February 28, 1995, Revised July 12, 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 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 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.
SB-01/047B-0695
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."
Contents Page
Summary of expenses 2
The Fund's financial history 3
The Fund's investment objective 4
How the Fund pursues its objective and certain risk factors 4
How the Fund measures its performance 6
How the Fund is managed 7
How the Fund values its shares 7
Distributions and taxes 7
How to buy shares 8
How to sell shares 9
How to exchange shares 9
Telephone transactions 10
12b-1 plans 10
Organization and history 10
Appendix 11
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the
Fund. The following tables summarize your maximum transaction costs
and 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 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 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 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,(b) 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
_________________________________
(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 contingent
deferred sales charge.
(e) Had the Adviser not waived or reimbursed a portion of
expenses, total return would have been reduced.
(f) Not annualized.
(g) 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 long-term 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. 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, 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 quarter's
distributions, annualized, by the maximum offering price of that Class
at the end of the quarter. Each Class's performance may be compared
to various indices. Quotations from various publications may be
included in sales literature and advertisements. See "Performance
Measures" in the Statement of Additional Information for more
information. All performance information is historical and does not
predict future results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the
Fund's affairs as conducted by the Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc. Colonial
Investment Services, Inc. (Distributor) is a subsidiary of the Adviser
and serves as the distributor for the Fund's shares. The Colonial
Group, Inc. is the parent of Colonial Investors Service Center, Inc.
(Transfer Agent), which serves as the shareholder services and
transfer agent for the Fund. The Colonial Group, Inc. is a direct
subsidiary of Liberty Financial Companies, Inc. which in turn is an
indirect subsidiary of Liberty Mutual Insurance Company (Liberty
Mutual). Liberty Mutual is considered to be the controlling entity of
The Colonial Group, Inc. Liberty Mutual is an underwriter of worker's
compensation insurance and a property and casualty insurer in the U.S.
The Adviser furnishes the Fund with investment management, accounting
and administrative personnel and services, office space and other
equipment and services at the Adviser's expense. For these services,
the Fund paid the Adviser 0.35% 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.
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 as of the close of the New York Stock Exchange (Exchange)
each day the Exchange is open. Portfolio securities for which market
quotations are readily available are valued at market. Short-term
investments maturing in 60 days or less are valued at amortized cost
when it is determined, pursuant to procedures adopted by the Trustees,
that such cost approximates market value. All other securities and
assets are valued at 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 the time at which the Fund values its shares (or placed with a
financial service firm before such time and transmitted by the
financial service firm before the Fund processes that day's share
transactions) will be processed based on that day's closing net asset
value, plus any applicable initial sales charge.
The minimum initial investment is $1,000; subsequent investments may
be as small as $50. The minimum initial investment for the Colonial
Fundamatic program 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 $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 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 for 8 years (at which time they convert to Class A
shares), a 0.25% annual service fee 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
After Purchase Sales Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the
purchase was accepted and so on. The Distributor pays 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 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 shares of the same
class 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 Government Money Market Fund,
Colonial Global Utilities Fund and Colonial Newport Tiger 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 and/or their financial advisers 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
Transfer Agent will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Shareholders
and/or their financial advisers will be required to provide their
name, address and account number. Financial advisers will also be
required to provide their broker number. 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, Revised July 12, 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.
