<PAGE>
- ------------------------------------------------------
COLONIAL STRATEGIC INCOME FUND ANNUAL REPORT
- ------------------------------------------------------
December 31, 1998
-------------------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
-------------------------------
<PAGE>
COLONIAL STRATEGIC INCOME FUND HIGHLIGHTS
JANUARY 1, 1998 - DECEMBER 31, 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: "Worldwide market volatility over the past 12
months emphasized the benefit of the Fund's ability to balance its assets among
three major bond markets. Diversification, discipline and flexibility all
combined to produce attractive returns for shareholders."
-- Carl Ericson
COLONIAL STRATEGIC INCOME FUND PERFORMANCE
CLASS A CLASS B CLASS C CLASS J
Inception dates 4/21/77 5/15/92 7/1/97 11/2/98
- --------------------------------------------------------------------------------
12-month distributions $0.576 $0.521 $0.532 $0.092
declared per share
- --------------------------------------------------------------------------------
SEC yields on 12/31/98(1) 6.37% 5.91% 6.07% 6.53%
- --------------------------------------------------------------------------------
12-month total returns, assuming 5.17% 4.38% 4.54%(2) 4.96%(2,3)
reinvestment of all distributions
and no sales charge or contingent
deferred sales charge (CDSC)
- --------------------------------------------------------------------------------
Net asset value per share
on 12/31/98 $7.11 $7.11 $7.11 $7.10
- --------------------------------------------------------------------------------
TOP SOVEREIGN CREDIT EXPOSURE(4) PORTFOLIO STRUCTURE(4)
(as of 12/31/98) (as of 12/31/98)
- --------------------------------------------------------------------------------
United States 30.8% Corporate Bonds 38.0%
United Kingdom 6.6% U.S. Gov't Notes/Bonds 27.8%
Greece 3.2% Foreign Gov't Bonds 24.6%
Mexico 2.5% U.S. Gov't Agencies 3.0%
Argentina 2.3% Cash Equivalents 2.7%
Stocks 2.2%
Other 1.7%
(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 Advisor or its affiliates had not
waived certain Fund expenses, the SEC yield for Class C and J shares would
have been 5.91% and 6.13%, respectively.
(2) Performance results reflect any voluntary waiver of Fund expenses by the
Advisor or its affiliates. Absent this waiver, performance results would
have been lower.
(3) Please refer to page 6 for an explanation of how performance is calculated
for the period prior to the inception of Class J shares.
(4) Portfolio credit exposure 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.
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[Photo of Stephen E. Gibson]
I am pleased to present the annual report for Colonial Strategic Income Fund for
the 12-month period ended December 31, 1998.
Conditions for fixed-income investments varied considerably during the period.
While the environment for bonds was positive overall, a variety of domestic and
international factors created a volatile climate for bond fund investors. In the
U.S., the periodic fears of inflation that existed early in the period all but
vanished during the second half, as an increasing number of signs pointed toward
a gradually slowing U.S. economy. This environment set the stage for a series of
interest rate cuts by the Federal Reserve Board in the fall of 1998, helping
bond values end on a positive note.
Flight to quality was a theme that repeated itself at various times
in 1998. Abroad, the economic and financial turmoil that began in Asia in the
fall of 1997 gradually spread to other less-developed markets. As a result,
investors worldwide were drawn to the relative safety and stability of U.S.
Treasury bonds. While returns on most fixed-income investments, including
investment-grade foreign bonds, were positive, investor demand for quality and
stability made U.S. Treasury bonds and investment-grade foreign bonds the
biggest winners.
The disciplined bond fund management style for which Colonial is known served
investors well, enabling the Fund to continue to offer strong performance. For
investors seeking competitive levels of current income and long-term
appreciation potential, Colonial Strategic Income Fund remains a solid
investment option for their portfolios.
The following report will provide you with more specific information on your
Fund's performance and the markets in which the Fund invests. Thank you for
choosing Colonial Strategic Income 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 market and economic conditions change frequently, there can be no
assurance that the trends described above or on the following pages will
continue.
<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.
INVESTORS CHALLENGED BY CHANGEABLE INVESTMENT ENVIRONMENT
The past 12 months presented investors with a number of challenges. First,
lingering concern about Asia's weakening economies and the possibility of slower
economic growth around the world had a negative effect on global securities.
However, the U.S. and other well-established economies, particularly in Europe,
continued to have well-balanced growth with few signs of inflation. European
markets also benefited from anticipation of the European Monetary Union (EMU)
that took place on January 1, 1999. In July, the U.S. economy slowed, stocks
dropped, and concerns about unstable conditions in Asia resurfaced. Markets
became increasingly disorganized in August when Russia experienced a major
monetary and political crisis. Financial markets worldwide worried that this
crisis, along with continued weakness in Asia, would result in a global economic
slowdown. As volatility increased sharply, investors made a flight to quality,
seeking relatively stable investments such as U.S. Treasury securities and the
household names of large-cap stocks. However, the Federal Reserve Board's
announcement of three interest rate cuts in the fall convinced investors that
the economy would continue to grow, and many market sectors began to recover.
FUND'S THREE-MARKET STRATEGY GENERATED GOOD PERFORMANCE
During this volatile period, each of the Fund's principal investment sectors -
U.S. Treasury securities, high-yield corporate bonds and foreign government
bonds - experienced attractive returns at different times. Varied performance
within each sector once again highlighted the advantages of diversification and
its stabilizing effect during periods of market uncertainty. High-yield
corporate bonds and emerging market bonds, particularly in Eastern Europe and
Latin America, had good performance during the first part of the year. Later,
increased demand for U.S. Treasury bonds pushed up prices and generated
attractive gains in this sector. As the period closed, high-yield bonds were
showing strong signs of recovery and European bonds were anticipating the
benefits of economic unification.
The Fund generated a 12-month total return of 5.17% for Class A shares, based on
net asset value. This outperformed the Fund's Lipper peer group average, which
posted a total return of 1.30% for the same time period.(1)
ASSET AND CASH-FLOW PROTECTION WERE CRITICAL FACTORS IN HIGH-YIELD SECTOR
High-yield corporate bonds represented approximately 38% of the Fund's assets.
While this sector performed well early in the year, we were selective in our
investments. We favored noncyclical companies with strong asset or cash-flow
protection that could provide a financial cushion during periods of slower
growth. This strategy worked well during the autumn months, when prices of
more-cyclical bonds fell dramatically. For example, EchoStar (1.49% of net
assets) generated good performance during the period. EchoStar is the
established market leader in direct satellite broadcasting, 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, taking advantage of
the higher credit quality afforded by the increasing value of its satellite
assets.
U.S. TREASURY BONDS BENEFITED FROM INCREASED DEMAND
Treasury securities accounted for almost 30% of the portfolio, although we did
increase their weighting during the late summer months. These holdings benefited
the Fund when the Treasury market rallied during May and June, and again during
August and September - two periods when investors around the world demanded the
high credit quality and liquidity of U.S. government securities. Prices rose
dramatically as yields were pushed down to their lowest levels in almost 30
years.
EUROPEAN BONDS BENEFITED IN ADVANCE OF ECONOMIC UNION
Foreign government bonds rounded out the portfolio's holdings, representing
approximately 25% of net assets. Early in the year, emerging market bonds had
good performance. However, they quickly fell out of favor after the Russian
economic crisis in August. Throughout the year, the majority of the portfolio's
foreign bond assets were invested in European governments. During this period,
interest rates of the 11 countries that became economically unified on January
1, 1999 began to fall towards a common rate. As a result, bonds of these
governments began to offer limited future price appreciation potential. We
sought value in countries not participating in the EMU, but whose interest rates
might fall towards the EMU standard, generating bond price increases. For
example, we made an investment in Greece, which has demonstrated a commitment to
fiscal control as it endeavors to qualify for inclusion in the economic union by
2002. As their efforts gain credibility, we expect that interest rates in Greece
will fall to approach those of the EMU, offering good price increases for their
government securities.
1999 OFFERS MULTIPLE OPPORTUNITIES
We expect moderate economic growth, continued low inflation and potentially
lower interest rates in the U.S. during 1999. These conditions all increase the
likelihood that high-yield companies will be able to generate enough cash flow
to meet their debt obligations, setting the stage for bond prices to continue
their recovery. U.S. Treasury bonds would also benefit from this environment,
although we don't expect price gains to be as dramatic as they were during the
second half of 1998. Overseas, we believe that European bonds should continue to
benefit from economic unity. In emerging markets, the worst may be over and we
will look for selective opportunities in countries that are making progress
towards fiscal and monetary responsibility. We will continue to actively manage
the portfolio's asset mix in order to seek the most attractive combination of
long-term price appreciation, current income and manageable risk.
(1) Source: Lipper, Inc. Lipper rankings are based on the Lipper Multi-Sector
Income Funds universe. The Fund (Class A shares) ranked in the first
quartile for 1 year (rated 8 out of 93 funds), in the first quartile for 5
years (rated 3 out of 27 funds), and in the second quartile for 10 years
(rated 2 out of 6 funds). Rankings do not include any sales charges.
Performance for different share classes will vary with fees associated with
each class. Past performance cannot predict future results.
<PAGE>
COLONIAL STRATEGIC INCOME FUND INVESTMENT PERFORMANCE VS.
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX
Change in Value of $10,000 from 12/31/88 - 12/31/98
Based on NAV and POP for Class A Shares
NAV LEHMAN POP
------- ------ -------
Dec 31, 88 $10,000 $10,000 $10,000
Mar 31, 89 10,228 10,110 9,799
Jun 30, 89 10,559 10,923 10,096
Sep 30, 89 10,949 11,026 10,429
Dec 31, 89 10,994 11,423 10,472
Mar 31, 90 10,661 11,293 10,155
Jun 30, 90 11,036 11,699 10,512
Sep 30, 90 10,321 11,770 9,831
Dec 31, 90 10,219 12,370 9,734
Mar 31, 91 11,118 12,703 10,590
Jun 30, 91 11,638 12,895 11,085
Sep 30, 91 12,388 13,637 11,799
Dec 31, 91 13,123 14,364 12,500
Mar 31, 92 13,426 14,149 12,788
Jun 30, 92 14,025 14,722 13,359
Sep 30, 92 14,534 15,441 13,844
Dec 31, 92 14,406 15,453 13,721
Mar 31, 93 15,168 16,172 14,448
Jun 30, 93 15,674 16,658 14,929
Sep 30, 93 16,016 17,209 15,255
Dec 31, 93 16,559 17,158 15,772
Mar 31, 94 16,127 16,621 15,361
Jun 30, 94 15,916 16,414 15,160
Sep 30, 94 15,956 16,496 15,198
Dec 31, 94 15,951 16,556 15,193
Mar 31, 95 16,830 17,381 16,030
Jun 30, 95 17,744 18,509 16,901
Sep 30, 95 18,344 18,863 17,473
Dec 31, 95 19,168 19,742 18,257
Mar 31, 96 19,256 19,280 18,342
Jun 30, 96 19,542 19,371 18,614
Sep 30, 96 20,333 19,713 19,367
Dec 31, 96 21,131 20,315 20,127
Mar 31, 97 20,879 20,140 19,887
Jun 30, 97 21,780 20,873 20,745
Sep 30, 97 22,699 21,604 21,621
Dec 31, 97 22,951 22,297 21,861
9/31/98 23,594 22,635 22,473
Jun 30, 98 23,799 23,228 22,668
Sep 30, 98 23,486 24,378 22,370
Dec 31, 98 24,138 24,410 22,991
VALUE OF A $10,000 INVESTMENT MADE ON 12/31/88
As of 12/31/98
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS J
NAV POP NAV w/CDSC NAV w/CDSC NAV POP
- --------------------------------------------------------------------------------
$24,138 $22,991 $22,896 $22,896 $23,922 $23,922 $24,090 $23,367
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/98
- --------------------------------------------------------------------------------
Class A Class B Class C Class J
4/21/77 5/15/92 7/1/97 11/2/98
INCEPTION NAV POP NAV w/CDSC NAV w/CDSC NAV POP
- --------------------------------------------------------------------------------
1 YEAR 5.17% 0.18% 4.38% (0.47)% 4.54% 3.57% 4.96% 1.81%
- --------------------------------------------------------------------------------
5 YEARS 7.83 6.78 7.03 6.73 7.63 7.63 7.79 7.13
- --------------------------------------------------------------------------------
10 YEARS 9.21 8.68 8.64 8.64 9.11 9.11 9.19 8.86
- --------------------------------------------------------------------------------
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 charges of 4.75% for Class A
shares and 3% for Class J shares. 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 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, Class C and Class J 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. Treasury and government agency
securities, and investment-grade corporate bonds. Unlike mutual funds, indexes
are not investments, do not incur fees or expenses and are not professionally
managed. It is not possible to invest in an index.
<PAGE>
INVESTMENT PORTFOLIO
DECEMBER 31, 1998 (IN THOUSANDS)
BONDS & NOTES - 93.4% PAR VALUE
- -------------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS & NOTES - 37.3%
- -------------------------------------------------------------------------------
CONSTRUCTION - 0.3%
BUILDING CONSTRUCTION
Falcon Building Products Co., Inc.,
stepped coupon, (10.500% 06/15/02)
(a) 6/15/07 $ 3,500 $ 2,065
Nortek, Inc.,
8.875% 8/1/08 (b) 3,250 3,339
----------
5,404
----------
...............................................................................
FINANCE, INSURANCE & REAL ESTATE - 0.2%
FINANCIAL SERVICES - 0.2%
U.S. Timberlands,
9.625% 11/15/07 4,000 4,040
----------
NONDEPOSITORY CREDIT INSTITUTIONS - 0.0%
Drum Financial Corp.,
12.875% 9/15/99 (c)(d) 1,000 10
----------
...............................................................................
MANUFACTURING - 13.0%
CHEMICALS & ALLIED PRODUCTS - 2.0%
Agricultural Minerals Co., L.P.,
10.750% 9/30/03 7,200 7,236
Huntsman Corp.,
9.500% 7/1/07 (b) 3,000 2,985
Hydrochem Industrial Services, Inc.,
10.375% 8/1/07 4,420 4,243
LaRoche Industries, Inc.,
9.500% 9/15/07 6,250 5,000
PCI Chemicals Canada, Inc.,
9.250% 10/15/07 1,250 1,013
Sterling Chemicals, Inc.,
11.250% 4/1/07 6,900 5,796
Styling Technology Corp.,
10.875% 7/1/08 2,000 1,900
Texas Petrochemical Corp.,
11.125% 7/1/06 3,600 3,546
Trans Resources, Inc.,
10.750% 3/15/08 4,000 3,980
----------
35,699
----------
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.2%
Amphenol Corp.,
9.875% 5/15/07 750 776
L-3 Communications Corp.
10.375% 5/1/07 1,250 1,375
TransDigm, Inc.,
10.375% 12/1/08 (b) 1,000 1,000
----------
3,151
----------
FABRICATED METAL - 0.7%
Earle M. Jorgensen Co.,
9.500% 4/1/05 1,000 920
Euramax International, PLC,
11.250% 10/1/06 (e) 8,000 7,960
U.S. Can Corp.,
10.125% 10/15/06 4,000 4,210
----------
13,090
----------
FOOD & KINDRED PRODUCTS - 0.5%
Chattem, Inc.,
8.750% 4/1/08 3,500 3,587
Chiquita Brands International, Inc.,
10.250% 11/1/06 3,750 3,834
Pilgrim's Pride Corp.,
10.875% 8/1/03 1,950 2,009
----------
9,430
----------
MACHINERY & COMPUTER EQUIPMENT - 0.4%
IMO Industries, Inc.,
11.750% 5/1/06 6,750 6,818
----------
MISCELLANEOUS MANUFACTURING - 2.0%
Amscan Holdings, Inc.,
9.875% 12/15/07 1,000 932
Associated Materials, Inc.,
9.250% 3/1/08 1,000 1,020
Compass Aerospace,
10.125% 4/15/05 (b) 3,000 2,910
Dade International, Inc.,
11.125% 5/1/06 2,250 2,492
Delco Remy International, Inc.,
10.625% 8/1/06 2,600 2,782
Eagle-Picher Industries, Inc.,
9.375% 3/1/08 2,750 2,599
ISG Resources, Inc.,
10.000% 4/15/08 1,250 1,238
Koppers Industries, Inc.,
9.875% 12/1/07 2,975 2,916
Moll Industries,
10.500% 7/1/08 (b) 1,500 1,463
Newcor, Inc.,
9.875% 3/1/08 5,000 4,650
Polymer Group, Inc.,
9.000% 7/1/07 2,500 2,475
Shop Vac Corp.,
10.625% 9/1/03 3,000 3,270
Tekni-Plex, Inc.,
9.250% 3/1/08 2,000 2,090
Thermadyne Holdings Corp.,
9.875% 6/1/08 2,750 2,557
Werner Holding Co.,
10.000% 11/15/07 1,250 1,238
----------
34,632
----------
PAPER PRODUCTS - 2.1%
Container Corp. of America,
Series A,
11.250% 5/1/04 7,500 7,800
Gaylord Container Corp.,
9.750% 6/15/07 4,500 3,982
Repap New Brunswick, Inc.:
9.000% 6/1/04 4,000 3,640
10.625% 4/15/05 6,000 4,080
Riverwood International Corp.:
10.625% 8/1/07 6,000 5,940
10.875% 4/1/08 5,000 4,525
Stone Container Corp.:
10.750% 10/1/02 6,750 6,986
12.250% 4/1/02 1,000 1,020
----------
37,973
----------
PETROLEUM REFINING - 0.1%
Benton Oil & Gas Co.,
9.375% 11/1/07 1,200 732
Flores & Rucks, Inc.,
9.750% 10/1/06 1,500 1,530
----------
2,262
----------
PRIMARY METAL - 2.7%
Bayou Steel Corp.,
9.500% 5/15/08 5,000 4,700
Ivaco, Inc.,
11.500% 9/15/05 1,500 1,455
Kaiser Aluminum & Chemical Corp.:
12.750% 2/1/03 2,000 1,980
10.875% 10/15/06 8,000 8,200
Keystone Consolidated Industries, Inc.,
9.625% 8/1/07 7,000 6,685
Renco Metals, Inc.,
11.500% 7/1/03 6,000 6,240
WCI Steel, Inc.,
10.000% 12/1/04 10,900 10,900
Wheeling Pittsburgh Corp.,
9.250% 11/15/07 8,000 7,520
----------
47,680
----------
PRINTING & PUBLISHING - 0.4%
American Lawyer Media, Inc.,
9.750% 12/15/07 3,000 3,105
stepped coupon, (12.250% 12/15/02)
(a) 12/15/08 2,000 1,250
Hollinger International Publishing, Inc.,
9.250% 3/15/07 2,000 2,110
----------
6,465
----------
RUBBER & PLASTIC - 0.4%
Berry Plastics Corp.,
12.250% 4/15/04 3,000 3,150
Burke Industries, Inc.,
10.000% 8/15/07 1,200 1,164
Portola Packaging, Inc.,
10.750% 10/1/05 2,000 1,990
----------
6,304
----------
STONE, CLAY, GLASS & CONCRETE - 0.1%
Anchor Glass Container Corp.,
11.250% 4/1/05 2,250 2,362
----------
TRANSPORTATION EQUIPMENT - 1.4%
Blue Bird Body Co.,
10.750% 11/15/06 1,375 1,416
Collins & Aikman Products Co.,
11.500% 4/15/06 7,000 7,245
Johnstown America Industries, Inc.,
11.750% 8/15/05 8,500 8,968
LDM Technologies, Inc.,
10.750% 1/15/07 7,100 7,100
----------
24,729
----------
...............................................................................
MINING & ENERGY - 2.6%
COAL MINING - 0.4%
AEI Resources, Inc.,
10.500% 12/15/05 (b) 7,500 7,350
----------
CRUDE PETROLEUM & NATURAL GAS - 0.2%
Ferrellgas Finance Corp., L.P.,
9.375% 6/15/06 2,500 2,500
TransAmerica Energy Corp.,
stepped coupon, (13.000% 06/15/99)
(a) 6/15/02 6,250 1,500
----------
4,000
----------
OIL & GAS EXTRACTION - 1.3%
Forcenergy, Inc.,
9.500% 11/1/06 2,175 1,675
Magnum Hunter Resources, Inc.,
10.000% 6/1/07 1,750 1,470
Mariner Energy Corp.,
10.500% 8/1/06 6,000 5,460
Nuevo Energy Co.,
9.500% 4/15/06 5,350 5,297
Ocean Energy, Inc.,
10.375% 10/15/05 7,125 7,339
Petsec Energy, Inc.,
9.500% 6/15/07 4,000 2,240
----------
23,481
----------
OIL & GAS FIELD SERVICES - 0.7%
Chile Offshore Corp.,
10.000% 5/1/08 1,500 1,200
Northern Offshore ASA,
10.000% 5/15/05 (b)(f) 3,000 1,560
Parker Drilling Corp.,
9.750% 11/15/06 8,000 7,160
Pool Energy Services Co.,
8.625% 4/1/08 2,500 2,375
----------
12,295
----------
RETAIL TRADE - 1.2%
FOOD STORES - 1.1%
Pathmark Stores, Inc.:
9.625% 5/1/03 9,350 9,163
stepped coupon, (10.750% 11/01/99)
(a) 11/1/03 10,500 8,610
Richmont Marketing,
10.125% 12/15/07 (b) 2,000 1,500
----------
19,273
----------
HOME FURNISHINGS & EQUIPMENT - 0.1%
Sealy Mattress Co.,
9.875% 12/15/07 1,000 965
----------
...............................................................................
SERVICES - 4.0%
AMUSEMENT & RECREATION - 1.7%
Boyd Gaming Corp.,
9.500% 7/15/07 5,000 5,000
Hollywood Casino Corp.,
12.750% 11/1/03 5,500 5,858
Hollywood Park, Inc.,
9.500% 8/1/07 1,500 1,500
Horseshoe Gaming LLC,
9.375% 6/15/07 8,300 8,591
Prime Hospitality Corp.,
9.250% 1/15/06 3,000 3,120
Regal Cinemas,
9.500% 6/1/08 (b) 7,000 7,210
----------
31,279
----------
BUSINESS SERVICES - 0.6%
PSINet Inc.,
10.000% 2/15/05 3,500 3,465
Unisys Corp.,
11.750% 10/15/04 6,000 6,960
----------
10,425
----------
HEALTH SERVICES - 0.1%
Maxxim Medical, Inc.,
10.500% 8/1/06 2,500 2,650
----------
HOTELS, CAMPS & LODGING - 0.9%
Eldorado Resorts Corp.,
10.500% 8/15/06 7,850 8,164
Harvey Casinos Resorts,
10.625% 6/1/06 7,750 8,409
----------
16,573
----------
MOTION PICTURES - 0.2%
Loews Cineplex Entertainment Corp.,
8.875% 8/1/08 1,500 1,549
United Artists Theatre,
9.750% 4/15/08 1,500 1,425
----------
2,974
----------
OTHER SERVICES - 0.4%
Borg Warner Security Corp.,
9.625% 3/15/07 4,900 5,316
Intertek Finance, PLC,
10.250% 11/1/06 2,000 1,860
----------
7,176
----------
PERSONAL SERVICES - 0.1%
Williams Scotsman, Inc.,
9.875% 6/1/07 1,500 1,560
----------
...............................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 15.7%
AIR TRANSPORTATION - 0.7%
Continental Airlines, Inc.,
9.500% 12/15/01 1,500 1,568
Trans World Airlines, Inc.,
11.375% 3/1/06 2,500 1,750
U.S. Airways Group, Inc., Pass-Through Certificates,
10.375% 3/1/13 8,000 8,840
----------
12,158
----------
BROADCASTING - 1.7%
Allbritton Communications Co.,
9.750% 11/30/07 7,650 8,109
Fox Family Worldwide, Inc.,
9.250% 11/1/07 6,000 5,925
LIN Holding Corp.,
stepped coupon, (10.000% 03/01/03)
(a) 3/1/08 8,000 5,620
LIN Television Corp.,
8.375% 3/1/08 2,250 2,258
Shop At Home, Inc.,
11.000% 4/1/05 1,250 1,275
Young Broadcasting Corp.:
10.125% 2/15/05 3,000 3,150
11.750% 11/15/04 4,000 4,280
----------
30,617
----------
CABLE - 3.4%
Adelphia Communications Corp.,
8.375% 2/1/08 2,500 2,587
Century Communications Corp.,
(g) 1/15/08 1,000 515
Comcast UK Cable Partners Ltd.,
stepped coupon, (11.200% 11/15/00)
(a) 11/15/07 9,950 8,458
Diamond Cable Communications PLC,
stepped coupon, (10.750% 02/15/02)
(a) 2/15/07 (e) 8,770 6,314
EchoStar Satellite Broadcasting Corp.,
stepped coupon, (13.125% 03/15/00)
(a) 3/15/04 9,000 8,977
Frontier Vision Holdings, L.P.,
stepped coupon, (11.875% (09/15/01)
(a) 9/15/07 (b) 7,465 6,251
International CableTel, Inc.,
stepped coupon, (12.750% 04/15/00)
(a) 4/15/05 5,500 4,950
Northland Cable Television, Inc.,
10.250% 11/15/07 4,500 4,736
Renaissance Media Group,
stepped coupon, (10.000% 04/15/03)
(a) 4/5/08 7,215 4,834
Rogers Cablesystems, Inc.,
10.000% 3/15/05 3,000 3,360
Telewest Communication, PLC,
stepped coupon, (11.000% 10/01/00)
(a) 10/1/07 (e) 12,000 10,020
----------
61,002
----------
COMMUNICATIONS - 1.7%
Call-Net Enterprises,Inc.,
stepped coupon, (8.940% 08/01/03)
(a) 8/15/08 3,000 1,763
Diamond Holdings, PLC,
9.125% 2/1/08 (e) 750 733
EchoStar Communications Corp.:
stepped coupon, (12.875% 06/01/99)
(a) 6/1/04 10,000 10,225
12.500% 7/1/02 5,000 5,775
Firstworld Communications Units,
stepped coupon, (13.000% 04/15/03)
(a) 4/15/08 (b)(h) 2,200 671
Focal Communications Corp.,
stepped coupon, (12.125% 02/15/03)
(a) 2/15/08 2,000 1,080
Onepoint Communication Corp.,
14.500% 6/1/08 (b) 4,000 2,160
PTC International Finance BV,
stepped coupon, (10.750% 07/01/02)
(a) 7/1/07 1,700 1,020
Price Communications Wireless, Inc., PIK,
11.250% 8/15/08 3,000 2,850
Splitrock Services, Inc.,
11.750% 7/15/08 1,001 870
Time Warner Telecom L.L.C.,
9.750% 7/15/08 3,400 3,570
----------
30,717
----------
ELECTRIC SERVICES - 0.1%
California Energy Co., Inc.,
9.500% 9/15/06 2,000 2,220
----------
MOTOR FREIGHT & WAREHOUSING - 0.3%
MTL, Inc.,
10.000% 6/15/06 (b) 4,000 3,880
Pierce Leahy Corp.,
11.125% 7/15/06 1,625 1,796
----------
5,676
----------
TELECOMMUNICATION - 7.7%
21st Century Telecom Group Inc.,
stepped coupon, (12.250% 02/15/03)
(a) 2/15/08 2,500 1,050
Adelphia Communications Corp.,
9.875% 3/1/07 7,000 7,752
Arch Communications Inc.,
12.750% 7/1/07 (b) 3,000 3,000
Cencall Communications Corp.,
stepped coupon, (10.125% 01/15/99)
(a) 1/15/04 6,000 6,000
Clearnet Communications, Inc.,
stepped coupon, (14.750% 12/15/00)
(a) 12/15/05 7,500 6,450
Comcast Cellular Corp.,
9.500% 5/1/07 7,250 7,739
GST Telecom,
stepped coupon, (10.500% 05/01/03)
(a) 5/1/08 (b) 4,000 1,920
ICG Holding, Inc.,
stepped coupon, (13.500% 09/15/00)
(a) 9/15/05 5,000 4,084
ICG Services, Inc.,
stepped coupon, (10.000% 02/15/03)
(a) 2/15/08 5,000 2,700
IXC Communications, Inc.,
9.000% 4/15/08 1,500 1,502
IntelCom Group (USA), Inc.,
stepped coupon, (12.500% 05/01/01)
(a) 5/1/06 2,000 1,479
Intermedia Communications of Florida, Inc.,
stepped coupon, (12.500% 05/15/01)
(a) 5/15/06 6,000 4,695
Intermedia Communications, Inc.,
stepped coupon, 11.250% 07/15/02)
(a) 7/15/07 5,000 3,450
KMC Telecom Holdings,
stepped coupon, (12.500% 02/15/03)
(a) 2/15/08 2,000 960
Level 3 Communications, Inc.:
9.125% 5/1/08 10,000 9,925
stepped coupon, (10.500% 12/01/03)
(a) 12/1/08 (b) 6,000 3,495
McLeodUSA, Inc.:
stepped coupon, (10.5000% 03/01/02)
(a) 3/1/07 6,000 4,530
8.375% 3/15/08 2,000 2,010
9.500% 11/1/08 (b) 2,000 2,130
Metrocall, Inc.,
9.750% 11/1/07 4,050 3,888
10.375% 10/1/07 5,000 4,900
MetroNet Communications Corp.:
stepped coupon, (9.950% 06/15/03)
(a) 6/15/08 6,000 3,675
12.000% 8/15/07 1,250 1,359
NTL, Inc.:
10.000% 2/15/07 4,000 4,100
11.500% 10/1/08 (b) 1,750 1,908
stepped coupon, (9.750% 04/01/03)
(a) 4/1/08 10,000 6,163
Nextel Communications, Inc.:
stepped coupon, (9.750% 02/15/99)
(a) 8/15/04 10,000 9,650
stepped coupon, (9.750% 10/31/02)
(a) 10/31/07 6,000 3,660
stepped coupon, (9.950% 02/15/03)
(a) 2/15/08 5,000 3,000
Nextel International, Inc.,
stepped coupon, (12.125% 04/15/03)
(a) 4/15/08 3,000 1,392
Price Communications Wireless, Inc.,
9.125% 12/15/06 (b) 2,250 2,273
RCN Corp.
stepped coupon, (11.125% 10/15/02)
(a) 10/15/07 2,750 1,581
Rogers Cantel, Inc.,
9.750% 6/1/16 1,990 2,129
Sprint Spectrum, L.P.,
stepped coupon, (12.500% 08/15/01)
(a) 8/15/06 9,650 8,830
Teligent, Inc.,
11.500% 12/1/07 3,000 2,760
Verio, Inc.:
10.375% 4/1/05 1,000 980
11.250% 12/1/08 (b) 1,000 1,010
WinStar Communications, Inc.,
stepped coupon, (14.000% 10/15/00)
(a) 10/15/05 250 181
----------
138,310
----------
TRANSPORTATION SERVICES - 0.1%
Moog, Inc.,
10.000% 5/1/06 1,125 1,164
----------
...............................................................................
WHOLESALE TRADE - 0.3%
Nondurable Goods
Revlon Consumer Products Corp.,
9.000% 11/1/06 5,000 4,950
----------
TOTAL CORPORATE FIXED INCOME
BONDS & NOTES (cost of $687,951) 666,864
----------
CORPORATE CONVERTIBLE BONDS & NOTES - 0.7%
- -------------------------------------------------------------------------------
MANUFACTURING - 0.0%
ELECTRONIC & ELECTRICAL EQUIPMENT
Kollmorgen Corp.,
8.750% 5/1/09 532 532
----------
...............................................................................
MINING & ENERGY - 0.7%
OIL & GAS EXTRACTION
HS Resources, Inc.,
9.250% 11/15/06 13,500 12,893
----------
TOTAL CORPORATE CONVERTIBLE
BONDS & NOTES (cost of $14,261) 13,425
----------
TOTAL CORPORATE BONDS & NOTES (cost of $702,212) 680,289
----------
U.S. GOVERNMENT &
AGENCIES OBLIGATIONS - 30.8%
- -------------------------------------------------------------------------------
Maturities
Coupon From/To
-------------- ----------
Federal Home Loan Mortgage Corp.:
7.500% 2016 158 164
8.000% 2006-2016 886 929
8.500% 2007-2010 824 873
8.750% 2005-2008 333 352
9.000% 2004-2022 1,028 1,091
9.250% 2007-2016 706 752
9.500% 2008-2016 659 704
9.750% 2008-2016 101 107
10.000% 2009-2019 1,053 1,143
10.500% 2020-2024 470 513
10.750% 2010-2013 880 983
11.250% 2010-2015 431 483
----------
8,094
----------
Federal National Mortgage Association:
6.500% 2016 (t) 8,000 8,052
7.500% 2003-2011 454 470
8.000% 2002-2009 614 641
8.250% 2007-2009 176 183
8.500% 2008-2021 1,684 1,737
9.000% 2003-2021 2,915 3,100
9.250% 2016 194 205
10.000% 2013-2016 1,063 1,149
10.500% 2007-2016 1,311 1,425
----------
16,962
----------
Government National Mortgage Association:
7.000% 2024 (t) 9,000 9,208
8.500% 2006 49 53
9.000% 2008-2017 9,761 10,501
9.500% 2009-2017 4,078 4,385
10.000% 2000-2021 1,391 1,506
10.500% 2001-2021 315 347
11.000% 2009-2016 2,069 2,301
11.750% 2013-2015 54 61
12.000% 2014 4 4
----------
28,366
----------
U.S. Treasury Bonds:
12.000% 8/15/13 (i) 72,948 111,371
11.625% 11/15/04 62,206 83,783
8.750% 5/15/17 11,754 16,351
----------
211,505
----------
U.S. Treasury Notes:
11.875% 11/15/03 (i) 99,610 130,007
8.875% 2/15/19 40,314 57,416
10.375% 11/15/12 (i) 72,131 99,518
----------
286,941
----------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS (cost of $536,453) 551,868
----------
FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS - 24.6% CURRENCY
- -------------------------------------------------------------------------------
Government of Canada,
10.000% 6/1/08 CD 7,170 6,454
Government of France,
8.500% 4/25/03 FF 161,300 34,648
Government of Mexico
11.375% 9/15/16 (j) 36,420 37,535
Hellenic Republic,
8.600% 3/26/08 GD 4,640,000 18,383
8.900% 3/21/04 GD 7,710,000 29,418
8.800% 6/19/07 GD 2,600,000 10,324
Kingdom of Sweden,
10.250% 5/5/03 SK 150,000 23,226
Province of Ontario,
8.250% 12/1/05 CD 34,319 26,474
Republic of Argentina:
11.250% 4/10/06 (k) DM 17,350 11,465
11.375% 1/30/17 (l) 29,350 29,258
Republic of Brazil,
10.125% 5/15/27 (m) 28,550 19,004
Republic of Bulgaria,
Floating Rate,
6.688% 7/28/11 (n) 28,000 18,760
Republic of Panama,
8.875% 9/30/27 (o) 12,025 11,251
Russian Federation,
11.000% 7/24/18 (p) 8,500 2,045
Treasury Corp. of Victoria,
10.250% 11/15/06 A$ 23,285 18,727
12.500% 10/15/03 A$ 23,030 18,489
United Kingdom Treasury:
9.000% 7/12/11 KB 13,958 33,103
10.000% 2/26/01 KB 19,700 35,938
10.000% 9/8/03 KB 23,995 48,859
United Mexican States,
10.375% 1/29/03 (q) DM 12,800 8,190
----------
TOTAL FOREIGN GOVERNMENT & AGENCY
OBLIGATIONS (cost of $445,242) 441,551
----------
TOTAL BONDS & NOTES (cost of $1,683,907) 1,673,708
----------
PREFERRED STOCKS - 2.0% SHARES
- -------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.1%
DEPOSITORY INSTITUTIONS
California Federal Bancorp, Inc.,
9.125%, Series A 59 1,482
----------
...............................................................................
TRANSPORTATION,COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 1.9%
BROADCASTING - 0.1%
Primedia Inc.:
9.20% 12 1,176
10.00% 15 1,545
----------
2,721
----------
CABLE - 1.2%
CSC Holdings Ltd., PIK:
11.125% 150 17,212
11.750% 41 4,840
----------
22,052
----------
COMMUNICATIONS - 0.1%
Echostar Communications Corp., PIK,
12.125% (r) 1 1,681
----------
TELECOMMUNICATION - 0.5%
Concentric Network Corp., PIK,
13.500% 2 1,822
Nextel Communications, Inc., PIK:
11.125% 2 $ 2,043
13.000% 5 4,786
----------
8,651
----------
TOTAL PREFERRED STOCKS (cost of $36,734) 36,587
----------
COMMON STOCKS - 0.2%
- -------------------------------------------------------------------------------
CONSTRUCTION - 0.1%
BUILDING CONSTRUCTION
Calton, Inc. (r) 356 400
U.S. Home Corp. (r) 31 1,038
----------
1,438
----------
...............................................................................
MANUFACTURING - 0.0%
FOOD & KINDRED PRODUCTS
Darling International, Inc. (r) 80 245
----------
...............................................................................
MINING & ENERGY - 0.0%
OIL & GAS EXTRACTION
Forest Oil Corp. (r) 16 140
----------
...............................................................................
RETAIL TRADE - 0.0%
MISCELLANEOUS RETAIL
Pharmhouse Corp. (r) 4 12
----------
...............................................................................
SERVICES - 0.1%
BUSINESS SERVICES - 0.0%
Iron Mountain Inc. (r) 1 53
----------
HEALTH SERVICES - 0.1%
Kuala Healthcare Inc. (r) 177 486
Total Renal Care Holdings, Inc. (r) 55 1,626
----------
2,112
----------
...............................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
LOCAL & SUBURBAN TRANSIT - 0.0%
Greyhound Lines, Inc., 12.500% Escrow
Receipt (r)(c) 1 (s)
----------
MOTOR FREIGHT & WAREHOUSING - 0.0%
St. Johnsbury Trucking Co. (r)(c) 31 (s)
Sun Carriers, Inc. (r)(c) 130 1
----------
1
----------
...............................................................................
TELECOMMUNICATION - 0.0%
Nextel Communications, Inc. Class A (r) 9 $ 220
----------
TOTAL COMMON STOCKS (cost of $4,592) 4,221
----------
WARRANTS (r) - 0.0%
- -------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.0%
DEPOSITORY INSTITUTIONS
KMC Telecom
Holdings, Inc.,
expires 04/15/08 2 6
----------
...............................................................................
MANUFACTURING - 0.0%
RUBBER & PLASTIC
BPC Holdings Corp.,
expires 04/15/04 (c) 3 60
----------
...............................................................................
SERVICES - 0.0%
HOTELS, CAMPS, & LODGING - 0.0%
Capital Gaming International, Inc.,
expires 02/01/99 (c) 6 (s)
----------
...............................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
CABLE - 0.0%
Wireless One, Inc., 14 (s)
----------
expires 10/19/00 (c)
COMMUNICATIONS - 0.0%
Clearnet Communications,
expires 09/15/05 25 161
Onepoint Communication,
expires 06/01/08 (b) 4 4
----------
165
----------
TELECOMMUNICATION - 0.0%
Hyperion Telecommunications, Inc.,
expires 04/15/01 (b) 3 244
MetroNet Communications, Inc.,
expires 08/15/07 (b) 1 53
Splitrock Services,
expires 07/15/08 (b) 1 11
----------
308
----------
TOTAL WARRANTS (cost of $332) 539
----------
TOTAL INVESTMENTS (cost of $1,725,565)(u) $1,715,055
----------
SHORT-TERM OBLIGATIONS - 2.7% 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 $49,899
(repurchase proceeds $49,063) $ 49,037 49,037
----------
FORWARD CURRENCY CONTRACTS - 0.1% (v) 1,726
- -------------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - 1.6% 27,444
- -------------------------------------------------------------------------------
NET ASSETS - 100.0% $1,793,262
----------
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) 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 $58,327 or 3.3%
of net assets.
(c) Represents fair value as determined in good faith under the direction of the
Trustees.
(d) This issuer is in default of certain debt covenants. Income is not being
accrued.
(e) This is a British security. Par amount is stated in U.S. dollars.
(f) This is a Norwegian security. Par amount is stated in U.S. dollars.
(g) Zero coupon bond.
(h) 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.
(i) These securities, or a portion thereof, with a total market value of
$254,154, are being used to collateralize the forward currency contracts
shown on the following page.
(j) This is a Mexican security. Par amount is stated in U.S. dollars.
(k) This is an Argentinean security. Par amount is stated in German
Deutschemarks.
(l) This is an Argentinean security. Par amount is stated in U.S. dollars.
(m) This is a Brazilian security. Par amount is stated in U.S. dollars.
(n) This is a Bulgarian 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 a Panamanian security. Par amount is stated in U.S. dollars.
(p) This is a Russian security. Par amount is stated in U.S. dollars.
(q) This is a Mexican security. Par amount is stated in German Deutschemarks.
(r) Non-income producing.
(s) Rounds to less than one.
(t) These securities have been purchased on a delayed delivery basis whereby the
terms that are fixed are the purchase price, interest rate and the
settlement date. The exact quantity purchased may be slightly more or less
than the amount shown.
(u) Cost for federal income tax purposes of total investments is $1,725,613.
(v) As of December 31, 1998, the Fund had entered into the following forward
currency exchange contracts:
Net Unrealized
Appreciation
Contracts In Exchange Settlement (Depreciation)
to Deliver For Date (U.S. $)
-----------------------------------------------------------------------------
FF 100,170 US$ 20,865 1/13/99 $ (411)
CD 50,840 US$ 33,099 1/14/99 (98)
KB 61,907 US$ 103,837 1/19/99 1,375
A$ 57,033 US$ 35,560 1/21/99 640
SK 194,393 US$ 24,249 2/16/99 220
----------
$ 1,726
----------
Summary of Securities
by Country Currency Value % of Total
----------------------------------------------------------------------------
United States $ 1,246,917 72.7
United Kingdom KB 142,927 8.3
Greece GD 58,125 3.4
Mexico 45,725 2.7
Argentina 40,723 2.4
Australia A$ 37,216 2.2
France FF 34,648 2.0
Canada 32,928 1.9
Sweden SK 23,226 1.4
Brazil 19,004 1.1
Bulgaria 18,760 1.1
Panama 11,251 0.6
Russia 2,045 0.1
Norway 1,560 0.1
------------ -----
$ 1,715,055 100.0
------------ -----
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
Acronym Name
------- ----
PIK Payment-In-Kind
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1998
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $1,725,565) $1,715,055
Short-term obligations 49,037
----------
1,764,092
Cash $ 2,524
Unrealized appreciation on forward
currency contracts 2,235
Receivable for:
Interest 39,304
Fund shares sold 7,312
Investment sold 158
Other 214 51,747
-------- ----------
Total Assets 1,815,839
LIABILITIES
Unrealized depreciation on forward
currency contracts 509
Payable for:
Investments purchased 19,776
Fund shares repurchased 2,236
Distributions 17
Accrued:
Deferred Trustees fees 22
Other 17
--------
Total Liabilities 22,577
----------
NET ASSETS $1,793,262
----------
Net asset value & redemption price per share -
Class A ($787,461/110,749) $7.11 (a)
----------
Maximum offering price per share - Class A
($7.11/0.9525) $7.46 (b)
----------
Net asset value & offering price per share -
Class B ($919,740/129,378) $7.11 (a)
----------
Net asset value & offering price per share -
Class C ($36,918/5,193) $7.11 (a)
----------
Net asset value & offering price per share -
Class J ($49,1438/6,917) $7.10 (a)
----------
(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.
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands)
INVESTMENT INCOME
Interest $ 148,134
Dividends 3,899
----------
Total Investment Income 152,033
EXPENSES
Management fee $ 10,600
Service fee 3,911
Distribution fee - Class B 6,410
Distribution fee - Class C 161
Distribution fee - Class J 36
Transfer agent 3,830
Bookkeeping fee 530
Trustees fee 73
Custodian fee 148
Audit fee 54
Legal fee 10
Registration fee 102
Reports to shareholders 44
Other 110
--------
Total expenses 26,019
Fees waived by the Distributor - Class C (33)
Fees waived by the Distributor - Class J (19)
Custodian credits earned (3) 25,964
-------- ----------
Net Investment Income 126,069
----------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments (9,213)
Foreign currency transactions 4,111
--------
Net Realized Loss (5,102)
Change in net unrealized depreciation during
the period on:
Investments (40,660)
Foreign currency transactions (743)
--------
Net Unrealized Depreciation (41,403)
----------
Net Loss (46,505)
----------
Increase in Net Assets from Operations $ 79,564
----------
Class J shares were intitially offered on November 2, 1998.
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Year ended
(in thousands) December 31
--------------------------
INCREASE (DECREASE) IN NET ASSETS 1998 1997(a)
Operations:
Net investment income $ 126,069 $ 117,469
Net realized gain (loss) (5,102) 17,807
Net unrealized depreciation (41,403) (9,879)
----------- -----------
Net Increase from Operations 79,564 125,397
Distributions:
From net investment income - Class A (63,872) (63,388)
From net investment income - Class B (61,506) (59,855)
From net investment income - Class C (1,566) (124)
From net investment income - Class J (467) --
----------- -----------
(47,847) 2,030
----------- -----------
Fund Share Transactions:
Receipts for shares sold - Class A 115,635 152,305
Value of distributions reinvested - Class A 35,620 33,842
Cost of shares repurchased - Class A (148,991) (134,241)
----------- -----------
2,264 51,906
----------- -----------
Receipts for shares sold - Class B 221,748 147,889
Value of distributions reinvested - Class B 31,198 29,039
Cost of shares repurchased - Class B (143,157) (127,760)
----------- -----------
109,789 49,168
----------- -----------
Receipts for shares sold - Class C 35,128 6,263
Value of distributions reinvested - Class C 1,004 59
Cost of shares repurchased - Class C (4,635) (93)
----------- -----------
31,497 6,229
----------- -----------
Receipts for shares sold - Class J 49,584 --
Value of distributions reinvested - Class J 1 --
Cost of shares repurchased - Class J (331) --
----------- -----------
49,254 --
----------- -----------
Net Increase from Fund Share Transactions 192,804 107,303
----------- -----------
Total Increase 144,957 109,333
NET ASSETS
Beginning of period 1,648,305 1,538,972
----------- -----------
End of period (including undistributed net
investment income of $4,804 and $7,673,
respectively) $ 1,793,262 $ 1,648,305
----------- -----------
(a) Class J shares were initially offered on November 2, 1998.
(b) Class D shares were redesignated Class C shares on July 1, 1997.
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS - CONT.
Year ended
December 31
---------------------------
1998 1997(a)
(in thousands)
NUMBER OF FUND SHARES
Sold - Class A 15,962 20,964
Issued for distributions reinvested - Class A 4,936 4,650
Repurchased - Class A (20,628) (18,479)
----------- -----------
270 7,135
----------- -----------
Sold - Class B 30,863 20,354
Issued for distributions reinvested - Class B 4,326 3,991
Repurchased - Class B (19,799) (17,572)
----------- -----------
15,390 6,773
----------- -----------
Sold - Class C 4,851 854
Issued for distributions reinvested - Class C 140 8
Repurchased - Class C (647) (13)
----------- -----------
4,344 849
----------- -----------
Sold - Class J 6,963 --
Issued for distributions reinvested - Class J (c) --
Repurchased - Class J (46) --
----------- -----------
6,917 --
----------- -----------
(a) Class J shares were initially offered on November 2, 1998.
(b) Class D shares were redesignated Class C shares on July 1, 1997.
(c) Rounds to less than one.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION: Colonial Strategic Income Fund (the Fund), a series of Colonial
Trust I, is a diversified portfolio of a Massachusetts business trust,
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund's investment objective is to seek as
high a level of current income and total return, as is consistent with prudent
risk, by diversifying investments primarily in U.S. and foreign government and
lower rated corporate debt securities. The Fund may issue an unlimited number of
shares. The Fund offers four classes of shares: Class A, Class B, Class C and
Class J. 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. Effective November 2,1998, the Fund began offering Class J
shares which are subject to an annual distribution fee and are available for
purchase only by residents or citizens of Japan.
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
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 days 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, Class C and Class J 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, Class C and Class J 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, Class C shares and Class J 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: Distributions to shareholders are recorded on the
ex-date.
The amount and character of income and gains to be distributed are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. Reclassifications are made to the Fund's capital
accounts to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
FOREIGN CURRENCY TRANSACTIONS: Net realized and unrealized gains (losses) on
foreign currency transactions includes the fluctuation in exchange rates on
gains (losses) between trade and settlement dates on securities transactions,
gains (losses) arising from the disposition of foreign currency and currency
gains (losses) between the accrual and payment dates on dividends and interest
income and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) on investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities. The
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.
The Fund has an agreement with its custodian bank under which custodian fees
were reduced by balance credits of $2,527 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 based on the Fund's average net assets as
follows:
Average Net Assets Annual Fee Rate
------------------ ---------------
First $1 billion 0.65%
Over $1 billion 0.60%
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%
TRANSFER AGENT: Liberty Fund 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 0.20% 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 Advisor, is the Fund's principal underwriter. For the year
ended December 31, 1998, the Fund has been advised that the Distributor retained
net underwriting discounts of $218,954 on sales of the Fund's Class A shares and
received contingent deferred sales charges (CDSC) of none, $1,861,384 and
$21,455 on class A, 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, Class C and Class J shares only. The Distributor has
voluntarily agreed, until further notice, to waive a portion of the Class C and
Class J share distribution fees so that it does not exceed 0.60% and 0.35%
annually, respectively. The plan also requires the payment of a service fee to
the Distributor as follows:
Value of shares Annual
outstanding on the 20th of Fee
each month which were issued Rate
Prior to January 1, 1993 0.15%
On or after January 1, 1993 0.25%
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
OTHER: The Fund pays no compensation to its officers, all of whom are employees
of the 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: For the year ended December 31, 1998, purchases and sales
of investments, other than short-term obligations, were $1,186,222,244 and
$1,023,776,115, respectively, of which $114,397,629 and $58,261,735,
respectively, were U.S. government securities.
Unrealized appreciation (depreciation) at December 31, 1998, based on cost of
investments for federal income tax purposes was approximately:
Gross unrealized appreciation $ 51,947,000
Gross unrealized depreciation (62,505,000)
-------------
Net unrealized depreciation $ (10,558,000)
=============
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
---------- ------------
1999 $ 36,511,000
2000 23,761,000
2001 3,442,000
2002 42,652,000
2003 18,825,000
---- ------------
$125,191,000
============
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.
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 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. COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
At December 31, 1998, net assets consisted of:
Capital paid in $ 1,927,935
Undistributed net investment income 4,804
Accumulated net realized loss (130,790)
Net unrealized appreciation (depreciation) on:
Investments (10,510)
Foreign currency transactions 1,823
-----------
$ 1,793,262
===========
NOTE 6. 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 233,320,833 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 117,765,591 4,494,024
Tom Bleasdale 117,775,668 4,483,947
John Carberry 117,786,514 4,473,101
Lora S. Collins 117,786,398 4,473,217
James E. Grinnell 117,775,177 4,484,438
Richard W. Lowry 117,775,177 4,484,438
Salvatore Macera 117,786,376 4,473,239
William E. Mayer 117,778,151 4,481,464
James L. Moody, Jr. 117,786,965 4,472,650
John J. Neuhauser 117,786,965 4,472,650
Thomas E. Stitzel 117,786,376 4,473,239
Robert L. Sullivan 117,786,407 4,473,208
Anne-Lee Verville 117,786,514 4,473,101
To amend fundamental investment policies regarding borrowing and lending.
For Against Abstain
--- ------- -------
91,453,471 3,442,895 6,946,331
To approve policies for a master fund/feeder fund structure.
For Against Abstain
--- ------- -------
90,786.876 3.595,800 7,460,023
NOTE 7. FINANCIAL HIGHLIGHTS INFORMATION
The amount shown for a share outstanding does not correspond with the aggregate
net loss on investments for the period due to the timing of sales and repurchase
of fund shares in relation to fluctuating market values of the investments of
the Fund.
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are as follows:
<CAPTION>
Year ended December 31
----------------------------------------------------------------
1998
Class A Class B Class C Class J (a)
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 7.320 $ 7.320 $ 7.320 $ 7.000
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.561 0.506 0.517 (c) 0.083 (c)
Net realized and unrealized gain (loss) (0.195) (0.195) (0.195) 0.109 (d)
------- ------- ------- -------
Total from Investment Operations 0.366 0.311 0.322 0.192
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (e) (0.576) (0.521) (0.532) (0.092)
------- ------- ------- -------
Net asset value - End of period $ 7.110 $ 7.110 $ 7.110 $ 7.100
------- ------- ------- -------
Total return (f) 5.17% 4.38% 4.54% (g) 2.74% (g)(h)
------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses (i) 1.15% 1.90% 1.75% (c) 1.49% (c)(j)
Net investment income (i) 7.88% 7.13% 7.28% (c) 7.76% (c)(j)
Portfolio turnover 64% 64% 64% 64%
Net assets at end of period (000) $787,461 $919,740 $36,918 $49,143
(a) Class J shares were initially offered on November 2, 1998. Per share amounts reflect activity from that
date.
(b) Class C shares were initially offered on July 1, 1997. Per share amounts reflect activity from that
date.
(c) Net of fees waived by the Distributor for Class C and Class J shares which amounted to $0.011 per share
and 0.15% and $0.005 per share and 0.40% (annualized), respectively.
(d) Please see Note 7 in the Notes to Financial Statements.
(e) Distributions from income include currency gains and gains on securities treated as ordinary income for
tax purposes.
(f) Total return at net asset value assuming all distributions reinvested and no initial sales charge or
contingent deferred sales charge.
(g) Had the Distributor not waived a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage arrangements had no impact.
(j) Annualized.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Year ended December 31
-------------------------------------------------
1997
Class A Class B Class C (b)
------- ------- -------
$ 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% (g)
------- ------- -------
1.18% 1.93% 1.78% (i)
7.78% 7.03% 7.13% (i)
111% 111% 111%
$808,228 $833,865 $ 6,212
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS - CONT.
Selected data for a share of each class outstanding throughout each period are as follows:
<CAPTION>
Year ended December 31
------------------------------------------------------------
1996 1995
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 7.220 $ 7.220 $ 6.530 $ 6.530
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.623 0.569 0.621 0.569
Net realized and unrealized gain (loss) 0.081 0.081 0.650 0.650
------- ------- ------- -------
Total from Investment Operations 0.704 0.650 1.271 1.219
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.614)(a) (0.560)(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
(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.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Year ended December 31
---------------------------
1994 (d)
Class A Class B
------- -------
$ 7.390 $ 7.390
------- -------
0.580 0.529
(0.848) (0.849)
------- -------
(0.268) (0.320)
------- -------
(0.580) (0.529)
(0.012) (0.011)
------- -------
(0.592) (0.540)
------- -------
$ 6.530 $ 6.530
------- -------
(3.67)% (4.40)%
------- -------
1.21% 1.96%
8.38% 7.63%
78% 78%
$636,824 $608,348
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST I AND THE SHAREHOLDERS OF
COLONIAL STRATEGIC INCOME FUND
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Colonial Strategic Income Fund
(the "Fund") (a series of Colonial Trust I), at December 31, 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
<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 Liberty Funds Services 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.
<PAGE>
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
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Strategic Income Fund is:
Liberty Funds Services, 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 with 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.
<PAGE>
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)
[logo] L I B E R T Y
COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)1999
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
Visit us at www.libertyfunds.com
SI-02/448F-1298 (2/99) 99/103
