[logo]
-----------------------------
COLONIAL
INTERNATIONAL
FUND FOR GROWTH
-----------------------------
ANNUAL REPORT
OCTOBER 31, 1996
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
<PAGE>
COLONIAL INTERNATIONAL FUND FOR GROWTH
HIGHLIGHTS
NOVEMBER 1, 1995 - OCTOBER 31, 1996
Investment Objective: Colonial International Fund for Growth seeks long-term
growth by investing primarily in non-U.S. equities.
The Fund is Designed to Offer:
[check] Long-term growth potential
[check] Worldwide diversification
[check] Experienced professional management
Portfolio Management Commentary: "Although the performance of domestic
markets could not be matched, global economic conditions improved during the
year. Investing in Colonial International Fund for Growth provides U.S.
investors with valuable international exposure through a broadly diversified
portfolio." -Bruno Bertocci
Colonial International Fund for Growth Performance
Class A Class B Class D
Inception dates 12/1/93 12/1/93 7/1/94
12-month total returns, assuming 5.12% 4.37% 4.34%
reinvestment of all distributions
and no sales charge or contingent
deferred sales charge (CDSC)
Net asset value per share at
10/31/96 $10.26 $10.04 $10.09
Top Five Holdings*
(as of 10/31/96)
1. Inchcape. . . . . . . . . . . . . . . 2.1%
2. Banco Latino America. . . . . . . . . 2.1%
3. Kemira Oy . . . . . . . . . . . . . . 2.0%
4. Avesta-Sheffield. . . . . . . . . . . 1.9%
5. Ssab Svenskt Stal Ab. . . . . . . . . 1.9%
Top Five Countries*
(as of 10/31/96)
1. Japan. . . . . . . . . . . . . . . . . . 20.2%
2. United Kingdom . . . . . . . . . . . . . 9.1%
3. Hong Kong. . . . . . . . . . . . . . . . 7.1%
4. Finland. . . . . . . . . . . . . . . . . 6.0%
5. Germany. . . . . . . . . . . . . . . . . 5.1%
* Holdings and country breakdown are calculated as a percent of total net
assets. Because the Fund is actively managed, holdings and country breakdown
will change.
2
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[photo of Harold W. Cogger]
I am pleased to present your Fund's annual report for the fiscal year ended
October 31, 1996. This report gives us the opportunity to share our analysis of
your fund and the investment environment over the past 12 months.
The Federal Reserve Board lowered short-term interest rates in December 1995 and
again in January 1996. Furthermore, in the bond market, significantly stronger
economic indicators mid-way through the period stirred inflation fears and
propelled long-term interest rates upward. However, we believe that the bond
market volatility should be somewhat reduced in the months ahead.
In the U.S. stock market, generally favorable conditions prevailed throughout
most of the period with both large and small company stocks posting strong
returns until July, when a price-based correction took place. Since then, the
market has rebounded nicely with the Dow Jones Industrial Average setting
several new records.
Internationally, we are still seeing declining interest rates in most markets.
Japan's recovery is modest and interest rates are being held low. China is
reducing rates, now that inflation has declined into single digits. In Europe,
short-term interest rates are much lower than long-term ones, creating a steep
yield curve. We expect this situation to continue until we see an increase in
economic activity.
Our expectations include moderate economic growth continuing into the first half
of 1997. If our current projections hold, we may see the economy picking up
again in the second half of 1997.
In the following pages, you'll find detailed information on your Fund's
performance as well as an in-depth discussion with the portfolio manager. As
always, we appreciate the opportunity to help you meet your investment goals.
Respectfully,
/s/ Harold W. Cogger
Harold W. Cogger
President
December 10, 1996
Because market conditions change frequently, there can be no assurance that the
trends described will continue, come to pass or affect Fund performance.
3
<PAGE>
PORTFOLIO MANAGEMENT REPORT
Bruno Bertocci and David Harris are portfolio co-managers of Colonial
International Fund for Growth and Vice Presidents of Colonial Management
Associates, Inc. They are also investment management principals with Stein Roe
Global Capital Management, a division of Stein Roe & Farnham, Inc.
Q. How would you characterize the international economic environment during
the year?
A. International market conditions generally improved during the year, but
could not match the record-high performance of blue chip U.S. stocks.
European markets began to pick up steam as interest rates declined,
particularly in Germany and Scandinavia. In Japan, market conditions improved
modestly, but the weakening yen minimized real gains to U.S. investors.
Economic growth in Southeast Asia and some Latin American countries was
strong, averaging 5% or more compared to 2% - 3% for Europe and the U.S.
Stocks in those countries remain generally undervalued, providing a variety
of investment opportunities.
Q. How did the Fund perform compared to the Morgan Stanley Capital
International Europe, Australia, Far East (GDP) Index?
A. The Fund's Class A shares returned 5.12%, underperforming the Index's
return of 10.69% for the year. The Fund's investments in emerging markets,
not represented in the Index, detracted from returns at the end of the
period. After having taken over the management of the Fund from Gartmore
Capital Management, we spent most of the first half of the period
restructuring the portfolio to be more in line with our style and outlook.
This extensive trading activity lowered the Fund's returns for the period.
However, we believe the Fund is now well positioned to benefit from growth
opportunities in international markets.
Q. Which market sectors and types of stocks did you favor?
A. We use a bottom-up approach in evaluating stocks for the Fund's
portfolio, looking for undervalued stocks in fast growing markets and
industries. Over the period, we increased our weighting in the technology,
capital equipment and materials sectors. Geographically, we added to holdings
in Scandinavia, Southeast Asia and Latin America. We also reduced the Fund's
position in the
4
<PAGE>
United Kingdom. In terms of company size, the Fund's holdings have a smaller
average market capitalization than most international funds, about $1.5
billion compared to about $6.5 billion for funds in our peer group.
Q. Please describe some of the Fund's holdings.
A. Korea is a good example of a market with high economic growth - 7% this year
- - but low valuations in the stock market. We owned two very different Korean
companies, Samsung Electronics and Samchully. Samsung, a semiconductor
manufacturer, is the world's largest and lowest cost producer of computer memory
components. Samchully, a Korean distributor of natural gas, is benefiting from
the South Korean government's major initiative to improve air quality by
mandating that all new structures use natural gas instead of other fuels. Of
existing buildings, only 33% are hooked into natural gas, but the government's
goal is 70%, so the company's growth prospects are very promising. Another stock
in the fund that has good growth potential is Matahari, the premier department
store chain in Indonesia, where economic growth has been about 8% a year.
Q. What is your market outlook?
A. Over the past nine quarters, U.S. equities have outperformed
international equities, resulting in very high valuations in the U.S. markets
relative to the rest of the world. We believe this inequality won't persist
much longer, and that foreign markets will be the most attractive place to
find the best performing stocks over the next several years. The Fund's
holdings should be well positioned to take advantage of this shift and we
expect to benefit from rapid growth in undervalued foreign companies in the
coming year.
5
<PAGE>
Colonial International Fund for Growth's Investment Performance vs.
The Morgan Stanley Capital International EAFE (GDP) Index
Change in Value of $10,000 from 12/1/93 - 10/31/96
Class A Shares
Based on NAV and MOP
[mtn chart]
Class A NAV MOP
Dec 1, 93 10000 9425 10000
Dec 31, 93 10530 9924.525 10703
Jan 31, 94 10990 10358.08 11522
Feb 28, 94 10670 10056.47 11459
Mar 31, 94 10040 9462.7 11294
Apr 30, 94 10270 9679.475 11865
May 31, 94 10270 9679.475 11592
Jun 30, 94 10060 9481.55 11587
Jul 31, 94 10350 9754.875 11856
Aug 31, 94 10690 10075.33 12057
Sep 30, 94 10350 9754.875 11633
Oct 31, 94 10370 9773.725 11987
Nov 30, 94 9900 9330.75 11452
Dec 31, 94 9730 9170.525 11539
Jan 31, 95 9100 8576.75 11244
Feb 28, 95 8950 8435.375 11231
Mar 31, 95 9010 8491.925 11740
Apr 30, 95 9240 8708.7 12264
May 31, 95 9290 8755.825 12146
Jun 30, 95 9220 8689.85 12010
Jul 31, 95 9770 9208.225 12795
Aug 31, 95 9780 9217.65 12261
Sep 30, 95 9890 9321.325 12406
Oct 31, 95 9760 9198.8 12047
Nov 30, 95 9850 9283.625 12301
Dec 31, 95 10100 9519.25 12827
Jan 31, 96 10070 9490.975 12990
Feb 29, 96 10040 9462.7 13029
Mar 31, 96 10260 9670.05 13202
Apr 30, 96 10740 10122 45 13613
May 31, 96 10650 10037.63 13412
Jun 30, 96 10730 10113.03 13517
Jul 31, 96 10280 9688.9 13129
Aug 31, 96 10410 9811.425 13122
Sep 30, 96 10520 9915.1 13482
Oct 31, 96 10260 9670.05 13335
Class B Shares
Based on NAV and w/CDSC
[mtn chart]
CIFFG B NAV MOP
Dec 1, 93 10000 10000 10000
Dec 31, 93 10530 10530 10703
Jan 31, 94 10980 10980 11522
Feb 28, 94 10650 10650 11459
Mar 31, 94 10020 10020 11294
Apr 30, 94 10240 10240 11865
May 31, 94 10230 10230 11592
Jun 30, 94 10020 10020 11587
Jul 31, 94 10290 10290 11856
Aug 31, 94 10630 10630 12057
Sep 30, 94 10280 10280 11633
Oct 31, 94 10300 10300 11987
Nov 30, 94 9830 9830 11452
Dec 31, 94 9650 9650 11539
Jan 31, 95 9020 9020 11244
Feb 28, 95 8860 8860 11231
Mar 31, 95 8920 8920 11740
Apr 30, 95 9140 9140 12264
May 31, 95 9190 9190 12146
Jun 30, 95 9120 9120 12010
Jul 31, 95 9650 9650 12795
Aug 31, 95 9650 9650 12261
Sep 30, 95 9760 9760 12406
Oct 31, 95 9620 9620 12047
Nov 30, 95 9710 9710 12301
Dec 31, 95 9940 9940 12827
Jan 31, 96 9900 9900 12990
Feb 29, 96 9870 9870 13029
Mar 31, 96 10080 10080 13202
Apr 30, 96 10540 10540 13613
May 31, 96 10450 10450 13412
Jun 30, 96 10520 10520 13517
Jul 31, 96 10080 10080 13129
Aug 31, 96 10200 10200 13122
Sep 30, 96 10300 10300 13482
Oct 31, 96 10040 9740 13335
A $10,000 investment in Class D shares made on July 1, 1994 (inception), at net
asset value (NAV) would have been valued at $10,030 on October 31, 1996. The
same investment after deducting the applicable contingent deferred sales charge
(CDSC) would have been valued at $9,930 on October 31, 1996.
The Morgan Stanley Capital International EAFE (GDP) Index is an unmanaged index
that tracks the performance of international stocks. Unlike mutual funds, an
index does not incur fees or charges and it is not possible to invest in an
index.
Average Annual Total Returns
As of 9/30/96 (Most Recent Quarter End)
- -------------------------------------------------------------------------------
Class A Shares Class B Shares Class D Shares
Inception 12/1/93 12/1/93 7/1/94
NAV MOP NAV w/CDSC NAV MOP w/CDSC
- -------------------------------------------------------------------------------
1 year 6.37% 0.25% 5.53% 0.53% 5.50% 3.45%
- -------------------------------------------------------------------------------
Since inception 1.80% (0.30)% 1.05% 0.00% 1.27% 0.82%
- -------------------------------------------------------------------------------
Past performance cannot predict future results. Returns and value of an
investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. NAV returns do not include sales charges
or CDSC. Maximum offering price (MOP) returns include the maximum sales charges
of 5.75% for Class A shares and 1% for Class D shares. The CDSC returns reflect
the maximum charges of 5% for one year and 3% since inception for Class B shares
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)
<TABLE>
<CAPTION>
COMMON STOCKS - 100.3% COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AGRICULTURE, FORESTRY & FISHING - 0.3%
Agricultural Services
PT Chareon Pokphand Indonesia In 310 $ 346
------------
..................................................................................................
CONSTRUCTION - 2.3%
Building Construction
Compagnie Generale des Eaux Fr 11 1,338
Kaneshita Construction Ja 59 621
Sino Thai Engineering & Construction
Public Co., Ltd. Th 114 299
------------
2,258
------------
..................................................................................................
FINANCE, INSURANCE & REAL ESTATE - 24.3%
Depository Institutions - 4.6%
Banco Latinoamericano
de Exportaciones SA Po 38 2,001
Generale de Banque SA Be 2 802
Generale de Banque VVPR Strips (a) Be (b) (b)
International Bank of Asia HK 1,000 611
Korea Exchange Bank Ko 99 1,030
------------
4,444
------------
Holding Companies - 1.6%
Fortis Amev NV Ne 52 1,540
------------
Insurance Carriers - 2.7%
Mitsui Marine & Fire Insurance Co. Ja 240 1,557
Reinsurance Australia Corp. Au 351 1,051
------------
2,608
------------
Investment Companies - 6.7%
Brierley Investments Ltd. NZ 1,540 1,404
Fleming Russia Securities Fund (a) Ru 160 1,621
Japan OTC Equity Fund, Inc. (a) Ja 1 780
ROC Taiwan Fund Tw 150 1,461
World Equity Benchmark Share - Japan (a) Ja 89 1,229
------------
6,495
------------
Nondepository Credit Institutions - 1.5%
Promise Co., Ltd. Ja 32 1,490
------------
Real Estate - 5.1%
Diligentia AB (a) Sw 90 1,155
7
<PAGE>
Investment Portfolio/October 31, 1996
- -------------------------------------------------------------------------------
HKR International Ltd. HK 1,100 $1,393
Kawasan Industri Jababeka In 620 818
New World Development Co., Ltd. HK 221 1,286
Tian An China Investments HK 2,101 253
------------
4,905
------------
Security Brokers & Dealers - 2.1%
Kokusai Securities Co., Ltd. Ja 84 1,009
L.G. Securities (a) Ko 64 1,030
------------
2,039
------------
..................................................................................................
MANUFACTURING - 39.8%
Apparel - 1.2%
Tokyo Style Ja 77 1,168
------------
Chemicals & Allied Products - 10.2%
Henkel KGAA Vorzug (a) G 32 1,458
Indian Petrochemicals Corp., Ltd. In 59 561
Indupa SA (a) Ar 1,749 932
Kemira Oy Fi 174 1,898
Norsk Hydro A/S No 31 1,424
PT Evershine Textile Industry In 2,010 690
Reliance Industries Ltd. GDR (c) In 27 304
SmithKline Beecham PLC UK 107 1,321
Yizheng Chemical Fibre Co., Ltd. HK 5,500 1,273
------------
9,861
------------
Electronic & Electrical Equipment - 6.7%
Alcatel Alsthom Fr 12 1,042
Koor Industries Ltd. ADR Is 30 521
LG Electronics Ko 13 217
Matsushita Electric Industrial Co. Ja 82 1,309
Moulinex (a) Fr 49 937
Murata Manufacturing Co., Ltd. Ja 44 1,428
Samsung Electronics GDR (a) Ko 1 20
Samsung Electronics Prf. GDR (a) Ko 8 140
Samsung Electronics GDS (a) Ko 2 88
Samsung Electronics Old Preferred GDS Ko 35 756
------------
6,458
------------
Food & Kindred Products - 0.8%
Perdigao SA Comercio e Industria Br 310,000 579
Vitasoy International Holdings Ltd. HK 567 218
------------
797
------------
8
<PAGE>
Investment Portfolio/October 31, 1996
- --------------------------------------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------
MANUFACTURING - CONT.
Lumber & Wood Products - 1.6%
Metsa-Serla Oy Fi 225 $1,509
------------
Machinery & Computer Equipment - 4.6%
AGIV AG G 59 855
Canon, Inc. Ja 56 1,071
Hitachi Ltd. Ja 151 1,338
Mannesmann AG G 3 1,182
------------
4,446
------------
Paper Products - 1.5%
Enso-Gutzeit Oy Fi 182 1,401
------------
Petroleum Refining - 2.4%
Neste Oy Fi 48 1,000
YPF Sociedad Anonima ADR Ar 56 1,274
------------
2,274
------------
Primary Metal - 5.2%
Acerinox SA Sp 8 958
Avesta-Sheffield (a) Sw 180 1,805
Ssab Svenskt Stal AB Sw 124 1,800
TransTec PLC UK 233 444
------------
5,007
------------
Rubber & Plastic - 0.2%
World Houseware Holdings Ltd. HK 3,086 178
------------
Stone, Clay, Glass & Concrete - 3.4%
Companion Building Materials Ltd. HK 4,800 925
Freidrich Grohe AG G 5 1,387
Kim Hin Industry Berhad (a) Ma 150 253
N.V. Koninklijke Sphinx Gustavsberg Ne 50 687
------------
3,252
------------
Textile Mill Products - 0.7%
Companhia de Tecidos Norte de Minas Br 2,000 672
------------
Transportation Equipment - 1.3%
Suzuki Motor Co., Ltd. Ja 120 1,221
------------
..................................................................................................
MINING & ENERGY - 5.3%
Coal Mining - 1.3%
Samchully Co. Ko 12 1,011
9
<PAGE>
Investment Portfolio/October 31, 1996
- --------------------------------------------------------------------------------------------------
Samchully Co. 1st New (a) Ko 2 $ 177
Samchully Co. 2nd New (a) Ko 1 78
------------
1,266
------------
Crude Petroleum & Natural Gas - 2.7%
Compagnie Francaise de Petroleum
Total B Fr 17 1,362
Saga Petroleum A/S No 72 1,221
------------
2,583
------------
Oil & Gas Extraction - 1.3%
LASMO PLC UK 350 1,213
------------
..................................................................................................
RETAIL TRADE - 8.0%
Auto Dealers & Gas Stations - 2.1%
Inchcape PLC UK 434 2,026
------------
Food Stores - 2.4%
Jardine Matheson Holdings Ltd. (a) Si 105 594
Jusco Co., Ltd. Ja 58 1,719
------------
2,313
------------
General Merchandise Stores - 2.5%
Ito-Yokado Co., Ltd. Ja 26 1,295
PT Matahari Putra Prima In 1,240 1,078
------------
2,373
------------
Home Furnishings & Equipment - 1.0%
Globex Utilidades SA (a) Br 53 1,001
------------
..................................................................................................
SERVICES - 2.7%
Business Services - 1.0%
Ing C. Olivetti & SPA (a) It 3,160 916
Intrum Justitia UK 50 85
------------
1,001
------------
Health Services - 1.7%
Sandoz AF Sz 1 1,612
------------
..................................................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 13.3%
Air Transportation - 0.9%
Helikopter Service A/S No 82 910
------------
Communications - 8.2%
DDI Corp. Ja (b) 900
10
<PAGE>
Investment Portfolio/October 31, 1996
- --------------------------------------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
Communications - Cont.
Portugal Telecom SA Po 68 $1,749
Royal Koninklijke PTT Nederland NV Ne 27 959
Tele-Communications International, Inc. (a) $ 75 1,125
Telecom Argentina SA ADR Ar 22 819
Telecom Italia It 470 889
Telecom Italia SPA It 660 1,474
------------
7,915
------------
Gas Services - 1.8%
British Gas Co. UK 551 1,712
------------
Transportation Services - 0.6%
Danzas Holding AG Sz 1 562
------------
Water Transportation - 1.8%
Hong Kong Ferry Holdings Co. HK 390 726
Transportacion Maritima Mexicana ADR MX 150 1,050
------------
1,776
------------
..................................................................................................
WHOLESALE TRADE - 4.3%
Durable Goods - 3.5%
Celsis International PLC (a) UK 324 533
Powerscreen International PLC UK 145 1,435
Yamazen Corp. (a) Ja 304 1,378
------------
3,346
------------
Nondurable Goods - 0.8%
Lion Nathan Ltd. NZ 285 735
------------
TOTAL INVESTMENTS (cost of $95,005)(d) 96,713
------------
SHORT-TERM OBLIGATIONS - 0.4% PAR
- --------------------------------------------------------------------------------------------------
Repurchase agreement with Lehman Brothers, Inc.
dated 10/31/96, due 11/01/96 at 5.530%,
collateralized by U.S. Treasury bonds and notes
with various maturities to 2023, market value
$355 (repurchase proceeds $348) $ 348 348
------------
OTHER ASSETS & LIABILITIES, NET - (0.7)% (614)
- --------------------------------------------------------------------------------------------------
NET ASSETS - 100% $96,447
------------
</TABLE>
11
<PAGE>
Investment Portfolio/October 31, 1996
- -------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO:
- -------------------------------------------------------------------------------
(a) Non-income producing.
(b) Rounds to less than one.
(c) Securities 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 $304
or 0.3% of net assets.
(d) Cost for federal income tax purposes is $95,898.
Summary of Securities by
Country/Currency Country Value % of Total
- ---------------------------------------------------------------------------
Japan Ja $19,513 20.2
United Kingdom UK 8,769 9.1
Hong Kong HK 6,864 7.1
Finland Fi 5,808 6.0
Germany G 4,882 5.0
Sweden Sw 4,760 4.9
France Fr 4,678 4.8
Korea Ko 4,548 4.7
Indonesia In 3,797 3.9
Portugal Po 3,750 3.9
Norway No 3,555 3.7
Italy It 3,279 3.4
Netherlands Ne 3,186 3.3
Argentina Ar 3,025 3.1
Brazil Br 2,252 2.3
Switzerland Sz 2,174 2.2
New Zealand NZ 2,139 2.2
Russia Ru 1,621 1.7
Taiwan Tw 1,461 1.5
United States $ 1,125 1.2
Australia Au 1,051 1.1
Mexico MX 1,050 1.1
Spain Sp 958 1.1
Belgium Be 802 0.8
Singapore Si 593 0.6
Israel Is 521 0.5
Thailand Th 299 0.3
Malaysia Ma 253 0.3
--------------------------
$96,713 100.0
-------- ---------
Certain securities are listed by country of underlying exposure but may
trade predominantly on other exchanges.
12
<PAGE>
Investment Portfolio/October 31, 1996
- -------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO - CONT.
- -------------------------------------------------------------------------------
Acronym Name
ADR American Depository Receipt
GDR Global Depository Receipt
GDS Global Depository Shares
See notes to financial statements.
13
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1996
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $95,005) $ 96,713
Short-term obligations 348
--------
97,061
Cash held in foreign banks (cost $1) $ 1
Receivable for:
Investments sold 347
Dividends 202
Foreign tax reclaims 62
Fund shares sold 40
Deferred organization expenses 32
Other 2 686
------ --------
Total Assets 97,747
LIABILITIES
Foreign currencies (cost $ 344) 347
Payable for:
Investments purchased 432
Fund shares repurchased 474
Payable to Adviser 10
Accrued:
Deferred Trustees fees 2
Other 35
------
Total Liabilities 1,300
--------
NET ASSETS $ 96,447
========
Net asset value & redemption price per share -
Class A ($32,912/3,207) $10.26
========
Maximum offering price per share - Class A
($10.26/0.9425) $10.89 (a)
========
Net asset value & offering price per share -
Class B ($62,578/6,232) $10.04 (b)
========
Net asset value & redemption price per share - Class D
($957/95) $10.09 (b)
========
Maximum offering price per share - Class D
($10.09/0.9900) $10.19
========
(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.
14
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
(in thousands)
INVESTMENT INCOME
Dividends $ 2,297
Interest 103
-------
Total investment income (net of nonrebatable foreign
taxes withheld at source which amounted to $266) 2,400
EXPENSES
Management fee $ 993
Service fee 276
Distribution fee - Class B 531
Distribution fee - Class D 7
Transfer agent 377
Bookkeeping fee 48
Trustees fee 17
Custodian fee 131
Audit fee 24
Legal fee 25
Registration fee 40
Reports to shareholders 6
Amortization of deferred
organization expenses 15
Other 18
--------
2,508
Fees waived by the Adviser (41) 2,467
-------- -------
Net Investment Loss (67)
-------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 9,696
Foreign currency transactions (302)
--------
Net Realized Gain 9,394
Net unrealized depreciation during the
period on:
Investments (3,496)
Foreign currency transactions (328)
--------
Net Unrealized Depreciation (3,824)
-------
Net Gain 5,570
-------
Net Increase in Net Assets from Operations $ 5,503
=======
See notes to financial statements.
15
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands) Year ended October 31
---------------------
INCREASE (DECREASE) IN NET ASSETS 1996 1995
Operations:
Net investment loss $ (67) $ (373)
Net realized gain (loss) 9,394 (10,192)
Net unrealized depreciation (3,824) (1,011)
-------- ---------
Net Increase (Decrease) from Operations 5,503 (11,576)
-------- ---------
Fund Share Transactions:
Receipts for shares sold - Class A 8,026 11,416
Cost of shares repurchased - Class A (20,637) (26,238)
-------- ---------
(12,611) (14,822)
-------- ---------
Receipts for shares sold - Class B 11,432 16,067
Cost of shares repurchased - Class B (28,533) (35,674)
-------- ---------
(17,101) (19,607)
-------- ---------
Receipts for shares sold - Class D 352 229
Cost of shares repurchased - Class D (110) (81)
-------- ---------
242 148
-------- ---------
Net Decrease from Fund Share Transactions (29,470) (34,281)
-------- ---------
Total Decrease (23,967) (45,857)
NET ASSETS
Beginning of period 120,414 166,271
-------- ---------
End of period (including undistributed net
investment income and net of accumulated
net investment loss of $281 and $582,
respectively) $ 96,447 $120,414
======== =========
NUMBER OF FUND SHARES
Sold - Class A 777 1,208
Repurchased - Class A (2,012) (2,769)
-------- ---------
(1,235) (1,561)
-------- ---------
Sold - Class B 1,132 1,711
Repurchased - Class B (2,838) (3,817)
-------- ---------
(1,706) (2,106)
-------- ---------
Sold - Class D 35 24
Repurchased - Class D (11) (8)
-------- ---------
24 16
-------- ---------
See notes to financial statements.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
NOTE 1. ACCOUNTING POLICIES
...............................................................................
Organization: Colonial International Fund for Growth (the Fund), a series of
Colonial Trust III, is a non-diversified portfolio of a Massachusetts business
trust, registered under the Investment Company Act of 1940, as amended, as an
open-end, management investment company. The Fund's investment objective is to
seek long term growth by investing primarily in non U.S. equities. 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: Class B are subject to an annual 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 annual
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 revenue and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
Security valuation and transactions: Equity securities 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. Korean equity
securities that have reached the limit for aggregate foreign ownership and for
which premiums to the local exchange prices may be paid by foreign investors are
valued by applying a broker quoted premium to the local share price.
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.
17
<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.
Determination of class net asset values and financial highlights: All income,
expenses (other than the Class B and Class D distribution fees), realized and
unrealized gains (losses) are allocated to each class proportionately on a daily
basis for purposes of determining the net asset value of each class.
The per share data was calculated using average shares outstanding during the
period. In addition, Class B and Class D net investment income per share data
reflects the distribution fee applicable to Class B and Class D shares only.
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 B and Class D 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.
Deferred organization expenses: The Fund incurred expenses of $77,162 in
connection with it's 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
straightline basis over five years.
Distributions to shareholders: Distributions to shareholders are recorded
on the ex-date.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
Foreign currency transactions: Net realized and unrealized gains (losses) on
foreign currency transactions includes the fluctuation in exchange rates on
gains (losses) between trade and settlement dates on securities transactions,
gains (losses) arising from the disposition of foreign currency and currency
gains (losses) between the accrual and payment dates on 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.
18
<PAGE>
Notes to Financial Statements/October 31, 1996
- -------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
...............................................................................
Forward currency contracts: The Fund may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities. The Fund
may also enter into forward currency contracts to hedge certain other foreign
currency denominated assets. The contracts are used to minimize the exposure to
foreign exchange rate fluctuations during the period between trade and
settlement date of the contracts. All contracts are marked-to-market daily,
resulting in unrealized gains or losses which become realized at the time the
forward currency contracts are closed or mature.
Realized and unrealized gains (losses) arising from such transactions are
included in net realized and unrealized gains (losses) on foreign currency
transactions. Forward currency contracts do not eliminate fluctuations in the
prices of the Fund's portfolio securities. While the maximum potential loss from
such contracts is the aggregate face value in U.S. dollars at the time the
contract was opened, exposure is typically limited to the change in value of the
contract (in U.S. dollars) over the period it remains open. Risks may also arise
if counterparties fail to perform their obligations under the contracts.
Other: Corporate actions are recorded on the ex-date (except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware of
such), net of nonrebatable tax withholdings. Where a high level of uncertainty
as to collection exists, income on securities is recorded net of all tax
withholdings with any rebates recorded when received. The Fund may be subject to
foreign taxes on income, gains on investments, or foreign currency repatriation.
The Fund accrues foreign taxes as applicable based upon its current
interpretation of the tax rules and regulations that exist in the markets in
which it invests.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-
market daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
...............................................................................
Management fee: Colonial Management Associates, Inc. (the Adviser) is
the investment Adviser of the Fund and furnishes accounting and other
services and office facilities for a monthly fee equal to 0.90% annually of the
Fund's average net assets. Gartmore Capital Management, Ltd. (the Sub-
Adviser) furnished the Fund with investment management services
through December 31, 1995. Effective January 1, 1996, Colonial Management
Associates, Inc. assumed full management responsibilities for the Fund.
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.
19
<PAGE>
Notes to Financial Statements/October 31, 1996
- -------------------------------------------------------------------------------
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 $16,993 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $391,868 on Class B share redemptions.
The Fund has adopted a 12b-1 plan which requires the payment of a service fee to
the Distributor 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 0.75% of the average net assets attributable to Class B and
Class D shares.
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 1.50% annually of the Fund's average net
assets.
Other: The Fund pays no compensation to its officers, all of whom are
employees of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
the Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
...............................................................................
Investment activity: During the year ended October 31, 1996, purchases and sales
of investments, other than short-term obligations, were $139,950,015 and
$166,597,630, respectively.
Unrealized appreciation (depreciation) at October 31, 1996, based on cost of
investments for federal income tax purposes was:
Gross unrealized appreciation $9,877,623
Gross unrealized depreciation (9,062,785)
----------------
Net unrealized appreciation $814,838
================
20
<PAGE>
Notes to Financial Statements/October 31, 1996
- -------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION - CONT.
...............................................................................
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 $88,599
Undistributed net investment income 281
Accumulated net realized gain 5,862
Net unrealized appreciation (depreciation) on:
Investments 1,708
Foreign currency transactions (3)
--------
$96,447
========
21
<PAGE>
FINANCIAL HIGHLIGHTS (b)
Selected data for a share of each class outstanding throughout each period
are as follows:
<TABLE>
<CAPTION>
Year ended October 31
---------------------
1996
Class A Class B Class D
------- ------- -------
<S> <C> <C> <C>
Net asset value -
Beginning of period $ 9.760 $ 9.620 $ 9.670
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (loss) 0.044 (a) (0.032)(a) (0.032)(a)
Net realized and
unrealized gain (loss) 0.456 0.452 0.452
------- ------- -------
Total from Investment
Operations 0.500 0.420 0.420
------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
Net asset value -
End of period $10.260 $10.040 $10.090
------- ------- -------
Total return (c) 5.12% (d) 4.37% (d) 4.34% (d)
------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses (e) 1.75% 2.50% 2.50%
Net investment
income (loss)(e) 0.43% (0.32)% (0.32)%
Fees waived or borne
by the Adviser 0.04% 0.04% 0.04%
Portfolio turnover 129% 129% 129%
Average commission rate (f) $0.0011 (f) $0.0011 (f) $0.0011 (f)
Net assets at end
of period (000) $32,912 $62,578 $ 957
(a) Net of fees and expenses waived or borne by the Adviser which
which amounted to: $0.002 $0.002 $0.002
</TABLE>
(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 year's 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 commissions rate per share for
trades on which commissions are charged.
22
<PAGE>
FINANCIAL HIGHLIGHTS - continued
Year ended October 31
- ------------------------------------------------
1995
Class A Class B Class D
- -------- --------- ---------
$10.370 $10.300 $10.350
- -------- --------- ---------
0.019 (0.052) (0.052)
(0.629) (0.628) (0.628)
- -------- --------- ---------
(0.610) (0.680) (0.680)
- -------- --------- ---------
$ 9.760 $ 9.620 $ 9.670
- -------- --------- ---------
(5.88%) (6.60%) (6.57%)
- -------- --------- ---------
1.74% 2.49% 2.49%
0.20% (0.55)% (0.55)%
35% 35% 35%
$43,354 $76,376 $ 684
23
<PAGE>
FINANCIAL HIGHLIGHTS (a)
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Period ended October 31
------------------------------------------
1994 (b)
Class A Class B Class D (c)
----------- ----------- -------
<S> <C> <C> <C>
Net asset value -
Beginning of period $ 10.000 $ 10.000 $ 10.060
----------- ----------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (loss) 0.013 (0.058) (0.037)
Net realized and
unrealized gain (loss) 0.357 0.358 0.327
----------- ----------- -------
Total from Investment
Operations 0.370 0.300 0.290
----------- ----------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
Net asset value -
End of period $ 10.370 $ 9.620 $ 9.670
----------- ----------- -------
Total return(d) 3.70%(e) (6.60%)(e) (6.57%)(e)
----------- ----------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses
Net investment 1.71%(f) 2.46%(f) 2.46%(f)
income(loss)
Portfolio turnover 0.14%(f) (0.61)%(f) (0.61)%(f)
Net assets at end 51%(f) 51%(f) 51%(f)
of period (000)
$ 62,251 $ 103,450 $ 570
</TABLE>
(a) Per share data was calculated using average shares outstanding
during the period.
(b) The Fund commenced investment operations on December 1, 1993.
(c) Class D shares were initially offered on July 1, 1994. Per share
amounts reflect activity from that date.
(d) Total return at net asset value assuming no initial sales charge or
contingent deferred sales charge.
(e) Not annualized.
(f) Annualized.
24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
T0 THE TRUSTEES OF COLONIAL TRUST III AND THE SHAREHOLDERS OF
COLONIAL INTERNATIONAL FUND FOR GROWTH
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 International Fund for
Growth (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 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
25
<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 on
most funds; $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. Dividends and capital must be reinvested.
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.
Exchanges are not available on all funds. 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.
26
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial International Fund for Growth is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial International Fund for Growth 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 International Fund
for Growth. 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.
27
<PAGE>
[logo] COLONIAL
Mutual Funds
Mutual Funds for
Planned Portfolios
TRUSTEES
ROBERT J. BIRNBAUM
Retired (formerly Special Counsel, Dechert, Price & Rhoads; President and Chief
Operating Officer, New York Stock Exchange, Inc.)
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
WILLIAM D. IRELAND, JR.
Retired (formerly Chairman of the Board, Bank of New England-Worcester)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
WILLIAM E. MAYER
Dean, College of Business and Management, University of Maryland (formerly Dean,
Simon Graduate School of Business, University of Rochester; Chairman and Chief
Executive Officer, CS First Boston Merchant Bank; and President and Chief
Executive Officer, The First Boston Corporation)
JAMES L. MOODY, JR.
Chairman of the Board, Hannaford Bros. Co. (formely 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
IN-02/960C-1096 M (12/96)
[recycled logo] Printed on recycled paper
