[Front cover]
THE COLONIAL FUND Semiannual report
April 30, 1998
---------------------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
---------------------------------
<PAGE>
THE COLONIAL FUND HIGHLIGHTS
NOVEMBER 1, 1997 - APRIL 30, 1998
Investment Objective: The Colonial Fund seeks primarily income and capital
growth and, secondarily, capital preservation.
The Fund is Designed to Offer:
[checkmark] Long-term investment returns
[checkmark] Above-average value for your dollars
[checkmark] Reasonable protection in down markets and broad diversification
[checkmark] Quarterly dividend income
Portfolio Manager Commentary: "The Fund continued to perform well over the past
six months--achieving favorable returns during our transition to a more balanced
approach. Successful stock picking and strategic fixed-income management should
enable the Fund to provide conservative investors with competitive total return
potential with lower risk than pure stock funds."
-- Portfolio Management
The Colonial Fund Performance(1)
Class A(2) Class B Class C
Inception dates 4/30/82 5/5/92 8/1/97
- --------------------------------------------------------------------------------
Six-month distributions declared per share $1.570 $1.528 $1.540
- --------------------------------------------------------------------------------
Six-month total returns, assuming 13.33% 12.93% 12.94%
reinvestment of all distributions
and no sales charge or contingent
deferred sales charge (CDSC)
- --------------------------------------------------------------------------------
Net asset values per share on 4/30/98 $10.92 $10.90 $10.90
Top Five Equity Holdings Top Five Equity Sectors
(as of 4/30/98) (as of 4/30/98)
- --------------------------------------------------------------------------------
1. Bristol-Myers Squibb, Co. 2.4% 1. Financial 16.2%
2. Textron, Inc. 2.1% 2. Capital Goods 8.9%
3. Merrill Lynch & Co., Inc. 1.9% 3. Consumer Cyclicals 7.6%
4. Sears Roebuck &Co. 1.8% 4. Health Care 7.3%
5. Compaq Computer Corp. 1.8% 5. Technologies 6.7%
(1) For more information about Class Z share performance, please call Colonial
at 1-800-345-6611.
(2) Date fund adopted current investment objective.
Holdings and sector breakdowns are calculated as a percentage of total net
assets. Because the Fund is actively managed, there can be no guarantee the
Fund will continue to 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.
2
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[Photo of Harold W. Cogger]
I am pleased to present your Fund's semiannual report for the six-month period
ended April 30, 1998.
The economic environment we are enjoying couldn't be healthier for corporate
America. With low interest rates, low unemployment and low inflation, companies
in a variety of industries have continued to prosper. The U.S. stock market also
continued to reach new heights over the past six months, providing equity
investors with strong returns. I'm happy to report that The Colonial Fund
performed well during this period.
In an environment where broad stock market indexes have produced record gains,
risk management is a sensible strategy, particularly for conservative investors.
A balanced fund that seeks a combination of income and growth of capital, The
Colonial Fund is also managed with capital preservation as a secondary
objective. With approximately two thirds of its portfolio invested in equities,
the Fund is designed to give investors a measured degree of stock market
exposure. By investing a portion of its assets in bonds, the Fund seeks to
provide a cushion in the event that markets become more volatile or experience a
downturn. This is a benefit that is unique to balanced funds.
Another way that we seek to manage risk in all Colonial equity funds is through
the use of a consistent and disciplined investment philosophy we call New
Value(R). While maintaining diversification across a wide variety of industries,
we search for stocks of companies with a consistent track record of operating
performance, favorable future growth prospects and attractive current prices
relative to their industry. It's a strategy that has served our shareholders
well.
For long-term investors who are interested in pursuing growth potential in
a conservative manner, The Colonial Fund remains a viable choice for your
investment portfolio.
The following report will provide you with more detailed information about the
Fund, its performance and the types of investments it has made. Thank you for
choosing The Colonial Fund for your investment portfolio and for the opportunity
to serve your investment needs.
Respectfully,
/s/ Harold W. Cogger
Harold W. Cogger
President
June 9, 1998
As market and economic conditions change, there can be no assurance that the
trends described above and on the pages that follow will continue.
3
<PAGE>
PORTFOLIO MANAGEMENT REPORT
John Lennon and Gordon Johnson co-manage the equity portion of The Colonial Fund
and are vice presidents of Colonial Management Associates, Inc. Leslie Finnemore
and William Hill co-manage the fixed-income portion of the Fund and are vice
presidents of Colonial Management Associates, Inc. The following is a discussion
of the Fund's performance for the six-month period ended April 30, 1998.
Over the past six months, U.S. equity markets continued their climb. Large-cap
stocks, as measured by the S&P 500 Index, gained 22.50% through April 30, 1998,
while mid-cap stocks, based on the S&P 400 Index, gained 19.17%. During the same
period, Class A shares of The Colonial Fund had a 13.33% total return, based on
net asset value. This strong performance places the Fund in the top quartile of
its peer group.(1)
A well-positioned fund for 1998
As noted in our last report, we were in the process of increasing the Fund's
fixed-income holdings and trimming the Fund's allocation to stocks. Based on
this larger commitment to bonds, the Fund added two fixed-income managers who
bring a wealth of knowledge and expertise to the Fund's management team. This
move helped align the Fund within the "Balanced Fund" category while enabling it
to remain true to its long-term defensive strategy. After some minor adjustments
to our weightings in late 1997, we began 1998 with Fund allocations of 65%
stocks and 35% bonds and cash.
Broad equity markets still performing well
At the end of the period, the Fund's equity allocation remained at about 65%
with approximately two-thirds of total equities invested in large-cap stocks and
one-third in mid-cap stocks. Roughly one-fifth of the Fund's total equity
holdings were in foreign stocks.
In managing the equity portion of the portfolio, we continue to group our equity
holdings into three categories: stocks that offer value, defensive stocks, and
stocks that offer growth at a reasonable price.
In the value category, we invest in stocks of companies that, in comparison to
their peers, appear reasonably priced based on a variety of measures. One stock
that has performed well for the Fund is Ford Motor Company (0.5% of the
portfolio's total net assets). We bought shares of Ford back in April 1997; at
the end of April 1998, the price had increased 99%. We define defensive stocks
as those of companies that historically have shown a stable pattern of earnings
growth. One example is Kroger (0.5% of portfolio's total net assets), a well run
and strongly positioned grocery store chain. We first bought shares back in
April 1997. As of April 30, 1998, the stock price increased 52%. In the growth
category we look for companies with favorable valuation of anticipated business
and growth prospects. Another stock that's been a winner for us is United Health
Care (0.3% of portfolio's total net assets), the nation's third largest managed
care company. Purchased in mid-January this year, the stock rose 47% during the
period.
4
<PAGE>
We remain dedicated to maintaining broad diversification across a variety of
industries and sectors. Two areas that produced favorable results for us over
the last six months include health care and financial services. One stock that
contributed nicely to the Fund's total return over the last six months was
PaineWebber (1.0% of portfolio's total net assets), up a little more than 53%
during the period. Within the health care sector, Merck (1.7% of portfolio's
total net assets) and Pfizer (0.4% of portfolio's total net assets) were two
pharmaceutical stocks that performed well for us. Merck was up 36% and Pfizer
rose 61% during the period.
Getting the most out of today's bond market
In the fixed-income portion of the Fund, we have continued our focus on higher
quality bonds. We were able to pursue higher returns by moving money into a
combination of corporate bonds, asset-backed securities and non-agency
mortgage-backed securities. This diversified approach has enabled us to take
advantage of attractive returns within various sectors of the bond market. Going
forward, we expect to continue this strategy to provide competitive returns with
below average market risk.
Careful security selection is as important as ever
We feel it will be difficult for domestic equities to continue growing at the
pace they have over the last few years. Should current economic conditions
remain relatively stable--with low inflation, low unemployment and low
interest rates--well-managed companies have the ability to maintain reasonable
growth in earnings. It is also our belief that regardless of where broad markets
may head, opportunity will always exist within a variety of industries. Current
market conditions help underscore the importance of careful security selection
through a very disciplined and proven investment approach.
(1) Source: Lipper Analytical Services, Inc. Lipper rankings are based on the
Lipper Balanced Funds category. The Fund's Class A shares ranking for the
six-month period is in the first quartile (ranked 81 out of 393 funds), for
the one-year period is in the first quartile (ranked 20 out of 365 funds),
in the first quartile for the five-year period (ranked 8 out of 123 funds)
and in the first quartile for the ten-year period (ranked 9 out of 52
funds). Rankings do not include any sales charges. Performance for
different share classes will vary with fees associated with each class.
Past performance cannot guarantee future results.
5
<PAGE>
The Colonial Fund Investment Performance vs.
Standard & Poor's Mid-Cap 400 Index
Change in Value of $10,000 from 4/30/88 -- 4/30/98
Based on NAV and POP for Class A Shares
- ------------------------------- [MOUNTAIN CHART] -------------------------------
S&P 400 NAV POP
------- --- ---
Apr 30, 88 10000 10000 10000
Jul 31, 88 10215 10338 9743
Oct 31, 88 10430 10743 10126
Jan 31, 89 11365 11252 10605
Apr 30, 89 12286 11813 11134
Jul 31, 89 13584 12769 12035
Oct 31, 89 13623 12587 11863
Jan 31, 90 13202 12217 11515
Apr 30, 90 13429 12311 11603
Jul 31, 90 14462 12973 12227
Oct 31, 90 11798 11179 10536
Jan 31, 91 14765 12537 11816
Apr 30, 91 16820 13639 12855
Jul 31, 91 17706 14304 13481
Oct 31, 91 19284 14671 13828
Jan 31, 92 20902 15402 14517
Apr 30, 92 20191 15995 15076
Jul 31, 92 20783 16353 15412
Oct 31, 92 21062 16087 15162
Jan 31, 93 23273 17513 16506
Apr 30, 93 23118 17973 16939
Jul 31, 93 24246 18504 17440
Oct 31, 93 25597 19337 18226
Jan 31, 94 26802 20233 19070
Apr 30, 94 25385 19261 18153
Jul 31, 94 25101 19302 18192
Oct 31, 94 26206 19481 18361
Jan 31, 95 25517 19343 18231
Apr 30, 95 27870 21201 19982
Jul 31, 95 31248 23173 21841
Oct 31, 95 31765 23713 22350
Jan 31, 96 33550 25376 23917
Apr 30, 96 36178 26159 24655
Jul 31, 96 33672 25190 23742
Oct 31, 96 37276 27533 25950
Jan 31, 97 40898 29562 27862
Apr 30, 97 39841 29655 27950
Jul 31, 97 48952 35329 33298
Oct 31, 97 49453 34921 32913
Jan 31, 98 51141 36241 34157
Apr 30, 98 58932 39576 37301
- --------------------------------------------------------------------------------
Current Value of a $10,000 investment
Made on 4/30/88
- --------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
NAV POP NAV w/CDSC NAV w/CDSC
- --------------------------------------------------------------------------------
$39,576 $37,301 $37,843 $37,843 $39,382 $39,382
- --------------------------------------------------------------------------------
Average Annual Total Returns
As of 4/30/98
- --------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
Inception 4/30/82(1) 5/5/92 8/1/97
NAV POP NAV w/CDSC NAV w/CDSC
- --------------------------------------------------------------------------------
1 year 33.46% 25.78% 32.55% 27.55% 32.80% 31.80%
- --------------------------------------------------------------------------------
5 years 17.10 15.72 16.23 16.01 16.99 16.99
- --------------------------------------------------------------------------------
10 years 14.75 14.07 14.23 14.23 14.69 14.69
- --------------------------------------------------------------------------------
(1) Date fund adopted current investment objective.
Returns and value of an investment will vary, resulting in a gain or loss on
sale. All results shown assume reinvestment of distributions. Net asset
value (NAV) returns do not include sales charges or contingent deferred
sales charges (CDSC). Public offering price (POP) returns include the
maximum sales charge of 5.75% for Class A shares. The CDSC returns reflect
the maximum charges of 5% for one year, 2% for five years for Class B shares
and 1% for one year for Class C shares. Performance for different share
classes will vary based on differences in sales charges and fees associated
with each class.
Class B and Class C share (newer class shares) performance information
includes returns of the Fund's Class A shares (the oldest existing fund
class) for periods prior to the inception dates of the newer class shares.
These Class A share returns are not restated to reflect any expense
differential (e.g., Rule 12b-1 fees) between Class A shares and the newer
class shares. Had the expense differential been reflected, the returns for
periods prior to the inception date of the newer class shares would have
been lower.
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.
6
<PAGE>
INVESTMENT PORTFOLIO
APRIL 30, 1998 (UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCKS - 65.8% COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION - 1.2%
Building Construction - 0.9%
Centex Corp. 172 $ 5,984
Volker Wessels Stevin NV Ne 297 9,879
-----------
15,863
-----------
Heavy Construction - Non Building Construction - 0.3%
Grupo Acciona SA Sp 20 4,497
-----------
- ---------------------------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 16.5%
Depository Institutions - 4.0%
AmSouth Bancorporation 10 624
Banco de Santander SA Sp 54 2,850
Bank of Montreal Ca 398 21,696
Canadian Imperial Bank of Commerce Ca 547 19,286
First Empire State Corp. 4 2,040
Greenpoint Financial Corp. 115 4,556
National Australia Bank Ltd. Au 1,000 14,163
Toronto Dominion Bank Ca 50 2,281
-----------
67,496
-----------
Holding & Other Investment Companies - 1.3%
Fortis Amev NV Ne 247 14,410
Sofina SA Be 8 7,631
-----------
22,041
-----------
Insurance Carriers - 5.8%
Allstate Corp. 261 25,106
Cigna Corp. 115 23,756
Old Republic International Corp. 195 8,831
Orion Capital Corp. 29 1,603
St. Paul Cos., Inc. 95 8,051
Sunamerica, Inc. 176 8,794
Travelers Group, Inc. 269 16,438
United Healthcare Corp. 75 5,269
-----------
97,848
-----------
Nondepository Credit Institutions - 0.4%
Associates First Capital Corp. 48 3,624
The Money Store, Inc. 114 3,758
-----------
7,382
-----------
Real Estate - 0.1%
New World Development Co., Ltd. HK 500 1,423
-----------
7
<PAGE>
Investment Portfolio/April 30, 1998
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - CONT.
Security Brokers & Dealers - 4.9%
A.G. Edwards, Inc. 648 $ 29,163
Bear Stearns Cos., Inc. 89 5,105
Merrill Lynch & Co., Inc. 366 32,152
Paine Webber Group, Inc. 366 16,415
-----------
82,835
-----------
- ---------------------------------------------------------------------------------------------------
MANUFACTURING - 30.1%
Chemicals & Allied Products - 6.8%
Air Products & Chemicals, Inc. 50 4,347
Akzo Nobel NV ADR Ne 63 6,529
Bristol-Myers Squibb Co. 379 40,127
Dexter Corp. 5 207
Great Lakes Chemical Corp. 100 5,025
International Specialty Products, Inc. (a) 210 4,187
Johnson & Johnson 71 5,068
Merck & Co., Inc. 240 28,920
Nalco Chemical Co. 60 2,385
Norsk Hydro AS No 30 1,480
Olin Corp. 174 8,145
Pfizer, Inc. 64 7,329
-----------
113,749
-----------
Electric Components - 0.3%
Sci Systems, Inc. (a) 116 4,778
-----------
Fabricated Metal - 0.4%
Danaher Corp. 17 1,186
Harsco Corp. 107 4,931
-----------
6,117
-----------
Food & Kindred Products - 0.5%
Archer Daniels Midland Co. 395 8,498
-----------
Furniture & Fixtures - 0.8%
Herman Miller, Inc. 130 3,924
Masco Corp. 170 9,860
-----------
13,784
-----------
Machinery & Computer Equipment - 6.0%
Bucher Holding Sz 6 7,231
Caterpillar, Inc. 210 11,957
Compaq Computer Corp. 1,073 30,111
Cummins Engine Co., Inc. 96 5,198
Lexmark International Group, Inc. (a) 142 8,218
Pitney Bowes, Inc. 120 5,760
8
<PAGE>
Investment Portfolio/April 30, 1998
- ---------------------------------------------------------------------------------------------------
Sun Microsystems, Inc. (a) 532 $ 21,912
Timken Co. 179 7,149
Western Digital Corp. (a) 164 3,239
-----------
100,775
-----------
Measuring & Analyzing Instruments - 0.6%
Biomet, Inc. 55 1,650
Tektronix, Inc. 179 7,708
-----------
9,358
-----------
Miscellaneous Manufacturing - 0.6%
Callaway Golf Co. 395 10,764
-----------
Petroleum Refining - 3.8%
Amerada Hess Corp. 212 12,179
British Petroleum Co., PLC UK 26 2,462
Exxon Corp. 174 12,691
Mobil Corp. 107 8,485
Murphy Oil Corp. 30 1,543
Phillips Petroleum Co. 235 11,652
USX-Marathon Group 410 14,687
-----------
63,699
-----------
Primary Metal - 0.1%
Bethlehem Steel Corp. (a) 150 2,334
-----------
Primary Smelting - 0.8%
Phelps Dodge Corp. 191 12,801
-----------
Printing & Publishing - 0.6%
Harte-Hanks Communications 173 3,929
Meredith Corp. 160 6,880
-----------
10,809
-----------
Rubber & Plastic - 1.7%
Cooper Tire & Rubber Co. 200 4,775
Goodyear Tire & Rubber Co. 100 6,986
Illinois Tool Works, Inc. 75 5,287
Premark International, Inc. 215 7,176
Wynn's International, Inc. 220 4,950
-----------
29,174
-----------
Tobacco Products - 0.7%
Gallaher Group PLC ADR UK 553 11,375
-----------
9
<PAGE>
Investment Portfolio/April 30, 1998
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS - 65.8% COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------
MANUFACTURING - CONT.
Transportation Equipment - 6.4%
Arvin Industries, Inc. 44 $ 1,813
Eaton Corp. 154 14,226
Ford Motor Co. 185 8,475
General Dynamics Corp. 428 18,100
General Motors Corp. 115 7,748
Harley-Davidson, Inc. 160 5,760
Paccar, Inc. 39 2,330
Peugeot SA Fr 20 3,469
Textron, Inc. 460 35,995
Thiokol Corp. 142 7,650
Toyota Motor Corp. ADR Ja 27 1,418
-----------
106,984
-----------
- ---------------------------------------------------------------------------------------------------
MINING & ENERGY- 0.5%
Metal Mining - 0.1%
Cleveland-Cliffs, Inc. 27 1,501
-----------
Oil & Gas Extraction - 0.4%
Helmerich & Payne 213 6,490
-----------
- ---------------------------------------------------------------------------------------------------
RETAIL TRADE - 4.8%
Apparel & Accessory Stores - 1.0%
Albertson's, Inc. 135 6,750
Kroger Corp. (a) 218 9,129
-----------
15,879
-----------
General Merchandise Stores - 2.6%
Family Dollar Stores, Inc. 225 7,650
Kmart Corp. 335 5,842
Sears, Roebuck & Co. 511 30,285
-----------
43,777
-----------
Home Furnishings & Equipment - 0.2%
CompUSA, Inc. (a) 166 3,089
-----------
Miscellaneous Retail - 1.0%
Office Depot, Inc. (a) 500 16,563
-----------
- ---------------------------------------------------------------------------------------------------
SERVICES - 4.0%
Business Services - 0.7%
Omnicom Group, Inc. 251 11,882
-----------
Computer Software - 1.5%
BMC Software, Inc. (a) 274 25,590
-----------
10
<PAGE>
Investment Portfolio/April 30, 1998
- ---------------------------------------------------------------------------------------------------
Engineering, Accounting, Research & Management - 0.6%
Corrections Corp. of America (a) 156 $ 4,321
International-Muller NV Ne 146 5,041
-----------
9,362
-----------
Health Services - 1.2%
Healthsouth Rehabilitation Corp. (a) 220 6,641
Lincare Holdings, Inc. (a) 113 9,159
Universal Health Services, Inc., Class B (a) 83 4,778
-----------
20,578
-----------
- ---------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 7.3%
Air Transportation - 1.4%
AMR Corp. (a) 75 11,428
British Airways PLC ADR UK 1 115
Delta Air Lines, Inc. 105 12,206
-----------
23,749
-----------
Electric Services - 2.3%
DQE, Inc. 79 2,702
Energy East Corporation 180 7,515
Enova Corp. 224 5,984
Hawaiian Electric Industries, Inc. 42 1,705
Nipsco Industries, Inc. 178 4,773
New England Electric System 126 5,456
Public Service Enterprise Group, Inc. 240 8,061
Union Electrica Fenosa SA Sp 177 2,286
-----------
38,482
-----------
Gas Services - 1.1%
Gas Y Electricidad SA Sp 224 18,360
-----------
Sanitary Services - 1.6%
Severn Trent Water PLC UK 382 6,116
United Utilities PLC UK 1,096 15,232
Yorkshire Water PLC UK 742 5,971
-----------
27,319
-----------
Telecommunication - 0.8%
Bell Atlantic Corp. 80 7,485
US West Communications Group 101 5,327
-----------
12,812
-----------
Water Transportation - 0.1%
Tidewater, Inc. 48 1,910
-----------
11
<PAGE>
Investment Portfolio/April 30, 1998
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS - 65.8% COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------
WHOLESALE TRADE - 1.4%
Durable Goods - 0.9%
Beers NV Ne 213 $ 12,933
Pioneer Standard Electronics, Inc. 199 2,498
-----------
15,431
-----------
Nondurable Goods - 0.5%
Bergen Brunswig Corp., Class A 177 8,008
-----------
TOTAL COMMON STOCKS (cost of $631,397) 1,105,166
-----------
</TABLE>
<TABLE>
<CAPTION>
MATURITIES
BONDS & NOTES - 30.2% COUPON FROM/TO PAR
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US GOVERNMENT & AGENCY OBLIGATIONS - 25.3%
Government Agencies - 18.8%
Federal Home Loan Mortage Corp.,
6.000% 2009-2012 (b) $ 38,214 37,800
-----------
Federal National Mortgage Association:
6.000% 2008-2009 56,491 55,712
6.500% 2008-2023 114,362 114,145
7.000% 2009 (b) 40,066 40,805
-----------
210,662
-----------
Government National Mortgage Association:
6.500% 2024 14,399 14,334
7.000% 2023-2024 52,411 53,161
-----------
67,495
-----------
Government Obligations - 6.5%
U.S. Treasury Bond:
7.875% 2021 20,736 25,382
9.875% 2015 (c) 38,500 54,592
-----------
79,974
-----------
U.S. Treasury Note,
6.125% 2001 28,646 29,071
-----------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (cost of $419,931) 425,002
-----------
- ---------------------------------------------------------------------------------------------------
NON-AGENCY MORTGAGE BACKED & ASSET
BACKED SECURITIES - 1.8%
Non-Agency Mortgage Backed - 0.9%
Headlands Mortgage Securities Inc.,
Series 1997-6 B2,
7.000% 02/25/28 3,366 3,435
PNC Mortgage Securities Corp.,
Series 1998-2 CB2,
7.000% 03/25/28 3,495 3,434
12
<PAGE>
Investment Portfolio/April 30, 1998
- ---------------------------------------------------------------------------------------------------
Residential Accredit Loans, Inc.:
Series 1997-QS11:
Class M1,
7.000% 10/25/12 $ 2,996 $ 3,047
Class M2,
7.000% 10/25/12 878 888
Class M3,
7.000% 10/25/12 413 414
Series 1997-QS13, Class M2,
7.250% 12/25/27 4,414 4,432
-----------
15,650
-----------
Asset Backed Securities - 0.9%
Delta Funding Home Equity Loan Trust,
Series 1997-4, Class M1F,
6.970% 01/25/28 5,000 4,998
GT 1995-6 B1
7.700% 09/15/26 4,155 4,198
UCFC Home Equity Loan Corp.
Series 1994-B2, Class A7,
8.025% 08/10/25 5,152 5,341
-----------
14,537
-----------
TOTAL NON-AGENCY MORTGAGE BACKED & ASSET
BACKED SECURITIES (cost of $30,252) 30,187
-----------
CORPORATE FIXED INCOME BONDS & NOTES - 3.1%
- ---------------------------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.9%
Depository Institutions - 0.3%
NationsBank Corp.,
6.875% 02/15/05 2,000 2,056
Signet Bank,
7.800% 09/15/06 2,000 2,182
-----------
4,238
-----------
Insurance Agents & Brokers - 0.1%
GE Global Insurance Holdings Corp.,
7.000% 02/15/26 1,000 1,040
-----------
Insurance Carriers - 0.1%
Metropolitan Life Insurance Co.,
6.300% 11/01/03 2,000 1,989
-----------
Nondepository Credit Insurance - 0.2%
Associates Corp. of North America,
6.875% 11/15/08 1,000 1,030
General Motors Acceptance Corp.,
6.125% 01/22/08 2,000 1,957
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/April 30, 1998
- ---------------------------------------------------------------------------------------------------
BONDS & NOTES - CONT. PAR VALUE
- ---------------------------------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS & NOTES - CONT.
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCE, INSURANCE & REAL ESTATE - CONT.
Nondepository Credit Insurance - Cont.
Household Finance Corp.,
7.625% 01/15/03 $ 1,000 $ 1,053
-----------
4,040
-----------
Security Brokers & Dealers - 0.2%
Bear Stearns Co., Inc.,
6.500% 08/01/02 1,000 1,011
Merrill Lynch & Co., Inc.,
6.000% 02/12/03 1,000 995
Morgan Stanley, Dean Witter, Discover and Co.,
8.100% 06/24/02 1,000 1,068
Salomon, Inc.,
7.300% 05/15/02 1,000 1,038
-----------
4,112
-----------
- ---------------------------------------------------------------------------------------------------
MANUFACTURING - 0.5%
Chemical & Allied Products - 0.1%
Dow Chemical,
7.375% 03/01/23 1,000 1,056
-----------
Food & Kindred Products - 0.1%
Coca-Cola Enterprises,
6.950% 11/15/26 1,000 1,019
-----------
Miscellaneous Manufacturing - 0.1%
Raytheon Co.,
6.750% 08/15/07 2,000 2,044
-----------
Petroleum Refining - 0.1%
Enterprise Oil PLC,
6.700% 09/15/07 1,000 1,008
-----------
Transportation Equipment - 0.1%
Ford Motor Co.,
7.125% 11/15/25 2,000 2,070
-----------
- ---------------------------------------------------------------------------------------------------
RETAIL TRADE - 0.2%
General Merchandise Stores - 0.1%
Dillard Department Stores Inc.,
6.625% 01/15/18 1,000 984
-----------
Miscellaneous Retail - 0.1%
Dayton Hudson Corp.,
7.250% 09/01/04 2,000 2,097
-----------
14
<PAGE>
Investment Portfolio/April 30, 1998
- ---------------------------------------------------------------------------------------------------
SERVICES - 0.3%
Business Services
Federal Express,
7.500% 01/15/18 $ 4,463 $ 4,847
-----------
- ---------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC GAS & SANITARY SERVICES - 1.2%
Air Transportation - 0.1%
Lockheed Martin Corp.,
7.250% 05/15/06 2,000 2,101
-----------
Broadcasting - 0.1%
News America Holdings,
7.375% 10/17/08 2,000 2,088
-----------
Cable - 0.1%
Comcast Cable Communications, Inc.,
8.375% 05/01/07 1,000 1,111
TCI Communications Inc.,
8.650% 09/15/04 1,000 1,110
-----------
2,221
-----------
Electrical Services - 0.2%
Arizona Pub Service Co.,
6.250% 01/15/05 1,000 980
Houston Lighting & Power Co.,
6.500% 04/21/03 2,000 2,018
-----------
2,998
-----------
Gas Services - 0.2%
Panhandle Eastern Corp.,
7.250% 05/15/05 2,000 2,098
Sonat, Inc.,
6.875% 06/01/05 1,000 1,020
-----------
3,118
-----------
Pipelines - 0.1%
SFP Pipeline Holdings,
11.160% 8/15/10 (d) 600 1,056
-----------
Railroad - 0.2%
Norfolk Southern Corp.,
7.800% 05/15/27 1,000 1,127
15
<PAGE>
Investment Portfolio/April 30, 1998
- ---------------------------------------------------------------------------------------------------
BONDS & NOTES - CONT. PAR VALUE
- ---------------------------------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS & NOTES - CONT.
- ---------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC
GAS & SANITARY SERVICES - CONT.
Railroad - Cont.
Union Pacific Corp.,
9.625% 12/15/02 $ 2,000 $ 2,259
-----------
3,386
-----------
Telecommunications - 0.2%
GTE Corp.,
6.840% 04/15/18 2,000 1,989
Pacific Bell,
6.875% 08/15/06 2,000 2,078
-----------
4,067
-----------
TOTAL CORPORATE FIXED INCOME
BONDS & NOTES (cost of $51,553) 51,579
-----------
TOTAL BONDS & NOTES (cost $501,736) 506,768
-----------
TOTAL INVESTMENTS - 96.0% (cost of $1,133,133)(e) 1,611,934
-----------
SHORT-TERM OBLIGATIONS - 5.1%
- ---------------------------------------------------------------------------------------------------
Repurchase agreement with ABN AMRO Chicago Corp., dated 4/30/98, due
05/01/98 at 5.520%, collateralized by U.S. Treasury notes with various
maturities to 2005, market value
$88,679, (repurchase proceeds $86,479) 86,466 86,466
-----------
OTHER ASSETS & LIABILITIES, NET - (1.1)% (18,165)
- ---------------------------------------------------------------------------------------------------
NET ASSETS - 100% $ 1,680,235
-----------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Non-income producing.
(b) These securities, or a portion thereof, have been purchased on a delayed
delivery basis whereby the terms that are fixed are the purchase price,
interest rate and settlement date. The exact quantity purchased may be
slightly more or less than the amount shown.
(c) These securities, or a portion thereof, with a total market value of $35,449
are being used to collateralize the delayed delivery purchase indicated in
note (b) above.
(d) Interest rates change quarterly. The rate listed is as of April 30, 1998.
(e) Cost for federal income tax purposes is $1,135,258.
16
<PAGE>
Investment Portfolio/April 30, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Summary of Securities
by Country Country Value % of Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States 1,413,620 87.7
Netherlands Ne 48,792 3.0
Canada Ca 43,263 2.7
United Kingdom UK 41,451 2.6
Spain Sp 27,993 1.7
Australia Au 14,163 0.9
Belgium Be 7,631 0.5
Switzerland Sz 7,231 0.4
France Fr 3,469 0.2
Norway No 1,480 0.1
Hong Kong HK 1,423 0.1
Japan Ja 1,418 0.1
----------- -------
$1,611,934 100.0%
----------- -------
</TABLE>
Certain securities are listed by country of underlying exposure but may
trade predominantly on other exchanges.
Acronym Name
--------------- ---------------
ADR American Depositary Receipt
See notes to financial statements.
17
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
APRIL 30, 1998 (UNAUDITED)
(in thousands except for per share amounts and footnotes)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $1,133,133) $ 1,611,934
Short-term obligations 86,466
-------------
1,698,400
Cash held in foreign banks (cost $269) $ 270
Receivable for:
Investments sold 7,076
Interest 5,505
Fund shares sold 2,339
Dividends 1,641
Foreign tax reclaims 133
Other 236 17,200
--------- -------------
Total Assets 1,715,600
LIABILITIES
Payable for:
Investments purchased 33,625
Fund shares repurchased 1,684
Accrued:
Deferred Trustees fees 12
Other 44
---------
Total Liabilities 35,365
-------------
NET ASSETS $ 1,680,235
-------------
Net asset value & redemption price per share -
Class A ($1,005,092/92,016) $10.92
-------------
Maximum offering price per share - Class A
($10.92/0.9425) $11.59(a)
-------------
Net asset value & offering price per share -
Class B ($651,802/59,802) $10.90(b)
-------------
Net asset value & offering price per share -
Class C ($3,779/347) $10.90(b)
-------------
Net asset value, offering and redemption price
per share - Class Z ($19,562/1,789) $10.93
-------------
COMPOSITION OF NET ASSETS
Capital paid in $ 1,146,175
Undistributed net investment income 3,122
Accumulated net realized gain 52,160
Net unrealized appreciation (depreciation) on:
Investments 478,801
Foreign currency transactions (23)
-------------
$ 1,680,235
-------------
</TABLE>
(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.
18
<PAGE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1998
(UNAUDITED)
(in thousands)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 8,624
Interest 17,440
---------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $308) 26,064
EXPENSES
Management fee $ 4,211
Service fee - Class A, B, C 1,895
Distribution fee - Class B 2,285
Distribution fee - Class C 6
Transfer agent 2,246
Bookkeeping fee 253
Custodian fee 61
Registration fee 37
Trustees fee 40
Audit fee 18
Reports to shareholders 15
Legal fee 5
Other 75 11,147
-------- ---------
Net Investment Income 14,917
---------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain on:
Investments 52,317
Foreign currency transactions 35
--------
Net Realized Gain 52,352
Net unrealized appreciation (depreciation) during
the period on:
Investments 129,658
Foreign currency transactions (4)
--------
Net Unrealized Appreciation 129,654
---------
Net Gain 182,006
---------
Increase in Net Assets from Operations $ 196,923
---------
</TABLE>
See notes to financial statements.
19
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(Unaudited)
Six months
ended Year ended
(in thousands) April 30 October 31
------------ ------------
INCREASE (DECREASE) IN NET ASSETS 1998 1997 (a)
<S> <C> <C>
Operations:
Net investment income $ 14,917 $ 17,677
Net realized gain 52,352 195,193
Net unrealized appreciation 129,654 107,060
------------ ------------
Net Increase from Operations 196,923 319,930
Distributions:
From net investment income - Class A (10,488) (12,073)
From net realized gains - Class A (118,280) (45,097)
From net investment income - Class B (4,381) (3,556)
From net realized gains - Class B (75,040) (27,199)
From net investment income - Class C (14) (1)
From net realized gains - Class C (96) -
From net investment income - Class Z (219) (250)
From net realized gains - Class Z (2,159) (810)
------------ ------------
(13,754) 230,944
------------ ------------
Fund Share Transactions:
Receipts for shares sold - Class A 50,859 164,595
Value of distributions reinvested - Class A 117,359 51,722
Cost of shares repurchased - Class A (68,428) (203,099)
------------ ------------
99,790 13,218
------------ ------------
Receipts for shares sold - Class B 50,118 90,821
Value of distributions reinvested - Class B 75,235 29,053
Cost of shares repurchased - Class B (45,977) (83,019)
------------ ------------
79,376 36,855
------------ ------------
Receipts for shares sold - Class C 3,327 701
Value of distributions reinvested - Class C 108 1
Cost of shares repurchased - Class C (402) (15)
------------ ------------
3,033 687
------------ ------------
Receipts for shares sold - Class Z 1,395 326
Value of distributions reinvested - Class Z 2,378 1,060
Cost of shares repurchased - Class Z (312) (1,193)
------------ ------------
3,461 193
------------ ------------
Net Increase from Fund Share
Transactions 185,660 50,953
------------ ------------
Total Increase 171,906 281,897
NET ASSETS
Beginning of period 1,508,329 1,226,432
------------ ------------
End of period (including undistributed net
investment income of $3,122 and $3,371,
respectively) $ 1,680,235 1,508,329
------------ ------------
</TABLE>
(a) Class C shares were initially offered on August 1, 1997.
See notes to financial statements.
20
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS - CONT.
<TABLE>
<CAPTION>
(Unaudited)
Six months
ended Year ended
(in thousands) April 30 October 31
------------ ------------
NUMBER OF FUND SHARES 1998 1997 (a)
<S> <C> <C>
Sold - Class A 4,762 16,206
Issued for distributions reinvested - Class A 11,755 5,631
Repurchased - Class A (6,411) (19,943)
--------- ---------
10,106 1,894
--------- ---------
Sold - Class B 4,708 8,949
Issued for distributions reinvested - Class B 7,557 3,199
Repurchased - Class B (4,319) (8,150)
--------- ---------
7,946 3,998
--------- ---------
Sold - Class C 313 62
Issued for distributions reinvested - Class C 11 (b)
Repurchased - Class C (38) (1)
--------- ---------
286 61
--------- ---------
Sold - Class Z 134 34
Issued for distributions reinvested - Class Z 238 115
Repurchased - Class Z (30) (129)
--------- ---------
342 20
--------- ---------
</TABLE>
(a) Class C shares were initially offered on August 1, 1997.
(b) Rounds to less than one.
See notes to financial statements.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
APRIL 20, 1998 (UNAUDITED)
NOTE 1. INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In the opinion of management of The Colonial Fund (the Fund), a series of
Colonial Trust III, the accompanying financial statements contain all normal and
recurring adjustments necessary for the fair presentation of the financial
position of the Fund at April 30, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for the six months then
ended.
NOTE 2. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Organization: The Fund 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 four classes
of shares: Class A, Class B, Class C and Class Z. Class A shares are sold with a
front-end sales charge and Class B shares are subject to an annual distribution
fee and a contingent deferred sales charge. Class B shares will convert to Class
A shares when they have been outstanding approximately eight years. Class C
shares are subject to a contingent deferred sales charge on redemptions made
within one year after purchase and an annual distribution fee. 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 generally are valued at
the last sale price or, in the case of unlisted or listed securities for which
there were no sales during the day, at current quoted bid prices.
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
22
<PAGE>
Notes to Financial Statements/April 30, 1998
- --------------------------------------------------------------------------------
amortized cost.
The value of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates.
Portfolio positions for which market quotations are not readily available are
valued at fair value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
Determination of class net asset values and financial highlights: All income,
expenses (other than the Class A, Class B and Class C service fees and Class B
and Class C distribution fees), and realized and unrealized gains (losses), are
allocated to each class proportionately on a daily basis for purposes of
determining the net asset value of each class.
The per share data was calculated using average shares outstanding during the
period. In addition, Class A, Class B and Class C net investment income per
share data reflects the service fee per share applicable to Class A, Class B and
Class C shares and the distribution fee applicable to Class B and Class C shares
only.
Class A, Class B and Class C 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 Class A, Class B and Class C shares and the distribution fee
applicable to Class B and Class C shares only.
Federal income taxes: Consistent with the Fund's policy to qualify as a
regulated investment company and to distribute all of its taxable income, no
federal income tax has been accrued.
Interest Income, debt discount and premium: Interest income is recorded on the
accrual basis. Original issue discount is accreted to interest income over the
life of a security with a corresponding increase in the cost basis; premium and
market discount are not amortized or accreted.
Distributions to shareholders: 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.
23
<PAGE>
Notes to Financial Statements/April 30, 1998
- --------------------------------------------------------------------------------
NOTE 2. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
Foreign currency transactions: Net realized and unrealized gains (losses) on
foreign currency transactions includes the fluctuation in exchange rates on
gains (losses) between trade and settlement dates on securities transactions,
gains (losses) arising from the disposition of foreign currency and currency
gains (losses) between the accrual and payment dates on dividends and interest
income and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) on investments.
Forward currency contracts: The Fund may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities. The 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 Fund's portfolio
securities. While the maximum potential loss from such contracts is the
aggregate face value in U.S. dollars at the time the contract was opened,
exposure is typically limited to the change in value of the contract (in U.S.
dollars) over the period it remains open. Risks may also arise if counterparties
fail to perform their obligations under the contracts.
Other: Corporate actions are recorded on the ex-date (except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware of
such), net of nonrebatable tax withholdings. Where a high level of uncertainty
as to collection exists, income on securities is recorded net of all tax
withholdings with any rebates recorded when received.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-market
daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
24
<PAGE>
Notes to Financial Statements/April 30, 1998
- --------------------------------------------------------------------------------
NOTE 3. 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 based on the Fund's average
net assets as follows:
Average Net Assets Annual Fee Rate
----------------------- -------------------------
First $1 billion 0.55%
Over $1 billion 0.50%
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:
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 Fund's average net assets
and receives reimbursement for certain out-of-pocket expenses.
Effective October 1, 1997 and continuing through September 30, 1998, the
Transfer Agent fee will be reduced by 0.0012% in cumulative monthly increments,
resulting in a decrease in the fee from 0.25% to 0.236% annually.
Underwriting discounts, service and distribution fees: Liberty Financial
Investments, Inc., (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. For the six months ended April 30, 1998, the Fund has
been advised that the Distributor retained net underwriting discounts of
$100,781 on sales of the Fund's Class A shares and received contingent deferred
sales charges (CDSC) of $377,966 and $1,766 on Class B and Class C share
redemptions, respectively.
The Fund has adopted a 12b-1 plan which requires the payment of a distribution
fee to the Distributor equal to 0.75% annually of the average net assets
attributable to Class B and Class C shares only. The plan also requires the
payment of a service fee to the Distributor on Class A, Class B and Class C
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%
25
<PAGE>
Notes to Financial Statements/April 30, 1998
- --------------------------------------------------------------------------------
NOTE 3. 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
Fund's assets.
NOTE 4. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
Investment activity: During the six months ended April 30, 1998, purchases and
sales of investments, other than short-term obligations, were $622,155,967 and
$615,300,992, of which $262,258,372 and $139,959,344, respectively, were U.S.
government securities.
Unrealized appreciation (depreciation) at April 30, 1998, based on cost of
investments for federal income tax purposes was:
Gross unrealized appreciation $481,456,907
Gross unrealized depreciation (4,781,123)
-------------
Net unrealized appreciation $476,675,784
-------------
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 5. 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 six months ended April 30, 1998.
26
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each
period are as follows:
<TABLE>
<CAPTION>
(Unaudited)
Six months ended April 30
----------------------------------------------------------------------
1998
Class A Class B Class C Class Z
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 11.160 $ 11.140 $ 11.150 $ 11.170
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (a) 0.115 0.075 0.075 0.128
Net realized and
unrealized gain (a) 1.215 1.213 1.215 1.215
---------- ---------- ---------- ----------
Total from Investment
Operations 1.330 1.288 1.290 1.343
---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.120) (0.078) (0.090) (0.133)
From net
realized gains (1.450) (1.450) (1.450) (1.450)
---------- ---------- ---------- ----------
Total Distributions
Declared to
Shareholders (1.570) (1.528) (1.540) (1.583)
---------- ---------- ---------- ----------
Net asset value -
End of period $ 10.920 $ 10.900 $ 10.900 $ 10.930
---------- ---------- ---------- ----------
Total return (b) 13.33%(c) 12.93%(c) 12.94%(c) 13.46%(c)
---------- ---------- ---------- ----------
RATIOS TO AVERAGE NET ASSETS
Expenses (d) 1.12%(e) 1.87%(e) 1.87%(e) 0.88%(e)
Net investment
income (d) 2.17%(e) 1.42%(e) 1.42%(e) 2.41%(e)
Portfolio turnover 40%(c) 40%(c) 40%(c) 40%(c)
Average commission rate $ 0.0343 $ 0.0343 $ 0.0343 $ 0.0343
Net assets at end
of period (000) $1,005,092 $651,802 $3,779 $19,562
</TABLE>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(c) Not annualized.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(e) Annualized.
27
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended October 31
----------------------------------------------------------------
1997
Class A Class B Class C (b) Class Z
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 9.490 $ 9.480 $ 11.320 $ 9.500
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (a) 0.160 0.081 0.199 0.184
Net realized and
unrealized gain (loss)(a) 2.225 2.217 (0.345) (d) 2.225
---------- ---------- ---------- ----------
Total from Investment
Operations 2.385 2.298 (0.146) 2.409
---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.147) (0.070) (0.024) (0.171)
From net
realized gains (0.568) (0.568) - (0.568)
---------- ---------- ---------- ----------
Total Distributions
Declared to
Shareholders (0.715) (0.638) (0.024) (0.739)
---------- ---------- ---------- ----------
Net asset value -
End of period $ 11.16 $ 11.14 $ 11.15 $ 11.17
---------- ---------- ---------- ----------
Total return (e) 26.83% 25.81% (1.30)% (f) 27.10%
---------- ---------- ---------- ----------
RATIOS TO AVERAGE NET ASSETS
Expenses (g) 1.14% 1.89% 1.86% (h) 0.90%
Net investment
income (g) 1.56% 0.81% 1.01% (h) 1.80%
Portfolio turnover 71% 71% 71% 71%
Average commission rate (i) $ 0.0331 $ 0.0331 $ 0.0331 $ 0.0331
Net assets at end
of period (000) $913,956 $577,539 $676 $16,158
</TABLE>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(c) Class Z shares were initially offered on July 31, 1995. Per share amounts
reflect activity from that date.
(d) The amount shown for a share outstanding does not correspond with the
aggregate net gain on investments for the period due to the timing of sales
and repurchase of Fund shares in relation to fluctuating market values of
the investments of the Fund.
(e) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(f) Not annualized.
28
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Selected data for a share of each class outstanding throughout each period
<TABLE>
<CAPTION>
Year ended October 31
----------------------------------------------------------------------------------------
1996 1995
Class A Class B Class Z Class A Class B Class Z (c)
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
$ 8.940 $ 8.930 $ 8.940 $ 8.060 $ 8.050 $ 8.780
--------- --------- --------- --------- --------- ---------
0.165 0.097 0.186 0.200 0.137 0.041
1.183 1.182 1.192 1.393 1.395 0.167
--------- --------- --------- --------- --------- ---------
1.348 1.279 1.378 1.593 1.532 0.208
--------- --------- --------- --------- --------- ---------
(0.162) (0.093) (0.182) (0.212) (0.151) (0.048)
(0.636) (0.636) (0.636) (0.501) (0.501) -
--------- --------- --------- --------- --------- ---------
(0.798) (0.729) (0.818) (0.713) (0.652) (0.048)
--------- --------- --------- --------- --------- ---------
$ 9.490 $ 9.480 $ 9.500 $ 8.940 $ 8.930 $ 8.940
--------- --------- --------- --------- --------- ---------
16.11% 15.27% 16.50% 21.72% 20.84% 2.02% (f)
--------- --------- --------- --------- --------- ---------
1.15% 1.90% 0.91% 1.16% 1.93% 0.93% (h)
1.82% 1.07% 2.06% 2.43% 1.66% 2.66% (h)
38% 38% 38% 66% 66% 66%
$ 0.0347 $ 0.0347 $ 0.0347 - - -
$ 759,409 $ 453,468 $ 13,555 $ 667,611 $ 353,831 $ 3,659
</TABLE>
(g) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(h) Annualized.
(i) 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.
29
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Selected data for a share of each class outstanding throughout each
period are as follows:
<TABLE>
<CAPTION>
Year ended October 31
---------------------------------------------------------
1994 1993(b)
Class A Class B Class A Class B
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 8.410 $ 8.400 $ 7.390 $ 7.390
--------- --------- --------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (a) 0.171 0.109 0.156 0.104
Net realized and
unrealized gain (loss)(a) (0.116) (0.111) 1.293 1.282
--------- --------- --------- ----------
Total from Investment
Operations 0.055 (0.002) 1.449 1.386
--------- --------- --------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.160) (0.103) (0.147) (0.094)
From net
realized gains (0.245) (0.245) (0.282) (0.282)
--------- --------- --------- ----------
Total Distributions
Declared to
Shareholders (0.405) (0.348) (0.429) (0.376)
--------- --------- --------- ----------
Net asset value -
End of period $ 8.060 $ 8.050 $ 8.410 $ 8.400
--------- --------- --------- ----------
Total return (c) 0.74% (0.04)% 20.21% 19.38%
--------- --------- --------- ----------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.14% 1.89% 1.10% 1.85%
Net investment
income 2.07% 1.32% 1.94% 1.19%
Portfolio turnover 54% 54% 14% 14%
Net assets at end
of period (000) $ 555,275 $ 264,122 $520,706 $124,161
</TABLE>
(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) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
30
<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 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.
31
<PAGE>
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, & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President--Operations, The Rockport
Company)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
WILLIAM E. MAYER
Partner, Development Capital, L.L.C. (formerly Dean, College of Business and
Management, University of Maryland; Dean, Simon Graduate School of Business,
University of Rochester; Chairman and Chief Executive Officer, CS First Boston
Merchant Bank; and President and Chief Executive Officer, The First Boston
Corporation)
JAMES L. MOODY, JR.
Retired (formerly Chairman of the Board and Chief Executive Officer, Hannaford
Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
ROBERT L. SULLIVAN
Retired Partner, Peat Marwick Main & Co. (formerly Management Consultant,
Saatchi and Saatchi Consulting Ltd. and Principal and International Practice
Director, Management Consulting, Peat Marwick Main & Co.)
[Liberty Logo] LIBERTY FINANCIAL INVESTMENTS, INC. (c)1997
Distributor for Colonial Funds, Stein Roe Advisor Funds and
Newport Funds
One Financial Center, Boston, MA 02111-2621
TF-03/241F-0498(6/98) 98/605
