<PAGE>
COLONIAL INTERNATIONAL HORIZONS FUND ANNUAL REPORT
[graphic omitted]
----------------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
----------------------------
<PAGE>
COLONIAL INTERNATIONAL HORIZONS FUND HIGHLIGHTS
NOVEMBER 1, 1997 - OCTOBER 31, 1998
INVESTMENT OBJECTIVE: Colonial International Horizons Fund seeks preservation of
capital, purchasing power and long-term growth.
The Fund is Designed to Offer:
o Preservation of purchasing power
o Growth potential
o Diversification to help reduce risk
PORTFOLIO MANAGER COMMENTARY: "Significant market volatility during the period
presented the Fund with a number of challenges. The portfolio's holdings of
established, non-U.S. companies are well-diversified among countries and
sectors. We believe our focus on diversification reduced the effect of the large
price swings that were present during the year."
- Gita Rao
COLONIAL INTERNATIONAL HORIZONS FUND PERFORMANCE
- ---------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------
Inception dates 6/8/92 6/8/92 8/1/97
- ---------------------------------------------------------------------------
12-month distributions declared per share $2.810 $2.660 $2.738
- ---------------------------------------------------------------------------
12-month total returns, assuming (1.14)% (1.76)% (1.53)%
reinvestment of all distributions
and no sales charge or contingent
deferred sales charge (CDSC)
- ---------------------------------------------------------------------------
Net asset values per share on 10/31/98 $12.26 $12.14 $12.24
- ---------------------------------------------------------------------------
TOP FIVE HOLDINGS TOP FIVE COUNTRIES
(as of 10/31/98) (as of 10/31/98)
- ---------------------------------- ----------------------------------
1. Fortis Amev NV............ 1.2% 1. United Kingdom........... 14.7%
2. Fortis AG................. 1.1% 2. France................... 12.1%
3. SmithKlein Beecham PLC.... 1.1% 3. Japan.................... 11.0%
4. Cimentos de Portugal...... 1.1% 4. Germany.................. 8.0%
5. Hennes & Mauritz AB....... 1.1% 5. Netherlands.............. 7.3%
Holdings and country 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 in the
future.
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[Photo of Stephen E. Gibson]
In June, 1998, Harold Cogger retired as president of the Colonial International
Horizons Fund. I would like to take this opportunity to thank him for his
guidance over the past few years and wish him well. As the new president of the
Fund, I am pleased to present the annual report for the 12 months ended October
31, 1998.
The past 12 months were characterized by changing investment conditions.
Initially, investors were concerned with the Asian economic crisis and its
potential impact on financial markets worldwide. During the summer, the
emergence of economic problems in Russia and Latin America renewed investor
concerns. Stock markets around the world declined as investors sought "safe
havens" in strong currencies and relatively stable investments. This "flight to
quality" generally had a negative effect on international stock prices.
International markets began to rally during the final months of the period. Two
successive interest rate cuts in the U.S. reduced fears of a U.S. recession and
its potential to lessen international trade activity. Markets were further
encouraged by the Group of Seven (G7) industrial nations and the International
Monetary Fund's (IMF) proposal to establish a precautionary line of credit to
stimulate the world's economies and help countries prevent financial panic.
Because foreign markets are not always synchronized with each other or with the
domestic stock market, diversification among international markets can provide
shareholders with a stabilizing effect during periods of market uncertainty. In
addition, an international fund provides an opportunity to diversify your core
portfolio's sources of return.
The following report will provide you with more specific information on your
Fund's performance. Thank you for giving us the opportunity to help you meet
your financial goals. We hope to continue serving you in the years to come.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
December 11, 1998
Because market and economic conditions change frequently, there can be no
assurance that the trends described above and on the following pages will
continue.
<PAGE>
PORTFOLIO MANAGEMENT REPORT
GITA RAO is portfolio manager of Colonial International Horizons Fund and is
vice president of Colonial Management Associates, Inc. NICOLAS GHAJAR is an
associate portfolio manager of the Fund.
FUND STRATEGY FOCUSED ON INCREASING DIVERSIFICATION AND REDUCING ECONOMIC
SENSITIVITY
In an environment characterized by unusual stock market volatility,
we remained committed to structuring a broadly diversified portfolio with good,
long-term growth potential. Over the course of the year, we increased the Fund's
diversification by reducing the proportion of cyclical, economically sensitive
stocks in the portfolio, primarily in sectors such as natural resources, basic
industry and energy. We replaced them with more stable, consumer-oriented growth
stocks from a variety of sectors and countries that we believe should have
better performance during periods of market uncertainty.
CONSUMER-ORIENTED STOCKS OFFERED STABILITY DURING TURBULENT TIMES
Historically, consumer-oriented stocks have tended to be less sensitive to
currency and interest rate movements. This characteristic makes them attractive
when markets are volatile, as they were during much of the year, because they
have offered investors more stable, consistent growth patterns. Stocks that fall
into this category are food processors and distributors, pharmaceutical
companies and household product companies. For example, the Fund had very good
returns from its investment in Kao Corp. (0.76% of net assets), a Japanese
producer of household products such as cosmetics, laundry detergents and cooking
oils. Kao has produced double-digit earnings growth and the company's stock
price has increased nearly 30% relative to the Nikkei over the past six months,
making it one of the best performing stocks in that Index.
EUROPEAN UNITY CREATES ATTRACTIVE VALUES
We increased our investments in Europe during the year. While not immune to the
volatility present in other markets around the world, the European region
appears to offer promising growth prospects. Many European stock markets should
benefit from relatively stable governments and economies, as well as from the
upcoming European Monetary Union (EMU). As of January 1, 1999, 11 European
economies and capital markets will begin to operate as a single unit with a
common currency. An economy that is similar in size and greater in population
than the U.S. will be formed, offering investors and companies new
opportunities. We expect that this unity will allow companies to become more
efficient global competitors through corporate restructuring, consolidation and
an increased focus on shareholder value. We believe that companies in certain
sectors will do very well in a barrier-free marketplace. For example, Ahold N.V.
(0.27% of net assets), a large food distributor based in The Netherlands has
made numerous acquisitions throughout Europe and on the East Coast of the U.S.
Ahold's early focus on consolidation in Europe should facilitate numerous
operating efficiencies under a single-market/single-currency structure. We also
believe that pharmaceutical companies, such as the U.K.'s SmithKline Beecham,
should benefit from cross-border selling and the trend towards consolidation.
PERFORMANCE REFLECTS SHIFT TOWARDS NON-CYCLICAL INVESTMENTS
For the 12-month period, the Fund had a negative total return of 1.14% for Class
A shares, based on net asset value. The Fund's performance was impacted by its
exposure to cyclical, natural resource stocks, especially during the first half
of the period. These stocks did not perform well because of the Asian currency
crisis, which resulted in temporary worldwide deflation and declining commodity
prices. However, over the course of the year, we worked steadily to reduce the
proportion of assets invested in this sector, reallocating them to sectors and
countries that we believe offer better opportunities for increased share prices.
ADDED FLEXIBILITY FOR EMERGING MARKET INVESTMENTS APPROVED
At a recent meeting, Fund Trustees approved a proposal to increase the
percentage of the Fund's net assets that can be invested in emerging markets to
35%. This change is effective December 31, 1998. Emerging markets have been
quite volatile in recent months. However, we believe that, over the long term,
they offer excellent growth potential. While we do not expect to invest more
than 30% of the Fund's net assets in emerging-market securities at this time,
the higher limit will increase our flexibility to seek future investment
opportunities around the world.
MARKET OUTLOOK INCORPORATES ENCOURAGING SIGNS
We will maintain our emphasis on broad country and sector diversification, as
well as our focus on stable-growth, non-cyclical stocks. We believe that this
combination will help shield shareholders from large swings in stock prices. We
expect continued market volatility, but we believe we can use this to the Fund's
advantage by purchasing stocks at attractive prices. We were encouraged by the
recent commitment of the G7 and the International Monetary Fund to promote
global liquidity. We believe it may lead to a lessening of the weak market
domino effect and the accompanying volatility that has prevailed over the past
year.
COLONIAL INTERNATIONAL HORIZONS FUND'S INVESTMENT PERFORMANCE VS.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE (GDP)
Change in Value of $10,000 from 6/30/92 - 10/31/98
Class A shares based on NAV and POP
MSCI NAV POP
- -----------------------------------------------------------------------
06/30/1992 $10,000 $10,000 $ 9,425
07/31/1992 9,646 10,268 9,678
08/31/1992 10,126 10,040 9,462
09/30/1992 9,754 10,010 9,434
10/31/1992 9,358 9,682 9,125
11/30/1992 9,404 9,285 8,751
12/31/1992 9,402 9,432 8,889
01/31/1993 9,511 9,422 8,880
02/28/1993 9,844 9,852 9,286
03/31/1993 10,516 10,513 9,909
04/30/1993 11,485 11,044 10,409
05/31/1993 11,664 11,685 11,013
06/30/1993 11,462 11,626 10,957
07/31/1993 11,807 12,128 11,431
08/31/1993 12,673 12,219 11,516
09/30/1993 12,407 11,716 11,043
10/31/1993 12,748 12,219 11,516
11/30/1993 11,732 11,897 11,213
12/31/1993 12,558 12,616 11,891
01/31/1994 13,518 13,308 12,543
02/28/1994 13,444 12,871 12,130
03/31/1994 13,251 12,575 11,852
04/30/1994 13,920 12,647 11,920
05/31/1994 13,601 12,942 12,198
06/30/1994 13,594 12,701 11,971
07/31/1994 13,910 13,059 12,308
08/31/1994 14,146 13,427 12,655
09/30/1994 13,648 13,417 12,645
10/31/1994 14,063 13,458 12,684
11/30/1994 13,437 12,394 11,682
12/31/1994 13,538 12,499 11,781
01/31/1995 13,192 11,850 11,168
02/28/1995 13,177 12,238 11,534
03/31/1995 13,773 12,730 11,998
04/30/1995 14,389 13,149 12,393
05/31/1995 14,250 13,348 12,581
06/30/1995 14,091 13,449 12,676
07/31/1995 15,012 13,985 13,181
08/31/1995 14,385 13,848 13,052
09/30/1995 14,556 13,712 12,923
10/31/1995 14,134 13,070 12,319
11/30/1995 14,432 13,628 12,844
12/31/1995 15,049 14,132 13,320
01/31/1996 15,240 14,598 13,758
02/29/1996 15,286 14,708 13,863
03/31/1996 15,489 15,262 14,385
04/30/1996 15,971 15,605 14,708
05/31/1996 15,735 15,617 14,719
06/30/1996 15,859 15,305 14,425
07/31/1996 15,403 14,539 13,703
08/31/1996 15,395 15,139 14,268
09/30/1996 15,818 15,327 14,446
10/31/1996 15,645 15,905 14,991
11/30/1996 16,313 16,749 15,786
12/31/1996 16,197 17,047 16,067
01/31/1997 15,892 17,304 16,309
02/28/1997 16,003 16,815 15,848
03/31/1997 16,308 16,705 15,744
04/30/1997 16,268 16,741 15,779
05/31/1997 17,115 18,014 16,978
06/30/1997 18,134 18,674 17,600
07/31/1997 18,534 19,546 18,423
08/31/1997 17,204 18,662 17,589
09/30/1997 18,309 19,952 18,805
10/31/1997 16,956 18,748 17,670
11/30/1997 16,887 18,084 17,045
12/31/1997 17,132 18,061 17,022
01/31/1998 18,022 18,331 17,277
02/28/1998 19,058 19,249 18,142
03/31/1998 20,096 20,452 19,276
04/30/1998 20,398 20,692 19,503
05/31/1998 20,687 20,662 19,474
06/30/1998 20,880 20,546 19,364
07/31/1998 21,153 20,727 19,535
08/31/1998 18,365 17,824 16,799
09/30/1998 17,853 17,053 16,073
10/31/1998 19,839 18,535 17,469
VALUE OF A $10,000 INVESTMENT MADE ON 6/30/92
As of 10/31/98
- -------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
NAV POP NAV W/CDSC NAV W/CDSC
- -------------------------------------------------------------------------------
$18,535 $17,469 $17,697 $17,697 $17,735 $17,735
AVERAGE ANNUAL TOTAL RETURNS
as of 10/31/98
- -------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
INCEPTION 6/8/92 6/8/92 8/1/97
NAV POP NAV W/CDSC NAV W/CDSC
- -------------------------------------------------------------------------------
1 YEAR (1.14)% (6.82)% (1.76)% (5.79)% (1.53)% (2.34)%
- -------------------------------------------------------------------------------
5 YEARS 8.69 7.41 7.89 7.59 7.93 7.93
- -------------------------------------------------------------------------------
LIFE 10.24 9.22 9.43 9.43 9.46 9.46
- -------------------------------------------------------------------------------
Past performance cannot predict future results. Returns and value of an
investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. Net asset value (NAV) returns do not
include sales charges or contingent deferred sales charges (CDSC). Public
offering price (POP) returns include the maximum sales charge of 5.75% for Class
A shares. The CDSC returns reflect charges of 5% for one year and 2% for five
years for Class B shares and 1% for one year for Class C shares. Performance for
different share classes will vary based on differences in sales charges and fees
associated with each class.
Class C share performance information includes returns of the Fund's Class B
shares (the oldest existing fund class) for periods prior to its inception date.
These Class B share returns are not restated to reflect any expense differential
(e.g., Rule 12b-1 fees) between Class B shares and Class C shares.
The Morgan Stanley Capital International EAFE (GDP) Index is an unmanaged index
that tracks the performance of international stocks. Unlike mutual funds, an
index does not incur fees or charges. It is not possible to invest directly in
an index.
<PAGE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1998 (IN THOUSANDS)
COMMON STOCKS - 95.0% COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------
AGRICULTURE, FORESTRY & FISHING - 0.8%
AGRICULTURAL SERVICES - 0.0%
PT Chareon Pokphand Indonesia In 625 $ 10
--------
AGRICULTURE - CROPS - 0.8%
Tabacalera S.A Sp 41 986
--------
................................................................................
CONSTRUCTION - 1.9%
BUILDING CONSTRUCTION - 0.5%
Sulzer AG Sz 1 577
--------
HEAVY CONSTRUCTION-NON BUILDING CONSTRUCTION - 1.4%
Compagnie Generale des Eaux - Vivendi Fr 4 985
Hyder PLC UK 28 385
Kaneshita Construction Ja 51 266
--------
1,636
--------
................................................................................
FINANCE, INSURANCE & REAL ESTATE - 20.3%
DEPOSITORY INSTITUTIONS - 9.5%
Allied Irish Banks PLC Ir 50 724
Argentaria Corp. BC Sp 18 391
Banamex 'B' (a) Mx 115 121
Banca Nazionale del Lavoro It 90 244
Banco Comercial Portugues SA Pt 10 310
Banco Pinto & Sotto Mayor SA Pt 40 760
Banco Popolare di Milano (BPM) It 110 862
Banco Popular Espanol SA Sp 4 220
Bank Montreal Ca 5 217
Banque Nationale de Paris Fr 15 945
Bayerische Vereinsbank G 6 486
Cie Financiere de Paribas Fr 6 410
Commerzbank AG G 8 238
Credito Italiano It 41 219
Den Norske Bank ASA No 57 202
Deutsche Bank AG G 13 794
Fastighets AB Balder (a) Sw 1 8
Generale Banque, VVPR STRIP (a) Be (b) (b)
HSBC Holdings PLC HK (b) 10
Merita Ltd., Class A Fi 205 1,103
National Westminster Bank PLC UK 15 249
Royal Bank of Scotland Group PLC UK 21 279
Siam Commercial Bank Th 147 80
Skandinaviska Enskilda Banken Sw 33 330
Standard Chartered PLC UK 23 248
Svenska Handelsbanken Sw 12 485
The Bank of Tokyo Mitsubishi Ja 33 307
UBS AG (a) Sz 2 570
Westpac Banking Corp. Au 44 269
--------
11,081
--------
FINANCIAL SERVICES - 0.1%
Industrial Finance Corp. of Thailand Th 389 156
--------
HOLDING & OTHER INVESTMENT OFFICES - 2.0%
Fortis AG Be 5 1,306
Fortis AG-CVG (a) Be 5 32
Fortis AG-STRIP VVPR (a) Be 5 (b)
Zurich Versicherungs-Gesellschaft (a) Sz 2 988
--------
2,326
--------
HOLDING COMPANIES - 1.6%
CGU PLC UK 35 555
Fortis Amev NV Ne 21 1,348
--------
1,903
--------
INSURANCE CARRIERS - 3.5%
Allianz AG G 1 464
Assurances Generales De France Fr 15 839
AXA Fr 11 1,234
Reinsurance Australia Corp. Au 343 753
Royal & Sun Alliance Insurance Group PLC UK 67 614
Toro Assicurazioni It 16 239
--------
4,143
--------
INVESTMENT COMPANIES - 0.8%
Fleming Russian Securities Fund Ltd. (a) Ru 23 54
G.T. Global Eastern Europe Fund (a) G 26 150
Irish Investment Fund, Inc. Ir 30 534
Japan OTC Equity Fund, Inc. (a) Ja 1 183
--------
921
--------
NONDEPOSITORY CREDIT INSTITUTIONS - 1.4%
Nichiei Co., Ltd. Ja 5 430
Promise Co., Ltd. Ja 19 867
Shohkoh Fund Ja 1 305
--------
1,602
--------
REAL ESTATE - 1.4%
Asticus AB (A) Sw 49 418
Diligentia AB Sw 98 716
New World Development Co., Ltd. HK 85 198
PT Kawasan Industri Jababeka In 823 19
Swire Pacific Ltd., Series A HK 55 292
--------
1,643
--------
................................................................................
MANUFACTURING - 42.4%
APPAREL - 0.6%
Tokyo Style Ja 69 691
--------
CHEMICALS & ALLIED PRODUCTS - 10.3%
Akzo Nobel NV Ne 12 482
BASF AG G 13 571
Bayer AG G 26 1,040
E.I. DuPont de Nemours & Co. 7 397
Henkel KGAA G 10 884
Hoechst AG G 14 573
Indian Petrochemicals Corp., Ltd. In 54 209
Kao Corp. Ja 44 894
Kemira Oy Fi 47 387
Medeva PLC UK 190 385
Norsk Hydro A/S No 20 875
Novartis Sz 1 1,052
Rhone Poulenc, Class A Fr 18 828
Roche Holding AG Sz (b) 877
SmithKline Beecham PLC UK 104 1,295
Yamanouchi Pharmaceutical Co. Ja 18 518
Zeneca Group PLC UK 20 768
--------
12,035
--------
COMMUNICATIONS EQUIPMENT - 3.3%
Ericsson, Class B Sw 43 967
Koor Industries Ltd. ADR Is 21 338
Matsushita Electric Industrial Co. Ja 57 840
Portugal Telecom SA Pt 13 619
Racal Electronics PLC UK 199 902
Sony Corp. Ja 4 255
--------
3,921
--------
ELECTRONIC COMPONENTS - 3.0%
Alcatel Alsthom Fr 6 682
Murata Manufacturing Co., Ltd. Ja 30 1,015
Royal Philips Electronics N.V. ADR Ne 15 818
Samsung Electronics Ko 11 258
Samsung Electronics Old Preferred GDS Ko 42 367
TDK Corp. Ja 6 397
--------
3,537
--------
FABRICATED METAL - 0.2%
Amcor Ltd. Au 66 274
--------
FOOD & KINDRED PRODUCTS - 4.7%
Bass PLC UK 53 646
Bass PLC, Class B UK 20 30
Diageo PLC UK 30 324
Eridania Beghin-Say SA Fr 4 649
Groupe Danone Fr 3 874
Kesko Oyj Fi 18 261
Montedison SPA It 318 314
Nestle AG Sz (b) 479
Parmalat Finanziara SPA It 150 236
Perdigao SA - Comercio E Industria Bz 245,000 298
Unigate PLC UK 93 812
Unilever NV Ne 7 517
--------
5,440
--------
HOUSEHOLD APPLIANCES - 0.8%
Electrolux AB, Series B Sw 26 398
Moulinex (a) Fr 28 472
--------
870
--------
MACHINERY & COMPUTER EQUIPMENT - 3.2%
AGIV-AG fuer Industrie und Verkehrswesen G 16 338
Canon, Inc. Ja 46 873
Hitachi Ltd. Ja 110 562
Mannesmann AG G 9 926
Oerlikon-Buehrle Holding AG Sz 4 650
Siebe PLC UK 108 443
--------
3,792
--------
MEASURING & ANALYZING INSTRUMENTS - 0.7%
Fuji Photo Film Co., Ltd. Ja 11 404
Gambro AB, Class A Shares Sw 32 359
--------
763
--------
MISCELLANEOUS MANUFACTURING - 0.3%
Polygram NV Ne 7 395
--------
PAPER PRODUCTS - 3.7%
Enso Oy, Series R Fi 59 459
Jefferson Smurfit Group PLC UK 98 162
Metro Pacific Corp. Ph 5,871 198
Metsa-Serla Oy Fi 75 574
Mo och Domsjo AB, Class B Sw 9 210
Royal Koninklijke PTT Nederland NV Ne 31 1,192
Svenska Cellulosa AB, Class B Sw 13 313
TNT Post Group NV Ne 46 1,239
--------
4,347
--------
PETROLEUM REFINING - 4.0%
Chevron Corp. 3 277
Compagnie Francaise de Petroleum,
Total B Fr 5 627
ENI It 45 269
Mobil Corp. 6 477
Petro-Canada Ca 19 242
Repsol SA Sp 8 382
Royal Dutch Petroleum Co. Ne 8 391
The British Petroleum Co. PLC ADR UK 9 824
YPF Sociedad Anonima ADR Ar 42 1,221
--------
4,710
--------
PRIMARY METAL - 1.8%
Avesta Sheffield AB Sw 128 360
Billiton PLC UK 418 1,026
Pirelli SPA It 101 289
Svenskt Stal AB (SSAB), Series B Sw 49 471
--------
2,146
--------
PRINTING & PUBLISHING - 0.3%
Mondadori (Arnoldo) Editore SPA It 30 334
--------
RUBBER & PLASTIC - 0.6%
Bridgestone Corp. Ja 13 287
Michelin, Class B Fr 10 393
--------
680
--------
STONE, CLAY, GLASS & CONCRETE - 2.9%
Cimentos de Portugal SA Pt 37 1,284
Companion Building Materials, Ltd. HK 6,720 83
CRH PLC UK 23 335
Hanson PLC UK 55 387
Holderbank Financiere Glaris AG Sz (b) 530
Lafarge SA Fr 8 815
--------
3,434
--------
TEXTILE MILL PRODUCTS - 0.0%
PT Evershine Textile Industry In 1,442 $ 37
--------
TOBACCO PRODUCTS - 0.5%
Allied Zurich PLC (a) UK 29 335
B.A.T. Industries PLC UK 29 258
--------
593
--------
TRANSPORTATION EQUIPMENT - 1.5%
Honda Motor Co. Ltd. Ja 12 362
Toyota Motor Corp. Ja 11 265
Volkswagen AG G 7 489
Volvo AB Sw 30 656
--------
1,772
--------
................................................................................
MINING & ENERGY - 0.5%
GOLD & SILVER MINING - 0.3%
American Barrick Resources Corp. Ca 18 378
--------
OIL & GAS FIELD SERVICES - 0.2%
Petroleum Geo-Services (a) No 10 205
--------
................................................................................
RETAIL TRADE - 9.9%
APPAREL & ACCESSORY STORES - 1.1%
Hennes & Mauritz AB Sw 18 1,264
--------
GOLD & SILVER MINING - 0.8%
Arriva PLC UK 64 393
Inchcape PLC UK 327 565
--------
958
--------
FOOD STORES - 4.3%
IFIL Finanziaria di Partecipazioni SPA It 75 254
Jeronimo Martins SA Pt 24 1,036
Koninklijke Ahold NV Ne 10 316
Laurus NV Ne 18 465
Tesco PLC UK 138 389
Valora Holdings Sz 5 1,214
Vedior NV Ne 26 655
Vendex International NV Ne 26 672
--------
5,001
--------
GENERAL MERCHANDISE STORES - 1.5%
Globex Utilidades SA Bz 46 $ 114
Ito-Yokado Co., Ltd. Ja 18 1,054
Metro AG G 10 617
--------
1,785
--------
MISCELLANEOUS RETAIL - 1.3%
Centros Comerciales (a) Sp 20 602
Pinault-Printemps SA Fr 6 954
--------
1,556
--------
RESTAURANTS - 0.9%
TelePizza S.A. (a) Sp 126 1,031
--------
................................................................................
SERVICES - 5.0%
AMUSEMENT & RECREATION - 0.6%
Ladbroke Group PLC UK 194 711
--------
COMPUTER RELATED SERVICES - 0.8%
Cap Gemini SA Fr 6 888
--------
COMPUTER SOFTWARE - 2.8%
Baan Co., N.V. (a) Ne 7 75
Computer 2000 AG (a) G 1 401
Dassault Systemes SA Fr 21 789
Ing C. Olivetti & SPA (a) It 352 861
Misys PLC UK 55 388
SAP AG G 2 735
--------
3,249
--------
HOTELS, CAMPS & LODGING - 0.8%
Accor SA Fr 4 917
--------
................................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 13.0%
AIR TRANSPORTATION - 0.4%
Helikopter Service Group ASA No 66 437
--------
BROADCASTING - 0.3%
Mediaset SPA It 48 302
--------
COMMUNICATIONS - 0.4%
Vodafone Group PLC UK 32 428
--------
ELECTRIC SERVICES - 1.0%
ABB AB-A SHS Sw 11 113
Empresa Nacional De Electricidad Sp 45 1,125
--------
1,238
--------
GAS SERVICES - 1.4%
BG PLC UK 160 1,052
Centrica PLC (a) UK 332 651
--------
1,703
--------
SANITARY SERVICES - 0.6%
SABESP Bz 2,360 190
Severn Trent Water PLC UK 29 501
--------
691
--------
TELECOMMUNICATION - 8.8%
COLT Telecom Group PLC (a) UK 38 496
France Telecom SA Fr 12 858
Hong Kong Telecommunications Ltd. HK 146 295
Nippon Telegraph & Telephone Corp. Ja (b) 1,060
NTT Mobile Communications Ja (b) 616
Orange PLC (a) UK 41 382
Oy Nokia AB, Class A Fi 8 728
Portugal Telecom SA Pt 7 308
Telecel-Comunicacaoes Pessoais SA Pt 7 1,254
Telecom Argentina Stet-France
Telecom SA ADR Ar 15 484
Telecom Italia Mobile SPA It 61 355
Telecom Italia SPA It 217 1,102
Telecomunicacoes Brasileiras SA (a) Bz 11 835
Telefonica de Argentina SA Ar 7 245
Telefonica de Espana Sp 7 1,014
Telefonos de Mexico SA Mx 109 285
--------
10,317
--------
TRANSPORTATION SERVICES - 0.1%
New World Infrastructure Ltd. (a) HK 63 90
--------
................................................................................
WHOLESALE TRADE - 1.2%
DURABLE GOODS - 0.6%
Biora AB ADR (a) Sw 16 278
Yamazen Corp. Ja 282 413
--------
691
--------
NONDURABLE GOODS - 0.6%
Gehe AG G 5 373
Veba AG G 6 333
--------
706
--------
TOTAL COMMON STOCKS (cost of $113,870) 111,301
--------
PREFERRED STOCK - 0.1%
- -------------------------------------------------------------------------------
CONSTRUCTION - 0.1%
HEAVY CONSTRUCTION - NON BUILDING CONSTRUCTION
Hyder PLC, 7.875% (cost of $41) UK 30 59
--------
WARRANTS - 0.0% (a)
- --------------------------------------------------------------------------------
RETAIL TRADE - 0.0%
FOOD STORES
IFIL Finanziaria di Partecipazioni SPA It 2 2
--------
................................................................................
CONSTRUCTION - 0.0%
HEAVY CONSTRUCTION - NON BUILDING CONSTRUCTION
Compagnie Generale des Eaux - Vivendi Fr 9 19
--------
................................................................................
FINANCE, INSURANCE & REAL ESTATE - 0.0%
DEPOSITORY INSTITUTIONS
Siam Commercial Bank Public Co., Ltd. (c) Th 37 (b)
--------
TOTAL WARRANTS - (cost of $6) 21
--------
TOTAL INVESTMENTS - 95.1% (cost of $113,917)(d) 111,381
---------
SHORT-TERM OBLIGATIONS - 4.8% PAR
- -------------------------------------------------------------------------------
Repurchase agreement with ABN AMRO Chicago Corp.,
dated 10/30/98 due 11/02/98 at 5.380%, collateralized by U.S.
Treasury notes with various maturities to 2021, market
value $5,735 (repurchase proceeds $5,668) $ 5,665 5,665
----------
OTHER ASSETS & LIABILITIES, NET - 0.1% 147
- --------------------------------------------------------------------------------
NET ASSETS - 100% $ 117,193
---------
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) Cost for federal income tax purposes is $113,955.
<PAGE>
Investment Portfolio/October 31, 1998
- --------------------------------------------------------------------------------
Summary of Securities by
Country Country Value % of Total
- --------------------------------------------------------------------------------
United Kingdom UK $ 17,277 15.5
France Fr 14,178 12.7
Japan Ja 12,864 11.5
Germany G 9,412 8.5
Netherlands Ne 8,565 7.7
Sweden Sw 7,346 6.6
Switzerland Sz 6,937 6.2
Italy It 5,882 5.3
Spain Sp 5,751 5.2
Portugal Pt 5,571 5.0
Finland Fi 3,512 3.2
Argentina Ar 1,950 1.8
Norway No 1,719 1.5
Brazil Bz 1,437 1.3
Belgium Be 1,338 1.2
Australia Au 1,296 1.2
Ireland Ir 1,258 1.1
United States 1,151 1.0
Hong Kong HK 968 0.8
Canada Ca 837 0.8
Korea Ko 625 0.6
Mexico Mx 406 0.4
Israel Is 338 0.3
Indonesia In 275 0.2
Thailand Th 236 0.2
Phillipines Ph 198 0.2
Russia Ru 54 0.0
-------- ------
$111,381 100.0
-------- ------
Certain securities are listed by country of underlying exposure but may
trade predominantly on other exchanges.
Acronym Name
-------------- ------------------------------
ADR American Depositary Receipt
GDS Global Depositary Shares
STRIP Separately Traded Receipt of
Interest and Principal
See notes to financial statements.
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1998
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $113,917) $ 111,381
Short-term obligations 5,665
---------
117,046
Cash held in foreign banks (cost $696) $ 734
Receivable for:
Fund shares sold 672
Dividends 266
Interest 1
Other 7 1,680
------ ---------
Total Assets 118,726
LIABILITIES
Payable for:
Fund shares repurchased 1,437
Accrued:
Deferred Trustee fees 3
Other 93
------
Total Liabilities 1,533
---------
NET ASSETS $ 117,193
---------
Net asset value & redemption price per share -
Class A ($58,213/4,748) $ 12.26(a)
---------
Maximum offering price per share - Class A
($12.26/0.9425) $ 13.01(b)
----------
Net asset value & offering price per share -
Class B ($57,809/4,762) $ 12.14(a)
---------
Net asset value & offering price per share -
Class C ($1,171/96) $ 12.24(a)
---------
COMPOSITION OF NET ASSETS
Capital paid in $ 108,253
Overdistributed net investment income (194)
Accumulated net realized gain 11,625
Net unrealized appreciation (depreciation) on:
Investments (2,536)
Foreign currency transactions 45
---------
$ 117,193
---------
(a) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
See notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
(in thousands)
INVESTMENT INCOME
Dividends $ 1,191
Interest 244
----------
Total investment income (net of nonreclaimable
foreign taxes withheld at source which
amounted to $166) 1,435
EXPENSES
Management fee $ 557
Service fee 183
Distribution fee - Class B 257
Distribution fee - Class C 4
Transfer agent 245
Bookkeeping fee 35
Registration fee 31
Custodian fee 114
Audit fee 33
Trustees fee 11
Reports to shareholders 11
Legal fee 5
Other 25 1,511
------- ---------
Net Investment Loss (76)
---------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 11,852
Foreign currency transactions (101)
-------
Net Realized Gain 11,751
Net change in unrealized appreciation
(depreciation) during the period on:
Investments (see Note 5) (21,124)
Foreign currency transactions 54
-------
Net Unrealized Depreciation (21,070)
Net Loss (9,319)
---------
Decrease in Net Assets from Operations $ (9,395)
---------
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands) Year ended October 31
------------------------
INCREASE (DECREASE) IN NET ASSETS 1998 1997(a)
Operations:
Net investment income (loss) $ (76) $ 222
Net realized gain 11,751 11,224
Net unrealized appreciation (depreciation) (21,070) (1,087)
-------- --------
Net Increase from Operations (9,395) 10,359
Distributions:
From net investment income - Class A (181) (73)
In excess of net investment income - Class A (185) -
From net investment income - Class C (1) -
In excess of net investment income - Class C (1) -
From net realized gains - Class A (6,412) (3,435)
From net realized gains - Class B (4,631) (2,522)
From net realized gains - Class C (30) -
-------- --------
(20,836) 4,329
-------- --------
Fund Share Transactions:
Receipts for shares sold - Class A 41,507 61,284
Receipts for shares issued in the acquisition
of Colonial International Fund for Growth 25,736 -
Value of distributions reinvested - Class A 5,525 2,968
Cost of shares repurchased - Class A (39,191) (68,973)
-------- --------
33,577 (4,721)
-------- --------
Receipts for shares sold - Class B 10,506 12,423
Receipts for shares issued in the acquisition
of Colonial International Fund for Growth 44,615 -
Value of distributions reinvested - Class B 4,123 2,056
Cost of shares repurchased - Class B (17,601) (14,766)
-------- --------
41,643 (287)
-------- --------
Receipts for shares sold - Class C 589 107
Receipts for shares issued in the acquisition
of Colonial International Fund for Growth 842 -
Value of distributions reinvested - Class C 32 -
Cost of shares repurchased - Class C (219) -
-------- --------
1,244 107
-------- --------
Net Increase (Decrease) from Fund
Share Transactions 76,464 (4,901)
-------- --------
Total Increase (Decrease) 55,628 (572)
NET ASSETS
Beginning of period 61,565 62,137
-------- --------
End of period (net of overdistributed and
including underdistributed net investment
income of $194 and $182, respectively) $117,193 $ 61,565
-------- --------
(a) Class C shares were initially offered on August 1, 1997.
Statement of Changes in Net Assets continued on following page
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS - CONT.
Year ended October 31
------------------------
(in thousands) 1998 1997(a)
Sold - Class A 3,227 4,043
Issued in the acquisition of Colonial
International Fund for Growth 1,838 -
Issued for distributions reinvested - Class A 451 222
Repurchased - Class A (3,039) (4,554)
-------- --------
2,477 (289)
-------- --------
Sold - Class B 824 851
Issued in the acquisition of Colonial
International Fund for Growth 3,211 -
Issued for distributions reinvested - Class B 340 154
Repurchased - Class B (1,392) (1,017)
-------- --------
2,983 (12)
-------- --------
Sold - Class C 44 7
Issued in the acquisition of Colonial
International Fund for Growth 60 -
Issued for distributions reinvested - Class C 3 -
Repurchased - Class C (18) -
-------- --------
89 7
-------- --------
(a) Class C shares were initially offered on August 1, 1997.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
NOTE 1. ACCOUNTING POLICIES
................................................................................
ORGANIZATION: Colonial International Horizons Fund (the Fund), a series of
Colonial Trust III, is a non-diversified portfolio of a Massachusetts business
trust registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Fund's investment objective is to
seek preservation of capital, purchasing power and long-term growth. The Fund
may issue an unlimited number of shares. The Fund offers three classes of
shares: Class A, Class B, and Class C. Class A shares are sold with a front-end
sales charge and a 1.00% contingent deferred sales charge on redemptions made
within eighteen months on an original purchase of $1 million to $5 million.
Class B shares are subject to an annual distribution fee and a contingent
deferred sales charge. Class B shares will convert to Class A shares when they
have been outstanding approximately eight years. Class C shares are subject to a
contingent deferred sales charge on redemptions made within one year after
purchase and an annual distribution fee.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies that are consistently followed by the Fund in
the preparation of its financial statements.
SECURITY VALUATION AND TRANSACTIONS: Equity securities generally are valued at
the last sale price or, in the case of unlisted or listed securities for which
there were no sales during the day, at current quoted bid prices.
Debt securities generally are valued by a pricing service based upon market
transactions for normal, institutional-size trading units of similar securities.
When management deems it appropriate, an over-the-counter or exchange bid
quotation is used.
Forward currency contracts are valued based on the weighted value of the
exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
The value of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates.
Portfolio positions for which market quotations are not readily available are
valued at fair value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains (losses) are based upon the specific identification
method for both financial statement and federal income tax purposes.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class B and Class C distribution fees) and realized and
unrealized gains (losses) are allocated to each class proportionately on a daily
basis for purposes of determining the net asset value of each class.
Per share data was calculated using average shares outstanding during the
period. In addition, Class B and Class C net investment income per share data
reflects the distribution fee applicable to Class B and Class C shares only.
Class B and Class C ratios are calculated by adjusting the expense and net
investment income ratios for the Fund for the entire period by the distribution
fee applicable to Class B and Class C shares only.
FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a
regulated investment company and to distribute all of its taxable income, no
federal income tax has been accrued.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is recorded on the
accrual basis. Original issue discount is accreted to interest income over the
life of a security with a corresponding increase in the cost basis; premium and
market discount are not amortized or accreted.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders are
recorded on the ex-date.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
FOREIGN CURRENCY TRANSACTIONS: Net realized and unrealized gains (losses) on
foreign currency transactions includes gains (losses) arising from the
fluctuation in exchange rates between trade and settlement dates on securities
transactions, gains (losses) arising from the disposition of foreign currency
and currency gains (losses) between the accrual and payment dates on dividends
and interest income and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) on investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities. The Fund
may also enter into forward currency contracts to hedge certain other foreign
currency denominated assets. The contracts are used to minimize the exposure to
foreign exchange rate fluctuations during the period between trade and
settlement date of the contracts. All contracts are marked-to-market daily,
resulting in unrealized gains (losses) which become realized at the time the
forward currency contracts are closed or mature. Realized and unrealized gains
(losses) arising from such transactions are included in net realized and
unrealized gains (losses) on foreign currency transactions. Forward currency
contracts do not eliminate fluctuations in the prices of the Fund's portfolio
securities. While the maximum potential loss from such contracts is the
aggregate face value in U.S. dollars at the time the contract was opened, the
actual exposure is typically limited to the change in value of the contract (in
U.S. dollars) over the period it remains open. Risks may also arise if
counterparties fail to perform their obligations under the contracts.
OTHER: Corporate actions are recorded on ex-date (except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware of
such), net of nonrebatable tax withholdings. Where a high level of uncertainty
as to collection exists, income on securities is recorded net of all tax
withholdings with any rebates recorded when received.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-market
daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Advisor)
is the investment Advisor of the Fund and furnishes accounting and other
services and office facilities for a monthly fee equal to 0.75% annually of
the Fund's average net assets.
BOOKKEEPING FEE: The Advisor provides bookkeeping and pricing services for
$27,000 per year plus 0.035% of the Fund's average net assets over $50 million.
TRANSFER AGENT: Liberty Funds Services, Inc., formerly Colonial Investors
Service Center, Inc. (the Transfer Agent), an affiliate of the Advisor, provides
shareholder services for a monthly fee equal to 0.236% annually of the Fund's
average net assets and receives reimbursement for certain out-of-pocket
expenses.
Effective October 1, 1997 and continuing through September 1998, the Transfer
Agent fee was reduced by 0.0012% in cumulative monthly increments, resulting in
a decrease in the fee from 0.25% to 0.236% annually.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Liberty Funds
Distributor, Inc., formerly Liberty Financial Investments, Inc., (the
Distributor), a subsidiary of the Advisor, is the Fund's principal underwriter.
During the year ended October 31, 1998, the Fund has been advised that the
Distributor retained net underwriting discounts of $5,653 on sales of the Fund's
Class A shares and received contingent deferred sales charges (CDSC) of $230,
$138,775, and $1,008 on Class A, Class B, and Class C share redemptions,
respectively.
The Fund has adopted a 12b-1 plan which requires the payment of a service fee to
the Distributor equal to 0.25% annually of the Fund's net assets as of the 20th
of each month. The plan also requires the payment of a distribution fee to the
Distributor equal to 0.75% annually of the average net assets attributable to
Class B and Class C shares only.
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
OTHER: The Fund pays no compensation to its officers, all of whom are
employees of the Advisor.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
...............................................................................
INVESTMENT ACTIVITY: For the year ended October 31, 1998, purchases and sales of
investments, other than short-term obligations, were $72,429,293 and
$79,129,371, respectively.
Unrealized appreciation (depreciation) at October 31, 1998, based on cost of
investments for federal income tax purposes was:
Gross unrealized appreciation $17,018,177
Gross unrealized depreciation (19,592,540)
---------------
Net unrealized depreciation $(2,574,363)
---------------
OTHER: There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities. These
risks may involve foreign currency exchange rate fluctuations, adverse political
and economic developments and the possible prevention of currency exchange or
other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 4. LINE OF CREDIT
................................................................................
The Fund may borrow up to 33 1/3% of its net assets under a line of credit for
temporary or emergency purposes. Any borrowings bear interest at one of the
following options determined at the inception of the loan: (1) federal funds
rate plus 1/2 of 1%, (2) the lending bank's base rate or (3) IBOR offshore loan
rate plus 1/2 of 1%. There were no borrowings under the line of credit during
the year ended October 31, 1998.
NOTE 5. MERGER INFORMATION
................................................................................
On July 24, 1998, Colonial International Fund for Growth (CIFFG) was merged into
the Fund by a non-taxable exchange of 1,837,762 Class A shares, 3,210,998 Class
B shares, and 60,081 Class C shares of the Fund (valued at $25,735,942,
$44,614,889, and $841,510, respectively) for the 2,624,572, 4,629,964, and
87,046, respectively, of CIFFG shares then outstanding. The assets of CIFFG
acquired included unrealized appreciation of $10,684,592. The aggregate net
assets of the Fund and CIFFG immediately after the merger were $132,217,563.
NOTE 6. RESULTS OF SPECIAL MEETING OF SHAREHOLDERS (UNAUDITED)
................................................................................
On October 30, 1998, a Special Meeting of Shareholders of the Fund was held to
approve the following items, all as described in the Proxy Statement of the
Meeting. On August 21, the record date for the Meeting, the Fund had outstanding
9,565,692 shares of beneficial interest. The votes cast at the Meeting were as
follows:
Authority
For Withheld
------------- ---------------
To elect a Board of Trustees:
Robert J. Birmbaum 4,956,570 229,292
Tom Bleasdale 4,957,867 227,995
John Carberry 4,962,309 223,553
Lora S. Collins 4,961,157 224,705
James E. Grinnell 4,958,767 227,095
Richard W. Lowry 4,962,189 223,673
Salvatore Macera 4,960,724 225,138
William Mayer 4,961,716 224,146
James L. Moody, Jr. 4,958,684 227,178
John J. Neuhauser 4,961,836 224,026
Thomas E. Stitzel 4,961,836 224,026
Robert L. Sullivan 4,957,431 228,431
Anne-Lee Verville 4,961,462 224,400
To amend fundamental investment policies regarding borrowing and lending:
For Against Abstain
----------- --------- ----------
3,786,052 186,489 284,936
To reclassify the fundamental investment policy regarding the purchase of
illiquid securities:
For Against Abstain
----------- --------- ----------
3,727,503 232,994 296,979
To approve policies for a master fund/feeder fund structure:
For Against Abstain
----------- --------- ----------
3,764,378 206,814 286,285
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each
period are as follows:
Year ended October 31
-----------------------------------------
1998
Class A Class B Class C
-------- -------- --------
Net asset value -
Beginning of period $ 15.260 $ 15.070 $ 15.220
-------- -------- --------
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income (loss) (a) 0.032 (0.062) (0.061)
Net realized and
unrealized loss (0.222) (0.208) (0.181)
-------- -------- --------
Total from Investment
Operations (0.190) (0.270) (0.242)
-------- -------- --------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
Net investment income (0.074) - (0.039)
In excess of net investment income (0.076) - (0.039)
From net realized gains (2.660) (2.660) (2.660)
-------- -------- --------
Total Distributions Declared
to Shareholders (2.810) (2.660) (2.738)
-------- -------- --------
Net asset value -
End of period $ 12.260 $ 12.140 $ 12.240
-------- -------- --------
Total return (b) (1.14)% (1.76)% (1.53)%
-------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Expenses (c) 1.68% 2.43% 2.43%
Net investment income (c) 0.24% (0.51)% (0.51)%
Portfolio turnover 100% 100% 100%
Net assets at end
of period (000) $ 58,213 $ 57,809 $ 1,171
(a) Per share data was calculated using average shares outstanding during
the period.
(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(c) The benefits derived from custody credits and directed brokeage arrangements
had no impact.
- --------------------------------------------------------------------------------
Federal Income Tax Information (unaudited)
2% of the ordinary income distribution distributed by the Fund in the year
ended October 31, 1998 qualifies for the corporate dividends received deduction.
For the fiscal year ended October 31, 1998 the Fund earned $9,750,679 of long
term capital gains of which $651,759 and $9,098,920 are 28% and 20% rate
gains, respectively.
- --------------------------------------------------------------------------------
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Selected data for a share of each class outstanding throughout each
period are as follows:
Year ended October 31
--------------------------------------
1997
Class A Class B Class C (a)
-------- -------- --------
Net asset value -
Beginning of period $ 14.320 $ 14.230 $ 15.910
-------- -------- --------
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income (loss) (b) 0.098 (0.011) (0.017)
Net realized and
unrealized gain (loss) 2.296 2.275 (0.673)(c)
-------- -------- --------
Total from Investment
Operations 2.394 2.264 (0.690)
-------- -------- --------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
Net investment income (0.030) - -
From net realized gains (1.424) (1.424) -
-------- -------- --------
Total Distributions Declared
to Shareholders (1.454) (1.424) -
-------- -------- --------
Net asset value -
End of period $ 15.260 $ 15.070 $ 15.220
-------- -------- --------
Total return (d) 17.87% 16.98% (4.34)(e)
-------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Expenses (f) 1.62% 2.37% 2.39% (g)
Net investment income (f) 0.67% (0.08)% (0.42)(g)
Portfolio turnover 67% 67% 67%
Net assets at end
of period (000) $ 34,645 $ 26,817 $ 103
(a) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) The amount shown for a share outstanding does not correspond with the
aggregate net gain on investments for the period due to the timing of sales
and repurchases of Fund shares in relation to fluctuating market values of
the investments of the Fund.
(d) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokeage arrangements
had no impact.
(g) Annualized.
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Year ended October 31
---------------------------------------------------
1996 1995
Class A Class B Class A Class B
-------- -------- -------- --------
$ 12.430 $ 12.380 $ 13.160 $ 13.110
-------- -------- -------- --------
0.075 (0.026) 0.102 0.009
2.525 2.506 (0.496) (0.489)
-------- -------- -------- --------
2.600 2.480 (0.394) (0.480)
-------- -------- -------- --------
(0.080) - (0.106) (0.020)
(0.630) (0.630) (0.230) (0.230)
-------- -------- -------- --------
(0.710) (0.630) (0.336) (0.250)
-------- -------- -------- --------
$ 14.320 $ 14.230 $ 12.430 $ 12.380
-------- -------- -------- --------
21.69% 20.70% (2.88)% (3.56)%
-------- -------- -------- --------
1.61% 2.36% 1.66% 2.41%
0.56% (0.19)% 0.82% 0.07%
84% 84% 65% 65%
$ 36,655 $ 25,482 $ 31,297 $ 20,931
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Selected data for a share of each class outstanding throughout each
period are as follows:
Year ended October 31
------------------------
1994
Class A Class B
---------- ----------
Net asset value -
Beginning of period $ 12.160 $ 12.130
---------- ----------
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income (a) 0.114 0.019
Net realized and
unrealized gain 1.104 1.097
---------- ----------
Total from Investment
Operations 1.218 1.116
---------- ----------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net
investment income (0.118) (0.036)
From net realized gains (0.100) (0.100)
---------- ----------
Total Distributions Declared
to Shareholders (0.218) (0.136)
---------- ----------
Net asset value -
End of period $ 13.160 $ 13.110
---------- ----------
Total return (b) 10.14% 9.28%
---------- ----------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.70% 2.45%
Net investment income 0.90% 0.15%
Portfolio turnover 15% 15%
Net assets at end
of period (000) $ 36,830 $ 22,458
(a) Per share data was calculated using average shares outstanding during
the period.
(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST III AND THE SHAREHOLDERS OF
COLONIAL INTERNATIONAL HORIZONS FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations, and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Colonial International Horizons
Fund (the "Fund") (a series of Colonial Trust III) at October 31, 1998, the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and the financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of portfolio positions at October 31, 1998 by correspondence with
the custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 11, 1998
<PAGE>
HOW TO REACH US
BY PHONE OR BY MAIL
BY TELEPHONE
CUSTOMER CONNECTION - 1-800-345-6611
For 24-hour account information, call from your touch-tone phone. (Rotary
callers will be automatically connected to a representative during business
hours.) A recorded message will guide you through the menu:
For fund prices, dividends and capital gains information ............press [1]
For account information press .......................................press [2]
To speak to a service representative press...........................press [3]
For yield and total return information press.........................press [4]
For duplicate statements or new supply of checks press...............press [5]
To order duplicate tax forms and year-end statements press...........press [6]
(February through May)
To review your options at any time during your call press............press [*]
To speak with a shareholder services representative about your account, call
Monday to Friday, 8:00 a.m. to 8:00 p.m. ET, and Saturdays from February through
mid-April, 10:00 a.m. to 2:00 p.m. ET.
TELEPHONE TRANSACTION DEPARTMENT - 1-800-422-3737
To purchase, exchange or sell shares by telephone, call Monday to Friday, 9:00
a.m. to 7:00 p.m. ET. Transactions received after the close of the New York
Stock Exchange will receive the next business day's closing price.
LITERATURE - 1-800-426-3750
To request literature on any fund distributed by Liberty Funds Distributor,
Inc., call Monday to Friday, 8:30 a.m. to 6:30 p.m. ET.
BY MAIL
LIBERTY FUNDS SERVICES, INC.
P.O. BOX 1722
BOSTON, MA 02105-1722
<PAGE>
SHAREHOLDER SERVICES
TO MAKE INVESTING EASIER
Your fund has one of the most extensive selections of shareholder services
available. Your financial advisor can help you arrange for any of these
services, or you can call Liberty Funds Services, Inc. directly at
1-800-345-6611.
AFFORDABLE ADDITIONAL INVESTMENTS: Add to your account with as little as $50 on
most funds; $25 for an IRA account.
FREE EXCHANGES(1): Exchange all or part of your account into the same share
class of another fund distributed by Liberty Funds Distributor, Inc., by phone
or mail.
EASY ACCESS TO YOUR MONEY(1): Make withdrawals from your account by phone, by
mail or, for certain funds, by check.
ONE-YEAR REINSTATEMENT PRIVILEGE: If you need access to your money, but then
choose to return it within one year, you can reinvest in any fund distributed by
Liberty Funds Distributor, Inc. of the same share class without any penalty or
sales charge.
FUNDAMATIC: Make periodic investments as low as $50 from your checking account
to your Fund account.
SYSTEMATIC WITHDRAWAL PLAN (SWP): Receive monthly, quarterly or semiannual
payments via check or bank transmission. There is a $5,000 account value
required, but no minimum for the payment amount. The maximum annual withdrawal
is 12% of account balance at time SWP is established. SWPs by check are
processed on the 10th calendar day of each month unless the 10th falls on a
non-business day or the first business day of the week. If this occurs, the
processing date will be the previous business day. Dividends and capital gains
must be reinvested.
AUTOMATED DOLLAR COST AVERAGING: Transfer money on a monthly basis from any fund
with a balance of $5,000 into the same share class of up to four other funds
distributed by Liberty Funds Distributor, Inc. Minimum for each transfer is
$100.
RETIREMENT PLANS: Choose from a broad range of retirement plans, including IRAs.
(1) Redemptions and exchanges are made at the next determined net asset value
after the request is received by the Transfer Agent. Proceeds may be more
or less than your original cost. The exchange privilege may be terminated
at any time. Exchanges are not available on all funds. Investors who
purchase Class B or C shares, or $1 million or more of Class A shares, may
be subject to a contingent deferred sales charge.
<PAGE>
SHAREHOLDER COMMUNICATIONS
TO KEEP YOU INFORMED
To make recordkeeping easy and keep you up-to-date on the performance of your
investments, you can expect to receive the following information about your
account:
TRANSACTION CONFIRMATIONS: Each time you make a purchase, sale or exchange, you
receive a confirmation statement within just a few days.
QUARTERLY STATEMENTS: Every three months, if any transactions are made that
affect your share balance, this statement reports on your account activity
during the quarter (including any reinvestment of dividends). This statement
also provides year-to-date information.
LIBERTY FUNDS DISTRIBUTOR INVESTOR OPPORTUNITIES: Mailed with your quarterly
account statements, this newsletter highlights timely investment strategies,
portfolio manager commentary and shareholder service updates.
TAX FORMS AND YEAR-END TAX GUIDE: Easy-to-use forms and timely information are
designed to make tax reporting simpler. (Usually mailed in January.)
AVERAGE COST BASIS STATEMENTS: If you sold or exchanged shares during the year,
this statement may help you calculate your gain/loss for tax purposes. (Usually
mailed in February.)
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial International Horizons Fund is:
Liberty Funds Services, Inc.*
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial International Horizons Fund mails one shareholder report to each
shareholder address. If you would like more than one report, please call
1-800-426-3750 and additional reports will be sent to you.
This report has been prepared for shareholders of Colonial International
Horizons Fund. This report may also be used as sales literature when preceded or
accompanied by the current prospectus which provides details of sales charges,
investment objectives and operating policies of the Fund and with the most
recent copy of Liberty Funds Distributor's Performance Update.
* Effective October 1, 1998, Colonial Investors Service Center, Inc. - the
Transfer Agent for Colonial, Crabbe Huson, Newport and Stein Roe Advisor
Funds - changed its name to Liberty Funds Services, Inc.
<PAGE>
TRUSTEES
ROBERT J. BIRNBAUM
Consultant (formerly Special Counsel, Dechert, Price & Rhoads; President and
Chief Operating Officer, New York Stock Exchange, Inc.; President, American
Stock Exchange, Inc.)
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
JOHN CARBERRY
Senior Vice President of Liberty Financial Companies, Inc. (formerly Managing
Director, Salomon Brothers)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corp.)
SALVATORE MACERA
Private Investor (formerly Executive Vice President of Itek Corp. and President
of Itek Optical & Electronic Industries, Inc.)
WILLIAM E. MAYER
Partner, Development Capital, LLC (formerly Dean, College of Business and
Management, University of Maryland; Dean, Simon Graduate School of Business,
University of Rochester; Chairman and Chief Executive Officer, CS First Boston
Merchant Bank; and President and Chief Executive Officer, The First Boston
Corporation)
JAMES L. MOODY, JR.
Retired (formerly Chairman of the Board, Chief Executive Officer and Director,
Hannaford Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
THOMAS E. STITZEL
Professor of Finance, College of Business, Boise State University; Business
Consultant and Author
ROBERT L. SULLIVAN
Retired Partner, KPMG Peat Marwick LLP Main & Co. (formerly Management
Consultant, Saatchi and Saatchi Consulting Ltd. and Principal and International
Practice Director, Management Consulting, Peat Marwick Main & Co.)
ANNE-LEE VERVILLE
Consultant (formerly General Manager, Global Education Industry, and President,
Applications Solutions Division, IBM Corporation)
[logo] L I B E R T Y
COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)1998
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
Visit us at www.libertyfunds.com
HZ-02/163G-10/98 (12/98) 98/1309
