February 28, 1995
Revised June 1, 1995
THE COLONIAL FUND
Prospectus
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Adviser) and your full-service
financial adviser want you to understand both the risks and benefits
of mutual fund investing.
While mutual funds offer significant opportunities and are
professionally managed, they also carry risk including possible loss
of principal. Unlike savings accounts and certificates of deposit,
mutual funds are not insured or guaranteed by any financial
institution or government agency.
Please consult your full-service financial adviser to determine how
investing in this mutual fund may suit your unique needs, time horizon
and risk tolerance.
The Colonial Fund (Fund), a diversified portfolio of Colonial Trust
III (Trust), an open-end management investment company, seeks
primarily income and capital growth and, secondarily, capital
preservation.
The Fund is managed by the Adviser, an investment adviser since 1931.
This Prospectus explains concisely what you should know before
investing in the Fund. Read it carefully and retain it for future
reference.
TF-01/921A-0595
More detailed information about the Fund is in the February 28, 1995
Statement of Additional Information which has been filed with the
Securities and Exchange Commission and is obtainable free of charge by
calling the Adviser at 1-800-248-2828. The Statement of Additional
Information is incorporated by reference in (which means it is
considered to be a part of) this Prospectus.
The Fund offers two classes of shares. Class A shares are offered at
net asset value plus a sales charge imposed at the time of purchase
and Class B shares are offered at net asset value plus a distribution
fee and a declining contingent deferred sales charge on redemptions
made within six years after purchase. Class B shares convert to Class
A shares after approximately eight years. See "How to buy shares."
Contents Page
Summary of expenses 2
The Fund's financial history 3
The Fund's investment objectives 5
How the Fund pursues its objectives 5
How the Fund measures its performance 6
How the Fund is managed 7
How the Fund values its shares 7
Distributions and taxes 7
How to buy shares 8
How to sell shares 9
How to exchange shares 10
Telephone transactions 10
12b-1 plans 11
Organization and history 11
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund.
The following tables summarize your maximum transaction costs and annual
expenses for an investment in each Class of the Fund's shares.
Shareholder Transaction Expenses (1)(2)
Class A Class B
Maximum Initial Sales Charge
Imposed on a Purchase
(as a % of offering price)(3) 5.75% 0.00%(5)
Maximum Contingent Deferred
Sales Charge
(as a % of offering price)(3) 1.00%(4) 5.00%
(1) For accounts less than $1,000 an annual fee of $10 may be deducted.
See "How to sell shares."
(2) Redemption proceeds exceeding $5,000 sent via federal funds wire
will be subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to $5
million redeemed within approximately 18 months after purchase. See
"How to buy shares."
(5) Because of the 0.75% distribution fee applicable to Class B shares,
long-term Class B 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
the Fund's Class B shares automatically convert to Class A after
approximately 8 years, this is less likely for Class B shares than
for a class without a conversion feature.
Annual Operating Expenses
(as a % of net assets)
Class A Class B
Management fee 0.55% 0.55%
12b-1 fees 0.22* 0.97*
Other expenses 0.37 0.37
Total expenses 1.14% 1.89%
* Includes annualized service fee of 0.22%. Fee rate will fluctuate but
will not exceed 0.25%.
Example
The following Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each Class of shares of the Fund 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 considered indicative of actual or expected Fund performance
or expenses, both of which will vary:
Period: Class A Class B
(6)
1 year $ 68 $ 69 $ 19
3 years $ 92 $ 90 $ 60
5 years $117 $123 $103
10 years $188 $203(7) $203(7)
(6) Assumes no redemption.
(7) Class B shares convert to Class A after approximately 8 years;
therefore years 9 and 10 reflect Class A expenses.
THE FUND'S FINANCIAL HISTORY
The following schedule of financial highlights for a share outstanding
throughout each period has been audited by Price Waterhouse LLP,
independent accountants. Their unqualified report is included in the Fund's
1994 Annual Report, and is incorporated by reference into the Statement
of Additional Information. The schedule has been restated to reflect the
3:1 split which occurred on December 10, 1993.
<TABLE>
<CAPTION>
CLASS A
Year Ended October 31
1994(a) 1993(b) 1992(b) 1991(b) 1990(b) 1989(b) 1988(b) 1987(b) 1986(b) 1985(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of
period....................... $8.410 $7.390 $7.050 $5.700 $6.850 $6.320 $5.530 $6.450 $5.220 $4.640
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment income........ 0.171 0.156 0.173 0.218 0.256 0.270 0.299 0.216 0.283 0.313
Net realized and unrealized
gain (loss) on investments (0.116) 1.293 0.489 1.509 (0.979) 0.768 0.944 (0.387) 1.397 0.560
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment .
operations............... 0.055 1.449 0.662 1.727 (0.723) 1.038 1.243 (0.171) 1.680 0.873
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions declared to
shareholders:
From net investment income... (0.160) (0.147) (0.185) (0.222) (0.276) (0.305) (0.263) (0.310) (0.300) (0.300)
From net realized gain on
investments.................. (0.245) (0.282) (0.137) (0.155) (0.151) (0.203) (0.190) (0.439) (0.150) 0.000
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions declared to
shareholders............ (0.405) (0.429) (0.322) (0.377) (0.427) (0.508) (0.453) (0.749) (0.450) (0.300)
Net asset value - End of period $8.060 $8.410 $7.390 $7.050 $5.700 $6.850 $6.320 $5.530 $6.450 $5.220
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return(c)................ 0.74% 20.21% 9.65% 31.23% (11.17)% 17.16% 23.60% (3.49)% 33.91% 19.44%
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Ratios to average net assets:
Expenses................... 1.14% 1.10% 1.09% 1.06% 1.04% 0.97% 0.92% 0.97% 1.06% 1.05%
Net investment income...... 2.07% 1.94% 2.52% 3.35% 4.05% 4.34% 4.92% 3.99% 4.70% 6.32%
Portfolio turnover............. 54% 14% 37% 36% 41% 27% 27% 47% 48% 69%
Net assets at end of period (000)$555,275 $520,706 $413,228 $366,808 $285,265 $319,419 $258,178 $240,971 $168,399 $104,920
_________________________________
</TABLE>
(a) Per share data was calculated using average shares outstanding during
the period.
(b) All per share amounts have been restated to reflect the 3-for-1 stock
split effective December 10, 1993.
(c) Total return at net asset value assuming all distributions reinvested
and no initial or contingent deferred sales charge.
THE FUND'S FINANCIAL HISTORY (CONT'D)
CLASS B
Year ended October 31
1994(a) 1993(b) 1992(b)(c)
Net asset value - Beginning of period.......... $8.400 $7.390 $7.440
----- ----- -----
Income from investment operations:
Net investment income........................ 0.109 0.104 0.052
Net realized and unrealized gain (loss)
on investments............................... (0.111) 1.282 (0.044)
----- ----- -----
Total from investment operations.............. (0.002) 1.386 0.008
----- ----- -----
Less distributions declared to shareholders:
From net investment income................... (0.103) (0.094) (0.058)
From net realized gains on investments....... (0.245) (0.282) (0.000)
----- ----- -----
Total distributions declared to shareholders. (0.348) (0.376) (0.058)
Net asset value - End of period................ $8.050 $8.400 $7.390
===== ===== =====
Total return(d)................................ (0.04)% 19.38% (0.31)%(e)
---- ----- ----
Ratios to average net assets
Expenses................................... 1.89% 1.85% 1.84%(f)
Net investment income....................... 1.32% 1.19% 1.77%(f)
Portfolio turnover.............................. 54% 14% 37%(f)
Net assets at end of period (000)............... $264,122 $124,161 $15,582
_________________________________
(a) Per share data was calculated using average shares outstanding during the
period.
(b) All per share amounts have been restated to reflect the 3-for-1 stock
split effective December 10, 1993.
(c) Class B shares were initially offered on May 5, 1992. Per share amounts
reflect activity from that date.
(d) Total return at net asset value assuming all distributions reinvested and
no initial or contingent deferred sales charge.
(e) Not annualized.
(f) Annualized.
Further performance information is contained in the Fund's Annual Report to
shareholders, which may be obtained without charge by calling 1-800-248-2828.
THE FUND'S FINANCIAL HISTORY
THE FUND'S INVESTMENT OBJECTIVES
The Fund seeks primarily income and capital growth and, secondarily,
capital preservation.
HOW THE FUND PURSUES ITS OBJECTIVES
The Fund may invest without limit in U.S. stock exchange or NASDAQ NMS
listed common stocks and foreign common stocks which, when purchased,
meet the following quantitative standards which in the Adviser's
judgment indicate above average financial soundness and high intrinsic
value relative to price. The issuer of any such common stock must
have net worth in excess of total debt, except for banking
institutions and electric utilities, whose net worth must exceed 35%
of total capitalization. In addition, each such common stock must
also meet one of the following criteria:
1. Earnings yield equals or exceeds the average yield to maturity of
the five most recently issued, actively traded long term U.S.
government bonds; or
2. Dividend yield equals or exceeds 66% of the prevailing average
yield to maturity of the five most recently issued, actively
traded long term U.S. government bonds; or
3. Per share going concern value (as estimated by the Adviser)
exceeds book value and market value. No purchases will be made
based on this criterion if at the time more than 25% of the Fund's
total market value of common stocks was purchased on this
criterion.
Up to 5% of the Fund's net assets may be invested in common stocks not
meeting any of the foregoing criteria at the time of purchase.
The Fund may also invest in debt securities, but currently intends to
limit those investments to U.S. government and agency obligations
(except for temporary or defensive investments). The market value of
debt securities will fluctuate with changing interest rates; this
could affect the value of Fund shares.
The portion of total assets invested in common stocks and debt
securities will vary based on the availability of common stocks
meeting the foregoing criteria and the Adviser's judgment of the
investment merit of common stocks relative to debt securities.
Foreign Investments. The Fund may invest without limit in common
stocks traded or issued by companies located outside of the U.S.
Foreign securities will subject the Fund to special considerations
related to political, economic and legal conditions outside of the
U.S. These considerations include the possibility of unfavorable
currency exchange rates, exchange control regulations (including
currency blockage), expropriation, nationalization, withholding taxes
on income and difficulties in enforcing judgments. Foreign securities
may be less liquid and more volatile than comparable U.S. securities.
Some foreign issuers are subject to less comprehensive accounting and
disclosure requirements than similar U.S. issuers.
The Fund may purchase foreign currencies on a spot or forward basis in
conjunction with its investments in foreign securities and to hedge
against fluctuations in foreign currencies. The precise matching of
foreign currency exchange transactions and portfolio securities will
not generally be possible since the future value of such securities in
foreign currencies will change as a consequence of market movements
which cannot be precisely forecast. Currency hedging does not
eliminate fluctuations in the underlying prices of securities, but
rather establishes a rate of exchange at some future point in time.
Although hedging may lessen the risk of loss due to a decline in the
value of the hedged currency, it tends to limit potential gain from
increases in currency values.
Transactions in foreign securities include currency conversion costs.
Brokerage and custodial costs may be higher for foreign securities
than for U.S. securities. See "Foreign Securities" and "Foreign
Currency Transactions" in the Statement of Additional Information for
more information about foreign investments.
Other Investment Practices. The Fund may engage in the following
investment practices, some of which are described in more detail in
the Statement of Additional Information.
The Fund may invest temporarily available cash in certificates of
deposit, bankers' acceptances, high quality commercial paper, Treasury
bills and repurchase agreements. Under a repurchase agreement, the
Fund buys a security, subject to the requirement to sell it back at a
fixed price and time, the proceeds of which are the Fund's cost plus
accrued interest. The transaction may be viewed as a loan by the
Fund, collateralized by the security. The Fund will enter into
repurchase agreements only with well capitalized banks and certain
broker-dealers meeting high credit standards. The agreements require
that at all times the issuer's obligations are at least 100%
collateralized by U.S. government securities maintained in a
segregated account of the Fund's custodian. The Fund may experience
costs and delays in liquidating the collateral if the issuer defaults
or enters bankruptcy and may incur a loss. Not more than 10% of the
Fund's total assets will be invested in repurchase agreements maturing
in more than 7 days and other illiquid assets.
In periods of unusual market conditions, when the Adviser considers it
appropriate, the Fund may invest all or any part of the Fund's assets
in cash, U.S. government securities, high quality commercial paper,
bankers' acceptances, repurchase agreements and certificates of
deposit.
The Statement of Additional Information describes other investment
techniques that the Fund may use, but currently has no intention in
the foreseeable future of using.
Other. The Fund may not always achieve its investment objectives. The
Fund's investment objectives and non-fundamental policies may be
changed without shareholder approval. The Fund will notify investors
at least 30 days prior to any material change in the Fund's investment
objectives. If there is a change in the investment objectives
shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial position and
needs. Shareholders may incur a contingent deferred sales charge if
shares are redeemed in response to a change in objective. The Fund's
fundamental policies listed in the Statement of Additional Information
cannot be changed without the approval of a majority of the Fund's
outstanding voting securities. Additional information concerning
certain of the securities and investment techniques described above is
contained in the Statement of Additional Information.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in sales literature and advertisements.
Each Class's average annual total returns are calculated in accordance
with the Securities and Exchange Commission's formula and assume the
reinvestment of all distributions, the maximum initial sales charge of
5.75% on Class A shares, and the contingent deferred sales charge
applicable to the time period quoted on Class B shares. Other total
returns differ from average annual total return only in that they may
relate to different time periods, may represent aggregate as opposed
to average annual total returns and may not reflect the initial or
contingent deferred sales charges.
Each Class's yield, which differs from total return because it does
not consider change in net asset value, is calculated in accordance
with the Securities and Exchange Commission's formula. Each Class's
distribution rate is calculated by dividing the most recent quarter's
distributions, annualized, by the maximum offering price of that
Class. Each Class's performance may be compared to various indices.
Quotations from various publications may be included in sales
literature and advertisements. See "Performance Measures" in the
Statement of Additional Information for more information. All
performance information is historical and does not predict future
results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the
Fund's affairs as conducted by the Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc. Colonial
Investment Services, Inc. (Distributor) is a subsidiary of the Adviser
and serves as the distributor for the Fund's shares. The Colonial
Group, Inc. is the parent of Colonial Investors Service Center, Inc.
(Transfer Agent), which serves as the shareholder services and
transfer agent for the Fund. The Colonial Group, Inc. is a direct
subsidiary of Liberty Financial Companies, Inc. which is in turn an
indirect subsidiary of Liberty Mutual Insurance Company (Liberty
Mutual). Liberty Mutual is considered to be the controlling entity of
The Colonial Group, Inc. Liberty Mutual is an underwriter of worker's
compensation insurance and a property and casualty insurer in the U.S.
The Adviser furnishes the Fund with investment management, accounting
and administrative personnel and services, office space and other
equipment and services at the Adviser's expense. For these services,
the Fund paid the Adviser 0.55% of the Fund's average net assets for
fiscal year 1994.
Daniel Rie, Senior Vice President of the Adviser, has managed the Fund
since 1993 and has managed various other Colonial equity funds since
1986.
The Adviser also provides pricing and bookkeeping services to the Fund
for a monthly fee of $2,250 plus a percentage of the Fund's average
net assets over $50 million. The Transfer Agent provides transfer
agency and shareholder services to the Fund for a fee of 0.25%
annually of average net assets plus out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee
waiver to which the Adviser may agree.
The Adviser places all orders for the purchase and sale of portfolio
securities. In selecting broker-dealers, the Adviser may consider
research and brokerage services furnished to it and its affiliates.
Subject to seeking best execution, the Adviser may consider sales of
shares of the Fund (and of certain other Colonial funds) in selecting
broker-dealers for portfolio security transactions.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value of
each Class's net assets by its number of outstanding shares. Shares
are valued each day the New York Stock Exchange is open as of
approximately 4:00 p.m. Eastern time. Portfolio securities for which
market quotations are readily available are valued at market. Short-
term investments maturing in 60 days or less are valued at amortized
cost when it is determined, pursuant to procedures adopted by the
Trustees, that such cost approximates market value. All other
securities and assets are valued at fair value following procedures
adopted by the Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code and to distribute to shareholders virtually
all net income and any net realized gain at least annually.
The Fund generally declares and pays income distributions quarterly.
Distributions are invested in additional shares of the same Class of
the Fund at net asset value unless the shareholder elects to receive
cash. Regardless of the shareholder's election, distributions of $10
or less will not be issued as checks to shareholders, but will be
invested in additional shares of the same Class of the Fund at net
asset value. To change your election, call the Transfer Agent for
information. Whether you receive distributions in cash or in
additional Fund shares, you must report them as taxable income unless
you are a tax-exempt institution. If you buy shares shortly before a
distribution is declared, the distribution will be taxable although it
is in effect a partial return of the amount invested. Each January,
information on the amount and nature of distributions for the prior
year is sent to shareholders.
HOW TO BUY SHARES
Shares are offered continuously. Orders received in good form prior
to 4:00 p.m. Eastern time (or placed with a financial service firm
before such time and transmitted by it before the Fund processes that
day's share transactions) will be processed based on that day's
closing net asset value, plus any applicable initial sales charge.
The minimum initial investment is $1,000; subsequent investments may
be as small as $50. The minimum initial investment for the Colonial
Fundamatic program or a Colonial retirement account is $25.
Certificates will not be issued for Class B shares and there are some
limitations on the issuance of Class A certificates. The Fund may
refuse any purchase order for its shares. See the Statement of
Additional Information for more information.
Class A Shares. Class A shares are offered at net asset value plus an
initial or contingent deferred sales charge as follows:
Initial Sales Charge
Retained
by
Financial
Service
as a % of Firm as % of
Amount Offering Offering
Amount Purchased Invested Price Price
Less than $50,000... 6.10% 5.75% 5.00%
$50,000 to less than 4.71% 4.50% 3.75%
$100,000
$100,000 to less than 3.63% 3.50% 2.75%
$250,000
$250,000 to less than 2.56% 2.50% 2.00%
$500,000
$500,000 to less than 2.04% 2.00% 1.75%
$1,000,000
$1,000,000 or more 0.00% 0.00% 0.00%
On purchases of $1 million or more, the Distributor pays the financial
service firm a cumulative commission as follows:
Amount Purchased Commission
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25% (1)
(1) Paid over 12 months but only to the extent the shares remain
outstanding.
Purchases of $1 million to $5 million are subject to a 1.00%
contingent deferred sales charge payable to the Distributor on
redemptions within 18 months from the first day of the month following
the purchase. The contingent deferred sales charge does not apply to
the excess of any purchase over $5 million.
Class A shares bear a 0.15% annual service fee for shares issued prior
to April 1, 1989, and a 0.25% annual service fee for shares issued
thereafter.
The Colonial Asset Builder Program requires at least a $1,000 initial
investment (maximum $4,000), a letter of intent to invest each month
for 48 months 25% of the initial investment and reinvestment of all
distributions. The sales charge is 5% of the offering price (5.26% of
amount invested) except if four investments are missed then the sales
charge becomes 6% of offering price on all investments (6.38% of
amount invested). The financial service firm receives 4% of the
offering price.
Class B shares. Class B shares are offered at net asset value,
without an initial sales charge, subject to a 0.75% annual
distribution fee and a 0.25% annual service fee for 8 years (at which
time they convert to Class A shares not bearing a distribution fee),
and a contingent deferred sales charge if redeemed within 6 years
after purchase. As shown below, the amount of the contingent deferred
sales charge depends on the number of years since purchase that the
redemption occurs:
During Year Since Purchase Contingent Deferred Sales Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the
purchase was accepted and so on. The Distributor pays financial
service firms a commission of 4.00% on Class B share purchases.
General. All contingent deferred sales charges are deducted from the
redemption, not the amount remaining in the account, and are paid to
the Distributor. Shares issued upon distribution reinvestment and
amounts representing appreciation are not subject to a contingent
deferred sales charge. The contingent deferred sales charge is
imposed on redemptions which result in the account value falling below
its Base Amount (the total dollar value of purchase payments,
(including initial sales charges, if any), in the account reduced by
prior redemptions on which a contingent deferred sales charge was paid
and any exempt redemptions). See the Statement of Additional
Information for more information.
Which Class is more beneficial to an investor depends on the amount
and intended length of the investment. Large investments, qualifying
for a reduced Class A sales charge avoid the distribution fee.
Investments in Class B shares have 100% of the purchase price invested
immediately. Purchases of $250,000 or more must be for Class A
shares. Consult your financial service firm.
Financial service firms may receive different compensation rates for
selling different classes of shares. The Distributor may pay
additional compensation to financial service firms that have made or
may make significant sales.
Initial or contingent deferred sales charges may be reduced or
eliminated for certain persons or organizations purchasing Fund shares
alone or in combination with certain other Colonial funds. See the
Statement of Additional Information for more information.
Shareholder Services. A variety of shareholder services are
available. For more information about these services or your account,
call 1-800-345-6611. Some services are described in the attached
account application. A shareholder's manual explaining all available
services will be provided upon request.
HOW TO SELL SHARES
Shares may be sold on any day the New York Stock Exchange is open,
either directly to the Fund or through your financial service firm.
Sale proceeds generally are sent within seven days (usually on the
next business day after your request is received in good form).
However, for shares recently purchased by check, the Fund will send
proceeds as soon as the check has cleared (which may take up to 15
days).
Selling Shares Directly To The Fund. Send a signed letter of
instruction or stock power form to the Transfer Agent, along with any
certificates for shares to be sold. The sale price is the net asset
value (less any applicable contingent deferred sales charge) next
calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national
stock exchange or another eligible guarantor. Stock power forms are
available from your financial service firm, the Transfer Agent and
many banks. Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service
firms must receive requests before 4:00 p.m. Eastern time to receive
that day's price (less any applicable contingent deferred sales
charge), are responsible for furnishing all necessary documentation to
the Transfer Agent, and may charge for this service.
General. The sale of shares is a taxable transaction for federal tax
purposes and may be subject to a contingent deferred sales charge. The
contingent deferred sales charge may be waived under certain
circumstances. See the Statement of Additional Information for more
information. Under unusual circumstances, the Fund may suspend
repurchases or postpone payment for up to seven days or longer, as
permitted by federal securities law. In June of any year, the Fund
may deduct $10 (payable to the Transfer Agent) from accounts valued at
less than $1,000 unless the account value has dropped solely as a
result of share value depreciation. Shareholders will receive 60
days' written notice to increase the account value before the fee is
deducted.
HOW TO EXCHANGE SHARES
Exchanges at net asset value may be made among the same class of
shares of most Colonial funds. Shares will continue to age without
regard to the exchange for purposes of conversion and in determining
the contingent deferred sales charge, if any, upon redemption.
Carefully read the prospectus of the fund into which the exchange will
go before submitting the request. Call 1-800-248-2828 to receive a
prospectus and an exchange authorization form. Call 1-800-422-3737 to
exchange shares by telephone. An exchange is a taxable transaction.
The exchange service may be changed, suspended or eliminated on 60
days' written notice.
Class A Shares. An exchange from a money market fund into a non-money
market fund will be at the applicable offering price next determined
(including sales charge), except for amounts on which an initial sales
charge was paid. Non-money market fund shares must be held for five
months before qualifying for exchange to a fund with a higher sales
charge, after which exchanges are made at the net asset value next
determined.
Class B Shares. The exchange of Class B shares will not be subject to
the contingent deferred sales charge. However, if shares are redeemed
within six years after the original purchase, a contingent deferred
sales charge will be assessed using the schedule of the fund into
which the original investment was made.
TELEPHONE TRANSACTIONS
All shareholders may redeem up to $50,000 of Fund shares by telephone,
and may elect telephone redemption privileges for larger amounts on
the account application. All exchanges may be accomplished by
telephone. See the Statement of Additional Information for more
information. The Adviser, the Fund and the Transfer Agent will not be
liable when following telephone instructions reasonably believed to be
genuine and a shareholder may suffer a loss from unauthorized
transactions. The Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. Shareholders
will be required to provide their name, address and account number.
Proceeds and confirmations will be mailed or sent to the address of
record. Telephone redemptions are not available on accounts with an
address change in the preceding 60 days. All telephone transactions
are recorded. Shareholders are not obligated to transact by
telephone.
12b-1 PLANS
Under 12b-1 plans, the Fund pays the Distributor an annual service fee
of 0.15% of the Fund's average net assets attributable to shares
outstanding prior to April 1, 1989, and 0.25% of the Fund's average
net assets attributable to outstanding shares issued thereafter.
The Fund also pays the Distributor an annual distribution fee not
exceeding 0.75% of the average net assets attributed to its Class B
shares. Because the Class B shares bear the additional distribution
fee, their dividends will be lower than the dividends of Class A
shares. Class B shares automatically convert to Class A, generally
eight years after the Class B shares were purchased. The multiple
class structure could be terminated if certain Internal Revenue
Service rulings are rescinded. See the Statement of Additional
Information for more information. The Distributor uses the fees to
defray the cost of commissions and service fees paid to financial
service firms which have sold Fund shares, and to defray other
expenses such as sales literature, prospectus printing and
distribution and compensation to wholesalers. Should the fees under
the Plans exceed the Distributor's expenses in any year, the
Distributor would realize a profit. The Plans also authorize other
payments to the Distributor and its affiliates (including the Adviser)
which may be construed to be indirect financing of sales of Fund
shares.
ORGANIZATION AND HISTORY
The Fund was organized in 1986 as successor to a corporation organized
in 1904. It is a series of the Trust, which is a Massachusetts
business trust organized in 1986. The Fund represents the entire
interest in a separate portfolio of the Trust. The Trust is not
required to hold annual shareholder meetings, but special meetings may
be called for purposes such as electing Trustees or approving a
management contract. You receive one vote for each of your Fund
shares. Shares of the Trust vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the
aggregate ten percent of Trust shares may call meetings to consider
removal of Trustees. Under certain circumstances, the Trust will
provide information to assist shareholders in calling such a meeting.
See the Statement of Additional Information.
Investment Adviser
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108
Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A.
February 28, 1995
Revised June 1, 1995
THE COLONIAL FUND
Prospectus
The Colonial Fund seeks primarily income and capital growth and,
secondarily, capital preservation.
For more detailed information about the Fund call the Adviser at 1-800-
248-2828 for the February 28, 1995 Statement of Additional Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
