Colonial Select VALUE Fund Annual Report
October 31, 1998
Not FDIC May Lose Value
Insured No Bank Guarantee
Colonial Select Value Fund Highlights
November 1, 1997 -- October 31, 1998
Investment Objective: Colonial Select Value Fund seeks long-term growth by
investing primarily in middle-capitalization equities.
Portfolio Manager Commentary: "U.S. stock prices became increasingly
volatile during the period, as a variety of external factors periodically
fueled fears of recession and decelerating earnings growth in the U.S. While
the 'flight to quality' throughout the period favored large-cap stocks, the
Fund was able to achieve strong performance relative to the mid-cap market
and the majority of funds in its peer group." (1)
- James Haynie and Michael Rega
Colonial Select Value Fund Performance
<TABLE>
<CAPTION>
Class A Class B Class C
Inception Dates 1949 6/8/92 8/1/97
<S> <C> <C> <C>
12-month distributions declared per share $1.850 $1.850 $1.850
- -------------------------------------------------------------------------
12-month total returns, assuming 7.95% 7.10% 7.17%
reinvestment of all distributions
and no sales charge or contingent
deferred sales charge (CDSC)
- -------------------------------------------------------------------------
Net asset value per share on 10/31/98 $20.17 $19.57 $20.00
</TABLE>
<TABLE>
<CAPTION>
Top Five Holdings (2) Top Five Sectors (2,3)
(as of 10/31/98) (as of 10/31/98)
- ---------------------------------- -------------------------------
<S> <C> <C> <S> <C> <C>
1. Kroger Corp. 3.3% 1. Financials 15.4%
2. Costco Cos., Inc. 2.9% 2. Consumer Cyclicals 14.8%
3. Lincare Holdings, Inc. 2.5% 3. Technology 13.4%
4. SunAmerica, Inc. 2.5% 4. Health Care 10.4%
5. Fred Meyer Inc. 2.4% 5. Utilities 8.8%
<FN>
<F1> Lipper Analytical Services, Inc., a widely respected data provider in
the industry, calculates an average total return for mutual funds with
similar investment objectives as the Fund. The total return calculated
for the Mid-cap Funds peer group was negative 2.77% for the 12 months
ended October 31, 1998. The Fund's class A shares had a total return
of 7.95% and was ranked in the first quintile (31 out of 299 funds)
for the one-year period, in the first quintile (4 out of 99) for the
five-year period, and in the second quintile (10 out of 38 funds) for
the 10-year period. Being ranked in the 1st quintile indicates that
the funds total return for the period was ranked in the top 20
percentile of its peer group. The Fund's benchmark index, the S&P 400,
had a total return of 6.71% for the 12-month period ended October 31,
1998.
<F2> 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.
<F3> 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 as used in the
investment process.
</FN>
</TABLE>
President's Message
to Fund Shareholders
In June 1998, Harold Cogger retired as president of Colonial Select Value
Fund. I would like to take this opportunity to thank him for his guidance
over the past few years and wish him well. As the new president of the Fund,
I am pleased to present your Fund's annual report for the 12-month period
ended October 31, 1998.
Over the past 12 months, a variety of global events contributed toward
higher levels of volatility in stock markets throughout the world, including
the U.S. Early in the period, turmoil in Southeast Asia and the subsequent
concern over a global economic slowdown created an investment environment of
uncertainty. In a search for stability, investors worldwide gravitated
toward stocks of large, well-known blue-chip companies. This "flight to
quality," in combination with favorable conditions of slow, steady economic
growth, helped push the Standard & Poor's 500 Index to a record high in July
1998. That same month, however, a monetary and political crisis in Russia
and continued concerns about Asia set the stage for a dramatic correction in
U.S. stock prices. Both large- and mid-cap stocks ended the period on a
positive note, as two short-term rate cuts by the Federal Reserve helped
reduce fears of a U.S. recession and its potential impact on corporate
earnings.
It was another very challenging period for stock fund managers. In a pattern
that has repeated itself in 1997 and most of 1998, strong U.S. equity market
performance was led by stocks of only a handful of large, well-established
U.S. companies. This type of "narrow" market performance made it extremely
difficult for equity fund managers to maintain proper diversification and
still outperform the market. Colonial Select Value Fund performed admirably
during the period, outperforming its benchmark index, as well as the
majority of funds in its peer group.
The following report will provide you with more specific information about
your Fund's performance and the companies in which it has invested. Thank
you for choosing Colonial Select Value Fund and for giving us the
opportunity to serve your investment needs.
Respectfully,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
December 11, 1998
Because market and economic conditions change frequently, there can be no
assurance that the trends described above or on the following pages will
continue.
Portfolio Management Report
James Haynie and Michael Rega co-manage Colonial Select Value Fund and are
vice presidents of Colonial Management Associates, Inc. The following is a
discussion of the Fund's performance for the 12-month period ended October
31, 1998.
Volatility and narrow market performance created a challenging environment
Volatility became the norm during the period, as a variety of global events
caused U.S. equities to experience dramatic positive and negative price
swings. Financial and economic turmoil in the developing regions of
Southeast Asia, Latin America and Russia had a ripple effect in the U.S.,
impacting our financial markets and the economy as a whole. As economic
turmoil increased abroad, equity investors worldwide sought refuge in the
stocks of large, well-established U.S. companies. A relatively small group
of blue-chip stocks pushed the Standard & Poor's 500 Index to a record high
in July 1998, but the prolonged rally came to an abrupt end when Russia
experienced serious political and financial problems. While mid-cap stocks,
as measured by the Standard & Poor's 400 Index, gained an impressive 19.17%
during the first half of the period, they had a negative return
of 10.46% over the second half and a 6.71% return for the entire
12-month period.
Colonial Select Value Fund performed favorably within its competitive
universe, finishing in the top quintile of its Lipper peer group. For the 12
months ended October 31, 1998, the Fund earned a 7.95% total return for
Class A shares, based on net asset value.
Individual stock selection and broad sector diversification drives returns
The Fund's favorable performance can be attributed to individual stock
selection within a variety of sectors. Colonial's investment approach
promotes broad sector diversification, a strategy designed to reduce risk
and produce more consistent returns over time. Within each sector, we search
for quality companies that first, appear attractively priced relative to
their industry peers, and second, offer strong future growth potential.
One stock that has performed quite well for the Fund is Kroger (3.3% of the
Fund's total net assets), a company we started buying in early to mid fall
of 1997. Kroger is a grocery store chain that has coverage predominantly in
the Midwest and East Coast. Their success is a result of their ability to
execute their core strategy -- to be the dominant provider in select markets
while avoiding expansion into competitive areas. The company recently
announced a merger with Fred Meyer (2.4% of the Fund's total net assets),
another top holding of the Fund. Together, Kroger and Fred Meyer will
represent the largest grocer in the U.S. The two companies appear to be a
good fit, overlapping in just one market. Kroger's stock price increased
70.11% during the period, while Fred Meyer's stock price increased 86.87%.
Lincare Holdings (2.5% of the Fund's total net assets), has been another
strong performer. As a provider of home oxygen therapy, Lincare has become a
dominant player, gathering market share in a very fragmented, small-business
oriented market. As sometimes happens in government-involved businesses,
industry revenues decreased based on a reduction in Medicare and Medicaid
reimbursement rates. While on the surface, the payment reduction hurt near-
term earnings estimates, it did not affect the growth curve of the industry.
While lower reimbursements affected companies industry wide, it made the
smaller "mom and pop" centers marginally profitable. Through strategic
acquisitions, Lincare has been able to increase its role as an industry
leader, grow its revenues, and better manage its expenses over a larger
asset base. Over the past 12 months, the stock's price increased 48.95%.
While we are committed to maintaining a broadly diversified portfolio and
avoiding large sector bets, adjustments to our weightings in various sectors
also helped the Fund's performance during the period. Increasing our
weighting in the financial and utilities sectors during the period had a
positive impact on the Fund.
In the financial sector, volatility and occasional periods of weakness
presented the Fund with a number of new opportunities. A good deal of risk
has been painted across the financial sector, particularly in stocks of
companies that have hedge fund and emerging markets exposure. Avoiding these
pitfalls, we focused our attention on industries that continue to offer
earnings power and the potential for further industry consolidation. One
example would be niches in a specialty insurance area, such as title
insurance.
Earlier in the period, we were slightly underweighted in utilities, a sector
that had been underperforming the market. After slowly building our
utilities holdings in the first half of the year, the strategy paid off.
During the dramatic market correction that took place in July 1998,
utilities weathered the storm better than a number of other sectors.
Continued uncertainty promotes market volatility
In the near term, we expect to see continued volatility in a market driven
by uncertainty about the direction of the economy and future corporate
earnings. We believe that the long-term outlook for mid caps is favorable.
Mid-cap stock prices have a very good base from which to move upward, as
valuations relative to large-cap stocks are the lowest we've seen in 20
years. We still appear to be in the very late stages of the economic growth
cycle, with expectations favoring slowing growth before the next uptick in
the economy.
While low valuations are a real positive for mid-cap stocks, there are no
clear signs of strong economic growth -- an environment that is necessary
for a steady advance in mid-cap stock prices. During this economic climate,
the Fund has continued to experience positive gains. However, the fact
remains that in a slowing economy, investors typically flock to large-cap
stocks. Whether the economy simply continues at a very slow pace or drifts
into a recession remains to be seen. In either scenario, once investors feel
confident that the slowing period has come to an end, the scenario for mid-
cap stocks should become increasingly favorable.
Colonial Select Value Fund Investment Performance
vs. The Standard & Poor's Midcap 400 Index
Change in Value of $10,000 from 10/31/88 - 10/31/98
Based on NAV and POP for Class A Shares
<TABLE>
<CAPTION>
Colonial Select Colonial Select S&P 400 MNTH
Pre-Load Post-Load
--------------- --------------- ------------
<S> <C> <C> <C>
Oct 31, 88 10,000 10,000 10,000
Nov 30, 88 9,829 9,264 9,805
Dec 31, 88 10,067 9,488 10,201
Jan 31, 89 10,700 10,085 10,896
Feb 28, 89 10,629 10,016 10,931
Mar 31, 89 10,911 10,283 11,174
Apr 30, 89 11,456 10,797 11,779
May 31, 89 11,966 11,278 12,348
Jun 30, 89 11,817 11,138 12,292
Ju1 31, 89 12,823 12,086 13,023
Aug 31, 89 13,152 12,296 13,485
Sep 30, 89 13,143 12,387 13,635
Oct 31, 89 12,720 11,988 13,061
Nov 30, 89 12,955 12,210 13,349
Dec 31, 89 13,030 12,281 13,826
Jan 31, 90 11,990 11,301 12,657
Feb 28, 90 12,179 11,479 13,112
Mar 31, 90 12,610 11,885 13,395
Apr 30, 90 12,242 11,538 12,875
May 31, 90 13,408 12,637 14,132
Jun 30, 90 13,403 12,632 14,190
Ju1 31, 90 13,197 12,438 13,865
Aug 31, 90 11,715 11,042 12,428
Sep 30, 90 10,763 10,144 11,668
Oct 31, 90 10,417 9,818 11,311
Nov 30, 90 11,261 10,613 12,399
Dec 31, 90 11,641 10,971 13,119
Jan 31, 91 12,559 11,837 14,155
Feb 28, 91 13,532 12,754 15,426
Mar 31, 91 13,991 13,186 16,130
Apr 30, 91 13,860 13,063 16,126
May 31, 91 14,439 13,609 16,869
Jun 30, 91 13,725 12,935 16,012
Ju1 31, 91 14,353 13,528 16,975
Aug 31, 91 14,783 13,933 17,593
Sep 30, 91 14,695 13,860 17,536
Oct 31, 91 14,783 13,933 18,489
Nov 30, 91 14,165 13,351 17,609
Dec 31, 91 15,609 14,712 19,691
Jan 31, 92 15,887 14,974 20,039
Feb 29, 92 16,165 15,236 20,358
Mar 31, 92 15,843 14,932 19,591
Apr 30, 92 15,732 14,827 19,357
May 31, 92 15,798 14,890 19,541
Jun 30, 92 15,079 14,212 18,983
Ju1 31, 92 15,900 14,986 19,925
Aug 31, 92 15,472 14,582 19,449
Sep 30, 92 15,588 14,691 19,721
Oct 31, 92 16,004 15,084 20,193
Nov 30, 92 16,895 15,924 21,321
Dec 31, 92 17,325 16,329 22,037
Jan 31, 93 17,880 16,852 22,312
Feb 28, 93 17,707 16,689 22,000
Mar 31, 93 18,102 17,061 22,760
Apr 30, 93 17,202 16,213 22,164
May 31, 93 17,794 16,771 23,174
Jun 30, 93 17,825 16,800 23,290
Ju1 31, 93 17,924 16,893 23,245
Aug 31, 93 18,567 17,499 24,205
Sep 30, 93 18,777 17,697 24,461
Oct 31, 93 18,851 17,767 24,541
Nov 30, 93 18,530 17,464 23,998
Dec 31, 93 19,055 17,960 25,112
Jan 31, 94 19,882 18,739 25,696
Feb 28, 94 19,620 18,492 25,331
Mar 31, 94 18,663 17,609 24,158
Apr 30, 94 18,863 17,778 24,338
May 31, 94 18,904 17,817 24,107
Jun 30, 94 18,352 17,297 23,277
Ju1 31, 94 18,808 17,727 24,065
Aug 31, 94 19,582 18,456 25,326
Sep 30, 94 19,043 17,948 24,853
Oct 31, 94 19,375 18,261 25,125
Nov 30, 94 18,352 17,297 23,992
Dec 31, 94 18,548 17,482 24,212
Jan 31, 95 18,533 17,467 24,464
Feb 28, 95 19,544 18,420 25,747
Mar 31, 95 20,279 19,113 26,170
Apr 30, 95 20,693 19,503 26,720
May 31, 95 21,688 20,441 27,365
Jun 30, 95 22,587 21,289 28,479
Ju1 31, 95 23,744 22,378 29,958
Aug 31, 95 24,098 22,713 30,519
Sep 30, 95 25,008 23,570 31,258
Oct 31, 95 24,885 23,454 30,454
Nov 30, 95 25,486 24,020 31,784
Dec 31, 95 25,596 24,125 31,705
Jan 31, 96 26,199 24,692 32,165
Feb 29, 96 27,052 25,496 33,257
Mar 31, 96 27,386 25,812 33,657
Apr 30, 96 28,440 26,805 34,685
May 31, 96 29,260 27,578 35,154
Jun 30, 96 28,942 27,278 34,626
Ju1 31, 96 27,604 26,017 32,282
Aug 31, 96 28,273 26,647 34,146
Sep 30, 96 30,197 28,461 35,634
Oct 31, 96 30,180 28,445 35,738
Nov 30, 96 31,418 29,612 37,751
Dec 31, 96 30,835 29,062 37,793
Jan 31, 97 31,934 30,098 39,210
Feb 28, 97 32,142 30,294 38,889
Mar 31, 97 30,171 28,437 37,231
Apr 30, 97 30,892 29,115 38,197
May 31, 97 33,317 31,402 41,537
Jun 30, 97 34,625 33,634 42,720
Ju1 31, 97 37,639 35,474 46,931
Aug 31, 97 36,880 34,760 46,874
Sep 30, 97 39,363 37,100 49,569
Oct 31, 97 38,719 36,492 47,412
Nov 30, 97 39,799 37,511 48,115
Dec 31, 97 41,072 38,711 49,982
Jan 31, 98 41,155 38,789 49,031
Feb 28, 98 44,927 42,343 53,093
Mar 31, 98 46,895 44,199 55,487
Apr 30, 98 47,246 44,531 56,500
May 31, 98 45,652 43,027 53,959
Jun 30, 98 46,502 43,828 54,297
Ju1 31, 98 44,367 41,816 52,193
Aug 31, 98 37,052 34,922 42,477
Sep 30, 98 39,228 36,972 46,442
Oct 31, 98 41,798 39,394 50,593
</TABLE>
Growth of a $10,000 Investment
Made on 10/31/88 as of 10/31/98
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
NAV POP NAV w/CDSC NAV w/CDSC
- --------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$41,798 $39,394 $39,852 $39,852 $41,453 $41,453
</TABLE>
Average Annual Total Returns
As of 10/31/98
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
NAV POP NAV w/CDSC NAV w/CDSC
1949 6/8/92 8/1/97
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 year 7.95% 1.74% 7.10% 2.21% 7.17% 6.19%
5 years 17.26 15.88 16.39 16.17 17.07 17.07
10 years 15.38 14.69 14.83 14.83 15.28 15.28
</TABLE>
Past performance cannot predict future results. Returns and value of an
investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. Net asset value (NAV) returns do not
include sales charges or contingent deferred sales charges (CDSC). 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 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.
Class B and C share (newer class shares) performance includes returns of the
Fund's Class A shares (the oldest existing fund class) for periods prior to
the inception dates of newer class shares. These Class A share returns are
not restated to reflect any expense differential (e.g. Rule 12b-1 fees)
between Class A shares and the newer class. Had the expense differential
been reflected, the returns for periods prior to the inception date of the
newer class shares would have been lower.
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. It is not possible to invest in an
index.
INVESTMENT PORTFOLIO
OCTOBER 31, 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCKS - 89.7% SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION - 0.9%
Building Construction
Centex Corp. 174 $ 5,829
--------
- ---------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 15.8%
Depository Institutions - 9.7%
AmSouth Bancorporation 101 4,050
Associated Banc-Corp. 115 4,039
City National Corp. 187 6,379
Community First Bankshares, Inc. 163 3,240
Cullen/Frost Bankers, Inc. 35 1,842
First Tennessee National Corp. 38 1,198
First Union Corp. 154 8,932
Golden State Bancorp, Inc. (a) 155 2,974
Greenpoint Financial Corp. 236 7,757
Hibernia Corp. 360 6,001
North Fork Bancorporation, Inc. 304 6,040
Northern Trust Corp. 83 6,121
Peoples Heritage Financial Group, Inc. 130 2,340
Zions Bancorporation 90 4,749
--------
65,662
--------
Insurance Carriers - 3.8%
MGIC Investment Corp. 70 2,714
Orion Capital Corp. 5 174
Protective Life Corp. 47 1,727
SunAmerica, Inc. 236 16,666
The Commerce Group, Inc. 110 3,795
The First American Financial Corp. 19 592
--------
25,668
--------
Nondepository Credit Institution - 0.7%
Household International, Inc. 130 4,739
--------
Security Brokers & Dealers - 1.6%
Bear Stearns Cos., Inc. 65 2,320
Franklin Resources, Inc. 122 4,628
Lehman Brothers Holdings, Inc. 100 3,794
--------
10,742
--------
- ---------------------------------------------------------------------------
MANUFACTURING - 29.2%
Apparel - 1.4%
Jones Apparel Group, Inc. (a) 206 3,550
Tommy Hilfiger Corp. (a) 92 4,258
VF Corp. 45 1,882
--------
9,690
--------
Chemicals & Allied Products - 3.4%
Dura Pharmaceuticals, Inc. (a) 133 1,604
Ecolab, Inc. 41 1,237
Goodrich (B.F.) Co. 168 6,030
International Specialty Products, Inc. (a) 220 2,956
NBTY, Inc. (a) 117 934
Watson Pharmaceuticals, Inc. (a) 184 10,246
--------
23,007
--------
Communications Equipment - 1.5%
Comverse Technology, Inc. (a) 175 8,050
Harman International Industries, Inc. 50 2,030
--------
10,080
--------
Electronic Components - 0.2%
Dallas Semiconductor Corp. 34 1,262
--------
Fabricated Metal - 0.8%
Crane Co. 199 5,739
--------
Food & Kindred Products - 1.8%
Interstate Bakeries Corp. 303 7,589
Philip Morris Co., Inc. 98 4,990
--------
12,579
--------
Furniture & Fixtures - 2.6%
Furniture Brands International, Inc. (a) 187 4,021
Herman Miller, Inc. 512 11,287
Leggett & Platt, Inc. 88 2,052
--------
17,360
--------
Household Appliances - 1.2%
Maytag Corp. 160 7,910
--------
Lumber & Wood Products - 0.6%
Clayton Homes, Inc. 123 1,902
Oakwood Homes Corp. 117 1,847
--------
3,749
--------
Machinery & Computer Equipment - 6.4%
Diebold, Inc. 105 3,261
Flowserve Corp. 112 2,016
Ingersoll Rand Co. 137 6,918
Storage Technology Corp. (a) 141 4,715
Sun Microsystems, Inc. (a) 258 15,040
Tyco International Ltd. 40 2,478
Unisys Corp. (a) 250 6,656
Varco International, Inc. (a) 225 2,433
--------
43,517
--------
Measuring & Analyzing Instruments - 2.0%
Biomet, Inc. 406 13,792
--------
Miscellaneous Manufacturing - 0.2%
Callaway Golf Co. 120 1,307
--------
Paper Products - 2.0%
Fort James Corp. 332 13,392
--------
Petroleum Refining - 0.5%
Kerr-McGee Corp. 87 3,461
--------
Primary Metal - 1.4%
Mueller Industries, Inc. (a) 148 3,330
Texas Industries, Inc. 134 3,950
USX-US Steel Group 96 2,227
--------
9,507
--------
Printing & Publishing - 0.9%
New York Times Co., Class A 224 6,317
--------
Rubber & Plastic - 0.3%
Wynn's International, Inc. 96 1,803
--------
Stone, Clay, Glass & Concrete - 0.5%
USG Corp. (a) 77 3,648
--------
Transportation Equipment - 1.5%
Fleetwood Enterprises, Inc. 83 2,677
Harley-Davidson, Inc. 150 5,812
Varlen Corp. 62 1,860
--------
10,349
--------
- ---------------------------------------------------------------------------
MINING & ENERGY - 2.4%
Oil & Gas Extraction - 1.3%
Noble Drilling Corp. (a) 156 2,685
SEACOR SMIT, Inc. (a) 111 5,312
Transocean Offshore, Inc. 18 657
--------
8,654
--------
Oil & Gas Field Services - 1.1%
BJ Services Co. (a) 160 3,272
Schlumberger Ltd. 83 4,337
--------
7,609
--------
RETAIL TRADE - 13.9%
Apparel & Accessory Stores - 1.1%
Ross Stores, Inc. 160 5,210
TJX Companies, Inc. 130 2,454
--------
7,664
--------
Food Stores - 3.3%
Kroger Corp. (a) 400 22,178
--------
General Merchandise Stores - 6.2%
Costco Cos., Inc. (a) 345 19,590
Federated Department Stores, Inc. (a) 119 4,570
Meyer (Fred), Inc. (a) 302 16,079
Saks, Inc. (a) 114 2,598
--------
42,837
--------
Home Furnishings & Equipment - 0.9%
CompUSA, Inc. (a) 435 6,036
--------
Miscellaneous Retail - 1.6%
Office Depot, Inc. (a) 436 10,910
--------
Restaurants - 0.8%
Brinker International, Inc. (a) 212 5,128
--------
- ---------------------------------------------------------------------------
SERVICES - 15.4%
Business Services - 2.6%
Omnicom Group, Inc. 289 14,287
Robert Half International, Inc. (a) 83 3,318
--------
17,605
--------
Computer Related Services - 1.7%
Cadence Design Systems, Inc. (a) 216 4,606
Shared Medical Systems Corp. 52 2,594
StaffMark, Inc. (a) 140 2,459
Wang Laboratories, Inc. (a) 85 1,819
--------
11,478
--------
Computer Software - 4.6%
Citrix Systems, Inc. (a) 65 4,607
Compuware Corp. (a) 296 16,050
J.D. Edwards & Co. (a) 120 3,930
Keane, Inc. (a) 77 2,554
Sterling Software, Inc. (a) 165 4,331
--------
31,472
--------
Engineering, Accounting, Research & Management - 0.7%
Paychex, Inc. 101 5,048
--------
Health Services - 5.8%
Lincare Holdings, Inc. (a) 431 17,229
Total Renal Care Holdings, Inc. (a) 505 12,373
Universal Health Services, Inc., Class B (a) 199 10,206
--------
39,808
--------
- ---------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 10.6%
Electric, Gas & Sanitary Services - 0.6%
Sempra Energy 163 4,238
Electric Services - 5.4%
California Energy, Inc. (a) 177 4,854
Citizens Utilities Co. 375 3,375
Dominion Resources, Inc. 130 6,004
Energy East Corp. 112 5,489
Minnesota Power & Light Co. 156 6,542
Pinnacle West Capital Corp. 152 6,673
Utilicorp United, Inc. 54 1,955
Washington Water Power Co. 85 1,599
--------
36,491
--------
Gas Services - 1.1%
Columbia Energy Group 63 3,646
KN Energy, Inc. 78 3,861
--------
7,507
--------
- ---------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
Motor Freight & Warehousing - 1.4%
CNF Transportation 283 8,552
USFreightways Corp. 43 1,088
--------
9,640
--------
Sanitary Services - 0.2%
Piedmont Natural Gas Co. 33 1,143
--------
Telecommunication - 1.5%
Aliant Communications, Inc. 10 282
Century Telephone Enterprises, Inc. 98 5,573
Cincinnati Bell, Inc. 167 4,332
--------
10,187
--------
Transportation Services - 0.4%
Expeditors International Washington, Inc. 85 2,883
--------
- ---------------------------------------------------------------------------
WHOLESALE TRADE - 1.5%
Durable Goods - 1.3%
Patterson Dental Co. (a) 79 3,273
Tech Data Corp. (a) 139 5,473
Ultramed, Inc. (b) 450 (c)
--------
8,746
--------
Nondurable Goods - 0.2%
AmeriSource Health Corp. , Class A (a) 20 1,033
Richfood Holdings, Inc. 35 621
--------
1,654
--------
TOTAL COMMON STOCKS (cost of $480,152) 610,025
--------
WARRANTS - 0.1%
- ---------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE
Depository Institutions
Golden State Bancorp 155 756
(cost of $0) --------
TOTAL INVESTMENTS (cost of $480,152)(d) 610,781
--------
<CAPTION>
SHORT TERM OBLIGATIONS - 11.6% PAR
- ---------------------------------------------------------------------------
<S> <C> <C>
Repurchase agreement with ABN AMRO Chicago
Corp., dated 10/30/98, due 11/02/98 at 5.38%
collateralized by U.S. Treasury notes with
various maturities to 2021, market value
$80,040 (repurchase proceeds $79,094) $79,059 79,059
--------
OTHER ASSETS & LIABILITIES, NET - (1.4)% $ (9,204)
- ---------------------------------------------------------------------------
NET ASSETS - 100% $680,636
--------
<FN>
NOTES TO INVESTMENT PORTFOLIO:
- ---------------------------------------------------------------------------
<Fa> Non-income producing.
<Fb> 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, 1998.
<Fc> Rounds to less than one.
<Fd> Cost for federal income tax purposes is the same.
</FN>
</TABLE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1998
(in thousands except for per share amounts and footnotes)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $480,152) $610,781
Short-term obligations 79,059
--------
689,840
--------
Receivable for:
Fund shares sold $ 1,871
Dividends 302
Interest 26
Foreign tax reclaims 4
Other 9 2,212
------- --------
Total Assets 692,052
LIABILITIES
Payable for:
Investments purchased 10,399
Fund shares repurchased 94
Accrued:
Deferred Trustees fees 2
Other 71
-------
Total Liabilities 11,416
--------
NET ASSETS $680,636
========
Net asset value & redemption price per share -
Class A ($373,092/18,500) $20.17(a)
========
Maximum offering price per share - Class A
($20.17/0.9425) $21.40(b)
========
Net asset value & offering price per share -
Class B ($295,025/15,075) $19.57(a)
========
Net asset value & offering price per share -
Class C ($12,519/626) $20.00(a)
========
COMPOSITION OF NET ASSETS
Capital paid in $520,892
Overdistributed net investment income (39)
Accumulated net realized gain 29,154
Net unrealized appreciation 130,629
--------
$680,636
========
<FN>
<Fa> Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
<Fb> On sales of $50,000 or more the offering price is reduced.
</FN>
</TABLE>
See notes to financial statements.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
(in thousands)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 4,600
Interest 2,310
-------
6,910
-------
EXPENSES
Management fee $ 4,410
Service fee 1,544
Distribution fee - Class B 1,837
Distribution fee - Class C 41
Transfer agent 1,816
Bookkeeping fee 230
Registration fee 62
Custodian fee 15
Audit fee 38
Trustees fee 33
Reports to shareholders 18
Legal fee 20
Other 172 10,236
------- -------
Net Investment Loss (3,326)
-------
NET REALIZED & UNREALIZED GAIN ON PORTFOLIO POSITIONS
Net realized gain 33,364
Net change in unrealized appreciation 1,599
-------
Net Gain 34,963
-------
Increase in Net Assets from Operations $31,637
=======
</TABLE>
See notes to financial statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(in thousands) Year ended October 31
------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS 1998 1997(a)
Operations:
Net investment loss $ (3,326) $ (1,292)
Net realized gain 33,364 50,191
Net unrealized appreciation 1,599 65,661
-----------------------
Net Increase from Operations 31,637 114,560
Distributions:
From net realized gains - Class A (30,679) (31,180)
From net realized gains - Class B (17,924) (16,942)
From net realized gains - Class C (65) ----
-----------------------
(17,031) 66,438
-----------------------
Fund Share Transactions:
Receipts for shares sold - Class A 103,672 138,708
Value of distributions reinvested - Class A 27,547 28,041
Cost of shares repurchased - Class A (93,196) (126,189)
-----------------------
38,023 40,560
-----------------------
Receipts for shares sold - Class B 167,327 92,343
Value of distributions reinvested - Class B 16,794 15,974
Cost of shares repurchased - Class B (70,526) (66,864)
-----------------------
113,595 41,453
-----------------------
Receipts for shares sold - Class C 14,450 562
Value of distributions reinvested - Class C 64 ----
Cost of shares repurchased - Class C (1,663) (9)
-----------------------
12,851 553
-----------------------
Net Increase from Fund Share Transactions 164,469 82,566
-----------------------
Total Increase 147,438 149,004
NET ASSETS
Beginning of period 533,198 384,194
-----------------------
End of period (net of overdistributed
net investment income of $39 and
$11, respectively) $680,636 $ 533,198
=======================
<FN>
<Fa> Class C shares were initially offered on August 1, 1997.
</FN>
</TABLE>
See notes to financial statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(in thousands) Year ended October 31
---------------------
NUMBER OF FUND SHARES 1998 1997(a)
<S> <C> <C>
Sold - Class A 4,899 7,894
Issued for distributions reinvested - Class A 1,391 1,707
Repurchased - Class A (4,457) (7,117)
----------------
1,833 2,484
----------------
Sold - Class B 8,109 5,238
Issued for distributions reinvested - Class B 868 985
Repurchased - Class B (3,501) (3,814)
----------------
5,476 2,409
----------------
Sold - Class C 677 28
Issued for distributions reinvested - Class C 3 ----
Repurchased - Class C (81) (1)
----------------
599 27
----------------
<FN>
<Fa> Class C shares were initially offered on August 1, 1997.
</FN
</TABLE>
See notes to financial statements.
OCTOBER 31, 1998
NOTE 1. ACCOUNTING POLICIES
- ------------------------------------------------------------------------------
Organization: Colonial Select Value Fund (the Fund), a series of Colonial
Trust III, is a diversified portfolio of a Massachusetts business trust,
registered under the Investment Company Act of 1940, as amended, as an open-
end management investment company. The Fund's investment objective is to
seek 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 a 1.00% contingent
deferred sales charge 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.
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
identification method for both financial statement and federal income tax
purposes.
Determination of class net asset values and financial highlights: All
income, expenses (other than the Class B and Class 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.
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. 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: Liberty Funds Services, Inc., formerly Colonial Investors
Service Center, 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.
Effective October 1, 1997 and continuing through September 1998, the
Transfer Agent fee was reduced by 0.0012% 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 Funds
Distributor, Inc., formerly Liberty Financial Investments, Inc. (the
Distributor), a subsidiary of the Advisor, is the Fund's principal
underwriter. For the year ended October 31, 1998 the Fund has been advised
that the Distributor retained net underwriting discounts of $882,631 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $6,687, $376,630, and $3,805 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:
<TABLE>
<CAPTION>
Value of shares outstanding on the
20th of each month which were issued Annual Fee Rate
------------------------------------ ---------------
<S> <C>
Prior to April 1, 1989 0.15%
On or after April 1, 1989 0.25%
</TABLE>
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers
who sold such shares.
Other: The Fund pays no compensation to its officers, all of whom are
employees of the 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, 1998, purchases and
sales of investments, other than short-term obligations, were $247,411,104
and $184,762,427, respectively.
Unrealized appreciation (depreciation) at October 31, 1998, based on cost of
investments for both financial statement and federal income tax purposes
was:
<TABLE>
<S> <C>
Gross unrealized appreciation $177,760,977
Gross unrealized depreciation (47,131,588)
------------
Net unrealized appreciation $130,629,389
============
</TABLE>
Other: There are certain additional risks involved when investing in
foreign securities that are not inherent with investments in domestic
securities. These risks may involve foreign currency exchange rate
fluctuations, adverse political and economic developments and the possible
prevention of foreign currency exchange or the imposition of other foreign
governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
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 off-
shore loan rate plus 1/2 of 1%. There were no borrowings under the line of
credit for the year ended October 31, 1998.
NOTE 5. RESULTS OF SPECIAL MEETING OF SHAREHOLDERS (UNAUDITED)
- ------------------------------------------------------------------------------
On October 30, 1998, a Special Meeting of Shareholders of the Fund was held
to approve the following items, all as described in the Proxy Statement for
the Meeting. On August 21, 1998, the record date for the Meeting, the Fund
had outstanding 33,127,902 shares of beneficial interest. The votes cast at
the Meeting were as follows:
<TABLE>
<CAPTION>
Authority
For Withheld
--- ---------
<S> <C> <C>
To elect a Board of Trustees.
Robert J. Birnbaum 16,686,761 739,630
Tom Bleasdale 16,686,761 739,630
John Carberry 16,687,811 738,580
Lora S. Collins 16,687,857 738,534
James E. Grinnell 16,686,761 739,630
Richard W. Lowry 16,687,811 738,580
Salvatore Macera 16,687,811 738,580
William E. Mayer 16,687,811 738,580
James L. Moody, Jr. 16,687,811 738,580
John J. Neuhauser 16,687,857 738,534
Thomas E. Stitzel 16,687,857 738,534
Robert L. Sullivan 16,687,857 738,534
Anne-Lee Verville 16,687,857 738,534
</TABLE>
To amend fundamental investment policies regarding borrowing and lending.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<C> <C> <C>
12,636,379 712,965 1,022,318
</TABLE>
To approve policies for a master fund/feeder fund structure.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<C> <C> <C>
12,519,469 789,836 1,062,360
</TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period
are as follows:
<TABLE>
<CAPTION>
Year ended October 31
------------------------------------
1998
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Net asset value -
Beginning of period $ 20.430 $ 20.020 $ 20.410
------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (a) (0.047) (0.199) (0.201)
Net realized and
unrealized gain 1.637 1.599 1.641
------------------------------------
Total from Investment
Operations 1.590 1.400 1.440
------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net realized gains (1.850) (1.850) (1.850)
------------------------------------
Net asset value -
End of period $ 20.170 $ 19.570 $ 20.000
====================================
Total return (b) 7.95% 7.10% 7.17%
====================================
RATIOS TO AVERAGE NET ASSETS
Expenses (c) 1.32% 2.07% 2.07%
Net investment loss (c) (0.23)% (0.98)% (0.98)%
Portfolio turnover 32% 32% 32%
Net assets at end
of period (000) $373,092 $295,025 $12,519
<FN>
<Fa> Per share data was calculated using average shares outstanding during
the period.
<Fb> Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
<Fc> The benefits derived from custody credits and directed brokerage
arrangements had no impact.
</FN>
</TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each
period are as follows:
<TABLE>
<CAPTION>
Year ended October 31
--------------------------------------
1997
Class A Class B Class C (a)
------- ------- -----------
<S> <C> <C> <C>
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 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 --- --- ---
In excess of 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
(loss) (f) (0.01)% (0.76)% (1.05)%(g)
Portfolio turnover 63% 63% 63%
Net assets at end
of period (000) $340,479 $192,161 $ 558
<FN>
<Fa> Class C shares were initially offered on August 1, 1997. Per share
amounts reflect activity from that date.
<Fb> Per share data was calculated using average shares outstanding during
the period.
<Fc> 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.
<Fd> Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
<Fe> Not annualized.
</FN>
</TABLE>
<TABLE>
<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) (b) 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 (d) 21.28% 20.31% 28.44% 27.50%
==================================================
RATIOS TO AVERAGE NET ASSETS
Expenses (f) 1.17% 1.92% 1.12% 1.90%
Net investment income
(loss) (f) 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
<FN>
<Ff> The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
<Fg> Annualized.
</FN>
</TABLE>
Selected data for a share of each class outstanding throughout each period
are as follows:
<TABLE>
<CAPTION>
Year ended October 31
---------------------
1994
Class A Class B
------- -------
<S> <C> <C>
Net asset value -
Beginning of period $ 15.240 $ 15.180
----------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income
(loss) (a) 0.096 (0.008)
Net realized and
unrealized gain 0.275 0.288
----------------------
Total from Investment
Operations 0.371 0.280
----------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.071) ---
From net realized gains (1.520) (1.520)
----------------------
Total Distributions
Declared to Shareholders (1.591) (1.520)
----------------------
Net asset value -
End of period $ 14.020 $ 13.940
======================
Total return (b) 2.78% 2.12%
======================
RATIOS TO AVERAGE NET ASSETS
Expenses 1.22% 1.97%
Net investment income (loss) 0.69% (0.06)%
Portfolio turnover 121% 121%
Net assets at end
of period (000) $160,495 $ 53,218
<FN>
<Fa> Per share data was calculated using average shares outstanding during
the period.
<Fb> Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
</FN>
</TABLE>
Federal Income Tax Information (unaudited)
73% of the ordinary income distribution distributed by the Fund in the year
ended October 31, 1998 qualifies for the corporate dividends received
deduction.
For the fiscal year ended October 31, 1998 the Fund earned $19,389,146 of
long term capital gains of which none and $16,941,351 are 28% and 20% rate
gains, respectively.
REPORT OF INDEPENDENT ACCOUNTANTS
TO 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, 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 Colonial Trust III) at October 31,
1998, 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, 1998 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 11, 1998
Shareholder Services
to Make Investing Easier
Your Fund has one of the most extensive selections of shareholder services
available. Your financial advisor can help you arrange for any of these
services, or you can call Liberty Funds Services directly at 1-800-345-6611.
Affordable Additional Investments: Add to your account with as little as $50
on most funds; $25 for an IRA account.
Free Exchanges(1): Exchange all or part of your account into the same share
class of another fund distributed by Liberty Funds Distributor, Inc. by
phone or mail.
Easy Access to Your Money(1): Make withdrawals from your account by phone,
by mail or, for certain funds, by check.
One-Year Reinstatement Privilege: If you need access to your money, but then
choose to return it within one year, you can reinvest in any fund
distributed by Liberty Funds Distributor of the same share class without any
penalty or sales charge.
Fundamatic: Make periodic investments as low as $50 from your checking
account to your Fund account.
Systematic Withdrawal Plan (SWP): Receive monthly, quarterly or semiannual
payments via check or bank transmission. There is a $5,000 account value
required, but no minimum for the payment amount. The maximum annual
withdrawal is 12% of account balance at time SWP is established. SWPs by
check are processed on the 10th 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 Funds Distributor. Minimum for each transfer is
$100.
Retirement Plans: Choose from a broad range of retirement plans,
including IRAs.
[FN]
<F1> 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.
</FN>
How to Reach Us
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.
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 Funds Distributor,
Inc., call Monday to Friday, 8:30 a.m. to 6:30 p.m. ET.
By Mail
Liberty Funds Services, Inc.
P.O. Box 1722
Boston, MA 02105-1722
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 Funds Distributor 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.)
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
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
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 Fund.
Trustees
Robert J. Birnbaum
Consultant (formerly Special Counsel, Dechert, Price & Rhoads; President and
Chief Operating Officer, New York Stock Exchange, Inc.; President, American
Stock Exchange, Inc.)
Tom Bleasdale
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore
Bank & Trust Company)
John Carberry
Senior Vice President of Liberty Financial Companies, Inc. (formerly
Managing Director, Solomon Brothers)
Lora S. Collins
Attorney (formerly Attorney, Kramer, Levin, Naftalis & Frankel)
James E. Grinnell
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
Richard W. Lowry
Private Investor (formerly Chairman and Chief Executive Officer, U.S.
Plywood Corp.)
Salvatore Macera
Private Investor (formerly Executive Vice President of Itek Corp. and
President of Itek Optical & Electronic Industries, Inc.)
William E. Mayer
Partner, Development Capital, LLC (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, Chief Executive Officer and
Director, Hannaford Bros. Co.)
John J. Neuhauser
Dean, Boston College School of Management
Thomas E. Stitzel
Professor of Finance, College of Business, Boise State University; Business
Consultant and Author
Robert L. Sullivan
Retired Partner, KPMG Peat Marwick LLP (formerly Management Consultant,
Saatchi and Saatchi Consulting Ltd. and Principal and International Practice
Director, Management Consulting, Peat Marwick Main & Co.)
Anne-Lee Verville
Consultant (formerly General Manager, Global Education Industry, and
President, Applications Solutions Division, IBM Corporation)
(LOGO) LIBERTY
COLONIAL * CRABBE HUSON * NEWPORT * STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)1998
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
Visit us as www.libertyfunds.com SV-02/218G-1198 (11/98)98/1333
