<PAGE>
LETTER FROM THE PRESIDENT
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present Colonial Federal Securities Fund's semiannual
report for the six months ended April 30, 1995. Interest rates declined over
the period, sparking a rally in the fixed-income markets. The Fund, which is
designed to provide investors with high current return consistent with prudent
longer-term investing, was an active participant in the rebound.
<TABLE>
FUND PERFORMANCE (11/1/94 - 4/30/95)[1]
<CAPTION>
CLASS A CLASS B
INCEPTION 3/30/84 6/8/92
- ----------------------------------------------------------
<S> <C> <C>
Distributions declared per share $0.3834 $0.3459
- ----------------------------------------------------------
SEC yield on 4/30/95 6.38% 5.95%
- ----------------------------------------------------------
6-month total return, assuming
reinvestment of all distributions
and no sales charge or CDSC 7.52% 7.12%
- ----------------------------------------------------------
Net asset value per share on 4/30/95 $ 10.30 $ 10.30
- ----------------------------------------------------------
</TABLE>
INTEREST RATE/MARKET OVERVIEW
With an expanding economy and the threat of inflation, the Federal
Reserve remained committed to its tight stance on U.S. monetary policy. In
November, the Fed initiated its most aggressive increase in short-term
interest rates. While initially causing alarm in the bond markets, in the
end, it reaffirmed investor beliefs that the Fed was determined to control
inflation.
By January, several economic indicators came in lower than expected,
suggesting that economic growth was slowing and rates were close to their
peak. This led to improving investor confidence, supported by the fact that
the Fed's February rate increase barely caused a ripple in the bond markets.
Despite the Fed's ongoing tightening, the fixed- income markets staged
a comeback early in 1995. Bond markets reacted favorably to evidence
suggesting that the economy was slowing toward the modest growth rate the Fed
has targeted. This would reduce the threat of inflation and thus the need for
further rate increases in the near term.
INVESTMENT STRATEGY
Early in the semiannual period, management began repositioning the
portfolio for an eventual rally. First, they increased the position of deep
discount 30-year mortgage-backed securities. Given the rise of interest rates
in 1994, prices of mortgage-backed securities were far below what management
perceived as their fair market value.
At the close of the semiannual period, mortgage-backed securities
comprised 68% of the portfolio, with Treasuries accounting for the balance.
This overweighting in mortgage-backed investments proved advantageous as this
sector led the rally in government securities. In fact, the Fund's net asset
value (NAV) rose from $9.95 to $10.30 over the semi-annual period.
[PICTURE]
John A. McNeice, Jr.
President
A second strategy involved extending the Fund's duration, a measure of
an investment's price sensitivity to changes in interest rates. While
lengthening a fund's duration can increase price volatility, in a stabilizing
or decreasing interest rate environment, it can favorably impact price
appreciation potential. The addition of selected longer-term Treasury
securities increased the portfolio's duration to over six years.
Your Fund's ability to invest in both Treasuries and mortgaged-backed
securities within a range of maturities has proven advantageous in this
ever-changing environment. As always, our commitment to building consistent
and competitive returns over the long term remains constant.
Sincerely,
/s/ John A. McNeice, Jr.
John A. McNeice, Jr.
President
June 10, 1995
<TABLE>
- -------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 4/30/95
<CAPTION>
CLASS A CLASS B
NAV MOP NAV W/CDSC
<S> <C> <C> <C> <C>
1 Year 6.93% 1.85% 6.13% 1.18%
5 Years 9.11% 8.05% -- --
10 Years 9.34% 8.81% -- --
Since Inception 9.69% 9.21% 5.69% 4.79%
- -------------------------------------------------------------
</TABLE>
[1]Net asset value (NAV) return does not include sales charges or contingent
deferred sales charges (CDSC). Maximum offering price (MOP) return includes
the maximum sales charge of 4.75%. The CDSC return reflects the applicable
charge (one year, 5.00%; since inception, 3.00%). Past performance cannot
predict future results. Return and value of an investment will vary,
resulting in a gain or loss on sale. All results shown assume reinvestment of
distributions. Performance for different share classes will vary based on
differences in sales charges and fees associated with each class.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO (UNAUDITED, IN THOUSANDS) APRIL 30, 1995
- ---------------------------------------------------------------
<CAPTION>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS - 115.8% PAR VALUE
- --------------------------------------------------------
GOVERNMENT AGENCIES - 78.8%
Maturities
Coupon from/to
------ ----------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corp:
7.500% 2016 $ 1,607 $ 1,571
8.000% 2016 6,420 6,405
8.500% 2007 5,337 5,407
8.750% 2009 2,208 2,234
9.000% 2001-2022 8,589 8,851
9.250% 2008 8,038 8,254
9.500% 2004-2008 3,326 3,468
9.750% 2008 1,315 1,361
10.000% 2019 3,830 4,097
10.250% 2009 860 913
10.500% 2019 3,118 3,363
11.250% 2011 3,387 3,627
11.500% 2015 160 173
12.000% 2013 134 146
Collateralized Mortgage Obligation:
5.000% 2013 10,341 8,913
6.500% 2014 18,764 17,128
6.750% 2020-2021 26,878 24,320
8.500% 2021 3,236 3,284
8.750% 2020 15,900 16,377
----------
119,892
----------
Federal National Mortgage Association:
6.500% 2008-2050 71,865 68,622
6.500% (a) 70,000 66,263
7.000% 2024 205,574 (b) 195,486
7.000% (a) 111,000 105,330
7.500% 2010 20,510 20,412
7.500% (a) 90,000 89,353
8.000% 2008 4,624 4,674
8.250% 2010 2,163 2,157
8.500% 2011 8,919 9,176
9.000% 2007-2016 34,355 35,672
9.500% 2010-2016 3,002 3,141
10.500% 2004 141 152
----------
600,438
----------
Government National Mortgage Association:
6.500% 2023 96,960 88,718
6.500% (a) 8,750 8,001
7.500% 2006 1,564 1,566
8.000% 2005-2006 120 122
9.000% 2008-2016 11,796 12,345
9.000% (a) 50,000 52,125
9.500% 2009-2018 71,154 75,349
10.000% 2001-2009 15,977 17,140
10.500% 2025 42,224 45,971
11.000% 2010 7 7
11.500% 2013 80 90
11.750% 2013 427 469
12.000% 2012-2015 1,481 1,658
12.500% 2010 9,542 10,783
13.000% 2011 4,043 4,569
----------
318,913
- --------------------------------------------------------
Total government agencies (cost $1,028,319) 1,039,243
- --------------------------------------------------------
GOVERNMENT OBLIGATIONS - 37.0%
U.S. Treasury bonds:
12.000% 08/15/13 (b) 131,608 183,038
12.750% 11/15/10 (c) 46,873 65,673
----------
248,711
----------
U.S. Treasury notes:
6.875% 03/31/00 46,000 45,964
7.500% 11/15/24 23,286 23,599
7.750% 01/31/00 24,058 24,877
7.875% 11/15/04 52,000 54,844
10.375% 11/15/12 71,994 89,677
----------
238,961
- --------------------------------------------------------
Total government obligations (cost $504,880) 487,672
- --------------------------------------------------------
Total investments (cost $1,533,199) (d) 1,526,915
- --------------------------------------------------------
SHORT-TERM OBLIGATIONS - 8.4%
- --------------------------------------------------------
Repurchase agreement with Bankers Trust
Securities Corp., dated 4/28/95 due at
05/01/95 at 5.92%, collateralized by U.S.
Treasury notes with various maturities
to 1998, market value $122,553, (repurchase
proceeds $111,606) 111,551 111,551
- --------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - (24.2)% (319,626)
- --------------------------------------------------------
NET ASSETS - 100.0% $1,318,840
- --------------------------------------------------------
<FN>
Notes to investment portfolio:
(a) 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.
(b) These securities, or portion thereof, with
a total market value of $378,524, are being
used to collateralize the delayed delivery
purchases indicated in note (a) above.
(c) These securities, or a portion thereof, with
a total market value of $917, are being
used to collateralize open futures contracts.
(d) Cost for federal income tax purposes is
the same.
</TABLE>
<TABLE>
Short futures contracts open at April 30,1995:
<CAPTION>
Par value Unrealized
Type covered by Expiration depreciation
contracts month at 4/30/95
- ------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury bonds 13,400 June $324
U.S. Treasury bonds 19,500 September $ 41
</TABLE>
See notes to investment portfolio.
2
<PAGE>
FINANCIAL STATEMENTS
- -------------------------------------------------------------------
<TABLE>
STATEMENT OF ASSETS & LIABILITIES (UNAUDITED)
April 30, 1995
(in thousands except for per share amounts and footnote)
- -------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments at value (cost $1,533,199)............. $1,526,915
Short-term obligations............................. 111,551
----------
1,638,466
Receivable for:
Investments sold..................... $ 58,171
Interest............................. 18,010
Fund shares sold..................... 777
Other................................... 1,251 78,209
-------- ----------
Total assets........................ 1,716,675
LIABILITIES
Payable for:
Investments purchased................ 386,878
Distributions........................ 8,178
Fund shares repurchased.............. 2,609
Accrued:
Deferred Trustee fees................ 51
Other................................ 119
--------
Total liabilities................... 397,835
----------
NET ASSETS......................................... $1,318,840
==========
Net asset value & redemption price per share -
Class A ($1,244,754/120,896).................... $ 10.30
==========
Maximum offering price per share - Class A
($10.30/0.9525)................................. $ 10.81*
==========
Net asset value & offering price per share -
Class B ($74,086/7,195).......................... $ 10.30
==========
COMPOSITION OF NET ASSETS
Capital paid in................................. $1,596,116
Overdistributed net investment income........... (10,774)
Accumulated net realized loss................... (259,853)
Net unrealized depreciation on:
Investments................................ (6,284)
Open futures contracts..................... (365)
----------
$1,318,840
==========
<FN>
* On sales of $50,000 or more the offering price is reduced.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS (UNAUDITED)
Six months ended April 30, 1995
(in thousands)
- -----------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest................................................ $56,412
EXPENSES
Management fee.............................. $ 4,220
Service fee................................. 1,656
Distribution fee - Class B.................. 267
Transfer agent.............................. 1,446
Bookkeeping fee............................. 220
Registration fees........................... 24
Audit fee................................... 28
Custodian fee............................... 51
Trustees fees............................... 35
Legal fee................................... 7
Reports to shareholders..................... 12
Other....................................... 91 8,057
------- -------
Net investment income........................ 48,355
-------
NET REALIZED & UNREALIZED GAIN (LOSS)
ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments............................. 898
Closed futures contracts................ (5,006)
--------
Net realized loss ........................... (4,108)
Net unrealized appreciation
(depreciation) during the period on:
Investments............................. 59,118
Open futures contracts.................. (7,383)
--------
Net unrealized appreciation ....................... 51,735
-------
Net gain.................................... 47,627
-------
Net increase in net assets from operations.............. $95,982
=======
</TABLE>
See notes to financial statements.
3
<PAGE>
FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
- -------------------------------------------------------------------------------------------------------
<CAPTION>
(unaudited) Year
Six months ended ended
April 30 October 31
---------- ----------
1995 1994
---------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income.............................................. $ 48,355 $ 120,333
Net realized loss.................................................. (4,108) (44,423)
Net unrealized appreciation (depreciation)......................... 51,735 (186,929)
---------- ----------
Net increase (decrease) from operations...................... 95,982 (111,019)
Distributions
From net investment income - Class A............................... (47,915) (107,338)
From net investment income - Class B............................... (2,455) (4,701)
---------- ----------
45,612 (223,058)
---------- ----------
Fund share transactions
Receipts for shares sold - Class A................................. 45,227 59,031
Value of distributions reinvested - Class A........................ 22,283 48,833
Cost of shares repurchased - Class A............................... (143,898) (352,589)
---------- ----------
(76,388) (244,725)
---------- ----------
Receipts for shares sold - Class B................................. 9,314 28,089
Value of distributions reinvested - Class B........................ 1,272 2,451
Cost of shares repurchased - Class B............................... (8,699) (18,610)
---------- ----------
1,887 11,930
---------- ----------
Net decrease from Fund share transactions.................... (74,501) (232,795)
---------- ----------
Total decrease......................................... (28,889) (455,853)
NET ASSETS
Beginning of period................................................ 1,347,729 1,803,582
---------- ----------
End of period (net of overdistributed net investment
income of $10,774 and $8,191, respectively)....................... $1,318,840 $1,347,729
========== ==========
Number of Fund shares
Sold - Class A..................................................... 4,540 5,589
Issued for distributions reinvested - Class A...................... 2,230 4,598
Repurchased - Class A.............................................. (14,357) (33,079)
---------- ----------
(7,587) (22,892)
---------- ----------
Sold - Class B..................................................... 929 2,600
Issued for distributions reinvested - Class B...................... 127 232
Repurchased - Class B.............................................. (868) (1,768)
---------- ----------
188 1,064
---------- ----------
Net decrease in shares outstanding........................... (7,399) (21,828)
Outstanding at
Beginning of period............................................. 135,490 157,318
---------- ----------
End of period................................................... 128,091 135,490
========== ==========
</TABLE>
See notes to financial statements.
4
<PAGE>
FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
STATEMENT OF CASH FLOWS
(in thousands)
- ------------------------------------------------------------------------------------------------
<CAPTION>
(Unaudited)
NET CHANGE IN CASH: Six months ended April 30
-------------------------
<S> <C> <C>
Cash flows from operating activities:
Interest received................................................. $ 58,310
Dollar roll fee income received................................... 5,324
Operating expenses paid........................................... (7,991)
-----------
Net cash provided by operating activities.................... $ 55,643
Cash flows from investing activities:
Purchases of securities........................................... (3,118,303)
Proceeds from sales of securities................................. 3,203,532
Futures contracts................................................. (12,389)
-----------
Net cash provided by investing activities.................... 72,840
---------
NET CASH PROVIDED BY OPERATING AND INVESTING ACTIVITIES........... 128,483
Cash flows from financing activities:
Proceeds from shares sold......................................... (101,141)
Cash dividends paid............................................... (27,342)
-----------
Net cash provided by financing activities.................... (128,483)
---------
Net change in cash................................................ 0
Cash - beginning of period........................................ 0
---------
Cash - end of period.............................................. $ 0
=========
RECONCILIATION OF NET INCREASE IN NET ASSETS TO NET
CASH PROVIDED BY OPERATING AND INVESTING ACTIVITIES:
Net increase in net assets resulting from operations.............. $ 95,982
Decrease in investments........................................... $ 218,261
Decrease in interest and fees receivable.......................... 6,264
Decrease in receivable from investments securities sold........... 122,829
Decrease in payable for investment securities purchased........... (314,918)
Decrease in other assets.......................................... 28
Increase in accrued expenses and liabilities...................... 37
-----------
Total........................................................ 32,501
---------
Net cash provided by operating and investing activities........... $ 128,483
=========
</TABLE>
See notes to financial statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. INTERIM FINANCIAL STATEMENTS
In the opinion of management of Colonial Federal Securities Fund (the
Fund), a series of Colonial Trust III, the accompanying financial statements
contain all normal and recurring adjustments necessary for the fair
presentation of the financial position of the Fund at April 30, 1995, and the
results of its operations, the changes in its net assets, and the financial
highlights for the six months then ended.
- --------------------------------------------------------------------------------
NOTE 2. ACCOUNTING POLICIES
The Fund is a Massachusetts business trust, registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end,
management investment company. The Fund may issue an unlimited number of
shares. The Fund offers Class A shares sold with a front-end sales charge and
Class B shares which are subject to an annual distribution fee and a
contingent deferred sales charge. Class B shares will convert to Class A
shares when they have been outstanding approximately eight years. The
following significant accounting policies are consistently followed by the
Fund in the preparation of its financial statements and conform to generally
accepted accounting principles.
- --------------------------------------------------------------------------------
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.
Options are valued at the last reported sale price, or in the absence
of a sale, the mean between the last quoted bid and offering price.
Futures contracts are valued based on the difference between the last
sale price and the opening price of the contract.
Short-term obligations with a maturity of 60 days or less are valued
at amortized cost.
Portfolio positions which cannot be valued as set forth above are valued
at fair value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased or sold.
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 enter into dollar roll transactions. A dollar roll
transaction involves a sale by the Fund of securities that it holds with an
agreement by the Fund to repurchase substantially similar securities at an
agreed upon price and date.
The Fund may trade securities on other than normal settlement terms.
This may increase the risk if the other party to the transaction fails to
deliver and causes the Fund to subsequently invest at less advantageous
prices.
- --------------------------------------------------------------------------------
DETERMINATION OF CLASS NET ASSET VALUES AND
FINANCIAL HIGHLIGHTS
All income, expenses (other than the Class B distribution fee),
realized and unrealized gains (losses) are allocated to each class
proportionately on a daily basis for purposes of determining the net asset
value of each class.
Class B per share data and ratios are calculated by adjusting the
expense and net investment income per share data and ratios for the Fund for
the entire period by the distribution fee applicable to Class B shares only.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES
Consistent with the Fund's policy to qualify as a regulated investment
company and to distribute all of its taxable income, no federal income tax has
been accrued.
- --------------------------------------------------------------------------------
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
DOLLAR ROLL TRANSACTIONS
During the period between the sale and and repurchase of dollar roll
transactions, the Fund will not be entitled to accrue interest and receive
principal payments on the securities sold. Dollar roll transactions involve the
risk that the market value of the securities sold by the Fund may decline below
the repurchase price of those securities. The Fund maintains a segregated
account with its custodian bank in which it will maintain cash, U.S.
government securities or other liquid high grade debt obligations equal in
value to its obligations with respect to dollar rolls. In the event the buyer
of securities under a dollar roll transaction files for bankruptcy or becomes
insolvent, the Fund's use of proceeds of the transaction may be restricted
pending a determination by the other party.
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
The Fund sells municipal and Treasury bond futures contracts to manage
overall portfolio interest rate exposure and not for trading purposes. The
use of futures contracts involves certain risks, which include (1) imperfect
correlation between the price movement of the contracts and the underlying
securities, (2) inability to close out positions due to different trading
hours, or the temporary absence of a liquid market, for either the
contracts or the underlying securities, or (3) an inaccurate prediction by the
Adviser of the future direction of interest rates. Any of these risks may
involve amounts exceeding the initial or variation margin recorded in the
Fund's Statement of Assets and Liabilities at any given time.
- --------------------------------------------------------------------------------
OTHER
The Fund's custodian takes possession through the federal book-entry
system of securities collateralizing repurchase agreements. Collateral is
marked-to-market daily to ensure that the market value of the underlying assets
remains sufficient to protect the Fund. The Fund may experience costs and delays
in liquidating the collateral if the issuer defaults or enters bankruptcy.
- --------------------------------------------------------------------------------
NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES
<TABLE>
MANAGEMENT FEE
Colonial Management Associates, Inc. (the Adviser) is the investment
adviser of the Fund and furnishes accounting and other services and office
facilities for a monthly fee based on the Fund's average net assets as follows:
<CAPTION>
Average Net Assets Annual Fee Rate
------------------ ---------------
<S> <C>
First $1 billion............. 0.65%
Next $1 billion.............. 0.60%
Over $2 billion.............. 0.50%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
BOOKKEEPING FEE
The Adviser provides bookkeeping and pricing services for $27,000 per
year plus a percentage of the Fund's average net assets as follows:
<CAPTION>
Average Net Assets Annual Fee Rate
------------------ ---------------
<S> <C>
First $50 million.......... No charge
Next $950 million.......... 0.035%
Next $1 billion............ 0.025%
Next $1 billion............ 0.015%
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
TRANSFER AGENT
Colonial Investors Service Center, Inc. (the Transfer Agent), an
affiliate of the Adviser, provides shareholder services for a monthly fee
equal to 0.18% annually of the Fund's average net assets and receives a
reimbursement for certain out of pocket expenses.
- --------------------------------------------------------------------------------
UNDERWRITING DISCOUNTS, SERVICE AND
DISTRIBUTION FEES
The Adviser, through Colonial Investment Services, Inc., (the
Distributor), is the Fund's principal underwriter. During the six months ended
April 30, 1995, the Distributor retained net underwriting discounts of $24,640
on sales of the Fund's Class A shares and received contingent deferred sales
charge (CDSC) of $165,231 on Class B share redemptions.
The Fund has adopted a 12b-1 plan which requires it to pay the
Distributor a service fee equal to 0.25% annually of the Fund's net assets as
of the 20th of each month. The plan also requires the payment of a distribution
fee to the Distributor equal to 0.75% of the average net assets attributable
to Class B shares.
The CDSC and the fees received from the 12b-1 plan are used principally
as repayment to the Distributor for amounts paid by the Distributor to dealers
who sold such shares.
- --------------------------------------------------------------------------------
OTHER
The Fund pays no compensation to its officers, all of whom are
employees of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan
which may be terminated at any time. Obligations of the plan will be paid
solely out of the Fund's assets.
- --------------------------------------------------------------------------------
NOTE 4. PORTFOLIO INFORMATION
During the six months ended April 30, 1995, purchases and sales of
investments, other than short-term obligations, were $2,803,384,693 and
$3,019,565,332, respectively.
<TABLE>
Unrealized appreciation (depreciation) at April 30, 1995, based on cost
of investments for both financial statement and federal income tax purposes
was approximately:
<S> <C>
Gross unrealized appreciation............... $ 22,648,000
Gross unrealized depreciation............... (28,932,000)
------------
Net unrealized depreciation............. $ (6,284,000)
============
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
CAPITAL LOSS CARRYFORWARDS
At October 31, 1994, capital loss carry-forwards available (to the
extent provided in regulations) to offset future realized gains were
approximately as follows:
<CAPTION>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
<S> <C>
1997................ $111,580,000
1998................ 22,515,000
1999................ 36,282,000
2000................ 595,000
2002................ 43,843,000
------------
$214,815,000
============
</TABLE>
Expired capital loss carryforwards, if any, are recorded as a
reduction of capital paid in.
To the extent loss carryforwards are used to offset any future
realized gains, it is unlikely that such gains would be distributed since they
may be taxable to shareholders as ordinary income.
- --------------------------------------------------------------------------------
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 5. RESULTS OF SPECIAL SHAREHOLDERS MEETING
On February 15, 1995, a special meeting of shareholders was held and a
new Management Agreement between the Trust and Colonial Management Associates,
Inc. was approved that became effective upon the completion of the merger of
The Colonial Group, Inc. and Apple Merger Corporation, a subsidiary of Liberty
Financial Companies, Inc. on March 24, 1995. Out of the shares of beneficial
interest outstanding on December 9, 1994, 86,881,288 voted for the new
Management Agreement, 1,618,906 voted against and 4,872,677 abstained. Of the
shares of beneficial interest outstanding that abstained 769,984 represented
broker non-votes.
- ----------------------------------------------------
ABOUT OUR COVER...
[GRAPHIC] The symbol on the cover of this Report
represents the Fund's primary investment
focus on government bonds.
- ----------------------------------------------------
SHAREHOLDER SERVICES AND TRANSFER AGENT
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial Federal Securities Fund mails one shareholder report to each
shareholder address. If you would like more than one report, please call our
Literature Department at 1-800-248-2828 and additional reports will be sent to
you.
This material may be used with potential investors if it is preceded or
accompanied by a current Fund prospectus containing more complete information
including fees, risks, and expenses.
9
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period as follows:
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(UNAUDITED)
SIX MONTHS
ENDED
APRIL 30 YEAR ENDED OCTOBER 31
------------------- ---------------------------------------------------------------
1995 1994 1993 1992
------------------- ------------------ ------------------ ------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B(a)
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning
of period.......................... $ 9.950 $ 9.950 $11.460 $11.460 $10.750 $10.750 $10.800 $10.730
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from investment
operations:
Net investment income.............. 0.363 0.326 0.821 0.741 0.819 0.737 0.796 0.286
Net realized and unrealized
gain (loss) on investments....... 0.370 0.370 (1.560) (1.560) 0.739 0.739 0.157 0.095
------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations....................... 0.733 0.696 (0.739) (0.819) 1.558 1.476 0.953 0.381
------- ------- ------- ------- ------- ------- ------- -------
Less distributions declared
to shareholders:
From net investment income......... (0.383) (0.346) (0.771) (0.691) (0.781) (0.706) (0.796) (0.286)
In excess of net investment
income........................... -- -- -- -- (0.067) (0.060) -- --
From capital paid in (b)........... -- -- -- -- -- -- (0.207) (0.075)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions
declared to shareholders......... (0.383) (0.346) (0.771) (0.691) (0.848) (0.766) (1.003) (0.361)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value - End of period...... $10.300 $10.300 $ 9.950 $ 9.950 $11.460 $11.460 $10.750 $10.750
======= ======= ======= ======= ======= ======= ======= =======
Total return (c)..................... 7.52%(d) 7.12%(d) (6.57)% (7.28)% 14.94% 14.11% 9.15% 3.47%(d)
======= ======= ======= ======= ======= ======= ======= =======
Ratios to average net assets
Expenses........................... 1.18%(e) 1.93%(e) 1.16% 1.91% 1.17% 1.92% 1.24% 1.99%(e)
Net investment income.............. 7.35%(e) 6.60%(e) 7.80% 7.05% 7.37% 6.62% 7.36% 6.61%(e)
Portfolio turnover................... 347%(e) 347%(e) 121% 121% 252% 252% 18% 18%
Net assets at end of period
(in millions)...................... $1,245 $74 $1,278 $70 $1,736 $6 $1,809 $28
<FN>
(a) Class B shares were initially offered on June 8, 1992. Per share amounts reflect activity from that date.
(b) Because of differences between book and tax basis accounting, approximately $0.247 and $0.095, respectively,
of the Fund's aggregate distributions were a return of capital for federal income purposes.
(c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or CDSC.
(d) Not annualized.
(e) Annualized.
</TABLE>
10
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period as follows:
- --------------------------------------------------------------------------------------
<CAPTION>
Year ended October 31
------------------------
1991 1990
------- --------
Class A Class A
------- --------
<S> <C> <C>
Net asset value - Beginning
of period.......................... $10.420 $11.330
------- --------
Income (loss) from investment
operations:
Net investment income.............. 0.854 0.917
Net realized and unrealized
gain (loss) on investments....... 0.671 (0.627)
------- -------
Total from investment
operations....................... 1.525 0.290
------- -------
Less distributions declared
to shareholders:
From net investment income......... (0.854) (0.917)
In excess of net investment
income........................... -- --
From capital paid in (b)........... (0.291) (0.283)
------- -------
Total distributions
declared to shareholders......... (1.145) (1.200)
------- -------
Net asset value - End of period...... $10.800 $10.420
======= =======
Total return (c)..................... 15.33% 2.85%
======= =======
Ratios to average net assets
Expenses........................... 1.21% 1.16%
Net investment income.............. 8.05% 8.55%
Portfolio turnover................... 11% 6%
Net assets at end of period
(in millions)...................... $ 2,028 $ 2,186
<FN>
(a) Because of differences between book and tax basis accounting, approximately $0.315 and $0.300, respectively,
of the Fund's aggregate distributions were a return of capital for federal income purposes.
(b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or CDSC.
</TABLE>
11
<PAGE>
[LOGO] COLONIAL
MUTUAL FUNDS
[GRAPHIC]
COLONIAL
FEDERAL SECURITIES
FUND
------------------------
SEMIANNUAL REPORT
APRIL 30, 1995
- --------------------------------------------------------------------------------
[LOGO] COLONIAL
MUTUAL FUNDS
[RECYCLE LOGO] Printed on recycled paper.
FS-03/977A-0495
COLONIAL INVESTMENT SERVICES, INC. [COPYRIGHT]1995
