[Picture: Two (2) rowers]
THE COLONIAL FUND Semiannual report
April 30, 1999
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Not FDIC May Lose Value
Insured No Bank Guarantee
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<PAGE>
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THE COLONIAL FUND HIGHLIGHTS
NOVEMBER 1, 1998 - APRIL 30, 1999
Investment Objective: The Colonial Fund primarily seeks income and capital
growth and, secondarily, capital preservation.
The Fund is Designed to Offer:
[checkmark] Long-term investment returns
[checkmark] Reasonable protection in down markets and broad diversification
[checkmark] Quarterly dividend income
Portfolio Management Commentary: "U.S. equity markets showed continued strength
during the period. However, performance in the bond market was held back by
rising long-term interest rates. Growth stocks remained in favor until late in
the period, when value-oriented cyclical stocks surged amid a general broadening
of the stock market. We made some adjustments to the portfolio and believe it is
well positioned in this favorable economy."
-- John Lennon and Leslie Finnemore
The Colonial Fund Performance
<TABLE>
<CAPTION>
Class A(1) Class B Class C Class Z
<S> <C> <C> <C> <C>
Inception dates 4/30/82 5/5/92 8/1/97 7/31/95
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Six-month distributions declared per share $0.553 $0.513 $0.514 $0.565
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Six-month total returns, assuming 9.44% 8.95% 9.07% 9.57%
reinvestment of all distributions
and no sales charge or contingent
deferred sales charge (CDSC)
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Net asset values per share on 4/30/99 $10.78 $10.75 $10.75 $10.79
</TABLE>
Top Five Equity Holdings(2)
(as of 4/30/99)
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1. Bristol-Myers Squibb Co. ...... 1.6%
2. Merrill Lynch & Co. ........... 1.6%
3. Cigna Corp. ................... 1.5%
4. Merck & Co., Inc. ............. 1.4%
5. Textron Inc. .................. 1.4%
Top Five Equity Sectors(2,3)
(as of 4/30/99)
- ---------------------------------------
1. Financials ................... 13.8%
2. Consumer Cyclicals ........... 11.9%
3. Technology ................... 10.4%
4. Health Care .................. 7.8%
5. Capital Goods ................ 6.1%
(1)Date Fund adopted current investment objective.
(2)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.
(3)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.
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2
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PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[Picture: Stephen E. Gibson]
The six-month period ended April 30, 1999, was characterized by an improving
global economy and continued economic strength in the U.S. Retail sales
surpassed expectations, the housing market was vibrant, consumer demand was high
and job growth was strong. The solid U.S. economy, combined with continued low
inflation, produced strong returns in the equity markets.
In the U.S. bond market, short-term interest rates increased, as investors
anticipated the Federal Reserve Board's move to a tightening bias. Intermediate
and long-term rates, which are tracked by the 5- and 30-year Treasury yields,
jumped higher, reflecting increasing concerns about the sustainability of the
economy's growth without a rise in inflation. The rise in interest rates
dampened the overall performance of the fixed-income market.
The Colonial Fund is a "balanced" fund, in which investments are allocated
across two primary asset classes -- stocks and bonds. This diversification
strategy can provide growth potential with reduced risk. 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 giving us the opportunity to serve
your investment needs.
Respectfully,
[Graphic: Stephen E. Gibson signature]
Stephen E. Gibson
President
June 9, 1999
Because economic and market conditions change frequently, there can be no
assurance that the trends described above or on the following pages will
continue.
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3
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PORTFOLIO MANAGEMENT REPORT
John Lennon is a senior vice president of Colonial Management Associates, Inc.
(CMA). Leslie Finnemore, a senior vice president of CMA, manages the
fixed-income portion of the Fund. The following is a discussion of the Fund's
performance for the six-month period ended April 30, 1999.
Shift in stock market leadership during the period
In an environment of strong economic growth and low inflation, the U.S. stock
market continued to perform well. Worldwide economic developments were partially
responsible for a shift in market leadership during the past six months. In the
first half of the period, the market's gain continued to be driven by a narrow
list of large-capitalization growth stocks. In the latter half of the period,
investors began to focus their attention on the values available in the broader
stock market -- particularly mid-cap and cyclical stocks. This shift occurred
partially as a response to improving global economic conditions -- principally
in the Far East -- and stronger-than-expected U.S. economic growth for the first
quarter of 1999. In addition, oil prices rebounded sharply in March and April,
thereby improving the outlook for energy companies. Value-oriented sectors that
performed well included energy, basic materials and consumer cyclicals. While we
are encouraged by the development of broader participation in the market's gain,
it is still too early to predict how long this trend will last.
Adjustments made to the portfolio
For the six months ended April 30, 1999, the Fund's Class A shares had a total
return of 9.44%, based on net asset value. By comparison, the total returns for
the major stock market indexes were: 22.31% for the large-cap S&P 500 Index;
18.86% for the mid-cap S&P 400 Index; and 9.03% for the small-cap S&P 600 Index.
On the fixed-income side, the total return for the Salomon Brothers Broad
Investment-Grade Bond Index was 0.73% for the six-month period.(1)
During the period, we made some modifications to the portfolio to help position
it for changing market and economic conditions. First, while the Fund has had a
mid-cap bias in recent years, we have been increasing its exposure to large-cap
stocks to represent a broader range of capitalization in the portfolio. Second,
given the improved performance of some overseas markets and the relative
attractiveness of the domestic market, we took advantage of rising prices to
reduce the exposure to foreign stocks from 11.2% of the Fund to 5.5% at period
end. This reduction came primarily from Europe in the utilities and financial
sectors.
Changes made in Fund's technology holdings
While some of our computer hardware holdings performed well -- in particular,
Sun Microsystems (0.5% of total net assets) -- others, such as
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4
<PAGE>
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Compaq, underperformed. We used this period of strength for Sun to pare back our
position, which had become quite large, and we eliminated our Compaq holdings
due to an uncertain outlook for the company.
To shore up the Fund's technology sector, we initiated positions in several
large technology stocks, such as International Business Machines (1.2% of total
net assets), Texas Instruments (1.2%) and Applied Materials (0.6%). IBM is in a
strong position as a solutions provider for centralized computing architecture,
a business that is being driven by the growth of the Internet. Texas
Instruments, a semiconductor manufacturer, has growth potential for its products
due to the surging demand for communications equipment. Finally, Applied
Materials, a semiconductor equipment manufacturer, may benefit from longer-term
needs for its products as the demand for semiconductors in the U.S. improves and
the Asian economies strengthen.
Mixed environment for bonds
This has been a mixed environment for the bond portion of the Fund. On the one
hand, U.S. interest rates are among the highest in the developed world, so our
holdings are relatively attractive compared to other global bond markets. On the
other hand, the upward climb in long-term interest rates in the past six months
has held back performance. Going forward, we believe the Fund's bond component
is well positioned, given an environment of continued economic growth with low
inflation and stable interest rates. In particular, our overweighting in
mortgage-backed securities should benefit the bond portfolio since these assets
are of high quality and offer relative value within the fixed-income market. The
asset-backed sector has become an increasingly important component of the
portfolio. We increased the weighting in that area because of its attractive
total return potential.
Economic outlook: maintaining vigilance on inflation
While we are optimistic about the outlook for the U.S. economy for the remainder
of this year, we are maintaining a vigilant posture. The possibility of a
worldwide rise in economic growth, combined with an increasingly tight U.S.
labor market, has implications for inflation -- and therefore, for interest
rates. U.S. short-term interest rates, which have thus far benefited from
near-deflationary conditions worldwide and high domestic productivity, could be
nudged higher in response to an increase in inflation. If this occurs, it would
have a slowing effect on the U.S. economy.
(1)The Standard & Poor's 500 Index is an unmanaged index that tracks the
performance of 500 widely-held, large-capitalization U.S. stocks. The
Standard & Poor's 400 Index is an unmanaged index that tracks the performance
of 400 middle-capitalization U.S. stocks. The Standard & Poor's 600 Index is
an unmanaged index that tracks the performance of 600 small-capitalization
U.S. stocks. The Salomon Brothers Broad Investment-Grade Bond Index is an
unmanaged index that tracks the performance of U.S. corporate
investment-grade bonds. Unlike mutual funds, indexes are not investments and
do not incur fees or expenses. It is not possible to invest directly in an
index.
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5
<PAGE>
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Average Annual Total Returns
As of 4/30/99
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares Class Z Shares
Inception 4/30/82(1) 5/5/92 8/1/97 7/31/95
NAV POP NAV w/CDSC NAV w/CDSC NAV
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year 5.34% (0.71)% 4.45% (0.48)% 4.50% 3.51% 5.59%
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5 years 16.70 15.33 15.78 15.56 16.40 16.40 16.97
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10 years 13.44 12.77 12.84 12.84 13.29 13.29 13.57
</TABLE>
(1)Date Fund adopted current investment objective.
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. 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, Class C and Class Z 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 Class B and Class C shares would
have been lower.
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6
<PAGE>
INVESTMENT PORTFOLIO
APRIL 30, 1999 (UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCKS - 64.8% COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION - 0.7%
Building Construction
Centex Corp. 172 $ 6,296
Koninklijke Volker Stevin CVA Ne 297 5,891
-----------
12,187
-----------
............................................................................
FINANCE, INSURANCE & REAL ESTATE - 13.8%
Depository Institutions - 4.2%
Bank of Montreal Ca 260 10,842
Canadian Imperial Bank Ca 547 14,059
Citigroup, Inc. 269 20,216
First Union Corp. 67 3,703
Greenpoint Financial Corp. 115 4,018
National Australia Bank Ltd. Au 1,000 19,466
-----------
72,304
-----------
Holding Companies - 1.0%
Fortis Amev NV Ne 493 17,586
-----------
Insurance Carriers - 3.9%
Allstate Corp. 463 16,842
American International Group, Inc. 151 17,682
CIGNA Corp. 300 26,156
Old Republic International Corp. 293 5,726
St. Paul Cos., Inc. 100 2,869
-----------
69,275
-----------
Nondepository Credit Institutions - 0.6%
Associates First Capital Corp. 97 4,297
Metris Companies, Inc. 96 5,838
-----------
10,135
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Security Brokers & Dealers - 4.1%
A.G. Edwards, Inc. 596 20,860
Bear Stearns Cos, Inc. 94 4,380
Merrill Lynch & Co., Inc. 335 28,119
Paine Webber Group, Inc. 366 17,193
-----------
70,552
-----------
............................................................................
MANUFACTURING - 30.6%
Apparel - 0.4%
VF Corp. 125 6,438
-----------
Chemicals & Allied Products - 6.4%
Allergan, Inc. 79 7,118
Bristol-Myers Squibb Co. 450 28,603
</TABLE>
7
<PAGE>
Investment Portfolio/April 30, 1999
<TABLE>
<CAPTION>
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COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING - CONT.
Chemicals & Allied Products - Cont.
Eli Lilly & Co. 185 $ 13,621
Johnson & Johnson 71 6,922
Merck & Co., Inc. 355 24,939
Pfizer, Inc. 64 7,410
Pharmacia & Upjohn, Inc. 190 10,640
Warner-Lambert Co. 165 11,210
-----------
110,463
-----------
Communications Equipment - 1.4%
Lucent Technologies, Inc.. 145 8,718
Motorola, Inc. 195 15,624
-----------
24,342
-----------
Electronic Components - 1.2%
Texas Instruments, Inc. 200 20,425
-----------
Fabricated Metal - 0.3%
Danaher Corp. 74 4,910
-----------
Food & Kindred Products - 1.8%
Anheuser Busch Cos., Inc. 147 10,749
Heinz (H.J.) Co. 218 10,178
Interstate Bakeries Corp. 264 5,876
Philip Morris Cos., Inc. 150 5,259
-----------
32,062
-----------
Furniture & Fixtures - 0.9%
Herman Miller, Inc. 200 3,987
Masco Corp. 420 12,337
-----------
16,324
-----------
Household Appliances - 0.6%
Maytag Corp. 150 10,256
-----------
Machinery & Computer Equipment - 6.6%
Apple Computer, Inc. 214 9,858
Applied Materials, Inc. 200 10,725
Black & Decker Corp. 146 8,274
Caterpillar, Inc. 210 13,519
Cisco Systems, Inc. 77 8,783
EMC Corp. 61 6,645
International Business Machines Corp. 100 20,918
Lexmark International Group, Inc. (a) 25 3,087
Sun Microsystems, Inc. (a) 150 8,972
Tyco International Ltd. 70 5,687
Unisys Corp. (a) 390 12,261
</TABLE>
8
<PAGE>
Investment Portfolio/April 30, 1999
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<TABLE>
<S> <C> <C> <C>
Varco International, Inc. (a) 480 $ 5,430
Western Digital Corp. (a) 70 556
-----------
114,715
-----------
Measuring & Analyzing Instruments - 1.1%
Biomet, Inc. 55 2,255
Eastman Kodak Co. 165 12,313
Tektronix, Inc. 179 4,347
-----------
18,915
-----------
Petroleum Refining - 2.7%
British Petroleum Co. PLC, ADR UK 76 8,609
Exxon Corp. 174 14,453
Mobil Corp. 107 11,250
Phillips Petroleum Co. 235 11,902
-----------
46,214
-----------
Primary Smelting - 0.7%
Phelps Dodge Corp. 191 12,062
-----------
Printing & Publishing - 0.5%
Harte-Hanks Communication 173 4,373
Meredith Corp. 123 4,524
-----------
8,897
-----------
Rubber & Plastic - 1.0%
Goodyear Tire & Rubber Co. 100 5,707
Premark International Inc. 215 7,915
Wynn's International, Inc. 200 3,350
-----------
16,972
-----------
Tobacco Products - 0.2%
Gallaher Group PLC, ADR UK 190 4,299
-----------
Transportation Equipment - 4.8%
AlliedSignal, Inc. 250 14,687
Cordant Technologies, Inc. 142 6,550
Ford Motor Co. 185 11,828
General Dynamics Corp. 210 14,752
General Motors Corp. 115 10,228
Textron, Inc. 270 24,874
Toyota Motor Corp. ADR Ja 27 1,546
-----------
84,465
-----------
............................................................................
MINING & ENERGY - 1.2%
Oil & Gas Extraction
Enron Corp. 200 15,050
Schlumberger Ltd. 90 5,749
-----------
20,799
-----------
</TABLE>
9
<PAGE>
Investment Portfolio/April 30, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
RETAIL TRADE - 6.6%
Food Stores - 0.9%
Albertson's, Inc. 135 $ 6,953
Kroger Corp. (a) 163 8,853
-----------
15,806
-----------
General Merchandise Stores - 2.8%
Dayton Hudson Corp. 160 10,770
Family Dollar Stores, Inc. 450 10,856
Kmart Corp. 715 10,636
Sears, Roebuck & Co. 340 15,640
-----------
47,902
-----------
Home Furnishings & Equipment - 1.3%
Best Buy Co., Inc. 110 5,252
Pier 1 Imports, Inc. 381 2,808
Tandy Corp. 200 14,487
-----------
22,547
-----------
Miscellaneous Retail - 1.1%
Office Depot, Inc. (a) 750 16,500
Rite Aid Corp. 130 3,031
-----------
19,531
-----------
Restaurants - 0.5%
Brinker International, Inc. (a) 300 8,288
-----------
............................................................................
SERVICES - 5.0%
Business Services - 1.0%
Omnicom Group, Inc. 251 18,183
-----------
Computer Related Services - 0.5%
Teradyne, Inc. 200 9,438
-----------
Computer Software - 1.3%
BMC Software, Inc. (a) 215 9,258
J.D. Edwards & Co. 80 1,075
Microsoft Corp. 80 6,505
Sterling Software, Inc. (a) 250 5,172
-----------
22,010
-----------
Engineering, Accounting, Research & Management - 0.9%
Dun & Bradstreet Corp. 163 5,990
EG&G, Inc. 200 6,250
International-Muller NV Ne 146 3,237
-----------
15,477
-----------
Health Services - 1.3%
Healthsouth Rehabilitation Corp. (a) 880 11,825
Lincare Holdings, Inc. (a) 226 6,689
</TABLE>
10
<PAGE>
Investment Portfolio/April 30, 1999
- ----------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Universal Health Services, Inc., Class B (a) 83 $ 4,301
-----------
22,815
-----------
............................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 5.9%
Air Transportation - 1.4%
AMR Corp. (a) 150 10,472
Delta Air Lines, Inc. 210 13,322
-----------
23,794
-----------
Electric Services - 2.1%
Edison International 300 7,350
Entergy Corp. 313 9,794
Texas Utilities Co. 300 11,925
Unicom Corp. 220 8,539
-----------
37,608
-----------
Telecommunication - 2.4%
AT&T Corp. 285 14,392
Bell Atlantic Corp. 100 5,763
GTE Corp. 170 11,379
MCI WorldCom, Inc. 120 9,863
-----------
41,397
-----------
............................................................................
WHOLESALE TRADE - 1.0%
Durable Goods - 0.6%
Beers NV Ne 213 10,171
-----------
Nondurable Goods - 0.4%
Bergen Brunswig Corp., Class A 353 6,707
-----------
TOTAL COMMON STOCKS (cost of $770,442) 1,126,271
-----------
</TABLE>
<TABLE>
<CAPTION>
BONDS & NOTES - 33.1% PAR
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US GOVERNMENT & AGENCY OBLIGATIONS - 25.6%
Government Agencies - 17.1%
<S> <C> <C> <C>
MATURITIES
COUPON FROM/TO
-------------- ------------
Federal Home Loan Mortgage Corp.,
6.000% 2009-2026 (b) $ 44,877 44,482
-----------
Federal National Mortgage Association:
6.000% 2008-2029 45,707 45,279
6.500% 2008-2023 90,758 90,894
7.000% 2009 30,004 30,651
-----------
166,824
-----------
Government National Mortgage Association:
6.500% 2024-2028 42,450 42,213
7.000% 2023-2024 43,220 43,937
-----------
86,150
-----------
</TABLE>
11
<PAGE>
Investment Portfolio/April 30, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
BONDS & NOTES - CONT. PAR VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US GOVERNMENT & AGENCY OBLIGATIONS - CONT.
Government Obligations - 8.5%
U.S. Treasury Bond:
6.125% 11/15/2027 $ 3,828 $ 3,963
7.875% 2/15/2021 28,550 35,290
9.875% 11/15/2015 (c) 32,760 46,432
-----------
85,685
-----------
U.S. Treasury Note:
5.625% 5/15/2008 26,076 26,467
6.125% 12/21/2001 17,000 17,406
6.375% 5/15/2002 14,981 15,503
7.875% 11/4/2004 1,741 1,951
-----------
61,327
-----------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (cost of $441,266) 444,468
-----------
....................................................................................
NON-AGENCY MORTGAGE BACKED & ASSET
BACKED SECURITIES - 3.5%
Non-Agency Mortgage Backed - 2.1%
Aames Mortgage Trust,
7.870% 9/15/2025 2,145 2,215
Countrywide Home Loans,
6.500% 12/25/2028 1,990 1,901
GE Capital Mtg. Services, Inc.,
6.250% 1/25/2029 1,404 1,230
Headlands Mortgage Securities, Inc:
6.500% 11/25/2028 2,713 2,544
7.000% 2/25/2028 3,330 3,303
Norwest Asset Securities Corp:
6.250% 1/15/2029 3,591 3,140
6.500% 1/25/2029 1,794 1,604
Provident Bank Home Equity Loan,
7.600% 10/25/2012 2,943 3,016
PNC Mortgage Securities Corp.,
7.000% 3/25/2028 3,461 3,390
Residential Accredit Loans, Inc.,
6.500% 3/25/2029 3,113 2,954
7.000% 10/25/2012 4,098 4,171
7.250% 12/25/2027 4,365 4,362
Residential Funding Mortgage Sec. 1,
6.500% 4/25/2013 2,980 2,913
-----------
36,743
-----------
</TABLE>
12
<PAGE>
Investment Portfolio/April 30, 1999
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<TABLE>
<S> <C> <C> <C> <C>
Asset Backed Securities - 1.4%
Delta Funding Home Equity Loan Trust:
6.750% 3/15/2028 $ 450 $ 395
8.010% 10/25/2027 5,000 5,198
Greentree,
7.700% 9/15/2026 4,155 4,132
Sears Credit Account Trust,
6.000% 8/15/2005 3,000 3,005
Team Fleet Financing Corp.,
7.350% 5/15/2003 1,600 1,643
UCFC Home Equity Loan Corp:
7.975% 2/15/2022 4,500 4,676
8.030% 8/10/2025 5,152 5,282
-----------
24,331
-----------
TOTAL NON-AGENCY MORTGAGE BACKED & ASSET
BACKED SECURITIES (cost of $61,679) 61,074
-----------
<CAPTION>
CORPORATE FIXED INCOME BONDS & NOTES - 4.0%
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCE, INSURANCE & REAL ESTATE - 1.4%
Depository Institutions - 0.7%
Bank One Texas,
6.250% 02/15/08 1,000 988
Comerica Bank,
7.875% 09/15/26 1,000 1,094
Fleet Financial Group, Inc.,
6.700% 07/15/28 1,000 961
KeyBank,
7.125% 08/15/06 2,000 2,075
NationsBank Corp.,
6.875% 02/15/05 2,000 2,069
Norwest Corp.,
6.650% 10/15/23 1,000 962
PNC Funding Corp.,
6.875% 07/15/07 1,000 1,026
Signet Bank,
7.800% 09/15/06 2,000 2,164
Wachovia Corp.,
6.250% 08/04/08 1,000 992
-----------
12,331
-----------
Insurance Agents & Brokers - 0.1%
GE Global Insurance Holdings Corp.,
7.000% 02/15/26 1,000 1,025
-----------
Insurance Carriers - 0.1%
Metropolitan Life Insurance Co.,
6.300% 11/01/03 2,000 2,006
-----------
</TABLE>
13
<PAGE>
Investment Portfolio/April 30, 1999
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
BONDS & NOTES - CONT. PAR VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE FIXED INCOME BONDS & NOTES - CONT.
- ----------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - CONT.
Nondepository Credit Insurance - 0.3%
Associates Corp. of North America,
6.875% 11/15/08 $ 1,000 $ 1,031
General Motors Acceptance Corp.,
6.125% 01/22/08 2,000 1,961
Household Finance Corp:
6.400% 06/17/08 1,000 987
7.625% 01/15/03 1,000 1,048
-----------
5,027
-----------
Security Brokers & Dealers - 0.2%
Bear Stearns Co., Inc.,
6.500% 08/01/02 1,000 1,009
Merrill Lynch & Co., Inc.,
6.000% 02/12/03 1,000 1,001
Morgan Stanley, Dean Witter, Discover and Co.,
8.100% 06/24/02 1,000 1,063
Salomon, Inc.,
7.300% 05/15/02 1,000 1,035
-----------
4,108
-----------
.............................................................................
MANUFACTURING - 0.6%
Chemicals & Allied Products - 0.1%
Dow Chemical,
7.375% 03/01/23 1,000 1,018
-----------
Fabricated Metal - 0.1%
Masco Corp.,
6.625% 04/15/18 1,000 957
-----------
Food & Kindred Products - 0.1%
Archer Daniels Midland Co.,
6.750% 12/15/27 1,000 988
Coca-Cola Enterprises, Inc.,
6.950% 11/15/26 1,000 1,003
-----------
1,991
-----------
Miscellaneous Manufacturing - 0.1%
Raytheon Co.,
6.750% 08/15/07 2,000 2,040
-----------
Transportation Equipment - 0.1%
Ford Motor Co.,
7.125% 11/15/25 2,000 2,024
-----------
</TABLE>
14
<PAGE>
Investment Portfolio/April 30, 1999
- ----------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Petroleum Refining - 0.1%
Enron Corp.,
6.750% 07/01/05 $ 1,000 $ 1,009
Phillips Petroleum Co.,
6.650% 07/15/18 1,000 965
-----------
1,974
-----------
............................................................................
RETAIL TRADE - 0.2%
General Merchandise Stores - 0.1%
Dillard Department Stores, Inc.,
6.625% 01/15/18 1,000 916
Sears, Roebuck & Co. Acceptance Corp.,
6.750% 01/15/28 1,000 943
-----------
1,859
-----------
Miscellaneous Retail - 0.1%
Dayton Hudson Corp.,
7.250% 09/01/04 2,000 2,106
-----------
............................................................................
SERVICES - 0.3%
Business Services
Federal Express Corp.,
7.500% 01/15/18 4,377 4,733
-----------
............................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC GAS & SANITARY SERVICES - 1.5%
Air Transportation - 0.1%
Lockheed Martin Corp.,
7.250% 05/15/06 2,000 2,073
-----------
Broadcasting - 0.1%
News America Holdings, Inc.,
7.375% 10/17/08 2,000 2,101
-----------
Cable - 0.3%
Comacast Cable Communications, Inc.,
8.375% 05/01/07 1,000 1,111
Continental Cablevision, Inc.,
8.875% 09/15/05 2,000 2,258
TCI Communications, Inc.,
8.650% 09/15/04 2,000 2,229
-----------
5,598
-----------
Communications - 0.1%
U.S. West Capital Funding, Inc.,
6.375% 07/15/08 1,000 1,001
-----------
</TABLE>
15
<PAGE>
Investment Portfolio/April 30, 1999
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
BONDS & NOTES - CONT. PAR VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE FIXED INCOME BONDS & NOTES - CONT.
- ----------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC
GAS & SANITARY SERVICES - CONT.
Electric Services - 0.4%
Arizona Public Service Co.,
6.250% 01/15/05 $ 1,000 $ 1,001
Carolina Power & Light Co.,
6.800% 08/15/07 2,000 2,074
Florida Power & Light Co.,
6.000% 06/01/08 1,000 990
Houston Lighting & Power Co.,
6.500% 04/21/03 2,000 2,040
Public Service Co. of Colorado,
7.125% 06/01/06 1,000 1,051
-----------
7,156
-----------
Gas Services - 0.1%
Sonat, Inc.,
6.875% 06/01/05 1,000 1,013
-----------
Railroad - 0.1%
Norfolk Southern Corp.,
7.800% 05/15/27 1,000 1,096
-----------
Telecommunications - 0.3%
BellSouth Telecommunications, Inc.,
6.375% 06/01/28 1,000 953
GTE Corp.,
6.840% 04/15/18 2,000 1,993
Pacific Bell,
6.875% 08/15/06 2,000 2,069
WorldCom, Inc.,
6.950% 08/15/28 1,000 992
-----------
6,007
-----------
TOTAL CORPORATE FIXED INCOME
BONDS & NOTES (cost of $70,065) 69,244
-----------
TOTAL BONDS & NOTES (cost of $573,010) 574,786
-----------
TOTAL INVESTMENTS - 97.9% (cost of $1,343,452) (d) 1,701,057
-----------
</TABLE>
16
<PAGE>
Investment Portfolio/April 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHORT-TERM OBLIGATIONS - 2.8%
- --------------------------------------------------------------------------------------
Repurchase agreement with ABN AMRO Chicago
Corp., dated 04/30/99, due 05/03/99 at 4.870%,
collateralized by U.S. Treasury bonds and notes
with various maturities to 2015, market value
$49,361, (repurchase proceeds $48,456) $ 48,435 $ 48,435
-----------
OTHER ASSETS & LIABILITIES, NET - (0.7)% (12,326)
- --------------------------------------------------------------------------------------
NET ASSETS - 100% $ 1,737,166
===========
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Non-income producing.
(b) This security, or a portion thereof, has 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) This security, or a portion thereof, with a total market value of $46,432 is
being used to collateralize the delayed delivery purchase indicated in note
(b) above.
(d) Cost for federal income tax purposes is $1,343,972.
<TABLE>
<CAPTION>
Summary of Securities
by Country Country Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $1,605,351 94.4%
Netherlands Ne 36,885 2.2%
Canada Ca 24,901 1.5%
Australia Au 19,466 1.1%
United Kingdom UK 12,908 0.7%
Japan Ja 1,546 0.1%
--------------------------
$1,701,057 100.0%
--------------------------
</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, 1999 (UNAUDITED)
(in thousands except for per share amounts and footnotes)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $1,343,452) $ 1,701,057
Short-term obligations 48,435
-------------
1,749,492
Receivable for:
Investments sold 15,461
Interest 6,666
Fund shares sold 1,647
Dividends 1,450
Foreign tax reclaims 266
Other 184 25,674
------------ -------------
Total Assets 1,775,166
LIABILITIES
Payable for:
Investments purchased 35,477
Fund shares repurchased 2,469
Accrued:
Deferred Trustees fees 18
Other 36
------------
Total Liabilities 38,000
-------------
NET ASSETS $ 1,737,166
=============
Net asset value & redemption price per share -
Class A ($980,938/91,019) $10.78 (a)
=============
Maximum offering price per share - Class A
($10.78/0.9425) $11.44 (b)
=============
Net asset value & offering price per share -
Class B ($725,852/67,499) $10.75 (a)
=============
Net asset value & offering price per share -
Class C ($8,216/764) $10.75 (a)
=============
Net asset value, offering and redemption price
per share - Class Z ($22,160/2,055) $10.79
=============
COMPOSITION OF NET ASSETS
Capital paid in $ 1,231,132
Overdistributed net investment income (445)
Accumulated net realized gain 148,924
Net unrealized appreciation (depreciation) on:
Investments 357,605
Foreign currency transactions (50)
-------------
$ 1,737,166
=============
</TABLE>
(a) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
See notes to financial statements.
18
<PAGE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1999
(in thousands)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 7,514
Interest 19,433
-------------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $245) 26,947
EXPENSES
Management fee $ 4,527
Service fee - Class A, B, C 2,056
Distribution fee - Class B 2,634
Distribution fee - Class C 26
Transfer agent 2,358
Bookkeeping fee 269
Custodian fee 43
Registration fee 40
Trustees fee 32
Audit fee 20
Reports to shareholders 21
Legal fee 5
Other 99 12,130
------------ -------------
Net Investment Income 14,817
-------------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 149,423
Foreign currency transactions (58)
------------
Net Realized Gain 149,365
Change in net unrealized depreciation during
the period on:
Investments (14,885)
Foreign currency transactions (81)
------------
Net Unrealized Depreciation (14,966)
-------------
Net Gain 134,399
-------------
Increase in Net Assets from Operations $ 149,216
=============
</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
------------ -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS 1999 1998
Operations:
Net investment income $ 14,817 $ 31,133
Net realized gain 149,365 75,037
Net unrealized appreciation (depreciation) (14,966) 23,397
------------ -------------
Net Increase from Operations 149,216 129,567
Distributions:
From net investment income - Class A (10,451) (22,321)
From net realized gains - Class A (39,280) (118,280)
From net investment income - Class B (4,886) (9,895)
From net realized gains - Class B (27,841) (75,040)
From net investment income - Class C (47) (55)
From net realized gains - Class C (246) (96)
From net investment income - Class Z (274) (497)
From net realized gains - Class Z (931) (2,159)
------------ -------------
65,260 (98,776)
------------ -------------
Fund Share Transactions:
Receipts for shares sold - Class A 38,055 95,978
Value of distributions reinvested - Class A 45,029 127,684
Cost of shares repurchased - Class A (76,214) (142,405)
------------ -------------
6,870 81,257
------------ -------------
Receipts for shares sold - Class B 87,379 133,497
Value of distributions reinvested - Class B 31,088 80,373
Cost of shares repurchased - Class B (72,778) (99,137)
------------ -------------
45,689 114,733
------------ -------------
Receipts for shares sold - Class C 2,857 5,810
Value of distributions reinvested - Class C 282 148
Cost of shares repurchased - Class C (689) (939)
------------ -------------
2,450 5,019
------------ -------------
Receipts for shares sold - Class Z 1,411 5,265
Value of distributions reinvested - Class Z 729 2,656
Cost of shares repurchased - Class Z (3,094) (632)
------------ -------------
(954) 7,289
------------ -------------
Net Increase from Fund Share
Transactions 54,055 208,298
------------ -------------
Total Increase 119,315 109,522
NET ASSETS
Beginning of period 1,617,851 1,508,329
------------ -------------
End of period (net of overdistributed and
including undistributed net investment
income of $445 and $369, respectively) $ 1,737,166 1,617,851
=========== =============
</TABLE>
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
------------ -------------
<S> <C> <C>
NUMBER OF FUND SHARES 1999 1998
Sold - Class A 3,574 8,982
Issued for distributions reinvested - Class A 4,369 12,752
Repurchased - Class A (7,163) (13,405)
------------ -------------
780 8,329
------------ -------------
Sold - Class B 8,245 12,597
Issued for distributions reinvested - Class B 3,022 8,054
Repurchased - Class B (6,857) (9,418)
------------ -------------
4,410 11,233
------------ -------------
Sold - Class C 271 546
Issued for distributions reinvested - Class C 27 14
Repurchased - Class C (65) (90)
------------ -------------
233 470
------------ -------------
Sold - Class Z 134 489
Issued for distributions reinvested - Class Z 71 265
Repurchased - Class Z (290) (61)
------------ -------------
(85) 693
------------ -------------
</TABLE>
See notes to financial statements.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999 (UNAUDITED)
NOTE 1. INTERIM FINANCIAL STATEMENTS
................................................................................
In the opinion of management of The Colonial Fund (the Fund), a series of
Liberty Trust III, formerly 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, 1999, 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 a 1.00% contingent deferred sales charge on
redemptions made within eighteen months on an original purchase of $1 million to
$5 million. Class B shares are subject to an annual distribution fee and a
contingent deferred sales charge. Class B shares will convert to Class A shares
when they have been outstanding approximately eight years. Class C shares are
subject to a contingent deferred sales charge on redemptions made within one
year after purchase and an annual distribution fee. 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.
22
<PAGE>
Notes to Financial Statements/April 30, 1999
- --------------------------------------------------------------------------------
Forward currency contracts are valued based on the weighted value of the
exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
The value of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates.
Portfolio positions for which market quotations are not readily available are
valued at fair value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains (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 is calculated using the 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.
Distribution to shareholders: Distributions to shareholders are recorded on the
ex-date.
23
<PAGE>
Notes to Financial Statements/April 30, 1999
- --------------------------------------------------------------------------------
NOTE 2. ACCOUNTING POLICIES - CONT.
................................................................................
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 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
24
<PAGE>
Notes to Financial Statements/April 30, 1999
- --------------------------------------------------------------------------------
costs and delays in liquidating the collateral if the issuer defaults or enters
bankruptcy.
NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES
................................................................................
Management fee: Colonial Management Associates, Inc. (the Advisor) is the
investment Advisor of the Fund and furnishes accounting and other services and
office facilities for a monthly fee 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 Advisor 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 fee: Liberty Funds Services, Inc. (the Transfer Agent), an
affiliate of the Advisor, provides shareholder services for a monthly fee equal
to 0.236% annually of the Fund's average net assets and receives reimbursement
for certain out-of-pocket expenses.
Underwriting discounts, service and distribution fees: Liberty Funds
Distributor, Inc. (the Distributor), a subsidiary of the Advisor, is the Fund's
principal underwriter. For the six months ended April 30, 1999, the Fund has
been advised that the Distributor retained net underwriting discounts of $81,759
on sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $2,007, $695,991 and $1,384 on Class A, 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:
25
<PAGE>
Notes to Financial Statements/April 30, 1999
- --------------------------------------------------------------------------------
NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES - CONT.
................................................................................
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 Advisor.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
NOTE 4. PORTFOLIO INFORMATION
................................................................................
Investment activity: During the six months ended April 30, 1999, purchases and
sales of investments, other than short-term obligations, were $594,515,410 and
$630,121,093, of which $204,473,748 and $167,485,750, respectively, were U.S.
government securities.
Unrealized appreciation (depreciation) at April 30, 1999, based on cost of
investments for federal income tax purposes was:
Gross unrealized appreciation $398,776,754
Gross unrealized depreciation (41,691,538)
-------------
Net unrealized appreciation $357,085,216
=============
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 33 1/3% of its net assets under a line of credit for
temporary or emergency purposes. Any borrowings bear interest at one of the
following options determined at the inception of the loan: (1) federal funds
rate plus 1/2 of 1%, (2) the lending bank's base rate or (3) IBOR offshore loan
rate plus 1/2 of 1%. There were no borrowings under the line of credit during
the six months ended April 30, 1999.
26
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Six months ended April 30
--------------------------------------------------
1999
Class A Class B Class C Class Z
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 10.380 $ 10.360 $ 10.350 $ 10.390
----------- ----------- ----------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (a) 0.108 0.068 0.069 0.121
Net realized and
unrealized gain 0.845 0.835 0.845 0.844
----------- ----------- ----------- ----------
Total from Investment
Operations 0.953 0.903 0.914 0.965
----------- ----------- ----------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.115) (0.075) (0.076) (0.127)
From net
realized gains (0.438) (0.438) (0.438) (0.438)
----------- ----------- ----------- ----------
Total Distributions
Declared to
Shareholders (0.553) (0.513) (0.514) (0.565)
----------- ----------- ----------- ----------
Net asset value -
End of period $ 10.780 $ 10.750 $ 10.750 $ 10.790
=========== =========== =========== ==========
Total return (b)(c) 9.44% 8.95% 9.07% 9.57%
=========== =========== =========== ==========
RATIOS TO AVERAGE NET ASSETS
Expenses (d)(e) 1.11% 1.87% 1.87% 0.87%
Net investment
income (d)(e) 2.04% 1.28% 1.28% 2.28%
Portfolio turnover (c) 35% 35% 35% 35%
Net assets at end
of period (000) $980,938 $725,852 $8,216 $22,160
</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 - CONT.
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended October 31
-------------------------------------------------------
1998
Class A Class B Class C Class Z
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value - $ 11.160 $ 11.140 $ 11.150 $ 11.170
Beginning of period ---------- ---------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (a) 0.235 0.156 0.157 0.261
Net realized and
unrealized gain (loss) 0.685 0.682 0.676 0.685
---------- ---------- ----------- -----------
Total from Investment
Operations 0.920 0.838 0.833 0.946
---------- ---------- ----------- -----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.250) (0.168) (0.183) (0.276)
From net
realized gains (1.450) (1.450) (1.450) (1.450)
---------- ---------- ----------- -----------
Total Distributions
Declared to
Shareholders (1.700) (1.618) (1.633) (1.726)
---------- ---------- ----------- -----------
Net asset value -
End of period $ 10.380 $ 10.360 $ 10.350 $ 10.390
========== ========== =========== ===========
Total return (d) 9.08% 8.27% 8.21% 9.35%
========== ========== =========== ===========
RATIOS TO AVERAGE NET ASSETS
Expenses (f) 1.12% 1.87% 1.87% 0.88%
Net investment
income (f) 2.22% 1.47% 1.47% 2.46%
Portfolio turnover (c) 69% 69% 69% 69%
Net assets at end
of period (000) $936,639 $653,476 $5,501 $22,235
</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) 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.
(d) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(e) Not annualized.
28
<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
- --------------------------------------------------
1997
Class A Class B Class C (b) Class Z
- ----------- ----------- ----------- ----------
<S> <C> <C> <C>
$ 9.490 $ 9.480 $ 11.320 $ 9.500
- ----------- ----------- ----------- ----------
0.160 0.081 0.199 0.184
2.225 2.217 (0.345)(d) 2.225
- ----------- ----------- ----------- ----------
2.385 2.298 (0.146) 2.409
- ----------- ----------- ----------- ----------
(0.147) (0.070) (0.024) (0.171)
(0.568) (0.568) - (0.568)
- ----------- ----------- ----------- ----------
(0.715) (0.638) (0.024) (0.739)
- ----------- ----------- ----------- ----------
$ 11.160 $ 11.140 $ 11.150 $ 11.170
=========== =========== =========== ==========
26.83% 25.81% (1.30)% (e) 27.10%
=========== =========== =========== ==========
1.14% 1.89% 1.86% (g) 0.90%
1.56% 0.81% 1.01% (g) 1.80%
71% 71% 71% 71%
$913,956 $577,539 $676 $16,158
</TABLE>
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(g) Annualized.
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
-----------------------------------
1996
Class A Class B Class Z
----------- ---------- ----------
<S> <C> <C> <C>
Net asset value - $ 8.940 $ 8.930 $ 8.940
----------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (a) 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%
Net assets at end
of period (000) $759,409 $453,468 $13,555
</TABLE>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Class Z shares were initially offered on July 31, 1995. Per share amounts
reflect activity from that date.
(c) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(d) Not annualized.
(e) 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.
30
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
<TABLE>
<CAPTION>
Year ended October 31
- -------------------------------------------------------------
1995 1994
Class A Class B Class Z (b) Class A Class B
- --------- ---------- ------------- ---------- --------
<S> <C> <C> <C> <C>
$ 8.060 $ 8.050 $8.780 $ 8.410 $ 8.400
- --------- ---------- --------- ---------- --------
0.200 0.137 0.041 0.171 0.109
1.393 1.395 0.167 (0.116) (0.111)
- --------- ---------- --------- ---------- --------
1.593 1.532 0.208 0.055 (0.002)
- --------- ---------- --------- ---------- --------
(0.212) (0.151) (0.048) (0.160) (0.103)
(0.501) (0.501) - (0.245) (0.245)
- --------- ---------- --------- ---------- --------
(0.713) (0.652) (0.048) (0.405) (0.348)
- --------- ---------- --------- ---------- --------
$ 8.940 $ 8.930 $8.940 $ 8.060 $ 8.050
========= ========== ========= ========== ========
21.72% 20.84% 2.02% (d) 0.74% (0.04)%
========= ========== ========= ========== ========
1.16% (e) 1.93% (e) 0.93% (e)(f) 1.14% 1.89%
2.43% (e) 1.66% (e) 2.66% (e)(f) 2.07% 1.32%
66% 66% 66% 54% 54%
$667,611 $353,831 $3,659 $555,275 $264,122
</TABLE>
31
<PAGE>
SHAREHOLDER SERVICES
TO MAKE INVESTING EASIER
Your Fund has one of the most extensive selections of shareholder services
available. Your financial advisor can help you arrange for any of these
services, or you can call Liberty Funds Services, Inc. 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(1): Exchange all or part of your account into the same share
class of another fund distributed by Liberty Funds Distributor, Inc. by phone or
mail.
Easy Access to Your Money1: 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 within one year, you can reinvest in any fund distributed by
Liberty Funds Distributor 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 Fund 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 calendar day of each month unless the 10th falls on a
non-business day or the first business day of the week. If this occurs, the
processing date will be the previous business day. Dividends and capital gains
must be reinvested.
Automated Dollar Cost Averaging: Transfer money on a monthly basis from any fund
with a balance of $5,000 into the same share class of up to four other funds
distributed by Liberty Funds Distributor. Minimum for each transfer is $100.
Retirement Plans: Choose from a broad range of retirement plans, including IRAs.
(1)Redemptions and exchanges are made at the next determined net asset value
after the request is received by the Transfer Agent. 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 C shares, or $1 million or more of Class A shares, may be subject to a
contingent deferred sales charge.
32
<PAGE>
HOW TO REACH US
BY PHONE OR BY MAIL
BY TELEPHONE
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 service 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 a.m. to 8:00 p.m. ET, and Saturdays from February through
mid-April, 10:00 a.m. to 2:00 p.m. ET.
Telephone Transaction Department - 1-800-422-3737
To purchase, exchange or sell shares by telephone, call Monday to Friday, 9:00
a.m. to 7:00 p.m. ET. Transactions received after the close of the New York
Stock Exchange will receive the next business day's closing price.
Literature - 1-800-426-3750
To request literature on any fund distributed by Liberty Funds Distributor,
Inc., call Monday to Friday, 8:30 a.m. to 6:30 p.m. ET.
BY MAIL
Liberty Funds Services, Inc.
P.O. Box 1722
Boston, MA 02105-1722
33
<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
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.
Liberty Funds Distributor Investor Opportunities: 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.)
34
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for The Colonial Fund is:
Liberty Funds Services, 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 and with the most recent copy of the Liberty
Funds Distributor, Inc. Performance Update.
*Effective October 1, 1998, Colonial Investors Service Center, Inc. -- the
Transfer Agent for Colonial, Crabbe Huson, Newport and Stein Roe Advisor Funds
-- changed its name to Liberty Funds Services, Inc.
35
<PAGE>
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TRUSTEES
ROBERT J. BIRNBAUM
Consultant (formerly Special Counsel, Dechert, Price & Rhoads; President and
Chief Operating Officer, New York Stock Exchange, Inc.; President, American
Stock Exchange, Inc.)
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
JOHN V. CARBERRY
Senior Vice President of Liberty Financial Companies, Inc. (formerly Managing
Director, Salomon Brothers)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
SALVATORE MACERA
Private Investor (formerly Executive Vice President of Itek Corp. and President
of Itek Optical & Electronic Industries, Inc.)
WILLIAM E. MAYER
Partner, Development Capital, LLC (formerly Dean, College of Business and
Management, University of Maryland; Dean, Simon Graduate School of Business,
University of Rochester; Chairman and Chief Executive Officer, CS First Boston
Merchant Bank; and President and Chief Executive Officer, The First Boston
Corporation)
JAMES L. MOODY, JR.
Retired (formerly Chairman of the Board, Chief Executive Officer and Director,
Hannaford Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
THOMAS E. STITZEL
Professor of Finance, College of Business, Boise State University; Business
Consultant and Author
ROBERT L. SULLIVAN
Retired Partner, KPMG LLP (formerly Management Consultant, Saatchi and Saatchi
Consulting Ltd. and Principal and International Practice Director, Management
Consulting, Peat Marwick Main & Co.)
ANNE-LEE VERVILLE
Consultant (formerly General Manager, Global Education Industry, and President,
Applications Solutions Division, IBM Corporation)
[Graphic: Liberty Shield (Head of Liberty)]
COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)1999
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
Visit us at www.libertyfunds.com TF-03/139H -0599 (6/99) 99/698
- --------------------------------------------------------------------------------
