<PAGE>
[Logo]
-------------------
THE
COLONIAL FUND
-------------------
ANNUAL REPORT
October 31, 1995
-------------------
[photo]
<PAGE>
- --------------------------------------------------------------------------------
THE COLONIAL FUND HIGHLIGHTS
NOVEMBER 1, 1994 - OCTOBER 31, 1995
INVESTMENT OBJECTIVE: The Colonial Fund seeks primarily income and capital
growth and, secondarily, capital preservation.
THE FUND IS DESIGNED TO OFFER:
- Long-term returns
- Protection in down markets
- Quarterly dividend income
PORTFOLIO MANAGER COMMENTS: "The strong returns posted by the Fund
demonstrate the validity of its investment strategy. We believe our value
investing approach helped the Fund to fully participate in 1995's prolonged
stock market rally."
<TABLE>
THE COLONIAL FUND PERFORMANCE
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
Inception date 4/30/82* 5/5/92
- --------------------------------------------------------------------------
Distributions declared per share $ 0.713 $0.652
- --------------------------------------------------------------------------
Total return, assuming reinvestment
of all distributions and no sales charge or
contingent deferred sales charge (CDSC)
12 months 21.72% 20.84%
- --------------------------------------------------------------------------
Net asset value per share at 10/31/95 $ 8.94 $ 8.93
- --------------------------------------------------------------------------
<FN>
* Date Fund adopted current investment objectives.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE HOLDINGS** TOP FIVE SECTORS**+
(as of 10/31/95) (as of 10/31/95)
1. Conrail Inc. 1. Financials..............15.27%
2. Textron Inc. 2. Utilities...............11.78%
3. IBP Inc. 3. Technology..............10.33%
4. American Brands, Inc. 4. Transportation...........7.80%
5. Cigna Corp. 5. Consumer Staples.........7.49%
<FN>
** There can be no guarantee the Fund will continue to hold these securities or invest in these sectors
in the future.
+ Industry sectors in the following financial statements are based upon the standard industrial
classifications (SIC) published by the U.S. Office of Management and Budget. The Sector classifications used on
this page are based upon Colonial defined criteria as used in the investment process. Percentages are based on
total net assets.
</TABLE>
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2
<PAGE>
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[PHOTO OF JOHN A. MCNEICE, JR.] During the 12 months ended October 31, 1995,
the U.S. stock market provided attractive returns for investors. This positive
performance was a reflection of moderate economic growth and low inflation
in the United States. In terms of performance, large-capitalization "blue chip"
stocks set the pace for the rest of the U.S. equity market, although small
capitalization and foreign stocks also did well. All of these markets have
benefited from declining interest rates. Also, stocks from companies with
extensive overseas operations, especially those in the technology sector,
benefited from the decline in value of the U.S. dollar.
Daniel Rie, Lead Portfolio Manager of The Colonial Fund, believes that both
economic growth and inflation will remain moderate in the months ahead.
Should this outlook prove true, the value stocks in which your Fund invests
should continue to provide investors with positive returns. In the following
report, Dan comments on the Fund's management strategy and on key issues
affecting stocks worldwide.
Respectfully,
/s/ John A. McNeice, Jr.
John A. McNeice, Jr.
President
December 11, 1995
- --------------------------------------------------------------------------------
3
<PAGE>
PORTFOLIO MANAGEMENT REPORT
DANIEL RIE is Senior Vice President of Colonial Management Associates, Inc.,
and Lead Portfolio Manager of The Colonial Fund. Dan also directs our equity
investment group. He has over 21 years of investment experience.
STOCK SELECTION CRITERIA TAKES ADVANTAGE OF MARKET: Potential acquisitions for
the portfolio's diverse group of holdings must meet one of three value
investment criteria: the stock's earnings yield must equal or exceed the yield
from long-term U.S. government securities; the stock's dividend yield must be at
least two thirds of yields available from long-term U.S. government securities;
or the stock's value must be greater than its estimated book value. The first
two requirements are directly tied to long-term Treasury bond yields and,
consequently, the decline in yields during the fiscal year increased the pool of
stocks available for investment by your Fund.
To help us manage risk, we use a technique called benchmarking. We create a
benchmark portfolio of stocks by combining the actual holdings of other growth
and income funds. We use the benchmark to help us maintain a level of risk
equal to or lower than our competition, while using an internal stock selection
process to outperform the benchmark.
FUND PERFORMANCE VS. THE S&P 500: For the year ended October 31, 1995, the
Fund underperformed the Standard & Poor's 500 Index. This is in line with
expectations. The Colonial Fund is positioned with a portion of its holdings in
U.S. government bonds and foreign stocks. This greater diversification can
provide a cushion for the Fund when U.S. markets are down. As a result,
performance may not rise as dramatically as U.S. stocks in an up market, such as
the one we have seen over the Fund's fiscal year.
U.S., EUROPEAN ECONOMIES FAVORABLE: The U.S. economy was more vigorous during
the third quarter of 1995 than in either of the prior two quarters - industrial
production increased at an annual rate of 5.7%. We believe interest rates
should remain low and inflation will stay under control. Europe's equity
markets have also improved. The Bundesbank (Germany's central bank), which
generally sets the interest rate trend for Europe, appears reluctant to cut
rates aggressively. However, interest rates in many European countries have
also begun moving lower.
WEAK DOLLAR HELPS TECHNOLOGY STOCKS: The dollar weakened versus most major
currencies, which had a positive impact on technology stocks. Many companies in
this sector have significant business dealings overseas. As the dollar
weakened, prices for their products became more competitive with foreign
companies, reflected in increased profit margins and market share. Our
investments in technology stocks, including Micron Technology and Motorola,
helped the Fund take advantage of this favorable trend.
FINANCIAL STOCKS ALSO CONTRIBUTE TO PERFORMANCE: Financial stocks like First
Interstate Bank provided attractive returns. We took advantage of the increase
that occurred in this stock's price when Wells Fargo Bank announced its takeover
bid - and our First Interstate investment was sold at a profit.
FOREIGN INVESTMENTS DECREASED: Although foreign markets generally
underperformed the U.S., some markets posted relatively strong returns. We
made only a slight reduction in foreign investments, from 14.2% of investments
on October 31, 1994, to 12.6% at the end of the fiscal year. This
4
<PAGE>
- --------------------------------------------------------------------------------
maintained the diversity of the portfolio.
LOOKING AHEAD: Although the economy should continue to grow through the end
of 1995, we believe inflation will remain under control. However, should
conditions change, we will make adjustments in the portfolio to take advantage
of any new opportunities that may arise in the future.
THE COLONIAL FUND INVESTMENT PERFORMANCE VS.
THE STANDARD & POOR'S 500 INDEX
Change in Value of $10,000 from 10/85 - 10/95
Based on NAV and MOP for Class A Shares
- --------------------------------------------------------------------------------
LINE CHART DEPICTING THE FOLLOWING:
<TABLE>
<CAPTION>
Label A B C
- -------------------------------------------------------------
Label TCF data MOP NAV S&P
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
1 10/85 9425 10000 10000
2 12/85 10345 10976 11147
3 11875 12580 12755
4 12349 13102 13712
5 12145 12886 12662
6 12/86 12593 13361 12954
7 14280 15151 15664
8 14308 15181 15531
9 14905 15814 16227
10 12/87 12458 13218 12691
11 13870 14716 14344
12 14547 15434 15132
13 14750 15650 14934
14 12/88 15169 16094 15339
15 16137 17122 16803
16 17037 18077 18485
17 18307 19424 20502
18 12/89 18203 19314 20791
19 17863 18953 20143
20 18171 19280 21338
21 15993 16969 17544
22 12/90 16838 17865 19727
23 19024 20185 24255
24 19348 20528 24077
25 20481 21731 26370
26 12/91 21237 22533 29610
27 21847 23179 29460
28 22272 23631 28545
29 22549 23925 29655
30 12/92 23989 25453 33137
31 25807 27381 34224
32 25924 27506 35022
33 27062 28713 36782
34 12/93 27458 29133 37761
35 26791 28426 36327
36 26409 28020 35003
37 27617 28824 37372
38 12/94 26880 28520 36408
39 28975 30743 39389
40 31596 33523 42824
41 33731 35788 47004
42 10/95 33357 35392 45795
</TABLE>
A $10,000 Investment in Class B shares made on May 5, 1992 (inception), at
net asset value would have been valued at $14,415 on October 31, 1995. The
same investment after deducting the applicable contingent deferred sales
charge (CDSC) would have grown to $14,115 by October 31, 1995. The Standard
& Poor's 500 Index is an unmanaged index that tracks the performance of the
U.S. stock market.
<TABLE>
AVERAGE ANNUAL TOTAL RETURN
As of 9/30/95 (Most Recent Quarter End)
- ----------------------------------------------------------------------------------
<CAPTION>
CLASS A SHARES CLASS B SHARES
Objective Change 4/30/82* Inception 5/5/92
NAV MOP NAV W/CDSC
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR 24.16% 17.02% 23.12% 18.12%
- ----------------------------------------------------------------------------------
5 YEARS 16.10% 14.73% -- --
- ----------------------------------------------------------------------------------
10 YEARS 13.98% 13.30% -- --
- ----------------------------------------------------------------------------------
SINCE INCEPTION/
OBJECTIVE CHANGE 15.31% 14.80% 11.60% 10.92%
- ----------------------------------------------------------------------------------
<FN>
* Date Fund adopted current investment objective.
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. Net asset value (NAV) return does not include sales charges or CDSC.
Maximum offering price (MOP) return includes the maximum sales charge of 5.75%. The
CDSC returns reflect charges of: one year, 5.00%; since inception, 3.00%. Performance
for different share classes will vary based on differences in sales charges and fees
associated with each class.
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1995 (IN THOUSANDS)
<CAPTION>
COMMON STOCKS - 83.4% COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION - 0.7%
BUILDING CONSTRUCTION - 0.5%
Koninklijke Volker Stevin NV Ne 74 $ 4,772
Lennar Corp. 32 736
------
5,508
------
HEAVY CONSTRUCTION - NON BUILDING CONSTRUCTION - 0.2%
Cubiertas y Mzov SA Sp 20 1,169
Enterprise Jean Lefebvre SA Fr 7 451
------
1,620
------
- -------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 15.3%
DEPOSITORY INSTITUTIONS - 3.9%
Banco de Santander SA Sp 18 785
Bank of Boston Corp. 56 2,492
Bank of Montreal Ca 398 8,815
Banque Nationale de Belgique Be 1 1,582
Canadian Imperial Bank of Commerce Ca 273 7,400
First Empire State Corp. 4 787
J.P. Morgan & Co., Inc. 93 7,157
National Australia Bank Ltd. Au 1,000 8,545
NationsBank Corp. 24 1,591
Toronto Dominion Bank Ca 50 889
------
40,043
------
HOLDING & OTHER INVESTMENT COMPANIES - 1.2%
Amev NV Ne 99 6,191
Avalon Properties, Inc. 59 1,141
Manufactured Home Communities, Inc. 63 1,031
Sofina SA Be 8 4,082
------
12,445
------
INSURANCE AGENTS & BROKERS - 0.1%
Acordia, Inc. 30 825
------
INSURANCE CARRIERS - 7.4%
AFLAC, Inc. 67 2,714
Allstate Corp. 365 13,427
American Bankers Insurance Group, Inc. 151 5,403
American General Corp. 38 1,262
CNA Financial Corp. (a) 25 2,804
Capitol American Financial Corp. 88 1,725
Cigna Corp. 235 23,275
</TABLE>
6
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Conseco, Inc. 117 $ 6,054
Excel Ltd. 5 283
Loews Corp. 62 9,032
Mercury General Corp. 6 231
Orion Capital Corp. 20 839
Providian Corp. 41 1,625
Reinsurance Group of America 2 52
Reliaster Financial Corp. 56 2,355
US Life Corp. 181 5,170
---------
76,251
---------
NONDEPOSITORY CREDIT INSTITUTIONS - 1.0%
American Express Co. 50 2,031
Green Tree Financial Corp. 288 7,679
---------
9,710
---------
REAL ESTATE - 0.2%
New World Development Co. Ltd. HK 500 1,947
Societe Francaise d'Investissements
Immobiliers et de Gestion Fr 4 286
---------
2,233
---------
SECURITY BROKERS & DEALERS - 1.5%
A.G. Edwards, Inc. 216 5,499
Alex Brown, Inc. 169 8,275
John Nuveen & Co., Inc. Class A 9 205
Quick & Reilly Group, Inc. 44 1,045
---------
15,024
---------
- ---------------------------------------------------------------------------
MANUFACTURING - 42.5%
CHEMICALS - 4.8%
ARCO Chemical Co. 13 617
Akzo Nobel NV Ne 63 3,621
American Home Products Corp. 60 5,318
Bristol-Myers Squibb Co. 19 1,479
Eastman Chemical Co. 111 6,593
Norsk Hydro A.S. ADR No 30 1,184
Rhone-Poulenc Rorer, Inc. Fr 96 4,515
Sherwin-Williams Co. 34 1,294
Union Carbide Corp. 533 20,176
Upjohn Co. 75 3,791
Wellman, Inc. 30 714
---------
49,302
---------
ELECTRONIC & ELECTRICAL EQUIPMENT - 2.8%
CTS Corp. 31 1,031
General Electric Co. 15 949
Helen of Troy Ltd. 17 305
</TABLE>
7
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
<CAPTION>
- -------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- -------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING - CONT.
Electronic & Electrical Equipment - Cont.
National Semiconductor Corp. (a) 297 $ 7,232
Texas Instruments, Inc. 268 18,284
United Industrial Corp. 140 717
---------
28,518
---------
FABRICATED METAL - 0.2%
Amcast Industrial Corp. 20 347
Harsco Corp. 39 2,036
---------
2,383
---------
FOOD & KINDRED PRODUCTS - 5.0%
Archer Daniels Midland Co. 279 4,492
Bongrain SA Fr (b) 212
CPC International, Inc. 16 1,049
Golden Enterprises, Inc. 5 47
H.J. Heinz Co. 26 1,209
IBP, Inc. 413 24,728
Korn-OG Foderstof Kompagniet AS (a) De 45 2,060
Seagrams Co. Ltd. 431 15,520
---------
50,831
---------
FURNITURE & FIXTURES - 0.0%
Kimball International, Class B 4 102
---------
LEATHER - 0.1%
Justin Industries, Inc. 95 952
---------
LUMBER & WOOD PRODUCTS - 0.8%
Weyerhaeuser Co. 190 8,384
---------
MACHINERY & COMPUTER EQUIPMENT - 6.9%
Bucher Holdings AG Sz 6 3,951
Diebold, Inc. 29 1,537
Dresser Industries, Inc. 50 1,040
Hewlett-Packard Co. 117 10,856
International Business Machines Corp. 164 15,949
Kaydon Corp. 22 644
Seagate Technology, Inc. (a) 510 22,840
Sun Microsystems, Inc. (a) 175 13,681
Tecumseh Products Co., Class A 8 367
---------
70,865
---------
MEASURING & ANALYZING INSTRUMENTS - 2.6%
Baxter International, Inc. 447 17,269
Emerson Electric Co. 22 1,582
</TABLE>
8
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Litton Industries, Inc. (a) 26 $ 1,042
Raytheon Co. 155 6,762
------
26,655
------
MISCELLANEOUS MANUFACTURING - 0.1%
Callaway Golf Co. 33 544
------
PAPER & PAPER MILLS - 0.6%
Chesapeake Corp. 18 554
Kimberly Clark Corp. 24 1,714
Willamette Industries, Inc. 75 4,321
------
6,589
------
PETROLEUM REFINING - 2.3%
British Petroleum Co. ADR UK 13 1,138
Elcor Corp. 59 1,245
Exxon Corp. 203 15,504
Mobil Corp. 58 5,793
------
23,680
------
PRIMARY METAL - 1.5%
Asarco, Inc. 153 4,918
Carpenter Technology Corp. 58 2,185
J&L Specialty Steel, Inc. 77 1,264
Magma Copper Co., Class B 385 6,454
------
14,821
------
PRIMARY SMELTING - 1.8%
National Power PLC ADR UK 34 1,080
Phelps Dodge Corp. 272 17,206
------
18,286
------
PRINTING & PUBLISHING - 0.6%
CSS Industries, Inc. (a) 25 566
E.W. Scripps Co. 7 249
New York Times Co., Class A 126 3,499
Standard Register Co. 84 1,895
------
6,209
------
RUBBER & PLASTIC - 2.1%
Goodyear Tire & Rubber Co. 473 17,959
Myers Industries, Inc. 22 316
Wynn's International, Inc. 129 3,535
------
21,810
------
TEXTILE MILL PRODUCTS - 0.1%
Interface, Inc., Class A 10 151
Springs Industries, Inc. 17 729
------
880
------
</TABLE>
9
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995"
<CAPTION>
- ----------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- ----------------------------------------------------------------
MANUFACTURING - CONT.
<C> <C> <C>
Tobacco Products - 2.3%
American Brands, Inc. 553 $ 23,718
---------
TRANSPORTATION EQUIPMENT - 7.9%
A.O. Smith Corp. 9 191
General Dynamics Corp. 228 12,636
McDonnell Douglas Corp. 188 15,353
Modine Manufacturing Co. 20 550
Paccar, Inc. 74 3,073
Peugeot SA Fr 20 2,610
Simpson Industries, Inc. 107 897
Societe Europeane de Propulsion SA Fr 2 119
TRW, Inc. 120 7,883
Textron, Inc. 401 27,555
Thiokol Corp. 265 9,169
Toyota Motor Corp. ADR Ja 27 1,002
---------
81,038
---------
- ----------------------------------------------------------------
MINING - 0.9%
METAL MINING
Cleveland-Cliffs, Inc. 42 1,562
Cyprus Amax Minerals Co. 282 7,354
---------
8,916
---------
- ----------------------------------------------------------------
RETAIL TRADE - 3.5%
APPAREL & ACCESSORY STORES - 0.0%
DEB Shops, Inc. 25 92
---------
GENERAL MERCHANDISE STORES - 3.1%
Dillard Department Stores, Inc., Class A 409 11,086
May Department Stores Co. 274 10,766
Waban, Inc. (a)" 625 9,759
---------
31,611
---------
HOME FURNISHINGS & EQUIPMENT - 0.1%
Sun Television and Appliances 164 901
---------
MISCELLANEOUS RETAIL - 0.3%
Rite Aid Corp. 98 2,638
---------
- ----------------------------------------------------------------
SERVICES - 0.3%
ENGINEERING, ACCOUNTING, RESEARCH & MANAGEMENT - 0.3%
Enron Global Power & Pipelines 30 729
International-Muller NV Ne 36 2,606
---------
3,335
---------
</TABLE>
10
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Hotels, Camps & Lodging - 0.0%
Harbour Centre Development HK 416 $ 465
------
- -------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 18.4%
AIR TRANSPORTATION - 1.2%
British Airways PLC ADR UK 7 479
Federal Express Corp. (a) 140 11,522
------
12,001
------
COMMUNICATIONS - 2.7%
Ameritech Corp. 105 5,670
NYNEX Corp. 124 5,804
Southern New England Telecommunications Corp. 30 1,084
Southwestern Bell Corp. Communications Inc. 262 14,662
Telefonos de Mexico Class L ADR Mx 30 825
------
28,045
------
ELECTRIC, GAS & SANITARY SERVICES - 1.4%
Gas y Electrica Series 2 SA Sp 224 11,016
Illinova Corp. 97 2,744
Teco Energy, Inc. 36 855
------
14,615
------
ELECTRIC SERVICES - 4.8%
Boston Edison Co. 48 1,319
DQE, Inc. 42 1,160
Detroit Edison Co. 34 1,131
Empresa Nacional De Electrica ADR Sp 23 1,141
Florida Progress Corp. 72 2,395
Houston Industries, Inc. 193 8,960
NIPSCO Industries, Inc. 35 1,274
New England Electric System 57 2,227
New York State Electric & Gas Corp. 180 4,545
Northern States Power Co. 26 1,224
Pinnacle West Capital Corp. 126 3,459
Portland General Corp. 75 2,024
Unicom Corp. 528 17,276
Union Electrica Fenosa SA Sp 177 824
Wisconsin Energy Corp. 25 735
------
49,694
------
GAS SERVICES - 0.5%
Consolidated Natural Gas Co. 69 2,633
Energen Corp. 78 1,756
Laclede Gas Co. 47 947
------
5,336
------
</TABLE>
11
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
<CAPTION>
- ------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- ------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
RAILROAD - 4.6%
Burlington Northern Santa Fe Co. 83 $ 6,978
CSX Corp. 68 5,695
Conrail, Inc. 454 31,206
Norfolk Southern Corp. 47 3,631
--------
47,510
--------
SANITARY SERVICES - 2.3%
North West Water PLC UK 1,096 10,297
Northumbrian Water Group PLC UK 352 5,522
Severn Trent Water PLC UK 403 4,080
Yorkshire Water PLC UK 412 3,992
--------
23,891
--------
TRANSPORTATION SERVICES - 0.1%
Cross Harbour Tunnel Co. HK 307 586
--------
WATER TRANSPORTATION - 0.8%
American Presidents Co. Ltd. 292 7,079
Overseas Shipholding Group, Inc. 45 760
--------
7,839
--------
- ------------------------------------------------------------------
WHOLESALE TRADE - 1.8%
Durable Goods - 1.3%
Beers N.V. (a) Ne 43 6,762
Pioneer Standard Electronics, Inc. 480 6,655
--------
13,417
--------
NONDURABLE GOODS - 0.5%
Bergen Brunswig Corp., Class A 120 2,484
International Multifoods Corp. 58 1,179
Nash Finch Co. 60 1,064
--------
4,727
--------
TOTAL COMMON STOCKS (cost of $686,892) 854,845
--------
</TABLE>
<TABLE>
<CAPTION>
MATURITIES
BONDS AND NOTES - 9.9% COUPON FROM/TO PAR
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 9.9%
GOVERNMENT AGENCIES - 6.3%
Federal National Mortgage Association,
6.500% 2007-2009 $ 65,061 64,532
------
GOVERNMENT OBLIGATIONS - 3.6%
U.S. Treasury Notes, 7.875% 4/15/98 35,085 36,823
------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/October 31, 1995
- -------------------------------------------------------------------------
<C> <C> <C> <C>
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (cost of $101,934) $ 101,355
----------
CORPORATE FIXED-INCOME BONDS & NOTES - 0.1%
- -------------------------------------------------------------------------
MANUFACTURING - 0.1%
PRINTING & PUBLISHING
Time Warner, Inc.
(cost of $619) 8.750% 1/10/15 $ 603 $ 603
----------
CORPORATE ADJUSTABLE RATE BONDS & NOTES - 0.1%
- -------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.1%
PIPELINES
SFP Pipeline Holdings (c)
(cost of $720) 11.163% 08/15/10 600 756
----------
TOTAL BONDS & NOTES (cost of $103,273) 102,741
----------
PREFERRED STOCKS - 0.1% SHARES
- ---------------------------------------------------------------------------
SERVICES - 0.1%
BUSINESS SERVICES
General Motors Corp., $3.25 (cost of $1,148) 21 1,386
----------
TOTAL INVESTMENTS - 93.6% (cost of $791,313)(d) 958,972
----------
SHORT-TERM OBLIGATIONS - 5.5% PAR
- ---------------------------------------------------------------------------
Repurchase agreement with Bankers Trust
Securities Corp., dated 10/31/95, due 11/01/95
at 5.875% collateralized by U.S. Treasury
notes with various maturities to 1997, market
value $57,590 (repurchase proceeds $56,406) $ 56,397 56,397
----------
OTHER ASSETS & LIABILITIES, NET - 0.9% 9,732
- ---------------------------------------------------------------------------
NET ASSETS- 100% $1,025,101
----------
<FN>
NOTES TO INVESTMENT PORTFOLIO:
- ---------------------------------------------------------------------------
(a) Non-income producing.
(b) Rounds to less than one.
(c) Interest rates change quarterly. The rate listed is as of October 31,
1995.
(d) Cost for federal income tax purposes is $791,338.
</TABLE>
13
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
- -------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO - CONT.
===============================================================================
<CAPTION>
Summary of Securities by Country Country Value % of Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ $ 841,972 87.8
United Kingdom UK 26,588 2.8
Netherlands Ne 23,952 2.5
Canada Ca 17,104 1.8
Spain Sp 14,935 1.6
Australia Au 8,545 0.9
France Fr 8,193 0.9
Belgium Be 5,664 0.6
Switzerland Sz 3,950 0.4
Hong Kong HK 2,998 0.3
Denmark De 2,060 0.2
Norway No 1,184 0.1
Japan Ja 1,002 0.1
Mexico Mx 825 0.0
-------- -----
$ 958,972 100.0
======== =====
</Table
Certain securities are listed by country of underlying exposure but may
trade predominantly on other exchanges.
See notes to financial statements.
14
<PAGE>
</TABLE>
<TABLE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1995
(in thousands except for per share amounts and footnotes)
<CAPTION>
<S> <C> <C>
ASSETS
Investments at value (cost $791,313) $ 958,972
Short-term obligations 56,397
-----------
1,015,369
Cash held in foreign banks (cost $167) $ 168
Receivable for:
Investments sold 29,494
Fund shares sold 2,000
Dividends 1,128
Interest 508
Foreign tax reclaims 173
Other 78 33,549
---------- -----------
Total Assets 1,048,918
LIABILITIES
Payable for:
Investments purchased 22,583
Fund shares repurchased 1,144
Accrued:
Deferred Trustees fees 4
Other 86
Total Liabilities ----------
23,817
-----------
NET ASSETS $ 1,025,101
===========
Net asset value & redemption price per share -
Class A ($667,611/74,693) $ 8.94
===========
Maximum offering price per share - Class A
($8.94/0.9425) $ 9.49 (a)
===========
Net asset value & offering price per share -
Class B ($353,831/39,635) $ 8.93 (b)
===========
Net asset value price per share - Class Z
($3,659/409) $ 8.94
===========
COMPOSITION OF NET ASSETS
Capital paid in $ 783,284
Undistributed net investment income 136
Accumulated net realized gain 74,039
Net unrealized appreciation (depreciation) on:
Investments 167,659
Foreign currency transactions (17)
-----------
$ 1,025,101
===========
<FN>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
See notes to financial statements.
</TABLE>
15
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<CAPTION>
(in thousands)
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 22,620
Interest 10,055
-------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $616) 32,675
EXPENSES
Management fee $ 5,006
Service fee - Class A 1,379
Service fee - Class B 749
Distribution fee - Class B 2,254
Transfer agent 2,685
Bookkeeping fee 328
Trustees fee 40
Custodian fee 127
Audit fee 44
Legal fee 9
Registration fee 72
Reports to shareholders 28
Other 107 12,828
------ -------
Net Investment Income 19,847
-------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain on:
Investments 73,755
Foreign currency transactions 46
------
Net Realized Gain 73,801
Net unrealized appreciation (depreciation) during
the period on:
Investments 85,116
Foreign currency transactions (17)
------
Net Unrealized Appreciation 85,099
-------
Net Gain 158,900
-------
Net Increase in Net Assets from Operations $178,747
=======
</TABLE>
See notes to financial statements.
16
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(in thousands) Year ended October 31
---------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS 1995 1994
Operations:
Net investment income $ 19,847 $ 13,905
Net realized gain 73,801 50,974
Net unrealized appreciation (depreciation) 85,099 (61,930)
---------- ---------
Net Increase from Operations 178,747 2,949
Distributions:
From net investment income - Class A (15,424) (10,658)
From net realized gains - Class A (34,321) (15,320)
From net investment income - Class B (5,439) (2,687)
From net realized gains - Class B (16,631) (4,145)
From net investment income - Class Z (15) -
---------- ---------
106,917 (29,861)
---------- ---------
Fund Share Transactions (a):
Receipts for shares sold - Class A 73,553 96,683
Receipts for shares issued in the
acquisition of Liberty Financial
Growth and Income Fund 36,806 -
Value of distributions reinvested - Class A 44,428 22,779
Cost of shares repurchased - Class A (114,120) (62,378)
---------- ---------
40,667 57,084
---------- ---------
Receipts for shares sold - Class B 76,326 169,110
Value of distributions reinvested - Class B 20,808 6,421
Cost of shares repurchased - Class B (42,629) (28,224)
---------- ---------
54,505 147,307
---------- ---------
Receipts for shares sold - Class Z 3,600 -
Value of distributions reinvested - Class Z 15 -
3,615 -
---------- ---------
Net Increase from Fund Share
Transactions 98,787 204,391
---------- ---------
Total Increase 205,704 174,530
NET ASSETS
Beginning of period 819,397 644,867
---------- ---------
End of period (including undistributed net
investment income of $136 and $1,133,
respectively) $1,025,101 $819,397
========== =========
<FN>
(a) Class Z shares were initially offered on July 31, 1995.
Statement of Changes in Net Assets continued on following page.
See notes to financial statements.
</TABLE>
17
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS - CONT.
<CAPTION>
(in thousands) Year ended October 31
--------------------------
NUMBER OF FUND SHARES (a) 1995 1994
<S> <C> <C>
Sold - Class A 8,868 11,383
Issued in acquisition of Liberty Financial
Growth and Income Fund 4,730 -
Issued for distributions reinvested - Class A 5,968 2,821
Repurchased - Class A (13,808) (7,202)
------ ------
5,758 7,002
------ ------
Sold - Class B 9,250 20,623
Issued for distributions reinvested - Class B 2,814 794
Repurchased - Class B (5,252) (3,371)
------ ------
6,812 18,046
------ ------
Sold - Class Z 407 -
Issued for distributions reinvested - Class Z 2 -
------ ------
409 -
------ ------
</TABLE>
(a) Class Z shares were initially offered on July 31, 1995.
See notes to financial statements.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE 1. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION: The Colonial Fund (the Fund), a series of Colonial Trust III,
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 may issue an unlimited number of shares. The
Fund offers three classes of shares: Class A, Class B and Class Z. Class A
shares are sold with a front-end sales charge; 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 Z shares are offered continuously at net asset value.
There are certain restrictions on the purchase of Class Z shares please refer
to a prospectus. 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: Equity securities 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.
Debt securities generally are valued by a pricing service based upon market
transactions for normal, institutional-size trading units of similar
securities. Whe management deems it appropriate, an over-the-counter or
exchange bid quotation is is used.
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 values of all assets and liabilities quoted in foreign currencies are
translated U.S. dollars at that day's exchange rates.
Portfolio positions which cannot be valued as set forth above are valued at
fair valu 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 A and Class B service fee and 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.
19
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
Class A, Class B and Class Z per share data was calculated using the average
shares outstanding during the period. In addition, net investment income per
share data reflects the service fee applicable to both Class A and Class B
shares and the distribution fee applicable to Class B shares only.
Class A and Class B ratios are calculated by adjusting the expense and net
invest- ment income ratios for the Fund for the entire period by the service
fee applicable to both Class A and Class B shares and by the distribution fee
applicable to Class B shares only.
FEDERAL INCOME TAXES: Consistent with the Funds 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: Distributions to shareholders are recorded on
the ex-date.
The 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 carryovers) under income tax regulations.
FOREIGN CURRENCY CONTRACTS: The Fund has adopted Statement of Position 93-4,
Foreign Currency Accounting and Financial Statement Presentation for Investment
Companies. Accordingly, net realized and unrealized gains(losses) on foreign
currency transactions includes the fluctuation in exchange rates on
gains(losses) between trade and settlement dates on securities transactions,
gains(losses) arising from the disposition of foreign currency and currency
gains(losses) between the accrual and payment dates on dividends and interest
income and foreign withholding taxes.
The Fund does not distinguish that portion of gains(losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included
with the net realized and unrealized gains(losses) on investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency
contracts to purchase or sell foreign currencies at predetermined exchange
rates in connection with the settlement of purchases and sales of securities.
The Fund may also enter into forward currency contracts to hedge certain other
foreign currency denominated assets. The contracts are used to minimize the
exposure to foreign exchange rate fluctuations during the period between trade
and settlement date of the contracts. 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
20
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
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
Funds portfolio securities. While the maximum potential loss from such
contracts is the aggregate face value in U.S. dollars at the time the contract
was opened, exposure is typically limited to the change in value of the
contract (in U.S. dollars) over the period it remains open. Risks may also
arise if counterparties fail to perform their obligations under the contracts.
OTHER: Corporate actions are recorded on the ex-date (except for
certain foreign securities which are recorded as soon after ex-date as the Fund
becomes aware of such), net of nonrebatable tax withholdings. Where a high
level of uncertainty as to collection exists, income on securities is recorded
net of all tax withholdings with any rebates recorded when received.
The Fund's custodian takes possession through the federal book-entry
system of securities collateralizing repurchase agreements. Collateral is
marked-to-market daily to ensure that the market value of the underlying
assets remains sufficient to protect the Fund. The Fund may experience costs
and delays in liquidating the collateral if the issuer defaults or enters
bankruptcy.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
- --------------------------------------------------------------------------------
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser) is
the investment Adviser of the Fund and furnishes accounting and other
services and office facilities for a monthly fee equal to 0.55% annually of
the Fund's average net assets
BOOKKEEPING FEE: The Adviser provides bookkeeping and pricing services
for $27,000 per year plus 0.035% of the Fund's average net assets over $50
million.
TRANSFER AGENT: Colonial Investors Service Center, Inc. (the Transfer
Agent), an affiliate of the Adviser, provides shareholder services and receives
a monthly fee equal to 0.25% annually of the Fund's average net assets and
receives a reimbursement for certain out of pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Colonial
Investment Services, Inc. (the Distributor), an affiliate of the Adviser, is
the Fund's principal underwriter. For the year ended October 31, 1995, the Fund
has been advised that the Distributor retained net underwriting discounts of
$189,833 on sales of the Fund's Class A shares and received contingent
deferred sales charges (CDSC) of $878,329 on Class B share redemptions.
<TABLE>
The Fund has adopted a 12b-1 plan which requires the payment of a
distribution fee to the Distributor equal to 0.75% annually of the average net
assets attributable to Class B shares. The plan also requires the payment to
the Distributor of a service fee on Class A and Class B shares as follows:
<CAPTION>
Value of shares Annual
outstanding on the 20th of Fee
each month which were issued Rate
- ----------------------------------- --------
<S> <C>
Prior to April 1, 1989 0.15%
On or after April 1, 1989 0.25%
</TABLE>
21
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES - CONT.
- --------------------------------------------------------------------------------
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
OTHER: The Fund pays no compensation to its officers, all of whom are
employees of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which may
be terminated at any time. Obligations of the plan will be paid solely out of
the the Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended October 31, 1995, purchases and
sales of investments, other than short-term obligations, were $599,989,639 and
$566,203,192, respectively, of which $4,583,079 and $9,987,472, respectively,
were U.S. government securities.
<TABLE>
<CAPTION>
Unrealized appreciation (depreciation) at October 31, 1995, based on cost of
investments for federal income tax purposes was:
<S> <C>
Gross unrealized appreciation $184,647,924
Gross unrealized depreciation (17,014,421)
------------
Net unrealized appreciation $167,633,503
------------
</TABLE>
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. MERGER INFORMATION
- --------------------------------------------------------------------------------
On March 24, 1995, Liberty Financial Growth and Income Fund (LFGIF) was merged
into the Fund by a non-taxable exchange of 4,730,303 shares of the Fund (valued
at $36,806,337) for the 3,433,000 of LFGIF shares then outstanding. The assets
of LFGIF acquired included unrealized appreciation of $1,319,964. The
aggregate net assets of the Fund and LFGIF immediately after the merger were
$879,529,274.
22
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (a)
Selected data for a share of each class outstanding throughout each period are
as follows:
<CAPTION>
Year ended October 31
-----------------------------------------------------
1995 1994
Class A Class B Class Z(b) Class A Class B
-------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 8.060 $ 8.050 $ 8.780 $ 8.410 $ 8.400
-------- -------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.200 0.137 0.041 0.171 0.109
Net realized and
unrealized gain (loss) 1.393 1.395 0.167 (0.116) (0.111)
-------- -------- ------- -------- --------
Total from Investment
Operations 1.593 1.532 0.208 0.055 (0.002)
-------- -------- ------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.212) (0.151) (0.048) (0.160) (0.103)
From net realized gains (0.501) (0.501) - (0.245) (0.245)
-------- -------- ------- -------- --------
Total Distributions
Declared to
Shareholders (0.713) (0.652) (0.048) (0.405) (0.348)
-------- -------- ------- -------- --------
Net asset value -
End of period $ 8.940 $ 8.930 $ 8.940 $ 8.060 $ 8.050
======== ======== ======= ======== ========
Total return (c) 21.72% 20.84% 2.02% (d) 0.74% (0.04)%
======== ======== ======= ======== ========
RATIOS TO AVERAGE NET ASSETS
Expenses 1.16% 1.93% 0.93% 1.14% 1.89%
Net investment income 2.43% 1.66% 2.66% (e) 2.07% 1.32%
Portfolio turnover 66% 66% 66% 54% 54%
Net assets at end of
period (000) $667,611 $353,831 $ 3,659 $555,275 $264,122
<FN>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Class Z shares were initially offered on July 31, 1995. Per share amounts
reflect activity from that date.
(c) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(d) Not annualized.
(e) Annualized
</TABLE>
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
85% of the distributions paid by the Fund from investment income earned in the
year ended October 31, 1995, qualify for the corporate dividends received
deduction.
23
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (a)
Selected data for a share of each class outstanding throughout each period
are as follows:
<CAPTION>
Year ended October 31
----------------------------------------------------
1993(b) 1992(b) 1991(b)
Class A Class B Class A Class B(c) Class A
------------------- ---------------------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 7.390 $ 7.390 $ 7.050 $ 7.440 $ 5.700
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.156 0.104 0.173 0.052 0.218
Net realized and
unrealized gain (loss) 1.293 1.282 0.489 (0.044) 1.509
------- ------- ------- ------- -------
Total from Investment
Operations 1.449 1.386 0.662 0.008 1.727
------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.147) (0.094) (0.185) (0.058) (0.222)
From net realized gains (0.282) (0.282) (0.137) - (0.155)
------- ------- ------- ------- -------
Total Distributions
Declared to
Shareholders (0.429) (0.376) (0.322) (0.058) (0.377)
------- ------- ------- ------- -------
Net asset value -
End of period $ 8.410 $ 8.400 $ 7.390 $ 7.390 $ 7.050
======= ======= ======= ======= =======
Total return (d) 20.21% 19.38% 9.65% (0.31)% 31.23%
======= ======= ======= ======= =======
RATIO OF AVERAGE NET ASSETS
Expenses 1.10% 1.85% 1.09% 1.84%(f) 1.06%
Net investment income 1.94% 1.19% 2.52% 1.77%(f) 3.35%
Portfolio turnover 14% 14% 37% 37% 36%
Net assets at end
of period (000) $520,706 $124,161 $413,228 $ 15,582 $366,808
<FN>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) All per share amounts have been restated to reflect the 3 for 1 stock split
effective December 10, 1993
(c) Class B shares were initially offered on May 5, 1992. Per share amounts
reflect activity from that date.
(d) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(e) Not annualized.
(f) Annualized.
</TABLE>
24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST III AND THE SHAREHOLDERS OF THE COLONIAL 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 The Colonial Fund (a series of
Colonial Trust III) at October 31, 1995, the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated in conformity with generally accepted accounting principles. These
financial statements and the financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of portfolio positions at October 31, 1995 by correspondence with
the custodian and brokers, and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 11, 1995
25
<PAGE>
SHAREHOLDER SERVICES
to Make Investing Easier
Colonial has one of the most extensive selections of shareholder services
available. Your financial adviser can help you arrange for any of these
services, or you can call Colonial directly at 1-800-345-6611.
AFFORDABLE ADDITIONAL INVESTMENTS: Add to your account with as little as $50;
$25 for an IRA account.
FREE EXCHANGES*: Exchange all or part of your account into the same
share class of another Colonial fund, by phone or mail, as your needs change
over time.
EASY ACCESS TO YOUR MONEY*: Make withdrawals from your account by phone, by
mail or, for certain funds, by check.
ONE-YEAR REINSTATEMENT PRIVILEGE: If you need access to your money, but then
choose to return it to Colonial within one year, you can reinvest in any
Colonial fund of the same share class without any penalty or sales charge.
FUNDAMATIC: Make periodic investments as low as $50 from your checking
account to your Colonial account.
SYSTEMATIC WITHDRAWAL PLAN (SWP): Receive monthly, quarterly, or semiannual
payments via check or bank transmission. There is a $5,000 account value
required, but no minimum for the payment amount. The maximum annual
withdrawal is 12% of account balance at time SWP is established. SWPs by
check are processed on the 10th of each month.
AUTOMATED DOLLAR COST AVERAGING: Transfer money on a monthly basis from any
Colonial fund with a balance of $5,000 into the same share class of up to
four other Colonial funds. Minimum for each transfer is $100.
LOW COST IRAS: Choose from a broad range of retirement plans, including IRAs.
* Redemptions and exchanges are made at the next determined net asset value
after the request is received by Colonial. Proceeds may be more or less than
your original cost. The exchange privilege may be terminated at any time.
Investors who purchase class b or Class D shares (for applicable funds), or $1
million or more of Class A shares, may be subject to a contingent deferred
sales charge.
26
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for The Colonial Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
The Colonial 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 report has been prepared for shareholders of The Colonial 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.
27
<PAGE>
[Logo]
COLONIAL MUTUAL FUNDS
Mutual Funds for
Planned Portfolios
TRUSTEES
ROBERT J. BIRNBAUM
Trustee (formerly Special Counsel, Dechert, Price & Rhoads; President and
Chief Operating Officer, New York Stock Exchange, Inc.)
TOM BLEASDALE
Trustee (formerly Chairman of the Board and Chief Executive Officer, Shore
Bank & Trust Company)
LORA S. COLLINS
Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
WILLIAM D. IRELAND, JR.
Trustee (formerly Chairman of the Board, Bank of New England-Worcester)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
WILLIAM E. MAYER
Dean, College of Business and Management, University of Maryland (formerly
Dean, Simon Graduate School of Business, University of Rochester; Chairman
and Chief Executive Officer, C.S. First Boston Merchant Bank; and President
and Chief Executive Officer, The First Boston Corporation)
JOHN A. MCNEICE, JR.
Chairman of the Board and Director, The Colonial Group, Inc. and Colonial
Management Associates, Inc. (formerly Chief Executive Officer, The Colonial
Group, Inc. and Colonial Management Associates, Inc.)
JAMES L. MOODY, JR.
Chairman of the Board, Hannaford Bros. Co. (formerly Chief Executive Officer,
Hannaford Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
GEORGE L. SHINN
Financial Consultant (formerly Chairman, Chief Executive Officer and
Consultant, The First Boston Corporation)
ROBERT L. SULLIVAN
Management Consultant (formerly Management Consultant, Saatchi and Saatchi
Consulting Ltd. and Principal and International Practice Director, Management
Consulting, Peat Marwick Main & Co.)
SINCLAIR WEEKS, JR.
Chairman of the Board, Reed & Barton Corporation
COLONIAL INVESTMENT SERVICES, Inc. [Copyright] 1995
One Financial Center, Boston, Massachusetts 02111-2621, 617-426-3750
TF-02/474B-1095 (12/95)
[Logo]Printed on recycled paper
