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[LOGO]
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COLONIAL GROWTH
SHARES FUND
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ANNUAL REPORT
OCTOBER 31, 1996
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[graphic omitted]
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
<PAGE>
COLONIAL GROWTH SHARES FUND HIGHLIGHTS
NOVEMBER 1, 1995 - OCTOBER 31, 1996
INVESTMENT OBJECTIVE: Colonial Growth Shares Fund seeks long-term growth by
investing primarily in middle capitalization equities.
THE FUND IS DESIGNED TO OFFER:
x Opportunity for long-term growth
x A disciplined investment strategy
x Broad diversification
PORTFOLIO MANAGER COMMENTARY: "Our systematic approach of screening a broad
universe of potential investments followed by closely focusing our attention on
a small number of these investments, allows us to identify the best candidates
for purchase. This approach has resulted in attractive returns for shareholders
during the period." -- Peter Wiley
COLONIAL GROWTH SHARES FUND PERFORMANCE
CLASS A CLASS B
12-month distributions declared per share $1.305 $1.248
12-month total returns, assuming 21.28% 20.31%
reinvestment of all distributions
and no sales charge or contingent
deferred sales charge (CDSC)
Net asset value per share at 10/31/96 $18.04 $17.84
TOP FIVE HOLDINGS* TOP FIVE SECTORS*+
(as of 10/31/96) (as of 10/31/96)
...................................... ..................................
1. Safeway, Inc. 3.0% 1. Technology 20.1%
2. Tyco International Ltd. 2.9% 2. Consumer Cyclicals 17.5%
3. Sunamerica Inc. 2.9% 3. Financials 13.5%
4. Cadence Design Systems Inc. 2.7% 4. Health Care 9.2%
5. Computer Associates 2.7% 5. Services 7.3%
*Holdings and sector breakdowns are calculated as a percent of total net assets.
Because the Fund is actively managed, there can be no guarantee the Fund will
continue to hold these securities or invest in these sectors in the future.
+Industry sectors in the following financial statements are based upon the
standard industrial classifications (SIC) published by the U.S. Office of
Management and Budget. The sector classifications used on this page are based
upon Colonial's defined criteria used in the investment process.
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[Photo of Harold W. Cogger]
I am pleased to present your Fund's annual report for the fiscal year ended
October 31, 1996. This report gives us the opportunity to share our analysis of
your fund and the investment environment over the past 12 months.
The Federal Reserve Board lowered short-term interest rates in December 1995 and
again in January 1996. Furthermore, in the bond market, significantly stronger
economic indicators mid-way through the period stirred inflation fears and
propelled long-term interest rates upward. However, we believe that the bond
market volatility should be somewhat reduced in the months ahead.
In the U.S. stock market, generally favorable conditions prevailed throughout
most of the period with both large and small company stocks posting strong
returns until July, when a price-based correction took place. Since then, the
market has rebounded nicely with the Dow Jones Industrial Average setting
several new records.
Internationally, we are still seeing declining interest rates in most markets.
Japan's recovery is modest and interest rates are being held low. China is
reducing rates, now that inflation has declined into single digits. In Europe,
short-term interest rates are much lower than long-term ones, creating a steep
yield curve. We expect this situation to continue until we see an increase in
economic activity.
Our expectations include moderate economic growth continuing into the first half
of 1997. If our current projections hold, we may see the economy picking up
again in the second half of 1997.
In the following pages, you'll find detailed information on your Fund's
performance as well as an in-depth discussion with the portfolio manager. As
always, we appreciate the opportunity to help you meet your investment goals.
Respectfully,
/s/Harold W. Cogger
Harold W. Cogger
President
December 10, 1996
Because market conditions change frequently, there can be no assurance that the
trends described will continue, come to pass or affect Fund performance.
<PAGE>
PORTFOLIO MANAGEMENT REPORT
DANIEL RIE is lead portfolio manager of Colonial Growth Shares Fund and is
Senior Vice President of Colonial Management Associates, Inc. Dr. Rie also
directs Colonial's equity investment team. PETER WILEY is associate portfolio
manager of the Fund and is Vice President of Colonial Management Associates,
Inc.
Q. WHAT WAS THE INVESTMENT ENVIRONMENT FOR STOCKS DURING THE PERIOD?
A. The 12-month period generally was favorable for equity investments, with both
large company and small company stocks posting strong returns until July, when a
correction took place. The stock markets rebounded in August and the Dow Jones
Industrial Average topped the 6000 mark for the first time in October. The
market environment has continued to favor the growth stocks in which the Fund
invests.
Q. WHAT WAS YOUR INVESTMENT STRATEGY DURING THE PERIOD?
A. As always, we attempted to purchase growth-oriented stocks that provide above
average upside potential at attractive prices. We continued to diversify the
Fund by sector and to select the best values within each sector. This strategy
allows for a broad spectrum of investments while avoiding large sector or
industry bets. Because we seek to purchase the best stocks in all sectors, based
upon each company's individual merits, this adaptive strategy does not depend on
particular market or economic conditions and does not anticipate market or
sector moves. Our view, of what makes a "good" company, remained unchanged: an
attractive valuation with high growth potential, a consistent record of meeting
or exceeding earnings expectations, and a high level of anticipated future
earnings per dollar invested. The success of our strategy was reflected by a
number of our holdings that returned in excess of 50% over the period, including
Nike, Callaway Golf, Avon Products, Cincinnati Bell and Computer Associates.
Q. HOW DID THE FUND PERFORM OVER THE PAST TWELVE MONTHS?
A. The Fund outperformed the Standard & Poor's Midcap 400 Index, an unmanaged
index that primarily tracks the performance of middle capitalization stocks. The
total return for Class A shares, based on net asset value, was 21.28% while the
S&P 400 Index posted a total return of 17.35%. This outperformance is due
primarily to our systematic approach to stock selection: identifying growth
opportunities at attractive prices and paying careful attention to risk and
valuation relationships.
Q. WHAT IS YOUR MARKET OUTLOOK FOR THE FUND?
A. We anticipate a favorable environment for well-chosen growth stocks as we
believe dividend yields and earnings payouts are low, P/E multiples are not too
high, and there are no signs of the market being grossly overvalued. A large
number of companies continue to deliver earnings that exceed investors'
expectations giving us confidence that selective-growth investors will be
rewarded in the coming months.
COLONIAL GROWTH SHARES FUND'S INVESTMENT PERFORMANCE
VS. THE STANDARD & POOR'S MIDCAP 400 INDEX
Change in Value of $10,000 from 10/31/86 -- 10/31/96
Based on NAV and MOP for Class A Shares
[graphic omitted -- mountain chart plot points follow:]
DATE NAV MOP S&P 400
- ----------------------------------------------------------------------
Oct 31, 86 10000 9425 10000
Dec 31, 86 9992.429688 9417.865234 9820
Mar 31, 87 12081.75586 11387.05469 11873
Jun 30, 87 12374.49902 11662.96484 11773
Sep 30, 87 13095.51855 12342.52637 12300
Dec 31, 87 10190.63867 9604.676758 9619
Mar 31, 88 11807.42285 11128.49609 10872
Jun 30, 88 12306.29688 11598.68457 11471
Sep 30, 88 12335.9502 11626.63281 11319
Dec 31, 88 12796.45996 12060.66309 11627
Mar 31, 89 13869.35156 13071.86426 12737
Jun 30, 89 15021.58301 14157.8418 14011
Sep 30, 89 16706.58203 15745.95313 15541
Dec 31, 89 16563.01172 15610.63867 15759
Mar 31, 90 16029.15137 15107.47559 15268
Jun 30, 90 17037.01953 16057.39063 16173
Sep 30, 90 13681.86816 12895.16113 13299
Dec 31, 90 14797.24707 13946.40527 14953
Mar 31, 91 17784.48438 16761.87695 18385
Jun 30, 91 17446.03711 16442.89063 18250
Sep 30, 91 18679.17188 17605.11914 19988
Dec 31, 91 19841.68945 18700.79297 22444
Mar 31, 92 20138.67969 18980.70508 22330
Jun 30, 92 19167.24609 18065.12891 21636
Sep 30, 92 19814.49023 18675.15625 22478
Dec 31, 92 22023.33008 20756.98828 25117
Mar 31, 93 23010.15039 21687.06641 25941
Jun 30, 93 22657.89453 21355.06641 26546
Sep 30, 93 23868.62305 22496.17773 27880
Dec 31, 93 24222.49219 22829.69922 28623
Mar 31, 94 23749.60156 22384 27535
Jun 30, 94 23328.20117 21986.83008 26531
Sep 30, 94 24206.52148 22814.64648 28328
Dec 31, 94 23577.79688 22222.07422 27597
Mar 31, 95 25777.87109 24295.64258 29829
Jun 30, 95 28712.05859 27061.11523 32460
Sep 30, 95 31789.05078 29961.17969 35628
Dec 31, 95 32536.93164 30666.05859 36137
Mar 31, 96 34812.39063 32810.67969 38362
Jun 30, 96 36790.125 34674.69141 39467
Sep 30, 96 38385.07031 36177.92969 40616
Oct 31, 96 38363.80469 36157.88672 40734
A $10,000 investment in Class B shares made on June 8, 1992 (inception), at net
asset value (NAV) would have been valued at $18,610 on October 31, 1996. The
same investment after deducting the applicable contingent deferred sales charge
(CDSC) would have grown to $18,410 on October 31, 1996.
The Standard & Poor's Midcap 400 Index is an unmanaged index that tracks the
performance of middle capitalization U.S. stocks. Unlike mutual funds, an index
does not incur fees or charges and it is not possible to invest in an index.
AVERAGE ANNUAL TOTAL RETURNS
As of 9/30/96 (Most Recent Quarter End)
- --------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
NAV MOP NAV W/CDSC
- --------------------------------------------------------------------------------
1 YEAR 20.75% 13.81% 19.85% 14.85%
- --------------------------------------------------------------------------------
5 YEARS 15.49% 14.13% -- --
- --------------------------------------------------------------------------------
10 YEARS 14.96% 14.28% -- --
- --------------------------------------------------------------------------------
SINCE INCEPTION -- -- 15.50% 15.21%
- --------------------------------------------------------------------------------
Past performance cannot predict future results. Returns and value of an
investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. NAV returns do not include sales charges
or CDSC. Maximum offering price (MOP) returns include the maximum sales charge
of 5.75%. The CDSC returns reflect charges of: 5% for one year; 2% since
inception. Performance for different share classes will vary based on
differences in sales charges and fees associated with each class.
<PAGE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1996 (IN THOUSANDS)
COMMON STOCKS - 90.3% SHARES VALUE
- -------------------------------------------------------------------------------
CONSTRUCTION - 0.5%
HEAVY CONSTRUCTION - NON BUILDING CONSTRUCTION - 0.2%
Halliburton Co. 16 $ 895
-----------
SPECIAL TRADE CONTRACTORS - 0.3%
Apogee Enterprises, Inc. 32 1,213
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...............................................................................
FINANCE, INSURANCE & REAL ESTATE - 13.4%
DEPOSITORY INSTITUTIONS - 1.7%
City National Corp. 43 744
Greenpoint Financial Corp. 58 2,683
North Fork Bancorporation, Inc. 101 3,204
-----------
6,631
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INSURANCE CARRIERS - 6.2%
American Travellers Corp. (a) 35 1,193
Conseco, Inc. 30 1,605
Sunamerica, Inc. 296 11,081
Travelers Group, Inc. 156 8,487
Vesta Insurance Group, Inc. 65 1,673
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24,039
-----------
NONDEPOSITORY CREDIT INSTITUTIONS - 4.7%
Aames Financial Corp. 172 7,689
Household International, Inc. 43 3,823
The Money Store, Inc. 248 6,397
-----------
17,909
-----------
SECURITY BROKERS & DEALERS - 0.8%
Franklin Resources, Inc. 42 2,954
-----------
...............................................................................
MANUFACTURING - 36.7%
APPAREL - 2.2%
Tommy Hilfiger Corp. (a) 163 8,476
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CHEMICALS & ALLIED PRODUCTS - 6.2%
Avon Products, Inc. 56 3,027
Goodrich (B.F.) Co. 193 8,170
Johnson & Johnson 52 2,571
Jones Medical Industries, Inc. 70 3,023
Pfizer, Inc. 55 4,543
Rexall Sundown, Inc. (a) 57 1,538
Smith International, Inc. 28 1,079
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23,951
-----------
ELECTRONIC & ELECTRICAL EQUIPMENT - 1.3%
Harman International Industries, Inc. 59 3,036
SCI Systems, Inc. (a) 38 1,910
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4,946
-----------
<PAGE>
FABRICATED METAL - 0.2%
Crane Co. 20 949
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FOOD & KINDRED PRODUCTS - 2.5%
Interstate Bakeries Corp. 151 6,416
Phillip Morris Co., Inc. 33 3,057
-----------
9,473
-----------
FURNITURE & FIXTURES - 1.7%
Furniture Brands International, Inc. (a) 75 1,007
Herman Miller, Inc. 128 5,516
-----------
6,523
-----------
MACHINERY & COMPUTER EQUIPMENT - 9.2%
Black & Decker Corp. 19 710
Camco International, Inc. 39 1,507
Dell Computer Corp. (a) 13 1,090
Diebold, Inc. 142 8,136
JLG Industries, Inc. 173 2,597
Storage Technology Corp. (a) 71 3,005
Sun Microsystems, Inc. (a) 112 6,844
Tyco International Ltd. 228 11,319
-----------
35,208
-----------
MEASURING & ANALYZING INSTRUMENTS - 4.6%
Eastman Kodak Co. 57 4,554
Hologic, Inc. (a) 87 1,984
Sybron Corp. (a) 42 1,226
United States Surgical Corp. 237 9,924
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17,688
-----------
MISCELLANEOUS MANUFACTURING - 1.0%
Callaway Golf Co. 120 3,681
-----------
PAPER PRODUCTS - 1.1%
Fort Howard Corp. (a) 169 4,326
-----------
PETROLEUM REFINING - 0.9%
Kerr-McGee Corp. 55 3,426
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PRIMARY METAL - 1.0%
Texas Industries, Inc. 67 3,791
-----------
PRINTING & PUBLISHING - 2.1%
Meredith Corp. 37 1,859
New York Times Co., Class A 112 4,039
Reynolds & Reynolds Co. 78 2,047
-----------
7,945
-----------
RUBBER & PLASTIC - 1.5%
Nike, Inc., Class B 80 4,722
Wynn's International, Inc. 43 1,209
-----------
5,931
-----------
<PAGE>
TRANSPORTATION EQUIPMENT - 1.2%
Harley-Davidson, Inc. 80 3,628
Varlen Corp. 41 916
-----------
4,544
-----------
...............................................................................
MINING & ENERGY - 1.1%
CRUDE PETROLEUM & NATURAL GAS - 0.8%
Apache Corp. 82 2,900
-----------
OIL & GAS EXTRACTION - 0.3%
SEACOR Holdings, Inc. (a) 21 1,134
-----------
...............................................................................
RETAIL TRADE - 9.4%
APPAREL & ACCESSORY STORES - 0.3%
TJX Companies, Inc. 32 1,296
-----------
FOOD STORES - 3.6%
Safeway, Inc. (a) 269 11,533
Whole Foods Market, Inc. (a) 83 2,137
-----------
13,670
-----------
GENERAL MERCHANDISE STORES - 4.5%
Federated Department Stores, Inc. (a) 152 5,029
Meyer (Fred), Inc. (a) 210 7,373
Sears, Roebuck & Co. 103 4,992
-----------
17,394
-----------
HOME FURNISHINGS & EQUIPMENT - 0.3%
CompUSA, Inc. (a) 20 930
-----------
MISCELLANEOUS RETAIL - 0.7%
Lewis Galoob Toys, Inc. (a) 39 1,059
Zale Corp. (a) 88 1,697
-----------
2,756
-----------
...............................................................................
SERVICES - 26.1%
BUSINESS SERVICES - 19.3%
BMC Software, Inc. (a) 103 8,516
Cadence Design Systems, Inc. (a) 288 10,514
Computer Associates International, Inc. 173 10,201
HBO & Co. 147 8,808
Microsoft Corp. (a) 69 9,511
Omnicom Group, Inc. 198 9,870
Oracle Systems Corp. (a) 128 5,427
Paychex, Inc. 139 7,940
Robert Half International, Inc. (a) 32 1,292
Sungard Data Systems, Inc. (a) 52 2,232
-----------
74,311
-----------
HEALTH SERVICES - 2.7%
Lincare Holdings, Inc. (a) 218 8,186
Universal Health Services, Inc., Class B (a) 89 2,220
-----------
10,406
-----------
<PAGE>
HOTELS, CAMPS & LODGING - 1.8%
Hospitality Franchise Systems, Inc. (a) 92 6,761
-----------
PERSONAL SERVICES - 2.3%
Service Corporation International 315 8,983
-----------
...............................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 3.1%
COMMUNICATIONS - 1.6%
Century Telephone Enterprises, Inc. 26 845
Cincinnati Bell, Inc. 105 5,194
-----------
6,039
-----------
ELECTRIC, GAS & SANITARY SERVICES - 0.2%
NGL Corp. 46 821
-----------
GAS SERVICES - 0.8%
Williams Companies, Inc. 56 2,921
-----------
MOTOR FREIGHT & WAREHOUSING - 0.5%
Consolidated Freightways, Inc. 83 1,987
-----------
...............................................................................
WHOLESALE TRADE - 0.0%
DURABLE GOODS
Ultramed, Inc. (a)(b) 450 29
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TOTAL INVESTMENTS (cost of $283,466)(c) 346,837
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SHORT TERM OBLIGATIONS - 9.4% PAR
- -------------------------------------------------------------------------------
Repurchase agreement with Lehman Brothers, Inc.,
dated 10/31/96, due 11/01/96 at 5.530%
collateralized by U.S. Treasury bonds and notes
with various maturities to 2023, market value
$36,696 (repurchase proceeds $35,989) $ 35,983 35,983
OTHER ASSETS & LIABILITIES, NET - 0.3% 1,374
- -------------------------------------------------------------------------------
NET ASSETS - 100% $ 384,194
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NOTES TO INVESTMENT PORTFOLIO:
- -------------------------------------------------------------------------------
(a) Non-income producing.
(b) Ultramed Inc. is a restricted security which was acquired on August 14, 1987
at a cost of $450. The fair value is determined under the direction of the
Trustees. This security represents 0.01% of the Fund's net assets at October
31, 1996.
(c) Cost for federal income tax purposes is $283,582.
See notes to financial statements.
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1996
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $283,466) $ 346,837
Short-term obligations 35,983
----------
382,820
Receivable for:
Fund shares sold $ 1,449
Dividends 152
Investments sold 36
Interest 6
Foreign tax reclaims 4
Reimbursement due from Adviser 40
Other 9 1,696
---------- ----------
Total Assets 384,516
LIABILITIES
Payable for:
Fund shares repurchased 291
Accrued:
Deferred Trustees fees 3
Transfer Agent fees 8
Other 20
----------
Total Liabilities 322
----------
NET ASSETS $ 384,194
==========
Net asset value & redemption price per share -
Class A ($255,911/14,183) $18.04
==========
Maximum offering price per share - Class A
($18.04/0.9425) $19.14(a)
==========
Net asset value & offering price per share -
Class B ($128,283/7,190) $17.84(b)
==========
COMPOSITION OF NET ASSETS
Capital paid in $ 273,179
Overdistributed net investment income (296)
Accumulated net realized gain 47,942
Net unrealized appreciation (depreciation) on:
Investments 63,371
Foreign currency transactions (2)
----------
$ 384,194
==========
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
See notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
(in thousands)
INVESTMENT INCOME
Dividends $ 3,263
Interest 1,258
----------
4,521
EXPENSES
Management fee $ 1,743
Service fee 749
Distribution fee - Class B 727
Transfer agent 926
Bookkeeping fee 121
Registration fee 53
Custodian fee 14
Audit fee 33
Trustees fee 25
Reports to shareholders 13
Legal fee 8
Other 25 4,437
---------- ----------
Net Investment Income 84
----------
NET REALIZED & UNREALIZED GAIN ON PORTFOLIO POSITIONS
Net realized gain 47,958
Net unrealized appreciation during
the period on:
Investments 11,343
Foreign currency transactions 1
----------
Net Unrealized Gain 11,344
----------
Net Gain 59,302
----------
Net Increase in Net Assets from Operations $ 59,386
==========
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands) Year ended October 31
-----------------------------
INCREASE (DECREASE) IN NET ASSETS 1996 1995
Operations:
Net investment income $ 84 $ 2,372
Net realized gain 47,958 20,783
Net unrealized appreciation 11,344 34,831
---------- ----------
Net Increase from Operations 59,386 57,986
Distributions:
From net investment income - Class A (501) (1,927)
In excess of net investment income - Class A (281)
From net realized gains - Class A (14,913) (13,715)
From net investment income - Class B (25) (276)
In excess of net investment income - Class B (15)
From net realized gains - Class B (5,989) (4,637)
---------- ----------
37,662 37,431
---------- ----------
Fund Share Transactions:
Receipts for shares sold - Class A 108,391 83,053
Value of distributions reinvested - Class A 13,988 13,678
Cost of shares repurchased - Class A (87,207) (90,175)
---------- ----------
35,172 6,556
---------- ----------
Receipts for shares sold - Class B 76,766 27,663
Value of distributions reinvested - Class B 5,706 4,705
Cost of shares repurchased - Class B (40,788) (20,392)
---------- ----------
41,684 11,976
---------- ----------
Net Increase from Fund Share
Transactions 76,856 18,532
---------- ----------
Total Increase 114,518 55,963
NET ASSETS
Beginning of period 269,676 213,713
---------- ----------
End of period (net of overdistributed
and including undistributed net
investment income of $296 and $582,
respectively.) $ 384,194 $ 269,676
========== ==========
NUMBER OF FUND SHARES
Sold - Class A 6,491 5,863
Issued for distributions reinvested - Class A 912 1,139
Repurchased - Class A (5,261) (6,410)
---------- ----------
2,142 592
---------- ----------
Sold - Class B 4,585 1,988
Issued for distributions reinvested - Class B 374 395
Repurchased - Class B (2,463) (1,507)
---------- ----------
2,496 876
---------- ----------
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
NOTE 1. ACCOUNTING POLICIES
...............................................................................
ORGANIZATION: Colonial Growth Shares Fund (the Fund), a series of Colonial Trust
III, is a diversified portfolio of a Massachusetts business trust, registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund's investment objective is to seek long-term growth
by investing primarily in middle capitalization equities. The Fund may issue an
unlimited number of shares. The Fund offers Class A shares sold with a front-end
sales charge and Class B shares which 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.
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
SECURITY VALUATION AND TRANSACTIONS: Equity securities are valued at the last
sale price or, in the case of unlisted or listed securities, for which there
were no sales during the day, at current quoted bid prices.
Forward currency contracts are valued based on the weighted value of the
exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
The value of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates.
Portfolio positions which cannot be valued as set forth above are valued at fair
value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses, (other than the Class B distribution fee), realized and unrealized
gains (losses) are allocated to each class proportionately on a basis for
purposes of determining the net asset value of each class.
The per share data was calculated using average shares outstanding during the
period. In addition, Class B net investment income per share data reflects the
distribution fee applicable to Class B shares only.
Class B ratios are calculated by adjusting the expense and net investment income
ratios for the Fund for the entire period by the distribution fee applicable to
Class B shares only.
FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a
regulated investment company and to distribute all of its taxable income, no
federal income tax has been accrued.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is recorded on the
accrual basis. Original issue discount is accreted to interest income over the
life of a security with a corresponding increase in the cost basis; premium and
market discount are not amortized or accreted.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders are recorded on the
ex-date.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
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 dividend 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 (losses) which become realized at the time the
foreign 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 2. FEES AND COMPENSATION PAID TO AFFILIATES
...............................................................................
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser) is the
investment Adviser of the Fund and furnishes accounting and other services and
office facilities for a monthly fee equal to 0.60% annually of the Fund's
average net assets during the preceding twelve months. The fee is subject to a
maximum performance adjustment, determined monthly, of +/- 1/12 of 0.20% based
on the comparative experience of the Fund and the Standard and Poor's Index of
500 common stocks during the preceding twelve months. For the year ended October
31, 1996, the total fee included an upward performance adjustment of $101,378.
BOOKKEEPING FEE: The Adviser provides bookkeeping and pricing services for
$27,000 per year plus 0.035% of the Fund's average net assets over $50 million.
TRANSFER AGENT: Colonial Investors Service Center, Inc. (the Transfer
Agent), an affiliate of the Adviser, provides shareholder services for
a monthly fee equal to 0.25% annually of the Fund's average net assets
and receives reimbursement for certain out of pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. For the year ended October 31, 1996, the Fund has been
advised that the Distributor retained net underwriting discounts of $112,410 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $159,828 on Class B share redemptions.
The Fund has adopted a 12b-1 plan which requires the payment of a distribution
fee to the Distributor equal to 0.75% annually of the average net assets
attributable to Class B shares. The plan also requires the payment of a service
fee to the Distributor as follows:
Value of shares outstanding on the
20th of each month which were issued Annual Fee Rate
------------------------------------ ---------------
Prior to April 1, 1989 0.15%
On or after April 1, 1989 0.25%
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
OTHER: The Fund pays no compensation to its officers, all of whom are employees
of the Adviser.
The 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 3. PORTFOLIO INFORMATION
...............................................................................
INVESTMENT ACTIVITY: During the year ended October 31, 1996, purchases and sales
of investments, other than short-term obligations, were $335,858,306 and
$293,913,967, respectively.
Unrealized appreciation (depreciation) at October 31, 1996, based on cost of
investments for federal income tax purposes was:
Gross unrealized appreciation $ 71,522,503
Gross unrealized depreciation (8,267,147)
------------
Net unrealized appreciation $ 63,255,356
============
OTHER: There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities. These
risks may involve foreign currency exchange rate fluctuations, adverse political
and economic developments and the possible prevention of foreign currency
exchange or the imposition of other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 4. LINE OF CREDIT
...............................................................................
The Fund may borrow up to 10% of its net assets under a line of credit for
temporary or emergency purposes. Any borrowings bear interest at one of the
following options determined at the inception of the loan: (1) federal funds
rate plus 1/2 of 1%, (2) the lending bank's base rate or (3) IBOR off-shore loan
rate plus 1/2 of 1%. There were no borrowings under the line of credit during
the year ended October 31, 1996.
<PAGE>
FINANCIAL HIGHLIGHTS (a)
Selected data for a share of each class outstanding throughout each period are
as follows:
Year ended October 31
----------------------------------------------
1996 1995
Class A Class B Class A Class B
--------- --------- --------- ---------
Net asset value -
Beginning of period $ 16.140 $ 16.040 $ 14.020 $ 13.940
--------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.043 (0.081) 0.174 0.065
Net realized and
unrealized gain 3.162 3.129 3.326 3.317
--------- --------- --------- ---------
Total from Investment
Operations 3.205 3.048 3.500 3.382
--------- --------- --------- ---------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.042) (0.005) (0.165) (0.067)
In excess of net
investment income (0.023) (0.003) --- ---
From net realized gains (1.240) (1.240) (1.215) (1.215)
--------- --------- --------- ---------
Total Distributions
Declared to Shareholders (1.305) (1.248) (1.380) (1.282)
--------- --------- --------- ---------
Net asset value -
End of period $ 18.040 $ 17.840 $ 16.140 $ 16.040
========= ========= ========= =========
Total return (b) 21.28% 20.31% 28.44% 27.50%
========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS
Expenses 1.17%(c) 1.92%(c) 1.12%(c) 1.90%(c)
Net investment income 0.25%(c) (0.50)%(c) 1.24%(c) 0.46%(c)
Portfolio turnover 100% 100% 92% 92%
Average commission
rate(d) $0.0392 $0.0392 --- ---
Net assets at end
of period (000) $255,911 $128,283 $194,393 $ 75,283
(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 arrange-
ments had no impact. Prior years' ratios are net of benefits received, if
any.
(d) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged.
<PAGE>
FINANCIAL HIGHLIGHTS (a) - CONTINUED
Selected data for a share of each class outstanding throughout each period are
as follows:
Year ended October 31
----------------------------------------------
1994 1993
Class A Class B Class A Class B
--------- --------- --------- ---------
Net asset value -
Beginning of period $ 15.240 $ 15.180 $ 13.830 $ 13.780
--------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.096 (0.008) 0.110 0.001
Net realized and
unrealized gain 0.275 0.288 2.240 2.244
--------- --------- --------- ---------
Total from Investment
Operations 0.371 0.280 2.350 2.245
--------- --------- --------- ---------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.071) --- (0.095) ---
From net realized gains (1.520) (1.520) (0.845) (0.845)
--------- --------- --------- ---------
Total Distributions
Declared to Shareholders (1.591) (1.520) (0.940) (0.845)
--------- --------- --------- ---------
Net asset value -
End of period $ 14.020 $ 13.940 $ 15.240 $ 15.180
========= ========= ========= =========
Total return (d) 2.78% 2.12% 17.79% 16.99%
========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS
Expenses 1.22% 1.97% 1.19% 1.94%
Net investment income 0.69% (0.06)% 0.64% (0.11)%
Portfolio turnover 121% 121% 66% 66%
Net assets at end
of period (000) $160,495 $ 53,218 $ 169,913 $ 41,989
(a) Per share data was calculated using average shares outstanding during the
period. For the year ended March 31, 1992, the per share data was calculated
using the SEC method.
(d) Total return at net asset value assuming all distributions reinvested and no
<PAGE>
FINANCIAL HIGHLIGHTS (a) - CONTINUED
Selected data for a share of each class outstanding throughout each period are
as follows:
Year ended
Period ended October 31 March 31
--------------------------- ---------
1992(b) 1992
Class A Class B(c) Class A
--------- --------- ---------
Net asset value -
Beginning of period $ 14.240 $ 13.570 $ 12.800
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.066 (0.002) 0.168
Net realized and
unrealized gain 0.074 0.212 1.502
--------- --------- ---------
Total from Investment
Operations 0.140 0.210 1.670
--------- --------- ---------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment (0.093) --- (0.183)
income
From net realized gains (0.457) --- (0.047)
--------- --------- ---------
Total Distributions
Declared to Shareholders (0.550) --- (0.230)
--------- --------- ---------
Net asset value -
End of period $ 13.830 $ 13.780 $ 14.240
========= ========= =========
Total return (d) 1.02%(e) 1.55%(e) 13.24%
========= ========= =========
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.19%(f) 1.94%(f) 1.18%
Net investment income 0.83%(f) 0.08%(f) 1.24%
Portfolio turnover 68%(f) 68%(f) 38%
Net assets at end
of period (000) $ 150,260 $ 26,364 $ 149,341
(a) Per share data was calculated using average shares outstanding during the
period. For the year ended March 31, 1992, the per share data was calculated
using the SEC method.
(b) The Fund changed its fiscal year end from March 31 to October 31 in 1992.
(c) Class B shares were initially offered on June 8, 1992. Per share amounts
reflect activity from that date.
(d) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(e) Not annualized.
(f) Annualized.
- --------------------------------------------------------------------------------
Federal Income Tax Information (unaudited)
59.07% of the gain distribution paid by the Fund in December 1995 was derived
from long-term gains.
35% of the ordinary income distributed by the Fund in the year ended October 31,
1996 qualifies for the corporate dividends received deduction.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST III AND THE SHAREHOLDERS OF
COLONIAL GROWTH SHARES FUND
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Colonial Growth Shares Fund (a
series of Colonial Trust III) at October 31, 1996, the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and the financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of portfolio positions
at October 31, 1996 by correspondence with the custodian provide a reasonable
basis for for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 10, 1996
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Growth Shares Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial Growth Shares Fund mails one shareholder report to each shareholder
address. If you would like more than one report, please call our Literature
Department at 1-800-426-3750 and additional reports will be sent to you.
This report has been prepared for shareholders of Colonial Growth Shares Fund.
This report may also be used as sales literature when preceded or accompanied by
the current prospectus which provides details of sales charges, investment
objective and operating policies of the Fund.
<PAGE>
[LOGO] COLONIAL
MUTUAL FUNDS
Mutual Funds for
Planned Portfolios
TRUSTEES
ROBERT J. BIRNBAUM
Retired (formerly Special Counsel, Dechert, Price & Rhoads; President and Chief
Operating Officer, New York Stock Exchange, Inc.)
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
WILLIAM D. IRELAND, JR.
Retired (formerly Chairman of the Board, Bank of New England-Worcester)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
WILLIAM E. MAYER
Dean, College of Business and Management, University of Maryland (formerly Dean,
Simon Graduate School of Business, University of Rochester; Chairman and Chief
Executive Officer, CS First Boston Merchant Bank; and President and Chief
Executive Officer, The First Boston Corporation)
JAMES L. MOODY, JR.
Chairman of the Board, Hannaford Bros. Co. (formerly Chief Executive Officer,
Hannaford Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
GEORGE L. SHINN
Financial Consultant (formerly Chairman, Chief Executive Officer and Consultant,
The First Boston Corporation)
ROBERT L. SULLIVAN
Management Consultant (formerly Management Consultant, Saatchi and Saatchi
Consulting Ltd. and Principal and International Practice Director, Management
Consulting, Peat Marwick Main & Co.)
SINCLAIR WEEKS, JR.
Chairman of the Board, Reed & Barton Corporation
COLONIAL INVESTMENT SERVICES, INC., Distributor (C) 1996
One Financial Center, Boston, Massachusetts 02111-2621, 617-426-3750
GS-02/941C-1096 M (12/96)
[recycle symbol] Printed on recycled paper
