<PAGE>
[COLONIAL LOGO]
COLONIAL STRATEGIC
BALANCED FUND
ANNUAL REPORT
OCTOBER 31,1995
<PAGE>
COLONIAL STRATEGIC BALANCED FUND HIGHLIGHTS
November 1, 1994 - October 31, 1995
INVESTMENT OBJECTIVE: Colonial Strategic Balanced Fund seeks current income and
long-term growth, consistent with prudent risk, by diversifying investments
primarily in U.S. and foreign equity and debt securities.
THE FUND IS DESIGNED TO OFFER:
- Long-term growth potential
- Attractive quarterly income
- Strategic diversification
PORTFOLIO MANAGEMENT COMMENTS: "Typically, fixed-income securities would be the
primary beneficiaries of the declining interest rate environment that
characterized the Fund's first fiscal year. However, stocks also benefited from
moderate (but steady) economic growth and low inflation in many of the world's
economies."
COLONIAL STRATEGIC BALANCED FUND PERFORMANCE
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
<S> <C> <C> <C>
Inception date 9/19/94 9/19/94 9/19/94
Distributions declared per share $ 0.349 $ 0.306 $ 0.301
Total return, assuming reinvestment of
all distributions and no sales charge or
contingent deferred sales charge (CDSC) --
12 months 21.47% 21.00% 21.04%
Net asset value per share at 10/31/95 $ 11.65 $ 11.64 $ 11.65
</TABLE>
TOP FIVE HOLDINGS - EQUITY*
(as of 10/31/95)
- ---------------------------
1. Sun Microsystems
2. CIGNA Corp.
3. Hewlett-Packard
4. Loews Corp.
5. Seagate Technology
COUNTRY BREAKDOWN - BONDS*
(as of 10/31/95)
- --------------------------
<TABLE>
<S> <C>
1. United States ......... 62.2%
2. Denmark................ 11.3%
3. Australia.............. 9.0%
4. Finland................ 7.9%
5. United Kingdom......... 7.3%
6. Poland................. 2.3%
</TABLE>
* There can be no guarantee the Fund will continue to hold these securities or
invest in these countries in the future. The country breakdown is based on total
investments for fixed-income securities.
2
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[PHOTO] John A. McNeice, Jr. President
During the 12 months ended October 31, 1995, equity and fixed-income markets
generally provided attractive returns for investors. These returns reflected
moderate economic growth and low inflation in the world's major economies,
including the United States and many European countries.
Both the equity and fixed-income markets performed well during the fiscal year.
The most attractive fixed-income returns came from the U.S. government sector,
which benefited the most from a steady decline in interest rates. However,
corporate high-yield and foreign government bonds also enjoyed positive
performance. Foreign and smaller capitalization stocks lagged their large
capitalization "blue chip" counterparts and technology stocks were particularly
strong performers.
Carl Ericson and James Haynie, Co-portfolio Managers of Colonial Strategic
Balanced Fund, believe that economic growth and inflation will remain moderate
in the months ahead, a development that should continue to have a favorable
impact on both equity and fixed-income investments. In the following report, Jim
and Carl comment on both the Fund's management strategy and key issues affecting
securities markets worldwide.
Respectfully,
/s/ John A. McNeice, Jr.
--------------------
John A. McNeice, Jr.
President
December 11, 1995
3
<PAGE>
PORTFOLIO MANAGEMENT REPORT
CARL ERICSON AND JAMES HAYNIE are Co-portfolio Managers of Colonial Strategic
Balanced Fund. Both are Vice Presidents of Colonial Management Associates, Inc.
U.S., EUROPEAN ECONOMIES FAVORABLE: The U.S. economy was quite vigorous during
the third quarter of 1995 -- industrial production increased at an annual rate
of 5.7%. This contrasts with the annualized gross domestic product growth rates
for the first and second quarters of 2.7% and 1.3%, respectively. However, we
believe the U.S. economy is coming in for the "soft landing" that has been the
Federal Reserve Board's goal for the last two years.
Europe's economic recovery has lagged the turnaround in the United States. The
Bundesbank (Germany's central bank), which generally sets the interest rate
trend for Europe, is reluctant to cut rates aggressively. However, interest
rates in many European countries have begun moving lower, and there has been a
marked improvement in the performance of many of Europe's fixed-income and
equity securities.
FUND PERFORMANCE VS. COMPARATIVE INDEXES: For performance comparisons, in our
annual reports we use two indexes that track the performance of U.S. securities
- -- the Standard & Poor's 500 Index and the Lehman Brothers Government/Corporate
Index. Both are unmanaged, and neither tracks foreign or short-term securities,
in which your Fund can invest. The Fund underperformed the indexes during the
period ending October 31, 1995. However, the Fund's diversified portfolio is
designed to benefit the investor looking for income and long-term growth.
FIXED-INCOME MARKETS STRONG: Each of the three sectors of the bond market in
which the Fund invests made a contribution to the Fund's performance.
- - U.S. Government - This was one of the top performing sectors of the bond
market during the Fund's fiscal year. This sector's strong performance
reflected the impact of two favorable developments -- reduced concerns about
inflation as the economy slowed, and increased demand for U.S. government
securities from foreign investors as the U.S. dollar strengthened. This
sparked an extended rally, fueling significant price increases.
- - High Yield - High yield corporate bonds benefited from declining interest
rates, although to a lesser extent than U.S. government securities. For the
corporations that issue these securities, declining interest rates translated
into improved cash flows. Also, the relatively high yields available in this
sector made these bonds more attractive to investors, and prices increased
along with demand. We took advantage of the higher prices by taking profits on
some of the more cyclical holdings in the portfolio and focusing on
noncyclical industries, including cable television.
4
<PAGE>
Steel was one area in which we were extremely selective about our investments,
although this sector produced one of our biggest success stories. Unlike most
other companies in its industry, A.K. Steel has been able to adapt to the new
industrial environment of the 1990s. The company has defined a secure niche
for itself by focusing on specialty steel products that are currently in high
demand.
- - Foreign - European bond markets have recovered from volatile economic
conditions early in the fiscal year. To take advantage of this change, during
the period we reduced investments in U.S. Treasury securities and increased
our position in foreign bonds. The Scandinavian countries were especially
attractive, reflecting their success at controlling inflation, improving
foreign trade imbalances, and limiting wage settlements.
Political unrest and economic problems in Mexico generated concerns about the
stability of many of the world's higher yielding bond markets during the
fiscal year. As a result, investments in Argentina were reduced, and the Fund
has not owned Mexican bonds.
LARGE CAPS SET PACE FOR EQUITY MARKET: For most of the fiscal year, large
capitalization stocks set the pace for U.S. equity investments. However, small
capitalization stocks were also a source of attractive returns. In fact, toward
the end of the fiscal year, there was a change in the market, with small
capitalization stocks overtaking their large capitalization counterparts.
In general, foreign markets underperformed the U.S., although some markets,
including Switzerland and Sweden, posted relatively strong returns. We reduced
investments in emerging markets, taking advantage of the Fund's ability to
diversify its investments into more favorable areas.
FUND BENEFITS FROM TECHNOLOGY, FINANCIAL STOCK INVESTMENTS: Almost all
businesses are benefiting from investments in new technology. This goes beyond
the proliferation of personal computers -- there has been explosive growth in
the demand for all facets of information management technology. The Fund
benefited from investments in this sector, including Micron Technology and
Hewlett-Packard.
Another sector that provided attractive returns was finance -- strong performers
in this sector included Citibank and First Interstate Bank. We took advantage of
the increase in First Interstate's stock price when Wells Fargo Bank announced
its hostile takeover bid -- and the stock was sold at a profit.
LOOKING AHEAD: While we believe stocks may not be as attractively valued as they
were 12 months ago, there is still value in the market. Should small
capitalization stocks continue to outperform large caps, we will make
appropriate changes in the Fund's equity sector weightings. The bulk of
fixed-income assets will continue to focus on the high yield sector, although
there may be an increase in foreign investments.
5
<PAGE>
COLONIAL STRATEGIC BALANCED FUND'S INVESTMENT PERFORMANCE VS.
THE STANDARD & POOR'S 500 INDEX AND THE
LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX
Change in Value of $10,000 from 9/94 - 10/95
CLASS A SHARES BASED ON NAV AND MOP
<TABLE>
<CAPTION>
CSBF CLASS A MOP NAV S&P 500 LEHMAN
- ------------ --- --- ------- ------
<S> <C> <C> <C> <C>
8/93 9525 10000 10000 10000
9525 10000 10000 10000
9554 10030 10224 9989
9255 9717 9852 9971
12/93 9335 9801 9998 10037
9316 9780 10257 10230
9646 10127 10656 10467
9902 10396 10970 10537
4/94 10107 10611 11292 10685
10381 10899 11743 11132
10718 11253 12015 11221
11260 11822 12414 11177
8/94 11369 11935 12445 11321
11615 12194 12971 11436
10/95 11605 12184 12924 11604
</TABLE>
CLASS B SHARES BASED ON NAV AND MAXIMUM CDSC
<TABLE>
<CAPTION>
CLASS B CDSC NAV S&P 500 LEHMAN
- ------- ---- --- ------- ------
<S> <C> <C> <C> <C>
8/93 10000 10000 10000 10000
10000 10000 10000 10000
10030 10030 10224 9989
9716 9716 9852 9971
12/93 9792 9792 9998 10037
9772 9772 10257 10230
10118 10118 10656 10467
10376 10376 10970 10537
4/94 10602 10602 11292 10685
10878 10878 11743 11132
11221 11221 12015 11221
11799 11799 12414 11177
8/94 11902 11902 12445 11321
12147 12147 12971 11436
10/95 11637 12137 12924 11604
</TABLE>
CLASS D SHARES BASED ON NAV AND MOP W/CDSC
<TABLE>
<CAPTION>
CLASS D CDSC NAV S&P 500 LEHMAN
- ------- ---- --- ------- ------
<S> <C> <C> <C> <C>
10000 10000 10000 10000
9900 10000 10000 10000
9930 10030 10224 9989
9619 9716 9852 9971
9701 9799 9998 10037
9671 9768 10257 10230
10014 10115 10656 10467
10269 10372 10970 10537
10492 10598 11292 10685
10766 10875 11743 11132
11114 11226 12015 11221
11676 11794 12414 11177
11778 11897 12445 11321
12030 12152 12971 11436
10/95 12020 12141 12924 11604
</TABLE>
The Standard & Poor's 500 Index is an unmanaged index that tracks the
performance of U.S. stock market securities. The Lehman Brothers
Government/Corporate Index is an unmanaged index that tracks the performance of
U.S. Government and U.S. Corporate bonds.
Past performance cannot predict future results. Return and value of an
investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. Net asset value (NAV) return does not
include sales charges or contingent deferred sales charges (CDSC). Maximum
offering price (MOP) return includes the maximum sales charge of 4.75% for Class
A and 1% for Class D. The CDSC returns reflect charges of: 5.00% for one year,
and 4% since inception for Class B and 1% for one year for Class D shares.
Performance for different share classes will vary based on differences in sales
charges and fees associated with each class.
*Average annual total returns are as of 9/30/95, the most recent quarter end.
6
<PAGE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCKS - 54.6% COUNTRY SHARES VALUE
-------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION - 0.2%
HEAVY CONSTRUCTION - NON BUILDING CONSTRUCTION
Yondenko Corp. Ja 9 $ 78
-------
-------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 9.9%
DEPOSITORY INSTITUTIONS - 4.0%
Bank of Boston Corp. 7 312
Bank of Montreal Ca 4 89
Bank of New York Co., Inc. 4 155
BayBanks, Inc. 2 162
Citicorp 5 311
HSBC Holdings PLC HK 6 81
Kredietbank NV Be (a) 50
National Westminster Bank PLC UK 9 85
Norwest Corp. 4 109
TCF Financial Corp. 3 182
-------
1,536
-------
HOLDING & OTHER INVESTMENT COMPANIES - 0.1%
First Australia Fund, Inc. Au 3 20
First Phillipine Fund, Inc. Ph 2 31
--------
51
--------
INSURANCE CARRIERS - 3.9%
Allstate Corp. 3 102
American Bankers Insurance Group, Inc. 3 108
Cigna Corp. 4 377
Fremont General Corp. 3 83
Life Re Corp. 3 64
Loews Corp. 2 337
Maxicare Health Plans, Inc. (b) 4 70
Pacificare Health Systems, Inc. (b) 1 95
Protective Life Corp. (b) 3 91
Selective Insurance Group, Inc. (a) 11
US Facilities Corp. 8 151
--------
1,489
--------
NONDEPOSITORY CREDIT INSTITUTIONS - 1.6%
Aplus Co. Ltd. Ja 42 163
Green Tree Financial Corp. 10 266
The Money Store, Inc. 5 180
--------
609
--------
</TABLE>
7
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE, INSURANCE & REAL ESTATE - CONT.
SECURITY BROKERS & DEALERS - 0.3%
Alex Brown, Inc. 2 $ 112
-----------
------------------------------------------------------------------------------
MANUFACTURING - 33.6%
APPAREL - 0.6%
Nautica Enterprises, Inc. (b) 4 144
Norton McNaughton, Inc. (b) 5 99
----------
243
----------
CHEMICALS - 3.4%
BASF AG G 1 133
DSM NV Ne 1 52
E.I. DuPont De Nemours & Co. 1 87
Eastman Chemical Co. 4 226
Eli Lilly & Co. 1 97
Helene Curtis Industries, Inc. 2 45
Johnson & Johnson 2 163
Merck KGAA G 4 169
Norsk Hydro A.S. ADR (b) No 2 60
Union Carbide Corp. 8 288
-----------
1,320
-----------
ELECTRONIC & ELECTRICAL EQUIPMENT - 4.6%
Aspect Telecommunications Corp. (b) 4 137
Comverse Technology, Inc. (b) 4 95
Dovatron International, Inc. (b) 2 68
Duracraft Corp. (b) 2 44
HADCO Corp. (b) 7 196
Harman International Industries, Inc. 2 102
Haw Par Brothers International Ltd. Si 20 41
Hutchinson Technology, Inc. (b) 1 63
International Rectifier Corp. (b) 4 176
Micron Technology, Inc. 5 325
Motorola, Inc. 2 144
Park Electrochemical Corp. 4 113
Philips Electronics NV Ne 3 124
Radiotechnique Fr (a) 23
Sanmina Corp. (b) 2 130
-----------
1,781
-----------
FABRICATED METAL - 0.9%
Buderus AG G (a) 86
Bunka Shutter Co. Ltd. Ja 20 141
GFI Industries SA Fr 1 101
Oriental Holdings Berhad Ma 5 23
-----------
351
-----------
</TABLE>
8
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
------------------------------------------------------------------------------
<S> <C> <C> <C>
FOOD & KINDRED PRODUCTS - 2.4%
Archer Daniels Midland Co. 13 $ 212
Hudson Foods, Inc. 9 121
IBP, Inc. 4 209
Phillip Morris Co., Inc. 3 228
Smithfield Foods, Inc. (b) 2 61
Superfos AS De 1 89
-----------
920
-----------
LEATHER - 0.4%
Wolverine World Wide, Inc. 5 158
-----------
LUMBER & WOOD PRODUCTS - 0.3%
Oakwood Homes Corp. 3 98
-----------
MACHINERY & COMPUTER EQUIPMENT - 9.2%
AGCO Corp. 2 74
Applied Materials, Inc. (b) 3 140
Bay Networks, Inc. (b) 3 165
Brunswick Corp. 4 68
Caterpillar, Inc. 3 140
Compaq Computer Corp. (b) 4 223
Deere & Co. 1 80
EMC Corp. (b) 7 102
Exabyte Corp. (b) 3 39
Fujitsu Ltd. Ja 4 48
Hewlett-Packard Co. 4 352
Hitachi Ltd. Ja 14 144
International Business Machines Corp. 3 331
JLG Industries, Inc. 10 235
Lam Research Corp. (b) 2 91
Mylex Corp. (b) 8 149
NACCO Industries, Inc. 1 46
Outboard Marine Corp. 1 25
Proteon, Inc. (b) 9 65
S3, Inc. (b) 5 86
Seagate Technology, Inc. (b) 8 336
Silicon Graphics, Inc. (b) 3 100
Strattec Security Corp. (b) (a) 8
Sun Microsystems, Inc. (b) 6 437
Toro Co. 3 87
-----------
3,571
-----------
MEASURING & ANALYZING INSTRUMENTS - 2.1%
Bio-Rad Laboratories, Inc.
Class A (b) 4 160
Cordis Corp. (b) 1 155
Esterline Technologies Corp. (b) 6 127
Fuji Photo Film Co. Ltd. Ja 5 124
</TABLE>
9
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING - CONT.
Measuring & Analyzing Instruments - Cont.
Medtronic, Inc. 4 $219
Quickturn Design Systems, Inc. (b) 5 48
----
833
----
MISCELLANEOUS MANUFACTURING - 0.3%
Callaway Golf Co. 6 105
----
PAPER & PAPER MILLS - 1.8%
ACX Technologies, Inc. (b) 8 124
Chesapeake Corp. 3 92
Longview Fibre Co. 10 145
Norske Skogindustrier AS No 2 58
SCA Laakirchen AG Aus (a) 149
Saint Louis Bouchon Fr (a) 87
Shorewood Packaging Corp. (b) 3 52
----
707
----
PETROLEUM REFINING - 1.5%
British Petroleum Co. PLC ADR UK 1 97
Exxon Corp. 3 229
Lyondell Petrochemical Co. 9 190
Phillips Petroleum Co. 3 81
----
597
----
PRIMARY METAL - 2.4%
Acerinox SA Sp 2 211
Alcan Aluminum Ltd. 5 142
Aluminum Company of America 1 71
British Steel PLC UK 29 74
Magma Copper Co., Class B 6 101
National Steel Corp. (b) 6 83
Texas Industries, Inc. 2 110
Titan Wheel International, Inc. 8 120
----
912
----
PRIMARY SMELTING - 0.2%
Phelps Dodge Corp. 1 76
----
RUBBER & PLASTIC - 0.6%
Applied Extrusion Technologies, Inc. (b) 7 108
Continental AG G 8 106
----
214
----
STONE, CLAY, GLASS & CONCRETE - 1.0%
Desimpel Kortemark Co. NV Be 2 111
Indresco, Inc. (b) 8 137
Owens-Corning Fiberglas Corp. 3 127
</TABLE>
10
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Vitro S.A. Mx 12 $ 26
----
401
----
TEXTILE MILL PRODUCTS - 0.1%
Guilford Mills, Inc. 2 37
----
TRANSPORTATION EQUIPMENT - 1.8%
Borg-Warner Automotive, Inc. 6 165
Coachmen Industries, Inc. 4 64
Fleetwood Enterprises, Inc. 3 70
Ford Motor Co. 6 172
Honda Motor Co. Ltd. Ja 2 35
Varlen Corp. 3 88
Volvo AB ADR Sw 5 114
----
708
----
- --------------------------------------------------------------------------------
MINING & ENERGY - 0.7%
CRUDE PETROLEUM & NATURAL GAS - 0.5%
Occidental Petroleum Corp. 9 183
----
NONMETALLIC, EXCEPT FUELS - 0.2%
Potash Corp. of Saskatchewan, Inc. Ca 1 83
----
RETAIL TRADE - 2.8%
FOOD STORES - 0.6%
Safeway, Inc. (b) 5 222
----
GENERAL MERCHANDISE STORES - 1.2%
Dollar General Corp. 3 61
Federated Department Stores, Inc. (b) 6 150
Jardine Strategic Holdings Ltd. Si 22 59
Sears, Roebuck & Co. 3 102
Waban, Inc. (b) 6 91
----
463
----
HOME FURNISHINGS & EQUIPMENT - 0.3%
Circuit City Stores, Inc. 4 137
----
MISCELLANEOUS RETAIL - 0.7%
Blair Corp. 2 44
Imasco Ltd. Ca 7 125
Office Depot, Inc. (b) 4 115
----
284
----
- --------------------------------------------------------------------------------
SERVICES - 2.6%
AMUSEMENT & RECREATION - 0.3%
Grand Casinos, Inc. (b) 3 99
----
BUSINESS SERVICES - 1.1%
Computer Associates International, Inc. 2 124
</TABLE>
11
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
SERVICES - CONT.
BUSINESS SERVICES - CONT.
FileNet Corp. (b) 3 $113
Manpower, Inc. 3 73
Norrell Corp. 4 108
----
418
----
ENGLISH, ACCOUNTING, RESEARCH & MANAGEMENT - 0.2%
International-Muller NV Ne 1 61
----
HEALTH SERVICES - 0.6%
Integrated Health Services, Inc. 3 69
Lincare Holdings, Inc. (b) 5 124
Rotech Medical Corp.(b) 3 57
----
250
----
HOTELS, CAMPS & LODGING - 0.4%
Hospitality Franchise Systems, Inc. (b) 3 184
----
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 2.7%
AIR TRANSPORTATION - 0.8%
British Airways PLC ADR UK 1 71
Comair Holdings, Inc. 6 168
Lufthansa AG G 1 69
----
308
----
COMMUNICATIONS - 0.6%
Southwestern Bell Corp. 2 129
Sprint Corp. 2 88
Telefonos de Mexico SA ADR Mx 1 30
----
247
----
ELECTRIC SERVICES - 0.8%
Duke Power Co. 2 89
Northeast Utilities 4 106
Unicom Corp. 3 98
----
293
----
SANITARY SERVICES - 0.2%
Yorkshire Water PLC UK 8 77
----
TRANSPORTATION SERVICES - 0.2%
Air Express International Corp. 4 81
----
Water Transportation - 0.1%
DFDS AS De (a) 57
----
</TABLE>
12
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
WHOLESALE TRADE - 2.1%
DURABLE GOODS - 1.9%
Arrow Electronics, Inc. (b) 2 $ 101
Beers NV Ne 1 80
Hanwa Co. Ltd. (b) Ja 56 169
Pioneer Standard Electronics, Inc. 8 104
Shelter Components Corp. 4 55
Software Spectrum, Inc. (b) 4 75
Wyle Electronics Co. 4 170
-------
754
-------
NONDURABLE GOODS - 0.2%
Dalgety PLC UK 11 70
-------
TOTAL COMMON STOCKS (cost of $16,823) 21,178
-------
<CAPTION>
BONDS & NOTES - 39.0% PAR
- -----------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - 15.1%
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSTRUCTION - 0.3%
BUILDING CONSTRUCTION
USG Corp.,
9.250% 09/15/01 $100 106
-------
- -----------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.3%
FINANCIAL SERVICES
Comdata Network, Inc.,
13.250% 12/15/02 100 118
-------
- -----------------------------------------------------------------------------------
MANUFACTURING - 4.7%
CHEMICALS - 0.8%
Agricultural Minerals Co., LP,
10.750% 09/30/03 100 106
Huntsman Corp.,
11.000% 04/15/04 100 111
N.L. Industries, Inc.,
11.750% 10/15/03 100 106
-------
323
-------
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.3%
Amphenol Corp.,
12.750% 12/15/02 100 113
-------
FOOD & KINDRED PRODUCTS - 0.6%
Doskocil Companies Inc.,
9.750% 07/15/00 100 97
Van De Kamps, Inc., (c)
12.000% 09/15/05 150 154
-------
251
-------
</TABLE>
13
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - CONT. PAR VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANUFACTURING - CONT.
LUMBER & WOOD PRODUCTS - 0.3%
Triangle Pacific Corp.,
10.500% 08/01/03 $100 $105
----
MISCELLANEOUS MANUFACTURING - 0.6%
American Standard Co., stepped coupon,
(10.500% 06/01/98) 06/01/05 (d) 150 126
Coleman Holdings Co., Series B,
(e) 05/27/98 150 119
----
245
----
PAPER PRODUCTS - 0.8%
Repap Wisconsin, Inc.,
9.250% 02/01/02 100 97
SD Warren Co.,
12.000% 12/15/04 100 111
Stone Container Corp.,
9.875% 02/01/01 100 99
----
307
----
PRIMARY METAL - 0.5%
A.K. Steel Corp.,
10.750% 04/01/04 100 109
Magma Copper Co.,
12.000% 12/15/01 100 110
----
219
----
STONE, CLAY, GLASS & CONCRETE - 0.3%
Owens-Illinois, Inc.,
10.500% 06/15/02 100 105
----
TRANSPORTATION EQUIPMENT - 0.5%
Aftermarket Technology Corp.,
Series B,
12.000% 08/01/04 100 106
Harvard Industries, Inc., (c)
11.125% 08/01/05 100 101
----
207
----
- ---------------------------------------------------------------------------------
MINING & ENERGY - 1.3%
Crude Petroleum & Natural Gas - 0.5%
Ferrellgas Finance Corp., LP,
10.000% 08/01/01 100 104
Triton Energy Corp.,
(e) 11/01/97 100 85
----
189
----
</TABLE>
14
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OIL & GAS EXTRACTION - 0.8%
Gulf Canada Resources Ltd.,
9.250% 01/15/04 $100 $100
Rowan Companies, Inc.,
11.875% 12/01/01 100 108
Santa Fe Energy Resources, Inc.,
11.000% 05/15/04 100 107
----
315
----
RETAIL TRADE - 1.2%
FOOD STORES - 0.7%
Dominick's Finer Foods, Inc.,
10.875% 05/01/05 150 158
Pathmark Stores, Inc.,
9.625% 05/01/03 100 99
----
257
----
MISCELLANEOUS RETAIL - 0.5%
Finlay Fine Jewelry Corp.,
10.625% 05/01/03 100 99
Thrifty Payless Holdings, Inc.,
11.750% 04/15/03 100 107
----
206
----
- ---------------------------------------------------------------------------------
SERVICES - 2.6%
AMUSEMENT & RECREATION - 1.0%
Bally's Grand, Inc., Series B,
10.375% 12/15/03 100 100
Boyd Gaming Corp.,
10.750% 09/01/03 100 105
Falcon Holdings, PIK,
11.000% 09/15/03 106 101
Trump Taj Mahal Funding, Inc., PIK,
11.350% 11/15/99 100 86
----
392
----
HEALTH SERVICES - 1.2%
GranCare, Inc.,
9.375% 09/15/05 150 149
Integrated Health Services, Inc.,
10.750% 07/15/04 100 106
OrNda Health Corp.,
11.375% 08/15/04 100 112
Tenet Healthcare Corp.,
10.125% 03/01/05 100 107
----
474
----
</TABLE>
15
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - CONT. PAR VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SERVICES - CONT.
HOTELS, CAMPS & LODGING - 0.4%
HMH Properties Inc., (c)
9.500% 05/15/05 $150 $ 151
------
- ----------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 4.4%
COMMUNICATIONS - 3.7%
Allbritton Communications Co.,
11.500% 08/15/04 100 107
Bell Cablemedia PLC, stepped coupon,
(11.950% 07/15/99) 07/15/04 (d) (f) UK 150 102
Cablevision Systems Corp.,
10.750% 04/01/04 100 105
Cellular Communications Units, (g)
(e) 08/15/00 100 58
Comcast Corp.,
9.125% 10/15/06 250 254
Continental Cablevision, Inc.,
11.000% 06/01/07 100 112
MFS Communications Company, Inc.,
stepped coupon, (9.375% 01/15/99) 01/15/04 (d) 100 78
NWCG Holding Corp.,
(e) 06/15/99 175 118
Paging Network, Inc.,
10.125% 08/01/07 100 106
SCI Television, Inc.,
11.000% 06/30/05 100 106
Sinclair Broadcast Group, Inc.,
10.000% 09/30/05 100 103
Videotron Holding PLC, stepped coupon,
(11.000% 08/15/00) 08/15/05 (d) 100 59
Young Broadcasting Corp.,
11.750% 11/15/04 100 112
------
1,420
------
GAS SERVICES - 0.4%
California Energy Co., Inc.,
9.875% 06/30/03 150 154
------
MOTOR FREIGHT & WAREHOUSING - 0.3%
Trism, Inc.,
10.750% 12/15/00 100 98
------
WHOLESALE TRADE - 0.3%
NONDURABLE GOODS
Revlon Worldwide Corp.,
(e) 03/15/98 150 112
------
</TABLE>
16
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES (cost of $5,632) $ 5,867
-------
FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS - 13.2% CURRENCY
- -----------------------------------------------------------------------------------
Government of Finland Bond, FN
10.000% 09/15/01 4,000 1,057
Kingdom of Denmark, DK
8.000% 05/15/03 8,134 1,522
Republic of Poland (Brady), PL
Past Due Interest, stepped coupon,
(3.750% 04/27/96) 10/27/14 500 320
Treasury Corp. of Victoria, A$
12.000% 09/22/01 841 737
United Kingdom Treasury, BP
10.000% 09/08/03 569 1,007
Western Australia Treasury, A$
12.000% 08/01/01 550 482
-------
TOTAL FOREIGN GOVERNMENT & AGENCY
OBLIGATIONS (cost of $4,984) 5,125
-------
U.S. GOVERNMENT OBLIGATIONS - 10.7%
- -----------------------------------------------------------------------------------
U.S. Treasury Notes,
11.875% 11/15/03 (cost of $3,875) $3,020 4,135
TOTAL BONDS & NOTES (cost of $14,491) 15,127
-------
TOTAL INVESTMENTS - 93.4% (cost of $31,314) (h) 36,305
-------
SHORT-TERM OBLIGATIONS - 4.7%
Repurchase agreement with Bankers Trust Securities,
Corp. dated 10/31/95, due 11/01/95 at 5.875% collateralized
by U.S. Treasury notes with various maturities to 1997,
market value $1,870 (repurchase proceeds $1,831) 1,831 1,831
-------
OTHER ASSETS & LIABILITIES, NET - 1.7% 658
- -----------------------------------------------------------------------------------
NET ASSETS - 100.0% $38,794
-------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Rounds to less than one.
(b) Non-income producing.
(c) Security is exempt from registration under rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At year end, the
the value of these securities amounted to $406 or 1.0% of net assets.
17
<PAGE>
Investment Portfolio/October 31, 1995
- --------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO - CONT.
- --------------------------------------------------------------------------------
(d) Currently zero coupon. Shown parenthetically is the interest rate to be
paid and the date the Fund will begin accruing this rate.
(e) Zero coupon bond.
(f) This is a British security. Par amount is stated in U.S. dollars.
(g) Each unit consists of one bond and one warrant to purchase shares of
common stock.
(h) Cost for federal income tax purposes is the same.
<TABLE>
<CAPTION>
Summary of Securities
by Country/Currency Country/Currency Value % of Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $27,104 74.6
Denmark De/DK 1,668 4.6
United Kingdom UK/BP 1,583 4.4
Australia Au/A$ 1,239 3.4
Finland FN 1,057 2.9
Japan Ja 902 2.5
Germany G 563 1.5
Poland PL 320 0.9
Netherlands Ne 317 0.9
Canada Ca 297 0.8
Spain Sp 211 0.6
France Fr 211 0.6
Belgium Be 161 0.4
Austria Aus 149 0.4
Norway No 118 0.3
Sweden Sw 114 0.3
Singapore Si 100 0.3
Hong Kong HK 81 0.2
Mexico Mx 56 0.2
Phillipines Ph 31 0.1
Malaysia Ma 23 0.1
------- -----
$36,305 100.0
------- -----
</TABLE>
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
<TABLE>
<CAPTION>
Acronym Name
- ------- ----
<S> <C>
ADR American Depository Receipt
PIK Payment-In-Kind
</TABLE>
See notes to financial statements.
18
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1995
<TABLE>
<S> <C> <C>
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $31,314) $36,305
Short-term obligations 1,831
-------
38,136
Cash held in foreign banks (cost $1) $ 1
Receivable for:
Interest 400
Fund shares sold 181
Investments sold 107
Dividends 18
Expense reimbursement due from Adviser 12
Foreign tax reclaims 3
Deferred organization expenses 56
Other 1 779
---- -------
Total Assets 38,915
LIABILITIES
Payable for:
Fund shares repurchased 111
Accrued:
Deferred Trustees fees 1
Other 9
----
Total Liabilities 121
-------
NET ASSETS $38,794
-------
Net asset value & redemption price per share -
Class A ($16,346/1,403) $ 11.65
-------
Maximum offering price per share - Class A
($11.65/0.9525) $ 12.23 (a)
-------
Net asset value & offering price per share -
Class B ($18,284/1,570) $ 11.64 (b)
-------
Net asset value price per share -
Class D ($4,164/358) $ 11.65 (b)
-------
Maximum offering price per share - Class D
($11.65/0.9900) $ 11.77
--------
</TABLE>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements.
19
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<S> <C> <C>
(in thousands)
INVESTMENT INCOME
Interest $1,072
Dividends 246
------
Total investment income (net of nonrebatable foreign
taxes withheld at source which amounted to $12) 1,318
EXPENSES
Management fee $ 196
Service fee 70
Distribution fee - Class A 36
Distribution fee - Class B 95
Distribution fee - Class D 25
Transfer agent 86
Bookkeeping fee 27
Trustees fee 5
Custodian fee 11
Audit fee 16
Legal fee 35
Registration fee 28
Reports to shareholders 5
Amortization of deferred
organization expenses 14
Other 7
------
656
Fees waived by the Adviser (122) 534
------- ------
Net Investment Income 784
------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 189
Foreign currency transactions (6)
-------
Net Realized Gain 183
Net unrealized appreciation during
the period on:
Investments 5,069
Foreign currency transactions 3
------
Net Unrealized Appreciation 5,072
------
Net Gain 5,255
------
Net Increase in Net Assets From Operations $6,039
------
</TABLE>
See notes to financial statements.
20
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(in thousands) Year ended October 31
------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994(a)
<S> <C> <C>
Operations:
Net investment income $ 784 $ 37
Net realized gain (loss) 183 (2)
Net unrealized appreciation (depreciation) 5,072 (80)
-------- -------
Net Increase (Decrease) from Operations 6,039 (45)
Distributions:
From net investment income - Class A (409) -
From net investment income - Class B (382) -
From net investment income - Class D (97) -
------- -------
5,151 (45)
------- -------
Fund Share Transactions:
Receipts for shares sold - Class A 8,580 6,427
Value of distributions reinvested - Class A 381 -
Cost of shares repurchased - Class A (1,218) (5)
------- -------
7,743 6,422
------- -------
Receipts for shares sold - Class B 10,846 6,364
Value of distributions reinvested - Class B 351 -
Cost of shares repurchased - Class B (1,588) (33)
------- -------
9,609 6,331
------- -------
Receipts for shares sold - Class D 1,359 2,249
Value of distributions reinvested - Class D 95 -
Cost of shares repurchased - Class D (120) -
------- -------
1,334 2,249
------- -------
Net Increase from Fund Share Transactions 18,686 15,002
------- -------
Total Increase 23,837 14,957
NET ASSETS
Beginning of period 14,957 -
------- -------
End of period (including undistributed net investment
income of $27 and $35, respectively) $38,794 $14,957
------- -------
NUMBER OF FUND SHARES
Sold - Class A 836 646
Issued for distributions reinvested - Class A 36 -
Repurchased - Class A (114) (1)
------- -------
758 645
------- -------
Sold - Class B 1,047 643
Issued for distributions reinvested - Class B 32 -
Repurchased - Class B (149) (3)
------- -------
930 640
------- -------
Sold - Class D 135 225
Issued for distributions reinvested - Class D 9 -
Repurchased - Class D (11) -
------- -------
133 225
------- -------
</TABLE>
(a) The Fund commenced investment operations on September 19, 1994.
See notes to financial statements.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE 1. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION: Colonial Strategic Balanced 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 may issue an unlimited number of shares.
The Fund offers three classes of shares: Class A, Class B and Class D. Class A
shares are sold with a front-end sales charge and a continuing distribution fee;
Class B shares are subject to an annual distribution fee and a contingent
deferred sales charge. Class B shares will convert to Class A shares when they
have been outstanding approximately eight years. Class D shares are subject to a
reduced front-end sales charge, a contingent deferred sales charge on
redemptions made within one year after purchase and a continuing distribution
fee. The following significant accounting policies are consistently followed by
the Fund in the preparation of its financial statements and conform to generally
accepted accounting principles.
SECURITY VALUATION AND TRANSACTIONS: Equity securities are valued at the last
sale price or, in the case of unlisted or listed securities for which there were
no sales during the day, at current quoted bid prices.
Debt securities generally are valued by a pricing service based upon market
transactions for normal, institutional-size trading units of similar securities.
When management deems it appropriate, an over-the-counter or exchange bid
quotation is is used.
Forward currency contracts are valued based on the weighted value of the
exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
The value of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates.
Portfolio positions which cannot be valued as set forth above are valued at fair
value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class A, Class B and Class D distribution fees),
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.
22
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
The per share data was calculated using the average shares outstanding during
the period. In addition, Class A, Class B and Class D net investment income per
share data reflect the distribution fee applicable to each class.
Class A, Class B and Class D 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 A, Class B and Class D shares.
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 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
carryovers) under income tax regulations.
DEFERRED ORGANIZATION EXPENSES: The Fund incurred expenses of $69,500 in
connection with its organization, initial registration with the Securities and
Exchange Commission and with various states, and the initial public offering of
its shares. These expenses were deferred and are being amortized on a
straight-line basis over five years.
FOREIGN CURRENCY TRANSACTIONS: The Fund has adopted Statement of Position 93-4,
Foreign Currency Accounting and Financial Statement Presentation for Investment
Companies. Accordingly, net realized and unrealized gains (losses) on foreign
currency transactions includes the fluctuation in exchange rates on gains
(losses) between trade and settlement dates on securities transactions, gains
(losses) arising from the disposition of foreign currency and currency gains
(losses) between the accrual and payment dates on dividends and interest income
and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) on investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities. The Fund
may also enter into forward currency contracts to hedge certain other foreign
currency denominated
23
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
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
tranactions 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 0.70% annually of the Fund's
average net assets.
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 and receives a monthly
fee equal to 0.25% annually of the Fund's average net assets and receives a
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, 1995, the Fund has been
advised that the Distributor retained net underwriting discounts of $12,522 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $29,074 and $802 , on Class B and Class D share redemptions,
respectively.
The Fund has adopted a 12b-1 plan which requires it to pay the Distributor a
service fee equal to 0.25% annually of the Fund's net assets as of the 20th of
each month. The plan also requires the payment of a distribution fee to the
Distributor equal
24
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
to 0.30% for Class A and 0.75% for Class B and Class D, annually, of the average
net assets attributable to Class A, Class B and Class D shares, respectively.
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.
EXPENSE LIMITS: The Adviser has agreed, until further notice, to waive fees and
bear certain Fund expenses to the extent that total expenses (exclusive of
service and distribution fees, brokerage commissions, interest, taxes and
extraordinary expenses, if any) exceed 1.10% annually of the Fund's average net
assets.
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
the Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended October 31, 1995, purchases and sales
of investments, other than short-term obligations, were $29,569,245 and
$12,819,167, respectively, of which $4,200,984 and $1,768,413, respectively,
were U.S. government securities.
Unrealized appreciation (depreciation) at October 31, 1995, based on cost of
investments for both financial statement and federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 5,758,206
Gross unrealized depreciation (767,303)
-----------
Net unrealized appreciation $ 4,990,903
-----------
</TABLE>
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. COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
At October 31, 1995, net assets consisted of:
Capital paid in $33,637
Undistributed net investment income 27
Accumulated net realized gain 138
Net unrealized appreciation on:
Investments 4,991
Foreign currency transactions 1
-------
$38,794
-------
</TABLE>
25
<PAGE>
FINANCIAL HIGHLIGHTS (b)
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended October 31 Period ended October 31
--------------------------------------- -----------------------------------------
1995 1994 (c)
Class A Class B Class D Class A Class B Class D
---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 9.910 $ 9.900 $ 9.900 $10.000 $10.000 $10.000
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (a) 0.325 0.277 0.277 0.035 0.029 0.029
Net realized and
unrealized gain (loss) 1.764 1.769 1.774 (0.125) (0.129) (0.129)
------- ------- ------- ------- ------- -------
Total from Investment
Operations 2.089 2.046 2.051 (0.090) (0.100) (0.100)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.349) (0.306) (0.301) -- -- --
------- ------- ------- ------- ------- -------
Net asset value -
End of period $11.650 $11.640 $11.650 $ 9.910 $ 9.900 $ 9.900
------- ------- ------- ------- ------- -------
Total return (d)(e) 21.47% 21.00% 21.04% (0.90)%(g) (1.00)%(g) (1.00)%(g)
------- ------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.65%(f) 2.10%(f) 2.10%(f) 1.65%(h) 2.10%(h) 2.10%(h)
Net investment
income 3.05%(f) 2.60%(f) 2.60%(f) 3.01%(h) 2.56%(h) 2.56%(h)
Fees waived or borne
by the Adviser 0.43% 0.43% 0.43% 0.35%(h) 0.35%(h) 0.35%(h)
Portfolio turnover 49% 49% 49% 0%(h) 0%(h) 0%(h)
Net assets at end
of period (000) $16,346 $18,284 $ 4,164 $ 6,394 $ 6,332 $ 2,231
(a) Net of fees and expenses waived or borne by the Adviser which amounted to:
$ 0.042 $ 0.042 $ 0.042 $ 0.004 $ 0.004 $ 0.004
</TABLE>
(b) Per share data was calculated using average shares outstanding during the
period.
(c) The Fund commenced investment operations on September 19, 1994.
(d) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(e) Had the Adviser not waived or reimbursed a portion of expenses, total return
would have been reduced.
(f) The benefits derived from custody credits and directed brokerage
arrangements, if any, had no impact on the Fund's gross expense ratio.
(g) Not annualized.
(h) Annualized.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
18% of the distributions paid by the Fund from investment income earned in the
year ended October 31,1995, qualify for the corporate dividends received
deduction.
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST III AND THE SHAREHOLDERS OF
COLONIAL STRATEGIC BALANCED 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 Strategic Balanced Fund (a
series of Colonial Trust III) at October 31, 1995, 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, 1995 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 11, 1995
27
<PAGE>
SHAREHOLDER SERVICES
TO MAKE INVESTING EASIER
Colonial has one of the most extensive selections of shareholder services
available. Your financial adviser can help you arrange for any of these
services, or you can call Colonial directly at 1-800-345-6611.
AFFORDABLE ADDITIONAL INVESTMENTS: Add to your account with as little as $50;
$25 for an IRA account.
FREE EXCHANGES*: Exchange all or part of your account into the same share class
of another Colonial fund, by phone or mail, as your needs change over time.
EASY ACCESS TO YOUR MONEY*: Make withdrawals from your account by phone, by mail
or, for certain funds, by check.
ONE-YEAR REINSTATEMENT PRIVILEGE: If you need access to your money, but then
choose to return it to Colonial within one year, you can reinvest in any
Colonial fund of the same share class without any penalty or sales charge.
FUNDAMATIC: Make periodic investments as low as $50 from your checking account
to your Colonial account.
SYSTEMATIC WITHDRAWAL PLAN (SWP): Receive monthly, quarterly, or semiannual
payments via check or bank transmission. There is a $5,000 account value
required, but no minimum for the payment amount. The maximum annual withdrawal
is 12% of account balance at time SWP is established. SWPs by check are
processed on the 10th of each month.
AUTOMATED DOLLAR COST AVERAGING: Transfer money on a monthly basis from any
Colonial fund with a balance of $5,000 into the same share class of up to four
other Colonial funds. Minimum for each transfer is $100.
LOW COST IRAS: Choose from a broad range of retirement plans, including IRAs.
* Redemptions and exchanges are made at the next determined net asset value
after the request is received by Colonial. Proceeds may be more or less than
your original cost. The exchange privilege may be terminated at any time.
Investors who purchase Class B or Class D shares (for applicable funds), or $1
million or more of Class A shares, may be subject to a contingent deferred sales
charge.
28
<PAGE>
HOW TO REACH COLONIAL
BY PHONE OR BY MAIL
BY TELEPHONE
COLONIAL CUSTOMER CONNECTION - 1-800-345-6611
For 24-hour account information, call from your touch-tone phone. (Rotary
callers will be automatically connected to a representative during business
hours.) A recorded message will guide you through the menu:
For fund prices, dividends, and capital gains information ............press 1
For account information ..............................................press 2
To speak to a Colonial representative ................................press 3
For yield and total return information ...............................press 4
For duplicate statements or new supply of checks .....................press 5
To order duplicate tax forms and year-end statements .................press 6
(February through May)
To review your options at any time during your call ..................press *
To speak with a shareholder services representative about your account, call
Monday to Friday, 8:00 am to 8:00 pm ET, and Saturdays from February through
mid-April, 10:00 am to 2:00 pm ET.
COLONIAL TELEPHONE TRANSACTION DEPARTMENT - 1-800-422-3737
To purchase, exchange, or sell shares by telephone, call Monday to Friday, 9:00
am to 8:00 pm ET. Transactions received after the close of the New York Stock
Exchange will receive the next business day's closing price.
COLONIAL LITERATURE DEPARTMENT - 1-800-248-2828
To request literature on any Colonial fund, call Monday to Friday, 8:30 am to
6:30 pm ET.
BY MAIL
COLONIAL INVESTORS SERVICE CENTER, INC.
P.O. BOX 1722
BOSTON, MA 02105-1722
29
<PAGE>
SHAREHOLDER COMMUNICATIONS
TO KEEP YOU INFORMED
To make recordkeeping easy and keep you up-to-date on the performance of your
investments, you can expect to receive the following information about your
Colonial account:
TRANSACTION CONFIRMATIONS: Each time you make a purchase, sale, or exchange, you
receive a confirmation statement within just a few days.
QUARTERLY STATEMENTS: Every three months, if any transactions are made that
affect your share balance, this statement reports on your account activity
during the quarter (including any reinvestment of dividends). This statement
also provides year-to-date information.
COLONIAL SHAREHOLDER NEWS: Mailed with your quarterly account statements, this
newsletter highlights timely investment strategies, portfolio manager
commentary, and shareholder service updates.
TAX FORMS AND YEAR-END TAX GUIDE: Easy-to-use forms and timely information are
designed to make tax reporting simpler. (Usually mailed in January.)
AVERAGE COST BASIS STATEMENTS: If you sold or exchanged shares during the year,
this statement may help you calculate your gain/loss for tax purposes. (Usually
mailed in February.)
30
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Strategic Balanced Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial Strategic Balanced Fund mails one shareholder report to each
shareholder address. If you would like more than one report, please call our
Literature Department at 1-800-248-2828 and additional reports will be sent to
you.
This report has been prepared for shareholders of Colonial Strategic Balanced
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.
31
<PAGE>
[LOGO]
COLONIAL
MUTUAL FUNDS
Mutual Funds for
Planned Portfolios
TRUSTEES
ROBERT J. BIRNBAUM
Trustee (formerly Special Counsel, Dechert, Price & Rhoads; President and Chief
Operating Officer, New York Stock Exchange, Inc.)
TOM BLEASDALE
Trustee (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President - Operations, The Rockport
Company)
WILLIAM D. IRELAND, JR.
Trustee (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, C.S. First Boston Merchant Bank; and President and Chief
Executive Officer, The First Boston Corporation)
JOHN A. MCNEICE, JR.
Chairman of the Board and Director, The Colonial Group, Inc. and Colonial
Management Associates, Inc. (formerly Chief Executive Officer, The Colonial
Group, Inc. and Colonial Management Associates, Inc.)
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. (C)1995
One Financial Center, Boston, Massachusetts 02111-2621, 617-426-3750
[LOGO] Printed on recycled paper
SB-02/472B-1095 (12/95)
