[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
COLONIAL INCOME FUND Annual Report
- --------------------------------------------------------------------------------
December 31, 1999
<PAGE>
President's Message
Dear Shareholder:
Most bonds turned in disappointing returns for the 12-month period ended
December 31, 1999, coming under pressure from persistent inflation worries and
rising interest rates. Unexpectedly strong U.S. economic growth, coupled with
improving conditions in Japan, Europe and the emerging markets, prompted the
Federal Reserve Board to raise interest rates as a preemptive measure against
potential inflation. In response to rising rates, Treasury bond prices fell and
yields, which move in the opposite direction, rose sharply. Rising interest
rates also affected high-yield bonds, although they were cushioned somewhat by
the overall strength of the economy and healthy corporate profitability.
Throughout the challenging months of 1999, Colonial Income Fund remained
committed to its strategy of diversifying among a broad range of U.S.
government, corporate and foreign bonds. By maintaining our focus, the Fund was
able to benefit from the rebound of emerging market bonds and the relatively
good performance of corporate bonds, but it was not able to sidestep the
downturn of the U.S. Treasury and foreign government bond markets. While the
Fund's short-term results reflected the bond markets' difficulties, its
long-term record remained intact. The Fund has provided above-average returns
for longer periods, such as three, five and ten years.(1) While past performance
cannot predict future results, it is important to keep a long-term perspective
when making investment decisions.
The following report will provide you with more specific information about your
Fund's performance and the strategies used during the period. As always, we
thank you for choosing Colonial Income Fund and for giving us the opportunity to
serve your investment needs.
Respectfully,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
February 11, 2000
(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
Intermediate Investment Grade Debt Category was negative 1.31% for the 12
months ended December 31, 1999. The Fund's Class A shares were ranked in
the third quartile for one year (187 out of 279), in the second quartile
for three years (ranked 90 out of 192), in the first quartile for five
years (ranked 23 out of 145) and in the first quartile for ten years (8
out of 33).
Because economic and market conditions change frequently, there can be no
assurance that the trends described in this report will continue or come
to pass.
- --------------------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
- --------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Highlights
- --------------------------------------------------------------------------------
o 1999 proved to be a difficult year for bonds.
Stronger-than-expected economic growth, rebounding foreign economies and
Y2K concerns put pressure on most types of bonds during 1999. In addition,
rising interest rates caused bond prices to decline sending bond yields
higher. Treasury securities were among the hardest hit, as the yield on
the 30-year Treasury bond climbed to 6.47% at year end, compared to 5.19%
at the beginning of 1999. European government bonds struggled as economies
on that continent improved, triggering inflationary concerns and rising
interest rates. Practically the only bright spots were the emerging market
bonds, which rebounded as those regions stabilized and investor sentiment
turned more favorable.
o Corporate bonds outpaced government securities.
A barrage of newly issued securities and rising interest rates put
pressure on corporate bonds in the first half of 1999. However, the
comparatively high levels of income they provided helped "cushion"
corporate bonds against rising interest rates, and they outpaced Treasury
and most foreign government bonds. Once supply abated in the final months
of the year, corporate bonds rallied, furthering their lead over
government securities.
o Fund remained diversified.
The Fund remained committed to its approach of broadly diversifying among
U.S. government, corporate and foreign bond markets. This approach muted
the Fund's relative returns during the past 12 months, although it has
provided the Fund with above-average returns over longer periods of time
by providing the flexibility to seek out the best opportunities and most
attractive yields within the bond markets. At the end of 1999, our asset
allocation was roughly 70% in corporate bonds, 15% in U.S. government and
agency securities, 5% in foreign bonds and the remainder in a mix of
preferred stocks and short-term investments.
Colonial Income Fund(1) vs. Index and Peers
1/1/99 - 12/31/99
-------------------------------------------------
Colonial Income (1.86)% CIF
Fund
Lipper Category (1.31)% Lipper
Average
Lehman (2.15)% Lehman
Total Returns
(1) Performance of Class A shares without sales charge.
Past performance cannot predict future results. 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.
Neither the above Fund nor Lipper returns include sales charges. The
Lehman Brothers Government/Corporate Bond Index (Lehman) is an unmanaged
index that tracks the performance of a selection of U.S. government and
investment grade corporate bonds. Unlike mutual funds, indexes are not
investments and do not incur fees or expenses. It is not possible to
invest in an index.
Net asset value per share
on 12/31/99
Class A $5.98
- ----------------------------------
Class B $5.98
- ----------------------------------
Class C $5.98
- ----------------------------------
Distributions declared
per share from 1/1/99 - 12/31/99
Class A $0.462
- ----------------------------------
Class B $0.414
- ----------------------------------
Class C $0.424
- ----------------------------------
SEC yields on 12/31/99
Class A 7.03%
- ----------------------------------
Class B 6.61%
- ----------------------------------
Class C 6.76%
- ----------------------------------
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. If
the Advisor or its affiliates had not waived certain Fund expenses, the SEC
yield would have been 6.61% for Class C shares. Past performance cannot predict
future results.
1
<PAGE>
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Portfolio Manager's Report
- --------------------------------------------------------------------------------
Portfolio Structure Breakdown
as of 12/31/99
Corporate Bonds 69.7%
- ----------------------------------
U.S. Gov't & Agency
Bonds 15.4%
- ----------------------------------
Preferred Stocks 5.5%
- ----------------------------------
Foreign Gov't Bonds 4.6%
- ----------------------------------
Cash Equivalents 3.0%
- ----------------------------------
Other 1.8%
- ----------------------------------
Quality Breakdown
as of 12/31/99
AAA 22.2%
- ----------------------------------
A 8.4%
- ----------------------------------
BBB 44.6%
- ----------------------------------
BB 4.7%
- ----------------------------------
B and Below 12.9%
- ----------------------------------
Equity and Other 7.2%
- ----------------------------------
Quality and portfolio structure breakdowns are calculated as a percentage of net
assets including short-term obligations. Ratings shown in the quality breakdown
represent the lowest rating assigned to a particular bond by one of the
following respected rating agencies: Standard & Poor's, Moody's or Fitch.
Because the Fund is actively managed, there can be no guarantee the Fund will
continue to maintain these quality and portfolio structure breakdowns in the
future.
SOLD
- --------------------------------------------------------------------------------
U.K. government securities
We sold some of the Fund's U.K. government holdings in mid-1999 in response to
that country's improving economic outlook and potentially higher interest rates.
Bonds suffered amid inflationary worries, rising interest rates
Robust U.S. economic growth and rebounding foreign economies triggered higher
worldwide interest rates and falling bond prices throughout 1999. As a result,
the Fund's Class A shares posted a total return of negative 1.86%, without sales
charge, for the 12 months ended December 31, 1999.
As happens from time to time with investing, what helped the Fund in one period
hurt it in another. The Fund lagged its peers during 1999 due to its relatively
light exposure to emerging markets bonds, which posted double-digit gains for
the year after posting sizable losses during 1998.
Diversified strategy, neutral duration
We remained committed to our time-tested investment approach by maintaining a
diversified portfolio. We allowed the Fund to pursue favorable yields from all
three sectors while reducing the impact of a downturn in a particular sector.
Given the volatility of the bond market, we kept the Fund's interest rate
sensitivity -- as measured by its duration -- in line with the bond market as a
whole. Since it is extremely difficult to accurately predict the level of future
interest rates with any consistency over time, we maintained a neutral duration
stance and focused our efforts on identifying attractively priced securities
that we believe offer good total return potential.
Corporate bonds outpaced governments
Corporate bonds (69.7% of net assets) came under pressure in the first half of
1999 as inflationary worries persisted and interest rates climbed. Furthermore,
companies flooded the market with new bonds, worried that investors would curb
buying in the fourth quarter of 1999 in response to Y2K fears. As supply abated
in the final months of the year, prices of investment-grade and high-yield
corporate bonds posted better returns.
Our investment-grade holdings in Tenneco and Occidental Petroleum performed
particularly well when they were tendered (bought back by the companies) at a
significant profit to the Fund. Some of our smaller holdings did not fare as
well. The bonds of coal producer AEI Resources (0.5% of net assets) stumbled due
to relatively warm winter weather and problems with shipping and transportation.
Tokheim Corp. (0.1% of net assets), a maker of gasoline dispensing products,
performed poorly in response to consolidation among oil companies.
2
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Manager's Report (continued)
- --------------------------------------------------------------------------------
Fund maintained holdings in U.S. government bonds
As a part of our diversified approach, we maintained holdings in U.S. Treasury
bonds despite their disappointing performance in 1999. Eventually, we believe,
the Treasury market should start to turn more favorable, and we do not want to
be caught having to buy these securities when prices are moving higher.
Changes in foreign holdings
We modestly reduced our holdings in foreign government bonds during the year,
largely because they offered few opportunities to lock in yields higher than
U.S. Treasurys. In particular, we scaled back our holdings in U.K. government
bonds, which had been some of the Fund's best performers in early 1999, as
interest rates fell. By mid-year, however, we felt that the economy was
gathering steam and that interest rates were poised to move higher. We moved
some of the proceeds from our sales into Venezuela, Chile and other emerging
markets, which accounted for approximately 4.1% of net assets as of December 31,
1999.
Outlook calls for better interest-rate backdrop
Given the strength of the U.S. economy, we would not rule out the possibility of
more interest rate hikes in the months to come. Having said that, we think that
inflation will remain in check as scattered inflationary pressures are offset by
increased productivity, technological advances and cheap sources of labor around
the world. Given this view, we believe the worst of the Treasury market's
sell-off may be behind us. Against a more favorable interest-rate backdrop, we
think corporate bonds, both investment-grade and high-yield bonds, are poised to
do well. The corporate bond market did not fully recover in 1999 from the
Russian debt crisis and near global market meltdown of 1998. Many of those fears
now appear to have been overblown, so we expect better demand for corporate
bonds in 2000. As for the foreign markets, we don't expect to find many
compelling values as long as yields remain below those offered in the U.S.
/s/ Richard A. Stevens
Richard Stevens is portfolio manager of Colonial Income Fund and is a vice
president of Colonial Management Associates, Inc. Mr. Stevens has managed or
co-managed the Fund since September 1995.
An investment in the Fund offers attractive income and total return
opportunities, but it also involves certain risks associated with the credit
quality of lower-rated bonds. International investing may pose special risks due
to currency fluctuations as well as political and social developments. The
Fund's manager seeks to manage the risk through diversification and allocation
limits.
BOUGHT
- --------------------------------------------------------------------------------
Endesa Chile (1.4% of net assets) In early 1999, we added Endesa Chile, that
country's largest power company. Endesa Chile was later acquired by the
higher-rated Endesa Spain, which boosted the price of Endesa Chile.
Equistar Chemicals (2.0% of net assets), purchased in March 1999, is a leading
producer of ethylene and its derivatives. These bonds fared well due to a better
pricing environment.
HELD
- --------------------------------------------------------------------------------
We held Charter Communications (0.4% of net assets), the fourth largest operator
of cable television systems in the United States. Charter offers a full range of
cable services and has begun to offer such services as digital cable television,
interactive video programming and high-speed Internet access. Through its
acquisition of multiple cable companies, Charter has also expanded its customer
base.
In order to maintain a diversified approach, we held on to U.S. Treasury
securities (14.9% of net assets), which we believe should benefit from slowing
economic growth in late 2000.
3
<PAGE>
- --------------------------------------------------------------------------------
Fund Highlights Performance Information
- --------------------------------------------------------------------------------
Performance of a $10,000 investment in all share classes 12/31/89 - 12/31/99
Without With
Sales Sales
Charge Charge
- ----------------------------------
Class A $20,495 $19,522
- ----------------------------------
Class B $19,365 $19,365
- ----------------------------------
Class C $20,200 $20,200
- ----------------------------------
Performance of a $10,000 investment in Class A shares 12/31/89 - 12/31/99
With Without
sales charge sales charge Lehman
------------ ------------ ------
12/31/89 $10,000 $10,000 $10,000
12/31/99 $19,522 $20,495 $20,907
The Lehman Brothers Government/Corporate Bond Index is an unmanaged index that
tracks the performance of a selection of U.S. government and investment grade
U.S. corporate bonds. Unlike mutual funds, indexes are not investments and do
not incur fees or expenses. It is not possible to invest in an index.
Average Annual Total Returns as of 12/31/99
Share Class A B C
Inception 12/1/69 5/15/92 8/1/97
- --------------------------------------------------------------------------------
Without With Without With Without With
Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge
- --------------------------------------------------------------------------------
1 year (1.86)% (6.53)% (2.60)% (7.16)% (2.45)% (3.36)%
- --------------------------------------------------------------------------------
5 years 7.52 6.48 6.72 6.41 7.21 7.21
- --------------------------------------------------------------------------------
10 years 7.44 6.92 6.83 6.83 7.28 7.28
- --------------------------------------------------------------------------------
Past performance cannot predict future investment results. Returns and value of
an investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. The "with sales charge" returns include
the maximum 4.75% charge for Class A shares and the contingent deferred sales
charge (CDSC) 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.
Class B and 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 the periods prior to the inception
of the newer class shares would have been lower.
4
<PAGE>
- --------------------------------------------------------------------------------
Investment Portfolio
- --------------------------------------------------------------------------------
December 31, 1999
(In thousands)
Bonds & Notes - 89.7% PAR VALUE
- --------------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS & NOTES - 68.7%
- --------------------------------------------------------------------------------
CONSTRUCTION - 3.4%
Building Construction
Centex Corp.,
7.375% 06/01/05 $ 2,100 $ 2,001
Pulte Corp.,
8.375% 08/15/04 3,000 2,973
-------
4,974
-------
- --------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 4.3%
Depository Institutions - 0.4%
Sovereign Bancorp, Inc.,
10.500% 11/15/06 500 508
-------
Financial Services - 2.0%
Petroleos De Venezuela SA
Series 1999 I,
9.750% 02/15/10 (a) 3,000 2,873
-------
Insurance Carriers - 1.9%
Jefferson-Pilot Capital Trust,
8.285% 03/01/46 3,000 2,813
-------
- --------------------------------------------------------------------------------
MANUFACTURING - 12.7%
Chemicals & Allied Products - 4.7%
Equistar Chemicals, L.P.,
8.750% 02/15/09 3,000 2,964
Lockheed Martin Corp.,
8.200% 12/01/09 3,000 2,988
Texas Petrochemical Corp.,
11.125% 07/01/06 1,005 874
-------
6,826
-------
Machinery & Computer Equipment - 0.9%
IMO Industries, Inc.,
11.750% 05/01/06 425 425
Seagate Technology, Inc.,
7.125% 03/01/04 1,000 928
-------
1,353
-------
Measuring & Analyzing Instruments - 0.9%
Boston Scientific Corp.,
6.625% 03/15/05 1,500 1,378
-------
Miscellaneous Manufacturing - 0.1%
Tokheim Corp.,
11.375% 08/01/08 185 126
-------
Paper Products - 0.7%
Abitibi-Consolidated, Inc.,
7.875% 08/01/09 1,000 963
-------
Petroleum Refining - 4.8%
USX Corp.,
9.375% 02/15/12 2,700 2,985
Valero Energy Corp.,
7.375% 03/15/06 3,000 2,854
YPF Sociedad Anonima,
7.000% 10/26/02(b) 1,112 1,094
-------
6,933
-------
Transportation Equipment - 0.6%
Dura Operating Corp.,
9.000% 05/01/09 1,000 942
-------
- --------------------------------------------------------------------------------
MINING & ENERGY - 4.6%
Coal Mining - 0.5%
AEI Resources, Inc.,
10.500% 12/15/05 (a) 1,000 750
-------
Crude Petroleum & Natural Gas - 1.3%
Union Pacific Resources Group, Inc.,
7.300% 04/15/09 2,000 1,916
-------
Metal Mining - 2.1%
Noranda, Inc.,
8.125% 06/15/04 3,000 3,002
-------
Oil & Gas Field Services - 0.7%
R&B Falcon Corp.,
9.500% 12/15/08 1,000 1,000
-------
- --------------------------------------------------------------------------------
RETAIL TRADE - 5.7%
General Merchandise Stores - 3.5%
Kmart Corp.,
8.375% 12/01/04 1,000 989
ShopKo Stores, Inc.,
9.000% 11/15/04 4,000 4,144
-------
5,133
-------
Miscellaneous Retail - 2.2%
Discover Credit,
9.070% 03/16/12 3,000 3,185
-------
- --------------------------------------------------------------------------------
SERVICES - 5.4%
Amusement & Recreation - 2.6%
Boyd Gaming Corp.,
9.500% 07/15/07 1,000 990
Circus Circus Enterprises, Inc.,
6.450% 02/01/06 2,000 1,765
Mohegan Tribal Gaming Authority,
8.750% 01/01/09 1,000 993
-------
3,748
-------
Business Services - 0.7%
PSINet, Inc.,
10.000% 02/15/05 1,000 990
-------
Hotels, Camps & Lodging - 0.7%
Jupiters Ltd.,
8.500% 03/01/06 1,000 960
-------
Other Services - 1.4%
ERAC USA Finance Co.
9.125% 12/15/04 2,000 2,100
-------
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
GAS & SANITARY SERVICES - 32.6%
Air Transportation - 7.0%
AMR Corp.,
9.000% 08/01/12 3,000 3,115
Delta Air Lines, Inc.,
10.375% 02/01/11 3,000 3,388
5
<PAGE>
- --------------------------------------------------------------------------------
Investment Portfolio (continued)
- --------------------------------------------------------------------------------
December 31, 1999
(In thousands)
PAR VALUE
- --------------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS & NOTES (continued)
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
GAS & SANITARY SERVICES (continued)
Air Transportation (continued)
Federal Express Corp.,
9.650% 06/15/12 $ 2,500 $ 2,760
U.S. Air, Inc.,
10.375% 03/01/13 1,000 962
-------
10,225
-------
Broadcasting - 6.8%
CBS Corp.,
(formerly Westinghouse Electric Corp.)
8.625% 08/01/12 3,000 3,126
Fox Family Worldwide, Inc.,
9.250% 11/01/07 500 465
Liberty Media Group.,
7.875% 07/15/09 3,000 2,982
News America Holding Corp.,
9.250% 02/01/13 3,000 3,258
-------
9,831
-------
Cable - 3.9%
Adelphia Communications Corp.,
10.500% 07/15/04 1,000 1,035
Charter Communications Holding L.L.C.,
stepped coupon, (9.920% 01/01/04) 1,000 586
(c) 04/01/11
EchoStar DBS Corp.,
9.250% 02/01/06 1,500 1,511
Lenfest Communications, Inc.,
8.375% 11/01/05 1,400 1,428
NTL, Inc.,
10.000% 02/15/07 1,000 1,038
-------
5,598
-------
Communications - 2.6%
MetroNet Communications Corp.,
stepped coupon, (9.950% 06/01/03) 3,000 2,408
(c) 06/15/08
Metrocall, Inc.,
11.000% 09/15/08 500 315
Verio, Inc.,
11.250% 12/01/08 1,000 1,050
-------
3,773
-------
Electric Services - 1.4%
Endesa-Chile Overseas Co.,
8.500% 04/01/09 2,000 1,984
-------
Gas Services - 2.3%
Coastal Corp.,
9.625% 05/15/12 3,000 3,341
-------
Telecommunication - 6.9%
Global Crossing Holding Ltd.,
9.125% 11/15/06 1,000 989
Metromedia Fiber Network, Inc.,
10.000% 11/15/08 1,000 1,025
Nextel Communications, Inc.,
stepped coupon, (10.000% 10/31/02) 1,000 723
(c) 10/31/07
RCN Corp.,
10.000% 10/15/07 1,125 1,122
Sprint Spectrum L.P.,
stepped coupon, (12.500% 08/15/01)
(c) 08/15/06 3,020 2,816
Tele-Communications, Inc.,
9.800% 02/01/12 2,000 2,344
Williams Communications Group, Inc.,
10.700% 10/01/07 1,000 1,048
-------
10,067
-------
Transportation Services - 1.7%
Stagecoach Holdings PLC,
8.625% 11/15/09 2,500 2,488
-------
TOTAL CORPORATE FIXED INCOME
BONDS & NOTES
(cost of $104,055) 99,780
-------
US Government & Agency Obligations - 15.4%
- --------------------------------------------------------------------------------
Federal National Mortgage Association,
9.000% 2019-2020 273 285
-------
Government National Mortgage Association:
10.000% 2017-2019 23 24
10.500% 2016-2020 198 216
11.500% 2013 43 48
12.500% 2010-2013 121 137
13.000% 2011 6 7
14.000% 2011 5 5
-------
437
-------
U.S. Treasury Bonds:
8.750% 05/15/17 5,000 5,972
10.750% 08/15/05 4,000 4,771
U.S. Treasury Note,
10.375% 11/15/12 (d) 9,000 10,941
-------
21,684
-------
TOTAL US GOVERNMENT &
AGENCY OBLIGATIONS
(cost of $24,280) 22,406
-------
Foreign Government &
Agency Obligations - 4.6% CURRENCY
- --------------------------------------------------------------------------------
Government of New Zealand,
10.000% 03/15/02 NZ 3,500 1,957
Hellenic Republic,
8.900% 03/21/04 GD 275,000 914
Republic of Brazil,
14.500% 10/15/09 (e) 250 276
6
<PAGE>
- --------------------------------------------------------------------------------
Investment Portfolio (continued)
- --------------------------------------------------------------------------------
December 31, 1999
(In thousands)
PAR VALUE
- --------------------------------------------------------------------------------
United Kingdom Treasury:
10.000% 02/26/01 KB 1,000 1,680
10.000% 09/08/03 KB 1,000 1,805
-------
TOTAL FOREIGN GOVERNMENT
& AGENCY OBLIGATIONS
(cost of $9,068) $ 6,632
-------
CORPORATE CONVERTIBLE BONDS - 1.0%
- --------------------------------------------------------------------------------
MINING & ENERGY - 1.0%
Oil & Gas Extraction
HS Resources Inc.,
9.250% 11/15/06
(cost of $1,536) $ 1,500 1,485
-------
TOTAL BONDS & NOTES
(cost of $138,939) 130,303
-------
Preferred Stocks - 5.5% SHARES
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC, GAS
& SANITARY SERVICES - 5.5%
Cable - 0.8%
CSC Holdings Ltd., 11 1,253
11.250% PIK
Electric Services - 4.6%
Appalachian Power Co.,
Series 8.250% 80 1,750
ComEd Finance I,
Series 8.480% 78 1,726
HL&P Capital Trust I,
Series 8.125% 70 1,470
TU Electric Capital,
TOPRS, 8.250% 80 1,740
-------
6,686
-------
TOTAL PREFERRED STOCKS
(cost of $9,165) 7,939
-------
Warrants (f) - 0.0%
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
Telecommunication
American Telecasting, Inc. (g)
(cost of $30) 1 (h)
-------
TOTAL INVESTMENTS
(cost of $148,134) (i) 138,242
-------
Short-Term Obligations - 3.0% PAR
- --------------------------------------------------------------------------------
Repurchase Agreement with SBC
Warburg Ltd., dated 12/31/99, due
01/03/00 at 2.500%, collateralized by
U.S. Treasury bonds and/or notes with
various maturities to 2021, market value
$4,504 (repurchase proceeds $4,414) $ 4,413 4,413
-------
VALUE
- --------------------------------------------------------------------------------
Forward Currency Contracts - (j) $ 37
- --------------------------------------------------------------------------------
Other Assets & Liabilities - 1.8% 2,581
- --------------------------------------------------------------------------------
Net Assets - 100.0% $145,273
=======
Notes to Investment Portfolio:
(a) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1999, the value of these securities amounted to $3,623 or 2.5% of net
assets.
(b) This is an Argentinean security. Par amount is stated in U.S. dollars.
(c) Currently zero coupon. Shown parenthetically is the interest rate to be
paid and the date the Fund will begin accruing this rate.
(d) This security, or a portion thereof, with a total market value of $5,592
is being used to collateralize foreign currency exchange contracts
indicated in note (i) below.
(e) This is a Brazilian security. Par amount is stated in U.S. dollars.
(f) Non income producing.
(g) The value of this security represents fair value as determined in good
faith under the direction of the Trustees.
(h) Rounds to less than one.
(i) Cost for federal income tax purposes is the same.
(j) As of December 31, 1999, the Fund had entered into the following forward
currency exchange contracts:
Net Unrealized
Appreciation
Contracts In Exchange Settlement (Depreciation)
to Deliver For Date (U.S.$)
------------ ------------- ---------- ----------------
KB 2,130 US$ 3,502 02/07/00 $ 60
NZ 2,850 US$ 1,471 02/09/00 (23)
----------------
$ 37
----------------
Summary of Securities
by Country Country Value % of Total
- -------------------------------------------------------------------------
United States $ 130,516 94.4
United Kingdom UK 3,485 2.5
New Zealand NZ 1,957 1.4
Argentina Ar 1,094 0.8
Greece Gr 914 0.7
Brazil Bz 276 0.2
------------- --------------
$ 138,242 100.0
------------- --------------
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
Acronym Name
------- ----
GD Greek Drachmas
KB British Pounds
NZ New Zealand Dollar
See notes to financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
December 31, 1999
(In thousands except for per share amounts and footnotes)
Assets
Investments at value (cost $148,134) $138,242
Short-term obligations 4,413
-------
142,655
Cash $ 36
Unrealized appreciation on forward
currency contracts 60
Receivable for:
Interest 2,760
Fund shares sold 171
Other 10 3,037
------- -------
Total Assets 145,692
Liabilities
Unrealized depreciation on forward
currency contracts 23
Payable for:
Fund shares repurchased 324
Accrued:
Deferred Trustees fees 5
Other 67
-------
Total Liabilities 419
-------
Net Assets $145,273
=======
Class A
Net asset value & redemption price per share
($103,011/17,225) $ 5.98(a)
=======
Maximum offering price per share
($5.98/0.9525) $ 6.28(b)
=======
Class B
Net asset value & offering price per share
($39,532/6,611) $ 5.98(a)
=======
Class C
Net asset value & offering price per share
($2,730/457) $ 5.98(a)
=======
Composition of Net Assets
Capital paid in $158,723
Undistributed net investment income 57
Accumulated net realized loss (3,650)
Net unrealized appreciation (depreciation) on:
Investments (9,892)
Foreign currency transactions 35
-------
$145,273
=======
(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.
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended December 31, 1999
(In thousands)
Investment Income
Interest $ 12,017
Dividends 854
-------
Total Investment Income 12,871
Expenses
Management fee $ 778
Service fee 388
Distribution fee - Class B 308
Distribution fee - Class C 24
Transfer agent fee 348
Bookkeeping fee 64
Trustees fee 13
Custodian fee 9
Audit fee 51
Legal fee 7
Registration fee 41
Reports to shareholders 31
Other 26
-------
Total expenses 2,088
Fees waived by the
Distributor - Class C (5) 2,083
------- -------
Net Investment Income 10,788
-------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO
POSITIONS
Net realized gain (loss) on:
Investments (2,712)
Foreign currency transactions 205
-------
Net Realized Loss (2,507)
Net change in unrealized appreciation/depreciation
during the period on:
Investments (11,481)
Foreign currency transactions (66)
-------
Net Change in Unrealized (11,547)
-------
Appreciation/Depreciation Net Loss (14,054)
-------
Decrease in Net Assets from Operations $ (3,266)
=======
See notes to financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
(In thousands)
Years Ended December 31
--------------------------
Increase (Decrease) in Net Assets 1999 1998
- --------------------------------------------------------------------------------
Operations:
Net investment income $ 10,788 $ 10,990
Net realized gain (loss) (2,507) 2,097
Net change in unrealized
appreciation/depreciation (11,547) (1,180)
-------- --------
Net Increase (Decrease) from Operations (3,266) 11,907
Distributions:
From net investment income -- Class A (8,130) (8,233)
In excess of net investment income
-- Class A (59) --
From net investment income -- Class B (2,693) (2,303)
In excess of net investment income
-- Class B (19) --
From net investment income -- Class C (213) (65)
In excess of net investment income
-- Class C (1) --
-------- --------
(14,381) 1,306
-------- --------
Fund Share Transactions:
Receipts for shares sold -- Class A 12,620 13,276
Value of distributions reinvested
-- Class A 4,558 4,412
Cost of shares repurchased -- Class A (22,909) (19,999)
-------- --------
(5,731) (2,311)
-------- --------
Receipts for shares sold -- Class B 11,848 12,139
Value of distributions reinvested
-- Class B 1,610 1,309
Cost of shares repurchased -- Class B (10,940) (9,069)
-------- --------
(2,518) 4,379
-------- --------
Receipts for shares sold -- Class C 4,638 4,795
Value of distributions reinvested
-- Class C 168 53
Cost of shares repurchased -- Class C (4,391) (2,474)
-------- --------
415 2,374
-------- --------
Net Increase (Decrease) from
Fund Share Transactions (2,798) 4,442
-------- --------
Total Increase (Decrease) (17,179) 5,748
Net Assets
Beginning of period 162,452 156,704
-------- --------
End of period (including undistributed
net investment income of
$57 and $247, respectively) $ 145,273 $ 162,452
======== ========
Years Ended December 31
--------------------------
1999 1998
- --------------------------------------------------------------------------------
Number of Fund Shares
Sold -- Class A 2,017 2,033
Issued for distributions reinvested
-- Class A 730 676
Repurchased -- Class A (3,667) (3,063)
-------- --------
(920) (354)
-------- --------
Sold -- Class B 1,879 1,859
Issued for distributions reinvested
-- Class B 258 201
Repurchased -- Class B (1,752) (1,388)
-------- --------
385 672
-------- --------
Sold -- Class C 729 735
Issued for distributions reinvested
-- Class C 27 8
Repurchased -- Class C (699) (380)
-------- --------
57 363
-------- --------
See notes to financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
December 31, 1999
Note 1. Accounting Policies
Organization:
Colonial Income Fund (the Fund), a series of Liberty Funds Trust I, formerly
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 investing primarily in 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. A
1.00% contingent deferred sales charge is assessed 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 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 day's exchange rates.
Portfolio positions for which market quotations are not readily available are
valued at fair value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
Determination of class net asset values and financial highlights:
All income, expenses (other than the Class B and Class C distribution fees),
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 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
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.
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 gains (losses) arising from the fluctuation in exchange rates
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 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
10
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
December 31, 1999
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
or losses which become realized at the time the forward currency contracts are
closed or mature. Realized and unrealized gains (losses) arising from such
transactions are included in net realized and unrealized gains (losses) on
foreign currency transactions. Forward currency contracts do not eliminate
fluctuations in the prices of the Fund's portfolio securities. While the maximum
potential loss from such contracts is the aggregate face value in U.S. dollars
at the time the contract was opened, exposure is typically limited to the change
in value of the contract (in U.S. dollars) over the period it remains open.
Risks may also arise if counterparties fail to perform their obligations under
the contracts.
Other:
Corporate actions are recorded on the ex-date.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-market
daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
Note 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 0.50% annually of the Fund's average net assets.
Bookkeeping fee:
The Advisor provides bookkeeping and pricing services for a monthly fee equal to
$27,000 annually plus 0.035% of the Fund's average net assets over $50 million.
Transfer agent fee:
Liberty Funds Services, Inc. (the Transfer Agent), an affiliate of the Advisor,
provides shareholder services for a monthly fee equal to 0.17% 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. (the Distributor) a subsidiary of the
Advisor, is the Fund's principal underwriter. For the year ended December 31,
1999, the Fund has been advised that the Distributor retained net underwriting
discounts of $311,613 on sales of the Fund's Class A shares and received
contingent deferred sales charges (CDSC) of $196, $116,861, and $12,414 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% annually of the average net assets attributable to
Class B shares and Class C shares. The Distributor has agreed to waive a portion
of the Class C share distribution fee so that it does 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, 1999, purchases and sales of investments,
other than short-term obligations, were $151,003,113, and $152,097,106,
respectively, of which $31,416,641, and $40,730,250, respectively, were U.S.
government securities.
Unrealized appreciation (depreciation) at December 31, 1999, based on cost of
investments for both financial statement and federal income tax purposes was:
Gross unrealized appreciation $ 313,210)
Gross unrealized depreciation (10,205,164)
------------
Net unrealized depreciation $ (9,891,954)
============
Capital loss carryforwards:
At December 31, 1999, 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
---------- ------------
2002 $1,007,000
2007 1,857,000
----------
$2,864,000
==========
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.
11
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
December 31, 1999
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, 1999
12
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1999
----------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value - Beginning of Period $ 6.560 $ 6.560 $ 6.560
-------- -------- ---------
Income from Investment Operations:
Net investment income (a) 0.449 0.401 0.411 (b)
Net realized and unrealized loss (0.567) (0.567) (0.567)
-------- -------- ---------
Total from Investment Operations (0.118) (0.166) (0.156)
-------- -------- ---------
Less Distributions Declared to Shareholders:
From net investment income (0.459) (0.411) (0.421)
In excess of net investment income (0.003) (0.003) (0.003)
-------- -------- ---------
Total Distributions Declared to Shareholders (0.462) (0.414) (0.424)
-------- -------- ---------
Net asset value - End of period $ 5.980 $ 5.980 $ 5.980
-------- -------- ---------
Total return (c) (1.86)% (2.60)% (2.45)% (d)
-------- -------- ---------
Ratios to Average Net Assets
Expenses (e) 1.13% 1.88% 1.73% (b)
Net investment income (e) 7.15% 6.40% 6.55% (b)
Portfolio turnover 102% 102% 102%
Net assets at end of period (000) $103,011 $ 39,532 $ 2,730
</TABLE>
(a) The per share net investment income amounts do not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(b) Net of fees waived by the Distributor which amounted to $0.009 per share
and 0.15%.
(c) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(d) Had the Distributor not waived a portion of expenses, total return would
have been reduced.
(e) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
<TABLE>
<CAPTION>
Years 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 $ 6.500 $ 6.500 $ 6.500 $ 6.410 $ 6.410 $ 6.530
-------- -------- -------- -------- -------- ---------
Income from Investment Operations:
Net investment income 0.455 0.405 0.415 (b) 0.439 0.391 0.171 (b)
Net realized and unrealized gain (loss) 0.057 0.057 0.057 0.095 0.095 (0.032) (c)
-------- -------- -------- -------- -------- ---------
Total from Investment Operations 0.512 0.462 0.472 0.534 0.486 0.139
-------- -------- -------- -------- -------- ---------
Less Distributions Declared to Shareholders:
From net investment income (0.452) (0.402) (0.412) (0.444) (0.396) (0.169)
-------- -------- -------- -------- -------- ---------
Net asset value - End of period $ 6.560 $ 6.560 $ 6.560 $ 6.500 $ 6.500 $ 6.500
-------- -------- -------- -------- -------- ---------
Total return (d) 8.13% 7.32% 7.48% (e) 8.67% 7.87% 2.17% (e)(f)
-------- -------- -------- -------- -------- ---------
Ratios to Average Net Assets
Expenses (g) 1.09% 1.84% 1.69% (b) 1.11% 1.86% 1.71% (b)(h)
Net investment income (g) 7.16% 6.41% 6.56% (b) 6.98% 6.23% 6.35% (b)(h)
Portfolio turnover 161% 161% 161% 281% 281% 281%
Net assets at end of period (000) $119,002 $ 40,828 $ 2,622 $120,336 $ 36,128 $ 240
</TABLE>
(a) Class C shares were initially offered on August 1, 1997. Per share data
reflects activity from that date.
(b) 1998 information is net of fees waived by the Distributor which amounted
to $0.010 per share and 0.15%. 1997 information is net of fees waived by
the Distributor which amounted to $0.004 per share and 0.15% (annualized).
(c) The amount shown for a share oustanding does not correspond with the
aggregate net gain on investments for the period due to the timing of
sales and repurchases of Fund shares in relation to fluctuating market
values of the investments of the Fund.
(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) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(h) Annualized.
13
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Years ended December 31
1996 1995
------------------------- -----------------------------
Class A Class B Class A Class B
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $ 6.640 $ 6.640 $ 5.950 $ 5.950
-------- -------- -------- --------
Income from Investment Operations
Net investment income 0.460 0.412 0.472 0.425
Net realized and unrealized gain (loss) (0.240) (0.240) 0.698 0.698
-------- -------- -------- --------
Total from Investment Operations 0.220 0.172 1.170 1.123
-------- -------- -------- --------
Less Distributions Declared to Shareholders:
From net investment income (0.450) (0.402) (0.480) (0.433)
-------- -------- -------- --------
Net asset value - End of period $ 6.410 $ 6.410 $ 6.640 $ 6.640
-------- -------- -------- --------
Total return (a) 3.59% 2.82% 20.30% 19.42%
-------- -------- -------- --------
Ratios to Average Net Assets
Expenses (b) 1.10% 1.85% 1.09% 1.84%
Net investment income (b) 7.12% 6.37% 7.45% 6.70%
Portfolio turnover 253% 253% 85% 85%
Net assets at end of period (000) $129,681 $ 35,770 $143,834 $ 38,203
</TABLE>
(a) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(b) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
14
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of Liberty Funds Trust I
and the Shareholders of Colonial 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 Income Fund (the "Fund")
(a series of Liberty Funds Trust I, formerly Colonial Trust I) at December 31,
1999, the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated in conformity with accounting
principles generally accepted in the United States. 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 auditing
standards generally accepted in the United States 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, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
15
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Trustees & Transfer Agent
- --------------------------------------------------------------------------------
Tom Bleasdale
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
John V. 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
Academic Vice President and Dean of Faculties, Boston College (formerly 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)
- --------------------------------------------------------------------------------
Important Information About This Report
The Transfer Agent for Colonial Income Fund is:
Liberty Funds Services, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
The 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 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.
<PAGE>
Liberty offers the independent thinking and collective strength of six financial
specialists. Our distinguished product line helps financial advisors and their
clients build diversified investment portfolios for long-term financial goals.
LIBERTY
- --------------------------------------------------------------------------------
FUNDS
ALL-STAR Institutional money management approach for individual
investors.
- --------------------------------------------------------------------------------
COLONIAL Fixed income and value style equity investing.
- --------------------------------------------------------------------------------
CRABBE A contrarian approach to fixed income and equity investing.
HUSON
- --------------------------------------------------------------------------------
NEWPORT A leader in international investing(SM)
- --------------------------------------------------------------------------------
STEIN ROE Innovative solutions for growth and income investing.
ADVISOR
- --------------------------------------------------------------------------------
KEYPORT A leading provider of innovative annuity products.
- --------------------------------------------------------------------------------
Liberty's mutual funds are offered by prospectus through Liberty Funds
Distributor, Inc.
Before you invest, consult your financial advisor.
Your financial advisor can help you develop a long-term plan for reaching your
financial goals.
- --------------------------------------------------------------------------------
COLONIAL INCOME FUND Annual Report
- --------------------------------------------------------------------------------
[LOGO] LIBERTY
--------
FUNDS
ALL-STAR o COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR
-------------
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PAID
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-------------
Liberty Funds Distributor, Inc. (C)2000
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
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