<PAGE>
[Graphic Omitted]
- -----------------------------------------
COLONIAL SELECT VALUE FUND ANNUAL REPORT
- -----------------------------------------
OCTOBER 31, 1999
<PAGE>
Table of Contents
1 Highlights
2 Portfolio Managers' Report
4 Performance Information
5 Portfolio of Investments
8 Financial Statements
10 Notes to Financial Statements
12 Financial Highlights
- -------------------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
- -------------------------------
- -------------------
PRESIDENT'S MESSAGE
- -------------------
[Photo of Stephen E. Gibson]
Dear Shareholder:
Over the past 12 months, mid-capitalization stocks have been subjected to a
significant increase in volatility compared to the overall stock market. Mid-cap
stocks, in general, have been "left behind" during the past three years as the
market has been dominated by a small group of large-cap and technology stocks.
However, in the second quarter of this year, the market broadened to include a
wide range of sectors, and both small and mid-cap stocks performed very well for
the first time in several years. From the middle of the summer through the end
of October, uncertainty over inflation and interest rates gripped both the stock
and bond markets, resulting in heightened volatility for equities and lackluster
performance across the board.
In this environment, the Fund's performance reflected the market's overall
volatility, but it underperformed its benchmark index -- the S&P MidCap 400
Index.
At Liberty, we are sensitive to shareholder concerns about underperformance, but
we do not feel it is in your best interest to chase "momentum" trends in a risky
attempt at short-term gains. Accordingly, we remain focused on a bottom-up
approach, identifying companies with long-term growth potential on an individual
basis while keeping significant long-term trends -- such as the growth and
commercial impact of the Internet -- in the forefront of our thinking.
In the pages that follow, Fund managers James Haynie and Michael Rega will
provide you with more specific information about the Fund's performance and
investment strategies. As always, we thank you for choosing Colonial Select
Value Fund and for the opportunity to serve your investment needs.
Respectfully,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
December 13, 1999
Because economic and market conditions change frequently, there can be no
assurance that the trends described in this report will continue or come to
pass.
The Standard & Poor's MidCap 400 Index is an unmanaged index that tracks
the performance of mid-capitalization U.S. stocks. Unlike mutual funds, an index
does not incur fees or charges. It is not possible to invest in an index.
<PAGE>
- ----------
HIGHLIGHTS
- ----------
> LONG-RUNNING STOCK MARKET PERFORMANCE CONTINUED.
The U.S. stock market continued to show strong returns during the Fund's
fiscal year. The S&P 500 Index increased 25.7% during the 12-month period,
while the S&P MidCap 400 Index increased 21.1%.
> SECOND QUARTER BROADENING -- A HIGHLIGHT FOR MID-CAP STOCKS.
After several years in which the stock market was led by a handful of
large-cap growth stocks and select technology companies, the market
broadened in the second quarter of 1999 to include small and mid-cap
stocks. This broader participation included companies in the basic
materials, energy, chemicals and manufacturing sectors.
> MARKET NARROWED AGAIN IN THE FINAL THREE MONTHS AMID INCREASING
VOLATILITY.
During the summer, the Federal Reserve Board (the "Fed") became concerned
about the potential effects on inflation of stock prices, a robust economy
and low unemployment. The Fed raised short-term interest rates twice
during the summer, causing investors to seek the stability of large-cap
growth stocks. This increased volatility for the mid-cap market.
> FUND MIRRORED MID-CAP VOLATILITY DURING PERIOD.
The Fund's performance reflected the overall volatility of the stock
market, which was especially pronounced among mid-cap stocks.
PERFORMANCE OF A $10,000 INVESTMENT IN S&P MIDCAP 400 INDEX
10/31/98 - 10/31/99
S&P MidCap 400 Index
--------------------
10/98 $10,000
11/98 10,499
12/98 11,767
1/99 11,310
2/99 10,717
3/99 11,017
4/99 11,885
5/99 11,937
6/99 12,575
7/99 12,308
8/99 11,887
9/99 11,520
10/99 12,108
NET ASSET VALUE
AS OF 10/31/99
Class A $21.93
- ---------------------
Class B $21.10
- ---------------------
Class C $21.59
- ---------------------
Class Z $21.96
- ---------------------
DISTRIBUTIONS DECLARED
PER SHARE FROM
11/1/98 - 10/31/99
Class A $0.72
- -----------------------------------
Class B $0.72
- -----------------------------------
Class C $0.72
- -----------------------------------
Class Z (1/11/99 - 10/31/99) $0.00
- -----------------------------------
<PAGE>
ANNUAL REPORT: COLONIAL SELECT VALUE FUND
- --------------------------
PORTFOLIO MANAGERS' REPORT
- --------------------------
TOP 10 HOLDINGS
AS OF 10/31/99
1. Xilinx, Inc. 2.0%
- ------------------------------------
2. Maxim Integrated
Products 1.9%
- ------------------------------------
3. Altera Corp. 1.6%
- ------------------------------------
4 Linear
Technology Corp. 1.6%
- ------------------------------------
5. Citrix Systems, Inc. 1.4%
- ------------------------------------
6. Vitesse
Semiconductor Corp. 1.3%
- ------------------------------------
7. Biogen, Inc. 1.3%
- ------------------------------------
8 CNF
Transportation, Inc. 1.3%
- ------------------------------------
9. Teradyne, Inc. 1.2%
- ------------------------------------
10. Lehman Brothers
Holdings, Inc. 1.2%
- ------------------------------------
Holdings are calculated as a
percentage of net assets. Because
the Fund is actively managed, there
can be no guarantee the Fund will
continue to maintain these holdings
in the future.
BOUGHT
- ------
APPLIED MICRO CIRCUITS
Applied Micro Circuits (0.7% of net
assets) is a highly successful
manufacturer of integrated circuits,
supplying high-profile Internet
builders such as Cisco Systems.
Since it was acquired in February
1999, its stock has appreciated
significantly.
MIXED ENVIRONMENT FOR MID-CAP STOCKS
While the market's leadership was concentrated in a relatively small group of
stocks in the first few months -- following the pattern set over the past few
years -- this leadership broadened in the second quarter of 1998 to include a
much larger group of stocks.
The Fed's rate increases during the summer hurt stock prices because higher
borrowing rates can reduce corporate profits. Mid-cap stocks were hit
particularly hard, with the S&P MidCap 400 Index dropping over 15% between its
mid-summer high and its low in mid-October. Much of the volatility that the
market experienced in the second half resulted from investors either reacting to
- -- or trying to anticipate -- Federal Reserve actions on interest rates.
DOMINANCE OF INTERNET STOCKS OVERSHADOWS FUND PERFORMANCE
During the 12-month period, the Fund had a total return of 12.48%, based on
Class A shares without a sales charge. By comparison, the S&P 400 Index had a
total return of 21.08% during the same period. The Fund's underperformance of
the S&P 400 can be partially explained by the fact that two stocks not held by
the Fund -- America Online and Qualcomm -- accounted for nearly one-third of the
index's return for the period. The S&P MidCap 400 Index continued to be
dominated by high-flying Internet stocks. While we see the obvious growth in the
Internet-related and electronic commerce businesses, we still believe that there
will be a shakeout among the many "dot-com" companies. We remain convinced that
a more prudent way to reap the benefits of the Internet's rapid growth is to
invest in companies that support its infrastructure.
FUND BENEFITED FROM TECHNOLOGY, ENERGY AND CONSUMER CYCLICAL STOCKS
During the period, we emphasized holdings in the technology, energy and consumer
cyclical sectors as positive developments occurred. In the technology sector, we
acquired several holdings in the semiconductor industry, as demand for these
products has been rapidly increasing due to the phenomenal growth of the
Internet. Stocks in the energy sector have benefited from the economic recovery
in Asia and a significant increase in energy prices. Our energy holdings include
BJ Services, Inc. (0.4% of net assets), which provides pressure pumping and
other oilfield services serving the petroleum industry worldwide.
In the consumer cyclical sector, we purchased Best Buy Company (0.8% of net
assets), an electronics retail store that has developed a very successful
strategy. For lower-priced products such as VCR's, customers make their own
choices and the inventory is made readily available for purchase. This results
in low overhead costs associated with these products, allowing Best Buy to be a
price leader. For the higher-end products that are much more profitable -- such
as digital entertainment centers -- the company provides trained salespeople.
POSITIONING THE FUND TO BENEFIT WITHOUT TAKING ON EXCESSIVE RISK
During the past year, we increased the Fund's technology and energy holdings to
take advantage of the positive trends in these sectors and position the Fund for
future potential growth. Technology, in particular, has become increasingly
important to the U.S. economy, accounting for significant increases in
productivity. In recognition of the impact of technology companies on economic
growth, the Dow Jones Industrial Average recently added Intel and Microsoft to
its index of 30 stocks -- the first time in history that stocks from the Nasdaq
exchange were included in the Dow.
Despite our increased weightings in certain sectors, we continue to maintain our
long-held strategy of not making major "sector bets" or having too much invested
in any one company. As the market's volatility has continued to increase, we
have further diversified, increasing our total number of holdings. By spreading
the Fund's assets over a larger base of stocks, we believe it will be better
positioned to weather market volatility.
OUTLOOK POSITIVE, BUT DEPENDENT ON ECONOMY
We continue to have a positive outlook for mid-cap stocks. Many of the largest
capitalization stocks have become overpriced, and investors are beginning to
find value and growth potential in the mid-cap arena. Our economic outlook is
for continued stable growth in the U.S. economy with low inflation. In such an
environment, we believe that mid-cap stocks can be attractive investments for
long-term investors.
/s/ James Haynie /s/ Michael Rega
James Haynie is a senior vice president of Colonial Management Associates (CMA)
and senior portfolio manager. Michael Rega, a vice president of CMA, co-manages
the Fund.
Investing in medium-sized companies involves certain risks, including price
fluctuations caused by economic and business developments.
SECTOR
BREAKDOWNS
FUND AS OF FUND AS OF
10/31/99 VS. 10/31/98
Financial 16.2% 17.2%
Consumer Cyclical 15.2% 16.5%
Technology 24.8% 14.9%
Health Care 8.6% 11.6%
Utilities 8.9% 9.8%
Sector breakdowns are calculated as a percentage of total equity investments.
Because the Fund is actively managed, there is no guarantee the Fund will
maintain these sector breakdowns in the future.
HELD
- ----
XILINX, INC.
Xilinx (2.0% of net assets) makes programmable semiconductor chips for a variety
of uses. These chips, which can be used in applications ranging from automobiles
to computer network routers, can be custom-programmed.
<PAGE>
ANNUAL REPORT: COLONIAL SELECT VALUE FUND
- -----------------------
PERFORMANCE INFORMATION
- -----------------------
PERFORMANCE OF A $10,000
INVESTMENT IN ALL SHARE CLASSES
FROM 10/31/89 - 10/31/99
WITHOUT WITH SALES
SALES CHARGE CHARGE
- --------------------------------------
Class A $36,960 $34,835
- --------------------------------------
Class B 34,983 34,983
- --------------------------------------
Class C 36,405 36,405
- --------------------------------------
Class Z 37,011 N/A
- --------------------------------------
PERFORMANCE OF A $10,000 INVESTMENT
IN CLASS A SHARES 10/31/89 - 10/31/99
Without Sales Charge With Sales Charge S&P MidCap 400 Index
-------------------- ----------------- --------------------
10/89 $10,000 $ 9,425 $10,000
10/90 8,190 7,719 8,660
10/91 11,622 10,954 14,155
10/92 12,582 11,859 15,46
10/93 14,821 13,969 18,788
10/94 15,233 14,357 19,236
10/95 19,565 18,44 23,315
10/96 23,729 22,364 27,361
10/97 30,441 28,691 36,299
10/98 32,861 30,972 38,735
10/99 36,960 34,835 46,897
The Standard & Poor's MidCap 400 Index is an unmanaged index that tracks the
performance of mid-capitalization U.S. stocks. Unlike mutual funds, an index
does not incur fees or charges. It is not possible to invest in an index.
AVERAGE ANNUAL TOTAL RETURNS AS OF 10/31/99
Share Class A B C Z
Inception Date 1949 6/8/92 8/1/97 1/11/99
- --------------------------------------------------------------------------------
Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge
- --------------------------------------------------------------------------------
1 year 12.48% 6.01% 11.66% 6.66% 11.71% 10.71% 12.63%
- --------------------------------------------------------------------------------
5 years 19.40 17.99 18.49 18.29 19.04 19.04 19.43
- --------------------------------------------------------------------------------
10 years 13.97 13.29 13.34 13.34 13.79 13.79 13.98
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/99
- --------------------------------------------------------------------------------
Share Class A B C Z
- --------------------------------------------------------------------------------
Without With Without With Without With Without
Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge
- --------------------------------------------------------------------------------
1 year 15.36% 8.73% 14.49% 9.49% 14.50% 13.50% 15.47%
- --------------------------------------------------------------------------------
5 years 18.90 17.50 18.01 17.80 18.55 18.55 18.92
- --------------------------------------------------------------------------------
10 years 13.16 12.49 12.55 12.55 12.99 12.99 13.17
- --------------------------------------------------------------------------------
Past performance cannot predict future investment results. Returns and value of
an investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. The "with sales charge" returns include
the maximum 5.75% charge for Class A shares and the contingent deferred sales
charge (CDSC) maximum charge of 5% for one year and 2% for five years for Class
B shares and 1% for one year for Class C shares. Performance for different share
classes will vary based on differences in sales charges and fees associated with
each class.
Performance results reflect any voluntary waivers or reimbursement of Fund
expenses by the Advisor or its affiliates. Absent these waivers or reimbursement
arrangements, performance results would have been lower.
Class B, C and Z share (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These Class A share
returns were not restated to reflect any expense differential (e.g., Rule 12b-1
fees) between Class A shares and the newer class shares. Had the expense
differential been reflected, the returns for the periods prior to the inception
of Class B and Class C shares would have been lower.>
<PAGE>
<TABLE>
- --------------------
INVESTMENT PORTFOLIO
- --------------------
October 31, 1999
(In thousands)
<CAPTION>
COMMON STOCKS - 96.6% SHARES VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE, INSURANCE & REAL ESTATE - 16.4%
DEPOSITORY INSTITUTIONS - 7.9%
AmSouth Bancorporation 152 $ 3,905
Astoria Financial Corp. 50 1,793
Charter One Financial, Inc. 195 4,782
City National Corp. 194 7,510
Community First Bankshares, Inc. 163 3,102
Cullen/Frost Bankers, Inc. 69 1,998
First Tennessee National Corp. 77 2,621
Golden State Bancorp Inc. 62 1,286
Greenpoint Financial Corp. 236 6,737
Hibernia Corp. 127 1,799
North Fork Bancorporation, Inc. 282 5,842
Pacific Century Financial Corp. 27 614
Peoples Heritage Financial Group, Inc. 171 3,251
Sovereign Bancorp, Inc. 309 2,723
UnionBanCal Corp. 180 7,806
Webster Financial Corp. 85 2,425
--------
58,194
--------
INSURANCE CARRIERS - 4.7%
Allmerica Financial Corp. 66 3,774
Ambac Financial Group, Inc. 126 7,528
American Financial Group, Inc. 130 3,857
Hartford Life, Inc., Class A 72 3,757
Loews Corp. 12 865
MGIC Investment Corp. 70 4,159
Orion Capital Corp. 5 249
PMI Group, Inc. 67 3,455
Protective Life Corp. 47 1,686
Trigon Healthcare, Inc. 58 1,643
Wellpoint Health Networks, Inc., Class A 62 3,608
--------
34,581
--------
NONDEPOSITORY CREDIT INSTITUTION - 1.4%
Capital One Financial Corp. 57 3,021
Finova Group, Inc. 157 6,927
--------
9,948
--------
SECURITY BROKERS & DEALERS - 2.4%
A.G. Edwards, Inc. 79 2,378
Bear Stearns Cos., Inc. 68 2,909
Lehman Brothers Holdings, Inc. 115 8,459
Paine Webber Group, Inc. 98 3,993
--------
17,739
--------
- ------------------------------------------------------------------------------------------------
MANUFACTURING - 43.0%
APPAREL - 0.7%
Tommy Hilfiger Corp. (a) 183 5,181
--------
CHEMICALS & ALLIED PRODUCTS - 6.2%
Allergan, Inc. 59 6,335
Biogen, Inc. 126 9,347
Chiron Corp. 260 7,426
Dura Pharmaceuticals, Inc. (a) 133 1,700
Ecolab, Inc. 41 1,400
Genzyme Corp. 69 2,632
Goodrich (B.F.) Co. 168 3,968
IMC Global, Inc. 97 1,230
IVAX Corp. 106 1,860
Lubrizol Corp. 93 2,391
W.R. Grace & Co. 189 2,823
Watson Pharmaceuticals, Inc. (a) 153 4,858
--------
45,970
--------
COMMUNICATIONS EQUIPMENT - 3.5%
ADC Telecommunications, Inc. 117 5,579
Altera Corp. 249 12,103
Comverse Technology, Inc. (a) 70 7,956
--------
25,638
--------
ELECTRONIC COMPONENTS - 7.5%
Dallas Semiconductor Corp. 34 2,008
Linear Technology Corp. 166 11,610
Maxim Integrated Products, Inc. 177 13,972
Sanmina Corp. 32 2,882
Vitesse Semiconductor Corp. 214 9,799
Xilinx, Inc. 188 14,781
--------
55,052
--------
ELECTRONIC & ELECTRICAL EQUIPMENT - 2.0%
Applied Micro Circuits Corp. 66 5,097
Intuit, Inc. 165 4,806
Vishay Intertechnology, Inc. 182 4,435
--------
14,338
--------
FOOD & KINDRED PRODUCTS - 3.0%
Hormel Foods Corp. 69 2,963
IBP, Inc. 73 1,752
Interstate Bakeries Corp. 227 4,591
McCormick & Co. 97 3,037
McClatchy Co. 102 4,003
Pepsi Bottling Group, Inc. 193 3,514
Tyson Foods, Inc. 155 2,364
--------
22,224
--------
FURNITURE & FIXTURES - 2.5%
Furniture Brands International, Inc. (a) 312 6,045
Herman Miller, Inc. 301 6,519
Johnson Controls, Inc. 64 3,913
Leggett & Platt, Inc. 88 1,948
--------
18,425
--------
HOUSEHOLD APPLIANCES - 1.3%
Maytag Corp. 142 5,701
Whirlpool Corp. 52 3,603
--------
9,304
--------
LUMBER & WOOD PRODUCTS - 0.4%
Georgia Pacific Corp. 73 2,885
--------
MACHINERY & COMPUTER EQUIPMENT - 4.1%
Apple Computer, Inc. 87 6,971
Brunswick Corp. 122 2,765
Diebold, Inc. 105 2,744
Ingersoll Rand Co. 103 5,366
Lexmark International Group, Inc. 67 5,254
Unisys Corp. (a) 228 5,529
York International Corp. 48 1,121
--------
29,750
--------
MEASURING & ANALYZING INSTRUMENTS - 2.3%
Bard (C.R.), Inc. 40 2,158
Biomet, Inc. 160 4,817
VISX, Inc. 63 3,916
Waters Corp. 110 5,844
--------
16,735
--------
PAPER PRODUCTS - 1.1%
Boise Cascade Corp. 83 2,950
Fort James Corp. 60 1,578
Westvaco Corp. 112 3,337
--------
7,865
--------
PETROLEUM REFINING - 1.7%
Amerada Hess Corp. 47 2,697
Kerr-McGee Corp. 53 2,859
Tosco Corp. 268 6,784
--------
12,340
--------
PRIMARY METAL - 1.0%
Engelhard Corp. 152 2,670
Mueller Industries, Inc. 148 4,727
--------
7,397
--------
PRINTING & PUBLISHING - 1.7%
New York Times Co., Class A 107 4,287
Times Mirror Co., Class A 54 3,923
Valassis Communications, Inc. 92 3,956
--------
12,166
--------
RUBBER & PLASTIC - 0.9%
Weatherford International, Inc. 144 4,878
Wynn's International, Inc. 96 1,492
--------
6,370
--------
STONE, CLAY, GLASS & CONCRETE - 0.8%
Lafarge Corp. 78 2,316
USG Corp. 77 3,791
--------
6,107
--------
TEXTILE MILL PRODUCTS - 0.5%
Shaw Industries, Inc. 225 3,473
--------
TRANSPORTATION EQUIPMENT - 1.8%
Harley-Davidson, Inc. 74 4,389
Lear Corp. 84 2,842
Meritor Automotive, Inc. 61 1,030
Navistar International Corp. 120 5,002
--------
13,263
--------
- ------------------------------------------------------------------------------------------------
MINING & ENERGY - 4.2%
OIL & GAS EXTRACTION - 2.6%
Falcon Drilling Co., Inc. 244 3,035
Noble Drilling Corp. (a) 156 3,466
RealNetworks, Inc. 48 5,254
Seacor Smit, Inc. (a) 81 3,710
Transocean Offshore, Inc. 139 3,773
--------
19,238
--------
OIL & GAS FIELD SERVICES - 1.6%
BJ Services Co. (a) 92 3,146
Diamond Offshore Drilling, Inc. 130 4,127
Petroleum Geo-Services ADR 300 4,388
--------
11,661
--------
RETAIL TRADE - 5.0%
APPAREL & ACCESSORY STORES - 1.9%
Abercrombie & Fitch Co. 141 3,829
Ross Stores, Inc. 321 6,612
TJX Companies, Inc. 130 3,515
--------
13,956
--------
FOOD STORES - 0.6%
Kroger Corp. (a) 205 4,258
--------
GENERAL MERCHANDISE STORES - 1.0%
BJ's Wholesale Club, Inc. 97 2,998
Federated Department Stores, Inc. (a) 119 5,076
--------
8,074
--------
HOME FURNISHINGS & EQUIPMENT - 0.8%
Best Buy Co., Inc. 104 5,751
--------
RESTAURANTS - 0.7%
Brinker International, Inc. (a) 212 4,942
------------
- ------------------------------------------------------------------------------------------------
SERVICES - 12.4%
AMUSEMENT & RECREATION - 0.9%
Harrah's Entertainment, Inc. 134 3,872
Park Place Entertainment Corp. 230 3,019
--------
6,891
--------
AUTO REPAIR, RENTAL & PARKING - 0.5%
Hertz Corp., Class A 87 3,774
--------
BUSINESS SERVICES - 0.9%
Omnicom Group, Inc. 72 6,301
--------
COMPUTER RELATED SERVICES - 3.3%
Convergys Corp. 203 3,967
DST Systems, Inc. 53 3,401
Siebel Systems, Inc. 75 8,236
Teradyne, Inc. 223 8,570
--------
24,174
--------
COMPUTER SOFTWARE - 4.2%
Citrix Systems, Inc. (a) 157 10,068
Compuware Corp. (a) 267 7,415
Electronic Arts, Inc. 41 3,337
Symantec Corp. 68 3,228
Veritas Software Corp. 65 6,990
--------
31,038
--------
ENGINEERING, ACCOUNTING, RESEARCH & MANAGEMENT - 1.2%
ACNielsen Corp. 114 2,508
Paychex, Inc. 152 5,993
--------
8,501
--------
HEALTH SERVICES - 1.4%
Lincare Holdings, Inc. (a) 246 6,924
PacifiCare Health Systems, Inc. 44 1,739
Universal Health Services, Inc., Class B (a) 64 1,889
--------
10,552
--------
- ------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 14.9%
AIR TRANSPORTATION - 0.5%
Comair Holdings, Inc. 152 3,496
--------
BROADCASTING - 1.1%
Univision Communications, Inc., Class A 92 7,843
--------
COMMUNICATIONS - 1.1%
Inco Ltd. 134 2,709
Telephone and Data Systems, Inc. 48 5,532
--------
8,241
--------
ELECTRIC, GAS & SANITARY SERVICES - 1.2%
Calpine Corp. 51 2,945
Conectiv, Inc. 146 2,837
Sempra Energy 163 3,331
--------
9,113
--------
ELECTRIC SERVICES - 5.9%
Allegheny Energy, Inc. 133 4,231
Citizens Utilities Co. (b) (b)
Dominion Resources, Inc. 130 6,256
Energy East Corp. 225 5,643
Florida Progress Corp. 80 3,679
GPU, Inc. 87 2,963
MidAmerican Energy Co. 177 5,962
Peco Energy Co. 77 2,956
Potomac Electric Power Co. 140 3,833
Puget Sound Power & Light Co. 68 1,504
Unicom Corp. 82 3,134
Utilicorp United, Inc. 162 3,497
--------
43,658
--------
GAS SERVICES - 1.3%
Columbia Energy Group 63 4,095
El Paso Energy Corp. 85 3,465
Kinder Morgan Energy Partners, L.P. 41 1,737
--------
9,297
--------
MOTOR FREIGHT & WAREHOUSING - 1.5%
CNF Transportation 283 9,347
USFreightways Corp. 43 1,966
--------
11,313
--------
SANITARY SERVICES - 0.1%
Piedmont Natural Gas Co. 33 1,053
--------
TELECOMMUNICATION - 2.2%
Century Telephone Enterprises, Inc. 147 5,950
Chris-Craft Industries, Inc. 50 3,481
Cincinnati Bell, Inc. 213 4,423
Electronics for Imaging, Inc. 52 2,092
--------
15,946
--------
- ------------------------------------------------------------------------------------------------
WHOLESALE TRADE - 0.7%
DURABLE GOODS - 0.5%
Patterson Dental Co. (a) 86 3,891
Ultramed, Inc. (c) 450 (b)
--------
3,891
--------
NONDURABLE GOODS - 0.2%
AmeriSource Health Corp., Class A (a) 39 591
Supervalu, Inc. 29 606
--------
1,197
--------
TOTAL COMMON STOCKS (cost of $588,060) 709,104
--------
PREFERRED STOCKS - 0.2%
- ------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES - 0.2%
ELECTRIC SERVICES
Avista Corp., $1.24, Series L, (cost of $2,093) 85 $ 1,482
--------
WARRANTS - 0.0%
- ------------------------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.0%
DEPOSITORY INSTITUTIONS
Golden State Bancorp, Inc. (cost of $0) 155 155
--------
TOTAL INVESTMENTS (cost of $590,153)(d) 710,741
--------
SHORT-TERM OBLIGATIONS - 3.2% PAR
- ------------------------------------------------------------------------------------------------
Repurchase agreement with Lehman Brothers, Inc., dated 10/29/99, due
11/01/99 at 5.220% collateralized by U.S. Treasury bonds and/or
notes with various maturities to 2009, market value $24,240
(repurchase proceeds $23,659) $23,649 23,649
--------
OTHER ASSETS & LIABILITIES, NET - (0.0)% (137)
- ------------------------------------------------------------------------------------------------
NET ASSETS - 100% $734,253
========
NOTES TO INVESTMENT PORTFOLIO:
- ------------------------------------------------------------------------------------------------
(a) Non-income producing.
(b) Rounds to less than one.
(c) 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, 1999.
(d) Cost for federal income tax purposes is $590,239.
Acronym Name
------- ----
ADR American Depositary Receipt
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
- -----------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------
October 31, 1999
(In thousands except for per share amounts and footnotes)
<S> <C>
ASSETS
Investments at value (cost $590,153) $710,741
Short-term obligations 23,649
-------
734,390
Receivable for:
Investments sold 1,065
Fund shares sold 514
Dividends 386
Interest 10
Foreign tax reclaims 4
Other 10
-------
1,989
-------
Total assets 736,379
LIABILITIES
Payable for:
Fund shares repurchased 1,409
Accrued:
Management fee 414
Transfer agent fee 139
Bookkeeping fee 21
Distribution fee - Class C 14
Deferred Trustees fees 8
Other 121
-------
Total liabilities 2,126
-------
Net Assets $734,253
========
Net asset value and redemption price per share -- Class A ($398,255/18,156) $ 21.93(a)
--------
Maximum offering price per share -- Class A ($21.93/0.9425) $ 23.27(b)
--------
Net asset value and offering price per share --
Class B ($313,791/14,869) $ 21.10(a)
--------
Net asset value and offering price per share --
Class C ($21,533/997) $ 21.59(a)
--------
Net asset value, offering and redemption price per share -- Class Z ($674/31) $ 21.96
--------
COMPOSITION OF NET ASSETS
Capital paid in $537,072
Undistributed net investment income 61
Accumulated net realized gain 76,532
Net unrealized appreciation 120,588
--------
$734,253
========
(a) Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
See notes to financial statements.
</TABLE>
<PAGE>
- -----------------------
STATEMENT OF OPERATIONS
- -----------------------
For the Year Ended October 31, 1999
(In thousands)
INVESTMENT INCOME
Dividends $ 7,345
Interest 1,478
--------
8,823
EXPENSES
Management fee 5,245
Service fee - Class A, Class B, Class C 1,825
Distribution fee - Class B 2,433
Distribution fee - Class C 141
Transfer agent fee 2,200
Bookkeeping fee 272
Trustees fee 38
Custodian fee 3
Audit fee 55
Legal fee 19
Registration fee 118
Reports to shareholders 30
Other 122
--------
12,501
--------
Net Investment Loss (3,678)
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
PORTFOLIO POSITIONS
Net Realized Gain 97,073
Net Change in Unrealized Appreciation/Depreciation (10,041)
--------
Net Gain 87,032
--------
INCREASE IN NET ASSETS FROM OPERATIONS $ 83,354
--------
<PAGE>
<TABLE>
- ----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------
(In thousands)
<CAPTION>
YEARS ENDED OCTOBER 31
-----------------------
INCREASE (DECREASE) IN NET ASSETS 1999(a) 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment loss $ (3,678) $ (3,326)
Net realized gain 97,073 33,364
Net change in unrealized appreciation/depreciation (10,041) 1,599
-------- --------
Net Increase from Operations 83,354 31,637
DISTRIBUTIONS
From net realized gains -- Class A (13,413) (30,679)
From net realized gains -- Class B (11,056) (17,924)
From net realized gains -- Class C (496) (65)
-------- --------
58,389 (17,031)
-------- --------
FUND SHARE TRANSACTIONS
Receipts for shares sold -- Class A 92,281 103,672
Value of distributions reinvested -- Class A 12,199 27,547
Cost of shares repurchased -- Class A (113,020) (93,196)
-------- --------
(8,540) 38,023
-------- --------
Receipts for shares sold -- Class B 99,336 167,327
Value of distributions reinvested -- Class B 10,448 16,794
Cost of shares repurchased -- Class B (114,510) (70,526)
-------- --------
(4,726) 113,595
-------- --------
Receipts for shares sold -- Class C 14,671 14,450
Value of distributions reinvested -- Class C 473 64
Cost of shares repurchased -- Class C (7,305) (1,663)
-------- --------
7,839 12,851
-------- --------
Receipts for shares sold -- Class Z 656 --
Cost of shares repurchased -- Class Z (1) --
-------- --------
655 --
-------- --------
Net Increase (Decrease) from Fund Share Transactions (4,772) 164,469
-------- --------
Total Increase 53,617 147,438
NET ASSETS
Beginning of period 680,636 533,198
-------- --------
End of period (including undistributed and net of
overdistributed net investment income of
$61 and $39, respectively) $734,253 $680,636
======== ========
NUMBER OF FUND SHARES
Sold -- Class A 4,303 4,899
Issued for distributions reinvested -- Class A 584 1,391
Repurchased -- Class A (5,231) (4,457)
-------- --------
(344) 1,833
-------- --------
Sold -- Class B 4,799 8,109
Issued for distributions reinvested -- Class B 517 868
Repurchased -- Class B (5,522) (3,501)
-------- --------
(206) 5,476
-------- --------
Sold -- Class C 693 677
Issued for distributions reinvested -- Class C 22 3
Repurchased -- Class C (344) (81)
-------- --------
371 599
-------- --------
Sold -- Class Z 31 --
Repurchased -- Class Z (b) --
-------- --------
31 --
-------- --------
(a) Class Z shares were initially offered on January 11, 1999.
(b) Rounds to less than one.
See notes to financial statements.
</TABLE>
<PAGE>
- -----------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
October 31, 1999
NOTE 1. ACCOUNTING POLICIES
ORGANIZATION
Colonial Select Value Fund (the Fund), a series of Liberty Funds Trust III,
formerly 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-ended 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 four classes of shares: Class A, Class B, Class C and Class Z.
Class A shares are sold with a front-end sales charge and a 1.00% contingent
deferred sales charge is assessed on redemptions made within eighteen months
on an original purchase of $1 million to $5 million. Class B shares are
subject to an annual distribution fee and a contingent deferred sales charge.
Class B shares will convert to Class A shares when they have been outstanding
approximately eight years. Class C shares are subject to a contingent deferred
sales charge on redemptions made within one year after purchase and an annual
distribution fee. Effective January 11, 1999, the Fund began offering Class Z
shares which are offered continuously at net asset value. There are certain
restrictions on the purchase of Class Z shares, as described in the Fund's
prospectus.
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 (losses) are based upon the specific
identification method for both financial statement and federal income tax
purposes.
DETERMINATION OF CLASS NET ASSET VALUES AND
FINANCIAL HIGHLIGHTS
All income, expenses (other than the Class A, Class B and Class C service fees
and the Class B and Class C 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 is calculated using the average shares outstanding during
the period. In addition, Class A, Class B and Class C net investment income
per share data reflects the service fee per share applicable to Class A, Class
B and Class C shares and the distribution fee applicable to Class B and Class
C shares only.
Class A, 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
service fee applicable to Class A, Class B and Class C shares and 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.
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 dividends, 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. Interest income
is recorded on the accrual basis.
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 Advisor) is the investment Advisor
of the Fund and furnishes accounting and other services and office facilities
for a monthly fee equal to 0.70% annually of the Fund's average net assets.
BOOKKEEPING FEE
The Advisor provides bookkeeping and pricing services for $27,000 per year
plus 0.035% of the Fund's average net assets over $50 million.
TRANSFER AGENT FEE
Liberty Funds Services, Inc. (the Transfer Agent), an affiliate of the
Advisor, provides shareholder services for a monthly fee equal to 0.236%
annually of the Fund's average net assets and receives reimbursement for
certain out-of-pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES
Liberty Funds Distributor, Inc. (the Distributor), a subsidiary of the
Advisor, is the Fund's principal underwriter. For the year ended October 31,
1999 the Fund has been advised that the Distributor retained net underwriting
discounts of $101,853 on sales of the Fund's Class A shares and received
contingent deferred sales charges (CDSC) of $4,158, $1,102,375 and $78,312 on
Class A, Class B and Class C share redemptions, respectively.
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 Advisor.
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, 1999, purchases and sales of investments,
other than short-term obligations, were $487,766,143 and $474,860,355,
respectively.
Unrealized appreciation (depreciation) at October 31, 1999, based on cost of
investments for federal income tax purposes was:
Gross unrealized appreciation $156,748,156
Gross unrealized depreciation (36,246,406)
------------
Net unrealized appreciation $120,501,750
============
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 33 1/3% 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, 1999.
NOTE 5. OTHER RELATED PARTY TRANSACTIONS
During the year ended October 31, 1999, the Fund used Alphatrade, a wholly
owned subsidiary of Colonial Management Associates, Inc., as a broker. Total
commissions paid to Alphatrade during the year were $255,421.
<PAGE>
<TABLE>
- --------------------
FINANCIAL HIGHLIGHTS
- --------------------
Selected data for a share of each class outstanding
throughout each period are as follows:
<CAPTION>
YEAR ENDED OCTOBER 31, 1999
------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z(a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.170 $ 19.570 $ 20.000 $ 21.970
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (b) (0.031) (0.187) (0.191) 0.017
Net realized and unrealized gain (loss) 2.511 2.437 2.501 (0.027)(c)
-------- -------- -------- --------
Total from Investment Operations 2.480 2.250 2.310 (0.010)
-------- -------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net realized gains (0.720) (0.720) (0.720) --
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 21.930 $ 21.100 $ 21.590 $ 21.960
-------- -------- -------- --------
Total return (d) 12.48% 11.66% 11.71% (0.05)%(e)
-------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS
Expenses (f) 1.32% 2.07% 2.07% 1.00%(g)
Net investment income (loss) (f) (0.14)% (0.89)% (0.89)% 0.10%(g)
Portfolio turnover 67% 67% 67% 67%
Net assets at end of period (000) $398,255 $313,791 $ 21,533 $ 674
(a) Class Z shares were initially offered on January 11, 1999. Per share amounts reflect activity from
that date.
(b) Per share data was calculated using the 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 repurchase 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.
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------
Federal Income Tax Information (unaudited)
82% of the ordinary income distribution distributed by the Fund in the year ended October 31, 1999
qualifies for the corporate dividends received deduction.
For the fiscal year ended October 31, 1999 the Fund earned $92,089,216 of long term capital gains.
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------
1998 1997
--------------------------------- -------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C(a)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $20.430 $20.020 $20.410 $18.040 $17.840 $19.860
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (b) (0.047) (0.199) (0.201) (0.002) (0.135) (0.053)
Net realized and unrealized gain 1.637 1.599 1.641 4.575 4.498 0.603(c)
------- ------- ------- ------- ------- -------
Total from Investment Operations 1.590 1.400 1.440 4.573 4.363 0.550
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net realized gains (1.850) (1.850) (1.850) (2.183) (2.183) --
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $20.170 $19.570 $20.000 $20.430 $20.020 $20.410
------- ------- ------- ------- ------- -------
Total return (d) 7.95% 7.10% 7.17% 28.29% 27.33% 2.77%(e)
------- ------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses (f) 1.32% 2.07% 2.07% 1.03% 1.78% 1.81%(g)
Net investment loss (f) (0.23)% (0.98)% (0.98)% (0.01)% (0.76)% (1.05)%(g)
Portfolio turnover 32% 32% 32% 63% 63% 63%
Net assets at end of period (000) $373,092 $295,025 $12,519 $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 the 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 repurchase 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.
</TABLE>
<PAGE>
<TABLE>
- --------------------
FINANCIAL HIGHLIGHTS
- --------------------
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1996 1995
------------------------- ------------------------
CLASS A CLASS B CLASS A CLASS B
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 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 (c) 1.17% 1.92% 1.12% 1.90%
Net investment income (loss) (c) 0.25% (0.50)% 1.24% 0.46%
Portfolio turnover 100% 100% 92% 92%
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.
</TABLE>
<PAGE>
- ---------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
TO THE TRUSTEES OF LIBERTY FUNDS 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,
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Colonial Select Value Fund (the
"Fund") (a series of Liberty Funds Trust III, formerly Colonial Trust III), at
October 31, 1999, 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,
1999 by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 13, 1999
<PAGE>
- -------------------- --------------------------
SHAREHOLDER SERVICES SHAREHOLDER COMMUNICATIONS
- -------------------- --------------------------
TO MAKE INVESTING TO KEEP YOU INFORMED
Your Fund has one of the most To make recordkeeping easy and keep
extensive selections of shareholder you up-to-date on the performance
services available. Your financial of your investments, you can expect
advisor can help you arrange for to receive the following information
any of these services, or you can about your account:
call Colonial Investors Service
Center directly at 1-800-345-6611. TRANSACTION CONFIRMATIONS: Each
time you make a purchase, sale or
AFFORDABLE ADDITIONAL INVESTMENTS: exchange, you receive a
Add to your account with as little confirmation statement within just
as $50 on most funds; $25 for an a few days.
IRA account.
QUARTERLY STATEMENTS: Every three
FREE EXCHANGES1: Exchange all or months, if any transactions are
part of your account into the same made that affect your share
share class of another fund balance, this statement reports on
distributed by Liberty Financial your account activity during the
Investments, Inc. by phone or mail. quarter (including any reinvestment
of dividends). This statement also
EASY ACCESS TO YOUR MONEY1: Make provides year-to-date information.
withdrawals from your account by
phone, by mail or, for certain LIBERTY FINANCIAL INVESTMENTS
funds, by check. INVESTOR OPPORTUNITIES: Mailed with
your quarterly account statements,
ONE-YEAR REINSTATEMENT PRIVILEGE: this newsletter highlights timely
If you need access to your money, investment strategies, portfolio
but then choose to return it within manager commentary and shareholder
one year, you can reinvest in any service updates.
fund distributed by Liberty
Financial Investments of the same TAX FORMS AND YEAR-END TAX GUIDE:
share class without any penalty or Easy-to-use forms and timely
sales charge. information are designed to make
tax reporting simpler. (Usually
FUNDAMATIC: Make periodic mailed in January.)
investments as low as $50 from your
checking account to your Fund AVERAGE COST BASIS STATEMENTS: If
account. you sold or exchanged shares during
the year, this statement may help
SYSTEMATIC WITHDRAWAL PLAN (SWP): you calculate your gain/loss for
Receive monthly, quarterly or tax purposes. (Usually mailed in
semiannual payments via check or February.)
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 calendar day
of each month unless the 10th falls
on a non-business day or the first
business day of the week. If this
occurs, the processing date will be
the previous business day. Dividends
and capital gains must be reinvested.
AUTOMATED DOLLAR COST AVERAGING:
Transfer money on a monthly basis
from any fund with a balance of
$5,000 into the same share class of
up to four other funds distributed
by Liberty Financial Investments.
Minimum for each transfer is $100.
RETIREMENT PLANS: Choose from a
broad range of retirement plans,
including IRAs
1 Redemptions and exchanges are
made at the next determined net
asset value after the request is
received by the Transfer Agent.
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 C shares, or $1
million or more of Class A shares,
may be subject to a contingent
deferred sales charge.
<PAGE>
- -------------------- ------------
YOUR FUND'S TRUSTEES EQUITY FUNDS
- -------------------- ------------
PROTECTING YOUR INTERESTS AS A TERMS TO KNOW
SHAREHOLDER
As you know, a mutual fund, like NET ASSET VALUE (NAV): The dollar
yours is owned by thousands of value of one share of a mutual
shareholders. Because shareholders fund. This figure is calculated by
themselves cannot manage the taking a fund's total assets --
day-to-day operations of a fund, securities, cash and any accrued
each fund has a board of directors earnings -- deducting liabilities,
or trustees to ensure that its and dividing by the number of
investment policies and objectives shares outstanding.
are carried out.
DIVIDENDS: Payments to mutual fund
MANAGEMENT OF YOUR FUND'S BUSINESS shareholders of income, interest
AFFAIRS and/or short-term capital gains
(gains on securities held one year
The trustees of a mutual fund, just or less) earned on the fund's
like the trustees of other types of investments after deducting
companies, have overall operating expenses.
responsibility for the management
of the fund's business affairs. CAPITAL GAINS: Payments to mutual
They must continually review and fund shareholders of profits
supervise the fund's operation: (long-term gains) realized on the
including evaluating the sale of the fund's investments.
performance of its portfolio and Usually paid once a year.
the services provided by the
investment advisor and other PRICE/EARNINGS (P/E) RATIO: Current
parties. And, under state law, market price of a stock divided by
trustees must perform these its earnings per share. The P/E
responsibilities with the care ratio gives investors an idea of
expected of a "prudent person." In how much they are paying for a
other words, trustees must exercise company's earning power. This
the care that a reasonably prudent figure is a useful tool for
person would take with his or her evaluating the costs of different
own business. Trustees must also stocks.
use due care, exercise independent
judgment and protect your interests GLOBAL VERSUS INTERNATIONAL STOCK
as a shareholder. FUNDS: Global stock funds seek
growth in the value of their
UNDIVIDED LOYALTY portfolio by investing in
securities traded worldwide,
In addition to duties dictated by including the United States.
state law, certain responsibilities International stock funds, on the
for trustees are spelled out by other hand, seek to achieve the
federal law -- specifically the same objective, but do so by
Investment Advisors Company Act of investing in equity securities of
1940 (1940 Act), which regulates companies located outside the U.S.
the activities of investment An international stock fund must
advisors to mutual funds. The 1940 keep a minimum of two-thirds of its
Act requires that no more than 60% portfolio invested outside the U.S.
of the trustees may be affiliated at all times.
with the fund -- they must be
independent persons. This means CYCLICAL STOCKS: Stocks of
that neither the trustees nor companies whose performance moves
members of their immediate families from strong to weak along with
can have a significant relationship economic cycles. Paper, chemical
with the fund, its investment and retail, for example.
advisor or principal underwriter.
This is to ensure that trustees CONSUMER DURABLES: Industries that
have no conflicting interests, and produce products that tend to be in
that the fund's affairs are not greater demand when the economy is
compromised by other loyalties. strong and interest rates are low.
Generally manufacturers of
Simply put, a mutual fund's large-ticket items, such as
trustees serve as watchdogs for the automobile and appliance
fund's affairs. Trustees provide a manufacturers, for example.
check on the advisor and other
persons closely affiliated with the CONSUMER NON-DURABLES: Industries
fund. They watch out for the that produce products that tend to
business interests of the fund, as be in demand no matter what the
well as the interests of you, the economic cycle. Health care
shareholder. products and pharmaceuticals, for
example.
AVERAGE ANNUAL TOTAL RETURN: The
hypothetical rate of return for a CAPITALIZATION: The total market
mutual fund that is calculated by value of a company's stock.>
taking a fund's year-by-year return
and dividing it by the number of
years in the period you are
measuring. The result -- an average
measure of performance -- including
reinvestment of all earnings.
<PAGE>
Trustees & Transfer Agent
- --------------------------------------------------------------------------------
ROBERT J. BIRNBAUM WILLIAM E. MAYER
Consultant (formerly Special Partner, Development Capital, LLC
Counsel, Dechert, Price & Rhoads; (formerly Dean, College of Business
President and Chief Operating and Management, University of
Officer, New York Stock Exchange, Maryland; Dean, Simon Graduate
Inc.; President, American Stock School of Business, University of
Exchange Inc.) Rochester; Chairman and Chief
Executive Officer, CS First Boston
TOM BLEASDALE Merchant Bank; and President and
Retired (formerly Chairman of the Chief Executive Officer, The First
Board and Chief Executive Officer, Boston Corporation)
Shore Bank & Trust Company)
JAMES L. MOODY, JR.
JOHN V. CARBERRY Retired (formerly Chairman of the
Senior Vice President of Liberty Board, Chief Executive Officer and
Financial Companies, Inc. (formerly Director Hannaford Bros. Co.)
Managing Director, Salomon
Brothers) JOHN J. NEUHAUSER
Academic Vice President and Dean of
LORA S. COLLINS Faculties, Boston College (former
Attorney (formerly Attorney, Dean, Boston College School of
Kramer, Levin, Naftalis & Frankel) Management)
JAMES E. GRINNELL THOMAS E. STITZEL
Private Investor (formerly Senior Professor of Finance, College of
Vice President-Operations, The Business, Boise State University;
Rockport Company) Business Consultant and Author
RICHARD W. LOWRY ROBERT L. SULLIVAN
Private Investor (formerly Chairman Retired Partner, KPMG LLP (formerly
and Chief Executive Officer, U.S. Management Consultant, Saatchi and
Plywood Corporation) Saatchi Consulting Ltd. and
Principal and International
SALVATORE MACERA Practice Director, Management
Private Investor (formerly Consulting, Peat Marwick Main &
Executive Vice President of Itek Co.)
Corp. and President of Itek Optical
& Electronic Industries, Inc.) ANNE-LEE VERVILLE
Consultant (formerly General
Manager, Global Education Industry,
and President, Applications
Solutions Division, IBM
Corporation)
- --------------------------------------------------------------------------------
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Select Value Fund is:
Liberty Funds Services, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
The Funds mail one shareholder report to each shareholder address. If you would
like more than one report, please call 1-800-426-3750 and additional reports
will be sent to you.
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
objectives and operating policies of the Funds and with the most recent copy of
the Liberty Funds Distributor, Inc. Performance Update.
<PAGE>
Liberty offers the independent thinking and collective strength of six financial
specialists. Our distinguished product line helps financial advisors and their
clients build diversified investment portfolios for long-term financial goals.
- --------------------------------------------------------------------------------
L I B E R T Y
- ---------------
F U N D S
- --------------------------------------------------------------------------------
ALL-STAR Institutional money management approach for individual investors.
COLONIAL Fixed-income and value style equity investing.
CRABBE
HUSON A contrarian approach to fixed-income and equity investing.
NEWPORT A leader in international investing.
STEIN ROE Growth style equity investing.
ADVISOR
[graphic omitted]
KEYPORT A leading provider of innovative annuity products.
Liberty's mutual funds are offered by prospectus through Liberty Funds
Distributor, Inc.
BEFORE YOU INVEST, CONSULT YOUR FINANCIAL ADVISOR.
Your financial advisor can help you develop a long-term plan for reaching your
financial goals.
- ------------------------------------------
COLONIAL SELECT VALUE FUND ANNUAL REPORT
- ------------------------------------------
---------------
BULK RATE
U.S. POSTAGE
PAID
[Graphic HOLLISTON, MA
Omitted] L I B E R T Y PERMIT NO. 20
----------------- ---------------
F U N D S
ALL-STAR o COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)1999
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
SV-02/077I-1099 (12/99) 99/1526
