As filed with the Securities and Exchange Commission on May 6, 1998
Registration No. 33-
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM N-14
_ _
|_|Pre-Effective Amendment No.__ |_| Post-Effective Amendment No.__
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------
COLONIAL TRUST III *
(Exact Name of Registrant as Specified in Charter)
617-426-3750
(Area Code and Telephone Number)
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111
(Address of Principal Executive Offices)
-------------------------
NANCY L. CONLIN
Colonial Management Associates, Inc.
One Financial Center
Boston, Massachusetts 02111
(Name and Address of Agent for Service)
-------------------------
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.
-------------------------
It is proposed that this filing will become effective on June 5, 1998 pursuant
to Rule 488.
-------------------------
No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. The Registrant's Rule 24f-2 Notice for the fiscal year ended October
31, 1997 was filed on or about December 29, 1997. Pursuant to Rule 429 under the
Securities Act of 1933, this Registration Statement relates to shares previously
registered on the aforesaid Registration Statement.
*On behalf of its Colonial International Horizons Fund series.
<PAGE>
Cross Reference Sheet
(Colonial International Horizons Fund)
<TABLE>
<CAPTION>
PART A
Form N-14 Item Caption in Prospectus/Proxy Statement
<S> <C>
1 Cross-Reference Sheet; Front Cover
2 Front Cover; Back Cover
3 Cover Letter, Summary of the Combination;
Reasons for the Combination; Tax Consequences
of the Combination; Comparison of Investment
Objectives, Policies and Restrictions;
Principal Risk Factors
4 Cover Letter, Summary of the Combination;
Reasons for the Combination; Tax Consequences
of the Combination; Comparison of Investment
Objectives, Policies and Restrictions;
Principal Risk Factors; Exhibit A
5, 6 Summary of the Combination; Reasons for the
Combination; Comparison of Investment
Objectives, Policies and Restrictions; Principal
Risk Factors; Summary of Expenses;
Capitalization; Exhibit B; Exhibit C
7 General Information; Determination and
Recommendation of the Trustees; Required Vote
8 General Information
9 Not Applicable
</TABLE>
<TABLE>
<CAPTION>
PART B
<S> <C>
Form N-14 Item Caption in Statement of Additional Information
- -------------- ----------------------------------------------
10, 11 Cover Page
12, 13 Not Applicable
14 Financial Statements
</TABLE>
<PAGE>
COLONIAL INTERNATIONAL FUND FOR GROWTH
One Financial Center, Boston, Massachusetts 02111
June 15, 1998
Dear Shareholder:
The enclosed material details the Trustees' proposal for a combination of
Colonial International Fund for Growth (International Fund) with and into
Colonial International Horizons Fund (International Horizons Fund). The Trustees
believe that the proposed combination is in the best interests of International
Fund's shareholders because International Horizons Fund offers lower operating
expenses, greater diversification of assets across countries, sectors and
investing styles (i.e. value and growth), reduced exposure to emerging market
economies and possible higher returns over time than those experienced by
International Fund shareholders.
If the combination proposal is approved, International Fund shares will be
exchanged for International Horizons Fund shares in a non-taxable transaction.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE VOTE
BY COMPLETING, DATING AND SIGNING THE ENCLOSED PROXY CARD. A SELF-ADDRESSED,
POSTAGE-PAID ENVELOPE HAS BEEN ENCLOSED FOR YOUR CONVENIENCE. IT IS IMPORTANT
THAT YOU VOTE AND THAT YOUR VOTE BE RECEIVED NO LATER THAN JULY 23, 1998.
Shareholder Communications Corporation (SCC), a professional proxy solicitation
firm, has been selected to assist shareholders in the voting process. As the
date of the Meeting approaches, if we have not yet received your proxy card, you
may receive a telephone call from SCC reminding you to exercise your right to
vote.
Please take a few moments to review the details of the proposal and return your
proxy at your earliest convenience. If you have any questions regarding the
proxy, please feel free to call Colonial Investors Service Center (Transfer
Agent), at 1-800-345-6611. Our hearing impaired shareholders may call
1-800-528-6979 if you have special TTD equipment.
Sincerely,
Harold W. Cogger
President
IN-85/205F-0698
<PAGE>
COLONIAL INTERNATIONAL HORIZONS FUND
(a non-diversified open-end management company)
One Financial Center, Boston, MA 02111
617-426-3750
PROSPECTUS
This Prospectus relates to the proposed issuance of shares of Colonial
International Horizons Fund (International Horizons Fund) to Colonial
International Fund for Growth (International Fund)(together, Funds), One
Financial Center, Boston, MA 02111, 617-426-3750, in connection with the
proposed tax-free combination (Combination) of International Fund into
International Horizons Fund. International Horizons Fund seeks preservation of
capital purchasing power and long-term growth, while International Fund seeks
long-term growth by investing primarily in non U.S. equities.
This Prospectus explains concisely the information that shareholders of
International Fund should know before voting on the Combination. Read it
carefully and retain it for future reference. The International Horizons Fund's
February 27, 1998 Prospectus is enclosed. Such Prospectus is incorporated herein
by reference. International Fund's February 27, 1998 Prospectus, March 31, 1998
Prospectus Supplement and February 27, 1998 Statement of Additional Information
(SAI) and International Horizons Fund's February 27, 1998 and June 5, 1998 SAIs,
all of which have been filed with the Securities and Exchange Commission (SEC),
are incorporated herein by reference and are available without charge from
Liberty Financial Investments, Inc., One Financial Center, Boston, MA 02111,
1-800-426-3750, the distributor for both Funds. The Prospectuses, Supplement to
Prospectus and Statements of Additional Information referred to above are also
available on the SEC's website at http:\\www.sec.gov.
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated June 5, 1998
2
<PAGE>
COLONIAL INTERNATIONAL FUND FOR GROWTH
One Financial Center, Boston, Massachusetts 02111
(617) 426-3750
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 24, 1998
Dear Shareholder:
A Special Meeting of Shareholders (Meeting) of Colonial International Fund for
Growth will be held at the offices of Colonial Management Associates, Inc.
(Adviser), One Financial Center, Boston, Massachusetts, on Friday, July 24,
1998, at 10:00 a.m. Eastern Time, to:
1. Approve or disapprove the Combination of Colonial International
Fund for Growth into Colonial International Horizons Fund;
2. Transact such other business as may properly come before the Meeting or
any adjournment thereof.
By order of the Trustees,
Nancy L. Conlin, Secretary
June 15, 1998
NOTICE: YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. IF A
QUORUM IS NOT PRESENT AT THE MEETING, ADDITIONAL EXPENSES WILL BE INCURRED TO
SOLICIT ADDITIONAL PROXIES. TO AVOID THESE COSTS TO YOUR FUND, PLEASE VOTE, SIGN
AND RETURN YOUR PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE IMMEDIATELY.
3
<PAGE>
TABLE OF CONTENTS
Page
----
General Information
Voting; Proxies; Shareholders Entitled to Vote
Summary of the Combination
Reasons for the Combination
Tax Consequences of the Combination
Comparison of Investment Objectives, Policies and Restrictions
Principal Risk Factors
Summary of Expenses
Annual Operating Expenses
Examples
Shareholder Transaction Expenses
Capitalization
Determination and Recommendation of the Trustees
Required Vote
Other Matters and Discretion of Attorneys Named in the
Prospectus/Proxy
Exhibit A - Agreement and Plan of Reorganization
Exhibit B - Certain Information Regarding Financial and
Organizational History and Investment Policies of Colonial
International Fund for Growth and Investment Policies of
Colonial International Horizons Fund
Exhibit C - Management's Discussion of Investment
Performance of Colonial
International Fund for Growth and Colonial International
Horizons Fund
4
<PAGE>
SPECIAL MEETING OF SHAREHOLDERS
COLONIAL INTERNATIONAL FUND FOR GROWTH
PROXY STATEMENT
General Information
June 15, 1998
The Trustees of International Fund have called a Special Meeting of
International Fund's shareholders for 10:00 a.m., Friday, July 24, 1998 for the
purpose described in the accompanying Notice. The purpose of this Proxy
Statement is to provide you with additional information regarding the proposal
to be voted on at the Meeting and to request your proxy to vote in favor of the
proposal. By properly completing and returning the enclosed proxy card, you will
authorize the individuals named on the card to vote your Fund shares as directed
and, in their discretion, on any other matter to properly come before the
Meeting. No other matters are contemplated at this time. Additional information
concerning the proxy solicitation and voting process and who is eligible to vote
is set forth below followed by additional information regarding the matter to be
voted on at the Meeting.
Voting; Proxies; Shareholders Entitled to Vote.
The enclosed proxy, which was first mailed on June 15 1998, is solicited by
the Trustees for use at the Meeting. All properly executed proxies received in
time for the Meeting will be voted as specified in the proxy or, if no
specification is made, in favor of each proposal referred to in the Proxy
Statement. The proxy may be revoked prior to its exercise by a later dated
proxy, by written revocation received by the Secretary or by voting in person.
Solicitation may be made by mail, telephone, telegraph, telecopy and personal
interviews. Authorization to execute proxies may be obtained by telephonically
or electronically transmitted instructions. Shareholder Communications
Corporation has been engaged to assist in the solicitation of proxies on behalf
of the International Fund. The cost of this assistance is not expected to exceed
$12,000. Printing, mailing and solicitation costs associated with the
solicitation of International Fund shareholders will be paid equally by
International Fund and Colonial Management Associates, Inc. (Adviser). The
Adviser will also pay one-half of other expenses associated with the
Combination, including legal and accounting fees but excluding brokerage costs,
with the other one-half allocated and paid by International Fund and
International Horizons Fund based on each Fund's relative net assets.
Holders of thirty percent of the shares outstanding on the record date, May
1, 1998, constitute a quorum and must be present in person or represented by
proxy for business to be transacted at the Meeting. Shareholders of record at
the close of business on the
5
<PAGE>
record date will have one vote for each share held. On the record date, each
Fund had outstanding the following number of shares of beneficial interest:
<TABLE>
<S> <C> <C> <C>
Class A Class B Class C
International Fund
International Horizons Fund
</TABLE>
As of May 1, 1998, the following shareholders of record owned more than 5%
of a class of shares of each of the Funds:
<TABLE>
<CAPTION>
International Fund
Name and Address Number of Shares Owned and Percent of Class
---------------- -------------------------------------------
Class A Class B Class C
<S> <C> <C> <C>
Merrill Lynch, Pierce Fenner & Smith,
Inc., For the Sole Benefit of Its % % %
Customers, 4800 Deer Lake Drive East,
3rd Floor, Jacksonville, FL 32246
</TABLE>
<TABLE>
<CAPTION>
International Horizons Fund
Name and Address Number of Shares Owned and Percent of Class
---------------- -------------------------------------------
Class A Class B Class C
<S> <C> <C> <C>
Merrill Lynch, Pierce Fenner & Smith,
Inc., For the Sole Benefit of Its % % %
Customers, 4800 Deer Lake Drive East,
3rd Floor, Jacksonville, FL 32246
</TABLE>
Based on this information had the Combination occurred on May 1, 1998, the
following shareholders of record would have owned more than 5% of the
International Horizons Fund:
<TABLE>
<CAPTION>
Name and Address Number of Shares Owned and Percent of Class
---------------- -------------------------------------------
Class A Class B Class C
<S> <C> <C> <C>
Merrill Lynch, Pierce Fenner & Smith,
Inc., For the Sole Benefit of Its % % %
Customers, 4800 Deer Lake Drive East,
3rd Floor, Jacksonville, FL 32246
</TABLE>
6
<PAGE>
Votes cast by proxy or in person will be counted by persons appointed by
the International Fund to act as election tellers for the Meeting. The tellers
will count the total number of votes cast "for" approval of the proposal for
purposes of determining whether sufficient affirmative votes have been cast.
Where a shareholder withholds authority or abstains, or the proxy reflects a
"broker non-vote" (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or persons
entitled to vote and (ii) the broker or nominee does not have discretionary
voting power on a particular matter), the shares will be counted as present and
entitled to vote for purposes of determining the presence of a quorum. With
respect to approval of the Combination, withheld authority, abstentions and
broker non-votes will have the effect of votes against such proposal.
Additional information concerning each of the Funds is contained in each
Fund's most recent Annual and/or Semiannual Report to shareholders, which is
obtainable free of charge by writing the Adviser at One Financial Center,
Boston, MA 02111 or by calling 1-800-426-3750.
Summary of the Combination
Pursuant to the Plan attached as Exhibit A, International Horizons Fund
would acquire all assets and assume all liabilities of International Fund in
exchange for shares of International Horizons Fund in a tax-free transaction.
Each of International Fund's shareholders would receive the same class of shares
of International Horizons Fund equal in value to their pro rata share of the net
asset value (NAV) of International Fund as of the Valuation Date, as defined in
the Plan. The NAV determination is described under "How the Fund Values its
Shares" on page 9 of the International Horizons Fund's enclosed Prospectus.
Costs of the Combination will be borne as described above under "Voting;
Proxies; Shareholders Entitled to Vote."
Dissenting shareholders have no appraisal rights, but may redeem for cash
at NAV (subject to any applicable contingent deferred sales charges (CDSC)).
Certain purchases of International Fund's shares were suspended on March 31,
1998. International Fund
7
<PAGE>
remains open to established Fundamatic participants, Qualified Plan, Automatic
Dividend Diversification and Dollar Cost Averaging programs until the Exchange
Date, as defined in the Plan. Program information will be carried over to new
accounts opened in International Horizons Fund after the Exchange Date, unless
the shareholder notifies the Transfer Agent to the contrary. After July 10,
1998, redemptions may only be requested by mail or by telephone; wire order
redemptions will not be available. International Horizons Fund will not issue
share certificates in the Combination. International Fund's certificates will be
null and void following the Combination. Certificates for shares of
International Horizons Fund will be issued only upon written request, subject to
certain restrictions referenced in the enclosed International Horizons Fund
Prospectus. The Combination may be terminated before the Exchange Date by mutual
consent of the Funds or if the conditions of the Plan are not met or are waived.
Reasons for the Combination
(See Exhibits B and C attached hereto, the enclosed International Horizons
Fund Prospectus and the SAIs referred to on the cover page of this Prospectus
for more information on the International Horizons Fund.)
The Board of Trustees recommend that shareholders approve the Combination.
The principal reasons for the Board of Trustees' recommendation of approval of
the Combination are:
1. International Horizons Fund offers shareholders of International Fund
the benefit of seeking purchasing power preservation when growth stocks are
adversely impacted by inflation.
2. International Horizons Fund offers shareholders of International Fund a
more broadly diversified international portfolio across major sources of risk:
countries, sectors and investing styles (i.e. growth/value).
3. For investors seeking to diversify their domestic portfolio,
International Horizons Fund's inflation-sensitive international holdings offer
returns that are less correlated to the U.S. equity markets than the typical
international equity fund.
4. International Horizons Fund's portfolio is invested in more developed
markets versus International Fund's more heavily weighted portfolio of emerging
markets and smaller, underpriced stocks.
5. International Horizons Fund selectively hedges its investments against
currency fluctuations to a greater degree than International Fund which may
result in lower overall volatility.
8
<PAGE>
6. Expense ratios of International Horizons Fund, as of October 31, 1997,
were lower than those of International Fund.
7. Total returns for International Fund have substantially lagged behind
those of International Horizons Fund as well as the Morgan Stanley Capital
International EAFE (GDP) Index (an unmanaged index that tracks the performance
of international stocks) for all periods through December 31, 1997. Through such
date, each Fund's Class A average annual total returns were as follows:
<TABLE>
<CAPTION>
International
International Fund Horizons Fund
(12/1/93 inception) (6/8/92 inception) EAFE (GDP)
<S> <C> <C> <C>
1 year (4.83)% 5.95% 5.77%
3 years 0.97% 13.05% 8.16%
5 years N/A 13.87% 12.75%
Since inception 0.04% 11.34% N/A
</TABLE>
Tax Consequences of the Combination
The Combination is expected to be tax-free with respect to federal taxes
and is contingent upon receipt of an opinion of counsel to that effect. The
Combination will not proceed unless it is to be non-taxable and the relative
amounts of unrealized appreciation in both Funds can be monitored to ensure that
there is no resulting material adverse effect on either Fund's shareholders. You
should consult your own tax adviser regarding any state and local tax
consequences of the Combination.
9
<PAGE>
Comparison of Investment Objectives, Policies and Restrictions
The specific investment objectives and policies of International Fund
and International Horizons Fund are set forth below:
International Fund
Objective:
Seeks long-term growth by investing primarily in non U.S. equities.
Policies:
Seeks to achieve its investment objective by investing primarily in equity
securities of companies located in at least three countries other than the U.S.
Normally, at least 65% of the Fund's assets will be invested in equity
securities of non-U.S. issuers. The Fund also may invest up to 35% of its assets
in high quality foreign government debt securities.
International Horizons Fund
Objective:
Seeks preservation of capital purchasing power and long-term growth.
Policies:
Seeks to achieve its investment objective by investing primarily in equity
securities of companies in industries and markets which the Adviser believes
will have favorable sensitivity to inflation in the U.S. economy and by
investing in equity securities of companies which the Adviser believes will
provide superior long-term growth. Inflation-sensitive companies may include,
but need not be limited to, companies engaged in the development and processing
of natural resources and companies engaged in consumer-oriented businesses.
Normally, at least 65% of the Fund's total assets will be invested in securities
of companies that are located or traded outside the U.S. The Fund may invest in
securities issued by smaller, less well-established companies, possibly traded
over the counter, as well as those of larger, more established companies traded
on exchanges. The Fund's foreign investments may include companies located in
less developed countries (so-called "emerging markets").
10
<PAGE>
Both Funds are non-diversified and may invest more than 5% of their total
assets in the securities of a single issuer, which may increase the risk of loss
compared to a diversified fund.
For more information on each Fund's investment objective, fundamental and
non fundamental investment policies, please refer to Exhibit B and the enclosed
International Horizons Fund Prospectus.
Principal Risk Factors
The risks related to the portfolio securities of the International Fund
and the International Horizons Fund differ. Certain policies of each Fund tend
to create greater risks than similar policies of the other Fund. The broader
diversification of the International Horizons Fund is intended to reduce overall
portfolio risk, although there can be no assurance that this diversification
will be effective.
Each Fund invests at least 65% of its assets in equity and debt securities
of non-U.S. issuers. Investments in foreign securities have special risks
related to political, economic and legal conditions outside of the U.S. For a
more detailed discussion of these special risks see Exhibit B or the enclosed
International Horizons Fund Prospectus.
The International Fund may also invest, under normal conditions, 40% of
its assets in securities of companies located in emerging market countries,
while the International Horizons Fund does not have such an investment policy.
Investments in emerging market countries involve the risks associated with
foreign investments as well as additional political and economic risk. A more
detailed discussion of such risks is included in Exhibit B.
The International Horizons Fund may invest in lower rated debt securities
(commonly referred to as junk bonds), and, thus, the portions of the
International Horizons Fund's portfolio invested in such securities may be
subject to greater risks than the International Fund's portfolio. The values of
lower rated debt securities are more likely to fluctuate directly,
rather than inversely, with changes in interest rates. Lower rated bonds also
are generally considered more speculative and likely to default than higher
quality bonds and their values are also considered to be more volatile relative
to other debt securities. See the enclosed International Horizons Fund
Prospectus for a more detailed discussion of lower rated debt securities and the
risks associated with such securities.
Each Fund also may invest in small companies which may offer greater
opportunities for capital appreciation than larger, better established
companies, but may also involve certain special risks associated with limited
product lines, markets or financial resources and which may depend heavily on a
small management group. Small company securities may trade less frequently, in
smaller volumes, and fluctuate more sharply in value than exchange listed
securities of larger companies.
11
<PAGE>
Finally, each Fund may engage in foreign currency transactions and index
futures, while the International Horizons Fund may also engage in interest rate
futures and options. Neither Fund may purchase or sell futures contracts (or
related options positions in the case of International Horizons Fund) if
deposits for initial margin or premiums on existing futures and option positions
exceed 5% of its total assets. See Exhibit B and the enclosed International
Horizons Fund Prospectus for more information.
Summary of Expenses
Annual Operating Expenses (as a % of average net assets)
International Fund
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Management fee 0.90% 0.90% 0.90%
12b-1 fees 0.25 1.00 1.00
Other expenses (1) 0.66 0.66 0.66(2)
---- ---- ----
Total operating expenses 1.81% 2.56% 2.56%
==== ==== ====
<CAPTION>
International Horizons Fund
Class A Class B Class C
Management fee 0.75% 0.75% 0.75%
12b-1 fees 0.25 1.00 1.00
Other expenses (1) 0.61 0.61 0.61(2)
---- ---- ----
Total operating expenses 1.61% 2.36% 2.36%
==== ==== ====
<CAPTION>
Pro Forma Combined
Class A Class B Class C
Management fee 0.75% 0.75% 0.75%
12b-1 fees 0.25 1.00 1.00
Other expenses (1) 0.55 0.55 0.55(2)
---- ---- ----
Total operating expenses 1.55% 2.30% 2.30%
==== ==== ====
</TABLE>
(1) "Other expenses" reflect the reduction in the transfer agency fee.
(2) "Other expenses" are estimated based on the annual operating expenses of
the Class A and Class B shares.
Examples
The following Examples show the cumulative transaction and operating expenses
attributable to a hypothetical $1,000 investment in each Class of shares of
International Fund and International Horizons Fund, separately, and Pro Forma
Combined, for the periods specified, assuming a 5% annual return and, unless
otherwise noted, redemption at period end. The 5% return and expenses used in
this Example should not be
12
<PAGE>
considered indicative of actual or expected Fund performance or expenses, both
of which will vary:
International Fund
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C> <C> <C>
Period: (3) (4) (3) (4)
1 year $ 75 $ 76 $ 26 $ 36 $ 26
3 years 111 110 80 80(5) 80
5 years 150 156 136 136 136
10 years 258 271(6) 271(6) 290 290
<CAPTION>
International Horizons Fund
Class A Class B Class C
Period: (3) (4) (3) (4)
1 year $ 73 $ 74 $ 24 $ 34 $ 24
3 years 105 104 74 74(5) 74
5 years 140 146 126 126 126
10 years 238 251(6) 251(6) 270 270
<CAPTION>
Pro Forma Combined
Class A Class B Class C
Period: (3) (4) (3) (4)
1 year $ 72 $ 73 $ 23 $ 33 $ 23
3 years 104 102 72 72(5) 72
5 years 137 143 123 123 123
10 years 231 245(6) 245(6) 264 264
</TABLE>
(3) Assumes redemption at period end.
(4) Assumes no redemption.
(5) Class C shares do not incur a contingent deferred sales charge on
redemptions made after one year.
(6) Class B shares automatically convert to Class A shares after
approximately 8 years, therefore, years 9 and 10 reflect Class A share
expenses.
Shareholder Transaction Expenses
Both Funds offer the same share purchase and redemption arrangements and
shareholders services. The Funds' shareholder transaction expenses are as
follows:
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a
Purchase (as a % of offering 5.75% 0.00%(10) 0.00%(10)
price)(7)(8)(9)
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C>
Maximum Contingent Deferred Sales Charge
(as a % of offering price)(7)(8)(9) 1.00%(11) 5.00% 1.00%
</TABLE>
(7) For accounts less than $1,000 an annual fee of $10 may be deducted.
(8) Redemption proceeds exceeding $500 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
(9) Does not apply to reinvested distributions.
(10) Because of the 0.75% distribution fee applicable to Class B and Class C
shares, long-term Class B and Class C shareholders may pay more in
aggregate sales charges than the maximum initial sales charge permitted
by the National Association of Securities Dealers, Inc. However,
because Class B shares automatically convert to Class A shares after
approximately 8 years, this is less likely for Class B shares than for
a class without a conversion feature.
(11) Only with respect to any portion of purchases of $1 million to $5
million redeemed within approximately 18 months after purchase.
Capitalization
October 31, 1997
(unaudited)
<TABLE>
<CAPTION>
International International Pro Forma
Fund Horizons Fund Combined
------------- ------------- ---------
<S> <C> <C> <C>
Net assets $78,450,260 $61,564,721 $139,998,996(12)
Shares outstanding 8,057,963 4,056,415 9,222,595
Net asset value per share $9.74 $15.18 $15.18
</TABLE>
(12) An adjustment of $15,985 was made which relates to the elimination of
International Fund's deferred organization costs.
14
<PAGE>
Determination and Recommendation of the Trustees
The Trustees of International Fund and International Horizons Fund have
unanimously determined that the Combination is in the best interests of each
Fund and its shareholders, and that no shareholder's interest will be diluted as
a result of the Combination.
THE TRUSTEES RECOMMEND THAT SHAREHOLDERS APPROVE THE COMBINATION.
The Declaration of Trust (Declaration) establishing the Trust provides
that any series of Colonial Trust III (such as International Fund) may be
terminated by a two-thirds vote of the series' shares or by the Trustees' notice
to shareholders. The Declaration also provides that it may be amended by the
Trustees, upon majority vote of the shareholders of the affected series. To
eliminate any uncertainty about what shareholder vote may be required to approve
the Combination, the Trustees will consider any vote in favor of the Combination
to be a vote in favor of amending the Declaration to provide that the
International Fund may be terminated by majority vote of the series' shares
entitled to vote (or by Trustee notice to shareholders), and will so amend the
Declaration if a majority of International Fund's shareholders entitled to vote
in favor of the proposal vote in favor of such proposal. International Horizons
Fund shareholder approval is not required.
Required Vote
Approval of the proposal requires the affirmative vote of more than 50% of
the outstanding shares of International Fund.
Other Matters and Discretion of Attorneys Named in the Proxy
As of this date, only the business mentioned above in Item 1 of the Notice
of the Meeting is contemplated to be presented. If any procedural or other
matters properly come before the Meeting, the enclosed proxy shall be voted in
accordance with the best judgment of the proxy holder(s).
If a quorum of shareholders (thirty percent of the shares entitled to vote
at each Meeting) is not represented at the Meeting or at any adjournment
thereof, or, even though a quorum is so represented, if sufficient votes in
favor of the Item set forth in the Notice of the Meeting are not received by
July 23, 1998, the persons named as proxies may propose one or more adjournments
of the Meeting for a period or periods of not more than ninety days in the
aggregate and further solicitation of proxies may be made. Any such adjournment
may be effected by a majority of the votes properly cast in person or by proxy
on the question at the session of the Meeting to be adjourned. The persons named
as proxies will vote in favor of such adjournment those proxies which they are
entitled to vote in favor of the Item set forth in the Notice of the Meeting.
They will vote against any such adjournment those proxies required to be voted
against the Item.
15
<PAGE>
Reports, proxy statements and other information have been filed with the
Securities and Exchange Commission (SEC) and may be inspected and copied at the
SEC's public reference room, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of such material can also be obtained from the Public Reference Branch,
Office of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549, at prescribed rates, or via the SEC's
website at http:\\www.sec.gov.
Shareholders are urged to vote, sign and mail their proxies immediately.
16
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
Agreement and Plan of Reorganization (Agreement) dated as of May 6, 1998,
among Colonial Trust III on behalf of Colonial International Fund for Growth
(CIFFG) and Colonial International Horizons Fund (CIHF) and Colonial Management
Associates, Inc (CMAI).
PLAN OF REORGANIZATION
The reorganization will comprise (i) the acquisition by CIHF of all of the
assets of CIFFG in exchange for CIHF's assumption of all of the liabilities of
CIFFG then existing and the issuance of shares of CIHF to CIFFG and (ii) the
distribution of such shares by CIFFG pro rata to its shareholders in complete
liquidation and termination of CIFFG and in exchange for all of CIFFG's
outstanding shares, each CIFFG shareholder being entitled to receive that
proportion of the CIHF shares to be received by CIFFG which the number of CIFFG
shares owned by each such shareholder bears to the number of outstanding CIFFG
shares, all subject to the terms hereof. It is intended that the reorganization
described herein shall be a tax-free reorganization within the meaning of
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (Code).
AGREEMENT
1. CIFFG and CIHF (Funds) each represents and warrants to and agrees with the
other that:
(a) It is a series of an unincorporated voluntary association duly
established and validly existing under the laws of The Commonwealth of
Massachusetts and has power to own all of its properties and assets and to carry
out this Agreement. It is not required to qualify as a foreign association in
any jurisdiction. It has all necessary federal, state and local authorizations
to carry on its business as now being conducted and to carry out this Agreement.
(b) It is a series of a company registered under the Investment Company Act
of 1940, as amended (1940 Act), as an open-end management investment company,
and such registration is in full force and effect.
(c) Its statement of assets and liabilities, statement of operations and
statement of changes in net assets and schedule of investments (indicating
market values) for the year ended October 31, 1997, have been examined by Price
Waterhouse LLP, independent accountants, and furnished to the other Fund. Said
statement of assets and liabilities and schedule of investments fairly present
its financial position as of such date and said statements of operations and
changes in net assets fairly reflect its results of operations and changes in
financial position for the periods covered thereby in conformity with generally
accepted accounting principles consistently applied.
(d) CIFFG's and CIHF's Prospectus and Statement of Additional Information
each dated February 27, 1998, and CIFFG's Prospectus Supplement dated March 31,
1998, previously furnished to the other Fund, did not and does not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to its knowledge, threatened against it.
(f) It has no known material liabilities, contingent or otherwise, other
than those shown on its statement of assets and liabilities as of October 31,
1997, and those incurred in the ordinary course of its business as an investment
company since October 31, 1997. Prior to the Exchange Date (as defined in
Section 9), it will advise the other Fund of all
17
<PAGE>
material liabilities, contingent or otherwise, incurred by it subsequent to
October 31, 1997, whether or not incurred in the ordinary course of business.
(g) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by it of the
transactions contemplated by this Agreement, except such as may be required
under the Securities Act of 1933, as amended (1933 Act), the Securities Exchange
Act of 1934, as amended (1934 Act), and the 1940 Act or state securities laws
(which term as used herein shall include the securities laws of the District of
Columbia and of Puerto Rico).
(h) The registration statement (Registration Statement) to be filed with
the Securities and Exchange Commission (Commission) by CIHF on Form N-14
relating to the shares of beneficial interest, no par value, of CIHF issuable
hereunder and the proxy statement of CIFFG included therein (Proxy Statement) on
the effective date of the Registration Statement and insofar as they do not
relate to the other Fund, (i) will comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 6(a) and on the Exchange Date, the
prospectus contained in the Registration Statement (Prospectus), as amended or
supplemented, insofar as it does not relate to the other Fund, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
(i) It is and will at all times through the Exchange Date be a "regulated
investment company" within the meaning of Section 851 of the Code.
2. CIFFG represents and warrants to and agrees with CIHF that:
(a) CIFFG has filed or will file all federal and state tax returns which,
to the knowledge of CIFFG's officers, are required to be filed by CIFFG and has
paid or will pay all federal and state taxes shown to be due on said returns or
on any assessments received by CIFFG. All tax liabilities of CIFFG have been
adequately provided for, and no tax deficiency or liability of CIFFG has been
asserted, and no question with respect thereto has been raised, by the Internal
Revenue Service (IRS) or by any state or local tax authority for taxes in excess
of those already paid.
(b) At both the Valuation Time (as defined in Section 4(d)) and the
Exchange Date, CIFFG will have the full right, power and authority to sell,
assign, transfer and deliver its portfolio securities and any other assets of
CIFFG to be transferred to CIHF pursuant to this Agreement. At the Exchange
Date, subject only to the delivery of CIFFG's portfolio securities and any such
other assets as contemplated by this Agreement, CIHF will acquire CIFFG's
portfolio securities and any such other assets subject to no encumbrances, liens
or security interests whatsoever and without any restrictions upon the transfer
thereof.
(c) No registration under the 1933 Act of any of CIFFG's portfolio
securities would be required if they were, as of the time of such transfer, the
subject of a public distribution by either of CIFFG or CIHF.
(d) All of the issued and outstanding shares of beneficial interest of
CIFFG have been offered for sale and sold in conformity with all applicable
federal securities laws.
3. CIHF represents and warrants to and agrees with CIFFG that:
(a) by the Exchange Date, the shares of beneficial interest of CIHF to be
issued to CIFFG will have been duly authorized and, when issued and delivered
pursuant to this Agreement, will be legally and validly issued and will be
fully paid and nonassessable by CIHF, and no shareholder of CIHF will have
any preemptive right of subscription or purchase in respect thereof; and
(b) all tax liabilities of CIHF have been adequately provided for, and no
tax deficiency or
18
<PAGE>
liability of CIHF has been asserted, and no question with respect thereto has
been raised, by the IRS or by any state or local tax authority for taxes in
excess of those already paid.
4. (a) Subject to the requisite approval of the shareholders of CIFFG and to
the other terms and conditions contained herein, CIFFG agrees to transfer to
CIHF, and CIHF agrees to acquire from CIFFG, on the Exchange Date all of the
assets of every kind and nature of CIFFG existing on the Exchange Date in
exchange for the assumption by CIHF of all of the liabilities of CIFFG existing
on the Exchange Date, and the issuance by CIHF of that number of Class B shares
of beneficial interest of CIHF (the "Shares") provided for in Section 5.
Pursuant to this Agreement CIFFG will as soon as practicable after the Exchange
Date distribute the Shares pro rata to the shareholders of CIFFG in exchange for
their shares of beneficial interest of CIFFG and be liquidated in accordance
with CIFFG's Agreement and Declaration of Trust. CIHF agrees that all the Shares
shall be deemed to have been outstanding since the date that CIFFG shares were
originally issued.
(b) CIFFG will pay or cause to be paid to CIHF any dividend or interest
payments received by it on or after the Exchange Date with respect to the assets
transferred to CIHF hereunder.
(c) CIHF will retain any dividend or interest payments received by it after
the Valuation Time with respect to the assets transferred to CIHF hereunder,
without regard to the payment date thereof.
(d) The Valuation Time shall be 4:00 P.M. Boston time on July 24, 1998, or
such other day as may be mutually agreed upon in writing by the parties hereto
(the "Valuation Time").
5. On the Exchange Date CIHF will deliver to CIFFG a number of Shares having an
aggregate net asset value equal to the value of the assets of CIFFG transferred
hereunder less the liabilities of CIFFG, determined as provided in this Section
5.
(a) The net asset value of the Shares and the value of the assets of CIFFG
transferred hereunder and the liabilities of CIFFG shall be determined as of the
Valuation Time.
(b) The net asset value of the Shares shall be computed in accordance with
CIHF's prospectus and the assets and liabilities of CIFFG shall be valued in the
same manner.
(c) The deferred organizational costs of CIFFG shall have no value as of
the Valuation Time.
(d) No adjustment to the number of Shares to be delivered to CIFFG shall be
made for any disproportionate amount of unrealized capital gains or losses of
CIFFG's or CIHF's net assets.
CIHF shall issue the Shares to CIFFG in one certificate (excluding any
fractional share) registered in the name of CIFFG. CIFFG shall distribute the
Shares to its shareholders by redelivering such certificate to CIHF's transfer
agent, which will as soon as practicable set up open accounts with CIHF for each
CIFFG shareholder in accordance with written instructions furnished by CIFFG.
With respect to any CIFFG shareholder holding CIFFG certificates as of the
Exchange Date, CIHF will not permit such shareholder to receive CIHF
certificates, exchange Shares credited to such shareholder's account for shares
of other investment companies managed by CMAI and its affiliates or pledge
or redeem Shares until CIHF is notified by CIFFG or its agent that such
shareholder has surrendered all outstanding CIFFG certificates issued to such
shareholder or posted adequate bond. CIFFG will request the shareholders of
CIFFG to surrender their outstanding CIFFG certificates, or post adequate bond
for lost certificates.
6. Printing, mailing and proxy solicitation expenses will be paid equally by
CMAI and CIFFG. One-half of all other fees and expenses, including legal,
acounting, filing and portfolio transfer taxes (if any) or other similar
expenses incurred in connection with the transactions contemplated by this
Agreement
19
<PAGE>
(except for federal and state securities law filing fees that will be paid by
CIHF) will be paid by CMAI with the other one-half of such fees and expenses
allocated and paid by CIFFG and CIHF based on their relative net assets.
7. (a) CIFFG agrees to call a meeting of its shareholders as soon as is
practicable after the effective date of the Registration Statement to consider
transferring its assets to CIHF as herein provided, adopting this Agreement and
authorizing the liquidation and dissolution of CIFFG.
(b) CIFFG agrees that the liquidation and dissolution of CIFFG will be
effected in the manner provided in CIFFG's Agreement and Declaration of Trust,
in accordance with applicable law, and that on and after the Exchange Date CIFFG
shall not conduct any business except in connection with its liquidation and
dissolution.
8. CIHF agrees to advise CIFFG promptly if at any time prior to the Exchange
Date the assets of CIFFG include any assets that CIHF is not permitted, or
reasonably believes to be unsuitable for it, to acquire, including without
limitation any security that, prior to its acquisition by CIFFG, CIHF has
informed CIFFG is unsuitable for CIHF to acquire.
9. Delivery of the assets of CIFFG to be transferred and the Shares shall be
made at the offices of CIFFG and CIHF, One Financial Center, Boston,
Massachusetts, at 5:00 P.M. on July 24, 1998, or at such other time and date
agreed to by CIFFG and CIHF (the "Exchange Date").
10. The obligations of each Fund hereunder shall be subject to the following
conditions:
(a) That the other Fund shall have furnished it with such other Fund's
statement of assets and liabilities, together with a list of such other Fund's
portfolio securities, together with each such security's respective adjusted tax
basis, with values determined as provided in Section 5 of this Agreement, all as
of the Valuation Time, certified on such other Fund's behalf by such other
Fund's President (or any Vice President) and Treasurer, and a certificate of
both such officers, dated the Exchange Date, that there has been no material
adverse change in such other Fund's financial position since October 31, 1997,
other than changes in such other Fund's portfolio securities since that date or
changes in the market value of such other Fund's portfolio securities, or
changes due to net redemptions of its shares, dividends paid or losses from
operations.
(b) That the other Fund shall have furnished to it a statement, dated the
Exchange Date, signed by such other Fund's President (or any Vice President) and
Treasurer certifying that as of the Valuation Time and as of the Exchange Date
all representations and warranties of such other Fund made in this Agreement are
true and correct in all material respects as of such date and that the other
Fund has complied with all the agreements and satisfied all the conditions on
such other Fund's part to be performed or satisfied at or prior to such dates.
(c) That each Fund shall have received an opinion of Ropes & Gray, counsel
to the other Fund, in form satisfactory to it and dated the Exchange Date, to
the effect that (i) the other Fund is a series of an unincorporated voluntary
association duly established and validly existing in conformity with the laws of
The Commonwealth of Massachusetts, (ii) this Agreement has been duly authorized,
executed and delivered by the other Fund and, assuming that the Registration
Statement, the Prospectus and the Proxy Statement comply with the 1933 Act, the
1934 Act and the 1940 Act and assuming due authorization, execution and delivery
of this Agreement by it, is a valid and binding obligation of the other Fund,
(iii) solely in the case of the opinion to be received by CIHF, CIFFG has power
to sell, assign, transfer and deliver the assets transferred by it hereunder
and, upon consummation of the transactions contemplated hereby in accordance
with the terms of this Agreement, CIFFG will have duly transferred such assets
to CIHF, (iv) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, violate the other
Fund's Agreement and Declaration of Trust, or any provision of any agreement
known to such counsel to which the other Fund
20
<PAGE>
is a party or by which it is bound, (v) no consent, approval, authorization or
order of any court or governmental authority is required for the consummation by
the other Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may be
required under state securities or blue sky laws, (vi) the Registration
Statement, the Prospectus and the Proxy Statement and each amendment thereof and
supplement thereto, as of their respective effective dates and only insofar as
they relate to the other Fund, complied as to form in all material respects with
the requirements of the 1933 Act, the 1934 Act and the 1940 Act and the
applicable rules and regulations of the Commission thereunder, (vii) the
descriptions in the Registration Statement, the Prospectus and the Proxy
Statement of statutes, legal and governmental proceedings and contracts and
other documents, only insofar as they relate to the other Fund, are accurate and
fairly present the information required to be shown, and (viii) such counsel do
not know of any legal or governmental proceedings, only insofar as they relate
to the other Fund, required to be described in the Registration Statement, the
Prospectus or the Proxy Statement which are not described as required, nor of
any contracts or documents, only insofar as they relate to the other Fund, of a
character required to be described in the Registration Statement, the Prospectus
or the Proxy Statement or to be filed as exhibits to the Registration Statement
which are not described and filed as required. Such opinion shall also state
that, while such counsel have not verified, and are not passing upon and do not
assume any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement, the Prospectus or the Proxy
Statement or any amendment thereof or supplement thereto, they have generally
reviewed and discussed such statements with certain officers of the other Fund
and its auditors and that in the course of such review and discussion no facts
came to the attention of such counsel which led them to believe that, on the
respective effective dates of the Registration Statement and any amendment
thereof or supplement thereto and only insofar as they relate to the other Fund,
either the Registration Statement, the Prospectus or the Proxy Statement or any
amendment thereof or supplement thereto contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. Such opinion
may state that such counsel do not express any opinion or belief as to the
financial statements or other financial data or as to the information relating
to the Fund receiving the opinion contained in the Registration Statement, the
Prospectus or the Proxy Statement, or any amendment thereof or supplement
thereto, and that such opinion is solely for the benefit of the Fund receiving
the opinion, its trustees and its officers.
(d) That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of it, contemplated by the Commission.
(e) That each Fund shall have received from the Commission such order or
orders as Ropes & Gray, counsel to such Fund, deem reasonably necessary or
desirable under the 1933 Act and the 1940 Act in connection with the
transactions contemplated hereby, and that all such orders shall be in full
force and effect.
(f) That all proceedings taken by the other Fund in connection with the
transactions contemplated by this Agreement and all documents incidental thereto
shall be satisfactory in form and substance to it and its counsel, Ropes & Gray,
and that each Fund shall have received an opinion of Ropes & Gray as to such
other matters as such Fund shall reasonably deem necessary or desirable.
(g) That there shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
11. The obligations of CIHF hereunder shall also be subject to the following
conditions:
21
<PAGE>
(a) That CIFFG shall have delivered to CIHF tax returns, signed by a
partner of Price Waterhouse LLP, for the year ended October 31, 1997 and the
period from November 1, 1997 to the Exchange Date.
(b) That CIHF shall have received an opinion of Ropes & Gray, counsel to
CIHF, to the effect that for federal income tax purposes (i) no gain or loss
will be recognized by CIHF upon its receipt of the assets of CIFFG transferred
to CIHF pursuant to this Agreement in exchange for the Shares and the assumption
of liabilities and obligations of CIHF, (ii) the basis in the hands of CIHF of
the assets of CIFFG will be the same as the basis of such assets in the hands of
CIFFG immediately prior to such transfer and (iii) CIHF's holding period in the
assets of CIFFG transferred to CIHF will include the periods during which such
assets were held by CIFFG.
(c) That the assets of CIFFG to be acquired by CIHF shall include no assets
which CIHF, by reason of charter limitations or of investment restrictions
disclosed in the prospectus or statement of additional information of CIHF in
effect on the Exchange Date may not properly acquire.
(d) That prior to the Exchange Date, CIFFG shall have declared a dividend
or dividends which, together with all previous such dividends, shall have the
effect of distributing to the shareholders of CIFFG all of CIFFG's investment
company taxable income for its taxable years ending on or after October 31, 1997
and on or prior to the Exchange Date (computed without regard to any deduction
for dividends paid), and all of its net capital gain realized in each of its
taxable years ending on or after October 31, 1997 and on or prior to the
Exchange Date.
(e) That CIFFG shall have furnished to CIHF a certificate, signed by the
President (or any Vice President) and the Treasurer of CIFFG, as to the adjusted
tax bases in the hands of CIFFG of the securities delivered to CIHF pursuant to
this Agreement, together with any such other evidence as to such adjusted tax
bases as CIHF may reasonably request.
(f) That CIFFG's custodian shall have delivered to CIHF a certificate
identifying all of the assets of CIFFG held by such custodian as of the
Valuation Time.
(g) That CIFFG's transfer agent shall have delivered to CIHF (1) the
originals or true copies of all of the records of CIFFG in the possession of
such transfer agent as of the Exchange Date and (2) a certificate setting forth
the number of shares of CIFFG outstanding as of the Valuation Time and the name
and address of each holder of record of any such shares and the number of shares
held of record by each such shareholder.
(h) That all of the issued and outstanding shares of beneficial interest of
CIFFG shall have been offered for sale and sold in conformity with all
applicable state securities laws and, to the extent that any audit of the
records of CIFFG or its transfer agent by CIHF or its agents shall have revealed
otherwise, either (i) CIFFG shall have taken all actions that in the opinion of
CIHF or its counsel are necessary to remedy any prior failure on the part of
CIFFG to have offered for sale and sold such shares in conformity with such laws
or (ii) CIFFG shall have furnished surety, or deposited in escrow assets, for
the benefit of CIHF in amounts sufficient and upon terms satisfactory, in the
opinion of CIHF or its counsel, to indemnify CIHF against any expense, loss,
claim, damage or liability whatsoever that may be asserted or threatened by
reason of such failure on the part of CIFFG to have offered and sold such shares
in conformity with such laws.
12. The obligations of CIFFG hereunder also shall be subject to the following
conditions:
That CIFFG shall have received an opinion of Ropes & Gray, counsel to CIHF,
to the effect the Shares are duly authorized and upon delivery to CIFFG as
provided in this Agreement will be validly issued and will be fully paid and
nonassessable by CIHF and no shareholder of CIHF has any preemptive right of
subscription or purchase in respect thereof, and that for federal income tax
purposes (i) no gain or loss will be recognized by CIFFG upon receipt of CIFFG's
assets by CIHF in exchange for the Shares and the
22
<PAGE>
assumption of liabilities and obligations of CIFFG or on the distribution by
CIFFG in liquidation to its shareholders of the Shares, (ii) no gain or loss
will be recognized by the shareholders of CIFFG on the distribution to them by
CIFFG of Shares in exchange for their shares of CIFFG, (iii) the basis of the
Shares a CIFFG shareholder receives in place of his or her CIFFG shares in
connection with this Agreement will be the same as the basis of his or her CIFFG
shares exchanged and (iv) a CIFFG shareholder's holding period for his or her
CIHF Shares will be determined by including the period for which he or she held
the CIFFG shares exchanged therefor, provided that he or she held such CIFFG
shares as a capital asset.
13. Each of CIFFG and CIHF represents that there is no person who has dealt with
it who by reason of such dealings is entitled to any broker's or finder's or
other similar fee or commission arising out of the transactions contemplated by
this Agreement.
14. CIFFG and CIHF may terminate this Agreement by mutual agreement and either
Fund may waive any condition to its obligations hereunder. If the transactions
contemplated by this Agreement have not been substantially completed by August
7, 1998, this Agreement shall automatically terminate on that date unless a
later date is agreed to by CIFFG and CIHF.
15. Pursuant to Rule 145 under the 1933 Act, CIHF will, in connection with the
issuance of any shares of CIHF to any person who at the time of the transaction
contemplated hereby is deemed to be an affiliate of a party to the transaction
pursuant to Rule 145(c), cause to be affixed upon the certificates (if any)
issued to such person a legend as follows:
"THESE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO COLONIAL
INTERNATIONAL HORIZONS FUND OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
SECURITIES ACT OF 1933 OR (II) IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO COLONIAL INTERNATIONAL HORIZONS FUND SUCH REGISTRATION IS
NOT REQUIRED"
and, further, CIHF will issue stop transfer instructions to CIHF's transfer
agent with respect to such shares. CIFFG will provide CIHF on the Exchange Date
with the name of any CIFFG shareholder who is to the knowledge of CIFFG an
affiliate of CIFFG on such date.
16. All covenants, agreements, representations and warranties made under this
Agreement and any certificates delivered pursuant to this Agreement shall be
deemed to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their behalf.
17. Shareholders of CIFFG who immediately prior to the Exchange Date have
adopted any plan or arrangement offered by both CIHF and CIFFG shall retain the
same rights and privileges under such plan or arrangement with respect to the
shares of CIHF after the Exchange Date.
18. This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the subject matter hereof,
constitutes the only understanding with respect to such subject matter, may not
be changed except by a letter of agreement signed by each party hereto and shall
be construed in accordance with and governed by the laws of The Commonwealth of
Massachusetts.
19. No representations, warranties or covenants in or pursuant to this Agreement
(including certificates of officers) shall survive the Exchange Date.
20. A copy of the Agreement and Declaration of Trust of Colonial Trust III, as
amended, is on file with the Secretary of State of The Commonwealth of
Massachusetts, and notice is hereby given that this instrument is executed on
behalf of the trustees of such Trust as trustees and not individually and that
the obligations of each Fund under this instrument are not binding upon any of
such Trust's trustees, officers or shareholders individually but are binding
only upon the assets and property of such Fund.
23
<PAGE>
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
COLONIAL TRUST III
on behalf of Colonial International Fund for Growth
and Colonial International Horizons Fund
By: NANCY L. CONLIN
------------------
Secretary
COLONIAL MANAGEMENT ASSOCIATES, INC.
By: NANCY L. CONLIN
------------------
Senior Vice President
24
<PAGE>
EXHIBIT B
CERTAIN INFORMATION REGARDING FINANCIAL AND ORGANIZATIONAL
HISTORY AND INVESTMENT POLICIES OF COLONIAL INTERNATIONAL FUND
FOR GROWTH AND INVESTMENT POLICIES OF COLONIAL INTERNATIONAL
HORIZONS FUND
INTERNATIONAL FUND'S FINANCIAL HISTORY
The following financial highlights for a share outstanding throughout each
period have been audited by Price Waterhouse LLP, independent accountants. Their
unqualified report is included in the Fund's 1997 Annual Report and is
incorporated by reference into the Statement of Additional Information. The
following data reflects, in part, performance of the Fund while its portfolio
was being managed by a former sub-adviser whose services were terminated on
December 31, 1995.
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------
Year ended Period ended
October 31 October 31
------------------------------------------- ---------------
1997 1996 1995 1994(b)
------------------------------------------- ---------------
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $10.260 $9.760 $10.370 $10.000
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(a)(c) 0.014 0.044 0.019 0.013
Net realized and unrealized gain (loss)(c) 0.340 0.456 (0.629) 0.357
----- ----- ------- -----
Total from Investment Operations 0.354 0.500 (0.610) 0.370
----- ----- ------- -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.089) ---- ---- ----
From net realized gains (0.645) ---- ---- ----
-------
Total Distributions Declared to Shareholders (0.734) ---- ---- ----
-------
Net asset value - End of period $9.880 $10.260 $9.760 $10.370
======= ======= ======= =======
Total return(d) 3.61%(e) 5.12%(e) (5.88)% 3.70%(f)
----- ----- ------- -----
RATIOS TO AVERAGE NET ASSETS
Expenses 1.75%(g) 1.75%(g) 1.74%(g) 1.71%(h)
Net investment income (loss) 0.13%(g) 0.43%(g) 0.20%(g) 0.14%(h)
Fees waived or borne by the Adviser 0.07%(g) 0.04%(g) ---- ----
Portfolio turnover 23% 129% 35% 51%(h)
Average commission rate(i) $0.0023 $0.0011 ---- ----
Net assets at end of period (000) $27,875 $32,912 $43,354 $62,251
(a) Net of fees and expenses waived or borne
by the Adviser which amounted to: $0.007 $0.004 ---- ----
- ---------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------------
Year ended Period ended
October 31 October 31
------------------------------------------- -----------------
1997 1996 1995 1994(b)
------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $10.040 $9.620 $10.300 $10.000
------- ------ ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(a)(c) (0.064) (0.032) (0.052) (0.058)
Net realized and unrealized gain (loss)(c) 0.329 0.452 (0.628) 0.358
----- ----- ------- -----
Total from Investment Operations 0.265 0.420 (0.680) 0.300
----- ----- ------- -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income ----- ---- ---- ----
From net realized gains (0.645) ---- ---- ----
-------
Total Distributions Declared to Shareholders (0.645) ---- ---- ----
-------
Net asset value - End of period $9.660 $10.040 $9.620 $10.300
======= ======= ======= =======
Total return(d) 2.74%(e) 4.37%(e) (6.60)% 3.00%(f)
----- ----- ------- -----
RATIOS TO AVERAGE NET ASSETS
Expenses 2.50%(g) 2.50%(g) 2.49%(g) 2.46%(h)
Net investment income (loss) (0.62)%(g) (0.32)%(g) (0.55)%(g) (0.61)%(h)
Fees waived or borne by the Adviser 0.07%(g) 0.04%(g) ---- ----
Portfolio turnover 23% 129% 35% 51%(h)
Average commission rate(i) $0.0023 $0.0011 ---- ----
Net assets at end of period (000) $49,840 $62,578 $76,376 $103,450
(a) Net of fees and expenses waived or borne
by the Adviser which amounted to: $0.007 $0.004 ---- ----
- ---------------------------------
</TABLE>
(b) The Fund commenced investment operations on December 1, 1993.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Total return at net asset value assuming all distributions reinvested and no
initial or contingent deferred sales charge.
(e) Had the Adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(h) Annualized.
(i) 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.
25
<PAGE>
<TABLE>
<CAPTION>
Class C(b)
----------------------------------------------------------------------
Year ended Period ended
October 31 October 31
----------------------------------------------------------------------
1997 1996 1995 1994(c)
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $10.090 $9.670 $10.350 $10.060
-------- ------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss(a)(d) (0.640) (0.032) (0.052) (0.037)
Net realized and unrealized
gain (loss)(a)(d) 0.320 0.452 (0.628) 0.327
----- ----- ------- -----
Total from Investment Operations 0.256 0.420 (0.680) 0.290
----- ----- ------- -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.021) ---- ---- ----
From net realized gains (0.645) ---- ---- ----
-------
Total Distributions Declared to Shareholders (0.666) ---- ---- ----
-------
Net asset value - End of period $9.680 $10.090 $9.670 $10.350
======= ======== ======= =======
Total return(e) 2.63% (f) 4.34% (f) (6.57)% 2.88%(g)
----- ----- ------- -----
RATIOS TO AVERAGE NET ASSETS
Expenses 2.50% (h) 2.50% (h) 2.49% (h) 2.46%(i)
Net investment loss (0.62)% (h) (0.32)%(h) (0.55)%(h) (0.61)(i)
Fees waived or borne by the Adviser 0.07% (h) 0.04% (h) ---- ----
Portfolio turnover 23% 129% 35% 51% (i)
Average commission rate(j) $0.0023 $0.0011 ---- ----
Net assets at end of period (000) $735 $957 $684 $570
(a) Net of fees and expenses waived or borne
by the Adviser which amounted to: $0.007 $0.004 ---- ----
</TABLE>
- -----------------
(b) Effective July 1, 1997 Class D shares were redesignated Class C shares.
(c) Class C shares were initially offered on July 1, 1994. Per share amounts
reflect activity from that date.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Total return at net asset value assuming all distributions reinvested and no
initial or contingent deferred sales charge.
(f) Had the Adviser not waived or reimbursed a portion of expenses, total return
would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(i) Annualized.
(j) 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.
26
<PAGE>
INTERNATIONAL FUND'S INVESTMENT OBJECTIVE
International Fund seeks long-term growth by investing primarily in non U.S.
equities.
HOW INTERNATIONAL FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS
International Fund seeks to achieve its investment objective by investing
primarily in equity securities of companies located in at least three countries
other than the U.S. Normally, at least 65% of the Fund's assets will be invested
in equity securities of non- U.S. issuers. The Fund also may invest up to 35% of
its assets in high quality foreign government debt securities.
International Fund is non-diversified and may invest more than 5% of its total
assets in the securities of a single issuer, increasing the risk of loss
compared to a diversified fund.
Equity Securities Generally. Equity securities generally include common and
preferred stock, warrants (rights) to purchase such stock, debt securities
convertible into such stock and sponsored and unsponsored American Depositary
Receipts. Equity securities also include shares issued by closed-end investment
companies that invest primarily in the foregoing securities.
Debt Securities Generally. International Fund may invest in foreign government
debt securities of any maturity that pay fixed, floating or adjustable interest
rates. The values of debt securities generally fluctuate inversely with changes
in interest rates in the countries where the securities are issued.
Foreign Investments. Investments in foreign securities (both debt and equity)
and sponsored and unsponsored American Depositary Receipts have special risks
related to political, economic and legal conditions outside of the U.S. As a
result, the prices of foreign securities may fluctuate substantially more than
the prices of securities of issuers based in the U.S. Special risks associated
with foreign securities include the possibility of unfavorable currency exchange
rates, the existence of less liquid markets, the unavailability of reliable
information about issuers, the existence (or potential imposition) of exchange
control regulations (including currency blockage), and political and economic
instability, among others. In addition, transactions in foreign securities may
be more costly due to currency conversion costs and higher brokerage and
custodial costs. See "Foreign Securities" and "Foreign Currency Transactions" in
the Statement of Additional Information for more information about foreign
investments.
Emerging Markets. International Fund's investments will consist of securities
issued by companies located in countries whose economies or securities markets
are not yet highly developed. Special risks associated with these investments
(in addition to the conditions regarding foreign investments generally) may
include, among others, greater political
27
<PAGE>
uncertainties, an economy's dependence on revenues from particular commodities
or on international aid or development assistance, highly limited numbers of
potential buyers for such securities, heightened volatility of security prices,
restrictions on repatriation of capital invested abroad and delays and
disruptions in securities settlement procedures. Normally, no more than 40% of
the Fund's assets will be invested in such securities.
Small Companies. International Fund may invest in smaller, less well established
companies which may offer greater opportunities for capital appreciation than
larger, better established companies, but may also involve certain special
risks. Such companies often have limited product lines, markets or financial
resources and depend heavily on a small management group. Their securities may
trade less frequently, in smaller volumes, and fluctuate more sharply in value
than exchange listed securities of larger companies.
Other Investment Companies. Up to 10% of International Fund's total assets may
be invested in other investment companies. Such investments will involve the
payment of duplicative fees through the indirect payment of a portion of the
expenses, including advisory fees, of such other investment companies.
Foreign Currency Transactions. In connection with its investments in foreign
securities, International Fund may purchase and sell (i) foreign currencies on a
spot or forward basis (ii) foreign currency futures contracts, and (iii) options
on foreign currencies and foreign currency futures. Such transactions will be
entered into (i) to lock in a particular foreign exchange rate pending
settlement of a purchase or sale of a foreign security or pending the receipt of
interest, principal or dividend payments on a foreign security held by the Fund,
or (ii) to hedge against a decline in the value, in U.S. dollars or in another
currency, of a foreign currency in which securities held by the Fund are
denominated. The Fund will not attempt, nor would it be able, to eliminate all
foreign currency risk. Further, although hedging may lessen the risk of loss if
the hedged currency's value declines, it limits the potential gain from currency
value increases. See the Statement of Additional Information for information
relating to the Fund's obligations in entering into such transactions.
Index Futures. International Fund may purchase and sell foreign stock index
futures contracts. Such transactions will be entered into to gain exposure to a
particular market pending investment in individual securities, but not to hedge
against market declines. A futures contract creates an obligation by the seller
to deliver and the buyer to take delivery of a type of instrument at the time
and in the amount specified in the contract. A sale of a futures contract can be
terminated in advance of the specified delivery date by subsequently purchasing
a similar contract; a purchase of a futures contract can be terminated by a
subsequent sale. Gain or loss on a contract generally is realized upon such
termination. Transactions in futures may not precisely achieve the goal of
gaining market exposure to the extent there is an imperfect correlation between
the price movements of the contracts and of the underlying securities. The Fund
will not make additional investments in index futures at times when net Fund
obligations under index futures exceed 5% of the Fund's net assets.
28
<PAGE>
Temporary/Defensive Investments. Temporarily available cash may be invested in
certificates of deposit, bankers' acceptances, high quality commercial paper,
treasury bills, short-term debt instruments, U.S. government securities and
repurchase agreements. Some or all of the Fund's assets also may be invested in
such investments during periods of unusual market conditions. Under a repurchase
agreement, the Fund buys a security from a bank or dealer, which is obligated to
buy it back at a fixed price and time. The security is held in a separate
account at the Fund's custodian and constitutes the Fund's collateral for the
bank's or dealer's repurchase obligation. Additional collateral will be added so
that the obligation will at all times be fully collateralized. However, if the
bank or dealer defaults or enters bankruptcy, the Fund may experience costs and
delays in liquidating the collateral, and may experience a loss if it is unable
to demonstrate its right to the collateral in a bankruptcy proceeding. No more
than 15% of the Fund's net assets will be invested in repurchase agreements
maturing in more than seven days and other illiquid assets.
Borrowing of Money. International Fund may borrow money from banks for temporary
or emergency purposes up to 10% of its net assets; however, it will not purchase
additional portfolio securities while borrowings exceed 5% of net assets.
Other. International Fund may trade portfolio securities for short-term profits
to take advantage of price differentials. These trades will be limited by
certain Internal Revenue Code requirements. High portfolio turnover may result
in higher transaction costs and higher levels of realized capital gains.
See the International Fund's February 27, 1998 Statement of Additional
Information for more detailed information about the Fund's investment
techniques.
Fundamental Investment Policies of International Fund
As fundamental investment policies, which may not be changed without a majority
of its outstanding voting securities, International Fund may:
1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets; however, the
Fund will not purchase additional portfolio securities (other than
short-term securities) while borrowings exceed 5% of net assets;
2. Only own real estate acquired as the result of owning securities, the
value of such real estate may not exceed 5% of total assets;
3. Purchase and sell futures contracts and related options so long as the
total initial margin and premiums on the contracts do not exceed 5% of its
total assets;
4. Underwrite securities issued by others only when disposing of portfolio
securities;
5. Make loans (i) through lending of securities not exceeding 30% of total
assets, (ii)
29
<PAGE>
through the purchase of debt instruments or similar evidences of
indebtedness typically sold privately to financial institutions and
(iii) through repurchase agreements;
6. Not concentrate more than 25% of its total assets in any single industry;
and
7. Not purchase any security issued by another investment company if
immediately after such purchase the Fund would own in the aggregate (i)
more than 3% of the total outstanding voting securities of such other
investment company, (ii) securities issued by such other investment
company having an aggregate value in excess of 5% of the Fund's total
assets, or (iii) securities issued by investment companies having an
aggregate value in excess of 10% of the Fund's total assets.
Fundamental Investment Policies of International Horizons Fund
1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets, however,
the Fund will not purchase additional portfolio securities while
borrowings exceed 5% of net assets;
2. Only own real estate acquired as the result of owning securities; and
not more than 5% of total assets;
3. Invest up to 10% of its net assets in illiquid assets;
4. Purchase and sell futures contracts and related options so long as
the total initial margin and premiums on the contracts does not
exceed 5% of its total assets;
5. Underwrite securities issued by others only when disposing of
portfolio securities;
6. Make loans through lending of securities not exceeding 30% of total
assets, through the purchase of debt instruments or similar evidences
of indebtedness typically sold privately to financial institutions
and through repurchase agreements; and
7. Not concentrate more than 25% of its total assets in any one
industry.
30
<PAGE>
EXHIBIT C
MANAGEMENT'S DISCUSSION OF INVESTMENT AND PERFORMANCE OF
COLONIAL INTERNATIONAL FUND FOR GROWTH AND COLONIAL
INTERNATIONAL HORIZONS FUND
COLONIAL INTERNATIONAL FUND FOR GROWTH HIGHLIGHTS
NOVEMBER 1, 1996 - OCTOBER 31, 1997
Portfolio Management Commentary: "We believe that investors are poised to shift
their attention to smaller and mid-sized company stocks. Those stocks are more
attractively priced, have good earnings growth potential and strong operating
characteristics. We believe that the Fund is well positioned to take advantage
of this shift."
-- David Harris
Colonial International Fund for Growth Performance
<TABLE>
<CAPTION>
Class A Class B Class C(1)
<S> <C> <C> <C>
Inception dates 12/1/93 12/1/93 7/1/94
Twelve-month distributions
declared per share $0.734 $0.645 $0.666
Twelve-month total returns,
assuming reinvestment of
all distributions and no
sales charge or contingent
deferred sales charge (CDSC) 3.61% 2.74% 2.63%
Net asset value per share on
10/31/97 $9.88 $9.66 $9.68
</TABLE>
<TABLE>
<CAPTION>
Top Five Holdings(2) Top Five Countries(2)
(as of 10/31/97) (as of 10/31/97)
<S> <C> <C> <C>
1. Promise Co., Ltd. 2.5% 1. Japan 20.4%
2. Telecom Italia 2.3% 2. United Kingdom 9.3%
3. British Gas Co. 2.1% 3. Germany 8.2%
4. Deutsche Bank AG 2.1% 4. France 7.9%
5. Merita Ltd. Class A 2.0% 5. Finland 7.9%
</TABLE>
31
<PAGE>
(1) On July 1, 1997, Class D shares were redesignated Class C shares.
(2) Holdings are shown as a percentage of total net assets. Countries are shown
as a percentage of total investments. Because the Fund is actively managed,
there can be no guarantee the Fund will continue to hold these securities or
invest in these countries in the future.
PRESIDENT'S MESSAGE TO FUND SHAREHOLDERS
Throughout much of the 12 months ended October 31, 1997, international stock
market performance was modest as international stocks lagged U.S. stocks.
However, because many of the world's economies are less mature than the U.S.
economy, stronger growth prospects provide international stocks with
considerable opportunities for price gains.
Beginning in July, a currency crisis in Southeast Asia had a negative spillover
effect on many stock markets worldwide. During the "sorting out" period, these
events provided Colonial International Fund for Growth with an opportunity to
purchase stocks offering good long-term growth potential at appealing prices.
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 international
stocks 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.
32
<PAGE>
PORTFOLIO MANAGEMENT REPORT
DAVID HARRIS is the portfolio manager of Colonial International Fund for Growth
and is a vice president of Colonial Management Associates, Inc. He is also an
investment management principal of a division of Stein Roe & Farnham, Inc.
International stocks offer diversification and value
Gains in international stock prices continued to be smaller than those for their
U.S. counterparts for the thirteenth consecutive quarter, ended September 30,
1997, as U.S. stock market returns continued to exceed their long-term
historical average. We do not believe that this trend is sustainable and expect
that over time, investors will shift their attention to more attractively priced
investments in international markets.
We remain committed to our value-oriented investment strategy. We continued to
favor smaller companies that are not closely followed by the equity analyst
community and that may be overlooked by many investors. These stocks have a
tendency to be underpriced relative to their operating and/or financial
strength. For example, we own Bucher Holding, a smaller Swiss company that
manufactures a variety of food processing equipment and specialized industrial
machinery, including a line of ski slope grooming equipment. This company has an
extremely strong balance sheet with significant cash holdings that could be used
to repurchase stock. While share buybacks are not currently allowed under Swiss
law, pending reform could eliminate tax restrictions causing Bucher's share
price to increase.
Emerging market stocks continue to meet our investment criteria
Our investment criteria remained value-oriented. In the past, Southeast Asia was
a source of attractively priced stocks with long-term growth potential and
strong financial and operating characteristics. Earlier in the year as
valuations became less compelling, we reduced our positions in Southeast Asia.
In our opinion, heightened investor enthusiasm had caused many of these stocks
to shift from under- to over-valued. However, as the Southeast Asian currency
crisis emerged during the last part of the period, dramatic reductions in share
prices have made many of these stocks attractive once again, despite near-term
economic uncertainty.
One such investment, Matahari, is the largest retailer in Indonesia. This
company operates specialty department and grocery stores. We sold our shares
early in the year when the stock reached its fair value price. However, as the
Indonesian market declined, the stock price fell 75% from a high in March and we
began to buy shares again in September. We believe that while Indonesia's
economic environment is less favorable than it was, Matahari is well positioned
to capitalize on economic growth when it resumes.
33
<PAGE>
The Fund performed slightly behind the Index
During the 12-month period ended October 31, 1997, the MSCI EAFE Index posted a
total return of 4.6% measured in U.S. dollars. Positive returns were
concentrated in Europe, particularly in the largest capitalization companies.
Colonial International Fund for Growth had a total return of 3.6%, for Class A
shares at net asset value, slightly behind the Index. Returns were held back by
the Fund's exposure outside of Europe. The Fund's strategy is to diversify
across countries and industries to reduce risk and invest in rapidly growing
economies. The Fund's Asian exposure has aided returns in the past because of
the high economic growth in the region. We believe, in the long term, that Asia
will recover and that the current slowdown is more than reflected in share
prices. We also believe that the Fund's investments in smaller and
mid-capitalization companies will add to returns in the future.
Investors with a long-term outlook
Our strategy focuses on buying shares of smaller, less well-known companies with
good long-term growth potential. We have a strong understanding of their
businesses and we purchase these companies at a price that suggests management
can create shareholder value. Although we remain confident in the long-term
value of this strategy, it hampered the Fund's performance during the period.
However, we believe the strategy will reward the patient investor in the long
term.
Colonial International Fund for Growth's Investment Performance vs. The Morgan
Stanley Capital International EAFE (GDP) Index and The Morgan Stanley Capital
International EAFE Net Dividends (ND) Index
Change in Value of $10,000 from 12/1/93 - 10/31/97
Class A Shares
Based on NAV and POP
As of Date NAV POP MSCI EAFE GDP MSCI EAFE ND
Nov. 30, 93 10,000 9,425 10,000 10,000
Dec. 31, 93 10,530 9,925 10,703 10,722
Jan. 31, 94 10,990 10,358 11,522 11,629
Feb. 28, 94 10,670 10,056 11,459 11,596
Mar. 31, 94 10,040 9,463 11,294 11,097
Apr. 30, 94 10,270 9,679 11,865 11,568
May 31, 94 10,270 9,679 11,592 11,501
June 30, 94 10,060 9,481 11,587 11,664
July 31, 94 10,350 9,755 11,856 11,776
Aug. 31, 94 10,690 10,075 12,057 12,055
Sep. 30, 94 10,350 9,755 11,633 11,675
Oct. 31, 94 10,370 9,774 11,987 12,064
Nov. 30, 94 9,900 9,331 11,452 11,484
Dec. 31, 94 9,730 9,171 11,539 11,556
Jan. 31, 95 9,100 8,577 11,244 11,112
Feb. 28, 95 8,950 8,435 11,231 11,080
Mar. 31, 95 9,010 8,492 11,740 11,771
Apr. 30, 95 9,240 8,709 12,264 12,214
May 31, 95 9,290 8,756 12,146 12,068
June 30, 95 9,220 8,690 12,010 11,857
July 31, 95 9,770 9,208 12,795 12,595
Aug. 31, 95 9,780 9,217 12,261 12,114
Sep. 30, 95 9,890 9,321 12,406 12,351
Oct. 31, 95 9,760 9,199 12,047 12,019
Nov. 30, 95 9,850 9,284 12,301 12,354
Dec. 31, 95 10,100 9,519 12,827 12,851
Jan. 31, 96 10,070 9,491 12,990 12,904
Feb. 29, 96 10,040 9,462 13,029 12,948
Mar. 31, 96 10,260 9,670 13,202 13,223
Apr. 30, 96 10,730 10,122 13,613 13,607
May 31, 96 10,650 10,037 13,412 13,357
June 30, 96 10,730 10,113 13,517 13,432
July 31, 96 10,280 9,688 13,129 13,039
Aug. 31, 96 10,410 9,811 13,122 13,068
Sep. 30, 96 10,520 9,915 13,482 13,415
Oct. 31, 96 10,260 9,670 13,335 13,278
Nov. 30, 96 10,660 10,047 13,905 13,806
Dec. 31, 96 10,523 9,918 13,806 13,628
Jan. 31, 97 10,609 9,999 13,545 13,151
Feb. 28, 97 10,738 10,120 13,640 13,367
Mar. 31, 97 10,716 10,100 13,900 13,415
Apr. 30, 97 10,684 10,070 13,866 13,486
May 31, 97 11,502 10,841 14,588 14,364
June 30, 97 12,105 11,408 15,457 15,156
July 31, 97 12,148 11,449 15,797 15,401
Aug. 31, 97 11,254 10,607 14,664 14,251
Sep. 30, 97 11,685 11,013 15,606 15,049
Oct. 31, 97 10,631 10,020 14,453 13,892
Class B Shares
Based on NAV and POP
As of Date NAV POP MSCI EAFE GDP MSCI EAFE ND
Nov. 30, 93 10,000 10,000 10,000 10,000
Dec. 31, 93 10,530 10,530 10,703 10,722
Jan. 31, 94 10,980 10,980 11,522 11,629
Feb. 28, 94 10,650 10,650 11,459 11,596
Mar. 31, 94 10,020 10,020 11,294 11,097
Apr. 30, 94 10,240 10,240 11,865 11,568
May 31, 94 10,230 10,230 11,592 11,501
June 30, 94 10,020 10,020 11,587 11,664
July 31, 94 10,290 10,290 11,856 11,776
Aug. 31, 94 10,630 10,630 12,057 12,055
Sep. 30, 94 10,280 10,280 11,633 11,675
Oct. 31, 94 10,300 10,300 11,987 12,064
Nov. 30, 94 9,830 9,830 11,452 11,484
Dec. 31, 94 9,650 9,650 11,539 11,556
Jan. 31, 95 9,020 9,020 11,244 11,112
Feb. 28, 95 8,860 8,860 11,231 11,080
Mar. 31, 95 8,920 8,920 11,740 11,771
Apr. 30, 95 9,140 9,140 12,264 12,214
May 31, 95 9,190 9,190 12,146 12,068
June 30, 95 9,120 9,120 12,010 11,857
July 31, 95 9,650 9,650 12,795 12,595
Aug. 31, 95 9,650 9,650 12,261 12,114
Sep. 30, 95 9,760 9,760 12,406 12,351
Oct. 31, 95 9,620 9,620 12,047 12,019
Nov. 30, 95 9,710 9,710 12,301 12,354
Dec. 31, 95 9,940 9,940 12,827 12,851
Jan. 31, 96 9,900 9,900 12,990 12,904
Feb. 29, 96 9,870 9,870 13,029 12,948
Mar. 31, 96 10,080 10,080 13,202 13,223
Apr. 30, 96 10,540 10,540 13,613 13,607
May 31, 96 10,450 10,450 13,412 13,357
June 30, 96 10,520 10,520 13,517 13,432
July 31, 96 10,080 10,080 13,129 13,039
Aug. 31, 96 10,200 10,200 13,122 13,068
Sep. 30, 96 10,300 10,300 13,482 13,415
Oct. 31, 96 10,040 10,040 13,335 13,278
Nov. 30, 96 10,430 10,430 13,905 13,806
Dec. 31, 96 10,283 10,283 13,806 13,628
Jan. 31, 97 10,369 10,369 13,545 13,151
Feb. 28, 97 10,486 10,486 13,640 13,367
Mar. 31, 97 10,454 10,454 13,900 13,415
Apr. 30, 97 10,411 10,411 13,866 13,486
May 31, 97 11,201 10,201 14,588 14,364
June 30, 97 11,768 11,768 15,457 15,156
July 31, 97 11,810 11,810 15,797 15,401
Aug. 31, 97 10,934 10,935 14,664 14,251
Sep. 30, 97 11,351 11,351 15,606 15,049
Oct. 31, 97 10,315 10,026 14,453 13,892
A $10,000 investment in Class C shares made on July 1, 1994 (inception), at net
asset value (NAV) would have been valued at $10,294 on October 31, 1997. The
Fund's performance has been compared to the Morgan Stanley Capital International
EAFE (GDP) Index in the past. Going forward, we believe it is more appropriate
to compare the Fund to the Morgan Stanley Capital International EAFE ND Index,
which is more widely recognized and tracks the performance of international
stocks by market capitalization, rather than by gross domestic product. Both
Morgan Stanley Indexes are unmanaged and unlike mutual funds, indexes do not
incur fees or charges and it is not possible to invest in indexes.
34
Average Annual Total Returns
As of 9/30/97 (most recent quarter end)
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C(1)
Inception 12/1/93 12/1/93 7/1/94
NAV POP NAV w/CDSC NAV POP w/CDSC
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 year 11.08% 4.69% 10.21% 5.21% 10.08% 9.08%
- -----------------------------------------------------------------------------------
Since inception 4.14 2.55 3.36 2.64 3.90 3.90
- -----------------------------------------------------------------------------------
</TABLE>
(1) On July 1, 1997, Class D shares were redesignated Class C shares.
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 charges
of 5.75% for Class A shares. The CDSC returns reflect the maximum charges of 5%
for one year and 3% since inception for Class B shares and 1% for one year for
Class C shares. Performance for different share classes will vary based on
differences in sales charges and fees associated with each class.
35
<PAGE>
COLONIAL INTERNATIONAL HORIZONS FUND HIGHLIGHTS
November 1, 1996 - October 31, 1997
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
COLONIAL INTERNATIONAL HORIZONS FUND PERFORMANCE
<TABLE>
<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
reinvestment of all distributions
and no sales charge or contingent
deferred sales charge (CDSC) 17.87% 16.98% (4.34)(1)%
Net asset values per share on 10/31/97 $15.26 $15.07 $15.22
</TABLE>
<TABLE>
<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.
PRESIDENT'S MESSAGE TO FUND SHAREHOLDERS
This report reflects on 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
36
<PAGE>
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,
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.
37
<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.
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
38
<PAGE>
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.
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
39
<PAGE>
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.
AVERAGE ANNUAL TOTAL RETURNS
As of 9/30/97 (most recent quarter end)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES(1)
INCEPT 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.
40
<PAGE>
COLONIAL INTERNATIONAL HORIZONS FUND
Statement of Additional Information
June 5, 1998
This Statement of Additional Information (SAI) is not a prospectus and is
authorized for distribution only when accompanied or preceded by the Prospectus
of Colonial International Horizons Fund (CIHF) dated June 5, 1998 relating to
the proposed combination of Colonial International Fund for Growth (CIFFG) and
CIHF. This SAI should be read together with that Prospectus. SAIs for CIFFG and
CIHF each dated February 27, 1998 and filed with the Securities and Exchange
Commission, are herein incorporated by reference. Copies of the Prospectus and
the SAIs are available without charge and may be obtained by writing to Liberty
Financial Investments, Inc., One Financial Center, Boston, MA 02111-2621 or by
calling (800) 426-3750.
This SAI consists of the information set forth herein and the following
described documents, each of which is herein incorporated by reference:
(1) The financial statements and Report of Independent Accountants of
Colonial International Horizons Fund and Colonial International Fund
for Growth included in each Fund's Annual Report to Shareholders for
the fiscal year ended October 31, 1997, previously filed on EDGAR,
Accession Number 0000883163-98-000003 and 0000883163-98-000009,
respectively.
(2) The Statement of Additional Information of Colonial International
Horizons Fund, dated February 27, 1998, previously filed on EDGAR,
Accession Number 0000021847-98-000001.
The Pro Forma Combined Financial Statements prepared for the year ended October
31, 1997 begin on the next page.
XX-XXXXX-0698
<PAGE>
PRO FORMA INVESTMENT PORTFOLIO
COLONIAL INTERNATIONAL FUND FOR GROWTH (CIFFG)
AND
COLONIAL INTERNATIONAL HORIZONS FUND (CIHF)
(UNAUDITED, IN THOUSANDS)
OCTOBER 31,1997
<TABLE>
<CAPTION>
Pro Forma Pro Forma
CIFFG CIHF Adjustment Combined
- -------------------------------------------------------------------------------- --------------------------------------------------
COMMON STOCKS - 96.4% COUNTRY SHARES VALUE SHARES VALUE SHARES VALUE
- -------------------------------------------------------------------------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
AGRICULTURE, FORESTRY & FISHING - 0.1%
Agricultural Services
PT Chareon Pokphand Indonesia In 625 $ 91 625 $ 91
--------- ---------
- -------------------------------------------------------------------------------- ---------------- -------------------
CONSTRUCTION - 2.4%
Building Construction - 0.0%
Property Perfect Public Co., Ltd. (a) Th 410 26 410 26
--------- ---------
Heavy Construction-Non Building Construction - 1.8%
Compagnie Generale des Eaux Fr 10 1,111 10 1,111
Kaneshita Construction Ja 59 395 59 395
Koninklijke Boskalis Westminster NV Ne 29 $ 484 29 484
Sino Thai Engineering & Construction
Public Co., Ltd. (a) Th 114 92 114 92
Stork N.V. Ne 9 392 9 392
--------- ------- ---------
1,598 876 2,474
--------- ------- ---------
Special Trade Contractors - 0.6%
Kinden Corp. Ja 70 861 70 861
------- ---------
- -------------------------------------------------------------------------------- ---------------- -------------------
FINANCE, INSURANCE & REAL ESTATE - 16.1%
Depository Institutions - 9.3%
Allied Irish Bank UK 60 504 60 504
Banca Nazionale Del Lavoro It 44 539 44 539
Banco Latinoamericano
de Exportaciones SA Pt 26 1,050 26 1,050
Banco Popolare di Milano It 215 1,185 215 1,185
Banque Nationale de Paris (a) Fr 35 1,523 35 1,523
Cie Financiere De Paribas Fr 7 508 7 508
Corporacion Bancaria De Espana Sa Sp 9 493 9 493
Deutsche Bank AG G 25 1,615 25 1,615
Generale de Banque SA Be 2 796 2 796
Generale de Banque VVPR STRIP (a) Be (b) (b) (b) (b)
HSBC Holdings PLC HK 28 634 28 634
Kookmin Bank (a) Ko 1 5 1 5
Korea Exchange Bank Ko 175 803 175 803
Merita Ltd. Class A (a) Fi 324 1,582 112 548 436 2,130
Siam Commercial Bank Th 110 211 110 211
Unidanamark A/S (a) De 8 533 8 533
Westpac Banking Corp. Au 88 511 88 511
--------- ------- ---------
9,404 3,636 13,040
--------- ------- ---------
Financial Services - 0.5%
Industrial Finance Corp. of Thailand Th 389 323 389 323
PT Putra Surya Multidana (a) In 945 325 945 325
--------- ---------
648 648
--------- ---------
Holding Companies - 1.1%
Fortis Amev NV Ne 40 1,560 40 1,560
--------- ---------
Insurance Carriers - 0.7%
<PAGE>
Reinsurance Australia Corp. Au 368 949 368 949
--------- ---------
Investment Companies - 1.4%
Fleming Russia Securities Fund (a) Ru 25 544 25 544
Japan OTC Equity Fund, Inc. (a) Ja 1 351 1 351
World Equity Benchmark Share - Japan Ja 89 1,001 89 1,001
--------- ---------
1,896 1,896
--------- ---------
Nondepository Credit Institutions - 1.4%
Promise Co., Ltd. Ja 33 1,943 33 1,943
--------- ---------
Real Estate - 1.3%
Bandar Raya Developments Ma 86 37 86 37
Diligentia AB (a) Sw 98 1,326 98 1,326
IOI Properties Berhad Ma 176 139 176 139
Kawasan Industri Jababeka In 823 343 823 343
--------- ------- ---------
1,808 37 1,845
--------- ------- ---------
Security Brokers & Dealers - 0.4%
Kokusai Securities Ja 80 579 80 579
--------- ---------
- -------------------------------------------------------------------------------- ---------------- -------------------
MANUFACTURING - 44.7%
Apparel - 0.5%
Tokyo Style Ja 66 697 66 697
--------- ---------
Chemicals & Allied Products - 9.8%
BASF AG G 19 644 19 644
DSM NV Ne 8 685 8 685
E.I. Dupont de Nemours & Co. 16 921 16 921
Henkel KGAA Vorzug G 25 1,293 25 1,293
Indian Petrochemicals Corp., Ltd. In 54 443 54 443
Kao Corp. Ja 49 685 49 685
Kemira Oy Fi 79 800 54 549 133 1,349
Medeva PLC UK 270 929 270 929
Norsk Hydro A/S No 25 1,371 15 844 40 2,215
PT Evershine Textile Industry In 1,442 230 1,442 230
Rhone Poulenc, Class A Fr 29 1,249 29 1,249
SmithKline Beecham PLC (a) UK 150 1,419 150 1,419
Yamanouchi Pharmaceutical Co. Ja 40 985 40 985
Zeneca Group PLC UK 21 661 21 661
--------- ------- ---------
5,556 8,152 13,708
--------- ------- ---------
Communications Equipment - 4.0%
Ericsson (LM), Tel-Sp ADR Sw 28 1,231 28 1,231
Koor Industries Ltd. ADR Is 23 492 23 492
LG Electronics Ko 41 552 41 552
Matsushita Electric Industrial Co. Ja 82 1,377 25 420 107 1,797
Siemens Ag G 17 1,042 17 1,042
Sony Corp. Ja 6 498 6 498
--------- ------- ---------
2,421 3,191 5,612
--------- ------- ---------
Electronic Components - 2.1%
Alcatel Alsthom Fr 10 1,235 10 1,235
Murata Manufacturing Co., Ltd. Ja 31 1,248 31 1,248
Samsung Electronics GDS (a) Ko 3 67 3 67
Samsung Electronics Old Preferred GDS Ko 42 422 42 422
--------- ---------
2,972 2,972
--------- ---------
Fabricated Metal - 0.3%
Usinor Sacilor Fr 27 444 27 444
------- ---------
<PAGE>
Food & Kindred Products - 2.6%
Eridania Beghin-Say SA Fr 3 473 3 473
Nestle AG Sz 1 1,093 1 1,093
Parmalat Finanziara SPA It 288 400 288 400
Perdigao SA Comercio e Industria (a) Br 245,000 433 245,000 433
Unigate PLC UK 56 542 56 542
Yakult Honsha Co., Ltd. Ja 57 473 57 473
Vitasoy International Holdings Ltd. HK 567 206 567 206
--------- ------- ---------
639 2,981 3,620
--------- ------- ---------
Household Appliances - 0.5%
Moulinex (a) Fr 30 684 30 684
--------- ---------
Lumber & Wood Products - 0.4%
Donohue, Inc., Class A Ca 25 508 25 508
------- ---------
Machinery & Computer Equipment - 4.6%
AGIV AG G 46 968 46 968
Bucher Holding Sz 1 803 1 803
Canon, Inc. Ja 51 1,238 51 1,238
Fujitsu Ltd. Ja 41 450 41 450
Hitachi Ltd. Ja 130 1,000 130 1,000
Mannesmann AG G 3 1,283 3 1,283
Mori Seiki Ja 67 758 67 758
--------- ------- ---------
6,050 450 6,500
--------- ------- ---------
Paper Products - 2.9%
Abitibit-Price, Inc. Ca 36 510 36 510
Enso-Gutzeit Oy Fi 136 1,284 136 1,284
Metro Pacific Corp. Ph 5,885 393 5,885 393
Metsa-Serla Oy Fi 174 1,532 174 1,532
Mo Och Domsjo AB, Class B (a) Sw 14 376 14 376
--------- ------- ---------
3,209 886 4,095
--------- ------- ---------
Petroleum Refining - 7.5%
Amerada Hess Corp. 21 1,296 21 1,296
Atlantic Richfield Co. 8 683 8 683
British Petroleum Co., PLC, ADR UK 7 641 7 641
Chevron Corp. 7 589 7 589
Mobil Corp. 8 612 8 612
Neste Oy Fi 36 903 36 903
Omv Handels AG Aus 6 800 6 800
Phillips Petroleum Co. 8 391 8 391
Repsol SA Sp 24 990 24 990
Repsol SA, ADS Sp 19 795 19 795
Shell Canada Ltd. Ca 35 704 35 704
YPF Sociedad Anonima ADR Ar 43 1,389 43 1,389
Yukong Ltd. (a) Ko 57 761 57 761
--------- ------- ---------
3,053 7,501 10,554
--------- ------- ---------
Primary Metal - 3.9%
Acerinox SA Sp 3 424 3 424
Alfa SA Mx 140 1,018 140 1,018
Avesta Sheffield (a) Sw 137 1,022 137 1,022
Imi PLC UK 190 1,261 190 1,261
Km Europa Metal AG (a) G 3 264 3 264
<PAGE>
Ssab Svenskt Stal AB Sw 67 1,109 67 1,109
TransTec PLC UK 233 410 233 410
--------- ------- ---------
2,541 2,967 5,508
--------- ------- ---------
Primary Smelting - 0.1%
Capral Aluminum Ltd. (a) Au 73 174 73 174
------- ---------
Rubber & Plastic - 1.0%
Continental AG G 40 941 40 941
Michelin Class B Fr 9 480 9 480
------- ---------
1,421 1,421
------- ---------
Stone, Clay, Glass & Concrete - 2.6%
Cemex, SA Mx 262 1,038 262 1,038
Companion Building Materials, Ltd. HK 6,720 239 6,720 239
Freidrich Grohe AG G 4 1,180 4 1,180
Holderbank Financiere Glaris AG Sz 1 664 1 664
N.V. Koninklijke Sphinx Gustavsberg Ne 50 490 50 490
--------- ------- ---------
1,909 1,702 3,611
--------- ------- ---------
Textile Mill Products - 0.0%
Empresa Nacional de Credito (a)(c) Br 1,100 (b) 1,100 (b)
--------- ---------
Tobacco Products - 0.8%
B.A.T. Industries PLC UK 59 515 59 515
Hanson PLC UK 106 544 106 544
------- ---------
1,059 1,059
------- ---------
Transportation Equipment - 1.1%
Suzuki Motor Co., Ltd. Ja 83 883 83 883
Volkswagen AG G 1 709 1 709
--------- ------- ---------
883 709 1,592
--------- ------- ---------
- -------------------------------------------------------------------------------- ---------------- -------------------
MINING & ENERGY - 11.4%
Coal Mining - 0.3%
Samchully Co. Ko 15 465 15 465
--------- ---------
Crude Petroleum & Natural Gas - 2.6%
Compagnie Francaise de Petroleum
Total B Fr 14 1,546 14 1,546
Ranger Oil Ltd. 90 775 90 775
Saga Petroleum A/S No 64 1,254 64 1,254
--------- ------- ---------
2,800 775 3,575
--------- ------- ---------
Gold & Silver Mining - 1.0%
Ashanti Goldfields Co., Ltd., GDS Gh 10 96 10 96
Barrick Gold Corp. Ca 29 606 29 606
Placer Dome, Inc. Ca 26 408 26 408
Sons of Gwalia Ltd. Au 136 360 136 360
------- ---------
1,470 1,470
------- ---------
Metal Mining - 2.1%
Acacia Resources Ltd. (a) Au 130 129 130 129
Billiton PLC (a) UK 160 463 160 463
Elandsrand Gold Mining Co. Ltd. SA 27 78 27 78
Franco-Nevada Mining Corp. Ltd Ca 32 749 32 749
Freeport-McMoran Copper & Gold, Inc. 17 380 17 380
Prime Resource Group, Inc. (a) Ca 100 665 100 665
Southern Peru Copper Pe 26 410 26 410
--------- ------- ---------
873 2,001 2,874
--------- ------- ---------
<PAGE>
Nonmetallic, Except Fuels - 0.7%
De Beers Consolidated Mines Ltd., ADR (a) SA 16 381 16 381
Potash Corp. of Saskatchewan, Inc. Ca 8 670 8 670
------- ---------
1,051 1,051
------- ---------
Oil & Gas Extraction - 3.8%
Chauvco Resources Ltd., Class A Ca 73 1,589 73 1,589
Elf Gabon SA Fr 1 249 1 249
Ensco International, Inc. 32 1,346 32 1,346
Petro-Canada Ca 48 967 48 967
Pioneer International Ltd. Au 192 505 192 505
YPF SA, ADR Ar 22 697 22 697
------- ---------
5,353 5,353
------- ---------
Oil & Gas Field Services - 0.9%
Petroleum Geo-Services A/S (a) No 18 1,206 18 1,206
------- ---------
- -------------------------------------------------------------------------------- ---------------- -------------------
RETAIL TRADE - 4.1%
Auto Dealers & Gas Stations - 1.3%
Cowie Group UK 84 502 84 502
Inchcape PLC UK 360 1,306 360 1,306
--------- ------- ---------
1,306 502 1,808
--------- ------- ---------
Food Stores - 1.4%
Izumiya Co., Ltd. Ja 58 477 58 477
Jusco Co., Ltd. Ja 69 1,543 69 1,543
--------- ------- ---------
1,543 477 2,020
--------- ------- ---------
General Merchandise Stores - 1.4%
Globex Utilidades SA Br 46 490 46 490
Ito-Yokado Co., Ltd. Ja 26 1,293 26 1,293
PT Matahari Putra Prima In 817 159 817 159
--------- ---------
1,942 1,942
--------- ---------
- -------------------------------------------------------------------------------- ---------------- -------------------
SERVICES - 3.8%
Business Services - 1.9%
Baan Co., N.V. (a) Ne 21 1,485 21 1,485
Ing C. Olivetti & SPA (a) It 1,920 1,168 1,920 1,168
--------- ------- ---------
1,168 1,485 2,653
--------- ------- ---------
Health Services - 1.9%
Biora AB ADR (a) Sw 19 369 19 369
Novartis Sz 1 1,034 1 1,215 2 2,249
--------- ------- ---------
1,403 1,215 2,618
--------- ------- ---------
- -------------------------------------------------------------------------------- ---------------- -------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 11.6%
Air Transportation - 1.1%
Helikopter Service A/S No 78 967 78 967
Swire Pacific Ltd., Series A HK 110 588 110 588
--------- ------- ---------
967 588 1,555
--------- ------- ---------
Communications - 5.7%
DDI Corp. Ja (b) 575 (b) 575
Nippon Telegraph & Telephone Corp. Ja 1 1,144 1 1,144
<PAGE>
Portugal Telecom SA Pt 24 978 24 978
Royal Koninklijke PTT Nederland NV Ne 28 1,055 28 1,055
SK Telecom Ko (b) 43 (b) 43
Telecom Argentina SA ADR Ar 27 685 27 685
Telecom Italia It 273 1,100 273 1,100
Telecom Italia SPA It 111 692 111 692
Tele-Communications International, Inc. (a) It 80 1,288 80 1,288
Telecomunicacoes Brasileiras ADR Br 4 405 4 405
--------- ------- ---------
6,821 1,144 7,965
--------- ------- ---------
Electric, Gas & Sanitary Services - 0.9%
Hyder PLC UK 36 542 36 542
Wessex Water PLC UK 31 257 31 257
Westcoast Energy, Inc. Ca 23 466 23 466
------- ---------
1,265 1,265
------- ---------
Gas Services - 1.6%
British Gas Co. UK 388 1,675 388 1,675
Centrica PLC (a) UK 400 561 400 561
--------- ---------
2,236 2,236
--------- ---------
Motor Freight & Warehousing - 0.4%
Seino Transportation Ja 57 493 57 493
------- ---------
Sanitary Services - 0.6%
Severn Trent Water PLC UK 61 879 61 879
------- ---------
Transportation Services - 0.4%
New World Infrastructure Ltd. (a) HK 265 525 265 525
------- ---------
Water Transportation - 0.9%
Danzas Holding AG Sz 3 570 3 570
Hong Kong Ferry Holdings Co. HK 330 453 330 453
Precious Shipping Public Co., Ltd. Th 224 173 224 173
--------- ---------
1,196 1,196
--------- ---------
- -------------------------------------------------------------------------------- ---------------- -------------------
WHOLESALE TRADE - 2.2%
Durable Goods
Brierley Investments Ltd. NZ 1,210 934 1,210 934
Celsis International PLC (a) UK 324 529 324 529
Powerscreen International PLC UK 71 828 71 828
Yamazen Corp. (a) Ja 312 843 312 843
--------- ---------
3,134 3,134
--------- ---------
TOTAL COMMON STOCKS (cost of $130,504) 76,970 57,984 134,954
--------- ------- ---------
PREFERRED STOCKS - 0.0%
- -------------------------------------------------------------------------------- ---------------- -------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES
Electric, Gas & Sanitary Services
Hyder PLC, 7.875% (cost of $41) UK 30 57 30 57
------- ---------
CORPORATE FIXED - INCOME
BONDS & NOTES - 0.0% CURRENCY PAR PAR
- -------------------------------------------------------------------------------- ---------------- -------------------
MANUFACTURING
Lumber & Wood Products
Donohue, Inc., Series B,
(cost of $27) 8.000% 03/01/98 Ca $ 37 29 37 29
------- ---------
RIGHTS - 0.1%
- -------------------------------------------------------------------------------- ---------------- -------------------
RETAIL TRADE - 0.1%
General Merchandise Stores
<PAGE>
PT Matahari Putra Prima
(cost of $74) In 1,634 91 1,634 91
--------- ---------
WARRANTS - 0.0%
- -------------------------------------------------------------------------------- ---------------- -------------------
CONSTRUCTION
Heavy Construction-Non Building Construction
Compagnie Generale des Eaux (a)
(cost of $0) Fr 9 5 9 5
--------- ---------
TOTAL INVESTMENTS - 96.5% (cost of $130,646) 77,066 58,070 135,136
--------- ------- ---------
<CAPTION>
SHORT-TERM OBLIGATIONS - 4.1% PAR PAR PAR
- -------------------------------------------------------------------------------- ---------------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Repurchase agreement with Greenwich Capital
Markets, Inc., dated 10/31/97 due 11/03/97 at 5.625%,
collateralized by U.S. Treasury notes with
various maturities to 2016, market value $5,849
(repurchase proceeds $5,699) $1,780 1,780 $3,916 3,916 $5,696 5,696
--------- ------- ---------
OTHER ASSETS & LIABILITIES, NET- (0.6)% (396) (421) (16)(d) (833)
- -------------------------------------------------------------------------------------------------- ------- ---------
NET ASSETS - 100% $78,450 61,565 (16) $139,999
--------- ------- ------- ---------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- -------------------------------------------------------------------------------
(a) Non-income producing.
(b) Rounds to less than one.
(c) Represents fair value as determined in good faith under the direction of the
Trustees.
(d) Elimination of CIFFG Deferred organization costs.
<TABLE>
<CAPTION>
Acronym Name
------- ----
<S> <C>
ADR American Depositary Receipt
GDS Global Depositary Shares
STRIP Separately Traded Receipt of Interest
and Principal
</TABLE>
<PAGE>
COLONIAL INTERNATIONAL FUND FOR GROWTH (CIFFG)
AND
COLONIAL INTERNATIONAL HORIZONS FUND (CIHF)
PRO FORMA COMBINING
STATEMENT OF OPERATIONS
OCTOBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
CIFFG CIHF COMBINED
--------------------------- ------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends 1,609,629 1.73% 1,140,515 1.77% 2,750,144 1.75%
Interest 134,389 0.14% 334,825 0.52% 469,214 0.30%
----------- ----------- ---------- ----------- ----------- ------------
1,744,018 1.87% 1,475,340 2.29% 3,219,358 2.05%
EXPENSES
Management fee (837,775) -0.90% (482,974) -0.75% (1,320,749) -0.84%
Transfer agent (232,223) -0.25% (160,789) -0.25% (393,012) -0.25%
Transfer agent OOP (90,925) -0.10% (51,964) -0.08% (142,889) -0.09%
Bookkeeping fee (42,247) -0.05% (32,039) -0.05% (74,286) -0.05%
Trustees fee (14,654) -0.02% (13,445) -0.02% (28,099) -0.02%
Custodian fee (133,476) -0.14% (28,751) -0.04% (162,227) -0.10%
Audit fee (26,500) -0.03% (33,100) -0.05% (59,600) -0.04%
Legal fee (4,911) 0.00% (6,950) -0.01% (11,861) -0.01%
Registration fee (36,309) -0.04% (43,480) -0.07% (79,789) -0.05%
Reports to shareholders (14,600) -0.01% (10,480) -0.02% (25,080) -0.02%
Amortization of Deferred (15,648) -0.02% (8,316) -0.01% (23,964) -0.02%
Other (5,347) -0.01% (9,979) -0.02% (15,326) -0.01%
----------- ----------- ---------- ----------- ----------- ------------
Total operating expenses (1,454,615) -1.57% (882,267) -1.37% (2,336,882) -1.50%
----------- ----------- ---------- ----------- ----------- ------------
Pre 12b-1 operating income 289,403 0.30% 593,073 0.92% 882,476 0.55%
12b-1 fees:
Service fee (232,288) -0.25% (162,769) -0.25% (395,057) -0.25%
Distribution fee - B (445,802) -0.75% (208,129) -0.75% (653,931) -0.75%
Distribution fee - C (7,001) -0.75% (196) -0.(a) (7,197) -0.69%
----------- ----------- ---------- ----------- ----------- ------------
Pre reimbursement income (395,688) -1.45% 221,979 -0.83% (173,709) -1.14%
----------- ----------- ---------- ----------- ----------- ------------
Reimbursement 60,584 0.07% - 0.00% 60,584 0.07%
----------- ----------- ---------- ----------- ----------- ------------
Net Income (335,104) -1.38% 221,979 -0.83% (113,125) -1.07%
=========== =========== ========== =========== =========== ============
Average Net Assets $92,937,428 $64,440,363 $157,377,791
Average Net Assets - B $59,402,212 $27,778,068 $87,180,280
Average Net Assets - C $932,543 $104,272(b) $1,036,815
</TABLE>
<TABLE>
<CAPTION>
ADJUST COMBINED CLASS A CLASS B CLASS C
-------- ------------------------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends - 2,750,144 1.75% - - -
Interest - 469,214 0.30% - - 777
-------- ----------- ------------ ---------- --------- ---------
- 3,219,358 2.05% - - 777
EXPENSES
Management fee 140,000(c) (1,180,749) -0.75% - - -
Transfer agent (393,012) -0.25% - - (652)
Transfer agent OOP 70,000(d) (72,889) -0.05% - (31,937) -
Bookkeeping fee 3,000(e) (71,286) -0.05% - - -
Trustees fee 8,000(f) (20,099) -0.01% - - -
Custodian fee 100,000(g) (62,227) -0.04% - - -
Audit fee 19,000(h) (40,600) -0.02% - - -
Legal fee 3,000(i) (8,861) -0.01% (4,963) - -
Registration fee 30,000(j) (49,789) -0.03% - (21,815) -
Reports to shareholders 10,000(k) (15,080) -0.01% - - -
Amortization of Deferred 15,648(l) (8,316) -0.01% - - -
Other - (15,326) -0.01% - (1) -
-------- ----------- ------------- ----------- --------- ---------
Total operating expenses 398,648 (1,938,234) -1.24% (4,963) (53,754) (652)
-------- ----------- ------------- ----------- --------- ---------
Pre 12b-1 operating income 398,648 1,281,124 0.81% (4,963) (53,754) 126
12b-1 fees:
Service fee (395,057) -0.25% - - -
Distribution fee - B (653,931) -0.75% - (653,931) -
Distribution fee - C (579)(m) (7,776) -0.75% - - (7,776)
-------- ----------- ------------- ----------- --------- ---------
Pre reimbursement income - 224,360 -0.94% (4,963) (707,684) (7,650)
-------- ----------- ------------- ----------- --------- ---------
Reimbursement (60,584)(n) - 0.00% - - -
-------- ----------- ------------- ----------- --------- ---------
Net Income 337,485 224,360 -0.94% (4,963) (707,684) (7,650)
======== =========== ============= =========== ========= =========
Average Net Assets $157,377,791
Average Net Assets - B $87,180,280
Average Net Assets - C $1,036,815
</TABLE>
(a) Annualized.
(b) Class C shares were initially offered on August 1, 1997.
(c) Based on CIHF's management contract.
(d) Elimination of CIFFG TA OOP fee and adjustment for additional accounts in
CIHF.
(e) Based on the Bookkeeping fee schedule.
(f) Elimination of CIFFG trustee fee and adjustment for new net assets.
(g) Decrease due to CIFFG elimination of custody bills. CIFFG had high trade
volume therefore making custody fees high.
(h) Elimination of CIFFG audit.
<PAGE>
COLONIAL INTERNATIONAL FUND FOR GROWTH (CIFFG)
AND
COLONIAL INTERNATIONAL HORIZONS FUND (CIHF)
PRO FORMA COMBINING
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
PRO-FORMA
CIFFG CIHF COMBINED ADJUSTMENT PRO-FORMA
ASSETS
<S> <C> <C> <C> <C> <C>
Investments at market $ 77,066 $ 58,070 $ 135,136 $ 135,136
Short-term obligations 1,780 3,916 5,696 5,696
------------ --------- ---------- ----------
78,846 61,986 140,832 140,832
Receivable for:
Investments sold 176 - 176 176
Dividends 97 53 150 150
Foreign tax reclaims 56 16 72 72
Fund shares sold 31 16 47 47
Interest - 1 1 1
Deferred organization expenses 16 - 16 (16)(a) -
Other 3 20 23 23
------------ --------- ---------- ------ ----------
Total Assets 79,225 62,092 141,317 (16) 141,301
LIABILITIES
Payable for:
Investments purchased 340 - 340 340
Fund shares repurchased 375 506 881 881
Payable to Adviser 24 - 24 24
Accrued:
Deferred Trustees fees 2 1 3 3
Other 34 20 54 54
------------ --------- ---------- ------ ----------
Total Liabilities 775 527 1,302 1,302
NET ASSETS $ 78,450 $ 61,565 $ 140,015 $ 139,999
========= ======== ========= ==========
</TABLE>
(a) Elimination of Deferred organization expenses.
<PAGE>
COLONIAL INTERNATIONAL FUND FOR GROWTH
AND
COLONIAL INTERNATIONAL HORIZONS FUND
PRO FORMA COMBINING SCHEDULE OF
ACCUMULATED REALIZED AND UNREALIZED GAINS/LOSSES
OCTOBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
% OF
COMBINED
CIFFG % OF NAV CIHF % OF NAV COMBINED NAV
------------- ----------- -------------- ----------- ------------ ------------
(audited) (audited)
<S> <C> <C> <C> <C> <C> <C>
Net realized gain/(loss)* 7,175,190 9.15% 11,020,498 17.90% 18,195,688 13.00%
Net unrealized gain/(loss) (3,414,733) 4.35% 7,894,169 12.82% 4,479,436 3.20%
------------- ----------- -------------- ----------- ------------ ------------
3,760,457 13.50% 18,914,667 30.72% 22,675,124 16.20%
============= =========== ============== =========== ============ ============
</TABLE>
*There were no capital loss carryovers on either fund.
<PAGE>
CAPITALIZATION
The capitalization of CIFFG and CIHF, and the pro forma capitalization of CIHF
after giving effect to the combination, are as follows:
OCTOBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CIFFG CIHF ADJUSTMENTS COMBINED
--------------- --------------- ------------------- ---------------
(audited) (audited)
<S> <C> <C> <C> <C>
Net Assets $78,450,260 $61,564,721 (15,985) $139,998,996
Shares Outstanding 8,057,963 4,056,415 - 9,222,595
Share Value $9.74 $15.18 $15.18
</TABLE>
Thus, based on October 31, 1997 values, each holder of a share of CIFFG with a
net asset value of $9.74 would received .64112729234 shares of CIHF in the
combination with an aggregate net asset value of $15.18.
<PAGE>
Part C. OTHER INFORMATION
Item 15. Indemnification
Article VIII of the Registrant's Agreement and Declaration of Trust, as amended,
provides for indemnification of the Registrant's Trustees and officers. The
effect of the relevant section of Article VIII of the Registrant's Agreement and
Declaration of Trust, as amended, is to provide indemnification for each of the
Registrant's Trustees and officers against liabilities and counsel fees
reasonably incurred in connection with the defense of any legal proceeding in
which such Trustee or officer may be involved by reason of being or having been
a Trustee or officer, except with respect to any matter as to which such Trustee
or officer shall have been adjudicated not to have acted in good faith in the
reasonable belief that such Trustee's or officer's action was in the best
interest of the Registrant, and except that no Trustee or officer shall be
indemnified against any liability to the Registrant or its shareholders to which
such Trustee or officer shall otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Trustee's or officer's office.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to Trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 16. Financial Statements and Exhibits
1. Amendment No. 3 to the Agreement and Declaration of Trust
(incorporated herein by reference to Exhibit 1 to
Post-Effective Amendment No. 97 to the Registration
Statement of Colonial Trust III, Registration Nos. 811-881
and 2-15184, filed with the Commission on February 13, 1997)
2. By-Laws (incorporated herein by reference to Exhibit 2 to
Post-Effective Amendment No. 97 to the Registration
Statement of Colonial Trust III, Registration Nos. 811-881
and 2-15184, filed with the Commission on February 13, 1997)
3. Not applicable
4. Agreement and Plan of Reorganization constitutes Exhibit A in
Part A of this Registration Statement
5. Not applicable
6. Form of Management Agreement (incorporated herein by reference
to Exhibit 5 (b) to Post-Effective Amendment No. 96 to the
Registration Statement of Colonial Trust III, Registration
Nos. 2-15184 and 811-881, filed with the Commission on
February 28, 1996)
7. (a) Form of Distributor's Contract between Registrant and
Liberty Financial Investments, Inc. (incorporated herein by
reference to Exhibit 6 (a) to Post-Effective Amendment
<PAGE>
No. 44 to the Registration Statement of Colonial Trust I,
Registration Nos. 811-2214 and 2-41251, filed with the
Commission on July 24, 1997)
(b) Form of Selling Agreement with Liberty Financial
Investments, Inc. (incorporated herein by reference to
Exhibit 6 (b) to Post-Effective Amendment No. 10 to the
Registration Statement of Colonial Trust VI, Registration
Nos. 811-6529 and 33-45117, filed with the Commission on
September 27, 1996)
(c) Form of Bank and Bank Affiliated Selling Agreement
(incorporated herein by reference to Exhibit 6 (c) to
Post-Effective Amendment No. 10 to the Registration Statement
of Colonial Trust VI, Registration Nos. 33-45117 and 811-6529,
filed with the Commission on September 27, 1996)
(d) Form of Asset Retention Agreement (incorporated herein by
reference to Exhibit 6. (d) to Post-Effective Amendment No. 10
to the Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529, filed with the
Commission on September 27, 1996)
8. Not applicable
9. (a) Form of Custody Agreement with Boston Safe Deposit and Trust
Company (incorporated herein by reference to Exhibit 8 to
Post-Effective Amendment No. 10 to the Registration
Statement of Colonial Trust VI, Registration Nos. 33-45117
and 811-6529, filed with the Commission on September 27,
1996)
(b) Amendment to Custody Agreement with Boston Safe Deposit and
Trust Company (incorporated herein by reference to Exhibit 8
(a) to Post-Effective Amendment No. 10 to the Registration
Statement of Colonial Trust VI, Registration Nos. 33-45117 and
811-6529, filed with the Commission on September 27, 1996)
(c) Custody Agreement with The Chase Manhattan Bank (incorporated
herein by reference to Exhibit 8. to Post-Effective Amendment
No. 13 to the Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529, filed with the
Commission on October 24, 1997)
10. Form of Distribution Plan adopted pursuant to Section 12b-1 of
the Investment Company Act of 1940, incorporated by reference
to the Distributor's Contract (Exhibit 7. (a))
11. Opinion and Consent of Counsel as to Legality of the
Securities Being Registered
12. Opinion and Consent of Counsel Supporting Tax Matters and
Consequences to Shareholders
13. Not applicable
14. Consent of Independent Accountants
15. Not applicable
16. Powers of Attorney for: Robert J. Birnbaum, Tom Bleasdale,
Lora S. Collins, James E. Grinnell, Richard W. Lowry,
William E. Mayer, James L. Moody, Jr., John J. Neuhauser and
Robert L. Sullivan (incorporated herein by reference to
Exhibit 18 (a)
<PAGE>
to Post-Effective Amendment No. 99 of Colonial Trust III,
File Nos. 2-15184 and 811-881 filed with the Commission on
December 27, 1997)
17. (a) Amended and Restated Shareholders' Servicing and Transfer
Agent Agreement as amended with Colonial Investors Service
Center, Inc. and Colonial Management Associates, Inc.
(incorporated herein by reference to Exhibit 9. (a) to
Post-Effective Amendment No. 10 to the Registration
Statement of Colonial Trust VI, Registration Nos. 33-45117
and 811-6529, filed with the Commission on September 27,
1996)
(b) Amendment No. 10 to Schedule A of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement dated
October 1, 1997 (incorporated herein by reference to Exhibit
9. (a)(ii) to Post-Effective Amendment No. 13 to the
Registration Statement of Colonial Trust VI, Registration
Nos. 33-45117 and 811-6529, filed with the Commission on
October 24, 1997)
(c) Amendment No. 15 to Appendix I of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement as
amended (incorporated herein by reference to Exhibit 9.
(a)(iii) to Post-Effective Amendment No. 13 to the
Registration Statement of Colonial Trust VI, Registration Nos.
33-45117 and 811-6529, filed with the Commission on October
24, 1997)
(d) Form of Proxy
- --------------------------------------
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this Registration Statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act, the reoffering
prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be
deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to this Registration Statement and will not be used until
the amendment is effective, and that, in determining any liability
under the 1933 Act, each post-effective amendment shall be deemed
to be a new registration statement for the securities offered
therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering of them.
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust of Colonial Trust III (Trust),
as amended, is on file with the Secretary of The Commonwealth of Massachusetts
and notice is hereby given that this Registration Statement has been executed on
behalf of the Trust by officers of the Trust as officers and by its Trustees as
trustees and not individually, and the obligations of or arising out of this
Registration Statement are not binding upon any of the Trustees, officers or
shareholders of the Trust individually but are binding only upon the assets and
property of Colonial Trust III.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has been
signed on behalf of the Registrant, in the City of Boston and Commonwealth of
Massachusetts, on the 6th day of May, 1998.
COLONIAL TRUST III
By:HAROLD W. COGGER
---------------------------------
Harold W. Cogger
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
HAROLD W. COGGER President (chief May 6, 1998
- ---------------- executive officer)
Harold W. Cogger
TIMOTHY J. JACOBY Treasurer and Chief Financial May 6, 1998
- ----------------- Officer (principal financial officer)
Timothy J. Jacoby
J. KEVIN CONNAUGHTON Controller and Chief Accounting May 6, 1998
- -------------------- Officer (principal accounting officer)
J. Kevin Connaughton
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ROBERT J. BIRNBAUM* Trustee
- ---------------------
Robert J. Birnbaum
/s/TOM BLEASDALE* Trustee
- -----------------
Tom Bleasdale
/s/LORA S. COLLINS* Trustee
- -------------------
Lora S. Collins
/s/JAMES E. GRINNELL* Trustee
- ---------------------
James E. Grinnell
/s/RICHARD W. LOWRY* Trustee */s/ NANCY L. CONLIN
- -------------------- ---------------------
Richard W. Lowry Nancy L. Conlin
Attorney-in-fact
For each Trustee
May 6, 1998
/s/WILLIAM E. MAYER* Trustee
- --------------------
William E. Mayer
/s/JAMES L. MOODY, JR. * Trustee
- ------------------------
James L. Moody, Jr.
/s/JOHN J. NEUHAUSER* Trustee
- ---------------------
John J. Neuhauser
/s/ROBERT L. SULLIVAN* Trustee
- ----------------------
Robert L. Sullivan
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Item Page No.
<S> <C> <C>
11. Opinion and Consent of Counsel as to Legality of Securities Being
Registered
12. Opinion and Consent of Counsel Supporting Tax Matters and
Consequences to Shareholders
14. Consent of Independent Accountants
17.(e) Form of Proxy
</TABLE>
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
FAX:(617) 951-7050
30 KENNEDY PLAZA
PROVIDENCE, RI 02903-2328
(401) 455-4400
FAX: (401) 455-4401
ONE FRANKLIN SQUARE
1301 K STREET, N.W.
SUITE 800 EAST
WASHINGTON, DC 20005-3333
(202) 626-3900
FAX: (202) 626-3961
May 6, 1998
Colonial International Horizons Fund
One Financial Center
Boston, MA 02111
Re: Registration Statement on Form N-14
Ladies and Gentlemen:
We have acted as counsel to Colonial International Horizons Fund (the
"Fund"), a series of Colonial Trust III (the "Trust"), in connection with the
Registration Statement of the Trust on Form N-14 (the "Registration Statement"),
under the Securities Act of 1933, as amended (the "Act"), relating to the
proposed combination of the Fund with Colonial International Fund for Growth
(the "International Fund"), and the issuance of shares of the Fund in connection
therewith (the "Shares"), all in accordance with the terms of the Agreement and
Plan of Reorganization dated as of May 6, 1998 among the Fund, the Intermediate
Fund and Colonial Management Associates, Inc.
We have examined the Trust's Agreement and Declaration of Trust on file in
the office of the Secretary of State of The Commonwealth of Massachusetts and
the Clerk of the City of Boston and the Trust's By-Laws, as amended, and are
familiar with the actions taken by the Trustees of the Trust in connection with
the issuance and sale of the Shares. We have also examined such other documents
and records as we have deemed necessary for the purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. The Trust is a duly organized and validly existing unincorporated
association under the laws of The Commonwealth of Massachusetts and is
authorized to issue an unlimited number of its shares of beneficial interest.
<PAGE>
ROPES & GRAY
Colonial International Horizons Fund -2- May 6, 1998
2. The Shares have been duly authorized and, when issued in accordance
with the Agreement, will be validly issued, fully paid and nonassessable by the
Fund.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that a notice of such
disclaimer be given in each note, bond, contract, instrument, certificate or
undertaking entered into or executed by the Trust or its Trustees. The Agreement
and Declaration of Trust provides for indemnification out of the property of the
Trust for all loss and expense of any shareholder of the Trust held personally
liable solely by reason of his being or having been a shareholder. Thus, the
risk of a shareholder's incurring financial loss on account of being a
shareholder is limited to circumstances in which the Trust itself would be
unable to meet its obligations.
We understand that this opinion is to be used in connection with the
registration of the Shares for offering and sale pursuant to the Act. We consent
to the filing of this opinion with and as part of the Registration Statement.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
FAX:(617) 951-7050
30 KENNEDY PLAZA
PROVIDENCE, RI 02903-2328
(401) 455-4400
FAX: (401) 455-4401
ONE FRANKLIN SQUARE
1301 K STREET, N.W.
SUITE 800 EAST
WASHINGTON, DC 20005-3333
(202) 626-3900
FAX: (202) 626-3961
May 6, 1998
Colonial Trust III -- Colonial International Fund for Growth
Colonial Trust III -- Colonial International Horizons Fund
One Financial Center
Boston, MA 02111
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization dated as of May 6, 1998 (the "Agreement"), among Colonial
International Horizons Fund ("Acquiring Fund"), a series of Colonial Trust III
(the "Trust"), a Massachusetts business trust, Colonial International Fund for
Growth ("Target Fund"), another series of the Trust, and Colonial Management
Associates, Inc. The Agreement describes a proposed transaction (the
"Transaction") to occur on July 24, 1998 (the "Exchange Date"), pursuant to
which Acquiring Fund will acquire substantially all of the assets of Target Fund
in exchange for shares of beneficial interest in Acquiring Fund (the "Acquiring
Fund Shares") and the assumption by Acquiring Fund of all of the liabilities of
Target Fund following which the Acquiring Fund Shares received by Target Fund
will be distributed by Target Fund to its shareholders in liquidation and
termination of Target Fund. This opinion as to certain federal income tax
consequences of the Transaction is furnished to you pursuant to Sections 11(b)
and 12 of the Agreement. Capitalized terms not defined herein are defined in the
Agreement.
Target Fund is a series of Colonial Trust III which is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
non-diversified management investment company. Shares of Target Fund are
redeemable at net asset value at each shareholder's option. Target Fund has
elected to be a regulated investment company for federal income tax purposes
under Section 851 of the Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a series of Colonial Trust III which is registered
under the 1940 Act as an open-end non-diversified management investment company.
Shares of Acquiring Fund are redeemable at net asset value at each shareholder's
option.
<PAGE>
ROPES & GRAY
-2- May 6, 1998
For purposes of this opinion, we have considered the Agreement, the Proxy
Statement, the Registration Statement (including the items incorporated by
reference therein), and such other items as we have deemed necessary to render
this opinion. In addition, you have represented to us the following facts,
occurrences and information upon which you have indicated we may rely in
rendering this opinion (whether or not contained or reflected in the documents
and items referred to above):
1. Target Fund will transfer to Acquiring Fund all of its assets, and
Acquiring Fund will assume all of the liabilities of Target Fund, as of the
Exchange Date.
2. The fair market value of the Acquiring Fund Shares received by each
Target Fund shareholder will be approximately equal to the fair market value of
the Target Fund shares surrendered in exchange therefor. The Target Fund
shareholders will receive no consideration other than Acquiring Fund Shares
(which may include fractional shares) in exchange for their shares of beneficial
interest in Target Fund (the "Target Fund Shares").
3. None of the compensation received by any shareholder-employees of
Target Fund, if any, will be separate consideration for, or allocable to, any of
their Target Fund Shares; none of the Acquiring Fund Shares received by any
Target Fund shareholder-employees will be separate consideration for, or
allocable to, any employment; and the compensation paid to any Acquiring Fund or
Target Fund shareholder-employees, if any, will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services.
4. There is no plan or intention by any Target Fund shareholder who
owns 5% or more of the total outstanding Target Fund Shares, and to the best of
the knowledge of the management of Target Fund, there is no plan or intention on
the part of the remaining Target Fund shareholders to sell, exchange, or
otherwise dispose of a number of Acquiring Fund Shares received in the
Transaction that would reduce Target Fund shareholders' ownership of Acquiring
Fund Shares to a number of Acquiring Fund Shares having a value, as of the date
of the Transaction, of less than 50 percent of the value of all of the formerly
outstanding Target Fund Shares as of the same date. For purposes of this
representation, Acquiring Fund Shares or Target Fund Shares surrendered by
Target Fund shareholders in redemption or otherwise disposed of, where such
dispositions, if any, appear to be initiated by Target Fund shareholders in
connection with or as a result of the Agreement or the Transaction, will be
treated as outstanding Target Fund Shares on the date of the Transaction.
5. Acquiring Fund has no plan or intention to reacquire any of the
Acquiring Fund Shares issued in the Transaction, except for Acquiring Fund
Shares reacquired in the ordinary course of its business as an open-end
investment company.
<PAGE>
ROPES & GRAY
-3- May 6, 1998
6. Acquiring Fund will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair market value of the
gross assets held by Target Fund immediately prior to the Transaction. For
purposes of this representation, (a) amounts paid by Target Fund, out of the
assets of Target Fund, to Target Fund shareholders in redemption of Target Fund
Shares, where such redemptions, if any, appear to be initiated by Target Fund
shareholders in connection with or as a result of the Agreement or the
Transaction, (b) amounts used by Target Fund to pay expenses of the Transaction,
and (c) amounts used to effect all redemptions and distributions (except for
regular, normal dividends declared and paid in order to ensure Target Fund's
continued qualification as a regulated investment company and to avoid
fund-level tax (including for this purpose any dividends referred to in
representation 17 herein)) made by Target Fund immediately preceding the
transfer will be included as assets of Target Fund held immediately prior to the
Transaction. Further, to the best of the knowledge of the managements of each of
Acquiring Fund and Target Fund, this representation will remain true even if the
amounts, if any, that Acquiring Fund pays after the Transaction to Acquiring
Fund shareholders who are former Target Fund shareholders in redemption of
Acquiring Fund Shares received in exchange for Target Fund Shares, where such
redemptions, if any, appear to be initiated by such shareholders in connection
with or as a result of the Agreement or the Transaction, are considered to be
assets of Target Fund that were not transferred to Acquiring Fund.
7. Immediately after the Transaction, the shareholders of Target Fund
will be in control of Acquiring Fund within the meaning of Section 304(c) of the
Code.
8. The fair market value of the assets transferred to Acquiring Fund by
Target Fund will equal or exceed the sum of the liabilities to be assumed by
Acquiring Fund.
9. The total adjusted basis of the assets of Target Fund transferred to
Acquiring Fund will equal or exceed the sum of the liabilities to be assumed by
Acquiring Fund.
10. In the Transaction Target Fund will transfer to Acquiring Fund at
least 50% of its historic business assets (see definition below).
11. Following the Transaction, Acquiring Fund will continue to use a
significant portion (in this case, at least 50%) of the historic business assets
of Target Fund. Specifically, Acquiring Fund will use such significant portion
of Target Fund's historic business assets in its business by continuing to hold
at least such portion of the total assets transferred to it by Target Fund. That
is, Acquiring Fund will continue to hold historic business assets of Target
Fund, defined for purposes of this opinion as those assets transferred to it on
the Exchange Date which were either (i) acquired by Target Fund prior to its
management's decision to propose to its Trustees that it transfer any or all of
its assets to Acquiring Fund, or (ii) acquired subsequent to such decision but
not with a view to the Agreement or the Transaction, in an amount equal to at
least 50% of the assets in Target Fund's portfolio held on the Exchange Date, as
increased by the amounts, if any, that Target Fund paid to its shareholders in
redemption of its shares, where such redemptions, if any, appear to have been
initiated by such shareholders in connection with or as a result of the
Agreement or Transaction. In making this determination, dispositions made in the
ordinary course of Acquiring Fund's business as an open-end investment company
(i.e., dispositions made in the ordinary course of business and independent of
the Transaction) shall not be taken into account. In addition, following the
Transaction, Acquiring Fund will continue the historic business of Target Fund
as an open-end investment company that seeks long-term capital appreciation.
<PAGE>
ROPES & GRAY
-4- May 6, 1998
12. At the time of the Transaction, Acquiring Fund will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in Acquiring Fund that,
if exercised or converted, would affect the Target Fund shareholders'
acquisition or retention of control of Acquiring Fund as defined in Section
304(c) of the Code.
13. Acquiring Fund has no plan or intention to sell or otherwise
dispose of any of the assets of Target Fund acquired in the Transaction, except
for (i) dispositions made in the ordinary course of its business as a series of
an open-end investment company (i.e., dispositions made in the ordinary course
of business and independent of the Transaction) and (ii) dispositions made by
Acquiring Fund to realign its portfolio in order to reflect its investment
objective and conform to its investment restrictions and/or to maintain its
qualification as a "regulated investment company" for federal income tax
purposes under section 851 of the Code ("Realignment Dispositions"), which
Realignment Dispositions shall be limited to the extent required by the above
representation relating to the continued use by Acquiring Fund of the historic
business assets of Target Fund. For purposes of this representation, Realignment
Dispositions made by Target Fund, if any, will be considered to have been made
by Acquiring Fund.
14. The liabilities of Target Fund to be assumed by Acquiring Fund were
incurred by Target Fund in the ordinary course of its business and are
associated with the assets transferred to Acquiring Fund. For purposes of this
paragraph, expenses of the Transaction are not treated as liabilities.
15. The Transaction will offer shareholders of the Target Fund lower
operating expense ratios, greater diversification of portfolio assets across
countries, sectors and investing styles, a greater degree of select hedging of
investments against currency fluctuations, and comparatively more investment in
developed economies rather than emerging market economies.
16. Printing, mailing and solicitation costs associated with the
solicitation of Target Fund shareholders will be paid equally by Target Fund and
Colonial Management Associates, Inc. (the "Adviser"). The Adviser will also pay
one-half of all other expenses associated with the Transaction and Target Fund
and Acquiring Fund will pay the other half, based on each fund's relative net
assets. The Target Fund and the Acquiring Fund agree to pay the expenses
preliminarily allocated to them. All such fees and expenses incurred and borne
by any of the Adviser, Acquiring Fund or Target Fund shall be solely and
directly related to the Transaction and shall be paid directly by the Adviser,
Target Fund and Acquiring Fund, as the case may be, to the relevant providers of
services or other payees, in accordance with the principles set forth in Rev.
Rul. 73-54, 1973-1 C.B. 187.
Target Fund shareholders will pay their respective expenses, if any,
incurred in connection with the Transaction.
<PAGE>
ROPES & GRAY
-5- May 6, 1998
17. For federal income tax purposes, Target Fund qualifies as a
regulated investment company, and the provisions of Sections 851 through 855 of
the Code apply to Target Fund for its current taxable year beginning November 1,
1997 and will continue to apply to it through the Exchange Date.
In that regard, Target Fund will declare to Target Fund shareholders of
record on or prior to the Exchange Date a dividend or dividends which together
with all previous such dividends shall have the effect of distributing all of
Target Fund's investment company taxable income (see Code Section 852) (computed
without regard to any deduction for dividends paid) and all of Target Fund's net
realized capital gain (after reduction for any capital loss carryover) in each
case for both the taxable year ending October 31, 1997 and the short taxable
period beginning on November 1, 1997 and ending on the Exchange Date. Such
dividends will be made to ensure continued qualification of Target Fund as a
regulated investment company for tax purposes and to eliminate fund-level tax.
18. For federal income tax purposes, Acquiring Fund qualifies as a
regulated investment company, and the provisions of Section 851 through 855 of
the Code apply to Acquiring Fund for its current taxable year beginning November
1, 1997 and will continue to apply to it through the Exchange Date.
19. There is no intercorporate indebtedness existing between Target
Fund and Acquiring Fund.
20. Target Fund will distribute the Acquiring Fund Shares it receives
in the Transaction to its shareholders as provided in the Agreement.
21. Target Fund is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
Based on the foregoing representations and our review of the documents
and items referred to above, we are of the opinion that for federal income tax
purposes:
1.No gain or loss will be recognized by Target Fund upon the
transfer of Target Fund's assets to Acquiring Fund in exchange for
Acquiring Fund Shares and the assumption by Acquiring Fund of the
liabilities of Target Fund, or upon the distribution of Acquiring
Fund Shares by Target Fund to its shareholders in liquidation;
<PAGE>
ROPES & GRAY
-6- May 6, 1998
2.No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares for
Acquiring Fund Shares;
3.The basis of Acquiring Fund Shares a Target Fund shareholder
receives in connection with the Transaction will be the same as the
basis of his or her Target Fund Shares exchanged therefor;
4.A Target Fund shareholder's holding period for his or her
Acquiring Fund Shares will be determined by including the period
for which he or she held the Target Fund Shares exchanged therefor,
provided that he or she held such Target Fund Shares as capital
assets;
5.No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund in exchange for Acquiring Fund
Shares and the assumption by Acquiring Fund of the liabilities of
Target Fund;
6.The basis in the hands of Acquiring Fund of the assets of Target
Fund transferred to Acquiring Fund in the Transaction will be the
same as the basis of such assets in the hands of Target Fund
immediately prior to the transfer; and
7.The holding periods of the assets of Target Fund in the hands of
Acquiring Fund will include the periods during which such assets
were held by Target Fund.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Registration Statement on Form
N-14 (the "Registration Statement") of our reports dated December 10, 1997
relating to the financial statements and financial highlights appearing in the
October 31, 1997 Annual Reports to Shareholders of Colonial International
Horizons Fund and Colonial International Fund for Growth, each a series of
Colonial Trust III, which are also incorporated by reference into the
Registration Statement. We also consent to the reference to us under the heading
"International Fund's Financial History" in Exhibit B of the Prospectus, which
also constitutes part of this Registration Statement.
PRICE WATERHOUSE LLP
- --------------------
Price Waterhouse LLP
Boston, MA
May 5, 1998
PLEASE VOTE PROMPTLY
*********************************
<PAGE>
Your vote is important, no matter how many shares you own. Please vote on the
reverse side of this proxy card and sign in the space(s) provided. Return your
completed proxy card in the enclosed envelope today.
You may receive additional proxies for other accounts. These are not duplicates;
you should sign and return each proxy card in order for your votes to be
counted.
This proxy is solicited on behalf of the Board of Trustees. The signers of this
proxy hereby appoint Harold W. Cogger, Nancy L. Conlin and William J. Ballou,
each of them proxies of the signers, with power of substitution to vote at the
Special Meeting of Shareholders of Colonial International Fund for Growth, to be
held at Boston, Massachusetts, on Friday, July 24, 1998, and at any
adjournments, as specified herein, and in accordance with their best judgement,
on any other business that may properly come before this meeting.
After careful review, the Board of Trustees unanimously has recommended a vote
"FOR" all matters.
<PAGE>
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, Massachusetts 02105-1722
PLEASE READ BOTH SIDES OF THIS CARD
VOTE TODAY!
This proxy, when properly executed, will be voted in the manner directed herein
and, absent direction, will be voted FOR Item 1 below. This proxy will be voted
in accordance with the holder's best judgement as to any other matter.
The Board of Trustees recommends a vote FOR the following Item:
Approve or disapprove the Combination of Colonial International Fund for Growth
into Colonial International Horizons Fund. (Item 1 of the Notice)
For Against Abstain
-- -- --
| | | | | |
-- -- --
Please sign exactly as name or names appear hereon. Joint owners should each
sign personally. When signing as attorney, executor, administrator, trustee or
guardian, please give full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
--
MARK BOX AT RIGHT FOR ADDRESS CHANGE AND NOTE BELOW | |
--
- ----------------------------------------
- ----------------------------------------
______________________ ____________________ Date_________________
Shareholder sign here Co-owner sign here
PLEASE MARK, SIGN DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
