[FRONT COVER]
[graphic representation of U.S. flag]
COLONIAL STRATEGIC
BALANCED FUND
ANNUAL REPORT
OCTOBER 31, 1996
Not FDIC- May lose value
Insured No bank guarantee
<PAGE>
Colonial Strategic Balanced Fund Highlights
November 1, 1995 -- October 31, 1996
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:
[check mark] Growth and income potential from a strategic blend of
markets
[check mark] Favorable stock and bond opportunities worldwide
[check mark] Broad diversification to help reduce risk
[check mark] Expert management by stock and bond specialists
Portfolio Manager Commentary: "The strong performance of the domestic
stock market and the improving performance of the high yield and
international bond markets created a positive environment for the Fund.
We believe the broad diversification of the Fund should continue to
provide competitive growth and income potential."
- --Carl Ericson and James Haynie
Colonial Strategic Balanced Fund Performance
Class A Class B Class D
Inception date 9/19/94 9/19/94 9/19/94
12-month distributions declared $0.373 $0.324 $0.312
per share
12-month total returns, assuming 14.24% 13.71% 13.68%
reinvestment of all distributions and
no sales charge or contingent deferred
sales charge (CDSC)
Net asset value per share at 10/31/96 $12.91 $12.89 $12.91
Top Five Holdings -- Equity*
(as of 10/31/96)
1. CompUSA, Inc. 0.9%
2. Bank of Boston Corp. 0.9%
3. Bristol-Myers Squibb 0.8%
4. Sun Microsystems, Inc. 0.7%
5. CIGNA Corp. 0.7%
Top Five Countries -- Gov't Bonds*
(as of 10/31/96)
1. United States 9.6%
2. Australia 2.7%
3. Spain 2.1%
4. Finland 2.0%
5. Sweden 1.6%
* Since the Fund is actively managed, portfolio holdings and country
breakdown will change as market conditions change. Holdings are based on
total net assets. Country breakdowns are based on a percentage of the
total portfolio.
2
<PAGE>
President's Message
To Fund Shareholders
[Photo: Harold W. Cogger]
I am pleased to present your Fund's annual report for the fiscal year
ended October 31, 1996. This report gives us the opportunity to share
our analysis of your fund and the investment environment over the past
12 months.
The Federal Reserve Board lowered short-term interest rates in December
1995 and again in January 1996. Furthermore, in the bond market,
significantly stronger economic indicators mid-way through the period
stirred inflation fears and propelled long-term interest rates upward.
However, we believe that the bond market volatility should be somewhat
reduced in the months ahead.
In the U.S. stock market, generally favorable conditions prevailed
throughout most of the period with both large and small company stocks
posting strong returns until July, when a price-based correction took
place. Since then, the market has rebounded nicely with the Dow Jones
Industrial Average setting several new records.
Internationally, we are still seeing declining interest rates in most
markets. Japan's recovery is modest and interest rates are being held
low. China is reducing rates, now that inflation has declined into
single digits. In Europe, short-term interest rates are much lower than
long-term ones, creating a steep yield curve. We expect this situation
to continue until we see an increase in economic activity.
Our expectations include moderate economic growth continuing into the
first half of 1997. If our current projections hold, we may see the
economy picking up again in the second half of 1997.
In the following pages, you'll find detailed information on your Fund's
performance as well as an in-depth discussion with the portfolio
manager. As always, we appreciate the opportunity to help you meet your
investment goals.
Respectfully,
/s/ Harold W. Cogger
Harold W. Cogger
President
December 10, 1996
Because market conditions change frequently, there can be no assurance
that the trends described will continue, come to pass or affect Fund
performance.
3
<PAGE>
Portfolio Management Report
Carl Ericson and James Haynie are portfolio co-managers of Colonial
Strategic Balanced Fund. Mr. Ericson, who manages the fixed-income
portion of the portfolio, is a Senior Vice President of Colonial
Management Associates, Inc. and Director of the Taxable Fixed Income
Department. Mr. Haynie, who manages the equity portion, is a Vice
President of Colonial Management Associates, Inc.
Q. Describe the global economic environment over the past year.
A. International market conditions generally improved during the year,
but the best investment performance was found right here in the United
States. The continuing combination of low interest rates, low inflation
and slow but steady economic growth created a positive environment for
large domestic stocks. Both the Dow Jones Industrial Average and the
Standard & Poor's 500 Index reached all-time highs throughout the year.
In contrast, investor uncertainty about economic growth and inflation
held U.S. Treasury prices down during the first eight months of the
fiscal year, with better results in the high yield corporate and
international government bond sectors. U.S. Treasury markets had better
performance towards the end of the period.
Q. How did the Fund's return compare to the indexes used to evaluate
its performance?
A. We use two indexes to measure performance -- the Standard & Poor's
500 Index and the Lehman Brothers Government/Corporate Bond Index. Both
indexes are unmanaged, and neither tracks the performance of the
foreign or short-term securities in which the Fund can invest. The
return for a balanced fund should typically fall between the two indexes
and Colonial Strategic Balanced Fund's performance was in line with this
expectation. Class A shares returned 14.24% for the year, outperforming
the Lehman Brothers Bond Index return of 5.39% and underperforming the
S&P 500 which returned 24.08%.
Q. How were the Fund's assets allocated during the year?
A. Generally we try to maintain a 60/40 balance between equities and
fixed-income securities. At the end of the period the stock portion was
about 47%, bonds were 35%, and 18% of the portfolio was in cash. The
relatively high allocation to cash was a temporary result of taking
profits on a number of equity investments. Of the equity component,
roughly 28% of the Fund's net assets
4
<PAGE>
were in large capitalization stocks, 12% in small caps and 7% in foreign
stocks. The heaviest weighting on the fixed-income side was in corporate
bonds, which performed well during the year. The fund's fixed-income
holdings consisted of 14% in high yield corporate bonds, 11% in foreign
government bonds and 10% in U.S. government bonds. Relatively higher
coupons and lower credit quality helped insulate these securities from
much of the turbulence in the government market. We focused on
noncyclical industries in the fixed-income sector, notably
telecommunications, paging and cellular.
Q. What equity sectors did you favor?
A. In the U.S., both the retail and technology sectors have been very
strong. One of our largest holdings, CompUSA, Inc., combines both of
these sectors. As a chain of computer superstores, it has capitalized on
strong retail sales of personal computers, but it also derives 40% of
its revenues from sales to businesses. We also liked financial stocks,
including insurers, money center banks and regional banks. We've seen
good profitability there, and the trend towards mergers and
consolidations has also been a positive factor.
Q. What are the advantages of a balanced fund?
A. In a word, diversification. We've seen dramatic moves in the stock
and bond markets during the past year, including substantial volatility
in the U.S. Treasury bond market. This level of unpredictability
reinforces investors' need for a strategically diversified fund that
can provide a cushion against dramatic price swings in any one sector.
For example, underperformance in U.S. government bonds this year was
offset by strong returns from the Fund's holdings in Spanish and
Australian government bonds. Strong returns from large U.S. stocks
helped compensate for less impressive performance in a few foreign
markets.
Q. What is your market outlook?
A. Looking ahead, we think U.S. economic growth may slow, but we expect
growth outside the U.S. to continue, allowing us to take advantage of
our ability to diversify. In selecting stocks for the Fund, we look for
growth at a reasonable price. In the fixed-income area, we continue to
believe that high yield and international investments could provide
greater opportunities than the U.S. government sector. We feel our
strategic approach to investing leaves us well positioned for the
future.
5
<PAGE>
Colonial Strategic Balanced Fund's Investment Performance vs.
The standard & Poor's 500 Index and the
Lehman Brothers Government/Corporate Bond Index
Change in Value of $10,000 from 9/30/94 - 10/31/96
- --------------------------------------------------------------------------------
[Mountain Charts:
Class A Shares based on NAV and MOP
Average Annual Total Returns*
Inception 9/19/94 NAV MOP
1 year 13.26% 7.88%
Since inception 16.49% 13.74%
S&P 500 $16,037
NAV $13,918
MOP $13,257
LEHMAN $12,229
[plot points]
10000 10000 10000 9525
9989 10224 10030 9554
9971 9852 9717 9255
10037 9998 9801 9335
10230 10257 9780 9316
10467 10657 10127 9646
10537 10971 10396 9902
10684 11294 10611 10107
11132 11744 10899 10381
11221 12017 11253 10718
11177 12415 11822 11260
11320 12446 11935 11369
11435 12971 12194 11615
11603 12924 12184 11605
11794 13491 12456 11864
11968 13751 12486 11893
12043 14219 12707 12104
11787 14351 13013 12395
11688 14489 13048 12429
11608 14702 13378 12742
11588 15081 13558 12914
11743 15138 13276 12646
11770 14470 13052 12432
11742 14776 13287 12656
11950 15607 13811 13155
12229 16037 13918 13257
Class B Shares based on NAV and Maximum CDSC
Average Annual Total Returns*
Inception 9/19/94 NAV w/CDSC
1 year 12.82% 7.82%
Since inception 15.99% 14.30%
S&P500 $16,037
NAV $13,800
w/ CDSC $13,400
LEHMAN $12,229
[plot points]
10000 10000 10000 10000
9989 10224 10030 10030
9971 9852 9716 9716
10037 9998 9792 9792
10230 10257 9772 9772
10467 10657 10118 10118
10537 10971 10376 10376
10684 11294 10602 10602
11132 11744 10878 10878
11221 12017 11221 11221
11177 12415 11799 11799
11320 12446 11902 11902
11435 12971 12147 12147
11603 12924 12137 12137
11794 13491 12408 12408
11968 13751 12425 12425
12043 14219 12646 12646
11787 14351 12940 12940
11688 14489 12974 12974
11608 14702 13292 13292
11588 15081 13471 13471
11743 15138 13187 13187
11770 14470 12953 12953
11742 14776 13187 13187
11950 15607 13704 13704
12229 16037 13811 13411
Class D Shares based on NAV and MOP w/CDSC
Average Annual Total Returns*
Inception 9/19/94 NAV MOP w/CDSC
1 year 12.79% 10.66%
Since inception 16.00% 15.43%
S&P 500 $16,037
NAV $13,802
MOP w/ CDSC $13,664
LEHMAN $12,229
[plot points]
10000 10000 10000 9900
9989 10224 10030 9930
9971 9852 9716 9619
10037 9998 9799 9701
10230 10257 9768 9671
10467 10657 10115 10014
10537 10971 10372 10269
10684 11294 10598 10492
11132 11744 10875 10766
11221 12017 11226 11114
11177 12415 11794 11676
11320 12446 11897 11778
11435 12971 12152 12030
11603 12924 12141 12020
11794 13491 12402 12278
11968 13751 12429 12304
12043 14219 12649 12523
11787 14351 12943 12814
11688 14489 12965 12836
11608 14702 13293 13160
11588 15081 13462 13327
11743 15138 13179 13048
11770 14470 12956 12827
11742 14776 13179 13048
11950 15607 13706 13569
12229 16037 13802 13664
- --------------------------------------------------------------------------------
*Average annual total returns are as of 9/30/96, the most recent quarter
end.
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 Bond Index is an unmanaged index that tracks the
performance of U.S. Government and U.S. Corporate bonds. Unlike mutual
funds, indexes do not incur fees or charges, and it is not possible to
invest in an index.
Past performance cannot predict future results. Returns and value of an
investment will vary, resulting in a gain or loss on sale. All results
shown assume reinvestment of distributions. Net asset value (NAV)
returns do not include sales charges or contingent deferred sales
charges (CDSC). Maximum offering price (MOP) returns include the maximum
sales charges of 4.75% for Class A, and 1% for Class D. The CDSC returns
reflect charges of: 5% 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.
6
<PAGE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1996 (IN THOUSANDS)
COMMON STOCKS- 46.7% COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------
CONSTRUCTION - 0.7%
Building Construction - 0.6%
Continental Homes Holding Corp. 7 $114
Pulte Corp. 11 289
-----
403
-----
Heavy Construction -
Non Building Construction - 0.1%
Yondenko Corp. Ja 9 81
-----
- --------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 8.7%
Depository Institutions - 3.7%
Bank of Boston Corp. 9 602
Bank of Montreal Ca 4 121
Bank of New York Co., Inc. 7 245
Citicorp 5 475
Comerica, Inc. 1 64
HSBC Holdings PLC HK 6 114
J.P. Morgan & Co., Inc. 4 345
Kredietbank NV Be (a) 64
National Westminster Bank PLC UK 9 99
Norwest Corp. 4 161
TCF Financial Corp. 6 240
-----
2,530
-----
Insurance Carriers - 2.6%
Allstate Corp. 3 156
American Bankers Insurance Group, Inc. 3 144
Cigna Corp. 4 496
Fremont General Corp. 4 126
Life Re Corp. 3 114
Loews Corp. 5 380
Maxicare Health Plans, Inc. (b) 4 75
Pacificare Health Systems, Inc. (b) 1 91
Protective Life Corp. (b) 3 110
US Facilities Corp. 8 138
-----
1,830
-----
Investment Companies - 0.1%
First Australia Fund, Inc. Au 3 23
First Phillipine Fund, Inc. Ph 2 31
-----
54
-----
7
<PAGE>
Investment Portfolio/October 31, 1996
- --------------------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - CONT.
Nondepository Credit Institutions - 1.3%
Aplus Co., Ltd. Ja 42 $158
Green Tree Financial Corp. 10 396
The Money Store, Inc. 13 344
-----
898
-----
Security Brokers & Dealers - 1.0%
Alex Brown, Inc. 2 131
Morgan Stanley Group, Inc. 6 301
Paine Webber Group, Inc. 10 235
-----
667
-----
MANUFACTURING - 23.9%
Apparel - 0.4%
Nautica Enterprises, Inc. (b) 8 258
Norton McNaughton, Inc. (b) 5 39
-----
297
-----
Chemicals & Allied Products - 3.4%
American Home Products Corp. 4 245
BASF AG G 6 191
Bristol-Myers Squibb Co. 5 529
DSM NV Ne 1 67
E.I. DuPont De Nemours & Co. 1 130
Eli Lilly & Co. 2 141
Johnson & Johnson 7 353
Merck KGAA G 4 149
NCH Corp. 3 167
Norsk Hydro A.S. No 2 69
Union Carbide Corp. 8 324
-----
2,365
-----
Electronic & Electrical Equipment - 2.6%
Aspect Telecommunications Corp. (b) 4 238
Comverse Technology, Inc. (b) 4 147
DII Group, Inc. (b) 2 48
HADCO Corp. (b) 7 213
Harman International Industries, Inc. 2 113
Haw Par Brothers International Ltd. Si 20 41
Hitachi Maxwell Ja 10 197
International Rectifier Corp. (b) 8 96
Komag, Inc. (b) 6 166
8
<PAGE>
Investment Portfolio/October 31, 1996
- --------------------------------------------------------------------------------
Motorola, Inc. 2 $101
Park Electrochemical Corp. 4 74
Philips Electronics NV Ne 3 112
Sanmina Corp. (b) Fr 5 220
-----
1,766
-----
Fabricated Metal - 0.6%
Buderus AG G (a) 90
Bunka Shutter Co. Ltd. Ja 20 139
GFI Industries SA (b) Fr 1 162
Oriental Holdings Bhd Ma 7 48
-----
439
-----
Food & Kindred Products - 1.9%
Archer Daniels Midland Co. 14 300
Hudson Foods, Inc. 9 142
IBP, Inc. 7 175
PepsiCo, Inc. 4 118
Philip Morris Co., Inc. 4 389
Smithfield Foods, Inc. (b) 2 70
Superfos AS De 1 114
-----
1,308
-----
Furniture & Fixtures - 0.4%
Hillenbrand Industries, Inc. 7 259
-----
Leather - 0.3%
Wolverine World Wide, Inc. 8 195
-----
Lumber & Wood Products - 0.2%
Oakwood Homes Corp. 5 138
-----
Machinery & Computer Equipment - 5.3%
Amatsuji Steel Ball Manufacturing Ja 14 196
Applied Materials, Inc. (b) 5 132
Bay Networks, Inc. (b) 4 76
Brunswick Corp. 4 82
Caterpillar, Inc. 3 172
Deere & Co. 3 113
EMC Corp. (b) 7 173
Electroglas, Inc. (b) 4 53
Exabyte Corp. (b) 3 40
Fujitsu Ltd. Ja 4 35
Gateway 2000, Inc. (b) 5 235
9
<PAGE>
Investment Portfolio/October 31, 1996
- --------------------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------
MANUFACTURING - CONT.
Machinery & Computer Equipment - Cont.
Hewlett-Packard Co. 8 $335
Hitachi Ltd. Ja 14 124
International Business Machines Corp. 3 439
Lam Research Corp. (b) 3 61
Mylex Corp. (b) 8 102
NACCO Industries, Inc. 1 37
Proteon, Inc. (b) 9 20
S3, Inc. (b) 5 94
Seagate Technology, Inc. (b) 7 454
Silicon Graphics, Inc. (b) 3 56
Sun Microsystems, Inc. (b) 8 500
Swedish Match AB, ADR (b) Sw 1 15
Toro Co. 3 94
-----
3,638
-----
Measuring & Analyzing Instruments - 1.7%
Bio-Rad Laboratories, Inc.,
Class A (b) 6 153
Credence Systems Corp. (b) 12 163
Esterline Technologies Corp. (b) 6 129
Fuji Photo Film Co., Ltd. Ja 5 143
Medtronic, Inc. 8 496
Quickturn Design Systems, Inc. (b) 5 67
-----
1,151
-----
Miscellaneous Manufacturing - 0.4%
Callaway Golf Co. 9 288
-----
Paper Products - 1.3%
ACX Technologies, Inc. (b) 8 142
Longview Fibre Co. 10 174
Paragon Trade Brands, Inc. (b) 12 310
SCA Laakirchen AG Au (a) 172
Saint Louis Bouchon Fr (a) 76
-----
874
-----
Petroleum Refining - 2.0%
British Petroleum Co., PLC UK 1 141
Exxon Corp. 3 266
Lyondell Petrochemical Co. 9 189
Murphy Oil Corp. 7 346
Phillips Petroleum Co. 3 103
USX-Marathon Group 15 328
-----
1,373
-----
10
<PAGE>
Investment Portfolio/October 31, 1996
- --------------------------------------------------------------------------------
Primary Metal - 1.2%
Acerinox SA Sp 3 $359
Alcan Aluminum Ltd. 5 148
British Steel PLC UK 29 79
Texas Industries, Inc. 2 119
Titan Wheel International, Inc. 8 105
-----
810
-----
Primary Smelting - 0.1%
Phelps Dodge Corp. 2 107
-----
Rubber & Plastic - 0.2%
Continental AG G 8 131
-----
Stone, Clay, Glass & Concrete - 0.4%
Global Industrial Technologies, Inc. (b) 8 149
Owens Corning Fiberglass Corp. (b) 3 116
Vitro S.A. Mx 12 23
-----
288
-----
Transportation Equipment - 1.5%
Arvin Industries, Inc. 7 149
Alvis PLC UK 30 62
Borg-Warner Automotive, Inc. 6 215
Coachmen Industries, Inc. 8 213
Ford Motor Co. 6 188
Honda Motor Co. Ltd. Ja 2 48
Strattec Security Corp. (b) (a) 7
Varlen Corp. 4 80
Volvo AB ADR Sw 5 102
-----
1,064
-----
MINING & ENERGY - 0.5%
Crude Petroleum & Natural Gas - 0.3%
Occidental Petroleum Corp. 9 208
-----
Metal Mining - 0.1%
Cleveland-Cliffs, Inc. 1 41
-----
Nonmetallic, Except Fuels - 0.1%
Potash Corp. of Saskatchewan, Inc. Ca 1 85
-----
RETAIL TRADE - 4.2%
Apparel & Accessory Stores - 0.3%
Ross Stores, Inc. 5 208
-----
11
<PAGE>
Investment Portfolio/October 31, 1996
- --------------------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------
RETAIL TRADE - CONT.
Auto Dealers & Gas Stations - 0.1%
Aichi Toyota Motor Ja 4 $60
Food Stores - 1.5%
Giant Food, Inc. 12 395
General Nutrition Companies, Inc. 14 255
Safeway, Inc. (b) 9 403
-----
1,053
-----
General Merchandise Stores - 0.9%
Dollar General Corp. 3 87
Federated Department Stores, Inc. (b) 6 195
Jardine Strategic Holdings Ltd. Si 22 72
Sears, Roebuck & Co. 3 145
Waban, Inc. (b) 6 152
-----
651
-----
Home Furnishings & Equipment - 1.1%
Circuit City Stores, Inc. 4 134
CompUSA, Inc. 14 648
-----
782
-----
Miscellaneous Retail - 0.3%
Blair Corp. 2 25
Imasco Ltd. Ca 7 163
-----
188
-----
SERVICES - 3.5%
Amusement & Recreation - 0.1%
Grand Casinos, Inc. (b) 4 56
-----
Business Services - 2.0%
Computer Associates International, Inc. 3 199
HBO & Co. 7 409
Logicon, Inc. 8 331
Manpower, Inc. 3 77
Norrell Corp. 7 175
Oracle Systems Corp. (b) 4 169
-----
1,360
-----
Engineering, Accounting,
Research & Management - 0.1%
International-Muller NV Ne 3 82
-----
12
<PAGE>
Investment Portfolio/October 31, 1996
- --------------------------------------------------------------------------------
Health Services - 0.7%
Integrated Health Services, Inc. 3 $74
Lincare Holdings, Inc. (b) 5 188
OrNda HealthCorp 6 163
Rotech Medical Corp. 5 80
-----
505
-----
Hotels, Camps & Lodging - 0.6%
Hospitality Franchise Systems, Inc. (b) 6 440
-----
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 3.5%
Air Transportation - 0.6%
British Airways PLC UK 1 90
Comair Holdings, Inc. 9 181
Lufthansa AG G 5 65
Mesa Airlines, Inc. (b) 8 77
-----
413
-----
Communications - 0.5%
Southwestern Bell Corp. 2 112
Telefonos de Mexico SA Mx 1 33
360 Communications Co. (b) 1 17
WorldCom, Inc. (b) 7 171
-----
333
-----
Electric Services - 0.9%
Allegheny Power System, Inc. 4 105
Duke Power Co. 2 98
Unicom Corp. 10 260
Union Electric Co. 5 193
-----
656
-----
Gas Services - 1.3%
Consolidated Natural Gas Co. 4 212
MCN Corp. 10 275
NICOR, Inc. 3 98
Pacific Enterprises 11 338
-----
923
-----
Sanitary Services - 0.1%
Yorkshire Water PLC UK 8 80
-----
Water Transportation - 0.1%
DFDS AS De (a) 69
-----
13
<PAGE>
Investment Portfolio/October 31, 1996
- --------------------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------
WHOLESALE TRADE - 1.7%
Durable Goods - 1.6%
Arrow Electronics, Inc. (b) 2 $95
Beers NV Ne 3 102
Commercial Metals Co. 12 384
Hughes Supply, Inc. 4 152
Pioneer Standard Electronics, Inc. 8 79
Shelter Components Corp. 2 28
Software Spectrum, Inc. (b) 4 94
Wyle Electronics Co. 7 209
-----
1,143
-----
Nondurable Goods - 0.1%
Dalgety PLC UK 11 53
-----
TOTAL COMMON STOCKS (cost of $24,095) 32,343
-----
PREFERRED STOCK - 0.4%
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.4%
Communications
Cablevision Systems Corp.,
11.125% PIK, Series L (cost $307) 3 292
-----
BONDS & NOTES - 34.5% PAR
CORPORATE FIXED-INCOME
BONDS & NOTES - 14.0%
MANUFACTURING - 5.7%
Chemicals & Allied Products - 0.6%
Agricultural Minerals Co., L.P.,
10.750% 09/30/03 $100 106
N.L. Industries, Inc.,
11.750% 10/15/03 100 103
Revlon Worldwide Corp.,
(c) 03/15/98 250 220
-----
429
-----
Electronic & Electrical Equipment - 0.8%
Amphenol Corp.,
12.750% 12/15/02 100 109
K&F Industries, Inc.,
10.375% 09/01/04 200 206
UNISYS Corp., Senior Notes,
11.750% 10/15/04 250 254
-----
569
-----
14
<PAGE>
Investment Portfolio/October 31, 1996
Fabricated Metal - 0.7%
Euramax International, PLC,
11.250% 10/01/06(d)(e) $250 $254
Renco Metals, Inc.,
11.500% 07/01/03 250 261
-----
515
-----
Food & Kindred Products - 0.5%
FoodBrands America, Inc.,
10.750% 05/15/06 200 208
Van De Kamps, Inc.,
12.000% 09/15/05 150 164
-----
372
-----
Lumber & Wood Products - 0.2%
Triangle Pacific Corp.,
10.500% 08/01/03 100 105
-----
Machinery & Computer Equipment - 0.7%
IMO Industries,
11.750% 05/01/06 250 258
Shop Vac Corp.,
10.625% 09/01/03(d) 250 257
-----
515
-----
Miscellaneous Manufacturing - 0.5%
American Standard Co., stepped
coupon, (10.500% 06/01/98)
(f) 06/01/05 250 231
Coleman Holdings Co., Series B,
(c) 05/27/98 150 128
-----
359
-----
Paper Products - 0.3%
Florida Coast Paper,
12.750% 06/01/03 200 211
-----
Primary Metal - 0.7%
Algoma Steel, Inc.,
12.375% 07/15/05 250 260
-----
US Can Corp.,
10.125% 10/15/06(d) 200 206
-----
466
-----
Stone, Clay, Glass & Concrete - 0.2%
Owens-Illinois, Inc.,
10.500% 06/15/02 100 105
-----
15
<PAGE>
Investment Portfolio/October 31, 1996
- --------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - CONT. PAR VALUE
MANUFACTURING - CONT.
Transportation Equipment - 0.5%
Aftermarket Technology Corp.,
Series B,
12.000% 08/01/04 $100 $110
Collins & Aikman Products Co.,
11.500% 04/15/06 200 209
-----
319
-----
MINING & ENERGY - 1.4%
Crude Petroleum & Natural Gas - 0.3%
Ferrellgas Finance Corp., L.P.,
10.000% 08/01/01 200 209
-----
Oil & Gas Extraction - 1.1%
Falcon Drilling Co., Inc.,
Series B,
9.750% 01/15/01 200 206
Gulf Canada Resources, Ltd.:
9.250% 01/15/04 100 104
9.625% 07/01/05 100 106
Nuevo Energy Co.,
9.500% 04/15/06 200 207
Santa Fe Energy Resources, Inc.,
11.000% 05/15/04 100 110
-----
733
-----
RETAIL TRADE - 0.7% Food Stores - 0.6%
Pathmark Stores, Inc.,
9.625% 05/01/03 200 196
Smiths Food & Drug,
11.250% 05/15/07 200 217
-----
413
-----
Miscellaneous Retail - 0.1%
Finlay Fine Jewelry Corp.,
10.625% 05/01/03 100 103
-----
SERVICES - 2.1%
Amusement & Recreation - 0.4%
Falcon Holdings PLC, PIK,
11.000% 09/15/03 49 46
GNF Corp.,
10.625% 04/01/03 200 220
-----
266
-----
16
<PAGE>
Investment Portfolio/October 31, 1996
- --------------------------------------------------------------------------------
Business Services - 0.4%
Pierce Leahy Corp.,
11.125% 07/15/06(d) $250 $266
-----
Health Services - 0.4%
GranCare, Inc.,
9.375% 09/15/05 150 159
OrNda Health Corp.,
11.375% 08/15/04 100 114
-----
273
-----
Hotels, Camps & Lodging - 0.9%
Eldorado Resorts Corp.,
10.500% 08/15/06(d) 250 261
HMH Properties, Inc.,
9.500% 05/15/05 150 152
Wyndham Hotel Corp.,
10.500% 05/15/06 200 210
-----
623
-----
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 4.1%
Air Transportation - 0.4%
Greenwich Air Services, Inc.,
10.500% 06/01/06 100 105
U.S. Air, Inc.,
10.375% 03/01/13 200 200
-----
305
-----
Broadcasting - 0.7%
Allbritton Communications Co.,
11.500% 08/15/04 100 104
NWCG Holding Corp.,
(c) 06/15/99 175 143
Sullivan Broadcasting, Inc.,
10.250% 12/15/05 100 100
Young Broadcasting Corp.,
11.750% 11/15/04 100 106
-----
453
-----
Cable - 0.9%
Bell Cablemedia PLC,
stepped coupon, (11.950% 07/15/99)
(f) 07/15/04(e) 150 124
17
<PAGE>
Investment Portfolio/October 31, 1996
- --------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - CONT. PAR VALUE
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
Cable - cont.
Cablevision Systems Corp.,
10.750% 04/01/04 $100 $102
Lenfest Communications, Inc.,
8.375% 11/01/05 100 91
Marcus Cable Co., L.P.
11.875% 10/01/05 250 262
Videotron Holding PLC,
stepped coupon, (11.000% 08/15/00)
(f) 08/15/05(e) 100 73
-----
652
-----
Communications - 0.2% UNC, Inc.,
11.000% 06/01/06 100 106
-----
Electric, Gas & Sanitary Services - 0.3%
Mesa Operating Co.,
10.625% 07/01/06 200 212
-----
Electric Services - 0.1%
California Energy Co., Inc.,
9.500% 09/15/06(d) 100 102
-----
Gas Services - 0.2%
California Energy Co., Inc.,
9.875% 06/30/03 150 155
-----
Telecommunication - 1.3%
Brooks Fiber Properties, Inc.,
stepped coupon, (10.875% 03/01/01)
(f) 03/01/06 200 117
MFS Communications Company, Inc.,
stepped coupon, (9.375% 01/15/99)
(f) 01/15/04 200 170
Omnipoint Corp.,
11.625% 08/15/06(d) 200 204
Paging Network, Inc.,
10.125% 08/01/07 200 199
PanAmSat Corp.,
stepped coupon, (11.375% 08/01/98)
(f) 08/01/03 200 183
-----
873
-----
18
<PAGE>
Investment Portfolio/October 31, 1996
- --------------------------------------------------------------------------------
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES (cost of $9,621) $9,709
------
FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS - 10.9% CURRENCY PAR VALUE
Argentina Global Bonds,
11.000% 10/09/06 AR 200 197
Government of Finland,
7.250% 04/18/06 FM 6,000 1,378
Kingdom of Denmark,
8.000% 05/15/03 DK 5,620 1,052
Republic of Poland (Brady),
Past Due Interest, stepped coupon,
(5.000% 10/27/98) 4.000% 10/27/14(g) 500 411
Spanish Government Bonds,
10.150% 01/31/06 SP 159,500 1,437
Swedish Government Bonds,
10.250% 05/05/03 SK 6,300 1,120
Western Australia Treasury Corp.:
10.000% 07/15/05 A$ 639 585
12.000% 08/01/01 A$ 1,430 1,350
------
TOTAL FOREIGN GOVERNMENT & AGENCY
OBLIGATIONS (cost of $7,137) 7,530
------
U.S. GOVERNMENT OBLIGATIONS - 9.6%
U.S. Treasury Bonds:
8.750% 05/15/17(h) $2,488 3,044
11.625% 11/15/04 450 599
------
3,643
------
U.S. Treasury Note,
11.875% 11/15/03(h) 2,266 2,981
TOTAL U.S. GOVERNMENT OBLIGATIONS (cost of $6,495) 6,624
TOTAL BONDS & NOTES (cost of $23,253) 23,863
TOTAL INVESTMENTS - 81.6% (cost of $47,655) (i) 56,498
SHORT-TERM OBLIGATIONS - 17.2%
Repurchase agreement with Lehman Brothers,
Inc., dated 10/31/96, due 11/01/96 at
5.530%, collateralized by U.S. Treasury
bonds and notes with various maturities to
2023, market value $12,127, (repurchase
proceeds $11,893) 11,891 11,891
-------
19
<PAGE>
Investment Portfolio/October 31, 1996
- --------------------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS = (0.0)% (j) $ (9)
================================================================================
OTHER ASSETS & LIABILITIES, NET = 1.2% 819
================================================================================
NET ASSETS = 100.0% $69,199
======
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Rounds to less than one.
(b) Non-income producing.
(c) Zero coupon bond.
(d) 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 October 31, 1996, the value of these
securities amounted to $1,550 or 2.2% of net assets.
(e) This is a British security. Par amount is stated in U.S. dollars.
(f) Currently zero coupon. Shown parenthetically is the interest rate
to be paid and the date the Fund will begin accruing this rate.
(g) This is a Polish security. Shown parenthetically is the interest
rate to be paid and the date the Fund will begin accruing this
rate.
(h) These securities, or a portion thereof, with a total market value
of $6,025 are being used to collateralize the forward currency
contracts shown below.
(i) Cost for federal income tax purposes is $47,677.
(j) As of October 31, 1996, the Fund had entered into the following
forward currency exchange contracts:
Net Unrealized
Appreciation
Contracts In Exchange Settlement (Depreciation)
to Deliver For Date (U.S. $)
FF 699,846 USD 135,629 11/12/1996 $ (1)
FF 2,531,640 USD 490,628 11/12/1996 (4)
FF 90,770 USD 17,577 11/12/1996 (a)
FM 96,564 USD 21,180 11/12/1996 (a)
FM 475,176 USD 104,224 11/12/1996 (a)
DK 659,780 USD 112,754 11/15/1996 (a)
DK 1,246,784 USD 212,943 11/15/1996 (1)
DK 1,202,920 USD 205,434 11/15/1996 (1)
FM 544,560 USD 119,160 11/15/1996 (1)
SK 170,617 USD 25,851 11/15/1996 (a)
SK 1,828,635 USD 277,486 11/15/1996 (a)
SK 490,623 USD 74,257 11/15/1996 (1)
FM 611,322 USD 134,062 11/29/1996 (1)
FM 1,534,994 USD 336,621 11/29/1996 (2)
SK 1,370,738 USD 209,433 11/29/1996 1
FF 2,579,638 USD 505,811 11/29/1996 2
-----
$ (9)
=====
20
<PAGE>
Investment Portfolio/October 31, 1996
- --------------------------------------------------------------------------------
Summary of Securities Country/
by Country/Currency Currency Value % of Total
- --------------------------------------------------------------------------------
United States $43,821 77.6
Australia Au/A$ 2,130 3.8
Spain Sp/SP 1,796 3.2
Finland FM 1,378 2.4
Sweden Sw/SK 1,237 2.2
Denmark De/DK 1,235 2.2
Japan Ja 1,181 2.1
Germany G 626 1.1
United Kingdom UK 604 1.1
France Fr 458 0.8
Poland PL 411 0.7
Canada Ca 369 0.7
Netherlands Ne 363 0.6
Argentina AR 197 0.3
Hong Kong HK 114 0.2
Singapore Si 113 0.2
Argentina AR 197 0.3
Norway No 69 0.1
Belgium Be 64 0.1
Mexico Mx 56 0.1
Malaysia Ma 48 0.1
Phillipines Ph 31 0.1
------- -----
$56,498 100.0
======= =====
Certain securities are listed by country of underlying exposure but may
trade predominantly on other exchanges.
Acronym Name
------- ---------------------------
ADR American Depository Receipt
PIK Payment-In-Kind
See notes to financial statements.
21
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1996
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $47,655) $56,498
Short-term obligations 11,891
-------
68,389
Cash held in foreign banks (cost $1) $ 1
Receivable for:
Interest 761
Fund shares sold 377
Dividends 46
Foreign tax reclaims 5
Deferred organization expenses 42
Other 1 1,233
---- -------
Total Assets 69,622
LIABILITIES
Unrealized depreciation on forward
currency contracts 9
Payable for:
Investments purchased 386
Fund shares repurchased 15
Payable to Adviser 2
Accrued:
Deferred Trustees fees 1
Other 10
----
Total Liabilities 423
-------
NET ASSETS $69,199
-------
Net asset value & redemption
price per share -
Class A ($25,580/1,981) $ 12.91
=======
Maximum offering
price per share -
Class A ($12.91/0.9525) $ 13.55(a)
=======
Net asset value & offering
price per share -
Class B ($40,065/3,107) $ 12.89(a)
=======
Net asset value & redemption
price per share -
Class D ($3,554/275) $ 12.91(b)
=======
Maximum offering price
per share - Class D
($12.91/0.9900) $ 13.04
=======
(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.
22
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
(in thousands)
INVESTMENT INCOME
Interest $1,917
Dividends 434
-----
Total investment income (net of
nonrebatable foreign taxes withheld
at source which amounted to $15) 2,351
EXPENSES
Management fee $ 354
Service fee 126
Distribution fee - Class A 57
Distribution fee - Class B 207
Distribution fee - Class D 30
Transfer agent 155
Bookkeeping fee 28
Trustees fee 14
Custodian fee 13
Audit fee 15
Legal fee 4
Registration fee 36
Reports to shareholders 9
Amortization of deferred
organization expenses 14
Other 10
------
1,072
Fees waived by the Adviser (95) 977
------ -----
Net Investment Income 1,374
-----
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain on:
Investments 1,309
Foreign currency transactions 90
------
Net Realized Gain 1,399
Net unrealized appreciation
(depreciation) during
the period on:
Investments 3,852
Foreign currency transactions (11)
------
Net Unrealized Appreciation 3,841
-----
Net Gain 5,240
-----
Net Increase in Net Assets from Operations $6,614
=====
See notes to financial statements.
23
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands) Year ended October 31
----------------------
INCREASE IN NET ASSETS 1996 1995
Operations:
Net investment income $ 1,374 $ 784
Net realized gain 1,399 183
Net unrealized appreciation 3,841 5,072
------- -------
Net Increase from Operations 6,614 6,039
Distributions:
From net investment income - Class A (508) (409)
From net realized gains - Class A (59) --
From net investment income - Class B (650) (382)
From net realized gains - Class B (69) --
From net investment income - Class D (85) (97)
From net realized gains - Class D (14) --
------- -------
5,229 5,151
------- -------
Fund Share Transactions:
Receipts for shares sold - Class A 13,772 8,580
Value of distributions reinvested - Class A 523 381
Cost of shares repurchased - Class A (7,076) (1,218)
------- -------
7,219 7,743
------- -------
Receipts for shares sold - Class B 25,817 10,846
Value of distributions reinvested - Class B 659 351
Cost of shares repurchased - Class B (7,446) (1,588)
------- -------
19,030 9,609
------- -------
Receipts for shares sold - Class D 1,940 1,359
Value of distributions reinvested - Class D 94 95
Cost of shares repurchased - Class D (3,107) (120)
------- -------
(1,073) 1,334
------- -------
Net Increase from Fund Share
Transactions 25,176 18,686
------- -------
Total Increase 30,405 23,837
NET ASSETS
Beginning of period 38,794 14,957
------- -------
End of period (including undistributed
net investment income of $242 and
$27, respectively) $69,199 $38,794
------- -------
Statement of Changes in Net Assets continued on following page.
See notes to financial statements.
24
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS - CONT.
(in thousands) Year ended October 31
----------------------
1996 1995
NUMBER OF FUND SHARES
Sold - Class A 1,111 836
Issued for distributions reinvested -
Class A 42 36
Repurchased - Class A (575) (114)
--------- ------
578 758
--------- ------
Sold - Class B 2,088 1,047
Issued for distributions reinvested -
Class B 54 32
Repurchased - Class B (605) (149)
--------- ------
1,537 930
--------- ------
Sold - Class D 157 135
Issued for distributions reinvested -
Class D 8 9
Repurchased - Class D (248) (11)
--------- ------
(83) 133
--------- ------
See notes to financial statements.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
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's investment objective is to seek
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 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 preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
Security valuation and transactions: Equity securities are valued at the last
sale price or, in the case of unlisted or listed securities for which there were
no sales during the day, at current quoted bid prices.
Debt securities generally are valued by a pricing service based upon market
transactions for normal, institutional-size trading units of similar securities.
When management deems it appropriate, an over-the-counter or exchange bid
quotation is used.
Forward currency contracts are valued based on the weighted value of the
exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
The value of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates.
Portfolio positions 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.
26
<PAGE>
Notes to Financial Statements/October 31, 1996
- --------------------------------------------------------------------------------
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 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 average shares outstanding during the
period. In addition, net investment income per share data reflects 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.
The value of additional securities received as an interest payment is recorded
as income and as the cost basis of such securities.
Distributions to shareholders: Distributions to shareholders are recorded
on the ex-date.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
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.
27
<PAGE>
Notes to Financial Statements/October 31, 1996
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
................................................................................
Foreign currency contracts: Net realized and unrealized gains (losses) on
foreign currency transactions includes the fluctuation in exchange rates on
gains (losses) between trade and settlement dates on securities transactions,
gains (losses) arising from the disposition of foreign currency and currency
gains (losses) between the accrual and payment dates on dividends and interest
income and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) on investments.
Forward currency contracts: The Fund may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities. The Fund
may also enter into forward currency contracts to hedge certain other foreign
currency denominated assets. The contracts are used to minimize the exposure to
foreign exchange rate fluctuations during the period between trade and
settlement date of the contracts. All contracts are marked-to-market daily,
resulting in unrealized gains (losses) which become realized at the time the
forward currency contracts are closed or mature. Realized and unrealized gains
(losses) arising from such transactions are included in net realized and
unrealized gains (losses) on foreign currency transactions. Forward currency
contracts do not eliminate fluctuations in the prices of the Fund's portfolio
securities. While the maximum potential loss from such contracts is the
aggregate face value in U.S. dollars at the time the contract was opened,
exposure is typically limited to the change in value of the contract (in U.S.
dollars) over the period it remains open. Risks may also arise if counterparties
fail to perform their obligations under the contracts.
Other: Corporate actions are recorded on the ex-date (except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware of
such), net of nonrebatable tax withholdings. Where a high level of uncertainty
as to collection exists, income on securities is recorded net of all tax
withholdings with any rebates recorded when received.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-market
daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
28
<PAGE>
Notes to Financial Statements/October 31, 1996
- -------------------------------------------------------------------------------
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 for
a monthly fee equal to 0.25% annually of the Fund's average net assets
and receives reimbursement for certain out of pocket expenses.
Underwriting discounts, service and distribution fees: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. For the year ended October 31, 1996, the Fund has been
advised that the Distributor retained net underwriting discounts of $33,049 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $56,746 and $1,110, 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 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
Fund's assets.
29
<PAGE>
Notes to Financial Statements/October 31, 1996
- --------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION
................................................................................
Investment activity: For the year ended October 31, 1996, purchases and sales of
investments, other than short-term obligations, were $40,584,287 and
$25,727,947, respectively, of which $8,482,323 and $5,957,709, respectively,
were U.S. government securities.
Unrealized appreciation (depreciation) at October 31, 1996, based on cost of
investments for federal income tax purposes was:
Gross unrealized appreciation $ 9,978,537
Gross unrealized depreciation (1,158,212)
-----------
Net unrealized appreciation $ 8,820,325
-----------
Other: There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities. These
risks may involve foreign currency exchange rate fluctuations, adverse political
and economic developments and the possible prevention of foreign currency
exchange or the imposition of other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 4. LINE OF CREDIT
................................................................................
The Fund may borrow up to 10% of its net assets under a line of credit for
temporary or emergency purposes. Any borrowings bear interest at one of the
following options determined at the inception of the loan: (1) federal funds
rate plus 1/2 of 1%, (2) the lending bank's base rate or (3) IBOR offshore loan
rate plus 1/2 of 1%. There were no borrowings under the line of credit during
the year ended October 31, 1996.
NOTE 5. COMPOSITION OF NET ASSETS
................................................................................
At October 31, 1996, net assets consisted of:
Capital paid in $58,790
Undistributed net investment income 242
Accumulated net realized gain 1,334
Net unrealized appreciation (depreciation) on:
Investments 8,843
Foreign currency transactions (10)
--------
$69,199
========
30
<PAGE>
FINANCIAL HIGHLIGHTS (b)
Selected data for a share of each class outstanding throughout each period are
as follows:
Year ended October 31
--------------------------------------------
1996
Class A Class B Class D
--------------------------------------------
Net asset value -
Beginning of period $11.650 $11.640 $11.650
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.369 0.314 0.314
Net realized and
unrealized gain 1.264 1.260 1.258
------- ------- -------
Total from Investment
Operations 1.633 1.574 1.572
------- ------- -------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.333) (0.284) (0.272)
From net realized gains (0.040) (0.040) (0.040)
------- ------- -------
Total Distributions Declared
to Shareholders (0.373) (0.324) (0.312)
------- ------- -------
Net asset value -
End of period $12.910 $12.890 $12.910
======= ======= =======
Total return (c)(d) 14.24% 13.71% 13.68%
======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.65%(e) 2.10%(e) 2.10%(e)
Net investment income 2.99%(e) 2.54%(e) 2.54%(e)
Fees waived or borne
by the Adviser 0.19% 0.19% 0.19%
Portfolio turnover 59% 59% 59%
Average commission rate (f) $0.0299 $0.0299 $0.0299
Net assets at end
of period (000) $25,580 $40,065 $3,554
(a) Net of fees and expenses waived
or borne by the Adviser which
amounted to: $ 0.023 $0.023 $0.023
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Total return at net asset value assuming no initial sales charge or
contingent deferred sales charge.
(d) Had the Adviser not waived or reimbursed a portion of expenses, total return
would have been reduced.
(e) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(f) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged.
31
<PAGE>
FINANCIAL HIGHLIGHTS (b) - continued
Selected data for a share of each class outstanding throughout each period are
as follows:
Year ended October 31
----------------------------------------
1995
Class A Class B Class D
----------------------------------------
Net asset value -
Beginning of period $ 9.910 $ 9.900 $ 9.900
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (a) 0.325 0.277 0.277
Net realized and
unrealized gain (loss) 1.764 1.769 1.774
------- ------- -------
Total from Investment
Operations 2.089 2.046 2.051
------- ------- -------
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
======= ======= =======
Total return (d)(e) 21.47% 21.00% 21.04%
======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.65%(g) 2.10%(g) 2.10%(g)
Net investment income 3.05%(g) 2.60%(g) 2.60%(g)
Fees waived or borne
by the Adviser 0.43% 0.43% 0.43%
Portfolio turnover 49% 49% 49%
Net assets at end
of period (000) $16,346 $18,284 $4,164
(a) Net of fees and expenses waived or
borne by the Adviser which
amounted to:
$ 0.042 $ 0.042 $0.042
(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 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) Not annualized.
(g) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(h) Annualized.
- --------------------------------------------------------------------------------
State Tax Information for the Year Ended October 31, 1996 (unaudited) An average
of 8% of the Fund's investments as of the end of each quarter were in direct
obligations of the U.S. Treasury.
Approximately 28% of the Fund's distributions (13% of gross income) was
derived from interest on direct investments in U.S. Treasury bonds, notes
and bills.
- --------------------------------------------------------------------------------
32
<PAGE>
Financial Highlights (b) - continued
Period ended October 31
----------------------------------------
1994(c)
Class A Class B Class D
----------------------------------------
Net asset value -
Beginning of period $10.000 $10.000 $10.000
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (a) 0.035 0.029 0.029
Net realized and
unrealized gain (loss) (0.125) (0.129) (0.129)
------- ------- -------
Total from Investment
Operations (0.090) (0.100) (0.100)
------- ------- -------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment
income -- -- --
------- ------- -------
Net asset value -
End of period $9.910 $9.900 $9.900
======= ======= =======
Total return (d)(e) (0.90)%(f) (1.00)%(f) (1.00)%(f)
======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.65%(h) 2.10%(h) 2.10%(h)
Net investment income 3.01%(h) 2.56%(h) 2.56%(h)
Fees waived or borne
by the Adviser 0.35%(h) 0.35%(h) 0.35%(h)
Portfolio turnover 0%(h) 0%(h) 0%(h)
Net assets at end
of period (000) $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
(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 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) Not annualized.
(g) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(h) Annualized.
- -------------------------------------------------------------------------------
Federal Tax Information (unaudited)
24% of the ordinary income distributed by the Fund in the year
ended October 31, 1996 qualifies for the corporate dividends
received deduction.
- --------------------------------------------------------------------------------
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
T0 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, 1996, the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and the financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of portfolio positions
at October 31, 1996 by correspondence with the custodian 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 10, 1996
34
<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 1-800-426-3750 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.
35
<PAGE>
[BACK COVER]
[logo: Colonial
Mutual Funds]
Mutual Funds for
Planned Portfolios
Trustees
Robert J. Birnbaum
Retired (formerly Special Counsel, Dechert, Price & Rhoads; President
and Chief Operating Officer, New York Stock Exchange, Inc.)
Tom Bleasdale
Retired (formerly Chairman of the Board and Chief Executive Officer,
Shore Bank & Trust Company)
Lora S. Collins
Attorney (formerly Attorney, Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel)
James E. Grinnell
Private Investor (formerly Senior Vice President--Operations, The
Rockport Company)
William D. Ireland, Jr.
Retired (formerly Chairman of the Board, Bank of New England--Worcester)
Richard W. Lowry
Private Investor (formerly Chairman and Chief Executive Officer, U.S.
Plywood Corporation)
William E. Mayer
Dean, College of Business and Management, University of Maryland
(formerly Dean, Simon Graduate School of Business, University of
Rochester; Chairman and Chief Executive Officer, CS First Boston
Merchant Bank; and President and Chief Executive Officer, The First
Boston Corporation)
James L. Moody, Jr.
Chairman of the Board, Hannaford Bros. Co. (formerly Chief Executive
Officer, Hannaford Bros. Co.)
John J. Neuhauser
Dean, Boston College School of Management
George L. Shinn
Financial Consultant (formerly Chairman, Chief Executive Officer and
Consultant, The First Boston Corporation)
Robert L. Sullivan
Management Consultant (formerly Management Consultant, Saatchi and
Saatchi Consulting Ltd. and Principal and International Practice
Director, Management Consulting, Peat Marwick Main & Co.)
Sinclair Weeks, Jr.
Chairman of the Board, Reed & Barton Corporation
Colonial Investment Services, Inc., Distributor (C) 1996
One Financial Center, Boston, Massachusetts 02111-2621, 617-426-3750
SB-02/024D-1096 M (12/96)
[Recycle symbol] Printed on recycled paper
