--------------------------------------------------------------------------------
THE COLONIAL FUND Semiannual Report
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April 30, 2000
[COVER PHOTO]
<PAGE>
President's Message
Dear Shareholder:
As expected, the U.S. economy continued to experience strong growth over the
last six months, despite additional monetary tightening by the Federal Reserve
Board. Corporate earnings continued to benefit from this economic strength and
from ongoing productivity gains. Overall, the U.S. equity markets were positive,
but volatile. In addition, during the period of this report, there was an
ongoing disparity in returns between "old economy" and "new economy" stocks,
with technology again far outpacing all other sectors. However, in March,
investors began to shift their focus from growth stocks to traditional value
stocks, as investors became concerned with stock valuations and the ability of
companies to generate earnings.
Although the last six months was generally a positive time for stocks, the news
for fixed-income securities was less favorable, due primarily to rising interest
rates. In response, the Fund, which invests in both stocks and bonds, maintained
a relatively low weighting in the bond sector.
Asset allocation is a common investment strategy. Since each asset class has
different risk and return characteristics, spreading investments among different
classes may reduce risk. The Colonial Fund actively manages investments in a
diversified portfolio of both stocks and bonds, providing shareholders with
built-in asset allocation in a single investment vehicle. This strategy may be
an effective way to obtain growth opportunities with reduced risk.
The following report will provide you with more specific information about your
Fund's performance, and the investment strategies used during the period. As
always, we thank you for choosing The Colonial Fund. We look forward to
continuing to serve your investment needs.
Respectfully,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
June 15, 2000
---------------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
---------------------------
Because economic and market conditions change frequently, there can be no
assurance that the trends described in this report will continue or come to
pass.
<PAGE>
--------------------------------------------------------------------------------
Highlights
--------------------------------------------------------------------------------
o A challenging investment environment.
A more restrictive Federal Reserve policy, combined with increased stock
price volatility and high stock valuations, created a challenging
investment environment during the period. This recent volatility led to a
greater focus on underlying company fundamentals, which could provide
support to stocks with increasing earnings expectations and reasonable
valuations.
o Bond prices hurt by interest rate increases.
Hoping to keep economic growth under control and inflation at bay, the
Federal Reserve Board raised short-term rates three times during the
period, causing most bond prices to decline.
o Unusual market volatility.
This has been an unusual period in terms of stock market volatility, with
stock prices fluctuating dramatically. During the latter part of the
period, there was almost daily rotation between value and growth
securities. The chart below illustrates the performance of the Russell
1000 Index, a broad-based large capitalization stock index. It's
interesting to note the disparity in returns between the Russell Growth
Index and the Russell Value Index (sub-components of the Russell 1000
Index).
Performance of the Russell 1000 and Salomon BIG Indexes(1)
10/31/99 - 4/30/00
[The following information was depicted by a bar graph in the printed material.]
Russell 1000 Index 9.72%
Russell 1000 Growth Index 18.72%
Russell 1000 Value Index (0.99)%
Salomon Broad Investment-Grade Bond Index 1.57%
Total Returns
(1) The Russell 1000 Index measures the performance of the 1000 largest U.S.
companies based on total market capitalization. The Russell 1000 Growth Index
measures the performance of Russell 1000 companies with higher price-to-book
ratios and higher forecasted growth values. The Russell 1000 Value Index
measures performance of those Russell 1000 companies with lower price-to-book
ratios and lower forecasted growth values. The Salomon Brothers Broad
Investment-Grade (BIG)Bond Index is an unmanaged index that tracks the
performance of U.S. corporate investment-grade bonds.
Net asset value per share on 4/30/00
Class A $10.25
--------------------------------
Class B $10.24
--------------------------------
Class C $10.23
--------------------------------
Class Z $10.75
--------------------------------
Distributions declared per share from 11/1/99 to 4/30/00
Class A $1.297
--------------------------------
Class B $1.243
--------------------------------
Class C $1.243
--------------------------------
Class Z $1.315
--------------------------------
1
<PAGE>
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Portfolio Managers' Report
--------------------------------------------------------------------------------
[The following table was depicted as a bar graph in the printed material.]
Top five sector breakdowns as of 4/30/00 vs. 10/31/99
Fund as of 4/30/00 Fund as of 10/31/99
------------------ -------------------
Technology 33.5% 24.2%
Financials 13.2% 18.6%
Health care 10.2% 9.5%
Capital goods 8.6% 9.0%
Consumer cyclical 8.4% 9.4%
Sector breakdowns are calculated as a percentage of total equity investments.
Because the Fund is actively managed, there is no guarantee the Fund will
maintain these sector breakdowns in the future.
Industry sectors in the following financial statements are based upon the
standard industrial classifications (SIC) as published by the U.S. Office of
Management and Budget. The sector classifications used on this page are based
upon the Advisor's defined criteria as used in the investment process.
BOUGHT
--------------------------------------------------------------------------------
We purchased SCI Systems Inc. (0.3% of net assets), a leading player in the
outsourcing of electrical component manufacturing. Outsourcing, a major trend in
the electronics industry, has demonstrated annualized growth of more than 20%
over the last decade. What's more, we expect that the explosion of demand in the
telecommunications market will drive future industry growth. SCI Systems is
successfully expanding its market share in the telecommunications and away from
the more commodity-like personal computer industry. With a strong management
team, increased telecommunications exposure, and a greater focus on operational
consistency, the company is well situated for future growth.
Strong performance for The Colonial Fund
Careful stock and industry selection, and a relatively low weighting in bonds
helped The Colonial Fund to perform well. The Fund's Class A shares, without a
sales charge, returned 7.32% for the six months ended April 30, 2000.
Technology was still a driving force
As discussed in our prior annual report, we raised the Fund's exposure to growth
and technology companies and increased our holdings in larger size companies.
These two strategies have proven successful as large technology stocks were
among the Fund's top performers. Within the technology sector, computer hardware
and semiconductor stocks had the greatest impact on performance. Even outside of
the technology sector, companies with a technology-based line of business
rallied. Despite the fact that we trimmed several technology positions during
the period, the strong price performance of the Fund's holdings increased our
weighting in technology stocks from 24.2% to 33.5% of total equity investments.
Like fixed-income securities, prices of financial services stocks were adversely
affected by rising interest rates. In this environment, we reduced our weighting
in financial services issues from 18.6% to 13.2% of total equity investments.
However, careful stock selection within this sector, especially in investment
companies, benefited the Fund.
Performance in the consumer staples sector was disappointing. Revenue and profit
shortfalls during the period, resulting from a strong dollar and lower sales
overseas, were the main stumbling blocks for these securities. The Fund's
exposure to consumer staples decreased from 9.1% to 8.3% of total net equity
investments.
Bonds continued to face a challenging environment
The last six months have been difficult for the bond market overall. Reacting to
strong economic growth and capacity constraints in the labor market, the Federal
Reserve Board (the Fed) raised short-term rates three times over the last six
months. This move was largely anticipated and reflects the Fed's attempts to
keep economic growth in check and inflation under control. Most bond prices
declined in response to the continued efforts of monetary tightening. Amidst
this challenging time in the bond market, we reduced the Fund's exposure to
mortgage-backed bonds since they are sensitive to interest-rate hikes and
increased its weighting in investment-grade bonds near the end of the period.
2
<PAGE>
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Portfolio Managers' Report (continued)
--------------------------------------------------------------------------------
Favorable outlook
Looking ahead, we believe that the U.S. economy will continue to grow, although
at a somewhat slower pace than in recent quarters. We expect further interest
rate hikes from the Federal Reserve Board as they attempt to restrain
inflationary pressures. Under these conditions, the Fund will likely maintain a
relatively low weighting in fixed-income securities. We also expect the stock
market to continue to be volatile in the near term. However, we believe there
are select investment opportunities in both growth and value stocks. Therefore,
we will continue to emphasize companies having both strong business prospects
and attractive valuations.
/s/ John E. Lennon /s/ Peter B. Wiley
John E. Lennon Peter B. Wiley
/s/ Leslie W. Finnemore /s/ Ann T. Peterson
Leslie W. Finnemore Ann T. Peterson
Mr. Lennon and Mr. Wiley, senior vice president and vice president of the
Advisor, respectively, manage the equity portion of the Fund. Ms. Finnemore and
Ms. Peterson, senior vice president and vice president of the Advisor,
respectively, manage the bond portion of the Fund.
The value and returns earned on an investment in the Fund may be affected by
stock market fluctuations. Changes in interest rates, foreign, political and
economic developments, may also affect fund performance.
Top 10 holdings as of 4/30/00
1. Cisco Systems 3.0%
---------------------------------
2. Intel 2.8%
---------------------------------
3. G.E. 2.5%
---------------------------------
4. Exxon-Mobil 1.4%
---------------------------------
5. IBM 1.3%
---------------------------------
6. Oracle 1.3%
---------------------------------
7. Citigroup 1.3%
---------------------------------
8. EMC 1.3%
---------------------------------
9. Sun Microsystems 1.2%
---------------------------------
10. Texas Instruments 1.2%
---------------------------------
Holdings are calculated as a percentage of net assets. Because the Fund is
actively managed, there can be no guarantee the Fund will continue to maintain
these holdings in the future.
SOLD
--------------------------------------------------------------------------------
Originally a mainframe computer company, Unisys Corporation has evolved into an
information technology service and systems integration company. In 1999, Unisys
was in the midst of a multi-year corporate overhaul in which it hoped to
leverage its services businesses to accelerate revenue growth. Due to a Year
2000 slowdown in technology spending, however, the company could not sustain its
revenue growth. In addition, they faced execution and competitive issues in
their services businesses. We eliminated our position in Unisys because we
believed that the turnaround would take longer and be more difficult than
expected.
3
<PAGE>
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Performance Information
--------------------------------------------------------------------------------
Average Annual Total Returns as of 4/30/00
<TABLE>
<CAPTION>
Share class A B C Z
Inception date 4/30/82(1) 5/5/92 8/1/97 7/31/95
---------------------------------------------------------------------------------------
Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Six months 7.32% 1.15% 6.86% 2.12% 6.87% 5.92% 7.45%
---------------------------------------------------------------------------------------
1 year 8.78 2.52 8.00 3.24 7.93 6.98 13.68
---------------------------------------------------------------------------------------
5 years 16.43 15.05 15.54 15.32 15.94 15.94 17.73
---------------------------------------------------------------------------------------
10 years 13.93 13.25 13.24 13.24 13.69 13.69 14.56
---------------------------------------------------------------------------------------
</TABLE>
(1) Date fund adopted current investment objective.
Average Annual Total Returns as of 3/31/00
<TABLE>
<CAPTION>
Share class A B C Z
---------------------------------------------------------------------------------------
Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Six months 12.53% 6.06% 12.06% 7.08% 12.07% 11.08% 12.64%
---------------------------------------------------------------------------------------
1 year 12.34 5.88 11.55 6.63 11.58 10.60 17.46
---------------------------------------------------------------------------------------
5 years 17.35 15.97 16.45 16.23 16.89 16.89 18.65
---------------------------------------------------------------------------------------
10 years 13.70 13.02 13.02 13.02 13.47 13.47 14.33
---------------------------------------------------------------------------------------
</TABLE>
Past performance cannot predict future investment results. Returns and value of
an investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. The "with sales charge" returns include
both the maximum 5.75% sales charge for Class A shares, the appropriate Class B
contingent deferred sales charge for the holding period after purchase as
follows: through first year-5%, second year-4%, third year-3%, fourth year-3%,
fifth year-2%, sixth year-1%, thereafter-% and the Class C contingent deferred
sales charge of 1% for the first year only. Performance results reflect any
voluntary waivers or reimbursement of Fund expenses by the Advisor or its
affiliates. Absent these waivers or reimbursement arrangements, performance
would have been lower.
Performance for different share classes will vary based on difference in share
charges and fees associated with each class.
Class B, C and 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 of the newer class shares. These Class A share
returns were 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 the periods prior to inception of
the newer class shares would have been lower.
4
<PAGE>
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Investment Portfolio
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April 30, 2000 (Unaudited)
(In thousands)
Common Stocks - 65.0% SHARES VALUE
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FINANCE, INSURANCE & REAL ESTATE - 9.3%
Depository Institutions - 2.6%
BankAmerica Corp. 79 $ 3,890
Chase Manhattan Corp. 162 11,645
FleetBoston Financial Corp. 298 10,571
Golden West Financial Corp. 66 2,262
Greenpoint Financial Corp. 115 2,138
J.P. Morgan & Co., Inc. 19 2,465
Sovereign Bancorp, Inc. 372 2,559
UnionBanCal Corp. 194 5,374
----------
40,904
----------
Financial Services - 0.4%
AXA Financial, Inc. 179 5,846
----------
Insurance Carriers - 4.4%
Allstate Corp. 194 4,590
Ambac Financial Group, Inc. 159 7,627
American International Group, Inc. 160 17,529
CIGNA Corp. 45 3,620
Citigroup, Inc. 334 19,834
MGIC Investment Corp. 49 2,348
Nationwide Financial Services, Inc., Class A 67 1,858
Premark International Inc. 30 1,439
United Healthcare Corp. 156 10,369
----------
69,214
----------
Nondepository Credit Institutions - 0.5%
Associates First Capital Corp. 97 2,151
Metris Cos., Inc. 150 5,625
----------
7,776
----------
Security Brokers & Dealers - 1.4%
Bear Stearns Cos., Inc. 56 2,385
Merrill Lynch & Co., Inc. 59 6,004
Morgan Stanley Dean Witter & Co. 98 7,537
Paine Webber Group, Inc. 138 6,055
----------
21,981
----------
--------------------------------------------------------------------------------
MANUFACTURING - 35.2%
Chemicals & Allied Products - 6.4%
Allergan, Inc. 87 5,116
Amgen, Inc. (a) 156 8,747
Bristol-Myers Squibb Co. 308 16,124
Dow Chemical Co. 73 8,249
Eli Lilly & Co. 151 11,659
Lubrizol Corp. 84 2,158
Merck & Co., Inc. 187 13,017
Pfizer, Inc. 239 10,051
Procter & Gamble Co. 166 9,892
Warner-Lambert Co. 142 16,184
----------
101,197
----------
Communications Equipment - 1.7%
Comverse Technology, Inc. (a) 58 5,137
Lucent Technologies, Inc. 154 9,602
Motorola, Inc. 72 8,513
Tellabs, Inc. (a) 63 3,437
----------
26,689
----------
Electrical Industrial Equipment - 2.5%
General Electric Co. (a) 252 39,580
----------
Electronic & Electrical Equipment - 0.8%
Atmel Corp. (a) 107 5,217
Flextronics International Ltd. (a) 39 2,740
Qualcomm, Inc. (a) 38 4,153
----------
12,110
----------
Electronic Components - 5.2%
Amkor Technology, Inc. (a) 69 4,191
Intel Corp. 345 43,788
National Semiconductor Corp. (a) 52 3,177
Novellus Systems, Inc. (a) 94 6,295
SCI Systems, Inc. (a) 101 5,357
Texas Instruments, Inc. 117 19,121
----------
81,930
----------
Food & Kindred Products - 2.3%
Anheuser Busch Cos., Inc. 151 10,683
Coca Cola Co. 49 2,306
Coca-Cola Enterprises, Inc. 223 4,750
Hormel Foods Corp. 209 3,190
PepsiCo, Inc. 226 8,284
The Pepsi Bottling Group, Inc. 324 6,986
----------
36,199
----------
Household Appliances - 0.3%
Whirlpool Corp. 80 5,210
----------
Lumber & Wood Products - 0.2%
Weyerhaeuser Co. 70 3,751
----------
Machinery & Computer Equipment - 8.4%
Apple Computer, Inc. 73 9,007
Applied Materials, Inc. (a) 145 14,722
Brunswick Corp. 137 2,636
Cisco Systems, Inc. (a) 690 47,802
Dell Computer Corp. (a) 104 5,233
EMC Corp. (a) 143 19,798
Gateway, Inc. (a) 64 3,542
Hewlett-Packard Co. 34 4,536
International Business Machines Corp. 188 21,008
Lexmark International Group, Inc. (a) 34 4,036
----------
132,320
----------
Measuring & Analyzing Instruments - 1.2%
Honeywell International, Inc. 157 8,764
Teradyne, Inc. (a) 95 10,395
----------
19,159
----------
Miscellaneous Manufacturing - 0.3%
Tyco International Ltd. 122 5,581
----------
Paper Products - 0.7%
Boise Cascade Corp. 74 2,403
International Paper Co. 87 3,190
Kimberly Clark Corp. 97 5,632
----------
11,225
----------
Petroleum Refining - 2.0%
Chevron Corp. 100 8,504
Exxon Mobil Corp. 294 22,808
----------
31,312
----------
See notes to investment portfolio.
5
<PAGE>
--------------------------------------------------------------------------------
Investment Portfolio (continued)
--------------------------------------------------------------------------------
April 30, 2000 (Unaudited)
(In thousands)
Common Stocks (continued) SHARES VALUE
--------------------------------------------------------------------------------
MANUFACTURING (continued)
Rubber & Plastic - 0.4%
Engelhard Corp. 325 $ 5,711
----------
Stone, Clay, Glass & Concrete - 1.3%
Corning, Inc. 73 14,338
Minnesota Mining & Manufacturing Co. 70 6,064
----------
20,402
----------
Transportation Equipment - 1.5%
Boeing Co. 215 8,541
Ford Motor Co. 211 11,561
General Motors Corp. 34 3,165
----------
23,267
----------
--------------------------------------------------------------------------------
MINING & ENERGY - 2.2%
Crude Petroleum & Natural Gas - 0.2%
Conoco, Inc., Class B 115 2,848
----------
Oil & Gas Extraction - 0.7%
Falcon Drilling Co., Inc. 360 7,476
Transocean Sedco Forex, Inc. (a) 83 3,887
----------
11,363
----------
Oil & Gas Field Services - 1.3%
Enron Corp. 260 18,147
Petroleum Geo-Services ADR (a) 141 2,295
----------
20,442
----------
--------------------------------------------------------------------------------
RETAIL TRADE - 3.4%
Apparel & Accessory Stores - 0.1%
Abercrombie & Fitch Co. (a) 96 1,059
----------
Building, Hardware & Garden Supply - 0.4%
Home Depot, Inc. 122 6,828
----------
General Merchandise Stores - 1.2%
Target Corp. 77 5,112
Wal-Mart Stores, Inc. 259 14,337
----------
19,449
----------
Home Furnishings & Equipment - 1.1%
Best Buy Co., Inc. (a) 117 9,464
Tandy Corp. 136 7,763
----------
17,227
----------
Miscellaneous Retail - 0.3%
CVS Corp. 120 5,220
----------
Restaurants - 0.3%
Brinker International, Inc. (a) 144 4,603
----------
--------------------------------------------------------------------------------
SERVICES - 7.1%
Business Services - 1.9%
BEA Systems, Inc. (a) 44 2,113
Omnicom Group, Inc. 104 9,425
Sun Microsystems, Inc. (a) 213 19,555
----------
31,093
----------
Computer Related Services - 0.8%
America Online, Inc. (a) 83 4,970
Convergys Corp. (a) 185 8,122
----------
13,092
----------
COUNTRY SHARES VALUE
--------------------------------------------------------------------------------
Computer Software - 3.6%
Adobe Systems, Inc. 100 $ 12,082
Computer Associates International, Inc. 51 2,819
Microsoft Corp. (a) 257 17,947
Oracle Corp. (a) 250 19,968
Veritas Software Corp. (a) 34 3,636
----------
56,452
----------
Health Services - 0.6%
Columbia/HCA Healthcare Corp. 323 9,194
----------
Motion Pictures - 0.2%
The Walt Disney Co. 67 2,906
----------
--------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES - 7.5%
Air Transportation - 0.5%
Delta Air Lines, Inc. 78 4,088
UAL, Inc. 70 4,074
----------
8,162
----------
Communications - 0.2%
Telephone and Data Systems, Inc. 23 2,377
----------
Electric Services - 1.2%
Edison International 207 3,936
Entergy Corp. 221 5,627
TXU Corp. 151 5,077
Unicom Corp. 120 4,774
----------
19,414
----------
Telecommunication - 5.6%
AT&T Corp. 271 12,652
AT&T Wireless Group (a) 157 4,938
Bell Atlantic Corp. 100 5,925
BellSouth Corp. 119 5,779
Cablevision Systems Corp., Class A (a) 36 2,437
Chris-Craft Industries, Inc. (a) 74 4,544
Comcast Corp., Special Class A 241 9,639
Covad Communications Group, Inc. (a) 96 2,672
GTE Corp. 170 11,518
PMC-Sierra, Inc. (a) 26 4,950
SBC Communications, Inc., Class A 289 12,679
WorldCom Inc. (a) 241 10,964
----------
88,697
----------
--------------------------------------------------------------------------------
WHOLESALE TRADE - 0.3%
Durable Goods - 0.1%
Beers NV Ne 41 1,193
----------
Nondurable Goods - 0.2%
Sysco Corp. 110 4,131
----------
TOTAL COMMON STOCKS
(Cost of $746,733) 1,027,114
----------
See notes to investment portfolio.
6
<PAGE>
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Investment Portfolio (continued)
--------------------------------------------------------------------------------
Bonds & Notes - 27.4% PAR VALUE
--------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 24.3%
Government Agencies - 16.5%
Federal Home Loan Mortgage Corp.,
6.000% 2009-2026 $ 17,012 $ 15,892
----------
Federal National Mortgage Association:
5.750% 2003 (b) 9,700 9,338
6.000% 2008-2009 17,012 36,562
6.500% 2008-2023 75,743 71,939
6.625% 2009 (b) 14,575 13,889
7.000% 2014 (b) 25,000 24,414
7.500% 2027 (b) 30,000 29,353
----------
185,495
----------
Government National Mortgage Association:
6.500% 2024-2029 39,218 36,805
7.000% 2023-2024 22,631 21,843
----------
58,648
----------
Government Obligations - 7.8%
U.S. Treasury Bond:
5.875% 10/31/01 29,000 28,660
6.375% 08/15/27 3,770 3,850
8.750% 08/15/20 27,833 35,587
9.250% 02/15/16 16,089 20,702
----------
88,799
----------
U.S. Treasury Note,
6.500% 10/15/06 34,910 34,834
----------
TOTAL U.S. GOVERNMENT
& AGENCY OBLIGATIONS
(Cost of $389,723) 383,668
----------
--------------------------------------------------------------------------------
NON AGENCY MORTGAGE-BACKED & ASSET-BACKED
SECURITIES - 3.1%
Non Agency Mortgage-Backed - 2.1%
Aames Mortgage Trust,
7.870% 09/15/25 2,145 2,146
Countrywide Home Loans,
6.500% 12/25/28 1,969 1,719
GE Capital Mortgage Services, Inc.,
6.250% 01/25/29 1,390 1,167
Headlands Mortgage Securities, Inc.:
6.500% 11/25/28 713 564
6.500% 11/25/28 1,967 1,652
7.000% 02/25/28 3,290 2,998
Norwest Asset Securities Corp.:
6.250% 01/15/29 3,554 2,906
6.500% 01/25/29 1,775 1,525
PNC Mortgage Securities Corp.,
7.000% 03/25/28 3,420 3,180
Provident Bank Home Equity Loan Trust,
7.600% 10/25/12 1,956 1,931
Residential Accredit Loans, Inc.:
6.500% 03/25/29 3,083 2,742
7.000% 10/25/12 2,728 2,592
7.000% 10/25/12 800 753
7.000% 10/25/12 376 340
7.250% 12/25/27 4,314 4,077
Residential Funding Mortgage Securities, Inc.,
6.500% 04/25/13 2,843 2,621
----------
32,913
----------
Asset-Backed Securities - 1.0%
Delta Funding Home Equity Loan Trust,
8.010% 10/25/27 5,000 5,004
Green Tree Financial Corp.,
7.700% 09/15/26 3,456 3,252
Sears Credit Account Master Trust,
6.000% 08/15/05 3,000 2,952
UCFC Home Equity Loan Corp.,
8.025% 08/10/25 5,152 5,166
----------
16,374
----------
TOTAL NON-AGENCY
MORTGAGE-BACKED
& ASSET-BACKED SECURITIES
(Cost of $47,205) 49,287
----------
Corporate Fixed-Income Bonds & Notes - 5.9%
--------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 1.8%
Depository Institutions - 0.9%
Bank One Texas,
6.250% 02/15/08 2,000 1,797
Comerica Bank,
7.875% 09/15/26 1,000 974
Fleet Financial Group, Inc.,
6.700% 07/15/28 1,000 835
KeyBank N.A.,
7.125% 08/15/06 2,000 1,919
NationsBank Corp.,
6.875% 02/15/05 2,000 1,930
Norwest Corp.,
6.650% 10/15/23 1,000 852
PNC Funding Corp.,
6.875% 07/15/07 1,000 935
Signet Banking Corp.,
7.800% 09/15/06 2,000 1,980
Wachovia Corp.,
6.250% 08/04/08 3,000 2,707
----------
13,929
----------
Insurance Agents & Brokers - 0.1%
General Electric Global Insurance
Holding Corp.,
7.000% 02/15/26 1,000 906
----------
Insurance Carriers - 0.2%
Metropolitan Life Insurance Co.,
6.300% 11/01/03 3,000 2,846
----------
Nondepository Credit Insurance - 0.4%
Associates Corp. of North America:
6.250% 11/01/08 1,000 904
6.875% 11/15/08 1,000 942
General Motors Acceptance Corp.,
6.125% 01/22/08 3,000 2,700
See notes to investment portfolio. 7
<PAGE>
--------------------------------------------------------------------------------
Investment Portfolio (continued)
--------------------------------------------------------------------------------
April 30, 2000 (Unaudited)
(In thousands)
Corporate Fixed-Income
Bonds & Notes (continued) PAR VALUE
--------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE (continued)
Household Finance Corp.:
6.400% 06/17/08 $ 1,000 $ 904
7.625% 01/15/03 1,000 994
----------
6,444
----------
Security Brokers & Dealers - 0.2%
Bear Stearns Co., Inc.,
6.500% 08/01/02 1,000 975
Merrill Lynch & Co., Inc.,
6.000% 02/12/03 1,000 961
Morgan Stanley, Dean Witter, Discover & Co.,
8.100% 06/24/02 1,000 1,010
Salomon, Inc.,
7.300% 05/15/02 1,000 996
----------
3,942
----------
--------------------------------------------------------------------------------
MANUFACTURING - 0.8%
Chemicals & Allied Products - 0.2%
Dow Chemical Co.,
7.375% 03/01/23 1,000 953
Equistar Chemicals, LP
8.750% 02/15/09 2,000 1,923
----------
2,876
----------
Electronic & Electrical Equipment - 0.2%
Raytheon Co.,
8.300% 03/01/10 3,000 2,953
----------
Fabricated Metal - 0.0%
Masco Corp.,
6.625% 04/15/18 1,000 854
----------
Food & Kindred Products - 0.2%
Archer Daniels Midland Co.,
6.750% 12/15/27 1,000 852
Coca-Cola Enterprises, Inc.,
6.950% 11/15/26 2,000 1,789
----------
2,641
----------
Primary Metal - 0.1%
Bell Atlantic Financial Services, Inc.,
7.600% 03/15/07 1,000 1,001
----------
Transportation Equipment - 0.1%
Ford Motor Co.,
7.125% 11/15/25 2,000 1,805
----------
--------------------------------------------------------------------------------
MINING & ENERGY - 0.5%
Crude Petroleum & Natural Gas - 0.2%
Union Oil Co. of California,
7.200% 05/15/05 3,000 2,899
----------
Oil & Gas Field Services - 0.3%
Enron Corp.,
6.750% 07/01/05 3,000 2,829
Phillips Petroleum Co.,
6.650% 07/15/18 2,000 1,688
----------
4,517
----------
RETAIL TRADE - 0.2%
General Merchandise Stores - 0.1%
Dillard Department Stores,
Inc.,
6.625% 01/15/18 1,000 747
Sears, Roebuck & Co. Acceptance Corp.,
6.750% 01/15/28 1,000 818
----------
1,565
----------
Miscellaneous Retail - 0.1%
Dayton Hudson Corp.,
7.250% 09/01/04 2,000 1,977
----------
--------------------------------------------------------------------------------
SERVICES - 0.2%
Business Services - 0.2%
Federal Express Corp.,
7.500% 01/15/18 4,276 4,183
----------
--------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES - 2.4%
Air Transportation - 0.1%
Lockheed Martin Corp.,
7.250% 05/15/06 2,000 1,878
----------
Broadcasting - 0.2%
News America Holdings, Inc.,
7.375% 10/17/08 3,000 2,812
----------
Cable - 0.6%
Comacast Cable Communications, Inc.,
8.375% 05/01/07 3,000 3,025
Continental Cablevision, Inc.,
8.875% 09/15/05 3,000 3,129
TCI Communications, Inc.,
8.650% 09/15/04 3,000 3,103
----------
9,257
----------
Communications - 0.2%
Duke Energy Corp.,
7.375% 03/01/10 2,000 1,919
U.S. West Capital Funding, Inc.,
6.375% 07/15/08 1,000 904
----------
2,823
----------
Electric Services - 0.6%
Arizona Public Service Co.,
6.250% 01/15/05 1,000 923
Carolina Power & Light Co.,
6.800% 08/15/07 3,000 2,831
Florida Power & Light Co.,
6.000% 06/01/08 1,000 892
Houston Lighting & Power Co.,
6.500% 04/21/03 2,000 1,908
Public Service Co. of Colorado,
7.125% 06/01/06 1,000 964
Texas Utilities Electric Co.:
7.170% 08/01/07 2,000 1,869
8.250% 04/01/04 1,000 1,006
----------
10,393
----------
See notes to investment portfolio.
8
<PAGE>
--------------------------------------------------------------------------------
Investment Portfolio (continued)
--------------------------------------------------------------------------------
Corporate Fixed-Income
Bonds & Notes (continued) PAR VALUE
-------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES (continued)
Gas Services - 0.1%
Sonat, Inc.,
6.875% 06/01/05 $ 1,500 $ 1,426
----------
Railroad - 0.0%
Norfolk Southern Corp.,
7.800% 05/15/27 1,000 944
----------
Telecommunication - 0.6%
BellSouth Telecommunications, Inc.,
6.375% 06/01/28 2,000 1,676
GTE Corp.,
6.840% 04/15/18 3,000 2,701
Pacific Bell,
6.875% 08/15/06 2,000 1,931
WorldCom, Inc.,
6.950% 08/15/28 3,000 2,661
----------
8,969
----------
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES
(Cost of $106,577) 93,839
----------
TOTAL BONDS & NOTES
(Cost of $543,505) 432,955
----------
TOTAL INVESTMENTS - 98.3%
(Cost of $1,290,238) (c) 1,553,908
----------
Short-Term Obligations - 3.8%
-------------------------------------------------------------------------------
Repurchase agreement with SBC Warburg Ltd.,
dated 04/28/00, due 05/01/00 at 5.710%,
collateralized by U.S. Treasury notes with
various maturities to 2025, market value
$60,938 (repurchase proceeds $59,593) 59,565 59,565
----------
Other Assets & Liabilities, Net - (2.1)% (33,150)
--------------------------------------------------------------------------------
NET ASSETS - 100.0% $1,580,323
==========
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) Cost for federal income tax purposes is the same.
Summary of Securities
by Country Country Value % of Total
--------------------------------------------------------------------------------
United States $1,552,715 99.9
Netherlands Ne 1,193 0.1
---------- -----
$1,553,908 100.0
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 investment portfolio.
9
<PAGE>
--------------------------------------------------------------------------------
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
April 30, 2000 (Unaudited)
(In thousands except for per share amounts and footnotes)
Assets
Investments at value (cost $1,290,238) $1,553,908
Short-term obligations 59,565
----------
1,613,473
Cash including foreign currencies
(cost $260) $ 237
Receivable for:
Investments sold 76,490
Interest 5,445
Dividends 908
Fund shares sold 597
Foreign tax reclaims 115
Other 347 84,139
-------- ----------
Total Assets 1,697,612
Liabilities
Cash including foreign currencies
(cost $382) 373
Payable for:
Investments purchased 112,992
Fund shares repurchased 2,538
Accrued:
Management fee 707
Transfer agent fee 470
Bookkeeping fee 42
Deferred Trustees' fees 18
Other 149
--------
Total Liabilities 117,289
----------
Net Assets $1,580,323
----------
Net asset value & redemption price per share -
Class A ($900,553/87,871) $ 10.25 (a)
----------
Maximum offering price per share -
Class A ($10.25/0.9425) $ 10.88 (b)
----------
Net asset value & offering price per share -
Class B ($672,468/65,666) $ 10.24 (a)
----------
Net asset value & offering price per share -
Class C ($7,299/714) $ 10.23 (a)
----------
Net asset value, offering & redemption price
per share - Class Z ($3/(c)) $ 10.75
----------
Composition of Net Assets
Capital paid in $1,167,265
Undistributed net investment income 2,481
Accumulated net realized gain 146,954
Net unrealized appreciation (depreciation)on:
Investments 263,670
Foreign currency transactions (47)
----------
$1,580,323
==========
(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.
(c) Rounds to less than one.
--------------------------------------------------------------------------------
Statement of Operations
--------------------------------------------------------------------------------
For the Six Months Ended April 30, 2000 (Unaudited)
(In thousands)
Investment Income
Interest $ 18,214
Dividends 5,342
--------
23,556
Expenses
Management fee $ 4,309
Service fee - Class A, Class B, Class C 1,971
Distribution fee - Class B 2,601
Distribution fee - Class C 31
Transfer agent fee 2,318
Bookkeeping fee 258
Trustees' fees 35
Custodian fee 30
Audit fee 18
Legal fee 10
Registration fee 39
Reports to shareholders 18
Other 41 11,679
-------- --------
Net Investment Income 11,877
--------
Net Realized and Unrealized Gain (Loss)
on Portfolio Positions
Net realized gain on:
Investments 146,997
Foreign currency transactions 29
--------
Net Realized Gain 147,026
Net change in unrealized appreciation /depreciation
during the period on:
Investments (46,546)
Foreign currency transactions (9)
--------
Net Change in Unrealized
Appreciation/Depreciation (46,555)
--------
Net Gain 100,471
--------
Increase in Net Assets from Operations $112,348
========
See notes to financial statements.
10
<PAGE>
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
(In thousands)
(Unaudited)
Six months Year
ended ended
April 30, October 31,
--------- -----------
Increase (Decrease) in Net Assets 2000 1999
--------------------------------------------------------------------------------
Operations:
Net investment income $ 11,877 $ 28,857
Net realized gain 147,026 202,426
Net Change in Unrealized Appreciation/
Depreciation (46,555) (62,343)
----------- -----------
Net Increase from Operations 112,348 168,940
Distributions:
From net investment income - Class A (8,947) (20,595)
From net realized gains - Class A (101,840) (39,280)
From net investment income - Class B (3,210) (9,809)
From net realized gains - Class B (77,116) (27,841)
From net investment income - Class C (37) (109)
From net realized gains - Class C (969) (246)
From net investment income - Class Z (a) (443)
From net realized gains - Class Z (a) (930)
----------- -----------
(79,771) 69,687
----------- -----------
Fund Share Transactions:
Receipts for shares sold - Class A 23,410 63,422
Value of distributions reinvested - Class A 100,463 53,836
Cost of shares repurchased - Class A (114,217) (157,644)
----------- -----------
9,656 (40,386)
----------- -----------
Receipts for shares sold - Class B 37,570 142,372
Value of distributions reinvested - Class B 76,170 35,667
Cost of shares repurchased - Class B (113,750) (153,659)
----------- -----------
(10) 24,380
----------- -----------
Receipts for shares sold - Class C 1,096 5,044
Value of distributions reinvested - Class C 955 341
Cost of shares repurchased - Class C (3,377) (2,102)
----------- -----------
(1,326) 3,283
----------- -----------
Receipts for shares sold - Class Z (a) 1,700
Value of distributions reinvested - Class Z (a) 897
Cost of shares repurchased - Class Z (a) (25,638)
----------- -----------
(a) (23,041)
----------- -----------
Net Increase (Decrease) from Fund
Share Transactions 8,320 (35,764)
----------- -----------
Total Increase (Decrease) (71,451) 33,923
Net Assets
Beginning of period 1,651,774 1,617,851
----------- -----------
End of period (including
undistributed net investment income
of $2,481 and $2,798, respectively) $ 1,580,323 $ 1,651,774
=========== ===========
(a) Rounds to less than one.
(Unaudited)
Six months Year
ended ended
April 30, October 31,
--------- -----------
2000 1999
--------------------------------------------------------------------------------
Number of Fund Shares
Sold - Class A 2,291 5,951
Issued for distributions reinvested - Class A 10,154 5,196
Repurchased - Class A (11,206) (14,754)
------- -------
1,239 (3,607)
------- -------
Sold - Class B 3,686 13,378
Issued for distributions reinvested - Class B 7,690 3,452
Repurchased - Class B (11,202) (14,427)
------- -------
174 2,403
------- -------
Sold - Class C 106 475
Issued for distributions reinvested - Class C 97 33
Repurchased - Class C (331) (197)
------- -------
(128) 311
------- -------
Sold - Class Z (a) 161
Issued for distributions reinvested - Class Z (a) 86
Repurchased - Class Z (a) (2,387)
------- -------
(a) (2,140)
------- -------
(a) Rounds to less than one.
See notes to financial statements.
11
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
April 30, 2000 (Unaudited)
Note 1. Interim Financial Statements
In the opinion of management of The Colonial Fund (the Fund), a series of
Liberty Funds 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, 2000, 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. A 1.00% contingent deferred sales charge is assessed 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. Effective February 1, 2000, Class B shares
will convert to Class A shares as follows:
Converts to
Original purchase Class A shares
----------------- --------------
Less than $250,000 8 years
$250,000 to less than $500,000 4 years
$500,000 to less than $1,000,000 3 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, as described in the Fund's
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
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 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 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.
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
12
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
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 gains (losses) arising from fluctuations in exchange rates 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.
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.
Effective January 1, 2000, the Transfer Agent fee was changed to a fee comprised
of 0.07% annually of average net assets plus charges based on the number of
shareholder accounts and transactions.
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 month's ended April 30, 2000,
the Fund has been advised that the Distributor retained net underwriting
discounts of $34,717 on sales of the Fund's Class A shares and received
contingent deferred sales charges (CDSC) of $5,450, $951,002 and $6,655 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:
Value of shares
outstanding on the 20th of Annual 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.
13
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
April 30, 2000 (Unaudited)
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, 2000, purchases and sales of investments,
other than short-term obligations, were $692,540,674 and $817,238,377, of which
$401,420,331 and $338,712,459 respectively, were U.S. government securities.
Unrealized appreciation (depreciation) at April 30, 2000, based on cost of
investments for both financial statements and federal income tax purposes was:
Gross unrealized appreciation $330,414,498
Gross unrealized depreciation (66,744,284)
------------
Net unrealized appreciation $263,670,214
============
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 month's ended April 30, 2000.
Note 6. Other Related Party Transactions
During the six month's ended April 30, 2000, the Fund used Alphatrade, a wholly
owned subsidiary of Colonial Management Associates, Inc., as a broker. Total
commissions paid to Alphatrade during the six months were $68,495.
14
<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, 2000
--------------------------------------------------------
Class A Class B Class C Class Z
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $ 10.810 $ 10.790 $ 10.780 $11.280
------------ ------------ ---------- -------
Income from Investment Operations
Net investment income (a) 0.091 0.053 0.053 0.103
Net realized and unrealized gain 0.646 0.640 0.640 0.682
------------ ------------ ---------- -------
Total from Investment Operations 0.737 0.693 0.693 0.785
------------ ------------ ---------- -------
Less Distributions Declared to Shareholders
From net investment income (0.102) (0.048) (0.048) (0.120)
From net realized gains (1.195) (1.195) (1.195) (1.195)
------------ ------------ ---------- -------
Total Distributions Declared to Shareholders (1.297) (1.243) (1.243) (1.315)
------------ ------------ ---------- -------
Net Asset Value, End of Period $ 10.250 $ 10.240 $ 10.230 $10.750
============ ============ ========== =======
Total return (b) (c) 7.32% 6.86% 6.87% 7.45%
============ ============ ========== =======
Ratios to Average Net Assets
Expenses (d) (e) 1.11% 1.86% 1.86% 0.87%
Net investment income (d) (e) 1.79% 1.04% 1.03% 2.03%
Portfolio turnover (c) 44% 44% 44% 44%
Net assets at end of period (000) $ 900,553 $ 672,468 $ 7,299 $ 3
</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.
<TABLE>
<CAPTION>
Year ended October 31, 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) 0.214 0.134 0.135 0.240
Net realized and unrealized gain 0.884 0.883 0.884 1.343
------------ ------------ ---------- -------
Total from Investment Operations 1.098 1.017 1.019 1.583
------------ ------------ ---------- -------
Less Distributions Declared to Shareholders
From net investment income (0.230) (0.149) (0.151) (0.255)
From net realized gains (0.438) (0.438) (0.438) (0.438)
------------ ------------ ---------- -------
Total Distributions Declared to Shareholders (0.668) (0.587) (0.589) (0.693)
------------ ------------ ---------- -------
Net Asset Value, End of Period $ 10.810 $ 10.790 $ 10.780 $11.280
============ ============ ========== =======
Total return (b) 10.94% 10.11% 10.15% 15.92%
============ ============ ========== =======
Ratios to Average Net Assets
Expenses (c) 1.12% 1.88% 1.88% 0.88%
Net investment income (c) 2.02% 1.26% 1.26% 2.26%
Portfolio turnover 74% 74% 74% 74%
Net assets at end of period (000) $ 936,331 $ 706,366 $ 9,074 $ 3
</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) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
15
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------
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 - Beginning of Period $ 11.160 $ 11.140 $ 11.150 $ 11.170
------------ ------------ ---------- -----------
Income from Investment Operations
Net investment income (a) 0.235 0.156 0.157 0.261
Net realized and unrealized gain 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 (b) 9.08% 8.27% 8.21% 9.35%
============ ============ ========== ===========
Ratios to Average Net Assets
Expenses (c) 1.12% 1.87% 1.87% 0.88%
Net investment income (c) 2.22% 1.47% 1.47% 2.46%
Portfolio turnover 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) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
<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) 2.225 2.217 (0.345)(c) 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 $ 11.160 $ 11.140 $ 11.150 $ 11.170
============ ============ ========== ===========
Total return (d) 26.83% 25.81% (1.30)%(e) 27.10%
============ ============ ========== ===========
Ratios to Average Net Assets
Expenses (f) 1.14% 1.89% 1.86%(g) 0.90%
Net investment income (f) 1.56% 0.81% 1.01%(g) 1.80%
Portfolio turnover 71% 71% 71% 71%
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) 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.
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(g) Annualized.
16
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------
Selected data for a share of each class outstanding
throughout each period are as follows:
<TABLE>
<CAPTION>
Year ended October 31
--------------------------------------------------------------------
1996 1995
------------------------------- ---------------------------------
Class A Class B Class Z Class A Class B Class Z (b)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value - Beginning of Period $ 8.940 $ 8.930 $ 8.940 $ 8.060 $ 8.050 $ 8.780
-------- -------- ------- -------- -------- -------
Income from Investment Operations
Net investment income (a) 0.165 0.097 0.186 0.200 0.137 0.041
Net realized and unrealized gain 1.183 1.182 1.192 1.393 1.395 0.167 (c)
-------- -------- ------- -------- -------- -------
Total from Investment Operations 1.348 1.279 1.378 1.593 1.532 0.208
-------- -------- ------- -------- -------- -------
Less Distributions Declared to Shareholders
From net investment income (0.162) (0.093) (0.182) (0.212) (0.151) (0.048)
From net realized gains (0.636) (0.636) (0.636) (0.501) (0.501) --
-------- -------- ------- -------- -------- -------
Total Distributions Declared to Shareholders (0.798) (0.729) (0.818) (0.713) (0.652) (0.048)
-------- -------- ------- -------- -------- -------
Net Asset Value, End of Period $ 9.490 $ 9.480 $ 9.500 $ 8.940 $ 8.930 $ 8.940
======== ======== ======= ======== ======== =======
Total return (d) 16.11% 15.27% 16.50% 21.72% 20.84% 2.02% (e)
======== ======== ======= ======== ======== =======
Ratios to Average Net Assets
Expenses (f) 1.15% 1.90% 0.91% 1.16% 1.93% 0.93% (g)
Net investment income (f) 1.82% 1.07% 2.06% 2.43% 1.66% 2.66% (g)
Portfolio turnover 38% 38% 38% 66% 66% 66%
Net assets at end of period (000) $759,409 $453,468 $13,555 $667,611 $353,831 $ 3,659
</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) 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.
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(g) Annualized.
17
<PAGE>
Trustees & Transfer Agent
--------------------------------------------------------------------------------
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
Academic Vice President and Dean of Faculties, Boston College (formerly Dean,
Boston College School of Management)
Thomas E. Stitzel
Professor of Finance, College of Business, Boise State University; Business
Consultant and Author
Anne-Lee Verville
Consultant (formerly General Manager, Global Education Industry, and President,
Applications Solutions Division, IBM Corporation)
--------------------------------------------------------------------------------
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 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 objectives and
operating policies of the Fund and with the most recent copy of the Liberty
Funds Distributor, Inc. Performance Update.
Semiannual Report:
The Colonial Fund
<PAGE>
Liberty offers the independent thinking and collective strength of six financial
specialists. Our distinguished product line helps financial advisors and their
clients build diversified investment portfolios for long-term financial goals.
--------------------------------------------------------------------------------
L I B E R T Y
-------------
F U N D S
--------------------------------------------------------------------------------
ALL-STAR Institutional money management approach for individual investors.
--------------------------------------------------------------------------------
COLONIAL Fixed-income and value style equity investing.
--------------------------------------------------------------------------------
CRABBE
HUSON A contrarian approach to fixed-income and equity investing.
--------------------------------------------------------------------------------
NEWPORT A leader in international investing.(SM)
--------------------------------------------------------------------------------
STEIN ROE
ADVISOR Solutions for growth and income investing.
--------------------------------------------------------------------------------
[KEYPORT
LOGO] A leading provider of innovative annuity products.
--------------------------------------------------------------------------------
Liberty's mutual funds are offered by prospectus through Liberty Funds
Distributor, Inc.
Before you invest, consult your financial advisor.
Your financial advisor can help you develop a long-term plan for reaching your
financial goals.
------------------------------------------------
THE COLONIAL FUND Semiannual Report
------------------------------------------------
[LOGO] LIBERTY
-------
FUNDS
ALL-STAR o COLONIAL o CHARLESTON o NEWPORT o STEIN ROE ADVISOR
Liberty Funds Distributors, Inc. (C)2000
One Financial Center, Boston, MA 02110-2621, 1-800-426-3750
www.libertyfunds.com
BULK RATE
U.S. POSTAGE
PAID
Holliston, MA
PERMIT NO. 20
<PAGE>
Liberty offers the independent thinking and collective strength of six financial
specialists. Our distinguished product line helps financial advisors and their
clients build diversified investment portfolios for long-term financial goals.
--------------------------------------------------------------------------------
L I B E R T Y
-------------
F U N D S
--------------------------------------------------------------------------------
ALL-STAR Institutional money management approach for individual investors.
--------------------------------------------------------------------------------
COLONIAL Fixed-income and value style equity investing.
--------------------------------------------------------------------------------
CRABBE
HUSON A contrarian approach to fixed-income and equity investing.
--------------------------------------------------------------------------------
NEWPORT A leader in international investing.(SM)
--------------------------------------------------------------------------------
STEIN ROE
ADVISOR Solutions for growth and income investing.
--------------------------------------------------------------------------------
[KEYPORT
LOGO] A leading provider of innovative annuity products.
--------------------------------------------------------------------------------
Liberty's mutual funds are offered by prospectus through Liberty Funds
Distributor, Inc.
Before you invest, consult your financial advisor.
Your financial advisor can help you develop a long-term plan for reaching your
financial goals.
------------------------------------------------
THE COLONIAL FUND Semiannual Report
------------------------------------------------
[LOGO] LIBERTY
-------
FUNDS
ALL-STAR o COLONIAL o CHARLESTON o NEWPORT o STEIN ROE ADVISOR
<PAGE>
Liberty offers the independent thinking and collective strength of six financial
specialists. Our distinguished product line helps financial advisors and their
clients build diversified investment portfolios for long-term financial goals.
--------------------------------------------------------------------------------
L I B E R T Y
-------------
F U N D S
--------------------------------------------------------------------------------
ALL-STAR Institutional money management approach for individual investors.
--------------------------------------------------------------------------------
COLONIAL Fixed-income and value style equity investing.
--------------------------------------------------------------------------------
CRABBE
HUSON A contrarian approach to fixed-income and equity investing.
--------------------------------------------------------------------------------
NEWPORT A leader in international investing.(SM)
--------------------------------------------------------------------------------
STEIN ROE
ADVISOR Solutions for growth and income investing.
--------------------------------------------------------------------------------
[KEYPORT
LOGO] A leading provider of innovative annuity products.
--------------------------------------------------------------------------------
Liberty's mutual funds are offered by prospectus through Liberty Funds
Distributor, Inc.
Before you invest, consult your financial advisor.
Your financial advisor can help you develop a long-term plan for reaching your
financial goals.
------------------------------------------------
THE COLONIAL FUND Semiannual Report
------------------------------------------------
[LOGO] LIBERTY
-------
FUNDS
ALL-STAR o COLONIAL o CHARLESTON o NEWPORT o STEIN ROE ADVISOR
Liberty Funds Distributors, Inc. (C)2000
One Financial Center, Boston, MA 02110-2621, 1-800-426-3750
www.libertyfunds.com
