------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS & NOTES - CONT. PAR VALUE
- ---------------------------------------------------------------------------
MANUFACTURING - CONT.
FOOD & KINDRED PRODUCTS - 1.0%
Chattem, Inc.,
8.875% 04/01/08 $ 9,750 $ 9,994
Pilgrim's Pride Corp.,
10.875% 08/01/03 1,600 1,648
--------
11,642
--------
MACHINERY & COMPUTER EQUIPMENT - 1.4%
IMO Industries, Inc.,
11.750% 05/01/06 8,530 8,615
Numatics, Inc.,
9.625% 04/01/08 8,435 7,929
--------
16,544
--------
MEASURING & ANALYZING INSTRUMENTS - 1.0%
Envirosource, Inc.,
9.750% 06/15/03 12,501 11,501
--------
MISCELLANEOUS MANUFACTURING - 6.8%
Amscan Holdings, Inc.,
9.875% 12/15/07 7,000 6,528
Compass Aerospace Corp.,
10.125% 04/15/05 (b) 3,000 2,910
Delco Remy International, Inc.,
10.625% 08/01/06 12,000 12,840
Eagle-Picher Industries, Inc.,
9.375% 03/01/08 8,000 7,560
ISG Resources, Inc.,
10.000% 04/15/08 4,500 4,455
Koppers Industries, Inc.,
9.875% 12/01/07 9,175 8,992
Moll Industries, Inc.,
10.500% 07/01/08 (b) 4,000 3,900
Newcor, Inc.,
9.875% 03/01/08 5,000 4,650
Special Devices, Inc.,
11.375% 12/15/08 (b) 4,000 4,070
Syratech Corp.,
11.000% 04/15/07 4,000 3,240
Tekni-Plex, Inc.,
9.250% 03/01/08 6,000 6,270
Thermadyne Holdings Corp.,
9.875% 06/01/08 13,000 12,090
Werner Holding Co.,
10.000% 11/15/07 2,000 1,980
--------
79,485
--------
8
<PAGE> 9
Investment Portfolio/December 31, 1998
--------------------------------------------------------------------------
PAPER PRODUCTS - 3.6%
Gaylord Container Corp.:
9.375% 06/15/07 $ 6,000 $ 5,265
9.750% 06/15/07 9,600 8,496
Repap New Brunswick, Inc.,
10.625% 04/15/05 20,000 13,600
Riverwood International Corp.,
10.875% 04/01/08 16,000 14,480
--------
41,841
--------
PRIMARY METAL - 4.2%
Ivaco, Inc.,
11.500% 09/15/05 7,500 7,275
Kaiser Aluminum & Chemical Corp.:
10.875% 10/15/06 10,000 10,250
10.875% 10/15/06 500 512
Keystone Consolidated Industries, Inc.,
9.625% 08/01/07 8,300 7,926
Northwestern Steel and Wire Co.,
9.500% 06/15/01 3,000 2,100
Renco Metals, Inc.,
11.500% 07/01/03 3,000 3,120
WCI Steel Inc.,
10.000% 12/01/04 8,000 8,000
Wheeling-Pittsburgh Corp.,
9.250% 11/15/07 11,000 10,340
--------
49,523
--------
PRINTING & PUBLISHING - 1.3%
American Lawyer Media, Inc.,
stepped coupon, (12.250% 12/15/02)
(a)12/15/08 2,000 1,250
9.750% 12/15/07 13,000 13,455
--------
14,705
--------
RUBBER & PLASTIC - 0.8%
Burke Industries, Inc.,
10.000% 08/15/07 10,115 9,812
--------
STONE, CLAY, GLASS & CONCRETE - 0.2%
Anchor Glass Container Corp.,
11.250% 04/01/05 2,250 2,363
--------
TEXTILE MILL PRODUCTS - 0.9%
Collins & Aikman Products Co.,
10.000% 01/15/07 9,950 10,398
--------
9
<PAGE> 10
Investment Portfolio/December 31, 1998
- ---------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS & NOTES - CONT. PAR VALUE
- ---------------------------------------------------------------------------
MANUFACTURING - CONT.
TRANSPORTATION EQUIPMENT - 2.9%
Johnstown America Industries, Inc.:
11.750% 08/15/05 $ 12,000 $ 12,660
LDM Technologies, Inc.,
10.750% 01/15/07 12,000 12,000
Venture Holdings Trust,
Series B,
9.500% 07/01/05 10,000 9,950
--------
34,610
--------
- ---------------------------------------------------------------------------
MINING & ENERGY - 5.3%
COAL MINING - 0.8%
AEI Resources, Inc.,
10.500% 12/15/05 (b) 10,000 9,800
--------
CRUDE PETROLEUM & NATURAL GAS - 0.1%
TransAmerican Energy Corp.,
11.500% 06/15/02 5,975 1,554
--------
METAL MINING - 0.7%
Metallurg, Inc.,
11.000% 12/01/07 8,700 7,743
--------
OIL & GAS EXTRACTION - 2.5%
Belden & Blake Corp.,
9.875% 06/15/07 10,250 8,303
Magnum Hunter Resources, Inc.,
10.000% 06/01/07 12,450 10,458
Mariner Energy, Inc.,
10.500% 08/01/06 8,000 7,280
Petsec Energy, Inc.,
9.500% 06/15/07 6,825 3,822
--------
29,863
--------
OIL & GAS FIELD SERVICES - 1.2%
Chile Offshore Corp.,
10.000% 05/01/08 8,000 6,400
Northern Offshore, ASA,
10.000% 05/15/05 (b)(c) 3,000 1,560
Pool Energy Services Co.,
8.625% 04/01/08 7,000 6,650
--------
14,610
--------
10
<PAGE> 11
Investment Portfolio/December 31, 1998
- ---------------------------------------------------------------------------
RETAIL TRADE - 4.0%
FOOD STORES
Pathmark Stores, Inc.:
stepped coupon, (10.750% 11/01/99)
(a)11/01/03 $ 12,500 $ 10,250
9.625% 05/01/03 22,000 21,560
Richmont Marketing Specialists, Inc.,
10.125% 12/15/07 (b) 9,275 6,956
Star Markets Co.,
13.000% 11/1/04 7,825 8,725
--------
47,491
--------
- ---------------------------------------------------------------------------
SERVICES - 5.6%
AMUSEMENT & RECREATION - 3.6%
Boyd Gaming Corp.,
9.500% 07/15/07 5,000 5,000
Hollywood Casino Corp.,
12.750% 11/01/03 10,000 10,650
Horseshoe Gaming, LLC,
9.375% 06/15/07 10,500 10,867
Lady Luck Gaming Corp.,
11.875% 03/01/01 5,000 5,112
Regal Cinemas, Inc.:
9.500% 06/01/08 8,000 8,240
9.500% 06/01/08 (b) 2,000 2,060
--------
41,929
--------
BUSINESS SERVICES - 0.4%
PSINet, Inc.,
10.000% 02/15/05 4,500 4,455
--------
OTHER SERVICES - 1.6%
Borg-Warner Security Corp.,
9.625% 03/15/07 8,645 9,380
Intertek Finance, PLC,
10.250% 11/01/06 10,125 9,416
--------
18,796
--------
- ---------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 38.2%
AIR TRANSPORTATION - 2.6%
Trans World Airlines, Inc.,
11.375% 03/01/06 5,000 3,500
U.S. Air, Inc.,
10.375% 03/01/13 24,154 26,690
--------
30,190
--------
11
<PAGE> 12
Investment Portfolio/December 31, 1998
- ---------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS & NOTES - CONT. PAR VALUE
- ---------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
BROADCASTING - 4.0%
Allbritton Communications Co.,
9.750% 11/30/07 $ 12,000 $ 12,720
Fox Family Worldwide, Inc.,
9.250% 11/01/07 12,000 11,850
Lin Holding Corp.,
stepped coupon, (10.000% 03/01/03)
(a)03/01/08 15,000 10,538
SFX Broadcasting, Inc.,
10.750% 05/15/06 4,543 4,997
Shop At Home, Inc.,
11.000% 04/01/05 2,750 2,805
Sinclair Broadcast Group, Inc.,
10.000% 09/30/05 4,055 4,258
--------
47,168
--------
CABLE - 11.2%
Adelphia Communications Corp.,
9.875% 03/01/07 13,000 14,398
Avalon Cable Holdings LLC,
stepped coupon, (11.875% 12/01/03)
(a)12/01/08 6,000 3,375
9.375% 12/01/08 5,200 5,304
Century Communications Corp.:
(d)01/15/08 12,000 6,180
(d)03/15/03 8,000 6,040
Classic Cable, Inc.,
9.875% 08/01/08 (b) 8,750 9,100
Comcast Corp.,
9.500% 01/15/08 10,000 10,525
Comcast UK Cable Partners Ltd.,
stepped coupon, (11.200% 11/15/00)
(a)11/15/07 14,000 11,900
Diamond Cable Communications, PLC,
stepped coupon, (10.750% 02/15/02)
(a)02/15/07 (e) 13,000 9,360
EchoStar Satellite Broadcasting Corp.,
stepped coupon, (13.125% 03/15/00)
(a)03/15/04 10,000 9,975
FrontierVision Holdings, LP,
stepped coupon, (11.875% 09/15/01)
(a)09/15/07 10,000 8,375
International CableTel, Inc.,
stepped coupon, (12.750% 04/15/00)
(a)02/01/06 13,000 10,790
12
<PAGE> 13
Investment Portfolio/December 31, 1998
--------------------------------------------------------------------------
Northland Cable Television, Inc.,
10.250% 11/15/07 $ 10,325 $ 10,867
Renaissance Media Group,
stepped coupon, (10.000% 04/15/03)
(a)04/15/08 5,000 3,350
Telewest Communication, PLC,
stepped coupon, (11.000% 10/01/00)
(a)10/01/07 (e) 15,000 12,525
--------
132,064
--------
COMMUNICATIONS - 4.4%
Call-Net Enterprises, Inc.:
stepped coupon, (8.940% 08/01/03)
(a)08/15/08 3,000 1,762
8.000% 08/15/08 2,000 1,935
Centennial Cellular Corp.,
10.750% 12/15/08 (b) 5,000 5,025
Diamond Holdings, PLC,
9.125% 02/01/08 (e) 10,000 9,775
Echostar Communications Corp.:
stepped coupon, (10.750% 02/15/02)
(a)06/01/04 4,000 4,090
12.500% 07/01/02 12,500 14,437
Microcell Telecommunications, Inc.,
stepped coupon, (14.000% 12/01/01)
(a)06/01/06 7,000 5,180
OnePoint Communications Corp.,
14.500% 06/01/08 (b) 4,000 2,160
Time Warner Telecom, LLC,
9.750% 07/15/08 7,000 7,350
--------
51,714
--------
MOTOR FREIGHT & WAREHOUSING - 0.4%
MTL, Inc.,
10.000% 06/15/06 (b) 5,000 4,850
--------
TELECOMMUNICATION - 15.6%
Arch Communication Group, Inc.,
12.750% 07/01/07 4,000 4,000
Clearnet Communications, Inc.,
stepped coupon, (14.750% 12/15/00)
(a)12/15/05 8,000 6,880
Hyperion Telecommunications, Inc.,
stepped coupon, (13.000% 04/15/01)
(a)04/15/03 (b) 12,000 8,580
Intermedia Communications, Inc.,
8.500% 01/15/08 (b) 10,000 9,550
13
<PAGE> 14
Investment Portfolio/December 31, 1998
- ---------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS & NOTES - CONT. PAR VALUE
- ---------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
TELECOMMUNICATION - CONT.
Level 3 Communications, Inc.,
9.125% 05/01/08 $ 10,000 $ 9,925
Loral Space & Communications Ltd.,
11.250% 01/15/07 14,450 14,306
McLeodUSA, Inc.:
8.375% 03/15/08 16,000 16,080
9.500% 11/01/08 (b) 2,000 2,130
Metrocall, Inc.:
9.750% 11/01/07 12,000 11,520
11.000% 09/15/08 4,000 4,020
Metromedia Fiber Corp.,
10.000% 11/15/08 3,000 3,082
MetroNet Communications Corp.:
stepped coupon, (11.875% 09/15/01)
(a)06/15/08 4,500 2,756
12.000% 08/15/07 (b) 1,250 1,359
NTL, Inc.,
stepped coupon, (9.750% 04/01/03)
(a)04/01/08 13,000 8,011
10.000% 02/15/07 8,000 8,200
11.500% 10/01/08 (b) 1,750 1,908
Nextel Communications, Inc.,
stepped coupon, (9.750% 10/31/02)
(a)10/31/07 19,500 11,895
Nextel International, Inc.,
stepped coupon, (12.125% 04/15/03)
(a)04/15/08 5,000 2,319
Nextlink Communications, LLC,
stepped coupon, (9.450% 04/15/03)
(a)04/15/08 4,000 2,300
Pagemart Wireless, Inc.,
stepped coupon, (11.250% 02/01/03)
(a)02/01/08 5,000 2,400
Price Communications Wireless, Inc.,
9.125% 12/15/06 (b) 2,250 2,273
Price Communications Wireless, Inc., PIK,
11.250% 08/15/08 8,500 8,075
RCN Corp.,
stepped coupon, (11.125% 10/15/02)
(a)10/15/07 5,000 2,875
Rogers Cantel, Inc.,
9.750% 06/01/16 12,000 12,840
Sprint Spectrum L.P.,
stepped coupon, (12.500% 08/15/01)
(a)08/15/06 8,850 8,098
14
<PAGE> 15
Investment Portfolio/December 31, 1998
- ---------------------------------------------------------------------------
Verio, Inc.:
10.375% 04/01/05 $ 5,000 $ 4,900
11.250% 12/01/08 (b) 8,000 8,080
WinStar Equipment Corp.,
12.500% 03/15/04 5,000 5,100
----------
183,462
----------
- ---------------------------------------------------------------------------
WHOLESALE TRADE - 0.9%
DURABLE GOODS - 0.2%
Holmes Products Corp.,
9.875% 11/15/07 2,000 1,880
----------
NONDURABLE GOODS - 0.7%
Revlon Consumer Products Corp.,
9.000% 11/01/06 8,000 7,920
----------
TOTAL CORPORATE FIXED INCOME BONDS & NOTES
(cost of $1,045,131) 1,000,455
----------
CONVERTIBLE CORPORATE BONDS - 0.9%
- ---------------------------------------------------------------------------
MINING & ENERGY - 0.9%
OIL & GAS EXTRACTION
HS Resources, Inc.,
(cost of $11,641) 9.250% 11/15/06 11,500 10,982
----------
TOTAL BONDS & NOTES
(cost of $1,056,772) 1,011,437
----------
PREFERRED STOCKS - 9.1% SHARES
- ---------------------------------------------------------------------------
RETAIL TRADE - 0.1%
FOOD STORES
Supermarkets General Holdings, 3.250% 69 1,439
----------
- ---------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 9.0%
BROADCASTING - 0.3%
PriMedia, Inc.:
9.200% 26 2,548
10.000% 15 1,545
----------
4,093
----------
CABLE - 4.8%
Adelphia Communications Corp. 90 10,620
CSC Holdings Ltd., PIK:
11.125% 62 6,974
11.750% 344 39,175
----------
56,769
----------
15
<PAGE> 16
Investment Portfolio/December 31, 1998
- ---------------------------------------------------------------------------
PREFERRED STOCKS - CONT. SHARES VALUE
- ---------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
COMMUNICATIONS - 1.9%
Echostar Communications Corp., 12.125% (f) 17 $ 20,228
Global Crossing Ltd., PIK
10.500% (b)(f) 15 1,447
---------
21,675
---------
TELECOMMUNICATION - 2.0%
Concentric Network Corp., PIK,
13.500% (g) 53
Nextel Communications, Inc., PIK:
11.125% 18 17,172
13.000% 6 5,794
---------
23,019
---------
TOTAL PREFERRED STOCKS (cost of $106,944) 106,995
---------
COMMON STOCKS - 1.0%
- ---------------------------------------------------------------------------
MANUFACTURING - 0.1%
CHEMICALS & ALLIED PRODUCTS - 0.0%
Crestline Capital Corp. (f) 1 11
Crompton & Knowles Corp. 14 294
---------
305
---------
FOOD & KINDRED PRODUCTS - 0.1%
Darling International, Inc. (f) 52 159
Dr. Pepper Bottling Company of Texas,
Series A (f) 40 1,200
---------
1,359
---------
- ---------------------------------------------------------------------------
MINING & ENERGY - 0.0%
CRUDE PETROLEUM & NATURAL GAS - 0.0%
Coho Energy, Inc. (f) 30 84
---------
OIL & GAS EXTRACTION - 0.0%
Gulf Canada Resources, Ltd. (f) 150 441
Pioneer Natural Resources Co. 7 61
---------
502
---------
OIL & GAS FIELD SERVICES - 0.0%
Parker Drilling Company (f) 100 319
---------
- ---------------------------------------------------------------------------
RETAIL TRADE - 0.0%
MISCELLANEOUS RETAIL - 0.0%
Macleod-Stedman, Inc. (f)(h) 425 4
Pharmhouse Corp. (f) 1 2
---------
6
---------
16
<PAGE> 17
Investment Portfolio/December 31, 1998
- ---------------------------------------------------------------------------
RESTAURANTS - 0.0%
Host Marriott Corp. (f) 8 $ 104
--------
- ---------------------------------------------------------------------------
SERVICES - 0.1%
BUSINESS SERVICES - 0.0%
Iron Mountain, Inc. (f) 1 40
--------
HOTELS, CAMPS & LODGING - 0.1%
Isle of Capri Casinos, Inc. (f) 150 595
--------
- ---------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.7%
CABLE - 0.2%
Century Communications Corp. (f) 80 2,528
--------
COMMUNICATIONS - 0.4%
EchoStar Communications Corp.
Class A (f) 100 4,838
--------
ELECTRIC SERVICES - 0.0%
Baycorp Holdings, Ltd. (f) (g) (g)
--------
LOCAL & SUBURBAN TRANSIT - 0.0%
Greyhound Lines, Inc., 12.500% Escrow
Receipt (f)(h) 2 (g)
Greyhound Lines, Inc., 13.000% Escrow
Receipt (f)(h) 1 (g)
--------
(g)
--------
MOTOR FREIGHT & WAREHOUSING - 0.0%
St. Johnsbury Trucking Co. (f)(h) 79 1
Sun Carriers, Inc. (f)(h) 326 3
--------
4
--------
TELECOMMUNICATION - 0.1%
Metrocall, Inc. (f) 100 438
Nextel Communications, Inc. Class A (f) 50 1,181
--------
1,619
--------
- ---------------------------------------------------------------------------
WHOLESALE TRADE - 0.1%
DURABLE GOODS
Associated Materials, Inc. (f) 50 587
--------
TOTAL COMMON STOCKS (cost of $10,313) 12,890
--------
17
<PAGE> 18
Investment Portfolio/December 31, 1998
- ---------------------------------------------------------------------------
WARRANTS (f) - 0.0% SHARES VALUE
- ---------------------------------------------------------------------------
MANUFACTURING - 0.0%
RUBBER & PLASTIC - 0.0%
BPC Holdings Corp.
expires 04/15/04 (h) 4 $ 70
-----------
SERVICES - 0.0%
HEALTH SERVICES - 0.0%
Wright Medical Technology
expires 06/15/03 (b) 1 (g)
-----------
HOTELS, CAMPS & LODGING - 0.0%
Capital Gaming International
expires 02/01/99 (h) 6 (g)
-----------
- ---------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
CABLE - 0.0%
Wireless One, Inc.
expires 10/19/00 (h) 20 (g)
-----------
COMMUNICATION - 0.0%
Onepoint Communications Corp.
expires 06/01/08 (b) 4 4
-----------
TELECOMMUNICATION - 0.0%
American Telecasting, Inc.
expires 08/01/00 (h) 9 (g)
Intermedia Communication of Florida, Inc.
expires 06/01/00 (b) 1 43
Loral Orion Network
expires 01/15/07 12 138
MetroNet Communications Corp.
expires 08/15/07 (b) 1 53
-----------
234
-----------
TOTAL WARRANTS (cost of $595) 308
-----------
TOTAL INVESTMENTS (cost of $1,174,624)(i) 1,131,630
-----------
SHORT-TERM OBLIGATIONS - 2.9% PAR
- ---------------------------------------------------------------------------
Repurchase agreement with ABN AMRO
Chicago Corp., dated 12/31/98 due
01/04/99 at 4.750% collateralized by
U.S. Treasury notes with various
maturities to 2015, market value
$34,878 (repurchase proceeds $34,293) $ 34,275 34,275
-----------
OTHER ASSETS & LIABILITIES, NET - 0.9% 10,148
- ---------------------------------------------------------------------------
18
<PAGE> 19
Investment Portfolio/December 31, 1998
- ---------------------------------------------------------------------------
NET ASSETS - 100% $ 1,176,053
-----------
NOTES TO INVESTMENT PORTFOLIO:
- ---------------------------------------------------------------------------
(a) Currently zero coupon. Shown parenthetically is the interest to be paid and
the date the Fund will begin accruing this rate.
(b) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
December 31, 1998 the value of these securities amounted to $91,803 or 7.8%
of net assets.
(c) This is a Norwegian security. Par amount is stated in U.S. dollars.
(d) Zero coupon bond.
(e) This is a British security. Par amount is stated in U.S. dollars.
(f) Non-income producing.
(g) Rounds to less than one.
(h) The value of this security represents fair value as determined in good
faith under the direction of the Trustees.
(i) Cost for federal income tax purposes is $1,175,053.
Acronym Name
------- ---------------
PIK Payment-In-Kind
See notes to financial statements.
19
<PAGE> 20
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
(in thousands except for per share amounts and footnotes)
<S> <C> <C>
ASSETS
Investments at value (cost $1,174,624) $ 1,131,630
Short-term obligations 34,275
-----------
1,165,905
Receivable for:
Interest $ 21,040
Fund shares sold 4,210
Dividends 785
Other 183 26,218
-------- -----------
Total Assets 1,192,123
LIABILITIES
Payable for:
Investments purchased 12,774
Fund shares repurchased 3,256
Accrued:
Deferred Trustees fees 12
Other 28
--------
Total Liabilities 16,070
-----------
NET ASSETS $ 1,176,053
===========
Net asset value & redemption price per share -
Class A ($568,125/84,058) $6.76 (a)
===========
Maximum offering price per share - Class A
($6.76/0.9525) $7.10
=========== (b)
Net asset value & offering price per share -
Class B ($573,626/84,875) $6.76
=========== (a)
Net asset value & offering price per share -
Class C ($34,302/5,076) $6.76
=========== (a)
COMPOSITION OF NET ASSETS
Capital paid in $ 1,232,971
Undistributed net investment income 2,182
Accumulated net realized loss (16,106)
Net unrealized depreciation (42,994)
-----------
$ 1,176,053
===========
</TABLE>
(a) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
See notes to financial statements.
20
<PAGE> 21
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
(in thousands)
<S> <C> <C>
INVESTMENT INCOME
Interest $ 102,768
Dividends 12,286
---------
Total Investment Income 115,054
EXPENSES
Management fee $ 6,887
Service fee 2,871
Distribution fee - Class B 4,013
Distribution fee - Class C 190
Transfer agent 3,258
Bookkeeping fee 396
Trustees fee 56
Custodian fee 70
Audit fee 42
Legal fee 8
Registration fee 140
Reports to shareholders 21
Other 241
--------
Total expenses 18,193
Fees waived by the Distributor - Class C (38)
Custodian credits earned (64) 18,091
-------- ---------
Net Investment Income 96,963
---------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO
POSITIONS
Net realized gain 12,058
Change in net unrealized depreciation
during the period (84,514)
--------
Net Loss (72,456)
---------
Increase in Net Assets from Operations $ 24,507
=========
</TABLE>
See notes to financial statements.
21
<PAGE> 22
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended
December 31
(in thousands) ------------------------
INCREASE (DECREASE) IN NET ASSETS 1998 1997(a)
<S> <C> <C>
Operations:
Net investment income $ 96,963 $ 84,379
Net realized gain 12,058 33,243
Net unrealized appreciation (depreciation) (84,514) 12,075
----------- -----------
Net Increase from Operations 24,507 129,697
Distributions:
From net investment income - Class A (51,766) (48,571)
From net investment income - Class B (43,090) (36,076)
From net investment income - Class C (2,079) (968)
----------- -----------
(72,428) 44,082
----------- -----------
Fund Share Transactions:
Receipts for shares sold - Class A 217,413 256,767
Value of distributions reinvested - Class A 24,171 22,111
Cost of shares repurchased - Class A (236,136) (225,980)
----------- -----------
5,448 52,898
----------- -----------
Receipts for shares sold - Class B 252,839 236,653
Value of distributions reinvested - Class B 20,530 16,974
Cost of shares repurchased - Class B (180,415) (170,175)
----------- -----------
92,954 83,452
----------- -----------
Receipts for shares sold - Class C 33,956 26,798
Value of distributions reinvested - Class C 1,338 621
Cost of shares repurchased - Class C (17,276) (16,033)
----------- -----------
18,018 11,386
----------- -----------
Net Increase from Fund Share Transactions 116,420 147,736
----------- -----------
Total Increase 43,992 191,818
NET ASSETS
Beginning of period 1,132,061 940,243
----------- -----------
End of period (including undistributed net
investment income of $2,182 and $1,407,
respectively) $ 1,176,053 $ 1,132,061
=========== ===========
</TABLE>
(a) Class D shares were redesignated Class C shares on July 1, 1997.
See notes to financial statements.
22
<PAGE> 23
STATEMENT OF CHANGES IN NET ASSETS - CONT.
<TABLE>
<CAPTION>
Year ended
December 31
------------------------
1998 1997(a)
<S> <C> <C>
NUMBER OF FUND SHARES
Sold - Class A 30,889 36,392
Issued for distributions reinvested - Class A 3,429 3,122
Repurchased - Class A (33,301) (32,029)
----------- -----------
1,017 7,485
----------- -----------
Sold - Class B 36,449 33,503
Issued for distributions reinvested - Class B 2,916 2,396
Repurchased - Class B (25,615) (24,160)
----------- -----------
13,750 11,739
----------- -----------
Sold - Class C 4,801 3,789
Issued for distributions reinvested - Class C 191 87
Repurchased - Class C (2,404) (2,263)
----------- -----------
2,588 1,613
----------- -----------
</TABLE>
(a) Class D shares were redesignated Class C shares on July 1, 1997.
See notes to financial statements.
23
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION: Colonial High Yield Securities Fund (the Fund), a series of
Colonial Trust I, is a diversified portfolio of a Massachusetts business trust,
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund's investment objective is to seek high
current income and total return by investing primarily in 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 a 1.00% contingent deferred sales charge
on redemptions made within eighteen months on an original purchase of $1 million
to $5 million. 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 that are 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.
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.
24
<PAGE> 25
Notes to Financial Statements/December 31, 1998
- --------------------------------------------------------------------------------
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 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 accredited 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 or dividend payment
is recorded as income and as the cost basis of such securities.
DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions
daily and pays monthly.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
FOREIGN CURRENCY TRANSACTIONS: Net realized and unrealized gains (losses) on
foreign currency transactions includes the fluctuation in exchange rates on
gains (losses) between trade and settlement dates on securities transactions,
gains (losses) arising from the disposition of foreign currency and currency
gains (losses) between the accrual and payment dates on dividends and interest
income and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
25
<PAGE> 26
Notes to Financial Statements/December 31, 1998
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
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) from investments.
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 nonreclaimable 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.
The Fund has an agreement with its custodian bank under which custodian fees
were reduced by balance credits of $64,415 applied during the year ended
December 31, 1998. The Fund could have invested a portion of the assets utilized
in connection with the expense offset arrangements in an income producing asset
if it had not entered into such an agreement.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
- --------------------------------------------------------------------------------
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Advisor) is the
investment Advisor of the Fund and furnishes accounting and other services and
office facilities for a monthly fee equal to 0.60% annually of the Fund's
average net assets.
BOOKKEEPING FEE: The Advisor provides bookkeeping and pricing services for
$27,000 per year plus a percentage of the Fund's average net assets as follows:
Average Net Assets Annual Fee Rate
------------------ ---------------
First $50 million No charge
Next $950 million 0.035%
Next $1 billion 0.025%
Next $1 billion 0.015%
Over $3 billion 0.001%
TRANSFER AGENT FEE: Liberty Funds Services, Inc., formerly Colonial Investors
Service Center, Inc., (the Transfer Agent), an affiliate of the Advisor,
provides shareholder services for a monthly fee equal to 0.25% 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
26
<PAGE> 27
Notes to Financial Statements/December 31, 1998
- --------------------------------------------------------------------------------
Distributor), a subsidiary of the Advisor, is the Fund's principal underwriter.
During the year ended December 31, 1998, the Fund has been advised that the
Distributor retained net underwriting discounts of $163,702 on sales of the
Fund's Class A shares and received contingent deferred sales charges (CDSC) of
none, $1,121,214 and $17,236 on Class A, Class B and Class C share redemptions,
respectively.
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 and
Class C shares. The Distributor has voluntarily agreed to waive a portion of the
Class C share distribution fee so that it will not exceed 0.60% annually.
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 Advisor.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended December 31, 1998, purchases and
sales of investments, other than short-term obligations were $1,167,288,597 and
$1,064,152,274, respectively.
Unrealized appreciation (depreciation) at December 31, 1998, based on cost of
investments for federal income tax purposes was:
Gross unrealized appreciation $ 27,791,305
Gross unrealized depreciation (71,214,003)
-------------
Net unrealized depreciation $ (43,422,698)
=============
CAPITAL LOSS CARRYFORWARDS: At December 31, 1998, capital loss carryforwards
available (to the extent provided in regulations) to offset future realized
gains were approximately as follows:
Year of Capital loss
expiration carryforward
---------- ------------
2003 $ 11,710,000
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.
27
<PAGE> 28
Notes to Financial Statements/December 31, 1998
- --------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION - CONT.
- --------------------------------------------------------------------------------
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 currency exchange or
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 4. 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 year ended December 31, 1998.
NOTE 5. RESULTS OF SPECIAL MEETING OF SHAREHOLDERS (UNAUDITED)
- --------------------------------------------------------------------------------
On October 30, 1998, a Special Meeting of Shareholders of the Fund was held
to approve the following items, all as described in the Proxy Statement for the
Meeting. On August 21, 1998, the record date for the Meeting, the Fund had
outstanding 159,712,117 shares of beneficial interest. The votes cast at the
Meeting were as follows:
AUTHORITY
FOR WITHHELD
---------- ---------
To Elect a Board of Trustees.
Robert J. Birnbaum 86,215,239 3,394,738
Tom Bleasdale 86,248,511 3,361,465
John Carberry 86,215,239 3,394,738
Lora S. Collins 86,247,473 3,362,504
James E. Grinnell 86,249,643 3,376,763
Richard W. Lowry 86,284,552 3,325,424
Salvatore Macera 86,273,539 3,336,439
William E. Mayer 86,266,366 3,343,612
James L. Moody, Jr. 86,283,073 3,326,905
John J. Neuhauser 86,270,326 3,339,651
Thomas E. Stitzel 86,280,407 3,329,570
Robert L. Sullivan 86,289,969 3,320,009
Anne-Lee Verville 86,283,073 3,326,905
To amend fundamental investment policies regarding borrowing and lending.
FOR AGAINST ABSTAIN
---------- --------- ---------
65,988,983 2,908,693 4,847,732
28
<PAGE> 29
Notes to Financial Statements/December 31, 1998
- --------------------------------------------------------------------------------
NOTE 5. RESULTS OF SPECIAL MEETING OF SHAREHOLDERS - CONT.
- --------------------------------------------------------------------------------
To reclassify the fundamental investment policy regarding the purchase of
illiquid securities.
FOR AGAINST ABSTAIN
---------- --------- ---------
64,801,857 3,837,135 5,106,418
To approve policies for a master fund/feeder fund structure.
FOR AGAINST ABSTAIN
---------- --------- ---------
65,482,019 3,079,765 5,183,624
29
<PAGE> 30
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------------
1998 1997
Class A Class B Class C Class A Class B Class C(a)
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 7.230 $ 7.230 $ 7.230 $ 6.920 $ 6.920 $ 6.920
------- ------- ------- ------- ------- -------
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.628 0.574 0.585(c) 0.610 0.557 0.562
Net realized and
unrealized gain (loss) (0.474) (0.474) (0.474) 0.312 0.312 0.312
------- ------- -------- ------- ------- -------
Total from Investment
Operations 0.154 0.100 0.111 0.922 0.869 0.874
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment
income (0.624) (0.570) (0.581) (0.612) (0.559) (0.564)
In excess of net
investment income -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total Distributions
Declared to
Shareholders (0.624) (0.570) (0.581) (0.612) (0.559) (0.564)
------- ------- ------- ------- ------- -------
Net asset value - End
of period $ 6.760 $ 6.760 $ 6.760 $ 7.230 $ 7.230 $ 7.230
------- ------- ------- ------- ------- -------
Total return (d) 2.12% 1.36% 1.51%(e) 13.87% 13.03% 13.11%
------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
Expenses (g) 1.21% 1.96% 1.81%(c) 1.20% 1.95% 1.85%
Net investment income (g) 8.81% 8.06% 8.21%(c) 8.53% 7.78% 7.88%
Portfolio turnover 97% 97% 97% 115% 115% 115%
Net assets at end
of period (000) $ 568,125 $ 573,626 $ 34,302 $ 600,107 $ 513,977 $ 17,977
</TABLE>
(a) Class D shares were redesignated Class C shares on July 1, 1997.
(b Class C shares were initially offered on January 15, 1996. Per share amounts
reflect activity from that date.
(c) Net of fees waived by the Distributor which amounted to $0.011 per share
and 0.15%.
(d) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(e) Had the Distributor not waived a portion of expenses, total return would
have been reduced.
(f) Not annualized.
(g) In 1998, the benefits derived from custody credits and directed brokerage
arrangements had an impact of 0.01%. In 1997, the benefits derived from
custody credits and directed brokerage arrangements had no impact. Prior
years' ratios are net of benefits received, if any.
(h) Annualized.
30
<PAGE> 31
FINANCIAL HIGHLIGHTS - CONT.
Selected data for a share of each class outstanding throughout each period are
as follows:
Year ended December 31
---------------------------------------------------
1996 1995
Class A Class B Class C(b) Class A Class B
--------- --------- -------- --------- --------
$ 6.750 $ 6.750 $ 6.780 $ 6.300 $ 6.300
--------- --------- ------- -------- --------
0.625 0.574 0.554 0.615 0.566
0.160 0.160 0.130 0.452 0.452
--------- --------- ------- -------- --------
0.785 0.734 0.684 1.067 1.018
--------- --------- ------- -------- --------
(0.615) (0.564) (0.544) (0.603) (0.555)
-- -- -- (0.014) (0.013)
--------- --------- ------- -------- --------
(0.615) (0.564) (0.544) (0.617) (0.568)
--------- --------- ------- -------- --------
$ 6.920 $ 6.920 $ 6.920 $6.750 $ 6.750
========= ========= ======= ======== ========
12.21% 11.38% 10.56%(f) 17.65% 16.78%
========= ========= ======= ======== ========
1.20% 1.95% 1.92%(h) 1.21% 1.96%
9.02% 8.27% 8.27%(h) 9.14% 8.39%
145% 145% 145% 95% 95%
$ 523,065 $ 411,124 $ 6,054 $ 466,905 $ 351,068
31
<PAGE> 32
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended
December 31
------------------------
1994
Class A Class B
---------- ---------
<S> <C> <C>
Net asset value -
Beginning of period $ 6.950 $ 6.950
---------- ---------
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.599 0.549
Net realized and
unrealized loss (0.622) (0.622)
---------- ---------
Total from Investment
Operations (0.023) (0.073)
---------- ---------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.627) (0.577)
---------- ---------
Net asset value - End of period $ 6.300 $ 6.300
========== =========
Total return (a) (0.34)% $ (1.09)%
========== =========
RATIOS TO AVERAGE NET ASSETS
Expenses 1.23% 1.98%
Net investment income 9.03% 8.28%
Portfolio turnover 123% 123%
Net assets at end
of period (000) $ 389,791 $ 253,438
</TABLE>
(a) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
32
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST I AND THE SHAREHOLDERS OF COLONIAL HIGH YIELD
SECURITIES FUND
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Colonial High Yield Securities Fund
(the "Fund") (a series of Colonial Trust I), at December 31, 1998, the results
of its operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and the financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of portfolio positions at December 31, 1998 by correspondence with
the custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 1999
33
<PAGE> 34
HOW TO REACH US
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.
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,
Inc., call Monday to Friday, 8:30 a.m. to 6:30 p.m. ET.
BY MAIL
LIBERTY FUNDS SERVICES, INC.
P.O. BOX 1722
BOSTON, MA 02105-1722
34
<PAGE> 35
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial High Yield Securities Fund is:
Liberty Funds Services, Inc.*
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial High Yield Securities 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 High Yield Securities
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 the Liberty Funds Distributor, Inc. Performance Update.
* Effective October 1, 1998, Colonial Investors Service Center, Inc. -- the
Transfer Agent for Colonial, Crabbe Huson, Newport and Stein Roe Advisor
funds -- changed its name to Liberty Funds Services, Inc.
35
<PAGE> 36
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)
JOHN CARBERRY
Senior Vice President of Liberty Financial Companies, Inc. (formerly Managing
Director, Salomon Brothers)
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)
SALVATORE MACERA
Private Investor (formerly Executive Vice President of Itek Corp. and
President of Itek Optical & Electronic Industries, Inc.)
WILLIAM E. MAYER
Partner, Development Capital, LLC (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
THOMAS E. STITZEL
Professor of Finance, College of Business, Boise State University; Business
Consultant and Author
ROBERT L. SULLIVAN
Retired Partner, KPMG LLP (formerly Management Consultant, Saatchi and
Saatchi Consulting Ltd. and Principal and International Practice Director,
Management Consulting, Peat Marwick Main & Co.)
ANNE-LEE VERVILLE
Consultant (formerly General Manager, Global Education Industry, and
President, Applications Solutions Division, IBM Corporation)
[LIBERTY LOGO]
Liberty Funds Distributor, Inc. (C)1999
One Financial Center, Boston, MA 0211-2621, 1-800-426-3750
Visit us at www.libertyfunds.com
