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. 92 | X |
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | X |
Amendment No. 33 | 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)
| X | on February 28, 1995 pursuant to paragraph (b)
| | 60 days after filing pursuant to paragraph (a)(i)
| | on (date) pursuant to paragraph (a)(i) of Rule 485
| | 75 days after filing pursuant to paragraph (a)(ii)
| | on (date) pursuant to paragraph (a)(ii) 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 29, 1994,
the Registrant filed the Rule 24f-2 Notice for the Registrant's most
recent fiscal year ended October 31, 1994.
COLONIAL TRUST III
Cross Reference Sheet (Colonial Federal Securities Fund)
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; How the Fund
pursues its objective; The Fund's investment
objective
5. Cover page; How the Fund is managed;
Organization and history
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, 1995
COLONIAL FEDERAL SECURITIES FUND
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Adviser) and your full-service
financial adviser want you to understand both the risks and benefits
of mutual fund investing.
While mutual funds offer significant opportunities and are
professionally managed, they also carry 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 Federal Securities Fund (Fund), a diversified portfolio of
Colonial Trust III (Trust), an open-end management investment company,
seeks as high a level of current income and total return, as is
consistent with prudent longer-term investing, by investing primarily
in U.S. government securities.
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
FS-XXX-XXX
the Fund is in the February 28, 1995 Statement of Additional
Information which has been filed with the Securities and Exchange
Commission and is obtainable free of charge by calling the Adviser at
1-800-248-2828. The Statement of Additional Information is
incorporated by reference in (which means it is considered to be a
part of) this Prospectus.
The Fund offers 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 plus an annual
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 shares 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 SECURITIE COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the
Fund. The following tables summarize your maximum transaction costs
and annual expenses for an investment in each Class of the Fund's
shares.
Shareholder Transaction Expenses(1) (2)
Class A Class B Class D
Maximum Initial Sales Charge
Imposed on a Purchase (as a % of
offering price)(3).............. 4.75% 0.00%(5) 1.00%(5)
Maximum Contingent Deferred Sales
Charge (as a % of offering
price(3)........................ 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 shares
and the 0.50% distribution fee applicable to 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 eight years, this is less likely for
Class B shares than for a class without a conversion feature.
Annual Operating Expenses (as a % of net assets)
Class A Class B Class D
Management fee.............. 0.63% 0.63% 0.63%
12b-1 fees.................. 0.25 1.00 0.75
Other expenses.............. 0.28 0.28 0.28
---- ---- ----
Total expenses.............. 1.16% 1.91% 1.66%
==== ==== ====
Example
The following Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each class of shares of the Fundfor
the periods specified, assuming a 5% annual return and, unless
otherwise noted, redemption at period end. The 5% return and expenses
in this Example should not be considered indicative of actual or
expected Fund performance or expenses, both of which will vary:
Class Class B Class D
A
Period: (6) (6)
1 year.............. $59 $ 70 $ 20 $37 $27
3 years............. 83 91 61 62 62
5 years............. 108 124 104 99 99
10 years............ 182 205(7) 205(7) 205 205.
(6) Assumes no redemption.
(7) Class B shares convert to Class A shares after approximately 8
years; therefore, years 9 and 10 reflect Class A expenses.
THE FUND'S FINANCIAL HISTORY
The following schedule of financial highlights for a share outstanding
throughout each period has been audited by Price Waterhouse LLP, independent
accountants. Their unqualified report is included in the Fund's 1994 Annual
Report and is incorporated by reference into the Statement of Additional
Information. The Fund adopted its current objective on November 30, 1994. The
data presented below represents operations under an earlier objective and
policies.
<TABLE>
<CAPTION>
CLASS A
Year ended
October 31
1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period......... $11.460 $10.750 $10.800 $10.420 $11.330 $11.220 $11.130
------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income....................... 0.821 0.819 0.796 0.854 0.917 0.958 0.882
Net realized and unrealized
gain (loss) on investments............... (1.560) 0.739 0.157 0.671 (0.627) 0.352 0.407
------- ----- ----- ----- ------- ----- -----
Total from investment
operations.............................. 0.739 1.558 0.953 1.525 0.290 1.310 1.289
----- ----- ----- ----- ----- ----- -----
Less distributions declared to
shareholders:
From net investment income.................. (0.771) (0.781) (0.796) (0.854) (0.917) (0.958) (0.916)
In excess of net investment income.......... --- (0.067) --- --- --- --- ---
From net realized gains..................... --- --- --- --- --- --- (0.129)
From capital paid in(a)..................... --- --- (0.207) (0.291) (0.283) (0.242) (0.154)
------ ------- ------- ------ ------- ------- -------
Total distributions declared to
shareholders........................... (0.771) (0.848) (1.003) (1.145) (1.200) (1.200) (1.199)
------- ------- ------- ------- ------- ------- -------
Net asset value - End of period............... $9.950 $11.460 $10.750 $10.800 $10.420 $11.330 $11.220
====== ======= ======= ======= ======= ======= =======
Total return(b)............................... (6.57)% 14.94% 9.15% 15.33% 2.85% 12.42% 12.17%
------ ----- ---- ----- ---- ----- -----
Ratios to average net assets:
Expenses.................................. 1.16% 1.17% 1.24% 1.21% 1.16% 1.14% 1.13%
Net investment income..................... 7.80% 7.37% 7.36% 8.05% 8.55% 8.56% 7.90%
Portfolio turnover............................ 121% 252% 18% 11% 6% 55% 66%
Net assets at end of period (in millions)..... $1,278 $1,736 $1,809 $2,028 $2,186 $2,675 $3,079
_________________________________
<CAPTION> CLASS A
Period
ended Year ended
Oct. 31 September 30
1987(c) 1987 1986 1985
<S> <C> <C> <C> <C>
Net asset value - Beginning of period......... $10.820 $12.660 $11.890 $11.660
------- ------- ------- -------
Income from investment operations:
Net investment income....................... 0.005 0.844 1.007 1.100
Net realized and unrealized
gain (loss) on investments............... 0.365 (1.204) 1.263 0.690
----- ------- ----- -----
Total from investment
operations.............................. 0.440 (0.360) 2.270 1.790
----- ------- ----- -----
Less distributions declared to
shareholders: --- --- --- ---
From net investment income.................. (0.070) (0.830) (1.030) (1.160)
In excess of net investment income..........
From net realized gains..................... (0.060) (0.650) (0.470) (0.400)
From capital paid in(a)..................... --- --- --- ---
------ ------ ------- ------
Total distributions declared to
shareholders........................... (0.013) (1.480) (1.500) (1.560)
------- ------- ------- -------
Net asset value - End of period............... $11.130 $10.820 $12.660 $11.890
======= ======= ======= =======
Total return(b)............................... 1.17% (3.52)% 20.04% 16.41%
---- ------ ----- -----
Ratios to average net assets:
Expenses.................................. 1.13%(d) 1.09% 1.10% 1.14%
Net investment income..................... 8.05%(d) 7.06% 8.02% 9.31%
Portfolio turnover............................ 87%(d) 140% 201% 249%
Net assets at end of period (in millions)..... $3,640 $3,624 $2,804 $1,667
_________________________________
(a) Because of differences between book and tax basis accounting, approximately
$0.247, $0.315,$0.300, $0.272 and $0.055, respectively, of the Fund's
aggregate distributions were a return of capital for federal income tax
purposes.
(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or CDSC.
(c) The fund changed its fiscal year from September 30 to October 31, 1987.
(d) Annualized.
</TABLE>
Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-248-2828.
THE FUND'S FINANCIAL HISTORY (CONT'D)
<TABLE>
<CAPTION>
CLASS B
Year ended
October 31
1994 1993 1992(a)
<S> <C> <C> <C>
Net asset value - Beginning of period......... $11.460 $10.750 $10.730
------- ------- -------
Income from investment operations:
Net investment income....................... 0.741 0.737 0.286
Net realized and unrealized
gain (loss) on investments............... (1.560) 0.739 0.095
------- ----- -----
Total from investment
operations.............................. (0.819) 1.476 0.381
------ ----- -----
Less distributions declared to
shareholders:
From net investment income.................. (0.691) (0.706) (0.286)
In excess of net investment income.......... --- (0.060) ---
From capital paid in(b)..................... --- --- (0.075)
------ ------- -------
Total distributions declared to
shareholders........................... (0.691) (0.766) (0.361)
------- ------- -------
Net asset value - End of period............... $9.950 $11.460 $10.750
====== ======= =======
Total return(c)............................... (7.28)% 14.11% 3.47%(d)
------ ----- ----
Ratios to average net assets
Expenses.................................. 1.91% 1.92% 1.99%(e)
Net investment income..................... 7.05% 6.62% 6.61%(e)
Portfolio turnover............................ 121% 252% 18%
Net assets at end of period (in millions)..... $70 $68 $28
(a) Class B shares were initially offered on June 8, 1992. Per share amounts
reflect activity from that date.
(b) Because of differences between book and tax basis accounting, approximately
$0.095 of the Fund's aggregate distributions were a return of capital for
federal income tax purposes.
(c) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or CDSC.
(d) Not annualized.
(e) Annualized.
</TABLE>
Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-248-2828.
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income and total return, as
is consistent with prudent longer-term investing, by investing
primarily in U.S. government securities.
HOW THE FUND PURSUES ITS OBJECTIVE
The Fund invests primarily in U.S. government securities and related
when-issued commitments. U.S. government securities include: (1) U.S.
Treasury obligations, (2) obligations issued or guaranteed by U.S.
government agencies and instrumentalities (Agencies) which are
supported by: (a) the full faith and credit of the U.S. government,
(b) the right of the issuer or guarantor to borrow an amount from a
line of credit with the U.S. Treasury, (c) discretionary power of the
U.S. government to purchase obligations of the Agencies or (d) the
credit of the Agencies, (3) real estate mortgage investment conduits
(REMICs), collateralized mortgage obligations (CMOs) and other
mortgage-backed securities issued or guaranteed by an Agency, and (4)
"when-issued" commitments relating to the foregoing.
The Fund may invest up to 35% of its total assets in REMICs, CMOs and
other mortgage-backed securities not issued or guaranteed by an Agency
but for which the underlying mortgages are guaranteed by an Agency.
The Fund may experience costs and delays in liquidating the collateral
if the issuer defaults or enters bankruptcy and may incur a loss.
The market value of debt securities will fluctuate with changing
interest rates as will the Fund's net asset value per share.
Mortgage-backed securities evidence ownership in a pool of mortgage
loans made by certain financial institutions and insured or guaranteed
by the U.S. government or its Agencies. CMOs are obligations issued
by special-purpose trusts, secured by mortgages. REMICs are entities
that own mortgages and elect REMIC status under the Internal Revenue
Code. Both CMOs and REMICs issue one or more classes of which one
(the Residual) is in the nature of equity. The Fund will not invest
in any Residual class. The interest on the Residual Class involves
the risk of loss of the entire value of the investment if the
underlying mortgages are prepaid. Principal on pass-through mortgage-
backed securities, REMICs or CMOs may be prepaid if the underlying
mortgages are prepaid. Because of the prepayment feature, these
investments may not increase in value when interest rates fall. The
Fund may be able to invest prepaid principal only at lower yields.
The prepayment of such securities purchased at a premium may result in
losses equal to the premium.
The Fund may invest in zero coupon securities (zeros) which are issued
at a significant discount from face value and pay interest only at
maturity rather than at intervals during the life of the security, and
certificates representing undivided interests in the interest or
principal of mortgage-backed securities (interest only/principal
only), which tend to be more volatile than other types of securities.
The Fund will accrue and distribute income from zeros on a current
basis and may have to sell securities to generate cash for
distributions.
"When-issued" securities are contracts to purchase securities for a
fixed price on a date beyond the customary settlement time with no
interest accruing until settlement. If made through a dealer, the
contract is dependent on the dealer's consummation of the transaction.
The dealer's failure could deprive the Fund of advantageous yields.
These contracts also involve the risk that the value of the underlying
security may change prior to settlement. The Fund currently will not
purchase securities more than 120 days before settlement.
The Fund may trade portfolio securities for short-term profits to take
advantage of price differentials. These trades will be limited by
certain Internal Revenue Code requirements.
For hedging purposes, the Fund may (1) buy or sell financial futures
contracts (futures) and (2) purchase and write call and put options on
futures and securities. A future creates an obligation by the seller
to deliver and the buyer to take delivery of the type of instrument at
the time and in the amount specified in the contract. Although
futures call for delivery (or acceptance) of the specified instrument,
futures are usually closed out before the settlement date through the
purchase (sale) of a comparable contract. If the price of the initial
sale of the future exceeds (or is less than) the price of the
offsetting purchase, the Fund realizes a gain (or loss). Options on
futures contracts operate in a similar manner to options on U.S.
government securities, except that the position assumed is in the
futures contracts rather than in the U.S. government security. The
Fund may not purchase or sell futures contracts or purchase related
options if immediately thereafter the sum of the amount of deposits
for initial margin or premiums on the existing futures and related
options positions would exceed 5% of the market value of the Fund's
total assets. Transactions in futures and related options involve the
risk of (1) imperfect correlation between the price movement of the
contracts and the underlying securities, (2) significant price
movement in one but not the other market because of different trading
hours, (3) the possible absence of a liquid secondary market at any
point in time, and (4) if the Adviser's prediction on interest rates
is inaccurate, the Fund may be worse off than if it had not hedged.
The Fund may invest temporarily available cash in certificates of
deposit, bankers' acceptances, Treasury bills 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.
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 10% of the
Fund's total assets will be invested in repurchase agreements maturing
in more than 7 days and other illiquid assets.
The Fund may at some future time use other investment techniques which
are described in the Statement of Additional Information, but which
are currently not being used.
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 current financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares
are redeemed in response to a change in objective. The Fund's
fundamental policies listed in the Statement of Additional Information
cannot be changed without the approval of a majority of the Fund's
outstanding voting securities. Additional information concerning
certain of the securities and investment techniques described above is
contained in the Statement of Additional Information.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in sales literature and advertisements.
Each Class's average annual total returns are calculated in accordance
with the Securities and Exchange Commission's formula and assume the
reinvestment of all distributions, the maximum initial sales charge of
4.75% on Class A shares, the maximum initial sales charge of 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 the 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 month's
distributions, annualized, by the maximum offering price of that
Class. Each Class's performance may be compared to various indices.
Quotations from various publications may be included in sales
literature and advertisements. See "Performance Measures" in the
Statement of Additional Information.
All performance information is historical and does not predict future
results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the
Fund's affairs as conducted by the Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc. Colonial
Investment Services, Inc. (Distributor) is a subsidiary of the Adviser
and serves as the distributor for the Fund's shares. The Colonial
Group, Inc. is the parent of Colonial Investors Service Center, Inc.
(Transfer Agent), which serves as the shareholder services and
transfer agent for the Fund. John A. McNeice, Jr. is considered to
be a controlling person of The Colonial Group, Inc.
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 0.63% of the Fund's average net assets for
fiscal year 1994.
Helen Frame Peters, Senior Vice President of the Adviser and its
Taxable Fixed Income Group, has managed the Fund since 1992 and co-
managed various other Colonial taxable fixed income funds since 1993.
Leslie W. Finnemore, Vice President of the Adviser, has co-managed the
Fund since 1993 and managed various other Colonial taxable fixed
income funds since 1987. Prior to joining the Adviser in 1991, Ms.
Peters was Managing Director and Risk Manager of the Taxable Income
Division of the U.S. subsidiary of Union Bank of Switzerland.
The Adviser also provides pricing and bookkeeping services to the Fund
for a monthly fee of $2,250 plus a percentage of the Fund's average
net assets over $50 million.
The Transfer Agent provides transfer agency and shareholder services
to the Fund for a fee of 0.18% of average net assets plus out-of-
pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee
waiver to which the Adviser may agree.
The Adviser places all orders for the purchase and sale of portfolio
securities. In selecting broker-dealers, the Adviser may consider
research and brokerage services furnished to it and its affiliates.
Subject to seeking best execution, the Adviser may consider sales of
shares of the Fund (and of certain other Colonial funds) in selecting
broker-dealers for portfolio security transactions.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value of
each Class's net assets by its number of outstanding shares. Shares
are valued each day the New York Stock Exchange is open as of
approximately 4:00 p.m. Eastern time. Portfolio securities for which
market quotations are readily available are valued at market. Short-
term investments maturing in 60 days or less are valued at amortized
cost when it is determined, pursuant to procedures adopted by the
Trustees, that such cost approximates market value. All other
securities and assets are valued at their 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's distributions may, to the extent they consist of interest
from certain U.S. Government Securities, be exempt from certain state
and local income taxes. Annually, shareholders are informed of the
distribution sources to allow shareholders to determine what, if any,
qualifies for exemption.
The Fund generally declares distributions daily and pays them monthly.
To maintain a stable distribution rate, distributions may be fixed at
rates consistent with the Adviser's long-term return expectations. At
times the distributions may exceed the investment income available for
distributions during the year which would cause a portion of the
distributions to be a "return of capital" for federal income tax
purposes. A return of capital reduces the shareholder's cost basis
and is akin to a partial redemption of the investment (on which a
sales charge may have been paid). There is no capital gain or loss
realized upon such distribution unless the cumulative return of
capital exceeds the shareholder's cost basis. If distributions are
taken in additional shares, a return of capital distribution will have
no impact on a shareholder's overall account.
Because of realized and unrealized losses during recent periods, the
Fund expects to have sufficient capital loss carryforwards to offset
any net capital gains that the Fund realizes in the near future. If
the Fund realizes and distributes to shareholders capital gains that
are so offset, those distributions will be taxable to shareholders as
ordinary income. If the Fund were to retain rather than distribute
the gains, the gains would not be taxable to the Fund or to
shareholders.
Distributions are invested in additional shares of the same Class of
the Fund at net asset value unless the shareholder elects to receive
cash. Regardless of the shareholder's election, distributions of $10
or less will not be issued as checks to shareholders but will be
invested in additional shares of the same Class of the Fund at net
asset value. To change your election, call the Transfer Agent for
information. Whether you receive distributions in cash or in
additional Fund shares, you must report them as taxable income unless
you are a tax-exempt institution. Each January, information on the
amount and nature of distributions for the prior year is sent to
shareholders.
HOW TO BUY SHARES
Shares are offered continuously. Orders received in good form prior
to 4:00 p.m. Eastern time (or placed with the 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 $50.
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 plus an
initial or contingent deferred sales charge as follows:
Initial Sales Charge
Retained
by
Financial
Service
Firm as
as % of % of
Amount Offering Offering
Amount Purchased Invested Price Price
Less than
$50,000......... 4.99% 4.75% 4.25%
$50,000 to less
than $100,000... 4.71% 4.50% 4.00%
$100,000 to less
than $250,000... 3.63% 3.50% 3.00%
$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 A shares bear a 0.25% annual service fee.
Class B Shares. Class B shares are offered at net asset value,
without an initial sales charge, subject to a 0.75% annual
distribution fee and a 0.25% annual service fee for eight years (at
which time they convert to Class A shares not bearing a distribution
fee), and a 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
Deferred
Years Sales
Since Charge
Purchase
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the
purchase was accepted and so on. The Distributor pays financial
service firms a commission of 4.00% on Class B share purchases.
Class D Shares. Class D shares are offered at net asset value plus a
1.00% initial sales charge, subject to a 0.50% 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 following the purchase.
The Distributor pays financial service firms an initial commission of
1.75% on purchases of Class D shares and an ongoing commission of
0.50% annually. Payment of the ongoing commission is conditioned on
receipt by the Distributor of the 0.50% 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
redemption, not the amount remaining in the account, and are paid to
the Distributor. Shares issued upon distribution reinvestment and
amounts representing appreciation are not subject to a contingent
deferred sales charge. The contingent deferred sales charge is
imposed on redemptions which result in the account value falling below
its Base Amount (the total dollar value of purchase payments
(including initial sales charges, if any) in the account reduced by
prior redemptions on which a contingent deferred sales charge was paid
and any exempt redemptions). See the Statement of Additional
Information for more information.
Which Class is more beneficial to an investor depends on the amount
and intended length of the investment. Large investments, qualifying
for a reduced Class A sales charge avoid the distribution fee. Investments
in Class B shares have 100% of the purchase 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 $50,000 must be for Class A shares. Consult
your financial service firm.
Financial service firms may receive different compensation rates for
selling different classes of shares. The Distributor may pay
additional compensation to financial service firms which have made or
may make significant sales.
Initial or contingent deferred sales charges may be reduced or
eliminated for certain persons or organizations purchasing Fund
shares alone or in combination with certain other Colonial funds. See
the Statement of Additional Information for more information.
Shareholder Services. A variety of shareholder services are
available. For more information about these services or your account,
call 1- 800-345-6611. Some services are described in the attached
account application. A shareholder's manual explaining all available
services will be provided upon request.
HOW TO SELL SHARES
Shares may be sold on any day the New York Stock Exchange is open,
either directly to the Fund or through your financial service firm.
Sale proceeds generally are sent within seven days (usually on the
next business day after your request is received in good form).
However, for shares recently purchased by check, the Fund will send
proceeds as soon as the check has cleared (which may take up to 15
days).
Selling Shares Directly To The Fund. Send a signed letter of
instruction or stock power form to the Transfer Agent, along with any
certificates for shares to be sold. The sale price is the net asset
value (less any applicable contingent deferred sales charge) next
calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national
stock exchange or another eligible guarantor 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 before 4:00 p.m. Eastern time 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 federal tax
purposes and may be subject to a contingent deferred sales charge.
The contingent deferred sales charge may be waived under certain
circumstances. 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. The only other Colonial funds
currently offering Class D shares are Colonial International Fund for
Growth, Colonial Strategic Balanced Fund, Colonial Government Money
Market Fund and Colonial U.S. Fund for Growth. Shares will continue
to age without regard to the exchange for purposes of conversion and
in determining the contingent deferred sales charge, if any, upon
redemption. Carefully read the prospectus of the fund into which the
exchange will go before submitting the request. Call 1-800-248-2828
to receive a prospectus and an exchange authorization form. Call 1-
800-422-3737 to exchange shares by telephone. An exchange is a
taxable 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 in 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 may redeem up to $50,000 of Fund shares by telephone
and may elect telephone redemption privileges for larger amounts on
the account application. All exchanges may be accomplished by
telephone. See the Statement of Additional Information for more
information. The Adviser, the 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 Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. Shareholders
will be required to provide their name, address and account number.
Proceeds and confirmations 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 60 days.
All telephone transactions are recorded. Shareholders are not
obligated to transact by telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual service fee
of 0.25% of the Fund's average net assets attributed to each Class of
shares. The Fund also pays the the Distributor an annual distribution
fee of 0.75% of the average net assets attributed to its Class B
shares and 0.50% of average net assets attributed to its 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, generally 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 Fund is the successor to Colonial Government Securities Plus Trust
organized in 1983. The Fund represents the entire interest in a
separate portfolio of the Trust which is a Massachusetts business
trust, organized in 1986.
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.
Investment Adviser
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108-2624
Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A
February 28, 1995
COLONIAL FEDERAL SECURITIES FUND
PROSPECTUS
Colonial Federal Securities Fund seeks as high a level of current
income and total return, as is consistent with prudent longer-term
investing, by investing in primarily U.S. government securities.
For more detailed information about the Fund, call the Adviser at 1-
800-248-2828 for the February 28, 1995 Statement of Additional
Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
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, & 8.
To apply for special services for a new or existing account,
complete sections 4, 5, 6, 7, or 9 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 Choice(s)
Fund
___ A Shares ___ B Shares (less than $250,000)
___ D Shares (less than $500,000)
$______________________________________________
Amount
Method of Payment
Choose one for each fund
___Check payable to the Fund, enclosed
___Bank wired on (Date) ____/____/____
Wire confirmation #
___Dealer purchased on (Date) ____/____/____
Trade confirmation #
Ways to Receive Your Distributions
Choose one for each fund
___Reinvest dividends and capital gains
___Dividends in cash; reinvest capital gains
___Dividends and capital gains in cash
___Automatic Dividend Diversification See section 5A, inside
___Direct Deposit via Colonial Cash Connection See section
4B, inside
Fund Choice(s)
Fund
___ A Shares ___ B Shares (less than $250,000)
___ D Shares (less than $500,000)
$______________________________________________
Amount
Method of Payment
Choose one for each fund
___Check payable to the Fund, enclosed
___Bank wired on (Date) ____/____/____
Wire confirmation #
___Dealer purchased on (Date) ____/____/____
Trade confirmation #
Ways to Receive Your Distributions
Choose one for each fund
___Reinvest dividends and capital gains
___Dividends in cash; reinvest capital gains
___Dividends and capital gains in cash
___Automatic Dividend Diversification See section 5A, inside
___Direct Deposit via Colonial Cash Connection See section
4B, inside
Fund Choice(s)
Fund
___ A Shares ___ B Shares (less than $250,000)
___ D Shares (less than $500,000)
$______________________________________________
Amount
Method of Payment
Choose one for each fund
___Check payable to the Fund, enclosed
___Bank wired on (Date) ____/____/____
Wire confirmation #
___Dealer purchased on (Date) ____/____/____
Trade confirmation #
Ways to Receive Your Distributions
Choose one for each fund
___Reinvest dividends and capital gains
___Dividends in cash; reinvest capital gains
___Dividends and capital gains in cash
___Automatic Dividend Diversification See section 5A, inside
___Direct Deposit via Colonial Cash Connection See section
4B, inside
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.
Cross out 2(a) or 2(b) if either is not true in your case.
2. I am not subject to 31% backup withholding because (a) I
have not been notified that I am subject to backup
withholding or (b) the Internal Revenue Service has notified
me that I am no longer subject to backup 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. Withdrawals in excess of 12% annually of your
current account value will not be accepted. Redemptions made
in addition to Plan 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:
______________________________________________
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 _________________ (month).
______________________________________________
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 _________________ (month).
______________________________________________
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 _________________ (month).
Payment Instructions
Send the payment to (choose one):
__My address of record.
__My bank account via Colonial Cash Connection. Please
complete Section 4B and the Bank Information section below.
__The payee listed at right.
______________________________________________
Name of payee
______________________________________________
Address of payee
______________________________________________
City
______________________________________________
State Zip
______________________________________________
Payee's bank account number, if applicable
X_____________________________________________
Signature of account owner(s)
X_____________________________________________
Signature of account owner(s)
Signatures of all owners must be guaranteed. Provide the
name, address, payment amount, and frequency for other
payees (maximum of 5) on a separate sheet.
B. Direct Deposit via Colonial Cash Connection
You can arrange to have distributions from your Colonial
fund account(s) or Systematic Withdrawal Plan checks
automatically deposited directly into your bank checking
account. Distribution deposits will be made 2 days after the
Fund's payable date. Please complete Bank Information below
and attach a blank check marked "VOID."
Please deposit my:
__Dividend distributions only
__Dividend and capital gain distributions
__Systematic Withdrawal Plan payments
I understand that my bank must be a member of the Automated
Clearing House system.
C. Telephone Withdrawal Options
All telephone transaction calls are recorded. These options
are not available for retirement accounts.
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 on our records. For
your protection, this service is only available on accounts
that have not had an address change within
60 days of the redemption request.
2. Telephone Redemption
__I would like the Telephone Redemption privilege.
You may withdraw shares from your fund account 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. Telephone redemptions
exceeding $5,000 will be sent via Federal Fund Wire, usually
on the next business day ($7.50 will be deducted).
Redemptions of $5,000 or less will be sent by check to your
designated bank.
Bank Information (For A, B, or C 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)
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. I have carefully read the prospectus for the
fund(s) listed below.
____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
____________________________
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 transferred into the same share class of up to four
other Colonial funds, on a monthly basis. The minimum amount
for each transfer is $100. Please complete the section
below.
____________________________________
Fund from which shares will be sold
$_________________________
Amount to redeem monthly
____________________________________
Fund name
$_________________________
Amount to invest monthly
____________________________________
Fund name
$_________________________
Amount to invest monthly
____________________________________
Fund name
$_________________________
Amount to invest monthly
C. Fundamatic
Fundamatic automatically transfers the specified amount from
your bank checking account to your Colonial fund account.
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 and Fundamatic
Authorization (Section 6).
____________________________________
Fund name
$_____________________ _________________
Amount to transfer Month to start
Frequency
__Monthly or __Quarterly
Date
__5th or __20th of the month
____________________________________
Fund name
$_____________________ _________________
Amount to transfer Month to start
Frequency
__Monthly or __Quarterly
Date
__5th or __20th of the month
____________________________________
Fund name
$_____________________ _________________
Amount to transfer Month to start
Frequency
__Monthly or __Quarterly
Date
__5th or __20th of the month
6 -------------Fundamatic Authorization--------------------
Authorization to honor checks drawn by Colonial Investors
Service Center. 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
7--Ways to Reduce Your Sales Charges for Class A Shares--
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 Class A, B, or D
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.
_____________________________________
Name on account
_____________________________________
Account number
_____________________________________
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.
8-------------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 (CIS), the
Fund's prospectus, and this application. We will notify CIS
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
9--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.
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 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, Colonial Management Associates, 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-461L-594
Checkwriting Signature Card
(Class A Shares Only)
Colonial Mutual Funds
Signature Card for the Bank of Boston ("Bank").
- -----------------------------------------------
Name of Fund
- -----------------------------------------------
Fund account number
To request additional signature cards, please call Colonial at 1-800-248-2828.
Account Name:
You must sign below exactly as your account is registered.
X
- -----------------------------------------------
Signature
X
- -----------------------------------------------
Signature
By signing this card, you are subject to the conditions printed on the reverse
side. If adding this privilege to an existing account, your signatures must be
guaranteed.
Checkwriting Privilege
By electing the checkwriting privilege and signing the signature card, I
acknowledge that I am subject to the rules and regulations of the Bank of
Boston ("Bank") as currently existing and as they may be amended from time
to time. I designate the Bank as my representative to present checks drawn
on my Fund account to the Fund or its Agent and deposit the proceeds in this
checking account. I understand that the shares for which share certificates
have been issued or requested cannot be redeemed in this manner.
I understand that if my Fund account is registered in joint tenancy, that all
checks must include all signatures of all persons named on the account.
If the account is registered in joint tenancy, each person guarantees the
genuineness of all other parties' signatures.
Minimum and Maximum
I understand that checks may not be in amounts less than $500 nor more than
$100,000, and that the Fund reserves the right to change these limits in its
sole discretion. I agree that neither the Fund nor its Agent is responsible
for any loss, expense, or cost arising from these redemptions. Also, if I have
recently made additional investments, I understand that redemption proceeds
will not be available until the check used to purchase the investment
(including a certified or cashier's check) has been cleared by the bank on
which it is drawn, which could take up to 15 days or more.
D-256A-1094
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, 1995
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 in non-U.S.
equities.
The Fund is managed by the Adviser, an investment adviser since 1931.
Portfolio management has been delegated to Gartmore Capital Management
Ltd. (Sub-Adviser).
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, 1995 Statement of Additional Information which has been
filed with the Securities and Exchange Commission and is obtainable
free of charge by calling the Adviser at 1-800-248-2828. The Statement
of Additional Information is incorporated by reference in (which means
it is considered a part of) this Prospectus.
IN-01-/609A-295
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 plus 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 annual expenses for an investment in each Class of the Fund's
shares.
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
eight years, this is less likely for Class B shares than for a
class without a conversion feature.
Annual Operating Expenses
(as a % of net assets)
Class A Class B Class D
Management fee 0.90% 0.90% 0.90%
12b-1 fees 0.25 1.00 1.00
Other expenses 0.56 0.56 0.56
---- ---- ----
Total expenses 1.71% 2.46% 2.46%
==== ==== ====
See "How the Fund is managed" for dollar-based fees paid to the
Adviser.
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... $108 $107 $ 77 $ 86 $ 86
5 years... $145 $152 $132 $140 $140
10 years.. $247 $263(8) $263(8) $286 $286
(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 expenses.
THE FUND'S FINANCIAL HISTORY
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 1994 Annual Report, and is incorporated by reference into the
Statement of Additional Information.
<TABLE>
<CAPTION>
Period ended
October 31, 1994(a)(b)
Class A Class B Class D(c)
<S> <C> <C> <C>
Net asset value - Beginning of period.............. $10.000 $10.000 $10.060
------ ------ ------
Income from investment operations:
Net investment income (loss)..................... 0.013 (0.058) (0.037)
Net realized and unrealized
gain (loss) on investment..................... 0.357 0.358 0.327
------ ------ ------
Total from investment operations............... 0.370 0.300 0.290
------ ------ ------
Net asset value - End of period.................... $10.370 $10.300 $10.350
====== ====== ======
Total return(d)(e)................................. 3.70% 3.00% 2.88%
Ratios to average net assets: ------ ------ ------
Expenses(f).................................... 1.71% 2.46% 2.46%
Net investment income(f)....................... 0.14% (0.61)% (0.61)%
Portfolio turnover(f).............................. 51% 51% 51%
Net assets at end of period (000).................. $62,251 $103,450 $570
_________________________________
</TABLE>
(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 all distributions
reinvested an no initial or contingent deferred sales charge.
(e) Not annualized.
(f) Annualized.
Further performance information is contained in the Fund's Annual
Report to shareholders, which may be obtained without charge by
calling 1-800-248-2828.
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term growth by investing 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 Sub-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 include 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.
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 afixed price and time. The security is held in a separate
account at the Fund's custodian and, consititutes 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 i and may
experience a loss if it is unable to demonstrate its right to the
collateral in a bankruptcy proceeding. No more than 15% of the Fund's
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 Sub-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 then current financial position and
needs. Shareholders may incur a contingent deferred sales charge if
shares are redeemed in response to a change in objective. The Fund's
fundamental 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.
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 and the Sub-Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc. Colonial
Investment Services, Inc., (Distributor) is a subsidiary of the
Adviser and serves as the distributor for the Fund's shares . The
Colonial Group, Inc. is the parent of Colonial Investors Service
Center, Inc. (Transfer Agent) which serves as the shareholder services
and transfer agent for the Fund. John A. McNeice, Jr. is considered
to be a controlling person of The Colonial Group, Inc.
The Adviser oversees the Fund's investment management and furnishes
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 the period ended October 31, 1994. The fee is higher than
that of most mutual funds. The Sub-Adviser, a wholly-owned subsidiary
of Banque Indosuez, furnishes the Fund with investment management
services. The Adviser will pay the Sub-Adviser a portion of the
management fee actually received by the Adviser based on the following
schedule:
Amount Actually
Received by Adviser
First 0.30% --- 100% paid to Sub-Adviser
Next 0.30% --- 100% retained by Adviser
Next 0.30% --- 50% to Sub-Adviser,
50% retained by Adviser
Simon Davies, a Director of the Sub-Adviser, and for the last five
years a Director of Gartmore Pension Fund Managers Ltd., an affiliate
of the Sub-Adviser, has been portfolio manager of the Fund since its
inception.
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 out of pocket expenses. Each of the foregoing fees is
subject to any reimbursement or fee waiver to which the Adviser or the
Sub-Adviser may agree.
The Sub-Adviser places all orders for the purchase and sale of
portfolio securities. In selecting broker-dealers, the Adviser and the
Sub-Adviser may consider research and brokerage services furnished to
them and their affiliates. Subject to seeking best execution, the
Adviser and the Sub-Adviser may consider sales of shares of the Fund
(and of certain other Colonial funds) in selecting broker-dealers for
portfolio security transactions.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value of
each Class's net assets by its number of outstanding shares. Shares
are valued each day the New York Stock Exchange is open as of
approximately 4:00 p.m. Eastern time. Portfolio securities for which
market quotations are readily available are valued at market. Short-
term investments maturing in 60 days or less are valued at amortized
cost when it is determined, pursuant to procedures adopted by the
Trustees, that such cost approximates market value. All other
securities and assets are valued at fair value following procedures
adopted by the Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code and to distribute to shareholders virtually
all net income and any net realized gain at least annually.
The Fund generally declares 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 issued as checks to shareholders but will be invested in additional
shares of the same Class of the Fund at net asset value. To change
your election, call the Transfer Agent for information. Whether you
receive distributions in cash or in additional Fund shares, you must
report them as taxable income unless you are a tax-exempt institution.
If you buy shares shortly before a distribution is declared, the
distribution will be taxable although it is in effect a partial return
of the amount invested. Each January, information on the amount and
nature of distributions for the prior year is sent to shareholders.
HOW TO BUY SHARES
Shares are offered continuously. Orders received in good form prior
to 4:00 p.m. Eastern time (or placed with a financial service firm
before such time and transmitted by 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 $50.
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 plus an
initial or contingent deferred sales charge as follows:
Initial Sales Charge
---------------------------------
Retained by
Financial
Service
Firm as
as % of % of
---------------------------------
Amount Offering Offering
Amount 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 A shares bear a 0.25% annual service fee.
Class B Shares. Class B shares are offered at net asset value,
without an initial sales charge, subject to a 0.75% annual
distribution fee and a 0.25% annual service fee for 8 years (at which
time they convert to Class A shares not bearing a distribution fee)
and a contingent deferred sales charge if redeemed within 6 years
after purchase. As shown below, the amount of the contingent deferred
sales charge depends on the number of years after purchase that the
redemption occurs:
Years Contingent Deferred
Since 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
redemption, not the amount remaining in the account, and are paid to
the Distributor. Shares issued upon distribution reinvestment and
amounts representing appreciation are not subject to a contingent
deferred sales charge. The contingent deferred sales charge is
imposed on redemptions which result in the account value falling below
its Base Amount (the total dollar value of purchase payments,
(including initial sales 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. Initial or contingent deferred sales charges may
be reduced or eliminated for certain persons or organizations
purchasing Fund shares alone or in combination with certain other
Colonial funds. See the Statement of Additional Information for
more information.
Shareholder Services. A variety of shareholder services are
available. For information about these services or your account, call
1-800-345-6611. Some services are described in the attached account
application. A shareholder's manual explaining all available services
will be provided upon request.
HOW TO SELL SHARES
Shares may be sold on any day the New York Stock Exchange is open
either directly to the Fund or through your financial service firm.
Sale proceeds generally are sent within seven days (usually on the
next business day after your request is received in good form).
However, for shares recently purchased by check, the Fund will send
proceeds 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 before 4:00 p.m. Eastern time 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 federal tax
purposes and may be subject to a contingent deferred sales charge.
The contingent deferred sales charge may be waived under certain
circumstances. See the Statement of Additional Information for more
information. Under unusual circumstances, the Fund may suspend
repurchases or postpone payment for up to seven days or longer, as
permitted by federal securities law. In June of any year, the Fund
may deduct $10 (payable to the Transfer Agent) from accounts valued at
less than $1,000 unless the account value has dropped 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. The only other Colonial funds
currently offering Class D shares are Colonial Strategic Balanced
Fund, Colonial U.S. Fund for Growth and Colonial Government Money
Market Fund. 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 may redeem up to $50,000 of Fund shares by telephone
and may elect telephone redemption privileges for larger amounts on
the account application. All exchanges may be accomplished by
telephone. See the Statement of Additional Information for more
information. The Adviser, the 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 Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. Shareholders
will be required to provide their name, address and account number.
Proceeds and confirmations 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 60 days.
All telephone transactions are recorded. Shareholders are not
obligated to transact by telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual service fee
of 0.25% 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, generally 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 wholesalersShould 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.
Investment Adviser
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Sub-Adviser
Gartmore Capital Management Ltd.
Gartmore House
16-18 Monument Street
London, EC3R8QQ
England
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108-2621
Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A.
February 28, 1995
COLONIAL INTERNATIONAL
FUND FOR GROWTH
PROSPECTUS
Colonial International Fund for Growth seeks long-term growth by
investing in non-U.S. equities.
For more detailed information about the Fund, call 1-800-248-2828 for
the February 28, 1995 Statement of Additional Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
COLONIAL TRUST III
Cross Reference Sheet (The Colonial Fund)
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; How the Fund
pursues its objectives; The Fund's
investment objectives
5. Cover page; How the Fund is managed;
Organization and history
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, 1995
THE COLONIAL FUND
Prospectus
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Adviser) and your full-service
financial adviser want you to understand both the risks and benefits
of mutual fund investing.
While mutual funds offer significant opportunities and are
professionally managed, they also carry risk including possible loss
of principal. Unlike savings accounts and certificates of deposit,
mutual funds are not insured or guaranteed by any financial
institution or government agency.
Please consult your full-service financial adviser to determine how
investing in this mutual fund may suit your unique needs, time horizon
and risk tolerance.
TF-01/626A-0195
The Colonial Fund (Fund), a diversified portfolio of Colonial Trust
III (Trust), an open-end management investment company, seeks
primarily income and capital growth and, secondarily, capital
preservation.
The Fund is managed by the Adviser, an investment adviser since 1931.
This Prospectus explains concisely what you should know before
investing in the Fund. Read it carefully and retain it for future
reference. More detailed information about the Fund is in the
February 28, 1995 Statement of Additional Information which has been
filed with the Securities and Exchange Commission and is obtainable
free of charge by calling the Adviser at 1-800-248-2828. The
Statement of Additional Information is incorporated by reference in
(which means it is considered to be a part of) this Prospectus.
The Fund offers 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 plus 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
convert to Class A shares after approximately eight years. See "How
to buy shares."
Contents Page
- --------- ----
Summary of expenses...................................
The Fund's financial history..........................
The Fund's investment objectives......................
How the Fund pursues its objectives...................
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 annual expenses
for an investment in each Class of the Fund's shares.
Shareholder Transaction Expenses (1)(2)
Class A Class B Class D
------- ------- -------
Maximum Initial Sales
Charge Imposed on a
Purchase (as a % of
offering price)(3)..... 5.75% 0.00%(5) 1.00%(5)
Maximum Contingent
Deferred Sales Charge
(as a % of Offering
price)(3)............. 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 after
approximately 8 years, this is less likely for Class
B share than for a class without a conversion
feature.
Annual Operating Expenses
(as a % of net assets)
Class A Class B Class D
------- ------- -------
Management fee............ 0.55% 0.55% 0.55%
12b-1 fees................ 0.22* 0.97* 1.00
Other expenses............ 0.37 0.37 0.37
---- ---- ----
Total expenses............ 1.14% 1.89% 1.92%
==== ==== ====
* Includes annualized service fee of 0.22%. Fee rate will fluctuate
but will not exceed 0.25%.
Example
The following Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each Class of shares of the Fund for the
periods specified, assuming a 5% annual return and, unless otherwise noted,
redemption at period end. The 5% return and expenses used in this Example
should not be considered indicative of actual or expected Fund performance or
expenses, both of which will vary:
Class A Class B Class D
------- ------- -------
Period:
(6) (6)
1 year.......... $ 68 $ 69 $ 19 $ 39 $ 29
3 years......... $ 92 $ 90 $ 60 $ 70 $ 70
5 years......... $ 117 $ 123 $103 $ 113 $ 113
10 years........ $ 188 $ 203(7) $232 $ 232 $203(7)
(6) Assumes no redemption.
(7) Class B shares convert to Class A after approximately
eight years; therefore years 9 and 10 reflect Class A
expenses.
THE FUND'S FINANCIAL HISTORY
The following schedule of financial highlights for a share outstanding
throughout each period has been audited by Price Waterhouse LLP, independent
accountants. Their unqualified report is included in the Fund's 1994 Annual
Report, and is incorporated by reference into the Statement of Additional
Information. The schedule has been restated to reflect the 3:1 split which
occurred on December 10, 1993. No Class D shares had been issued as of October
31, 1994.
<TABLE>
<CAPTION>
CLASS A
Year Ended October 31(a)
1994 1993(b) 1992(b) 1991(b) 1990(b) 1989(b)
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of
period.................................. $8.410 $7.390 $7.050 $5.700 $6.850 $6.320
Income from investment
operations:
Net investment income................... 0.171 0.156 0.173 0.218 0.256 0.270
Net realized and unrealized
gain (loss) on investments........... (0.116) 1.293 0.489 1.509 (0.979) 0.768
------- ----- ----- ----- ------- -----
Total from investment
operations.......................... 0.055 1.449 0.662 1.727 (0.723) 1.038
----- ----- ----- ----- ------- -----
Less distributions declared to
shareholders:
From net investment income.............. (0.160) (0.147) (0.185) (0.222) (0.276) (0.305)
From net realized gain on investments... (0.245) (0.282) (0.137) (0.155) (0.151) (0.203)
------- ------- ------- ------- ------- -------
Total distributions declared to
shareholders....................... (0.405) (0.429) (0.322) (0.377) (0.427) (0.508)
Net asset value - End of period........... $8.060 $8.410 $7.390 $7.050 $5.700 $6.850
====== ====== ====== ====== ====== ======
Total return(c)........................... 0.74% 20.21% 9.65% 31.23% (11.17)% 17.16%
------ ------ ------ ------ ------- ------
Ratios to average net assets:
Expenses.............................. 1.14% 1.10% 1.09% 1.06% 1.04% 0.97%
Net investment income................. 2.07% 1.94% 2.52% 3.35% 4.05% 4.34%
Portfolio turnover............. 54% 14% 37% 36% 41% 27%
Net assets at end of period (000)......... $555,275 $520,706 $413,228 $366,808 $285,265 $319,419
_________________________________
</TABLE>
<TABLE>
<CAPTION>
CLASS A
Year Ended October 31(a)
1988(b) 1987(b) 1986(b) 1985(b)
<S> <C> <C> <C> <C>
Net asset value - Beginning of
period................................... $5.530 $6.450 $5.220 $4.647
Income from investment
operations:
Net investment income................... 0.299 0.216 0.283 0.313
Net realized and unrealized
gain (loss) on investments........... 0.944 (0.387) 1.397 0.560
------ ------- ----- -----
Total from investment
operations.......................... 1.243 (0.171) 1.680 0.873
------ ------- ----- -----
Less distributions declared to
shareholders:
From net investment income.............. (0.263) (0.310) (0.300) (0.300)
From net realized gain on investments... (0.190) (0.439) (0.510) 0.000
------- ------- ------- ------
Total distributions declared to
shareholders....................... (0.453) (0.749) (0.450) (0.300)
Net asset value - End of period........... $6.320 $5.530 $6.450 $5.220
====== ====== ====== ======
Total return(c)........................... 23.60% (3.49)% 33.91% 19.44%
------ ------ ------ ------
Ratios to average net assets:
Expenses.............................. 0.92% 0.97% 1.06% 1.05%
Net investment income................. 4.92% 3.99% 4.70% 6.32%
Portfolio turnover............. 27% 47% 48% 69%
Net assets at end of period (000)......... $258,178 $240,971 $168,399 $104,920
_________________________________
</TABLE>
(a)Per share data was calculated using average shares outstanding during the
period.
(b)All per share amounts have been restated to reflect the 3 for 1 stock split
effective December 10, 1993.
(c)Class B shares were initially offered on May 5, 1992. Per share amounts
reflect activity from that date.
(d)Total return at net asset value assuming all distributions reinvested and no
initial or contingent deferred sales charge.
(e)Not annualized.
(f)Annualized.
THE FUND'S FINANCIAL HISTORY (CONT'D)
<TABLE>
<CAPTION>
CLASS B
Year ended October 31(a)
1994 1993(b) 1992(b)(c)
<S> <C> <C> <C>
Net asset value - Beginning of period......................... $8.400 $7.390 $7.440
------ ------ ------
Income from investment operations:
Net investment income....................................... 0.109 0.104 0.052
Net realized and unrealized gain (loss) on investments...... (0.111) 1.282 (0.044)
------- ----- -------
Total from investment operations............................. (0.002) 1.386 0.008
------- ----- -----
Less distributions declared to shareholders:
From net investment income.................................. (0.103) (0.094) (0.058)
From net realized gains on investments...................... (0.245) (0.376) (0.000)
------- ------- -------
Total distributions declared to shareholders................ (0.348) (0.377) (0.058)
Net asset value - End of period............................... $8.050 $8.400 $7.390
======= ======= =======
Total return(d)............................................... (0.04)% 19.38% (0.31)%(e)
Ratios to average net assets
Expenses.................................................. 1.89% 1.85% 1.84%(f)
Net investment income..................................... 1.32% 1.19% 1.77%(f)
Portfolio turnover............................................ 54% 14% 37%(f)
Net assets at end of period (000)............................. $264,122 $124,161 $15,582
</TABLE>
(a)Per share data was calculated using average shares outstanding during the
period.
(b)All per share amounts have been restated to reflect the 3 for 1 stock split
effective December 10, 1993.
(c)Class B shares were initially offered on May 5, 1992. Per share amounts
reflect activity from that date.
(d)Total return at net asset value assuming all distributions reinvested and no
initial or contingent deferred sales charge.
(e)Not annualized.
(f)Annualized.
Further performance information is contained in the Fund's Annual Report to
shareholders, which may be obtained without charge by calling 1-800-248-2828.
THE FUND'S INVESTMENT OBJECTIVES
The Fund seeks primarily income and capital growth and, secondarily,
capital preservation.
HOW THE FUND PURSUES ITS OBJECTIVES
The Fund may invest without limit in U.S. stock exchange or NASDAQ NMS
listed common stocks and foreign common stocks which, when purchased,
meet the following quantitative standards which in the Adviser's
judgment indicate above average financial soundness and high intrinsic
value relative to price. The issuer of any such common stock must
have net worth in excess of total debt, except for banking
institutions and electric utilities, whose net worth must exceed 35%
of total capitalization. In addition, each such common stock must
also meet one of the following criteria:
1. Earnings yield equals or exceeds the average yield to maturity of
the five most recently issued, actively traded long-term U.S.
government bonds; or
2. Dividend yield equals or exceeds 66% of the prevailing average
yield to maturity of the five most recently issued, actively traded
long-term U.S. government bonds; or
3. Per share going-concern value (as estimated by the Adviser) exceeds
book value and market value. No purchases will be made based on
this criterion if at the time more than 25% of the Fund's total
market value of common stocks was purchased on this criterion.
Up to 5% of the Fund's net assets may be invested in common stocks not
meeting any of the foregoing criteria at the time of purchase.
The Fund may also invest in debt securities, but currently intends to
limit those investments to U.S. government and agency obligations
(except for temporary or defensive investments). The market value of
debt securities will fluctuate with changing interest rates; this
could affect the value of Fund shares.
The portion of total assets invested in common stocks and debt
securities will vary based on the availability of common stocks
meeting the foregoing criteria and the Adviser's judgment of the
investment merit of common stocks relative to debt securities.
Foreign Investments. The Fund may invest without limit in common
stocks traded or issued by companies located outside of the U.S.
Foreign securities will subject the Fund to special considerations
related to political, economic and legal conditions outside of the
U.S. These considerations include the possibility of unfavorable
currency exchange rates, exchange control regulations (including
currency blockage), expropriation, nationalization, withholding taxes
on income and difficulties in enforcing judgments. Foreign securities
may be less liquid and more volatile than comparable U.S. securities.
Some foreign issuers are subject to less comprehensive accounting and
disclosure requirements than similar U.S. issuers.
The Fund may purchase foreign currencies on a spot or forward basis in
conjunction with its investments in foreign securities and to hedge
against fluctuations in foreign currencies. The precise matching of
foreign currency exchange transactions and portfolio securities will
not generally be possible since the future value of such securities in
foreign currencies will change as a consequence of market movements
which cannot be precisely forecast. Currency hedging does not
eliminate fluctuations in the underlying prices of securities, but
rather establishes a rate of exchange at some future point in time.
Although hedging may lessen the risk of loss due to a decline in the
value of the hedged currency, it tends to limit potential gain from
increases in currency values.
Transactions in foreign securities include currency conversion costs.
Brokerage and custodial costs may be higher for foreign securities
than for U.S. securities. See "Foreign Securities" and "Foreign
Currency Transactions" in the Statement of Additional Information for
more information about foreign investments.
Other Investment Practices. The Fund may engage in the following
investment practices, some of which are described in more detail in
the Statement of Additional Information.
The Fund may invest temporarily available cash in certificates of
deposit, bankers' acceptances, high quality commercial paper, Treasury
bills and repurchase agreements. Under a repurchase agreement, the
Fund buys a security, subject to the requirement to sell it back at a
fixed price and time, the proceeds of which are the Fund's cost plus
accrued interest. The transaction may be viewed as a loan by the
Fund, collateralized by the security. The Fund will enter into
repurchase agreements only with well capitalized banks and certain
broker-dealers meeting high credit standards. The agreements require
that at all times the issuer's obligations are at least 100%
collateralized by U.S. government securities maintained in a
segregated account of the Fund's custodian. The Fund may experience
costs and delays in liquidating the collateral if the issuer defaults
or enters bankruptcy and may incur a loss. Not more than 10% of the
Fund's total assets will be invested in repurchase agreements maturing
in more than 7 days and other illiquid assets.
In periods of unusual market conditions, when the Adviser considers it
appropriate, the Fund may invest all or any part of the Fund's assets
in cash, U.S. government securities, high quality commercial paper,
bankers' acceptances, repurchase agreements and certificates of
deposit.
The Statement of Additional Information describes other investment
techniques that the Fund may use, but currently has no intention in
the foreseeable future of using.
Other. The Fund may not always achieve its investment objectives. The
Fund's investment objectives and non-fundamental policies may be
changed without shareholder approval. The Fund will notify investors
at least 30 days prior to any material change in the Fund's investment
objectives. If there is a change in the investment objectives
shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial position and
needs. Shareholders may incur a contingent deferred sales charge if
shares are redeemed in response to a change in objective. The Fund's
fundamental policies listed in the Statement of Additional Information
cannot be changed without the approval of a majority of the Fund's
outstanding voting securities. Additional information concerning
certain of the securities and investment techniques described above is
contained in the Statement of Additional Information.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in sales literature and advertisements.
Each Class's average annual total returns are calculated in accordance
with the Securities and Exchange Commission's formula and assume the
reinvestment of all distributions, the maximum initial sales charge of
5.75% on Class A shares and 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 change in net asset value, is calculated in accordance
with the Securities and Exchange Commission's formula. Each Class's
distribution rate is calculated by dividing the most recent quarter's
distributions, annualized, by the maximum offering price of that
Class. Each Class's performance may be compared to various indices.
Quotations from various publications may be included in sales
literature and advertisements. See "Performance Measures" in the
Statement of Additional Information for more information. All
performance information is historical and does not predict future
results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the
Fund's affairs as conducted by the Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc. Colonial
Investment Services, Inc. (Distributor) is a subsidiary of the Adviser
and serves as the distributor for the Fund's shares. The Colonial
Group, Inc. is the parent of Colonial Investors Service Center, Inc.
(Transfer Agent), which serves as the shareholder services and
transfer agent for the Fund. John A. McNeice, Jr. is considered to be
a controlling person of The Colonial Group, Inc.
The Adviser furnishes the Fund with investment management, accounting
and administrative personnel and services, office space and other
equipment and services at the Adviser's expense. For these services,
the Fund paid the Adviser 0.55% of the Fund's average net assets for
fiscal year 1994.
Daniel Rie, Senior Vice President of the Adviser, and Elizabeth
Palmer, Vice President of the Adviser, have co-managed the Fund since
1993. Mr. Rie has managed various other Colonial equity funds since
1986 and Ms. Palmer has managed other Colonial equity funds since
1989.
The Adviser also provides pricing and bookkeeping services to the Fund
for a monthly fee of $2,250 plus a 0.035% percentage of the Fund's
average net assets over $50 million. The Transfer Agent provides
transfer agency and shareholder services to the Fund for a fee of
0.25% annually of average net assets plus out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee
waiver to which the Adviser may agree.
The Adviser places all orders for the purchase and sale of portfolio
securities. In selecting broker-dealers, the Adviser may consider
research and brokerage services furnished to it and its affiliates.
Subject to seeking best execution, the Adviser may consider sales of
shares of the Fund (and of certain other Colonial funds) in selecting
broker-dealers for portfolio security transactions.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value of
each Class's net assets by its number of outstanding shares. Shares
are valued each day the New York Stock Exchange is open as of
approximately 4:00 p.m. Eastern time. Portfolio securities for which
market quotations are readily available are valued at market. Short-
term investments maturing in 60 days or less are valued at amortized
cost when it is determined, pursuant to procedures adopted by the
Trustees, that such costapproximates market value. All other
securities and assets are valued at fair value following procedures
adopted by the Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code and to distribute to shareholders virtually
all net income and any net realized gain at least annually.
The Fund generally declares and pays income distributions quarterly.
Distributions are invested in additional shares of the same Class of
the Fund at net asset value unless the shareholder elects to receive
cash. Regardless of the shareholder's election, distributions of $10
or less will not be issued as checks to shareholders, but will be
invested in additional shares of the same Class of the Fund at net
asset value. To change your election, call the Transfer Agent for
information. Whether you receive distributions in cash or in
additional Fund shares, you must report them as taxable income unless
you are a tax-exempt institution. If you buy shares shortly before a
distribution is declared, the distribution will be taxable although it
is in effect a partial return of the amount invested. Each January,
information on the amount and nature of distributions for the prior
year is sent to shareholders.
HOW TO BUY SHARES
Shares are offered continuously. Orders received in good form prior
to 4:00 p.m. Eastern time (or placed with a financial service firm
before such time and transmitted by it before the Fund processes that
day's share transactions) will be processed based on that day's
closing net asset value, plus any applicable initial sales charge.
The minimum initial investment is $1,000; subsequent investments may
be as small as $50. The minimum initial investment for the Colonial
Fundamatic program or a Colonial retirement account is $50.
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 plus an
initial or contingent deferred sales charge as follows:
Initial Sales Charge
-----------------------------------
Retained
by
Financial
Service
Firm as %
as a % of of
-----------------------------------
Amount Offering Offering
Amount 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 A shares bear a 0.25% annual service fee.
The Colonial Asset Builder Program requires at least a $1,000 initial
investment (maximum $4,000), a letter of intent to invest each month
for 48 months 25% of the initial investment and reinvestment of all
distributions. The sales charge is 5% of the offering price (5.26% of
amount invested) except if four investments are missed then the sales
charge becomes 6% of offering price on all investments (6.38% of
amount invested). The financial service firm receives 4% of the
offering price.
Class B shares. Class B shares are offered at net asset value,
without an initial sales charge, subject to a 0.75% annual
distribution fee and a 0.25% annual service fee for 8 years (at which
time they convert to Class A shares not bearing a distribution fee),
and a contingent deferred sales charge if redeemed within 6 years
after purchase. As shown below, the amount of the contingent deferred
sales charge depends on the number of years since purchase that the
redemption occurs:
During Year Since Purchase Contingent Deferred Sales Charge
--------------------------- ---------------------------------
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the
purchase was accepted and so on. The Distributor pays financial
service firms a commission of 4.00% on Class B share purchases.
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 1.75% on purchases of Class D shares and an
ongoing commission of 0.50% 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
redemption, not the amount remaining in the account, and are paid to
the Distributor. Shares issued upon distribution reinvestment and
amounts representing appreciation are not subject to a contingent
deferred sales charge. The contingent deferred sales charge is
imposed on redemptions which result in the account value falling below
its Base Amount (the total dollar value of purchase payments,
(including initial sales charges, if any), in the account reduced by
prior redemptions on which a contingent deferred sales charge was paid
and any exempt redemptions). See the Statement of Additional
Information for more information.
Which Class is more beneficial to an investor depends on the amount
and intended length of the investment. Large investments, qualifying
for a reduced Class A sales charge avoid the distribution fee.
Investments in Class B shares have 100% of the purchase price invested
immediately. 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 of shares. The Distributor may pay
additional compensation to financial service firms that have made or
may make significant sales.
Initial or contingent deferred sales charges may be reduced or
eliminated for certain persons or organizations purchasing Fund shares
alone or in combination with certain other Colonial funds. See the
Statement of Additional Information for more information.
Shareholder Services. A variety of shareholder services are
available. For more information about these services or your account,
call 1-800-345-6611. Some services are described in the attached
account application. A shareholder's manual explaining all available
services will be provided upon request.
HOW TO SELL SHARES
Shares may be sold on any day the New York Stock Exchange is open,
either directly to the Fund or through your financial service firm.
Sale proceeds generally are sent within seven days (usually on the
next business day after your request is received in good form).
However, for shares recently purchased by check, the Fund will send
proceeds as soon as the check has cleared (which may take up to 15
days).
Selling Shares Directly To The Fund. Send a signed letter of
instruction or stock power form to the Transfer Agent, along with any
certificates for shares to be sold. The sale price is the net asset
value (less any applicable contingent deferred sales charge) next
calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national
stock exchange or another eligible guarantor. Stock power forms are
available from your financial service firm, the Transfer Agent and
many banks. Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service
firms must receive requests before 4:00 p.m. Eastern time to receive
that day's price (less any applicable contingent deferred sales
charge), are responsible for furnishing all necessary documentation to
the Transfer Agent, and may charge for this service.
General. The sale of shares is a taxable transaction for federal tax
purposes and may be subject to a contingent deferred sales charge. The
contingent deferred sales charge may be waived under certain
circumstances. See the Statement of Additional Information for more
information. Under unusual circumstances, the Fund may suspend
repurchases or postpone payment for up to seven days or longer, as
permitted by federal securities law. In June of any year, the Fund
may deduct $10 (payable to the Transfer Agent) from accounts valued at
less than $1,000 unless the account value has dropped solely as a
result of share value depreciation. Shareholders will receive 60
days' written notice to increase the account value before the fee is
deducted.
HOW TO EXCHANGE SHARES
Exchanges at net asset value may be made among the same class of
shares of most Colonial funds. The only other Colonial funds
currently offering Class D shares are Colonial International Fund for
Growth, Colonial U.S. Fund for Growth, Colonial Strategic Balanced
Fund and Colonial Government Money Market Fund. Shares will continue
to age without regard to the exchange for purposes of conversion and
in determining the contingent deferred sales charge, if any, upon
redemption. Carefully read the prospectus of the fund into which the
exchange will go before submitting the request. Call 1-800-248-2828
to receive a prospectus and an exchange authorization form. Call 1-
800-422-3737 to exchange shares by telephone. An exchange is a
taxable transaction. The exchange service may be changed, suspended
or eliminated on 60 days' written notice.
Class A Shares. An exchange from a money market fund into a non-money
market fund will be at the applicable offering price next determined
(including sales charge), except for amounts on which an initial sales
charge was paid. Non-money market fund shares must be held for five
months before qualifying for exchange to a fund with a higher sales
charge, after which exchanges are made at the net asset value next
determined.
Class B Shares. The exchange of Class B shares will not be subject to
the contingent deferred sales charge. However, if shares are redeemed
within six years after the original purchase, a contingent deferred
sales charge will be assessed using the schedule of the fund into
which the original investment was made.
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% contingent deferred
sales charge will be assessed.
TELEPHONE TRANSACTIONS
All shareholders may redeem up to $50,000 of Fund shares by telephone,
and may elect telephone redemption privileges for larger amounts on
the account application. All exchanges may be accomplished by
telephone. See the Statement of Additional Information for more
information. The Adviser, the Fund and the Transfer Agent will not be
liable when following telephone instructions reasonably believed to be
genuine and a shareholder may suffer a loss from unauthorized
transactions. The Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. Shareholders
will be required to provide their name, address and account number.
Proceeds and confirmations will be mailed or sent to the address of
record. Telephone redemptions are not available on accounts with an
address change in the preceding 60 days. All telephone transactions
are recorded. Shareholders are not obligated to transact by
telephone.
12b-1 PLANS
Under 12b-1 plans, the Fund pays the Distributor an annual service fee
of 0.15% of the Fund's average net assets attributable to shares
outstanding prior to April 1, 1989, and 0.25% of the Fund's average
net assets attributable to outstanding shares issued thereafter.
The Fund also pays the Distributor an annual distribution fee not
exceeding 0.75% of the average net assets attributed to its Class B
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, generally eight years after the Class B shares were
purchased. Class D shares do not convert. The multiple class
structure could be terminated if certain Internal Revenue Service
rulings are rescinded. See the Statement of Additional Information
for more information. The Distributor uses the fees to defray the
cost of commissions and service fees paid to financial service firms
which have sold Fund shares, and to defray other expenses such as
sales literature, prospectus printing and distribution and
compensation to wholesalers. Should the fees under the Plans exceed
the Distributor's expenses in any year, the Distributor would realize
a profit. The Plans also authorize other payments to the Distributor
and its affiliates (including the Adviser) which may be construed to
be indirect financing of sales of Fund shares.
ORGANIZATION AND HISTORY
The Fund was organized in 1986 as successor to a corporation organized
in 1904. It is a series of the Trust, which is a Massachusetts
business trust organized in 1986. The Fund represents the entire
interest in a separate portfolio of the Trust. The Trust is not
required to hold annual shareholder meetings, but special meetings may
be called for purposes such as electing Trustees or approving a
management contract. You receive one vote for each of your Fund
shares. Shares of the Trust vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the
aggregate ten percent of Trust shares may call meetings to consider
removal of Trustees. Under certain circumstances, the Trust will
provide information to assist shareholders in calling such a meeting.
See the Statement of Additional Information.
Investment Adviser
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108
Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A.
February 28, 1995
THE COLONIAL FUND
Prospectus
The Colonial Fund seeks primarily income and capital growth and,
secondarily, capital preservation.
For more detailed information about the Fund call the Adviser at 1-800-
248-2828 for the February 28, 1995 Statement of Additional
Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
COLONIAL TRUST III
Cross Reference Sheet (Colonial Global Natural Resources Fund)
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; How the Fund
pursues its objective; The Fund's investment
objective
5. Cover page; How the Fund is managed;
Organization and history
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, 1995
COLONIAL
GLOBAL NATURAL
RESOURCES FUND
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Adviser) and your full-service
financial adviser want you to understand both the risks and benefits
of mutual fund investing.
While mutual funds offer significant opportunities and are
professionally managed, they also carry risk including possible loss
of principal. Unlike savings accounts and certificates of deposit,
mutual funds are not insured or guaranteed by any financial
institution or government agency.
Please consult your full-service financial adviser to determine how
investing in this mutual fund may suit your unique needs, time horizon
and risk tolerance.
Colonial Global Natural Resources Fund (Fund), a non-diversified
portfolio of Colonial Trust III (Trust), an open-end management
investment company, seeks preservation of capital purchasing power and
long-term growth.
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, 1995 Statement of Additional Information which has been
filed with the Securities and Exchange Commission and is obtainable
free of charge by calling the Adviser at 1-800-248-2828. The
Statement of Additional Information is incorporated by reference in
(which means it is considered to be a part of) this Prospectus.
NR-01/610A-295
The Fund offers two classes of shares. Class A shares are offered at
net asset value plus a sales charge imposed at the time of purchase;
Class B shares are offered at net asset value plus an annual
distribution fee and a declining contingent deferred sales charge on
redemptions made within six years after purchase. Class B shares
automatically convert to Class A shares 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
Appendix
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the
Fund. The following tables summarize your maximum transaction costs
and annual expenses for an investment in each Class of the Fund's
shares.
Shareholder Transaction Expenses(1)(2)
Class A Class B
Maximum Initial Sales Charge Imposed
on a Purchase (as a % of purchase
price)(3)............... 5.75% 0.00%(5)
Maximum Contingent Deferred Sales
Charge (as a % of purchase
price)(3)............... 1.00%(4) 5.00%
(1) For accounts less than $1,000 an annual fee of $10 may be
deducted. See "How to sell shares."
(2) Redemption proceeds exceeding $5,000 sent via federal funds
wire will be subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to
$5 million redeemed within approximately 18 months after purchase.
See "How to buy shares."
(5) Because of the 0.75% distribution fee applicable to Class B
shares, long-term Class B shareholders may pay more in aggregate
sales charges than the maximum initial sales charge permitted by
the National Association of Securities Dealers, Inc. However,
because the Fund's Class B shares automatically convert to Class A
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 net assets)
Class A Class B
Management fee................... 0.75% 0.75%
12b-1 fees....................... 0.25 1.00
Other expenses................... 0.70 0.70
---- ----
Total expenses................... 1.70% 2.45%
==== ====
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
Period: (6)
1 year........................... $ 74 $ 75 $ 25
3 years.......................... 108 107 77
5 years.......................... 145 152 132
10 years......................... 247 263(7) 263(7)
(6)Assumes no redemption.
(7) Class B shares convert to Class A after approximately 8 years;
therefore, years 9 and 10 reflect Class A expenses.
THE FUND'S FINANCIAL HISTORY
The following schedule of financial highlights for a share outstanding
throughout each period has been audited by Price Waterhouse LLP, independent
accountants. Their unqualified report is included in the Fund's 1994 Annual
Report and is incorporated by reference into the Statement of Additional
Information.
<TABLE>
<CAPTION>
Year ended Period ended
October 31 October 31
1994(a) 1993(a) 1992(a)(b)
Class A Class B Class A Class B Class A Class B
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period............... $12.160 $12.130 $9.750 $9.720 $10.000 $10.000
------- ------- ------ ------ ------- -------
Income from investment operations:
Net investment income............................. 0.114 0.019 0.099 0.018 0.042 0.012
Net realized and unrealized
gain (loss) on investments..................... 1.104 1.097 2.429 2.431 (0.292) (0.292)
----- ----- ----- ----- ------- -------
Total from investment operations............... 1.218 1.116 2.528 2.449 (0.250) (0.280)
----- ----- ----- ----- ------- -------
Less distributions declared to shareholders:
From net investment income........................ (0.118) (0.036) (0.118) (0.039) --- ---
From net realized gains........................... (0.100) (0.100) --- --- --- ---
------- ------- ---- ---- ---- ----
Total distributions declared to shareholders.... (0.218) (0.136) (0.118) (0.039) --- ---
------- ------- ------- ------- ---- ----
Net asset value - End of period..................... $13.160 $13.110 $12.160 $12.130 $9.750 $9.720
======== ======= ======= ======= ====== ======
Total return(c)..................................... 10.14% 9.28% 26.20% 25.30% (2.50)%(d) (2.80)%(d)
------ ------ ------ ------ ------- -------
Ratios to average net assets
Expenses........................................ 1.70% 2.45% 1.88% 2.63% 2.45%(e 3.20%(e)
Net investment income........................... 0.90% 0.15% 0.92% 0.17% 1.07%(e 0.32%(e)
Portfolio turnover.................................. 15% 15% 14% 14% 89%(e 89%(e)
Net assets at end of period (000)................... $36,830 $22,458 $31,098 $7,179 $27,790 $4,444
(a) Per share data was calculated using average share outstanding during the
period.
(b) The Fund commenced investment operations on June 8, 1992.
(c) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(d) Not annualized.
(e) Annualized.
</TABLE>
Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-248-2828.
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks preservation of capital purchasing power and long-term
growth.
HOW THE FUND PURSUES ITS OBJECTIVE
The Fund will normally invest at least 65% of total assets in foreign
and domestic equity, equity equivalent and debt securities of
companies that primarily own, explore, mine, process or otherwise
develop natural resources or that supply goods and services to such
companies (Natural Resources Securities). Natural resources generally
include precious, ferrous, nonferrous and strategic metals as well as
gems, hydrocarbons, timber, real property and agricultural
commodities. The Fund will normally not invest more than 35% of total
assets in debt securities. The value of debt securities fluctuates as
a result of changing interest rates and this may affect the value of
Fund shares. The emphasis given to each type of investment reflects
the Adviser's expectation of its short- and long-term return and
degree of risk. The Fund normally will hold securities principally
traded, or issued by companies principally located, in at least three
countries (which may include the U.S.).
The value of Natural Resources Securities will fluctuate with the
market generally, as well as with the market for the underlying
natural resource which may be affected by natural disasters, inflation
and political instabilities. Certain natural resources are
geographically concentrated and events in Europe, the Middle and Far
East or Southern Africa may affect their value. The Fund may invest
in less developed as well as more developed countries and in
securities of smaller or less well established companies, possibly
traded over-the-counter, as well as those of larger, more established
companies traded on exchanges.
The Fund may, but presently does not intend to, invest directly in
natural resource assets.
The Fund is a non-diversified mutual fund and, although it generally
will not, it may invest more than 5% of its total assets in the
securities of a single issuer, increasing the risk of loss as compared
to a similar diversified mutual fund.
Money Market Instruments and Defensive Investing. The Fund may invest
temporarily available cash in certificates of deposit, bankers'
acceptances, high quality commercial paper, Treasury bills and
repurchase agreements. Under unusual market conditions, the Fund may
temporarily invest any or all of its assets in such instruments and
U.S. Government securities.
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. 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.
While there is no limit on the Fund's investment in repurchase
agreements, not more than 10% of the Fund's total assets will be
invested in repurchase agreements maturing in more than 7 days and
other illiquid assets.
Options and Futures. The Fund may purchase and write options. An
option gives the purchaser of the option the right to buy, in the case
of a call, or sell, in the case of a put, a security at the exercise
price at any time prior to the expiration of the contract. The Fund
will pay a premium when purchasing an option, which reduces the Fund's
return on the underlying security if the option is exercised and
results in a loss if the option expires unexercised. 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 total market value of
securities to be delivered or acquired pursuant to such contracts will
not exceed 5% of the Fund's total assets.
In addition, for hedging purposes the Fund may purchase and sell
futures contracts and options on futures contracts. A futures
contract creates an obligation by the seller to deliver and the buyer
to take delivery of a type of instrument at the time and in the amount
specified in the contract. Although the contracts call for the
delivery (or acceptance) of a specified instrument, the contracts are
usually closed out before the settlement date through the purchase
(sale) of a comparable contract. If the price of the initial sale of
the futures contract exceeds (or is less than) the price of the
offsetting purchase, a gain (or loss) will be realized. Options on
futures contracts operate in a similar manner to options on
securities, except that the position assumed upon exercise is in the
futures contracts rather than in the security. The Fund may not
purchase or sell futures contracts or purchase related options if
immediately thereafter the sum of the amount of deposits for initial
margin or premiums on existing futures and related options positions
would exceed 5% of the market value of the Fund's total assets.
Transactions in futures and related options involve the risk of (1)
imperfect correlation between the price movement of the contracts and
the underlying securities, (2) significant price movement in one but
not the other market because of different trading hours, (3) the
possible absence of a liquid secondary market at any point in time,
and (4) if the Adviser's prediction on rates is inaccurate, the Fund
may be worse off than if it had not hedged.
Foreign Investments. The Fund may invest without limit in foreign
securities of lesser and more developed countries, which will subject
the Fund to political, economic and legal considerations 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. Generally, foreign
currencies transactions will be at the spot rate. The Fund may deal
in currency forwards as a hedge against fluctuations in foreign
currency. The precise matching of foreign currency exchange
transactions and portfolio securities will not generally be possible
since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those
securities which cannot be precisely forecast. Currency hedging does
not eliminate fluctuations in the underlying securities, but rather
establishes a rate of exchange at some future point in time. Although
hedging may lessen the risk of loss due to a decline in the value of
the hedged currency, it tends to limit potential gain from any
increase in the value of such currency. Transactions in foreign
securities may include currency conversion costs; also, brokerage and
custodian costs may be higher than for U.S. securities.
Small Companies. The Fund may invest without limit in smaller, less
well established companies that 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 trade less frequently, in smaller
volumes, and fluctuate more sharply in value than exchange listed
securities of larger companies.
Lower Rated Bonds (commonly referred to as junk bonds). The Fund may
purchase lower rated bonds, including bonds in the lowest rating
categories (C for Moody's and D for S&P) and unrated bonds. The
lowest rating categories include bonds which are in default. Because
these securities are regarded as predominantly speculative as to
payments of principal and interest, the Fund will not purchase debt
securities rated Ca by Moody's, CC by S&P or lower unless the Adviser
believes the quality of such securities is higher than indicated by
the rating.
Lower rated bonds are those rated lower than Baa by Moody's or BBB by
S&P, or comparable unrated securities. Relative to comparable
securities of high 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. recent 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.
During the fiscal period ended October 31, 1994, the Fund had less
than 20% of its total average annual assets invested in lower rated
bonds.
Other. The Fund may not always achieve its investment objective. The
Fund's investment objective and nonfundamental 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 current financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares
are redeemed in response to a change in objective. The Fund's
fundamental policies listed in the Statement of Additional information
cannot be changed without the approval of a majority of the Fund's
outstanding voting securities. Additional information concerning
certain of the securities and investment techniques described above is
contained in the Statement of Additional Information.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in sales literature and advertisements.
Each Class's average annual total returns are calculated in accordance
with the Securities and Exchange Commission's formula and assume the
reinvestment of all distributions, the maximum initial sales charge of
5.75% on Class A shares, and the contingent deferred sales charge
applicable to the time period quoted on Class B shares. Other total
returns differ from average annual total return only in that they may
relate to different time periods, may represent aggregate as opposed
to average annual total returns, and may not reflect the initial or
contingent deferred sales charges.
Each Class's yield, which differs from total return because it does
not consider 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 from net investment income by the maximum
offering price of that Class. Each Class's performance may be
compared to various indices. Quotations from various publications may
be included in sales literature and advertisements. See "Performance
Measures" in the Statement of Additional Information for more
information.
All performance information is historical and does not predict future
results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the
Fund's affairs as conducted by the Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc.Colonial
Investment Services, Inc. (Distributor) is a subsidiary of the Adviser
and serves as the distributor for the Fund's shares. The Colonial
Group, Inc. is the parent of Colonial Investors Service Center, Inc.
(Transfer Agent), which serves as the shareholder services and
transfer agent for the Fund. John A. McNeice, Jr. is considered to be
a controlling person of The Colonial Group, Inc.
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 0.75% of the Fund's average net assets for
fiscal year 1994.
Susan Cordes, Vice President of the Adviser, has managed the Fund
since 1993. Prior to 1993, Ms. Cordes was an Analyst and Assistant
Vice President of the Adviser. Prior to joining the Adviser in 1990,
Ms. Cordes was a Financial Analyst at CSI Resources, Inc.
The Adviser also provides pricing and bookkeeping services to the Fund
for a monthly fee of $2,250 plus a percentage of the Fund's average
net assets over $50 million. The Transfer Agent provides transfer
agency and shareholder services to the Fund for a fee of 0.25%
annually of average net assets plus out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee
waiver to which the Adviser may agree.
The Adviser places all orders for the purchase and sale of portfolio
securities. In selecting broker-dealers, the Adviser may consider
research and brokerage services furnished to it and its affiliates.
Subject to seeking best execution, the Adviser may consider sales of
shares of the Fund (and of certain other Colonial funds) in selecting
broker-dealers for portfolio security transactions.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value of
each Class's net assets by its number of outstanding shares. Shares
are valued each day the New York Stock Exchange is open as of
approximately 4:00 p.m. Eastern time. Portfolio securities for which
market quotations are readily available are valued at market. Short-
term investments maturing in 60 days or less are valued at amortized
cost when it is determined, pursuant to procedures adopted by the
Trustees, that such cost approximates market value. All other
securities and assets are valued at their fair value following
procedures adopted by the Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code and to distribute to shareholders virtually
all net income and any net realized gain, at least annually.
The Fund generally declares and pays distributions semi-annually.
Distributions are invested in additional shares of the same Class of
the Fund at net asset value unless the shareholder elects to receive
cash. Regardless of the shareholder's election, distributions of $10
or less will not be issued as checks to shareholders, but will be
invested in additional shares of the same Class of the Fund at the net
asset value To change your election, call the Transfer Agent for
information. Whether you receive distributions in cash or in
additional Fund shares, you must report them as taxable income unless
you are a tax-exempt institution. If you buy shares shortly before a
distribution is declared, the distribution will be taxable although it
is in effect a partial return of the amount invested. Each January,
information on the amount and nature of distributions for the prior
year is sent to shareholders.
HOW TO BUY SHARES
Shares are offered continuously. Orders received in good form prior
to 4:00 p.m. Eastern time (or placed with a financial service firm
before such time and transmitted by 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 is $50 and the minimum initial investment for a
Colonial retirement account is $25. Certificates will not be issued
for Class B shares and there are some limitations on the issuance of
Class A certificates. The Fund may refuse any purchase order for its
shares. See the Statement of Additional Information for more
information.
Class A Shares. Class A shares are offered at net asset value plus an
initial or contingent deferred sales charge as follows:
Initial Sales Charge
Retained by
Financial
Service
Firm as
as % of % of
Amount Offering Offering
Amount 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 A shares bear a 0.25% annual service fee.
Class B Shares. Class B shares are offered at net asset value,
without an initial sales charge, subject to a 0.75% annual
distribution fee and a 0.25% annual service fee for 8 years (at which
time they convert to Class A shares not bearing a distribution fee),
and a contingent deferred sales charge if redeemed within 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:
Years Contingent Deferred
Since 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 financial service firms a commission of 4.00% on
Class B share purchases.
General. All contingent deferred sales charges are deducted from the
redemption, not the amount remaining in the account, and are paid to
the Distributor. Shares issued upon distribution reinvestment and
amounts representing appreciation are not subject to a contingent
deferred sales charge. The contingent deferred sales charge is
imposed on redemptions which result in the account value falling below
its Base Amount (the total dollar value of purchase payments 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. Purchases of $250,000 or more must be for Class A
shares. Consult your financial service firm.
Financial service firms may receive different compensation rates for
selling different classes of shares. The Distributor may pay
additional compensation to financial service firms which have made or
may make significant sales.
Initial or contingent deferred sales charges may be reduced or
eliminated for certain persons or organizations purchasing Fund shares
alone or in combination with certain other Colonial funds.See the
Statement of Additional Information for more information.
Shareholder Services. A variety of shareholder services are
available. For more information about these services or your account,
call 1-800-345-6611. Some services are described in the attached
account application. A shareholder's manual explaining all available
services will be provided upon request.
HOW TO SELL SHARES
Shares may be sold on any day the New York Stock Exchange is open,
either directly to the Fund or through your financial service firm.
Sale proceeds generally are sent within seven days (usually on the
next business day after your request is received in good form).
However, for shares recently purchased by check, the Fund will send
proceeds 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 Agentalong 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 before 4:00 p.m. Eastern time 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 federal tax
purposes and may be subject to a contingent deferred sales charge.
The contingent deferred sales charge may be waived under certain
circumstances. 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 at least 60 days' written notice to increase the account value
before the fee is deducted.
HOW TO EXCHANGE SHARES
Exchanges at net asset value may be made among the same class of
shares of most Colonial funds. Shares will continue to age without
regard to the exchange for purposes of conversion and determining the
contingent deferred sales charge, if any, upon redemption. Carefully
read the prospectus of the fund into which the exchange will go before
submitting the request. Call 1-800-248-2828 to receive a prospectus
and an exchange authorization form. Call 1-800-422-3737 to exchange
shares by telephone. An exchange is a taxable 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.
TELEPHONE TRANSACTIONS
All shareholders may redeem up to $50,000 of Fund shares by telephone,
and may elect telephone redemption privileges for larger amounts on
the account application. All exchanges may be accomplished by
telephone. See the Statement of Additional Information for more
information. The Adviser, the 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 Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. Shareholders
will be required to provide their name, address and account number.
Proceeds and confirmations 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 60 days.
All telephone transactions are recorded. Shareholders are not
obligated to transact by telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual service fee
of 0.25% 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 shares.
Because the Class B shares bear the additional distribution fee, their
dividends will be lower than the dividends of Class A shares. Class B
shares automatically convert to Class A shares, generally eight years
after the Class B shares were purchased. 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.
APPENDIX
Description of Bond Ratings
S&P
AAA Indicates an extremely strong capacity to pay principal and
interest.
AA Capacity to pay principal and interest is very strong, and in the
majority of instances, they differ from AAA only in small degree.
A Strong capacity to pay principal and interest, although they are
somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB Have an adequate capacity to pay 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 pay principal and interest than for bonds in the
A category.
BB, B, CCC and CC Regarded, on balance as predominantly speculative
with respect to capacity to pay principal and interest in accordance
with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest. While likely to have some quality and
protection characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C Income bonds on which no interest is being paid.
D In default, and payment of interest and/or principal is in arrears.
Plus (+) or minus (-) are modifiers relative to the standing within
the major categories.
Moody's
Aaa Best quality carrying the smallest degree of investment risk and
generally referred to as "gilt edge." Interest payments are protected
by a large or 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 the fundamentally
strong position of the issue.
Aa 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.
Aa through B securities which possess the strongest investment
attributes are designated by the symbol 1.
A Possess many of the favorable investment attributes and are to be
considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Medium grade, neither highly protected nor poorly secured.
Interest and principal payments appear adequate for the present but
certain protective elements are lacking or may be characteristically
unreliable over great lengths of time. Such bonds lack outstanding
investment characteristics and in fact have speculative
characteristics as well.
Ba 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.
Caa Poor standing. They may be in default or there may be present
elements of danger with respect to principal or interest.
Ca Speculative in a high degree, often in default or having other
major shortcomings.
C Lowest rated class of bonds. Can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
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
Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108-2624
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A.
February 28, 1995
COLONIAL
GLOBAL NATURAL
RESOURCES FUND
PROSPECTUS
Colonial Global Natural Resources Fund seeks preservation of capital
purchasing power and long-term growth.
For more detailed information about the Fund, call the Adviser at
1-800-248-2828 for the February 28, 1995 Statement of Additional
Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
COLONIAL TRUST III
Cross Reference Sheet (Colonial Global Equity Fund)
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; How the Fund
pursues its objective; The Fund's investment
objective
5. Cover page; How the Fund is managed;
Organization and history
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, 1995
COLONIAL GLOBAL EQUITY FUND
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Adviser) and your full-service
financial adviser want you to understand both the risks and benefits
of mutual fund investing.
While mutual funds offer significant opportunities and are
professionally managed, they also carry risk including possible loss
of principal. Unlike savings accounts and certificates of deposit,
mutual funds are not insured or guaranteed by any financial
institution or government agency.
Please consult your full-service financial adviser to determine how
investing in this mutual fund may suit your unique needs, time horizon
and risk tolerance.
Colonial Global Equity Fund (Fund), a diversified portfolio of
Colonial Trust III (Trust), seeks long-term growth by investing
primarily in global equities.
The Fund is managed by the Adviser, an investment adviser since 1931.
GE-01/576A-0295
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, 1995 Statement of Additional Information which has been
filed with the Securities and Exchange Commission and is obtainable
free of charge by calling the Adviser at 1-800-248-2828. The
Statement of Additional Information is incorporated by reference in
(which means it is considered to be a part of) this Prospectus.
The Fund offers two classes of shares. Class A shares are offered at
net asset value plus a sales charge imposed at the time of purchase;
Class B shares are offered at net asset value plus an annual
distribution fee and a declining contingent deferred sales charge on
redemptions made within six years after purchase. Class B shares
automatically convert to Class A shares 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 annual expenses for an investment in each Class of the Fund's
shares.
Shareholder Transaction Expenses(1)(2)
Class A Class B
Maximum initial sales charge
imposed on a purchase (as a % of 5.75% 0.00%(5)
offering price) (3)................
Maximum contingent deferred sales
charge (as % of offering price) 1.00%(4) 5.00%
(3)................................
(1) For accounts less than $1,000 an annual fee of $10 may be deducted.
See "How to sell shares."
(2) Redemption proceeds exceeding $5,000 sent via federal funds wire
will be subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to $5
million redeemed within approximately 18 months after purchase. See
"How to buy shares."
(5) Because of the 0.75% distribution fee applicable to Class B shares,
long-term Class B shareholders may pay more in aggregate sales
charges than the maximum initial sales charge permitted by the
National Association of Securities Dealers, Inc. However, because
the Fund's Class B shares automatically convert to Class A shares
after approximately 8 years, this is less likely than for a class
without a conversion feature.
Annual Operating Expenses
(as a % of net assets)
Class A Class B
Management fee (after expense waiver)... 0.39% 0.39%
12b-1 fees.............................. 0.25 1.00
Other expenses.......................... 0.61 0.61
Total expenses.......................... 1.25% 2.00%
The Adviser has voluntarily agreed to waive or bear certain Fund
expenses until further notice. Absent such agreement, the "Management
fee" would have been 0.75% for each Class and Total expenses would
have been 1.61% for Class A and 2.36% for Class B for fiscal year
1994.
Example
The following Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each Class for the periods
specified, assuming a 5% annual return and, unless otherwise noted,
redemption at period end. The 5% return and expenses 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
Period: (6)
1 year.... $ 70 $ 71 $ 21
3 years... 95 93 63
5 years... 122 129 109
10 years.. 200 215(7) 215(7)
If the Adviser did not continue to waive or bear certain Fund
expenses, the amounts in the Example would be:
Class A Class B
Period: (6)
1 year... $ 73 $ 74 $ 24
3 years... 106 105 75
5 years... 140 148 128
10 years.. 238 254(7) 254(7)
(6) Assumes no redemption.
(7) Class B shares convert to Class A shares after approximately 8
years; therefore, years 9 and 10 reflect Class A expenses.
HE FUND'S FINANCIAL HISTORY
The following schedule of financial highlights for a share outstanding
throughout each period has been audited by Price Waterhouse LLP,
independent accountants. Their unqualified report is included in the
Fund's 1994 Annual Report and is incorporated by reference into the
Statement of Additional Information.
<TABLE>
<CAPTION>
Period ended
Year ended October 31(b) October 31(b)
1994 1993 1992(c)
Class A Class B Class A Class B Class A Class B
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period.......... $11.760 $11.720 $9.340 $9.310 $10.000 $10.000
------- ------- ------ ------ ------- -------
Income from investment operations:
Net investment income(a)..................... 0.170 0.077 0.182 0.104 0.088 0.059
Net realized and unrealized
gain (loss) on investments................ 0.969 0.959 2.461 2.447 (0.748) (0.749)
------ ------ ------ ------ ------- -------
Total from investment operations.......... 1.139 1.036 2.643 2.551 (0.660) (0.690)
------ ------ ------ ------ ------- -------
Less distributions declared to
shareholders:
From net investment income................... (0.166) (0.083) (0.223) (0.141) --- ---
------- ------- ------- ------- ------- -------
From net realized gains...................... (0.043) (0.043) --- 0.006 --- ---
------- ------- ------- ------- ------- -------
Total distributions declared
to shareholders.......................... (0.209) (0.126) 0.223 0.141 --- ---
------- ------- ------- ------- ------- -------
Net asset value - End of period................ $12.690 $12.630 $11.760 $11.720 $9.340 $9.310
======= ======= ======= ======= ====== =======
Total return(d)(e)............................. 9.76% 8.88% 28.77% 27.70% (6.59)%(f) (6.90)%(f)
------ ------- ------- ------ ------- -------
Ratios to average net assets:
Operating Expenses......................... 1.25% 2.00% 1.25% 2.00% 1.25%(g) 2.00%(g)
Interest Expense........................... ---- --- 0.01% 0.01% --- ---
Fees and expenses waived
or borne by the Adviser................. 0.36% 0.36% 0.51% 0.51% 0.67%(g) 0.67%(g)
Net investment income...................... 1.38% 0.63% 1.75% 1.00% 2.25%(g) 1.50%(g)
Portfolio turnover............................. 52% 52% 58% 58% 14%(g) 14%(g)
Net assets at end of period (000).............. $10,525 $63,139 $1,769 $40,837 $164 $32,099
_________________________________
(a) Net of fees and
expenses borne by the
Adviser which amounted
to............................................................ $0.045 $0.045 $0.053 $0.053 $0.026 $0.026
(b) Per share data was calculated using average shares outstanding
during the period.
(c) The Fund commenced investment operations on June 8, 1992.
(d) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or CDSC.
(e) Had the Adviser not waived or reimbursed a portion of expenses total
return would have been reduced.
(f) Not annualized.
(g) Annualized.
</TABLE>
Further performance information is contained in the Fund's Annual
Report to shareholders, which is obtainable free of charge by calling
1-800-248-2828.
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term growth by investing primarily in global
equities.
HOW THE FUND PURSUES ITS OBJECTIVE
The Fund has a flexible policy of investing in equity and debt
securities of companies and governments of any nation.
Except for temporary defensive purposes, the Fund will invest at least
65% of its total assets in equity securities, for example common and
preferred stocks or convertible debt, and at any time in issuers in at
least three countries including the United States.
Foreign Investments. The Fund may invest without limit in securities
traded outside of the U.S. Foreign securities will subject the Fund
to special considerations related to political, economic and legal
conditions outside of the U.S. These considerations include the
possibility of unfavorable currency exchange rates, exchange control
regulations (including currency blockage), expropriation,
nationalization, withholding taxes on income and difficulties in
enforcing judgments. Foreign securities may be less liquid and more
volatile than comparable U.S. securities. Some foreign issuers are
subject to less comprehensive accounting and disclosure requirements
than similar U.S. issuers.
The Fund may purchase foreign currencies on a spot or forward basis in
conjunction with its investments in foreign securities and to hedge
against fluctuations in foreign currencies. The precise matching of
foreign currency exchange transactions and portfolio securities will
not generally be possible since the future value of such securities in
foreign currencies will change as a consequence of market movements
which cannot be precisely forecast. Currency hedging does not
eliminate fluctuations in the underlying prices of securities, but
rather establishes a rate of exchange at some future point in time.
Although hedging may lessen the risk of loss due to a decline in the
value of the hedged currency, it tends to limit potential gain from
increases in currency values.
Transactions in foreign securities include currency conversion costs.
Brokerage and custodial costs may be higher for foreign securities
than for U.S. securities. See "Foreign Securities" and "Foreign
Currency Transactions" in the Statement of Additional Information for
more information about foreign investments.
Futures. The Fund may purchase and sell futures contracts and options
on futures contracts for hedging purposes. A futures contract creates
an obligation by the seller to deliver and the buyer to take delivery
of a type of instrument at the time and in the amount specified in the
contract. Although the contracts call for the delivery (or
acceptance) of a specified instrument, the contracts are usually
closed out before the settlement date through the purchase (sale) of a
comparable contract. If the price of the initial sale of the futures
contract exceeds (or is less than) the price of the offsetting
purchase, a gain (or loss) will be realized. Options on futures
contracts operate in a similar manner to options on securities, except
that the position assumed upon exercise is in the futures contracts
rather than in the security. The Fund may not purchase or sell
futures contracts or purchase related options if immediately
thereafter the sum of the amount of deposits for initial margin or
premiums on existing futures and related options positions would
exceed 5% of the market value of the Fund's total assets.
Transactions in futures and related options involve the risk of (1)
imperfect correlation between the price movement of the contracts and
the underlying securities, (2) significant price movements in one but
not the other market because of different trading hours, (3) the
possible absence of a liquid secondary market at any point in time,
and (4) if the Adviser's prediction on rates or stock market movements
is inaccurate, the Fund may be worse off than if it had not hedged.
Debt Securities. The Fund may invest in debt securities including
U.S. and foreign government securities and corporate debt securities,
including Samurai and Yankee bonds, Eurobonds and Depository Receipts.
The Fund will limit its purchases of debt securities to investment
grade obligations (rated Baa or better by Moody's or similarly rated
by other rating services) or non-rated debt obligations that the
Adviser considers to be ofcomparable quality. Securities rated
BBB/Baa and similar unrated securities have some speculative
characteristics. See Appendix I to the Statement of Additional
Information for a description of the ratings. The market values of
debt securities will fluctuate with changing interest rates and will
affect the Fund's net asset value per share.
Investing in Other Investment Companies. The Fund may invest in
closed-end investment companies commonly referred to as "country
funds". The Fund's investment in other investment companies is
limited in amount by the Investment Company Act of 1940, and will
involve 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, 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 trade less frequently, in smaller
volumes and fluctuate more sharply in value than exchange listed
securities of larger companies.
Other Investment Practices. The Fund may engage in the following
investment practices, some of which are described in more detail in
the Statement of Additional Information.
The Fund may invest temporarily available cash in certificates of
deposit, bankers' acceptances, high quality commercial paper, treasury
bills and repurchase agreements. Under a repurchase agreement, the
Fund buys a security 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 collaterialzed. The transaction may be viewed as a loan by the
Fund, collateralized by the security. The Fund will only enter into
repurchase agreements with well capitalized banks and certain broker-
dealers meeting high credit standards. The repurchase agreements
require that at all times the issuer's obligations are at least 100%
collateralized by U.S. government securities maintained in a
segregated account. 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 10% of the Fund's total assets will be invested in
repurchase agreements maturing in more than 7 days and other illiquid
assets.
In periods of unusual market conditions, when the Adviser considers it
appropriate, the Fund may invest all or any part of the Fund's assets
in cash, U.S. Government Securities, high quality commercial paper,
bankers' acceptances, repurchase agreements and certificates of
deposit.
The Fund may sell securities short against the box but will not do so
if, as a result, more than 15% of its total assets is committed as
collateral.
The Statement of Additional Information describes other investment
techniques that the Fund may use, but currently has no intention in
the foreseeable future of using.
Other. The Fund may not always achieve its investment 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 current financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares
are redeemed in response to a change in objective. The Fund's
fundamental policies listed in the Statement of Additional Information
cannot be changed without the approval of a majority of the Fund's
outstanding voting securities. Additional information concerning
certain of the securities and investment techniques described above is
contained in the Statement of Additional Information.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in sales literature and advertisements.
Each Class's average annual total returns are calculated in accordance
with the Securities and Exchange Commission's formula, and assume the
reinvestment of all distributions, the maximum initial sales charge of
5.75% on Class A shares and the contingent deferred sales charge
applicable to the time period quoted on Class B shares. Other total
returns differ from average annual total return only in that they may
relate to different time periods, represent aggregate as opposed to
average annual total return, 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 month's
distributions, annualized, by the maximum offering price of that
Class. Each Class's performance may be compared to various indices.
Quotations from various publications may be included in sales
literature and advertisements. See "Performance Measures" in the
Statement of Additional Information for more information.
All performance information is historical and does not predict future
results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the
Fund's affairs as conducted by the Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc. Colonial
Investment Services, Inc. (Distributor) is a subsidiary of the Adviser
and serves as the distributor for the Fund's shares. The Colonial
Group, Inc. is the parent of Colonial Investors Service Center
Inc.(Transfer Agent), which serves as the shareholder services and
transfer agent for the Fund. John A. McNeice, Jr. is considered to be
a controlling person of The Colonial Group, Inc.
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 0.39 % of the Fund's average net assets for
fiscal year 1994.
Elizabeth Palmer Vice President of the Adviser, has managed the Fund
since 1993. Ms. Palmer managed the Fund from its inception to 1993,
and has managed various other Colonial equity funds since 1989.
The Adviser also provides pricing and bookkeeping services to the Fund
for a monthly fee of $2,250 plus a percentage of the Fund's average
net assets over $50 million. The Transfer Agent provides transfer
agency and shareholder services to the Fund for a fee of 0.25% of
average net assets plus out-of-expenses.
Each of the foregoing fees is subject to any reimbursement or fee
waiver to which the Adviser may agree
The Adviser places all orders for the purchase and sale of portfolio
securities. In selecting broker-dealers, the Adviser may consider
research and brokerage services furnished to it and its affiliates.
Subject to seeking best execution, the Adviser may consider sales of
shares of the Fund (and of certain other Colonial funds) in selecting
broker-dealers for portfolio security transactions.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value of
each Class's net assets by its number of outstanding shares. Shares
are valued each day the New York Stock Exchange is open as of
approximately 4:00 p.m. Eastern time. Portfolio securities for which
market quotations are readily available are valued at market. Short-
term investments maturing in 60 days or less are valued at amortized
cost when it is determined, pursuant to procedures adopted by the
Trustees, that such cost approximates market value. All other
securities and assets are valued at fair value following procedures
adopted by the Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code and to distribute to shareholders virtually
all net income and any net realized gain at least annually.
The Fund generally declares and pays distributions semi-annually.
Distributions are invested in additional shares of the same Class of
the Fund at net asset value unless the shareholder elects to receive
cash. Regardless of the shareholder's election, distributions of $10
or less will not be issued as checks to shareholders, but will be
invested in additional shares of the same Class of the Fund at the net
asset value. To change your election, call the Transfer Agent for
information.
Whether you receive distributions in cash or in additional Fund
shares, you must report them as taxable income unless you are a tax-
exempt institution. If you buy shares shortly before a distribution
is declared, the distribution will be taxable although it is in effect
a partial return of the amount invested. Each January, information on
the amount and nature of distributions for the prior year is sent to
shareholders.
HOW TO BUY SHARES
Shares are offered continuously. Orders received in good form prior
to 4:00 p.m. Eastern time (or placed with a financial service firm
before such time and transmitted by 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 is $50 and the mininum initial investment for a
Colonial retirement account is $25. Certificates will not be issued
for Class B shares and there are some limitations on the issuance of
Class A certificates. The Fund may refuse any purchase order for its
shares. See the Statement of Additional Information for more
information.
Class A Shares. Class A shares are offered at net asset value plus an
initial or contingent deferred sales charge as follows:
Initial Sales Charge
Retained by
Financial
Service
Firm as
_____as % of_____ % of
Amount Offering Offering
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 A shares bear a 0.25% annual service fee.
Class B Shares. Class B shares are offered at net asset value,
without an initial sales charge, subject to a 0.75% annual
distribution fee and a 0.25% annual service fee for 8 years (at which
time they convert to Class A shares not bearing distribution fee),
and a contingent deferred sales charge if redeemed within 6 years
after purchase. As shown below, the amount of the contingent deferred
sales depends on the number of years after purchase that the
redemption occurs:
Years Contingent Deferred
Since 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 financial
service firms a commission of 4.00% on Class B share purchases.
General. All contingent deferred sales charges are deducted from the
redemption, not the amount remaining in the account, and are paid to
the Distributor. Shares issued upon distribution reinvestment 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 in the account reduced by prior redemptions on which
a contingent deferred sales charge was paid and any exempt
redemptions). sSee 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. Purchases of $250,000 or more must be for Class A
shares. Consult your financial service firm.
Financial service firms may receive different compensation rates for
selling different classes of shares. The Distributor may pay
additional compensation to financial service firms which have made or
may make significant sales. Initial or contingent deferred sales
charges may be reduced or eliminated for certain persons or
organizations purchasing Fund shares alone or in combination with
certain other Colonial Funds. See the Statement of Additional
Information for more information.
Shareholder Services. A variety of shareholder services are
available. For more information about these services or your account,
call
1-800-345-6611. Some services are described in the attached account
application. A shareholder's manual explaining all available services
will be provided upon request.
HOW TO SELL SHARES
Shares may be sold on any day the New York Stock Exchange is open,
either directly to the Fund or through your financial service firm.
Sale proceeds generally are sent within seven days (usually on the
next business day after your request is received in good form).
However, for shares recently purchased by check, the Fund will send
proceeds as soon as the check has cleared (which may take up to 15
days).
Selling Shares Directly to the Fund. Send a signed letter of
instruction or stock power form to the Transfer Agent, along with any
certificates for shares to be sold. The sale price is the net asset
value (less any applicable contingent deferred sales charge) next
calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national
stock exchange or another eligible guarantor 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 before 4:00 p.m. Eastern time 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 federal tax
purposes and may be subject to a contingent deferred sales charge.
The contingent deferred sales charge may be waived under certain
circumstances. See the Statement of Additional Information for more
information. Under unusual circumstances, the Fund may suspend
repurchases or postpone payment for up to seven days or longer, as
permitted by federal securities law.
In June of any year, the Fund may deduct $10 (payable to the Transfer
Agent) from accounts valued at less than $1,000 unless the account
value has dropped 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. 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 authorization 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.
TELEPHONE TRANSACTIONS
All shareholders may redeem up to $50,000 of Fund shares by telephone,
and may elect telephone redemption privileges for larger amounts on
the account application. All exchanges may be accomplished by
telephone. See the Statement of Additional Information for more
information. The Adviser, the 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 Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. Shareholders
will be required to provide their name, address and account number.
Proceeds and confirmations 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 60 days.
All telephone transactions are recorded. Shareholders are not
obligated to transact by telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual service fee
of 0.25% 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 shares.
Because the Class B shares bear the additional distribution fee, their
dividends will be lower than the dividends of Class A shares. Class B
shares automatically convert to Class A shares, generally eight years
after the Class B shares were purchased. 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
under the Plans exceed the Distributor's expenses in any year, the
Distributor would realize a profit. The Plans also authorize 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.
Investment Adviser
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108-2624
Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
800-345-6611
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A.
February 28, 1995
COLONIAL GLOBAL EQUITY FUND
PROSPECTUS
Colonial Global Equity Fund seeks long-term growth by investing
primarily in global equities..
For more detailed information about the Fund, call the Adviser at
1-800-248-2828 for the February 28, 1995 Statement of Additional
Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
COLONIAL TRUST III
Cross Reference Sheet (Colonial Strategic Balanced Fund)
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
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, 1995
COLONIAL STRATEGIC BALANCED FUND
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Adviser) and your full-service
financial adviser want you to understand both the risks and benefits
of mutual fund investing.
While mutual funds offer significant opportunities and are
professionally managed, they also carry risk including possible loss
of principal. Unlike savings accounts and certificates of deposit,
mutual funds are not insured or guaranteed by any financial
institution or government agency.
Please consult your full-service financial adviser to determine how
investing in this mutual fund may suit your unique needs, time horizon
and risk tolerance.
Contents Page
Summary of expenses..........................................
..
The Fund's financial history.................................
The Fund's investment objective..............................
How the Fund pursues its objective and certain risk factors..
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.....................................
Appendix.....................................................
SB-XX/XXXX-0295
Colonial Strategic Balanced Fund (Fund), a diversified portfolio of
Colonial Trust III (Trust), an open-end management investment company
seeks current income and long-term growth, consistent with prudent
risk, by diversifying investments primarily in U.S. and foreign equity
and debt securities. 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, 1995 Statement of Additional Information which has been
filed with the Securities and Exchange Commission and is obtainable
free of charge by calling the Adviser at 1-800-248-2828. The
Statement of Additional Information is incorporated by reference in
(which means it is considered to be a part of) this Prospectus.
The Fund offers three classes of shares. Class A shares are offered
at net asset value plus a sales charge imposed at the time of purchase
and a continuing distribution fee; Class B shares are offered at net
asset value plus an annual 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
shares after approximately eight years. See "How to buy shares."
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 estimated
annual expenses for an investment in each Class of the Fund's shares.
Shareholder Transaction Expenses (1)(2)
Class A Class B Class D
Maximum Initial Sales Charge Imposed
on a purchase (as % of offering
price)(3)............................. 4.75% 0.00%(5) 1.00%(5)
Maximum Contingent Deferred Sales
Charge (as % of offering 1.00%(4) 5.00% 1.00%
price)(3).........................
(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 distribution fee applicable to each Class, long-
term 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 eight years, this is less likely for Class
B shares than for a class without a conversion feature.
Estimated Annual Operating Expenses (as a % of net assets)
Class A Class B Class D
Management fee (after fee waiver) ....... 0.35% 0.35% 0.35%
12b-1 fees............................... 0.55 1.00 1.00
Other expenses........................... 0.75 0.75 0.75
Total expenses (after fee (waiver)....... 1.65% 2.10% 2.10%
The Adviser has voluntarily agreed to waive or bear certain Fund expenses
until further notice. Absent such agreement, the "Management fee" would
have been 0.70% for each Class and "Total expenses" would have been 2.00%
for Class A and 2.45% for both Class B and Class D shares. See "How the
Fund is managed" for other fees paid to the Adviser.
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............ $ 63 $ 72 $ 22 $ 41 $ 31
3 years........... 97 96 66 75 75
If the Adviser did not continue to waive or bear certain Fund expenses, the
amounts in the Example would be:
Class A Class B Class D
Period: (6) (7) (6) (7)
1 year........... $ 67 $ 75 $ 25 $ 45 $35
3 years.......... 107 107 77 86 86
(6) Assumes redemption at period end.
(7) Assumes no redemption.
THE FUND'S FINANCIAL HISTORY
The following schedule of financial highlights for a share oustanding
throughout the period has been audited by Price Waterhouse LLP,
independent accountants. Their unqualified report is included in the Fund's
1994 Annual Report, and is incorporated by reference into the Statement of
Additional Information.
<TABLE>
<CAPTION>
Period ended October 31 (b)
Class A Class B Class D
<S> <C> <C> <C>
Net asset value - Beginning of period.................... $10.000 $10.000 $10.000
------- ------- -------
Income from investment operations:
Net investment income(a)............................... 0.035 0.029 0.029
Net realized and unrealized (loss) .................... (0.125) (0.129) (0.129)
------- ------- -------
Total from investment operations....................... (0.090) (0.100) (0.100)
------- ------- -------
Net asset value - End of period.......................... $9.910 $9.900 $9.900
======= ======= =======
Total return(d)(e)....................................... (0.90)%(f) (1.00)%(f) (1.00)%(f)
Ratios to average net assets:
Expenses(a).......................................... 1.65%(g) 2.10%(g) 2.10%(g)
Fees and expenses waived or borne
by the Adviser..................................... 0.35%(g) 0.35%(g) 0.35%(g)
Net investment income................................ 3.01%(g) 2.56%(g) 2.56%(g)
Portfolio turnover....................................... 0%(g) 0%(g) 0%(g)
Net assets at end of period (000)........................ $6,394 $6,332 $2,231
_________________________________
(a) Net of fees and expenses waived or borne by the $0.004 $0.004 $0.004
Adviser which amounted.........................
(b) Per share data was calculated using average share outstanding during the period.
(c) The Fund commenced investment operations on September 19, 1994.
(d) Total return at net asset value assuming all distributions reinvested and no initial sales charge or CDSC.
(e) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) Annualized.
</TABLE>
Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-248-2828.
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income and longterm growth, consistent with
prudent risk, by diversifying investments primarily in U.S. and
foreign equity and debt securities.
HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS
The Fund seeks to achieve its objective by investing in both equity
and debt securities. The allocation at any given time will be based
on the Adviser's assessment of the relative risk and expected
performance of each market. Under normal conditions, at least 25% of
the Fund's total assets will be invested in senior fixed income (debt)
securities and at least 40% will be invested in equity securities.
Equity Securities Generally. The portion of the Fund invested in
equity securities normally will be allocated among three sectors:
securities issued by large U.S. companies, securities issued by small
U.S. companies (i.e., companies with less than $400 million in market
capitalization at the time of purchase) and securities issued by non-
U.S. companies. The allocation at any given time will be based on the
Adviser's assessment of the relative risk and expected performance of
each market. Up to 20% of the Fund's total assets may be invested in
small U.S. company equity securities and up to 20% in non-U.S. company
equity securities.
Equity securities generally include common and preferred stock,
warrants (rights) to purchase such stock, debt securities convertible
into such stock and sponsored and unsponsored American Depository
Receipts. Equity securities also include shares issued by closed-end
investment companies that invest primarily in the foregoing
securities.
Debt Securities Generally. The portion of the Fund invested in debt
securities normally will be allocated among three sectors: U.S.
government securities, foreign debt securities (primarily securities
issued or guaranteed by foreign governments) and lower-rated debt
securities (junk bonds). The allocation at any given time will be
based on the Adviser's assessment of the relative risk and expected
performance of each market. Up to 30% of the Fund's total assets may
be invested in any one of the foregoing debt sectors.
The Fund may invest in debt securities of any maturity that pay fixed,
floating or adjustable interest rates. The Fund also may invest in
debt securities (referred to as zero coupon securities) that do not
pay interest but, instead, are issued at a significant discount to
their maturity values, or that pay interest, at the issuer's option,
in additional securities instead of cash (referred to as pay-in-kind
securities).
The values of debt securities generally fluctuate inversely with
changes in interest rates. This is less likely to be true for
adjustable or floating rate securities, since interest rate changes
are more likely to be reflected in changes in the rates paid on the
securities. However, reductions in interest rates also may translate
into lower distributions paid by the Fund. Additionally, because zero
coupon and pay-in-kind securities do not pay interest but the Fund
nevertheless must accrue and distribute the income deemed to be earned
on a current basis, the Fund may have to sell other investments to
raise the cash needed to make income distributions.
Foreign Investments. Investments in foreign securities (both debt and
equity) and American Depository Receipts have special risks related to
political, economic, and legal conditions outside of the U.S. As a
result, the prices of foreign securities may fluctuate substantially
more than the prices of securities of issuers based in the U.S.
Special risks associated with foreign securities include the
possibility of unfavorable currency exchange rates, the existence of
less liquid markets, the unavailability of reliable information about
issuers, the existence (or potential imposition) of exchange control
regulations (including currency blockage), and political and economic
instability, among others. In addition, transactions in foreign
securities may be more costly due to currency conversion costs and
higher brokerage and custodial costs. See "Foreign Securities" and
"Foreign Currency Transactions" in the Statement of Additional
Information for more information about foreign investments. Foreign
bonds in the lowest investment grade category are considered to be
somewhat speculative as to the issuer's ability to pay and could be
more adversely affected by unfavorable economic developments than
bonds in higher categories.
Lower Rated Debt Securities. Lower rated debt securities (commonly
referred to as junk bonds) are debt securities which, because of the
likelihood that the issuers will default, are not investment grade
(i.e., are rated below BBB by Standard & Poor's Corporation (S&P) or
below Baa by Moody's Investors Service (Moody's), or are unrated but
considered by the Adviser to be of comparable credit quality).
Because of the increased risk of default, these securities generally
have higher nominal or effective interest rates than higher quality
securities.
The Fund may purchase bonds in the lowest rating categories (C for
Moody's and D for S&P) and comparable unrated securities. However,
the Fund will only purchase securities rated Ca or lower by Moody's or
CC or lower by S&P if the Adviser believes the quality of such
securities is higher than indicated by the rating. The lower rated
securities in which the Fund may invest include zero coupon
securities, described above under "Debt Securities Generally," and non-
agency mortgage-backed securities, described below.
The values of lower rated securities are more likely to fluctuate
directly, rather than inversely, with changes in interest rates. This
is because increases in interest rates often are associated with an
improving economy, which may translate into an improved ability of the
issuers to pay off their bonds (lowering the risk of default). Lower
rated bonds also are generally considered significantly more
speculative and likely to default than higher quality bonds. Relative
to other debt securities, their values tend to be more volatile
because: (1) an economic downturn may more significantly impact their
potential for default, and (2) the secondary market for such
securities may at times be less liquid or respond more adversely to
negative publicity or investor perceptions, making it more difficult
to value or dispose of the securities. The likelihood that these
securities will help the Fund achieve its investment objective is more
dependent on the Adviser's own credit analysis.
U.S. Government Securities. U.S. government securities include (1)
U.S. Treasury obligations and (2) obligations issued or guaranteed by
U.S. government agencies and instrumentalities (Agency Securities)
which are supported by: (a) the full faith and credit of the U.S.
government, (b) the right of the issuing agency to borrow under a line
of credit with the U.S. Treasury, (c) the discretionary power of the
U.S. government to purchase obligations of the agency or (d) the
credit of the agency.
Agency Securities include securities commonly referred to as mortgage-
backed securities, the principal and interest on which are paid from
principal and interest payments made on pools of mortgage loans.
These include securities commonly referred to as "pass-throughs,"
"collateralized mortgage obligations" (CMOs), "real estate mortgage
investment conduits" (REMICs), "interest-only strips" (IOs) and
"principal-only strips" (POs). The Fund will not invest in residual
classes of CMOs. Mortgage-backed securities generally pay higher
interest rates, but also may fluctuate more in value, than comparable
maturity treasury securities. A total of up to 15% of the Fund's
total assets may be invested in IOs and POs.
The Fund may invest in U.S. government securities on a when-issued
basis. This means that the Fund will enter into a contract to
purchase the underlying security for a fixed price on a date beyond
the customary settlement date. No interest accrues until settlement.
While U.S. government securities are considered virtually free of
default risk, their values nevertheless generally fluctuate inversely
with changes in interest rates. Further, mortgage-backed securities
(especially POs) may decline in value more substantially than
comparable maturity Treasury securities given an interest rate
increase, but may not increase in value as much given an interest rate
decline. This is because the mortgages underlying the securities can
be prepaid, and prepayment rates tend to increase as interest rates
decline (effectively shortening the mortgage-backed security's
maturity) and decrease as interest rates rise (effectively lengthening
the mortgage-backed security's maturity). Finally, IOs, unlike other
debt securities, generally fluctuate in value directly (rather than
inversely) with interest-rate changes, and, like other mortgage-backed
securities, tend to fluctuate in value more substantially than
comparable maturity Treasuries. IOs may become worthless if the
underlying mortgages are prepaid in full.
Pre-payments of mortgage-backed securities purchased at a premium may
also result in a loss equal to the premium. If interest rates have
declined, pre-paid principal may only be able to be reinvested at
lower yields, lowering the Fund's yield.
Small Companies. The smaller, less well established companies in
which the Fund may invest may offer greater opportunities for capital
appreciation than larger, better established companies, but may also
involve certain special risks. Such companies often have limited
product lines, markets or financial resources and depend heavily on a
small management group. Their securities may trade less frequently,
in smaller volumes, and fluctuate more sharply in value than exchange
listed securities of larger companies.
Non-Agency Mortgage-Backed Securities. The Fund may invest up to 5%
of its total assets in non-investment grade mortgage-backed securities
that are not guaranteed by the U.S. Government or an Agency. Such
securities are subject to the risks described above under "Lower Rated
Debt Securities" and "U.S. Government Securities." In addition,
although the underlying mortgages provide collateral for the security,
the Fund may experience losses, costs and delays in enforcing its
rights if the issuer defaults or enters bankruptcy, and may incur a
loss.
Other Investment Companies. Up to 10% of the Fund's total assets may
be invested in other investment companies. Such investments will
involve the payment of duplicative fees through the indirect payment
of a portion of the expenses, including advisory fees, of such other
investment companies.
Foreign Currency Transactions. In connection with its investments in
foreign securities, the Fund may purchase and sell (i) foreign
currencies on a spot or forward basis, (ii) foreign currency futures
contracts, and (iii) options on foreign currencies and foreign
currency futures. Such transactions will be entered into (i) to lock
in a particular foreign exchange rate pending settlement of a purchase
or sale of a foreign security or pending the receipt of interest,
principal or dividend payments on a foreign security held by the Fund,
or (ii) to hedge against a decline in the value, in U.S. dollars or in
another currency, of a foreign currency in which securities held by
the Fund are denominated. The Fund will not attempt, nor would it be
able, to eliminate all foreign currency risk. Further, although
hedging may lessen the risk of loss if the hedged currency's value
declines, it limits the potential gain from currency value increases.
See the Statement of Additional Information for information relating
to the Fund's obligations in entering into such transactions.
Index and Interest Rate Futures. The Fund may purchase and sell (i)
U.S. and foreign stock and bond index futures contracts, (ii) U.S. and
foreign interest rate futures contracts and (iii) options on any of
the foregoing. Such transactions will be entered into (i) to gain
exposure to a particular market pending investment in individual
securities, or (ii) to hedge against increases in interest rates. A
futures contract creates an obligation by the seller to deliver and
the buyer to take delivery of a type of instrument at the time and in
the amount specified in the contract. A sale of a futures contract
can be terminated in advance of the specified delivery date by
subsequently purchasing a similar contract; a purchase of a futures
contract can be terminated by a subsequent sale. Gain or loss on a
contract generally is realized upon such termination. An option on a
futures contract generally gives the option holder the right, but not
the obligation, to purchase or sell the futures contract prior to the
option's specified expiration date. If the option expires
unexercised, the holder will lose any amount it paid to acquire the
option. Transactions in futures and related options may not precisely
achieve the goals of hedging or gaining market exposure to the extent
there is an imperfect correlation between the price movements of the
contracts and of the underlying securities. In addition, if the
Adviser's prediction on rates or stock market movements is inaccurate,
the Fund may be worse off than if it had not hedged.
Leverage. The purchase of securities on a "when-issued" basis, the
purchase and sale of futures and forward currency contracts and the
purchase and sale of certain options may present additional risks
associated with the use of leverage. Leverage may magnify the effect
on Fund shares of fluctuations in the values of the securities
underlying these transactions. In accordance with Securities and
Exchange Commission pronouncements, to reduce (but not necessarily
eliminate) leverage, the Fund will either "cover" its obligations
under such transactions by holding the securities (or rights to
acquire the securities) it is obligated to deliver under such
transactions, or deposit and maintain in a segregated account with its
custodian cash or high quality liquid debt securities equal in value
to the Fund's obligations under such transactions.
Temporary/Defensive Investments. Temporarily available cash may be
invested in certificates of deposit, bankers' acceptances, high
quality commercial paper, Treasury bills and repurchase agreements.
Some or all of the Fund's assets also may be invested in such
investments during periods of unusual market conditions. Under a
repurchase agreement, the Fund buys a security from a bank or dealer,
which is obligated to buy it back at a fixed price and time. The
security is held in a separate account at the Fund's custodian, and
constitutes the Fund's collateral for the bank's or dealer's
repurchase obligation. Additional collateral 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 only enter into repurchase agreements with well
capitalized banks and certain broker-dealers meeting high credit
standards. The repurchase agreements require that at all times the
issuer's obligations are at least 100% collateralized by U.S.
government securities maintained in a segregated account. 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 rights to the
collateral in a bankruptcy proceeding.
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 current financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares
are redeemed in response to a change in objective. The Fund's
fundamental policies listed in the Statement of Additional Information
cannot be changed without the approval of a majority of the Fund's
outstanding voting securities. Additional information concerning
certain of the securities and investment techniques described above is
contained in the Statement of Additional Information.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in sales literature and advertisements.
Each Class's average annual total returns are calculated in accordance
with the Securities and Exchange Commission's formula and assume the
reinvestment of all distributions, the maximum initial sales charge of
4.75% 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 quarter's
distributions, annualized, by the maximum offering price of that
Class. Each Class's performance may be compared to various indices.
Quotations from various publications may be included in sales
literature and advertisements. See "Performance Measures" in the
Statement of Additional Information for more information. All
performance information is historical and does not predict future
results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the
Fund's affairs as conducted by the Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc. Colonial
Investment Services, Inc. (Distributor) is a subsidiary of the Adviser
and serves as the distributor for the Fund's shares. The Colonial
Group, Inc. is the parent of Colonial Investors Service Center, Inc.
(Transfer Agent), which serves as the shareholder services and
transfer agent for the Fund. John A. McNeice, Jr. is considered to be
a controlling person of The Colonial Group, Inc.
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 0.35% of the Fund's average net assets for
1994.
Carl C. Ericson, Vice President of the Adviser, has co-managed the
Fund since its inception in 1994 and various other Colonial taxable
income funds since 1985.
James P. Haynie, Vice President of the Adviser, has co-managed the
Fund since its inception in 1994 and various other Colonial equity
funds since 1993. Prior to joining Colonial in 1993, he was an equity
portfolio manager with Trinity Investments.
Elizabeth A. Palmer, Vice President of the Adviser, has co-managed the
Fund since 1995 and has managed various other Colonial equity funds
since 1989.
The Adviser also provides pricing and bookkeeping services to the Fund
for a monthly fee of $2,250 plus a percentage of the Fund's average
net assets over $50 million. The Transfer Agent provides transfer
agency and shareholder services to the Fund for a fee of 0.25%
annually of average net assets plus out-of-pocket expenses..
Each of the foregoing fees is subject to any reimbursement or fee
waiver to which the Adviser may agree.
The Adviser places all orders for the purchase and sale of portfolio
securities. In selecting broker-dealers, the Adviser may consider
research and brokerage services furnished to it and its affiliates.
Subject to seeking best execution, the Adviser may consider sales of
shares of the Fund (and of certain other Colonial funds) in selecting
broker-dealers for portfolio security transactions.
Fund expenses consist of management, bookkeeping, shareholder service
and transfer agent fees discussed above, 12b-1 service and
distribution fees discussed in the caption "12b-1 plans", and all
other expenses, fees, charges, taxes, organization costs and
liabilities incurred or arising in connection with the Fund or Trust
or in connection with the management thereof, including but not
limited to Trustees compensation and expenses and auditing, counsel,
custodian and other expenses deemed necessary and proper by the
Trustees.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value of
each Class's net assets by its number of outstanding shares. Shares
are valued each day the New York Stock Exchange is open as of
approximately 4:00 p.m. Eastern time. Portfolio securities for which
market quotations are readily available are valued at market. Short-
term investments maturing in 60 days or less are valued at amortized
cost when it is determined, pursuant to procedures adopted by the
Trustees, that such cost approximates market value. All other
securities and assets are valued at their fair value following
procedures adopted by the Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code and to distribute to shareholders virtually
all net income and any net realized gain, at least annually. The Fund
generally declares and pays income distributions quarterly.
Distributions are invested in additional shares of the same Class of
the Fund at net asset value unless the shareholder elects to receive
cash. Regardless of the shareholder's election, distributions of $10
or less will not be issued as checks to shareholders but will be
invested in additional shares of the same Class of the Fund at net
asset value. To change your election, call the Transfer Agent for
information.
Whether you receive distributions in cash or in additional Fund
shares, you must report them as taxable income unless you are a tax-
exempt institution. If you buy shares shortly before a distribution
is declared, the distribution will be taxable although it is in effect
a partial return of the amount invested. Each January, information on
the amount and nature of distributions for the prior year is sent to
shareholders.
HOW TO BUY SHARES
Shares are offered continuously. Orders received in good form prior
to 4:00 p.m. Eastern time (or placed with a financial service firm
before such time and transmitted by 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 is $50 and the minimum initial investment for 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 plus an
initial or a contingent deferred sales charge as follows:
Initial Sales Charge
Retained
by Financial
Service
Firm
as % of as % of
Amount Offering Offering
Amount Purchased Invested Price Price
Less than $50,000............... 4.99% 4.75% 4.25%
$50,000 to less than 4.71% 4.50% 4.00%
$100,000......................
$100,000 to less than 3.90% 3.50% 3.00%
$250,000......................
$250,000 to less than 3.09% 2.50% 2.00%
$500,000......................
$500,000 to less than 2.04% 2.00% 1.75%
$1,000,000....................
$1,000,000 or more.............. 0.00% 0.00% 0.00%
On purchases of $1 million or more, the Distributor pays the financial
service firm a cumulative commission as follows:
Amount Purchased Commission
First $3,000,000........................ 1.00%
Next $2,000,000......................... 0.50%
Over $5,000,000......................... 0.25%(1)
(1) Paid over 12 months but only to the extent shares remain
outstanding.
Purchases of $1 million to $5 million are subject to a 1.00%
contingent deferred sales charge payable to the Distributor on
redemptions within 18 months from the first day of the month following
the purchase. The contingent deferred sales charge does not apply to
the excess of any purchase over $5 million. Class A shares also are
subject to 0.30% annual distribution fee and a 0.25% annual service
fee.
Class B Shares. Class B shares are offered at net asset value,
without an initial sales charge, subject to a 0.75% annual
distribution fee and a 0.25% annual service fee for 8 years (at which
time they convert to Class A shares) and a contingent deferred sales
charge if redeemed within 6 years that declines over time. As shown
below, the amount of the contingent deferred sales charge depends on
the number of years after purchase that the redemption occurs:
Years Contingent Deferred
Since 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 financial
service firms 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
redemption, not the amount remaining in the account, and are paid to
the Distributor. Shares issued upon distribution reinvestment and
amounts representing appreciation are not subject to a contingent
deferred sales charge. The contingent deferred sales charge is
imposed on redemptions which result in the account value falling below
its Base Amount (the total dollar value of purchase payments
(including initial sales charges, if any), in the account, reduced by
prior redemptions on which a contingent deferred sales charge was paid
and any exempt redemptions). See the Statement of Additional
Information for more information.
Which Class is more beneficial to an investor depends on the amount
and intended length of the investment. Large investments, qualifying
for a reduced Class A sales charge, avoid the higher 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 of shares. The Distributor may pay
additional compensation to financial service firms which have made or
may make significant sales. Initial or contingent deferred sales
charges may be reduced or eliminated for certain persons or
organizations purchasing Fund shares alone or in combination with
certain other Colonial Funds.
Shareholder Services. A variety of shareholder services are
available. For more information about these services or your account,
call 1-800-345-6611. Some services are described in the attached
account application. A shareholder's manual explaining all available
services will be provided upon request.
HOW TO SELL SHARES
Shares may be sold on any day the New York Stock Exchange is open,
either directly to the Fund or through your financial service firm.
Sale proceeds generally are sent within seven days (usually on the
next business day after your request is received in good form).
However, for shares recently purchased by check, the Fund will send
proceeds 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 before 4:00 p.m. Eastern time 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 federal tax
purposes and may be subject to a contingent deferred sales charge.
The contingent deferred sales charge may be waived under certain
circumstances. See the Statement of Additional Information for more
information. Under unusual circumstances, the Fund may suspend
repurchases or postpone payment for up to seven days or longer, as
permitted by federal securities law. In June of any year, the Fund
may deduct $10 (payable to the Transfer Agent) from accounts valued at
less than $1,000 unless the account value has dropped 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. The only other Colonial funds
currently offering Class D shares are Colonial International Fund for
Growth, Colonial U.S. Fund for Growth and Colonial Government Money
Market Fund. 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 authorization 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 may redeem up to $50,000 of Fund shares by telephone,
and may elect telephone redemption privileges for larger amounts on
the account application. All exchanges may be accomplished by
telephone. See the Statement of Additional Information for more
information. The Adviser, the 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 Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. Shareholders
will be required to provide their name, address and account number.
Proceeds and confirmations 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 60 days.
All telephone transactions are recorded. Shareholders are not
obligated to transact by telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual service fee
of 0.25% of the Fund's average net assets attributed to each Class of
shares. The Fund also pays the Distributor an annual distribution fee
not exceeding 0.30% of the average net assets attributed to its Class
A shares and 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
higher distribution fees, their dividends will be lower than the
dividends of Class A shares. Class B shares automatically convert to
Class A shares, generally 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 Fund commenced operations in 1994 as a separate portfolio of the
Trust, which is a Massachusetts business trust organized in 1986. 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.
APPENDIX
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.
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 the 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 which
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 which 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.
Investment Adviser
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108-2624
Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A.
February 28, 1995
COLONIAL STRATEGIC BALANCED FUND
PROSPECTUS
Colonial Strategic Balanced Fund seeks current income and long term
growth, consistent with prudent risk, by diversifying investments
primarily in U.S. and foreign equity and debt securities.
For more detailed information about the Fund, call the Adviser at
1-800-248-2828 for the February 28, 1995 Statement of Additional
Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
Part A of Post-Effective Amendment No. 90 filed with the Commission on
December 21, 1994 (Colonial Global Utilities Fund), is incorporated herein
in its entirety by reference.
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.
COLONIAL TRUST III
Cross Reference Sheet (Colonial Federal Securities Fund)
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 Liability
19. How to Buy Shares; Determination of Net
Asset Value; Suspension of Redemptions;
Investor Services
20. Taxes
21. Fund Charges and Expenses; Management of the
Funds
22. Fund Charges and Expenses; Investment
Performance; Performance Measures
23. Independent Accountants
COLONIAL FEDERAL SECURITIES FUND
Statement of Additional Information
February 28, 1995
This Statement of Additional Information (SAI) contains
information which may be useful to investors but which is not
included in the Prospectus of Colonial Federal Securities Fund
(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, 1995. 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 Funds
Determination of Net Asset Value
How to Buy Shares
Investor Services
Suspension of Redemptions
Shareholder Liability
Performance Measures
Appendix I
Appendix II
FS-XXXX-XXX
Part 1
COLONIAL FEDERAL SECURITIES FUND
Statement of Additional Information
February 28, 1995
DEFINITIONS
"Trust" Colonial Trust III
"Fund" Colonial Federal Securities Fund
"Colonial Colonial Management Associates, Inc., the
" Fund's investment manager
"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 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:
Short-Term Trading
Money Market Instruments
Forward Commitments
Repurchase Agreements
Options on Securities
Futures Contracts and Related Options
Zero Coupon Securities
Except as described under "Fundamental Investment Policies," the
investment policies described 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.
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 diversification requirement,
an issuer is the entity whose revenues support the security.
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
and not more than 5% of total assets;
3. Invest up to 10% of its net assets in illiquid assets;
4. Purchase and sell futures contracts and related options as long as
the total initial margin and premiums on contracts do not exceed 5%
of total assets;
5. Underwrite securities issued by others only when disposing of
portfolio securities;
6. Make loans through lending of securities not exceeding 30% of total
assets, through the purchase of debt instruments or similar
evidences of indebtedness typically sold privately to financial
institutions and through repurchase agreements; and
7. Not concentrate more than 25% of its total assets in any one
industry or with respect to 75% of total assets purchase any
security (other than obligations of the U.S. Government and cash
items including receivables) if as a result more than 5% of its
total assets would then be invested in securities of a single
issuer or purchase the voting securities of an issuer if, as a
result of such purchases, the Fund would own more than 10% of the
outstanding voting shares of such issuer.
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 it 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
Colonial 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 securities which are
restricted as to disposition;
8. Purchase or sell real estate (including limited partnership
interests) although it may purchase and sale (a) securities which
are secured by real estate and (b) securities of companies which
invest or deal in real estate; provided, however, that nothing in
this restriction shall limit the Fund's ability to acquire or take
possession of or sell real estate which it has obtained as a result
of enforcement of its rights and remedies in connection with
securities otherwise permitted to acquire.
9. Purchase or retain securities of any open-end investment company
(although its fundamental policies would permit it to purchase such
securities under certain circumstances), purchase any warrants,
purchase any put option, long futures contract or long option on a
futures contract if at the date of purchase realized net losses
from investments in such securities during the fiscal year to date
exceed 5% of the Fund's average net assets during such period,
write any covered put options on U.S. Government Securities if as a
result the Fund would then have more than 50% of its total assets
(taken at current value) subject to being invested upon the
exercise of put options or invest more than 25% of the Fund's total
assets in call and put options on securities or on interest rate
indexes. In addition, while the Fund's fundamental policies permit
it to borrow money for leverage purposes which would involve
greater risks and costs, the Fund has undertaken with state
securities authorities that so long as shares of the Fund are
registered for sale in their states, the Fund will not borrow for
leverage purposes; and
10 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 5% 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 which are
not listed on the New York Stock Exchange or the American Stock
Exchange. Warrants acquired by the Fund in units or attached to
securities will be deemed to be without value.
PORTFOLIO TURNOVER
1994 1993
121% 252%
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays Colonial a
monthly fee based on the average daily net assets of the Fund, as
follows:
Average Daily Net Annual Fee Rate
Assets
First $1 billion 0.65%
Next $1 billion 0.60%
Next $1 billion 0.50%
Over $3 billion 0.40%
Recent Fees paid to Colonial, CISI and CISC (for the fiscal year ended
October 31) (in thousands)
1994 1993 1992
Management fee $9,805 $11,421 $12,005
Bookkeeping fee 497 564 589
Shareholder service and transfer agent
fee 3,322 4,181 5,660(a)
12b-1 fees:
Service fee 3,870 4,550 4,795
Distribution fee (Class B ) 543 367 38
(a) Under a prior fee schedule
Brokerage Commissions (for fiscal year ended October 31) (in
thousands)
Total commissions $115 $96 $455
Directed transactions(b) 0 0 0
Commissions on directed transactions 0% 0% 0%
(b) See "Management of the Funds-Portfolio Transactions-Brokerage and
research services" in Part 2 of this SAI.
Trustees Fees
For the calendar year ended December 31, 1994, the Trustees received
the following compensation for serving as Trustees:
Pension or
Aggregate Retirement Estimated Total
Compen- Benefits Annual Compensation
Trustee sation Accrued As Benefits From Fund
From Fund Part of Upon and
Fund Retire- Fund
Expense ment Complex(d)
Tom Bleasdale $8,226(c) $0 $0 $101,000
Lora S. Collins 7,747 0 0 95,000
William D.
Ireland,Jr. 8,986 0 0 110,000
William E. Mayer 7,323 0 0 89,752
John A. McNeice,
Jr. 0 0 0 0
James L. Moody,
Jr. 8,875 0 0 109,000
John J. Neuhauser 7,749 0 0 95,000
George L. Shinn 9,108 0 0 112,000
Robert L. Sullivan 8,534 0 0 104,561
Sinclair Weeks,
Jr. 9,435 0 0 116,000
(c) Includes $4,012 as deferred compensation.
(d) The Colonial Funds Complex consists of 31 open-end and 5
closed-end management investment company portfolios.
Ownership of the Fund
At January 31, 1995, the officers and Trustees of the Trust as a group
owned less than 1% of the outstanding shares of the Fund. At January
31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 30561,
New Brunswick, NJ 08989-0561 owned x.xx% of the Fund's outstanding
Class A shares and Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800
Deer Lake Drive E., Jacksonville, FL 32216 owned xx.xx% of the Fund's
outstanding Class B shares. At January 31, 1995, there were xx,xxx
Class A, x,xxx Class B and 0 Class D recordholders of the Fund.
Sales Charges (for the fiscal year ended October 31)(in thousands)
Class A Shares
1994 1993 1992
Aggregate initial sales charges on
Fund share sales $691 $1,229 $2,065
Initial sales charges retained by CISI $ 80 $ 141 $ 234
Class B Shares
Period
June 8, 1992
(commencement
of
investment
operations)
through
October 31,
1994 1993 1992
Aggregate contingent deferred sales
charges (CDSC) on Fund redemptions
retained by CISI $273 $126 $7
12b-1 Plans, CDSCs and Conversion of Shares
The Fund offers three classes of shares Classe A, Class B and Class D.
The Fund may in the future offer other classes of shares. The
Trustees have approved 12b-1 Planspursuant 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 shares and a distribution fee at an
annual rate of 0.50% of average net assets attributed to 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) andfor certain other purposes. Since the distribution and
service fees are payable regardless of the amount of CISI's expenses,
CISI may realize a profit from the fees. The Plans authorize any
other payments by the Fund to CIS and its affiliates (including
Colonial) to the extent that such payments might be construed to be
indirect financing of the distribution of Fund shares.
The Trustees believe the Plans could be a significant factor in the
growth and retention of Fund assets resulting in a more advantageous
expense ratio and increased investment flexibility which could benefit
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 of purchase. The CDSCs are described in the Prospectus.
No CDSC will be imposed on shares derived from reinvestment of
distributions on or amounts representing 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 (in thousands) of CISI for the fiscal year
ended October 31, 1994, were:
Class A Class B
Shares Shares
Fees to FSFs $3,550 $962
Cost of sales material relating to the Fund $ 79 $ 44
Allocated travel, entertainment and other
promotional $ 189 $890
INVESTMENT PERFORMANCE
The Fund's Class A and Class B yields for the month ended October 31,
1994, were 7.00% and 6.60%, respectively.
<R/>
The Fund's average annual total returns at October 31, 1994 were:
Class A Shares
1 year 5 years 10 years
With sales charge of 4.75% 9.48% 9.77% 10.66%
Without sales charge (6.57)% 6.82% 9.15%
Class B Shares
Period June 8, 1992
(commencement of
investment
operations)
through October 31,
1 year 1994
With CDSC of 5.00% (11.62)% 2.78%
Without CDSC (7.28)% 3.88%
The Fund's Class A and Class B distribution rates at October 31, 1994,
which are based on the latest month's distributions, annualized, and
the maximum offering price (net asset value for Class B) were 7.34%
and 6.95%, respectively .
See Part 2 of this SAI, "Performance Measures," for how calculations
are made.
CUSTODIAN
Boston Safe Deposit and Trust Company is the Fund's custodian. The
custodian is responsible for safeguarding 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 and 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 have
been so incorporated, and the schedule of 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 and
Report of Independent Accountants appearing on pages 3 to 11 of the
October 31, 1994 Annual Report are incorporated in this SAI by
reference.
<R/>
<PAGE>
INVESTMENT PORTFOLIO (in thousands)
OCTOBER 31, 1994
<TABLE>
<CAPTION>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS - 124.9% PAR VALUE
- ------------------------------------------------------------
GOVERNMENT AGENCIES - 72.0%
Maturities
Coupon from/to
------ ----------
<S> <C> <C> <C>
Federal Home Loan Mortgage Corp:
7.500% 2016 $ 1,750 $ 1,644
8.000% 2016 7,001 6,745
8.500% 2007 5,858 5,799
8.750% 2009 2,461 2,430
9.000% 2001-2018 2,676 2,721
9.250% 2008 8,699 8,827
9.500% 2004-2008 3,569 3,717
9.750% 2008 591 610
10.000% 2019 1,899 1,996
10.250% 2009 264 276
10.500% 2020 208 223
11.250% 2011 3,913 4,220
11.500% 2015 161 177
12.000% 2013 176 193
Collateralized Mortgage Obligation:
8.500% 2021 3,804 3,810
8.750% 2020 15,900 16,119
-------
59,507
-------
Federal National Mortgage Association:
6.500% 2008(a)(b) 145,786 135,262
6.500% (c) 70,000 64,056
7.000% (c) 321,000 292,411
7.500% (c) 108,000 105,030
7.500% 2010 5,014 4,750
8.000% 2008 5,009 4,845
8.250% 2010 2,403 2,324
8.500% 2011 9,632 9,584
9.000% 2007-2016 35,334 36,407
9.500% 2016 3,394 3,540
9.500% (c) 30,000 31,303
10.500% 2004 213 230
-------
689,742
-------
Government National Mortgage Association:
6.500% 2023(a) 98,653 85,180
6.500% (c) 8,750 7,552
7.500% 2006 1,649 1,572
8.000% 2005-2006 126 123
9.000% 2008 12,677 12,955
9.500% 2009-2013 36,227 38,101
9.500% (c) 16,250 16,991
10.000% 2001-2009 16,550 17,711
10.500% 2013 20,281 22,094
11.000% 2010 8 9
11.500% 2013 96 107
11.750% 2013 450 498
12.000% 2012 1,481 1,673
12.500% 2010 10,690 12,186
13.000% 2011 4,384 5,086
-------
221,838
- ------------------------------------------------------------
Total government agencies (cost $689,144) 971,087
- ------------------------------------------------------------
GOVERNMENT OBLIGATIONS - 52.9%
U.S. Treasury bonds:
7.250% 05/15/04 (a) 91,630 88,280
8.750% 05/15/17 (a) 75,158 80,020
12.000% 08/15/13 (a) 146,608 194,141
12.750% 11/15/10 (b) 78,053 105,127
14.000% 11/15/11 (b) 15,400 22,486
-------
490,054
-------
U.S. Treasury notes:
6.500% 09/30/96 (a) 112,720 112,174
10.375% 11/15/12 (b) 92,994 110,111
-------
222,285
- ------------------------------------------------------------
Total government obligations (cost $1,059,684) 712,339
- ------------------------------------------------------------
Total investments (cost $1,748,828) (d) 1,683,426
- ------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 12.9%
- ------------------------------------------------------------
Repurchase agreement with Bankers Trust
Securities Corp., dated 10/31/94 due at
11/01/94 at 4.77%, collateralized by U.S.
Treasury notes with various maturities
to 1998, market value $178,876, (repurchase
proceeds $173,324) 173,301 173,301
- ------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - (37.8)% (508,998)
- ------------------------------------------------------------
NET ASSETS - 100.0% $1,347,729
- ------------------------------------------------------------
<FN>
Notes to investment portfolio:
(a) These securities, or a portion thereof, with
a total market value of $602,128, are being
used to collateralize the delayed delivery
purchases indicated in note (c) below.
(b) These securities, or a portion thereof, with
a total market value of $241,782, are being
used to collateralize open futures contracts.
(c) These securities have been purchased on a
delayed delivery basis, whereby the terms
that are fixed are the purchase price,
interest rate, and the settlement date. The
exact quantity purchased may be slightly
more or less than the amount shown.
(d) Cost for federal income tax purposes is
$1,749,058.
</TABLE>
<TABLE>
Short futures contracts which are open at
October 31, 1994 are as follows:
<CAPTION>
Par value Unrealized
Type covered by Expiration appreciation
contracts month at 10/31/94
- ------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury bonds 221,200 December $7,018
</TABLE>
See notes to financial statements.
3
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF ASSETS & LIABILITIES
October 31, 1994
(in thousands except for per share amounts and footnote)
- ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments at value (cost $1,748,828).......................... $1,683,426
Short-term obligations.......................................... 173,301
----------
1,856,727
Receivable for:
Investments sold.................................. $181,000
Interest.......................................... 23,971
Fund shares sold.................................. 560
Other................................................ 1,581 207,112
-------- ----------
Total assets............................................ 2,063,839
LIABILITIES
Payable for:
Investments purchased............................. 701,796
Distributions..................................... 8,706
Fund shares repurchased........................... 5,478
Accrued:
Deferred Trustee fees............................. 52
Other............................................. 78
--------
Total liabilities....................................... 716,110
----------
Net assets at value for 135,490
shares of beneficial interest outstanding.................... $1,347,729
==========
Net asset value & redemption price per share - Class A
($1,278,033/128,483)......................................... $ 9.95
==========
Maximum offering price per share - Class A
($9.95/0.9525)............................................... $ 10.45*
==========
Net asset value & offering price per share - Class B
($69,696/7,007).............................................. $ 9.95
==========
COMPOSITION OF NET ASSETS
Capital paid in.............................................. $1,670,593
Overdistributed net investment income........................ (8,191)
Accumulated net realized loss................................ (256,289)
Net unrealized appreciation (depreciation) on:
Investments............................................. (65,402)
Open futures contracts.................................. 7,018
----------
$1,347,729
==========
<FN>
* On sales of $50,000 or more the offering
price is reduced.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
Year Ended October 31, 1994
(in thousands)
- -------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest...................................................... $ 138,920
EXPENSES
Management fee..................................... $ 9,805
Service fee........................................ 3,870
Distribution fee - Class B......................... 543
Transfer agent..................................... 3,322
Bookkeeping fee.................................... 497
Registration fees.................................. 46
Audit fee.......................................... 56
Custodian fee...................................... 112
Trustees fees...................................... 97
Legal fee.......................................... 16
Reports to shareholders............................ 23
Other.............................................. 200 18,587
--------- ---------
Net investment income................................. 120,333
---------
NET REALIZED & UNREALIZED GAIN (LOSS)
ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments..................................... (89,041)
Closed futures contracts........................ 44,618
---------
Net realized loss .................................... (44,423)
Net unrealized appreciation
(depreciation) during the period on:
Investments.................................... (196,631)
Open futures contracts......................... 9,702
---------
Net unrealized depreciation .................................. (186,929)
---------
Net loss.............................................. (231,352)
---------
Net decrease in net assets from operations.................... $(111,019)
=========
</TABLE>
See notes to financial statements.
4
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
- --------------------------------------------------------------------------------------------------
<CAPTION>
Year ended October 31
--------------------------
1994 1993
---------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income.............................................. $ 120,333 $ 133,858
Net realized gain (loss)........................................... (44,423) 20,050
Net unrealized appreciation (depreciation)......................... (186,929) 100,216
---------- ----------
Net increase (decrease) from operations....................... (111,019) 254,124
Distributions
From net investment income - Class A............................... (107,338) (123,942)
In excess of net investment income - Class A....................... -- (10,561)
From net investment income - Class B............................... (4,701) (3,011)
In excess of net investment income - Class B....................... -- (257)
---------- ----------
(223,058) 116,353
---------- ----------
Fund share transactions
Receipts for shares sold - Class A................................. 59,031 140,918
Value of distributions reinvested - Class A........................ 48,833 59,335
Cost of shares repurchased - Class A............................... (352,589) (387,125)
---------- ----------
(244,725) (186,872)
---------- ----------
Receipts for shares sold - Class B................................. 28,089 44,687
Value of distributions reinvested - Class B........................ 2,451 1,532
Cost of shares repurchased - Class B............................... (18,610) (9,016)
---------- ----------
11,930 37,203
---------- ----------
Net decrease from Fund share transactions..................... (232,795) (149,669)
---------- ----------
Total decrease............................................ (455,853) (33,316)
NET ASSETS
Beginning of period................................................ 1,803,582 1,836,898
---------- ----------
End of period (net of overdistributed net investment
income of $8,191 and $10,818, respectively)........................ $1,347,729 $1,803,582
========== ==========
NUMBER OF FUND SHARES
Sold - Class A..................................................... 5,589 12,492
Issued for distributions reinvested - Class A...................... 4,598 5,321
Repurchased - Class A.............................................. (33,079) (34,634)
---------- ----------
(22,892) (16,821)
---------- ----------
Sold - Class B..................................................... 2,600 3,994
Issued for distributions reinvested - Class B...................... 232 137
Repurchased - Class B.............................................. (1,768) (799)
---------- ----------
1,064 3,332
---------- ----------
Net decrease in shares outstanding............................ (21,828) (13,489)
Outstanding at
Beginning of period............................................. 157,318 170,807
---------- ----------
End of period................................................... 135,490 157,318
========== ==========
</TABLE>
See notes to financial statements.
5
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
(in thousands)
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
NET DECREASE IN CASH: Year ended October 31
-------------------------
<S> <C> <C>
Cash flows from operating activities:
Interest received............................................................... $ 137,271
Dollar roll fee income received................................................. 15,281
Operating expenses paid......................................................... (18,573)
-----------
Net cash provided by operating activities.................................. $ 133,979
Cash flows from investing activities:
Purchases of securities......................................................... (8,749,445)
Proceeds from sales of securities............................................... 8,901,554
Futures contracts............................................................... 54,924
-----------
Net cash used by investing activities...................................... 207,033
---------
NET CASH USED BY OPERATING AND INVESTING ACTIVITIES............................. 341,012
Cash flows from financing activities:
Proceeds from shares sold....................................................... (280,358)
Cash dividends paid............................................................. (62,820)
-----------
Net cash provided by financing activities.................................. (343,178)
---------
Net decrease in cash............................................................ (2,166)
Cash - beginning of period...................................................... 2,166
---------
Cash - end of period............................................................ $ 0
=========
RECONCILIATION OF NET DECREASE IN NET ASSETS TO NET
CASH PROVIDED BY OPERATING AND INVESTING ACTIVITIES:
Net decrease in net assets resulting from operations............................ $(111,019)
Decrease in investments......................................................... $ 124,438
Decrease in interest and fees receivable........................................ 13,747
Increase in receivable from investments securities sold......................... (180,642)
Increase in payable for investment securities purchased......................... 494,474
Increase in other assets........................................................ 57
Increase in accrued expenses and liabilities.................................... (43)
-----------
Total...................................................................... 425,031
---------
Net cash used by operating and investing activities............................. $ 341,012
=========
</TABLE>
See notes to financial statements.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
Colonial Federal Securities Fund (the Fund), a series of Colonial Trust
III, is a Massachusetts business trust, registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end, management investment
company. The Fund may issue an unlimited number of shares. The Fund offers
Class A shares with a front-end sales charge and Class B shares which 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. 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
Debt securities generally are valued by a pricing service based upon
market transactions for normal, institutional-size trading units of similar
securities. When management deems it appropriate, an over-the-counter or
exchange bid quotation is used.
Options are valued at the last reported sale price, or in the absence of
a sale, the mean between the last quoted bid and offering price.
Futures contracts are valued based on the difference between the last
sale price and the opening price of the contract.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
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 or sold.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
The Fund may enter into dollar roll transactions. A dollar roll
transaction involves a sale by the Fund of securities that it holds with an
agreement by the Fund to repurchase substantially similar securities at an
agreed upon price and date. During the period between the sale and repurchase,
the Fund will not be entitled to accrue interest and receive principal payments
on the securities sold. Dollar roll transactions involve the risk that the
market value of the securities sold by the Fund may decline below the
repurchase price of those securities. The Fund maintains a segregated account
with its custodian bank in which it will maintain cash, U.S. government
securities or other liquid high grade debt obligations equal in value to its
obligations with respect to dollar rolls. In the event the buyer of securities
under a dollar roll transaction files for bankruptcy or becomes insolvent, the
Fund's use of proceeds of the transaction may be restricted pending a
determination by the other party.
The Fund may trade securities on other than normal settlement terms.
This may increase the risk if the other party to the transaction fails to
deliver and causes the Fund to subsequently invest at less advantageous prices.
- --------------------------------------------------------------------------------
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS
All income, expenses (other than the Class B distribution fee), 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.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
Class B per share data and ratios are calculated by adjusting the
expense and net investment income per share data and ratios for the Fund for the
entire period by the distribution fee applicable to Class B shares only.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES
Consistent with the Fund's policy to qualify as a regulated investment
company and to distribute all of its taxable income, no federal income tax has
been accrued.
- --------------------------------------------------------------------------------
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM
Interest income is recorded on the accrual basis. Original issue
discount is accreted to interest income over the life of a security with a
corresponding increase in the cost basis; premium and market discount are not
amortized or accreted.
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
The Fund declares and records distributions daily and pays monthly.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
- --------------------------------------------------------------------------------
OTHER
Entering into futures contracts has risks, including the possibility
that there may be an illiquid market and the changes in the value of the
contract may not directly correlate to the changes in the value of the
underlying securities.
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
<TABLE>
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 based on the Fund's average net assets as follows:
<CAPTION>
Average Net Assets Annual Fee Rate
------------------ ---------------
<S> <C>
First $1 billion............... 0.65%
Next $1 billion................ 0.60%
Over $2 billion................ 0.50%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
BOOKKEEPING FEE
The Adviser provides bookkeeping and pricing services for $27,000 per
year plus a percentage of the Fund's average net assets as follows:
<CAPTION>
Average Net Assets Annual Fee Rate
------------------ ---------------
<S> <C>
First $50 million.............. No charge
Next $950 million.............. 0.035%
Next $1 billion................ 0.025%
Next $1 billion................ 0.015%
</TABLE>
- --------------------------------------------------------------------------------
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 0.18% annually of the Fund's average net assets, and receives a
reimbursement for certain out of pocket expenses.
- --------------------------------------------------------------------------------
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES
The Adviser, through its Colonial Investment Services (the Distributor)
division, is the Fund's principal underwriter. During the year ended October
31, 1994, the Distributor retained net underwriting discounts of $79,594 on
sales of the Fund's Class A shares and received contingent deferred sales
charge (CDSC) of $273,324 on Class B share redemptions.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 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.
- --------------------------------------------------------------------------------
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. The compensation deferred earns interest
quarterly based on the 90-day U.S. Treasury bill rate. Obligations of the plan
will be paid solely out of the Fund's assets.
- --------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION
During the year ended October 31, 1994, purchases and sales of
investments, other than short-term obligations, were $2,947,073,636 and
$2,550,084,370, respectively.
<TABLE>
Unrealized appreciation (depreciation) at October 31, 1994, based on
cost of investments for federal income tax purposes was:
<S> <C>
Gross unrealized appreciation............... $ 3,588,074
Gross unrealized depreciation............... (69,220,245)
------------
Net unrealized depreciation......... $(65,632,171)
============
</TABLE>
- --------------------------------------------------------------------------------
CAPITAL LOSS CARRYFORWARDS
<TABLE>
At October 31, 1994, capital loss carry-forwards available (to the
extent provided in regulations) to offset future realized gains were
approximately as follows:
<CAPTION>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
<S> <C>
1997................ $111,580,000
1998................ 22,515,000
1999................ 36,282,000
2000................ 595,000
2002................ 43,843,000
------------
$214,815,000
============
</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.
- --------------------------------------------------------------------------------
NOTE 4. CONTINGENT LIABILITY
The Adviser insures itself and all funds that it advises under a policy
with ICI Mutual Insurance Company. The annual premium is allocated among the
funds and the Adviser. Additionally, the Adviser and the funds have committed
up to 300% of the annual premium, one-third of which was provided in cash,
with the Fund's pro rata portion recorded as an asset. The remainder is
secured with an irrevocable letter of credit.
- --------------------------------------------------------------------------------
9
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are as follows:
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year ended October 31
--------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---------------- ----------------- ------------------ ------- -------
Class A Class B Class A Class B Class A Class B (a) Class A Class A
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning
of period....................... $11.460 $11.460 $10.750 $10.750 $10.800 $10.730 $10.420 $11.330
------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income .......... 0.821 0.741 0.819 0.737 0.796 0.286 0.854 0.917
Net realized and
unrealized gain (loss)........ (1.560) (1.560) 0.739 0.739 0.157 0.095 0.671 (0.627)
------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations.................... (0.739) (0.819) 1.558 1.476 0.953 0.381 1.525 0.290
------- ------- ------- ------- ------- ------- ------- -------
Less distributions declared
to shareholders:
From net investment income...... (0.771) (0.691) (0.781) (0.706) (0.796) (0.286) (0.854) (0.917)
In excess of net investment
income........................ -- -- (0.067) (0.060) -- -- -- --
From capital paid in (b)........ -- -- -- -- (0.207) (0.075) (0.291) (0.283)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions
declared to shareholders...... (0.771) (0.691) (0.848) (0.766) (1.003) (0.361) (1.145) (1.200)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value - End of period... $ 9.950 $ 9.950 $11.460 $11.460 $10.750 $10.750 $10.800 $10.420
======= ======= ======= ======= ======= ======= ======= =======
Total return (c).................. (6.57)% (7.28)% 14.94% 14.11% 9.15% 3.47% (d) 15.33% 2.85%
======= ======= ======= ======= ======= ======= ======= =======
Ratios to average net assets
Expenses........................ 1.16% 1.91% 1.17% 1.92% 1.24% 1.99% (e) 1.21% 1.16%
Net investment income........... 7.80% 7.05% 7.37% 6.62% 7.36% 6.61% (e) 8.05% 8.55%
Portfolio turnover................ 121% 121% 252% 252% 18% 18% 11% 6%
Net assets at end of period
(in millions)................... $ 1,278 $ 70 $ 1,736 $ 68 $ 1,809 $ 28 $ 2,028 $2,186
<FN>
(a) Class B shares were initially offered on June 8, 1992. Per share amounts reflect activity from that date.
(b) Because of differences between book and tax basis accounting, approximately $0.247, $0.095, $0.315 and $0.300,
respectively, of the Fund's aggregate distributions were a return of capital for federal income tax purposes.
(c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or CDSC.
(d) Not annualized.
(e) Annualized.
</TABLE>
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF COLONIAL TRUST III AND THE SHAREHOLDERS OF COLONIAL FEDERAL
SECURITIES FUND
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations,
of cash flows and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Colonial Federal
Securities Fund at October 31, 1994, 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,
1994 by correspondence with the custodian, and brokers, and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 9, 1994
11
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to your Fund and to the
other Colonial funds. In certain cases the discussion applies to
some but not all of the 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 objective, Colonial will buy or sell portfolio
securities whenever Colonial believes it appropriate. Colonial'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. 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
Colonial 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. recent 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 Colonial'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.
<R/>
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 that are securities are also subject
to the risks of high yield securities.
Money Market Instruments
Government obligations are issued by the U.S. or foreign government,
its 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 funds deposited 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 specified 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
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 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 Colonial deems it
appropriate to do so. The Fund may realize short-term profits or
losses upon the sale of forward commitments.
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 the 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. Colonial
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, a Fund sells a security and agrees
to repurchase the same security at a mutually agreed upon date and
price. It 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, a Fund will enter into a reverse repurchase agreement only
when the interest income to be earned from the investment of the
proceeds is greater than the interest expense of the transaction. A
Fund will not invest the proceeds of a reverse repurchase agreement
for a period which exceeds the duration of the reverse repurchase
agreement. A 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.
Securities Lending
Any loans of portfolio securities by a Fund will be secured
continuously by cash or equivalent collateral or by a letter of
credit in favor of the Fund at least equal at all times to 100% of
the market value of the securities loaned, plus accrued interest.
While such securities are on loan, the borrower will pay the Fund any
income accruing thereon. Loans will be subject to termination by the
Fund in the normal settlement time, generally five business days
after notice, or by the borrower on one day's notice. Borrowed
securities must be returned when the loan is terminated. Any gain or
loss in the market price of the borrowed securities which occurs
during the term of the loan inures to a Fund and its respective
shareholders. A Fund may pay reasonable finders' and custodial fees
in connection with a loan. In addition, the Fund will consider all
facts and circumstances including the creditworthiness of the
borrowing financial institution, and a Fund will not make any loans
in excess of one year.
Synthetic Variable Rate instruments
Certain funds may invest in certain synthetic variable rate
instruments as described in the Prospectus. In the case of some
types of instruments credit enhancement is not provided, and if
certain events, which may include (a) default in the payment of
principal or interest on the underlying bond, (b) downgrading of the
bond below investment grade or (c) a loss of the bond's tax exempt
status, occur, then (i) the put will terminate, (ii) the risk to the
Fund will be that of holding a long-term bond, and (iii) in the case
of a money market fund, the disposition of the bond may be required
which could be at a loss.
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 Colonial, such transactions are consistent with the Fund's
investment objectives 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%
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 Colonial 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 Colonial deems it desirable
to do so. Although the Fund will take an option position only if
Colonial 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 the 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
The Fund will enter into futures contracts only when, in compliance
with the SEC's requirements, cash or cash equivalents, (or, in the
case of a fund investing primarily in foreign equity securities, such
equity securities), equal in value to the commodity value (less any
applicable margin deposits) have been deposited in a segregated
account of the Fund's custodian.
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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
Colonial'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. A 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
Colonial, 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. Colonial 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 Colonial'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, Colonial
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 Colonial 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 Fund 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. The Fund will enter into
such 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. 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 changed 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 Colonial
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 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. If distributions are taken in additional shares, they
will have no impact since the capital returned is reinvested and the
cost basis of the investment is unchanged.
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 a preference item and added to the AMT income,
potentially creating an AMT liability.
Dividends derived from net income on 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 the
Fund. The tax is imposed only where the sum of the recipient's
adjusted gross income, tax-exempt interest and dividend income and
one-half the social security benefits exceeds a base amount ($25,000
for single individuals and $32,000 for individuals filing a joint
return). The tax is imposed on the lesser of one-half of the social
security benefits or on one-half of the excess over the base amount.
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 Fund
investments other than tax-exempt instruments may give rise to
taxable income. Fund 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 Fund shares will not be
able to deduct the interest paid with respect to such borrowed money.
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 Fund. 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. Colonial 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 a 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. Colonial 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 the
shareholder 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 FUNDS
The Colonial Group, Inc. (TCG), One Financial Center, Boston, MA
02111, owns all of the outstanding common stock of Colonial. TCG has
Class A Common Stock (non-voting) and Class B Common Stock (voting).
At January 31, 1995, the owners of more than 5% of the currently
outstanding Class B Common Stock were as follows:
John A. McNeice, (50.94%)
Jr.
Harold W. Cogger (6.21%)
C. Herbert (14.89%)
Emilson
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Pauline V. (7.76%)
Emilson
Emilson Trust (6.21%)
Trustees and Officers
Tom Bleasdale, Trustee, is Retired (formerly Chairman of the Board
and Chief Executive Officer, Shore Bank & Trust Company), 1508
Ferncroft Tower, Danvers, MA 01923
Lora S. Collins, Trustee, is an Attorney with Kramer, Levin,
Naftalis, Nessen, Kamin & Frankel, 919 Third Avenue, New York, NY
10022
William D. Ireland, Jr., Trustee, is Retired (formerly Chairman of
the Board, Bank of New England, Worcester), 103 Springline Drive,
Vero Beach, FL 32963
Willliam E. Mayer, Trustee, is Dean, College of Business and
Management, University of Maryland (formerly Dean, Simon Graduate
School of Business, University of Rochester; Chairman and Chief
Executive Officer, C.S. First Boston Merchant Bank; and President and
Chief Executive Officer, The First Boston Corporation), College Park,
MD 20742.
John A. McNeice, Jr.*, Trustee and President, is Chairman of the
Board, Chief Executive Officer and Director, The Colonial Group, Inc.
and Colonial
James L. Moody, Jr., Trustee, is Chairman of the Board, Hannaford
Bros., Co. (formerly Chief Executive Officer, Hannaford Bros. Co.),
P.O. Box 1000, Portland, ME 04104
John J. Neuhauser, Trustee, is Dean, Boston College School of
Management, 140 Commonwealth Avenue, Chestnut Hill, MA 02167
George L. Shinn, Trustee, is a Financial Consultant (formerly
Chairman, Chief Executive Officer and Consultant, The First Boston
Corporation), The First Boston Corporation, Tower Forty Nine, 12
East 49th Street, New York, NY 10017
Robert L. Sullivan, Trustee, is a Management Consultant, 7121 Natelli
Woods Lane, Bethesda, MD 20817
Sinclair Weeks, Jr., Trustee, is Chairman of the Board, Reed & Barton
Corporation, Bay Colony Corporate Center, Suite 4550, 1000 Winter
Street, Waltham, MA 02154
Harold W. Cogger, Vice President, is President and Director (formerly
Executive Vice President), Colonial; Director, The Colonial Group,
Inc.
Peter L. Lydecker, Controller (formerly Assistant Controller), is
Vice President, Colonial (formerly Assistant Vice President,
Colonial).
Davey S. Scoon, Vice President, is Executive Vice President and
Director (formerly Senior Vice President and Treasurer), Colonial;
Vice President-Finance and Administration (formerly Treasurer), The
Colonial Group, Inc.
Richard A. Silver, Treasurer and Chief Financial Officer (formerly
Controller), is Senior Vice President, Director, Treasurer and Chief
Financial Officer, Colonial; Treasurer and Chief Financial Officer,
The Colonial Group, Inc.
Arthur O. Stern, Secretary, is Executive Vice President, General
Counsel, Director, Clerk and Secretary (formerly Senior Vice
President), Colonial; Vice President-Legal and Clerk, The Colonial
Group, Inc.
* Trustees who are "interested persons" (as defined in the 1940 Act)
of the Fund or Colonial.
The Trustees serve as trustees to 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 Funds' relative net assets and one-third of the fees are
divided equally among the Colonial funds.
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.
Colonial or its wholly-owned subsidiary, Colonial Advisory Services,
Inc. (CASI), has rendered investment advisory services to investment
company, institutional and other clients since 1931. Colonial
currently serves as investment adviser for 31 open-end and 5 closed-
end management investment company portfolios (collectively, Colonial
funds). Trustees and officers of the Trust who are also officers of
Colonial or its affiliates or who are stockholders of TCG 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 $14 billion in assets.
The Management Contract
Under a Management Contract (Contract), Colonial has contracted to
furnish the 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, at Colonial's expense. For these services and
facilities, the Fund pays a monthly fee based on the average of the
daily closing value of the total net assets of the Fund for such
month.
Colonial's compensation under the Contract is subject to reduction in
any fiscal year to the extent that the total expenses of the 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 the 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 Contract, any liability of Colonial to the Fund and its
shareholders is limited to situations involving Colonial's own
willful misfeasance, bad faith, gross negligence or reckless
disregard of duties.
The Contract may be terminated with respect to the Fund at any time
on 60 days' written notice by Colonial or by the Trustees of the
Trust or by a vote of a majority of the outstanding voting securities
of the Fund. The Contract 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 Colonial or the Trust, cast in person
at a meeting called for the purpose of voting on such approval.
Colonial pays all salaries of officers of the Trust. The Trust pays
all expenses not assumed by Colonial 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 Contract provides that Colonial 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
Colonial.
The Pricing and Bookkeeping Agreement
Colonial provides pricing and bookkeeping services to the Fund
pursuant to a Pricing and Bookkeeping Agreement. The Pricing and
Bookkeeping Agreement has a one-year term. Colonial 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
Portfolio Transactions
Investment decisions. Colonial also acts as investment adviser to
the other Colonial fundss (as defined under Management of the Fund
herein) and its wholly-owned subsidiary, 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 fundss and
the other corporate or fiduciary clients of Colonial. The other
Funds and clients advised by Colonial 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 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
Colonial as investment adviser to the Fund outweighs the
disadvantages, if any, which might result from these practices.
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, Colonial may consider sales
of shares of the Fund and of the other Colonial funds as a factor in
the selection of broker-dealers to execute securities transactions
for the Fund.
Colonial places the transactions of the Fund with broker-dealers
selected by Colonial 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 Fund from time to
time also executes portfolio transactions with such broker-dealers
acting as principals. The Fund does 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 the Fund's and
Colonial's policy always to seek best execution, which is to place
the Fund's transactions where the Fund 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 Fund may be executed by broker-dealers who also
provide research services (as defined below) to Colonial, the Fund
and the other Colonial funds. Colonial 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 Colonial, they tend to
reduce Colonial's expenses. In Colonial's opinion, it is impossible
to assign an exact dollar value for such services.
Subject to such policies as the Trustees may determine, Colonial may
cause the Fund to pay a broker-dealer which provides brokerage and
research services to Colonial an amount of commission for effecting a
securities transaction, including the sale of an option or a closing
purchase transaction, for the Fund 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).
Colonial 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 Colonial's overall responsibilities to
the Fund and all its other clients.
The Trustees have authorized Colonial to utilize the services of a
clearing agent with respect to all call options written by 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 Colonial 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 Fund.
Principal Underwriter
CISI is the principal underwriter of the Trust's shares. CISI has no
obligation to buy the Fund's shares, and purchases the Fund's
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. 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 to CISC or generally by 6 months' notice
by CISC to the Fund. The agreement limits the liability of CISC to
the Fund for loss or damage incurred by the Fund 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 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
The Fund determines net asset value (NAV) per share for each Class as
of the close of the New York Stock Exchange 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. 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 Colonial 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 approved 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
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 the 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 Trustees.
Amortized Cost for Money Market Funds
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 Trustees have adopted procedures intended to
stabilize the Fund's NAV per share at $1.00. When the Fund's market
value deviates from the amortized cost of $1.00, and results in a
material dilution to existing shareholders, the 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 Trustees to present minimal
credit risk.
See the Statement of Assets and Liabilities of the 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 before
4:00 p.m. Eastern time 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 4:00 p.m.
Eastern time, 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.
As a convenience to investors, shares of most Colonial funds may be
purchased through the Colonial Fundamatic Check Program.
Preauthorized monthly bank drafts or electronic funds transfer for a
fixed amount (at least $50) are used to purchase Fund 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). Further information and
application forms are available from FSFs or from CISI.
Class A Shares
Most Funds continuously offer Class A shares. The Fund receives the
entire NAV of shares sold. CISI's commission is the sales charge
shown in the 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 and retains the
entire contingent deferred sales charge (CDSC).
CISI offers several plans by which an investor may obtain reduced
sales charges on purchases of Fund Class A shares. These plans may
be altered or discontinued at any time.
Right of Accumulation and Statement of Intent (Class A Shares only)
Reduced sales charge on Class A shares can be effected by combining a
current purchase with prior purchases of Class A, B and D 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 fund 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 any
Class C shares) and Class B and D 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. The Fund may terminate or amend this Right of Accumulation.
Any person may qualify for reduced sales charges on purchases of
Class A shares (exclusive of reinvested distributions of all Colonial
funds) made within a thirteen-month period pursuant to a Statement of
Intent ("Statement"). A shareholder may include, as an accumulation
credit towards the completion of such Statement, the value of all
Class A, B and D shares held by the shareholder in Colonial funds
(except money market fund, unless acquired by exchange from another
non-money market Colonial fund). The value is determined at the
public offering price on the date 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
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.
Class B Shares
For those Funds offering Class B shares, the Prospectus contains a
general description of how investors may buy Class B shares of the
Fund and a description of the Contingent Deferred Sales Charge
(CDSC). This SAI contains additional information which may be of
interest to investors.
Most Funds continuously offer Class B shares. The Fund receives the
entire NAV of shares sold. The FSF commission is the same for all
FSFs; CISI retains the entire CDSC.
Colonial money market fund Class B shares are subject to higher
charges than those normally associated with money market funds, and
checkwriting privileges are not offered.
Class C Shares
For those Funds offering Class C shares, the Prospectus contains a
general description of how investors may buy Class C shares of the
Fund. This SAI contains additional information which may be of
interest to investors.
Class C shares are offered continuously. The Fund receives the
entire NAV of shares sold.
Class D Shares
For those Funds offering Class D Shares, the Prospectus contains a
general description of how investors may buy Class D shares of the
Fund and a description of the CDSC. This SAI contains additional
information which may be of interest to investors.
The Fund receives the entire NAV of shares sold. The FSF commission
is the same for all FSFs; CISI retains the entire CDSC.
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.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on
redemptions occurring pursuant to a monthly, quarterly or semi-
annual SWP established with Colonial, 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).
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 current
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.
Fundamatic Check Program
As a convenience to investors, shares of most Colonial funds may be
purchased through the Colonial Fundamatic Check Program.
Preauthorized monthly bank drafts or electronic funds transfer for a
fixed amount of at least $50 are used to purchase Fund 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). 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 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 agreeing to a monthly
exchange of $100 or more to the same class of shares of the Colonial
fund you designate on your written application. The designated
amount will be exchanged on the third Tuesday of each month. There
is no charge for the 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 Funds, exchange between the same
Class 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 Fund will extend the
time of the Automated Dollar Cost Averaging program.
An exchange is a taxable capital transaction for federal 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 it to Colonial
Investors Service Center, 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.
Colonial Asset Builder Investment Program (Class A only)
A reduced sales charge applies to a purchase of certain Colonial
fund's 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. 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. 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 Telephone Statement of Intent
Plan Redemption
Sponsored Arrangements Colonial Cash Share Certificates
Connection
$50,000 Fast Cash Reduced Sales Automatic Dividend
Charges Diversification
Right of Accumulation for any "person" Exchange Privilege*
*Exchanges may be made to other Colonial funds offering the Program.
Because of the unavailability of certain services, the 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 Fund shares, investors should
consult their FSF to determine whether it is appropriate. The Plan
does not assure a profit nor protects against loss in declining
markets.
Tax-Sheltered Retirement Plans (Classes A, B and D)
Certain Colonial funds offer 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 any of the Funds is
$50. 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.
Other Plans (Class A only)
Shares of certain funds may be sold at NAV to current and retired:
Trustees of funds advised by Colonial; directors, officers and
employees of Colonial, CISI and other companies affiliated with
Colonial; 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.
Class A 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 Funds reserve the right to revise
the terms of or to suspend or discontinue sales pursuant to sponsored
plans at any time.
Class A 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.
Class A shares of certain funds may also be purchased at reduced or
no sales charge by investors moving from another mutual fund complex
and by participants in certain retirement plans. In lieu of the
commissions described in the Prospectus, Colonial will pay the FSF a
finder's fee of 0.25% of the applicable account value during the
first twelve months in connection with such purchases.
Consultation with a competent financial and tax advisor 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.
INVESTOR SERVICES
Your Open Account
The following information provides more detail concerning the
operation of a Colonial Open Account (an account with book entry
shares only). For further information or assistance, investors
should consult CISC.
The Open Account permits a shareholder to 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.
The $10 fee on small accounts is paid to CISC.
If a shareholder changes his or her address and does not notify the
Fund, the Fund will reinvest all future distributions regardless of
the option chosen.
The Open Account also provides a way to accumulate shares of the
Fund. 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 or D shares. Money market
funds will not issue certificates. A shareholder may send any
certificates which have been previously acquired to CISC for deposit
to their account.
Shares of 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.
Undelivered distribution checks returned by the post office may be
invested in your account.
Reinvestment Privilege
An investor who has redeemed Class A, B, D shares may reinvest
(within 90 days) 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 request and payment. Any
CDSC paid at the time of the redemption will be credited to the
shareholder upon reinvestment. The period between the redemption and
the reinvestment will not be counted in aging the reinvested 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. The sale of Fund shares constitutes a capital transaction
for federal tax purposes. Consult your tax adviser.
Exchange Privilege
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 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.
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.
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
$50,000 Fast Cash privilege is suspended for 60 days after an address
change is effected.
Plans Available To Shareholders
The Plans described below are offered by most Colonial funds, are
voluntary and may be terminated at any time without the imposition by
the Fund or CISC of any penalty.
Checkwriting (Available only on the Class A and C shares of certain
Funds)
Shares may be redeemed by check if a shareholder completed an
Investment Account Application and Signature Card. Colonial 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. 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.
Systematic Withdrawal Plan
If a shareholder's Account Balance is at least $5,000, a shareholder
may establish a Systematic Withdrawal Plan (SWP). A specified dollar
amount or percentage of the then current net asset value of a
shareholder's investment in any Fund will be paid monthly or
quarterly to a designated payee. The amount or percentage a
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 a 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. Generally, no CDSCs apply to a redemption pursuant to a
SWP, even if, after giving effect to the redemption, a 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 1.00% 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, the check 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 a 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 Open
Account.
The Funds 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 Funds 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.
Colonial cash connection. Dividends and any other distributions,
including 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 Investment
Account 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 the other Colonial funds. 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.
Telephone Redemptions. Shareholders may select telephonic
redemptions on their account application. A redemption of up to
$50,000 may be sent to a shareholder's address without
preauthorization, by calling 1-800-422-3737 between 9:00 a.m. and
4:00 p.m. (NY time) on business days. The Fund 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 60 days and proceeds
and confirmations will be mailed or sent to the address of record.
Shareholders will be required to provide their name, address and
account 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.
Non cash Redemptions. For redemptions of any single shareholder
within any 90-day period exceeding the lesser of $250,000 or 1% of
the Fund's net asset value, the Fund may make the payment or a
portion of the payment with portfolio securities held by the Fund
instead of cash, in which case the redeeming shareholder may incur
brokerage and other costs in selling the securities received.
SUSPENSION OF REDEMPTIONS
The Fund may not suspend shareholders' right of redemption or
postpone payment for more than seven days unless the New York Stock
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 LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the
Fund. However, the 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 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 in which the Fund would be unable to meet its
obligations. The likelihood of such circumstances is remote.
As described under the caption "Organization and history" in the
Prospectus, 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 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 investment advisory 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 a 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 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, a Fund's distribution rate reflects total amounts actually
paid to shareholders, while yield reflects the current earning power
of a Fund's portfolio securities (net of a Fund's expenses). A
Fund's yield for any period may be more or less than the amount
actually distributed in respect of such period.
A Fund may compare its performance to various unmanaged indices
published by such sources as listed in Appendix II.
A Fund may also refer to quotations, graphs and electronically
transmitted data from sources believed by Colonial to be reputable,
and publications in the press pertaining to a Fund's performance or
to Colonial 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.
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 the 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 which 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
which 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.
APPENDIX II
1993
SOURCE CATEGORY RETURN
(%)
Donoghue Tax-Free Funds 1.97
Donoghue U.S. Treasury Funds 2.62
Dow Jones Industrials 16.96
Morgan Stanley Capital 32.56
International EAFE Index
Morgan Stanley Capital 22.49
International EAFE GDP Index
Libor Six-month Libor Index 3.50
Lipper Adjustable Rate Mortgage 3.82
Lipper California Municipal Bond 12.60
Funds
Lipper Capital Appreciation 15.21
Lipper Connecticut Municipal Bond 12.74
Funds
Lipper Closed End Bond Funds 10.15
Lipper Florida Municipal Bond Funds 13.12
Lipper General Bond Fund 12.32
Lipper General Municipal Bonds 12.35
Lipper General Short-Term Tax-Exempt 6.28
Bonds
Lipper Global Flexible Portfolio 31.04
Funds
Lipper Gold Oriented Funds 81.81
Lipper Growth Funds 10.61
Lipper Growth & Income Funds 11.56
Lipper High Current Yield Bond Funds 19.25
Lipper High Yield Municipal Bond 11.59
Average
Lipper Fixed Income Funds 9.65
Lipper Insured Municipal Bond 11.93
Average
Lipper Intermediate Muni Bonds 10.36
Lipper Intermediate (5-10) U.S. 8.26
Government Funds
Lipper Massachusetts Municipal Bond 12.35
Funds
Lipper Michigan Municipal Bond Funds 12.40
Lipper Mid Cap Funds 16.13
Lipper Minnesota Municipal Bond 11.76
Funds
Lipper Money Market Funds 2.60
Lipper Natural Resources 22.94
Lipper New York Municipal Bond Funds 12.74
Lipper North Carolina Municipal Bond 12.34
Funds
Lipper Ohio Municipal Bond Funds 12.25
Lipper Small Company Growth Funds 16.93
Lipper Specialty/Miscellaneous Funds 24.09
Lipper U.S. Government Funds 9.30
Shearson Lehman Composite 10.66
Government Index
Shearson Lehman 11.06
Government/Corporate Index
Shearson Lehman Long-term 17.47
Government Index
S&P 500 S&P 10.07
S&P Utility Index S&P 14.44
Bond Buyer Bond Buyer Index 12.08
First Boston High Yield Index 18.91
Swiss Bank 10 Year U.S. Government 11.94*
(Corporate Bond)
Swiss Bank 10 Year United Kingdom 13.71*
(Corporate Bond)
Swiss Bank 10 Year France (Corporate 12.12*
Bond)
Swiss Bank 10 Year Germany (Corporate 10.08*
Bond)
Swiss Bank 10 Year Japan (Corporate 29.09*
Bond)
Swiss Bank 10 Year Canada (Corporate 8.63*
Bond)
Swiss Bank 10 Year Australia (Corporate 8.76*
Bond)
Morgan Stanley Capital 10 Year Hong Kong (Equity) 36.03*
International
Morgan Stanley Capital 10 Year Belgium (Equity) 25.34*
International
Morgan Stanley Capital 10 Year Spain (Equity) 24.81*
International
Morgan Stanley Capital 10 Year Austria (Equity) 23.54*
International
Morgan Stanley Capital 10 Year France (Equity) 22.02*
International
Morgan Stanley Capital 10 Year Netherlands (Equity) 21.93*
International
Morgan Stanley Capital 10 Year Japan (Equity) 16.42*
International
Morgan Stanley Capital 10 Year Switzerland (Equity) 19.42*
International
Morgan Stanley Capital 10 Year United Kingdom 18.58*
International (Equity)
Morgan Stanley Capital 10 Year Germany (Equity) 17.52*
International
Morgan Stanley Capital 10 Year Italy (Equity) 16.84*
International
Morgan Stanley Capital 10 Year Sweden (Equity) 16.57*
International
Morgan Stanley Capital 10 Year United States 14.80*
International (Equity)
Morgan Stanley Capital 10 Year Australia (Equity) 13.71*
International
Morgan Stanley Capital 10 Year Norway (Equity) 13.65*
International
Inflation Consumer Price Index 2.75
FHLB-San Francisco 11th District Cost-of-Funds 3.88
Index
Federal Reserve Six-Month Treasury Bill Index 3.31
Federal Reserve One-Year Constant-Maturity 3.61
Treasury Rate
Federal Reserve Five-Year Constant-Maturity 5.14
Treasury Rate
*in U.S. currency
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 Liability
19. How to Buy Shares; Determination of Net
Asset Value; Suspension of Redemptions;
Investor Services
20. Taxes
21. Fund Charges and Expenses; Management of the
Funds
22. Fund Charges and Expenses; Investment
Performance; Performance Measures
23. Independent Accountants
COLONIAL INTERNATIONAL FUND FOR GROWTH
Statement of Additional Information
February 28, 1995
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, 1995. 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
Sub-Adviser
Investment Performance
Custodian
Independent Accountants
Part 2
Miscellaneous Investment Practices
Taxes
Management of the Funds
Determination of Net Asset Value
How to Buy Shares
Investor Services
Suspension of Redemptions
Shareholder Liability
Performance Measures
Appendix I
Appendix II
IN-16/578A-295
Part 1
COLONIAL INTERNATIONAL FUND FOR GROWTH
Statement of Additional Information
February 28, 1995
DEFINITIONS
"Trust" Colonial Trust III
"Fund" Colonial International Fund for Growth
"Colonial" Colonial Management Associates, Inc.,
the Fund's investment manager
"Gartmore" Gartmore Capital Management Ltd., the Fund's
sub-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 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 investment policies described 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 Colonial 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 February 28,
1995, the following countries in which the Fund may invest were
considered by Gartmore 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
Phillipines Mexico Turkey
Sri Lanka Peru
Taiwan Venezuela
Thailand
PORTFOLIO TURNOVER
Period December 1, 1993
(commencement of investment operations)
through October 31, 1994
51% (annualized)
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays Colonial a
monthly fee based on the average net assets of the Fund, at an
annual rate of 0.90% (subject to reductions that Colonial may
agree to periodically).
Recent fees paid to Colonial, CISI and CISC (dollars in
thousands)
Period December 1, 1993
(commencement of investment operations)
through October 31, 1994
--------------------------------------
Management fee $988
Bookkeeping fee 48
Shareholder service and transfer agent fee 325
12b-1 fees:
Service fee 275
Distribution fee (Class B) 503
Distribution fee (Class D) 1
Brokerage Commissions (dollars in thousands)
Period December 1, 1993
(commencement of investment operations)
through October 31, 1994
---------------------------------------
Total commissions $736
Directed transactions(a) 0
Commissions on directed transactions 0
(a) See "Management of the Funds - Portfolio Transactions -
Brokerage and research services" in Part 2 of this SAI.
Trustees Fees
For the calendar year ended December 31, 1994, the Trustees
received the following compensation for serving as Trustees:
Pension or
Retirement Total
Benefits Estimated Compensation
Accrued As Annual From Fund
Aggregate Part of Benefits and
Compensation Fund Upon Fund
Trustee From Fund Expense Retirement Complex(c)
- ---------------------- ------------ ---------- ---------- ------------
Tom Bleasdale $623(b) ----- ----- $101,000
Lora S. Collins $578 ----- ----- $ 95,000
William D. Ireland Jr. $662 ----- ----- $110,000
William E. Mayer $472 ----- ----- $ 89,752
John A. McNeice, Jr. ----- ----- ----- -----
James L. Moody, Jr. $701 ----- ----- $109,000
John J. Neuhauser $578 ----- ----- $ 95,000
George L. Shinn $718 ----- ----- $112,000
Robert L. Sullivan $642 ----- ----- $104,561
Sinclair Weeks, Jr. $730 ----- ----- $116,000
(b) Includes $292 as deferred compensation.
(c) The Colonial Funds Complex consists of 31 open-end and 5
closed-end management investment company portfolios.
Ownership of the Fund
At January 31, 1995, the Trustees and officers of the Fund as a
group owned approximately Class A shares representing % of the
outstanding Class A shares of the Fund. Messrs. Scoon, Silver
and Stern, who are officers of the Trust, held Class A shares
representing % 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 January 31, 1995 Merrill Lynch, Pierce, Fenner & Smith, 4800
Deer Lake Drive, East, Jacksonville, FL 32216 owned Class A
shares representing % of the total outstanding.
At January 31, 1995, there were shareholders of record of the
Class A shares, shareholders of record of the Class B shares and
shareholders of record of the Class D shares.
Sales Charges (dollars in thousands)
Class A Shares
Period December 1, 1993
(commencement of investment operations)
through October 31, 1995
----------------------------------------
Aggregate initial sales charges
on Fund shares sales $2,371
Initial sales charges retained by CISI 30
Class B Shares
Period December 1, 1993
(commencement of investment operations)
through October 31, 1994
----------------------------------------
Aggregate contingent deferred
sales charge (CDSC)
on Fund redemptions retained
by CISI $198
Class D Shares
Period July 1, 1994
(Class D shares initial offering)
through October 31, 1994
---------------------------------
Aggregate contingent deferred
sales charge (CDSC) on Fund
redemptions retained by CISI $ 0
SUB-ADVISER
Colonial employs Gartmore to furnish investment services to the
Fund. Gartmore is a United Kingdom-based indirect subsidiary of
Gartmore Indosuez Asset Management, which is a holding company
for the investment management business of Banque Indosuez, a
leading French bank. Gartmore and its affiliates, with offices
in London, Paris, Tokyo, North America, Hong Kong and Singapore,
manage pension and other money for a wide range of institutional
and retail clients. The Fund offers first-time U.S. access to
Gartmore, a leading international money manager. As of September
30, 1994, Gartmore and its affiliates had approximately $32
billion (U.S.) under management.
Currently, more than 60% of the world's investment opportunities,
as defined by market capitalization, are located outside the
United States. Foreign companies comprise the world's ten
largest banks, eight of the world's ten largest insurers and
eight of the world's ten largest airlines and seven of the ten
largest car manufacturers, based on market value.
Gartmore, subject to the Trustees' and Colonial's supervision,
directs the investment of the Fund in accordance with the Fund's
investment objective, policies and restrictions. For these
services, Colonial pays Gartmore a monthly fee at the annual rate
stated in the Prospectus.
Gartmore Client List
Allied Lyons L'Oreal
Atlas Copco Michelin
BOC PKA
Cadbury Schweppes Peugeot
Colt Car Company Prime Computers
Dana Group Ultramar
Federal Express Unilever
Hanson Trust University of Oxford
Honeywell Volkswagen Audi
ITT Wellcome Trust
Johnson Wax
Lonrho Group
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
the whether 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 Colonial) 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 period December 1, 1993 (commencement of
investment operations) through October 31, 1994, (for Class D
shares beginning July 1, 1994) were:
Class A Shares Class B Shares Class D Shares
-------------- -------------- --------------
Fees to FSFs $114 $3,378 $3
Cost of sales material
relating to the Fund 304 343 2
Allocated travel,
entertainment and other
promotional 161 290 3
INVESTMENT PERFORMANCE
The Fund's yields for the month ended October 31, 1994, were:
Class A Shares Class B Shares Class D Shares
-------------- -------------- --------------
-0.23% -0.97% -0.97%
The Fund's total returns for the period from December 31, 1993
(for Class D July 1, 1994) through October 31, 1994
(unannualized), were:
Class A Shares Class B Shares
-------------- --------------
With sales charge of 5.75% -2.26% With CDSC of 5 % -2.00%
Without sales charge 3.70% Without CDSC 3.00%
Class D Shares
--------------
With CDSC of 1% 0.85%
Without CDSC 2.88%
No distributions were declared during the period ended October
31, 1994.
See Part 2 of this SAI "Performance Measures" for how
calculations are made.
CUSTODIAN
Boston Safe Deposit and Trust Company 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 3 through 13 of the
October 31, 1994 Annual Report are incorporated in this SAI by
reference.
<PAGE>
INVESTMENT PORTFOLIO (IN THOUSANDS) OCTOBER 31, 1994
<TABLE>
<CAPTION>
COUNTRY
COMMON STOCKS - 96.5% ABBREV. SHARES VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION - 3.0%
BUILDING CONSTRUCTION - 1.5%
Mitsui Fudosan Company Ja 50 $ 562
Sekisui House Hokuriku Ltd. Ja 175 1,986
-------
2,548
-------
HEAVY CONSTRUCTION-NON-BUILDING CONSTRUCTION - 1.5%
Grupo Mexico de Desarrollo
Class B ADR(a) Mx 92 1,665
United Engineers Ltd. Ma 150 810
-------
2,475
- -----------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 22.8%
DEPOSITORY INSTITUTIONS - 6.9%
Australia & New Zealand Banking G
Ltd. Au 200 579
Banco de Galicia Y Bueno
ADR Sp 20 540
Banco Popular Espanol Sp 10 1,254
Bank International
Indonesia(a) In 150 508
Banpais SA ADR Mx 175 1,203
Banque Nationale de Paris(a) Fr 20 991
Credit Local de France Fr 20 1,532
Dao Heng Bank Group Ltd.(a) HK 350 1,162
Development Bank of
Singapore Si 100 1,063
Sumitomo Trust & Banking Ja 140 2,037
Turkiye Garanti Bankasi
ADR Tu 120 240
Turkiye Garanti Bankasi
ADS Tu 180 360
-------
11,469
-------
HOLDING & OTHER INVESTMENT COMPANIES - 5.9%
Clemente Korea Emerging Growth
Fund(a) Ko 37 481
Five Arrows Chile Investment
Trust Ch 400 1,080
Invesco Taiwan Growth
Fund Tw 200 1,500
Korea Liberalisation
Fund IDR(a) Ko 1 780
Smaller Companies Investment
Trust UK 850 1,780
Taiwan Index Fund Tw 35 464
Thai Europe Fund(a) Th (b) 2,606
Trust Smaller Companies UK 400 1,194
-------
9,885
-------
INSURANCE AGENTS & BROKERS - 0.3%
Sedgwick Group PLC UK 230 576
-------
INSURANCE CARRIERS - 3.3%
Assurances Generales
de France Fr 200 1,917
Yasuda Fire & Marine
Insurance Ja 225 1,653
Zurich Versicherungs-
gesellschaft Sz 2 1,832
-------
5,402
-------
NONDEPOSITORY CREDIT INSTITUTIONS - 1.8%
BBC Brown Boveri AG Sz 2 1,717
Hong Leong Credit BHD Ma 200 1,189
-------
2,906
-------
REAL ESTATE - 2.7%
Cheung Kong Holdings Ltd. HK 250 1,204
Hopewell Holdings HK 457 470
Malaysian Resources Corp. Ma 700 1,561
Sun Hung Kai Properties L Hk 170 1,298
-------
4,533
-------
SECURITY BROKERS & DEALERS - 1.9%
New Japan Securities Ja 200 1,523
Yamaichi Securities Ja 200 1,585
-------
3,108
- -----------------------------------------------------------------
MANUFACTURING - 41.2%
APPAREL - 1.3%
Lai Sun Garment HK 166 317
Onward Kasiyama Co. Ltd. Ja 125 1,793
-------
2,110
-------
CHEMICALS - 5.2%
Akzo Nobel NV Ne 10 1,263
Allied Colloids Group PLC UK 400 880
Bayer AG G 10 2,353
Nippon Sanso Corp. Ja 300 1,761
Reliance Industries GDS UK 20 510
Roche Holding AG Sz (b) 1,023
Smithkline Beecham 'A' UK 125 835
-------
8,625
-------
ELECTRONIC & ELECTRICAL EQUIPMENT - 6.3%
Mabuchi Motor Co. Ja 25 1,914
Mitsubishi Heavy
Industries Ltd. Ja 250 2,035
Polygram NV Ne 50 2,225
Samsung Electronics GDR Ko 1 52
Samsung Electronics GDS Ko 11 660
Sony Corp. Ja 30 1,829
Toshiba Corp. Ja 225 1,774
-------
10,489
-------
FABRICATED METAL - 2.0%
NTN Corp. Ja 275 2,114
Tostem Corp. Ja 40 1,135
-------
3,249
-------
</TABLE>
See notes to investment portfolio.
<PAGE>
INVESTMENT PORTFOLIO - CONTINUED
<TABLE>
<CAPTION>
COUNTRY
COMMON STOCKS - CONT. ABBREV. SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING - CONT.
FOOD & KINDRED PRODUCTS - 1.9%
Cadbury Schweppes PLC UK 275 $ 1,957
Fraser & Neave Ltd. Si 100 1,185
-------
3,142
-------
FURNITURE & FIXTURES - 1.1%
BTR PLC UK 250 1,254
Industrie Natuzzi SPA ADR(a) It 20 645
-------
1,899
-------
LUMBER & WOOD PRODUCTS - 0.9%
Land & General Holdings Ma 300 1,479
-------
MACHINERY & COMPUTER EQUIPMENT - 2.3%
Atlas Copco AB Class A Sw 120 1,645
NEC Corporation Ja 175 2,239
-------
3,884
-------
MEASURING & ANALYZING INSTRUMENTS - 1.3%
Fanuc Ltd. Ja 45 2,182
-------
PAPER & PAPER MILLS - 1.2%
Aracruz Celulose SA
ADR Class B(a) Br 60 765
David S. Smith Holdings PLC UK 100 838
Inti Indorayon Utama In 150 408
-------
2,011
-------
PETROLEUM REFINING - 0.9%
Shanghai Petrochemical Co. C 4,500 1,558
-------
PRIMARY METAL - 2.4%
China Steel Corp. GDS Tw 80 1,460
Dowa Mining Ja 150 898
Nippon Steel Co. Ja 400 1,651
-------
4,009
-------
PRINTING & PUBLISHING - 0.9%
Elsivier NV Ne 140 1,429
-------
STONE, CLAY, GLASS & CONCRETE - 7.8%
BPB Industries PLC UK 350 1,716
CRH PLC UK 275 1,530
Cemex SA Mx 101 1,873
Compagnie de Saint Gobain Fr 15 1,903
Critalerias de Chile ADR Ch 76 1,634
Nippon Electric Glass Co. Ltd. Ja 60 1,300
Semen Cibinong In 250 887
UBE Industries Ltd. Ja 490 2,098
-------
12,941
-------
TOBACCO PRODUCTS - 1.6%
Hanson Trust PLC UK 400 1,508
Rothmans International
PLC(c) UK 175 1,187
-------
2,695
-------
TRANSPORTATION EQUIPMENT - 4.1%
Honda Motor Co. Ja 100 1,744
Valeo Group Fr 30 1,629
Volkswagen AG G 8 2,220
Volvo AB Class B Sw 60 1,192
-------
6,785
- -----------------------------------------------------------------
MINING - 4.3%
CRUDE PETROLEUM & NATURAL GAS - 1.0%
Compagnie Francaise de
Petroleum Fr 25 1,622
-------
OIL & GAS EXTRACTION - 3.3%
CRA Ltd. Au 70 996
JGC Corp. Ja 160 2,757
Perez Companc ADR Ar 58 618
Repsol SA Sp 35 1,119
-------
5,490
- -----------------------------------------------------------------
RETAIL TRADE - 4.5%
APPAREL & ACCESSORY STORES - 0.9%
Aoyama Trading Ja 50 1,537
-------
FOOD STORES - 1.2%
Uny Co. Ltd. Ja 125 1,986
-------
GENERAL MERCHANDISE STORES - 2.4%
Grupo Carso ADR(a) Mx 90 2,070
La Rinascente SPA It 75 402
Marks & Spencer PLC UK 230 1,554
-------
4,026
- -----------------------------------------------------------------
SERVICES - 3.9%
BUSINESS SERVICES - 2.9%
Desc SA ADR Mx 20 563
Inchcape PLC UK 225 1,609
SAP AG G 1 709
VEBA AG G 6 2,011
-------
4,892
-------
HOTELS, CAMPS & LODGING - 1.0%
Forte PLC UK 450 1,693
- -----------------------------------------------------------------
TECHNOLOGY - 0.5%
Amersham International PL UK 50 803
- -----------------------------------------------------------------
</TABLE>
See notes to investment portfolio.
<PAGE>
INVESTMENT PORTFOLIO - CONTINUED
<TABLE>
<CAPTION>
COUNTRY
COMMON STOCKS - CONT. ABBREV. SHARES VALUE
- -------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC, GAS &
SANITARY SERVICES - 13.3%
AIR TRANSPORTATION - 2.9%
British Airport Authority PLC UK 260 $ 2,191
Singapore Airlines Ltd. Si 150 1,441
Swire Pacific Ltd. Class A HK 150 1,145
--------
4,777
--------
COMMUNICATIONS - 5.6%
British Telecommunications PLC UK 250 1,607
Hong Kong Telecommunications Ltd. HK 500 1,071
Indonesia Satellite ADS In 10 381
Straits Steamship Land Ltd. Si 450 1,609
Tele Danmark B De 25 1,440
Telecom Italia SPA It 350 958
Tokyo Broadcasting System Ja 130 2,254
--------
9,320
--------
ELECTRIC SERVICES - 2.6%
Korea Electric Power Corp.(a) Ko 40 1,520
Powergen PLC UK 200 1,859
Seeboard PLC UK 135 953
--------
4,332
--------
MOTOR FREIGHT & WAREHOUSING - 2.2%
Nippon Express Ltd. Ja 180 1,950
Toyo Wharf & Warehouse Co. Ja 300 1,659
--------
3,609
- -------------------------------------------------------------------
WHOLESALE TRADE - 3.0%
DURABLE GOODS - 2.2%
C. Itoh & Co. Ltd. Ja 250 1,945
Canon Sales Ja 50 1,687
--------
3,632
--------
NONDURABLE GOODS - 0.8%
Grupo Casa Autrey ADR(a) Mx 45 1,373
- -------------------------------------------------------------------
Total common stocks (cost $153,813) 160,481
- -------------------------------------------------------------------
CORPORATE FIXED-INCOME CURRENCY
BONDS - 0.9% ABBREV. PAR
- -------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC, GAS &
SANITARY SERVICES - 0.9%
ELECTRIC SERVICES
Daewoo Electron Convertible (cost $1,676)
3.500% 12/31/07 Ko 1,000 1,425
- -------------------------------------------------------------------
<CAPTION>
COUNTRY
ABBREV. SHARES VALUE
- -------------------------------------------------------------------
PREFERRED STOCKS - 0.4%
- -------------------------------------------------------------------
Krones AG (cost $ 487) G 1 $ 642
- -------------------------------------------------------------------
WARRANTS(a) - 0.0%
- -------------------------------------------------------------------
Five Arrows Chile Investment
Trust expires 12/31/94 (cost $4) Ch 10 7
- -------------------------------------------------------------------
Total investments - 97.8% (cost $155,980)(d) $162,555
- -------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 2.2% PAR
- -------------------------------------------------------------------
Repurchase agreement with Bankers Trust
Securities Corp., dated 10/31/94, due
11/01/94 at 4.77% collateralized by U.S.
Treasury notes with various
maturities to 1998, market value $3,704
(repurchase proceeds $3,629) $3,629 3,629
- -------------------------------------------------------------------
FORWARD CURRENCY CONTRACTS(e) - (0.0%) (35)
- -------------------------------------------------------------------
OTHER ASSETS & LIABILITIES - 0.0% 122
- -------------------------------------------------------------------
NET ASSETS - 100.0% $166,271
- -------------------------------------------------------------------
</TABLE>
Notes to investment portfolio:
(a) Non-income producing.
(b) Rounds to less than one.
(c) Each unit consists of 1 share of United Kingdom Rothmans International and
1 share of Netherlands Rothmans International.
(d) Cost for federal income tax purposes is the same.
Notes to investment portfolio continued on following page.
See notes to investment portfolio.
<PAGE>
INVESTMENT PORTFOLIO - CONTINUED
(e) As of October 31, 1994, the Fund had entered into the following forward
currency exchange contracts resulting in net unrealized depreciation of
$35.
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION
SETTLEMENT (DEPRECIATION)
CONTRACTS TO DELIVER IN EXCHANGE FOR DATE (U.S.$)
- -------------------- --------------- ---------- --------------
<S> <C> <C> <C>
BP 12,500 USD 20,392 04/27/95 $ (103)
DEM 9,600 USD 6,405 04/27/95 24
FRF 30,000 USD 5,831 04/27/95 25
JPY 3,600,000 USD 37,780 04/27/95 (64)
NG 6,500 USD 3,868 04/27/95 34
SF 4,750 USD 3,814 04/27/95 49
-------
$ (35)
=======
</TABLE>
SUMMARY OF SECURITIES BY COUNTRY/CURRENCY
<TABLE>
<CAPTION>
% of total
Currency Country securities
Country abbrev. abbrev. Value at value
- --------------------------------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Japan JPY Ja $ 51,588 31.7
Unit. Kingdom BP UK 28,034 17.2 Acronym Name
France FRF Fr 9,594 5.9 -------- ----
Mexico Mx 8,747 5.4 ADR American Depository Receipt
Germany DEM G 7,935 4.9 ADS American Depository Shares
Hong Kong HK 6,667 4.1 GDR Global Depository Receipt
Singapore Si 5,298 3.3 GDS Global Depository Shares
Malaysia Ma 5,039 3.1 IDR International Depository Receipt
Korea Ko Ko 4,918 3.0
Netherlands NG Ne 4,917 3.0
Switzerland SF Sz 4,572 2.8
Taiwan Tw 3,424 2.1
Spain Sp 2,913 1.8
Sweden Sw 2,837 1.7
Chile Ch 2,721 1.7
Thailand Th 2,606 1.6
Indonesia In 2,184 1.3
Italy It 2,005 1.2
Australia Au 1,575 1.0
China C 1,558 1.0
Denmark De 1,440 0.9
Brazil Br 765 0.5
Argentina Ar 618 0.4
Turkey Tu 600 0.4
-------- -----
$162,555 100.0
======== =====
</TABLE>
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS & LIABILITIES
October 31, 1994
(in thousands except for per share amounts and footnote)
- --------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at value (cost $155,980).................. $ 162,555
Short-term obligations ............................... 3,629
----------
166,184
Cash held in foreign banks (cost $47)... $ 47
Receivable for:
Fund shares sold....................... 586
Investments sold....................... 250
Dividends.............................. 226
Foreign tax reclaims................... 66
Interest............................... 30
Deferred organization expenses.......... 63 1,268
----------
Total assets.................................... 167,452
LIABILITIES
Payable for:
Fund shares repurchased................ 609
Investments purchased.................. 505
Forward currency contracts............. 30
Accrued other expenses.................. 32
-------
Total liabilities............................... 1,181
----------
NET ASSETS at value for 16,102
shares of beneficial interest outstanding............ $ 166,271
==========
Net asset value & redemption price per share -
Class A ($62,251/6,003).............................. $10.37
==========
Maximum offering price per share - Class A
($10.37/0.9425)...................................... $11.00*
==========
Net asset value & offering price per share -
Class B ($103,450/10,044)............................ $10.30
==========
Net asset value & offering price per share -
Class D ($570/55).................................... $10.35
==========
COMPOSITION OF NET ASSETS
Capital paid in...................................... $ 168,121
Net investment loss.................................. (8,780)
Accumulated net realized gain........................ 390
Net unrealized appreciation (depreciation) on:
Investments......................................... 6,575
Forward currency contracts.......................... (35)
----------
$ 166,271
==========
</TABLE>
STATEMENT OF OPERATIONS
Period ended October 31, 1994(a)
(in thousands)
- ---------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends............................................. $ 1,761
Interest.............................................. 269
----------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $255).................................. 2,030
EXPENSES
Management fee.......................... $ 988
Service fee............................. 275
Distribution fee - Class B.............. 503
Distribution fee - Class D.............. 1
Transfer agent.......................... 325
Bookkeeping fee......................... 48
Trustees fees........................... 5
Custodian fee........................... 131
Legal fee............................... 8
Registration fees....................... 66
Reports to shareholders................. 5
Amortization of deferred
organization expenses.................. 14
Other................................... 9 2,378
------- ----------
Net investment loss............................... (348)
----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments............................ 390
Forward currency contracts............. (7,876)
Foreign currency transactions.......... (567)
-------
Net realized loss................................... (8,053)
Net unrealized appreciation (depreciation)
during the period on:
Investments............................. 6,575
Forward currency contracts.............. (35)
-------
Net unrealized appreciation.......................... 6,540
----------
Net loss........................................... (1,513)
----------
Net decrease in net assets from
operations........................................... $ (1,861)
==========
</TABLE>
* On sales of $50,000 or more the offering price is reduced.
(a) The Fund commenced investment operations on December 1, 1993.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period ended
October 31
1994(a)
------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss........................................ $ (348)
Net realized loss.......................................... (8,053)
Net unrealized appreciation................................ 6,540
--------
Net decrease from operations........................... (1,861)
--------
Fund share transactions
Receipts for shares sold - Class A......................... 82,748
Cost of shares repurchased - Class A....................... (20,156)
--------
62,592
--------
Receipts for shares sold - Class B......................... 116,698
Cost of shares repurchased - Class B....................... (11,722)
--------
104,976
--------
Receipts for shares sold - Class D(b)...................... 564
--------
Net increase from Fund share transactions.............. 168,132
--------
Total increase..................................... 166,271
NET ASSETS
Beginning of period........................................
End of period (net of overdistributed --------
net investment income of $8,780).......................... $166,271
========
NUMBER OF FUND SHARES
Sold - Class A............................................. 7,941
Repurchased - Class A...................................... (1,938)
--------
6,003
--------
Sold - Class B............................................. 11,182
Repurchased - Class B...................................... (1,138)
--------
10,044
--------
Sold - Class D............................................. 55
--------
Net increase in shares outstanding..................... 16,102
Outstanding at
Beginning of period....................................... --------
End of period............................................. 16,102
========
</TABLE>
(a) The Fund commenced investment operations on December 1, 1993.
(b) Class D shares were initially offered on July 1, 1994.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. ACCOUNTING POLICIES
Colonial International Fund for Growth (the Fund), a series of
Colonial Trust III, is a Massachusetts business trust, registered under the
Investment Company Act of 1940, as amended, as a non-diversified, 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
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 where were no sales during the day, at
current quoted bid prices. Debt securities generally are valued by a
pricing service based upon market transactions for normal, institutional-size
trading units of similar securities. When management deems it appropriate,
an over-the-counter or exchange bid quotation is used. Forward currency
contracts are valued based on the weighted value of the exchange traded
contracts with similar durations. Short-term obligations with a maturity of
60 days or less are valued at amortized cost.
The value of all assets and liabilities quoted in foreign currencies
are translated into U.S. dollars at that day's exchange rates. Portfolio
positions 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 or sold. 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 class
proportionately on a daily basis for purposes of determining the net asset
value of each class.
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 distribute all of its taxable income, no federal income tax has
been accrued.
- -------------------------------------------------------------------------------
DEFERRED ORGANIZATION EXPENSES
The Fund incurred $77,162 of expenses in connection with its
organization, initial registration with the Securities and Exchange Commission
and with various states, and the initial public offering of its shares. These
expenses were deferred and are being amortized on a straight-line basis over
five years.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-date.
The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Accordingly, permanent book and tax
basis differences arising from expenses and losses incurred on all foreign
currency transactions not deductible for tax purposes have been reclassed. The
cumulative effect of such differences totaling $11,076 and $8,442,894 was
reclassified from paid in capital and undistributed net investment income,
respectively, to undistributed net investment income and accumulated net
realized gains, respectively.
- --------------------------------------------------------------------------------
OTHER
Corporate actions are recorded on the ex-date (except for certain
foreign securities which are recorded as soon after the 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 includes in realized gain (loss), unrealized appreciation
(depreciation), and dividend and interest income the impact of changes in
foreign currency exchange rates.
The Fund may enter into forward currency contracts to purchase or sell
foreign currencies at predetermined exchange rates at future dates. 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. Forward currency contracts do not eliminate fluctuations in the prices
of the Fund's portfolio securities. The maximum potential loss from such
contracts is the aggregate face value in U.S. dollars at the time the contract
was opened.
The Fund's custodian takes possession through the federal book-entry
system of securities collaterizing 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) oversees the Fund's
management 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) furnishes the Fund with
investment management.
- --------------------------------------------------------------------------------
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
reimbursement for certain out of pocket expenses.
- --------------------------------------------------------------------------------
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES
The Adviser, through its Colonial Investment Services (the Distributor)
division, is the Fund's principal underwriter. During the period ended October
31, 1994, the Distributor retained net underwriting discounts of $29,956 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $197,849 on Class B redemptions.
The Fund has adopted a 12b-1 plan which
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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 distribu- tion fee to the Distributor equal to 0.75% of the
average net assets attributable to Class B shares and Class D shares,
respectively.
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
fees, distribution fees, brokerage commissions, interest, taxes, and
extraordinary expenses, if any) exceed 1.50% annually of the Fund's average net
assets.
For the period ended October 31, 1994, 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. The compensation deferred earns interest
quarterly based on the 90-day U.S. Treasury bill rate. Obligations of the plan
will be paid solely out of the Fund's assets.
- --------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION
During the period ended October 31, 1994, purchases and sales of
investments, other than short-term obligations, were $212,440,989 and
$56,660,147, respectively.
Unrealized appreciation (depreciation) at October 31, 1994, based on cost
of investments for both financial statement and federal income tax purposes
was:
<TABLE>
<S> <C>
Gross unrealized appreciation.................. $12,985,494
Gross unrealized depreciation.................. (6,410,425)
-----------
Net unrealized appreciation................... $ 6,575,069
-----------
</TABLE>
- --------------------------------------------------------------------------------
OTHER
There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities.
These risks may involve foreign currency exchange rate fluctuations,
adverse political and economic developments and the possible prevention of
currency exchange or other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
- --------------------------------------------------------------------------------
NOTE 4. CONTINGENT LIABILITY
The Adviser insures itself and all funds that it advises under a policy
with ICI Mutual Insurance Company. The annual premium is allocated among the
funds and the Adviser. Additionally, CMA and the funds have committed up to
300% of the annual premium, a portion of which has been secured with an
irrevocable letter of credit.
<PAGE>
FINANCIAL HIGHLIGHTS(a)
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
PERIOD ENDED OCTOBER 31
-------------------------------------
1994(b)
-------------------------------------
CLASS A CLASS B CLASS D(c)
------- ------- -------
<S> <C> <C> <C>
Net asset value - Beginning of period...................................... $10.000 $ 10.000 $10.060
Income from investment operations: ------- ------- -------
Net investment income (loss)............................................ 0.013 (0.058) (0.037)
Net realized and unrealized gain
on investments........................................................ 0.357 0.358 0.327
------- ------- -------
Total from investment operations........................................ 0.370 0.300 0.290
------- ------- -------
Net asset value - End of period............................................ $10.370 $ 10.300 $10.350
------- ------- -------
Total return(d)............................................................ 3.70% (e) 3.00% (e) 2.88% (e)
------- ------- -------
Ratios to average net assets
Expenses................................................................ 1.71% (f) 2.46% (f) 2.46% (f)
Net investment income................................................... 0.14% (f) (0.61%)(f) (0.61%)(f)
Portfolio turnover......................................................... 51% (f) 51% (f) 51% (f)
Net assets at end of period (000's)........................................ $62,251 $103,450 $ 570
</TABLE>
(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 all distributions reinvested and
no initial sales charge or CDSC.
(e) Not annualized.
(f) Annualized.
<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, 1994, the results of its
operations, the changes in its net assets and the financial highlights for the
period December 1, 1993 (commencement of operations) through October 31, 1994,
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 audit. We
conducted our audit 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
audit, which included confirmation of portfolio positions at October 31, 1994 by
correspondence with the custodian and brokers, and the application of
alternative auditing procedures where confirmations from brokers were not
received, provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 9, 1994
COLONIAL TRUST III
Cross Reference Sheet (The Colonial Fund)
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 Objectives 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 Liability
19. How to Buy Shares; Determination of Net
Asset Value; Suspension of Redemptions;
Investor Services
20. Taxes
21. Fund Charges and Expenses; Management of the
Funds
22. Fund Charges and Expenses; Investment
Performance; Performance Measures
23. Independent Accountants
THE COLONIAL FUND
Statement of Additional Information
February 28, 1995
This Statement of Additional Information (SAI) contains information which
may be useful to investors but which is not included in the Prospectus of
The Colonial Fund (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, 1995. The SAI should be read together with the
Prospectus. Investors may obtain a free copy of the Prospectus from
Colonial Investment Services, 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 Objectives 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 Funds
Determination of Net Asset Value
How to Buy Shares
Investor Services
Suspension of Redemptions
Shareholder Liability
Performance Measures
Appendix I
Appendix II
TF-16/627A-0195
Part 1
THE COLONIAL FUND
Statement of Additional Information
February 28, 1995
DEFINITIONS
"Trust" Colonial Trust III
"Fund" The Colonial Fund
"Colonial" Colonial Management Associates, Inc.,
the Fund's investment manager
"CISI" Colonial Investment Services Inc., the Fund's
distributor
"CISC" Colonial Investors Service Center, Inc., the
Fund's investor services and transfer agent
INVESTMENT OBJECTIVES AND POLICIES
The Fund's Prospectus describes its investment objectives and
investment policies. Part 1 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.
Short-Term Trading
Foreign Securities
Written Options (calls on common stock, puts and calls
on foreign currencies)
Foreign Currency Transactions
Securities Loans
Repurchase Agreements
Except as described under "Fundamental Investment Policies", the
investment policies described 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 cannot be changed
without such a vote. 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 diversification requirement, an issuer is the
entity whose revenues support the security.
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, it will not purchase additional portfolio
securities while borrowings exceed 5% of net assets;
2.Only own real estate acquired as the result of owning
securities and not more than 5% of total assets;
3. Invest up to 10% of its net assets in illiquid assets;
4.Purchase and sell futures contracts and related options so
long as the total initial margin and premiums on the contracts
do not exceed 5% of its total assets;
5.Underwrite securities issued by others only when disposing of
portfolio securities;
6.Make loans through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments or
similar evidences of indebtedness typically sold privately to
financial institutions and through repurchase agreements; and
7.Not concentrate more than 25% of its total assets in any one
industry or with respect to 75% of total assets purchase any
security (other than obligations of the U.S. Government and
cash items including receivables) if as a result more than 5%
of its total assets would then be invested in securities of a
single issuer or purchase the voting securities of an issuer
if, as a result of such purchases, the Fund would own more
than 10% of the outstanding voting shares of such issuer.
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 it 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 Colonial 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 then be invested in
securities which are restricted as to disposition;
8. Purchase or sell real estate (including limited partnership
interests) although it may purchase and sell (a) securities
which are secured by real estate and (b) securities of
companies which invest or deal in real estate; provided,
however, that nothing in this restriction shall limit the
Fund's ability to acquire or take possession of or sell real
estate which it has obtained as a result of enforcement of its
rights and remedies in connection with securities it otherwise
is permitted to acquire; and
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 5% 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 which are not listed on the New York Stock
Exchange or the American Stock Exchange. Warrants acquired by
the Fund in units or attached to securities will be deemed to
be without value.
PORTFOLIO TURNOVER
1994 1993
---- ----
54% 14%
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays Colonial a
monthly fee at the annual rate of 0.55% of average daily net
assets.
Recent Fees paid to Colonial, CISI and CISC (in thousands)
Year Ended October 31
1994 1993 1992
----- ----- -----
Management fee $4,102 $2,957 $2,178
Bookkeeping fee 270 198 148
Shareholder service and
transfer agent fee 2,143 1,556 1,111(a)
12b-1 fees:
Service fee 1,661 963 583
Distribution fee (Class B) 1,528 470 24
Brokerage Commissions (in thousands) 1994 1993 1992
------ ------ -------
Total commissions $ 1,080 $ 329 $ 387
Directed transactions(b) $66,091 $68,445 $108,312
Commissions on directed transactions $ 90 $ 101 $ 168
(a Under a prior fee schedule.
(b) See "Management of the Funds-Portfolio Transactions-
Brokerage and Research Services" in Part 2 of this SAI.
Trustees Fees
For the calendar year ended December 31, 1994, the Trustees
received the following compensation for serving as Trustees:
Pension or
Retirement Estimated Total
Benefits Annual Compensation
Aggregate Accrued As Benefits From Fund
Compensation Part of Fund Upon and Fund
Trustee From Fund Expense Retirement Complex(d)
- ------- ------------ ------------ ---------- ----------
Tom Bleasdale $4,384(c) ----- ----- $101,000
Lora S. Collins $4,123 ----- ----- $ 95,000
William D. Ireland, Jr. $4,767 ----- ----- $110,000
William E. Mayer $3,901 ----- ----- $ 89,752
John A. McNeice, Jr. ------ ----- ----- ------
James L. Moody, Jr. $4,761 ----- ----- $109,000
John J. Neuhauser $4,121 ----- ----- $ 95,000
George L. Shinn $4,870 ----- ----- $112,000
Robert L. Sullivan $4,556 ----- ----- $104,561
Sinclair Weeks, Jr. $5,045 ----- ----- $116,000
(c) Includes $2,110 as deferred compensation.
(d) The Colonial Fund Complex consists of 31 open-end and 5
closed-end management investment company portfolios.
Ownership of the Fund
At January 31, 1995, the officers and Trustees of the Trust as a
group beneficially owned approximately Class A shares
representing % of the then outstanding shares. Messrs. Scoon and
Stern, who are officers of the Trust, held Class A shares,
representing % 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 investment and voting power. No shareholder owned of
record 5% or more of any class of the Fund's shares as of January
31, 1995.
At January 31, 1995, the officers and Trustees of the Trust as a
group beneficially owned less than 1% of the Class B shares.
At January 31, 1995 there were Class A and Class B shareholders
of the Fund.
Sales Charges (in thousands)
Class A Shares
Years ended October 31
1994 1993 1992
---- ---- ----
Aggregate charges on Fund share sales $2,500 $2,382 $1,564
Sales charges retained by CISI $ 255 $ 378 $ 260
Class B Shares
May 5, 1992 (Class B shares
initially offered)
through October 31,
1994 1993 1992
---- ---- ----
Aggregate contingent deferred
sales charges (CDSC) on Fund
redemptions retained by CISI $513 $66 $15
12b-1 Plans, CDSCs 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 (Plans) pursuant
to Rule 12b-1 under the Act. Under the Plans, the Fund pays CISI
an annual service fee of 0.15% of the Fund's average net assets
attributable to shares outstanding prior to April 1, 1989 and
0.25% of the Fund's average net assets attributable to shares of
each Class issued thereafter. The Fund also pays CISI a
distribution fee not to exceed 0.75% of average net assets
attributable to its Class B and Class D shares. CISI may use the
entire amount of such fees to defray the costs 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 the amount 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 Colonial) 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 the Fund's assets resulting in more
advantageous expense ratios and increased investment flexibility
which could benefit 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 Fund 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 of
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
represent an increase in the value of the shareholder account
resulting from representing 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 for the
fiscal year ended October 31, 1994 were:
Class A Shares Class B Shares
-------------- --------------
Fees to FSFs $1,121 $5,043
Cost of sales material relating to the Fund 189 353
Allocated travel, entertainment and
other promotional 290 542
INVESTMENT PERFORMANCE
The Fund's Class A and Class B yields for the month ended October
31, 1994 were 2.54% and 1.94%, respectively.
The Fund's Class A average annual total returns at October 31,
1994 were:
Class A Shares
1 year 5 years 10 years
------ ------- --------
With sales charge of 5.75% -5.05% 7.84% 12.59%
Without sales charge 0.74% 9.13% 13.26%
The Fund's Class B total returns at October 31, 1994 were:
May 5, 1992
(Class B shares initially offered)
1 year through October 31, 1994
------ ----------------------------------
With CDSC of 5.00% -4.83% 6.12%
Without CDSC -0.04% 7.21%
The Fund's Class A and Class B distribution rates at October 31,
1994, based on the latest calendar quarter's distributions,
annualized, and the maximum offering price at the end of the
period, were 2.10% and 1.51%, respectively.
See Part 2 of this SAI, "Performance Measures," for how
calculations are made.
CUSTODIAN
Boston Safe Deposit and Trust Company is the Fund's custodian.
The custodian is responsible for safeguarding 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 and 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 given on the authority of said firm as
experts in accounting and auditing.
The financial statements and Report of Independent Accountants
appearing on pages 3 through 13 of the October 31, 1994 Annual
Report, are incorporated in this SAI by reference.
<PAGE>
INVESTMENT PORTFOLIO (in thousands) October 31, 1994
<TABLE>
<CAPTION>
COUNTRY
COMMON STOCKS - 80.9% ABBREV. SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Construction - 1.1%
Building construction - 0.9%
Enterprise Jean Lefebvre SA Fr 12 $ 903
Koninklijke Volker Stevin NC Ne 74 3,795
Lennar Corp. 197 2,974
------------
7,672
------------
Heavy construction-non-building
construction - 0.2%
Cubiertas Y Mzov Sp 20 1,285
- ----------------------------------------------------------------------------
Finance, insurance & real estate - 13.0%
Depository institutions - 4.3%
Banco De Santander SA Sp 18 731
Bank of Boston Corp. 56 1,610
Bank of Montreal Ca 398 7,392
Banque Nationale Belgique Be 1 1,411
Canadian Imperial
Bank of Commerce Ca 273 6,463
First Empire State Corp. 4 601
J.P. Morgan & Co., Inc. 80 4,944
National Australia Bank Ltd. Au 1,250 9,879
Regions Financial Corp. 66 2,091
------------
35,122
------------
Holding & other investment companies - 0.9%
Amev NV Ne 99 4,101
Sofina Be 8 3,542
------------
7,643
------------
Insurance agents & brokers - 0.1%
Acordia, Inc. 30 844
------------
Insurance carriers - 6.8%
Aetna Life and Casualty Co. 108 4,972
AMBAC, Inc. 219 7,679
American Bankers Insurance Group 165 3,265
Capital American Financial Corp. 88 1,956
Lincoln National Corp. 233 8,443
MBIA, Inc. 89 4,801
MGIC Investment Corp. 144 4,505
NWNL Companies, Inc. 94 2,697
Orion Capital Corp. 26 792
Providian Corp. 41 1,314
St. Paul Companies 93 4,070
Safeco Corp. 137 6,862
USLIFE Corp. 141 4,631
------------
55,987
------------
Nondepository credit institutions - 0.4%
Green Tree Financial Corp. 84 2,305
Loews Corp. 9 812
------------
3,117
------------
Real estate - 0.1%
Societe Francaise
d'Investissements Sofimeg Fr 8 $ 561
------------
Security brokers & dealers - 0.4%
Alex Brown, Inc. 60 1,658
American Express Co. 50 1,538
Edwards (A.G.), Inc. 1 23
------------
3,219
- ----------------------------------------------------------------------------
Manufacturing - 37.8%
Chemicals - 2.9%
Akzo N.V. ADR Ne 58 3,607
American Home Products Corp 110 6,979
Marion Merrell Dow, Inc. 93 2,366
Rohm & Haas Co. 24 1,419
Sherwin Williams Co. 34 1,122
Union Carbide Corp. 51 1,679
Upjohn Co. 193 6,356
------------
23,528
------------
Electronic & electrical equipment - 5.2%
Advanced Micro Devices, Inc. 205 5,412
Alcatel Alsthom ADR Fr 100 1,850
CTS Corp. 31 930
General Electric Co. 60 2,933
Harris Corp. 84 3,606
Helen of Troy Corp. 17 307
Intel Corp. 190 11,785
Micron Technology, Inc. 71 2,803
Texas Instruments, Inc. 132 9,891
United Industrial Corp. 140 735
Whirlpool Corp. 51 2,652
------------
42,904
------------
Fabricated metal - 0.2%
Amcast Industrial Corp. 30 604
Ball Corp. 50 1,413
------------
2,017
------------
Food & kindred products - 1.3%
Anheuser Busch, Inc. 11 538
Bongrain Fr (9) 216
Conagra, Inc. 95 2,964
Golden Enterprises, Inc. 26 182
IBP, Inc. 40 1,365
International Multifoods Corp. 58 1,035
Korn Og Foderstof De 9 1,643
Lancaster Colony Corp. 89 3,088
------------
11,031
------------
Furniture & fixtures - 0.0%
Kimball International, Inc., Class B 15 $ 356
------------
</TABLE>
See notes to investment portfolio.
3
<PAGE>
REPORT FROM COLONIAL MANAGEMENT
INVESTMENT PORTFOLIO - continued
<TABLE>
<CAPTION>
COUNTRY
COMMON STOCKS - CONT. ABBREV. SHARES VALUE
- --------------------- ------- ------ -----
<S> <C> <C> <C>
Manufacturing - cont.
Leather - 1.9%
Justin Industries, Inc. 308 $ 4,000
Reebok International Ltd. 278 11,073
-----------
15,073
-----------
Machinery & computer equipment - 7.9%
Bucher Holding(b) Sz 6 3,548
Caterpillar, Inc. 86 3,943
Cummins Engine Co., Inc. 237 10,090
Deere & Co. 173 12,420
Dresser Industries, Inc. 489 10,539
Dynatech Corp. 9 253
Harris Computer Systems Corp. 4 59
Hewlett-Packard Co. 59 5,728
Kaydon Corp. 31 713
Seagate Technology, Inc. 558 14,159
Wynn's International, Inc. 129 2,973
-----------
64,425
-----------
Measuring & analyzing instruments - 3.6%
Baxter International, Inc. 447 11,625
Cabot Medical Corp. 32 168
E-Systems, Inc. 204 8,462
Raytheon Co. 78 4,941
St. Jude Medical, Inc. 112 4,157
-----------
29,353
-----------
Paper & paper mills - 0.7%
Louisiana Pacific Corp. 115 3,510
Pope & Talbot, Inc. 102 1,818
Willamette Industries, Inc. 5 237
-----------
5,565
-----------
Petroleum refining - 2.7%
Amoco Corp. 62 3,898
Elcor Corp. 76 1,274
Exxon Corp. 36 2,264
Mobil Corp. 58 4,945
Repsol SA ADR Sp 170 5,528
Royal Dutch Petroleum Co. Ne 38 4,462
-----------
22,371
-----------
Primary metal - 0.5%
LTV Corp. 131 2,500
Worthington Industries, Inc. 71 1,578
-----------
4,078
-----------
Primary smelting - 0.7%
Phelps Dodge Corp. 98 5,990
-----------
Printing & publishing - 1.1%
CSS Industries, Inc.(b) 25 416
Gibson Greetings, Inc. 80 1,190
John H. Harland Co. 124 2,659
Reynolds & Reynolds Co. 42 1,050
Scripps (E.W.) Co. 38 1,130
Standard Register Inc. 84 1,516
Wallace Computer Services, Inc. 23 646
-----------
8,607
-----------
Rubber & plastic - 0.7%
Goodyear Tire & Rubber Co. 154 5,401
Myers Industries , Inc. 34 573
-----------
5,974
-----------
Textile mill products - 0.1%
Interface, Inc., Class A 62 706
-----------
Tobacco products - 0.6%
American Brands, Inc. 145 5,032
-----------
Transportation equipment - 7.7%
CLARCOR, Inc. 16 326
Ford Motor Co. 200 5,900
General Motors Corp. 27 1,051
Harsco Corp. 28 1,207
Hayes Wheels International, Inc. 32 743
Martin Marietta Corp. 436 20,001
Modine Manufacturing Co. 115 3,358
Paccar, Inc. 74 3,294
Peugeot SA ADR Fr 20 2,996
Rockwell International Corp. 25 872
Simpson Industries, Inc. 204 2,647
Smith, A.O. 32 770
Societe Europeen de Propulsion SA Fr 2 105
Textron, Inc. 224 11,419
Thiokol Corp. 275 6,777
Toyota Motor Corp. Ja 35 1,527
-----------
62,993
- ----------------------------------------------------------------------------
Mining - 0.6%
Metal mining - 0.3%
Cleveland-Cliffs, Inc. 35 1,334
Cyprus Amex Minerals Co. 52 1,395
-----------
2,729
-----------
Nonmetallic, except fuels - 0.3%
Potash Corp. Saskatchewan Ca 74 2,605
- ---------------------------------------------------------------------------
Retail trade - 5.2%
Apparel & accessory stores - 0.3%
Baker (J.), Inc. 74 1,244
Deb Shops, Inc. 25 126
Genesco, Inc.(b) 176 387
Limited, Inc. 29 529
-----------
2,296
-----------
</TABLE>
See notes to investment portfolio.
4
<PAGE>
INVESTMENT PORTFOLIO - continued
<TABLE>
<CAPTION>
COUNTRY
COMMON STOCKS - CONT. ABBREV. SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C>
RETAIL TRADE - CONT.
GENERAL MERCHANDISE STORES - 3.4%
Penney (J.C.) Co., Inc. 150 $ 7,568
Sears Roebuck & Co. 67 3,292
Venture Stores, Inc. 419 6,490
Waban, Inc. (b) 583 10,343
--------
27,693
--------
HOME FURNISHINGS & EQUIPMENT - 0.4%
Intelligent Electronics, Inc. 99 1,527
Sun TV and Appliances, Inc. (b) 164 1,475
--------
3,002
--------
MISCELLANEOUS RETAIL - 1.1%
Longs Drug Stores, Inc. 39 1,352
Rite Aid Corp. 303 7,277
--------
8,629
--------
RESTAURANTS - 0.0%
Piccadilly Cafeterias, Inc. 4 29
- ------------------------------------------------------------------------
SERVICES - 1.9%
BUSINESS SERVICES - 0.6%
Computer Associates
International, Inc. 100 4,963
--------
ENGLISH, ACCOUNTING, RESEARCH
& MANAGEMENT - 0.5%
International Muller NV Ne 76 4,189
--------
HEALTH SERVICES - 0.4%
National Health Labs, Inc. 71 1,016
National Medical Enterprises, Inc. 141 2,050
Staff Builders, Inc. (b) 110 330
--------
3,396
--------
HOTELS, CAMPS & LODGING - 0.4%
Club Med, Inc. 56 1,257
Harbour Centre Development HK 416 549
New World Development HK 500 1,595
--------
3,401
- ------------------------------------------------------------------------
TRANSPORTATION, COMMERCIAL, ELECTRIC,
GAS & SANITARY SERVICES - 20.1%
Air transportation - 0.1%
Atlantic Southeast Airlines, Inc. 26 446
British Airways PLC, ADR UK 7 392
--------
838
--------
COMMUNICATIONS - 7.4%
Airtouch Communications, Inc. (b) 35 1,046
Ameritech Corp. 105 4,239
Bell Atlantic Corp. 80 4,190
BellSouth Corp. 80 4,255
NYNEX Corp. 457 17,933
Pacific Telesis Group, Inc. 201 6,347
Southern New England
Telecommunications, Inc. 148 5,225
Southwestern Bell Corp. 262 10,988
Telefonos de Mexico ADR Mx 124 6,813
--------
61,036
--------
ELECTRIC SERVICES - 6.2%
Atlantic Energy, Inc. 31 528
Central Hudson Gas & Electric Co. 14 343
Destec Energy, Inc. (b) 16 171
Detroit Edison Co. 101 2,661
Dominion Resources, Inc. 160 5,929
FPL Group, Inc. 90 2,981
Florida Progress Corp. 59 1,732
General Public Utilities Corp. 80 2,060
Orange & Rockland Utilities, Inc. 14 425
Peco Energy Co. 500 12,805
Public Service Enterprise, Inc. 298 7,828
Southern Co. 610 12,046
Union Electrica-Fenosa Sp 177 814
Washington Water Power Co. 28 414
--------
50,737
--------
GAS SERVICES - 2.2%
Energen Corp. 80 1,825
Gas y Electricidad SA Sp 224 10,427
Laclede Gas Co. 47 971
Panhandle Eastern Corp. 19 442
People's Energy Corp. 55 1,542
Sonat, Inc. 76 2,483
--------
17,690
--------
RAILROAD - 0.4%
Norfolk Southern Corp. 47 2,961
--------
SANITARY SERVICES - 2.8%
Consumers Water Co. 12 220
North West Water PLC UK 1,096 10,127
Northumbrian Water Group UK 352 4,050
Severn Trent Water UK 403 3,787
WMX Technologies, Inc. 28 817
Yorkshire Water UK 412 3,710
--------
22,711
--------
TRANSPORTATION SERVICES - 0.1%
Cross-Harbour Tunnel Co. HK 307 665
--------
WATER TRANSPORTATION - 0.9%
American Presidents Co. 249 6,038
Overseas Shipholding Group, Inc. 60 1,406
--------
7,444
- ------------------------------------------------------------------------
WHOLESALE TRADE - 1.2%
DURABLE GOODS - 1.1%
Handleman Co. 278 3,123
Pioneer Standard Electronics, Inc. 338 6,075
--------
9,198
--------
5
<PAGE>
INVESTMENT PORTFOLIO - CONTINUED
</TABLE>
<TABLE>
<CAPTION>
COUNTRY
COMMON STOCKS - CONT. ABBREV. SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
NONDURABLE GOODS - 0.1%
Nash Finch Co. 60 $ 952
- ----------------------------------------------------------------------------
Total common stocks (cost $574,977) 662,617
- ----------------------------------------------------------------------------
WARRANTS (B) - 0.0%
- ----------------------------------------------------------------------------
Bucher Holdings AG
(cost $104) Sz 6 30
- ----------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS - 12.5% PAR
- ----------------------------------------------------------------------------
GOVERNMENT AGENCIES - 8.1%
Federal National Mortgage Association,
6.500% 08/01/08 $ 71,773 66,592
- ----------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS - 4.4%
U.S. Treasury Notes,
7.875% 04/15/98 35,085 35,726
- ----------------------------------------------------------------------------
Total U.S government & agency
obligations (cost $108,661) 106,858 102,318
- ----------------------------------------------------------------------------
Total investments - 93.4% (cost $683,742)(c) 764,965
- ----------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 5.5%
- ----------------------------------------------------------------------------
Repurchase agreement with Bankers Trust
Securities Corp., dated 10/31/94 due 11/1/94
at 4.77%, collateralized by U.S. Treasury
notes with various maturities to 1998
market value $46,494
(repurchase proceeds $45,560) 45,554 45,554
- ----------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - 1.1% 8,878
- ----------------------------------------------------------------------------
NET ASSETS - 100% $ 819,397
- ----------------------------------------------------------------------------
</TABLE>
Notes to investment portfolio
(a) Rounds to less than one.
(b) Non-income producing.
(c) Cost for federal income tax purposes $683,783.
<TABLE>
<S> <C>
Acronym Name
- ------- -------------------
ADR American Depository
Receipt
</TABLE>
SUMMARY OF SECURITIES BY COUNTRY
<TABLE>
<CAPTION>
% of total
Country securities
Country abbrev. Value at value
- ------- ------- -------- ----------
<S> <C> <C> <C>
United States $649,667 84.9
United Kingdom UK 22,066 2.9
Netherlands Ne 20,154 2.6
Spain Sp 18,785 2.5
Canada Ca 16,460 2.1
Australia Au 9,879 1.3
Mexico Mx 6,813 0.9
France Fr 6,631 0.9
Belgium Be 4,953 0.6
Switzerland Sz 3,578 0.5
Hong Kong HK 2,809 0.4
Denmark De 1,643 0.2
Japan Ja 1,527 0.2
-------- -----
$764,965 100.0
-------- -----
</TABLE>
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
See notes to financial tables.
6
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS & LIABILITIES
October 31, 1994
(in thousands except for per share amounts and footnotes)
<TABLE>
<S> <C>
Assets
Investments at value (cost $683,742)............... $ 764,965
Short-term obligations............................. 45,554
----------
810,519
Cash held in foreign banks
(cost $1)..................... $ 1
Receivable for:
Investments sold.............. 6,539
Dividends..................... 1,545
Fund shares sold.............. 1,520
Interest...................... 525
Foreign tax reclaims.......... 125
Other............................ 72 10,327
------ ----------
Total assets....................... 820,846
Liabilities
Payable for Fund shares
repurchased................. 1,388
Accrued:
Deferred Trustees fees........ 5
Other......................... 56
------
Total liabilities.................. 1,449
----------
Net assets at value for 101,758
shares of beneficial interest outstanding....... $ 819,397
----------
Net asset value & redemption price per share -
Class A ($555,275/68,935)....................... $8.06
----------
Maximum offering price per share - Class A
($8.06/0.9425).................................. $8.55*
----------
Net asset value & offering price per share -
Class B ($264,122/32,823)....................... $8.05
----------
Composition of net assets
Capital paid in................................. $ 685,854
Undistributed net investment income ............ 1,133
Accumulated net realized gain................... 51,187
Net unrealized appreciation..................... 81,223
----------
$ 819,397
==========
</TABLE>
STATEMENT OF OPERATIONS
Year ended October 31, 1994
(in thousands)
<TABLE>
<S> <C>
Investment income
Dividends.......................................... $ 17,601
Interest........................................... 6,354
----------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $275)............................... 23,955
Expenses
Management fee................... $ 4,102
Service fee...................... 1,661
Distribution fee - Class B....... 1,528
Transfer agent................... 2,143
Bookkeeping fee.................. 270
Trustees fees.................... 43
Custodian fee.................... 47
Audit fee........................ 45
Legal fee........................ 10
Registration fees................ 105
Reports to shareholders.......... 17
Other............................ 79 10,050
---------- ----------
Net investment income.............. 13,905
----------
Net realized and unrealized gain (loss)
on portfolio positions
Net realized gain (loss) on:
Investments................... 50,873
Foreign currency transactions. (127)
Forward currency contracts.... 228
----------
Net realized gain............................. 50,974
Net unrealized depreciation
during the year................................. (61,930)
----------
Net loss.................................. (10,956)
Net increase in net assets from ----------
operations...................................... $ 2,949
==========
</TABLE>
* On sales of $50,000 or more the offering price is reduced.
See notes to financial statements.
7
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of changes in net assets
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
----------------------
1994 1993
-------- --------
<S> <C> <C>
Increase (decrease) in net assets
Operations
Net investment income................................. $ 13,905 $ 9,992
Net realized gain..................................... 50,974 19,614
Net unrealized appreciation (depreciation)............ (61,930) 64,272
-------- --------
Net increase from operations................... 2,949 93,878
Distributions
From net investment income - Class A.................. (10,658) (8,725)
From net realized gains - Class A..................... (15,320) (15,853)
From net investment income - Class B.................. (2,687) (663)
From net realized gains - Class B..................... (4,145) (867)
-------- --------
(29,861) 67,770
-------- --------
Fund share transactions
Receipts for shares sold - Class A.................... 96,683 80,939
Value of distributions reinvested - Class A........... 22,779 21,669
Cost of shares repurchased - Class A.................. (62,378) (55,641)
-------- --------
57,084 46,997
-------- --------
Receipts for shares sold - Class B.................... 169,110 106,641
Value of distributions reinvested - Class B........... 6,421 1,447
Cost of shares repurchased - Class B.................. (28,224) (6,798)
-------- --------
147,307 101,290
-------- --------
Net increase from Fund share transactions...... 204,391 148,287
-------- --------
Total increase.................................. 174,530 216,057
Net assets
Beginning of period................................... 644,867 428,810
-------- --------
End of period (including undistributed net investment
income of $1,133 and $423, respectively)............ $819,397 $644,867
-------- --------
Number of Fund shares (a)
Sold - Class A........................................ 11,383 10,190
Issued for distributions reinvested - Class A......... 2,821 2,831
Repurchased - Class A................................. (7,202) (6,999)
-------- --------
7,002 6,022
-------- --------
Sold - Class B........................................ 20,623 13,328
Issued for distributions reinvested - Class B......... 794 186
Repurchased - Class B................................. (3,371) (846)
-------- --------
18,046 12,668
-------- --------
Net increase in shares outstanding............. 25,048 18,690
Outstanding at
Beginning of year................................. 76,710 58,020
-------- --------
End of year....................................... 101,758 76,710
-------- --------
</TABLE>
(a) 1993 information was restated to reflect the stock split as described in
Note 5 in the notes to financial statements.
See notes to financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
The Colonial Fund (the Fund), a series of Colonial Trust III, is a
Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as a diversified, open-end, management investment company.
The Fund may issue an unlimited number of shares. The Fund offers Class A
shares sold with a front-end sales charge and Class B shares which 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. 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 used.
Forward currency contracts are valued based on the weighted value of
the exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued
at amortized cost.
The value of all assets and liabilities quoted in foreign currencies
are translated into U.S. dollars at that day's exchange rates.
Portfolio positions 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 or sold.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
The Fund may trade securities on other than normal settlement terms.
This may increase the risk if the other party to the transaction fails to
deliver and causes the Fund to subsequently invest at less advantageous
prices.
- --------------------------------------------------------------------------------
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS
All income, expenses (other than the Class B distribution fee),
realized and unrealized gains (losses) are allocated to each class
proportionately on a daily basis for purposes of determining the net asset
value of each class.
The per share data was calculated using the average shares outstanding
during the period. In addition, Class B net investment income per share data
reflect the distribution fee per share applicable to Class B shares only.
Class B 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 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.
- --------------------------------------------------------------------------------
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM
Interest income is recorded on the accrual basis. Original issue
discount is accreted to interest income over the life of a security with a
corresponding increase in the cost basis; premium and market discount are not
amortized or accreted.
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-date.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
- -------------------------------------------------------------------------------
OTHER
Corporate actions are recorded on the ex-date (except for certain
foreign securities which are recorded as soon after the 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 includes in realized gain (loss), unrealized appreciation
(depreciation), and dividend and interest income the impact of changes in
foreign currency exchange rates.
The Fund may enter into forward currency contracts to purchase or sell
foreign currencies at predetermined exchange rates at future dates. All
contracts are marked-to-market daily, resulting in unrealized gains or losses
which become realized at the time the forward contracts are closed or mature.
Forward currency contracts do not eliminate fluctuations in the prices of the
Fund's portfolio securities. The maximum potential loss from such contracts is
the aggregate face value in U.S. dollars at the time the contract was opened.
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 0.55% annually of the Fund's average net
assets.
- -------------------------------------------------------------------------------
BOOKKEEPING FEE
The Adviser provides bookkeeping and pricing services for $27,000 per
year plus 0.035% of the Fund's average net assets over $50 million.
- -------------------------------------------------------------------------------
TRANSFER AGENT
Colonial Investors Service Center, Inc. (the Transfer Agent), an
affiliate of the Adviser, provides shareholder services and receives a monthly
fee equal to 0.25% annually of the Fund's average net assets, and receives a
reimbursement for certain out of pocket expenses.
- -------------------------------------------------------------------------------
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES
The Adviser, through its Colonial Investment Services (the Distributor)
division, is the Fund's principal underwriter. During the year ended October 31,
1994, the Distributor retained net underwriting discounts of of $255,103 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $512,501 on Class B share redemptions.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
The Fund has adopted a 12b-1 plan which requires it to pay the
Distributor an annual service fee equal to 0.15% of the value of the shares
outstanding on the 20th of each month for those shares outstanding prior to
April 1, 1989 and 0.25% of the value of the shares outstanding on the 20th of
each month attributable to outstanding shares issued thereafter.
The plan requires the payment of a distribution fee to the
Distributor equal to 0.75% of the average net assets attributable to Class B
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.
- ------------------------------------------------------------------------------
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. The compensation deferred earns interest
quarterly based on the 90-day U.S. Treasury bill rate. Obligations of the plan
will be paid solely out of the Fund's assets.
- ------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION
During the year ended October 31, 1994, purchases and sales of
investments, other than short-term obligations, were $562,604,856 and
$377,291,387, respectively.
Unrealized appreciation (depreciation) at October 31, 1994, based
on cost of investments for federal income tax purposes was:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation . . . . . . . . . . . . . . . . . $111,520,189
Gross unrealized depreciation . . . . . . . . . . . . . . . . . (30,338,529)
------------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . $ 81,181,660
============
- ------------------------------------------------------------------------------
OTHER
There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities. These
risks may involve foreign currency exchange rate fluctuations, adverse
political and economic developments and the possible prevention of currency
exchange or other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting
it to greater risk than a fund that is more diversified.
- ------------------------------------------------------------------------------
NOTE 4. CONTINGENT LIABILITY
The Adviser insures itself and all funds that it advises under a
policy with ICI Mutual Insurance Company. The annual premium is allocated among
the funds and the Adviser. Additionally, the Adviser and the funds have
committed up to 300% of the annual premium, one third of which was provided in
cash, with the Fund's pro rata portion recorded as an asset. The remainder is
secured with an irrevocable letter of credit.
- --------------------------------------------------------------------------------
NOTE 5. STOCK SPLIT
On December 10, 1993, the Trustees declared and effected a 3 for 1
stock split on shares of beneficial interest outstanding.
11
<PAGE>
FINANCIAL HIGHLIGHTS(a)
Selected data for a share of each class outstanding throughout each period
are as follows:
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
----------------------------------------------------------------------------------------
1994 1993(B) 1992(B) 1991(B) 1990(B)
------------------- ------------------- ------------------- -------- --------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B(C) CLASS A CLASS A
-------- -------- -------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning
of period............................ $8.410 $8.400 $7.390 $7.390 $7.050 $7.440 $5.700 $6.850
-------- -------- -------- -------- -------- ------- -------- --------
Income from investment operations:
Net investment income................ 0.171 0.109 0.156 0.104 0.173 0.052 0.218 0.256
Net realized and unrealized
gain (loss)........................ (0.116) (0.111) 1.293 1.282 0.489 (0.044) 1.509 (0.979)
-------- -------- -------- -------- -------- ------- -------- --------
Total from investment operations..... 0.055 (0.002) 1.449 1.386 0.662 0.008 1.727 (0.723)
-------- -------- -------- -------- -------- ------- -------- --------
Less distributions declared to
shareholders:
From net investment income........... (0.160) (0.103) (0.147) (0.094) (0.185) (0.058) (0.222) (0.276)
From net realized gains.............. (0.245) (0.245) (0.282) (0.282) (0.137) -- (0.155) (0.151)
-------- -------- -------- -------- -------- ------- -------- --------
Total distributions declared to
shareholders....................... (0.405) (0.348) (0.429) (0.376) (0.322) (0.058) (0.377) (0.427)
-------- -------- -------- -------- -------- ------- -------- --------
Net asset value - End of period........ $8.060 $8.050 $8.410 $8.400 $7.390 $7.390 $7.050 $5.700
-------- -------- -------- -------- -------- ------- -------- --------
Total return(d)........................ 0.74% (0.04)% 20.21% 19.38% 9.65% (0.31)%(e) 31.23% (11.17)%
-------- -------- -------- -------- -------- ------- -------- --------
Ratios to average net assets
Expenses............................. 1.14% 1.89% 1.10% 1.85% 1.09% 1.84%(f) 1.06% 1.04%
Net investment income................ 2.07% 1.32% 1.94% 1.19% 2.52% 1.77%(f) 3.35% 4.05%
Portfolio turnover..................... 54% 54% 14% 14% 37% 37%(f) 36% 41%
Net assets at end of period (000)...... $555,275 $264,122 $520,706 $124,161 $413,228 $15,582 $366,808 $285,265
</TABLE>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) All per share amounts have been restated to reflect the 3 for 1 stock
split effective December 10, 1993.
(c) Class B shares were initially offered on May 5, 1992. Per share amounts
reflect activity from that date.
(d) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or CDSC.
(e) Not annualized.
(f) Annualized.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
100% of the distributions paid by the Fund from investment income earned in the
year ended October 31, 1994, qualify for the corporate dividends received
deduction.
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST III AND THE SHAREHOLDERS OF THE COLONIAL FUND
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of The Colonial Fund (a series of
Colonial Trust III) at October 31, 1994, 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 31,1994
by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 9, 1994
<PAGE>
COLONIAL TRUST III
Cross Reference Sheet (Colonial Global Natural Resources Fund)
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 Liability
19. How to Buy Shares; Determination of Net
Asset Value; Suspension of Redemptions;
Investor Services
20. Taxes
21. Fund Charges and Expenses; Management of the
Funds
22. Fund Charges and Expenses; Investment
Performance; Performance Measures
23. Independent Accountants
COLONIAL GLOBAL NATURAL RESOURCES FUND
Statement of Additional Information
February 28, 1995
This Statement of Additional Information (SAI) contains
information which may be useful to investors but which is
not included in the Prospectus of Colonial Global Natural
Resources Fund (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,
1995. The 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.
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 Funds
Determination of Net Asset
Value
How to Buy Shares
Investor Services
Suspension of Redemptions
Shareholder Liability
Performance Measures
Appendix I
Appendix II
Part 1
COLONIAL GLOBAL NATURAL RESOURCES FUND
Statement of Additional Information
February 28, 1995
DEFINITIONS
"Trust" Colonial Trust III
"Fund" Colonial Global Natural Resources Fund
"Colonial" Colonial Management Associates, Inc., the
Fund's investment manager
"CISI" Colonial Investment Services, Inc., the
Fund's distributor
"CISC" Colonial Investors Service Center, Inc.,
the Fund's shareholder services
and transfer agent
"Natural Resources
Securities" Companies which in Colonial's opinion have
substantial natural resource assets or
have substantial business activities related to
natural resources.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's Prospectus describes its investment objective and
policies. Part 1 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
Currency Forward and Futures Contracts
Repurchase Agreements
Futures Contracts and Related Options
Options
Money Market Instruments
Except as described below under "Fundamental Investment
Policies" the investment policies described 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
cannot be changed without such a vote.
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 diversification requirement, an issuer is the entity whose
revenues support the security.
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; and not more than 5% of total assets;
3. Invest up to 10% of its net assets in illiquid assets;
4. Purchase and sell futures contracts and related options
so
long as the total initial margin and premiums on the
contracts does not exceed 5% of its total assets;
5. Underwrite securities issued by others only when disposing
of portfolio securities;
6. Make loans through lending of securities not exceeding 30%
of total assets, through the purchase of debt instruments
or similar evidences of indebtedness typically sold
privately to financial institutions and through repurchase
agreements; and
7. Not concentrate more than 25% of its total assets in any
one industry.
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 it 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 Trust knows
that officers and Trustees of the Trust or officers and
directors of Colonial 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
securities which are restricted as to disposition;
8. Purchase or sell real estate (including limited
partnership interests) although it may purchase and sell
(a) securities which are secured by real estate and (b)
securities of companies which invest or deal in real
estate; provided, however, that nothing in this
restriction shall limit the Fund's ability to acquire or
take possession of or sell real estate which it has
obtained as a result of enforcement of its rights and
remedies in connection with securities its otherwise
permitted to acquire;
9. Invest in the securities of other investment companies,
except by purchase in the open market where no commission
or profit to a sponsor or dealer results from the purchase
other than the customary broker's commission, or except
when the purchase is part of a plan of merger,
consolidation, reorganization or acquisition; and
10.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
5% 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 which are not listed on
the New York Stock Exchange or the American Stock
Exchange. Warrants acquired by the Fund in units or
attached to securities will be deemed to be without value.
Natural Resources Securities are securities of companies
whose assets, revenues or profits are derived under normal
circumstances at least 50% from the ownership, exploration
mining or other development of natural resources or the
service or supplying of such companies.
Resource-indexed securities may be issued by various
companies, including gold bullion brokers or dealers ("Gold
Brokers"). The Fund would not purchase a resource-indexed
security issued by a Resource Broker if as a result of such
purchase more than 15% of the value of the Fund's total
assets would be invested in securities of that issuer.
Resource Brokers may not be subject to supervision or
regulation by any governmental authority or self-regulatory
organization in connection with the issuance of such
securities. There is no secondary trading market for
resource-indexed securities. Although a limited secondary
market might develop among institutional traders, there is no
assurance that any market will develop. Currently the Fund
does not intend to invest in such securities.
Gold-denominated notes generally have maturities of fifteen
months or less and would be subject to being called for
redemption by the issuer on relatively short notice. It is
expected that any resource-indexed securities would be
subject to being put by the Fund to the issuer or to a
standby broker meeting certain credit standards, with payment
being received by the Fund on no more than 7 days' notice.
Colonial will monitor on an ongoing basis the
creditworthiness of the issuer or the standby broker. A
standby broker might be a securities brokerdealer, in which
case the Fund's investment would be subject to limitations
imposed by law on the Fund's investments in securities of
broker-dealers. The securities would be repurchased, upon
exercise of the holder's put, at a specified price less
repurchase fees, if any, which are not expected to exceed 1%
of the redemption or repurchase proceeds. Depending upon the
terms of a particular resource-indexed security, there might
be a period as long as five days between the date the Fund
notifies the issuer of exercise of the put and determination
of the sale price. Any resource-indexed security which is a
restricted security and which is not subject to such a put to
the issuer or to a standby broker may be considered to be an
illiquid security. It is expected that the Fund's holdings
of resourceindexed securities would not generate appreciable
current income, and the return from such securities would be
primarily from any profit on the sale or maturity thereof at
a time when price of gold is higher than it was when the
securities were purchased. The Fund's holdings of gold
bullion would not generate any current income, and
appreciation in the market price of gold would be the sole
manner in which the Fund might realize gains on its
investment in gold bullion. The Fund might incur taxes,
insurance, shipping, storage and transaction costs in
connection with its ownership of gold bullion which might be
higher than the costs of purchasing, holding and disposing of
securities. Currently the Fund does not intend to invest in
gold bullion. The price of gold has been subject to dramatic
upward and downward price movements over short periods of time.
In the event of a substantial decrease in the price of gold, the Fund
would incur realized or unrealized losses on its investment in
resource-indexed securities and gold bullion. The Fund may
derive no more than 10% of its gross income in any fiscal
year from transactions in gold bullion (and certain options
and futures contracts) and therefore might be required to
dispose of gold bullion or continue to hold gold bullion when
it would not otherwise do so for investment reasons.
Options on Gold Bullion. The Fund has a present operating
policy, which may be changed without shareholder approval,
not to write or purchase options on gold bullion. The Fund
may, however, in the future without shareholder approval
write covered call options and purchase call and put options
on gold bullion on domestic or foreign exchanges or over-the-
counter. The Fund may hedge by writing covered call options
on gold bullion and purchasing put options on gold bullion,
which is similar to hedging through the use of similar
options on gold stocks. In addition, the Fund may purchase
call options on gold bullion to increase its exposure to
possible gold price increases.
The Fund's ability to write or purchase such options on gold
bullion may be limited by the Fund's intention to continue to
qualify as a regulated investment company for tax purposes.
PORTFOLIO TURNOVER
Year ended October 31
1994 1993
---- ----
15% 14%
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays Colonial a
monthly fee based on the average net assets at the annual rate
of 0.75%.
Recent Fees paid to Colonial, CISI and CISC (dollars in
thousands)
Period June 8, 1992
(commencement
investment of
Year ended Year ended operations)
October 31, October 31, through October 31,
1994 1993 1992
---- ---- ----
Management fee $349 $254 $106
Bookkeeping fee 27 27 11
Shareholder service
and transfer
agent fee 154 154 137(a)
12b-1 fees:
Service fee 117 85 35
Distribution
fee (Class B) 98 41 14
(a) Under a different fee schedule.
Brokerage Commissions (dollars in thousands)
Period June 8, 1992
Year Year (commencement of
ended ended investment operations)
October 31, October 31, through October 31,
1994 1993 1992
---- ---- ----
Total commissions $ 78 $ 17 $ 56
Directed
transactions(b) 3,401 2,014 5,001
Commissions on
directed
transactions 11 5 10
(b) See "Management of the Funds - Portfolio Transactions Brokerage
and research services" in Part 2 of this SAI.
Trustees Fees
For the calendar year ended December 31, 1994, the Trustees received
the following compensation for serving as Trustees:
Aggregate Pension or Estimated Total
Compen- Retirement Annual Compensation
sation from Benefits Benefits From Fund
Fund Accrued As Upon and Fund
Part of Retire- Complex(d)
Fund Expense ment
------------ ------------ -------- ------------
Tom Bleasdale $1,189(c) $0 $0 $101,000
Lora S. Collins 1,115 0 0 95,000
William D.
Ireland, Jr. 1,294 0 0 110,000
William E. Mayer 1,059 0 0 89,752
John A.
McNeice, Jr. 0 0 0 0
James L.
Moody, Jr. 1,295 0 0 109,000
John J. Neuhauser 1,118 0 0 95,000
George L. Shinn 1,320 0 0 112,000
Robert L. Sullivan 1,240 0 0 104,561
Sinclair Weeks, Jr. 1,366 0 0 116,000
(c)Includes $575 deferred compensation.
(d)The Colonial Funds Complex consists of 31 open-end and 5 closed-
end management investment company portfolios.
Ownership of the Fund
At January 31, 1995, the officers and Trustees of the Trust as a
group owned XXXX% of the then outstanding shares of the Fund.
At January 31, 1995, [5% OR MORE SHAREHOLDERS]
At January 31, 1995, there were XXXX Class A and XXXX Class B
record holders of the Fund.
Sales Charges (dollars in thousands)
Class A Shares
Period June 8, 1992
Year Year (commencement of
ended ended investment operations)
October 31, October 31, through October 31,
1994 1993 1992
---- ---- ----
Aggregate initial
sales charges on
Fund share sales $177 $47 $10
Initial sales charges
retained by CISI 25 8 2
Class B Shares
Period June 8, 1992
Year Year (commencement of
ended ended investment operations)
October 31, October 31, through October 31,
1994 1993 1992
---- ---- ----
Aggregate contingent
deferred sales charges
(CDSC) on Fund
redemptions retained
by CISI $41 $12 $4
12b-1 Plans, CDSC and Conversion of Shares
The Fund offers two classes of shares - Class A and Class B.
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 and a distribution fee at an annual
rate of 0.75% of average net assets attributed to Class B
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 the amount 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 Colonial) to the extent that such payments might
be construed to be indirect financing of the distribution of
Fund shares.
The Trustees believe the Plans could be a significant factor
in the growth and retention of Fund assets resulting in a
more advantageous expense ratio and increased investment
flexibility which could benefit 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 persons 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. The CDSCs are described in
the Prospectus.
No CDSC will be imposed on shares derived from reinvestment
of distributions on or amounts representing 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, 1994,
were:
Class A Shares Class B Shares
------------- --------------
Fees to FSFs $82 $403
Cost of sales material
relating to the Fund 25 61
Allocated travel,
entertainment and other
promotional 25 63
INVESTMENT PERFORMANCE
the Fund's Class A and Class B yields for the month ended
October 31, 1994, were 0.71% and 0%, respectively.
The Fund's total returns at October 31, 1994, were:
Class A Shares
Period June 8, 1992
(commencement of investment
operations)
1 Year through October 31, 1994
------ -------------------------
With sales charge
of 5.75% 3.81% 10.73%
Without sales
charge 10.14% 13.50%
Class B Shares
Period June 8, 1992
(commencement of investment
operations)
1 Year through October 31, 1994
------ --------------------------
With
CDSC of 5.00% 4.28% 11.58%
Without CDSC 9.28% 12.65%
The Fund's Class A and Class B distribution rates at October
31, 1994, which are based on the last twelve months'
distributions, annualized, and the maximum offering price
(net asset value for Class B) were 0.89% and 0.27%,
respectively.
See Part 2 of this SAI, "Performance Measures," for how
calculations are made.
CUSTODIAN
Boston Safe Deposit and Trust Company is the Fund's
custodian. The custodian is responsible for safeguarding 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 Trust's independent accountants
providing audit and tax return 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 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 and Report of Independent
Accountants appearing on pages 3 through 11 of the October
31, 1994 Annual Report, are incorporated in this SAI by
reference.
INVESTMENT PORTFOLIO (IN THOUSANDS) OCTOBER 31, 1994
<TABLE>
<CAPTION>
COUNTRY
COMMON STOCKS - 90.4% ABBREV. SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE, INSURANCE & REAL ESTATE - 0.70%
REAL ESTATE
United Overseas Land Ltd. S 186 $ 390
- ----------------------------------------------------------------------------
MANUFACTURING - 35.7%
CHEMICALS - 3.9%
Dow Chemical Co. 7 485
E.I. DuPont De Nemours & Co. 9 507
Georgia Gulf Corp. (a) 14 523
Norsk Hydro AS No 13 520
OM Group, Inc. 15 296
------------
2,331
------------
LUMBER & WOOD PRODUCTS - 1.4%
Noranda, Inc. Ca 30 580
Pacific Forest Products Ltd. Ca 32 257
------------
837
------------
MACHINERY & COMPUTER EQUIPMENT - 0.60%
Varco International, Inc. (a) 50 351
------------
PAPER & PAPER MILLS - 4.4%
Longview Fibre Co. 32 529
Louisiana-Pacific Corp. 17 511
Pope & Talbot, Inc. 31 550
Republic Gypsum Co. 57 514
Weyerhaeuser Co. 13 491
------------
2,595
------------
PETROLEUM REFINING - 16.4%
Amoco Corp. 8 507
Ashland Oil, Inc. 9 330
Atlantic Richfield Co. 4 450
British Petroleum Co. PLC
ADR UK 7 625
Burmah Castrol PLC UK 40 559
Chevron Corp. 11 486
Diamond Shamrock, Inc. 18 522
Exxon Corp. 9 535
MAPCO, Inc. 7 382
Mobil Corp. 7 593
Murphy Oil Corp. 10 486
OMV Handels AG Aus 6 513
Petrofina SA Be 2 473
Phillips Petroleum Co. 17 634
Repsol SA Sp 19 608
Royal Dutch Petroleum Co. Ne 5 524
Texaco, Inc. 6 405
Tosco Corp. 12 387
Unocal Corp. 13 380
YPF Sociedad Anonima ADR Ar 13 321
------------
9,720
------------
PRIMARY METAL - 4.5%
Alcan Aluminum Ltd. 22 581
Aluminum Co. of America 7 580
Falconbridge Ltd Ca 32 551
Inland Steel Industries, Inc. 12 425
Nucor Corp. 9 543
------------
2,680
------------
PRIMARY SMELTING - 3.9%
Magma Copper Co., Class B (a) 30 529
Phelps Dodge Corp. 9 522
RTZ Corp. PLC ADR UK 10 584
Western Mining Corp.
Holdings Ltd. Au 110 688
------------
2,323
------------
STONE, CLAY, GLASS & CONCRETE - 0.6%
Holderbank Financiere
Glarus - BR Sz 1 386
- ----------------------------------------------------------------------------
MINING - 45.9%
COAL MINING - 1.0%
Ashland Coal, Inc. 19 573
------------
CRUDE PETROLEUM & NATURAL GAS - 9.4%
Ampolex Ltd. Au 199 602
Anadarko Petroleum Corp. 13 655
Apache Corp. 21 599
Burlington Resources, Inc. 13 543
Compagnie Francaise de
Petroleum Total Fr 9 570
Ranger Oil Ltd. 77 501
Saga Petroleum A No 44 520
Shell Transport & Trading Co. UK 44 526
Societe National Elf Aquital Fr 8 561
Triton Energy Corp. (a) 15 518
------------
5,595
------------
GOLD & SILVER MINING - 12.0%
Agnico-Eagle Mines Ltd. 43 554
American Barrick Resources Corp. 38 902
Cambior, Inc. Ca 35 512
Delta Gold NL (a) Au 180 425
FMC Gold Co. 48 196
Gold Mines of Kalgoorlle Ltd. Au 496 453
Kidston Gold Mines Ltd. Au 266 720
Newmont Mining Corp. 11 465
Pegasus Gold, Inc. 23 331
Placer Dome, Inc. 22 465
Placer Pacific Ltd. Au 197 593
Sons of Gwalia Ltd. Au 95 792
TVX Gold, Inc. Ca 94 678
------------
7,086
------------
METAL MINING - 13.3%
Aberfoyle Ltd. (a) Au 157 476
Alumax, Inc. (a) 20 595
</TABLE>
See notes to investment portfolio.
<PAGE>
INVESTMENT PORTFOLIO - CONTINUED
<TABLE>
<CAPTION>
COUNTRY
COMMON STOCKS - CONT. ABBREV. SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
MINING - CONT.
METAL MINING - CONT.
Ashton Mining Ltd. Au 265 $ 599
Cameco Corp. Ca 23 499
Coeur D'Alene Mines Corp. 16 301
Cyprus Amax Minerals Co. 17 463
Freeport-McMoRan Copper &
Gold, Inc., Class A 22 510
Impala Platinum Holdings
ADR SA 23 537
MIM Holdings Ltd. Au 232 504
Malaysia Mining Corp. BHD M 289 605
Mount Edon Gold Mines (a) Au 156 353
Pancontinental Mining Ltd (a) Au 440 605
Rayrock Yellowknife
Resources, Inc. (a) Ca 40 490
Renison Goldfields
Consolidated Ltd. Au 75 291
Teck Corp., Class B Ca 30 577
------------
7,873
------------
MISCELLANEOUS METAL ORES - 2.2%
Broken Hill Proprietary Co. L Au 47 722
CRA Ltd. Au 41 586
------------
1,308
------------
NONMETALLIC, EXCEPT FUELS - 0.8%
Vigoro Corp. 15 461
------------
OIL & GAS EXTRACTION - 6.2%
Alberta Energy Co. Ltd. Ca 31 465
Energy Service Co., Inc. (a) 24 344
Forest Oil Corp. 77 264
Global Marine, Inc. (a) 73 345
Horsham Corp. 32 501
LASMO PLC ADR (a) UK 69 500
Rowan Co., Inc. (a) 39 300
Snyder Oil Corp. 27 471
Talisman Energy, Inc. (a) Ca 24 512
------------
3,702
------------
OIL & GAS FIELD SERVICES - 1.0%
Parker Drilling Co. (a) 55 337
Schlumberger Ltd. 5 276
------------
613
- ---------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 7.4%
ELECTRIC SERVICES - 0.8%
EVN Energie-Versorgung
Niederoesterreich AG Aus 4 446
------------
GAS SERVICES - 5.2%
Coastal Corp. 15 428
Consolidated Natural Gas Co. 10 366
Enron Corp. 14 466
Equitable Resources, Inc. 10 305
MCN Corp. 9 346
NICOR, Inc. 16 395
Panhandle Eastern Corp. 19 447
Transco Energy Co. 24 345
------------
3,098
------------
RAILROAD - 1.4%
Santa Fe Pacific Corp. 24 369
Santa Fe Pacific Gold Corp. (a) 32 466
------------
835
- ---------------------------------------------------------------------------
WHOLESALE TRADE - 0.7%
DURABLE GOODS
CSR Ltd. Au 117 406
- ----------------------------------------------------------------------------
Total common stocks (cost $44,863) 53,609
- ----------------------------------------------------------------------------
CONVERTIBLE CURRENCY
BONDS & NOTES - 1.9% ABBREV. PAR
- ----------------------------------------------------------------------------
MINING - 1.9%
GOLD & SILVER MINING - 0.4%
Dickenson Mines Ltd.,
8.500% 09/30/95 C$ 325 243
------------
METAL MINING - 0.7%
Dayton Mining Corp.,
7.000% 01/31/99 C$ 300 444
------------
MISCELLANEOUS METAL ORES - 0.8%
Renison Goldfields
Consolidated Ltd.,
8.000% 11/30/96 A$ 58 454
- ---------------------------------------------------------------------------
Total convertible bonds & notes (cost $1,037) 1,141
- ----------------------------------------------------------------------------
Total investments - 92.3% (cost $45,900)(b) 54,750
- ----------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 11.4%
- ----------------------------------------------------------------------------
Repurchase agreement with Bankers
Trust Securities Corp., dated 10/31/94,
due 11/01/94 at 4.77%, collateralized
by U.S. Treasury notes with various
maturities to 1998, market value $6,892
(repurchase proceeds $6,754) $6,753 6,753
- ----------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - (3.7)% (c) -2,215
- ----------------------------------------------------------------------------
NET ASSETS - 100.0% $59,288
- ----------------------------------------------------------------------------
</TABLE>
Notes to investment portfolio:
(a) Non-income producing.
(b) Cost for federal income tax purposes is approximately the same.
(c) Includes unrealized depreciation of $2 on an open Canadian forward currency
contract.
See notes to investment portfolio.
<PAGE>
NOTES TO INVESTMENT PORTFOLIO - CONT.
- --------------------------------------------------------------------------------
SUMMARY OF SECURITIES BY COUNTRY
<TABLE>
<CAPTION>
% OF TOTAL
CURRENCY COUNTRY SECURITIES
COUNTRY ABBREV. ABBREV. VALUE AT VALUE
- --------- ---------- -------- - ------- -------------
<S> <C> <C> <C> <C>
United States..... $29,437 53.8
Australia......... A$ Au 9,269 16.9
Canada............ C$ Ca 5,808 10.6
United Kingdom.... UK 2,794 5.1
France............ Fr 1,131 2.1
Norway............ No 1,040 1.9
South Africa...... SA 1,005 1.8
Austria........... Aus 959 1.7
Spain............. Sp 608 1.1
Malaysia.......... M 605 1.1
Netherlands....... Ne 524 1.0
Belgium........... Be 473 0.9
Singapore......... S 390 0.7
Switzerland....... Sz 386 0.7
Argentina......... Ar 321 0.6
------ -----
$54,750 100.0
======= =====
</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
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
Colonial Natural Resources Fund (the Fund), a series of Colonial Trust
III, is a Massachusetts business trust, registered under the Investment Company
Act of 1940, as amended, as a non-diversified, open-end, management investment
company. The Fund may issue an unlimited number of shares. The Fund offers
Class A shares sold with a front end sales charge and Class B shares, which 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. The following significant account ing 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 used.
Forward currency contracts are valued based on the weighted value of
the exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
The value of all assets and liabilities quoted in foreign currencies
are translated into U.S. dollars at that day's exchange rates.
Portfolio positions which cannot be valued as set forth above are
valued at fair value under procedures approved by Trustees.
Security transactions are accounted for on the date the securities are
purchased or sold.
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 distribution fee),
realized and unrealized
continued on page 8.
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS & LIABILITIES
31-Oct-94
(in thousands except for per share amounts and footnote)
- ------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
"Investments at value (cost $45,900)................... $54,750
Short-term obligations ................................ 6,753
-------
61,503
Cash held in foreign banks.................... $3
Receivable for:
Investments sold.............................. 421
Fund shares sold.............................. 289
Dividends..................................... 86
Foreign tax reclaims.......................... 9
Interest...................................... 3
Deferred organization expenses................ 37
Other......................................... 6
-----
854
-------
Total asssets................................. 62,357
LIABILITIES
Payable for:
Investments purchased...................... 2,910
Fund shares repurchased.................... 139
Foreign currency contracts................. 2
Accrued expenses........................... 18
-----
Total liabilities............................ 3,069
-------
NET ASSETS at value for 4,511
shares of beneficial interest outstanding.......... $59,288
-------
Net asset value & redemption price per share -
Class A ($36,830/2,798)........................... $13.16
-------
Maximum offering price per share - Class A
($13.16/0.9425)................................... $13.96*
-------
Net asset value & offering price per share -
Class B ($22,458/1,713)........................... $13.11
-------
COMPOSITION OF NET ASSETS
Capital paid in.................................... $48,830
Undistributed net investment income................ 55
Accumulated net realized gain...................... 1,553
Net unrealized appreciation (depreciation) on:
Investments...................................... 8,850
Foreign currency contracts....................... -2
Unsettled foreign currency transactions.......... 2
------
$59,288
=======
STATEMENT OF OPERATIONS
Year ended October 31, 1994
(in thousands)
- ------------------------------------------------------------------
INVESTMENT INCOME
Dividends............................................. $ 807
Interest.............................................. 405
-------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $38)................................. 1,212
EXPENSES
Management fee................................ $349
Service fee................................... 117
Distribution fee - Class B.................... 98
Transfer agent................................ 154
Bookkeeping fee............................... 27
Trustees fees................................. 12
Custodian fee................................. 23
Audit fee..................................... 44
Legal fee..................................... 8
Registration fees............................. 24
Reports to shareholders....................... 9
Amortization of deferred
organization expenses......................... 14
Other......................................... 12
------
891
-------
Net investment income......................... 321
-------
NET REALIZED AND UNREALIZED GAIN(LOSS)
ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments................................. 1,149
Foreign currency............................ -13
Foreign currency contracts.................. -26
Foreign trade settlements................... 43
Net realized gain................................. 1,153
Net unrealized appreciation (depreciation)
during the period on:
Investments................................. 2,748
Foreign currency contracts.................. -2
Unsettled foreign trade..................... 2
Net unrealized appreciation...................... 2,748
-------
Net gain...................................... 3,901
-------
Net increase in net assets from
operations.......................................... $ 4,222
=======
</TABLE>
* On sales of $50,000 or more the offering price is reduced.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS-CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
---------------------
1994 1993
-------- --------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSET S
Operations
Net investment income.................................. $ 321 $ 273
Net realized gain...................................... 1,153 800
Net unrealized appreciation............................ 2,748 6,739
-------- --------
Net increase from operations.................... 4,222 7,812
Distributions
From net investment income - Class A................. (308) (321)
From net realized gains - Class A.................... (256) --
From net investment income - Class B................. (34) (18)
From net realized gains - Class B.................... (63) --
-------- --------
3,561 7,473
-------- --------
Fund share transactions
Receipts for shares sold - Class A................... 16,099 8,983
Value of distributions reinvested - Class A.......... 491 261
Cost of shares repurchased - Class A................. (13,430) (12,219)
-------- --------
3,160 (2,975)
-------- --------
Receipts for shares sold - Class B................... 18,207 3,501
Value of distributions reinvested - Class B.......... 91 17
Cost of shares repurchased - Class B................. (4,008) (1,973)
-------- --------
14,290 1,545
-------- --------
Net increase (decrease) from Fund
share transactions......................... 17,450 (1,430)
-------- --------
Total increase............................... 21,011 6,043
NET ASSETS
Beginning of period.................................. 38,277 32,234
-------- --------
End of period (including undistributed net investment
income of $56 and $77, respectively)............... $59,288 $ 38,277
======== ========
NUMBER OF FUND SHARES
Sold - Class A....................................... 1,268 792
Issued for distributions reinvested - Class A........ 40 26
Repurchased - Class A................................ (1,066) (1,113)
-------- --------
242 (295)
-------- --------
Sold - Class B....................................... 1,431 315
Issued for distributions reinvested - Class B........ 7 2
Repurchased - Class B................................ (317) (182)
-------- --------
1,121 135
-------- --------
Net increase (decrease) in shares
outstanding................................. 1,363 (160)
Outstanding at
Beginning of year................................. 3,148 3,308
-------- --------
End of year........................................ 4,511 3,148
======== ========
</TABLE>
<PAGE>
gains (losses) are allocated to each class proportionately on a daily basis
for purposes of determining the net asset value of each class.
The per share data was calculated using the average s hares outstanding
during the period. In addition, Class B net investment income per share data
reflect the distribution fee applicable to Class B shares only.
Class B 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 shares only.
- -------------------------------------------------------------------------------
FEDERAL INCOME TAXES
Consistent with the Fund's policy to qualify as a regulated investment
company and to distribute all of its taxable income, no federal income tax has
been accrued.
- -------------------------------------------------------------------------------
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM
Interest income is recorded on the accrual basis. Original issue
discount is accreted to interest income over the life of a security with a
corresponding increase in the cost basis; premium and market discount are not
amortized or accreted.
- -------------------------------------------------------------------------------
DEFERRED ORGANIZATION EXPENSES
The Fund incurred $71,295 of expenses in connection with its
organization and initial registration with the Securities and Exchange
Commission and with various states. These expenses were deferred and are being
amortized on a straight-line basis over five years.
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex- date.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations whcih may differ from
generally accepted accounting principles.
- -------------------------------------------------------------------------------
OTHER
Corporate actions are recorded on the ex-date (except for certain
foreign securities which are recorded as soon after the ex-date as the Fund
becomes aware of such) net of nonr ebatable 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 includes in realized gain (loss), unrealized appreciation
(depreciation), and dividend and interest income the impact of changes in
foreign currency exchange rates.
The Fund may enter into forward currency contracts to purchase or sell
foreign currencies at predetermined exchange rates at future dates. All
contracts are marked-to-market daily, resulting in unrealized gains or losses
which become realized at the time the forward contracts are closed or mature.
Forward currency contracts do not eliminate fl uctuations in the prices of the
Fund's portfolio securities. The maximum potential loss from such contracts is
the aggregate face value in U.S. dollars at the time the contract was opened.
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 hat 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 0.75% annually of the Fund's average net
assets.
- -------------------------------------------------------------------------------
BOOKKEEPING FEE
The Adviser provides bookkeeping and
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
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 reimbursement for certain out of pocket expenses.
- -------------------------------------------------------------------------------
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES
The Adviser, through its Colonial Investment Services (the Distributor)
division, is the Fund's principal underwriter.During the year ended October
31, 1994, the Distributor retained net underwriting discounts of $25,427 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $41,136 on Class B share redemptions.
The Fund has adopted a 12b-1 plan whic h 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 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.
- --------------------------------------------------------------------------------
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. The compensation deferred earns interest
quarterly based on the 90-day U.S. Treasury bill rate. Obligations of the plan
will be paid solely out of the Fund's assets.
- -------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION
During the year ended October 31, 1994, purchases and sales of
investments, other than short-term obligations, were $24,591,662 and
$5,754,185, respectively.
Unrealized appreciation (depreciation) at October 31, 1994, based on
cost of investments for federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation............................... $ 9,896,942
Gross unrealized depreciation............................... (1,047,344)
-----------
Net unrealized appreciation.............................. $ 8,849,598
===========
</TABLE>
- -------------------------------------------------------------------------------
OTHER
There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities.
These risks may involve foreign currency exchange rate fluctuations, adverse
political and economic developments and the possible prevention of currency
exchange or other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it
to greater risk than a fund that is more diversified.
- -------------------------------------------------------------------------------
NOTE 4. CONTINGENT LIABILITY
The Adviser insures itself and all funds that it advises under a policy
with ICI Mutual Insurance Company. The annual premium is allocated among the
funds and the Adviser. Additionally, the Adviser and the funds have committed
up to 300% of the annual premium, one third of which was provided in cash, with"
the Fund's pro-rata portion record ed as an asset. The remainder is secured
with an irrevocable letter of credit.
FINANCIAL HIGHLIGHTS (A)
Selected data for a share of each class outstanding throughout each period are
as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION> Period ended
Year ended October 31 October 31
---------------------------------------- ----------------------
1994 1993 1992(b)
------- ---------- --------------------- ----------------------
Class A Class B Class A Class B Class A Class B
------- --------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period.............. $12.160 $12.130 $ 9.750 $ 9.720 $10.000 $10.000
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income............................. 0.114 0.019 0.099 0.018 0.042 0.012
Net realized and unrealized gain(loss)
on investments................................... 1.104 1.097 2.429 2.431 (0.292) (0.292)
------- ------- ------- ------- ------- -------
Total from investment operations.............. 1.218 1.116 2.528 2.449 (0.250) (0.280)
------- ------- ------- ------- ------- -------
Less distributions declared to shareholders:
From net investment income........................ (0.118) (0.036) (0.118) (0.039) -- --
From net realized gains........................... (0.100) (0.100) -- -- -- --
------- ------- ------- ------- ------- -------
Total distributions declared to shareholders.. (0.218) (0.136) (0.118) (0.039) -- --
------- ------- ------- ------- ------- -------
Net asset value - End of period.....................$13.160 $13.110 $12.160 $12.130 $9.750 $ 9.720
------- -------- ------- ------- ------- -------
Total return (c)................................... 10.14% 9.28% 26.20% 25.30% (2.50)%(d) (2.80)%(d)
------- -------- ------- ------- ------- -------
Ratios to average net assets
Expenses.......................................... 1.70% 2.45% 1.88% 2.63% 2.45% (e) 3.20% (e)
Net investment income............................. 0.90% 0.15% 0.92% 0.17% 1.07% (e) 0.32% (e)
Portfolio turnover.................................. 15% 15% 14% 14% 89% (e) 89% (e)
Net assets at end of period (000)...................$36,830 $22,458 $31,098 $ 7,179 $27,790 $ 4,444
</TABLE>
(a) Per share data was calculated using average shares outstanding during
the period.
(b) The Fund commenced investment operations on June 8, 1992.
(c) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or CDSC.
(d) Not annualized.
(e) Annualized.
- --------------------------------------------------------------------------------
Federal income tax information (unaudited)
100% of the distributions paid by the Fund from investment income earned in the
year ended October 31, 1994 qualify for the corporate dividends received
deduction.
- --------------------------------------------------------------------------------
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Colonial Trust III and the Shareholders of Colonial Natural
Resources Fund
In our opinion, the accompanying statement of assets and"liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of Colonial Nat ural Resources
Fund (a series of Colonial Trust III) at October 31, 1994, 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, 1994 by correspondence with
the custodian and brokers, and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
9-Dec-94
COLONIAL TRUST III
Cross Reference Sheet (Colonial Global Equity Fund)
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 Liability
19. How to Buy Shares; Determination of Net
Asset Value; Suspension of Redemptions;
Investor Services
20. Taxes
21. Fund Charges and Expenses; Management of the
Funds
22. Fund Charges and Expenses; Investment
Performance; Performance Measures
23. Independent Accountants
COLONIAL GLOBAL EQUITY FUND
Statement of Additional Information
February 28, 1995
This Statement of Additional Information (SAI) contains
information which may be useful to investors but which is not
included in the Prospectus of Colonial Global Equity Fund (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, 1995. 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.
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 Funds
Determination of Net Asset Value
How to Buy Shares
Investor Services
Suspension of Redemptions
Shareholder Liability
Performance Measures
Appendix I
Appendix II
GE-16/577A-0295
Part 1
COLONIAL GLOBAL EQUITY FUND
Statement of Additional Information
February 28, 1995
DEFINITIONS
"Trust" Colonial Trust III
"Fund" Colonial Global Equity Fund
"Colonial" Colonial Management Associates, Inc.,
the Fund's investment manager
"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 the Fund's investment
objective and policies. Part 1 includes additional
information concerning, among other things, the fundamental
investment policies of the Fund. Part 2 of this SAIcontains
additional information about the following securities and
investment techniques that are described or referred to in
the Prospectus:
Foreign Securities
Foreign Currency Transactions
Currency Forwards and Futures Contracts
Futures Contracts and Related Options
Repurchase Agreements
Money Market Instruments
Securities Loans
Short Sales
Except as described below under "Fundamental Investment
Policies" the investment policies described 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 cannot be changed without such a vote.
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 diversification requirement, an issuer is
the entity whose revenues support the security.
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 and not more than 5% of total assets;
3. Invest up to 10% of its net assets in illiquid assets;
4. Purchase and sell futures contracts and related options
so long as the total initial margin and premiums on the
contracts does not exceed 5% of its total assets;
5. Underwrite securities issued by others only when
disposing of portfolio securities;
6. Make loans through lending of securities not exceeding
30% of total assets, through the purchase of debt
instruments or similar evidences of indebtedness
typically sold privately to financial institutions and
through repurchase agreements; and
7. Not concentrate more than 25% of its total assets in any
one industry, or with respect to 75% of total assets
purchase any security (other than obligations of the U.S.
Government and cash items including receivables) if as a
result more than 5% of its total assets would then be
invested in securities of a single issuer or purchase
voting securities of an issuer if, as a result of such
purchase, the Fund would own more than 10% of the
outstanding voting shares of such issuer.
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 it 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 Trust knows
that officers and Trustees of the Trust or officers and
directors of Colonial 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
securities which are restricted as to disposition;
8. Purchase or sell real estate (including limited
partnership interests) although it may purchase and sell
(a) securities which are secured by real estate and (b)
securities of companies which invest or deal in real
estate; provided, however, that nothing in this
restriction shall limit the Fund's ability to acquire or
take possession of or sell real estate which it has
obtained as a result of enforcement of its rights and
remedies in connection with securities its otherwise
permitted to acquire;
9. Invest in the securities of other investment companies,
except by purchase in the open market where no commission
or profit to a sponsor or dealer results from the
purchase other than the customary broker's commission, or
except when the purchase is part of a plan of merger,
consolidation, reorganization or acquisition; and
10 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 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.
PORTFOLIO TURNOVER
Year ended October 31
1994 1993
52% 58%
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays
Colonial a monthly fee based on the average net assets at
the annual rate of 0.75%.
Recent Fees paid to Colonial, CISI and CISC (for fiscal year
ended October 31) (dollars in thousands)
Period June 8, 1992
(commencement of investment
operations) through October 31,
1994 1993 1992
Management fee $465 $257 $106
Bookkeeping fee 32 27 11
Shareholder service and 182 109 51(a)
transfer agent fee
12b-1 fees:
Service fee 156 86 35
Distribution fee (Class B 414 253 105
only)
Fees and expenses waived or
borne by Colonial (224) (176) (94)
(a) Under a different fee schedule.
Brokerage Commissions (for fiscal year ended October 31)
(dollars in thousands)
Period June 8, 1992
(commencement ofinvestment
operations) through October 31
1994 1993 1992
Total commissions $ 203 $109 $11
Directed transactions (b) 9,557 0 2
Commissions on 18 13 2
directed transactions
(b) See "Management of the Funds - Portfolio Transactions -
Brokerage and research services" in Part 2 of this SAI
Trustees Fees
For the calendar year ended December 31, 1994, the Trustees
as a group received the following compensation for serving
as Trustees:
Pension or
Retirement Estimated Total
Benefits Annual Compensation
Aggregate Accrued As Benefits From Fund
Compensation Part of Fund Upon and Fund
Trustee From Fund Expense Retirement Complex (d)
Tom Bleasdale $1,258(c) $0 $0 $101,000
Lora S. Collins 1,179 0 0 95,000
William D. Ireland, Jr. 1,370 0 0 110,000
William E. Mayer 1,119 0 0 89,752
John A. McNeice, Jr. 0 0 0 0
James L. Moody, Jr. 1,374 0 0 109,000
John J. Neuhauser 1,182 0 0 95,000
George L. Shinn 1,396 0 0 112,000
Robert L. Sullivan 1,312 0 0 104,561
Sinclair Weeks, Jr. 1,444 0 0 116,000
(c) Includes $607 as deferred compensation.
(d) The Colonial Funds Complex consists of 31 open-end and 5
closed-end management investment company portfolios.
Ownership of the Fund
At January 31, 1995, the officers and Trustees of the Trust
as a group owned ____% of the outstanding shares of the
Fund.
At January 31, 1995, the following shareholders owned 5% or
more of the Fund's outstanding Class A shares:
At January 31, 1995, the following shareholders owned 5% or
more of the Fund's outstanding Class B Shares:
At January 31, 1995, there were Class A and Class B record
holders of the Fund.
Sales Charges (for the fiscal year ended October 31)
(dollars in thousands)
Class A Shares
Period June 8, 1992
(commencement of investment)
operations)
through October 31
1994 1993 1992
Aggregate initial sales
charges on Fund share $36 $32 $3
sales
Initial sales charges
retained by CISI 17 5 0
Class B Shares
Period June 8, 1992
(commencement ofivestment
operations)
through October 31
1994 1993 1992
Aggregate contingent
deferred sales charges
(CDSC) on Fund $111 $85 $45
redemptions retained by
CISI
12b-1 Plans, CDSC and Conversion of Shares
The Fund offers two classes of shares - Class A and Class B.
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 net assets
attributed to each class of shares and a distribution fee
at an annual rate of 0.75% of the average net assets
attributed to Class B 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 the amount 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 Colonial) to the extent that
such payments might be construed to be indirect financing of
the distribution of Fund shares.
The Trustees believe the Plans could be a significant factor
in the growth and retention of Fund assets resulting in a
more advantageous expense ratio and increased investment
flexibility which could benefit 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 of the Trust
who are not interested persons 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. The CDSCs are described in
the Prospectus.
No CDSC will be imposed on shares derived from reinvestment
of distributions on or amounts representing 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 for
the fiscal year ended October 31, 1994, were:
Class A Class B
Shares Shares
Fees to FSFs $13 $429
Cost of sales material 20 62
relating to the Fund
Allocated travel, 13 41
entertainment and other
promotional
INVESTMENT PERFORMANCE
The Fund's Class A and Class B yields for the month ended
October 31, 1994, were:
Class A Class B
Adjusted Adjusted
Yield Yield Yield Yield
1.38% 1.06% 0.71% 0.37%
The Fund's average annual total returns at October 31, 1994,
were:
Class A Shares
Period June 8, 1992
(commencement of
investment operations)
1 year through October 31,
1994
With sales charge of 3.45% 9.53%
5.75%
Without sales charge 9.76% 12.27%
Class B Shares
Period June 8, 1992
(commencement of
investment operations)
1 year through October 31,
1994
With CDSC of 5.00% 3.88% 10.27%
Without CDSC 8.88% 11.35%
The Fund's Class A and Class B distribution rates at October
31, 1994, which are based on the latest month's
distributions annualized and the maximum offering price (net
asset value for Class B) at the end of the period, were
1.23% and 0.66%, respectively.
See Part 2 of this SAI, "Performance Measures," for how
calculations are made.
CUSTODIAN
Boston Safe Deposit and Trust Company 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 and 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 have been so incorporated, and the
financial highlights 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 and Report of Independent
Accountants appearing on pages 2 through 14 of the October
31, 1994 Annual Report, are incorporated in this SAI by
reference.
<PAGE>
INVESTMENT PORTFOLIO (IN THOUSANDS) OCTOBER 31, 1994
<TABLE>
<CAPTION>
Country
Common stocks - 91.1% abbrev. Shares Value
- ------------------------------------------------------------------------
<S> <C> <C> <C>
AGRICULTURE, FORESTRY & FISHING - 0.3%
FISHING, HUNTING & TRAPPING
Sanford Ltd. NZ 110 $ 261
- ------------------------------------------------------------------------
CONSTRUCTION - 3.1%
BUILDING CONSTRUCTION - 1.2%
Hochtief AG G (a) 75
Hollandsche Beton Groep NV Ne 1 236
Koninklijke Volker Stevin NV Ne 9 460
Sekisui House Hokuriku Ltd. Ja 10 114
--------
885
--------
HEAVY CONSTRUCTION-NON BUILDING CONSTRUCTION - 1.8%
Cubiertas y Mzov SA Sp 11 681
Dai Nippon Construction Ja 9 73
Koninklijke Boskalis
Westminster NV Ne 7 155
Kydenko Company Ja 9 123
Strabag Oesterreich AG Aus 1 123
Yondenko Corp. Ja 16 145
--------
1,300
--------
SPECIAL TRADE CONTRACTORS - 0.1%
Taikisha Ja 5 85
- ------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 31.0%
DEPOSITORY INSTITUTIONS - 14.5%
ABN Amro Holding NV Ne 2 73
Allied Irish Bank UK 17 68
Banco Atlantico SA Sp 2 48
Banco de Santander SA Sp 4 146
Bank America ICA Corp. 5 230
Bank of Montreal Ca 4 70
Bankgesellschaft Berlin AG G (a) 72
Banque Cantonale Vaudoise Sz (a) 109
Barclays PLC UK 48 462
Bayerische Vereinsbank G 1 208
Bil GT Gruppe AG Sz 1 380
CS Holdings Sz 1 437
Chase Manhattan Corp. 10 353
Citicorp 6 267
Commerzbank AG G 1 211
Commonwealth Bank Au 18 100
Credito Fondiario It 19 73
Deposit Guaranty Corp. 6 175
Deutsche Bank AG G 1 607
Deutsche Pfandbrief und
Hypothekenbank AG G 2 706
Dresdner Bank AG G 1 241
HSBC Holdings PLC HK 72 849
IKB Deutsche
Industriebank AG G 3 432
Jyske Bank De 13 837
Kita Nippon Bank Ja 2 114
Krung Thai Bank Ltd. Th 107 363
Lloyds Bank PLC UK 13 121
National Australia Bank Ltd. Au 137 1,084
National Westminster
Bank PLC UK 30 246
Republic New York Corp. 8 361
Thai Military Bank Ltd. Th 75 349
United Overseas Bank Si 33 362
Westpac Banking Corp. Au 159 536
--------
10,690
--------
HOLDING & OTHER INVESTMENT COMPANIES - 6.7%
Brazil Fund Inc. Br 3 103
Clemente Global Growth
Fund, Inc. (b) 40 400
Emerging Germany Fund, Inc. G 38 290
First Australia Fund, Inc. Au 58 589
First Phillipine Fund, Inc. Ph 41 930
France Growth Fund, Inc. Fr 14 148
GT Developing Markets Fund (b) 8 100
Irish Investment Fund, Inc. Ir 46 470
Latin American Discovery
Fund, Inc. (b) 23 557
Mexico Fund Mx 6 173
Pakistan Investment Fund Pa 42 457
Scudder New Asia Fund, Inc. (b) 9 221
Societe Eurafrance Fr 1 267
The India Fund, Inc. In 17 219
--------
4,924
--------
INSURANCE CARRIERS - 7.2%
Aegon NV Ne 8 476
AMBAC, Inc. 12 403
Aon Corp. 9 283
CCP Insurance, Inc. 12 178
CIGNA Corp. 16 1,061
First Colony Corp. 16 328
Fremont General Corp. 11 268
International Nederlanden
Groep Ne 26 1,217
Penncorp Financial Group, Inc. 2 33
St. Paul Companies 8 367
Topdanmark AS De 1 131
United Companies
Financial Corp. 8 259
USLife Corp. 8 265
--------
5,269
--------
NONDEPOSITORY CREDIT INSTITUTIONS - 0.2%
Hong Leong Finance Ltd. Si 57 176
--------
REAL ESTATE - 1.0%
Cheung Kong Holdings Ltd. HK 142 684
Sun Hung Kai Properties Ltd. HK 10 75
--------
759
--------
SECURITY BROKERS & DEALERS - 1.4%
Kleinwort Benson Group PLC UK 41 324
Merrill Lynch & Company, Inc. 9 343
</TABLE>
See notes to investment portfolio.
3
<PAGE>
INVESTMENT PORTFOLIO - continued
<TABLE>
<CAPTION>
COUNTRY
COMMON STOCKS - CONT. ABBREV. SHARES VALUE
- -------------------------------------------------------------------
<S> <C> <C> <C>
SECURITY BROKERS & DEALERS - CONT.
Morgan Stanley Group, Inc. 3 $ 170
S.G. Warburg Group PLC UK 18 175
--------
1,012
- -------------------------------------------------------------------
MANUFACTURING - 32.3%
APPAREL - 0.1%
Stefanel SPA It 17 51
--------
CHEMICALS - 5.4%
Akzo Nobel NV Ne 1 126
Andreae-Noris Zahn AG G 1 196
BASF AG G 2 360
Bayer AG G 3 706
Branded Consumer Products Sw 5 50
Dai-ichi Seiyaku Ja 6 91
Dyno Industries No 5 120
Glaxo Holdings PLC UK 18 179
Hoechst AG G 1 219
Minerals Technologies, Inc. 10 286
Pharmacia AB Sw 5 84
Recordati It 22 90
Rhone-Poulenc Rorer, Inc. 12 438
Takeda Chemical
Industries Ltd. Ja 52 644
Viag AG G (a) 116
Wellman, Inc. 8 270
--------
3,975
--------
ELECTRONIC & ELECTRICAL EQUIPMENT - 2.7%
Advanced Micro Devices, Inc. 13 330
Hutchison Whampoa HK 30 139
Philips Electronics NV Ne 33 1,099
ROHM Company Ltd. Ja 7 307
Taiyo Yuden Co. Ltd. Ja 12 137
--------
2,012
--------
FABRICATED METAL - 0.5%
Dapta-Mallinjoud Fr 4 123
Komai Tekko Ja 16 147
Oerlikon-Buehrle Holding AG Sz 1 95
--------
365
--------
FOOD & KINDRED PRODUCTS - 1.3%
Eridania Beghin-Say SA
(Italian Certificates) It 1 92
Grand Metropolitan PLC UK 19 516
Kulim Berhad Si 50 77
Malaysian Tobacco Company Si 24 40
Oesterreichische Brau-
Beteiligungs Aus 2 108
Saint Louis Bouchon Fr 1 141
--------
974
--------
LEATHER - 0.3%
Justin Industries, Inc. 16 207
--------
- -------------------------------------------------------------------
MACHINERY & COMPUTER EQUIPMENT - 5.4%
Compaq Computer Corp. 5 $ 217
Cummins Engine Company, Inc. 4 166
Fujitsu Ltd. Ja 147 1,684
Gleason Corp. 3 45
Indresco, Inc. 17 218
Kaydon Corp. 11 252
Methanex Corp. 18 264
NEC Corp. Ja 28 358
Seagate Technology, Inc. (c) 30 749
Tandy Corp. (a) 13
--------
3,966
--------
MEASURING & ANALYZING INSTRUMENTS - 2.4%
Avimo Singapore Ltd. Si 109 132
Fuji Photo Film Co. Ltd. Ja 64 1,525
Landis & Gyr Sz (a) 162
--------
1,819
--------
PETROLEUM REFINING - 1.3%
Tosco Corp. 2 76
Ultramar Corp. 20 525
YPF Sociedad Anonima Ar 15 372
--------
973
--------
PRIMARY METAL - 2.2%
Acerinox SA Sp 9 985
ALFA SA de CV Mx 25 342
Interprovincial Steel Ca 14 279
--------
1,606
--------
PRIMARY SMELTING - 0.6%
Phelps Dodge Corp. 7 423
--------
PRINTING & PUBLISHING - 0.5%
News Corp. Ltd. Au 59 365
--------
STONE, CLAY, GLASS & CONCRETE - 1.5%
Cementos de Mexico SA Mx 14 129
Dyckerhoff und Widmann AG G 1 258
PT Semen Cibinong In 72 254
Radex Heraklith Industries Aus 4 156
UAC Berhad Si 28 57
Vitro Sociedad Anonima Mx 12 248
--------
1,102
--------
TEXTILE MILL PRODUCTS - 0.1%
Winsor Industrial Corp. Ltd. HK 30 40
--------
TOBACCO PRODUCTS - 0.5%
B.A.T. Industries PLC UK 51 368
--------
TRANSPORTATION EQUIPMENT - 7.5%
Bayerische Motoren Werke AG G 1 477
Chrysler Corp. 18 868
Equipements et Composants
pour l'Industrie Automobile Fr 2 330
</TABLE>
See notes to investment portfolio.
4
<PAGE>
<TABLE>
<CAPTION>
COUNTRY
COMMON STOCKS - CONT. ABBREV. SHARES VALUE
- -------------------------------------------------------------------
<S> <C> <C> <C>
Fiat SPA It 80 $ 183
Ford Motor Company 12 363
Honda Motor Company Ltd. Ja 41 715
Kanto Auto Works Ja 25 187
Lockheed Corp. 10 691
Martin Marietta Corp. 2 92
McDonnell Douglas Corp. 9 1,227
PACCAR, Inc. 8 367
Swedish Motor Corp. Ltd. Th 8 50
------
5,550
- -------------------------------------------------------------------
MINING - 2.7%
GOLD & SILVER MINING - 0.2%
Sons of Gwalia Ltd. Au 14 115
------
Nonmetallic, except fuels - 2.0%
Potash Corp. Saskatchewan,
Inc. Ca 18 612
Sungei Way Holdings Berhad Ma 125 492
Vigoro Corporation 12 357
------
1,461
------
Oil & gas extraction - 0.5%
Goal Petroleum Group PLC UK 140 149
Santos Ltd. Au 85 250
------
399
- -------------------------------------------------------------------
RETAIL TRADE - 4.5%
APPAREL & ACCESSORY STORES - 0.9%
J. Baker, Inc. 14 228
Koninklijke Bijenkorf Ne 7 439
------
667
------
AUTO DEALERS & GAS STATIONS - 0.6%
Nippon Oil Company Ltd. Ja 38 274
Sime Darby Ltd. HK 100 136
------
410
------
FOOD STORES - 0.3%
Kroger Corp. (c) 8 206
------
GENERAL MERCHANDISE STORES - 2.4%
Au Bon Marche SA Fr 3 560
Federated Department Stores, Inc. 17 353
Hudson's Bay Company Ca 10 208
Jardine Strategic Holdings HK 90 344
Venture Stores, Inc. 21 326
------
1,791
------
OTHER RETAIL - 0.3%
Rite Aid Corp. 10 238
- -------------------------------------------------------------------
SERVICES - 2.2%
AMUSEMENT & RECREATION - 0.5%
Caesars World, Inc. 3 110
Furama Hotel Enterprises HK 50 78
Genting Berhad Si 17 147
Genting International Ltd. Si 1 2
------
337
------
BUSINESS SERVICES - 1.0%
Comdisco Inc. 19 384
Ing C. Olivetti & C SPA It 105 99
Orix Corp. Ja 7 280
------
763
------
HEALTH SERVICES - 0.2%
Continental Medical Systems, Inc. (c) 8 57
Healthsouth Rehabilitation Corp. 2 91
------
148
------
OTHER SERVICES - 0.5%
VEBA AG G 1 349
- -------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC, GAS &
SANITARY SERVICES - 14.3%
Air transportation - 1.1%
British Airways PLC UK 28 161
Lufthansa G 4 489
Malaysian Airline System BHD Ma 55 147
Swire Pacific Ltd., Series A HK 5 38
------
835
------
COMMUNICATIONS - 3.4%
Ameritech Corp. 20 795
Voksel Electric In 90 166
Southern New England
Telecommunications Corp. 16 566
Telefonos de Mexico SA Mx 12 634
Teleglobe, Inc. Ca 7 90
Telus Corp. 19 234
------
2,485
------
ELECTRIC, GAS & SANITARY SERVICES - 0.5%
Vorarlberger Kraftwerke Aus (a) 29
Westcoast Energy Inc. 21 347
------
376
------
ELECTRIC SERVICES - 6.2%
Berliner Kraft & Licht G 6 1,229
Boston Edison Company 7 164
China Light & Power Company Ltd. HK 109 568
Compania Sevillana de
Electricidad Sp 6 28
Consolidated Edison Company
of New York, Inc. 15 376
Hidroel Cantabrico Sp 11 328
Hong Kong Electric
Holdings Ltd. HK 79 248
Iberdrola SA Sp 27 178
Lech-Elektrizitaetswerke G (a) 157
Manweb PLC UK 28 373
Peco Energy Company 8 195
Pinnacle West Capital Corp. 17 313
Union Electrica Fenosa SA Sp 95 437
------
4,594
------
</TABLE>
See notes to investment portfolio.
5
<PAGE>
<TABLE>
<CAPTION>
COUNTRY
COMMON STOCKS - CONT. ABBREV. SHARES VALUE
- ---------------------------------------------------------------------
<S> <C> <C> <C>
GAS SERVICES - 0.4%
BC Gas, Inc. 20 $ 218
Southwestern Energy Company 5 86
-------
304
-------
PIPELINES - 0.5%
Lakehead Pipe Line Partners, LP 3 75
Transcanada Pipelines Ltd. Ca 22 285
-------
360
-------
RAILROAD - 0.2%
Illinois Central Corp. 4 122
-------
SANITARY SERVICES - 1.3%
North West Water PLC UK 40 368
Northumbrian Water
Group PLC UK 23 261
Severn Trent Water PLC UK 40 373
-------
1,002
-------
WATER TRANSPORTATION - 0.7%
DFDS De (a) 241
Leif Hoegh & Company AS No 11 142
Neptune Orient Lines Ltd. Ne 78 116
-------
499
- ---------------------------------------------------------------------
WHOLESALE TRADE - 0.7%
DURABLE GOODS - 0.6%
Handleman Company 16 181
Johnson Electric Holdings Ltd. HK 41 113
Wakita & Company Ja 8 138
-------
432
-------
NONDURABLE GOODS - 0.1%
Dalgety PLC UK 12 84
- ---------------------------------------------------------------------
Total common stocks (cost $60,632) 67,134
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY
BONDS (D) - 0.7% ABBREV. PAR VALUE
- ---------------------------------------------------------------------
GOVERNMENT AGENCIES - 0.7%
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Federal Farm Credit Bank,
11.900% 10/20/97 $ $ 100 $ 113
Government National Mortgage
Association,
10.500 05/15/20 $ 150 163
Obligations Assimibiable Du Tresor,
9.800 01/30/96 FF 1,000 202
- ---------------------------------------------------------------------
Total government agencies (cost $429) 478
- ---------------------------------------------------------------------
COUNTRY
PREFERRED STOCKS - 0.3% ABBREV. SHARES
- ---------------------------------------------------------------------
CIC Union Europe (cost $218) Fr 3 192
- ---------------------------------------------------------------------
RIGHTS (C) - 0.00%
- ---------------------------------------------------------------------
Strabag Oesterreich, expires
11/30/94 (cost $2) Aus (a) 3
- ---------------------------------------------------------------------
Total investments - 92.1% (cost $61,281) (e) 67,807
- ---------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 4.4% PAR
- ---------------------------------------------------------------------
Repurchase agreement with Bankers Trust
Securities Corp., dated 10/31/94, due
11/01/94 at 4.77%, collateralized by
U.S. Treasury notes with various
maturities to 1998, market value $3,327
(repurchase proceeds $3,260) 3,260 3,260
- ---------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - 3.5% 2,597
- ---------------------------------------------------------------------
NET ASSETS - 100% $73,664
- ---------------------------------------------------------------------
</TABLE>
See notes to investment portfolio.
6
<PAGE>
Notes to investment portfolio:
(a) Rounds to less than one.
(b) This security is subject to the risks of the
various countries in which the issuer is
investing. (see notes to Financial
Statements: Note 3 - Other).
(c) Non-income producing.
(d) Par of each bond is shown in its issued
currency according to the abbreviations
shown below. Value of all securities is
shown in U.S. dollars.
(e) Cost for federal income tax purposes is
the same.
<TABLE>
<CAPTION>
SUMMARY OF SECURITIES BY COUNTRY/CURRENCY
Country/ % of total
Currency securities
Country abbrev Value at value
- ---------------------------------------------------------
<S> <C> <C> <C>
United States $ $19,026 28.0
Germany G 7,398 10.9
Japan JA 7,141 10.5
Netherlands NE 4,397 6.5
United Kingdom UK 4,228 6.3
Hong Kong HK 3,312 4.9
Australia AU 3,039 4.5
Spain SP 2,831 4.2
France FR/FF 2,230 3.3
Canada CA 1,980 2.9
Mexico MX 1,526 2.2
Multi-national (b) 1,278 1.9
Denmark DE 1,209 1.8
Switzerland SZ 1,183 1.7
Singapore SI 993 1.5
Phillipines PH 930 1.4
Thailand TH 762 1.1
Malaysia MA 639 0.9
Indonesia IN 639 0.9
Italy IT 588 0.9
Ireland IR 470 0.7
Pakistan PA 457 0.7
Austria AUS 419 0.6
Argentina AR 372 0.5
Norway NO 262 0.4
New Zealand NZ 261 0.4
Sweden SW 134 0.2
Brazil BR 103 0.2
------- -----
$67,807 100.0
------- -----
</TABLE>
Certain securities are listed by country
of underlying exposure but may trade
predominately on other exchanges.
See notes to financial statements.
7
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS & LIABILITIES
October 31, 1994
(in thousands except for per share amounts and footnote)
- ---------------------------------------------------------------
ASSETS
<TABLE>
<S> <C> <C>
Investments at value (cost $61,281).................. $67,807
Short-term obligations .............................. 3,260
-------
71,067
Cash held in foreign
banks (cost $277).................. $ 295
Receivable for:
Investments sold................... 6,046
Fund shares sold................... 141
Dividends.......................... 195
Foreign tax reclaims............... 76
Interest........................... 16
Deferred organization expenses...... 23
Other............................... 3 6,795
------ -------
Total assets.................................... 77,862
Liabilities
Payable for:
Investments purchased.............. 4,048
Fund shares repurchased............ 130
Accrued other expenses.............. 20
------
Total liabilities.................................... 4,198
-------
Net assets at value for 5,827
shares of beneficial interest outstanding........... $73,664
=======
Net asset value & redemption price per share -
Class A ($10,525/829)............................... $12.69
======
Maximum offering price per share - Class A
($12.69/0.9425)..................................... $13.46*
======
Net asset value & offering price per share -
Class B ($63,139/4,998)............................. $12.63
======
Composition of net assets
Capital paid in..................................... $ 61,546
Undistributed net investment income................. 96
Accumulated net realized gain....................... 5,472
Net unrealized appreciation on:
Investments...................................... 6,526
Unsettled foreign currency transactions.......... 24
--------
$ 73,664
</TABLE> ========
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended October 31, 1994
(in thousands)
- ---------------------------------------------------------------
INVESTMENT INCOME
<S> <C>
Dividends............................................ $ 1,436
Interest............................................. 196
-------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $154................................ 1,632
EXPENSES
Management fee.................... 465
Service fee....................... 156
Distribution fee - Class B........ 414
Transfer agent.................... 182
Bookkeeping fee................... 32
Trustees fees..................... 13
Custodian fee..................... 54
Audit fee......................... 32
Legal fee......................... 8
Registration fees................. 31
Reports to shareholders........... 6
Amortization of deferred
organization expenses............ 9
Other............................. 15
-----
Total expenses.................. 1,417
Fees waived by the adviser........ (224) 1,193
----- -------
Net investment income............................. 439
-------
NET REALIZED AND UNREALIZED GAIN (LOSS
ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments...................... 5,455
Foreign currency transactions.... 23
Forward currency contracts....... (10)
-----
Net realized gain................................. 5,468
Net unrealized appreciation (depreciation)
during the period on:
Investments.................... (1,546)
Unsettled foreign currency
transactions.................. 11
-----
Net unrealized depreciation...................... (1,535)
-------
Net gain....................................... 3,933
-------
Net increase in net assets from operations........... $ 4,372
=======
</TABLE>
* On sales of $50,000 or more the offering price is reduced.
See notes to financial statements.
8
<PAGE>
FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
- --------------------------------------------------------------------------------
Year ended October 31
------------------------------
1994 1993
-------- --------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income.......................... $ 439 $ 344
Net realized gain.............................. 5,468 1,843
Net unrealized appreciation (depreciation)..... (1,535) 6,250
------- -------
Net increase from operations............... 4,372 8,437
Distributions
From net investment income - Class A........... (80) (6)
From net realized gains - Class A.............. (11) --
From net investment income - Class B........... (361) (461)
From net realized gains - Class B.............. (163) --
------- -------
3,757 7,970
------- -------
Fund share transactions
Receipts for shares sold - Class A............. 11,660 2,502
Value of distributions reinvested - Class A.... 79 6
Cost of shares repurchased - Class A........... (3,294) (1,045)
------- -------
8,445 1,463
------- -------
Receipts for shares sold - Class B............. 32,682 8,743
Value of distributions reinvested - Class B.... 485 436
Cost of shares repurchased - Class B........... (14,311) (8,269)
------- -------
18,856 910
------- -------
Net increase from Fund share transactions.. 27,301 2,373
------- -------
Total increase........................ 31,058 10,343
NET ASSETS
Beginning of period............................ 42,606 32,263
------- -------
End of period (including undistributed net
investment income of $96 and $138,
respectively)................................. $73,664 $42,606
======= =======
NUMBER OF FUND SHARES
Sold - Class A................................. 937 225
Issued for distributions reinvested - Class A.. 7 1
Repurchased - Class A.......................... (265) (93)
------- -------
679 133
------- -------
Sold - Class B.................................. 2,643 805
Issued for distributions reinvested - Class B... 40 44
Repurchased - Class B........................... (1,170) (813)
------- -------
1,513 36
------- -------
Net increase in shares outstanding............ 2,192 169
Outstanding at
Beginning of year.............................. 3,635 3,466
------- -------
End of year.................................... 5,827 3,635
======= =======
</TABLE>
See notes to financial statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Colonial Global Equity Fund (the Fund),
a series of Colonial Trust III, is a Massachusetts
business trust, registered under the
Investment Company Act of 1940,
as amended, as a diversified, open-end,
management investment company. The
Fund may issue an unlimited number
of shares. The Fund offers Class A shares
sold with a front-end sales charge and
Class B shares which 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. 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 used.
Forward currency contracts are valued based
on the weighted value of the exchange traded
contracts with similar durations.
Short-term obligations with a maturity of
60 days or less are valued at amortized cost.
The value of all assets and liabilities quoted
in foreign currencies are translated into U.S.
dollars at that day's exchange rates.
Portfolio positions 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 or sold.
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 distribution fee), realized and unrealized
gains (losses) are allocated to each class
proportionately on a daily basis for purposes of
determining the net asset value of each
class.
The per share data was calculated using the
average shares outstanding during the period.
In addition, Class B net investment income per
share data reflect the distribution fee
applicable to Class B shares only.
Class B 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 shares
only.
- ----------------------------------------------------
FEDERAL INCOME TAXES
Consistent with the Fund's policy to qualify
as a regulated investment company and to
distribute all of its taxable income, no federal
income tax has been accrued.
- ----------------------------------------------------
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM
Interest income is recorded on the accrual
basis. Original issue discount is accreted to
interest income over the life of a security
with a corresponding increase in the cost
basis; premium and market discount are not
amortized or accreted.
- ----------------------------------------------------
DEFERRED ORGANIZATION EXPENSES
The Fund incurred $43,895 of expenses
in connection with its organization, initial
registration with the Securities and Exchange
Commission and with various states, and the
initial public offering of its shares. These
expenses were deferred and are being amortized
on a straight-line basis over five years.
- ----------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
on the ex-date.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
- --------------------------------------------------------------------------------
OTHER
Corporate actions are recorded on the ex-date (except for certain
foreign securities which are recorded as soon after the 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 includes in realized gain (loss), unrealized appreciation
(depreciation), and dividend and interest income the impact of changes in
foreign currency exchange rates.
The Fund may enter into forward currency contracts to purchase or sell
foreign currencies at predetermined exchange rates at future dates. All
contracts are marked-to-market daily, resulting in unrealized gains or losses
which become realized at the time the forward contracts are closed or mature.
Forward currency contracts do not eliminate fluctuations in the prices of the
Fund's portfolio securities. The maximum potential loss from such contracts is
the aggregate face value in U.S. dollars at the time the contract was opened.
The Fund's custodian takes possession through the federal book-entry
system of securities collateralizing repurchase agree- ments. Collateral is
marked-to-market daily to ensure that the market value of the under- lying
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 0.75% annually of the Fund's average net
assets.
- --------------------------------------------------------------------------------
BOOKKEEPING FEE
The Adviser provides bookkeeping and pricing services for $27,000 per
year plus 0.035% of the Fund's average net assets over $50 million.
- --------------------------------------------------------------------------------
TRANSFER AGENT
Colonial Investors Service Center, Inc., (the Transfer Agent), an
affiliate of the Adviser, provides shareholders services and receives a monthly
fee equal to 0.25% annually of the Fund's average net assets, and receives a
reim- bursement for certain out of pocket expenses.
- --------------------------------------------------------------------------------
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES
The Adviser, through its Colonial Investment Services (the Distributor)
division, is the Fund's principal underwriter. During the year ended October
31, 1994, the Distributor retained net underwriting discounts of $16,572 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $111,058 on Class B share redemptions. 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 net assets attributable to Class B 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
fees, distribution fees, brokerage commissions, interest, taxes and
extraordinary
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
expenses, if any) exceed 1.00% annually of the Fund's average net assets.
- --------------------------------------------------------------------------------
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. The compensation deferred earns interest
quarterly based on the 90-day U.S. Treasury bill rate. Obligations of the plan
will be paid solely out of the Fund's assets.
- --------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION
During the year ended October 31, 1994, purchases and sales of
investments, other than short-term obligations, were $54,298,794 and
$30,170,299, respectively, of which none and $116,384, respectively, were U.S.
government securities.
<TABLE>
Unrealized appreciation (depreciation) at October 31, 1994, based on
cost of investments for both financial statement and federal income tax
purposes was:
<S> <C>
Gross unrealized appreciation......... $ 8,840,344
Gross unrealized depreciation......... (2,314,059)
-----------
Net unrealized appreciation........... $ 6,526,285
===========
</TABLE>
- --------------------------------------------------------------------------------
OTHER
There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities.
These risks may involve foreign currency exchange rate fluctuations, adverse
political and economic developments and the possible prevention of currency
exchange or other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it
to greater risk than a fund that is more diversified.
- --------------------------------------------------------------------------------
Note 4. Contingent liability
The Adviser insures itself and all funds that it advises under a policy
with ICI Mutual Insurance Company. The annual premium is allocated among the
funds and the Adviser. Additionally, the Adviser and the funds have committed
up to 300% of the annual premium, one-third of which was provided in cash,
with the Fund's pro rata portion recorded as an asset. The remainder is
secured with an irrevocable letter of credit.
12
<PAGE>
<TABLE>
Financial Highlights (b)
Selected data for a share of each class outstanding throughout each period are as follows:
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Period ended
Year ended October 31 October 31
--------------------------------------------------------------------
1994 1993 1992 (c)
------------------- ------------------- --------------------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period................... $11.760 $11.720 $9.340 $9.310 $10.000 $10.000
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (a)............................. 0.170 0.077 0.182 0.104 0.088 0.059
Net realized and unrealized gain (loss)
on investments...................................... 0.969 0.959 2.461 2.447 (0.748) (0.749)
------- ------- ------- ------- ------- -------
Total from investment operations.................. 1.139 1.036 2.643 2.551 (0.660) (0.690)
------- ------- ------- ------- ------- -------
Less distributions declared to shareholders:
From net investment income............................ (0.166) (0.083) (0.223) (0.141) -- --
From net realized gains............................... (0.043) (0.043) -- -- -- --
------- ------- ------- ------- ------- -------
Total distributions declared to shareholders........ (0.209) (0.126) (0.223) (0.141) -- --
------- ------- ------- ------- ------- -------
Net asset value - End of period......................... $12.690 $12.630 $11.760 $11.720 $9.340 $9.310
======= ======= ======= ======= ======= =======
Total return (d) (e).................................... 9.76% 8.88% 28.77% 27.70% (6.59)%(f) (6.90)%(f)
======= ======= ======= ======= ======= =======
Ratios to average net assets
Operating expenses.................................... 1.25% 2.00% 1.25% 2.00% 1.25%(g) 2.00%(g)
Interest expense...................................... -- -- 0.01% 0.01% -- --
Fees and expenses waived or borne by the adviser...... 0.36% 0.36% 0.51% 0.51% 0.67%(g) 0.67%(g)
Net investment income................................. 1.38% 0.63% 1.75% 1.00% 2.25%(g) 1.50%(g)
Portfolio turnover...................................... 52% 52% 58% 58% 14%(g) 14%(g)
Net assets at end of period (000)....................... $10,525 $63,139 $1,769 $40,837 $164 $32,099
<FN>
(a) Net of fees and expenses waived or borne by the
adviser which amounted to.......................... $ 0.045 $ 0.045 $0.053 $0.053 $0.026 $0.026
(b) Per share data was calculated using average shares outstanding during
the period.
(c) The Fund commenced investment operations on June 8, 1992.
(d) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or CDSC.
(e) Had the adviser not waived or reimbursed a portion of expenses total
return would have been reduced.
(f) Not annualized.
(g) Annualized.
</TABLE>
- --------------------------------------------------------------------------------
Federal income tax information (unaudited)
Approximately 95% of the distributions paid by the Fund from investment income
earned in the year ended October 31, 1994 qualify for the corporate
dividends-received deduction.
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ----------------------------------------------------------
To the Trustees of Colonial Trust III and the Shareholders
of Colonial Global Equity Fund
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of Colonial Global Equity Fund
(a series of Colonial Trust III) at October 31, 1994, 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, 1994 by correspondence with
the custodian and brokers, and the application of alternative procedures where
confirmations from brokers were not received, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 9, 1994
COLONIAL TRUST III
Cross Reference Sheet (Colonial Strategic Balanced Fund)
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 Liability
19. How to Buy Shares; Determination of Net
Asset Value; Suspension of Redemptions;
Investor Services
20. Taxes
21. Fund Charges and Expenses; Management of the
Funds
22. Fund Charges and Expenses; Investment
Performance; Performance Measures
23. Independent Accountants
COLONIAL STRATEGIC BALANCED FUND
Statement of Additional Information
February 28, 1995
This Statement of Additional Information (SAI) contains
information which may be useful to investors but which is not
included in the Prospectus of Colonial Strategic Balanced Fund
(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, 1995. 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 Objectives 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 Funds
Determination of Net Asset Value
How to Buy Shares
Investor Services
Suspension of Redemptions
Shareholder Liability
Performance Measures
Appendix I
Appendix II
SB-XX/XXXX-0295
COLONIAL STRATEGIC BALANCED FUND
Statement of Additional Information
February 28, 1995
DEFINITIONS
"Fund" Colonial Strategic Balanced Fund
"Trust" Colonial Trust III
"Colonial" Colonial Management Associates, Inc., the Fund's
investment manager
"CISI" Colonial Investment Services, Inc., the Fund's
distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's
shareholder services and transfer agent
INVESTMENT OBJECTIVES AND POLICIES
The Fund's Prospectus describes its investment objectives and
policies. Part 1 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:
Lower Rated Bonds
Small Companies
Foreign Securities
Zero Coupon Securities
Pay-in-Kind Securities
Money Market Instruments
Forward Commitments
Repurchase Agreements
Futures Contracts and Related Options
Foreign Currency Transactions
Except as described below under "Fundamental Investment
Policies," the investment policies described 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.
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
diversification requirement, an issuer is the entity whose
revenues support the security.
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 and not more than 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 through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments or
similar evidences of indebtedness typically sold privately to
financial institutions and through repurchase agreements; and
6. Not concentrate more than 25% of its total assets in any one
industry or, with respect to 75% of total assets, purchase any
security (other than obligations of the U.S. Government and
cash items including receivables) if as a result more than 5%
of its total assets would then be invested in securities of a
single issuer or purchase the voting securities of an issuer
if, as a result of such purchases, the Fund would own more
than 10% of the outstanding voting shares of such issuer.
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 it 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 Trust knows that
officers and Trustees of the Trust or officers and directors
of Colonial 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 securities
which are restricted as to disposition;
8. Invest more than 15% of its net assets in illiquid assets;
9. Purchase or sell real estate (including limited partnership
interests) although it may purchase and sell (a) securities
which are secured by real estate and (b) securities of
companies which invest or deal in real estate; provided,
however, that nothing in this restriction shall limit the
Fund's ability to acquire or take possession of or sell real
estate which it has obtained as a result of enforcement of its
rights and remedies in connection with securities it is
otherwise permitted to acquire; and
10. 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 5% 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 which are not listed on the New York Stock
Exchange or the American Stock Exchange. Warrants acquired by
the Fund in units or attached to securities will be deemed to
be without value.
PORTFOLIO TURNOVER
Period September 19, 1994
(commencement of investment operations)
through October 31, 1994
0% (annualized)
FUND CHARGES AND EXPENSES
Under the Fund's management contract, the Fund pays Colonial a
monthly fee based on the average daily net assets of the Fund at
the annual rate of 0.70%.
Recent Fees paid to Colonial, CISI and CISC (dollars in
thousands)
Period September 19, 1994
(commencement of investment operations)
through October 31, 1994
Management fee $9
Bookkeeping fee 3
Shareholder service and transfer agent fee 4
12b-1 fees:
Service fee 3
Distribution fee (Class A) 2
Distribution fee (Class B) 4
Distribution fee (Class D) 2
Fees and expenses waived or borne by (5)
Colonial
Brokerage Commissions (dollars in thousands)
Period September 19, 1994
(commencement of investment operations)
through October 31, 1994
Total commissions $ 12
Directed transactions(a) 500
Commissions on directed transactions 1
(a) See "Management of the Funds - Portfolio Transactions - Brokerage
and research services" in Part 2 of this SAI.
Trustees Fees
For the calendar year ended December 31, 1994, the Trustees as a
group received the following compensation for serving as
Trustees:
Pension or Estimated Total
Aggregate Retirement Annual Compensation
Compensation Benefits As Benefits From Fund
From Part of Fund Upon and
Trustee Fund Expense Retirement Fund Complex(b)
Tom Bleasdale $0 $0 $0 $101,000
Lora S. Collins 0 0 0 95,000
William D. Ireland, Jr. 0 0 0 110,000
William E. Mayer 0 0 0 89,752
John A. McNeice, Jr. 0 0 0 0
James L. Moody, Jr. 0 0 0 109,000
John J. Neuhauser 0 0 0 95,000
George L. Shinn 0 0 0 112,000
Robert L. Sullivan 0 0 0 104,561
Sinclair Weeks, Jr. 0 0 0 116,000
(b) The Colonial Funds Complex consists of 31 open-end and 5 closed-end
management investment company portfolios.
Ownership of the Fund
At January 31, 1995, the officers and Trustees of the Trust as a
group owned XXXX% of the outstanding shares of each class of the
Fund.
At January 31, 1995, (insert 5% holders, if any).
At January 31, 1995, there were ________Class A, __________ Class
B and __________Class D record holders of the Fund.
Sales Charges (dollars in thousands)
Class A Shares
Period September 19, 1994
(commencement of investment operations)
through October 31, 1994
Aggregate initial sales charges on Fund
share sales $66
Initial sales charges retained by CISI 0
Class B Shares
Period September 19, 1994
(commencement of investment operations)
through October 31, 1994
Aggregate contingent deferred sales
charges (CDSC) on Fund redemptions
retained by CISI $0
Class D Shares
Period September 19, 1994
(commencement of investment operations)
through October 31, 1994
Aggregate contingent deferred sales
charges (CDSC) on Fund redemptions
retained by CISI $0
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. The Fund's Class A shares
pay CISI a 0.30% annual distribution fee and Class B and Class D
shares pay CISI a 0.75% annual distribution fee. CISI may use
the entire amount of such fees to defray the costs 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 the amount 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 Colonial) 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 Fund assets resulting in a more
advantageous expense ratio and increased investment flexibility
which could benefit 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 shares derived from reinvestment of
distributions on or amounts representing 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.
Sales-related expenses (dollars in thousands) of CISI for the
period September 19, 1994 (commencement of investment operations)
through October 31, 1994, were:
Class A Class B Class D
Shares Shares Shares
Fees to FSFs $11 $130 $3
Cost of sales material relating
to the Fund 7 12 1
Allocated travel, entertainment
and other promotional 15 27 2
INVESTMENT PERFORMANCE
The Fund's Class A, Class B and Class D yields for the month
ended October 31, 1994, were:
Class A Class B Class D
Yield Adjusted Yield Adjusted Yield Adjusted
Yield Yield Yield
3.08% 2.76% 2.48% 2.15% 2.45% 2.12%
The Fund's average annual total returns at October 31, 1994,
were:
Class A Shares
Period September 19, 1994
(commencement of investment operations)
through October 31, 1994
With sales charge of 4.75% (5.61)%
Without sales charge (0.90)%
Class B Shares
Period September 19, 1994
(commencement of investment operations)
through October 31, 1994
With CDSC of 5.00% (5.95)%
Without CDSC (1.00)%
Class D Shares
Period September 19, 1994
(commencement of investment operations)
through October 31, 1994
With CDSC of 1.00% (2.97)%
Without CDSC (1.00)%
No distributions were declared for the period ended October 31,
1994.
See Part 2 of this SAI, "Performance Measures," for how
calculations are made.
CUSTODIAN
Boston Safe Deposit and Trust Company is the Fund's custodian.
The custodian is responsible for safeguarding 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 and 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 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 and Report of Independent Accountants
appearing on pages 2 through 12 of the October 31, 1994 Annual
Report are incorporated in this SAI by reference.
INVESTMENT PORTFOLIO (IN THOUSANDS) OCTOBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COUNTRY
COMMON STOCKS - 56.0% ABBREV. SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION - 0.5%
HEAVY CONSTRUCTION-NON BUILDING CONSTRUCTION - 0.5%
Yondenko Corp. (a) Ja 9 $ 82
- ---------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 9.9%
DEPOSITORY INSTITUTIONS - 5.5
Bank New York, Inc. 4 117
Chase Manhattan Corp. 3 90
Citicorp 3 119
First Interstate Bancorp. 2 120
HSBC Holdings PLC HK 6 66
Kredietbank NV Be (b) 40
Midlantic Corp. 4 104
Peoples Bank of Bridgeport 6 78
TCF Financial Corp. 2 86
-----
820
-----
HOLDING & OTHER INVESTMENT COMPANIES - 0.5%
First Australia Fund, Inc. Au 3 25
First Phillipine Fund, Inc. Ph 2 45
-----
70
-----
INSURANCE CARRIERS - 2.3%
CIGNA Corp. 2 119
Fremont General Corp. 3 64
Life Re Corp. 3 57
Pacificare Health Systems, Inc. (a) 1 101
-----
341
-----
NONDEPOSITORY CREDIT INSTITUTIONS - 0.5%
Green Tree Financial Corp. 3 82
-----
SECURITY BROKERS & DEALERS - 1.1%
Alex Brown, Inc. 2 64
Charles Schwab Corp. 3 96
-----
160
- ---------------------------------------------------------------------------
MANUFACTURING - 30.3%
APPAREL - 0.5%
Nautica Enterprises, Inc. (a) 3 81
-----
CHEMICALS - 2.8%
BASF AG G (b) 85
E.I. DuPont De Nemours & Co. 1 54
Eli Lilly & Co. 1 62
Georgia Gulf Corp. (a) 1 39
Merck AG (a) Sz (b) 83
Norsk Hydro, ADR No 3 100
-----
423
-----
ELECTRONIC & ELECTRICAL EQUIPMENT - 5.0%
Applied Materials, Inc. (a) 1 73
Duracraft Corp. (a) 2 74
General Instrument Corp. (a) 3 104
Harman International Industries, Inc. 2 75
International Rectifier Corp. (a) 4 91
Microchip Technology (a) 2 94
Micron Technology, Inc. 2 91
Motorola, Inc. 2 100
Radiotechnique (a) Fr (b) 44
-----
746
-----
FOOD & KINDRED PRODUCTS - 3.1%
Hudson Foods, Inc. 5 103
Phillip Morris Co., Inc. 2 135
Saint Louis Bouchon Fr (b) 84
Smithfield Foods, Inc. (a) 2 69
Superfos AS De 1 67
-----
458
-----
LEATHER - 0.3%
Wolverine World Wide, Inc. 2 49
-----
MACHINERY & COMPUTER EQUIPMENT - 8.7%
AGCO Corp. 1 61
Briggs and Stratton Corp. 1 83
Brunswick Corp. 4 72
Clark Equipment Co. (a) 1 84
Compaq Computer Corp. (a) 3 100
Deere & Co. 1 65
EMC Corp. (a) 5 99
Fujitsu Ltd. Ja 4 46
Hewlett-Packard Co. 1 73
International Business Machines Corp. 2 119
Megatest (a) 4 60
NACCO Industries, Inc. 1 47
Outboard Marine Corp. 4 76
Seagate Technology, Inc. (a) 5 114
Stratus Computer, Inc. (a) 3 93
Sun Microsystems, Inc. (a) 3 102
-----
1,294
-----
MEASURING & ANALYZING INSTRUMENTS - 1.2%
Cordis Corp. (a) 1 81
Medtronic, Inc. 2 99
-----
180
-----
PAPER & PAPER MILLS - 0.4%
Shorewood Packaging Corp. 3 62
-----
PETROLEUM REFINING - 1.1%
Lyondell Petrochemical Co. 3 85
Total Petroleum (North America) Ltd. 6 80
-----
165
-----
PRIMARY METAL - 0.9%
British Steel PLC UK 29 74
National Steel Corp. (a) 3 59
-----
133
-----
</TABLE>
See notes to investment portfolio.
2
<PAGE>
<TABLE>
<CAPTION>
COUNTRY
COMMON STOCKS - CONT. ABBREV. SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Primary smelting - 0.7%
Magma Copper Co., Class B (a) 6 $ 107
------
Rubber & plastic - 0.7%
Continental AG G 1 110
------
Stone, clay, glass & concrete - 1.2%
Armstrong World Industries, Inc. 2 79
Owens-Corning Fiberglass Corp. (a) 3 97
------
176
------
Textile mill products - 0.6%
Fieldcrest Cannon, Inc. 3 84
------
Transportation equipment - 3.1%
Borg-Warner Automotive, Inc. 6 126
Chrysler Corp. 2 117
Coachmen Industries, Inc. 4 48
Fleetwood Enterprises, Inc. 3 78
Harley-Davidson, Inc. 2 67
Honda Motor Company Ltd. Ja 2 35
------
471
- ------------------------------------------------------------------------
MINING - 0.3%
Nonmetallic, except fuels - 0.3%
Potash Corp. of Saskatchewan, Inc. Ca 1 42
- ------------------------------------------------------------------------
RETAIL TRADE - 5.6%
Apparel & accessory stores - 0.5%
J. Baker, Inc. 4 68
------
Food stores - 0.6%
Safeway, Inc. (a) 3 94
------
General merchandise stores - 2.0%
Federated Department Stores, Inc. (a) 6 122
Jardine Strategic Holdings HK 22 85
Waban, Inc. (a) 5 82
------
289
------
Home furnishings & equipment - 0.7%
Circuit City Stores, Inc. 4 105
------
Miscellaneous retail - 1.8%
Blair Corp. 2 63
Office Depot, Inc. (a) 4 99
Revco D.S., Inc. (a) 5 112
------
274
- ------------------------------------------------------------------------
SERVICES - 2.8%
Business services - 1.6%
Computer Associates International, Inc. 2 99
Comverse Technology, Inc. (a) 4 52
Manpower, Inc. 3 79
------
230
------
English, accounting, research
& management - 0.3%
International-Muller NV Ne 1 47
------
Health services - 0.9%
Humana, Inc. 3 73
Rotech Medical Corp. (a) 3 65
------
138
- ------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 5.7%
Air transportation - 0.7%
Airborne Freight Corp. 3 48
Lufthansa (a) G 1 62
------
110
------
Communications - 1.3%
Southwestern Bell Corp. 2 63
Sprint Corp. 2 75
Telefonos de Mexico SA ADR Mx 1 61
------
199
------
Electric services - 1.0%
Empresa Nacional De Electric Sp 1 50
Northeast Utilities 4 99
------
149
------
Motor freight & warehousing - 0.4%
Carolina Freight Corp. (a) 5 51
------
Sanitary services - 0.5%
Yorkshire Water PLC UK 8 72
------
Transportation services - 0.9%
Air Express International Corp. 3 73
Pittston Services Group 2 63
------
136
------
Water transportation - 0.9%
American Presidents Co. 3 65
DFDS De (b) 69
------
134
- ------------------------------------------------------------------------
WHOLESALE TRADE - 0.9%
Durable goods - 0.4%
Bay Networks Inc. (a) 3 63
------
Nondurable goods - 0.5%
Dalgety PLC UK 11 74
- ------------------------------------------------------------------------
Total common stocks (cost $8,424) 8,369
- ------------------------------------------------------------------------
CURRENCY
BONDS & NOTES - 39.2% ABBREV. PAR
- ------------------------------------------------------------------------
<S> <C> <C> <C>
FOREIGN GOVERNMENT & AGENCY OBLIGATIONS - 11.6%
- ------------------------------------------------------------------------
Kingdom of Denmark,
9.000% 11/15/98 DK 3,589 616
</TABLE>
See notes to investment portfolio.
3
<PAGE>
INVESTMENT PORTFOLIO - CONTINUED
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENCY
BONDS & NOTES - CONT. ABBREV. PAR VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C>
FOREIGN GOVERNMENT & AGENCY OBLIGATIONS - CONT.
New South Wales Treasury,
12.000% 12/01/01 A$ 487 $ 387
Spanish Government Bonds,
12.250% 03/25/00 SP 15,870 131
United Kingdom Treasury,
9.500% 10/25/04 BP 355 608
- ------------------------------------------------------------------------
Total foreign government
& agency obligations (cost $1,727) 1,742
- ------------------------------------------------------------------------
U.S. government obligations - 9.8%
- ------------------------------------------------------------------------
U.S. Treasury notes,
6.750% 06/30/99 (cost $1,468) $ 1,500 1,459
- ------------------------------------------------------------------------
Corporate fixed-income bonds & notes - 17.3%
- ------------------------------------------------------------------------
Finance, insurance & real estate - 1.3%
Financial services - 0.7%
Comdata Network, Inc.,
13.250% 12/15/02 100 110
- ------------------------------------------------------------------------
Insurance carriers - 0.6%
Reliance Group Holdings,
9.000% 11/15/00 100 91
- ------------------------------------------------------------------------
Manufacturing - 8.7%
Chemicals - 1.4%
Agricultural Minerals Co.,
10.750% 09/30/03 100 102
Huntsman Corp.,
11.000% 04/15/04 100 102
---------
204
---------
Electronic & electrical equipment - 0.8%
Amphenol Corp.,
12.750% 12/15/02 100 113
---------
Lumber & wood products - 0.6%
Triangle Pacific Corp.,
10.500% 08/01/03 100 97
---------
Machinery & computer equipment - 0.7%
SPX, Inc.,
11.750% 06/01/02 100 102
---------
Miscellaneous manufacturing - 0.7%
American Standard Co.,
9.875% 06/01/01 100 98
---------
Paper products - 1.2%
Repap Wisconsin, Inc.,
9.250% 02/01/02 100 90
Stone Container Corp.,
9.875% 02/01/01 100 94
---------
184
---------
PRIMARY METAL - 0.7%
A.K. Steel Corp.,
10.750% 04/01/04 100 100
---------
Stone, clay, glass & concrete - 1.3%
Owens-Illinois, Inc.,
10.500% 06/15/02 100 100
USG Corp.,
10.250% 12/15/02 100 102
---------
202
---------
Transportation equipment - 1.3%
Exide Corp.,
10.750% 12/15/02 100 102
JPS Automotive Products Corp.,
11.125% 06/15/01 100 100
---------
202
- ------------------------------------------------------------------------
Mining - 1.3%
Oil & gas extraction - 1.3%
Ferrellgas L.P./Finance Corp.,
10.000% 08/01/01 100 99
Gulf Canada Resources Ltd.,
9.250% 01/15/04 100 92
---------
191
- ------------------------------------------------------------------------
Retail trade - 1.3%
Food stores - 0.6%
Pathmark Stores, Inc.,
9.625% 05/01/03 100 89
---------
Miscellaneous retail - 0.7%
Thrifty Payless Holdings, Inc.,
11.750% 04/15/03 100 98
- ------------------------------------------------------------------------
Services - 2.7%
Health services - 1.3%
Healthtrust, Inc.,
10.750% 05/01/02 100 108
Integrated Health Services, Inc.,
10.750% 07/15/04 100 101
---------
209
---------
Hotels, camps & lodging - 0.7%
Host Marriott Hospitality, Inc.,
11.000% 05/01/07 100 101
---------
Motion pictures - 0.7%
Plitt Theatres, Inc.,
10.875% 06/15/04 100 98
- ------------------------------------------------------------------------
Transportation, communication, electric,
gas & sanitary services - 2.0%
Communications - 1.3%
Cablevision Systems Corp.,
10.750% 04/01/04 100 100
SCI Television, Inc.,
11.000% 06/30/05 100 102
---------
202
---------
</TABLE>
See notes to investment portfolio.
<PAGE>
INVESTMENT PORTFOLIO -- CONTINUED
<TABLE>
<CAPTION>
CORPORATE FIXED-INCOME CURRENCY
BONDS & NOTES - CONT. ABBREV. PAR VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
MOTOR FREIGHT & WAREHOUSING - 0.7%
Trism, Inc.,
10.750% 12/15/00 $ 100 $ 98
- ------------------------------------------------------------------------
Total corporate fixed-income
bonds & notes (cost $2,616) 2,589
- ------------------------------------------------------------------------
CORPORATE CONVERTIBLE BONDS - 0.5%
- ------------------------------------------------------------------------
COMMUNICATIONS - 0.5%
Bell Cablemedia PLC, stepped
coupon, (11.95% 07/15/99)
07/15/04 (cost of $86) (c) BP 150 84
- ------------------------------------------------------------------------
Total bonds & notes (cost $5,897) 5,874
- ------------------------------------------------------------------------
Total investments - 95.2% (cost $14,321) (d) 14,243
- ------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 14.2%
- ------------------------------------------------------------------------
Repurchase agreement with Bankers
Trust Securities Corp., dated 10/31/94
due at 11/01/94 at 4.77%, collateralized
by U.S. Treasury notes with
various maturities to 1998, market
value $2,163 (repurchase proceeds
$2,119) 2,119 2,119
- ------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - (9.4)% (E) (1,405)
- ------------------------------------------------------------------------
NET ASSETS - 100.0% $14,957
- ------------------------------------------------------------------------
<FN>
Notes to investment portfolio:
(a) Non-income producing.
(b) Rounds to less than one.
(c) Currently zero coupon. Shown
parenthetically is the interest rate
to be paid and the date the Fund will
begin accruing this rate.
(d) Cost for federal income tax purposes
is the same.
(e) Includes unrealized depreciation of $2
on open Danish, British and Spanish
forward currency contracts.
</TABLE>
<TABLE>
SUMMARY OF SECURITIES BY COUNTRY
<CAPTION>
% of total
Currency Country securities
Country abbrev. abbrev. Value at value
- ------- -------- -------- ----- ----------
<S> <C> <C> <C> <C>
United States......... $10,869 76.3
United Kingdom........ BP UK 912 6.4
Denmark............... DK De 752 5.3
Australia............. A$ Au 412 2.9
Germany............... G 257 1.8
Spain................. SP Sp 181 1.3
Japan................. Ja 163 1.1
Hong Kong............. HK 151 1.1
France................ Fr 128 0.9
Norway................ No 100 0.7
Switzerland........... Sz 83 0.6
Mexico................ Mx 61 0.4
Netherlands........... Ne 47 0.3
Phillipines........... Ph 45 0.3
Canada................ Ca 42 0.3
Belgium............... Be 40 0.3
------- -----
$14,243 100.0
======= =====
<FN>
Certain securities are listed by country of
underlying exposure but may trade
predominantly on other exchanges.
Acronym Name
------- ----
ADR American Depository Receipt
</TABLE>
See notes to financial statements.
5
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
STATEMENT OF ASSETS & LIABILITIES
October 31, 1994
(in thousands except for per share amounts and footnote)
<S> <C> <C>
- ------------------------------------------------------------------------------
Assets
Investments at value (cost $14,321)................................ $14,243
Short-term obligations ............................................ 2,119
-------
16,362
Cash held in foreign banks
(cost $155)................................. $ 155
Receivable for:
Fund shares sold.............................. 603
Interest...................................... 174
Dividends..................................... 7
Deferred organization expenses................... 70
Other............................................ 299 1,308
------ -------
Total assets.............................................. 17,670
Liabilities
Payable for:
Investments purchased......................... 2,655
Fund shares repurchased....................... 31
Accrued other.................................... 27
------
Total liabilities......................................... 2,713
-------
Net assets at value for 1,510
shares of beneficial interest outstanding....................... $14,957
=======
Net asset value & redemption price per share -
Class A ($6,394/645)........................................... $ 9.91
=======
Maximum offering price per share - Class A
($9.91/0.9425).................................................. $ 10.51*
=======
Net asset value & offering price per share -
Class B ($6,332/640)........................................... $ 9.90
=======
Net asset value & offering price per share -
Class D ($2,231/225)........................................... $ 9.90
=======
Composition of net assets
Capital paid in................................................. $15,002
Undistributed net investment income............................. 35
Net unrealized depreciation on:
Investments.................................................. (78)
Forward currency contracts................................... (2)
-------
$14,957
=======
<FN>
* On sales of $50,000 or more the offering price is reduced.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
Period ended October 31, 1994 (a)
(in thousands)
- -------------------------------------------------------
<S> <C> <C>
Investment income
Interest........................................ $ 53
Dividends....................................... 8
----
Total investment income.................... 61
Expenses
Management fee........................... $ 9
Service fee.............................. 3
Distribution fee - Class A............... 2
Distribution fee - Class B............... 4
Distribution fee - Class D............... 2
Transfer agent........................... 4
Bookkeeping fee.......................... 3
Custodian fee............................ 1
Legal fee................................ 1
----
29
Fees waived by the adviser............... (5) 24
---- ----
Net investment income........................ 37
----
Net realized and unrealized gain (loss)
on portfolio positions
Net realized gain (loss) on:
Foreign currency transactions........... (4)
Forward currency contracts.............. 2
----
Net realized loss............................ (2)
Net unrealized depreciation
during the period on:
Investments............................. (78)
Forward currency contracts.............. (2)
----
Net unrealized depreciation.................. (80)
----
Net loss............................ (82)
----
Net decrease in net assets from
operations.................................... $(45)
=====
<FN>
(a) The Fund commenced investment operations
on September 19, 1994.
</TABLE>
See notes to financial statements.
6
<PAGE>
FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
- --------------------------------------------------------------------------------
<CAPTION>
Period ended
October 31(a)
-------------
1994
------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income............................................ $ 37
Net realized loss................................................ (2)
Net unrealized depreciation...................................... (80)
-------
Net decrease from operations.............................. (45)
-------
Fund share transactions
Receipts for shares sold - Class A............................... 6,427
Cost of shares repurchased - Class A............................. (5)
-------
6,422
-------
Receipts for shares sold - Class B............................... 6,364
Cost of shares repurchased - Class B............................. (33)
-------
6,331
-------
Receipts for shares sold - Class D............................... 2,249
-------
Net increase from Fund share transactions................. 15,002
-------
Total increase...................................... 14,957
NET ASSETS
Beginning of period..............................................
-------
End of period (including undistributed net
investment income of $35)....................................... $14,957
=======
NUMBER OF FUND SHARES
Sold - Class A................................................... 646
Repurchased - Class A............................................ (1)
-------
645
-------
Sold - Class B................................................... 643
Repurchased - Class B............................................ (3)
-------
640
-------
Sold - Class D................................................... 225
-------
Net increase in shares outstanding........................ 1,510
Outstanding at
Beginning of period..........................................
-------
End of period................................................ 1,510
=======
<FN>
(a) The Fund commenced investment operations on September 19, 1994.
</TABLE>
See notes to financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Colonial Strategic Balanced Fund the Fund), a series of Colonial
Trust III, is a Massachusetts business trust, registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end, management
investment company. The Fund may issue an unlimited number of shares. The
Fund offers three classes of shares. Class A shares are sold with a
front-end sales charge and a continuing distribution fee; Class B shares are
offered at net asset value plus a distribution fee and a declining contingent
deferred sales charge on redemptions made within six years after purchase;
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 will convert
to Class A shares when they have been outstanding approximately eight years.
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 used.
Forward currency contracts are valued based on the weighted value of
the exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued
at amortized cost.
The value of all assets and liabilities quoted in foreign currencies
are translated into U.S. dollars at that day's exchange rates.
Portfolio positions 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 or sold.
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 A, 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.
The per share data was calculated using the average shares
outstanding during the period. In addition, Class A, Class B and Class D net
investment income per share data reflect the distribution fee applicable to
each class.
Class A, 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 A, Class B and Class D shares.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES
Consistent with the Fund's policy to qualify as a regulated
investment company and to distribute all of its taxable income, no federal
income tax has been accrued.
- --------------------------------------------------------------------------------
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM
Interest income is recorded on the accrual basis. Original issue
discount is accreted to interest income over the life of a security with a
corresponding increase in the cost basis; premium and market discount are not
amortized or accreted.
- --------------------------------------------------------------------------------
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DEFERRED ORGANIZATION EXPENSES
The Fund incurred $69,500 of expenses in connection with its
organization, initial registration with the Securities and Exchange
Commission and with various states, and the initial public offering of its
shares. These expenses were deferred and are being amortized on a
straight-line basis over five years.
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-date.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
- -------------------------------------------------------------------------------
OTHER
Corporate actions are recorded on the ex-date (except for certain
foreign securities which are recorded as soon after the 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 includes in realized gain (loss), unrealized appreciation
(depreciation), and dividend and interest income the impact of changes in
foreign currency exchange rates.
The Fund may enter into forward currency contracts to purchase or
sell foreign currencies at predetermined exchange rates at future dates.
All contracts are marked-to-market daily, resulting in unrealized
gains or losses which become realized at the time the forward contracts are
closed or mature. Forward currency contracts do not eliminate fluctuations
in the prices of the Fund's portfolio securities. The maximum potential
loss from such contracts is the aggregate face value in U.S. dollars at
the time the contract was opened.
The Fund's custodian takes possession through the federal book-entry
system of securities collaterizing 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 0.70% annually of the Fund's average net
assets.
- -------------------------------------------------------------------------------
BOOKKEEPING FEE
The Adviser provides bookkeeping and pricing services for $27,000 per
year plus 0.035% of the Fund's average net assets over $50 million.
- -------------------------------------------------------------------------------
TRANSFER AGENT
Colonial Investors Service Center, Inc. (the Transfer Agent), an
affiliate of the Adviser, provides shareholder services and receives a monthly
fee equal to 0.25% annually of the Fund's average net assets, and receives a
reimbursement for certain out of pocket expenses.
- -------------------------------------------------------------------------------
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES
The Adviser, through its Colonial Investment Services (the Distributor)
division, is the Fund's principal underwriter. During the period ended October
31, 1994, the Distributor retained no underwriting discounts on sales of the
Fund's Class A shares and received no contingent deferred sales charges (CDSC)
on Class B or Class D share redemptions.
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 distribu-
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
tion fee to the Distributor equal to 0.30% for Class A and 0.75% for
Class B and Class D of the average net assets attributable to Class A, Class
B, and Class D shares, respectively.
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 fees, distribution fees, brokerage commissions, interest, taxes,
and extraordinary expenses, if any) exceed 1.10% annually of the Fund's
average net assets.
- -------------------------------------------------------------------------------
OTHER
The Fund pays no compensation to its officers, all of whom are employees
of the Adviser.
The Fund's Trustees may participate in deferred compensation plan
which may be terminated at any time. The compensation deferred earns
interest quarterly based on the 90-day U.S. Treasury bill rate. Obligations
of the plan will be paid out of the Fund's assets.
- -------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION
During the period ended October 31, 1994,
purchases and sales of investments, other than short-term obligations, were
$14,321,295 and none, respectively, of which $ 1,467,738 and none,
respectively, were U.S. government securities.
Unrealized appreciation (depreciation) at October 31, 1994, based on
cost of investments for both financial statement and federal income tax
purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation............... $ 231,891
Gross unrealized depreciation............... (309,853)
---------
Net unrealized depreciation............... $ (77,962)
---------
</TABLE>
- -------------------------------------------------------------------------------
OTHER
There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities.
These risks may involve foreign currency exchange rate fluctuations, adverse
political and economic developments and the possible prevention of currency
exchange or other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting
it to greater risk than a fund that is more diversified.
- -------------------------------------------------------------------------------
NOTE 4. OTHER RELATED PARTY TRANSACTIONS
At October 31, 1994, the Fund had one shareholder who owned greater
than 5% of the shares outstanding.
- -------------------------------------------------------------------------------
NOTE 5. CONTINGENT LIABILITY
The Adviser insures itself and all funds that it advises under a
policy with ICI Mutual Insurance Company. The annual premium is allocated
among the funds and the Adviser. Additionally, the Adviser and the funds
have committed up to 300% of the annual premium, a portion of which has been
secured with an irrevocable letter of credit.
- -------------------------------------------------------------------------------
10
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (b)
Selected data for a share of each class outstanding throughout each period are as follows:
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
PERIOD ENDED OCTOBER 31
-------------------------------------
1994 (C)
-------------------------------------
CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Net asset value - Beginning of period............................ $10.000 $10.000 $10.000
------- ------- -------
Income from investment operations:
Net investment income (a)................................... 0.035 0.029 0.029
Net realized and unrealized loss............................ (0.125) (0.129) (0.129)
------- ------- -------
Total from investment operations............................ (0.090) (0.100) (0.100)
------- ------- -------
Net asset value - End of period.................................. $ 9.910 $ 9.900 $ 9.900
======= ======= =======
Total return (d)(e).............................................. (0.90)%(f) (1.00)%(f) (1.00)%(f)
------- ------- -------
Ratios to average net assets
Expenses (a)................................................ 1.65%(g) 2.10%(g) 2.10%(g)
Fees and expenses waived or borne by the adviser............ 0.35%(g) 0.35%(g) 0.35%(g)
Net investment income....................................... 3.01%(g) 2.56%(g) 2.56%(g)
Portfolio turnover............................................... 0%(g) 0%(g) 0%(g)
Net assets at end of period (000)................................ $ 6,394 $ 6,332 $ 2,231
<FN>
(a) Net of fees and expenses waived or borne by the adviser which
amounted to................................................. $ 0.004 $ 0.004 $ 0.004
(b) Per share data was calculated using average shares outstanding
during the period.
(c) The Fund commenced investment operations on September 19, 1994.
(d) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or CDSC.
(e) Had the adviser not waived or reimbursed a portion of expenses,
total return would have been reduced.
(f) Not annualized.
(g) Annualized.
</TABLE>
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF COLONIAL TRUST III AND THE SHAREHOLDERS OF COLONIAL
STRATEGIC BALANCED FUND
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of Colonial Strategic Balanced
Fund (a series of Colonial Trust III) at October 31, 1994, the results of its
operations, the changes in its net assets and the financial highlights for the
period September 19, 1994 (commencement of operations) through October 31,
1994, 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 audit. We conducted our audit 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 audit, which included confirmation of
portfolio positions at October 31, 1994 by correspondence with the custodian
and brokers, and the application of alternative auditing procedures where
broker confirmations were not received, provides a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 9, 1994
12
Part B of Post-Effective Amendment No. 90 filed with the Commission on
December 21, 1994 (Colonial Global Utilities Fund), is incorporated herein
in its entirety by reference.
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 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 Global Utilities Fund
incorporated by reference to Part A of Post-Effective Amendment
No. 90 filed with the Commission on December 21, 1994)
Summary of expenses (The Colonial Fund, Colonial Global Natural
Resources Fund, Colonial Federal Securities Fund, Colonial
Global Equity Fund, Colonial International Fund for Growth and
Colonial Strategic Balanced Fund).
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 (for Colonial Global Utilities
Fund- Not applicable).
The Fund's financial history (The Colonial Fund, Colonial
Global Natural Resources Fund, Colonial Federal Securities
Fund, Colonial Global Equity Fund, Colonial International Fund
for Growth and Colonial Strategic Balanced Fund)
Included in Part B
Colonial Global Utilities Fund (CGUF) - Not applicable
Colonial International Fund for Growth (CIFfG)
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 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)
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 Federal Securities Fund (CFSF)
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)
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)
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)
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 between CGSF
and Colonial Management Associates, Inc. (6)
5(b) Form of proposed Management Agreement (CFSF,
TCF, CNRF, CGEF and CSBF) (4)
5(c) Management Agreement between CIFFG and
Colonial Management Associates, Inc. (9)
5(d) Sub-Advisory Agreement Among Gartmore
Capital Management Ltd., Colonial Management
Associates, Inc. and Colonial Trust III (CIFFG). (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, CIFFG, CSBF and CGNRF)
11(b) Consent of Independent Accountants (CGSF)(12)
11(c) Not Applicable (CGUF)
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)
16(d) Calculation of Yield (CFSF)
16(e) Calculation of Performance Information (TCF)
16(f) Calculation of Yield (TCF)
16(g) Calculation of Performance Information (CGEF)
16(h) Calculation of Yield (CGEF)
16(i) Calculation of Performance Information (CGNRF)
16(j) Calculation of Yield (CGNRF)
16(k) Calculation of Performance Information (CSBF)
16(l) Calculation of Yield (CSBF)
16(m) Calculation of Performance Information (CIFFG)
16(n) Calculation of Yield (CIFFG)
16(o) Not Applicable (CGUF)
16(p) Not Applicable (CGUF)
17(a) Financial Data Schedule (Class A)(CFSF)
17(b) Financial Data Schedule (Class B)(CFSF)
17(c) Not applicable (Class D)(CFSF)
17(d) Financial Data Schedule (Class A)(TCF)
17(e) Financial Data Schedule (Class B)(TCF)
17(f) Not applicable (Class D)(TCF)
17(g) Financial Data Schedule (Class A)(CGEF)
17(h) Financial Data Schedule (Class B)(CGEF)
17(i) Financial Data Schedule (Class A)(CGNRF)
17(j) Financial Data Schedule (Class B)(CGNRF)
17(k) Financial Data Schedule (Class A)(CSBF)
17(l) Financial Data Schedule (Class B)(CSBF)
17(m) Financial Data Schedule (Class D)(CSBF)
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) Not Applicable (Class A)(CGUF)
17(t) Not Applicable (Class B)(CGUF)
17(u) Not Applicable (Class D)(CGUF)
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)
(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.
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 January 31, 1995
-------------- ------------------------
Shares of Beneficial 13,348 - Class A record
Interest holders
5,424 - Class B record
holders
(CGSF)
Shares of Beneficial 64,243 - Class A record
Interest holders
2,821 - Class B record
holders
(CFSF)
Shares of Beneficial 37,868 - Class A record
Interest holders
24,893 - Class B record
holders
0 - Class D record
holders
(TCF)
Shares of Beneficial 6,306 - Class A record
Interest holders
2,381 - Class B record
holders
(CGNRF)
Shares of Beneficial 1,327 - Class A record
Interest holders
5,598 - Class B record
holders
(CGEF)
Shares of Beneficial 445 - Class A record holders
Interest 911 - Class B record holders
86 - Class D record holders
(CSBF)
Shares of Beneficial 6,993 - Class A record
Interest holders
10,340 - Class B record
holders
58 - Class D record
holders
(CIFfG)
Shares of Beneficial 0 - Class A record
Interest holders
0 - Class B record
holders
0 - Class D record
holders
(CGUF)
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):
Registrant's investment adviser, Colonial Management Associates, Inc., is
registered as an investment adviser under the Investment Advisers Act of 1940.
Colonial Management Associates, Inc. and its affiliate, Colonial Advisory
Services, Inc., as of the end of its fiscal year December 31, 1994, had one
institutional, corporate or other accounts under management or supervision, the
market value of which was approximately $265.3 million, and 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 $13,327.8 million. Colonial Investment Services, a division of
Colonial Management Associates, Inc., is a 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 Period is through
of officers and with 12/31/94. Other business,
directors of investment profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ------------- -------------------------- -----------
Archer, Joseph A. V.P.
Augustine, Jeffrey V.P.
B.
Berliant, Allan V.P.
Bertelson, Lisa V.P.
Bissonette, V.P.
Michael
Boatman, Bonny E. Dir.;
Sr.V.P.;
Invest.
Plcy.
Cmte.
Mbr.
Carnabucci, V.P.
Dominick
Carroll, Sheila A. Sr.V.P.;
Dir.
Citrone, Frank V.P.
Cogger, Harold W. Dir.; The Colonial Group, Inc. Dir.
Pres.; Colonial Trusts I through VI V.P.
Exe. Man. Colonial High Income Municipal V.P.
Cmte. Trust V.P.
Mbr.; Colonial InterMarket Income Trust V.P.
Invest. I
Plcy. Colonial Intermediate High Income V.P.
Cmte. Fund V.P.
Mbr.; Colonial Investment Grade
Exe. Municipal
Cmte. Trust
Colonial Municipal Income Trust
Collins, Anne V.P.
Conlin, Nancy V.P.; Colonial Investors Service Center, Asst. Clerk
Asst. Inc. Asst. Clerk
Sec.; The Colonial Group, Inc. Asst. Clerk
Asst. Colonial Advisory Services, Inc.
Clerk and
Counsel
Cordes, Susan V.P.
Daniszewski, V.P.;
Joseph J. Asst.
Treasurer
DiSilva, Linda V.P.
Emilson, C. Dir.; Colonial Investors Service Center, Dir.; Ex.
Herbert Vice Inc. V.P.
Chm.; The Colonial Group, Inc. Dir.; Pres.
Exe. Colonial Advisory Services, Inc. Dir.
Cmte. Colonial Clearing Corporation Dir.
Mbr.;
Exe. Man.
Cmte.
Mbr.;
Exe.
Cmte.
Ericson, Carl C. V.P. Colonial Intermediate High Income V.P.
Fund
Evans, C. Frazier Dir.;
Sr.V.P.
Feingold, Andrea V.P. Colonial Intermediate High Income V.P.
Fund
Finnemore, Leslie V.P.
W.
Gerokoulis, V.P.
Stephen A.
Hartford, Brian V.P.
Haynie, James P. V.P. Colonial Advisory Services, Inc. V.P.
Hernandez, Manuel Sr.V.P.; Colonial Investors Service Center, Dir.; Pres.
R. Dir. Inc.
Koonce, Michael H. V.P.; Colonial Trusts I through VI Asst. Sec.
Asst. Colonial High Income Municipal Asst. Sec.
Sec.; Trust Asst. Sec.
Asst. Colonial InterMarket Income Trust Asst. Sec.
Clerk & I
Counsel Colonial Intermediate High Income Asst. Sec.
Fund Asst. Sec.
Colonial Investment Grade Asst. Clerk
Municipal Asst. Clerk
Trust Asst. Clerk
Colonial Municipal Income Trust Asst. Clerk
Colonial Clearing Corporation
Colonial Investors Service Center,
Inc.
The Colonial Group, Inc.
Colonial Advisory Services, Inc.
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 Municipal Controller
Treasurer Trust Controller
Colonial InterMarket Income Trust Controller
I
Colonial Intermediate High Income Controller
Fund Controller
Colonial Investment Grade
Municipal
Trust
Colonial Municipal Income Trust
MacKinnon, Donald Dir.;
S. Sr.V.P.
McCue, Gerard A. V.P. Colonial Advisory Services, Inc. V.P.
McGregor, Jeffrey Dir.; Colonial Clearing Corporation Pres.
L. Sr.V.P.
McNeice, Jr., John Chrmn. & Boston College Trustee
A. CEO; Boston College High School Trustee
Dir.; Carney Hospital Foundation Mbr. of the
Exe. Carney Fund
Cmte. Colonial Advisory Services, Inc. Dir.; Chm.;
Chm.; CEO & Pres.
Exe. Man. Colonial High Income Municipal Trustee;
Cmte. Trust Pres.
Mbr. Colonial InterMarket Income Trust Trustee;
I Pres.
Colonial Intermediate High Income Trustee;
Fund Pres.
Colonial Investment Grade
Municipal Trustee;
Trust Pres.
Colonial Municipal Income Trust Trustee;
The Colonial Group, Inc. Pres.
Colonial Trusts I through VI Trustee;
Colonial Investors Service Center, Pres.
Inc. Trustee;
Nativity Preparatory School Pres.
Trustee;
Northeastern University Pres.
Wentworth Institute of Technology Chm., Bd. of
Colonial Clearing Corporation Trustees
Corp. Bd
Board of Visitors - Peter Drucker Mbr.
Graduate Center Corp. Bd.
St. John's Seminary Mbr.
Third Century Foundation Dir.; Chm.
Peter F. Drucker Foundation of the Bd.
United Way of Mass Bay
American Ireland Fund Board Member
Catholic Charities - Board Member
Archdiocese of Boston Trustee;
Pres.
Dir.
Board Member
Board Member
Board Member
O'Neill, Charles Sr.V.P.;
A. Dir.
Palmer, Elizabeth V.P.
Peters, Helen F. Dir.;
Sr.V.P.;
Invest.
Plcy.
Cmte.
Mbr.
Rie, Daniel Sr.V.P.; Colonial Advisory Services, Inc. Sr. V.P.
Invest.
Plcy.
Cmte.
Mbr.;
Dir.
Salloway, Jane M. Cntrllr. The Colonial Group, Inc. Cntrllr. &
and Chief Chief Acct.
Acct. Offr.; Asst.
Offr.; Treasurer
V.P.
Scoon, Davey S. Dir.; Colonial Advisory Services, Inc. Treasurer
Exe.V.P.; Colonial High Income Municipal V.P.
Exe. Man. Trust V.P.
Cmte. Colonial InterMarket Income Trust V.P.
Mbr. I
Colonial Intermediate High Income V.P.
Fund V.P.
Colonial Investment Grade V.P.
Municipal Treasurer
Trust V.P.-Fin. &
Colonial Municipal Income Trust Admn.
Colonial Trusts I through VI
Colonial Investors Service Center,
Inc.
The Colonial Group, Inc.
Shore, Janet V.P. and Colonial High Income Municipal Asst. Sec.
Complianc Trust Asst. Sec.
e Offr.; Colonial InterMarket Income Trust Asst. Sec.
Invest. I
Plcy. Colonial Intermediate High Income Asst. Sec.
Cmte. Fund Asst. Sec.
Mbr. Colonial Investment Grade Asst. Sec.
Municipal Asst. Clerk
Trust
Colonial Municipal Income Trust
Colonial Trusts I through VI
Colonial Clearing Corporation
Silver, Richard A. Dir.; Colonial Advisory Services, Inc. Controller
Sr.V.P.; Colonial High Income Municipal Treasurer &
Treasurer Trust CFO
& CFO Colonial InterMarket Income Trust Treasurer &
I CFO
Colonial Intermediate High Income Treasurer &
Fund CFO
Colonial Investment Grade
Municipal Treasurer &
Trust CFO
Colonial Municipal Income Trust Treasurer &
Colonial Trusts I through VI CFO
Colonial Investors Service Center, Treasurer &
Inc. CFO
The Colonial Group, Inc. Asst.
Treasurer
Treasurer &
CFO
Stern, Arthur O. Exe.V.P.; Colonial Advisory Services, Inc. Clerk
Dir.; Colonial High Income Municipal Secretary
Sec.; Trust Secretary
Clrk.& Colonial InterMarket Income Trust Secretary
Gnrl. I Secretary
Counsel; Colonial Intermediate High Income
Exe. Man. Fund Secretary
Cmt. Colonial Investment Grade Secretary
Mbr.; Municipal Clerk
Invest. Trust Clerk; V.P.-
Plcy. Colonial Municipal Income Trust Lgl.
Cmte. Colonial Trusts I through VI Dir.; V.P.;
Mbr. Colonial Investors Service Center, Clrk.
Inc.
The Colonial Group, Inc.
Colonial Clearing Corporation
Yacovoni, V.P.
Priscilla
- ---------------------------------------------------
* The Principal address of all of the officers and
directors of the investment adviser is One Financial
Center, Boston, MA 02111.
Item 28.
Registrant's investment sub-adviser for CIFFG, Gartmore Capital Management
Ltd.,is registered as an investment adviser under the Investment Advisers Act
of 1940. The following sets forth the business and other connections of each
director and officer of Gartmore Capital Management Ltd:
Name and principal Other business
business addresses Affiliation profession,
of with vocation or employment
officers of investment connection and principal Affiliation
investment sub-adviser business address
sub-adviser
- ------------------ -------------- ------------------------ ------------
(1) (2) (3) (4)
- ------------------ -------------- ------------------------ ------------
Davies, Simon H. Director and Gartmore Pension Fund Fund Manager
c/o Gartmore Head of Managers Ltd.* and Director
Capital Global/
Management, Ltd. International
Gartmore House Funds Gartmore Investment Director
16-18 Monument Management plc*
Street
London, England
EC3RQQ
Fleming, Andrew Director
c/o Gartmore and Head of
Capital Pacific
Management, Ltd. Equities
Gartmore House
16-18 Monument
Street
London, England
EC3RQQ
Henderson, Director and
Nicholas Head of Fixed
c/o Gartmore Income
Capital
Management, Ltd.
Gartmore House
16-18 Monument
Street
London, England
EC3RQQ
Khayat, Antoine Director and
c/o Gartmore Marketing
Capital Director
Management, Ltd.
Gartmore House
16-18 Monument
Street
London, England
EC3RQQ
Lowe, Stephen Director and
c/o Gartmore Head of North
Capital American
Management, Ltd. Equities
Gartmore House
16-18 Monument
Street
London, England
EC3RQQ
Marsden, Helen Director and
c/o Gartmore Client
Capital Relationship
Management, Ltd. Manager
Gartmore House
16-18 Monument
Street
London, England
EC3RQQ
Tennant, Sally Director and
c/o Gartmore Head of
Capital Continental
Management, Ltd. European
Gartmore House Equities
16-18 Monument
Street
London, England
EC3RQQ
Watt, Richard Director and
c/o Gartmore Head of
Capital Emerging
Management, Ltd. Markets
Gartmore House
16-18 Monument
Street
London, England
EC3RQQ
Whelpton, Peter Director and
c/o Gartmore Head of
Capital Japanese
Management, Ltd. Equities
Gartmore House
16-18 Monument
Street
London, England
EC3RQQ
Myners, Paul Director Gartmore Investment Chairman &
c/o Gartmore Management plc* Chief
Capital Executive
Management, Ltd. Officer
Gartmore House
16-18 Monument Gartmore Holding plc* Director
Street
London, England
EC3RQQ Gartmore plc* Chairman
Watts, David Director and
c/o Gartmore Chief
Capital Investment
Management, Ltd. Officer
Gartmore House
16-18 Monument
Street
London, England
EC3RQQ
Willoughby, Jeremy Director Gartmore plc* Company
c/o Gartmore Secretary
Capital
Management, Ltd.
Gartmore House
16-18 Monument
Street
London, England
EC3RQQ
*(address same as column 1)
Item 29 Principal Underwriter
- ------- ---------------------
(a) Colonial Investment Services, a division 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, Colonial International Equity Index
Trust:
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 Positions and
Name and Principal Offices with Offices
Business Address Principal Underwriter with Registrant
- ------------------ --------------------- ---------------
Archer, Joseph A. V.P. None
Augustine, Jeffrey B. V.P. None
Berliant, Allan V.P. None
Lisa Bertelson V.P. None
Bissonette, V.P. None
Michael
Boatman, Bonny E. Dir.; Sr. V.P.; None
Invest. Plcy. Cmte.
Mbr.
Carnabucci, V.P. None
Dominick
Carroll, Sheila A. Sr. V.P.; Dir. None
Citrone, Frank V.P. None
Cogger, Harold W. Dir.; Pres.; Ex. Man. V.P.
Cmte. Mbr.; Invest.
Plcy Cmte. Mbr.; Ex.
Cmte.
Collins, Anne V.P. None
Conlin, Nancy V.P. None
Cordes, Susan V.P. None
Daniszewski, V.P. None
Joseph J.
DiSilva, Linda V.P. None
Emilson, C. Vice Chairman; None
Herbert Director; Exe. Cmte.
Mbr.; Exe. Man. Cmte.
Mbr.
Ericson, Carl C. V.P. None
Evans, C. Frazier Dir.; Sr. V.P. None
Feingold, Andrea V.P. None
Finnemore, Leslie W. V.P. None
Gerokoulis, V.P. None
Stephen A.
Hartford, Brian V.P. None
Haynie, James P. V.P. None
Hernandez, Manuel Sr. V.P.; Dir. None
R.
Koonce, Michael H. V.P.; A. Sec.; Asst. Asst. Secretary
Clerk & Counsel
Lennon, John E. V.P. None
Lenzi, Sharon V.P. None
Lilienfeld, V.P. None
Jonathan
Loring, William C. V.P. None
Lydecker, Peter L. V.P.; Asst. Treasurer Controller
MacKinnon, Donald Dir.; Sr. V.P. None
S.
McCue, Gerald A V.P. None
McGregor, Jeffrey Dir.; Sr. V.P. None
L.
McNeice, Jr., John A. Chairman & CEO; Dir.; President;
Exe. Cmte. Chm.; Exe. Trustee
Man. Cmte. Mbr.
O'Neill, Charles A. Sr. V.P.; Dir. None
Palmer, Elizabeth V.P. None
Peters, Helen F. Dir.; Sr. V.P.; None
Invest. Plcy. Cmte.
Mbr.
Rie, Daniel Sr. V.P.; Dir.; None
Invest. Plcy. Cmte.
Mbr.
Salloway, Jane M. Controller and Chief None
Acct. Officer; V.P.
Scoon, Davey S. Dir.; Ex. V.P.; Exe. V.P.
Man. Cmte. Mbr.
Shore, Janet V.P.; Asst. Secretary
Inv.Plcy.Cmte.Mbr.
Silver, Richard A. Dir.; Sr. V.P.; Treasurer; CFO
Treasurer & CFO
Stern, Arthur O. Ex. V.P.; Dir.; Sec.; Secretary
Clerk & General
Counsel; Exe. Man.
Cmte. Mbr.; Invest.
Plcy. Cmte. Mbr.
Yacovoni, V.P. None
Priscilla
________________________________
The principal address of all of the officers and directors
of the principal underwriter 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
Item 32. Undertakings
(a) The Registrant hereby undertakes to file a post-
effective amendment using reasonably current financial
statements which need not be certified, within four to six
months from the effective date of Registrant's Registration
Statement under the Securities Act of 1933 (CSBF).
(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.
Part C of Post-Effective Amendment No. 90 filed with the Commission on
December 21, 1994 (Colonial Global Utilities Fund), is incorporated herein
in its entirety by reference.
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.
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
the requirements for effectiveness of the Registration Statement pursuant
to Rule 485(b) and has duly caused this Post-Effective Amendment No. 92 to
its Registration Statement under the Securities Act of 1933 and Amendment
No. 33 under the Investment Company Act of 1940, to be signed in this City
of Boston, and The Commonwealth of Massachusetts on this 6th day of
February, 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 February 6, 1995
- -------------------- executive officer)
John A. McNeice, Jr. and Trustee
Richard A. Silver Treasurer (principal February 6, 1995
- -------------------- financial officer)
Richard A. Silver
Peter L. Lydecker Controller (principal February 6, 1995
- -------------------- accounting officer)
Peter L. Lydecker
- --------------------------- Trustee
Tom Bleasdale
- --------------------------- Trustee
Lora S. Collins
- --------------------------- Trustee
William D. Ireland, Jr.
- --------------------------- Trustee
William E. Mayer
- --------------------------- Trustee Michael H. Koonce
James L. Moody, Jr. ------------------
Michael H. Koonce
Attorney-in-fact
For each Trustee
- --------------------------- Trustee February 6, 1995
John J. Neuhauser
- --------------------------- Trustee
George L. Shinn
- --------------------------- Trustee
Robert L. Sullivan
- --------------------------- Trustee
Sinclair Weeks, Jr.
EXHIBIT INDEX
Exhibit
11(a) Consent of Independent Accountants
(TCF,CFSF, CGEF, CIFFG, CSBF and CGNRF)
16(c) Calculation of Performance Information (CFSF)
16(d) Calculation of Yield (CFSF)
16(e) Calculation of Performance Information (TCF)
16(f) Calculation of Yield (TCF)
16(g) Calculation of Performance Information (CGEF)
16(h) Calculation of Yield (CGEF)
16(i) Calculation of Performance Information (CGNRF)
16(j) Calculation of Yield (CGNRF)
16(k) Calculation of Performance Information (CSBF)
16(l) Calculation of Yield (CSBF)
16(m) Calculation of Performance Information (CIFFG)
16(n) Calculation of Yield (CIFFG)
17(a) Financial Data Schedule (Class A)(CFSF)
17(b) Financial Data Schedule (Class B)(CFSF)
17(d) Financial Data Schedule (Class A)(TCF)
17(e) Financial Data Schedule (Class B)(TCF)
17(g) Financial Data Schedule (Class A)(CGEF)
17(h) Financial Data Schedule (Class B)(CGEF)
17(i) Financial Data Schedule (Class A)(CGNRF)
17(j) Financial Data Schedule (Class B)(CGNRF)
17(k) Financial Data Schedule (Class A)(CSBF)
17(l) Financial Data Schedule (Class B)(CSBF)
17(m) Financial Data Schedule (Class D)(CSBF)
17(n) Financial Data Schedule (Class A)(CIFFG)
17(o) Financial Data Schedule (Class B)(CIFFG)
17(p) Financial Data Schedule (Class D)(CIFFG)
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 FEDERAL SECURITIES FUND YEAR END 10/31/94 AND IS
QUALIFIED IN ITS ENTIRELTY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL FEDERAL SECURITIES FUND YEAR END 10/31/94.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 4
<NAME> COLONIAL FEDERAL SECURITIES FUND, CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 1748828
<INVESTMENTS-AT-VALUE> 1683426
<RECEIVABLES> 205531
<ASSETS-OTHER> 1581
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2063839
<PAYABLE-FOR-SECURITIES> 701796
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14314
<TOTAL-LIABILITIES> 716110
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1593073
<SHARES-COMMON-STOCK> 128483
<SHARES-COMMON-PRIOR> 151375
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 8191
<ACCUMULATED-NET-GAINS> (256289)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 58384
<NET-ASSETS> 1347729
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 138920
<OTHER-INCOME> 0
<EXPENSES-NET> 18587
<NET-INVESTMENT-INCOME> 120333
<REALIZED-GAINS-CURRENT> (44423)
<APPREC-INCREASE-CURRENT> (186929)
<NET-CHANGE-FROM-OPS> (111019)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 107338
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 59031
<NUMBER-OF-SHARES-REDEEMED> 352589
<SHARES-REINVESTED> 48833
<NET-CHANGE-IN-ASSETS> (455853)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (217586)
<OVERDISTRIB-NII-PRIOR> (10818)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9805
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18587
<AVERAGE-NET-ASSETS> 1550293
<PER-SHARE-NAV-BEGIN> 11.46
<PER-SHARE-NII> 0.821
<PER-SHARE-GAIN-APPREC> (1.560)
<PER-SHARE-DIVIDEND> 0.771
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.95
<EXPENSE-RATIO> 1.16
<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 FEDERAL SECURITIES FUND YEAR END 10/31/94 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
FEDERAL SECURITIES FUND YEAR END 10/31/94.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 4
<NAME> COLONIAL FEDERAL SECURITIES FUND, CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 1748828
<INVESTMENTS-AT-VALUE> 1683426
<RECEIVABLES> 205531
<ASSETS-OTHER> 1581
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2063839
<PAYABLE-FOR-SECURITIES> 701796
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14314
<TOTAL-LIABILITIES> 716110
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 75573
<SHARES-COMMON-STOCK> 7007
<SHARES-COMMON-PRIOR> 5943
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (8191)
<ACCUMULATED-NET-GAINS> (256829)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (58384)
<NET-ASSETS> 1347729
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 138920
<OTHER-INCOME> 0
<EXPENSES-NET> 18587
<NET-INVESTMENT-INCOME> 120333
<REALIZED-GAINS-CURRENT> (44423)
<APPREC-INCREASE-CURRENT> (186929)
<NET-CHANGE-FROM-OPS> (111019)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4701
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28089
<NUMBER-OF-SHARES-REDEEMED> 18610
<SHARES-REINVESTED> 2451
<NET-CHANGE-IN-ASSETS> (455853)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (217586)
<OVERDISTRIB-NII-PRIOR> (10818)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9805
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18587
<AVERAGE-NET-ASSETS> 72350
<PER-SHARE-NAV-BEGIN> 11.46
<PER-SHARE-NII> 0.741
<PER-SHARE-GAIN-APPREC> (1.560)
<PER-SHARE-DIVIDEND> 0.691
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.95
<EXPENSE-RATIO> 1.91
<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 THE COLONIAL FUND YEAR END 10/31/94 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF THE COLONIAL FUND YEAR END
10/31/94.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 5
<NAME> THE COLONIAL FUND, CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 683742
<INVESTMENTS-AT-VALUE> 764965
<RECEIVABLES> 10254
<ASSETS-OTHER> 72
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 820846
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1449
<TOTAL-LIABILITIES> 1449
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 421899
<SHARES-COMMON-STOCK> 68935
<SHARES-COMMON-PRIOR> 61933
<ACCUMULATED-NII-CURRENT> 1133
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 51187
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 81223
<NET-ASSETS> 819397
<DIVIDEND-INCOME> 17601
<INTEREST-INCOME> 6354
<OTHER-INCOME> 0
<EXPENSES-NET> 10050
<NET-INVESTMENT-INCOME> 13905
<REALIZED-GAINS-CURRENT> 50974
<APPREC-INCREASE-CURRENT> (61930)
<NET-CHANGE-FROM-OPS> 2949
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10658
<DISTRIBUTIONS-OF-GAINS> 15320
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 96683
<NUMBER-OF-SHARES-REDEEMED> 62378
<SHARES-REINVESTED> 22779
<NET-CHANGE-IN-ASSETS> 174530
<ACCUMULATED-NII-PRIOR> 423
<ACCUMULATED-GAINS-PRIOR> 19694
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4102
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10050
<AVERAGE-NET-ASSETS> 746182
<PER-SHARE-NAV-BEGIN> 8.41
<PER-SHARE-NII> 0.171
<PER-SHARE-GAIN-APPREC> (0.116)
<PER-SHARE-DIVIDEND> 0.160
<PER-SHARE-DISTRIBUTIONS> 0.245
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.06
<EXPENSE-RATIO> 1.14
<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 THE COLONIAL FUND YEAR END 10/31/94 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF THE COLONIAL FUND YEAR END
10/31/94.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 5
<NAME> THE COLONIAL FUND, CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 683742
<INVESTMENTS-AT-VALUE> 764965
<RECEIVABLES> 10254
<ASSETS-OTHER> 72
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 820846
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1449
<TOTAL-LIABILITIES> 1449
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 264088
<SHARES-COMMON-STOCK> 32823
<SHARES-COMMON-PRIOR> 14777
<ACCUMULATED-NII-CURRENT> 1133
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 51187
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 81223
<NET-ASSETS> 879397
<DIVIDEND-INCOME> 17601
<INTEREST-INCOME> 6354
<OTHER-INCOME> 0
<EXPENSES-NET> 10050
<NET-INVESTMENT-INCOME> 13905
<REALIZED-GAINS-CURRENT> 50974
<APPREC-INCREASE-CURRENT> (61930)
<NET-CHANGE-FROM-OPS> 2949
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2687
<DISTRIBUTIONS-OF-GAINS> 4145
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 169110
<NUMBER-OF-SHARES-REDEEMED> 28224
<SHARES-REINVESTED> 6421
<NET-CHANGE-IN-ASSETS> 174530
<ACCUMULATED-NII-PRIOR> 423
<ACCUMULATED-GAINS-PRIOR> 19694
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4102
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10050
<AVERAGE-NET-ASSETS> 203977
<PER-SHARE-NAV-BEGIN> 8.40
<PER-SHARE-NII> 0.109
<PER-SHARE-GAIN-APPREC> (0.111)
<PER-SHARE-DIVIDEND> 0.103
<PER-SHARE-DISTRIBUTIONS> 0.245
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.05
<EXPENSE-RATIO> 1.89
<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 GLOBAL EQUITY FUND YEAR END 10/31/94 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL GLOBAL EQUITY
FUND YEAR END 10/31/94.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 3
<NAME> COLONIAL GLOBAL EQUITY FUND, CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 61281
<INVESTMENTS-AT-VALUE> 67807
<RECEIVABLES> 6474
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 318
<TOTAL-ASSETS> 77862
<PAYABLE-FOR-SECURITIES> 4048
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 150
<TOTAL-LIABILITIES> 4198
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10081
<SHARES-COMMON-STOCK> 829
<SHARES-COMMON-PRIOR> 150
<ACCUMULATED-NII-CURRENT> 96
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5472
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6550
<NET-ASSETS> 73664
<DIVIDEND-INCOME> 1436
<INTEREST-INCOME> 196
<OTHER-INCOME> 0
<EXPENSES-NET> 1193
<NET-INVESTMENT-INCOME> 439
<REALIZED-GAINS-CURRENT> 5468
<APPREC-INCREASE-CURRENT> (1535)
<NET-CHANGE-FROM-OPS> 4372
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 80
<DISTRIBUTIONS-OF-GAINS> 11
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11660
<NUMBER-OF-SHARES-REDEEMED> 3294
<SHARES-REINVESTED> 79
<NET-CHANGE-IN-ASSETS> 31058
<ACCUMULATED-NII-PRIOR> 138
<ACCUMULATED-GAINS-PRIOR> 174
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 465
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1417
<AVERAGE-NET-ASSETS> 61993
<PER-SHARE-NAV-BEGIN> 11.76
<PER-SHARE-NII> 0.170
<PER-SHARE-GAIN-APPREC> 0.969
<PER-SHARE-DIVIDEND> 0.166
<PER-SHARE-DISTRIBUTIONS> 0.043
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.69
<EXPENSE-RATIO> 1.25
<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 GLOBAL EQUITY FUND YEAR END 10/31/94 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONAI GLOBAL EQUITY
FUND YEAR END 10/31/94.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 3
<NAME> COLONIAL GLOBAL EQUITY FUND, CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 61281
<INVESTMENTS-AT-VALUE> 67807
<RECEIVABLES> 6474
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 318
<TOTAL-ASSETS> 77862
<PAYABLE-FOR-SECURITIES> 4048
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 150
<TOTAL-LIABILITIES> 4198
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51429
<SHARES-COMMON-STOCK> 4998
<SHARES-COMMON-PRIOR> 3485
<ACCUMULATED-NII-CURRENT> 96
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5472
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6550
<NET-ASSETS> 73664
<DIVIDEND-INCOME> 1436
<INTEREST-INCOME> 196
<OTHER-INCOME> 0
<EXPENSES-NET> 1193
<NET-INVESTMENT-INCOME> 439
<REALIZED-GAINS-CURRENT> 5468
<APPREC-INCREASE-CURRENT> (1535)
<NET-CHANGE-FROM-OPS> 4372
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 361
<DISTRIBUTIONS-OF-GAINS> 163
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 32682
<NUMBER-OF-SHARES-REDEEMED> 14311
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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 NATURAL RESOURCES FUND YEAR END 10/31/94 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL NATURAL
RESOURCES FUND YEAR END 10/31/94.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
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<NUMBER> 2
<NAME> COLONIAL NATURAL RESOURCES FUND, CLASS A
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<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL NATURAL RESOURCES FUND YEAR END 10/31/94 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL NATURAL
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<CIK> 0000021847
<NAME> COLONIAL TRUST III
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<NUMBER> 2
<NAME> COLONIAL NATURAL RESOURCES FUND, CLASS B
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</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 STRATEGIC BALANCED FUND YEAR END 10/31/94 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL STRATEGIC
BALANCED FUND YEAR END 10/31/94.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 6
<NAME> COLONIAL STRATEGIC BALANCED FUND, CLASS A
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<S> <C>
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</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 THE
FINANCIAL STATEMENTS OF COLONIAL STRATEGIC BALANCED FUND YEAR END 10/31/94 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
STRATEGIC BALANCED FUND YEAR END 10/31/94.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 6
<NAME> COLONIAL STRATEGIC BALANCED FUND, CLASS B
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL STRATEGIC BALANCED FUND YEAR END 10/31/94 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
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</LEGEND>
<CIK> 0000021847
<NAME> COLONAIL TRUST III
<SERIES>
<NUMBER> 6
<NAME> COLONIAL STRATEGIC BALANCED FUND, CLASS D
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<S> <C>
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</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 YEAR END 10/31/94 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
INTERNATIONAL FUND FOR GROWTH YEAR END 10/31/94.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 7
<NAME> COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS A
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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 GORWTH YEAR END 10/31/94 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
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</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 7
<NAME> COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS B
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<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL INTERNATIONAL FUND FOR GROWTH YEAR END 10/31/94 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
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<CIK> 0000021847
<NAME> COLONIAL TRUST III
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<NUMBER-OF-SHARES-SOLD> 55
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 166271
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 988
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2378
<AVERAGE-NET-ASSETS> 389
<PER-SHARE-NAV-BEGIN> 10.06
<PER-SHARE-NII> (0.037)
<PER-SHARE-GAIN-APPREC> 0.327
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.35
<EXPENSE-RATIO> 2.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statements of Additional Information constituting parts of this Post-Effective
Amendment No. 92 to the registration statement on Form N-1A (the
"Registration Statement") of our reports dated December 9, 1994, relating to
the financial statements and financial highlights appearing in the October 31,
1994 Annual Reports to Shareholders of Colonial Global Equity Fund, Colonial
Strategic Balanced Fund, Colonial International Fund for Growth, The Colonial
Fund, Colonial Federal Securities Fund and Colonial Global Natural Resources
Fund, each 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 headings "The Fund's Financial History" in the Prospectuses and
"Independent Accountants" in the Statements of Additional Information.
Price Waterhouse LLP
Boston, Massachusetts
February 10, 1995
<TABLE>
PERFORMANCE CALCULATION
COLONIAL FEDERAL SECURITIES FUND - CLASS A
Fiscal Year End: 10/31/94
Inception Date: 3/30/84
<CAPTION>
1 YEAR ENDED 10/31/94 5 YEARS ENDED 10/31/94 10 YEARS ENDED 10/31/94
Standard Non-Standard Standard Non-Standard Standard Non-Standard
--------- ------------ -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Max. Load 4.75% 4.75% 4.75%
Amt. Invested $952.50 $1,000.00 $952.50 $1,000.00 $952.50 $1,000.00
Initial NAV $11.46 $11.46 $11.33 $11.33 $11.75 $11.75
Initial Shares 83.115 87.260 84.069 88.261 81.064 85.106
Shares From Dist. 6.327 6.644 49.040 51.492 148.660 156.079
End of Period NAV $9.95 $9.95 $9.95 $9.95 $9.95 $9.95
Total Return -11.01% -6.57% 32.44% 39.05% 128.58% 139.98%
Average Annual
Total Return -11.01% -6.57% 5.78% 6.82% 8.62% 9.15%
</TABLE>
<TABLE>
PERFORMANCE CALCULATION
COLONIAL FEDERAL SECURITIES FUND - CLASS B
Fiscal Year End: 10/31/94
Inception Date: 6/8/92
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 10/31/94 6/8/92 TO 10/31/94
Standard Non-Standard Standard Non-Standard
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
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 $11.46 $11.46 $10.73 $10.73
Initial Shares 87.260 87.260 93.197 93.197
Shares From Dist. 5.930 5.930 16.928 16.928
End of Period NAV $9.95 $9.95 $9.95 $9.95
CDSC 4.34% 2.78%
Total Return -11.62% -7.28% 6.79% 9.58%
Average Annual
Total Return -11.62% -7.28% 2.78% 3.88%
</TABLE>
COLONIAL FEDERAL SECURITIES FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 10/31/94
a - b 6
FUND YIELD = 2 ------- + 1 - 1
cd
a = dividends and interest earned during
the month ................................ $9,594,857
b = expenses (exclusive of distribution fee)
accrued during the month.................. 1,369,672
c = average dividend shares outstanding
during the month ......................... 137,045,538
d = class A maximum offering price per share
on the last day of the month ............. $10.45
CLASS A YIELD ........................... 7.00%
======
Class A yield/(1-Load)
ie: 7.00%/(1-.0475)=yield on NAV= 7.35%
Less: Distribution fee (.75)
-----
CLASS B YIELD ........................... 6.60%
======
<TABLE>
PERFORMANCE CALCULATION
THE COLONIAL FUND - CLASS A
Fiscal Year End: 10/31/94
<CAPTION>
1 YEAR ENDED 10/31/94 5 YEARS ENDED 10/31/94 10 YEARS ENDED 10/31/94
Standard Non-Standard Standard Non-Standard Standard Non-Standard
--------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Max. Load 5.75% 5.75% 5.75%
Amt. Invested $942.50 $1,000.00 $942.50 $1,000.00 $942.50 $1,000.00
Initial NAV $8.41 $8.41 $6.85 $6.85 $4.65 $4.65
Initial Shares 112.113 118.953 137.591 145.985 202.834 215.208
Shares From Dist. 5.692 6.040 43.396 46.044 203.281 215.685
End of Period NAV $8.06 $8.06 $8.06 $8.06 $8.06 $8.06
Total Return -5.05% 0.74% 45.88% 54.78% 227.33% 247.30%
Average Annual
Total Return -5.05% 0.74% 7.84% 9.13% 12.59% 13.26%
</TABLE>
PERFORMANCE CALCULATION
THE COLONIAL FUND - CLASS B
Fiscal Year End: 10/31/94
Inception Date: 5/5/92
SINCE INCEPTION
1 YEAR ENDED 10/31/94 5/5/92 TO 10/31/94
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 $8.40 $8.40 $7.47 $7.47
Initial Shares 119.000 119.000 133.869 133.869
Shares From Dist. 5.171 5.171 13.910 13.910
End of Period NAV $8.05 $8.05 $8.05 $8.05
CDSC 4.79% 3.00%
Total Return -4.83% -0.04% 15.96% 18.96%
Average Annual
Total Return -4.83% -0.04% 6.12% 7.21%
THE COLONIAL FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 10/31/94
a - b 6
FUND YIELD = 2 ------- + 1 - 1
cd
a = dividends and interest earned during
the month ................................ $2,552,598
b = expenses (exclusive of distribution fee)
accrued during the month.................. 724,965
c = average dividend shares outstanding
during the month ......................... 101,551,701
d = class A maximum offering price per share
on the last day of the month ............. $8.55
CLASS A YIELD ........................... 2.54%
======
Class A yield/(1-Load)
ie: 2.54%/(1-.0575)=yield on NAV= 2.69%
Less: Distribution fee (.75)
-----
CLASS B YIELD ........................... 1.94%
======
<TABLE>
PERFORMANCE CALCULATION
COLONIAL GLOBAL EQUITY FUND - CLASS A
Fiscal Year End: 10/31/94
Inception Date: 6/8/92
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 10/31/94 6/8/92 TO 10/31/94
Standard Non-Standard Standard Non-Standard
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
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 $11.76 $11.76 $10.00 $10.00
Initial Shares 80.145 85.034 94.250 100.000
Shares From Dist. 1.375 1.459 3.797 4.028
End of Period NAV $12.69 $12.69 $12.69 $12.69
Total Return 3.45% 9.76% 24.42% 32.01%
Average Annual
Total Return 3.45% 9.76% 9.53% 12.27%
</TABLE>
<TABLE>
PERFORMANCE CALCULATION
COLONIAL GLOBAL EQUITY FUND - CLASS B
Fiscal Year End: 10/31/94
Inception Date: 6/8/92
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 10/31/94 6/8/92 TO 10/31/94
Standard Non-Standard Standard Non-Standard
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
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 $11.72 $11.72 $10.00 $10.00
Initial Shares 85.324 85.324 100.000 100.000
Shares From Dist. 0.885 0.885 2.491 2.491
End of Period NAV $12.63 $12.63 $12.63 $12.63
CDSC 5.00% 3.00%
Total Return 3.88% 8.88% 26.45% 29.45%
Average Annual
Total Return 3.88% 8.88% 10.27% 11.35%
</TABLE>
COLONIAL GLOBAL EQUITY FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 10/31/94
a - b 6
FUND YIELD = 2 ------- + 1 - 1
cd
ADJUSTED
YIELD YIELD*
a = dividends and interest earned during --------- ---------
the month ................................ $164,221 $164,221
b = expenses (exclusive of distribution fee)
accrued during the month.................. 75,709 96,335
c = average dividend shares outstanding
during the month ......................... 5,760,885 5,760,885
d = class A maximum offering price per share
on the last day of the month ............. $13.46 $13.46
CLASS A YIELD ........................... 1.38% 1.06%
===== =====
Class A yield/(1-Load)
ie: 1.38%/(1-.0575)=yield on NAV= 1.46%
Less: Distribution fee (.75)
-----
CLASS B YIELD ........................... 0.71% 0.37%
===== =====
* Without voluntary expense limit.
<TABLE>
PERFORMANCE CALCULATION
COLONIAL GLOBAL NATURAL RESOURCES FUND - CLASS A
Fiscal Year End: 10/31/94
Inception Date: 6/8/92
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 10/31/94 6/8/92 TO 10/31/94
Standard Non-Standard Standard Non-Standard
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
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 $12.16 $12.16 $10.00 $10.00
Initial Shares 77.508 82.237 94.250 100.000
Shares From Dist. 1.372 1.456 2.807 2.977
End of Period NAV $13.16 $13.16 $13.16 $13.16
Total Return 3.81% 10.14% 27.73% 35.52%
Average Annual
Total Return 3.81% 10.14% 10.73% 13.50%
</TABLE>
<TABLE>
PERFORMANCE CALCULATION
COLONIAL GLOBAL NATURAL RESOURCES FUND - CLASS B
Fiscal Year End: 10/31/94
Inception Date: 6/8/92
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 10/31/94 6/8/92 TO 10/31/94
Standard Non-Standard Standard Non-Standard
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
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 $12.13 $12.13 $10.00 $10.00
Initial Shares 82.440 82.440 100.000 100.000
Shares From Dist. 0.914 0.914 1.520 1.520
End of Period NAV $13.11 $13.11 $13.11 $13.11
CDSC 5.00% 3.00%
Total Return 4.28% 9.28% 30.09% 33.09%
Average Annual
Total Return 4.28% 9.28% 11.58% 12.65%
</TABLE>
COLONIAL GLOBAL NATURAL RESOURCES FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 10/31/94
a - b 6
FUND YIELD = 2 ------- + 1 - 1
cd
a = dividends and interest earned during
the month ................................ $117,462
b = expenses (exclusive of distribution fee)
accrued during the month.................. 81,080
c = average dividend shares outstanding
during the month ......................... 4,410,101
d = class A maximum offering price per share
on the last day of the month ............. $13.96
CLASS A YIELD ........................... 0.71%
======
Class A yield/(1-Load)
ie: .71%/(1-.0575)=yield on NAV= .75%
Less: Distribution fee (.75)
-----
CLASS B YIELD ........................... 0.00%
======
PERFORMANCE CALCULATION
COLONIAL STRATEGIC BALANCE FUND - CLASS A
Period End: 10/31/94
Inception Date: 9/19/94
9/19/94 TO 10/31/94
Standard Non-Standard
---------- ------------
Initial Inv. $1,000.00 $1,000.00
Max. Load 4.75%
Amt. Invested $952.50 $1,000.00
Initial NAV $10.00 $10.00
Initial Shares 95.250 100.000
Shares From Dist. 0.000 0.000
End of Period NAV $9.91 $9.91
Total Return -5.61% -0.90%
PERFORMANCE CALCULATION
COLONIAL STRATEGIC BALANCE FUND - CLASS B
Period End: 10/31/94
Inception Date: 9/19/94
9/19/94 TO 10/31/94
Standard Non-Standard
---------- ------------
Initial Inv. $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00
Initial NAV $10.00 $10.00
Initial Shares 100.000 100.000
Shares From Dist. 0.000 0.000
End of Period NAV $9.90 $9.90
CDSC 4.95%
Total Return -5.95% -1.00%
PERFORMANCE CALCULATION
COLONIAL STRATEGIC BALANCE FUND - CLASS D
Period End: 10/31/94
Inception Date: 9/19/94
9/19/94 TO 10/31/94
Standard Non-Standard
---------- ------------
Initial Inv. $1,000.00 $1,000.00
Max. Load 1.00%
Amt. Invested $990.00 $1,000.00
Initial NAV $10.00 $10.00
Initial Shares 99.000 100.000
Shares From Dist. 0.000 0.000
End of Period NAV $9.90 $9.90
CDSC 0.98%
Total Return -2.97% -1.00%
COLONIAL STRATEGIC BALANCE FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 10/31/94
a - b 6
FUND YIELD = 2 ------- + 1 - 1
cd
ADJUSTED
YIELD YIELD*
a = dividends and interest earned during -------- --------
the month ............................... $47,008 $47,008
b = expenses (exclusive of distribution fee)
accrued during the month................. 13,720 17,093
c = average dividend shares outstanding
during the month ........................ 1,255,535 1,255,535
d = class A maximum offering price per share
on the last day of the month ............ $10.40 $10.40
CLASS A YIELD ......................... 3.08% 2.76%
====== ======
Class A yield/(1-Load)
ie: 3.08%/(1-.0475)=yield on NAV= 3.23%
Less: Distribution fee (.75)
----
CLASS B YIELD .......................... 2.48% 2.15%
====== ======
CLASS D YIELD .......................... 2.45% 2.12%
====== ======
* Without voluntary expense limit.
PERFORMANCE CALCULATION
COLONIAL INTERNATIONAL FUND FOR GROWTH - CLASS A
Period End: 10/31/94
Inception Date: 12/1/93
12/1/93 TO 10/31/94
Standard Non-Standard
---------- ------------
Initial Inv. $1,000.00 $1,000.00
Max. Load 5.75%
Amt. Invested $942.50 $1,000.00
Initial NAV $10.00 $10.00
Initial Shares 94.250 100.000
Shares From Dist. 0.000 0.000
End of Period NAV $10.37 $10.37
Total Return -2.26% 3.70%
PERFORMANCE CALCULATION
COLONIAL INTERNATIONAL FUND FOR GROWTH - CLASS B
Period End: 10/31/94
Inception Date: 12/1/93
12/1/93 TO 10/31/94
Standard Non-Standard
---------- ------------
Initial Inv. $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00
Initial NAV $10.00 $10.00
Initial Shares 100.000 100.000
Shares From Dist. 0.000 0.000
End of Period NAV $10.30 $10.30
CDSC 5.00%
Total Return -2.00% 3.00%
PERFORMANCE CALCULATION
COLONIAL INTERNATIONAL FUND FOR GROWTH - CLASS D
Period End: 10/31/94
Inception Date: 7/1/94
7/1/94 TO 10/31/94
Standard Non-Standard
--------- ------------
Initial Inv. $1,000.00 $1,000.00
Max. Load 1.00%
Amt. Invested $990.00 $1,000.00
Initial NAV $10.06 $10.06
Initial Shares 98.410 99.404
Shares From Dist. 0.000 0.000
End of Period NAV $10.35 $10.35
CDSC 1.00%
Total Return 0.85% 2.88%
COLONIAL INTERNATIONAL FUND FOR GROWTH
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 10/31/94
a - b 6
FUND YIELD = 2 ------- + 1 - 1
cd
a = dividends and interest earned during
the month ................................ $221,603
b = expenses (exclusive of distribution fee)
accrued during the month.................. 251,628
c = average dividend shares outstanding
during the month ......................... 15,984,461
d = class A maximum offering price per share
on the last day of the month ............. $11.00
CLASS A YIELD ........................... -0.23%
======
Class A yield/(1-Load)
ie: -.23%/(1-.0575)=yield on NAV= -.22%
Less: Distribution fee (.75)
-----
CLASS B YIELD ........................... -0.97%
======
CLASS D YIELD ........................... -0.97%
======
