<PAGE>
[graphic omitted]
- -------------------------------------------------------------------------------
COLONIAL SELECT VALUE FUND ANNUAL REPORT
- -------------------------------------------------------------------------------
October 31, 1997
----------------------------
Not FDIC | May Lose Value
Insured | No Bank Guarantee
----------------------------
<PAGE>
COLONIAL SELECT VALUE FUND HIGHLIGHTS
NOVEMBER 1, 1996 - OCTOBER 31, 1997
INVESTMENT OBJECTIVE: Colonial Select Value Fund seeks long-term growth by
investing primarily in middle capitalization equities.
THE FUND IS DESIGNED TO OFFER:
* Opportunity for long-term growth of capital
* A disciplined investment strategy
* Broad diversification to reduce risk
PORTFOLIO MANAGER COMMENTARY: "Despite the recent market volatility, the Fund
posted impressive returns for the year. Our strategy of seeking value in all
industries of the economy enables us to select stocks with consistent
performance during volatile periods. "
-- James Haynie and Michael Rega
COLONIAL SELECT VALUE FUND PERFORMANCE
- -------------------------------------------------------------------------------
Class A Class B Class C(1)
12-month distributions declared per share $ 2.183 $ 2.183 --
12-month total returns, assuming 28.29% 27.33% 2.77%
reinvestment of all distributions
and no sales charge or contingent
deferred sales charge (CDSC)
Net asset value per share on 10/31/97 $20.43 $20.02 $20.41
TOP FIVE HOLDINGS(2) TOP FIVE SECTORS(2),(3)
(as of 10/31/97) (as of 10/31/97)
1. Omnicom Group, Inc. 3.5% 1. Consumer Cyclical 27.6%
2. Costco Cos., Inc. 3.4% 2. Health Care 13.8%
3. Lincare Holdings, Inc. 3.4% 3. Technology 13.1%
4. Kroger Corp.. 3.2% 4. Financial 8.7%
5. Meyer (Fred), Inc. 2.5% 5. Consumer Staples 7.9%
This annual report is the first since the Fund's name was changed on March 3,
1997 from Colonial Growth Shares Fund to Colonial Select Value Fund. The Fund's
investment objective remains the same and there have been no major changes in
Fund holdings. We believe that this new name better reflects
the Fund's investment strategy.
(1)Class C share total returns are cumulative since inception on August 1, 1997.
(2)Holdings and sector breakdowns are calculated as a percent of total net
assets. Because the Fund is actively managed, there can be no guarantee the
Fund will continue to hold these securities or invest in these sectors in
the future.
(3)Industry sectors in the following financial statements are based upon the
standard industrial classifications (SIC) published by the U.S. Office of
Management and Budget. The sector classifications used on this page are
based upon Colonial's defined criteria used in the investment process.
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[photo of Harold W. Cogger]
THE VOLATILE MARKET: DOES INVESTING IN EQUITIES STILL MAKE SENSE?
With the recent volatility in world stock markets, many investors are asking
whether the long bull market has come to an end, and if investing in equities
remains a good idea. While the day-to-day swings of the market over the last
several weeks have generated headlines in the papers, it may be helpful to
remember that the October market losses did not even represent the greatest
one-month decline for the year as measured by the Dow Jones Industrial Average
or the S&P 500 Index. Yet looking over the last 12 months as a whole, these
indexes have posted some of the highest percentage gains in history. Even in a
volatile market, investing in equities offers the potential for growth not found
anywhere else. Maintaining at least some exposure to stocks still makes sense
for most investors.
WHAT REALLY MATTERS IS HOW YOU INVEST
In volatile times like these, it becomes increasingly important to base your
investment choices on a sound, disciplined strategy. In New Value(TM) investing,
finding attractive stock prices is just the start. Your portfolio managers
carefully research all market sectors for undervalued companies that are well
managed, offer a consistent performance record and have favorable growth
prospects. Because their portfolios are broadly diversified, New Value funds
have been less sensitive to the volatility we have seen recently.
The following report will provide you with specific information on your Fund's
performance, as well as an in-depth discussion with your portfolio managers.
Thank you for choosing Colonial Select Value Fund for your mutual fund
investment program.
We appreciate your continuing confidence.
Respectfully,
/s/ Harold W. Cogger
Harold W. Cogger
President
December 10, 1997
As market and economic conditions change, there can be no assurance that the
trends described above will continue.
<PAGE>
PORTFOLIO MANAGEMENT REPORT
JAMES HAYNIE and MICHAEL REGA, co-manage Colonial Select Value Fund and are
Vice Presidents of Colonial Management Associates, Inc. What follows is a
discussion of the Fund's performance for the year ended October 31, 1997.
MARKET GROWTH MOVING FROM LARGE TO MID- AND SMALL- CAP STOCKS
While the last 12 months have seen strong gains in almost all types of U.S.
equities, there was a definite change in market leadership during the year.
Early in the year, large-capitalization, Fortune 100 stocks enjoyed the highest
rate of appreciation, especially those in the financial and technology sectors.
That began to change in the spring when small-capitalization and
mid-capitalization stocks, such as those in the Fund, rallied. Mid-cap and
small-cap leadership continued through September, with stocks of all sizes
taking losses in the volatile October market.
A STRONG FUND PERFORMANCE FOR THE YEAR
Our New Value strategy of selecting reasonably priced, well-managed companies
with good future prospects resulted in strong performance over the year. Class A
shares had a 28.29% total return based on net asset value. With a focus on
seeking value in all sectors, we constructed a diversified portfolio that
enabled us to endure the recent volatility better than funds that rely on making
specific company or industry bets.
LOOKING INSIDE OUR PORTFOLIO
One of the best performing stocks the Fund held over the last 12 months was
Herman Miller, a leading U.S. office furniture manufacturer. We added the
company to our holdings early this year, selecting it because it was
attractively priced, had been gaining market share and had a reputation for
quality in a growing industry. Since our purchase, Herman Miller stock has
nearly doubled.
Another stock we continue to hold is ATL Ultrasound, a health care technology
company. The company is preparing to introduce a new imaging product that can
detect blood flow as thin as the width of a human hair. One of the ways that
this new technology will be used is to detect tumors early on in their
development.
MID CAPS OFFER THE BEST OF BOTH WORLDS
We believe mid caps offer the best of both worlds, with investors enjoying the
brand names and liquidity usually associated with larger stocks and the growth
potential of small-cap stocks. Although market volatility may continue, we do
not expect the recent volatility to mark the beginning of a general downturn. We
continue to pursue the strategy of seeking both quality and value that served
shareholders so well over the last year.
<PAGE>
COLONIAL SELECT VALUE FUND'S INVESTMENT PERFORMANCE
VS. THE STANDARD & POOR'S MIDCAP 400 INDEX
Change in Value of $10,000 from 10/31/87 -- 10/31/97
Based on NAV and POP for Class A Shares
NAV POP S&P Midcap 400
- -----------------------------------------------------------------
10/31/87 $10,000.00 $ 9,425.00 $10,000
12/31/87 10,762.72 10,143.87 10,711
3/31/88 11,975.14 11,286.57 11,634
6/30/88 12,481.10 11,763.44 11,884
10/31/88 12,511.18 11,791.79 12,135
12/31/88 12,978.23 12,231.98 13,223
3/31/89 14,066.36 13,257.54 14,294
6/30/89 14,234.96 14,358.95 15,804
10/31/89 16,943.89 15,969.62 15,850
12/31/89 16,798.28 15,832.38 15,360
3/31/90 16,256.84 15,322.07 15,624
6/30/90 17,279.02 16,285.48 16,826
10/31/90 13,876.21 13,078.33 13,727
12/31/90 15,007.44 14,144.51 17,177
3/31/91 18,037.11 16,999.97 19,569
6/30/91 17,693.85 16,676.46 20,599
10/31/91 18,944.50 17,855.19 22,436
12/31/91 20,123.53 18,966.43 24,318
3/31/92 20,424.74 19,250.32 23,490
6/30/92 19,439.51 18,321.74 24,179
10/31/92 20,095.95 18,940.43 24,504
12/31/92 22,336.16 21,051.83 27,076
3/31/93 23,337.00 21,995.13 26,896
6/30/93 22,979.74 21,658.41 28,208
10/31/93 24,207.67 22,815.72 29,780
12/31/93 24,566.56 23,153.99 31,182
3/31/94 24,086.96 22,701.96 29,534
6/30/94 23,659.57 22,299.14 29,203
10/31/94 24,550.37 23,138.72 30,489
12/31/94 23,912.71 22,537.73 29,687
3/31/95 26,144.04 24,640.76 32,425
6/30/95 29,119.90 27,445.51 36,355
10/31/95 32,240.60 30,386.77 36,956
12/31/95 32,999.11 31,101.66 39,033
3/31/96 35,306.89 33,276.74 42,090
6/30/96 37,312.71 35,167.23 39,175
10/31/96 38,930.32 36,691.82 43,368
12/31/96 39,752.59 37,466.82 47,582
3/31/97 38,897.43 36,660.83 46,352
6/31/97 44,639.20 42,072.45 56,952
10/31/97 49,917.00 47,047.00 57,535
A $10,000 investment in Class B shares made on June 8, 1992 (inception) at net
asset value (NAV) would have been valued at $23,696 on October 31, 1997. The
same investment after deducting the applicable contingent deferred sales charge
(CDSC) would have grown to $23,596 on October 31, 1997.
The Standard & Poor's Midcap 400 Index is an unmanaged index that tracks the
performance of middle capitalization U.S. stocks. Unlike mutual funds, an index
does not incur fees or charges and it is not possible to invest in an index.
AVERAGE ANNUAL TOTAL RETURNS
As of 9/30/97 (Most Recent Quarter End)
- -------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES(1) CLASS C SHARES(2)
NAV POP NAV w/CDSC NAV w/CDSC
- -------------------------------------------------------------------------------
1 year 30.35% 22.86% 29.35% 24.35% -- --
- -------------------------------------------------------------------------------
5 years 20.35 18.94 19.46 19.27 -- --
- -------------------------------------------------------------------------------
10 years 14.34 13.67 -- -- -- --
- -------------------------------------------------------------------------------
Since inception -- -- 17.99 17.89 4.43% 3.43%
- -------------------------------------------------------------------------------
(1) Class B shares were initially offered on June 8, 1992.
(2) Class C share total returns are cumulative since inception on August 1,
1997.
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. Public offering price (POP) returns include the maximum sales charge of
5.75% for Class A shares. The CDSC returns reflect charges of 5% for one year,
2% for five years and 1% since inception for Class B shares and 1% since
inception for Class C shares. Performance for different share classes will vary
based on differences in sales charges and fees associated with each class.
<PAGE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1997 (IN THOUSANDS)
COMMON STOCKS - 96.3% SHARES VALUE
------------------------------------------------------------------------------
CONSTRUCTION - 1.0%
HEAVY CONSTRUCTION-NON BUILDING CONSTRUCTION - 0.3%
Halliburton Co. 32 $ 1,884
---------
SPECIAL TRADE CONTRACTORS - 0.7%
Apogee Enterprises, Inc. 147 3,510
---------
------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 10.1%
DEPOSITORY INSTITUTIONS - 2.9%
City National Corp. 97 2,904
Crescendo Pharmaceuticals Corp. (a) 12 133
Greenpoint Financial Corp. 99 6,354
North Fork Bancorporation, Inc. 203 5,964
---------
15,355
---------
INSURANCE CARRIERS - 4.5%
ITT Corp. (a) 100 7,469
MGIC Investment Corp. 70 4,215
Sunamerica, Inc. 236 8,496
Vesta Insurance Group, Inc. 65 3,796
---------
23,976
---------
NONDEPOSITORY CREDIT INSTITUTIONS - 1.2%
Household International, Inc. 43 4,892
The Money Store, Inc. 48 1,368
---------
6,260
---------
SECURITY BROKERS & DEALERS - 1.5%
Franklin Resources, Inc. 61 5,500
T. Rowe Price Associates 43 2,836
---------
8,336
---------
------------------------------------------------------------------------------
MANUFACTURING - 36.6%
APPAREL - 1.6%
Jones Apparel Group, Inc. (a) 103 5,235
Tommy Hilfiger Corp. (a) 92 3,628
---------
8,863
---------
CHEMICALS & ALLIED PRODUCTS - 6.8%
Alza Corp. (a) 236 6,143
Biomet, Inc. 449 11,205
Ecolab, Inc. 120 5,703
Goodrich (B.F.) Co. 168 7,464
Watson Pharmaceuticals, Inc. (a) 184 5,848
---------
36,363
---------
COMMUNICATIONS EQUIPMENT - 0.5%
Harman International Industries, Inc 50 2,711
---------
ELECTRONIC COMPONENTS - 0.6%
SCI Systems, Inc. (a) 77 3,379
---------
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.3%
Dallas Semiconductor Corp. 34 1,667
---------
FABRICATED METAL - 1.0%
Crane Co. 133 5,520
---------
FOOD & KINDRED PRODUCTS - 3.0%
Interstate Bakeries Corp. 151 9,671
Lancaster Colony Corp. 30 1,485
NBTY, Inc. (a) 39 849
Philip Morris Co., Inc. 99 3,923
---------
15,928
---------
FURNITURE & FIXTURES - 3.3%
Furniture Brands International, Inc. (a) 187 3,132
Herman Miller, Inc. 256 12,502
Leggett & Platt, Inc. 44 1,833
---------
17,467
---------
LUMBER & WOOD PRODUCTS - 1.0%
Clayton Homes, Inc. 123 2,025
Oakwood Homes Corp. 117 3,086
---------
5,111
---------
MACHINERY & COMPUTER EQUIPMENT - 3.8%
Diebold, Inc. 105 4,607
Storage Technology Corp. (a) 71 4,137
Sun Microsystems, Inc. (a) 258 8,843
Tyco International Ltd. 40 1,510
Western Digital Corp. (a) 36 1,072
---------
20,169
---------
MEASURING & ANALYZING INSTRUMENTS - 2.7%
ATL Ultrasound, Inc. (a) 91 3,926
Dentsply International, Inc. 168 4,761
Dynatech Corp. (a) 49 1,679
Steris Corp. (a) 56 2,226
Sybron Corp. (a) 42 1,689
---------
14,281
---------
MISCELLANEOUS MANUFACTURING - 0.7%
Callaway Golf Co. 120 3,876
---------
PAPER PRODUCTS - 2.5%
Fort James Corp. 332 13,184
---------
PETROLEUM REFINING - 1.1%
Kerr-McGee Corp. 87 5,864
---------
PRIMARY METAL - 2.4%
Mueller Industries, Inc. (a) 74 3,270
Texas Industries, Inc. 134 6,338
USX-US Steel Group 96 3,257
---------
12,865
---------
PRINTING & PUBLISHING - 2.9%
Meredith Corp. 179 6,107
New York Times Co. 112 6,121
Reynolds & Reynolds Co. 114 1,956
Times Mirror Co., Class A 21 1,136
---------
15,320
---------
RUBBER & PLASTIC - 0.4%
Wynn's International, Inc. 64 2,169
---------
TRANSPORTATION EQUIPMENT - 2.0%
Harley-Davidson, Inc. 321 8,902
Varlen Corp. 41 1,567
---------
10,469
---------
------------------------------------------------------------------------------
MINING & ENERGY - 3.4%
CRUDE PETROLEUM & NATURAL GAS - 1.3%
Apache Corp. 173 7,249
---------
OIL & GAS EXTRACTION - 2.1%
Devon Energy Corp. 43 1,911
SEACOR SMIT, Inc. (a) 111 7,235
Snyder Oil Corp. 84 1,856
---------
11,002
---------
------------------------------------------------------------------------------
RETAIL TRADE - 17.3%
APPAREL & ACCESSORY STORES - 1.5%
Ross Stores, Inc. 160 5,991
TJX Companies, Inc. 65 1,920
---------
7,911
---------
FOOD STORES - 3.8%
Kroger Corp. (a) 516 16,848
Whole Foods Market, Inc. (a) 83 3,273
---------
20,121
---------
GENERAL MERCHANDISE STORES - 7.9%
Costco Cos., Inc. (a) 470 18,103
Dollar General Corp. 51 1,690
Federated Department Stores, Inc. (a) 119 5,232
Meyer (Fred), Inc. (a) 474 13,550
Proffitt's, Inc. (a) 114 3,276
---------
41,851
---------
MISCELLANEOUS RETAIL - 2.5%
Office Depot, Inc. (a) 436 9,001
U.S. Office Products Co. (a) 68 2,119
Zale Corp. (a) 88 2,212
---------
13,332
---------
RESTAURANTS - 1.6%
Brinker International, Inc. (a) 142 1,988
Cracker Barrel Old Country Stores, Inc. 60 1,770
Host Marriott Corp. 183 3,818
Papa John's International, Inc. (a) 38 1,126
---------
8,702
---------
------------------------------------------------------------------------------
SERVICES - 16.5%
BUSINESS SERVICES - 4.7%
Omnicom Group, Inc. 263 18,581
Robert Half International, Inc. 152 6,227
---------
24,808
---------
COMPUTER RELATED SERVICES - 3.9%
Adobe Systems, Inc. 59 2,836
BMC Software, Inc. 117 7,052
Cadence Design Systems, Inc. 43 2,276
Fiserv, Inc. 35 1,557
Keane, Inc. (a) 145 4,296
Shared Medical Systems Corp. 52 2,847
Siebel Systems Inc. (a) (c) 8
---------
20,872
---------
COMPUTER SOFTWARE - 1.0%
Netscape Communications Corp. (a) 2 55
Peoplesoft, Inc. (a) 45 2,829
Sterling Software, Inc. (a) 71 2,413
---------
5,297
---------
ENGINEERING, ACCOUNTING, RESEARCH & MANAGEMENT - 0.8%
Paychex, Inc. 111 4,224
---------
HEALTH SERVICES - 6.1%
Amerisource Health Corp., Class A (a) 20 1,172
Lincare Holdings, Inc. (a) 337 18,077
PhyCor, Inc. (a) 70 1,617
Quorum Health Group, Inc. (a) 114 2,767
Universal Health Services, Inc., Class B (a) 199 8,764
---------
32,397
---------
------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 9.7%
COMMUNICATIONS - 5.0%
Cincinnati Bell, Inc. 167 4,509
Clear Channel Communications, Inc. (a) 157 10,382
Compuware Corp. (a) 148 9,793
Wang Laboratories, Inc. (a) 85 1,968
---------
26,652
---------
ELECTRIC, GAS & SANITARY SERVICES - 0.3%
NGC Corp. 71 1,343
---------
ELECTRIC SERVICES - 1.1%
Calenergy, Inc. 177 6,073
---------
MOTOR FREIGHT & WAREHOUSING - 2.7%
CNF Transportation, Inc. 283 12,615
Consolidated Freightways Corp. (a) 41 585
USFreightways Corp. 43 1,405
---------
14,605
---------
TRANSPORTATION SERVICES - 0.6%
Expeditors International Washington, Inc. 85 3,127
---------
------------------------------------------------------------------------------
WHOLESALE TRADE - 1.7%
DURABLE GOODS - 1.5%
Patterson Dental Co. (a) 53 2,116
Tech Data Corp. (a) 139 6,116
Ultramed, Inc. (b) 450 (c)
---------
8,232
---------
NONDURABLE GOODS - 0.2%
Richfood Holdings, Inc. 35 844
---------
TOTAL INVESTMENTS (cost of $384,139)(d)
513,169
---------
SHORT TERM OBLIGATIONS - 3.0% PAR VALUE
------------------------------------------------------------------------------
Repurchase agreement with ABN Amro Chicago Corp.,
dated 10/31/97, due 11/03/97 at 5.625% collateralized
by U.S. Treasury notes with various maturities to
2019, market value $16,658 (repurchase proceeds
$16,200) $16,192 $ 16,192
OTHER ASSETS & LIABILITIES, NET - 0.7% 3,837
------------------------------------------------------------------------------
NET ASSETS - 100% $ 533,198
---------
NOTES TO INVESTMENT PORTFOLIO:
------------------------------------------------------------------------------
(a) Non-income producing.
(b) Ultramed Inc. is a restricted security which was acquired on August 14,
1987 at a cost of $450. The fair value is determined under the direction
of the Trustees. This security represents 0.0% of the Fund's net assets
at October 31, 1997.
(c) Rounds to less than one.
(d) Cost for federal income tax purposes is the same.
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1997
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $384,139) $ 513,169
Short-term obligations 16,192
---------
529,361
Receivable for:
Fund shares sold $ 2,642
Investments sold 1,899
Dividends 126
Interest 3
Foreign tax reclaims 4
Receivable due from Adviser 13
Other 9 4,696
------- ---------
Total Assets 534,057
LIABILITIES
Payable for:
Fund shares repurchased 790
Accrued:
Deferred Trustees fees 2
Other 67
-------
Total Liabilities 859
---------
NET ASSETS $ 533,198
=========
Net asset value & redemption price per share -
Class A ($340,479/16,667) $20.43
=========
Maximum offering price per share - Class A
($20.43/0.9425) $21.68(a)
=========
Net asset value & offering price per share -
Class B ($192,161/9,599) $20.02(b)
=========
Net asset value & offering price per share -
Class C ($558/27) $20.41(b)
=========
COMPOSITION OF NET ASSETS
Capital paid in $ 355,745
Overdistributed net investment income (11)
Accumulated net realized gain 48,434
Net unrealized appreciation 129,030
---------
$ 533,198
=========
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
See notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
(in thousands)
INVESTMENT INCOME
Dividends $ 2,987
Interest 1,718
---------
4,705
EXPENSES
Management fee $ 1,899
Service fee 1,108
Distribution fee - Class B 1,229
Distribution fee - Class C 1
Transfer agent 1,404
Bookkeeping fee 171
Registration fee 73
Custodian fee 10
Audit fee 33
Trustees fee 25
Reports to shareholders 16
Legal fee 7
Other 21 5,997
-------- ---------
Net Investment Loss (1,292)
---------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 50,194
Foreign currency transactions (3)
--------
Net Realized Gain 50,191
Change in unrealized appreciation during the period on:
Investments 65,659
Foreign currency transactions 2
--------
Net Change in Unrealized Appreciation 65,661
---------
Net Gain 115,852
---------
Increase in Net Assets from Operations $ 114,560
=========
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands) Year ended October 31
--------------------------
INCREASE (DECREASE) IN NET ASSETS 1997(a) 1996
Operations:
Net investment income (loss) $ (1,292) $ 84
Net realized gain 50,191 47,958
Net unrealized appreciation 65,661 11,344
--------- ---------
Net Increase from Operations 114,560 59,386
Distributions:
From net investment income - Class A -- (501)
In excess of net investment income - Class A -- (281)
From net realized gains - Class A (31,180) (14,913)
From net investment income - Class B -- (25)
In excess of net investment income - Class B -- (15)
From net realized gains - Class B (16,942) (5,989)
--------- ---------
66,438 37,662
--------- ---------
Fund Share Transactions:
Receipts for shares sold - Class A 138,708 108,391
Value of distributions reinvested - Class A 28,041 13,988
Cost of shares repurchased - Class A (126,189) (87,207)
--------- ---------
40,560 35,172
--------- ---------
Receipts for shares sold - Class B 92,343 76,766
Value of distributions reinvested - Class B 15,974 5,706
Cost of shares repurchased - Class B (66,864) (40,788)
--------- ---------
41,453 41,684
--------- ---------
Receipts for shares sold - Class C 562 --
Cost of shares repurchased - Class C (9) --
--------- ---------
553 --
--------- ---------
Net Increase from Fund Share Transactions 82,566 76,856
--------- ---------
Total Increase 149,004 114,518
NET ASSETS
Beginning of period 384,194 269,676
--------- ---------
End of period (net of overdistributed
net investment income of $11 and
$296, respectively.) $ 533,198 $ 384,194
========= =========
(a) Class C shares were initially offered on August 1, 1997.
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(continued)
Year ended October 31
-----------------------------
NUMBER OF FUND SHARES 1997(a) 1996
Sold - Class A 7,894 6,491
Issued for distributions reinvested - Class A 1,707 912
Repurchased - Class A (7,117) (5,261)
--------- ---------
2,484 2,142
--------- ---------
Sold - Class B 5,238 4,585
Issued for distributions reinvested - Class B 985 374
Repurchased - Class B (3,814) (2,463)
--------- ---------
2,409 2,496
--------- ---------
Sold - Class C 28 --
Repurchased - Class C (1) --
--------- ---------
27 --
--------- ---------
(a) Class C shares were initially offered on August 1, 1997.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
NOTE 1. ACCOUNTING POLICIES
------------------------------------------------------------------------------
ORGANIZATION: Colonial Select Value Fund (the Fund), formerly Colonial Growth
Shares Fund, a series of Colonial Trust III, is a diversified portfolio of a
Massachusetts business trust, registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. The Fund's
investment objective is to seek long-term growth by investing primarily in
middle capitalization equities. The Fund may issue an unlimited number of
shares. The Fund offers three classes of shares: Class A, Class B, and Class C.
Class A shares are sold with a front-end sales charge and 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. Effective August 1, 1997, the Fund began offering
Class C shares which are subject to 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 generally are valued at
the last sale price or, in the case of unlisted or listed securities, for which
there were no sales during the day, at current quoted bid prices.
Forward currency contracts are valued based on the weighted value of the
exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
The value of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates.
Portfolio positions for which market quotations are not readily available are
valued at fair value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific identifi-
cation 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 C distribution fee), and 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 C net investment income per share data
reflects the distribution fee applicable to Class B and Class C shares only.
Class B and Class C 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 C shares only.
FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a
regulated investment company and to distribute all of its taxable income, no
federal income tax has been accrued.
Interest Income, debt discount and premium: Interest income is recorded on the
accrual basis. Original issue discount is accreted to interest income over the
life of a security with a corresponding increase in the cost basis; premium and
market discount are not amortized or accreted.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders are recorded on the
ex-date.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
FOREIGN CURRENCY TRANSACTIONS: Net realized and unrealized gains (losses) on
foreign currency transactions includes gains (losses) arising from the
fluctuation in exchange rates between trade and settlement dates on securities
transactions, gains (losses) arising from the disposition of foreign currency
and currency gains (losses) between the accrual and payment dates on dividend
and interest income and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) on investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities. The Fund
may also enter into forward currency contracts to hedge certain other foreign
currency denominated assets. The contracts are used to minimize the exposure to
foreign exchange rate fluctuations during the period between trade and
settlement date of the contracts. All contracts are marked-to-market daily
resulting in unrealized gains (losses) which become realized at the time the
foreign currency contracts are closed or mature. Realized and unrealized gains
(losses) arising from such transactions are included in net realized and
unrealized gains (losses) on foreign currency transactions. Forward currency
contracts do not eliminate fluctuations in the prices of the Fund's portfolio
securities. While the maximum potential loss from such contracts is the
aggregate face value in U.S. dollars at the time the contract was opened,
exposure is typically limited to the change in value of the contract (in U.S.
dollars) over the period it remains open. Risks may also arise if counterparties
fail to perform their obligations under the contracts.
OTHER: Corporate actions are recorded on the ex-date (except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware of
such), net of nonrebatable tax withholdings. Where a high level of uncertainty
as to collection exists, income on securities is recorded net of all tax
withholdings with any rebates recorded when received.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-market
daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
------------------------------------------------------------------------------
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser) is the
investment Adviser of the Fund and furnishes accounting and other services and
office facilities for a monthly fee. Through September 30, 1997 the fee was
equal to 0.60% annually of the Fund's average net assets during the preceding
twelve months. This fee was subject to a maximum performance adjustment,
determined monthly, of +/- 1/12 of 0.20% based on the comparative experience of
the Fund and the Standard and Poor's Index of 500 common stocks during the
preceding twelve months. For the period ended September 30, 1997, the total fee
included a downward performance adjustment of $541,422.
Effective October 1, 1997, the Adviser receives a monthly fee equal to 0.70%
annually of the Funds 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.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES - CONT.
- ------------------------------------------------------------------------------
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.
Effective October 1, 1997 and continuing through September 1998, the Transfer
Agent fee will be reduced by .0012% in cumulative monthly increments, resulting
in a decrease in the fee from 0.25% to 0.236% annually.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Liberty Financial
Investments, Inc., formerly Colonial Investment Services, Inc. (the
Distributor), an affiliate of the Adviser, is the Fund's principal under-
writer. For the year ended October 31, 1997, the Fund has been advised that the
Distributor retained net underwriting discounts of $105,670 on sales of the
Fund's Class A shares and received contingent deferred sales charges (CDSC) of
$346,365 and none on Class B and Class C share redemptions.
The Fund has adopted a 12b-1 plan which requires the payment of a distribution
fee to the Distributor equal to 0.75% annually of the average net assets
attributable to Class B and Class C shares. The plan also requires the payment
of a service fee to the Distributor as follows:
Value of shares outstanding on the
20th of each month which were issued Annual Fee Rate
------------------------------------ ---------------
Prior to April 1, 1989 0.15%
On or after April 1, 1989 0.25%
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
OTHER: The Fund pays no compensation to its officers, all of whom are employees
of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
- ------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended October 31, 1997, purchases and sales
of investments, other than short-term obligations, were $319,807,309 and
$269,400,797, respectively.
Unrealized appreciation (depreciation) at October 31, 1997, based on cost of
investments for both financial statement and federal income tax purposes was
approximately:
Gross unrealized appreciation $ 133,692,000
Gross unrealized depreciation (4,662,000)
-------------
Net unrealized appreciation $ 129,030,000
=============
OTHER: There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities. These
risks may involve foreign currency exchange rate fluctuations, adverse political
and economic developments and the possible prevention of foreign currency
exchange or the imposition of other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 4. LINE OF CREDIT
- -------------------------------------------------------------------------------
The Fund may borrow up to 10% of its net assets under a line of credit for
temporary or emergency purposes. Any borrowings bear interest at one of the
following options determined at the inception of the loan: (1) federal funds
rate plus 1/2 of 1%, (2) the lending bank's base rate or (3) IBOR off- shore
loan rate plus 1/2 of 1%. There were no borrowings under the line of credit
during the year ended October 31, 1997.
NOTE 5. RESULTS OF SPECIAL MEETING OF SHAREHOLDERS (UNAUDITED)
- -------------------------------------------------------------------------------
On September 30, 1997, a Special Meeting of Shareholders of the Fund was held to
approve a new management agreement, eliminate a fundamental policy regarding
illiquid securities and to ratify the selection of Price Waterhouse LLP as
independent accountants for the fiscal year ending October 31, 1997. On July 14,
1997, the record date for the Meeting, the Fund had the following outstanding
shares of beneficial interest: 16,848,659 (Class A) and 9,567,023 (Class B). The
votes cast at the Meeting were as follows:
Approval of a new management agreement for the Fund:
Authority
For Against Withheld
---------- --------- ---------
10,327,440 3,605,039 1,334,237
Approval to eliminate a fundamental policy limiting the Fund's investment in
illiquid securities to 10% of net assets.
Authority
For Against Withheld
---------- --------- ---------
11,749,008 2,136,223 1,381,485
Ratification of the selection of Price Waterhouse LLP:
Authority
For Against Withheld
---------- --------- ---------
13,579,149 431,847 1,255,720
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
Year ended October 31
---------------------------------
1997
Class A Class B Class C(a)
--------- --------- ---------
Net asset value -
Beginning of period $ 18.040 $ 17.840 $ 19.860
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income
(loss)(b) (0.002) (0.135) (0.053)
Net realized and
unrealized gain (b) 4.575 4.498 0.603(c)
--------- --------- ---------
Total from Investment
Operations 4.573 4.363 0.550
--------- --------- ---------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income -- -- --
From net realized gains (2.183) (2.183) --
--------- --------- ---------
Total Distributions
Declared to Shareholders (2.183) (2.183) --
--------- --------- ---------
Net asset value -
End of period $ 20.430 $ 20.020 $ 20.410
========= ========= =========
Total return (d) 28.29% 27.33% 2.77%(e)
========= ========= =========
RATIOS TO AVERAGE NET ASSETS
Expenses (f) 1.03% 1.78% 1.81%(g)
Net investment income(f) (0.01)% (0.76)% (1.05)%(g)
Portfolio turnover 63% 63% 63%
Average
commission rate $ 0.0396 $ 0.0396 $ 0.0396
Net assets at end
of period (000) $ 340,479 $ 192,161 $ 558
(a) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) The amount shown for a share outstanding does not correspond with the
aggregate net gain on investments for the period due to the timing of sales
and repurchases of Fund shares in relation to fluctuating market values of
the investments of the Fund.
(d) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(g) Annualized.
<PAGE>
FINANCIAL HIGHLIGHTS - continued
Year ended October 31
----------------------------------------
1996 1995
Class A Class B Class A Class B
-------- -------- -------- -------
Net asset value -
Beginning of period $ 16.140 $ 16.040 $ 14.020 $13.940
-------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income
(loss)(a) 0.043 (0.081) 0.174 0.065
Net realized and
unrealized gain (a) 3.162 3.129 3.326 3.317
-------- -------- -------- -------
Total from Investment
Operations 3.205 3.048 3.500 3.382
-------- -------- -------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.042) (0.005) (0.165) (0.067)
In excess of net
investment income (0.023) (0.003) -- --
From net realized gains (1.240) (1.240) (1.215) (1.215)
-------- -------- -------- -------
Total Distributions
Declared to Shareholders (1.305) (1.248) (1.380) (1.282)
-------- -------- -------- -------
Net asset value -
End of period $ 18.040 $ 17.840 $ 16.140 $16.040
======== ======== ======== =======
Total return (b) 21.28% 20.31% 28.44% 27.50%
======== ======== ======== =======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.17%(c) 1.92%(c) 1.12%(c) 1.90%(c)
Net investment income 0.25%(c) (0.50)%(c) 1.24%(c) 0.46%(c)
Portfolio turnover 100% 100% 92% 92%
Average
commission rate(d) $0.0392 $0.0392 -- --
Net assets at end
of period (000) $255,911 $128,283 $194,393 $75,283
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
<PAGE>
FINANCIAL HIGHLIGHTS - continued
Selected data for a share of each class outstanding throughout each period are
as follows:
Year ended October 31
----------------------------------------
1994 1993
Class A Class B Class A Class B
-------- -------- -------- -------
$ 15.240 $ 15.180 $ 13.830 $13.780
-------- -------- -------- -------
0.096 (0.008) 0.110 0.001
0.275 0.288 2.240 2.244
-------- -------- -------- -------
0.371 0.280 2.350 2.245
-------- -------- -------- -------
(0.071) -- (0.095) --
-------- -------- -------- -------
-- -- -- --
(1.520) (1.520) (0.845) (0.845)
-------- -------- -------- -------
(1.591) (1.520) (0.940) (0.845)
-------- -------- -------- -------
$ 14.020 $ 13.940 $ 15.240 $15.180
======== ======== ======== =======
2.78% 2.12% 17.79% 16.99%
======== ======== ======== =======
1.22% 1.97% 1.19% 1.94%
0.69% (0.06)% 0.64% (0.11)%
121% 121% 66% 66%
-- -- -- --
$160,495 $ 53,218 $169,913 $41,989
- --------------------------------------------------------------------------
Federal Income Tax Information (unaudited)
30% of the ordinary income distribution distributed by the Fund in the year
ended October 31, 1997 qualifies for the corporate dividends received deduction.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
T0 THE TRUSTEES OF COLONIAL TRUST III AND THE SHAREHOLDERS OF
COLONIAL SELECT VALUE 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 Select Value Fund,
formerly Colonial Growth Shares Fund, (the "Fund") (a series of Colonial Trust
III) at October 31, 1997, 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, 1997
by correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 10, 1997
<PAGE>
HOW TO REACH COLONIAL
BY PHONE OR BY MAIL
BY TELEPHONE
CUSTOMER CONNECTION - 1-800-345-6611
For 24-hour account information, call from your touch-tone phone. (Rotary
callers will be automatically connected to a representative during business
hours.) A recorded message will guide you through the menu:
For fund prices, dividends and capital gains information............ press [1]
For account information............................................. press [2]
To speak to a service representative................................ press [3]
For yield and total return information.............................. press [4]
For duplicate statements or new supply of checks.................... press [5]
To order duplicate tax forms and year-end statements................ press [6]
(February through May)
To review your options at any time during your call................. press [*]
To speak with a shareholder services representative about your account, call
Monday to Friday, 8:00 a.m. to 8:00 p.m. ET, and Saturdays from February through
mid-April, 10:00 a.m. to 2:00 p.m. ET.
COLONIAL TELEPHONE TRANSACTION DEPARTMENT - 1-800-422-3737
To purchase, exchange or sell shares by telephone, call Monday to Friday, 9:00
a.m. to 7:00 p.m. ET. Transactions received after the close of the New York
Stock Exchange will receive the next business day's closing price.
LITERATURE - 1-800-426-3750
To request literature on any fund distributed by Liberty Financial Investments,
call Monday to Friday, 8:30 a.m. to 6:30 p.m. ET.
BY MAIL
COLONIAL INVESTORS SERVICE CENTER, INC.
P.O. BOX 1722
BOSTON, MA 02105-1722
<PAGE>
SHAREHOLDER COMMUNICATIONS
TO KEEP YOU INFORMED
To make recordkeeping easy and keep you up-to-date on the performance of your
investments, you can expect to receive the following information about your
account:
TRANSACTION CONFIRMATIONS: Each time you make a purchase, sale or exchange, you
receive a confirmation statement within just a few days.
QUARTERLY STATEMENTS: Every three months, if any transactions are made that
affect your share balance, this statement reports on your account activity
during the quarter (including any reinvestment of dividends). This statement
also provides year-to-date information.
LIBERTY FINANCIAL INVESTMENTS INVESTOR OPPORTUNITIES: Mailed with your quarterly
account statements, this newsletter highlights timely investment strategies,
portfolio manager commentary and shareholder service updates.
TAX FORMS AND YEAR-END TAX GUIDE: Easy-to-use forms and timely information are
designed to make tax reporting simpler. (Usually mailed in January.)
AVERAGE COST BASIS STATEMENTS: If you sold or exchanged shares during the year,
this statement may help you calculate your gain/loss for tax purposes. (Usually
mailed in February.)
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Select Value Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial Select Value Fund mails one shareholder report to each shareholder
address. If you would like more than one report, please call 1-800-426-3750 to
order additional reports.
This report has been prepared for shareholders of Colonial Select Value Fund.
This report may also be used as sales literature when preceded or accompanied by
the current prospectus which provides details of sales charges, investment
objective and operating policies of the Fund.
<PAGE>
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
Partner, Development Capital, L.L.C. (formerly Dean, College of Business and
Management, University of Maryland; 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.
Retired (formerly Chairman of the Board and 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
Retired Partner, Peat Marwick Main & Co. (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
[graphic omitted] LIBERTY FINANCIAL INVESTMENTS, INC. (C) 1997
Distributor for Colonial Funds, Stein Roe Advisor Funds
and Newport Funds
One Financial Center, Boston, MA 02111-2621
SV-02/315E-1097 M (12/97)
