<PAGE>
[LOGO]
------------------
THE
COLONIAL FUND
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ANNUAL REPORT
OCTOBER 31, 1996
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[graphic omitted]
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
<PAGE>
THE COLONIAL FUND HIGHLIGHTS
NOVEMBER 1, 1995 - OCTOBER 31, 1996
INVESTMENT OBJECTIVE: The Colonial Fund seeks primarily income and capital
growth and, secondarily, capital preservation.
THE FUND IS DESIGNED TO OFFER:
X Long-term returns
X Protection in down markets
X Quarterly dividend income
PORTFOLIO MANAGER COMMENTARY: "The Colonial Fund remained true to its mission to
provide shareholders with competitive equity market returns and below average
market risk. We are excited about the recent changes to the Fund's strategy.
These changes expand the definition of value investing, which should allow
shareholders to benefit from better diversification and increased investment
flexibility." -- Dan Rie
THE COLONIAL FUND PERFORMANCE*
CLASS A CLASS B
Inception dates -- 5/5/92
12-month distributions declared per share $0.798 $0.729
12-month total returns, assuming 16.11% 15.27%
reinvestment of all distributions
and no sales charge or contingent
deferred sales charge (CDSC)
Net asset values per share at 10/31/96 $9.49 $9.48
* Fund adopted current investment policies 9/16/96.
TOP FIVE EQUITY HOLDINGS** TOP FIVE SECTORS**+
(as of 10/31/96) (as of 10/31/96)
..................................... .....................................
1. Oracle Corp. 2.7% 1. Financials 19.1%
2. Cigna Corp. 2.5% 2. Utilities 10.0%
3. Phillips Petroleum Co. 2.5% 3. Health Care 8.8%
4. Textron, Inc. 2.4% 4. Technologies 7.7%
5. Johnson & Johnson Co. 2.3% 5. Capital Goods 7.3%
** Holdings and sector breakdowns are calculated as a percent of total net
assets. Because the Fund is actively managed, 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's defined criteria used in the investment process.
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[Photo of Harold W. Cogger]
I am pleased to present your Fund's annual report for the fiscal year ended
October 31, 1996. This report gives us the opportunity to share our analysis of
your fund and the investment environment over the past 12 months.
The Federal Reserve Board lowered short-term interest rates in December 1995 and
again in January 1996. Furthermore, in the bond market, significantly stronger
economic indicators mid-way through the period stirred inflation fears and
propelled long-term interest rates upward. However, we believe that the bond
market volatility should be somewhat reduced in the months ahead.
In the U.S. stock market, generally favorable conditions prevailed throughout
most of the period with both large and small company stocks posting strong
returns until July, when a price-based correction took place. Since then, the
market has rebounded nicely with the Dow Jones Industrial Average setting
several new records.
Internationally, we are still seeing declining interest rates in most markets.
Japan's recovery is modest and interest rates are being held low. China is
reducing rates, now that inflation has declined into single digits. In Europe,
short-term interest rates are much lower than long-term ones, creating a steep
yield curve. We expect this situation to continue until we see an increase in
economic activity.
Our expectations include moderate economic growth continuing into the first half
of 1997. If our current projections hold, we may see the economy picking up
again in the second half of 1997.
In the following pages, you'll find detailed information on your Fund's
performance as well as an in-depth discussion with the portfolio manager. As
always, we appreciate the opportunity to help you meet your investment goals.
Respectfully,
/s/ Harold W. Cogger
Harold W. Cogger
President
December 10, 1996
Because market conditions change frequently, there can be no assurance that the
trends described will continue, come to pass or affect Fund performance.
<PAGE>
PORTFOLIO MANAGEMENT REPORT
DANIEL RIE is lead portfolio manager of The Colonial Fund and is Senior Vice
President of Colonial Management Associates, Inc. Dr. Rie also directs
Colonial's equity investment team. GORDON JOHNSON and MICHAEL REGA are associate
portfolio managers of the Fund and are Vice Presidents of Colonial Management
Associates, Inc.
Q. WHAT WAS THE INVESTMENT ENVIRONMENT FOR STOCKS DURING THE PERIOD?
A. The 12-month period generally was favorable for equity investments,
with both large company and small company stocks posting strong returns until
July, when a correction took place. The stock markets rebounded in August and
the Dow Jones Industrial Average topped the 6000 mark for the first time in
October. The market, however, has continued to favor growth stocks rather than
the value-oriented stocks of mid-sized companies in which the Fund invests.
Q. HOW DID THE FUND PERFORM OVER THE PAST 12 MONTHS?
A. The Fund underperformed the Standard & Poor's Midcap 400 Index, an unmanaged
index that primarily tracks the performance of middle capitalization stocks. The
total return for Class A shares, based on net asset value, was 16.11% while the
S&P Midcap 400 Index posted a total return of 17.35%. This underperformance is
due in part to the market dominance of growth-oriented stocks rather than that
of the value-oriented stocks in which the Fund invests. Furthermore, in order to
reduce overall volatility, the Fund is partially invested in domestic fixed
income securities and in international equity securities, neither of which are
tracked by the Index, and both of which underperformed the Index during the
period.
Q. HAVE THERE BEEN ANY CHANGES IN YOUR INVESTMENT STRATEGY?
A. We recently changed the Fund's investment strategy to expand the definition
of value investing in order to provide the Fund with better diversification and
more flexibility to hold stocks which we believe have above average earnings
potential. Under our "new value" investment approach, stocks that meet any of
the following criteria may be purchased: traditional value companies with
favorable valuation of current business, or defensive companies whose activities
are concentrated in areas expected to provide relative stability in turbulent
markets, or growth companies with favorable valuation of anticipated business
and growth prospects. Under this new definition of "value," the Fund will have
access to all segments of the economy and will no longer be limited to the
narrow universe of stocks defined by low P/Es and high yields.
Q. WHAT IS YOUR MARKET OUTLOOK FOR THE FUND?
A. While growth stocks have dominated the stock market for the past several
years, we are confident that value stocks will regain favor. The Fund should be
well positioned to capitalize on that shift when it occurs. We are also
anticipating that international stock markets will start to catch up to the U.S.
stock market. We plan to increase our position in foreign stocks in order to
capture that performance. As always, the Fund will be managed to reduce risk and
to provide protection in down markets.
<PAGE>
THE COLONIAL FUND INVESTMENT PERFORMANCE VS.
STANDARD & POOR'S MIDCAP 400 INDEX
Change in Value of $10,000 from 10/31/86 - 10/31/96
Based on NAV and MOP for Class A Shares
[graphic omitted: mountain chart plot points follow:]
DATE NAV MOP S&P 400
- -----------------------------------------------------------------
Oct 31, 86 10000 9425 10000
Dec 31, 86 9977.262 9403.569 9820
Mar 31, 87 11314.06 10663.5 11873
Jun 30, 87 11336.43 10684.59 11773
Sep 30, 87 11809.24 11130.2 12300
Dec 31, 87 9870.792 9303.222 9619
Mar 31, 88 10989.25 10357.37 10872
Jun 30, 88 11525.54 10862.82 11471
Sep 30, 88 11686.63 11014.64 11319
Dec 31, 88 12018.4 11327.24 11627
Mar 31, 89 12785.64 12050.47 12737
Jun 30, 89 13498.62 12722.45 14011
Sep 30, 89 14504.83 13670.8 15541
Dec 31, 89 14422.38 13593.1 15759
Mar 31, 90 14153.31 13339.49 15268
Jun 30, 90 14396.98 13569.15 16173
Sep 30, 90 12671.7 11943.08 13299
Dec 31, 90 13340.43 12573.36 14953
Mar 31, 91 15072.78 14206.1 18385
Jun 30, 91 15329.38 14447.94 18250
Sep 30, 91 16227.39 15294.31 19988
Dec 31, 91 16826.2 15858.69 22444
Mar 31, 92 17309.14 16313.86 22330
Jun 30, 92 17646.27 16631.61 21636
Sep 30, 92 17865.58 16838.31 22478
Dec 31, 92 19006.68 17913.79 25117
Mar 31, 93 20446.79 19271.1 25941
Jun 30, 93 20539.88 19358.84 26545
Sep 30, 93 21441.38 20208.51 27880
Dec 31, 93 21754.77 20503.87 28623
Mar 31, 94 21226.98 20006.43 27535
Jun 30, 94 20923.88 19720.76 26531
Sep 30, 94 21524.32 20286.67 28328
Dec 31, 94 21297.35 20072.76 27597
Mar 31, 95 22957.41 21637.36 29829
Jun 30, 95 25033.25 23593.84 32460
Sep 30, 95 26724.83 25188.16 35628
Dec 31, 95 27389.38 25814.49 36137
Mar 31, 96 28610.4 26965.31 38362
Jun 30, 96 29428.02 27735.91 39467
Sep 30, 96 30040.46 28313.13 40616
Oct 31, 96 30687.19 28922.67 40734
A $10,000 investment in Class B shares made on May 5, 1992 (inception), at net
asset value (NAV) would have been valued at $16,571 on October 31, 1996. The
same investment after deducting the applicable contingent deferred sales charge
(CDSC) would have grown to $16,371 by October 31, 1996. The Standard & Poor's
Midcap 400 Index is an unmanaged index that tracks the performance of middle
capitalization U.S. stocks. Unlike mutual funds, an index does not incur fees or
charges and it is not possible to invest in an index.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
As of 9/30/96 (Most Recent Quarter End)
- -------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
Inception 5/5/92
NAV MOP NAV w/CDSC
- -------------------------------------------------------------------------------
1 YEAR 12.41% 5.94% 11.70% 6.70%
- -------------------------------------------------------------------------------
5 YEARS 13.11% 11.78% -- --
- -------------------------------------------------------------------------------
10 YEARS 12.06% 11.40% -- --
- -------------------------------------------------------------------------------
SINCE INCEPTION -- -- 11.62% 11.30%
- -------------------------------------------------------------------------------
Past performance cannot predict future results. Returns and value of an
investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. NAV returns do not include sales charges
or CDSC. Maximum offering price (MOP) returns include the maximum sales charge
of 5.75%. The CDSC returns reflect charges of: one year, 5%; since inception,
2%. Performance for different share classes will vary based on differences in
sales charges and fees associated with each class.
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO
OCTOBER 31, 1996 (IN THOUSANDS)
COMMON STOCKS - 87.0% COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION - 0.8%
BUILDING CONSTRUCTION - 0.7%
GTM Entrepose SA Fr 8 $ 378
Koninklijke Volker Stevin NV Ne 74 6,797
Lennar Corp. 53 1,179
-----------
8,354
-----------
HEAVY CONSTRUCTION - NON BUILDING CONSTRUCTION - 0.1%
Cubiertas y Mzov SA Sp 20 1,428
-----------
......................................................................................
FINANCE, INSURANCE & REAL ESTATE - 19.3%
DEPOSITORY INSTITUTIONS - 4.7%
Amsouth Bancorporation 13 594
Astoria Financial Corp. 85 3,014
Banco de Santander SA Sp 18 923
Bank of Boston Corp. 50 3,200
Bank of Montreal Ca 398 12,065
Banque Nationale de Belgique Be 1 1,664
Canadian Imperial Bank of Commerce Ca 273 11,378
First Empire State Corp. 4 1,027
First Financial Corp. 30 806
Greenpoint Financial Corp. 57 2,669
H.F. Ahmanson & Co. 105 3,297
J.P. Morgan & Co., Inc. 18 1,555
National Australia Bank Ltd. Au 1,000 10,967
Nations Bank Corp. 19 1,753
Standard Federal Bancorporation 21 1,145
Synovus Financial Corp. 13 400
Toronto Dominion Bank Ca 50 1,172
-----------
57,629
-----------
HOLDING COMPANIES - 1.0%
Fortis Amev NV Ne 247 7,348
Sofina SA Be 8 4,642
-----------
11,990
-----------
INSURANCE AGENTS & BROKERS - 0.1%
Acordia, Inc. 30 855
-----------
INSURANCE CARRIERS - 9.2%
Allstate Corp. 261 14,640
American Bankers Insurance Group, Inc. 169 8,112
CNA Financial Corp. (a) 41 3,994
Cigna Corp. 235 30,641
Conseco, Inc. 34 1,824
Horace Mann Educators Corp. 10 343
Lincoln National Corp. 117 5,679
Loews Corp. 190 15,657
Old Republic International Corp. 195 4,830
Orion Capital Corp. 14 782
Providian Corp. 82 3,831
Reinsurance Group of America 2 68
Reliaster Financial Corp. 57 3,026
Safeco Corp. 217 8,192
Sunamerica, Inc. 117 4,403
US Life Corp. 157 4,916
Vesta Insurance Group, Inc. 61 1,573
-----------
112,511
-----------
NONDEPOSITORY CREDIT INSTITUTIONS - 0.9%
Green Tree Financial Corp. 288 11,428
-----------
REAL ESTATE - 0.3%
New World Development Co., Ltd. HK 500 2,910
Societe Francaise d'Investissements
Immobiliers et de Gestion Fr 4 332
Stewart Enterprises, Inc. 23 791
-----------
4,033
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.0%
Manufactured Home Communities, Inc. 31 595
-----------
SECURITY BROKERS & DEALERS - 3.1%
A.G. Edwards, Inc. 432 12,907
Alex Brown, Inc. 231 13,104
Bear Stearns Co., Inc. 85 2,013
John Nuveen & Co., Inc. 16 455
Merrill Lynch & Co., Inc. 93 6,505
Paine Webber Group, Inc. 79 1,861
Quick & Reilly Group, Inc. 45 1,187
-----------
38,032
-----------
......................................................................................
MANUFACTURING - 39.7%
CHEMICALS & ALLIED PRODUCTS - 6.3%
Akzo Nobel NV ADR Ne 63 4,001
American Home Products Corp. 120 7,350
Bristol-Myers Squibb Co. 14 1,428
Cabot Corp. 10 241
Dexter Corp. 21 636
Dow Chemical Co. 106 8,226
Dura Pharmaceuticals, Inc. (a) 20 690
Goodrich (B.F.) Co. 50 2,131
Johnson & Johnson ` 579 28,496
Norsk Hydro A.S Ne 30 1,358
Pfizer, Inc. 132 10,940
Rhone-Poulenc Rorer, Inc. 168 11,297
Wellman, Inc. 52 925
-----------
77,719
-----------
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.2%
CTS Corp. 31 1,302
Helen of Troy Ltd. (a) 33 602
-----------
1,904
-----------
FABRICATED METAL - 0.3%
Harsco Corp. 55 3,520
-----------
FOOD & KINDRED PRODUCTS - 4.8%
Archer Daniels Midland Co. 1,185 25,772
Bongrain SA Fr (b) 162
CPC International, Inc. 16 1,246
Flowers Industries, Inc. 21 493
Golden Enterprises, Inc. 5 39
H.J. Heinz Co. 35 1,225
IBP, Inc. 826 20,650
Korn-OG Foderstof Kompagniet AS (a) De 45 1,854
Seagram Co., Ltd. 204 7,726
-----------
59,167
-----------
FURNITURE & FIXTURES - 0.0%
Herman Miller, Inc. 10 423
-----------
MACHINERY & COMPUTER EQUIPMENT - 2.8%
Bucher Holding Sz 6 4,541
Case Corp. 113 5,273
Diebold, Inc. 15 863
Gateway 2000, Inc. (a) 28 1,299
Hewlett-Packard Co. 68 3,009
Kaydon Corp. 28 1,121
Sun Microsystems, Inc. (a) 266 16,226
Timken Co. 36 1,624
-----------
33,956
-----------
MEASURING & ANALYZING INSTRUMENTS - 3.5%
Baxter International, Inc. 312 12,983
Litton Industries, Inc. (a) 40 1,786
Medtronic, Inc. 347 22,332
Raytheon Co. 20 985
Tektronix, Inc. 120 4,675
-----------
42,761
-----------
MISCELLANEOUS MANUFACTURING - 1.3%
Callaway Golf Co. 536 16,412
-----------
PAPER PRODUCTS - 0.1%
Potlatch Corp. 21 898
Schweitzer-Mauduit International, Inc. 2 72
-----------
970
-----------
PETROLEUM REFINING - 6.3%
Amoco Corp. 88 6,681
Ashland Oil, Inc. 71 3,030
British Petroleum Co., PLC ADR UK 13 1,676
Elcor Corp. 59 1,142
Exxon Corp. 187 16,573
Kerr-McGee Corp. 38 2,397
Mobil Corp. 54 6,270
Phillips Petroleum Co. 733 30,057
Unocal Corp. 257 9,394
-----------
77,220
-----------
PRIMARY METAL - 0.6%
AK Steel Holdings Corp. 43 1,530
Asarco, Inc. 153 4,011
Carpenter Technology Corp. 36 1,178
Texas Industries, Inc. 2 113
-----------
6,832
-----------
PRIMARY SMELTING - 1.8%
National Power PLC ADR UK 6 163
Phelps Dodge Corp. 341 21,421
-----------
21,584
-----------
PRINTING & PUBLISHING - 0.3%
CSS Industries, Inc. (a) 25 587
New York Times Co., Class A 20 723
Standard Register Co. 74 1,916
-----------
3,226
-----------
RUBBER & PLASTIC - 1.6%
Goodyear Tire & Rubber Co. 363 16,644
Nike, Inc., Class B 6 341
Wynn's International, Inc. 105 2,979
-----------
19,964
-----------
TEXTILE MILL PRODUCTS - 0.1%
Springs Industries, Inc. 24 1,065
-----------
TOBACCO PRODUCTS - 2.1%
American Brands, Inc. 553 26,415
-----------
TRANSPORTATION EQUIPMENT - 7.6%
Arvin Industries Inc. 33 762
Europeene De Propulsion Fr 2 221
General Dynamics Corp. 170 11,694
Harley-Davidson, Inc. 80 3,610
McDonnell Douglas Corp. 425 23,152
Peugeot SA Fr 20 2,080
Polaris Industries, Inc. 2 37
TRW, Inc. 160 14,489
Textron, Inc. 335 29,740
Thiokol Corp. 150 6,298
Toyota Motor Corp. ADR Ja 27 1,282
-----------
93,365
-----------
......................................................................................
MINING & ENERGY - 0.1%
METAL MINING
Cleveland-Cliffs, Inc. 27 1,099
Cyprus Amax Minerals Co. 3 68
-----------
1,167
-----------
......................................................................................
RETAIL TRADE - 3.7%
APPAREL & ACCESSORY STORES - 0.0%
DEB Shops, Inc. 25 114
-----------
GENERAL MERCHANDISE STORES - 3.4%
Dillard Department Stores, Inc. 301 9,566
Meyer (Fred), Inc. (a) 54 1,882
Sears, Roebuck & Co. 331 15,993
Shopko Stores, Inc. 45 729
Waban, Inc. (a) 494 12,906
-----------
41,076
-----------
HOME FURNISHINGS & EQUIPMENT - 0.3%
CompUSA, Inc. (a) 83 3,848
-----------
......................................................................................
SERVICES - 7.3%
AMUSEMENT & RECREATION - 0.1%
Grand Casinos, Inc. (a) 87 1,296
-----------
BUSINESS SERVICES - 5.1%
Cognos, Inc. (a) 51 1,609
Computer Associates International, Inc. 309 18,267
Interpublic Group of Cos., Inc. 30 1,460
McAfee Associates, Inc. (a) 30 1,365
Omnicom Group, Inc. 125 6,239
Oracle Systems Corp. (a) 782 33,092
-----------
62,032
-----------
ENGINEERING, ACCOUNTING, RESEARCH & MANAGEMENT - 0.6%
Corrections Corp. of America (a) 156 4,048
International-Muller NV Ne 146 3,502
-----------
7,550
-----------
HEALTH SERVICES - 0.6%
Allegiance Corporation 88 1,648
Lincare Holdings, Inc. (a) 38 1,421
Sun Healthcare Group, Inc. (a) 304 3,871
Universal Health Services, Inc., Class B (a) 36 898
-----------
7,838
-----------
HOTELS, CAMPS & LODGING - 0.0%
Harbour Centre Development HK 416 565
-----------
MOTION PICTURES - 0.2%
King World Productions, Inc. (a) 68 2,462
-----------
PERSONAL SERVICES - 0.7%
Service Corporation International 297 8,476
-----------
......................................................................................
TRANPORTATON, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 14.4%
AIR TRANSPORTATION - 0.5%
British Airways PLC ADR UK 7 605
Federal Express Corp. (a) 75 6,021
-----------
6,626
-----------
ELECTRIC, GAS & SANITARY SERVICES - 1.7%
Enova Corp. 49 1,096
Gas y Electricidad SA Sp 224 12,273
Illinova Corp. 222 6,060
Teco Energy, Inc. 36 891
-----------
20,320
-----------
ELECTRIC SERVICES - 5.9%
Allegheny Power System, Inc. 64 1,912
Carolina Power & Light Co. 189 6,824
DQE, Inc. 79 2,260
Florida Progress Corp. 110 3,655
Houston Industries, Inc. 245 5,593
NIPSCO Industries, Inc. 89 3,371
New England Electric System 126 4,239
New York State Electric & Gas Corp. 180 3,757
Northern States Power Co. 60 2,829
Portland General Corp. 123 5,372
Texas Utilities Co. 472 19,096
Unicom Corp. 455 11,838
Union Electrica Fenosa SA Sp 177 1,147
Western Resources, Inc. 31 927
-----------
72,820
-----------
GAS SERVICES - 0.9%
Consolidated Natural Gas Co. 193 10,253
Laclede Gas Co. 47 1,087
-----------
11,340
-----------
RAILROAD - 3.2%
CSX Corp. 136 5,865
Conrail, Inc. 297 28,261
Norfolk Southern Corp. 53 4,715
-----------
38,841
-----------
SANITARY SERVICES - 1.5%
Severn Trent Water PLC UK 403 4,035
United Utilities PLC UK 1,096 10,143
Yorkshire Water PLC UK 412 4,145
-----------
18,323
-----------
TRANSPORTATION SERVICES - 0.1%
Cross Harbour Tunnel Co. HK 307 667
-----------
WATER TRANSPORTATION - 0.6%
APL Ltd. 205 4,516
Overseas Shipholding Group, Inc. 31 529
Tidewater, Inc. 48 2,109
-----------
7,154
-----------
......................................................................................
WHOLESALE TRADE - 1.7%
DURABLE GOODS - 1.2%
Beers NV Ne 213 8,687
Marshall Industries (a) 32 973
Pioneer Standard Electronics, Inc. 480 5,037
-----------
14,697
-----------
NONDURABLE GOODS - 0.5%
Bergen Brunswig Corp., Class A 91 2,861
International Multifoods Corp. 33 508
Nash-Finch Co. 60 967
Richfood Holdings, Inc. 66 1,592
-----------
5,928
-----------
TOTAL COMMON STOCKS (cost of $822,837) 1,066,498
-----------
</TABLE>
MATURITIES
BONDS & NOTES - 7.5% COUPON FROM/TO PAR
- -------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 7.5%
Government Agencies - 4.6%
Federal National Mortgage Association,
6.500% 2007-2009 $ 57,614 56,718
-----------
GOVERNMENT OBLIGATIONS - 2.9%
U.S. Treasury Note, 7.875% 4/15/98 35,085 36,154
-----------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATONS (cost of $94,461) 92,872
-----------
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% 08/15/10 600 732
-----------
TOTAL BONDS & NOTES (cost of $95,181) 93,604
-----------
TOTAL INVESTMENTS - 94.6% (cost of $918,018)(d) 1,160,102
-----------
SHORT-TERM OBLIGATIONS - 4.9% PAR VALUE
- -------------------------------------------------------------------------------
Repurchase agreement with Lehman Brothers, Inc.,
dated 10/31/96, due 11/01/96 at 5.530%, collateralized
by U.S. Treasury bonds and notes with various
maturities to 2023, market value $61,219,
(repurchase proceeds $60,038) $ 60,029 $ 60,029
-----------
OTHER ASSETS & LIABILITIES, NET - 0.5% 6,301
NET ASSETS - 100.0% $ 1,226,432
===========
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, 1996.
(d) Cost for federal income tax purposes is $919,328.
Summary of Securities by Country Country Value % of Total
- --------------------------------------------------------------------------------
United States 1,034,991 89.2
Netherlands Ne 31,693 2.7
Canada Ca 24,615 2.1
United Kingdom UK 20,767 1.8
Spain Sp 15,771 1.4
Australia Au 10,967 0.9
Belgium Be 6,306 0.5
Switzerland Sz 4,541 0.4
Hong Kong HK 4,142 0.4
France Fr 3,173 0.3
Denmark De 1,854 0.2
Japan Ja 1,282 0.1
---------- -----
$1,160,102 100.0
========== =====
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges
Acronym Name
- ------- ----
ADR American Depository Receipt
See notes to financial statements.
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1996
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $918,018) $ 1,160,102
Short-term obligations 60,029
-----------
1,220,131
Cash held in foreign banks (cost $7) $ 7
Receivable for:
Investments sold 6,473
Dividends 1,489
Fund shares sold 1,138
Interest 464
Foreign tax reclaims 192
Other 39 9,802
-------- -----------
Total Assets 1,229,933
LIABILITIES
Payable for:
Investments purchased 1,973
Fund shares repurchased 1,414
Accrued:
Deferred Trustees fees 6
Other 108
--------
Total Liabilities 3,501
-----------
NET ASSETS $ 1,226,432
===========
Net asset value & redemption price per share -
Class A ($759,409/80,016) $9.49
===========
Maximum offering price per share - Class A
($9.49/0.9425) $10.07(a)
===========
Net asset value & offering price per share -
Class B ($453,468/47,858) $9.48(b)
===========
Net asset value, offering and redemption price
per share - Class Z ($13,555/1,427) $9.50
===========
COMPOSITION OF NET ASSETS
Capital paid in $ 909,604
Undistributed net investment income 1,641
Accumulated net realized gain 73,123
Net unrealized appreciation (depreciation) on:
Investments 242,084
Foreign currency transactions (20)
-----------
$ 1,226,432
===========
(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.
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
(in thousands)
INVESTMENT INCOME
Dividends $ 23,753
Interest 10,073
-----------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $698) 33,826
EXPENSES
Management fee $ 6,256
Transfer agent 3,330
Service fee - Class A & B 2,678
Distribution fee - Class B 3,075
Bookkeeping fee 394
Custodian fee 118
Trustees fee 70
Registration fee 66
Audit fee 42
Reports to shareholders 32
Legal fee 10
Other 85 16,156
-------- -----------
Net Investment Income 17,670
-----------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 72,998
Foreign currency transactions (22)
--------
Net Realized Gain 72,976
Net unrealized appreciation (depreciation) during
the period on:
Investments 74,414
Foreign currency transactions (3)
--------
Net Unrealized Appreciation 74,411
-----------
Net Gain 147,387
-----------
Net Increase in Net Assets from Operations $ 165,057
===========
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands) Year ended October 31
-----------------------------
INCREASE (DECREASE) IN NET ASSETS 1996 1995
Operations:
Net investment income $ 17,670 $ 19,847
Net realized gain 72,976 73,801
Net unrealized appreciation 74,411 85,099
---------- -----------
Net Increase from Operations 165,057 178,747
Distributions:
From net investment income - Class A (12,646) (15,424)
From net realized gains - Class A (47,071) (34,321)
From net investment income - Class B (4,191) (5,439)
From net realized gains - Class B (25,891) (16,631)
From net investment income - Class Z (232) (15)
From net realized gains - Class Z (684) --
---------- -----------
74,342 106,917
---------- -----------
Fund Share Transactions (a):
Receipts for shares sold - Class A 108,502 73,553
Receipts for shares issued in the
acquisition of Liberty Financial
Growth and Income Fund -- 36,806
Value of distributions reinvested - Class A 53,915 44,428
Cost of shares repurchased - Class A (117,196) (114,120)
---------- -----------
45,221 40,667
---------- -----------
Receipts for shares sold - Class B 104,995 76,326
Value of distributions reinvested - Class B 28,337 20,808
Cost of shares repurchased - Class B (60,702) (42,629)
---------- -----------
72,630 54,505
---------- -----------
Receipts for shares sold - Class Z 9,783 3,600
Value of distributions reinvested - Class Z 916 15
Cost of shares repurchased - Class Z (1,561) --
---------- -----------
9,138 3,615
---------- -----------
Net Increase from Fund Share
Transactions 126,989 98,787
---------- -----------
Total Increase 201,331 205,704
NET ASSETS
Beginning of period 1,025,101 819,397
---------- -----------
End of period (including undistributed net
investment income of $1,641 and $136,
respectively) $1,226,432 $ 1,025,101
========== ===========
(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.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS - CONT.
(IN THOUSANDS) YEAR ENDED OCTOBER 31
-----------------------------
NUMBER OF FUND SHARES (a) 1996 1995
Sold - Class A 12,023 8,868
Issued in acquisition of Liberty Financial
Growth and Income Fund -- 4,730
Issued for distributions reinvested - Class A 6,267 5,968
Repurchased - Class A (12,967) (13,808)
---------- -----------
5,323 5,758
---------- -----------
Sold - Class B 11,645 9,250
Issued for distributions reinvested - Class B 3,308 2,814
Repurchased - Class B (6,730) (5,252)
---------- -----------
8,223 6,812
---------- -----------
Sold - Class Z 1,084 407
Issued for distributions reinvested - Class Z 106 2
Repurchased - Class Z (172) --
---------- -----------
1,018 409
---------- -----------
(a) Class Z shares were initially offered on July 31, 1995.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
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's investment objective is to seek primarily income
and capital growth and, secondarily, capital preservation. 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 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 revenue 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: 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.
When management deems it appropriate, an over-the-counter or exchange bid
quotation 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 value of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates.
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, sold or mature.
Cost is determined and gains and losses are based upon the specific identifi-
cation 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.
The per share data was calculated using 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
investment 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 amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
FOREIGN CURRENCY TRANSACTIONS: Net realized and unrealized gains (losses) on
foreign currency transactions includes the fluctuation in ex- change 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 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 Funds 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 a percentage of the Fund's average net assets as
follows:
<PAGE>
Average Net Assets Annual Fee Rate
---------------------------- -----------------------------
First $50 million No charge
Next $950 million 0.035%
Next $1 billion 0.025%
Next $1 billion 0.015%
Over $3 billion 0.001%
TRANSFER AGENT: Colonial Investors Service Center, Inc. (the Transfer Agent), an
affiliate of the Adviser, provides shareholder services for a monthly fee equal
to 0.25% annually of the Funds average net assets and receives 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, 1996, the Fund has been
advised that the Distributor retained net underwriting discounts of $254,468 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $787,372 on Class B share redemptions.
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 only. The plan also requires the payment of a
service fee to the Distributor on Class A and Class B shares as follows:
Value of shares Annual
outstanding on the 20th of Fee
each month which were issued Rate
- --------------------------------------- --------------
Prior to April 1, 1989 0.15%
On or after April 1, 1989 0.25%
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
OTHER: The Fund pays no compensation to its officers, all of whom are employees
of the Adviser.
The Funds 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
Funds assets.
NOTE 3. PORTFOLIO INFORMATION
...............................................................................
INVESTMENT ACTIVITY: For the year ended October 31, 1996, purchases and sales of
investments, other than short-term obligations, were $459,314,331 and
$405,599,664, of which none and $8,071,133, respectively, were U.S. government
securities.
Unrealized appreciation (depreciation) at October 31, 1996, based on cost of
investments for federal income tax purposes was:
Gross unrealized appreciation $254,357,907
Gross unrealized depreciation (13,584,133)
------------
Net unrealized appreciation $240,773,774
============
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 10% 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 October 31, 1996.
NOTE 5. 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.
NOTE 6. FEDERAL INCOME TAX INFORMATION (UNAUDITED)
...............................................................................
58% of the ordinary income distributed by the Fund in the year ended October 31,
1996, qualifies for the corporate dividends received deduction.
<PAGE>
FINANCIAL HIGHLIGHTS (a)
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended October 31
------------------------------------
1996
Class A Class B Class Z
--------- --------- ---------
<S> <C> <C> <C>
Net asset value -
Beginning of period $ 8.940 $ 8.930 $ 8.940
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.165 0.097 0.186
Net realized and
unrealized gain (loss) 1.183 1.182 1.192
--------- --------- ---------
Total from Investment
Operations 1.348 1.279 1.378
--------- --------- ---------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.162) (0.093) (0.182)
From net realized gains (0.636) (0.636) (0.636)
--------- --------- ---------
Total Distributions
Declared to Shareholders (0.798) (0.729) (0.818)
--------- --------- ---------
Net asset value -
End of period $ 9.490 $ 9.480 $ 9.500
========= ========= =========
Total return (c) 16.11% 15.27% 16.50%
========= ========= =========
RATIOS TO AVERAGE NET ASSETS
Expenses 1.15%(e) 1.90%(e) 0.91%(e)
Net investment income 1.82%(e) 1.07%(e) 2.06%(e)
Portfolio turnover 38% 38% 38%
Average commission rate(g) $ 0.0347 $ 0.0347 $ 0.0347
Net assets at end of period (000) $ 759,409 $ 453,468 $ 13,555
<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.
</FN>
<PAGE>
FINANCIAL HIGHLIGHTS (a) - CONT.
<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%(e) 1.93%(e) 0.93%(e)(f) 1.14% 1.89%
Net investment income 2.43%(e) 1.66%(e) 2.66%(e)(f) 2.07% 1.32%
Portfolio turnover 66% 66% 66% 54% 54%
Average commission rate(g) -- -- -- -- --
Net assets at end of period (000) $667,611 $353,831 $ 3,659 $555,275 $264,122
<FN>
(e) The benefits derived from custody credits and directed brokerage arrangements had no impact. Prior
years' ratios are net of benefits received, if any.
(f) Annualized.
(g) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average
commission rate per share for trades on which commissions are charged.
</FN>
<PAGE>
FINANCIAL HIGHLIGHTS (a) - CONT.
Selected data for a share of each class outstanding throughout each period are
as follows:
<CAPTION>
Year ended October 31
----------------------------------------------
1993(b) 1992(b)
Class A Class B Class A Class B(c)
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 7.390 $ 7.390 $ 7.050 $ 7.440
--------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.156 0.104 0.173 0.052
Net realized and
unrealized gain (loss) 1.293 1.282 0.489 (0.044)
--------- --------- --------- ---------
Total from Investment
Operations 1.449 1.386 0.662 0.008
--------- --------- --------- ---------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.147) (0.094) (0.185) (0.058)
From net realized gains (0.282) (0.282) (0.137) --
--------- --------- --------- ---------
Total Distributions
Declared to Shareholders (0.429) (0.376) (0.322) (0.058)
--------- --------- --------- ---------
Net asset value -
End of period $ 8.410 $ 8.400 $ 7.390 $ 7.390
========= ========= ========= =========
Total return (d) 20.21% 19.38% 9.65% (0.31)%(e)
========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10% 1.85% 1.09% 1.84%(f)
Net investment income 1.94% 1.19% 2.52% 1.77%(f)
Portfolio turnover 14% 14% 37% 37%
Net assets at end of period (000) $ 520,706 $ 124,161 $ 413,228 $ 15,582
<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.
</FN>
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
T0 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, 1996, 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, 1996 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 10, 1996
<PAGE>
HOW TO REACH COLONIAL
BY PHONE OR BY MAIL
BY TELEPHONE
COLONIAL CUSTOMER CONNECTION - 1-800-345-6611
For 24-hour account information, call from your touch-tone phone. (Rotary
callers will be automatically connected to a representative during business
hours.) A recorded message will guide you through the menu:
For fund prices, dividends, and capital gains information ........... press 1
For account information ............................................. press 2
To speak to a Colonial representative ............................... press 3
For yield and total return information .............................. press 4
For duplicate statements or new supply of checks .................... press 5
To order duplicate tax forms and year-end statements ................ press 6
(February through May)
To review your options at any time during your call ................ press *
To speak with a shareholder services representative about your account, call
Monday to Friday, 8:00 am to 8:00 pm ET, and Saturdays from February through
mid-April, 10:00 am to 2:00 pm ET.
COLONIAL TELEPHONE TRANSACTION DEPARTMENT - 1-800-422-3737
To purchase, exchange, or sell shares by telephone, call Monday to Friday, 9:00
am to 7:00 pm ET. Transactions received after the close of the New York Stock
Exchange will receive the next business day's closing price.
COLONIAL LITERATURE DEPARTMENT - 1-800-426-3750
To request literature on any Colonial fund, call Monday to Friday, 8:30 am to
6:30 pm ET.
BY MAIL
COLONIAL INVESTORS SERVICE CENTER, INC.
P.O. BOX 1722
BOSTON, MA 02105-1722
<PAGE>
SHAREHOLDER COMMUNICATIONS
TO KEEP YOU INFORMED
To make recordkeeping easy and keep you up-to-date on the performance of your
investments, you can expect to receive the following information about your
Colonial account:
TRANSACTION CONFIRMATIONS: Each time you make a purchase, sale, or exchange, you
receive a confirmation statement within just a few days.
QUARTERLY STATEMENTS: Every three months, if any transactions are made that
affect your share balance, this statement reports on your account activity
during the quarter (including any reinvestment of dividends). This statement
also provides year-to-date information.
COLONIAL SHAREHOLDER NEWS: Mailed with your quarterly account statements, this
newsletter highlights timely investment strategies, portfolio manager
commentary, and shareholder service updates.
TAX FORMS AND YEAR-END TAX GUIDE: Easy-to-use forms and timely information are
designed to make tax reporting simpler. (Usually mailed in January.)
AVERAGE COST BASIS STATEMENTS: If you sold or exchanged shares during the year,
this statement may help you calculate your gain/loss for tax purposes. (Usually
mailed in February.)
<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 on
most funds; $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. Dividends and capital must be reinvested.
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.
Exchanges are not available on all funds. 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.
<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
1-800-426-3750 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 objective and
operating policies of the Fund.
<PAGE>
[LOGO] COLONIAL
MUTUAL FUNDS
Mutual Funds for
Planned Portfolios
TRUSTEES
ROBERT J. BIRNBAUM
Retired (formerly Special Counsel, Dechert, Price & Rhoads; President and Chief
Operating Officer, New York Stock Exchange, Inc.)
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
WILLIAM D. IRELAND, JR.
Retired (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, CS First Boston Merchant Bank; and President and Chief
Executive Officer, The First Boston Corporation)
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., Distributor (C) 1996
One Financial Center, Boston, Massachusetts 02111-2621, 617-426-3750
TF-02/940C-1096 M (12/96)
[recycle symbol] Printed on recycled paper
