<PAGE>
[PHOTO DEPICTING A NATURE SCENE]
- -----------------------------------------------------
COLONIAL INTERNATIONAL HORIZONS FUND ANNUAL REPORT
- -----------------------------------------------------
October 31, 1997
-----------------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
-----------------------------
<PAGE>
COLONIAL INTERNATIONAL HORIZONS FUND HIGHLIGHTS
November 1, 1996 - October 31, 1997
INVESTMENT OBJECTIVE: Colonial International Horizons Fund seeks preservation of
capital purchasing power and long-term growth.
THE FUND IS DESIGNED TO OFFER:
[check mark] Preservation of purchasing power
[check mark] Growth potential
[check mark] Diversification to help reduce risk
PORTFOLIO MANAGER COMMENTARY: "We continued to emphasize commodity-oriented
natural resource stocks that help shelter shareholders from inflation. This
emphasis also served to reduce the effect of world stock market volatility on
the Fund."
-- Gita Rao
<TABLE>
COLONIAL INTERNATIONAL HORIZONS FUND PERFORMANCE
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Inception dates 6/8/92 6/8/92 8/1/97
12-month distributions declared per share $1.454 $1.424 --
12-month total returns, assuming 17.87% 16.98% (4.34)(1)%
reinvestment of all distributions
and no sales charge or contingent
deferred sales charge (CDSC)
Net asset values per share on 10/31/97 $15.26 $15.07 $15.22
<CAPTION>
TOP FIVE HOLDINGS(2) TOP FIVE COUNTRIES(2)
(as of 10/31/97) (as of 10/31/97)
<S> <C> <C> <C>
1. Chauvco Resources Ltd ...... 2.6% 1. Canada ..................... 13.9%
2. Baan Co., N.V .............. 2.4% 2. United Kingdom ............. 12.6%
3. ENSCO International, Inc. .. 2.2% 3. Japan ...................... 10.5%
4. Amerada Hess Corp. ......... 2.1% 4. United States .............. 10.0%
5. Imi PLC .................... 2.0% 5. Germany .................... 5.8%
</TABLE>
(1) Class C share total returns are cumulative since inception on August 1,
1997.
(2) Country and holdings breakdowns are calculated as a percentage 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 countries and
sectors in the future.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
I am pleased to present the annual report for Colonial
International Horizons Fund. This report reflects on [Photo of Mr. Cogger]
the investment environment for the 12 months ended
October 31, 1997 and on the performance of your Fund.
International stock markets were generally strong during much of the period,
although returns generated by the U.S. stock market continued to exceed those
available elsewhere. The Fund's investment in stocks of established non-U.S.
companies offered shareholders a way to participate in other attractive
industries and in the global economy. Less mature world economies often offer
higher growth prospects, providing select international stocks with considerable
potential for price gains.
The Fund's core natural resource holdings continued to benefit from worldwide
economic development as increased demand for natural resources continued,
particularly in Europe where much of the portfolio is invested. While natural
resource stocks experienced price gains during the period, a currency crisis in
Southeast Asia during the final months had a negative spillover effect on many
stock markets worldwide. During the "sorting out" period, the Fund's emphasis on
commodity-oriented stocks served to shield investors from much of the volatility
experienced in these markets.
In addition to providing attractive growth prospects, an international fund
offers an opportunity to diversify your core portfolio. World stock markets do
not tend to move in step with the domestic stock market, and many international
markets have historically outperformed the U.S. market. We believe that looking
ahead, long-term growth prospects remain attractive.
The following report will provide you with specific information on your Fund's
performance as well as an in-depth report from your portfolio manager. Thank you
for giving us the opportunity to serve your investment needs.
Respectfully,
/s/ Harold W. Cogger
Harold W. Cogger
President
December 10, 1997
Because market conditions change frequently, there can be no assurance that the
trends described will continue.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT REPORT
GITA RAO is portfolio manager of Colonial International Horizons Fund, formerly
Colonial Global Natural Resources Fund. She is a vice president of Colonial
Management Associates, Inc. NICOLAS GHAJAR is an associate portfolio manager for
the Fund.
INCREASED INVESTMENT FLEXIBILITY BENEFITED SHAREHOLDERS
The Fund's shift from a global natural resources fund to a more diversified
international portfolio resulted in enhanced total return opportunities during
the period. The Fund's core natural resource stock component continued to help
protect investors from inflation. Diversified worldwide investments in
industrial and consumer-oriented stocks increased the portfolio's country and
sector diversification, providing shareholders with additional opportunities to
participate in global expansion. During the last part of the period there were
large swings in stock prices worldwide as a result of the Southeast Asian
currency crisis. The impact of this event on the Fund's portfolio was reduced by
its strategy of broad diversification and its investments in commodity-oriented
stocks that are less sensitive to currency and interest rate movements.
FUND'S RESTRUCTURING COMPLETED
The shift from a global to an international fund required that we limit the
portfolio's holdings in U.S. stocks to 35% or less of Fund assets. By October
31, we had reduced our U.S. stock positions to less than 10% of net assets from
62% at the beginning of the period. We rebalanced our core portfolio of natural
resource stocks by selling non-natural resource holdings. We also tried to match
gains and losses to limit capital gains taxes.
NEW INVESTMENTS PROVIDE ADDITIONAL COUNTRY AND SECTOR DIVERSIFICATION
As we reduced our U.S. positions, we reinvested the assets in international
stocks that offered investors a way to participate in worldwide growth trends.
For the most part, we purchased diversified, commodity-oriented stocks in Japan,
France and the United Kingdom, all countries that were previously
underrepresented in the portfolio. We also purchased certain consumer-oriented
stocks, such as Parmalat, an Italian non-refrigerated milk bottler and Nestle,
S.A., a Swiss diversified consumer products company with a large presence in
high growth emerging markets. We continued to avoid sectors that are sensitive
to interest rates and inflation, such as financial institutions and utilities.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
ATTRACTIVE NATURAL RESOURCE VALUES FOUND WORLDWIDE
We continued to seek out value-priced stocks in the natural resource sector. The
Fund enjoyed strong performance by Petroleum Geo-Services, a Norwegian oil
services company that outperformed the local Norwegian industrial index by 43%.
Attractive gains were also generated by Cemex, a geographically diversified
Mexican construction company that is the world's third largest cement producer.
The Fund has some of its assets invested in precious metal stocks, including
gold, which experienced price declines during the period. However, the
portfolio's gold-related holdings have diversified operations, are hedged
against gold price volatility and represent the world's lowest cost producers,
all conditions that reduce the negative effect of gold price declines.
POSITIVE OUTLOOK CONTINUES
We expect that the portfolio's core natural resource component should continue
to help protect shareholders against inflation while the Fund's increased
investment flexibility should help protect shareholders against large swings in
share prices. We believe commodity-oriented and basic industry companies should
continue to do well as higher standards of living worldwide increase consumer
demand.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
COLONIAL INTERNATIONAL HORIZONS FUND'S INVESTMENT PERFORMANCE VS.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE (GDP) &
THE STANDARD & POOR'S 500 INDEX
Change in Value of $10,000 from 6/30/92 - 10/31/97
[LINE CHART: Based on NAV and POP for Class A Shares]
<TABLE>
<CAPTION>
Label A B C D
- --------------------------------------------------------------------------------
Label CIHFA NAV POP S&P 500 MSCI
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1
2
3 Jun 30, 92 10000 9425 10000 10000
4 Jul 31, 92 10268.12 9677.706 10408 9646
5 Aug 31, 92 10039.72 9462.438 10196 10126
6 Sep 30, 92 10009.93 9434.359 10315 9754
7 Oct 31, 92 9682.225 9125.497 10351 9358
8 Nov 30, 92 9285.005 8751.117 10702 9404
9 Dec 31, 92 9431.813 8889.483 10834 9402
10 Jan 31, 93 9421.8 8880.046 10924 9511
11 Feb 28, 93 9852.339 9285.829 11073 9844
12 Mar 31, 93 10513.17 9908.659 11306 10516
13 Apr 30, 93 11043.83 10408.81 11033 11485
14 May 31, 93 11684.63 11012.77 11328 11664
15 Jun 30, 93 11625.92 10957.43 11361 11462
16 Jul 31, 93 12128.33 11430.96 11315 11807
17 Aug 31, 93 12218.77 11516.19 11743 12673
18 Sep 30, 93 11716.35 11042.66 11653 12407
19 Oct 31, 93 12218.77 11516.19 11894 12748
20 Nov 30, 93 11897.22 11213.13 11781 11732
21 Dec 31, 93 12616.19 11890.76 11923 12558
22 Jan 31, 94 13308.05 12542.83 12328 13518
23 Feb 28, 94 12870.55 12130.49 11994 13444
24 Mar 31, 94 12575.49 11852.4 11472 13251
25 Apr 30, 94 12646.71 11919.53 11619 13920
26 May 31, 94 12941.77 12197.62 11809 13601
27 Jun 30, 94 12700.96 11970.66 11520 13594
28 Jul 31, 94 13058.88 12307.99 11898 13910
29 Aug 31, 94 13427.02 12654.97 12384 14146
30 Sep 30, 94 13416.8 12645.33 12082 13648
31 Oct 31, 94 13457.7 12683.88 12353 14063
32 Nov 30, 94 12394.17 11681.51 11904 13437
33 Dec 31, 94 12499.45 11780.73 12080 13538
34 Jan 31, 95 11849.86 11168.49 12393 13192
35 Feb 28, 95 12237.52 11533.86 12857 13177
36 Mar 31, 95 12729.95 11997.98 13255 13773
37 Apr 30, 95 13149.04 12392.97 13645 14389
38 May 31, 95 13348.11 12580.6 14189 14250
39 Jun 30, 95 13448.87 12675.56 14518 14091
40 Jul 31, 95 13985.14 13181 14999 15012
41 Aug 31, 95 13848.44 13052.16 15037 14385
42 Sep 30, 95 13711.75 12923.32 15671 14556
43 Oct 31, 95 13070.32 12318.78 15615 14134
44 Nov 30, 95 13627.63 12844.04 16300 14432
45 Dec 31, 95 14132.42 13319.8 16614 15049
46 Jan 31, 96 14597.59 13758.23 17179 15240
47 Feb 29, 96 14708.34 13862.62 17338 15286
48 Mar 31, 96 15262.12 14384.55 17505 15489
49 Apr 30, 96 15605.46 14708.15 17763 15971
50 May 31, 96 15616.54 14718.59 18220 15735
51 Jun 30, 96 15305.28 14425.23 18290 15859
52 Jul 31, 96 14538.91 13702.92 17482 15403
53 Aug 31, 96 15138.68 14268.21 17852 15395
54 Sep 30, 96 15327.5 14446.16 18855 15818
55 Oct 31, 96 15905.05 14990.51 19375 15645
56 Nov 30, 96 16749.18 15786.1 20839 16313
57 Dec 31, 96 17047.31 16067.09 20426 16197
58 Jan 31, 97 17304.3 16309.3 21701 15892
59 Feb 28, 97 16814.79 15847.94 21872 16003
60 Mar 31, 97 16704.65 15744.13 20975 16308
61 Apr 30, 97 16741.36 15778.73 22226 16268
62 May 31, 97 18014.1 16978.29 23584 17115
63 Jun 30, 97 18674.2 17600.44 24633 18134
64 Jul 31, 97 19546.48 18422.56 26592 18534
65 Aug 31, 97 18661.92 17588.86 25104 17204
66 Sep 30, 97 19951.91 18804.68 26478 18309
67 Oct 31, 97 18747.92 17669.91 25595 16956
</TABLE>
[LINE CHART: Based on NAV and Maximum CDSC for Class B Shares]
<TABLE>
<CAPTION>
Label A B C D
- --------------------------------------------------------------------------------
Label S&P 500 NAV w/CDSC MSCI
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1
2 NAV w/CDSC
3 Jun 30, 92 10000 10000 10000 10000
4 Jul 31, 92 10408 10268.39 10268.39 9646
5 Aug 31, 92 10196 10029.82 10029.82 10126
6 Sep 30, 92 10315 10000 10000 9754
7 Oct 31, 92 10351 9662.028 9662.028 9358
8 Nov 30, 92 10702 9254.474 9254.474 9404
9 Dec 31, 92 10834 9397.543 9397.543 9402
10 Jan 31, 93 10924 9377.591 9377.591 9511
11 Feb 28, 93 11073 9806.565 9806.565 9844
12 Mar 31, 93 11306 10464.99 10464.99 10516
13 Apr 30, 93 11033 10973.78 10973.78 11485
14 May 31, 93 11328 11602.27 11602.27 11664
15 Jun 30, 93 11361 11547.88 11547.88 11462
16 Jul 31, 93 11315 12036.95 12036.95 11807
17 Aug 31, 93 11743 12116.79 12116.79 12673
18 Sep 30, 93 11653 11617.75 11617.75 12407
19 Oct 31, 93 11894 12106.81 12106.81 12748
20 Nov 30, 93 11781 11777.44 11777.44 11732
21 Dec 31, 93 11932 12478.89 12478.89 12558
22 Jan 31, 94 12328 13163.77 13163.77 13518
23 Feb 28, 94 11994 12720.62 12720.62 13444
24 Mar 31, 94 11472 12418.46 12418.46 13251
25 Apr 30, 94 11619 12478.89 12478.89 13920
26 May 31, 94 11809 12770.98 12770.98 13601
27 Jun 30, 94 11520 12513.38 12513.38 13594
28 Jul 31, 94 11898 12856.48 12856.48 13910
29 Aug 31, 94 12384 13219.78 13219.78 14146
30 Sep 30, 94 12082 13209.68 13209.68 13648
31 Oct 31, 94 12353 13229.87 13229.87 14063
32 Nov 30, 94 11904 12180.36 12180.36 13437
33 Dec 31, 94 12080 12273.94 12273.94 13538
34 Jan 31, 95 12393 11624.69 11624.69 13192
35 Feb 28, 95 12875 12006 12006 13177
36 Mar 31, 95 13255 12480.05 12480.05 13773
37 Apr 30, 95 13645 12881.97 12881.97 14389
38 May 31, 95 14189 13067.47 13067.47 14250
39 Jun 30, 95 14518 13160.22 13160.22 14091
40 Jul 31, 95 14999 13675.5 13675.5 15012
41 Aug 31, 95 15037 13531.22 13531.22 14385
42 Sep 30, 95 15671 13397.25 13397.25 14556
43 Oct 31, 95 15615 12758.3 12758.3 14134
44 Nov 30, 95 16300 13283.89 13283.89 14432
45 Dec 31, 95 16614 13772.34 13772.34 15049
46 Jan 31, 96 17179 14226.73 14226.73 15240
47 Feb 29, 96 17338 14313.28 14313.28 15286
48 Mar 31, 96 17505 14843.4 14843.4 15489
49 Apr 30, 96 17763 15178.78 15178.78 15971
50 May 31, 96 18220 15167.96 15167.96 15735
51 Jun 30, 96 18290 14858.15 14858.15 15859
52 Jul 31, 96 17482 14111.45 14111.45 15403
53 Aug 31, 96 17852 14674.18 14674.18 15395
54 Sep 30, 96 18855 14858.15 14858.15 15818
55 Oct 31, 96 19375 15399.23 15399.23 15645
56 Nov 30, 96 20839 16210.86 16210.86 16313
57 Dec 31, 96 20426 16477.47 16477.47 16197
58 Jan 31, 97 21701 16727.85 16727.85 15892
59 Feb 28, 97 21872 16250.93 16250.93 16003
60 Mar 31, 97 20975 16131.71 16131.71 16308
61 Apr 30, 97 22226 16143.63 16143.63 16268
62 May 31, 97 23584 17371.69 17371.69 17115
63 Jun 30, 97 24633 17990.57 17990.57 18134
64 Jul 31, 97 26592 18827.34 18827.34 18534
65 Aug 31, 97 25104 17966.67 17966.67 17204
66 Sep 30, 97 26478 19185.96 19185.96 18309
67 Oct 31, 97 25595 18014.48 17914.48 16956
</TABLE>
A $10,000 investment in Class C shares made on August 1, 1997 (inception), at
net asset value (NAV) would have been valued at $9,566 on October 31, 1997. The
same investment after deducting the applicable contingent deferred sales charge
(CDSC) would have been valued at $9,470. The Fund's performance has been
compared to the Standard & Poor's 500 Index (S&P 500) in the past. Now that the
Fund has an international focus, it is more appropriate to compare it to the
Morgan Stanley Capital International EAFE (GDP) Index, a broad-based
international index. The Morgan Stanley Capital International EAFE (GDP) Index
is an unmanaged index that tracks the performance of international stocks. The
S&P 500 Index is an unmanaged index that tracks the performance of the U.S.
stock market. Unlike mutual funds, an index does not incur fees or charges and
it is not possible to invest in an index.
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS
As of 9/30/97 (most recent quarter end)
<CAPTION>
- --------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES(1)
INCEPTION 6/8/92 6/8/92 8/1/97
NAV POP NAV w/CDSC NAV w/CDSC
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 YEAR 30.17% 22.69% 29.13% 24.13% -- --
- --------------------------------------------------------------------------------
5 YEARS 14.79 13.44 13.92 13.68 -- --
- --------------------------------------------------------------------------------
SINCE INCEPTION 14.02 12.76 13.16 13.05 1.95% 0.95%
- --------------------------------------------------------------------------------
</TABLE>
(1) Class C share total returns are cumulative since inception on August 1,
1997.
Past performance cannot predict future results. Returns and value of an
investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. NAV returns do not include sales charges
or CDSC. Public offering price (POP) returns include the maximum sales charge of
5.75% for Class A shares. The CDSC returns reflect charges of 5% for one year,
2% for five years and 1% since inception for Class B shares and 1% since
inception for Class C shares. Performance for different share classes will vary
based on differences in sales charges and fees associated with each class.
- --------------------------------------------------------------------------------
6
<PAGE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCKS - 94.2% COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION - 2.8%
HEAVY CONSTRUCTION-NON BUILDING CONSTRUCTION - 1.4%
Koninklijke Boskalis Westminster NV Ne 29 $ 484
Stork N.V. Ne 9 392
------------
876
------------
SPECIAL TRADE CONTRACTORS - 1.4%
Kinden Corp. Ja 70 861
------------
- -------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 6.0%
DEPOSITORY INSTITUTIONS - 5.9%
Allied Irish Bank UK 60 504
Banca Nazionale Del Lavoro It 44 539
Cie Financiere De Paribas Fr 7 508
Corporacion Bancaria De Espana Sa Sp 9 493
Merita Ltd., Class A (a) Fi 112 548
Unidanamark A/S (a) De 8 533
Westpac Banking Corp. Au 88 511
------------
3,636
------------
REAL ESTATE - 0.1%
Bandar Raya Developments Ma 86 37
------------
- -------------------------------------------------------------------------------
MANUFACTURING - 52.2%
CHEMICALS & ALLIED PRODUCTS - 13.3%
BASF AG G 19 644
DSM NV Ne 8 685
E.I. Dupont de Nemours & Co. 16 921
Kao Corp. Ja 49 685
Kemira Oy Fi 54 549
Medeva PLC UK 270 929
Norsk Hydro AS No 15 844
Rhone Poulenc, Class A Fr 29 1,249
Yamanouchi Pharmaceutical Co. Ja 40 985
Zeneca Group PLC UK 21 661
------------
8,152
------------
COMMUNICATIONS EQUIPMENT - 5.2%
Ericsson (LM), Tel-Sp ADR Sw 28 1,231
Matsushaita Electric Industrial Co. Ja 25 420
Siemens Ag G 17 1,042
Sony Corp. Ja 6 498
------------
3,191
------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/October 31, 1997
- --------------------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING - CONT.
FABRICATED METAL - 0.7%
Usinor Sacilor Fr 27 $ 444
------------
FOOD & KINDRED PRODUCTS - 4.8%
Eridania Beghin-Say SA Fr 3 473
Nestle AG Sz 1 1,093
Parmalat Finanziara SPA It 288 400
Unigate PLC UK 56 542
Yakult Honsha Co., Ltd. Ja 57 473
------------
2,981
------------
LUMBER & WOOD PRODUCTS - 0.8%
Donohue, Inc., Class A Ca 25 508
------------
MACHINERY & COMPUTER EQUIPMENT - 0.7%
Fujitsu Ltd. Ja 41 450
------------
PAPER PRODUCTS - 1.4%
Abitibit-Price, Inc. Ca 36 510
Mo Och Domsjo AB, Class B (a) Sw 14 376
------------
886
------------
PETROLEUM REFINING - 12.2%
Amerada Hess Corp. 21 1,296
Atlantic Richfield Co. 8 683
British Petroleum Co., PLC, ADR UK 7 641
Chevron Corp. 7 589
Mobil Corp. 8 612
Omv Handels AG Aus 6 800
Phillips Petroleum Co. 8 391
Repsol SA Sp 24 990
Repsol SA, ADS Sp 19 795
Shell Canada Ltd. Ca 35 704
------------
7,501
------------
PRIMARY METAL - 4.8%
Acerinox SA Sp 3 424
Alfa SA Mx 140 1,018
Imi PLC UK 190 1,261
Km Europa Metal AG (a) G 3 264
------------
2,967
------------
PRIMARY SMELTING - 0.3%
Capral Aluminum Ltd. (a) Au 73 174
------------
</TABLE>
8
<PAGE>
Investment Portfolio/October 31, 1997
- -------------------------------------------------------------------------------
RUBBER & PLASTIC - 2.3%
Continental AG G 40 $ 941
Michelin Class B Fr 9 480
------------
1,421
------------
STONE, CLAY, GLASS & CONCRETE - 2.9%
Cemex, SA Mx 262 1,038
Holderbank Financiere Glaris AG Sz 1 664
------------
1,702
------------
TOBACCO PRODUCTS - 1.7%
B.A.T. Industries PLC UK 59 515
Hanson PLC UK 106 544
------------
1,059
------------
TRANSPORTATION EQUIPMENT - 1.1%
Volkswagen AG G 1 709
------------
- -------------------------------------------------------------------------------
MINING & ENERGY - 19.3%
CRUDE PETROLEUM & NATURAL GAS - 1.2%
Ranger Oil Ltd. 90 775
------------
GOLD & SILVER MINING - 2.4%
Ashanti Goldfields Co., Ltd., GDS Gh 10 96
Barrick Gold Corp. Ca 29 606
Placer Dome, Inc. Ca 26 408
Sons of Gwalia Ltd. Au 136 360
------------
1,470
------------
METAL MINING - 3.3%
Acacia Resources Ltd. (a) Au 130 129
Elandsrand Gold Mining Co. Ltd. SA 27 78
Franco-Nevada Mining Corp. Ltd Ca 32 749
Freeport-McMoran Copper & Gold, Inc. 17 380
Prime Resource Group, Inc. (a) Ca 100 665
------------
2,001
------------
NONMETALLIC, EXCEPT FUELS - 1.7%
De Beers Consolidated Mines Ltd., ADR (a) SA 16 381
Potash Corp. of Saskatchewan, Inc. Ca 8 670
------------
1,051
------------
OIL & GAS EXTRACTION - 8.7%
Chauvco Resources Ltd., Class A Ca 73 1,589
Elf Gabon SA Fr 1 249
Ensco International, Inc. 32 1,346
Petro-Canada Ca 48 967
Pioneer International Ltd. Au 192 505
9
<PAGE>
Investment Portfolio/October 31, 1997
- -------------------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
MINING & ENERGY - CONT.
YPF SA, ADR Ar 22 $ 697
------------
5,353
------------
OIL & GAS FIELD SERVICES - 2.0%
Petroleum Geo-Services A/S (a) No 18 1,206
------------
- -------------------------------------------------------------------------------
RETAIL TRADE - 1.6%
AUTO DEALERS & GAS STATIONS - 0.8%
Cowie Group UK 84 502
------------
FOOD STORES - 0.8%
Izumiya Co., Ltd. Ja 58 477
------------
- -------------------------------------------------------------------------------
SERVICES - 4.4%
BUSINESS SERVICES - 2.4%
Baan Co., N.V. (a) Ne 21 1,485
------------
HEALTH SERVICES - 2.0%
Novartis Sz 1 1,215
------------
- -------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 7.9%
AIR TRANSPORTATION - 1.0%
Swire Pacific Ltd., Series A HK 110 588
------------
COMMUNICATIONS - 1.9%
Nippon Telegraph & Telephone Corp. Ja 1 1,144
------------
ELECTRIC, GAS & SANITARY SERVICES - 2.0%
Hyder PLC UK 36 542
Wessex Water PLC UK 31 257
Westcoast Energy, Inc. Ca 23 466
------------
1,265
------------
MOTOR FREIGHT & WAREHOUSING - 0.8%
Seino Transportation Ja 57 493
------------
SANITARY SERVICES - 1.4%
Severn Trent Water PLC UK 61 879
------------
TRANSPORTATION SERVICES - 0.8%
New World Infrastructure Ltd. (a) HK 265 525
------------
TOTAL COMMON STOCKS (cost of $50,106) 57,984
------------
10
<PAGE>
Investment Portfolio/October 31, 1997
- -------------------------------------------------------------------------------
PREFERRED STOCKS - 0.1%
- -------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.1%
ELECTRIC, GAS & SANITARY SERVICES
Hyder PLC, 7.875% (cost of $41) UK 30 $ 57
------------
CORPORATE FIXED - INCOME
BONDS & NOTES - 0.0% CURRENCY PAR
- -------------------------------------------------------------------------------
MANUFACTURING - 0.0%
LUMBER & WOOD PRODUCTS
Donohue, Inc., Series B,
(cost of $27)
8.000% 03/01/98 C$ $ 37 29
------------
TOTAL INVESTMENTS - 94.3% (cost of $50,174)(b) 58,070
------------
SHORT-TERM OBLIGATIONS - 6.4%
- -------------------------------------------------------------------------------
Repurchase agreement with Greenwich Capital Markets, Inc.,
dated 10/31/97, due 11/03/97 at 5.6250%, collateralized by U.S.
Treasury notes with various maturities to 2016, market
value $4,021 (repurchase proceeds $3,918) 3,916 3,916
------------
OTHER ASSETS & LIABILITIES, NET - (0.7)% (421)
- -------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 61,565
------------
NOTES TO INVESTMENT PORTFOLIO:
- -------------------------------------------------------------------------------
(a) Non-income producing.
(b) Cost for federal income tax purposes is approximately the same.
11
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/October 31, 1997
- -------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO - CONT.
- -------------------------------------------------------------------------------
Summary of Securities by Country/
Country/Currency Currency Value % of Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Canada Ca/C$ $ 7,871 13.6
United Kingdom UK 7,834 13.5
United States 6,993 12.0
Japan Ja 6,486 11.2
Germany G 3,600 6.2
France Fr 3,403 5.9
Netherlands Ne 3,046 5.2
Switzerland Sz 2,972 5.1
Spain Sp 2,702 4.6
Mexico Mx 2,056 3.5
Norway No 2,050 3.5
Australia Au 1,679 2.9
Sweden Sw 1,607 2.8
Hong Kong HK 1,113 1.9
Finland Fi 1,097 1.9
Italy It 939 1.6
Austria Aus 800 1.4
Argentina Ar 697 1.2
Denmark De 533 0.9
South Africa SA 459 0.8
Ghana Gh 96 0.2
Malaysia Ma 37 0.1
------------ ------------
$ 58,070 100.0
------------ ------------
</TABLE>
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
Acronym Name
-------------- --------------------------------
ADR American Depositary Receipt
ADS American Depositary Shares
GDS Global Depositary Shares
See notes to financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS & LIABILITIES
OCTOBER 31, 1997
(in thousands except for per share amounts and footnotes)
<S> <C> <C>
ASSETS
Investments at value (cost $50,174) $ 58,070
Short-term obligations 3,916
--------------
61,986
Cash including foreign currencies (cost $12) $ 13
Receivable for:
Dividends 53
Fund shares sold 16
Foreign tax reclaims 16
Interest 1
Other 7 106
------------- --------------
Total Assets 62,092
LIABILITIES
Payable for:
Fund shares repurchased 506
Accrued:
Deferred Trustees fees 1
Other 20
-------------
Total Liabilities 527
--------------
NET ASSETS $ 61,565
--------------
Net asset value & redemption price per share -
Class A ($34,645/2,271) $ 15.26
--------------
Maximum offering price per share - Class A
($15.26/0.9425) $ 16.19(a)
--------------
Net asset value & offering price per share -
Class B ($26,817/1,779) $ 15.07(b)
--------------
Net asset value & offering price per share -
Class C ($103/7) $ 15.22(b)
--------------
COMPOSITION OF NET ASSETS
Capital paid in $ 42,468
Undistributed net investment income 182
Accumulated net realized gain 11,021
Net unrealized appreciation (depreciation) on:
Investments 7,896
Foreign currency transactions (2)
--------------
$ 61,565
--------------
</TABLE>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
See notes to financial statements.
13
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
(in thousands)
INVESTMENT INCOME
Dividends $ 1,140
Interest 335
--------------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $73) 1,475
EXPENSES
Management fee $ 483
Service fee 163
Distribution fee - Class B 208
Distribution fee - Class C (a)
Transfer agent 213
Bookkeeping fee 32
Registration fee 44
Custodian fee 29
Audit fee 33
Trustees fee 13
Reports to shareholders 10
Legal fee 7
Amortization of deferred
organization expenses 8
Other 10 1,253
------------- --------------
Net Investment Income 222
--------------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain on:
Investments 11,207
Foreign currency transactions 17
-------------
Net Realized Gain 11,224
Change in net unrealized depreciation during
the period on:
Investments (1,083)
Foreign currency transactions (4)
-------------
Net Change in Unrealized Depreciation (1,087)
--------------
Net Gain 10,137
--------------
Increase in Net Assets from Operations $ 10,359
--------------
(a) Rounds to less than one
See notes to financial statements.
14
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Year ended
(in thousands) October 31
-----------------------------
INCREASE (DECREASE) IN NET ASSETS 1997(a) 1996
Operations:
Net investment income $ 222 $ 142
Net realized gain 11,224 5,758
Net unrealized appreciation (depreciation) (1,087) 4,835
------------- --------------
Net Increase from Operations 10,359 10,735
Distributions:
From net investment income - Class A (73) (199)
From net realized gains - Class A (3,435) (1,554)
From net realized gains - Class B (2,522) (1,048)
------------- --------------
4,329 7,934
------------- --------------
Fund Share Transactions:
Receipts for shares sold - Class A 61,284 10,375
Value of distributions reinvested - Class A 2,968 1,543
Cost of shares repurchased - Class A (68,973) (11,267)
------------- --------------
(4,721) 651
------------- --------------
Receipts for shares sold - Class B 12,423 10,576
Value of distributions reinvested - Class B 2,056 897
Cost of shares repurchased - Class B (14,766) (10,149)
------------- --------------
(287) 1,324
------------- --------------
Receipts for shares sold - Class C 107 ----
------------- --------------
Net Increase (Decrease) from Fund
Share Transactions (4,901) 1,975
------------- --------------
Total Increase (Decrease) (572) 9,909
NET ASSETS
Beginning of period 62,137 52,228
------------- --------------
End of period (including undistributed and net
of overdistributed net investment income of $182
and $1, respectively) $ 61,565 $ 62,137
------------- --------------
Sold - Class A 4,043 754
Issued for distributions reinvested - Class A 222 122
Repurchased - Class A (4,554) (834)
------------- --------------
(289) 42
------------- --------------
Sold - Class B 851 784
Issued for distributions reinvested - Class B 154 71
Repurchased - Class B (1,017) (755)
------------- --------------
(12) 100
------------- --------------
Sold - Class C 7 ----
------------- --------------
(a) Class C shares were initially offered on August 1, 1997
See notes to financial statements.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
NOTE 1. ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
ORGANIZATION: Colonial International Horizons Fund (the Fund), formerly Colonial
Global Natural Resources Fund, a series of Colonial Trust III, is a
non-diversified portfolio of a Massachusetts business trust registered under the
Investment Company Act of 1940, as amended, as an open-end, management
investment company. The Fund's investment objective is to seek preservation of
capital purchasing power and long-term growth. The Fund may issue an unlimited
number of shares. The Fund offers three classes of shares: Class A, Class B, and
Class C. Class A shares are sold with a front-end sales charge and Class B
shares are subject to an annual distribution fee and a contingent deferred sales
charge. Class B shares will convert to Class A shares when they have been
outstanding approximately eight years. Effective August 1, 1997, the Fund began
offering Class C shares which are subject to a contingent deferred sales charge
on redemptions made within one year after purchase and a continuing distribution
fee.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies that are 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.
Debt securities generally are valued by a pricing service based upon market
transactions for normal, institutional-size trading units of similar securities.
When management deems it appropriate, an over-the-counter or exchange bid
quotation is used.
Forward currency contracts are valued based on the weighted value of the
exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
The value of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates.
Portfolio positions for which market quotations are not readily available are
valued at fair value under procedures approved by the Trustees.
16
<PAGE>
Notes to Financial Statements/October 31, 1997
- -------------------------------------------------------------------------------
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 fees), and realized
and unrealized gains (losses), are allocated to each class proportionately on a
daily basis for purposes of determining the net asset value of each class.
The per share data was calculated using average shares outstanding during the
period. In addition, Class B and Class C net investment income per share data
reflects the distribution fee applicable to Class B and Class C shares only.
Class B and Class C ratios are calculated by adjusting the expense and net
investment income ratios for the Fund for the entire period by the distribution
fee applicable to Class B and Class C shares only.
FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a
regulated investment company and to distribute all of its taxable income, no
federal income tax has been accrued.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is recorded on the
accrual basis. Original issue discount is accreted to interest income over the
life of a security with a corresponding increase in the cost basis; premium and
market discount are not amortized or accreted.
DEFERRED ORGANIZATION EXPENSES: The Fund incurred expenses of $71,295 in
connection with its organization, initial registration with the Securities and
Exchange Commission and with various states, and the initial public offering of
its shares. These expenses were deferred and were amortized on a straight-line
basis over five years.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders are
recorded on the ex-date.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
17
<PAGE>
Notes to Financial Statements/October 31, 1997
- -------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- -------------------------------------------------------------------------------
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
and interest income and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) on investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities. The Fund
may also enter into forward currency contracts to hedge certain other foreign
currency denominated assets. The contracts are used to minimize the exposure to
foreign exchange rate fluctuations during the period between trade and
settlement date of the contracts. All contracts are marked-to-market daily,
resulting in unrealized gains (losses) which become realized at the time the
forward currency contracts are closed or mature. Realized and unrealized gains
(losses) arising from such transactions are included in net realized and
unrealized gains (losses) on foreign currency transactions. Forward currency
contracts do not eliminate fluctuations in the prices of the Fund's portfolio
securities. While the maximum potential loss from such contracts is the
aggregate face value in U.S. dollars at the time the contract was opened, the
actual 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 ex-date (except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware of
such), net of nonrebatable tax withholdings. Where a high level of uncertainty
as to collection exists, income on securities is recorded net of all tax
withholdings with any rebates recorded when received.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-market
daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
18
<PAGE>
Notes to Financial Statements/October 31, 1997
- -------------------------------------------------------------------------------
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
- -------------------------------------------------------------------------------
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser)
is the investment Adviser of the Fund and furnishes accounting and other
services and office facilities for a monthly fee equal to 0.75% annually of
the Fund's average net assets.
BOOKKEEPING FEE: The Adviser provides bookkeeping and pricing services for
$27,000 per year plus 0.035% of the Fund's average net assets over $50 million.
TRANSFER AGENT: Colonial Investors Service Center, Inc. (the Transfer
Agent), an affiliate of the Adviser, provides shareholder services for
a monthly fee equal to 0.25% annually of the Fund's average net assets
and receives reimbursement for certain out-of-pocket expenses.
Effective October 1, 1997 and continuing through September 1998, the Transfer
Agent fee will be reduced by .0012% in cumulative monthly increments, resulting
in a decrease in the fee from 0.25% to 0.236% annually.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Liberty Financial
Investments, Inc., formerly Colonial Investment Services, Inc. (the
Distributor), an affiliate of the Adviser, is the Fund's principal underwriter.
For the year ended October 31, 1997, the Fund has been advised that the
Distributor retained net underwriting discounts of $5,190 on sales of the Fund's
Class A shares and received contingent deferred sales charges (CDSC) of $82,494
on Class B share redemptions.
The Fund has adopted a 12b-1 plan which requires the payment of a service fee to
the Distributor equal to 0.25% annually of the Fund's net assets as of the 20th
of each month. The plan also requires the payment of a distribution fee to the
Distributor equal to 0.75% annually of the average net assets attributable to
Class B and Class C shares only.
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
OTHER: The Fund pays no compensation to its officers, all of whom are
employees of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
- -------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended October 31, 1997, purchases and sales
of investments, other than short-term obligations, were $39,378,815 and
$50,070,015, respectively.
19
<PAGE>
Notes to Financial Statements/October 31, 1997
- -------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION - CONT.
- -------------------------------------------------------------------------------
Unrealized appreciation (depreciation) at October 31, 1997, based on cost of
investments for federal income tax purposes was:
Gross unrealized appreciation $10,630,903
Gross unrealized depreciation (2,735,074)
--------------
Net unrealized appreciation $ 7,895,829
--------------
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 currency exchange or
other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 4. LINE OF CREDIT
- -------------------------------------------------------------------------------
The Fund may borrow up to 10% of its net assets under a line of credit for
temporary or emergency purposes. Any borrowings bear interest at one of the
following options determined at the inception of the loan: (1) federal funds
rate plus 1/2 of 1%, (2) the lending bank's base rate or (3) IBOR offshore loan
rate plus 1/2 of 1%. There were no borrowings under the line of credit during
the year ended October 31, 1997.
NOTE 5. FEDERAL TAX INFORMATION (UNAUDITED)
- -------------------------------------------------------------------------------
49% of the ordinary income distributed by The Fund in the year ended October 31,
1997 qualifies for the corporate dividend received deduction.
20
<PAGE>
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 (b)
---------- --------- ----------
<S> <C> <C> <C>
Net asset value -
Beginning of period $ 14.320 $ 14.230 $ 15.910
---------- --------- ----------
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income (loss) (a) 0.098 (0.011) (0.017)
Net realized and
unrealized gain (loss) (a) 2.296 2.275 (0.673)(c)
---------- --------- ----------
Total from Investment
Operations 2.394 2.264 (0.690)
---------- --------- ----------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
Net invetment income (0.030) - -
From net realized gains (1.424) (1.424) -
---------- --------- ----------
Total Distributions Declared
to Shareholders (1.454) (1.424) -
---------- --------- ----------
Net asset value -
End of period $ 15.260 $ 15.070 $ 15.220
---------- --------- ----------
Total return (d) 17.87% 16.98% (4.34)%(e)
---------- --------- ----------
RATIOS TO AVERAGE NET ASSETS
Expenses (f) 1.62% 2.37% 2.39%(g)
Net investment income (f) 0.67% (0.08)% (0.42)%(g)
Portfolio turnover 67% 67% 67%
Average commision rate $ 0.0242 $ 0.0242 $ 0.0242
Net assets at end
of period (000) $ 34,645 $ 26,817 $ 103
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Class C shares were initially offered on August 1, 1997. Per share
amounts reflect activity from that date.
(c) The amount shown for a share outstanding does not correspond with the
aggregate net gain on investments for the period due to the timing of
sales and repurchases of Fund shares in relation to fluctuating market
values of the investments of the Fund.
(d) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(g) Annualized.
</TABLE>
21
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Selected data for a share of each class outstanding throughout each period are
as follows:
<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 $ 12.430 $12.380 $ 13.160 $13.110
--------- --------- --------- ---------
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income (loss) (a) 0.075 (0.026) 0.102 0.009
Net realized and
unrealized gain (loss) (a) 2.525 2.506 (0.496) (0.489)
--------- --------- --------- ---------
Total from Investment
Operations 2.600 2.480 (0.394) (0.480)
--------- --------- --------- ---------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net
investment income (0.080) - (0.106) (0.020)
From net realized gains (0.630) (0.630) (0.230) (0.230)
--------- --------- --------- ---------
Total Distributions Declared
to Shareholders (0.710) (0.630) (0.336) (0.250)
--------- --------- --------- ---------
Net asset value -
End of period $ 14.320 $ 14.230 $ 12.430 $12.380
--------- --------- --------- ---------
Total return (b) 21.69% 20.70% (2.88)% (3.56)%
--------- --------- --------- ---------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.61%(c) 2.36%(c) 1.66%(c) 2.41%(c)
Net investment income 0.56%(c) (0.19)%(c) 0.82%(c) 0.07%(c)
Portfolio turnover 84% 84% 65% 65%
Average
commission rate (d) $0.0268 $0.0268 - -
Net assets at end
of period (000) $36,655 $25,482 $31,297 $20,931
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
</TABLE>
22
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
<TABLE>
<CAPTION>
Year ended October 31
---------------------------------------------
1994 1993
Class A Class B Class A Class B
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
$ 12.160 $ 12.130 $ 9.750 $ 9.720
--------- --------- --------- ---------
0.114 0.019 0.099 0.018
1.104 1.097 2.429 2.431
--------- --------- --------- ---------
1.218 1.116 2.528 2.449
--------- --------- --------- ---------
(0.118) (0.036) (0.118) (0.039)
(0.100) (0.100) - -
--------- --------- --------- ---------
(0.218) (0.136) (0.118) (0.039)
--------- --------- --------- ---------
$ 13.160 $ 13.110 $ 12.160 $ 12.130
--------- --------- --------- ---------
10.14% 9.28% 26.20% 25.30%
--------- --------- --------- ---------
1.70% 2.45% 1.88% 2.63%
0.90% 0.15% 0.92% 0.17%
15% 15% 14% 14%
- - - -
$36,830 $22,458 $ 31,098 $ 7,179
</TABLE>
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST III AND THE SHAREHOLDERS OF
COLONIAL INTERNATIONAL HORIZONS FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Colonial International Horizons
Fund, formerly Colonial Global Natural Resources Fund, (the "Fund") (a series of
Colonial Trust III) at October 31, 1997, the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and the financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of portfolio positions
at October 31, 1997 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 10, 1997
24
<PAGE>
HOW TO REACH COLONIAL
BY PHONE OR BY MAIL
BY TELEPHONE
CUSTOMER CONNECTION - 1-800-345-6611
For 24-hour account information, call from your touch-tone phone. (Rotary
callers will be automatically connected to a representative during business
hours.) A recorded message will guide you through the menu:
For fund prices, dividends and capital gains information .......... press [1]
For account information ........................................... press [2]
To speak to a service representative .............................. press [3]
For yield and total return information ............................ press [4]
For duplicate statements or new supply of checks .................. press [5]
To order duplicate tax forms and year-end statements .............. press [6]
(February through May)
To review your options at any time during your call ............... press [*]
To speak with a shareholder services representative about your account, call
Monday to Friday, 8:00 a.m. to 8:00 p.m. ET, and Saturdays from February through
mid-April, 10:00 a.m. to 2:00 p.m. ET.
COLONIAL TELEPHONE TRANSACTION DEPARTMENT - 1-800-422-3737
To purchase, exchange or sell shares by telephone, call Monday to Friday, 9:00
a.m. to 7:00 p.m. ET. Transactions received after the close of the New York
Stock Exchange will receive the next business day's closing price.
LITERATURE - 1-800-426-3750
To request literature on any fund distributed by Liberty Financial Investments,
call Monday to Friday, 8:30 a.m. to 6:30 p.m. ET.
BY MAIL
COLONIAL INVESTORS SERVICE CENTER, INC.
P.O. BOX 1722
BOSTON, MA 02105-1722
25
<PAGE>
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 Colonial Investors Service Center 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 Financial Investments, 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 Financial Investments 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 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.
26
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial International Horizons Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial International Horizons 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 International
Horizons 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.
27
<PAGE>
- --------------------------------------------------------------------------------
TRUSTEES
ROBERT J. BIRNBAUM
Retired (formerly Special Counsel, Dechert, Price & Rhoads; President and Chief
Operating Officer, New York Stock Exchange, Inc.)
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
WILLIAM D. IRELAND, JR.
Retired (formerly Chairman of the Board, Bank of New England-Worcester)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
WILLIAM E. MAYER
Partner, Development Capital, L.L.C. (formerly Dean, College of Business and
Management, University of Maryland; Dean, Simon Graduate School of Business,
University of Rochester; Chairman and Chief Executive Officer, CS First Boston
Merchant Bank; and President and Chief Executive Officer, The First Boston
Corporation)
JAMES L. MOODY, JR.
Retired (formerly Chairman of the Board and Chief Executive Officer, Hannaford
Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
GEORGE L. SHINN
Financial Consultant (formerly Chairman, Chief Executive Officer and Consultant,
The First Boston Corporation)
ROBERT L. SULLIVAN
Retired Partner, Peat Marwick Main & Co. (formerly Management Consultant,
Saatchi and Saatchi Consulting Ltd. and Principal and International Practice
Director, Management Consulting, Peat Marwick Main & Co.)
SINCLAIR WEEKS, JR.
Chairman of the Board, Reed & Barton Corporation
[LIBERTY FINANCIAL INVESTMENTS, INC. LOGO] LIBERTY FINANCIAL INVESTMENTS, INC.
(C)1997 Distributor for Colonial Funds, Stein Roe Advisor Funds and
Newport Funds One Financial Center, Boston, MA 02111-2621
HZ-02/346E-1097 (12/97)
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