Registration Nos.: 2-15184
811-881
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | X |
Pre-Effective Amendment No. | |
Post-Effective Amendment No. 95 | X |
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | X |
Amendment No. 36 | X |
COLONIAL TRUST III
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02lll
(Address of Principal Executive Offices)
617-426-3750
(Registrant's Telephone Number, including Area Code)
Name and Address
of Agent for Service Copy to
- -------------------- -------------------
Arthur O. Stern, Esq. John M. Loder, Esq.
Colonial Management Ropes & Gray
Associates, Inc. One International Place
One Financial Center Boston, Massachusetts 02110-2624
Boston, Massachusetts 02111
It is proposed that the filing will become effective (check appropriate box):
| | immediately upon filing pursuant to paragraph (b)
| | on (date) pursuant to paragraph (b)
| | 60 days after filing pursuant to paragraph (a)(1)
| X | on February 28, 1996 pursuant to paragraph (a)(1) of Rule 485
| | 75 days after filing pursuant to paragraph (a)(2)
| | on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
| | this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
STATEMENT PURSUANT TO RULE 24F-2
The Registrant has registered an indefinite number or amount of its shares of
beneficial interest under the Securities Act of 1933 pursuant to Rule 24f-2
under the Investment Company Act of 1940 and on December 21, 1995
(amended December 29, 1995), the Registrant filed the Rule 24f-2 Notice for the
Registrant's most recent fiscal year ended October 31, 1995.
<PAGE>
COLONIAL TRUST III
Cross Reference Sheet (Colonial International Fund for Growth)
Item Number of Form N-1A Prospectus Location or Caption
Part A
1. Cover page
2. Summary of expenses
3. The Fund's financial history
4. Organization and history;
The Fund's investment
objective; How the Fund
pursues its objective
5. Cover page; How the Fund is
managed; Organization and
history; Back cover
6. Organization and history;
Distributions and taxes; How
to buy shares
7. Summary of expenses; How to
buy shares; How the Fund
values its shares; Cover page;
12b-1 plans; Back cover
8. Summary of expenses;
How to sell shares; How
to exchange shares;
Telephone transactions
9. Not applicable
February 28, 1996
COLONIAL INTERNATIONAL
FUND FOR GROWTH
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 risks 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.
Colonial International Fund for Growth (Fund), a non-
diversified portfolio of Colonial Trust III (Trust), an open-
end management investment company, seeks long-term growth by
investing primarily in non U.S. equities.
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.
More detailed information about the Fund is in the February
28, 1996 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 a
part of) this Prospectus.
The Fund offers three classes of shares. Class A shares are
offered at net asset value plus a sales charge imposed at
the time of purchase; Class B shares are offered at net
asset value and, in addition, are subject to a distribution
fee and a declining contingent deferred sales charge on
redemptions made within six years after purchase; and Class
D shares are offered at net asset value plus a small initial
sales charge, a contingent deferred sales charge on
redemptions made within one year after purchase and a
continuing distribution fee. Class B shares automatically
convert to Class A after approximately eight years. See
"How to buy shares."
Contents Page
Summary of expenses
The Fund's financial history
The Fund's investment objective
How the Fund pursues its objective
How the Fund measures its performance
How the Fund is managed
How the Fund values its shares
Distributions and taxes
How to buy shares
How to sell shares
How to exchange shares
Telephone transactions
12b-1 plans
Organization and history
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 your annual expenses for an
investment in each Class of the Fund's shares. See "How the
Fund is managed" and "12b-1 plans" for more complete
descriptions of the Fund's various costs and expenses.
Shareholder Transaction Expenses (1)(2)
Class A Class B Class D
Maximum initial sales charge imposed on a
purchase (as % of offering price)(3) 5.75% 0.00%(5) 1.00%(5)
Maximum contingent deferred sales charge
(as % of offering price) 1.00%(4) 5.00% 1.00%
(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
and Class D shares, long-term Class B and Class D 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 shares 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 average net assets)
Class A Class B Class D
Management fee 0.90% 0.90% 0.90%
12b-1 fees 0.25 1.00 1.00
Other expenses 0.59 0.59 0.59
Total operating expenses 1.74% 2.49% 2.49%
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:
Class A Class B Class D
Period: (6) (7) (6) (7)
1 year $ 74 $ 75 $ 25 $ 45 $ 35
3 years $109 $108 $ 78 $ 87 $ 87
5 years $147 $153 $133 $141 $141
10 years $251 $264(8) $264(8) $290 $290
(6) Assumes redemption at period end.
(7) Assumes no redemption.
(8) Class B shares convert to Class A after approximately 8
years, therefore, years 9 and 10 reflect Class A share
expenses.
THE FUND'S FINANCIAL HISTORY (a)
The following schedule of financial highlights for a share
outstanding throughout the period has been audited by Price
Waterhouse LLP, independent accountants. Their unqualified
report is included in the Fund's 1995 Annual Report, and is
incorporated by reference into the Statement of Additional
Information. The data in the following schedule reflects
performance of the Fund while its portfolio was being
managed by a former sub-adviser whose services terminated on
December 31, 1995.
<TABLE>
<CAPTION>
Year ended Period ended
October 31 October 31
1995 1994(b)
Class A Class B Class D Class A Class B Class D(c)
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $10.370 $10.300 $10.350 $10.000 $10.000 $10.060
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.019 (0.052) (0.052) 0.013 (0.058) (0.037)
Net realized and unrealized
gain (loss) (0.629) (0.628) (0.628) 0.357 0.358 0.327
Total from investment operations (0.610) (0.680) (0.680) 0.370 0.300 0.290
Net asset value - End of period $9.760 $9.620 $9.670 $10.370 $10.300 $10.350
Total return(d) (5.88)% (6.60)% (6.57)% 3.70%(f) 3.00%(f) 2.88%(f)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.74%(e) 2.49%(e) 2.49%(e) 1.71%(g) 2.46%(g) 2.46%(g)
Net investment income 0.20%(e) (0.55)%(e) (0.55)%(e) 0.14%(g) (0.61)%(g) (0.61)%(g)
Portfolio turnover 35% 35% 35% 51%(g) 51%(g) 51%(g)
Net assets at end of period (000) $43,354 $76,376 $684 $62,251 $103,450 $570
_________________________________
(a) Per share data was calculated using average shares outstanding during the
period.
(b) The Fund commenced investment operations on December 1, 1993.
(c) Class D shares were initially offered on July 1, 1994. Per share amounts
reflect activity from that date.
(d) Total return at net asset value assuming no initial or contingent deferred
sales charge.
(e) The benefits derived from custody credits and directed brokerage
arrangements, if any, had no impact on the Fund's gross expense
ratio.
(f) Not annualized.
(g) Annualized.
</TABLE>
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 INVESTMENT OBJECTIVE
The Fund seeks long-term growth by investing primarily in
non U.S. equities.
HOW THE FUND PURSUES ITS OBJECTIVE
The Fund normally invests at least 65% of its assets in
equity securities, consisting of common and preferred stock,
warrants (which represent the right to purchase such stock),
and convertible debt (i.e., debt securities convertible, at
the holder's option, into stock), of issuers in at least
three countries other than the U.S. The Fund may also
invest up to 35% of its assets in high quality foreign
government debt securities. The value of debt securities
usually fluctuates inversely to changes in interest rates.
The Fund may invest in both exchange and over-the-counter
traded securities.
The Fund is non-diversified and may invest more than 5% of
its total assets in the securities of a single issuer,
increasing the risk of loss compared to a diversified fund.
Foreign Investments. Investments in foreign securities have
special risks related to political, economic and legal
conditions outside of the U.S., including 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's investments in foreign securities may include
investments in countries whose economies or securities
markets are not yet highly developed. Special risks
associated with these investments (in addition to the
considerations regarding foreign investments generally) may
include, among others, greater political uncertainties, an
economy's dependence on revenues from particular commodities
or on international aid or development assistance, currency
transfer restrictions, highly limited numbers of potential
buyers for such securities and delays and disruptions in
securities settlement procedures. See the Statement of
Additional Information for a list of the countries in which
the Fund may invest whose economies or securities markets
are considered by the Adviser not to be highly developed.
Normally no more than 40% of the Fund's assets will be
invested in such securities.
For hedging purposes, the Fund may, without limit, purchase
foreign currencies on a spot or forward basis, or buy and
sell currency futures contracts, in conjunction with its
investments in foreign securities. See the Statement of
Additional Information for information relating to the
Fund's obligations in entering into such transactions. The
precise matching of foreign currency transactions and
portfolio securities generally is not possible since the
value of such securities will change as a consequence of
market movements. Currency hedging establishes a future
rate of exchange, but does not eliminate fluctuations in the
underlying prices of securities. Although hedging may
lessen the risk of loss if the hedged currency's value
declines, it limits the potential gain from currency value
increases.
Transactions in foreign securities involve currency
conversion costs. Brokerage and custodial costs for foreign
securities may be higher than for U.S. securities. See
"Foreign Securities" and "Foreign Currency Transactions" in
the Statement of Additional Information for more information
about foreign investments.
Investing In Other Investment Companies. The Fund may
invest up to 10% of its total assets in closed-end
investment companies commonly referred to as "country
funds." Such investments will involve the payment of
duplicative fees through the indirect payment of a portion
of the expenses, including advisory fees, of such other
investment companies.
Small Companies. The Fund may invest in smaller, less well
established companies which may offer greater opportunities
for capital appreciation than larger, better established
companies. These stocks may also involve certain special
risks related to limited product lines, markets or financial
resources and dependence on a small management group. Their
securities may trade less frequently, in smaller volumes and
fluctuate more sharply in value than exchange listed
securities of larger companies.
Borrowing of Money. The Fund may issue senior securities
only through borrowing money from banks for temporary or
emergency purposes up to 10% of its net assets; however, the
Fund will not purchase additional portfolio securities
(other than short-term securities) while borrowings exceed
5% of net assets.
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 purchase futures contracts on foreign stock
indexes (index futures) to invest cash temporarily pending
investment in stocks, but not to hedge against market
declines. Purchasing an index future is similar to
contracting to purchase a basket of stocks on a specified
future date at a specified future price. If the basket of
stocks (i.e., the index) rises in value in the interim, the
Fund has a gain; if the stocks decline, the Fund has a loss.
The index future may be "closed out" prior to the original
specified purchase date through the sale of a similar index
future. The Fund will not make additional investments in
index futures at times when net Fund obligations under index
futures exceed 5% of the Fund's net assets.
The Fund may invest cash temporarily for liquidity or
pending investment in certificates of deposit, bankers'
acceptances, high quality commercial paper, treasury bills,
short-term debt instruments and repurchase agreements.
Under a repurchase agreement, the Fund buys a security from
a bank or dealer, which is obligated to buy it back at a
fixed price and time. The security is held in a separate
account at the Fund's custodian and, constitutes the Fund's
collateral for the bank's or dealer's repurchase obligation.
Additional collateral may be added so that the obligation
will at all times be fully collateralized. 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 repurchase agreements
require that at all times the issuer's obligations be at
least 100% collateralized by U.S. government securities.
However, if the bank or dealer defaults or enters
bankruptcy, the Fund may experience costs and delays in
liquidating the collateral and may experience a loss if it
is unable to demonstrate its right to the collateral in a
bankruptcy proceeding. Not more than 15% 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.
Other. The Fund may not always achieve its investment
objective. The Fund's investment objective 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
objective. If there is a change in the investment
objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their
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
investment 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 1.00% on Class D shares, and the
contingent deferred sales charge applicable to the time
period quoted on Class B and Class D 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 changes 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 twelve months'
distributions by the maximum offering price of that Class at
the end of the month. 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. Colonial Investors Service Center, Inc.
(Transfer Agent), an affiliate of the Adviser, 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 in turn is an indirect
subsidiary of Liberty Mutual Insurance Company (Liberty
Mutual). Liberty Mutual is considered to be the controlling
entity of the Adviser and its affiliates. 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
0.90% of the Fund's average net assets for fiscal year,
1995. The fee is higher than that of most mutual funds.
Bruno Bertocci and David Harris, each of whom is jointly
employed by the Adviser and Stein Roe & Farnham Incorporated
(Stein Roe), an affiliate of the Adviser, have co-managed
the Fund since January 1, 1996. Prior to joining Stein Roe
in May, 1995, each of Messrs. Bertocci and Harris was
employed by Rockefeller & Co., Inc.-- Mr. Bertocci as
Managing Director and Mr. Harris as Portfolio Manager.
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 net assets over $50 million. The Transfer Agent
provides transfer agency and shareholder services to the
Fund at 0.25% annually of average net assets plus certain
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 utilizes the trading facilities of Stein Roe to
place all orders for the purchase and sale of portfolio
securities, futures contracts and foreign currencies. In
selecting broker-dealers, the Adviser may direct Stein Roe
to consider research and brokerage services furnished to it
and its affiliates. Subject to seeking best execution, the
Adviser may direct Stein Roe to 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 as of the close of the
New York Stock Exchange (Exchange) each day the Exchange is
open. 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 distributions semi-annually in
June and December and pays them in July and December.
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 paid in
cash 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 the time the Fund values its shares (or placed
with a financial service firm before such time and
transmitted by the financial service firm 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 or Class D 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, subject to a 0.25% annual service fee, plus an
initial or contingent deferred sales charge as follows:
Initial Sales Charge
Retained
by
Financial
Service
Firm
as % of as % of
Amount Amount Offering Offering
Purchased Invested Price Price
Less than $50,000 6.10% 5.75% 5.00%
$50,000 to less
than $100,000 4.71% 4.50% 3.75%
$100,000 to less than
$250,000 3.63% 3.50% 2.75%
$250,000 to less than
$500,000 2.56% 2.50% 2.00%
$500,000 to less than
$1,000,000 2.04% 2.00% 1.75%
$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 B Shares. Class B shares are offered at net asset
value, without an initial sales charge, subject to a 0.75%
annual distribution fee for approximately either years (at
which time they convert to Class A shares not bearing a
distribution fee), a 0.25% annual service fee and a
declining contingent deferred sales charge if redeemed
within six years after purchase. As shown below, the amount
of the contingent deferred sales charge depends on the
number of years after purchase that the redemption occurs:
Contingent
Years Deferred
After Purchase 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
the financial service firm a commission of 4.00% on Class B
share purchases.
Class D Shares. Class D shares are offered at net asset
value plus a 1.00% initial sales charge, subject to a 0.75%
annual distribution fee, a 0.25% annual service fee and a
1.00% contingent deferred sales charge on redemptions made
within one year from the first day of the month after
purchase.
The Distributor pays financial service firms an initial
commission of 1.85% on purchases of Class D shares and an
ongoing commission of 0.65% annually. Payment of the
ongoing commission is conditioned on receipt by the
Distributor of the 0.75% distribution fee referred to above.
The commission may be reduced or eliminated if the
distribution fee paid by the Fund is reduced or eliminated
for any reason.
General. All contingent deferred sales charges are deducted
from the amount redeemed, 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 charge, 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 invested immediately. Investors
investing for a relatively short period of time might
consider Class D shares. Purchases of $250,000 or more must
be for Class A or Class D shares. Purchases of $500,000 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. The Distributor may
pay additional compensation to financial service firms who
have made or may make significant sales. See the Statement
of Additional Information for more information.
Special Purchase Programs. The Fund allows certain
investors or groups of investors to purchase shares and be
subject to reduced or no initial or contingent deferred
sales charge. These programs are described in the Statement
of Additional Information under "Programs for Reducing or
Eliminating Sales Charges" and "How to Sell Shares."
Shareholder Services. A variety of shareholder services are
available. For 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 of the Fund may be sold on any day the 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 only after
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 institution. Stock
power forms are available from financial service firms, 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 prior to the time the
Fund values its shares to receive that day's price, 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
income 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 below $1,000 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. Not all Colonial
Funds offer Class D shares. Shares will continue to age
without regard to the exchange for purposes of conversion
and 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 form. Call 1-800-422-3737 to exchange shares by
telephone. An exchange is a taxable capital 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. Exchanges of Class B shares are not 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.
Class D Shares. Exchanges of Class D shares will not be
subject to the contingent deferred sales charge. However,
if shares are redeemed within one year after the original
purchase, a 1.00% contingent deferred sales charge will be
assessed.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are
automatically eligible to exchange Fund shares and redeem up
to $50,000 of Fund shares by calling 1-800-422-3737 toll-
free any business day between 9:00 a.m. and the close of
trading of the Exchange (normally 4:00 p.m. Eastern time).
Telephone redemption privileges for larger amounts may be
elected on the account application. Proceeds and
confirmations of telephone transactions will be mailed or
sent to the address of record. Telephone redemptions are
not available on accounts with an address change in the
preceding 30 days. The Adviser, the Transfer Agent and the
Fund will not be liable when following telephone
instructions reasonably believed to be genuine and a
shareholder may suffer a loss from unauthorized
transactions. The Transfer Agent will employ reasonable
procedures to confirm that instructions communicated by
telephone are genuine. All telephone transactions are
recorded. Shareholders and/or their financial advisers are
required to provide their name, address and account number.
Financial advisers are also required to provide their broker
number. Shareholders and/or their financial advisers
wishing to redeem or exchange shares by telephone may
experience difficulty in reaching the Fund at its toll-free
telephone number during periods of drastic economic or
market changes. In that event, shareholders and/or their
financial advisers should follow the procedures for
redemption or exchange by mail as described above under "How
to sell shares." The Adviser, the Transfer Agent and the
Fund reserve the right to change, modify, or terminate the
telephone redemption or exchange services at any time upon
prior written notice to shareholders. Shareholders and/or
their financial advisers are not obligated to transact by
telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual
service fee of 0.25% of the Fund's average net assets
attributed to each Class of shares. The Fund also pays the
Distributor an annual distribution fee of 0.75% of the
average net assets attributed to its Class B and Class D
shares. Because the Class B and Class D shares bear the
additional distribution fees, their dividends will be lower
than the dividends of Class A shares. Class B shares
automatically convert to Class A shares, approximately eight
years after the Class B shares were purchased. Class D
shares do not convert. The multiple class structure could
be terminated should certain Internal Revenue Service
rulings be 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, shareholder servicing
costs and compensation to wholesalers. Should the fees
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 Trust 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 certain
purposes. 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 for
more information.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations
of the Trust. However, the Declaration of Trust for the
Trust (Declaration) disclaims shareholder liability for acts
or obligations of the Fund and requires that notice of such
disclaimer be given in each agreement, obligation, or
instrument entered into or executed by the Fund or the
Trust's Trustees. The Declaration provides for
indemnification out of Fund property for all loss and
expense of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability
is limited to circumstances (which are considered remote) in
which the Fund would be unable to meet its obligations and
the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on
account of another fund of the Trust is also believed to be
remote, because it would be limited to circumstances in
which the disclaimer and the other fund was inoperative.
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
The Mellon Trust
One Cabot Road
Medford, MA 02155-5159
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, 1996
COLONIAL INTERNATIONAL
FUND FOR GROWTH
PROSPECTUS
Colonial International Fund for Growth seeks long-term
growth by investing primarily in non U.S. equities.
For more detailed information about the Fund, call 1-800-248-
2828 for the February 28, 1996 Statement of Additional
Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED, ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT
AGENCY.
[COLONIAL FLAG LOGO]
Colonial Mutual Funds
_________________________________________________________________
Please send your completed application to:
Colonial Mutual Funds
P.O. Box 1722
Boston, Massachusetts 02105-1722
New Account Application/Revision to Existing Account
To open a new account, complete sections 1, 2, 3, & 7.
To apply for special services for a new or existing account, complete sections
4, 5, 6, or 8 as appropriate.
___ Please check here if this is a revision.
1-----------Account Ownership--------------
Please choose one of the following.
__Individual: Print your name, Social Security #, U.S. citizen status.
__Joint Tenant: Print all names, the Social Security # for the first person,
and his/her U.S. citizen status.
__Uniform Gift to Minors: Name of custodian and minor, minor's Social Security
#, minor's U.S. citizen status.
__Corporation, Association, Partnership: Include full name, Taxpayer I.D. #.
__Trust: Name of trustee, trust title & date, and trust's Taxpayer I.D. #.
______________________________________
Name of account owner
______________________________________
Name of joint account owner
______________________________________
Street address
______________________________________
Street address
______________________________________
City, State, and Zip
______________________________________
Daytime phone number
______________________________________
Social Security # or Taxpayer I.D. #
Are you a U.S. citizen? Yes___ No___
______________________________________
If no, country of permanent residence
______________________________________
Owner's date of birth
______________________________________
Account number (if existing account)
2 -----Colonial Fund(s) You Are Purchasing--------
Your investment will be made in Class A shares if no class is indicated.
Certificates are not available for Class B or D shares. If no distribution
option is selected, distributions will be reinvested in additional Fund
shares. Please consult your financial adviser to determine which class of
shares best suits your needs.
Fund Fund Fund
1_______________ 2__________________ 3____________________
$_______________ $__________________ $____________________
Amount Amount Amount
Class
___ A Shares ___ B Shares (less than $250,000) ___ C Shares (Adjustable Rate
U.S. Government Fund only)
___ D Shares (less than $500,000, available on certain funds; see prospectus)
Method of Payment
Choose one
___Check payable to the Fund
___Bank wired on (Date) ____/____/____
Wire confirmation #
___Wire/Trade confirmation #___________________
Ways to Receive Your Distributions
Choose one
___Reinvest dividends and capital gains
___Dividends and capital gains in cash
___Dividends in cash; reinvest capital gains
___Automatic Dividend Diversification See section 5A, inside
___Direct Deposit via Colonial Cash Connection Complete Bank Information
in section 4B. I understand that my bank must be a member of the
Automated Clearing House (ACH).
Distributions of $10.00 or less will automatically be reinvested in additional
fund shares.
3---Your Signature & Taxpayer I.D. Number Certification----
Each person signing on behalf of an entity represents that his/her actions are
authorized.
I have received and read each appropriate Fund prospectus and understand that
its terms are incorporated by reference into this application. I understand
that this application is subject to acceptance. I understand that certain
redemptions may be subject to a contingent deferred sales charge. I certify,
under penalties of perjury, that:
1. The Social Security # or Taxpayer I.D. # provided is correct.
You must cross out item 2a, b or c below only if you have been notified by the
Internal Revenue Service (IRS) that you are currently subject to back-up
withholding because of under-reporting interest or dividends on you tax return.
2. I am not subject to back-up withholding because: (a) I am exempt from back-
up withholding, or (b) I have not been notified by the IRS that I am
subject to back-up withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that I am no longer
subject to back-up withholding. It is agreed that the Fund, all Colonial
companies and their officers, directors, agents, and employees will not be
liable for any loss, liability, damage, or expense for relying upon this
application or any instruction believed genuine.
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
4--------Ways to Withdraw from Your Fund-------
It may take up to 30 days to activate the following features. Complete only
the section(s) that apply to the features you would like.
A. Systematic Withdrawal Plan (SWP)
You can receive monthly, quarterly, or semiannual checks from your account in
any amount you select, with certain limitations. Your redemption checks can
be sent to you at the address of record for your account, to your bank
account, or to another person you choose. The value of the shares in your
account must be at least $5,000 and you must reinvest all of your
distributions. Checks will be processed on the 10th calendar day of the month
or the following business day. If you receive your SWP payment via ACH, you
may request it to be processed any day of the month. Withdrawals in excess of
12% annually of your current account value will not be accepted. Redemptions
made in addition to SWP payments may be subject to a contingent deferred sales
charge for Class B or Class D shares. Please consult your financial or tax
adviser before electing this option.
Funds for Withdrawal:
1___________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _____/_____ (day/month).
2___________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _____/_____ (day/month).
Payment Instructions
Send the payment to (choose one):
__My address of record.
__My bank account via Colonial Cash Connection (through electronic funds
transfer). Please complete the Bank Information section below. All ACH
transactions will be made two business days after the processing date
My bank must be a member of the Automated Clearing House (ACH) system.
__The payee listed at right. If more than one payee, provide the name,
address, payment amount, and frequency for other payees (maximum of 5) on
a separate sheet. If you are adding this service to an existing account,
please sign below and have your signature(s) guaranteed.
______________________________________________
Name of payee
______________________________________________
Address of payee
______________________________________________
City
______________________________________________
State Zip
______________________________________________
Payee's bank account number, if applicable
B. Telephone Withdrawal Options
All telephone transaction calls are recorded. These options are not available
for retirement accounts. Please sign below and have your signature(s)
guaranteed.
1. Fast Cash
You are automatically eligible for this service. You or your financial
adviser can withdraw up to $50,000 from your account and have it sent to your
address of record. For your protection, this service is only available on
accounts that have not had an address change within 30 days of the redemption
request.
2. Telephone Redemption
__I would like the Telephone Redemption privilege either by federal fund wire
or ACH. Telephone redemptions over $1,000 will be sent via federal fund wire,
usually on hte next business day ($7.50 will be deducted). Redemptions of
$1,000 or less will be sent by check to your designated bank.
3. On-Demand ACH Redemption
__I would like the On-Demand ACH Redemption Privilege. Proceeds paid via ACH
will be credited to your bank account two business days after the process
date. You or your financial adviser may withdraw shares from you fund acount
by telephone and send your money to your bank account. If you are adding
this service to an existing account, complete the Bank Information section
below and have all shareholder signatures guaranteed.
Colonial's and the Fund's liability is limited when following telephone
instructions; a shareholder may suffer a loss from an unauthorized transaction
reasonably believed by Colonial to have been authorized.
Bank Information (For Sections A and B Above)
I authorize deposits to the following bank account:
____________________________________________________________
Bank name City Bank account number
____________________________________________________________
Bank street address State Zip Bank routing # (your bank
can provide this)
X__________________________________
Signature of account owner(s)
X__________________________________
Signature of account owner(s) Place signature guarantee here.
5-----Ways to Make Additional Investments--------
These services involve continuous investments regardless of varying share
prices. Please consider your ability to continue purchases through periods of
price fluctuations. Dollar cost averaging does not assure a profit or protect
against loss in declining markets.
A. Automatic Dividend Diversification
Please diversify my portfolio by investing fund distributions in another
Colonial fund. These investments will be made in the same share class and
without sales charges. Accounts must be identically registered. I have
carefully read the prospectus for the fund(s) listed below.
1____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
2____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
B. Automated Dollar Cost Averaging
This program allows you to automatically have money from any Colonial fund in
which you have a balance of at least $5,000 exchanged into the same share
class of up to four other identically registered Colonial accounts, on a
monthly basis. The minimum amount for each exchange is $100. Please complete
the section below.
____________________________________
Fund from which shares will be sold
$_________________________
Amount to redeem monthly
1____________________________________
Fund to invest shares in
$_________________________
Amount to invest monthly
2____________________________________
Fund to invest shares in
$_________________________
Amount to invest monthly
C. Fundamatic/On-Demand ACH Purchase
Fundamatic automatically transfers the specified amount from your bank
checking account to your Colonial fund account. The On-Demand ACH Purchase
program moves money from you bank checking account to your Colonial Fund
account by electronic funds transfer on any specified day of the month.
You will receive the applicable price two business days after the receipt
of your request. Your bank needs to be a member of the Automated Clearing
House system. Please attach a blank check marked "VOID." Also, complete the
section below.
1____________________________________
Fund name
_________________________________
Account number
$_____________________ _________________
Amount to transfer Month to start
2___________________________________
Fund name
$_____________________ _________________
Amount to transfer Month to start
Frequency
__Monthly or __Quarterly
Check one:
__ACH (Any day of the month)
__Paper Draft
(Choose either the 5th__ or 20th__ day of the month)
Authorization to honor checks drawn by Colonial Investors Service Center,
Inc. Do Not Detach. Make sure all depositors on the bank account sign to
the far right. Please attach a blank check marked "VOID" here. See reverse
for bank instructions.
I authorize Colonial to draw on my bank account, by check or electronic funds
transfer, for an investment in a Colonial fund. Colonial and my bank are not
liable for any loss arising from delays or dishonored draws. If a draw is not
honored, I understand that notice may not be given and Colonial may reverse
the purchase and charge my account $15.
______________________________________
Bank name
______________________________________
Bank street address
______________________________________
Bank street address
______________________________________
City State Zip
______________________________________
Bank account number
______________________________________
Bank routing #
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
6------------Ways to Reduce Your Sales Charges------------
These services can help you reduce your sales charge while increasing your
share balance over the long term.
A. Right of Accumulation
If you, your spouse or your children own any other shares in other
Colonial funds, you may be eligible for a reduced sales charge. The combined
value of your accounts must be $50,000 or more. Class A shares of money market
funds are not eligible unless purchased by exchange from another Colonial fund.
The sales charge for your purchase will be based on the sum of the purchase
added to the value of all shares in other Colonial funds at the previous
day's public offering price.
__Please link the accounts listed below for Right of Accumulation privileges,
so that this and future purchases will receive any discount for which they
are eligible.
1_____________________________________
Name on account
_____________________________________
Account number
2_____________________________________
Name on account
_____________________________________
Account number
B. Statement of Intent
If you agree in advance to invest at least $50,000 within 13 months, you'll
pay a lower sales charge on every dollar you invest. If you sign a Statement
of Intent within 90 days after you establish your account, you can receive a
retroactive discount on prior investments. The amount required to receive a
discount varies by fund; see the sales charge table in the "How to Buy Shares"
section of your fund prospectus.
__I want to reduce my sales charge.
I agree to invest $ _______________ over a 13-month period starting
______/______/ 19______ (not more than 90 days prior to this application). I
understand an additional sales charge must be paid if I do not complete this
Statement of Intent.
7-------------Financial Service Firm---------------------
To be completed by a Representative of your financial service firm.
This application is submitted in accordance with our selling agreement with
Colonial Investment Services, Inc. (CISI), the Fund's prospectus, and this
application. We will notify CISI, Inc., of any purchase made under a Statement
of Intent, Right of Accumulation, or Sponsored Arrangement. We guarantee the
signatures on this application and the legal capacity of the signers.
_____________________________________
Representative's name
_____________________________________
Representative's number
_____________________________________
Representative's phone number
_____________________________________
Account # for client at financial
service firm
_____________________________________
Branch office address
_____________________________________
City
_____________________________________
State Zip
_____________________________________
Branch office number
_____________________________________
Name of financial service firm
_____________________________________
Main office address
_____________________________________
Main office address
_____________________________________
City
_____________________________________
State Zip
X____________________________________
Authorized signature
8----------Request for a Combined Quarterly Statement Mailing-----------
Colonial can mail all of your quarterly statements in one envelope. This
option simplifies your record keeping and helps reduce fund expenses.
__I want to receive a combined quarterly mailing for all my accounts. Please
indicate accounts to be linked.______________________
Fundamatic (See Reverse Side)
Applications must be received before the start date for processing.
This program's deposit privilege can be revoked by Colonial without prior
notice if any check is not paid upon presentation. Colonial has no obligation
to notify the shareholder of non-payment of any draw. This program may be
discontinued by Colonial by written notice at least 30 business days prior
to the due date of any draw or by the shareholder at any time.
To the Bank Named on the Reverse Side:
Your depositor has authorized Colonial Investors Service Center, Inc. to
collect amounts due under an investment program from his/her personal checking
account. When you pay and charge the draws to the account of your depositor
executing the authorization payable to the order of Colonial Investors
Service Center, Inc., Colonial Investment Services, Inc., hereby indemnifies
and holds you harmless from any loss (including reasonable expenses) you may
suffer from honoring such draw, except any losses due to your payment of any
draw against insufficient funds.
D-224B-1295
<PAGE>
Part A of Post-Effective Amendment No. 91 filed with the Commission on December
29, 1994 (Colonial Growth Shares Fund), is incorporated herein in its entirety
by reference.
Part A of Post-Effective Amendment No. 92 filed with the Commission on February
14, 1995 (as it relates to Colonial Federal Securities Fund, Colonial Strategic
Balanced Fund, Colonial Global Natural Resources Fund, Colonial Global Equity
Fund, The Colonial Fund), is incorporated herein in its entirety by reference.
Part A of Post-Effective Amendment No. 93 filed with the Commission on March 1,
1995 (Colonial Global Utilities Fund), is incorporated herein in its entirety by
reference.
Part A of Post-Effective Amendment No. 94 filed with the Commission on July 28,
1995 (The Colonial Fund), is incorporated herein in its entirety by reference.
<PAGE>
COLONIAL TRUST III
Cross Reference Sheet (Colonial International Fund for Growth)
Item Number of Form N-1A Location or Caption in the Statement
of Additional Information
Part B
10. Cover Page
11. Table of Contents
12. Not Applicable
13. Investment Objective and Policies;
Fundamental Investment Policies; Other
Investment Policies; Portfolio Turnover;
Miscellaneous Investment Practices
14. Fund Charges and Expenses; Management of
the Funds
15. Fund Charges and Expenses
16. Fund Charges and Expenses; Management of
the Funds
17. Fund Charges and Expenses; Management of
the Funds
18. Shareholder Meetings
19. How to Buy Shares; Determination of Net
Asset Value; Suspension of Redemptions;
Special Purchase Programs/Investor
Services; Programs for Reducing or
Eliminating Sales Charge; How to Sell
Shares; How to Exchange Shares
20. Taxes
21. Fund Charges and Expenses; Management of
the Colonial Funds
22. Fund Charges and Expenses; Investment
Performance; Performance Measures
23. Independent Accountants
COLONIAL INTERNATIONAL FUND FOR GROWTH
Statement of Additional Information
February 28, 1996
This Statement of Additional Information (SAI) contains
information which may be useful to investors but which is not
included in the Prospectus of Colonial International Fund for
Growth (Fund). This SAI is not a prospectus and is authorized
for distribution only when accompanied or preceded by the
Prospectus of the Fund dated February 28, 1996. This SAI should
be read together with the Prospectus. Investors may obtain a
free copy of the Prospectus from Colonial Investment Services,
Inc., One Financial Center, Boston, MA 02111-2621.
Part 1 of this SAI contains specific information about the Fund.
Part 2 includes information about the Colonial funds generally
and additional information about certain securities and
investment techniques described in the Fund's Prospectus.
TABLE OF CONTENTS
Part 1 Page
Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Portfolio Turnover
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountants
Part 2
Miscellaneous Investment Practices
Taxes
Management of the Colonial Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sales Charges
How to Sell Shares
Distributions
Suspension of Redemptions
Shareholder Meetings
Performance Measures
Appendix I
Appendix II
Part 1
COLONIAL INTERNATIONAL FUND FOR GROWTH
Statement of Additional Information
February 28, 1996
DEFINITIONS
"Trust" Colonial Trust III
"Fund" Colonial International Fund for Growth
"Adviser" Colonial Management Associates, Inc., the Fund's
investment adviser
"CISI" Colonial Investment Services, Inc., the Fund's
distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's
shareholder services and transfer agent
INVESTMENT OBJECTIVE AND POLICIES
The Fund's Prospectus describes its investment objective and
investment policies. Part 1 of this SAI includes additional
information concerning, among other things, the fundamental
investment policies of the Fund. Part 2 of this SAI contains
additional information about the following securities and
investment techniques that are described or referred to in the
Prospectus:
Foreign Securities
Foreign Currency Transactions
Foreign Currency Forward Contracts
Foreign Currency Futures Contracts
Short-Term Debt Instruments
Stock Index Futures Transactions (used only to invest
cash pending investment in stocks, not to hedge against
market declines)
Repurchase Agreements
Except as described below under "Fundamental Investment
Policies", the Fund's investment policies are not fundamental,
and the Trustees may change the policies without shareholder
approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of
a majority of the outstanding voting securities" means the
affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, or (2) 67% or more of the shares
present at a meeting if more than 50% of the outstanding shares
are represented at the meeting in person or by proxy. The
following fundamental investment policies can not be changed
without such a vote.
The Fund may:
1. Issue senior securities only through borrowing money from
banks for temporary or emergency purposes up to 10% of its
net assets; however, the Fund will not purchase additional
portfolio securities while borrowings exceed 5% of net
assets;
2. Only own real estate acquired as the result of owning
securities, the value of such real estate may not exceed 5%
of total assets;
3. Purchase and sell futures contracts and related options so
long as the total initial margin and premiums on the
contracts do not exceed 5% of its total assets;
4. Underwrite securities issued by others only when disposing
of portfolio securities;
5. Make loans (i) through lending of securities not exceeding
30% of total assets, (ii) through the purchase of debt
instruments or similar evidences of indebtedness typically
sold privately to financial institutions and (iii) through
repurchase agreements;
6. Not concentrate more than 25% of its total assets in any
single industry; and
7. Not purchase any security issued by another investment
company if immediately after such purchase the Fund would
own in the aggregate (i) more than 3% of the total
outstanding voting securities of such other investment
company, (ii) securities issued by such other investment
company having an aggregate value in excess of 5% of the
Fund's total assets, or (iii) securities issued by
investment companies having an aggregate value in excess of
10% of the Fund's total assets.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed
without a shareholder vote, the Fund may not:
1. Purchase securities on margin, but the Fund may receive
short-term credit to clear securities transactions and may
make initial or maintenance margin deposits in connection
with futures transactions;
2. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an
equal amount of such securities;
3. Own voting securities of any company if the Fund knows that
officers and Trustees of the Trust or officers and
directors of the Adviser who individually own more than
0.5% of such securities together own more than 5% of such
securities;
4. Invest in interests in oil, gas or other mineral
exploration or development programs, including leases;
5. Purchase any security resulting in the Fund having more
than 5% of its total assets invested in securities of
companies (including predecessors) less than three years
old;
6. Pledge more than 33% of its total assets;
7. Purchase any security if, as a result of such purchase,
more than 10% of its total assets would be invested in the
securities of issuers which are restricted as to
disposition;
8. Invest more than 15% of its net assets in illiquid assets
(i.e., assets which may not be sold in the ordinary course
at approximately the price at which they are valued by the
Fund);
9. Invest in warrants if, immediately after giving effect to
any such investment, the Fund's aggregate investment in
warrants, valued at the lower of cost or market, would
exceed 10% of the value of the Fund's net assets. Included
within that amount, but not to exceed 2% of the value of
the Fund's net assets, may be warrants whose underlying
securities are not traded on principal domestic or foreign
exchanges. Warrants acquired by the Fund in units or
attached to securities will be deemed to be without value;
10. With respect to 75% of total assets, purchase any voting
security of an issuer if, as a result of such purchase, the
Fund would own more than 10% of the outstanding voting
securities of such issuer;
11. Purchase puts, calls, straddles, spreads, or any
combination thereof if as a result of such purchase the
Fund's aggregate investment in such securities would exceed
5% of total assets;
12. Acquire any security issued by a person that, in its most
recent fiscal year, derived 15% or less of its gross
revenues from securities related activities (within the
meaning of Rule 12d3-1 under the Investment Company Act of
1940) if the Fund would control such person after such
acquisition; and
13. Acquire any security issued by a person that, in its most
recent fiscal year, derived more than 15% of its gross
revenues from securities related activities (as so defined)
unless (i) immediately after such acquisition of any equity
security, the Fund owns 5% or less of the outstanding
securities of that class of the issuer's equity securities,
(ii) immediately after such acquisition of a debt security,
the Fund owns 10% or less of the outstanding principal
amount of the issuer's debt securities, and (iii)
immediately after such acquisition, the Fund has invested
not more than 5% of its total assets in the securities of
the issuer.
Total assets and net assets are determined at current value for
purposes of compliance with investment restrictions and policies.
All percentage limitations will apply at the time of investment
and are not violated unless an excess or deficiency occurs as a
result of such investment. For the purpose of the Act's
diversification requirement, an issuer is the entity whose
revenues support the security.
Investments in Less Developed Countries
The Fund's investments in foreign securities may include
investments in countries whose economies or securities markets
are not yet highly developed, referred to herein as "emerging
market countries." Normally no more than 40% of the Fund's
assets will be invested in such countries. As of , the
following countries in which the Fund may invest were considered
by the Adviser to be emerging market countries:
Asia Latin America Europe and the Middle East
India Argentina Greece
Indonesia Brazil Israel
Korea Chile Jordan
Pakistan Colombia Portugal
Philippines Mexico Turkey
Sri Lanka Peru
Taiwan Venezuela
Thailand
PORTFOLIO TURNOVER
Period December 1,1993
(commencement of
Year ended investment operations)
October 31, 1995 through October 31, 1994
35% 51% (annualized)
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays the Adviser
a monthly fee based on the average net assets of the Fund, at an
annual rate of 0.90% (subject to reductions that the Adviser may
agree to periodically).
Recent fees paid to the Adviser, CISI and CISC (dollars in
thousands)
Period
December 1, 1993
(commencement of
Year ended investment operations)
October 31, 1995 through October 31, 1994
Management fee $1,232 $988
Bookkeeping fee 57 48
Shareholder service and
transfer agent fee 453 325
12b-1 fees:
Service fee 341 275
Distribution fee (Class B) 646 503
Distribution fee (Class D) 5 1
Brokerage Commissions (dollars in thousands)
Period
December 1, 1993
(commencement of
Year ended investment operations)
October 31, 1995 through October 31, 1994
Total commissions $312 $736
Directed transactions(a) 0 0
Commissions on directed 0 0
transactions
(a) See "Management of the Colonial Funds - Portfolio
Transactions - Brokerage and research services" in Part 2 of this
SAI.
Trustees Fees
For the fiscal year ended October 31, 1995 and the calendar year
ended December 31, 1995, the Trustees received the following
compensation for serving as Trustees:
Total
Compensation
Aggretate From Trust and
Compensation Pension or Fund Complex
From Fund Retirement Estimated Paid to the
for Fiscal Benefits Annual Trustees for
Year Ended Accrued As Benefits Year Ended
October 31, Part of Fund Upon December 31,
Trustee 1995 Expense Retirement 1995(b)
Robert J. Birnbaum $1,095 $ 71,250
Tom Bleasdale $1,688 (c) ----- ----- $ 98,000 (d)
Lora S. Collins $1,625 ----- ----- $ 91,000
James E. Grinnell $1,094 $ 71,250
William D. Ireland, Jr. $1,893 ----- ----- $ 113,000
Richard W. Lowry $1,097 $ 71,250
William E. Mayer $1,547 ----- ----- $ 91,000
John A. McNeice, Jr. ------ ----- ----- -----
James L. Moody, Jr. $1,782(e) ----- ----- $ 94,500 (f)
John J. Neuhauser $1,547 ----- ----- $ 91,000
George L. Shinn $1,742 ----- ----- $ 102,500
Robert L. Sullivan $1,692 ----- ----- $ 101,000
Sinclair Weeks, Jr. $1,888 ----- ----- $ 112,000
(b) At December 31, 1995, the Colonial Funds Complex consists of 33 open-end
and 5 closed-end management investment company portfolios.
(c) Includes $779 payable in later years as deferred compensation.
(d) Includes $49,000 payable in later years as deferred compensation.
(e) Includes $1,380 payable in later years as deferred compensation.
(f) Total compensation of $94,500 for the calendar year ended
December 31, 1995 will be payable in later years as
deferred compensation.
The following table sets forth the amount of compensation paid to
Messrs. Birnbaum, Grinnell and Lowry in their capacities as
Trustees of the Liberty All-Star Equity Fund and Liberty All-Star
Growth Fund, Inc. (formerly known as The Charles Allmon Trust,
Inc.) (together, Liberty Funds) for service during the calendar
year ended December 31, 1995:
Total Compensation
From Liberty Funds
For The Calendar Year
Trustee Ended December 31,1995 (g)
Robert J. Birnbaum(h) $16,675
James E. Grinnell(h) 22,900
Richard W. Lowry(h) 26,250(i)
(g) At December 31, 1995, the Liberty Funds were advised
by Liberty Asset Management Company (LAMCO). LAMCO
is an indirect wholly-owned subsidiary of Liberty
Financial Companies, Inc. (an intermediate parent of
the Adviser).
(h) Elected as a trustee of the Colonial Funds complex
on April 21, 1995.
(i) Includes $3,500 paid to Mr. Lowry for service as Trustee of Liberty
Newport World Portfolio (formerly known as Liberty All-Star World
Portfolio) (Liberty Newport) during the calendar yar ended December 31,
1995. At December 31, 1995, Libety Newport was managed by Newport
Pacific Management, Inc. and Stein Roe & Farnham Incorporated,
each an affiliate of the Adviser.
Ownership of the Fund
At November 30, 1995, the Trustees and officers of the Fund as a
group owned approximately 157,307 Class A shares representing
3.71% of the outstanding Class A shares of the Fund. Messrs.
Scoon, Silver and Stern, who are officers of the Trust, held
approximately 125,967 Class A shares representing 2.97% of the
then outstanding shares. This holding consisted entirely of
shares held by them as Co-Trustees of The Colonial Group, Inc.
Profit Sharing Plan with respect to which they share voting and
investment power.
At November 30, 1995, the Trustees and officers of the Fund as a
group owned less than 1% of the outstanding Class B shares of the
Fund.
At November 30, 1995, the Trustees and officers of the Fund as a
group owned approximately 24,851 Class D shares representing
35.28% of the outstanding Class D shares of the Fund. This
holding consisted entirely of shares held by the Adviser.
At November 30, 1995 Merrill Lynch, Pierce, Fenner & Smith, 4800
Deer Lake Drive, East, Jacksonville, FL 32216 owned 290,960 Class
A shares representing 6.85% of the total outstanding.
At November 30, 1995 Merrill Lynch, Pierce, Fenner & Smith, 4800
Deer Lake Drive, East, Jacksonville, FL 32216 owned 1,623,172
Class B shares representing 21.08% of the total outstanding.
At November 30, 1995, there were 5,738 shareholders of record of
the Class A shares, 10,165 shareholders of record of the Class B
shares and 87 shareholders of record of the Class D shares.
Sales Charges (dollars in thousands)
Class A Shares
Period
December 1, 1993
(commencement of
Year ended investment operations)
October 31, 1995 through October 31,
1994
Aggregate initial
sales charges on Fund
shares sales $160 $2,371
Initial sales charges
retained by CISI 24 30
Class B Shares
Period
December 1, 1993
(commencement of
Year ended investment operations)
October 31, 1995 through October 31, 1994
Aggregate contingent
deferred sales (charge CDSC)
on Fund redemptions
retained by CISI $569 $198
Class D Shares
Period July 1, 1994
(commencement of
Year ended investment operations)
October 31, 1995 through October 31, 1994
Aggregate CDSC on
Fund redemptions
retained by CISI $0(j) $0
(j) Rounds to less than one thousand.
12b-1 Plans, CDSC and Conversion of Shares
The Fund offers three classes of shares - Class A, Class B and
Class D. The Fund may in the future offer other classes of
shares. The Trustees have approved 12b-1 plans pursuant to Rule
12b-1 under the Act. Under the Plans, the Fund pays CISI a
service fee at an annual rate of 0.25% of average net assets
attributed to each Class of shares and a distribution fee at an
annual rate of 0.75% of average net assets attributed to Class B
and Class D shares. CISI may use the entire amount of such fees
to defray the cost of commissions and service fees paid to
financial service firms (FSFs), and for certain other purposes.
Since the distribution and service fees are payable regardless of
CISI's expenses, CISI may realize a profit from the fees.
The Plans authorize any other payments by the Fund to CISI and
its affiliates (including the Adviser) to the extent that such
payments might be construed to be indirectly financing the
distribution of Fund shares.
The Trustees believe the Plans could be a significant factor in
the growth and retention of assets resulting in a more
advantageous expense ratio and increased investment flexibility
which could benefit shareholders of each class of Fund
shareholders. The Plans will continue in effect from year to
year so long as continuance is specifically approved at least
annually by a vote of the Trustees, including the Trustees who
are not interested persons of the Trust and have no direct or
indirect financial interest in the operation of the Plans or in
any agreements related to the Plans (Independent Trustees), cast
in person at a meeting called for the purpose of voting on the
Plans. The Plans may not be amended to increase the fee
materially without approval by vote of a majority of the
outstanding voting securities of the relevant class of shares and
all material amendments of the Plans must be approved by the
Trustees in the manner provided in the foregoing sentence. The
Plans may be terminated at any time by vote of a majority of the
Independent Trustees or by vote of a majority of the outstanding
voting securities of the relevant class of shares. The
continuance of the Plans will only be effective if the selection
and nomination of the Trustees who are non-interested Trustees is
effected by such non-interested Trustees.
Class A shares are offered at net asset value plus varying sales
charges which may include a CDSC. Class B shares are offered at
net asset value subject to a CDSC if redeemed within six years
after purchase. Class D shares are offered at net asset value
plus a 1.00% initial sales charge and subject to a 1.00% CDSC on
redemptions within one year after purchase. The CDSCs are
described in the Prospectus.
No CDSC will be imposed on distributions or on amounts which
represents an increase in the value of the shareholder's account
resulting from capital appreciation. In determining the
applicability and rate of any CDSC, it will be assumed that a
redemption is made first of shares representing capital
appreciation, next of shares representing reinvestment of
distributions and finally of other shares held by the shareholder
for the longest period of time.
Eight years after the end of the month in which a Class B share
is purchased, such share and a pro rata portion of any shares
issued on the reinvestment of distributions will be automatically
converted into Class A shares having an equal value, which are
not subject to the distribution fee.
Sales related expenses (dollars in thousands) of CISI relating to
the Fund for the year ended October 31, 1995 were:
Class A Shares Class B Shares Class D Shares
Fees to FSFs $95 $3,643 $6
Cost of sales material relating to
the Fund (including printing
and mailing expenses) 20 49 2
Allocated travel, entertainment and
other promotional (including
advertising) 35 66 2
INVESTMENT PERFORMANCE (k)
The Fund's yields for the month ended October 31, 1995, were:
Class A Shares Class B Shares Class D Shares
0.29% (0.44)% (0.44)%
The Fund's average annual total returns at October 31, 1995 were:
Class A Shares
Since inception
1 year 12/1/93 through
10/31/95
With sales charge of (11.29)% (4.26)%
5.75%
Without sales charge (5.88)% (1.26)%
Class B Shares
Since inception
1 year 12/1/93 through
10/31/95
With CDSC of 5.00% (11.27)% (4.06)%
Without CDSC (6.60)% (2.00)%
Class D Shares
Since inception 7/1/94
(Class D shares initially
1 year offered) through 10/31/95
With sales charge of
1.00% CDSC of 1.00% (8.50)% (3.64)%
Without sales charge
or CDSC (6.57)% (2.91)%
(k) The data presented in the foregoing tables reflects
performance of the Fund while its portfolio was being
managed by a former sub-adviser whose services terminated on
December 31, 1995.
No distributions were declared during the fiscal year ended
October 31, 1995.
See Part 2 of this SAI "Performance Measures" for how
calculations are made.
CUSTODIAN
The Mellon Trust is the Fund's custodian. The custodian is
responsible for safeguarding and controlling the Fund's cash and
securities, receiving and delivering securities and collecting
the Fund's interest and dividends.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP are the Fund's independent accountants
providing audit services, tax return preparation services and
assistance and consultation in connection with the review of
various SEC filings. The financial statements incorporated by
reference in this SAI and the financial highlights included in
the Prospectus have been so included, in reliance upon the report
of Price Waterhouse LLP given on the authority of said firm as
experts in accounting and auditing.
The financial statements of the Fund and the Report of
Independent Accountants appearing on pages through of
the October 31, 1995 Annual Report are incorporated in this SAI
by reference.
S:\FUNDS\SAIPART2.DOC
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most Colonial funds. "Colonial
funds" or "funds" include each series of Colonial Trust I, Colonial Trust II,
Colonial Trust III, Colonial Trust IV, Colonial Trust V, Colonial Trust VI and
Colonial Trust VII. In certain cases, the discussion applies to some but not all
of the Colonial funds, and you should refer to your Fund's Prospectus and to
Part 1 of this SAI to determine whether the matter is applicable to your Fund.
You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
Part 1 of this Statement lists on page b which of the following investment
practices are available to your Fund.
Short-Term Trading
In seeking the fund's investment objective, the Adviser will buy or sell
portfolio securities whenever it believes it is appropriate. The Adviser's
decision will not generally be influenced by how long the fund may have owned
the security. From time to time the fund will buy securities intending to seek
short-term trading profits. A change in the securities held by the fund is known
as "portfolio turnover" and generally involves some expense to the fund. These
expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the fund to
realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of other
mutual funds. The fund's portfolio turnover rate for a fiscal year is the ratio
of the lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The fund's portfolio turnover
rate is not a limiting factor when the Adviser considers a change in the fund's
portfolio.
Lower Rated Bonds
Lower rated bonds are those rated lower than Baa by Moody's, BBB by S&P, or
comparable unrated securities. Relative to comparable securities of higher
quality:
1. the market price is likely to be more volatile because:
a. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default;
b. the secondary market may at times become less liquid or respond to
adverse publicity or investor perceptions, increasing the
difficulty in valuing or disposing of the bonds;
c. existing or future legislation limits and may further limit (i)
investment by certain institutions or (ii) tax deductibility of
the interest by the issuer, which may adversely affect value; and
d. certain lower rated bonds do not pay interest in cash on a current
basis. However, the fund will accrue and distribute this interest
on a current basis, and may have to sell securities to generate
cash for distributions.
2. the fund's achievement of its investment objective is more dependent on
the Adviser's credit analysis.
3. lower rated bonds are less sensitive to interest rate changes, but are
more sensitive to adverse economic developments.
Small Companies
Smaller, less well established companies may offer greater opportunities for
capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.
Foreign Securities
The fund may invest in securities traded in markets outside the United States.
Foreign investments can be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. Securities
of some foreign companies are less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian fees may be
higher than in the United States. Investments in foreign securities can involve
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets
and imposition of withholding taxes on dividend or interest payments. Foreign
securities, like other assets of the fund, will be held by the fund's custodian
or by a subcustodian or depository. See also "Foreign Currency Transactions"
below.
The fund may invest in certain Passive Foreign Investment Companies (PFICs)
which may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain (PFIC tax) related to the investment. The PFIC tax is the
highest ordinary income rate and it could be increased by an interest charge on
the deemed tax deferral.
The fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the fund to recognize as income any
appreciation (but not depreciation) on its holdings of PFICs as of the end of
its fiscal year.
Zero Coupon Securities (Zeros)
The fund may invest in debt securities which do not pay interest, but instead
are issued at a deep discount from par. The value of the security increases over
time to reflect the interest accreted. The value of these securities may
fluctuate more than similar securities which are issued at par and pay interest
periodically. Although these securities pay no interest to holders prior to
maturity, interest on these securities is reported as income to the fund and
distributed to its shareholders. These distributions must be made from the
fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. The fund will not be able to purchase additional income producing
securities with cash used to make such distributions and its current income
ultimately may be reduced as a result.
Step Coupon Bonds (Steps)
The fund may invest in debt securities which do not pay interest for a stated
period of time and then pay interest at a series of different rates for a series
of periods. In addition to the risks associated with the credit rating of the
issuers, these securities are subject to the volatility risk of zero coupon
bonds for the period when no interest is paid.
Pay-In-Kind (PIK) Securities
The fund may invest in securities which pay interest either in cash or
additional securities at the issuer's option. These securities are generally
high yield securities and in addition to the other risks associated with
investing in high yield securities are subject to the risks that the interest
payments which consist of additional securities are also subject to the risks of
high yield securities.
Money Market Instruments
Government obligations are issued by the U.S. or foreign governments, their
subdivisions, agencies and instrumentalities. Supranational obligations are
issued by supranational entities and are generally designed to promote economic
improvements. Certificates of deposits are issued against deposits in a
commercial bank with a defined return and maturity. Banker's acceptances are
used to finance the import, export or storage of goods and are "accepted" when
guaranteed at maturity by a bank. Commercial paper are promissory notes issued
by businesses to finance short-term needs (including those with floating or
variable interest rates, or including a frequent interval put feature).
Short-term corporate obligations are bonds and notes (with one year or less to
maturity at the time of purchase) issued by businesses to finance long-term
needs. Participation Interests include the underlying securities and any related
guaranty, letter of credit, or collateralization arrangement which the fund
would be allowed to invest in directly.
Securities Loans
The fund may make secured loans of its portfolio securities amounting to not
more than the percentage of its total assets specified in Part 1 of this SAI,
thereby realizing additional income. The risks in lending portfolio securities,
as with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. As a matter of policy, securities loans are made to banks and
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities on loan. The borrower pays to the fund
fund an amount equal to any dividends or interest received on securities lent.
The fund retains all or a portion of the interest received on investment of the
cash collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The fund may also call such loans in order
to sell the securities involved.
Forward Commitments
The fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments" and "when
issued securities") if the fund holds until the settlement date, in a segregated
account, cash or high-grade debt obligations in an amount sufficient to meet the
purchase price, or if the fund enters into offsetting contracts for the forward
sale of other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Where such
purchases are made through dealers, the fund relies on the dealer to consummate
the sale. The dealer's failure to do so may result in the loss to the fund of an
advantageous yield or price. Although the fund will generally enter into forward
commitments with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the fund may dispose
of a commitment prior to settlement if the Adviser deems it appropriate to do
so. The fund may realize short-term profits or losses upon the sale of forward
commitments.
Mortgage Dollar Rolls
In a mortgage dollar roll, the fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The fund either will be paid a fee by the counterparty upon entering
into the transaction or will be entitled to purchase the similar security at a
discount. As with any forward commitment, mortgage dollar rolls involve the risk
that the counterparty will fail to deliver the new security on the settlement
date, which may deprive the fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. Finally, the
transaction costs may not exceed the return earned by the fund from the
transaction.
Repurchase Agreements
The fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the fund acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the fund to resell such security at a fixed time and price
(representing the fund's cost plus interest). It is a fund's present intention
to enter into repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S. government or
its agencies or instrumentalities. Repurchase agreements may also be viewed as
loans made by the fund which are collateralized by the securities subject to
repurchase. The Adviser will monitor such transactions to determine that the
value of the underlying securities is at least equal at all times to the total
amount of the repurchase obligation, including the interest factor. If the
seller defaults, the fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or insolvency
proceedings, the fund may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if the fund is treated
as an unsecured creditor and required to return the underlying collateral to the
seller's estate.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the fund sells a security and agrees to
repurchase the same security at a mutually agreed upon date and price. A reverse
repurchase agreement may also be viewed as the borrowing of money by the fund
and, therefore, as a form of leverage. The fund will invest the proceeds of
borrowings under reverse repurchase agreements. In addition, the fund will enter
into a reverse repurchase agreement only when the interest income expected to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction. The fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. The fund may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse repurchase
agreements. Each fund will establish and maintain with its custodian a separate
account with a segregated portfolio of securities in an amount at least equal to
its purchase obligations under its reverse repurchase agreements. If interest
rates rise during the term of a reverse repurchase agreement, entering into the
reverse repurchase agreement may have a negative impact on a money market fund's
ability to maintain a net asset value of $1.00 per share.
Options on Securities
Writing covered options. The fund may write covered call options and covered put
options on securities held in its portfolio when, in the opinion of the Adviser,
such transactions are consistent with the fund's investment objective and
policies. Call options written by the fund give the purchaser the right to buy
the underlying securities from the fund at a stated exercise price; put options
give the purchaser the right to sell the underlying securities to the fund at a
stated price.
The fund may write only covered options, which means that, so long as the fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The fund may
write combinations of covered puts and calls on the same underlying security.
The fund will receive a premium from writing a put or call option, which
increases the fund's return on the underlying security if the option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. By writing a call option, the fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option but continues to bear the risk
of a decline in the value of the underlying security. By writing a put option,
the fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current market value,
resulting in a potential capital loss unless the security subsequently
appreciates in value.
The fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an offsetting
option. The fund realizes a profit or loss from a closing transaction if the
cost of the transaction (option premium plus transaction costs) is less or more
than the premium received from writing the option. Because increases in the
market price of a call option generally reflect increases in the market price of
the security underlying the option, any loss resulting from a closing purchase
transaction may be offset in whole or in part by unrealized appreciation of the
underlying security.
If the fund writes a call option but does not own the underlying security, and
when it writes a put option, the fund may be required to deposit cash or
securities with its broker as "margin" or collateral for its obligation to buy
or sell the underlying security. As the value of the underlying security varies,
the fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
Purchasing put options. The fund may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such hedge protection is provided during the life of the put option since the
fund, as holder of the put option, is able to sell the underlying security at
the put exercise price regardless of any decline in the underlying security's
market price. For a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the fund
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.
Purchasing call options. The fund may purchase call options to hedge against an
increase in the price of securities that the fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the fund might
have realized had it bought the underlying security at the time it purchased the
call option.
Over-the-Counter (OTC) options. The Staff of the Division of Investment
Management of the Securities and Exchange Commission has taken the position that
OTC options purchased by the fund and assets held to cover OTC options written
by the fund are illiquid securities. Although the Staff has indicated that it is
continuing to evaluate this issue, pending further developments, the fund
intends to enter into OTC options transactions only with primary dealers in U.S.
Government Securities and, in the case of OTC options written by the fund, only
pursuant to agreements that will assure that the fund will at all times have the
right to repurchase the option written by it from the dealer at a specified
formula price. The fund will treat the amount by which such formula price
exceeds the amount, if any, by which the option may be "in-the-money" as an
illiquid investment. It is the present policy of the fund not to enter into any
OTC option transaction if, as a result, more than 15% (10% in some cases, refer
to your fund's Prospectus) of the fund's net assets would be invested in (i)
illiquid investments (determined under the foregoing formula) relating to OTC
options written by the fund, (ii) OTC options purchased by the fund, (iii)
securities which are not readily marketable, and (iv) repurchase agreements
maturing in more than seven days.
Risk factors in options transactions. The successful use of the fund's options
strategies depends on the ability of the Adviser to forecast interest rate and
market movements correctly.
When it purchases an option, the fund runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the fund
exercises the option or enters into a closing sale transaction with respect to
the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, the fund
will lose part or all of its investment in the option. This contrasts with an
investment by the fund in the underlying securities, since the fund may continue
to hold its investment in those securities notwithstanding the lack of a change
in price of those securities.
The effective use of options also depends on the fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so. Although
the fund will take an option position only if Colonialthe Adviser believes there
is a liquid secondary market for the option, there is no assurance that the fund
will be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, the fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A marketplace may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability -- were to
interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on
particular types of options transactions, which may limit the fund's ability to
realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or
sold by the fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the fund has
expired, the fund could lose the entire value of its option.
Special risks are presented by internationally-traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of the underlying
interest in the United States.
Futures Contracts and Related Options
Upon entering into futures contracts, in compliance with the SEC's requirements,
cash, cash equivalents or high-grade debt securities, equal in value to the
amount of the fund's obligation under the contract (less any applicable margin
deposits and any assets that constitute "cover" for such obligation), will be
segregated with the fund's custodian. For example, if a fund
investing primarily in foreign equity securities enters into a
contract denominated in a foreign currency, the fund will segregate cash,
cash equivalents or high-grade debt securities equal in value to the difference
between the fund's obligation under the contract and the aggregate value of all
ready marketable equity securities denominated in the applicable foreign
currency held by the fund.
A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchange or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission (CFTC),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.
Unlike when the fund purchases or sells a security, no price is paid or received
by the fund upon the purchase or sale of a futures contract, although the fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. Government Securities. This
amount is known as "initial margin". The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the fund to
finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin", to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."
The fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the fund. The fund may
close its positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
Options on futures contracts. The fund will enter into written options on
futures contracts only when, in compliance with the SEC's requirements, cash or
equivalents equal in value to the commodity value (less any applicable margin
deposits) have been deposited in a segregated account of the fund's custodian.
The fund may purchase and write call and put options on futures contracts it may
buy or sell and enter into closing transactions with respect to such options to
terminate existing positions. The fund may use such options on futures contracts
in lieu of writing options directly on the underlying securities or purchasing
and selling the underlying futures contracts. Such options generally operate in
the same manner as options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
Risks of transactions in futures contracts and related options. Successful use
of futures contracts by the fund is subject to the Adviser `s ability to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the fund, the fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain contracts or options; (ii) restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
Use by tax-exempt funds of U.S. Treasury security futures contracts and options.
The fund investing in tax-exempt securities issued by a governmental entity may
purchase and sell futures contracts and related options on U.S. Treasury
securities when, in the opinion of the Adviser, price movements in Treasury
security futures and related options will correlate closely with price movements
in the tax-exempt securities which are the subject of the hedge. U.S. Treasury
securities futures contracts require the seller to deliver, or the purchaser to
take delivery of, the type of U.S. Treasury security called for in the contract
at a specified date and price. Options on U.S. Treasury security futures
contracts give the purchaser the right in return for the premium paid to assume
a position in a U.S. Treasury futures contract at the specified option exercise
price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is
also a risk that price movements in U.S. Treasury security futures contracts and
related options will not correlate closely with price movements in markets for
tax-exempt securities.
Index futures contracts. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. The fund may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on index futures
contracts.
There are several risks in connection with the use by the fund of index futures
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. The Adviser will attempt to
reduce this risk by selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the fund's portfolio securities sought to be hedged.
Successful use of the index futures by the fund for hedging purposes is also
subject to the Adviser's ability to predict correctly movements in the direction
of the market. It is possible that, where the fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the fund's portfolio may
decline. If this occurs, the fund would lose money on the futures and also
experience a decline in the value in its portfolio securities. However, while
this could occur to a certain degree, the Adviser believes that over time the
value of the fund's portfolio will tend to move in the same direction as the
market indices which are intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also possible that, if the fund
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the fund will lose part or all of the benefit of the increased valued
of those securities that it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the securities of
the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result
the futures market may attract more speculators than the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Adviser may still not result in a
successful hedging transaction.
Options on index futures. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
Options on indices. As an alternative to purchasing call and put options on
index futures, the fund may purchase call and put options on the underlying
indices themselves. Such options could be used in a manner identical to the use
of options on index futures.
Foreign Currency Transactions
The fund may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.
The fund may engage in both "transaction hedging" and "position hedging". When
it engages in transaction hedging, the fund enters into foreign currency
transactions with respect to specific receivables or payables of the fund
generally arising in connection with the purchase or sale of its portfolio
securities. The fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the fund attempts to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
The fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. The fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. Over-the-counter options are considered to be illiquid by
the SEC staff. A put option on a futures contract gives the fund the right to
assume a short position in the futures contract until expiration of the option.
A put option on currency gives the fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives the fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
fund the right to purchase a currency at the exercise price until the expiration
of the option.
When it engages in position hedging, the fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the value of currency for securities which the fund expects to purchase, when
the fund holds cash or short-term investments). In connection with position
hedging, the fund may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the fund is obligated to deliver and if a decision is made
to sell the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of foreign
currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the owns or intends to purchase or sell. They
simply establish a rate of exchange which one can achieve at some future point
in time. Additionally, although these techniques tend to minimize the risk of
loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.
Currency forward and futures contracts. Upon entering into such contracts, in
compliance with the SEC's requirements, cash, cash equivalents or high-grade
debt securities, equal in value to the amount of the fund's obligation under the
contract (less any applicable margin deposits and any assets that constitute
"cover" for such obligation), will be segregated with the
fund's custodian. For example, if a fund investing primarily in
foreign equity securities enters into a contract denominated in a foreign
currency, the fund will segregate cash, cash equivalents or high-grade debt
securities equal in value to the difference between the fund's obligation under
the contract and the aggregate value of all ready marketable equity securities
denominated in the applicable foreign currency held by the fund.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market in such contracts. Although the
fund intends to purchase or sell currency futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may not
be possible to close a futures position and, in the event of adverse price
movements, the fund would continue to be required to make daily cash payments of
variation margin.
Currency options. In general, options on currencies operate similarly to options
on securities and are subject to many similar risks. Currency options are traded
primarily in the over-the-counter market, although options on currencies have
recently been listed on several exchanges. Options are traded not only on the
currencies of individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of currencies, and is the
official medium of exchange of the European Economic Community's European
Monetary System.
The fund will only purchase or write currency options when the Adviser believes
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specified time. Currency options are affected by all of those factors which
influence exchange rates and investments generally. To the extent that these
options are traded over the counter, they are considered to be illiquid by the
SEC staff.
The value of any currency, including the U.S. dollars, may be affected by
complex political and economic factors applicable to the issuing country. In
addition, the exchange rates of currencies (and therefore the values of currency
options) may be significantly affected, fixed, or supported directly or
indirectly by government actions. Government intervention may increase risks
involved in purchasing or selling currency options, since exchange rates may not
be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an odd lot market for the underlying currencies in connection with
options at prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot transactions in
the interbank market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable. The
interbank market in currencies is a global, around-the-clock market. To the
extent that options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets.
Settlement procedures. Settlement procedures relating to the fund's investments
in foreign securities and to the fund's foreign currency exchange transactions
may be more complex than settlements with respect to investments in debt or
equity securities of U.S. issuers, and may involve certain risks not present in
the fund's domestic investments, including foreign currency risks and local
custom and usage. Foreign currency transactions may also involve the risk that
an entity involved in the settlement may not meet its obligations.
Foreign currency conversion. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(spread) between prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the fund at one rate,
while offering a lesser rate of exchange should the fund desire to resell that
currency to the dealer. Foreign currency transactions may also involve the risk
that an entity involved in the settlement may not meet its obligation.
Participation Interests
The fund may invest in municipal obligations either by purchasing them directly
or by purchasing certificates of accrual or similar instruments evidencing
direct ownership of interest payments or principal payments, or both, on
municipal obligations, provided that, in the opinion of counsel to the initial
seller of each such certificate or instrument, any discount accruing on such
certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related municipal obligations will be exempt from
federal income tax to the same extent as interest on such municipal obligations.
The fund may also invest in tax-exempt obligations by purchasing from banks
participation interests in all or part of specific holdings of municipal
obligations. Such participations may be backed in whole or part by an
irrevocable letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from the fund in connection with the arrangement. The fund
will not purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned by it
on municipal obligations in which it holds such participation interests is
exempt from federal income tax.
Stand-by Commitments
When the fund purchases municipal obligations it may also acquire stand-by
commitments from banks and broker-dealers with respect to such municipal
obligations. A stand-by commitment is the equivalent of a put option acquired by
the fund with respect to a particular municipal obligation held in its
portfolio. A stand-by commitment is a security independent of the municipal
obligation to which it relates. The amount payable by a bank or dealer during
the time a stand-by commitment is exercisable, absent unusual circumstances
relating to a change in market value, would be substantially the same as the
value of the underlying municipal obligation. A stand-by commitment might not be
transferable by the fund, although it could sell the underlying municipal
obligation to a third party at any time.
The fund expects that stand-by commitments generally will be available without
the payment of direct or indirect consideration. However, if necessary and
advisable, the fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities.) The total amount paid in either manner for outstanding
stand-by commitments held in the fund portfolio will not exceed 10% of the value
of the fund's total assets calculated immediately after each stand-by commitment
is acquired. The fund will enter into stand-by commitments only with banks and
broker-dealers that, in the judgment of the Trust's Board of Trustees, present
minimal credit risks.
Inverse Floaters
Inverse floaters are derivative securities whose interest rates vary inversely
to changes in short-term interest rates and whose values fluctuate inversely to
changes in long-term interest rates. The value of certain inverse floaters will
fluctuate substantially more in response to a given change in long-term rates
than would a traditional debt security. These securities have investment
characteristics similar to leverage, in that interest rate changes have a
magnified effect on the value of inverse floaters.
TAXES
All discussions of taxation at the shareholder level relate to federal taxes
only. Consult your tax adviser for state and local tax considerations and for
information about special tax considerations that may apply to shareholders that
are not natural persons.
Dividends Received Deductions. Distributions will qualify for the corporate
dividends received deduction only to the extent that dividends earned by the
fund qualify. Any such dividends are, however, includable in adjusted current
earnings for purposes of computing corporate AMT.
Return of Capital Distributions. To the extent that a distribution is a return
of capital for federal tax purposes, it reduces the cost basis of the shares on
the record date and is similar to a partial return of the original investment
(on which a sales charge may have been paid). There is no recognition of a gain
or loss, however, unless the return of capital reduces the cost basis in the
shares to below zero.
Funds that invest in U.S. Government Securities. Many states grant tax-free
status to dividends paid to shareholders of mutual funds from interest income
earned by the fund from direct obligations of the U.S. government. Investments
in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. Shareholders should
consult with their own tax advisers about the applicability of state and local
intangible property, income or other taxes to their fund shares and
distributions and redemption proceeds received from the fund.
Distributions from Tax-Exempt Funds. Each tax-exempt fund will have at least 50%
of its total assets invested in tax-exempt bonds at the end of each quarter so
that dividends from net interest income on tax-exempt bonds will be exempt from
Federal income tax when received by a shareholder. The tax-exempt portion of
dividends paid will be designated within 60 days after year-end based upon the
ratio of net tax-exempt income to total net investment income earned during the
year. That ratio may be substantially different than the ratio of net tax-exempt
income to total net investment income earned during any particular portion of
the year. Thus, a shareholder who holds shares for only a part of the year may
be allocated more or less tax-exempt dividends than would be the case if the
allocation were based on the ratio of net tax-exempt income to total net
investment income actually earned while a shareholder.
The Tax Reform Act of 1986 makes income from certain "private activity bonds"
issued after August 7, 1986, a tax preference item for the alternative minimum
tax (AMT) at the maximum rate of 28% for individuals and 20% for corporations.
If the fund invests in private activity bonds, shareholders may be subject to
the AMT on that part of the distributions derived from interest income on such
bonds. Other provisions of the Tax Reform Act affect the tax treatment of
distributions for corporations, casualty insurance companies and financial
institutions; interest on all tax-exempt bonds is included in corporate adjusted
current earnings when computing the AMT applicable to corporations. Seventy-five
percent of the excess of adjusted current earnings over the amount of income
otherwise subject to the AMT is included in a corporation's alternative minimum
taxable income.
Dividends derived from any investments other than tax-exempt bonds and any
distributions of short-term capital gains are taxable to shareholders as
ordinary income. Any distributions of net long-term gains will in general be
taxable to shareholders as long-term capital gains regardless of the length of
time fund shares are held.
Shareholders receiving social security and certain retirement benefits may be
taxed on a portion of those benefits as a result of receiving tax-exempt income,
including tax-exempt dividends from a fund.
Special Tax Rules Applicable to Tax-Exempt Funds. Income distributions to
shareholders who are substantial users or related persons of substantial users
of facilities financed by industrial revenue bonds may not be excludable from
their gross income if such income is derived from such bonds. Income derived
from a fund's investments other than tax-exempt instruments may give rise to
taxable income. A fund's shares must be held for more than six months in order
to avoid the disallowance of a capital loss on the sale of fund shares to the
extent of tax-exempt dividends paid during that period. A shareholder that
borrows money to purchase a fund's shares will not be able to deduct the
interest paid with respect to such borrowed money.
Sales of Shares. In general, any gain or loss realized upon a taxable
disposition of shares by a shareholder will be treated as long-term capital gain
or loss if the shares have been held for more than twelve months, and otherwise
as short-term capital gain or loss assuming such shares are held as a capital
asset. However, any loss realized upon a taxable disposition of shares held for
six months or less will be treated as long-term, rather than short-term, capital
loss to the extent of any long-term capital gain distributions received by the
shareholder with respect to those shares. All or a portion of any loss realized
upon a taxable disposition of shares will be disallowed if other shares are
purchased within 30 days before or after the disposition. In such a case, the
basis of the newly purchased shares will be adjusted to reflect the disallowed
loss.
Backup Withholding. Certain distributions and redemptions may be subject to a
31% backup withholding unless a taxpayer identification number and certification
that the shareholder is not subject to the withholding is provided to the Ffund.
This number and form may be provided by either a Form W-9 or the accompanying
application. In certain instances, CISC may be notified by the Internal Revenue
Service that a shareholder is subject to backup withholding.
Excise Tax. To the extent that the Fund does not annually distribute
substantially all taxable income and realized gains, it is subject to an excise
tax. The Adviser, intends to avoid this tax except when the cost of processing
the distribution is greater than the tax.
Tax Accounting Principles. To qualify as a "regulated investment company," the
fund must (a) derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of securities or foreign currencies or other income (including but
not limited to gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities or currencies; (b)
derive less than 30% of its gross income from the sale or other disposition of
certain assets held less than three months; (c) diversify its holdings so that,
at the close of each quarter of its taxable year, (i) at least 50% of the value
of its total assets consists of cash, cash items, U.S. Government securities,
and other securities limited generally with respect to any one issuer to not
more than 5% of the total assets of the fund and not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any issuer (other than U.S.
Government securities).
Futures Contracts. Accounting for futures contracts will be in accordance with
generally accepted accounting principles. The amount of any realized gain or
loss on the closing out of a futures contract will result in a capital gain or
loss for tax purposes. In addition, certain futures contracts held by the fund
(so-called "Section 1256 contracts") will be required to be "marked-to-market"
(deemed sold) for federal income tax purposes at the end of each fiscal year.
Sixty percent of any net gain or loss recognized on such deemed sales or on
actual sales will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss.
However, if a futures contract is part of a "mixed straddle" (i.e., a straddle
comprised in part of Section 1256 contracts), a fund may be able to make an
election which will affect the character arising from such contracts as
long-term or short-term and the timing of the recognition of such gains or
losses. In any event, the straddle provisions described below will be applicable
to such mixed straddles.
Special Tax Rules Applicable to "Straddles". The straddle provisions of the Code
may affect the taxation of the fund's options and futures transactions and
transactions in securities to which they relate. A "straddle" is made up of two
or more offsetting positions in "personal property," including debt securities,
related options and futures, equity securities, related index futures and, in
certain circumstances, options relating to equity securities, and foreign
currencies and related options and futures.
The straddle rules may operate to defer losses realized or deemed realized on
the disposition of a position in a straddle, may suspend or terminate the fund's
holding period in such positions, and may convert short-term losses to long-term
losses in certain circumstances.
Foreign Currency-Denominated Securities and Related Hedging Transactions. The
fund's transactions in foreign currency-denominated debt securities, certain
foreign currency options, futures contracts and forward contracts may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
If more than 50% of the fund's total assets at the end of its fiscal year are
invested in securities of foreign corporate issuers, the fund may make an
election permitting its shareholders to take a deduction or credit for federal
tax purposes for their portion of certain foreign taxes paid by the fund. The
Adviser, will consider the value of the benefit to a typical shareholder, the
cost to the fund of compliance with the election, and incidental costs to
shareholders in deciding whether to make the election. A shareholder's ability
to claim such a foreign tax credit will be subject to certain limitations
imposed by the Code, as a result of which a shareholder may not get a full
credit for the amount of foreign taxes so paid by the fund. Shareholders who do
not itemize on their federal income tax returns may claim a credit (but no
deduction) for such foreign taxes.
Certain securities are considered to be Passive Foreign Investment Companies
(PFICS) under the Code, and the fund is liable for any PFIC-related taxes.
MANAGEMENT OF THE COLONIAL FUNDS (in this section, "Adviser" refers to Colonial
Management Associates, Inc.) The Adviser is the investment adviser to each of
the Colonial funds (except for Colonial Municipal Money Market Fund, Colonial
Global Utilities Fund and Colonial Newport Tiger Fund-See Part I of each fund's
respective SAI for a description of its investment adviser) The Adviser is a
subsidiary of The Colonial Group, Inc. (TCG), One Financial Center, Boston, MA
02111. TCG is a subsidiary of Liberty Financial Companies, Inc. (Liberty
Financial), which in turn is a direct subsidiary of LFC Holdings, Inc., which in
turn is a direct subsidiary of Liberty Mutual Equity Corporation, which in turn
is a wholly-owned subsidiary of Liberty Mutual Insurance Company (Liberty
Mutual). Liberty Mutual is an underwriter of worker's compensation insurance and
a property and casualty insurer in the U.S. Liberty Financial's address is 600
Atlantic Avenue, Boston, MA 02210. Liberty Mutual's address is 175 Berkeley
Street, Boston, MA 02117.
Trustees and Officers (this section applies to all of the Colonial funds)
Robert J. Birnbaum(Age 68), Trustee of all Colonial funds since April, 1995 (1),
is a Trustee of LFC Utilities Trust in which Colonial Global Utilities Fund is
invested (LFC Portfolio) since November, 1994, is a Trustee of certain
charitable and non-charitable organizations since December, 1993 (formerly
Special Counsel, Dechert Price & Rhoads from September, 1988 to December, 1993;
President and Chief Operating Officer, New York Stock Exchange, Inc. from May,
1985 to June, 1988), 313 Bedford Road, Ridgewood, NJ 07450
Tom Bleasdale (Age 65), Trustee of all Colonial funds since November, 1987 (2),
is a Trustee of certain non-charitable organizations since 1993 (formerly
Chairman of the Board and Chief Executive Officer, Shore Bank & Trust Company
from 1992-1993), 1508 Ferncroft Tower, Danvers, MA 01923
Lora S. Collins (Age 59), Trustee of all Colonial funds since August, 1980 (2),
is an Attorney with Kramer, Levin, Naftalis, Nessen, Kamin & Frankel since
September, 1986, 919 Third Avenue, New York, NY 10022
James E. Grinnell(Age 66), Trustee of all Colonial funds since April, 1995 (1),
is a Private Investor since November, 1988, is a Trustee of the LFC Portfolio
since August, 1991 (formerly Senior Vice President-Operations, The Rockport
Company from May, 1986 to November, 1988), 22 Harbor Avenue, Marblehead, MA
01945
William D. Ireland, Jr. (Age 71), Trustee of all Colonial funds since November,
1969 (2), is a Trustee of certain charitable and non-charitable organizations
since February, 1990 (formerly Chairman of the Board, Bank of New England, -
Worcester from August, 1987 to February, 1990), 103 Springline Drive, Vero
Beach, FL 32963
Richard W. Lowry(Age 59), Trustee of all Colonial funds since April, 1995 (1),
is a Trustee of the LFC Portfolio since August, 1991, is a Private Investor
since August, 1987 (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation from 1985 to August, 1987), 10701 Charleston Drive, Vero Beach, FL
32963
William E. Mayer (Age 55), Trustee of all Colonial funds since February, 1994
(2), is Dean, College of Business and Management, University of Maryland since
October, 1992 (formerly Dean, Simon Graduate School of Business, University of
Rochester from October, 1991 to July, 1992; formerly Chairman and Chief
Executive Officer, C.S. First Boston Merchant Bank from January, 1990 to
January, 1991; and formerly President and Chief Executive Officer, The First
Boston Corporation from September, 1988 to January, 1990), College Park, MD
20742
James L. Moody, Jr. (Age 63), Trustee of all Colonial funds since May, 1986 (2),
is Chairman of the Board, Hannaford Bros., Co. since May, 1984 (formerly Chief
Executive Officer, Hannaford Bros. Co. from May, 1984 to May, 1992), P.O. Box
1000, Portland, ME 04104 John J. Neuhauser (Age 51), Trustee of all Colonial
funds since January, 1984 (2), is Dean, Boston College School of Management
since 1978, 140 Commonwealth Avenue, Chestnut Hill, MA 02167 George L. Shinn
(Age 72), Trustee of all Colonial funds since May, 1984 (2), is a Financial
Consultant since 1989 (formerly Chairman, Chief Executive Officer and
Consultant, The First Boston Corporation from 1983 to July, 1991), The First
Boston Corporation, Tower Forty Nine, 12 East 49th Street, New York, NY 10017
Robert L. Sullivan (Age 67), Trustee of all Colonial funds since September, 1987
(2), is a self-employed Management Consultant since January, 1989 (formerly
Management Consultant, Saatchi and Saatchi Consulting Ltd. from December, 1987
to January, 1989 and formerly Principal and International Practice Director,
Management Consulting, Peat Marwick Main & Co. over five years), 7121 Natelli
Woods Lane, Bethesda, MD 20817 Sinclair Weeks, Jr. (Age 72), Trustee of all
Colonial funds since October, 1968 (2), is Chairman of the Board, Reed & Barton
Corporation since 1987, Bay Colony Corporate Center, Suite 4550, 1000 Winter
Street, Waltham, MA 02154
Harold W. Cogger (Age 59), Vice President since July, 1993, is President since
July, 1993, Chief Executive Officer since March, 1995 and Director since March,
1984, the Adviser (formerly Executive Vice President, the Adviser from October,
1989 to July, 1993); President since October, 1994, Chief Executive Officer
since March, 1995 and Director since October, 1981, TCG; Executive Vice
President and Director, Liberty Financial since March, 1995
Peter L. Lydecker (Age 41), Controller since June, 1993 (formerly Assistant
Controller from March, 1985 to June, 1993), is Vice President, the Adviser since
June, 1993 (formerly Assistant Vice President, the Adviser from August, 1988 to
June, 1993)
Davey S. Scoon (Age 48), Vice President since June, 1993, is Executive Vice
President since July, 1993 and Director since March, 1985, the Adviser (formerly
Senior Vice President and Treasurer from March, 1985 to July, 1993, the
Adviser); Executive Vice President and Chief Operating Officer, TCG since
March, 1995 (formerly Vice President - Finance and Administration, TCG from
November, 1985 to March, 1995)
Richard A. Silver (Age 48), Treasurer and Chief Financial Officer since
July, 1993 (formerly Controller from July, 1980 to June, 1993), is Senior Vice
President and Director since April, 1988, Treasurer and Chief Financial
Officer since July, 1993, the Adviser ; Treasurer and Chief Financial Officer,
TCG since July, 1993 (formerly Assistant Treasurer, TCG from January,
1985 to July, 1993)
Arthur O. Stern (Age 56),Secretary since 1985, is Director since 1985,
Executive Vice President since July, 1993, General Counsel, Clerk
and Secretary since March, 1985, the Adviser ; Executive Vice President, Legal
and Compliance since March, 1995 and Clerk since March, 1985, TCG (formerly Vice
President - Legal, TCG from March, 1985 to March, 1995)
(1) On April 3, 1995, and in connection with the merger of The Colonial
Group, Inc. into Liberty Financial which occurred on March 27, 1995,
Liberty Financial Trust (LFT) changed its name to Colonial Trust VII.
Prior to the merger, each of Messrs. Birnbaum, Grinnell, and Lowry was
a Trustee of LFT. Mr. Birnbaum has been a Trustee of LFT since
November, 1994. Each of Messrs. Grinnell and Lowry has been a Trustee
of LFT since August, 1991. Each of Messrs. Grinnell and Lowry continue
to serve as Trustees under the new name, Colonial Trust VII, along with
each of the other Colonial Trustees named above. The Colonial Trustees
were elected as Trustees of Colonial Trust VII effective April 3, 1995.
(2) Elected as a Trustee of the LFC Portfolio on March 27, 1995.
(3) Trustees who are "interested persons" (as defined in the 1940 Act) of
the fund or the Adviser .
The address of the officers of each Colonial Fund is One Financial Center,
Boston, MA 02111.
The Trustees serve as trustees of all Colonial funds for which each Trustee
(except Mr. McNeice) will receive an annual retainer of $45,000 and attendance
fees of $7,500 for each regular joint meeting and $1,000 for each special joint
meeting. Committee chairs receive an annual retainer of $5,000. Committee
members receive an annual retainer of $1,000 and $1,000 for each special meeting
attended. Two-thirds of the Trustee fees are allocated among the Colonial funds
based on the fund's relative net assets and one-third of the fees are divided
equally among the Colonial funds.
The Adviser and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has
rendered investment advisory services to investment company, institutional and
other clients since 1931. The Adviser currently serves as investment adviser and
administrator for 30 open-end and 5 closed-end management investment company
portfolios, and is the administrator for 3 open-end management investment
company portfolios (collectively, Colonial funds). Trustees and officers of the
Trust, who are also officers of The Adviser or its affiliates will benefit from
the advisory fees, sales commissions and agency fees paid or allowed by the
Trust. More than 30,000 financial advisers have recommended Colonial funds to
over 800,000 clients worldwide, representing more than $15.5 billion in assets.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that
the Trust will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust but that such indemnification will not
relieve any officer or Trustee of any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense, provides liability
insurance for the benefit of its Trustees and officers.
The Management Agreement (this section does not apply to the Colonial Municipal
Money Market Fund, Colonial Global Utilities Fund or Colonial Newport Tiger
Fund) Under a Management Agreement (Agreement), the Adviser has contracted to
furnish each fund with investment research and recommendations or fund
management, respectively, and accounting and administrative personnel and
services, and with office space, equipment and other facilities. For these
services and facilities, each Colonial fund pays a monthly fee based on the
average of the daily closing value of the total net assets of each fund for such
month.
The Adviser's compensation under the Agreement is subject to reduction in any
fiscal year to the extent that the total expenses of each fund for such year
(subject to applicable exclusions) exceed the most restrictive applicable
expense limitation prescribed by any state statute or regulatory authority in
which the Trust's shares are qualified for sale. The most restrictive expense
limitation applicable to a Colonial fund is 2.5% of the first $30 million of the
Trust's average net assets for such year, 2% of the next $70 million and 1.5% of
any excess over $100 million.
Under the Agreement, any liability of the Adviser to the fund and its
shareholders is limited to situations involving the Adviser's own willful
misfeasance, bad faith, gross negligence or reckless disregard of duties.
The Agreement may be terminated with respect to the fund at any time on 60 days'
written notice by the or by the Trustees of the Trust or by a vote of a majority
of the outstanding voting securities of the fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Adviser pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Adviser including, but not limited to, auditing,
legal, custodial, investor servicing and shareholder reporting expenses. The
Trust pays the cost of typesetting for its Prospectuses and the cost of printing
and mailing any Prospectuses sent to shareholders. CISI pays the cost of
printing and distributing all other Prospectuses.
The Agreement provides that the Adviser shall not be subject to any liability to
the Trust or to any shareholder of the Trust for any act or omission in the
course of or connected with rendering services to the Trust in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties on the part of the Adviser.
Administration Agreement (this section applies only to the Colonial Municipal
Money Market Fund, Colonial Global Utilities Fund and Colonial Newport Tiger
Fund and their respective Trusts) Under an Administration Agreement with each
Fund, the Adviser , in its capacity as the Administrator to each Fund, has
contracted to perform the following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its
Directors, officers and employees to serve as Trustees,
officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents required
for compliance by each Fund withapplicable laws and
regulations;
(d) preparation of agendas and supporting documents for and
minutes of meetings of Trustees, committees of Trustees
and shareholders;
(e) coordinating and overseeing the activities of each Fund's
other third-party service providers;
and
(f) maintaining certain books and records of each Fund.
With respect to the Colonial Municipal Money Market Fund (in addition to the
above-referenced services):
(g) monitoring compliance by the Fund (only applicable to Colonial
Municipal Money Market Fund) with Rule 2a-7 under the
Investment Company Act of 1940 (the "1940 Act") and
reporting to the Trustees from time to time with respect
thereto; and
(h) monitoring the investments and operations of the SR&F
Municipal Money Market Portfolio (Municipal Money Market
Portfolio) in which Colonial Municipal Money Market Fund is
invested and the LFC Portfolio and reporting to the Trustees
from time to time with respect thereto.
The Pricing and Bookkeeping Agreement
The Adviser provides pricing and bookkeeping services to each Colonial fund
pursuant to a Pricing and Bookkeeping Agreement. The Pricing and Bookkeeping
Agreement has a one-year term. The Adviser, in its capacity as the Administrator
to each of Colonial Municipal Money Market Fund and Colonial Global Utilities
Fund, is paid an annual fee of $18,000, plus 0.0233% of average daily net assets
in excess of $50 million. For each of the other Colonial funds (except for
Colonial Newport Tiger Fund), The Adviser is paid monthly a fee of $2,250 by
each fund, plus a monthly percentage fee based on net assets of the fund equal
to the following:
1/12 of 0.000% of the first $50 million;
1/12 of 0.035% of the next $950 million;
1/12 of 0.025% of the next $1 billion; 1/12
of 0.015% of the next $1 billion; and 1/12
of 0.001% on the excess over $3 billion
The Adviser provides pricing and bookkeeping services to Colonial Newport Tiger
Fund for an annual fee of $27,000, plus 0.035% of Colonial Newport Tiger Fund's
average net assets over $50 million.
The Adviser of each of the Municipal Money Market Portfolio and LFC Portfolio
provides pricing and bookkeeping services to each Portfolio for a fee of $25,000
plus 0.0025% annually of average daily net assets of each Portfolio over $50
million.
Portfolio Transactions
The following sections entitled "Investment decisions" and Brokerage and
research services" do not apply to Colonial Municipal Money Market Fund,
Colonial U.S. Fund for Growth, Colonial Newport Tiger Fund or Colonial Global
Utilities Fund. For each of these funds, see Part 1 of its respective SAI.
Investment decisions. The Adviser acts as investment adviser to each of the
Colonial funds (except for the Colonial Municipal Money Market Fund, Colonial
Global Utilities Fund and Colonial Newport Tiger Fund, each of which is
administered by the Adviser, and Colonial U.S. Fund for Growth for which
investment decisions have been delegated by the Adviser to State Street Bank and
Trust Company, the fund's sub-adviser) (as defined under Management of the Fund
herein).The Adviser's affiliate, CASI, advises other institutional, corporate,
fiduciary and individual clients for which CASI performs various services.
Various officers and Trustees of the Trust also serve as officers or Trustees of
other Colonial funds and the other corporate or fiduciary clients of the
Adviser. The Colonial funds and clients advised by the Adviser or the funds
administered by the Adviser sometimes invest in securities in which the Fund
also invests and sometimes engage in covered option writing programs and enter
into transactions utilizing stock index options and stock index and financial
futures and related options ("other instruments"). If the Fund, such other
Colonial funds and such other clients desire to buy or sell the same portfolio
securities, options or other instruments at about the same time, the purchases
and sales are normally made as nearly as practicable on a pro rata basis in
proportion to the amounts desired to be purchased or sold by each. Although in
some cases these practices could have a detrimental effect on the price or
volume of the securities, options or other instruments as far as the Fund is
concerned, in most cases it is believed that these practices should produce
better executions. It is the opinion of the Trustees that the desirability of
retaining the Adviser as investment adviser to the Colonial funds outweighs the
disadvantages, if any, which might result from these practices.
The portfolio managers of Colonial International Fund for Growth will use the
trading facilities of Stein Roe and Farnham Incorporated, an affiliate of the
Adviser, to place all orders for the purchase and sale of this fund's portfolio
securities, futures contracts and foreign currencies.
Brokerage and research services. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., and subject to seeking
"best execution" (as defined below) and such other policies as the Trustees may
determine, the Adviser may consider sales of shares of the Colonial funds as a
factor in the selection of broker-dealers to execute securities transactions for
a Colonial fund.
The Adviser places the transactions of the Colonial funds with broker-dealers
selected by the Adviser and, if applicable, negotiates commissions.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including the purchase and writing of options, the effecting of closing purchase
and sale transactions, and the purchase and sale of underlying securities upon
the exercise of options and the purchase or sale of other instruments. The
Colonial funds from time to time also execute portfolio transactions with such
broker-dealers acting as principals. The Colonial funds do not intend to deal
exclusively with any particular broker-dealer or group of broker-dealers.
Except as described below in connection with commissions paid to a clearing
agent on sales of securities, it is Colonialthe Adviser's policy always to seek
best execution, which is to place the Colonial funds' transactions where the
Colonial funds can obtain the most favorable combination of price and execution
services in particular transactions or provided on a continuing basis by a
broker-dealer, and to deal directly with a principal market maker in connection
with over-the-counter transactions, except when it is believed that best
execution is obtainable elsewhere. In evaluating the execution services of,
including the overall reasonableness of brokerage commissions paid to, a
broker-dealer, consideration is given to, among other things, the firm's general
execution and operational capabilities, and to its reliability, integrity and
financial condition.
Subject to such practice of always seeking best execution, securities
transactions of the Colonial funds may be executed by broker-dealers who also
provide research services (as defined below) to the Adviser and the Colonial
funds. The Adviser may use all, some or none of such research services in
providing investment advisory services to each of its investment company and
other clients, including the fund. To the extent that such services are used by
the Adviser, they tend to reduce the Adviser's expenses. In the Adviser's
opinion, it is impossible to assign an exact dollar value for such services.
Subject to such policies as the Trustees may determine, the Adviser may cause
the Colonial funds to pay a broker-dealer which provides brokerage and research
services to the Adviser an amount of commission for effecting a securities
transaction, including the sale of an option or a closing purchase transaction,
for the Colonial funds in excess of the amount of commission which another
broker-dealer would have charged for effecting that transaction. As provided in
Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research
services" include advice as to the value of securities, the advisability of
investing in, purchasing or selling securities and the availability of
securities or purchasers or sellers of securities; furnishing analyses and
reports concerning issues, industries, securities, economic factors and trends
and portfolio strategy and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance and
settlement). The Adviser must determine in good faith that such greater
commission is reasonable in relation to the value of the brokerage and research
services provided by the executing broker-dealer viewed in terms of that
particular transaction or the Adviser's overall responsibilities to the Colonial
funds and all its other clients.
The Trustees have authorized the Adviser to utilize the services of a clearing
agent with respect to all call options written by Colonial funds that write
options and to pay such clearing agent commissions of a fixed amount per share
(currently 1.25 cents) on the sale of the underlying security upon the exercise
of an option written by a fund. The Trustees may further authorize the Adviser
to depart from the present policy of always seeking best execution and to pay
higher brokerage commissions from time to time for other brokerage and research
services as described above in the future if developments in the securities
markets indicate that such would be in the interests of the shareholders of the
Colonial funds.
Principal Underwriter
CISI is the principal underwriter of the Trust's shares. CISI has no obligation
to buy the Colonial funds' shares, and purchases the Colonial funds shares only
upon receipt of orders from authorized FSFs or investors.
Investor Servicing and Transfer Agent
CISC is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Trust. The fee paid to CISC is based on the average daily net assets of each
Colonial fund plus reimbursement for out-of-pocket expenses. See "Fund Charges
and Expenses" in Part 1 of this SAI for information on fees received by CISC.
The agreement continues indefinitely but may be terminated by 90 days' notice by
the Fund or Colonial funds to CISC or generally by 6 months' notice by CISC to
the Fund or Colonial funds. The agreement limits the liability of CISC to the
Fund or Colonial funds for loss or damage incurred by the Fund or Colonial funds
to situations involving a failure of CISC to use reasonable care or to act in
good faith in performing its duties under the agreement. It also provides that
the Fund or Colonial funds will indemnify CISC against, among other things, loss
or damage incurred by CISC on account of any claim, demand, action or suit made
on or against CISC not resulting from CISC's bad faith or negligence and arising
out of, or in connection with, its duties under the agreement.
DETERMINATION OF NET ASSET VALUE
Each Colonial fund determines net asset value (NAV) per share for each Class as
of the close of the New York Stock Exchange (Exchange)(generally 4:00 p.m.
Eastern time, 3:00 p.m. Chicago time) each day the Exchange is open. Currently,
the Exchange is closed Saturdays, Sundays and the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day,
Thanksgiving and Christmas. The net asset value of the Municipal Money Market
Portfolio will not be determined on days when the Exchange is closed unless, in
the judgment of the Municipal Money Market Portfolio's Board of Trustees, the
net asset value of the Municipal Money Market Portfolio should be determined on
any such day, in which case the determination will be made at 3:00 p.m., Chicago
time. Debt securities generally are valued by a pricing service which determines
valuations based upon market transactions for normal, institutional-size trading
units of similar securities. However, in circumstances where such prices are not
available or where the Adviser deems it appropriate to do so, an
over-the-counter or exchange bid quotation is used. Securities listed on an
exchange or on NASDAQ are valued at the last sale price. Listed securities for
which there were no sales during the day and unlisted securities are valued at
the last quoted bid price. Options are valued at the last sale price or in the
absence of a sale, the mean between the last quoted bid and offering prices.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost pursuant to procedures adopted by the Trustees. The values of
foreign securities quoted in foreign currencies are translated into U.S. dollars
at the exchange rate for that day. Portfolio positions for which there are no
such valuations and other assets are valued at fair value as determined in good
faith under the direction of the Trust's Trustees.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the NAV are
computed as of such times. Also, because of the amount of time required to
collect and process trading information as to large numbers of securities
issues, the values of certain securities (such as convertible bonds, U.S.
government securities, and tax-exempt securities) are determined based on market
quotations collected earlier in the day at the latest practicable time prior to
the close of the Exchange. Occasionally, events affecting the value of such
securities may occur between such times and the close of the Exchange which will
not be reflected in the computation of each Colonial fund's NAV. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value following procedures
approved by the Trust's Trustees.
Amortized Cost for Money Market Funds (this section currently applies only to
Colonial Government Money Market Fund, a series of Colonial Trust II- see
"Amortized Cost for Money Market Funds" under "Other Information Concerning the
Portfolio" in Part 1 of the SAI of Colonial Municipal Money Market Fund for
information relating to the Municipal Money Market Portfolio)
Money market funds generally value their portfolio securities at amortized cost
according to Rule 2a-7 under the 1940 Act.
Portfolio instruments are valued under the amortized cost method, whereby the
instrument is recorded at cost and thereafter amortized to maturity. This method
assures a constant NAV but may result in a yield different than that of the same
portfolio under the market value method. The Trust's Trustees have adopted
procedures intended to stabilize a fund's NAV per share at $1.00. When a money
market fund's market value deviates from the amortized cost of $1.00, and
results in a material dilution to existing shareholders, the Trust's Trustees
will take corrective action to: realize gains or losses; shorten the portfolio's
maturity; withhold distributions; redeem shares in kind; or convert to the
market value method (in which case the NAV per share may differ from $1.00). All
investments will be determined pursuant to procedures approved by the Trust's
Trustees to present minimal credit risk.
See the Statement of Assets and Liabilities in the Shareholder Report of the
Colonial Government Money Market Fund for a specimen price sheet showing the
computation of maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of
the Fund and tables of charges. This SAI contains additional information which
may be of interest to investors.
The Fund will accept unconditional orders for shares to be executed at the
public offering price based on the NAV per share next determined after the order
is placed in good order. The public offering price is the NAV plus the
applicable sales charge, if any. In the case of orders for purchase of shares
placed through FSFs, the public offering price will be determined on the day the
order is placed in good order, but only if the FSF receives the order prior to
the time shares are valued and transmits it to the Fund before the Fund
processes that day's transactions. If the FSF fails to transmit before the Fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF. If the FSF
receives the order after the time the Fund values its shares, the price will be
based on the NAV determined as of the close of the Exchange on the next day it
is open. If funds for the purchase of shares are sent directly to CISC, they
will be invested at the public offering price next determined after receipt in
good order. Payment for shares of the Fund must be in U.S. dollars; if made by
check, the check must be drawn on a U.S. bank.
The Fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, CISI's commission is the sales charge shown in the Fund's
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that CISI retains the entire sales charge on any sales made to
a shareholder who does not specify an FSF on the Investment Account Application
("Application"). CISI generally retains 100% of any asset-based sales charge
(distribution fee) or contingent deferred sales charge. Such charges generally
reimburse CISI for an up-front and/or ongoing commission paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by
the purchaser's bank or checkwriting privilege checks for which there are
insufficient funds in a shareholder's account to cover redemption will subject
such purchaser or shareholder to a $15 service fee for each check returned.
Checks must be drawn on a U.S. bank and must be payable in U.S. dollars.
CISC acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to CISC, provided the new FSF has a sales agreement
with CISI.
Shares credited to an account are transferable upon written instructions in good
order to CISC and may be redeemed as described under "How to sell shares" in the
Prospectus. Certificates will not be issued for Class A shares unless
specifically requested and no certificates will be issued for Class B, C, D, T
or Z shares. The Colonial money market funds will not issue certificates.
Shareholders may send any certificates which have been previously acquired to
CISC for deposit to their account.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
Fundamatic Program. As a convenience to investors, shares of most Colonial funds
may be purchased through the Colonial Fundamatic Program. Preauthorized monthly
bank drafts or electronic funds transfer for a fixed amount of at least $50 are
used to purchase a Colonial fund's shares at the public offering price next
determined after CISI receives the proceeds from the draft (normally the 5th or
the 20th of each month, or the next business day thereafter). If your
Fundamatic purchase is by electronic funds transfer, you may request the
Fundamatic purchase for any day. Further information and application forms are
available from FSFs or from CISI.
Automated Dollar Cost Averaging (Classes A, B and D). Colonial's Automated
Dollar Cost Averaging program allows you to exchange $100 or more on a monthly
basis from any Colonial fund in which you have a current balance of at least
$5,000 into the same class of shares of up to four other Colonial funds.
Complete the Automated Dollar Cost Averaging section of the Application. The
designated amount will be exchanged on the third Tuesday of each month. There is
no charge for exchanges made pursuant to the Automated Dollar Cost Averaging
program. Exchanges will continue so long as your Colonial fund balance is
sufficient to complete the transfers. Your normal rights and privileges as a
shareholder remain in full force and effect. Thus you can: buy any fund,
exchange between the same Class of shares of funds by written instruction or by
telephone exchange if you have so elected and withdraw amounts from any fund,
subject to the imposition of any applicable CDSC.
Any additional payments or exchanges into your Colonial fund will extend the
time of the Automated Dollar Cost Averaging program.
An exchange is a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to
the $100 minimum), or change your selection of funds, by telephone or in
writing; if in writing by mailing your instructions to Colonial Investors
Service Center, Inc. P.O. Box 1722, Boston, MA 02105-1722.
You should consult your FSF or investment adviser to determine whether or not
the Automated Dollar Cost Averaging program is appropriate for you.
CISI offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges . These plans may be altered or discontinued
at any time. See "Programs For Reducing or Eliminating Sales Charges" for more
information.
Tax-Sheltered Retirement Plans. CISI offers prototype tax-qualified plans,
including Individual Retirement Accounts, and Pension and Profit-Sharing Plans
for individuals, corporations, employees and the self-employed. The minimum
initial Retirement Plan investment in these funds is $25. The First National
Bank of Boston is the Trustee and charges a $10 annual fee. Detailed information
concerning these Retirement Plans and copies of the Retirement Plans are
available from CISI.
Consultation with a competent financial and tax adviser regarding these Plans
and consideration of the suitability of fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise is recommended.
Telephone Address Change Services. By calling CISC, shareholders or their FSF of
record may change an address on a recorded telephone line. Confirmations of
address change will be sent to both the old and the new addresses. The Telephone
redemption privileges are suspended for 30 days after an address change is
effected.
Colonial cash connection. Dividends and any other distributions, including
Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
Automatic dividend diversification. The automatic dividend diversification
reinvestment program (ADD) generally allows shareholders to have all
distributions from a fund automatically invested in the same class of shares of
another Colonial fund. An ADD account must be in the same name as the
shareholder's existing Open Account with the particular fund. Call CISC for more
information at 1-800- 422-3737.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
Right of Accumulation and Statement of Intent (Class A and Class T shares only)
(Class T shares can only be purchased by the shareholders of Colonial Newport
Tiger Fund who already own Class T shares). Reduced sales charges on Class A and
T shares can be effected by combining a current purchase with prior purchases of
Class A, B, C, D, T and Z shares of the Colonial funds. The applicable sales
charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on
the previous day of all Colonial funds' Class A shares held by the
shareholder (except shares of any Colonial money market fund, unless
such shares were acquired by exchange from Class A shares of another
Colonial fund other than a money market fund and Class B, C, D, T
and Z shares).
CISI must be promptly notified of each purchase which entitles a shareholder to
a reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by CISC. A Colonial fund may
terminate or amend this Right of Accumulation.
Any person may qualify for reduced sales charges on purchases of Class A and T
shares made within a thirteen-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C D, T and Z shares
held by the shareholder on the date of the Statement in Colonial funds (except
shares of any Colonial money market fund, unless such shares were acquired by
exchange from Class A shares of another non-money market Colonial fund). The
value is determined at the public offering price on the date of the Statement.
Purchases made through reinvestment of distributions do not count toward
satisfaction of the Statement.
During the term of a Statement, CISC will hold shares in escrow to secure
payment of the higher sales charge applicable to Class A or T shares actually
purchased. Dividends and capital gains will be paid on all escrowed shares and
these shares will be released when the amount indicated has been purchased. A
Statement does not obligate the investor to buy or a fund to sell the amount of
the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to CISI the excess commission previously paid
during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to
CISI an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, CISC will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from CISC at 1-800- 345-6611.
Colonial Asset Builder Investment Program (this section currently applies only
to the Class A shares of Colonial Growth Shares Fund and The Colonial Fund, each
a series of Colonial Trust III). A reduced sales charge applies to a purchase of
certain Colonial funds' Class A shares under a statement of intent for the
Colonial Asset Builder Investment Program. The Program offer may be withdrawn at
any time without notice. A completed Program may serve as the initial investment
for a new Program, subject to the maximum of $4,000 in initial investments per
investor. Shareholders in this program are subject to a 5% sales charge. CISC
will escrow shares to secure payment of the additional sales charge on amounts
invested if the Program is not completed. Escrowed shares are credited with
distributions and will be released when the Program has ended. Shareholders are
subject to a 1% fee on the amount invested if they do not complete the Program.
Prior to completion of the Program, only scheduled Program investments may be
made in a Colonial fund in which an investor has a Program account. The
following services are not available to Program accounts until a Program has
ended:
Systematic Withdrawal Plan Telephone Redemption Statement of Intent
Sponsored Arrangements Colonial Cash Connection Share Certificates
$50,000 Fast Cash Reduced Sales Charges Automatic Dividend
Right of Accumulation for any "person" Diversification
Exchange Privilege
*Exchanges may be made to other Colonial funds offering the Program.
Because of the unavailability of certain services, this Program may not be
suitable for all investors.
The FSF receives 3% of the investor's intended purchases under a Program at the
time of initial investment and 1% after the 24th monthly payment. CISI may
require the FSF to return all applicable commissions paid with respect to a
Program terminated within six months of inception, and thereafter to return
commissions in excess of the FSF discount applicable to shares actually
purchased.
Since the Asset Builder plan involves continuous investment regardless of the
fluctuating prices of funds shares, investors should consult their FSF to
determine whether it is appropriate. The Plan does not assure a profit nor
against loss in declining markets.
Reinstatement Privilege. An investor who has redeemed Class A, B, or D shares
may, upon request, reinstate within one year a portion or all of the proceeds of
such sale in shares of the same Class of any Colonial fund at the NAV next
determined after CISC receives a written reinstatement request and payment. Any
CDSC paid at the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for purposes of calculating any CDSC
or conversion date. Investors who desire to exercise this privilege should
contact their FSF or CISC. Shareholders may exercise this Privilege an unlimited
number of times. Exercise of this privilege does not alter the Federal income
tax treatment of any capital gains realized on the prior sale of fund shares,
but to the extent any such shares were sold at a loss, some or all of the loss
may be disallowed for tax purposes. Consult your tax adviser.
Privileges of Colonial Employees or Financial Service Firms. Class A shares of
certain funds may be sold at NAV to the following individuals whether currently
employed or retired: Trustees of funds advised or administered by the Adviser ;
directors, officers and employees of the the Adviser , CISI and other companies
affiliated with the Adviser l; registered representatives and employees of FSFs
(including their affiliates) that are parties to dealer agreements or other
sales arrangements with CISI; and such persons' families and their beneficial
accounts.
Sponsored Arrangements. Class A and Class T shares (Class T shares can only be
purchased by the shareholders of Colonial Newport Tiger Fund who already own
Class T shares) of certain funds may be purchased at reduced or no sales charge
pursuant to sponsored arrangements, which include programs under which an
organization makes recommendations to, or permits group solicitation of, its
employees, members or participants in connection with the purchase of shares of
the fund on an individual basis. The amount of the sales charge reduction will
reflect the anticipated reduction in sales expense associated with sponsored
arrangements. The reduction in sales expense, and therefore the reduction in
sales charge will vary depending on factors such as the size and stability of
the organizations group, the term of the organization's existence and certain
characteristics of the members of its group. The Colonial funds reserve the
right to revise the terms of or to suspend or discontinue sales pursuant to
sponsored plans at any time.
Class A and Class T shares (Class T shares can only be purchased by the
shareholders of Colonial Newport Tiger Fund who already own Class T shares) of
certain funds may also be purchased at reduced or no sales charge by clients of
dealers, brokers or registered investment advisers that have entered into
agreements with CISI pursuant to which the Colonial funds are included as
investment options in programs involving fee-based compensation arrangements.
Net Asset Value Exchange Privilege. Class A shares of certain funds may also be
purchased at reduced or no sales charge by investors moving from another mutual
fund complex or a discretionary account and by participants in certain
retirement plans. In lieu of the commissions described in the Prospectus, the
Adviser l will pay the FSF a quarterly service fee which is the service fee
established for each applicable Colonial fund .
Waiver of Contingent Deferred Sales Charges (CDSCs) (Classes A, B, and D). CDSCs
may be waived on redemptions in the following situations with the proper
documentation:
1. Death. CDSCs may be waived on redemptions within one year following
the death of (i) the sole shareholder on an individual account, (ii) a
joint tenant where the surviving joint tenant is the deceased's
spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act
(UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial
account. If, upon the occurrence of one of the foregoing, the account
is transferred to an account registered in the name of the deceased's
estate, the CDSC will be waived on any redemption from the estate
account occurring within one year after the death. If the Class B
shares are not redeemed within one year of the death, they will remain
subject to the applicable CDSC, when redeemed from the transferee's
account. If the account is transferred to a new registration and then
a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions
occurring pursuant to a monthly, quarterly or semi-annual SWP
established with the Adviser , to the extent the redemptions do not
exceed, on an annual basis, 12% of the account's value, so long as
at the time of the first SWP redemption the account had had
distributions reinvested for a period at least equal to the period
of the SWP (e.g., if it is a quarterly SWP, distributions must
have been reinvested at least for the three month period prior to
the first SWP redemption); otherwise CDSCs will be charged on SWP
redemptions until this requirement is met; this requirement
does not apply if the SWP is set-up at the time the account is
established, and distributions are being reinvested). See below under
"Investors Services" - Systematic Withdrawal Plan.
3. Disability. CDSCs may be waived on redemptions occurring within one
year after the sole shareholder on an individual account or a joint
tenant on a spousal joint tenant account becomes disabled (as defined
in Section 72(m)(7) of the Internal Revenue Code). To be eligible for
such waiver, (i) the disability must arise after the purchase of
shares and (ii) the disabled shareholder must have been under age 65
at the time of the initial determination of disability. If the account
is transferred to a new registration and then a redemption is
requested, the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death
of the sole trustee where (i) the grantor of the trust is the sole
trustee and the sole life beneficiary, (ii) death occurs following the
purchase and (iii) the trust document provides for dissolution of the
trust upon the trustee's death. If the account is transferred to a new
registration (including that of a successor trustee), the applicable
CDSC will be charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions
required to return excess contributions made to retirement plans or
individual retirement accounts, so long as the FSF agrees to return
the applicable portion of any commission paid by Colonial.
6. Qualified Retirement Plans. CDSCs may be waived on redemptions
required to make distributions from qualified retirement plans
following (i) normal retirement (as stated in the Plan document) or
(ii) separation from service. CDSCs also will be waived on SWP
redemptions made to make required minimum distributions from qualified
retirement plans that have invested in Colonial funds for at least two
years.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's . 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 only after the check has cleared (which may take up to 15 days).
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to CISC, 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 institution. Stock power forms are
available from FSFs, CISC, and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call CISC for more information
1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to CISC and may charge for this service.
Systematic Withdrawal Plan
If a shareholder's Account Balance is at least $5,000, the shareholder may
establish a (SWP). A specified dollar amount or percentage of the then current
net asset value of the shareholder's investment in any Colonial fund designated
by the shareholder will be paid monthly, quarterly or semi-annually to a
designated payee. The amount or percentage the shareholder specifies generally
may not, on an annualized basis, exceed 12% of the value, as of the time the
shareholder makes the election of the shareholder's investment. Withdrawals from
Class B and Class D shares of the fund under a SWP will be treated as
redemptions of shares purchased through the reinvestment of fund distributions,
or, to the extent such shares in the shareholder's account are insufficient to
cover Plan payments, as redemptions from the earliest purchased shares of such
fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a
SWP of 12% or less, even if, after giving effect to the redemption, the
shareholder's Account Balance is less than the shareholder's base amount.
Qualified plan participants who are required by Internal Revenue Code regulation
to withdraw more than 12%, on an annual basis, of the value of their Class B and
Class D share account may do so but will be subject to a CDSC ranging from 1% to
5% of the amount withdrawn. If a shareholder wishes to participate in a SWP, the
shareholder must elect to have all of the shareholder's income dividends and
other fund distributions payable in shares of the fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by
telephone on a recorded line. However, SWP checks will be payable only to the
shareholder and sent to the address of record. SWPs from retirement accounts
cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in
certificate form. Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the fund
(other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or
loss for tax purposes, may involve the use of principal and may eventually use
up all of the shares in a shareholder's account.
A fund may terminate a shareholder's SWP if the shareholder's Account Balance
falls below $5,000 due to any transfer or liquidation of shares other than
pursuant to the SWP. SWP payments will be terminated on receiving satisfactory
evidence of the death or incapacity of a shareholder. Until this evidence is
received, CISC will not be liable for any payment made in accordance with the
provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name", the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.
Telephone Redemptions. All shareholders and/or their financial advisers are
automatically eligible to redeem up to $50,000 of the fund's shares by calling
1-800-422-3737 toll free any business day between 9:00 a.m. and the close of
trading of the Exchange (normally 4:00 p.m. Eastern time). Telephone redemption
privileges for larger amounts may be elected on the Application. CISC will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Telephone redemptions are not available on accounts with
an address change in the preceding 30 days and proceeds and confirmations will
only be mailed or sent to the address of record. Shareholders and/or their
financial advisers will be required to provide their name, address and account
number. Financial advisers will also be required to provide their broker number.
All telephone transactions are recorded. A loss to a shareholder may result from
an unauthorized transaction reasonably believed to have been authorized. No
shareholder is obligated to execute the telephone authorization form or to use
the telephone to execute transactions.
Checkwriting (Available only on the Class A and Class C shares of certain
Colonial funds) Shares may be redeemed by check if a shareholder completed an
Application and Signature Card. the Adviser will provide checks to be
drawn on The First National Bank of Boston (the "Bank"). These checks may be
made payable to the order of any person in the amount of not less than $500 nor
more than $100,000. The shareholder will continue to earn dividends on shares
until a check is presented to the Bank for payment. At such time a sufficient
number of full and fractional shares will be redeemed at the next determined net
asset value to cover the amount of the check. Certificate shares may not be
redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules
governing checking accounts. There is currently no charge to the shareholder for
the use of checks. The shareholder should make sure that there are sufficient
shares in his or her Open Account to cover the amount of any check drawn since
the net asset value of shares will fluctuate. If insufficient shares are in the
shareholder's Open Account, the check will be returned marked "insufficient
funds" and no shares will be redeemed; the shareholder will be charged a $15
service fee for each check returned. It is not possible to determine in advance
the total value of an Open Account because prior redemptions and possible
changes in net asset value may cause the value of an Open Account to change.
Accordingly, a check redemption should not be used to close an Open Account.
Non cash Redemptions. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of a Colonial fund's net
asset value, a Colonial fund may make the payment or a portion of the payment
with portfolio securities held by that Colonial fund instead of cash, in which
case the redeeming shareholder may incur brokerage and other costs in selling
the securities received.
DISTRIBUTIONS
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 paid in cash,
but will be invested in additional shares of the same Class of the Fund at net
asset value. Undelivered distribution checks returned by the post office will be
invested in your account.
Shareholders may reinvest all or a portion of a recent cash distribution without
a sales charge. A shareholder request must be received within 30 calendar days
of the distribution. A shareholder may exercise this privilege only once. No
charge is currently made for reinvestment.
Shares of most funds that pay daily dividends will normally earn dividends
starting with the date the fund receives payment for the shares and will
continue through the day before the shares are redeemed, transferred or
exchanged. The daily dividends for Colonial Municipal Money Market Fund will be
earned starting with the day after that fund receives payments for the shares.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other
continuously offered Colonial funds (with certain exceptions) on the basis of
the NAVs per share at the time of exchange. The prospectus of each Colonial fund
describes its investment objective and policies, and shareholders should obtain
a prospectus and consider these objectives and policies carefully before
requesting an exchange. Shares of certain Colonial funds are not available to
residents of all states. Consult CISC before requesting an exchange.
By calling CISC, shareholders or their FSF of record may exchange among accounts
with identical registrations, provided that the shares are held on deposit.
During periods of unusual market changes and shareholder activity, shareholders
may experience delays in contacting CISC by telephone to exercise the telephone
exchange privilege. Because an exchange involves a redemption and reinvestment
in another Colonial fund, completion of an exchange may be delayed under unusual
circumstances, such as if the fund suspends repurchases or postpones payment for
the fund shares being exchanged in accordance with federal securities law. CISC
will also make exchanges upon receipt of a written exchange request and, share
certificates, if any. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, CISC will require customary additional documentation.
Prospectuses of the other Colonial funds are available from the Colonial
Literature Department by calling 1-800-248-2828.
A loss to a shareholder may result from an unauthorized transaction reasonably
believed to have been authorized. No shareholder is obligated to use the
telephone to execute transactions.
You need to hold your Class A shares for five months before exchanging to
certain funds having a higher maximum sales charge. Consult your FSF or CISC. In
all cases, the shares to be exchanged must be registered on the records of the
fund in the name of the shareholder desiring to exchange.
Shareholders of the other Colonial open-end funds generally may exchange their
shares at NAV for the same class of shares of the fund.
An exchange is a capital sale transaction for federal income tax purposes. The
exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Colonial fund may not suspend shareholders' right of redemption or postpone
payment for more than seven days unless the Exchange is closed for other than
customary weekends or holidays, or if permitted by the rules of the SEC during
periods when trading on the Exchange is restricted or during any emergency which
makes it impracticable for the fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by
order of the SEC for protection of investors.
SHAREHOLDER MEETINGS
As described under the caption "Organization and history" in the Prospectus of
each Colonial fund, the fund will not hold annual shareholders' meetings. The
Trustees may fill any vacancies in the Board of Trustees except that the
Trustees may not fill a vacancy if, immediately after filling such vacancy, less
than two-thirds of the Trustees then in office would have been elected to such
office by the shareholders. In addition, at such times as less than a majority
of the Trustees then in office have been elected to such office by the
shareholders, the Trustees must call a meeting of shareholders. Trustees may be
removed from office by a written consent signed by a majority of the outstanding
shares of the Trust or by a vote of the holders of a majority of the outstanding
shares at a meeting duly called for the purpose, which meeting shall be held
upon written request of the holders of not less than 10% of the outstanding
shares of the Trust. Upon written request by the holders of 1% of the
outstanding shares of the Trust stating that such shareholders of the Trust, for
the purpose of obtaining the signatures necessary to demand a shareholder's
meeting to consider removal of a Trustee, request information regarding the
Trust's shareholders the Trust will provide appropriate materials (at the
expense of the requesting shareholders). Except as otherwise disclosed in the
Prospectus and this SAI, the Trustees shall continue to hold office and may
appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would
vote together, irrespective of series, on the election of Trustees or the
selection of independent accountants, but each series would vote separately from
the others on other matters, such as changes in the investment policies of that
series or the approval of the management agreement for that series.
PERFORMANCE MEASURES
Total Return
Standardized average annual total return. Average annual total return is the
actual return on a $1,000 investment in a particular class of shares of the
fund, made at the beginning of a stated period, adjusted for the maximum sales
charge or applicable CDSC for the class of shares of the fund and assuming that
all distributions were reinvested at NAV, converted to an average annual return
assuming annual compounding.
Nonstandardized total return. Nonstandardized total returns differ from
standardized average annual total returns only in that they may relate to
nonstandardized periods, represent aggregate rather than average annual total
returns or in that the sales charge or CDSC is not deducted.
Yield
Money market. A money market fund's yield and effective yield is computed in
accordance with the SEC's formula for money market fund yields.
Non money market. The yield for each class of shares is determined by (i)
calculating the income (as defined by the SEC for purposes of advertising yield)
during the base period and subtracting actual expenses for the period (net of
any reimbursements), and (ii) dividing the result by the product of the average
daily number of shares of the a Colonial fund entitled to dividends for the
period and the maximum offering price of the fund on the last day of the period,
(iii) then annualizing the result assuming semi-annual compounding.
Tax-equivalent yield is calculated by taking that portion of the yield which is
exempt from income tax and determining the equivalent taxable yield which would
produce the same after tax yield for any given federal and state tax rate, and
adding to that the portion of the yield which is fully taxable. Adjusted yield
is calculated in the same manner as yield except that expenses voluntarily borne
or waived by Colonial have been added back to actual expenses.
Distribution rate. The distribution rate for each class of shares is calculated
by annualizing the most current period's distributions and dividing by the
maximum offering price on the last day of the period. Generally, the fund 's
distribution rate reflects total amounts actually paid to shareholders, while
yield reflects the current earning power of the fund's portfolio securities (net
of the fund's expenses). The fund's yield for any period may be more or less
than the amount actually distributed in respect of such period.
The fund may compare its performance to various unmanaged indices published by
such sources as listed in Appendix II.
The fund may also refer to quotations, graphs and electronically transmitted
data from sources believed by Colonialthe Adviser to be reputable, and
publications in the press pertaining to a fund's performance or to the Adviser
or its affiliates , including comparisons with competitors and matters of
national and global economic and financial interest. Examples include Forbes,
Business Week, MONEY Magazine, The Wall Street Journal, The New York Times, The
Boston Globe, Barron's National Business & Financial Weekly, Financial Planning,
Changing Times, Reuters Information Services, Wiesenberger Mutual Funds
Investment Report, Lipper Analytical Services Corporation, Morningstar, Inc.,
Sylvia Porter's Personal Finance Magazine, Money Market Directory, SEI Funds
Evaluation Services, FTA World Index and Disclosure Incorporated.
All data is based on past performance and does not predict future results.
APPENDIX I
DESCRIPTION OF BOND RATINGS
S&P
AAA The highest rating assigned by S&P indicates an extremely strong capacity to
repay principal and interest. AA bonds also qualify as high quality. Capacity to
repay principal and pay interest is very strong, and in the majority of
instances, they differ from AAA only in small degree. A bonds have a strong
capacity to repay principal and interest, although they are somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions. BBB bonds are regarded as having an adequate capacity to repay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to repay principal and interest than for bonds in the A
category. BB, B, CCC, and CC bonds are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and principal in accordance
with the terms of the obligation. BB indicates the lowest degree of speculation
and CC the highest degree. While likely to have some quality and protection
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. C ratings are reserved for income bonds on
which no interest is being paid. D bonds are in default, and payment of interest
and/or principal is in arrears. Plus(+) or minus (-) are modifiers relative to
the standing within the major rating categories.
Provisional Ratings. The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, although addressing credit
quality subsequent to completion of the project, makes no comments on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
Municipal Notes:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be rated as a note).
Demand Feature of Variable Rate Demand Securities:
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1+/A-1+).
Commercial Paper:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designed A-1+.
Corporate Bonds:
The description of the applicable rating symbols and their meanings is
substantially the same as its Municipal Bond ratings set forth above.
MOODY'S
Aaa bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair a fundamentally
strong position of such issues. Aa bonds are judged to be of high quality by all
standards. Together with Aaa bonds they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities. Those bonds in the Aa through B groups that Moody's believes possess
the strongest investment attributes are designated by the symbol Aa1, A1 and
Baa1. A bonds possess many of the favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future. Baa bonds are
considered as medium grade, neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact, have speculative characteristics as well. Ba bonds
are judged to have speculative elements: their future cannot be considered as
well secured. Often, the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes these bonds. B bonds
generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. Caa bonds are of poor standing. They
may be in default or there may be present elements of danger with respect to
principal or interest. Ca bonds are speculative in a high degree, often in
default or having other marked shortcomings. C bonds are the lowest rated class
of bonds and can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Conditional Ratings. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
conditions attach. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1, and B 1.
Municipal Notes:
MIG 1. This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Demand Feature of Variable Rate Demand Securities:
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Commercial Paper:
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
Corporate Bonds:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings
is identical to that of its Municipal Bond ratings as set forth above, except
for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in
the Aa and A classifications of its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
APPENDIX II
1994
SOURCE CATEGORY RETURN (%)
Donoghue Tax-Free Funds 2.25
Donoghue U.S. Treasury Funds 3.34
Dow Jones Industrials 5.03
Morgan Stanley Capital
International EAFE Index 8.06
Morgan Stanley Capital
International EAFE GDP Index 8.21
Libor Six-month Libor 6.9375
Lipper Adjustable Rate Mortgage -2.20
Lipper California Municipal Bond Funds -7.52
Lipper Connecticut Municipal Bond Funds -7.04
Lipper Closed End Bond Funds -6.86
Lipper Florida Municipal Bond Funds -7.76
Lipper General Bond Fund -5.98
Lipper General Municipal Bonds -6.53
Lipper General Short-Term Tax-Exempt Bonds -0.28
Lipper Global Flexible Portfolio Funds -3.03
Lipper Growth Funds -2.15
Lipper Growth & Income Funds -0.94
Lipper High Current Yield Bond Funds -3.83
Lipper High Yield Municipal Bond Debt -4.99
Lipper Fixed Income Funds -3.62
Lipper Insured Municipal Bond Average -6.47
Lipper Intermediate Muni Bonds -3.53
Lipper Intermediate (5-10) U.S. Government Funds-3.72
Lipper Massachusetts Municipal Bond Funds -6.35
Lipper Michigan Municipal Bond Funds -5.89
Lipper Mid Cap Funds -2.05
Lipper Minnesota Municipal Bond Funds -5.87
Lipper U.S. Government Money Market Funds 3.58
Lipper Natural Resources -4.20
Lipper New York Municipal Bond Funds -7.54
Lipper North Carolina Municipal Bond Funds -7.48
Lipper Ohio Municipal Bond Funds -6.08
Lipper Small Company Growth Funds -0.73
Lipper Specialty/Miscellaneous Funds -2.29
Lipper U.S. Government Funds -4.63
Shearson Lehman Composite
Goverment Index -3.37
Shearson Lehman Government/
Corporate Index -3.51
Shearson Lehman Long-term
Government Index -7.73
S&P 500 S&P 1.32
S&P Utility Index S&P -7.94
Bond Buyer Bond Buyer Price Index -18.10
First Boston High Yield Index -0.97
Swiss Bank 10 Year U.S. Government (Corporate Bond) -6.39
Swiss Bank 10 Year United Kingdom (Corporate Bond) -5.29
Swiss Bank 10 Year France (Corporate Bond) -1.37
Swiss Bank 10 Year Germany (Corporate Bond) 4.09
Swiss Bank 10 Year Japan (Corporate Bond) 7.95
Swiss Bank 10 Year Canada (Corporate Bond) -14.10
Swiss Bank 10 Year Australia (Corporate Bond) 0.52
Morgan Stanley Capital
International 10 Year Hong Kong (Equity) -28.90
Morgan Stanley Capital
International 10 Year Belgium (Equity) 9.43
Morgan Stanley Capital
International 10 Year Spain (Equity) -3.93
SOURCE CATEGORY RETURN (%)
Morgan Stanley Capital
International 10 Year Austria (Equity) -6.05
Morgan Stanley Capital
International 10 Year France (Equity) -4.70
Morgan Stanley Capital
International 10 Year Netherlands (Equity) 12.66
Morgan Stanley Capital
International 10 Year Japan (Equity) 21.62
Morgan Stanley Capital
International 10 Year Switzerland (Equity) 4.18
Morgan Stanley Capital
International 10 Year United Kingdom (Equity) -1.63
Morgan Stanley Capital
International 10 Year Germany (Equity) 5.11
Morgan Stanley Capital
International 10 Year Italy (Equity) 12.13
Morgan Stanley Capital
International 10 Year Sweden (Equity) 18.80
Morgan Stanley Capital
International 10 Year United States (Equity) 2.00
Morgan Stanley Capital
International 10 Year Australia (Equity) 6.48
Morgan Stanley Capital
International 10 Year Norway (Equity) 24.07
Inflation Consumer Price Index 2.67
FHLB-San Francisco 11th District Cost-of-Funds Index 4.367
Federal Reserve Six-Month Treasury Bill 6.49
Federal Reserve One-Year Constant-Maturity
Treasury Rate 7.14
Federal Reserve Five-Year Constant-Maturity
Treasury Rate 7.78
Bloomberg NA NA
Credit Lyonnais NA NA
Lipper Pacific Region Funds -12.07
Statistical Abstract
of the U.S. NA NA
World Economic Outlook NA NA
*in U.S. currency
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1995 (IN THOUSANDS)
<CAPTION>
COMMON STOCKS - 96.6% COUNTRY SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION - 3.3%
BUILDING CONSTRUCTION - 2.0%
HongKong Land Co. HK 400 $ 720
Mitsui Fudosan Co. Ja 50 573
Shimizu Construction Corp. Ja 125 1,167
-------
2,460
-------
SPECIAL TRADE CONTRACTORS - 1.3%
Tele Danmark A/S, Series B (a) De 30 1,565
-------
--------------------------------------------------------------------------------
FINANCE INSURANCE & REAL ESTATE - 26.5%
DEPOSITORY INSTITUTIONS - 10.4%
Allied Irish Bank UK 100 506
Asahi Bank Ltd. Ja 70 699
Australia & New Zealand Banking
Group, Ltd. Au 100 418
Banco De Galicia Bueno ADR (a) Ar 15 287
Banco Popular Espanol SA Sp 10 1,589
Bank International Indonesia In 150 525
Barclays PLC UK 125 1,464
Credit Commercial de France Fr 15 747
Credit Local de France Fr 15 1,190
Dao Heng Bank Group, Ltd. HK 200 733
Deutsche Pfandbrief und
Hypothekenbank AG (a) G 12 469
Development Bank of Singapore, Ltd. Si 100 1,146
Shinhan Bank Ko 32 751
Shizuoka Bank Ja 62 735
Sumitomo Bank, Ltd. Ja 40 709
Sumitomo Trust Ja 50 578
-------
12,546
-------
HOLDING & OTHER INVESTMENT COMPANIES - 8.1%
Amev NV Ne 12 753
Elsevier NV Ne 140 1,810
Five Arrows Chile Investment Trust Ch 175 515
Hong Leong Credit Ma 100 425
Korea Liberalization Fund Ko 1 640
Smaller Companies UK 750 1,505
TR Smaller Companies UK 400 1,277
Taiwan Index Fund Tw 35 323
Thai Euro Fund IDR Th 75 2,456
-------
9,706
-------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO/OCTOBER 31, 1995
-----------------------------------------------------------------------------
<S> <C> <C> <C>
INSURANCE CARRIERS - 4.2%
General Accident Fire and Life
Assurance Corp. PLC UK 150 $ 1,527
Yasuda Fire & Marine Insurance Co. Ja 225 1,367
Zurich Versicherungsgesellschaft Sz 8 2,147
--------
5,041
--------
NONDEPOSITORY CREDIT INSTITUTIONS - 0.2%
Acom Co. Ltd. Ja 8 261
--------
REAL ESTATE - 2.7%
Cheung Kong Ltd. HK 100 564
Land & General Holdings Ma 350 813
Malaysian Resources Corp. Ma 450 655
Straits Steamship Land Ltd. Si 250 700
Sun Hung Kai Properties Ltd. HK 70 559
--------
3,291
SECURITY BROKERS & DEALERS - 0.9%
Yamaichi Securities Co. Ltd. Ja 200 1,050
--------
--------------------------------------------------------------------------------
MANUFACTURING - 37.2%
APPAREL - 1.4%
Onward Kasiyama Co. Ltd. Ja 125 1,727
--------
CHEMICALS - 8.2%
Allied Colloids Group PLC UK 400 837
Bayer AG G 7 1,849
L'Oreal Fr 3 612
Nippon Sanso Corp. Ja 300 1,352
Norsk Hydro AS ADR No 15 597
Reliance Industries GDR UK 12 180
Roche Holding AG Sz (b) 2,107
Schering AG (a) G 15 1,046
Smithkline Beecham Consumer
Brands PLC UK 125 1,303
--------
9,884
--------
Electronic & Electrical Equipment - 5.5%
Ericsson L.M. (a) Sw 60 1,276
Polygram NV Ne 33 2,060
ROHM Co. Ltd. Ja 24 1,453
Samsung Electronics GDS Ko 13 860
TDK Corp. Ja 18 929
--------
6,578
--------
Fabricated Metal - 1.3%
Tostem Corp. (a) Ja 50 1,538
--------
</TABLE>
7
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO/OCTOBER 31, 1995
-----------------------------------------------------------------------------
<CAPTION>
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
------------------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING - CONT.
FOOD & KINDRED PRODUCTS - 4.0%
Bass PLC UK 50 $ 525
Cadbury Schweppes PLC UK 150 1,237
Guinness PLC UK 65 521
LVMH Moet Hennessy Louis Fr 10 1,993
Nestle SA Sz 1 524
--------
4,801
--------
MACHINERY & COMPUTER EQUIPMENT - 7.6%
Atlas Copco AB, Series A Sw 80 1,212
BTR PLC UK 200 1,059
Mannesmann AG G 5 1,477
Mitsubishi Heavy Industries Ltd. Ja 250 1,932
NTN Corp. Ja 275 1,684
Toshiba Corp. Ja 250 1,815
--------
9,179
--------
PAPER & PAPER MILLS - 0.4%
Aracruz Celulose SA, Series B Br 25 231
Inti Indorayon Utama (a) In 150 185
--------
416
--------
PETROLEUM REFINING - 1.2%
British Petroleum Ltd. UK 200 1,472
--------
PRIMARY METAL - 0.6%
Nippon Steel Co. Ja 200 664
--------
PRINTING & PUBLISHING - 1.8%
Singapore Press Holdings Ltd. (a) Si 48 750
Wolters Kluwer Ne 15 1,365
--------
2,115
--------
STONE, CLAY, GLASS & CONCRETE - 3.6%
BPB Industries PLC UK 200 876
Compagnie de Saint Gobain Fr 10 1,194
Nippon Electric Glass Co. Ltd. Ja 66 1,222
Semen Cibinong In 150 393
UBE Industries Ltd. (a) Ja 200 662
--------
4,347
--------
TEXTILE MILL PRODUCTS - 1.2%
Teijin Ltd. Ja 320 1,470
--------
TOBACCO PRODUCTS - 0.4%
B.A.T. Industries PLC UK 60 492
--------
</TABLE>
8
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO/OCTOBER 31, 1995
<CAPTION>
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
MINING & ENERGY - 2.4%
CRUDE PETROLEUM & NATURAL GAS - 1.3%
Compagnie Francaise de Petroleum
Total B Fr 25 $ 1,548
--------
METAL ORES - 0.6%
CRA Ltd. Au 50 769
--------
OIL & GAS EXTRACTION - 0.5%
Hong Kong & China Gas Co. Ltd. HK 400 649
--------
- ------------------------------------------------------------------------------------
RETAIL TRADE - 4.6%
AUTO DEALERS & GAS STATIONS - 0.9%
Inchcape PLC UK 225 1,117
--------
FOOD STORES - 1.6%
Carrefour FR 2 1,471
Centros Comerciales Continente (a) Sp 20 501
--------
1,972
--------
GENERAL MERCHANDISE STORES - 2.1%
Argos PLC UK 150 1,209
La Rinascente SPA It 75 446
Marui Co. Ltd. Ja 50 867
--------
2,522
--------
- -----------------------------------------------------------------------------------
SERVICES - 3.7%
BUSINESS SERVICES - 1.4%
Reuters Holdings PLC Uk 175 1,624
ENERGY SERVICES - 1.5%
Veba Agency G 45 1,842
--------
ENGINEERING, ACCOUNTING,
RESEARCH & MANAGEMENT - 0.8%
United Engineers Ltd. Ma 150 933
--------
- -----------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 17.5%
AIR TRANSPORTATION - 3.2%
British Airport Authority PLC UK 200 1,552
Lufthansa AG G 4 548
Quantas Airways Ltd. (a) Au 2 41
Singapore Airlines Ltd. Si 100 926
Swire Pacific Ltd., Series A HK 100 750
--------
3,817
--------
</TABLE>
9
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO/OCTOBER 31, 1995
<CAPTION>
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC
GAS & SANTIARY SERVICES - CONT.
COMMUNICATIONS - 6.3%
British Telecommunications PLC UK 200 $ 1,190
Hong Kong Telecommunications, Ltd. HK 500 873
Indonesian Satellite ADR (a) In 15 497
Nippon Telegraph & Telephone Corp. (a) Ja (b) 755
Telecom Italia Mobile SPA (a) It 1,000 1,685
Telecom Italia SPA It 550 844
Telecomunicacoes Brasileiras (a) Br 6 237
Tokyo Broadcasting System Ja 100 1,470
========
7,551
ELECTRIC SERVICES - 5.8% ========
BBC Brown Boveri AG Sz 2 2,320
Compania Naviera Perez Companc,
SA ADR Ar 30 263
Empresa Nacional De Electricidad Sp 20 995
Korea Electric Power Corp. (a) Ko 30 1,347
Powergen PLC UK 150 1,346
Tokyo Electric Power Ja 27 716
--------
6,987
--------
MOTOR FREIGHT & WAREHOUSING - 1.2%
Nippon Express Co. Ltd. Ja 180 1,464
--------
WATER TRANSPORTATION - 1.0%
Nippon Yusen Kabushiki Kaish Ja 235 1,259
--------
- --------------------------------------------------------------------------------------
WHOLEALE TRADE - 1.4%
DURABLE GOODS
Canon Sales Ja 32 759
China Steel Corp. (a) Tw 40 740
Samsung Electronics GDR (a) Ko 1 175
--------
1,674
--------
TOTAL COMMON STOCKS (cost of $110,032) 116,331
--------
CORPORATE FIXED-INCOME BONDS - 0.5% CURRENCY PAR
- ----------------------------------------------------------------------------------------
MANUFACTURING - 0.5%
ELECTRONIC & ELECTRICAL EQUIPMENT
Daewoo Electronics Co.,
(cost of $836 3.500% 12/31/07 Ko $ 500 641
--------
</TABLE>
10
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO/OCTOBER 31, 1995
<CAPTION>
WARRANTS (A) -0.1% COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE, INSURANCE & REAL ESTATE - 0.1%
HOLDING & OTHER INVESTMENT COMPANIES
Five Arrows Chile Investment Trust,
expires 01/01/96 Ch 10 $ 7
Thai Euro Fund IDR,
expires 03/31/98 Th 15 45
--------
TOTAL WARRANTS (cost of $52) 52
--------
TOTAL INVESTMENTS - 97.2% (cost of $111,820) (c) 117,024
--------
SHORT-TERM OBLIGATIONS - 2.6% PAR
- ------------------------------------------------------------------------------
Repurchase agreement with Bankers Trust
Securities Corp., dated 10/31/95, due 11/01/95
at 5.875%, collateralized by U.S. Treasury
notes with various maturities to 1997, market
value $3,256 (repurchase proceeds $3,190) $ 3,189 3,189
--------
FORWARD CURRENCY CONTRACTS - 0.3% (d) 333
- ------------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - (0.1%) (132)
- ------------------------------------------------------------------------------
NET ASSETS - 100% $ 120,414
--------
<FN>
NOTES TO INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------
(a) Non-income producing.
(b) Rounds to less than one.
(c) Cost for federal income tax purpose is the same.
(d) As of October 31, 1995, the Fund had entered into the following forward
currency exchange contracts:
</TABLE>
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Contracts In Exchange Settlement (Depreciation)
to Deliver For Date (U.S. $)
---------- ----------- ---------- --------------
<S> <C> <C> <C>
FF 20,000 USD 4,060 12/15/95 $ (35)
JP 1,500,000 USD 15,164 12/15/95 363
SZ 3,100 USD 2,749 12/15/95 5
-------
$ 333
</TABLE> ---
11
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO/OCTOBER 31, 1995
- -----------------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO - CONT.
- -----------------------------------------------------------------------------------------
<CAPTION>
Summary of Securities by Country/
Country / Currency Currency Value % of Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Japan Ja/JP $30,877 26.4
United Kingdom UK 22,823 19.5
France Fr/FF 8,755 7.5
Germany G 7,231 6.2
Switzerland Sz/SZ 7,098 6.1
Netherlands Ne 5,988 5.1
Hong Kong HK 4,848 4.2
Korea Ko 4,413 3.8
Singapore Si 3,522 3.0
Spain Sp 3,085 2.6
Italy It 2,975 2.5
Malaysia Ma 2,826 2.4
Thailand Th 2,501 2.2
Sweden Sw 2,488 2.1
Indonesia In 1,600 1.4
Denmark De 1,565 1.3
Australia Au 1,228 1.0
Taiwan Tw 1,064 0.9
Norway No 597 0.5
Argentina Ar 550 0.5
Chile Ch 522 0.4
Brazil Br 468 0.4
-------- -----
$117,024 100.0
-------- -----
</TABLE>
Certain securities are listed by country of underlying exposure but may
trade predominantly on other exchanges.
<TABLE>
<CAPTION>
Acronym Name
------- ----
<S> <C>
ADR American Depository Receipt
GDR Global Depository Receipt
GDS Global Depository Shares
IDR International Depository Receipt
See notes to financial statements.
</TABLE>
12
<PAGE>
<TABLE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1995
<CAPTION>
(in thousands except for per share amounts and footnotes)
<S> <C> <C>
ASSETS
Investments at value (cost $111,820) $117,024
Short-term obligations 3,189
-------
120,213
Cash held in foreign banks (cost $65) $ 65
Unrealized appreciation on forward
currency contracts 333
Receivable for:
Fund shares sold 343
Dividends 192
Foreign tax reclaims 83
Interest 15
Deferred organization expenses 47
Other 2 1,080
Total Assets ------- -------
121,293
LIABILITIES
Payable for:
Fund shares repurchased 832
Accrued:
Deferred Trustees fees 1
Other 46
-------
Total Liabilities 879
-------
NET ASSETS $120,414
=======
Net asset value & redemption price per share -
Class A ($43,354/4,442) $ 9.76
=======
Maximum offering price per share - Class A
($9.76/0.9425) $ 10.36 (a)
=======
Net asset value & offering price per share -
Class B ($76,376/7,938) $ 9.62 (b)
=======
Net asset value price per share - Class D
($684/71) $ 9.67 (b)
=======
Maximum offering price per share - Class D
($9.67/0.9900) $ 9.77
=======
<FN>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
</TABLE>
See notes to financial statements.
13
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<CAPTION>
<S> <C>
(in thousands)
INVESTMENT INCOME
Dividends $ 2,510
Interest 150
--------
Total investment income (net of nonrebatable foreign
taxes withheld at source which amounted to $407) 2,660
EXPENSES
Management fee $ 1,232
Service fee 341
Distribution fee - Class B 646
Distribution fee - Class D 5
Transfer agent 453
Bookkeeping fee 57
Trustees fee 16
Custodian fee 124
Audit fee 26
Legal fee 6
Registration fee 58
Reports to shareholders 11
Amortization of deferred
organization expenses 16
Other 42
-------
3,033
--------
Net Investment Loss (373)
--------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized loss on:
Investments (8,077)
Foreign currency transactions (2,115)
-------
Net Realized Loss (10,192)
Net unrealized appreciation (depreciation) during
the period on:
Investments (1,371)
Foreign currency transactions 360
-------
Net Unrealized Depreciation (1,011)
--------
Net Loss (11,203)
--------
Net Decrease in Net Assets From Operations $ (11,576)
========
</TABLE>
See notes to financial statements.
14
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
(in thousands) Year ended October 31
---------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994(a)
<S> <C> <C>
Operations:
Net investment loss $ (373) $ (348)
Net realized loss (10,192) (8,053)
Net unrealized appreciation (depreciation) (1,011) 6,540
-------- --------
Net Decrease from Operations (11,576) (1,861)
Fund Share Transactions (b):
Receipts for shares sold - Class A 11,416 82,748
Cost of shares repurchased - Class A (26,238) (20,156)
-------- --------
(14,822) 62,592
-------- --------
Receipts for shares sold - Class B 16,067 116,698
Cost of shares repurchased - Class B (35,674) (11,722)
-------- --------
(19,607) 104,976
-------- --------
Receipts for shares sold - Class D 229 564
Cost of shares repurchased - Class D (81) -
-------- --------
148 564
-------- --------
Net Increase (Decrease) from Fund Share Transactions (34,281) 168,132
-------- --------
Total Increase (Decrease) (45,857) 166,271
NET ASSETS
Beginning of period 166,271 -
-------- --------
End of period (including accumulated net investment
loss of $582 and $8,780, respectively) $ 120,414 $ 166,271
-------- --------
NUMBER OF FUND SHARES (b)
Sold - Class A 1,208 7,941
Repurchased - Class A (2,769) (1,938)
-------- --------
(1,561) 6,003
-------- --------
Sold - Class B 1,711 11,182
Repurchased - Class B (3,817) (1,138)
-------- --------
(2,106) 10,044
-------- --------
Sold - Class D 24 55
Repurchased - Class D (8) -
-------- --------
16 55
-------- --------
<FN>
(a) The Fund commenced investment operations on December 1, 1993.
(b) Class D shares were initially offered on July 1, 1994.
</TABLE>
See notes to financial statements.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1995
NOTE 1. ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
ORGANIZATION: Colonial International Fund for Growth (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 may issue an unlimited
number of shares. The Fund offers three classes of shares: Class A, Class B
and Class D. Class A shares are sold with a front-end sales charge, and Class B
shares are subject to an annual distribution fee and a contingent deferred sales
charge. Class B shares will convert to Class A shares when they have been
outstanding approximately eight years. Class D shares are subject to a reduced
front-end sales charge, a contingent deferred sales charge on redemptions made
within one year after purchase and a continuing annual distribution fee. The
following significant accounting policies are consistently followed by the Fund
in the preparation of its financial statements and conform to generally
accepted accounting principles.
SECURITY VALUATION AND TRANSACTIONS: Equity securities 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 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. Korean equity
securities that have reached the limit for aggregate foreign ownership and
for which premiums to the local exchange prices may be paid by foreign investors
are valued by applying a broker quoted premium to the local share price.
Portfolio positions which cannot be valued as set forth above are valued at fair
value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class B and Class D distribution fees), 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.
16
<PAGE>
Notes to Financial Statements/October 31, 1995
The per share data was calculated using the average shares outstanding during
the period. In addition, Class B and Class D net investment income per
share data reflects the distribution fee applicable to Class B and Class D
shares only. Class B and Class D 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 D shares only.
FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a
regulated investment company and to distribute all of its taxable income,
no federal income tax has been accrued.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders are recorded on
the ex-date.
The 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 carryovers) under income tax regulations.
DEFERRED ORGANIZATION EXPENSES: The Fund incurred expenses of $77,162 in
connection with it's organization, initial registration with the Securities
and Exchange Commission and with various states, and the initial public
offering of its shares. These expenses were deferred and are being amortized
on a straight-line basis over five years.
FOREIGN CURRENCY TRANSACTIONS: The Fund has adopted Statement of Position 93-4,
Foreign Currency Accounting and Financial Statement Presentation for Investment
Companies. Accordingly, net realized and unrealized gains (losses) on foreign
currency transactions includes the fluctuation in exchange rates on gains
(losses) 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 or 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
17
<PAGE>
Notes to Financial Statements/October 31, 1995
NOTE 1. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
unrealized gains (losses) on foreign currency transactions. Forward currency
contracts do not eliminate fluctuations in the prices of the Fund's
portfolio securities. While the maximum potential loss from such contracts is
the aggregate face value in U.S. dollars at the time the contract was opened,
exposure is typically limited to the change in value of the contract (in U.S.
dollars) over the period it remains open. Risks may also arise if
counterparties fail to perform their obligations under the contracts.
OTHER: Interest income is recorded on the accrual basis. Corporate actions
are recorded on the ex-date (except for certain foreign securities which are
recorded as soon after ex-date as the Fund becomes aware of such), net of
nonrebatable tax withholdings. Where a high level of uncertainty as to
collection exists, income on securities is recorded net of all tax withholdings
with any rebates recorded when received. The Fund may be subject to foreign
taxes on income, gains on investments, or foreign currency repatriation. The
Fund accrues foreign taxes as applicable based upon its current interpretation
of the tax rules and regulations that exist in the markets in which it invests.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-
market daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
- --------------------------------------------------------------------------------
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser) is the
investment Adviser of the Fund and furnishes accounting and other services and
office facilities for a monthly fee equal to 0.90% annually of the Fund's
average net assets. Gartmore Capital Management, Ltd. (the Sub-Adviser)
furnished the Fund with investment management. Effective January 1, 1996,
Colonial Management Associates, Inc. will assume full management
responsibilities for the Fund.
BOOKKEEPING FEE: The Adviser provides bookkeeping and pricing services for
$27,000 per year plus 0.035% of the Fund's average net assets over $50 million.
TRANSFER AGENT: Colonial Investors Service Center, Inc. (the Transfer Agent),
an affiliate of the Adviser, provides shareholder services and receives a
monthly fee equal to 0.25% annually of the Fund's average net assets and
receives a reimburse- ment for certain out of pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. For the year ended October 31, 1995, the Fund has been
advised that the Distributor retained net underwriting discounts of $23,792 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $569,410 and $214, on Class B and Class D share redemptions,
respectively.
18
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
The Fund has adopted a 12b-1 plan which requires it to pay the Distributor a
service fee 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% of the average net assets attributable to Class B and
Class D shares.
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.
EXPENSE LIMITS: The Adviser has agreed, until further notice, to waive fees
and bear certain Fund expenses to the extent that total expenses (exclusive of
service and distribution fees, brokerage commissions, interest, taxes and
extraordinary expenses, if any) exceed 1.50% annually of the Fund's average
net assets.
For the year ended October 31, 1995, the Fund's operating expenses did not
exceed the 1.50% expense limit.
OTHER: The Fund pays no compensation to its officers, all of whom are
employees of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which may
be terminated at any time. Obligations of the plan will be paid solely out of
the the Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended October 31, 1995, purchases and
sales of investments, other than short-term obligations, were $46,250,132 and
$82,395,043, respectively.
Unrealized appreciation (depreciation) at October 31, 1995, based on cost of
investments for both financial statement and federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $12,293,908
Gross unrealized depreciation (7,089,791)
-----------
Net unrealized appreciation $ 5,204,117
===========
</TABLE>
CAPITAL LOSS CARRYFORWARDS: At October 31, 1995, capital loss
carryforwards available (to the extent provided in regulations) to
offset future realized gains were approximately as follows:
<TABLE>
<CAPTION>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
<S> <C>
2003 $9,862,000
</TABLE>
Expired capital loss carryforwards, if any, are recorded as a reduction of
capital paid in.
To the extent loss carryforwards are used to offset any future realized gains,
it is unlikely that such gains would be distributed since they may be taxable
to shareholders as ordinary income.
19
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
OTHER: There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities.
These risks may involve foreign currency exchange rate fluctuations, adverse
political and economic developments and the possible prevention of foreign
currency exchange or the imposition of other foreign governmental laws or
restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 4. COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
At October 31, 1995, net assets consisted of:
Capital paid in $125,273
Accumulated net investment loss (582)
Accumulated net realized loss (9,806)
Net unrealized appreciation on:
Investments 5,204
Foreign currency transactions 325
--------
$120,414
========
</TABLE>
20
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (a)
Selected data for a share of each class outstanding throughout each period are as follows:
<CAPTION>
Year ended October 31 Period ended October 31
------------------------------- -------------------------------------
1995 1994 (b)
Class A Class B Class D Class A Class B Class D (c)
------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value -
Beginning of period $10.370 $10.300 $10.350 $10.000 $10.000 $10.060
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income 0.019 (0.052) (0.052) 0.013 (0.058) (0.037)
Net realized and
unrealized gain (loss) (0.629) (0.628) (0.628) 0.357 0.358 0.327
------- ------- ------- ------- ------- -------
Total from Investment
Operations (0.610) (0.680) (0.680) 0.370 0.300 0.290
------- ------- ------- ------- ------- -------
Net asset value -
End of period $9.760 $9.620 $9.670 $10.370 $10.300 $10.350
======= ======= ======= ======= ======= =======
Total return (d) (5.88)% (6.60)% (6.57)% 3.70%(f) 3.00%(f) 2.88%(f)
======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.74%(e) 2.49%(e 2.49%(e) 1.71%(g) 2.46%(g) 2.46%(g)
Net investment income 0.20%(e) (0.55)%(e) (0.55)%(e) 0.14%(g) (0.61)%(g) (0.61)%(g)
Portfolio turnover 35% 35% 35% 51%(g) 51%(g) 51%(g)
Net assets at end
of period (000) $43,354 $76,376 $684 $62,251 $103,450 $570
<FN>
(a) Per share data was calculated using average shares outstanding during the period.
(b) The Fund commenced investment operations on December 1, 1993.
(c) Class D shares were initially offered on July 1, 1994. Per share amounts reflect activity
from that date.
(d) Total return at net asset value assuming no initial sales charge or contingent deferred
sales charge.
(e) The benefits derived from custody credits and directed brokerage arrangements, if any,
had no impact on the Fund's gross expense ratio.
(f) Not annualized.
(g) Annualized.
</TABLE>
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST III AND THE SHAREHOLDERS OF
COLONIAL INTERNATIONAL FUND FOR GROWTH
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 Fund for
Growth (a series of Colonial Trust III) at October 31, 1995, 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, 1995 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 11, 1995
<PAGE>
Part B of Post-Effective Amendment No. 91 filed with the Commission on December
29, 1994 (Colonial Growth Shares Fund), is incorporated herein in its entirety
by reference.
Part B of Post-Effective Amendment No. 92 filed with the Commission on February
14, 1995 (as it relates to Colonial Federal Securities Fund, Colonial Strategic
Balanced Fund, Colonial Global Natural Resources Fund, Colonial Global Equity
Fund, The Colonial Fund), is incorporated herein in its entirety by reference.
Part B of Post-Effective Amendment No. 93 filed with the Commission on March 1,
1995 (Colonial Global Utilities Fund), is incorporated herein in its entirety by
reference.
Part B of Post-Effective Amendment No. 94 filed with the Commission on July 28,
1995 (The Colonial Fund), is incorporated herein in its entirety by reference.
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A
Summary of expenses (for Colonial Growth Shares Fund
incorporated herein by reference to Part A of
Post-Effective Amendment No. 91 filed with the Commission
on December 29, 1994)
Summary of expenses (for The Colonial Fund, Colonial
Global Natural Resources Fund, Colonial Federal Securities
Fund, Colonial Global Equity Fund and Colonial Strategic
Balanced Fund, incorporated by reference to Part A of
Post-Effective Amendment No. 92 filed with the Commission
on February 14, 1995)
Summary of expenses (Colonial Global Utilities Fund)
(incorporated herein by reference to Part A of
Post-Effective Amendment No. 93 filed with the Commission
on March 1, 1995)
Summary of expenses (The Colonial Fund, incorporated by
reference to Part A of Post-Effective Amendment No. 94
filed with the Commission on July 28, 1995)
The Fund's financial history (for Colonial Growth Shares
Fund incorporated herein by reference to Part A of
Post-Effective Amendment No. 91 filed with the Commission
on December 29, 1994)
The Fund's financial history (Colonial Global Natural
Resources Fund, Colonial Federal Securities Fund, Colonial
Global Equity Fund, Colonial International Fund for Growth
and Colonial Strategic Balanced Fund, incorporated by
reference to Part A of Post-Effective Amendment No. 92
filed with the Commission on February 14, 1995)
The Fund's financial history (Colonial Global Utilities
Fund) (incorporated herein by reference to Part A of
Post-Effective Amendment No. 93 filed with the Commission
on March 1, 1995)
The Fund's financial history (The Colonial Fund,
incorporated herein by reference to Part A of
Post-Effective Amendment No. 94 filed with the Commission
on July 28, 1995)
Included in Part B
Colonial Global Utilities Fund (CGUF) (incorporated herein
by reference to Part B of Post-Effective Amendment No. 93
filed with the Commission on March 1, 1995)
Investment portfolio, October 31, 1994 Statement of assets
and liabilities, October 31, 1994 Statement of operations,
Period ended October 31, 1994 Statement of changes in net
assets, Period ended October 31, 1994 Notes to Financial
Statements Financial Highlights Report of Independent
Accountants
Colonial International Fund for Growth (CIFfG)
Investment portfolio, October 31, 1995 Statement of assets
and liabilities, October 31, 1995 Statement of operations,
Year ended October 31, 1994
Statement of changes in net assets, Year ended October 31,
1995 and Period ended October 31, 1994 Notes to Financial
Statements Financial Highlights Report of Independent
Accountants
Colonial Growth Shares Fund (CGSF)(incorporated herein by
reference to Part B of Post-Effective Amendment No.
91 filed with the Commission on December 29, 1994)
Investment portfolio, October 31, 1994 Statement of assets
and liabilities, October 31, 1994 Statement of operations,
Year ended October 31, 1994 Statement of changes in net
assets, Years ended October 31, 1994 and 1993 Notes to
Financial Statements Financial Highlights Report of
Independent Accountants
The Colonial Fund (TCF)(October 31, 1994 financial
statements are incorporated herein by reference to Part B
of Post-Effective Amendment No. 92 filed with the
Commission on February 14, 1995; April 30, 1995 financial
statements are incorporated herein by reference to Part B
of Post-Effective Amendment No. 94 filed with the
Commission on July 28, 1995)
Investment portfolio, October 31, 1994 Statement of assets
and liabilities, October 31, 1994 Statement of operations,
Year ended October 31, 1994 Statement of changes in net
assets, Years ended October 31, 1994 and 1993 Notes to
Financial Statements Financial Highlights Report of
Independent Accountants
Investment Portfolio, April 30, 1995 (unaudited) Statement
of assets and liabilities, April 30, 1995 (unaudited)
Statement of operations, for the six months ended April
30, 1995 (unaudited) Statement of changes in net assets
for the six months ended April 30, 1995 (unaudited) Notes
to Financial Statements (unaudited) Financial Highlights
Colonial Federal Securities Fund (CFSF)(incorporated
herein by reference to Part B of Post-Effective Amendment
No. 92 filed with the Commission on February 14, 1995)
Investment portfolio, October 31, 1994 Statement of assets
and liabilities, October 31, 1994 Statement of operations,
Year ended October 31, 1994 Statement of changes in net
assets, Years ended October 31, 1994 and 1993 Notes to
Financial Statements Financial Highlights Report of
Independent Accountants
Colonial Global Equity Fund (CGEF)(incorporated herein by
reference to Part B of Post-Effective Amendment No.
92 filed with the Commission on February 14, 1995)
Investment portfolio, October 31, 1994 Statement of assets
and liabilities, October 31, 1994 Statement of operations,
Year ended October 31, 1994
Statement of changes in net assets, Year ended October 31,
1994 and Period ended October 31, 1993 Notes to Financial
Statements Financial Highlights Report of Independent
Accountants
Colonial Global Natural Resources Fund (CGNRF)
(incorporated herein by reference to Part B of Post-
Effective Amendment No. 92 filed with the Commission on
February 14, 1995)
Investment portfolio, October 31, 1994 Statement of assets
and liabilities, October 31, 1994 Statement of operations,
Year ended October 31, 1994 Statement of changes in net
assets, Years ended October 31, 1994 and 1993 Notes to
Financial Statements Financial Highlights Report of
Independent Accountants
Colonial Strategic Balanced Fund (CSBF)(incorporated
herein by reference to Part B of Post-Effective Amendment
No. 92 filed with the Commission on February 14, 1995)
Investment portfolio, October 31, 1994 Statement of assets
and liabilities, October 31, 1994 Statement of operations,
Period ended October 31, 1994 Statement of changes in net
assets, Period ended October 31, 1994 Notes to Financial
Statements Financial Highlights Report of Independent
Accountants
(b) Exhibits:
1 Amendment No. 3 to the Agreement and Declaration of Trust (4)
2 By-Laws (4)
2(a) By-Laws as amended (10/9/92) (7)
3 Not Applicable
4 Form of Specimen of share certificate (4)
5(a) Form of Management Agreement (TCF) (16) 5(b) Form of proposed Management
Agreement (CFSF, CNRF, CGEF and CSBF) (4)
5(c) Management Agreement between CIFFG and Colonial Management Associates, Inc.
(9)
6(a) Form of Distributor's Contract with Colonial Investment Services
(incorporated herein by reference to Exhibit 6(i)(b) to Post-Effective Amendment
No. 22 to the Registration Statement of Colonial Trust II, Registration Nos
2-66976 and 811-3009, filed with the Commission on October 28, 1994)
6(b) Form of Selling Agreement with Colonial Investment Services (10)
6(c) Form of Bank and Bank Affiliated Selling Agreement (incorporated herein by
reference to Exhibit 6(c) to Post-Effective Amendment No. 5 to the Registration
Statement of Colonial Trust VI, Registration Nos. 33-45117 and 811-6529, filed
with the Commission on October 11, 1994)
6(d) Mutual Fund Agreement between NCNB Securities, Inc. and Colonial Investment
Services (incorporated herein by reference to Exhibit 6(f) to Post-Effective
Amendment No. 3 to the Registration Statement of Colonial Massachusetts
Tax-Exempt Trust, Registration Nos. 33-12109 and 811-5030, filed with the
Commission on May 11, 1989)
6(e) Form of Asset Retention Agreement (incorporated by reference to Exhibit
6(e) to Post-Effective Amendment No. 5 to the Registration Statement of Colonial
Trust VI, Registration Nos. 33-45117 and 811-6529, filed with the Commission on
October 11, 1994).
7 Not Applicable
8 Proposed form of Custodian Agreement with Boston Safe Deposit and Trust
Company (incorporated herein by reference to Exhibit 8(k) to Post-Effective
Amendment No. 36 to the Registration Statement of Colonial Trust IV,
Registration Nos. 2-62492 and 811-2865, filed with the Commission on March 12,
1993)
9(a) Form of Amended and Restated Shareholders' Servicing and Transfer Agent
Agreement as amended with Colonial Investors Service Center, Inc. (formerly
Citadel Service Company, Inc.) and Colonial Management Associates, Inc.
(incorporated herein by reference to Exhibit 9(a) to Post-Effective Amendment
No. 5 to the Registration Statement of Colonial Trust VI, Registration Nos.
33-45117 and 811-6529, filed with the Commission on October 11, 1994)
9(b) Pricing and Bookkeeping Agreement with Colonial Management Associates, Inc.
(6)
9(c) Investment Account Application (incorporated herein by reference to
Prospectus)
9(d) Form of proposed Agreement and Plan of Reorganization (incorporated herein
by reference to Exhibit 9(c) to Post-Effective Amendment No. 67 to the
Registration Statement of The Colonial Fund, Registration File Nos. 2-15392 and
811-895, filed with the Commission on February 26, 1987) (TCF)
9(e) Form of proposed Agreement and Plan of Reorganization (CGSF) (1)
9(f) Form of Agreement and Plan of Reorganization (TCF and CFSF) (5)
9(g) Form of Colonial Asset Builder Account Application (TCF, CGSF) (8)
9(h) Form of Administration Agreement between Colonial Trust III, with respect
to CGUF, and Colonial Management Associates, Inc. (12)
10 Opinion and Consent of Counsel (CGSF)(2)
10(a) Opinion and Consent of Counsel (incorporated herein by reference to
Exhibit 10 to Pre-Effective Amendment No. 1 to the Registration Statement of
Colonial Government Securities Plus Trust, Registration File Nos. 2-87530 and
811-3895, filed with the Commission on January 6, 1984) (CFSF)
10(b) Opinion and Consent of Counsel (incorporated herein by reference to
Exhibit 10 to Post-Effective Amendment No. 67 to the Registration Statement of
The Colonial Fund, Registration File Nos. 2-15392 and 811-895, filed with the
Commission on February 26, 1987) (TCF)
11(a) Consent of Independent Accountants (TCF,CFSF, CGEF, CSBF and CGNRF)(14)
11(b) Consent of Independent Accountants (CGSF)(12)
11(c) Consent of Independent Accountants (CGUF)(15)
11(d) Consent of Independent Accountants (CIFFG)
12 Not Applicable
13 Not Applicable
14(a) Form of Colonial Mutual Funds Money Purchase Pension and Profit Sharing
Plan Document and Trust Agreement (incorporated herein by reference to Exhibit
14(a) to Post-Effective Amendment No. 5 to the Registration Statement of
Colonial Trust VI, Registration Nos. 33-45117 and 811-6529, filed with the
Commission on October 11, 1994)
14(b) Form of Colonial Mutual Funds Money Purchase Pension and Profit Sharing
Plan Establishment Booklet (incorporated herein by reference to Exhibit 14(b) to
Post-Effective Amendment No. 5 to the Registration Statement of Colonial Trust
VI, Registration Nos. 33-45117 and 811-6529, filed with the Commission on
October 11, 1994)
14(c) Form of Colonial Mutual Funds Individual Retirement Account and
Application (incorporated herein by reference to Exhibit 14(c) to Post-Effective
Amendment No. 5 to the Registration Statement of Colonial Trust VI, Registration
Nos. 33-45117and 811-6529, filed with the Commission on October 11, 1994)
14(d) Form of Colonial Mutual Funds Simplified Employee Pension Plan and Salary
Reduction Simplified Employee Pension Plan (incorporated herein by reference to
Exhibit 14(d) to Post-Effective Amendment No. 5 to the Registration Statement of
Colonial Trust VI, Registration Nos. 33-45117 and 811-6529, filed with the
Commission on October 11, 1994)
14(e) Form of Colonial Mutual Funds 401(k) Plan Document and Trust Agreement
(incorporated herein by reference to Exhibit 14(e) to Post-Effective Amendment
No. 5 to the Registration Statement of Colonial Trust VI, Registration Nos.
33-45117 and 811-6529, filed with the Commission on October 11, 1994)
14(f) Form of Colonial Mutual Funds 401(k) Plan Establishment Booklet
(incorporated herein by reference to Exhibit 14(f) to Post-Effective Amendment
No. 5 to the Registration Statement of Colonial Trust VI, Registration Nos.
33-45117 and 811-6529, filed with the Commission on October 11, 1994)
14(g) Form of Colonial Mutual Funds 401(k) Employee Reports Booklet
(incorporated herein by reference to Exhibit 14(g)(a) to Post-Effective
Amendment No. 5 to the Registration Statement of Colonial Trust VI, Registration
Nos. 33-45117 and 811-6589, filed with the Commission on October 11, 1994)
15 Distribution Plan adopted pursuant to Section 12b-1 of the Investment Company
Act of 1940, incorporated by reference to the Distributor's Contracts filed as
Exhibit 6(a) hereto
16(a) Calculation of Performance Information (CGSF)(13)
16(b) Calculation of Yield (CGSF)(13)
16(c) Calculation of Performance Information (CFSF)(14)
16(d) Calculation of Yield (CFSF)(14)
16(e) Calculation of Performance Information at 10/31/94 (TCF)(14)
16(f) Calculation of Yield at 10/31/94 (TCF)(14)
16(g) Calculation of Performance Information (CGEF)(14)
16(h) Calculation of Yield (CGEF)(14)
16(i) Calculation of Performance Information (CGNRF)(14)
16(j) Calculation of Yield (CGNRF)(14)
16(k) Calculation of Performance Information (CSBF)(14)
16(l) Calculation of Yield (CSBF)(14)
16(m) Calculation of Performance Information (CIFFG)
16(n) Calculation of Yield (CIFFG)
16(o) Calculation of Performance Information (CGUF)
16(p) Not Applicable (CGUF)
16(q) Calculation of Performance Information at 4/30/95 (TCF)(16)
16(r) Calculation of Yield at 4/30/95 (TCF)(16)
17(a) Financial Data Schedule (Class A)(CFSF)(14)
17(b) Financial Data Schedule (Class B)(CFSF)(14)
17(c) Not applicable (Class D)(CFSF)
17(d) Financial Data Schedule at 10/31/94 (Class A)(TCF)(14)
17(e) Financial Data Schedule at 10/31/94 (Class B)(TCF)(14)
17(f) Not applicable (Class D)(TCF)
17(g) Financial Data Schedule (Class A)(CGEF)(14)
17(h) Financial Data Schedule (Class B)(CGEF)(14)
17(i) Financial Data Schedule (Class A)(CGNRF)(14)
17(j) Financial Data Schedule (Class B)(CGNRF)(14)
17(k) Financial Data Schedule (Class A)(CSBF)(14)
17(l) Financial Data Schedule (Class B)(CSBF)(14)
17(m) Financial Data Schedule (Class D)(CSBF)(14)
17(n) Financial Data Schedule (Class A)(CIFFG)
17(o) Financial Data Schedule (Class B)(CIFFG)
17(p) Financial Data Schedule (Class D)(CIFFG)
17(q) Not Applicable (Class A)(CGSF)
17(r) Not Applicable (Class B)(CGSF)
17(s) Financial Data Schedule (Hub)(CGUF)(15)
17(t) Financial Data Schedule (Spoke)(CGUF)(15)
17(u) Financial Data Schedule at 4/30/95 (Class A)(TCF)(16)
17(v) Financial Data Schedule at 4/30/95 (Class B)(TCF)(16)
18 Power of Attorney for: Tom Bleasdale, Lora S. Collins, William D. Ireland,
Jr., William E. Mayer, John A. McNeice, Jr., James L. Moody, Jr., John J.
Neuhauser, George L. Shinn, Robert L. Sullivan and Sinclair Weeks, Jr.
(incorporated herein by reference to Exhibit 16 to Post-Effective Amendment No.
38 to the Registration Statement of Colonial Trust IV, Registration Nos. 2-62492
and 811-2865, filed with the Commission on March 11, 1994)
18(a) Power of Attorney for: Robert J. Birnbaum, James E. Grinnell and Richard
W. Lowry (incorporated herein by reference to Exhibit 18(a) to Post-Effective
Amendment No. 18 to the Registration Statement of Colonial Trust V, Registration
Nos. 811-5030 and 33-12109, filed with the Commission on May 22, 1995)
(1) Incorporated by reference to Post-Effective Amendment No. 70 to Form N-1A
filed on or about June 2, 1986
(2) Incorporated by reference to Post-Effective Amendment No. 71 to Form N-1A
filed on or about August 27, 1986
(3) Incorporated by reference to Post-Effective Amendment No. 75 to Form N-1A
filed on or about May 31, 1990
(4) Incorporated by reference to Post-Effective Amendment No. 78 to Form N-1A
filed on or about December 17, 1991.
(5) Incorporated by reference to Post-Effective Amendment No. 79 to Form N-1A
filed on or about February 11, 1992.
(6) Incorporated by reference to Post-Effective Amendment No. 80 to Form N-1A
filed on or about July 13, 1992.
(7) Incorporated by reference to Post-Effective Amendment No. 81 to Form N-1A
filed on or about November 19, 1992.
(8) Incorporated by reference to Post-Effective Amendment No. 85 to Form N-1A
filed on or about July 30, 1993.
(9) Incorporated by reference to Post-Effective Amendment No. 86 to Form N-1A
filed on or about January 12, 1994.
(10) Incorporated by reference to Post-Effective Amendment No. 87 to Form N-1A
filed on or about February 9, 1994.
(11) Incorporated by reference to Post-Effective Amendment No. 88 to Form N-1A
filed on or about April 20, 1994.
(12) Incorporated by reference to Post-Effective Amendment No. 90 to Form N-1A
filed on or about December 21, 1994.
(13) Incorporated by reference to Post-Effective Amendment No. 91 to Form N-1A
filed on or about December 29, 1994.
(14) Incorporated by reference to Post-Effective Amendment No. 92 to Form N-1A
filed on or about February 14, 1995.
(15) Incorporated by reference to Post-Effective Amendment No. 93 to Form N-1A
filed on or about March 1, 1995.
(16) Incorporated by reference to Post-Effective Amendment No. 94 to Form N-1A
filed on or about July 28, 1995.
Item 25. Persons Controlled by or under Common Group Control
with Registrant
None
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders
Title of Class as of November 30, 1995
- -------------- -----------------------
Shares of Beneficial Interest 13,365 - Class A record holders
7,014 - Class B record holders
(CGSF)
Shares of Beneficial Interest 57,353 - Class A record holders
3,159 - Class B record holders
(CFSF)
Shares of Beneficial Interest 44,806 - Class A record holders
31,251 - Class B record holders
0 - Class D record holders
3 - Class Z record holders
(TCF)
Shares of Beneficial Interest 5,515 - Class A record holders
2,272 - Class B record holders
(CGNRF)
Shares of Beneficial Interest 1,393 - Class A record holders
5,952 - Class B record holders
(CGEF)
Shares of Beneficial Interest 954 - Class A record holders
2,349 - Class B record holders
168 - Class D record holders
(CSBF)
Shares of Beneficial Interest 5,738 - Class A record holders
10,165 - Class B record holders
87 - Class D record holders
(CIFfG)
Shares of Beneficial Interest 21,979 - Class A record holders
63 - Class B record holders
7 - Class D record holders
(CGUF)
<PAGE>
Item 27. Indemnification
See Article VIII of Amendment No. 3 to the Agreement and
Declaration of Trust filed as Exhibit 1 hereto.
Item 28. Business and Other Connections of Investment Adviser
The following sets forth business and other connections of
each director and officer of Colonial Management
Associates, Inc. (see next page):
ITEM 28.
- --------
Registrant's investment adviser, Colonial Management Associates, Inc., is
registered as an investment adviser under the Investment Advisers Act of 1940
(1940 Act). Colonial Advisory Services, Inc. (CASI), an affiliate of Colonial
Management Associates, Inc., is also registered as an investment adviser under
the 1940 Act. As of the end of its fiscal year June 30, 1995, CASI had one
institutional, corporate or other accounts under management or supervision, the
market value of which was approximately $30.9 million. At June 30, 1995,
Colonial Management Associates, Inc. was the investment adviser to the 36 mutual
funds in the Colonial Group of Funds, the market value of which investment
companies was approximately $15,913.6 million. Colonial Investment Services,
Inc., a subsidiary of Colonial Management Associates, Inc., is the principal
underwriter and the national distributor of all of the funds in the Colonial
Group of Funds, including the Registrant.
The following sets forth the business and other connections of each
director and officer of Colonial Management Associates, Inc.:
(1) (2) (3) (4)
Name and principal
business
addresses* Affiliation
of officers and with Period is through 3/1/95. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ---------- -------------------------------- -----------
Archer, Joseph A. V.P.
Berliant, Allan V.P.
Bertelson, Lisa V.P.
Bissonette, Michael V.P.
Boatman, Bonny E. Dir.;
Sr.V.P.;
IPC Mbr.
Carnabucci,
Dominick V.P.
Carroll, Sheila A. Sr.V.P.;
Dir.
Citrone, Frank V.P.
Cogger, Harold W. Dir.;Pres.; The Colonial Group, Inc. Dir.; Pres.;
CEO
CEO;IPC Mbr. Colonial Trusts I through VI V.P.
Exe. Cmte.
Colonial High Income
Municipal Trust V.P.
Colonial InterMarket Income
Trust I V.P.
Colonial Intermediate High
Income Fund V.P.
Colonial Investment Grade
Municipal Trust V.P.
Colonial Municipal Income
Trust V.P.
Liberty Financial Exec V.P.;
Companies, Inc. Dir.
Collins, Anne V.P.
Conlin, Nancy V.P.; Colonial Investors Service
Asst. Center, Inc. Asst. Clerk
Sec.; The Colonial Group, Inc. Asst. Clerk
Asst Colonial Advisory Services,
Clerk and Inc. Asst. Clerk
Counsel Colonial Investment Services,
Inc. Asst. Clerk
Cordes, Susan V.P.
Daniszewski, V.P. Colonial Investment Services,
Joseph J. Inc. V.P.
DiSilva, Linda V.P.
Ericson, Carl C. V.P. Colonial Intermediate High
Income Fund V.P.
Evans, C. Frazier Dir.; Colonial Investment Services,
Sr.V.P. Inc. Sr. V.P.
Feingold, Andrea V.P. Colonial Intermediate High
Income Fund V.P.
Finnemore, V.P.
Leslie W.
Gerokoulis, V.P. Colonial Investment Services,
Stephen A. Inc. Sr. V.P.
Harasimowicz, V.P.
Stephen
Hartford, Brian V.P.
Haynie, James P. V.P. Colonial Advisory Services,
Inc. V.P.
Johnson, Gordon A. V.P.
Koonce, Michael H. V.P.; Colonial Trusts I through VI Asst. Sec.
Asst. Colonial High Income
Sec.; Municipal Trust Asst. Sec.
Asst. Colonial InterMarket Income
Clerk & Trust I Asst. Sec.
Counsel Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Colonial Investment Services,
Inc. Asst. Clerk
Colonial Investors Service
Center, Inc. Asst. Clerk
The Colonial Group, Inc. Asst. Clerk
Colonial Advisory Services,
Inc. Asst. Clerk
Lennon, John E. V.P. Colonial Advisory Services,
Inc. V.P.
Lenzi, Sharon V.P.
Lilienfeld, V.P.
Jonathan
Loring, William C. V.P.
Lydecker, Peter L. V.P.; Colonial Trusts I through VI Controller
Asst. Colonial High Income
Treasurer Municipal Trust Controller
Colonial InterMarket Income
Trust I Controller
Colonial Intermediate High
Income Fund Controller
Colonial Investment Grade
Municipal Trust Controller
Colonial Municipal Income
Trust Controller
MacKinnon, Dir.;
Donald S. Sr.V.P.
McCue, Gerard A. V.P. Colonial Advisory Services,
Inc. V.P.
McGregor, Dir.; Colonial Investment Services, Pres.; CEO;
Jeffrey L. Sr.V.P. Inc. Dir.
McNeice, Jr., Chrmn.; Boston College Trustee
John A. Dir.; Boston College High School Trustee
Exe. Carney Hospital Foundation Mbr. of the
Cmte. Chm.; Carney Fund
Colonial Advisory Services, Dir.; Chm.;
Inc. CEO & Pres.
Colonial High Income Trustee;
Municipal Trust Pres.
Colonial InterMarket Trustee;
Income I Pres.
Colonial Intermediate High Trustee;
Income Fund Pres.
Colonial Investment Grade Trustee;
Municipal Trust Pres.
Colonial Municipal Income Trustee;
Trust Pres.
The Colonial Group, Inc. Trustee;
Pres.
Colonial Trusts I through VI Trustee;
Pres.
Colonial Investors Service Trustee;
Center, Inc. Pres.
Nativity Preparatory School Chm., Bd. of
Trustees
Northeastern University Corp. Bd.
Mbr.
Wentworth Institute of Corp. Bd.
Technology Mbr.
Colonial Investment Services, Dir.; Chm.
Inc. of the Bd.
Board of Visitors - Peter
Drucker Graduate Center Board Member
St. John's Seminary Board Member
Third Century Foundation Trustee;
Pres.
Peter F. Drucker Foundation Dir.
United Way of Mass Bay Board Member
American Ireland Fund Board Member
Catholic Charities -
Archdiocese of Boston Board Member
Liberty Financial Companies,
Inc. Dir.
O'Neill, Charles A. Sr.V.P.; Colonial Investment Services,
Dir. Inc. Exec. V.P.
Peters, Helen F. Dir.;
Sr.V.P.;
IPC Mbr.
Rao, Gita V.P.
Rie, Daniel Sr.V.P.; Colonial Advisory Services,
IPC Mbr.; Inc. Sr. V.P.
Dir.
Scoon, Davey S. Dir.; Colonial Advisory Services,
Exe.V.P.; Inc. Treasurer
IPC Mbr. Colonial High Income
Municipal Trust V.P.
Colonial InterMarket Income
Trust I V.P.
Colonial Intermediate High
Income Fund V.P.
Colonial Investment Grade
Municipal Trust V.P.
Colonial Municipal Income
Trust V.P.
Colonial Trusts I through VI V.P.
Colonial Investors Service Treasurer
Center, Inc.
The Colonial Group, Inc. COO
Seibel, Sandra L. V.P.
Shore, Janet V.P. and Colonial High Income
Compliance Municipal Trust Asst. Sec.
Offr.; Colonial InterMarket Income
IPC Mbr. Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Colonial Trusts I through VI Asst. Sec.
Colonial Investment Services,
Inc. Asst. Clerk
Silver, Richard A. Dir.; Colonial Advisory Services,
Sr.V.P.; Inc. Controller
Treasurer Colonial High Income Treasurer &
& CFO Municipal Trust CFO
Colonial InterMarket Income Treasurer &
Trust I CFO
Colonial Intermediate High Treasurer &
Income Fund CFO
Colonial Investment Grade Treasurer &
Municipal Trust CFO
Colonial Municipal Income Treasurer &
Trust CFO
Colonial Trusts I through VI Treasurer &
CFO
Colonial Investors Service Asst.
Center, Inc. Treasurer
The Colonial Group, Inc. Treasurer &
CFO
Colonial Investment Services, Treasurer &
Inc. CFO
Stern, Arthur O. Exe.V.P.; Colonial Advisory Services,
Dir.; Inc. Clerk
Sec.; Colonial High Income
Clrk. & Municipal Trust Secretary
Gnrl. Colonial InterMarket Income
Counsel; Trust I Secretary
IPC Mbr. Colonial Intermediate High
Income Fund Secretary
Colonial Investment Grade
Municipal Trust Secretary
Colonial Municipal Income
Trust Secretary
Colonial Trusts I through VI Secretary
Colonial Investors Service
Center, Inc. Clerk
The Colonial Group, Inc. Clerk;
V.P.Lgl.
Colonial Investment Services, Clrk;
Inc. Counsel
Waas, Robert S. V.P.
Wallace, John V.P.- Corp.
Finance and
Controller
- ------------------------------------------------
*The Principal address of all of the officers and
directors of the investment adviser is One Financial
Center, Boston, MA 02111.
Item 29 Principal Underwriter
- ------- ---------------------
(a) Colonial Investment Services, Inc. a subsidiary of Colonial
Management Associates, Inc., Registrant's principal
underwriter, also acts in the same capacity to Colonial Trust I,
Colonial Trust II, Colonial Trust IV, Colonial Trust V,
Colonial Trust VI and Colonial Trust VII:
sponsor for Colony Growth Plans (public offering of which were
discontinued June 14, 1971).
(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.
(1) (2) (3)
Name and Principal Position and Offices Positions and
Business Address* with Principal Offices with
Underwriter Registrant
- ------------------ ------------------- --------------
Ballou, Rich Regional V.P. None
Balzano, Christine R. V.P. None
Barsokas, David Regional V.P. None
Buckley, Anne P. Compliance Officer None
Cairns, David Regional V.P. None
Chrzanowski, Regional V.P. None
Daniel
Clapp, Elizabeth A. V.P. None
Daniszewski, V.P. None
Joseph J.
Davey, Cynthia Sr. V.P. None
Eckelman, Bryan Sr. V.P. None
Eldridge, Kenneth Sr. V.P. None
Emerson, Kim P. Regional V.P. None
Erickson, Cynthia G. V.P. None
Evans, C. Frazier Sr. V.P. None
Feldman, David Regional V.P. None
Flaherty, Michael Regional V.P. None
Gerokoulis, Sr. V.P. None
Stephen A.
Goldberg, Matthew Regional V.P. None
Harasimowicz, V.P. None
Stephen
Hayes, Mary V.P. None
Elizabeth
Hodgkins, Joseph Regional V.P. None
Howard, Craig Sr. V.P. None
Karagiannis, Sr. V.P. None
Marilyn
Kelley, Terry M. Regional V.P. None
Kelson, David W. Sr. V.P. None
Kilkenny Ann R. Sr. V.P. None
Lloyd, Judith H. Sr. V.P. None
Mahoney, D. Scott Sr. V.P. None
McCabe, Joanne Regional V.P. None
McGregor, Jeffrey L. Director, CEO, None
President, COO
Meriwether, Jan V.P.
Meyer, Wayne Regional V.P. None
Murphy, Robert F. Sr. V.P. None
O'Neill, Charles A. Exec. V.P. None
Penitsch, Marilyn L. Regional V.P. None
Potter, Cheryl Regional V.P. None
Reed, Christopher B. Regional V.P. None
Ross, Gary J. Regional V.P. None
Scott, Michael W. Sr. V.P. None
Silver, Richard A. Director, Treasurer, Treasurer, CFO
CFO
Sorrells, Sr. V.P. None
Elizabeth
Stern, Arthur O. Clerk and Secretary
Counsel,Dir.,
Chairman
VanEtten, Keith H. V.P. None
Villanova, Paul Regional V.P. None
Wallace, John V.P. None
- --------------------------
* The address for each individual is One Financial Center, Boston, MA
02111.
Item 30. Location of Accounts and Records
Registrant's accounts and records required to be
maintained by Section 31(a) of the Investment Company Act
of 1940 and the Rules thereunder are in the physical
possession of the following:
Registrant
Rule 31a-1 (b) (4)
Rule 31a-2 (a) (1)
Colonial Management Associates, Inc.
One Financial Center, Boston, Massachusetts 02111
Rule 31a-1 (b) (1), (2), (3), (5), (6), (7), (8), (9),
(10), (11), (12) Rule 31a-1 (d), (f) Rule 31a-2 (a)
(1), (2), (c), (e)
Colonial Investment Services, Inc.
One Financial Center, Boston, Massachusetts 02111
Rule 31a-1 (d)
Rule 31a-2 (c)
Boston Safe Deposit and Trust Company
One Boston Place, Boston, Massachusetts 02108
Rule 31a-1 (b), (2), (3)
Rule 31a-2 (a) (2)
Colonial Investors Service Center, Inc.
P. O. Box 1722, Boston, Massachusetts 02105-1722
Rule 31a-1 (b) (2)
Rule 31a-1 (a) (2)
Item 31. Management Services
See Item 5, Part A and Item 16, Part B
<PAGE>
Item 32. Undertakings
(a) Not Applicable
(b) The Registrant hereby undertakes to promptly call a
meeting of shareholders for the purpose of voting upon
the question of removal of any trustee when requested
in writing to do so by the record holders of not less
than 10 per cent of the Registrant's outstanding shares
and to assist its shareholders in the communicating
with other shareholders in accordance with the
requirements of Section 16(c) of the Investment Company
Act of 1940.
(c) The Registrant hereby undertakes to furnish free of
charge to each person to whom a prospectus is
delivered, a copy of the applicable series' annual
report to shareholders containing the information
required by Item 5A of Form N-1A.
<PAGE>
Part C of Post-Effective Amendment No. 91 filed with the Commission on December
29, 1994 (Colonial Growth Shares Fund), is incorporated herein in its entirety
by reference.
Part C of Post-Effective Amendment No. 92 filed with the Commission on February
14, 1995 (as it relates to Colonial Federal Securities Fund, Colonial Global
Equity Fund, Colonial Global Natural Resources Fund, The Colonial Fund, Colonial
Strategic Balanced Fund), is incorporated herein by reference in its entirety by
reference.
Part C of Post-Effective Amendment No. 93 filed with the Commission on March 1,
1995 (Colonial Global Utilities Fund), is incorporated herein in its entirety by
reference.
Part C of Post-Effective Amendment No. 94 filed with the Commission on July 28,
1995 (The Colonial Fund), is incorporated herein in its entirety by reference.
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of Colonial Trust
III is on file with the Secretary of The Commonwealth of Massachusetts and
notice is hereby given that the instrument has been executed on behalf of the
Trust by an officer of the Trust as an officer and by the Trust's Trustees as
trustees and not individually and the obligations of or arising out of the
instrument are not binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and property of the Trust.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Colonial Trust III, has duly caused this
Post-Effective Amendment No. 95 to its Registration Statement under the
Securities Act of 1933 and Amendment No. 36 under the Investment Company Act of
1940, to be signed in this City of Boston, and the Commonwealth of Massachusetts
on this 28th day of December, 1995.
COLONIAL TRUST III
By: John A. McNeice, Jr.
--------------------
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to its Registration Statement has been signed below by the following
persons in their capacities and on the date indicated.
SIGNATURES TITLE DATE
John A. McNeice, Jr. President (chief December 28, 1995
- -------------------- executive officer)
John A. McNeice, Jr. and Trustee
Richard A. Silver Treasurer (principal December 28, 1995
- -------------------- financial officer)
Richard A. Silver
Peter L. Lydecker Controller (principal December 28, 1995
- -------------------- accounting officer)
Peter L. Lydecker
<PAGE>
\
|
- --------------------------- Trustee |
Robert J. Birnbaum |
|
|
- --------------------------- Trustee |
Tom Bleasdale |
|
|
|
- --------------------------- Trustee |
Lora S. Collins |
|
|
- --------------------------- Trustee |
James E. Grinnell |
|
|
|
- --------------------------- Trustee |
William D. Ireland, Jr. |
|
|
- --------------------------- Trustee |
Richard W. Lowry |
|
|
|
- --------------------------- Trustee |
William E. Mayer |
|
|
|
- --------------------------- Trustee Michael H. Koonce
James L. Moody, Jr. ------------------
Michael H. Koonce
Attorney-in-fact
For each Trustee
- --------------------------- Trustee December 28, 1995
John J. Neuhauser |
|
|
|
- --------------------------- Trustee |
George L. Shinn |
|
|
|
- --------------------------- Trustee |
Robert L. Sullivan |
|
|
|
- --------------------------- Trustee |
Sinclair Weeks, Jr. |
/
<PAGE>
EXHIBIT INDEX
Exhibit
11(d) Consent of Independent Accountants (CIFfG)
16(m) Calculation of Performance Information (CIFfG)
16(n) Calculation of Yield (CIFfG)
17(n) Financial Data Schedule (Class A) (CIFfG)
17(o) Financial Data Schedule (Class B) (CIFfG)
17(p) Financial Data Schedule (Class D)(CIFfG)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus and Statement of Additional Information
constituting parts of this Post-Effective Amendment No. 95
to the registration statement on Form N-1A (the
"Registration Statement") of our report dated December 11,
1995, relating to the financial statements and financial
highlights appearing in the October 31, 1995 Annual Report
to Shareholders of Colonial International Fund for Growth, a
series of Colonial Trust III, which are also incorporated by
reference into the Registration Statement. We also consent
to the references to us under the heading "The Fund's
Financial History" in the Prospectus and under the heading
"Independent Accountants" in the Statement of Additional
Information.
Price Waterhouse LLP
Boston, Massachusetts
December 27, 1995
PERFORMANCE CALCULATION
COLONIAL INTERNATIONAL FUND FOR GROWTH - CLASS A
Year End: 10/31/95
Inception Date: 12/1/93
Since Inception
1 Year Ended 10/31/95 12/1/93 TO 10/31/95
Standard Non-Standard Standard Non-Standard
---------- ------------------ ---------- ------------
Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00
Max. Load 5.75% 5.75%
Amt. Invested $942.50 $1,000.00 $942.50 $1,000.00
Initial NAV $10.37 $10.37 $10.00 $10.00
Initial Shares 90.887 96.432 94.250 100.000
Shares From Dist. 0.000 0.000 0.000 0.000
End of Period NAV $9.76 $9.76 $9.76 $9.76
Total Return -11.29% -5.88% -8.01% -2.40%
Average Annual
Total Return -11.29% -5.88% -4.26% -1.26%
PERFORMANCE CALCULATION
COLONIAL INTERNATIONAL FUND FOR GROWTH - CLASS B
Year End: 10/31/95
Inception Date: 12/1/93
Since Inception
1 Year Ended 10/31/95 12/1/93 TO 10/31/95
Standard Non-Standard Standard Non-Standard
--------- ------------ ---------- ------------
Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00 $1,000.00 $1,000.00
Initial NAV $10.30 $10.30 $10.00 $10.00
Initial Shares 97.087 97.087 100.000 100.000
Shares From Dist. 0.000 0.000 0.000 0.000
End of Period NAV $9.62 $9.62 $9.62 $9.62
CDSC 4.67% 3.85%
Total Return -11.27% -6.60% -7.65% -3.80%
Average Annual
Total Return -11.27% -6.60% -4.06% -2.00%
PERFORMANCE CALCULATION
COLONIAL INTERNATIONAL FUND FOR GROWTH - CLASS D
Year End: 10/31/95
Inception Date: 7/1/94
1 Year Ended 10/31/95 7/1/94 TO 10/31/94
Standard Non-Standard Standard Non-Standard
--------- ------------ --------- -----------
Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00
Max. Load 1.00% 1.00%
Amt. Invested $990.00 $1,000.00 $990.00 $1,000.00
Initial NAV $10.35 $10.35 $10.06 $10.06
Initial Shares 95.652 96.618 98.410 99.404
Shares From Dist. 0.000 0.000 0.000 0.000
End of Period NAV $9.67 $9.67 $9.67 $9.67
CDSC 1.00%
Total Return -8.50% -6.57% -4.84% -3.88%
Average Annual
Total Return -8.50% -6.57% -3.64% -2.91%
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS A YEAR END
OCT-31-1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS OF COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS A YEAR END
OCT-31-1995.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 7
<NAME> COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 115009
<INVESTMENTS-AT-VALUE> 120213
<RECEIVABLES> 633
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 445
<TOTAL-ASSETS> 121293
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 879
<TOTAL-LIABILITIES> 879
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39198
<SHARES-COMMON-STOCK> 4442
<SHARES-COMMON-PRIOR> 6003
<ACCUMULATED-NII-CURRENT> (582)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9806)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5529
<NET-ASSETS> 120414
<DIVIDEND-INCOME> 2510
<INTEREST-INCOME> 150
<OTHER-INCOME> 0
<EXPENSES-NET> 3033
<NET-INVESTMENT-INCOME> (373)
<REALIZED-GAINS-CURRENT> (10192)
<APPREC-INCREASE-CURRENT> (1011)
<NET-CHANGE-FROM-OPS> (11576)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1208
<NUMBER-OF-SHARES-REDEEMED> 2769
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (45857)
<ACCUMULATED-NII-PRIOR> (8780)
<ACCUMULATED-GAINS-PRIOR> 390
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1232
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3033
<AVERAGE-NET-ASSETS> 50177
<PER-SHARE-NAV-BEGIN> 10.37
<PER-SHARE-NII> (0.019)
<PER-SHARE-GAIN-APPREC> (0.629)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.76
<EXPENSE-RATIO> 1.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS B YEAR END
OCT-31-1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 7
<NAME> COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 115009
<INVESTMENTS-AT-VALUE> 120213
<RECEIVABLES> 633
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 445
<TOTAL-ASSETS> 121293
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 879
<TOTAL-LIABILITIES> 879
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 85362
<SHARES-COMMON-STOCK> 7938
<SHARES-COMMON-PRIOR> 10044
<ACCUMULATED-NII-CURRENT> (582)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9806)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5529
<NET-ASSETS> 120414
<DIVIDEND-INCOME> 2510
<INTEREST-INCOME> 150
<OTHER-INCOME> 0
<EXPENSES-NET> 3033
<NET-INVESTMENT-INCOME> (373)
<REALIZED-GAINS-CURRENT> (10192)
<APPREC-INCREASE-CURRENT> (1011)
<NET-CHANGE-FROM-OPS> (11576)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1711
<NUMBER-OF-SHARES-REDEEMED> 3817
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (45857)
<ACCUMULATED-NII-PRIOR> (8780)
<ACCUMULATED-GAINS-PRIOR> 390
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1232
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3033
<AVERAGE-NET-ASSETS> 85970
<PER-SHARE-NAV-BEGIN> 10.300
<PER-SHARE-NII> (0.052)
<PER-SHARE-GAIN-APPREC> (0.628)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.620
<EXPENSE-RATIO> 2.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS D YEAR END
OCT-31-1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS OF COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS D YEAR END
OCT-31-1995
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 7
<NAME> COLONIAL INTERNATIONAL FUND FOR GROWTH FUND, CLASS D
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 115009
<INVESTMENTS-AT-VALUE> 120213
<RECEIVABLES> 633
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 445
<TOTAL-ASSETS> 121293
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 879
<TOTAL-LIABILITIES> 879
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 712
<SHARES-COMMON-STOCK> 71
<SHARES-COMMON-PRIOR> 55
<ACCUMULATED-NII-CURRENT> (582)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9806)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5529
<NET-ASSETS> 120414
<DIVIDEND-INCOME> 2510
<INTEREST-INCOME> 150
<OTHER-INCOME> 0
<EXPENSES-NET> 3033
<NET-INVESTMENT-INCOME> (373)
<REALIZED-GAINS-CURRENT> (10192)
<APPREC-INCREASE-CURRENT> (1011)
<NET-CHANGE-FROM-OPS> (11576)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24
<NUMBER-OF-SHARES-REDEEMED> 8
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (45857)
<ACCUMULATED-NII-PRIOR> (8780)
<ACCUMULATED-GAINS-PRIOR> 390
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1232
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3033
<AVERAGE-NET-ASSETS> 1879
<PER-SHARE-NAV-BEGIN> 10.350
<PER-SHARE-NII> (0.052)
<PER-SHARE-GAIN-APPREC> (0.628)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.670
<EXPENSE-RATIO> 2.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
COLONIAL INTERNATIONAL FUND FOR GROWTH
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 10/31/95
a-b 6
FUND YIELD = 2 ----- +1 -1
c-d
a = dividends and interest earned during
the month ................................ $205,355
b = expenses (exclusive of distribution fee)
accrued during the month.................. 172,909
c = average dividend shares outstanding
during the month ......................... 12,673,170
d = class A maximum offering price per share
on the last day of the month ............. $10.36
CLASS A YIELD ........................... 0.29%
======
Class A yield/(1-Load)
ie: .29%/(1-.0575)=yield on NAV= 0.31%
Less: Distribution fee (.75)
-----
CLASS B YIELD ........................... -0.44%
======
CLASS D YIELD ........................... -0.44%
======
