<PAGE>
--------------
COLONIAL GROWTH
SHARES FUND
--------------
ANNUAL REPORT
OCTOBER 31, 1995
<PAGE>
COLONIAL GROWTH SHARES FUND HIGHLIGHTS
NOVEMBER 1, 1994 - OCTOBER 31, 1995
INVESTMENT OBJECTIVE: Colonial Growth Shares Fund seeks long-term growth by
investing primarily in middle capitalization equities.
THE FUND IS DESIGNED TO OFFER:
- - Opportunity for long-term growth
- - A disciplined investment strategy
- - Broad diversification
PORTFOLIO MANAGER COMMENTARY: "Colonial Growth Shares Fund provided investors
with attractive returns during its most recent fiscal year. The Fund's
portfolio of middle capitalization stocks fully participated in a stock market
rally that sustained itself throughout 1995."
COLONIAL GROWTH SHARES FUND PERFORMANCE
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
Distributions declared per share $1.380 $1.282
Total returns, assuming
reinvestment of all distributions
and no sales charge or contingent
deferred sales charge (CDSC) --
12 months 28.44% 27.50%
Net asset value per share at 10/31/95 $16.14 $16.04
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS TOP FIVE SECTORS*
(as of 10/31/95) (as of 10/31/95)
<S> <C> <C>
1. Nike, Inc. 1. Technology 16.02%
2. Medtronic, Inc. 2. Financials 15.27%
3. Loews Corp. 3. Consumer Cyclicals 12.19%
4. Federal Express Corp. 4. Health Care 9.30%
5. Philip Morris Co., Inc. 5. Consumer Staples 8.19%
</TABLE>
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 defined criteria as used in the investment process.
Percentages are based on total net assets.
2
<PAGE>
PRESIDENT'S MeSSAGE
TO FUND SHAREHOLDERS
[PHOTO] During the 12 months ended October 31, 1995, the U.S. stock market
provided attractive returns for investors. This performance reflected
moderate economic growth and low inflation in the United States.
Declining interest rates and low inflation set the stage for a stock market
rally in the United States. In terms of performance, large capitalization
"blue chip" stocks set the pace for the rest of the U.S. equity market,
although middle capitalization, small capitalization, and foreign stocks also
did well. However, the rally was not primarily driven by any one sector or
industry. It was broad based, reflecting contributions from all sectors of the
stock market. Almost all U.S. stocks thrived in this environment.
Daniel Rie, Lead Portfolio Manager of Colonial Growth Shares Fund, and Peter
Wiley, the Fund's Associate Portfolio Manager, believe that economic growth and
inflation will remain moderate in the months ahead. Should this outlook prove
true, the growth stocks your Fund invests in should continue to provide
investors with positive returns. In the following report, Dan and Peter
comment on the Fund's management strategy and on key issues affecting growth
stocks in general and your Fund in particular.
Respectfully,
/s/ John A. McNeice, Jr.
John A. McNeice, Jr.
President
December 11, 1995
3
<PAGE>
Portfolio Management Report
DANIEL RIE is Senior Vice President of Colonial Management Associates, Inc. and
Lead Portfolio Manager of Colonial Growth Shares Fund. Dan also directs our
equity investment group. He has more than 21 years of financial management
experience. Peter Wiley is Assistant Vice President of Colonial Management
Associates, Inc., and Associate Portfolio Manager of Colonial Growth Shares
Fund.
U.S. ECONOMY FAVORABLE: The U.S. economy was far more vigorous during the
third quarter of 1995 than it was in either of the prior two quarters --
industrial production increased at an annual rate of 5.7%. This contrasts with
the relatively slow gross domestic product growth rates for the first and
second quarters of 2.7% and 1.3%, respectively. We believe interest rates will
continue to decline and inflation will stay under control. In such an
environment, stocks should continue to provide positive returns for investors.
FUND PERFORMANCE VS. THE STANDARD & POOR'S MIDCAP 400 INDEX: During the
period, the Fund outperformed the S&P Midcap 400 Index, a broad based,
unmanaged index. The Fund was able to outperform the Index because of its
diversification strategy. The Fund is an actively managed portfolio of middle
capitalization securities with the flexibility to invest in U.S. and foreign
stocks, and fixed-income and short-term securities, while the Index only tracks
the performance of middle capitalization U.S. stocks.
MID CAP STOCKS OFFER FUTURE EARNINGS GROWTH: The Fund invests primarily in mid
cap stocks -- stocks from companies with valuations between $400 million and $8
billion dollars. All of the stocks we evaluate as possible acquisitions must
hold the potential for future earnings growth. We take other factors into
account as well. Some of the stocks we own possess value characteristics.
These investments may provide long-term price appreciation.
STRONG CORPORATE EARNINGS REFLECTED IN FUND PERFORMANCE: Many U.S.
corporations met or exceeded earnings estimates during the Fund's fiscal year.
This has benefited the Fund -- performance has improved along with the earnings
of the companies that issue the stocks held in the Fund's portfolio.
FINANCIAL STOCKS ALSO CONTRIBUTE TO PERFORMANCE: Financial stocks, including
First Interstate Bank, provided attractive returns. We took advantage of the
increase in First Interstate's stock price when Wells Fargo Bank announced its
takeover bid -- our First Interstate stock was sold at a profit.
WEAK DOLLAR HELPS TECHNOLOGY STOCKS: Another sector that contributed to the
Fund's performance is technology, which represented more than 16.0% of
investments at the end of the fiscal year. These stocks improved as the dollar
weakened relative to most major currencies. Because many companies in
4
<PAGE>
this sector have business dealings overseas, the dollar's weakness made the
prices for their products more competitive than their foreign counterparts. As
sales increased, so did profit margins and market share.
LOOKING AHEAD: We anticipate that the economy should continue to grow, at
least over the near term, and inflation will remain under control. In that
environment, conditions should remain favorable for growth stocks into 1996.
COLONIAL GROWTH SHARE'S FUND'S INVESTMENT PERFORMANCE
VS. THE STANDARD & POOR'S MIDCAP 400 INDEX
Change in Value of $10,000 from 10/85 - 10/95
Based on NAV and MOP for Class A Shares
<TABLE>
<CAPTION>
Label A B C
----- - - -
Label CGSF MOP NAV S&P
- ----- ---- --- --- ---
<S> <C> <C> <C> <C>
1 10/85 9425 10000 10000
2 12/85 10686 11338 10309
3 3/86 12757 13535 11377
4 6/86 13130 13931 12555
5 9/86 12131 12871 11879
6 12/86 12728 13504 13977
7 3/87 15389 16328 15993
8 6/87 15762 16723 17193
9 9/87 16680 17698 15875
10 12/87 12980 13772 16242
11 3/88 15039 15957 19640
12 6/88 15675 16631 19473
13 9/88 15713 16671 20346
14 12/88 16299 17294 15912
15 3/89 17666 18744 17985
16 6/89 19133 20301 18973
17 9/89 21280 22578 18725
18 12/89 21097 22384 19233
19 3/90 20417 21662 21068
20 6/90 21701 23024 23177
21 9/90 17427 18490 25706
22 12/90 18848 19998 26068
23 3/91 22653 24035 25255
24 6/91 22222 23577 26754
25 9/91 23792 25244 21997
26 12/91 25273 26815 24734
27 3/92 25651 27216 30411
28 6/92 24414 25903 30188
29 9/92 25238 26778 33063
30 12/92 28052 29763 37125
31 3/93 29309 31097 36937
32 6/93 28860 30621 35790
33 9/93 30402 32257 37181
34 12/93 30853 32735 41548
35 3/94 30251 32096 42911
36 6/94 29714 31527 43911
37 9/94 30833 32714 46118
38 12/94 30032 31864 47346
39 3/95 32834 34837 45548
40 6/95 36571 38803 43887
41 9/95 40491 42961 46858
42 10/95 40291 42749 47370
</TABLE>
A $10,000 investment in Class B shares made on June 8, 1992 (inception), at net
asset value would have been valued at $16,121 on October 31, 1995. The same
investment after deducting the applicable CDSC would have grown to $15,821 on
October 31, 1995.
The Standard & Poor's Midcap 400 Index is an unmanaged index that tracks the
performance of middle capitalization U.S. stocks.
AVERAGE ANNUAL TOTAL RETURNS
As of 9/30/95 (Most Recent Quarter End)
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
NAV MOP NAV w/CDSC
<S> <C> <C> <C> <C>
1 YEAR 31.32% 23.77% 30.38% 25.38%
5 YEARS 18.37% 16.97% -- --
10 YEARS 15.90% 15.21% -- --
SINCE INCEPTION -- -- 14.23% 13.56%
</TABLE>
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 CDSC. Maximum offering price (MOP) return includes the
maximum sales charge of 5.75%. The CDSC returns reflect charges of: 5.00% for
one year; 3.00% since inception. Performance for different share classes will
vary based on differences in sales charges and fees associated with each class.
5
<PAGE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCKS - 91.1% SHARES VALUE
- -------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION - 0.4%
BUILDING CONSTRUCTION
Pulte Corp. 37 $1,157
------
- -------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 16.9%
DEPOSITORY INSTITUTIONS - 3.2%
Citicorp 32 2,095
H.F. Ahmanson & Co. 43 1,080
MBNA Corp. 77 2,821
Norwest Corp. 91 2,671
------
8,667
------
INSURANCE CARRIERS - 6.7%
Ace Ltd. 31 1,054
American Bankers Insurance Group, Inc. 22 782
CNA Financial Corp.(a) 25 2,793
Geico Corp. 21 1,421
Loews Corp. 55 8,050
MGIC Investment Corp. 31 1,735
Oxford Health Plans, Inc.(a) 13 1,002
Sunamerica, Inc. 21 1,320
------
18,157
------
NONDEPOSITORY CREDIT INSTITUTIONS - 4.7%
Countrywide Credit Industries, Inc. 63 1,383
Dean Witter Discover & Co.(a) 35 1,736
Finova Group, Inc. 53 2,380
Green Tree Financial Corp. 43 1,156
ITT Corp.(a) 35 4,251
The Money Store, Inc. 42 1,665
------
12,571
------
SECURITY BROKERS & DEALERS - 2.3%
Bear Stearns Co., Inc. 177 3,516
Lehman Brothers Holdings, Inc. 108 2,356
United Asset Management Corp. 7 254
------
6,126
------
- -------------------------------------------------------------
MANUFACTURING - 49.5%
APPAREL - 0.5%
Warnaco Group, Inc. 59 1,362
------
</TABLE>
6
<PAGE>
Investment Portfolio/October 31, 1995
- -----------------------------------------------------
<TABLE>
<S> <C> <C>
CHEMICALS - 8.0%
ARCO Chemical Co. 13 $ 657
Amgen, Inc. (a) 67 3,226
Avon Products, Inc. 21 1,487
Cabot Corp. 52 2,456
Colgate-Palmolive Co. 17 1,191
Goodrich (B.F.) Co. 36 2,398
ICN Pharmaceuticals, Inc.(a) 118 2,413
Mylan Laboratories, Inc. 22 415
Pfizer, Inc. 51 2,949
Smith International, Inc. 107 1,709
Vigoro Corp. 48 2,073
Wellman, Inc. 20 470
-------
21,444
-------
ELECTRONIC & ELECTRICAL EQUIPMENT - 8.8%
Integrated Circuit Systems, Inc. (a) 69 930
Intel Corp. 90 6,303
Methode Electronics, Inc. Class A 71 1,635
Micron Technology, Inc. 66 4,661
Motorola, Inc. 51 3,314
Park Electrochemical Corp. 43 1,337
Pittway Corp. 22 1,299
Tellabs, Inc. (a) 16 547
Texas Instruments, Inc. 55 3,726
-------
23,752
-------
FABRICATED METAL - 0.6%
Crane Co. 20 722
Harsco Corp. 20 1,034
-------
1,756
-------
FOOD & KINDRED PRODUCTS - 4.8%
Archer Daniels Midland Co. 47 766
IBP, Inc. 95 5,682
Phillip Morris Co., Inc. 77 6,464
-------
12,912
-------
FURNITURE & FIXTURES - 0.9%
Leggett & Platt, Inc. 102 2,443
-------
MACHINERY & COMPUTER EQUIPMENT - 4.3%
Applied Materials, Inc. (a) 15 772
Briggs and Stratton Corp. 47 1,890
Cisco Systems, Inc. (a) 12 953
Gateway 2000, Inc. (a) 34 1,128
Harnischfeger Industries, Inc. 95 2,992
Kysor Industrial Corp. 41 963
Sun Microsystems, Inc. (a) 28 2,207
Toro Co. 20 583
-------
11,488
-------
</TABLE>
7
<PAGE>
Investment Portfolio/October 31, 1995
- -------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS - CONT. SHARES VALUE
- -------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - CONT.
MEASURING & ANALYZING INSTRUMENTS - 7.6%
Boston Scientific Corp., (a) 43 $ 1,799
Eastman Kodak Co. 57 3,576
Measurex Corp. 37 1,128
Medtronic, Inc. 141 8,154
Mentor Corp. 30 660
St. Jude Medical, Inc. 27 1,422
Xerox Corp. 29 3,776
--------
20,515
--------
MISCELLANEOUS MANUFACTURING - 0.6%
Callaway Golf Co. 95 1,559
--------
PAPER & PAPER MILLS - 1.2%
Mead Corp. 56 3,227
--------
PETROLEUM REFINING - 0.9%
Atlantic Richfield Co. 7 769
Kerr-McGee Corp. 31 1,720
--------
2,489
--------
PRIMARY METAL - 2.0%
Aluminum Company of America 27 1,367
Carpenter Technology Corp. 51 1,916
Texas Industries, Inc. 38 2,015
--------
5,298
--------
PRINTING & PUBLISHING - 1.6%
Central Newspapers, Inc. 19 555
New England Business Service, Inc. 27 514
Reynolds & Reynolds Co. 92 3,277
--------
4,346
--------
RUBBER & PLASTIC - 3.3%
Nike, Inc., Class B 145 8,217
Wynn's International, Inc. 28 781
--------
8,998
--------
TOBACCO PRODUCTS - 0.6%
UST, Inc. 53 1,590
--------
TRANSPORTATION EQUIPMENT - 3.8%
Dana Corp. 96 2,450
Polaris Industries, Inc. 70 1,957
Sundstrand Corp. 70 4,312
Varlen Corp. 54 1,439
--------
10,158
--------
8
<PAGE>
Investment Portfolio/October 31, 1995
- -------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
MINING & ENERGY - 0.4%
METAL MINING
Cleveland-Cliffs, Inc. 29 $ 1,073
-------
- -------------------------------------------------------
RETAIL TRADE - 5.7%
APPAREL & ACCESSORY STORES - 0.2%
Claire's Stores, Inc. 28 548
-------
FOOD STORES - 1.3%
General Nutrition Companies, Inc.(a) 143 3,552
-------
GENERAL MERCHANDISE STORES - 1.1%
Federated Department Stores, Inc.(a) 59 1,502
Staples, Inc.(a) 52 1,387
-------
2,889
-------
HOME FURNISHINGS & EQUIPMENT - 1.4%
Circuit City Stores, Inc. 115 3,841
-------
MISCELLANEOUS RETAIL - 0.4%
Arbor Drugs, Inc. 56 1,013
-------
RESTAURANTS - 1.3%
Buffets, Inc.(a) 46 577
Daka International, Inc.(a) 29 881
Marriott International, Inc. 36 1,339
McDonald's Corp. 16 668
-------
3,465
-------
- -------------------------------------------------------
SERVICES - 7.5%
BUSINESS SERVICES - 6.3%
CUC International Inc.(a) 36 1,257
Computer Associates International, Inc. 39 2,170
HBO & Co. 13 941
National Data Corp. 29 771
Omnicom Group, Inc. 62 3,973
Peoplesoft, Inc.(a) 16 1,342
Sterling Software, Inc.(a) 78 3,575
System Software Associates, Inc. 99 3,063
-------
17,092
-------
HEALTH SERVICES - 0.3%
Surgical Care Affiliates, Inc. 26 770
-------
PERSONAL SERVICES - 0.9%
Service Corp. International 60 2,416
-------
- -------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 7.7%
AIR TRANSPORTATION - 3.0%
Federal Express Corp.(a) 97 7,966
-------
</TABLE>
9
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
COMMON STOCKS - CONT. SHARES VALUE
- -----------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
COMMUNICATIONS - 1.3%
Century Telephone Enterprises, Inc. 26 $ 763
Cincinnati Bell, Inc. 74 2,171
Citicasters, Inc. (a) 17 522
--------
3,456
--------
ELECTRIC SERVICES - 1.6%
Unicom Corp. 133 4,369
--------
GAS SERVICES - 0.2%
Enron Corp. 14 495
--------
TRANSPORTATION SERVICES - 1.6%
GATX Corp. 94 4,446
--------
- -----------------------------------------------------------------------------
WHOLESALE TRADE - 3.0%
DURABLE GOODS - 1.8%
Anixter International, Inc. (a) 32 604
Marshall Industries (a) 31 1,103
Pioneer Standard Electronics, Inc. 221 3,064
Ultramed, Inc. (a)(b) 450 104
--------
4,875
--------
NONDURABLE GOODS - 1.2%
Bergen Brunswig Corp., Class A 95 1,970
Foxmeyer Corp. (a) 59 1,341
--------
3,311
--------
TOTAL INVESTMENTS (cost of $193,564)(c) 245,592
--------
SHORT-TERM OBLIGATIONS - 11.0% PAR
----------------------------------------------------------------------------
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 $30,219 (purchase proceeds $29,598) $29,593 29,593
-------
OTHER ASSETS & LIABILITIES, NET - (2.1)% (5,509)
----------------------------------------------------------------------------
NET ASSETS - 100.0% $269,676
--------
NOTES TO INVESTMENT PORTFOLIO:
----------------------------------------------------------------------------
</TABLE>
(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
0.0% of the Fund's net assets at October 31, 1995.
(c) Cost for federal income tax purposes is $193,724.
See notes to financial statements.
10
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1995
(In thousands except for per share amounts and footnotes)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $193,564) $245,592
Short-term obligations 29,593
--------
275,185
Receivable for:
Fund shares sold $ 686
Investments sold 216
Dividends 163
Interest 5
Foreign tax reclaims 4
Other 8 1,082
------ --------
Total Assets 276,267
LIABILITIES
Payable for:
Investments purchased 5,553
Fund shares repurchased 1,004
Accrued:
Deferred Trustees fees 2
Other 32
------
Total Liabilities 6,591
--------
NET ASSETS $269,676
========
Net asset value & redemption price per share -
Class A ($194,393/12,041) $ 16.14
========
Maximum offering price per share - Class A
($16.14/0.9425) $ 17.12(a)
========
Net asset value & offering price per share -
Class B ($75,283/4,694) $ 16.04(b)
========
COMPOSITION OF NET ASSETS
Capital paid in $196,319
Undistributed net investment income 582
Accumulated net realized gain 20,750
Net unrealized appreciation (depreciation)
during the period on:
Investments 52,028
Foreign currency transactions (3)
--------
$269,676
========
</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.
11
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<S> <C> <C>
(in thousands)
INVESTMENT INCOME
Dividends $ 4,525
Interest 890
-------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $18) 5,415
EXPENSES
Management fee $ 1,148
Service fee -- Class A 376
Service fee -- Class B 149
Distribution fee -- Class B 450
Transfer agent 682
Bookkeeping fee 89
Trustees fee 20
Custodian fee 14
Audit fee 40
Legal fee 10
Registration fee 23
Reports to shareholders 13
Other 29 3,043
------- -------
Net Investment Income 2,372
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 20,785
Foreign currency transactions (2)
-------
Net Realized Gain 20,783
Net unrealized appreciation during the
period on:
Investments 34,829
Foreign currency transactions 2
-------
Net Unrealized Gain 34,831
-------
Net Gain 55,614
-------
Net Increase in Net Assets From Operations $57,986
=======
</TABLE>
See notes to financial statements.
12
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended
(in thousands) October 31
--------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
Operations:
<S> <C> <C>
Net investment income $ 2,372 $ 1,094
Net realized gain 20,783 18,261
Net unrealized appreciation (depreciation) 34,831 (13,720)
-------- --------
Net Increease from Operations 57,986 5,635
Distributions:
From net investment income - Class A (1,927) (811)
From net realized gains - Class A (13,715) (16,747)
From net investment income - Class B (276) -
From net realized gains - Class B (4,637) (4,174)
-------- --------
37,431 (16,097)
-------- --------
Fund Share Transactions:
Receipts for shares sold - Class A 83,053 67,549
Value of distributions reinvested - Class A 13,678 15,244
Cost of shares repurchased - Class A (90,175) (79,333)
-------- --------
6,556 3,460
-------- --------
Receipts for shares sold - Class B 27,663 37,440
Value of distributions reinvested - Class B 4,705 3,963
Cost of shares repurchased - Class B (20,392) (26,955)
-------- --------
11,976 14,448
-------- --------
Net Increase from Fund Share Transactions 18,532 17,908
-------- --------
Total Increase 55,963 1,811
NET ASSETS:
Beginning of period 213,713 211,902
-------- --------
End of period (including undistributed net
invesetment income of $582 and $413,
respectively) $269,676 $213,713
======== ========
NUMBER OF FUND SHARES
Sold - Class A 5,863 4,866
Issued for distribution reinvested - Class A 1,139 1,120
Repurchased - Class A (6,410) (5,688)
-------- --------
592 298
-------- --------
Sold - Class B 1,988 2,708
Isued for distributions reinvested - Class B 395 292
Repurchased - Class B (1,507) (1,947)
-------- --------
876 1,053
-------- --------
</TABLE>
See notes to financial statements.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
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 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 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 used.
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 A and Class B service fee and Class B
distribution fee), realized and unrealized gains (losses) are allocated to
each class proportionately on a daily basis for purposes of determining the net
asset value of each class.
The per share data was calculated using the average shares outstanding during
the period. In addition, net investment income per share data reflects the
service fee applicable to both Class A and Class B shares and the distribution
fee applicable to Class B shares only.
Class A and Class B ratios are calculated by adjusting the expense and net
investment income ratios for the Fund for the entire period by the service fee
applicable to both Class A and Class B and 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.
14
<PAGE>
Notes to Financial Statements/October 31, 1995
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.
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 gain (loss) 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 forward currency contracts are closed or mature. Realized and unrealized
gains (losses) arising from such transactions are included in net realized and
unrealized gains (losses) on foreign currency transactions. Forward currency
contracts do not eliminate fluctuations in the prices of the Fund's portfolio
securities. While the maximum potential loss from such contracts is the
aggregate face value in U.S. dollars at the time the contract was opened,
exposure is typically limited to the change in value of the contract (in U.S.
dollars) over the period it remains open. Risks may also arise if
counterparties fail to perform their obligations under the contracts.
OTHER: Corporate actions are recorded on the ex-date (except for certain
foreign securities which are recorded as soon after ex-date as the Fund becomes
aware of such), net of nonrebatable tax withholdings. Where a high level of
uncertainty as to collection exists, income on securities is recorded net of
all tax withholdings with any rebates recorded when received.
15
<PAGE>
Notes to Financial Statements/October 31, 1995
- -------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- -------------------------------------------------------------------------------
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 in-
vestment 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, 1995, the total fee included a downward performance
adjustment of $128,408.
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 $48,107 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $169,878 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 to the Distributor as follows:
<TABLE>
<CAPTION>
Value of shares outstanding on the
20th of each month which were issued Annual Fee Rate
------------------------------------ ---------------
<S> <C>
Prior to April 1, 1989....................... 0.15%
On or after April 1, 1989.................... 0.25%
</TABLE>
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 the Fund's assets.
16
<PAGE>
Notes to Financial Statements/October 31, 1995
- -------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION
- -------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended October 31, 1995, purchases and
sales of investments, other than short-term obligations, were $195,666,326 and
$211,123,404, respectively.
Unrealized appreciation (depreciation) at October 31, 1995, based on cost of
investments for federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 55,213,059
Gross unrealized depreciation (3,344,807)
--------------
Net unrealized appreciation $ 51,868,252
==============
</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.
17
<PAGE>
FINANCIAL HIGHLIGHTS (a)
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended October 31
-------------------------------------------
1995 1994
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $14.020 $13.940 $15.240 $15.180
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.174 0.065 0.096 (0.008)
Net realized and
unrealized gain 3.326 3.317 0.275 0.288
------- ------- ------- -------
Total from Investment
Operations 3.500 3.382 0.371 0.280
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.165) (0.067) (0.071) ---
From net realized gains (1.215) (1.215) (1.520) (1.520)
------- ------- ------- -------
Total Distributions
Declared to Shareholders (1.380) (1.282) (1.591) (1.520)
------- ------- ------- -------
Net asset value -
End of period $16.140 $16.040 $14.020 $13.940
------- ------- ------- -------
Total return (d) 28.44% 27.50% 2.78% 2.12%
------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.12%(e) 1.90%(e) 1.22% 1.97%
Net investment income 1.24%(e) 0.46%(e) 0.69% (0.06)%
Portfolio turnover 92% 92% 121% 121%
Net assets at end
of period (000's) $194,393 $75,283 $160,495 $53,218
</TABLE>
(a) Per share data was calculated using average shares outstanding
during the period. For the years ended 1992 and 1991 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) The benefits derived from custody credits and directed brokerage
arrangements, if any, had no impact on the Fund's gross expense ratio.
(f) Not annualized.
(g) Annualized.
18
<PAGE>
FINANCIAL HIGHLIGHTS (a) - continued
<TABLE>
<CAPTION>
Year ended October 31 Period ended October 31 Year ended March 31
- --------------------- ----------------------- -------------------
1993 1992 (b) 1992 1991
Class A Class B Class A Class B (c) Class A Class A
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 13.830 $13.780 $ 14.240 $13.570 $ 12.800 $ 12.010
- -------- ------- -------- ------- -------- --------
0.110 0.001 0.066 (0.002) 0.168 0.221
2.240 2.244 0.074 0.212 1.502 1.059
- -------- ------- -------- ------- -------- --------
2.350 2.245 0.140 0.210 1.670 1.280
- -------- ------- -------- ------- -------- --------
(0.095) --- (0.093) --- (0.183) (0.210)
(0.845) (0.845) (0.457) --- (0.047) (0.280)
- -------- ------- -------- ------- -------- --------
(0.940) (0.845) (0.550) --- (0.230) (0.490)
$ 15.240 $15.180 $ 13.830 $13.780 $ 14.240 $ 12.800
- -------- ------- -------- ------- -------- --------
17.79% 16.99% 1.02% (f) 1.55%(f) 13.24% 10.95%
- -------- ------- -------- ------- -------- --------
1.19% 1.94% 1.19% (g) 1.94%(g) 1.18% 1.03%
0.64% (0.11)% 0.83% (g) 0.08%(g) 1.24% 1.94%
66% 66% 68% (g) 68%(g) 38% 37%
$169,913 $41,989 $150,260 $26,364 $149,341 $134,055
</TABLE>
Federal Income Tax Information (unaudited)
100% 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.
19
<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, 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 and brokers, and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 11, 1995
20
<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.
21
<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:
<TABLE>
<S> <C>
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 *
</TABLE>
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
22
<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 1-800-248-2828 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
objectives and operating policies of the Fund.
23
<PAGE>
[Colonial Mutual Funds Logo]
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
GS-02/475B-1095 (12/95)
