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. 96 | X |
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940| X |
Amendment No. 37 | 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, 1996 pursuant to paragraph (b)
| | 60 days after filing pursuant to paragraph (a)(1)
| | on February 28, 1996 pursuant to paragraph (a)(1) of Rule 485
| | 75 days after filing pursuant to paragraph (a)(2)
| | on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
| | this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
STATEMENT PURSUANT TO RULE 24F-2
The Registrant has registered an indefinite number or amount of its shares
of beneficial interest under the Securities Act of 1933 pursuant to Rule
24f-2 under the Investment Company Act of 1940 and on December 21, 1995,
the Registrant filed the Rule 24f-2 Notice for the Registrant's most
recent fiscal year ended October 31, 1995.
MASTER/FEEDER REPRESENTATION
This Registration Statement includes the Prospectus and Statement of
Additional Information for the Colonial Global Utilities Fund, which uses
a master fund/feeder fund structure. In accordance with SEC requirements,
the master fund has executed this Registration Statement.
COLONIAL TRUST III
Cross Reference Sheet (Colonial Growth Shares 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;
Back Cover
6. Organization and History;
Distributions and Taxes; How to
Buy Shares
7. Summary of Expenses; How to Buy
Shares; How the Fund Values its
Shares; Cover Page; 12b-1 Plans;
Back Cover
8. Summary of Expenses; How to Sell
Shares; How to Exchange Shares;
Telephone Transactions
9. Not Applicable
February 28, 1996
COLONIAL GROWTH SHARES 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 Growth Shares Fund (Fund), a diversified portfolio of Colonial Trust
III (Trust), an open-end management investment company, seeks long-term growth
by investing primarily in middle capitalization equities.
The Fund is managed by the Adviser, an investment adviser since 1931.
This Prospectus explains concisely what you should know before investing in the
Fund. Read it carefully and retain it for future reference. More detailed
information about the Fund is in the February 28, 1996 Statement of Additional
Information which has been filed with the Securities and Exchange Commission
and is obtainable free of charge by calling the Adviser at 1-800-248-2828. The
Statement of Additional Information is incorporated by reference in (which
means it is considered to be a part of) this Prospectus.
GS-01/729B-0196
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 and, in addition, are subject to 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
and Cetain 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
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund.
The following tables summarize your maximum transaction costs and your annual
expenses for an investment in each Class of the Fund's shares. See "How the
Fund is Managed" and "12b-1 Plans" for more complete descriptions of the Fund's
various costs and expenses
Shareholder Transaction Expenses(1)(2)
Class A Class B
Maximum Initial Sales Charge Imposed on a
Purchase (as % of offering price)(3) 5.75% 0.00%(5)
Maximum Contingent Deferred Sales Charge (as
% of offering price)(3) 5.00% 1.00%(4)
(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 average net assets)
Class A Class B
Management fee 0.50% 0.50%
12b-1 fees 0.22 1.00
Other expenses 0.40 0.40
Total operating expenses 1.12% 1.90%
(6) Includes annualized service fee of 0.22%. The service 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
Period:
(7) (8)
1 year $68 $69 $19
3 years 91 90 60
5 years 116 123 103
10 years 186 202(9) 202(9)
(7) Assumes redemption.
(8) Assumes no redemption.
(9) Class B shares automatically convert to Class A shares after
approximately 8 years; therefore, years 9 and 10 reflect
Class A share expenses.
THE FUND'S FINANCIAL HISTORY (a)
The following schedule of financial highlights for a share outstanding
throughout each period has been audited by Price Waterhouse LLP, independent
accountants. Their unqualified report is included in the Fund's, 1995 Annual
Report and is incorporated by reference into the Statement of Additional
Information.
<TABLE>
<CAPTION>
Period ended
Year ended October 31 October 31
1995 1994 1993 1992(b)
Class A Class B Class A Class B Class A Class B Class A Class B(c)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of
period $14.020 $13.940 $15.240 $15.180 $13.830 $13.780 $14.240 $13.570
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.174 0.065 0.096 (0.008) 0.110 0.001 0.066 (0.002)
Net realized and unrealized gain 3.326 3.317 0.275 0.288 2.240 2.244 0.074 0.212
Total from Investment Operations 3.500 3.382 0.371 0.280 2.350 2.245 0.140 0.210
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.165) (0.067) (0.071) --- (0.095) --- (0.093) ---
From net realized gains (1.215) (1.215) (1.520) (1.520) (0.845) (0.845) (0.457) ---
Total Distributions Declared to
Shareholders (1.380) (1.282) (1.591) (1.520) (0.940) (0.845) (0.550) ---
Net asset value - End of period $16.140 $16.040 $14.020 $13.940 $15.240 $15.180 $13.830 $13.780
Total return(d) 28.44% 27.50% 2.78% 2.12% 17.79% 16.99% 1.02%(f) 1.55%(f)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.12%(e) 1.90%(e) 1.22% 1.97% 1.19% 1.94% 1.19%(g) 1.94%(g)
Net investment income 1.24%(e) 0.46%(e) 0.69% (0.06)% 0.64% (0.11)% 0.83%(g) 0.08%(g)
Portfolio turnover 92% 92% 121% 121% 66% 66% 68%(g) 68%(g)
Net assets at end of period (000's) $194,393 $75,283 $160,495 $53,218 $169,913 $41,989 $150,260 $26,364
(a) Per share data was calculated using average shares outstanding method.
For the period ended 1992, per share data was calculated using the
SEC method.
(b) The Fund changed its fiscal year end from March 31 to October 31 in 1992.
(c) Class B shares were initially offered on June 8, 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 contingent deferred sales charge.
(e) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year ratios are net of benefits received,
if any.
(f) Not annualized
(g) Annualized.
</TABLE>
THE FUND'S FINANCIAL HISTORY (a) cont'd
<TABLE>
<CAPTION>
Year ended March 31
1992 1991 1990 1989 1988 1987 1986
Class A Class A Class A Class A Class A Class A Class A
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of
period $12.800 $12.010 $12.410 $12.050 $15.960 $13.860 $10.370
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.168 0.221 0.192 0.251 0.186 0.083 0.094
Net realized and unrealized gain(loss) 1.502 1.059 1.718 1.677 (0.727) 2.643 3.646
Total from Investment Operations 1.670 1.280 1.910 1.928 (0.541) 2.726 3.740
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.183) (0.210) (0.220) (0.230) (0.195) (0.090) (0.250)
From net realized gains (0.047) (0.280) (2.090) (1.338) (3.174) (0.536) ---
Total Distributions Declared to
Shareholders (0.230) (0.490) (2.310) (1.568) (3.369) (0.626) (0.250)
Net asset value - End of period $14.240 $12.800 $12.010 $12.410 $12.050 $15.960 $13.860
Total return(c) 13.24% 10.95% 15.57% 17.46%(d) (2.27)% 20.63% 36.91%(d)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.18% 1.03% 1.07% 1.22%(b) 1.00% 1.34% 1.25%(b)
Net investment income 1.24% 1.94% 1.45% 2.02%(b) 1.41% 0.72% 0.85%(b)
Portfolio turnover 38% 37% 88% 86% 108% 37% 65%
Net assets at end of period (000's) $149,341 $134,055 $129,244 $93,477 $91,926 $93,896 $83,777
(a) Per share data was calculated using average shares outstanding method
during the period. For the years ended 1987, 1989 and 1991, per share data
was calculated using the SEC method.
(b) Net of fees and expenses waived or borne by the Adviser which amounted to
$0.007 and $0.005 per share and 0.55% and 0.04% of average net assets in
1989 and 1986, respectively.
(c) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(d) Had the Adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
</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 middle
capitalization equities.
Middle capitalization equities are equity securities of companies with
market equity capitalizations between $400 million and $8 billion as
of the time of purchase by the Fund.
HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS
The Fund may invest without limit in U.S. and other developed
countries' common stocks and securities which are convertible into or
carry the right to purchase common stock consisting of convertible
preferred stock, convertible debt and warrants. The Adviser must
determine that any non-U.S. security, and the underlying common stock
of any convertible security, is comparable to stocks included in the
S&P 500 Index in terms of liquidity and is a middle capitalization
equity.
Under normal market conditions, the Fund may invest up to 15% of its
total assets in U.S. and other developed country non-convertible debt
and preferred stock. In periods of unusual market conditions, for
temporary and defensive purposes, 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, commercial paper, bankers'
acceptances, repurchase agreements and certificates of deposit. The
value of debt securities (and thus of Fund shares) usually fluctuates
inversely to changes in interest rates. Current income earned by the
Fund is incidental to achieving its investment objective. The Fund
may invest up to 5% of its net assets in lower rated bonds which are
rated lower than Baa by Moody's or BBB by S&P (including bonds holding
the lowest ratings) or comparable unrated securities. Bonds rated Baa
or BBB may have speculative characteristics and may be more adversely
affected by changing economic conditions than are higher grade bonds.
Lower rated bonds are considered speculative as to payment of
principal and interest. See the Statement of Additional Information
for more information.
Foreign Investments. Investments in foreign securities (both debt and
equity) 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.
Foreign Currency Transactions. In connection with its investments in
foreign securities, the Fund may purchase and sell foreign currencies
on a spot or forward basis. 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 value declines, it limits the potential gain from a
currency's value increases. See the Statement of Additional
Information for information relating to the Fund's obligations in
entering into such transactions.
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.
Temporary/Defensive Investments. Temporarily available cash may be
invested in certificates of deposit, bankers' acceptances, 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 will 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. Not more than 10% of the Fund's net assets will be
invested in repurchase agreements maturing in more than 7 days and
other illiquid assets.
Borrowing of Money. The Fund may issue senior securities only through
borrowing money from banks for temporary or emergency purposes up to
10% of its net assets; however, the Fund will not purchase additional
portfolio securities while borrowings exceed 5% of net assets.
Other. The Fund may not always achieve its investment objective. The
Fund's investment objective and non-fundamental policies may be
changed without shareholder approval. The Fund will notify investors
at least 30 days prior to any material change in the Fund's investment
objective. If there is a change in the investment objective,
shareholders should consider whether the Fund remains an appropriate
investment in light of their financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares
are redeemed in response to a change in objective. The Fund's
fundamental 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 by the maximum offering price of that Class at
the end of the period. Each Class's performance may be compared to
various indices. Quotations from various publications may be included
in sales literature and advertisements. See "Performance Measures" in
the Statement of Additional Information for more information.
All performance information is historical and does not predict future
results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the
Fund's affairs as conducted by the Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc. Colonial
Investment Services, Inc. (Distributor) is a subsidiary of the Adviser
and serves as the distributor for the Fund's shares. Colonial
Investors Service Center, Inc. (Transfer Agent), an affiliate of the
Adviser, serves as the shareholder services and transfer agent for
the Fund. The Colonial Group, Inc. is a direct subsidiary of Liberty
Financial Companies, Inc. which in turn is an indirect subsidiary of
Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual is
considered to be the controlling entity of the Adviser and its
affiliates. Liberty Mutual is an underwriter of workers' 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 pays the Adviser a fee of 0.60% of the Fund's net assets
annually, adjusted upward or downward by 0.02% for each percentage
point that the Fund's performance during the prior 12 months exceeds
or lags the performance of the S&P 500 Index. The maximum adjustment
(up or down) for any month shall not exceed 0.20%. The fee may be
adjusted upward even if the Fund's net asset value declines. An
annual fee of 0.75% or more would be higher than that paid by most
mutual funds. For these services, the Fund paid the Adviser 0.50% of
the Fund's average daily net assets for fiscal year 1995.
Daniel Rie, Senior Vice President and Director of the Adviser and head
of the Equity Group, has managed the Fund and various other Colonial
equity funds since 1986..
The Adviser also provides pricing and bookkeeping services to the Fund
for a monthly fee of $2,250 plus a percentage of the Fund's average
net assets over $50 million. The Transfer Agent provides transfer
agency and shareholder services to the Fund for a fee of 0.25%
annually of average net assets plus certain out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee
waiver to which the Adviser may agree.
The Adviser 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
of the Fund are valued as of the close of the New York Stock Exchange
(Exchange) each day the Exchange is open. 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. 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 in
June and December. Distributions are invested in additional shares of
the same Class of the Fund at net asset value unless the shareholder
elects to receive cash. Regardless of the shareholder's election,
distributions of $10 or less will not be paid in cash 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 of the Fund 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 shares and there are some limitations on the issuance of
Class A certificates. The Fund may refuse any purchase order for its
shares. See the Statement of Additional Information for more
information.
Class A Shares. Class A shares are offered at net asset value,
subject to a 0.15% annual service fee for shares outstanding prior to
April 1, 1989, and 0.25% for outstanding shares issued thereafter,
plus an initial or 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 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.
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 an amount at least equal to 25% of the initial
investment and reinvestment of all distributions. The sales charge is
5% of 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 for approximately eight years (at which time they
convert to Class A shares not bearing a distribution fee), and 0.25%
attributed to outstanding shares issued thereafter and a declining
contingent deferred sales charge if redeemed within six years after
purchase. As shown below, the amount of the contingent deferred sales
charge depends on the number of years after purchase that the
redemption occurs:
Contingent
Years Deferred
After Purchase Sales Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the
purchase was accepted and so on. The Distributor pays financial
service firms a commission of 4.00% on Class B share purchases.
General. All contingent deferred sales charges are deducted from the
amount redeemed, not the amount remaining in the account, and are paid
to the Distributor. Shares issued upon distribution reinvestment and
amounts representing appreciation are not subject to a contingent
deferred sales charge. The contingent deferred sales charge is
imposed on redemptions which result in the account value falling below
its Base Amount (the total dollar value of purchase payments 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. See the Statement of Additional
Information for more information.
Special Purchase Programs. The Fund allows certain investors or
groups of investors to purchase shares at a reduced or without an
initial or contingent deferred sales charge. These programs are
described in the Statement of Additional Information under "Programs
for Reducing or Eliminating Sales Charges" and "How to Sell Shares."
Shareholder Services. A variety of shareholder services are
available. For 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 of the Fund may be sold on any day the Exchange is open,
either directly to the Fund or through your financial service firm.
Sale proceeds generally are sent within seven days (usually on the
next business day after your request is received in good form).
However, for shares recently purchased by check, the Fund will send
proceeds 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 prior to the time at which the Fund values
its shares to receive that day's price, are responsible for furnishing
all necessary documentation to the Transfer Agent and may charge for
this service.
General. The sale of shares is a taxable transaction for income tax
purposes and may be subject to a contingent deferred sales charge.
The contingent deferred sales charge may be waived under certain
circumstances. See the Statement of Additional Information for more
information. Under unusual circumstances, the Fund may suspend
repurchases or postpone payment for up to seven days or longer, as
permitted by federal securities law. In June of any year, the Fund
may deduct $10 (payable to the Transfer Agent) from accounts valued at
less than $1,000 unless the account value has dropped below $1,000
solely as a result of share value depreciation. Shareholders will
receive 60 days' written notice to increase the account value before
the fee is deducted.
HOW TO EXCHANGE SHARES
Exchanges at net asset value may be made among the same class of
shares of most Colonial funds. 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 in which
the original investment was made.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically
eligible to exchange Fund shares and may redeem up to $50,000 of Fund
shares by calling 1-800-422-3737 toll-free any business day between 9:00 a.m.
and the time at which the Fund values it shares. Telephone redemption
privileges for larger amounts may be elected on the account
application. Proceeds and confirmations of telephone transactions
will be mailed or sent to the address of record. Telephone
redemptions are not available on accounts with an address change in
the preceding 30 days. The Adviser, the Transfer Agent and the Fund
will not be liable when following telephone instructions reasonably
believed to be genuine, and a shareholder may suffer a loss from
unauthorized transactions. The Transfer Agent will employ reasonable
procedures to confirm that instructions communicated by telephone are
genuine. All telephone transactions are recorded. Shareholders
and/or their financial advisers are required to provide their name,
address and account number. Financial advisers are also required to
provide their broker number. Shareholders and/or their financial
advisers wishing to redeem or exchange shares by telephone may
experience difficulty in reaching the Fund at its toll-free telephone
number during periods of drastic economic or market changes. In that
event, shareholders and/or their financial advisers should follow the
procedures for redemption or exchange by mail as described above under
"How to Sell Shares." The Adviser, the Transfer Agent and the Fund
reserve the right to change, modify, or terminate the telephone
redemption or exchange services at any time upon prior written notice
to shareholders. Shareholders and/or their financial advisers are not
obligated to transact by telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual service fee
of 0.15% of the Fund's average net assets attributed to shares
outstanding prior to April 1, 1989, and 0.25% of the Fund's average
net assets attributed to outstanding shares issued thereafter.
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, approximately 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. Shareholders
receive one vote for each Fund share. Shares of the Trust vote
together except when required by law to vote separately by fund or by
class. Shareholders owning in the aggregate ten percent of Trust
shares may call meetings to consider removal of Trustees. Under
certain circumstances, the Trust will provide information to assist
shareholders in calling such a meeting. See the Statement of
Additional Information for more information.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the
Trust. However, the Trust's Declaration of Trust (Declaration)
disclaims shareholder liability for acts or obligations of the Fund
and the Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by
the Fund or the Trust's Trustees. The Declaration provides for
indemnification out of Fund property for all loss and expense of any
shareholder held personally liable for the obligations of the Fund.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances (which are
considered remote) in which the Fund would be unable to meet its
obligations and the disclaimer was inoperative. The risk of a
particular fund incurring financial loss on account of another fund of
the Trust is also believed to be remote, because it would be limited
to circumstances in which the disclaimer was inoperative and the other
fund was unable to meet its obligations.
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, 1996
COLONIAL GROWTH SHARES FUND
PROSPECTUS
Colonial Growth Shares Fund seeks long-term growth by investing
primarily in middle capitalization equities.
For more detailed information about the Fund, call the Adviser at 1-
800-248-2828 for the February 28, 1996 Statement of Additional
Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
COLONIAL 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; The
Fund's Investment Objective; How
the Fund Pursues its Objective
5. Cover Page; How the Fund is
Managed; Organization and History;
Back Cover
6. Organization and History;
Distributions and Taxes; How to
Buy Shares
7. Summary of Expenses; How to Buy
Shares; How the Fund Values its
Shares; Cover Page; 12b-1 Plans;
Back Cover
8. Summary of Expenses; How to Sell
Shares; How to Exchange Shares;
Telephone Transactions
9. Not Applicable
February 28, 1996
COLONIAL 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 the Fund is in the February 28, 1996 Statement of Additional
Information which has been filed with the Securities and Exchange Commission
and is obtainable free of charge by calling the Adviser at 1-800-248-2828.
The Statement of Additional Information is incorporated by reference in (which
means it is considered 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 and, in addition, are subject to 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 and, are subject to 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 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
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.
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your annual
expenses for an investment in each Class of the Fund's shares. See "How the Fund
is Managed" and "12b-1 Plans" for more complete descriptions of the Fund's
various costs and expenses.
Shareholder Transaction Expenses(1) (2)
<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
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%
</TABLE>
(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.
(2) Redemption proceeds exceeding $5,000 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to $5
million redeemed within approximately 18 months after purchase.
See "How to Buy Shares."
(5) Because of the 0.75% distribution fee applicable to Class B and Class D
shares, long-term Class B and Class D shareholders may pay more in
aggregate sales charges than the maximum initial sales charge permitted
by the National Association of Securities Dealers, Inc. However, because
the Fund's Class B shares automatically convert to Class A shares after
approximately 8 years, this is less likely for Class B shares than for a
class without a conversion feature.
Annual Operating Expenses (as a % of average net assets)
Class A Class B Class D
Management 0.64% 0.64% 0.64%
12b-1 fees 0.25 1.00 1.00
Other expenses 0.28 0.28 0.28
----- ----- -----
Total operating expenses 1.17% 1.92% 1.92%
----- ----- -----
----- ----- -----
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 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 $ 59 $ 70 $ 20 $ 29 $ 39
3 year 83 90 60 70 70 (9)
5 year 109 124 104 113 113
10 year 183 205(8) 205(8) 233 233
(6) Assumes redemption at period end.
(7) Assumes no redemption.
(8) Class B shares convert to Class A shares after approximately 8 years;
therefore, years 9 and 10 reflect Class A share expenses.
(9) Class D shares do not incur a contingent deferred sales on redemptions
made after one year.
<PAGE>
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 1995 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 for the periods prior to November 30, 1994, represents
operations under an earlier objective and policies.
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------------------------
Period
Year ended ended Year ended
October 31 Oct. 31 September 30
---------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987(a) 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of $9.950 $11.460 $10.750 $10.800 $10.420 $11.330 $11.220 $11.130 $10.820 $12.660 $11.890
period ------- -------- -------- -------- -------- -------- -------- -------- ------- -------- -----
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.710 0.821 0.819 0.796 0.854 0.917 0.958 0.882 0.075 0.844 1.007
Net realized and unrealized
gain (loss) 0.907 (1.560) 0.739 0.157 0.671 (0.627) 0.352 0.407 0.365 (1.204) 1.263
------ ------- ------ ------ ------ ------- ------ ------ ------ ------- -----
Total from Investment
Operations 1.617 (0.739) 1.558 0.953 1.525 0.290 1.310 1.289 0.440 (0.360) 2.270
------ ------- ------ ------ ------ ------ ------ ------ ------ ------- -----
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.709) (0.771) (0.781) (0.796) (0.854) (0.917) (0.958) (0.916) (0.070) (0.830) (1.030)
From net realized gains (0.028) --- (0.067) --- --- --- --- (0.129) (0.060) (0.650) (0.470)
From capital paid in(b) --- --- --- (0.207) (0.291) (0.283) (0.242) (0.154) --- --- ---
--- --- --- ------- ------- ------- ------- ------- ---
Total Distributions Declared to (0.737) (0.771) (0.848) (1.003) (1.145) (1.200) (1.200) (1.199) (0.130) (1.480) (1.500)
Shareholders ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value - End of period $10.830 $9.950 $11.460 $10.750 $10.800 $10.420 $11.330 $11.220 $11.130 $10.820 $12.660
======== ======= ======== ======== ======== ======== ======== ======== ======== ======= ======
Total return(c) 16.82% (6.57)% 14.94% 9.15% 15.33% 2.85% 12.42% 12.17% 1.17% (3.52)% 20.04%
====== ======= ====== ===== ====== ===== ====== ====== ===== ======= ======
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.17% 1.16% 1.17% 1.24% 1.21% 1.16% 1.14% 1.13% 1.13%(d) 1.09% 1.10%
Net investment income 7.04% 7.80% 7.37% 7.36% 8.05% 8.55% 8.56% 7.90% 8.05%(d) 7.06% 8.02%
Portfolio turnover 171% 121% 252% 18% 11% 6% 55% 66% 87%(d) 140% 201%
Net assets at end of period
(in millions) $1,201 $1,278 $1,736 $1,809 $2,028 $2,186 $2,675 $3,079 $3,640 $3,624 $2,804
- ----------------------
</TABLE>
(a) The Fund changed its fiscal year from September 30 to October 31, 1987.
(b) Because of differences between book and tax basis accounting,
approximately $0.247, $0.315, $0.300, $0.272 and $0.055,
respectively, 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 contingent deferred sales charge.
(d) Annualized.
<PAGE>
THE FUND'S FINANCIAL HISTORY (CONT'D)
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------
Year ended
October 31
---------------------------------------------------
1995 1994 1993 1992(a)
---- ---- ---- -------
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $9.950 $11.460 $10.750 $10.730
------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.633 0.741 0.737 0.286
Net realized and unrealized gain (loss) 0.907 (1.560) 0.739 0.095
------ ------- ------ -----
Total from Investment Operations 1.540 (0.819) 1.476 0.381
------ ------- ------ -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.632) (0.691) (0.706) (0.286)
From net realized gains (0.028) --- (0.060) ---
From capital paid in(b) --- --- --- (0.075)
--- --- --- -------
Total Distributions Declared to Shareholders (0.660) (0.691) (0.766) (0.361)
------- ------- ------- -------
Net asset value - End of period $10.830 $9.950 $11.460 $10.750
======== ======= ======== =======
Total return(c) 15.96% (7.28)% 14.11% 3.47% (d)
====== ======= ====== =====
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.92% 1.91% 1.92% 1.99% (e)
Net investment income 6.29% 7.05% 6.62% 6.61% (e)
Portfolio turnover 171% 121% 252% 18%
Net assets at end of period (in $79 $70 $68 $28
millions)
</TABLE>
(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 was 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 contingent deferred sales charge.
(d) Not annualized.
(e) Annualized.
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.
<PAGE>
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 AND CERTAIN RISK FACTORS
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. High portfolio turnover may result in higher transaction
costs and higher levels of realized capital gains.
The Fund may also engage in so-called "mortgage dollar roll" transactions. In a
mortgage dollar roll, the Fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. As with any forward commitment, mortgage dollar rolls involve the
risk that the counterparty will fail to deliver a new security on the settlement
date, which may deprive the Fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. Finally, the
transaction costs may exceed the return earned by the Fund from the transaction.
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 contract 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.
Borrowing of Money. The Fund may issue senior securities only through borrowing
money from banks for temporary or emergency purposes up to 10% of its net
assets; however, the Fund will not purchase additional portfolio securities
while borrowings exceed 5% of net assets.
Temporary/Defensive Investments. Temporarily available cash may be invested in
certificates of deposit, bankers' acceptances, Treasury bills and repurchase
agreements. Some or all of the Fund's assets 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 will 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 net assets will be invested in repurchase agreements
maturing in more than 7 days and other illiquid assets.
Other. The Fund may not always achieve its investment objective. The Fund's
investment objective and non-fundamental policies may be changed without
shareholder approval. The Fund will notify investors at least 30 days prior to
any material change in the Fund's investment objective. If there is a change in
the investment objective, shareholders should consider whether the Fund remains
an appropriate investment in light of their financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares are redeemed
in response to a change in objective. The Fund's fundamental 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 month's distributions, annualized, by the maximum
offering price of that Class at the end of the period. 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. Colonial Investors Service Center, Inc.
(Transfer Agent), an affiliate of the Adviser, serves as the shareholder
services and transfer agent for the Fund. The Colonial Group, Inc. is a direct
subsidiary of Liberty Financial Companies, Inc. which in turn is an indirect
subsidiary of Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual
is considered to be the controlling entity of the Adviser and its affiliates.
Liberty Mutual is an underwriter of workers' 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
0.64% of the Fund's average daily net assets for fiscal year 1995.
Leslie W. Finnemore, Vice President of the Adviser, has managed the Fund since
1993 and managed various other Colonial taxable fixed income funds since 1987.
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 certain out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser may agree.
The Adviser 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 of the Fund 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'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 paid in cash 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 of the Fund are offered continuously. Orders received in good form prior
to the time at which the Fund values its shares (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 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, subject to a
0.25% annual service fee, plus an initial or contingent deferred sales
charge as follows:
______Initial Sales Charge_______
Retained
by
Financial
Service
Firm as
_____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 B Shares. Class B shares are offered at net asset value, without an
initial sales charge, subject to a 0.75% annual distribution fee for
approximately eight years (at which time they convert to Class A shares not
bearing a distribution fee), a 0.25% annual service fee and a declining
contingent deferred sales charge if redeemed within six years after purchase. As
shown below, the amount of the contingent deferred sales charge depends on the
number of years after purchase that the redemption occurs:
Contingent
Years Deferred
After Sales
Purchase 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% annual distribution fee referred to above. The commission may be reduced
or eliminated if the distribution fee paid by the Fund is reduced or eliminated
for any reason.
General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments (including initial sales 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 $500,000 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. See the
Statement of Additional Information for more information.
Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares at a reduced or without an initial or contingent
deferred sales charge. These programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges" and "How to Sell Shares."
Shareholder Services. A variety of shareholder services are available. For
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 of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will send proceeds 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 prior to the time at which the Fund values its shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law. In June of any year, the Fund may deduct
$10 (payable to the Transfer Agent) from accounts valued at less than $1,000
unless the account value has dropped below $1,000 solely as a result of share
value depreciation. Shareholders will receive 60 days' written notice to
increase the account value before the fee is deducted.
HOW TO EXCHANGE SHARES
Exchanges at net asset value may be made among the same class of shares of most
Colonial funds. Not all Colonial Funds offer Class D shares. Shares will
continue to age without regard to the exchange for purposes of conversion and 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 and/or their financial advisers are automatically eligible to
exchange Fund shares and may redeem up to $50,000 of Fund shares by calling
1-800-422-3737 toll-free any business day between 9:00 a.m. and the time at
which the Fund values its shares. Telephone redemption privileges for larger
amounts may be elected on the account application. Proceeds and confirmations of
telephone transactions will be mailed or sent to the address of record.
Telephone redemptions are not available on accounts with an address change in
the preceding 30 days. The Adviser, the Transfer Agent and the Fund will not be
liable when following telephone instructions reasonably believed to be genuine,
and a shareholder may suffer a loss from unauthorized transactions. The Transfer
Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. All telephone transactions are recorded.
Shareholders and/or their financial advisers are required to provide their name,
address and account number. Financial advisers are also required to provide
their broker number. Shareholders and/or their financial advisers wishing to
redeem or exchange shares by telephone may experience difficulty in reaching the
Fund at its toll-free telephone number during periods of drastic economic or
market changes. In that event, shareholders and/or their financial advisers
should follow the procedures for redemption or exchange by mail as described
above under "How to Sell Shares." The Adviser, the Transfer Agent and the Fund
reserve the right to change, modify, or terminate the telephone redemption or
exchange services at any time upon prior written notice to shareholders.
Shareholders and/or their financial advisers are not obligated to transact by
telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual service fee of 0.25%
of the Fund's average net assets attributed to each Class of shares. The Fund
also pays the Distributor an annual distribution fee of 0.75% of the average net
assets attributed to its Class B and Class D shares. Because the Class B and
Class D shares bear the additional distribution fees, their dividends will be
lower than the dividends of Class A shares. Class B shares automatically convert
to Class A shares, approximately eight years after the Class B shares were
purchased. Class D shares do not convert. The multiple class structure could be
terminated should certain Internal Revenue Service rulings be rescinded. See the
Statement of Additional Information for more information. The Distributor uses
the fees to defray the cost of commissions and service fees paid to financial
service firms which have sold Fund shares, and to defray other expenses such as
sales literature, prospectus printing and distribution, shareholder servicing
costs and compensation to wholesalers. Should the fees exceed the Distributor's
expenses in any year, the Distributor would realize a profit. The Plans also
authorize other payments to the Distributor and its affiliates (including the
Adviser) which may be construed to be indirect financing of sales of Fund
shares.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1986. The Fund
represents the entire interest in a separate portfolio of the Trust.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Trust vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the aggregate ten
percent of Trust shares may call meetings to consider removal of Trustees. Under
certain circumstances, the Trust will provide information to assist shareholders
in calling such a meeting. See the Statement of Additional Information for more
information.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust (Declaration) disclaims shareholder liability for acts or
obligations of the Fund and the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by the Fund or the Trust's Trustees. The Declaration provides for
indemnification out of Fund property for all loss and expense of any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances (which are considered remote) in which the Fund would
be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another
fund of the Trust is also believed to be remote because it would be limited to
circumstances in which the disclaimer was inoperative and the other fund was
unable to meet its obligations.
<PAGE>
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, 1996
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, 1996 Statement of Additional Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
COLONIAL
Mutual Funds
One Financial Center
Boston, Massachusetts 02111-2621
617-426-3750
COLONIAL TRUST III
Cross Reference Sheet (The Colonial Fund-Class A, B and D)
Item Number of Form N-1A Prospectus Location or Caption
Part A
1. Cover Page
2. Summary of Expenses
3. The Fund's Financial History
4. Organization and History; The
Fund's Investment Objective; How
the Fund Pursues its Objective
5. Cover Page; How the Fund is
Managed; Organization and History;
Back Cover
6. Organization and History;
Distributions and Taxes; How to
Buy Shares
7. Summary of Expenses; How to Buy
Shares; How the Fund Values its
Shares; Cover Page; 12b-1 Plans;
Back Cover
8. Summary of Expenses; How to Sell
Shares; How to Exchange Shares;
Telephone Transactions
9. Not Applicable
February 28, 1996
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 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.
The Colonial Fund (Fund), a diversified portfolio of Colonial Trust
III (Trust), an open-end management investment company, seeks
primarily income and capital growth and, secondarily, capital
preservation.
The Fund is managed by the Adviser, an investment adviser since 1931.
This Prospectus explains concisely what you should know before
investing in the Fund. Read it carefully and retain it for future
reference.
TF-XX/XXX-0296
More detailed information about the Fund is in the February 28, 1996
Statement of Additional Information which has been filed with the
Securities and Exchange Commission and is obtainable free of charge by
calling the Adviser at 1-800-248-2828. The Statement of Additional
Information is incorporated by reference in (which means it is
considered to be a part of) this Prospectus.
Class A shares are offered at net asset value plus a sales charge
imposed at the time of purchase; Class B shares are offered at net
asset value and, in addition, are subject to 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 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
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
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the
Fund. The following tables summarize your maximum transaction costs
and your annual expenses for an investment in the Class A, Class B and
Class D shares of the Fund. See "How the Fund is Managed" and "12b-1
Plans" for more complete descriptions of the Fund's various costs and
expenses.
Shareholder Transaction Expenses (1)(2)
Class A Class B Class D
Maximum Initial Sales Charge Imposed on a
Purchase (as 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 shares than for a class without a conversion feature.
Annual Operating Expenses (as a % of average net assets)
Class A Class B Class D
Management
fee 0.55% 0.55% 0.55%
12b-1 fees 0.23* 1.00 1.00
Other
expenses 0.38 0.38 0.38
---- ---- ----
Total operating
expenses 1.16% 1.93% 1.93%
===== ===== =====
* 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 the Class A, Class B or Class D
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 $ 69 $ 70 $ 20 $ 39 $ 29
3 years $ 92 $ 91 $ 61 $ 70 $70(9)
5 years $ 118 $124 $104 $113 $113
10 years $ 190 $205(8) $205(8) $233 $233
(6) Assumes redemption at period end.
(7) Assumes no redemption.
(8) Class B shares convert to Class A shares after approximately 8
years; therefore years 9 and 10 reflect Class A share expenses.
(9) Class D shares do not incur a contingent deferred sales charge on
redemptions made after one year.
THE FUND'S FINANCIAL HISTORY
The following schedules of financial highlights for a share
outstanding throughout each period have been audited by Price
Waterhouse LLP, independent accountants. Their unqualified report is
included in the Fund's 1995 Annual Report, and is incorporated by
reference into the Statement of Additional Information. The Class A
and Class B schedules have been restated to reflect the 3 for 1 split
which occurred on December 10, 1993. No Class D shares had been
issued as of October 31, 1995. Class Z shares are offered by a
separate prospectus. See "How to Buy Shares."
<TABLE>
<CAPTION>
CLASS A
Year Ended October 31
1995(a) 1994(a) 1993(a)(b) 1992(a)(b) 1991(a)(b)
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $8.060 $8.410 $7.390 $7.050 $5.700
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.200 0.171 0.156 0.173 0.218
Net realized and unrealized gain (loss) 1.393 (0.116) 1.293 0.489 1.509
----- ----- ----- ----- -----
Total from Investment Operations 1.593 0.055 1.449 0.662 1.727
----- ----- ----- ----- -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.212) (0.160) (0.147) (0.185) (0.222)
From net realized gain on investments (0.501) (0.245) (0.282) (0.137) (0.155)
----- ----- ----- ----- -----
Total Distributions Declared to Shareholders (0.713) (0.405) (0.429) (0.322) (0.377)
----- ----- ----- ----- -----
Net asset value - End of period $8.940 $8.060 $8.410 $7.390 $7.050
===== ===== ===== ===== =====
Total return(c) 21.72% 0.74% 20.21% 9.65% 31.23%
===== ===== ===== ===== =====
RATIOS TO AVERAGE NET ASSETS
Expenses 1.16% 1.14% 1.10% 1.09% 1.06%
Net investment income 2.43% 2.07% 1.94% 2.52% 3.35%
Portfolio turnover 66% 54% 14% 37% 36%
Net assets at end of period (000) $667,611 $555,275 $520,706 $413,228 $366,808
_________________________________
(a) Per share data was calculated using average shares outstanding
during the period.
(b) All per share amounts have been restated to reflect the 3-for-1
stock split effective December 10, 1993.
(c) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or contingent
deferred sales charge.
</TABLE>
<TABLE>
<CAPTION>
CLASS A
Year Ended October 31
1990(b) 1989(b) 1988(b) 1987(b) 1986(b)
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $6.850 $6.320 $5.530 $6.450 $5.220
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.256 0.270 0.299 0.216 0.283
Net realized and unrealized gain (loss) (0.979) 0.768 0.944 (0.387) 1.397
----- ----- ----- ----- -----
Total from Investment Operations (0.723) 1.038 1.243 (0.171) 1.680
----- ----- ----- ----- -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.276) (0.305) (0.263) (0.310) (0.300)
From net realized gain on investments (0.151) (0.203) (0.190) (0.439) (0.150)
----- ----- ----- ----- -----
Total Distributions Declared to Shareholders (0.427) (0.508) (0.453) (0.749) (0.450)
----- ----- ----- ----- -----
Net asset value - End of period $5.700 $6.850 $6.320 $5.530 $6.450
===== ===== ===== ===== =====
Total return(c) (11.17)% 17.16% 23.60% (3.49)% 33.91%
===== ===== ===== ===== =====
RATIOS TO AVERAGE NET ASSETS
Expenses 1.04% 0.97% 0.92% 0.97% 1.06%
Net investment income 4.05% 4.34% 4.92% 3.99% 4.70%
Portfolio turnover 41% 27% 27% 47% 48%
Net assets at end of period (000) $285,265 $319,419 $258,178 $240,971 $168,399
_________________________________
(a) Per share data was calculated using average shares outstanding
during the period.
(b) All per share amounts have been restated to reflect the 3-for-1
stock split effective December 10, 1993.
(c) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or contingent
deferred sales charge.
</TABLE>
THE FUND'S FINANCIAL HISTORY (CONT'D)
<TABLE>
<CAPTION>
CLASS B CLASS Z
Period
Ended
Year ended October 31 October 31
1995(a) 1994(a) 1993(a)(b) 1992(a)(b)(c) 1995(a)(d)
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $8.050 $8.400 $7.390 $7.440 $8.780
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.137 0.109 0.104 0.052 0.041
Net realized and unrealized gain (loss) 1.395 (0.111) 1.282 (0.044) 0.167
----- ----- ----- ----- -----
Total from Investment Operations 1.532 (0.002) 1.386 0.008 0.208
----- ----- ----- ----- -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.151) (0.103) (0.094) (0.058) (0.048)
From net realized gain on investments (0.501) (0.245) (0.282) 0.000 0.000
----- ----- ----- ----- -----
Total Distributions Declared to Shareholders (0.652) (0.348) (0.376) (0.058) (0.048)
----- ----- ----- ----- -----
Net asset value - End of period $8.930 $8.050 $8.400 $7.390 $8.940
===== ===== ===== ===== =====
Total return(e) 20.84% (0.04)% 19.38% (0.31)%(f) 2.02%(f)
===== ===== ===== ===== =====
RATIOS TO AVERAGE NET ASSETS
Expenses 1.93% 1.89% 1.85% 1.84%(g) 0.93%(g)
Net investment income 1.66% 1.32% 1.19% 1.77%(g) 2.66%(g)
Portfolio turnover 66% 54% 14% 37% 66%
Net assets at end of period (000) $353,831 $264,122 $124,161 $15,582 $3,659
_________________________________
(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) Class Z shares were initially offered on July 31, 1995. Per share
amounts reflect activity from that date.
(e) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or contingent
deferred sales charge.
(f) Not annualized.
(g) Annualized.
</TABLE>
Further performance information is contained in the Fund's Annual
Report to shareholders, which may be obtained without charge by
calling 1-800-248-2828.
THE FUND'S INVESTMENT OBJECTIVES
The Fund seeks primarily income and capital growth and, secondarily,
capital preservation.
HOW THE FUND PURSUES ITS OBJECTIVES AND CERTAIN RISK FACTORS
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.
Borrowing of Money. The Fund may issue senior securities only through
borrowing money from banks for temporary or emergency purposes up to
10% of its net assets; however, it will not purchase additional
portfolio securities while borrowings exceed 5% of net assets.
Other Investment Practices. The Fund may engage in the following
investment practices, some of which are described in more detail in
the Statement of Additional Information.
The Fund may 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 will 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 net 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 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
at the end of the period. Each Class's performance may be compared to
various indices. Quotations from various publications may be included
in sales literature and advertisements. See "Performance Measures" in
the Statement of Additional Information for more information. All
performance information is historical and does not predict future
results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the
Fund's affairs as conducted by the Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc. Colonial
Investment Services, Inc. (Distributor) is a subsidiary of the Adviser
and serves as the distributor for the Fund's shares. Colonial
Investors Service Center, Inc. (Transfer Agent), an affiliate of the
Adviser serves as the shareholder services and transfer agent for the
Fund. The Colonial Group, Inc. is a direct subsidiary of Liberty
Financial Companies, Inc., which is in turn an indirect subsidiary of
Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual is
considered to be the controlling entity of the Adviser and its
affiliates. Liberty Mutual is an underwriter of workers' compensation
insurance and a property and casualty insurer in the U.S.
The Adviser furnishes the Fund with investment management, accounting
and administrative personnel and services, office space and other
equipment and services at the Adviser's expense. For these services,
the Fund paid the Adviser 0.55% of the Fund's average daily net assets
for fiscal year 1995.
Daniel Rie, Senior Vice President and Director of the Adviser and head
of the Equity Group, has managed the Fund since 1993 and has managed
various other Colonial equity funds since 1986.
The Adviser also provides pricing and bookkeeping services to the Fund
for a monthly fee of $2,250 plus a percentage of the Fund's average
net assets over $50 million. The Transfer Agent provides transfer
agency and shareholder services to the Fund for a fee of 0.25%
annually of average net assets plus certain out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee
waiver to which the Adviser may agree.
The Adviser 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 as of the close of the New York Stock Exchange (Exchange)
each day the Exchange is open. Portfolio securities for which market
quotations are readily available are valued at market. Short-term
investments maturing in 60 days or less are valued at amortized cost
when it is determined, pursuant to procedures adopted by the Trustees,
that such cost approximates market value. All other securities and
assets are valued at fair value following procedures adopted by the
Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code and to distribute to shareholders virtually
all net income and any net realized gain at least annually.
The Fund generally declares 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 paid in cash 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 of the Fund 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 it
before the Fund processes that day's share transactions) will be
processed based on that day's closing net asset value, plus any
applicable initial sales charge. The minimum initial investment is
$1,000; subsequent investments may be as small as $50. The minimum
initial investment for the Colonial Fundamatic program or a Colonial
retirement account is $25. Certificates will not be issued for Class
B or Class D shares and there are some limitations on the issuance of
Class A certificates. The Fund may refuse any purchase order for its
shares. See the Statement of Additional Information for more
information.
Class A Shares. Class A shares are offered at net asset value subject
to a 0.15% annual service fee for shares issued prior to April 1,
1989, and a 0.25% annual service fee for shares issued thereafter,
plus an initial or contingent deferred sales charge as follows:
Initial Sales Charge
Retained
by
Financial
as a % of Service
Firm as %
of
Amount Amount Offering Offering
Purchased Invested Price Price
Less than 6.10% 5.75% 5.00%
$50,000
$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.
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 for approximately eight years (at which time they
convert to Class A shares not bearing a distribution fee), a 0.25%
annual service fee and a declining contingent deferred sales charge if
redeemed within six years after purchase. As shown below, the amount
of the contingent deferred sales charge depends on the number of years
after purchase that the redemption occurs:
Contingent
Years After Deferred
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
amount redeemed, not the amount remaining in the account, and are paid
to the Distributor. Shares issued upon distribution reinvestment and
amounts representing appreciation are not subject to a contingent
deferred sales charge. The contingent deferred sales charge is
imposed on redemptions which result in the account value falling below
its Base Amount (the total dollar value of purchase payments
(including initial sales 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.
The Fund also offers Class Z shares, which are offered through a
separate Prospectus only to (i) certain institutions (including
certain insurance companies and banks investing for their own account,
trusts, endowment funds, foundations and investment companies) and
defined benefit retirement plans investing a minimum of $5 million in
the Fund and (ii) affiliates of the Adviser. Class Z shares have no
initial or contingent deferred sales charge and no Rule 12b-1 fee.
Otherwise, Class Z expenses are the same for Classes A, B and D.
Class Z shares may be exchanged at net asset value into the Class A
shares of any other Colonial fund.
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. See the Statement of Additional
Information for more information.
Special Purchase Programs. The Fund allows certain investors or
groups of investors to purchase shares at a reduced, or without an,
initial or contingent deferred sales charge. The programs are
described in the Statement of Additional Information under "Programs
for Reducing or Eliminating Sales Charges" and "How to Sell Shares."
Shareholder Services. A variety of shareholder services are
available. For 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 of the Fund may be sold on any day the Exchange is open, either
directly to the Fund or through your financial service firm. Sale
proceeds generally are sent within seven days (usually on the next
business day after your request is received in good form). However,
for shares recently purchased by check, the Fund will send proceeds 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 prior to the time at which the Fund values
its shares to receive that day's price, are responsible for furnishing
all necessary documentation to the Transfer Agent, and may charge for
this service.
General. The sale of shares is a taxable transaction for income tax
purposes and may be subject to a contingent deferred sales charge. The
contingent deferred sales charge may be waived under certain
circumstances. See the Statement of Additional Information for more
information. Under unusual circumstances, the Fund may suspend
repurchases or postpone payment for up to seven days or longer, as
permitted by federal securities law. In June of any year, the Fund
may deduct $10 (payable to the Transfer Agent) from accounts valued at
less than $1,000 unless the account value has dropped solely as a
result of share value depreciation. Shareholders will receive 60
days' written notice to increase the account value before the fee is
deducted.
HOW TO EXCHANGE SHARES
Exchanges at net asset value may be made among the same class of
shares of most Colonial funds. Not all Colonial funds offer Class D
shares. Shares will continue to age without regard to the exchange
for purposes of conversion and 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 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 1.00% contingent
deferred sales charge will be assessed.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically
eligible to exchange Fund shares and may redeem up to $50,000 of Fund
shares by calling 1-800-422-3737 toll free any business day between
9:00 a.m. and the time at which the Fund values its shares. Telephone
redemption privileges for larger amounts may be elected on the account
application. Proceeds and confirmations of telephone transactions
will be mailed or sent to the address of record. Telephone
redemptions are not available on accounts with an address change in
the preceding 30 days. The Adviser, the Transfer Agent and the Fund
will not be liable when following telephone instructions reasonably
believed to be genuine, and a shareholder may suffer a loss from
unauthorized transactions. The Transfer Agent will employ reasonable
procedures to confirm that instructions communicated by telephone are
genuine. All telephone transactions are recorded. Shareholders
and/or their financial advisers are required to provide their name,
address and account number. Financial advisers are also required to
provide their broker number. Shareholders and/or their financial
advisers wishing to redeem or exchange shares by telephone may
experience difficulty in reaching the Fund at its toll free telephone
number during periods of drastic economic or market changes. In that
event, shareholders and/or their financial advisers should follow the
procedures for redemption or exchange by mail as described above under
"How to Sell Shares." The Adviser, the Transfer Agent and the Fund
reserve the right to change, modify, or terminate the telephone
redemption or exchange services at any time upon prior written notice
to shareholders. Shareholders 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 for shares outstanding prior
to April 1, 1989, and 0.25% of the Fund's average net assets for
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 shares, approximately 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 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. Shareholders receive one vote for
each Fund share. Shares of the Trust vote together except when
required by law to vote separately by fund or by class. Shareholders
owning in the aggregate ten percent of Trust shares may call meetings
to consider removal of Trustees. Under certain circumstances, the
Trust will provide information to assist shareholders in calling such
a meeting. See the Statement of Additional Information for more
information.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the
Trust. However, the Trust's Declaration of Trust (Declaration)
disclaims shareholder liability for acts or obligations of the Fund
and the Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by
the Fund or the Trust's Trustees. The Declaration provides for
indemnification out of Fund property for all loss and expense of any
shareholder held personally liable for the obligations of the Fund.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances (which are
considered remote) in which the Fund would be unable to meet its
obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of
another fund of the Trust is also believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and the other fund was unable to meet its obligations.
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, 1996
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, 1996 Statement of Additional
Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
COLONIAL TRUST III
Cross Reference Sheet (The Colonial Fund-Class Z)
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; Back Cover
8. Summary of Expenses; How to Sell
Shares; How to Exchange Shares;
Telephone Transactions
9. Not Applicable
February 28, 1996
THE COLONIAL FUND
CLASS Z SHARES
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.
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 Class Z shares of the Fund.
TF-727B-0196
Class Z shares may be purchased only by (i) certain institutions
(including certain insurance companies and banks investing for their
own account, trusts, endowment funds, foundations and investment
companies) and defined benefit retirement plans investing a minimum of
$5 million in the Fund and (ii) affiliates of the Adviser and its
affiliates.
Read this Prospectus carefully and retain it for future reference.
More detailed information about the Fund is in the February 28, 1996
Statement of Additional Information which has been filed with the
Securities and Exchange Commission and is obtainable free of charge by
calling the Adviser at 1-800-248-2828. The Statement of Additional
Information is incorporated by reference in (which means it is
considered to be a part of) this Prospectus.
Contents Page
Summary of Expenses
The Fund's Financial History
The Fund's Investment Objectives
How the Fund Pursues Its
Objectives 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
Organization and History
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the
Fund. The following tables summarize your maximum transaction costs
and your annual expenses for an investment in Class Z shares of the
Fund. See "How the Fund is Managed" for a more complete description
of the Fund's various costs and expenses.
Shareholder Transaction Expenses (1)(2)
Maximum Initial Sales Charge Imposed on a Purchase
(as a % of offering price) 0.00%
Maximum Contingent Deferred Sales Charge 0.00%
(as a % of offering price)
(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.
Annual Operating Expenses (as a % of average net assets)
Management fee 0.55%
12b-1 fee 0.00
Other expenses 0.38
----
Total operating expenses 0.93%
====
Example
The following Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in the Class Z shares of the Fund for
the periods specified, assuming a 5% annual return with or without
redemption at period end. The 5% return and expenses used in this
Example should not be considered indicative of actual or expected Fund
performance or expenses, both of which will vary:
Period:
1 year $ 9
3 years $ 30
5 years $ 51
10 years $114
THE FUND'S FINANCIAL HISTORY
The following schedules of financial highlights for a share
outstanding throughout each period have been audited by Price
Waterhouse LLP, independent accountants. Their unqualified report is
included in the Fund's 1995 Annual Report, and is incorporated by
reference into the Statement of Additional Information. The Class A
and Class B schedules have been restated to reflect the 3 for 1 split
which occurred on December 10, 1993. The information presented
includes other classes of shares offered by the Fund.
<TABLE>
<CAPTION>
CLASS A
Year Ended October 31
1995(a) 1994(a) 1993(a)(b) 1992(a)(b) 1991(a)(b)
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $8.060 $8.410 $7.390 $7.050 $5.700
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.200 0.171 0.156 0.173 0.218
Net realized and unrealized gain (loss) 1.393 (0.116) 1.293 0.489 1.509
----- ----- ----- ----- -----
Total from Investment Operations 1.593 0.055 1.449 0.662 1.727
----- ----- ----- ----- -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.212) (0.160) (0.147) (0.185) (0.222)
From net realized gain on investments (0.501) (0.245) (0.282) (0.137) (0.155)
----- ----- ----- ----- -----
Total Distributions Declared to Shareholders (0.713) (0.405) (0.429) (0.322) (0.377)
----- ----- ----- ----- -----
Net asset value - End of period $8.940 $8.060 $8.410 $7.390 $7.050
===== ===== ===== ===== =====
Total return(c) 21.72% 0.74% 20.21% 9.65% 31.23%
===== ===== ===== ===== =====
RATIOS TO AVERAGE NET ASSETS
Expenses 1.16% 1.14% 1.10% 1.09% 1.06%
Net investment income 2.43% 2.07% 1.94% 2.52% 3.35%
Portfolio turnover 66% 54% 14% 37% 36%
Net assets at end of period (000) $667,611 $555,275 $520,706 $413,228 $366,808
_________________________________
(a) Per share data were calculated using average shares outstanding
during the period.
(b) All per share amounts have been restated to reflect the 3-for-1
stock split effective December 10, 1993.
(c) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or contingent deferred sales
charge.
</TABLE>
<TABLE>
<CAPTION>
CLASS A
Year Ended October 31
1990(b) 1989(b) 1988(b) 1987(b) 1986(b)
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $6.850 $6.320 $5.530 $6.450 $5.220
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.256 0.270 0.299 0.216 0.283
Net realized and unrealized gain (loss) (0.979) 0.768 0.944 (0.387) 1.397
----- ----- ----- ----- -----
Total from Investment Operations (0.723) 1.038 1.243 (0.171) 1.680
----- ----- ----- ----- -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.276) (0.305) (0.263) (0.310) (0.300)
From net realized gain on investments (0.151) (0.203) (0.190) (0.439) (0.150)
----- ----- ----- ----- -----
Total Distributions Declared to Shareholders (0.427) (0.508) (0.453) (0.749) (0.450)
----- ----- ----- ----- -----
Net asset value - End of period $5.700 $6.850 $6.320 $5.530 $6.450
===== ===== ===== ===== =====
Total return(c) (11.17)% 17.16% 23.60% (3.49)% 33.91%
===== ===== ===== ===== =====
RATIOS TO AVERAGE NET ASSETS
Expenses 1.04% 0.97% 0.92% 0.97% 1.06%
Net investment income 4.05% 4.34% 4.92% 3.99% 4.70%
Portfolio turnover 41% 27% 27% 47% 48%
Net assets at end of period (000) $285,265 $319,419 $258,178 $240,971 $168,399
_________________________________
(a) Per share data were calculated using average shares outstanding
during the period.
(b) All per share amounts have been restated to reflect the 3-for-1
stock split effective December 10, 1993.
(c) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or contingent deferred sales
charge.
</TABLE>
THE FUND'S FINANCIAL HISTORY (CONT'D)
<TABLE>
<CAPTION>
CLASS B CLASS Z
Period
Ended
Year ended October 31 October 31
1995(a) 1994(a) 1993(a)(b) 1992(a)(b)(c) 1995(a)(d)
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $8.050 $8.400 $7.390 $7.440 $8.780
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.137 0.109 0.104 0.052 0.041
Net realized and unrealized gain (loss) 1.395 (0.111) 1.282 (0.044) 0.167
----- ----- ----- ----- -----
Total from Investment Operations 1.532 (0.002) 1.386 0.008 0.208
----- ----- ----- ----- -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.151) (0.103) (0.094) (0.058) (0.048)
From net realized gain on investments (0.501) (0.245) (0.282) 0.000 0.000
----- ----- ----- ----- -----
Total Distributions Declared to Shareholders (0.652) (0.348) (0.376) (0.058) (0.048)
----- ----- ----- ----- -----
Net asset value - End of period $8.930 $8.050 $8.400 $7.390 $8.940
===== ===== ===== ===== =====
Total return(e) 20.84% (0.04)% 19.38% (0.31)%(f) 2.02%(f)
===== ===== ===== ===== =====
RATIOS TO AVERAGE NET ASSETS
Expenses 1.93% 1.89% 1.85% 1.84%(g 0.93%(g)
Net investment income 1.66% 1.32% 1.19% 1.77%(g 2.66%(g)
Portfolio turnover 66% 54% 14% 37% 66%
Net assets at end of period (000) $353,831 $264,122 $124,161 $15,582 $3,659
_________________________________
(a) Per share data were 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) Class Z shares were initially offered on July 31, 1995. Per share
amounts reflect activity from that date.
(e) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or contingent deferred
sales charge.
(f) Not annualized.
(g) Annualized.
</TABLE>
Further performance information is contained in the Fund's Annual
Report to shareholders, which is obtainable 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 AND CERTAIN RISK FACTORS
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.
Borrowing of Money. The Fund may issue senior securities only through
borrowing money from banks for temporary or emergency purposes up to
10% of its net assets; however, it will not purchase additional
portfolio securities while borrowings exceed 5% of net assets.
Other Investment Practices. The Fund may engage in the following
investment practices, some of which are described in more detail in
the Statement of Additional Information.
The Fund may 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 will 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 net 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 financial position and needs. 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.
Average annual total returns are calculated in accordance with the
Securities and Exchange Commission's formula and assume the
reinvestment of all distributions. Other total returns differ from
average annual total return only in that they may relate to different
time periods and may represent aggregate as opposed to average annual
total returns.
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. Distribution rate is
calculated by dividing the most recent quarter's distributions,
annualized, by the net asset value at the end of the quarter.
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), an affiliate of the Adviser, serves as the
shareholder services and transfer agent for the Fund. The Colonial
Group, Inc. is a direct subsidiary of Liberty Financial Companies,
Inc. which is in turn an indirect subsidiary of Liberty Mutual
Insurance Company (Liberty Mutual). Liberty Mutual is considered to
be the controlling entity of the Adviser and its affiliates. Liberty
Mutual is an underwriter of workers' compensation insurance and a
property and casualty insurer in the U.S.
The Adviser furnishes the Fund with investment management, accounting
and administrative personnel and services, office space and other
equipment and services at the Adviser's expense. For these services,
the Fund paid the Adviser 0.55% of the Fund's average daily net assets
for fiscal year 1995.
Daniel Rie, Senior Vice President and Director of the Adviser and head
of the Equity Group, has managed the Fund since 1993 and has managed
various other Colonial equity funds since 1986.
The Adviser also provides pricing and bookkeeping services to the Fund
for a monthly fee of $2,250 plus a percentage of the Fund's average
net assets over $50 million. The Transfer Agent provides transfer
agency and shareholder services to the Fund for a fee of 0.25%
annually of average net assets plus certain out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee
waiver to which the Adviser may agree.
The Adviser 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 net
asset value attributable to Class Z shares by the number of Class Z
shares outstanding. Shares are valued as of the close of the New York
Stock Exchange (Exchange) each day the Exchange is open. Portfolio
securities for which market quotations are readily available are
valued at market. Short-term investments maturing in 60 days or less
are valued at amortized cost when it is determined, pursuant to
procedures adopted by the Trustees, that such cost approximates market
value. All other securities and assets are valued at fair value
following procedures adopted by the Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code and to distribute to shareholders virtually
all net income and any net realized gain at least annually.
The Fund generally declares and pays income distributions quarterly.
Distributions are invested in additional Class Z shares at net asset
value unless the shareholder elects to receive cash. Regardless of
the shareholder's election, distributions of $10 or less will not be
paid in cash to shareholders but will be invested in additional Class
Z shares 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
Class Z shares are offered continuously at net asset value without a
sales charge. 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 it before the Fund processes that
day's share transactions) will be processed based on that day's
closing net asset value. Certificates will not be issued for Class Z
shares. The Fund may refuse any purchase order for its shares. 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.
Other Classes of Shares. In addition to Class Z shares, the Fund
offers three other classes of shares through a separate Prospectus.
Class A shares are offered at net asset value plus a maximum 5.75%
sales charge imposed at the time of purchase, and are subject to an
ongoing 0.25% annual Rule 12b-1 fee and a 1.00% contingent deferred
sales charge on certain redemptions made within 18 months after
purchase. Class B shares are offered at net asset value and are
subject to a 1.00% annual Rule 12b-1 fee and a contingent deferred
sales charge on redemptions made within six years after purchase. The
contingent deferred sales charge is 5.00% on redemptions made in year
one, and declines to zero after six years. Class B shares convert to
Class A after approximately eight years. The maximum purchase amount
allowed for Class B shares is $250,000. Class D shares are offered at
net asset value plus a 1.00% initial sales charge, subject to a 1.00%
annual 12b-1 fee and a 1.00% contingent deferred sales charge on
redemption made within one year after purchase. Purchases of more
than $250,000 must be for Classes A or D. Purchases or more than
$500,000 must be for Class A.
Other than the sales charges and Rule 12b-1 fees described above, the
fees and expenses relating to Classes A, B and D are the same as those
for Class Z shares.
Classes A, B and D are exchangeable into the same class of any other
Colonial fund offering such class. Class Z shares are exchangeable
into the Class Z shares of any other Colonial fund offering Class Z so
long as the investor is eligible to purchase the Class Z shares of
that fund. Class Z shares otherwise are exchangeable into the Class A
shares of the other Colonial funds.
Which Class is more beneficial to an investor depends on the amount
and intended length of the investment. In general, anyone eligible to
purchase Class Z shares should do so.
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.
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 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 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 the time at which the Fund's shares
are valued to receive that day's price, are responsible for furnishing
all necessary documentation to the Transfer Agent and may charge for
this service.
General. The sale of shares is a taxable transaction for income tax
purposes. 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
The only other Colonial funds which currently offer Class Z shares are
the Colonial Newport Tiger Fund and Colonial Small Stock Fund. Class
Z shares may be exchanged at net asset value into the Class Z shares
of any other Colonial fund offering Class Z so long as the investor is
eligible to purchase the Class Z shares of that fund. Class Z shares
otherwise are exchangeable at net asset value into the Class A shares
of any other Colonial fund. If a Class Z shareholder exchanges into
another Colonial fund and then exchanges back to the Fund, the latter
exchange may be made into the Fund's Class Z shares only if the
shareholder continues to own Class Z shares at the time. If not, the
latter exchange will be made into Class A shares. Carefully read the
prospectus of the fund into which you are exchanging 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.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically
eligible to exchange Fund shares and may redeem up to $50,000 of Fund
shares by calling 1-800-422-3737 toll free any business day between
9:00 a.m. and the time at which the Fund values its shares. Telephone
redemption privileges for larger amounts may be elected on the account
application. Proceeds and confirmations of telephone transactions
will be mailed or sent to the address of record. Telephone
redemptions are not available on accounts with an address change in
the preceding 30 days. The Adviser, the Transfer Agent and the Fund
will not be liable when following telephone instructions reasonably
believed to be genuine, and a shareholder may suffer a loss from
unauthorized transactions. The Transfer Agent will employ reasonable
procedures to confirm that instructions communicated by telephone are
genuine. All telephone transactions are recorded. Shareholders
and/or their financial advisers are required to provide their name,
address and account number. Financial advisers are also required to
provide their broker number. Shareholders and/or their financial
advisers wishing to redeem or exchange shares by telephone may
experience difficulty in reaching the Fund at its toll free telephone
number during periods of drastic economic or market changes. In that
event, shareholders and/or their financial advisers should follow the
procedures for redemption or exchange by mail as described above under
"How to Sell Shares." The Adviser, the Transfer Agent and the Fund
reserve the right to change, modify, or terminate the telephone
redemption or exchange services at any time upon prior written notice
to shareholders. Shareholders are not obligated to transact by
telephone.
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. Shareholders receive one vote for each Fund
share. 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.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the
Fund. However, the Trust's Declaration of Trust (Declaration)
disclaims shareholder liability for acts or obligations of the Fund
and the Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by
the Fund or the Trust's Trustees. The Declaration provides for
indemnification out of Fund property for all loss and expense of any
shareholder held personally liable for the obligations of the Fund.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances (which are
considered remote) in which the Fund would be unable to meet its
obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of
another fund of the Trust is also believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and the other fund was unable to meet its obligations.
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, 1996
THE COLONIAL FUND
CLASS Z SHARES
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, 1996 Statement of Additional
Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
COLONIAL 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; The
Fund's Investment Objective; How
the Fund Pursues its Objective
5. Cover Page; How the Fund is
Managed; Organization and History;
Back Cover
6. Organization and History;
Distributions and Taxes; How to
Buy Shares
7. Summary of Expenses; How to Buy
Shares; How the Fund Values its
Shares; Cover Page; 12b-1 Plans;
Back Cover
8. Summary of Expenses; How to Sell
Shares; How to Exchange Shares;
Telephone Transactions
9. Not Applicable
February 28, 1996
COLONIAL
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 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 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, 1996 Statement of Additional
Information which has been filed with the Securities and Exchange Commission and
is obtainable free of charge by calling the Adviser at 1-800-248-2828. The
Statement of Additional Information is incorporated by reference in (which means
it is considered to be a part of) this Prospectus.
NR-01/733B-0196
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 and, in addition, are subject to 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
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
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your annual
expenses for an investment in each Class of the Fund's shares. See "How the Fund
is Managed" and "12b-1 Plans" for more complete descriptions of the Fund's
various costs and expenses.
Shareholder Transaction Expenses(1)(2)
Class A Class B
Maximum Initial Sales Charge Imposed on a Purchase
(as a % of offering price)(3) 5.75% 0.00%(5)
Maximum Contingent Deferred Sales Charge
(as a % of offering price)(3) 1.00%(4) 5.00%
(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Sell Shares."
(2) Redemption proceeds exceeding $5,000 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to $5 million
redeemed within approximately 18 months after purchase. See "How to Buy
Shares."
(5) Because of the 0.75% distribution fee applicable to Class B shares,
long-term Class B shareholders may pay more in aggregate sales charges
than the maximum initial sales charge permitted by the National
Association of Securities Dealers, Inc. However, because the Fund's Class
B shares automatically convert to Class A shares after approximately 8
years, this is less likely for Class B shares than for a class without a
conversion feature.
Annual Operating Expenses (as a % of average net assets)
Class A Class B
Management fee 0.75% 0.75%
12b-1 fees 0.25 1.00
Other expenses 0.66 0.66
-------- ------
Total operating expenses 1.66 % 2.41 %
======== =====
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) (7)
1 year $ 73 $ 74 $ 24
3 years 107 105 75
5 years 143 149 129
10 years 243 256 (8) 256 (8)
(6) Assumes redemption.
(7) Assumes no redemption.
(8) Class B shares automatically convert to Class A shares after
approximately 8 years; therefore, years 9 and 10 reflect Class A share
expenses.
THE FUND'S FINANCIAL HISTORY (a)
The following schedule of financial highlights for a share outstanding
throughout each period has been audited by Price Waterhouse LLP, independent
accountants. Their unqualified report is included in the Fund's 1995 Annual
Report, and is incorporated by reference into the Statement of Additional
Information.
<TABLE>
<CAPTION>
Year ended Period ended
October 31 October 31
---------------------------------------------------------
1995 1994 1993 1992(b)
---- ---- ---- -------
Class A Class B Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $13.160 $13.110 $12.160 $12.130 $9.750 $9.720 $10.000 $10.000
-------- -------- ------- -------- ------- ------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.102 0.009 0.114 0.019 0.099 0.018 0.042 0.012
Net realized and unrealized
gain (loss) (0.496) (0.489) 1.104 1.097 2.429 2.431 (0.292) (0.292)
------- ------- ------ ------ ------ ------ ------- -------
Total from Investment Operations (0.394) (0.480) 1.218 1.116 2.528 2.449 (0.250) (0.280)
------- ------- ------ ------ ------ ------ ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.106) (0.020) (0.118) (0.036) (0.118) (0.039) --- ---
From net realized gains (0.230) (0.230) (0.100) (0.100) --- --- --- ---
------- ------- ------- ------- --- --- --- ---
Total Distributions Declared to (0.336) (0.250) (0.218) (0.136) (0.118) (0.039) --- ---
Shareholders ------- ------- ------- ------- ------- ------- --- ---
Net asset value - End of period $12.430 $12.380 $13.160 $13.110 $12.160 $12.130 $9.750 $9.720
======== ======== ======== ======== ======== ======== ======= ======
Total return(c) (2.88)% (3.56)% 10.14% 9.28% 26.20% 25.30% (2.50)%(e) (2.80)%(e)
------- ------- ----- ----- ------ ------ ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.66%(d) 2.41%(d) 1.70% 2.45% 1.88% 2.63% 2.45% (f) 3.20% (f)
Net investment income 0.82%(d) 0.07%(d) 0.90% 0.15% 0.92% 0.17% 1.07% (f) 0.32% (f)
Portfolio turnover 65% 65% 15% 15% 14% 14% 89% (f) 89% (f)
Net assets at end of period (000) $31,297 $20,931 $36,830 $22,458 $31,098 $7,179 $27,790 $4,444
- ---------------------------------
(A) Per share data was calculated using average shares outstanding method 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) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year ratios are net of benefits received,
if any.
(E) Not annualized.
(F) 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 AND CETAIN RISK FACTORS
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.
Temporary/Defensive Investments. Temporarily available cash may be invested in
certificates of deposit, bankers' acceptances, high quality commercial paper,
Treasury bills, U.S. government securities and repurchase agreements. Some or
all of the Fund's assets may be invested in such investments. 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 will 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 net 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. Investments in foreign securities have special risks
related to political, economic and legal considerations outside of the U.S. As a
result, the price 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 Currency Transactions. In connection with its investments in foreign
securities, the Fund may purchase and sell foreign currencies on a spot or
forward basis. 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.
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. Some
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.
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. Existing or future legislation limits and may further limit (i)
investment by certain institutions or (ii) tax deductibility of the
interest by the issuer, which may adversely affect value; and
d. Certain lower rated bonds do not pay interest in cash on a current
basis. However, the Fund will accrue and distribute this interest on a
current basis, and may have to sell securities to generate cash for
distributions.
2. The Fund's achievement of its investment objective is more dependent on the
Adviser's credit analysis.
3. Lower rated bonds are less sensitive to interest rate changes, but are
more sensitive to adverse economic developments.
During the fiscal year ended October 31, 1995, the Fund had less than 2.00% of
its total average annual assets invested in lower rated bonds.
Borrowing of Money. The Fund may issue senior securities only through borrowing
of 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.
Other. The Fund may not always achieve its investment objective. The Fund's
investment objective and non-fundamental policies may be changed without
shareholder approval. The Fund will notify investors at least 30 days prior to
any material change in the Fund's investment objective. If there is a change in
the investment objective, shareholders should consider whether the Fund remains
an appropriate investment in light of their financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares are redeemed
in response to a change in objective. The Fund's fundamental 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 at the end of the period. Each
Class's performance may be compared to various indices. Quotations from various
publications may be included in sales literature and advertisements. See
"Performance Measures" in the Statement of Additional Information for more
information.
All performance information is historical and does not predict future results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the Fund's
affairs as conducted by the Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc. Colonial Investment
Services, Inc. (Distributor) is a subsidiary of the Adviser and serves as
the distributor for the Fund's shares. Colonial Investors Service Center,
Inc. (Transfer Agent), an affiliate of the Adviser, serves as the
shareholder services and transfer agent for the Fund. The Colonial Group, Inc.
is a direct subsidiary of Liberty Financial Companies, Inc. which in turn is
an indirect subsidiary of Liberty Mutual Insurance Company (Liberty Mutual).
Liberty Mutual is considered to be the controlling entity of the Adviser and
its affiliates. Liberty Mutual is an underwriter of workers' 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
0.75% of the Fund's average daily net assets for fiscal year 1995.
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.
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
certain out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser may agree.
The Adviser 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 of the Fund 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 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 paid in cash 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 of the Fund 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 shares and there are some
limitations on the issuance of Class A certificates. The Fund may refuse any
purchase order for its shares. See the Statement of Additional Information for
more information.
Class A Shares. Class A shares are offered at net asset value, subject to a
0.25% annual service fee, plus an initial or contingent deferred sales
charge as follows:
Initial Sales Charge
---------------------------------
Retained
by
Financial
Service
Firm as
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 B Shares. Class B shares are offered at net asset value, without an
initial sales charge, subject to a 0.75% annual distribution fee for
approximately eight years (at which time they convert to Class A shares not
bearing a distribution fee), a 0.25% annual service fee and a declining
contingent deferred sales charge if redeemed within six years after purchase. As
shown below, the amount of the contingent deferred sales charge depends on the
number of years after purchase that the redemption occurs:
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.
General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments 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.
Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares at a reduced or without an initial or contingent
deferred sales charge. These programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges" and "How to Sell Shares."
Shareholder Services. A variety of shareholder services are available. For 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 of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will send proceeds only after the check has cleared (which may take up to
15 days).
Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent along with any certificates for shares to
be sold. The sale price is the net asset value (less any applicable contingent
deferred sales charge) next calculated after the Fund receives the request in
proper form. Signatures must be guaranteed by a bank, a member firm of a
national stock exchange or another eligible guarantor institution. Stock power
forms are available from financial service firms, the Transfer Agent and many
banks. Additional documentation is required for sales by corporations, agents,
fiduciaries, surviving joint owners and individual retirement account holders.
For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which the Fund values its shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law. In June of any year, the Fund may deduct
$10 (payable to the Transfer Agent) from accounts valued at less than $1,000
unless the account value has dropped below $1,000 solely as a result of share
value depreciation. Shareholders will receive 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 and/or their financial advisers are automatically eligible to
exchange Fund shares and may redeem up to $50,000 of Fund shares by calling
1-800-422-3737 toll-free any business day between 9:00 a.m. and the time at
which the Fund values its shares. Telephone redemption privileges for larger
amounts may be elected on the account application. Proceeds and confirmations of
telephone transactions will be mailed or sent to the address or record.
Telephone redemptions are not available on accounts with an address change in
the preceding 30 days. The Adviser, the Transfer Agent and the Fund will not be
liable when following telephone instructions reasonably believed to be genuine,
and a shareholder may suffer a loss from unauthorized transactions. The Transfer
Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. All telephone transactions are recorded.
Shareholders and/or their financial advisers are required to provide their name,
address and account number. Financial advisers are also required to provide
their broker number. Shareholders and/or their financial advisers wishing to
redeem or exchange shares by telephone may experience difficulty in reaching the
Fund at its toll-free telephone number during periods of drastic economic or
market changes. In that event, shareholders and/or their financial advisers
should follow the procedures for redemption or exchange by mail as described
above under "How to Sell Shares." The Adviser, the Transfer Agent and the Fund
reserve the right to change, modify, or terminate the telephone redemption or
exchange services at any time upon prior written notice to shareholders.
Shareholders and/or their financial advisers are not obligated to transact by
telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual service fee of 0.25%
of the Fund's average net assets attributed to each Class of shares. The Fund
also pays the Distributor an annual distribution fee of 0.75% of the average net
assets attributed to its Class B 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,
approximately 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. Shareholders receive one vote for
each Fund share. Shares of the Trust vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the aggregate ten
percent of Trust shares may call meetings to consider removal of Trustees. Under
certain circumstances, the Trust will provide information to assist shareholders
in calling such a meeting. See the Statement of Additional Information for more
information.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust (Declaration) disclaims shareholder liability for acts or
obligations of the Fund and the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by the Fund or the Trust's Trustees. The Declaration provides for
indemnification out of Fund property for all loss and expense of any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances (which are considered remote) in which the Fund would
be unable to meet its obligations and the disclaimer was inoperative. The risk
of a particular fund incurring financial loss on account of another fund of the
Trust is also believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the other fund was
unable to meet its obligations.
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.
[THIS PAGE INTENTIONALLY LEFT BLANK.]
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, 1996
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, 1996 Statement of Additional Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
COLONIAL 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; The
Fund's Investment Objective; How
the Fund Pursues its Objective
5. Cover Page; How the Fund is
Managed; Organization and History;
Back Cover
6. Organization and History;
Distributions and Taxes; How to
Buy Shares
7. Summary of Expenses; How to Buy
Shares; How the Fund Values its
Shares; Cover Page; 12b-1 Plans;
Back Cover
8. Summary of Expenses; How to Sell
Shares; How to Exchange Shares;
Telephone Transactions
9. Not Applicable
February 28, 1996
COLONIAL 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 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 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.
This Prospectus explains concisely what you should know before investing in the
Fund. Read it carefully and retain it for future reference. More detailed
information about the Fund is in the February 28, 1996 Statement of Additional
Information which has been filed with the Securities and Exchange Commission and
is obtainable free of charge by calling the Adviser at 1-800-248-2828. The
Statement of Additional Information is incorporated by reference in (which means
it is considered 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 and, in addition, are subject to 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 and
Certain Risk Factors
How the Fund Pursues its Objective
How the Fund Measures its Performance
How the Fund is Managed
How the Fund Values its Shares
Distributions and Taxes
How to Buy Shares
How to Sell Shares
How to Exchange Shares
Telephone Transactions
12b-1 Plans
Organization and History
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your annual
expenses for an investment in each Class of the Fund's shares. See "How the Fund
is Managed" and "12b-1 Plans" for more complete descriptions of the Fund's
various costs and expenses.
Shareholder Transaction Expenses(1)(2) Class A Class B
Maximum initial sales charge imposed on a purchase
(as a % of offering price) (3) 5.75% 0.00%(5)
Maximum contingent deferred sales charge
(as % of offering price) (3) 1.00%(4) 5.00%
(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to S ell S hares."
(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 B uy S
hares."
(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
Class A Class B
Management fee 0.75% 0.75%
12b-1 fees 0.25 1.00
Other expenses 0.61 0.61
---- ----
Total operating expenses 1.61% 2.36%
Prior to August 1, 1995, the Adviser had voluntarily agreed to waive or bear
certain Fund expenses in order to limit total operating expenses to 1.35% for
Class A shares and 2.10% for Class B shares. Effective August 1, 1995, the
expense limit of the Fund was changed to 1.40%. Amounts in the table reflect the
aggregate operating expenses incurred by the Fund during the fiscal year ended
October 31, 1995, adjusted to reflect the current expense limit of the Fund.
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 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) (7)
1 year $ 73 $ 74 $ 24
3 years 105 104 74
5 years 140 146 126
10 years 238 251(8) 251(8)
(6) Assumes redemption.
(7) Assumes no redemption.
(8) Class B shares automatically convert to Class A shares after approximately
8 years; therefore, years 9 and 10 reflect Class A share 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 1995 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)
1995 1994 1993 1992(c)
------------------ --------------------------------------------------------
Class A Class B Class A Class B Class A Class B Class A Class B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period 12.690 $12.630 $11.760 $11.720 $9.340 $9.310 $10.000 $10.000
------- -------- -------- -------- ------- ------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.167 0.076 0.170 0.077 0.182 0.104 0.088 0.059
Net realized and unrealized gain (loss) 0.735 0.735 0.969 0.959 2.461 2.447 (0.748) (0.749)
------ ------ ------ ------ ------ ------ ------- -------
Total from Investment Operations 0.902 0.811 1.139 1.036 2.643 2.551 (0.660) (0.690)
------ ------ ------ ------ ------ ------ ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income (0.198) (0.107) (0.166) (0.083) (0.223) (0.141) --- ---
From net realized gains (0.944) (0.944) (0.043) (0.043) --- --- --- ---
------- ------- ------- ------- --- --- --- ---
Total Distributions Declared to (1.142) (1.051) (0.209) (0.126) (0.223) (0.141) --- ---
------- ------- ------- ------- ------- ------- --- ---
Shareholders
Net asset value - End of period $12.450 $12.390 $12.690 $12.630 $11.760 $11.720 $9.340 $9.310
======== ======== ======== ========= ======== ======== ======= ======
Total return(d)(e) 8.23% 7.43% 9.76% 8.88% 28.77% 27.70% (6.59)%(g) (6.90)%(g)
==== ===== ===== ===== ====== ====== ======= =======
RATIOS TO AVERAGE NET ASSETS
Operating expenses 1.36%(f) 2.11%(f) 1.25% 2.00% 1.25% 2.00% 1.25%(h) 2.00%(h)
Interest expense --- --- --- --- 0.01% 0.01% --- ---
Fees waived by the Adviser 0.26%(f) 0.26%(f) 0.36% 0.36% 0.51% 0.51% 0.67%(h) 0.67%(h)
Net investment income 1.40% 0.65% 1.38% 0.63% 1.75% 1.00% 2.25%(h) 1.50%(h)
Portfolio turnover 74% 74% 52% 52% 58% 58% 14%(h) 14%(h)
Net assets at end of period (000) $11,501 $59,131 $10,525 $63,139 $1,769 $40,837 $164 $32,099
- ---------------------------------
Net of fees and expenses waived or borne by the
Adviser which amounted to $0.031 $0.031 $0.045 $0.045 $0.053 $0.053 $0.026 $0.02
</TABLE>
Per share data was(calculated using average shares outstanding during the
period.
The Fund commenced(investment operations on June 8, 1992.
Total return at netdasset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge. Had the Adviser
notewaived or reimbursed a portion of expenses, total return would have been
reduced. The benefits derived)from custody credits and directed brokerage
arrangements had no impact. The prior years ratios are net of any benefits
received, if any. Notgannualized. Annualized.
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 AND CERTAIN RISK FACTORS
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 movements
in 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 a futures contract
calls for the delivery (or acceptance) of a specified instrument, a futures
contract is 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 of comparable 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. Securities of smaller companies trade less frequently,
in smaller volumes and fluctuate more sharply in value than exchange listed
securities of larger companies.
Borrowing of Money. The Fund may issue senior securities only through borrowing
money from banks for temporary or emergency purposes up to 10% of its net
assets; however, the Fund will not purchase additional portfolio securities
while borrowings exceed 5% of net assets.
Other Investment Practices. The Fund may engage in the following investment
practices, some of which are described in more detail in the Statement of
Additional Information.
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 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 will be added so that the
obligation will at all times be fully collaterialzed. 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 net 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 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, at the end of the period. Each Class's performance
may be compared to various indices. Quotations from various publications may be
included in sales literature and advertisements. See "Performance Measures" in
the Statement of Additional Information for more information.
All performance information is historical and does not predict future results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the Fund's
affairs as conducted by the Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc. Colonial Investment
Services, Inc. (Distributor) is a subsidiary of the Adviser and serves as the
distributor for the Fund's shares. Colonial Investors Service Center, Inc.
(Transfer Agent), an affiliate of the Adviser, serves as the shareholder
services and transfer agent for the Fund. The Colonial Group, Inc. is a direct
subsidiary of Liberty Financial Companies, Inc. which in turn is an indirect
subsidiary of Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual
is considered to be the controlling entity of the Adviser and its affiliates.
Liberty Mutual is an underwriter of workers' 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
0.49% of the Fund's average daily net assets for fiscal year 1995.
Daniel Rie, Senior Vice President and Director of the Adviser and head of the
Equity Group, has co-managed the Fund since June, 1995 and has managed various
other Colonial equity funds since 1986.
Susan Cordes, Vice President of the Adviser, has co-managed the Fund since June,
1995 and has managed various other Colonial equity funds since 1993. Prior to
1993, Ms. Cordes was an Analyst and Assistant Vice President of the Adviser.
Peter Wiley, Assistant Vice President of the Adviser, has co-managed the Fund
since June, 1995. Prior to co-managing the Fund, Mr. Wiley was an Equity
Research Analyst of the Adviser. Prior to joining the Adviser in 1992, Mr. Wiley
was an Analyst at State Street Bank and Trust Company and an assistant technical
staff member of the MIT Lincoln Laboratory.
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
certain out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser may agree.
The Adviser 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 of the Fund are
valued as of the close of the New York Stock Exchange (Exchange) each day the
Exchange is open. Portfolio securities for which market quotations are readily
available are valued at market. Short-term investments maturing in 60 days or
less are valued at amortized cost, when it is determined, pursuant to procedures
adopted by the Trustees, that such cost approximates market value. All other
securities and assets are valued at fair value following procedures adopted by
the Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders virtually all net income
and any net realized gain at least annually.
The Fund generally declares 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 paid in cash 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 of the Fund 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 the 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, subject to a
0.25% annual service fee, plus an initial or contingent deferred sales charge as
follows:
_____Initial Sales Charge______
Retained by
Financial
Service
Firm as
_____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 B Shares. Class B shares are offered at net asset value, without an
initial sales charge, subject to a 0.75% annual distribution fee for
approximately eight years (at which time they convert to Class A shares not
bearing distribution fee), a 0.25% annual service fee and a declining contingent
deferred sales charge if redeemed within six years after purchase. As shown
below, the amount of the contingent deferred sales 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.
General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment 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. See the
Statement of Additional Information for more information.
Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares at a reduced or without an initial or contingent
deferred sales charge. These programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges" and "How to Sell Shares."
Shareholder Services. A variety of shareholder services are available. For 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 of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will send proceeds 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 prior to the time at which the Fund values its shares. to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law.
In June of any year, the Fund may deduct $10 (payable to the Transfer Agent)
from accounts valued at less than $1,000 unless the account value has dropped
below $1,000 solely as a result of share value depreciation. Shareholders will
receive 60 days' written notice to increase the account value before the fee is
deducted.
HOW TO EXCHANGE SHARES
Exchanges at net asset value may be made among the same class of shares of most
Colonial funds. 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 and/or their financial advisers are automatically eligible to
exchange Fund shares and redeem up to $50,000 of Fund shares by calling
1-800-422-3737 toll-free any business day between 9:00 a.m. and the time at
which the Fund values its shares. Telephone redemption privileges for larger
amounts may be elected on the account application. Proceeds and confirmations of
telephone transactions will be mailed or sent to the address of record.
Telephone redemptions are not available on accounts with an address change in
the preceding 30 days. The Adviser, the Transfer Agent and the Fund will not be
liable when following telephone instructions reasonably believed to be genuine,
and a shareholder may suffer a loss from unauthorized transactions. The Transfer
Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. All telephone transactions are recorded.
Shareholders and/or their financial advisers are required to provide their name,
address and account number. Financial advisers are also required to provide
their broker number. Shareholders and/or their financial advisers wishing to
redeem or exchange shares by telephone may experience difficulty in reaching the
Fund at its toll-free telephone number during periods of drastic economic or
market changes. In that event, shareholders and/or their financial advisers
should follow the procedures for redemption or exchange by mail as described
above under "How to Sell Shares." The Adviser, the Transfer Agent and the Fund
reserve the right to change, modify, or terminate the telephone redemption or
exchange services at any time upon prior written notice to shareholders.
Shareholders and/or their financial advisers are not obligated to transact by
telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual service fee of 0.25%
of the Fund's average net assets attributed to each Class of shares. The Fund
also pays the Distributor an annual distribution fee of 0.75% of 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,
approximately 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. Shareholders receive one vote for
each Fund share. Shares of the Trust vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the aggregate ten
percent of Trust shares may call meetings to consider removal of Trustees. Under
certain circumstances, the Trust will provide information to assist shareholders
in calling such a meeting. See the Statement of Additional Information for more
information.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust (Declaration) disclaims shareholder liability for acts or
obligations of the Fund and the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by the Fund or the Trust's Trustees. The Declaration provides for
indemnification out of Fund property for all loss and expense of any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances (which are considered remote) in which the Fund would
be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another
fund of the Trust is also believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the other fund was
unable to meet its obligations.
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, 1996
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, 1996 Statement of Additional Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
COLONIAL TRUST III
Cross Reference Sheet (Colonial Global Utilities 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;
Back Cover
6. Organization and History;
Distributions and Taxes; How to
Buy Shares
7. Summary of Expenses; How to Buy
Shares; How the Fund Values its
Shares; Cover Page; 12b-1 Plans;
Back Cover
8. Summary of Expenses; How to Sell
Shares; How to Exchange Shares;
Telephone Transactions
9. Not Applicable
February 28, 1996
COLONIAL GLOBAL UTILITIES FUND
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Administrator) 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 Global Utilities Fund (Fund), a diversified portfolio of Colonial Trust
III (Trust), an open-end management investment company seeks current income and
long-term growth of capital and income.
The Fund is the successor by reorganization of the Liberty Financial Utilities
Fund. The reorganization occurred on March 24, 1995. All references to the Fund
as of a time prior to such date are to the Liberty Financial Utilities Fund.
Unlike a traditional mutual fund which invests directly in individual
securities, the Fund seeks to achieve its objective by investing all of its
assets in the LFC Utilities Trust (Portfolio), an open-end management investment
company having the same objective as the Fund. The Fund's investment experience
will correspond directly to that of the Portfolio. The Portfolio is managed by
Stein Roe & Farnham Incorporated (Adviser), successor to an investment advisory
business that was founded in 1932.
This Prospectus explains concisely what you should know before investing
in the Fund. Read it carefully and retain it for future
reference. More detailed information about the Fund is in the February 28, 1996
Statement of Additional Information which has been filed with the Securities and
Exchange Commission and is obtainable free of charge by calling the
Administrator 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 and, in addition, are subject to 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 and, are subject to 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 sShares."
Contents Page
Summary of Expenses...................................
The Fund's Financial History......................
Two- Tiered Structure...................................
The Fund's Investment Objective................
How the Fund Pursues its Objective
and Certain Risk Factors.........................
How the Fund Measures its Performance.
How the Fund and the Portfolio are
Managed.....................................................
How the Fund Values its Shares................
Distributions and Taxes................................
How to Buy Shares......................................
How to Sell
sShares.......................................
How to Exchange Shares.............................
Telephone Transactions................................
12b-1
pPlans...................................................
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.
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your annual
expenses for an investment in each Class of the Fund's shares. Annual Operating
Expenses include the expenses of the Portfolio. See "How the Fund and the
Portfolio are Managed" and "12b-1 Plans" for more complete descriptions of the
Fund's and/or Portfolio's various costs and expenses.
Shareholder Transaction Expenses (1)(2)
Class A Class B Class D
Maximum Initial Sales Charge
Imposed on a Purchase
(as 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 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 average net assets)
Class A Class B Class D
Management and administration 0.65% 0.65% 0.65%
fees
12b-1 fees 0.25 1.00 1.00
Other expenses 0.42 0.42 0.42
------ ------ ------
Total operating expenses 1.32% 2.07% 2.07%
====== ====== ======
Amounts in the table reflect the aggregate operating expenses incurred by the
Fund and the Portfolio during the fiscal year ended October 31, 1995, adjusted
to reflect current fees of the Fund. See "How the Fund and the Portfolio are
Managed." The Trustees believe that the potential for economies of scale that
may be achieved by the Fund and the Portfolio in the event additional mutual
funds invest in the Portfolio outweighs the slight increase (less than 0.01% of
average net assets per year at current asset levels) in the aggregate expenses
of the Fund and the Portfolio over what the Fund's expenses would be if it
invested directly in the securities held by the Portfolio.
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 $ 70 $ 71 $ 21 $ 41 $ 31
3 years 97 95 65 74 74(9)
5 years 126 111 120 120 120
10 years 207 221(8) 221(8) 247 247
(6) Assumes redemption at period end.
(7) Assumes no redemption.
(8) Class B shares automatically convert to Class A shares after
approximately eight years; therefore, years 9 and 10
reflect Class A share expenses.
(9) Class D shares do not incur a contingent deferred sales charge on
redemptions made after one year.
<PAGE>
THE FUND'S FINANCIAL HISTORY
The following schedule of financial highlights for a share outstanding
throughout the year ended October 31, 1995, has been audited by Price Waterhouse
LLP, independentaccountants. Their unqualified report is included in the Fund's
1995 Annual Report and is incorporated by reference into the Statement of
Additional Information. The financial highlights for a share outstanding for
each of the periods prior to the year ended October 31, 1995 were audited by
KPMG Peat Marwick LLP, independent auditors.
<TABLE>
<CAPTION>
Period ended
Year ended October 31 October 31
------------------------------------------------------------------------------------------
1995(c) 1994 1993 1992 1991(i)
Class A Class B (d) Class D (d) Class A Class A Class A Class A
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $10.610 $10.420 $10.420 $12.150 $10.430 $9.990 $10.000
-------- -------- -------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)(b) 0.536 0.248 0.248 0.550 0.570 0.590 0.020
Net realized and unrealized gain (loss) 0.520 0.665 0.665 (1.430) 1.790 0.460 (0.030)
------ ------ ------ ------- ------ ------ -------
Total from Investment Operations 1.056 0.913 0.913 (0.880) 2.360 1.050 (0.010)
------ ------ ------ ------- ------ ------ -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.517) (0.253) (0.253) (0.500) (0.610) (0.610) ---
From net realized gains (0.069) --- --- (0.160) (0.030) --- ---
------- --- --- ------- ------- --- ---
Total Distributions Declared
to Shareholders (0.586) (0.253) (0.253) (0.660) (0.640) (0.610) ---
------- ------- ------- ------- ------- ------- ---
Net asset value - End of period $11.080 $11.080 $11.080 $10.610 $12.150 $10.430 $9.990
======== ======== ======== ======== ======== ======== ======
Total return(e)(f) 10.32% 8.82% (g) 8.82% (g) (7.40)% 23.30% 10.80% (2.10)% (h)
====== ===== ===== ======= ====== ====== =======
RATIOS TO AVERAGE NET ASSETS
Expenses (b) 1.29% 2.05% (h) 2.05% (h) 1.20% 1.13% 1.25% 1.25% (h)
Net investment income (b) 5.14% 3.73% (h) 3.73% (h) 4.90% 4.80% 5.81% 5.75% (h)
Fees and expenses waived or borne
by Liberty Securities Corporation
(Liberty Securities) and the
Portfolio 0.03% 0.02% (h) 0.02% (h) --- --- 0.36% 8.56% (h)
Net assets at end of period (000) $211,916 $745 $307 $260,450 $304,500 $118,997 $6,617
- ---------------------------------
(a)Net of fees and expenses waived or
borne by Liberty Securities which
amounted to $0.002 --- --- --- --- --- ---
(b)The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate
share of the income and expenses of the Portfolio.
(c)Calculated using the average shares method.
(d)Class B and Class D shares were initially offered on March 27, 1995. Per
share amounts reflect activity from that date. (e) Total return at net asset
value assuming all distributions reinvested and no initial sales charge or
contingent deferred sales charge. (f) Total return would have been lower had
certain expenses not been waived.
(g)Not annualized.
(h)Annualized.
(i)The Fund commenced investment operations on August 23, 1991.
</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.
<PAGE>
TWO-TIERED STRUCTURE
Unlike other mutual funds which invest directly in individual securities, the
Fund is an open-end management investment company that seeks to achieve its
investment objective by investing all of its assets in the Portfolio, a separate
registered investment company with the same investment objective as the Fund and
which invests directly in portfolio securities. See "The Fund's Investment
Objective," "How the Fund Pursues its Objective and Certain Risk Factors" and
"How the Fund and the Portfolio are Managed" for information concerning the
Portfolio's and the Fund's investment objectives, policies, management and
expenses. The following describes certain of the effects and risks of this
structure.
The Fund's and the Portfolio's investment objectives may not be changed without
shareholder approval. Generally, matters submitted by the Portfolio to its
investors for a vote will be passed along by the Fund to its shareholders, and
the Fund will vote its entire interest in the Portfolio in proportion to the
votes actually received from Fund shareholders. As of the date of this
Prospectus, the Fund was the only investor in the Portfolio, so that the outcome
of any matter submitted to the Portfolio's investors would be determined by the
vote of Fund shareholders. In the future, however, other funds or institutional
investors may invest in the Portfolio. Such other investors could alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio. You may obtain information
about whether there are other investors in the Portfolio by writing or calling
the Administrator at 1-800-248-2828.
Other funds or institutions would invest in the Portfolio on the same terms and
conditions as the Fund and would bear their proportionate share of the
Portfolio's expenses. However, such other mutual funds would not be required to
issue their shares at the same public offering price as the Fund and may have
direct expenses that are higher or lower than those of the Fund. These
differences may result in such other funds generating investment returns higher
or lower than those of the Fund. Large scale redemptions by any such other
investors in the Portfolio could result in untimely liquidation of the
Portfolio's security holdings, loss of investment flexibility, and an increase
in the operating expenses of the Portfolio as a percentage of its assets.
The Fund will continue to invest in the Portfolio so long as the Trust's Board
of Trustees determines it is in the best interest of Fund shareholders to do so.
In the event that the Portfolio's investment objective or policies were changed
so as to be inconsistent with the Fund's investment objective or policies, the
Board of Trustees would consider what action might be taken, including changes
to the Fund's investment objective or policies, or withdrawal of the Fund's
assets from the Portfolio and investment of such assets in another pooled
investment entity or the retention of an investment adviser to manage the Fund's
investments. Certain of these actions would require Fund shareholder approval.
Further, because the same individuals serve on the Boards of the Fund and the
Portfolio, in the event at the time any such action were to be taken other
investors had invested directly in the Portfolio, decisions as to the
appropriate actions to take might involve conflicts of interest. In such event,
the Trustees would adopt written policies to address any potential conflicts.
Withdrawal of the Fund's assets from the Portfolio could result in a
distribution by the Portfolio to the Fund of portfolio securities in kind (as
opposed to a cash distribution), and the Fund could incur brokerage fees or
other transaction costs and could realize distributable taxable gains in
converting such securities to cash. Such a distribution in kind could also
result in a less diversified portfolio of investments for the Fund.
THE FUND'S INVESTMENT
OBJECTIVE
The Fund seeks current income and long-term growth of capital and income.
HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS
As indicated above, the Fund seeks to achieve its objective by investing all its
assets in the Portfolio, which has the same investment objective as the Fund.
The Ffollowing is a discussion of the investment policies of the Portfolio.
The Portfolio normally invests at least 65% of its total assets in U.S. and
foreign equity and debt securities issued by public utility companies (Utility
Securities). Utility Securities include securities issued by companies engaged
in the manufacture, production, generation, transmission, sale or distribution
of electricity, natural gas or other types of energy or water or other sanitary
services, and companies engaged in telecommunications, including telephone,
telegraph, satellite, microwave and other communications media (but not
companies primarily engaged in public broadcasting or cable television). The
Portfolio will invest primarily in securities of large, established utility
companies located in developed countries, including the U.S. Generally, at least
20% of the Portfolio's total assets will be invested in equity Utility
Securities. The Portfolio will generally invest at least 20% of its total assets
in debt securities. Because the Portfolio concentrates its investments in
Utility Securities, an investment in the Fund may entail more risk than an
investment in a more diversified portfolio. See "Utility Securities" below.
Equity securities generally include common and preferred stock, warrants
(rights) to purchase such stock, securities convertible into such stock and
sponsored and unsponsored American Depository Receipts (receipts issued in the
U.S. by banks or trust companies evidencing ownership of underlying foreign
securities). Debt securities generally include securities of any maturity that
pay fixed, floating or adjustable interest rates, as well as zero coupon
securities (debt securities that do not pay interest but, instead, are issued at
a significant discount to their stated maturity values) and pay-in-kind
securities (debt securities that pay interest, at the issuer's option, in
additional securities instead of cash). The debt securities in which the
Portfolio invests will be rated at the time of investment at least Baa by
Moody's Investors Service, Inc. (Moody's) or BBB by Standard & Poor's
Corporation (S&P), or will be unrated securities deemed by the Adviser to be of
comparable quality to Baa by Moody's or BBB by S&P or higher. Such securities
will not necessarily be sold if the rating is subsequently reduced unless any
such down-grade would cause the Portfolio to hold more than 5% of its total
assets in debt securities rated below investment grade. Equity and debt
securities may be purchased on a "when-issued" or forward basis. This means that
the Portfolio 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.
The Portfolio may invest without limit in foreign securities. The Fund normally
will invest in securities issued by companies located in at least three
countries including the U.S. Up to 35% of the Portfolio's total assets may be
invested in equity securities of any type and investment grade debt securities
that are not Utility Securities.
Utility Securities. Because the Portfolio invests primarily in Utility
Securities, the Fund's shares may fluctuate in value more widely than shares of
a more diversified portfolio. The values of Utility Securities are especially
affected by changes in prevailing interest rate levels (as interest rates
increase, the values of Utility Securities tend to decrease, and vice versa), as
well as general competitive and market forces in the utility industries, changes
in federal and state regulation, energy conservation efforts and other
environmental concerns and, particularly with respect to nuclear facilities,
shortened economic life and cost overruns. Certain utilities, especially gas and
telephone utilities, have in recent years been affected by increased
competition, which could adversely affect the profitability of such utilities.
Similarly, the profitability of certain electric utilities may in the future be
adversely affected by increased competition resulting from partial deregulation.
Debt Securities Generally. The values of debt securities also 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 may also translate into lower
distributions paid by the Fund. Additionally, because zero coupon and
pay-in-kind securities do not pay interest but the Portfolio nevertheless must
accrue and distribute the income deemed to be earned on a current basis, the
Portfolio may have to sell other investments to raise the cash needed to make
income distributions.
Debt securities rated BBB or Baa have speculative characteristics, and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity of the issuers of such securities to make principal and
interest payments than would likely be the case with investments in securities
with higher credit ratings.
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
such securities, and therefore of Fund shares, 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, difficulties in enforcing judgments abroad, the
existence of less liquid and less regulated foreign markets, the unavailability
of reliable information about issuers, the existence of different accounting,
auditing and financial standards in foreign countries, the existence (or
potential imposition) of exchange control regulations (including currency
blockage), restrictions on repatriation of capital invested abroad, 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.
Other Investment Practices. The Portfolio may also engage to a limited extent in
the following investment practices, which are described more fully in the
Statement of Additional Information.
Options, Forwards, Futures and Other Derivatives. Consistent with its objective,
the Portfolio may, without limit, purchase and write both call options and put
options on securities, indexes and foreign currencies, enter into interest rate,
index and foreign currency futures contracts and options on such futures, and
purchase other types of exchange-traded investment contracts linked to
individual securities, indexes or other benchmarks. Such transactions will be
entered into to provide additional revenue, to hedge against changes in security
prices, interest rates or currency fluctuations, or as an efficient means of
adjusting its exposure to the market. Call and put options will be written only
if they are covered. The use of options, forwards, futures and other derivative
strategies for other than hedging purposes may be considered speculative. Other
than as described below under "Leverage," the derivative securities purchased by
the Portfolio will not involve leverage.
The Portfolio will not attempt, nor would it be able, to eliminate all foreign
currency or interest rate risk. Further, although hedging may lessen the risk of
loss, it also limits the potential gain if the hedged instrument's value
increases. If an option expires unexercised, the holder will lose any amount it
paid to acquire the option. Transactions in futures and 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
currency exchange or interest rates or stock market movements is inaccurate, the
Portfolio may be worse off than if it had not engaged in the transaction. See
the Statement of Additional Information for information relating to the
Portfolio's obligations in entering into such transactions.
Securities Lending. For the purpose of realizing additional income, the
Portfolio may lend its portfolio securities to broker-dealers or institutional
investors. Such loans will be limited to securities not exceeding 30% in value
of the Portfolio's total assets. Each such loan will be continuously secured by
collateral at least equal to the value of the securities loaned. In the event of
bankruptcy or other default of the borrower, the Portfolio could experience both
delays in liquidating the loan collateral or recovering the loaned securities
and losses including (a) possible decline in the value of the collateral or in
the value of the securities loaned during the period while the Portfolio seeks
to enforce its rights thereto, (b) possible subnormal levels of income and lack
of access to income during this period, and (c) expenses of enforcing its
rights.
Leverage. The purchase of securities on a "when-issued" basis and the purchase
and sale of futures and forward contracts 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
Portfolio will either "cover" its obligations under such transactions by holding
the currency or instrument (or rights to acquire the currency or instrument) it
is obligated to deliver under such contracts, or deposit and maintain in a
segregated account with its custodian cash, high quality liquid debt securities,
or equity securities denominated in the particular foreign currency, equal in
value to the Portfolio's obligations under such contracts.
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 Portfolio's assets
also may be invested in such investments or in investment grade U.S. or foreign
debt securities, Eurodollar certificates of deposit and obligations of savings
institutions 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. Not more
than 15% of the Fund's total assets will be invested in repurchase agreements
maturing in more than 7 days and other illiquid securities.
Borrowing of Money. Neither the Fund nor the Portfolio may issue senior
securities (as defined in the Investment Company Act of 1940 and the rules
thereunder) or borrow money, except, that as a temporary measure for
extraordinary or emergency purposes, each of the Fund and the Portfolio may
borrow from banks in aggregate amounts at any one time outstanding not exceeding
33 1/3% of the total assets (including the amount borrowed) of the Fund or
Portfolio, respectively, valued at market. Neither the Fund nor the Portfolio
may purchase any securities at any time when borrowings exceed 5% of the total
assets (at market value) of the Fund or the Portfolio, respectively. Nor may the
Fund or the Portfolio enter into options and futures transactions.
Other. The Portfolio and, therefore, the Fund may not always achieve its
investment objective. The Fund's and the Portfolio's non-fundamental policies
may be changed without shareholder approval. The Fund's and the Portfolio's
investment objectives and fundamental policies listed in the Statement of
Additional Information cannot be changed without the approval of a majority of
the Fund's or the Portfolio'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 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 AND THE PORTFOLIO ARE MANAGED
The Fund's Trustees formulate the Fund's general policies and oversee the Fund's
affairs. The Fund has not retained the services of an investment adviser because
the Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. The Portfolio is managed by the Adviser.
Subject to the supervision of the Portfolio's Trustees, the Adviser makes the
Portfolio's day-to-day investment decisions, arranges for the execution of
portfolio transactions and generally manages the Portfolio's investments. The
Adviser is an indirect subsidiary of Liberty Financial Companies, Inc. (Liberty
Financial), which in turn is an indirect subsidiary of Liberty Mutual Insurance
Company (Liberty Mutual). Liberty Mutual is an underwriter of workers'
compensation insurance and a property and casualty insurer in the U.S. The same
individuals serve as Trustees of the Fund and the Portfolio. See "Management of
the Colonial Funds" in the Statement of Additional Information for information
concerning the Trustees and officers of the Fund and the Portfolio.
Robert A. Christensen, Senior Vice President of the Adviser, has been the
Portfolio's portfolio manager since its inception in August, 1991, and has been
associated with the Adviser since 1962. Ophelia Barsketis, Senior Vice President
of the Adviser, has co-managed the Portfolio since September 1993. Ms. Barsketis
has been associated with the Adviser since 1983.
The Adviser places all orders for the purchase and sale of securities for the
Portfolio. In doing so, the Adviser seeks to obtain the best combination of
price and execution, which involves a number of judgmental factors. When the
Adviser believes that more than one broker-dealer is capable of providing the
best combination of price and execution in a particular portfolio transaction,
the Adviser often selects a broker-dealer that furnishes it with research
products or services, and may consider sales of shares of the Fund as a factor
in the selection of the broker-dealer.
For its management services, the Adviser receives from the Portfolio a monthly
fee at an annual rate of 0.55% of the Portfolio's average daily net assets up to
$400 million and 0.50% of its average daily net assets over that amount. For
these services, the Portfolio paid the Adviser 0.55% of the Portfolio's average
daily net assets for 1995.
The Administrator provides the Fund with certain administrative services and
generally oversees the operation of the Fund. The Fund pays the Administrator a
monthly fee at the annual rate of 0.10% of average daily net assets for these
services. The Administrator also provides pricing and bookkeeping services to
the Fund for a monthly fee at the annual rate of $18,000 plus 0.0233% annually
of average daily net assets over $50 million, and certain administrative and
accounting services to the Portfolio. Colonial Investment Services, Inc.
(Distributor), a subsidiary of the Administrator, serves as the Fund's
distributor. Colonial Investors Service Center, Inc. (Transfer Agent), an
affiliate of the Administrator, serves as the Fund's shareholder services and
transfer agent for a fee of 0.20% annually of average net assets plus certain
out-of-pocket expenses. The Administrator, the Distributor and the Transfer
Agent are all indirectly controlled by Liberty Mutual.
Each of the foregoing fees is subject to any fee waiver or expense
reimbursement to which the Adviser or the Administrator may agree.
See "Summary of Expenses" above.
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 of the Fund are
valued as of the close of the New York Stock Exchange (Exchange) each day the
Exchange is open 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 monthly. Distributions are invested in additional
shares of the same Class of the Fund at net asset value unless the shareholder
elects to receive cash. Regardless of the shareholder's election, distributions
of $10 or less will not be paid in cash 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 of the Fund 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,
subject to a 0.25% annual service fee, 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 6.10% 5.75% 5.00%
$50,000
$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 1.00%
$3,000,000............................................
Next 0.50%
$2,000,000...........................................
Over 0.25%(1)
$5,000,000...........................................
(1) Paid over 12 months but only to the extent the shares remain outstanding.
Purchases of $1 million to $5 million are subject to a 1.00% contingent deferred
sales charge payable to the Distributor on redemptions within 18 months from the
first day of the month following the purchase. The contingent deferred sales
charge does not apply to the excess of any purchase over $5 million.
Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, subject to a 0.75% annual distribution fee for
approximately eight years (at which time they convert to Class A shares not
bearing a distribution fee), a 0.25% annual service fee and a declining
contingent deferred sales charge if redeemed within six years after purchase. As
shown below, the amount of the contingent deferred sales charge depends on the
number of years after purchase that the redemption occurs:
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, and are 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% annual 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 theamount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments (including initial sales 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 $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. See the Statement of Additional Information for
more information.
Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares at a reduced or without an initial or contingent
deferred sales charge. These programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges" and "How to Sell Shares."
Shareholder Services. A variety of shareholder services are available.
For 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 of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will send proceeds only after the check has cleared (which may take up to
15 days).
Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates for shares
to be sold. The sale price is the net asset value (less any applicable
contingent deferred sales charge) next calculated after the Fund receives the
request in proper form. Signatures must be guaranteed by a bank, a member firm
of a national stock exchange or another eligible guarantor institution. Stock
power forms are available from financial service firms, the Transfer Agent and
many banks. Additional documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual retirement account
holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which the Fund values its shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law. In June of any year, the Fund may deduct
$10 (payable to the Transfer Agent) from accounts valued at less than $1,000
unless the account value has dropped below $1,000 solely as a result of share
value depreciation. Shareholders will receive 60 days' written notice to
increase the account value before the fee is deducted.
HOW TO EXCHANGE SHARES
Fund shares generally may be exchanged at net asset value for the same class of
shares of most Colonial funds. Not all Colonial funds offer all classes, so you
may not be able to exchange into all of the other 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.
Class D Shares. Exchanges of Class D shares will not be subject to the
contingent deferred sales charge. However, if shares are redeemed within one
year after the original purchase, a 1.00% contingent deferred sales charge will
be assessed.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically eligible to
exchange Fund shares and may redeem up to $50,000 of Fund shares by calling
1-800-422-3737 toll-free any business day between 9:00 a.m. and the time at
which the Fund values its shares. Telephone redemption privileges for larger
amounts may be elected on the account application. Proceeds and confirmations of
telephone transactions will be mailed or sent to the address or record.
Telephone redemptions are not available on accounts with an address change in
the preceding 30 days. The Administrator, the Transfer Agent and the Fund will
not be liable when following telephone instructions reasonably believed to be
genuine, and a shareholder may suffer a loss from unauthorized transactions. The
Transfer Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. All telephone transactions are recorded.
Shareholders and/or their financial advisers are required to provide their name,
address and account number. Financial advisers are also required to provide
their broker number. Shareholders and/or their financial advisers wishing to
redeem or exchange shares by telephone may experience difficulty in reaching the
Fund at its toll-free telephone number during periods of drastic economic or
market changes. In that event, shareholders and/or their financial advisers
should follow the procedures for redemption or exchange by mail as described
above under "How to Sell Shares." The Administrator, the Transfer Agent and the
Fund reserve the right to change, modify, or terminate the telephone redemption
or exchange services at any time upon prior written notice to shareholders.
Shareholders and/or their financial advisers are not obligated to transact by
telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual service fee of 0.25%
of the Fund's average net assets attributed to each Class of shares. The Fund
also pays the Distributor an annual distribution fee of 0.75% of the average net
assets attributed to its Class B and Class D shares. Because the Class B and
Class D shares bear the additional distribution fees, their dividends will be
lower than the dividends of Class A shares. Class B shares automatically convert
to Class A shares, approximately eight years after the Class B shares were
purchased. Class D shares do not convert. The multiple class structure could be
terminated should certain Internal Revenue Service rulings be rescinded. See the
Statement of Additional Information for more information. The Distributor uses
the fees to defray the cost of commissions and service fees paid to financial
service firms which have sold Fund shares, and to defray other expenses such as
sales literature, prospectus printing and distribution, shareholder servicing
costs and compensation to wholesalers. Should the fees exceed the Distributor's
expenses in any year, the Distributor would realize a profit. The Plans also
authorize other payments to the Distributor and its affiliates (including the
Administrator and the Adviser) which may be construed to be indirect financing
of sales of Fund shares.
ORGANIZATION AND HISTORY
The Fund is the successor by merger to the Liberty Financial Utilities Fund,
which commenced operations in August 1991. The Fund was organized in 1995 as a
separate portfolio of the Trust, which is a Massachusetts business trust
established in 1986. The Trust is not required to hold annual shareholder
meetings, but special meetings may be called for certain purposes. Shareholders
receive one vote for each Fund share. Shares of the Trust vote together except
when required by law to vote separately by fund or by class. Shareholders owning
in the aggregate ten percent of Trust shares may call meetings to consider
removal of Trustees. Under certain circumstances, the Trust will provide
information to assist shareholders in calling such a meeting. See the Statement
of Additional Information for more information.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust (Declaration) disclaims shareholder liability for acts or
obligations of the Fund and the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by the Fund or the Trust's Trustees. The Declaration provides for
indemnification out of Fund property for all loss and expense of any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances (which are considered remote) in which the Fund would
be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another
fund of the Trust is also believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the other fund was
unable to meet its obligations.
<PAGE>
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.
<PAGE>
Investment Adviser
Stein Roe & Farnham Incorporated
One South Wacker Drive
Chicago, IL 60606
Administrator
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
State Street Bank and Trust Company
225 Franklin Street
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, 1996
COLONIAL GLOBAL
UTILITIES FUND
PROSPECTUS
Colonial Global Utilities Fund seeks current income and long-term growth of
capital and income.
For more detailed information about the Fund, call the Administrator at
1-800-248-2828 for the February 28, 1996 Statement of Additional Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
COLONIAL 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;
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
4
February 28, 1996
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, 1996 Statement of Additional
Information which has been filed with the Securities and Exchange Commission and
is obtainable free of charge by calling the Adviser at 1-800-248-2828. The
Statement of Additional Information is incorporated by reference in (which means
it is considered 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 and, in
addition, are subject to 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
and, are subject to 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 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
sShares........................................
How to Exchange Shares..............................
Telephone Transactions..................................
12b-1
pPlans.....................................................
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.
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your annual
expenses for an investment in each Class of the Fund's shares. See "How the Fund
is Managed" and "12b-1 Plans" for more complete descriptions of the Fund's
various costs and expenses.
Shareholder Transaction Expenses (1)(2)
Class A Class B Class D
Maximum Initial Sales Charge
Imposed on a purchase
(as % of offering price)(3) 0.00%(5) 1.00%(5) 4.75%(5)
Maximum Contingent Deferred
Sales Charge (as % of
offering price)(3) 5.00% 1.00% 1.00%(4)
(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.
Annual Operating Expenses (as a % of average net assets)
Class A Class B Class D
Management fee (after fee waiver) 0.27% 0.27% 0.27%
12b-1 fees 0.55 1.00 1.00
Other expenses 0.83 0.83 0.83
-------- -------- --------
Total operating 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 operating expenses" would have been 2.08% for
Class A and 2.53% for both Class B and Class D shares.
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 $71 $21 $41 $31
3 years 97 96 66 75 75(9)
5 years 133 133 113 122 122
10 years 234 232(8) 232(8) 251 251
(6) Assumes redemption at period end.
(7) Assumes no redemption.
(8) Class B shares automatically convert to Class A shares after approximately 8
years; therefore, years 9 and 10 reflect Class A share expenses.
(9) Class D shares do not incur a contingent deferred sales charge on
redemptions made after one year.
If the Adviser did not continue to waive or bear certain Fund expenses, the
amounts in the Example would be $68, $110, $154 and $278 for Class A shares for
1, 3, 5 and 10 years, respectively; $76, $109, $155 and $276 for Class B shares
assuming redemptions for 1, 3, 5 and 10 years, respectively; $26, $79, $135 and
$276 for Class B shares assuming no redemptions for 1, 3, 5 and 10 years,
respectively; $45, $89, $145 and $300 for Class D shares assuming redemptions
for 1, 3, 5 and 10 years, respectively; $35, $89, $145 and $300 for Class D
shares assuming no redemptions for 1, 3, 5 and 10 years, respectively.
<PAGE>
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 1995 Annual
Report, and is incorporated by reference into the Statement of Additional
Information.
<TABLE>
<CAPTION>
Year ended October 31(b) Period ended October 31(b)
------------------------------------ ------------------------------------
1995 1994 (c)
------------------------------------ ------------------------------------
Class A Class B Class D Class A Class B Class D
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $9.910 $9.900 $9.900 $10.000 $10.000 $10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.325 0.277 0.277 0.035 0.029 0.029
Net realized and unrealized gain (loss) 1.764 1.769 1.774 (0.125) (0.129) (0.129)
Total from Investment Operations 2.089 2.046 2.051 (0.090) (0.100) (0.100)
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.349) (0.306) (0.301) --- --- ---
Net asset value - End of period $11.650 $11.640 $11.650 $9.910 $9.900 $9.900
Total return(d)(e) 21.47% 21.00% 21.04% (0.90)% (g) (1.00)% (g) (1.00)% (g)
RATIOS TO AVERAGE NET ASSETS:
Expenses(a) 1.65% (f) 2.10% (f) 2.10% (f) 1.65% (h) 2.10% (h) 2.10% (h)
Net investment income 3.05% (f) 2.60% (f) 2.60% (f) 3.01% (h) 2.56% (h) 2.56% (h)
Fees and expenses waived or borne
by the Adviser 0.43% 0.43% 0.43% 0.35% (h) 0.35% (h) 0.35% (h)
Portfolio turnover 49% 49% 49% 0% (h) 0% (h) 0% (h)
Net assets at end of period (000) $16,346 $18,284 $4,164 $6,394 $6,332 $2,231
_________________________________
(a) Net of fees and expenses waived or borne by the Adviser which amounted to:
$0.042 $0.042 $0.042 $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) The benefits derived from custody credits and directed brokerage arrangements had no impact. The prior
year ratios are net of any benefits received, if any.
(g) Not annualized.
(h) 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.
<PAGE>
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.
Borrowing of Money. The Fund may issue senior securities only through borrowing
money from banks for temporary or emergency purposes up to 10% of its net
assets; however, the Fund will not purchase additional portfolio securities
while borrowings exceed 5% of net assets.
Other. The Fund may not always achieve its investment objective. The Fund's
investment objective and non-fundamental policies may be changed without
shareholder approval. The Fund will notify investors at least 30 days prior to
any material change in the Fund's investment objective. If there is a change in
the investment objective, shareholders should consider whether the Fund remains
an appropriate investment in light of their financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares are redeemed
in response to a change in objective. The Fund's fundamental 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. Colonial Investors Service Center, Inc.
(Transfer Agent), an affiliate of the Adviser, serves as the shareholder
services and transfer agent for the Fund. The Colonial Group, Inc. is a direct
subsidiary of Liberty Financial Companies, Inc. which in turn is an indirect
subsidiary of Liberty Mutual Insurance Company (Liberty Mutual). Liberty
Mutual is considered to be the controlling entity of the Adviser and its
affiliates. Liberty Mutual is an underwriter of workers' 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
0.27% of the Fund's average daily net assets for 1995.
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
certain out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser may agree.
The Adviser 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 under 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 of the Fund 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 paid in cash 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 of the Fund 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, subject to a
0.25% annual service fee and a 0.30% annual distribution fee, plus an initial or
a contingent deferred sales charge as follows:
<PAGE>
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.
In addition to the amounts shown above, the Distributor pays financial service
firms an ongoing commission of 0.25% annually. Payment of the ongoing
commission is conditioned on receipt by the Distributor of the 0.30% annual
distribution fee. The commission may be reduced or eliminated if the
distribution fee paid by the Fund is reduced or eliminated for any reason.
Purchases of $1 million to $5 million are subject to a 1.00% contingent deferred
sales charge payable to the Distributor on redemptions within 18 months from the
first day of the month following the purchase. The contingent deferred sales
charge does not apply to the excess of any purchase over $5 million.
Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, subject to a 0.75% annual distribution fee for eight years
(at which time they convert to Class A shares), a 0.25% annual service fee and a
declining contingent deferred sales charge if redeemed within six 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% annual distribution fee referred to above. The commission may be reduced
or eliminated if the distribution fee paid by the Fund is reduced or eliminated
for any reason.
General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments (including initial sales 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.
Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares at a reduced or without an initial or contingent
deferred sales charge. These programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges" and "How to Sell Shares."
Shareholder Services. A variety of shareholder services are available. For 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 of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will send proceeds only after the check has cleared (which may take up to
15 days).
Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates for shares
to be sold. The sale price is the net asset value (less any applicable
contingent deferred sales charge) next calculated after the Fund receives the
request in proper form. Signatures must be guaranteed by a bank, a member firm
of a national stock exchange or another eligible guarantor institution. Stock
power forms are available from financial service firms, the Transfer Agent and
many banks. Additional documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual retirement account
holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which the Fund values its shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law. In June of any year, the Fund may deduct
$10 (payable to the Transfer Agent) from accounts valued at less than $1,000
unless the account value has dropped below $1,000 solely as a result of share
value depreciation. Shareholders will receive 60 days' written notice to
increase the account value before the fee is deducted.
HOW TO EXCHANGE SHARES
Exchanges at net asset value may be made among the same class of shares of most
Colonial funds. Not all Colonial funds offer Class D shares. Shares will
continue to age without regard to the exchange for purposes of conversion and
determining the contingent deferred sales charge, if any, upon redemption.
Carefully read the prospectus of the fund into which the exchange will go before
submitting the request. Call 1-800-248-2828 to receive a prospectus and an
exchange 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 are automatically eligible to
exchange Fund shares and may redeem up to $50,000 of Fund shares by calling
1-800-422-3737 toll-free any business day between 9:00 a.m. and the time at
which the Fund values its shares. Telephone redemption privileges for larger
amounts may be elected on the account application. Proceeds and confirmations of
telephone transactions will be mailed or sent to the address of record.
Telephone redemptions are not available on accounts with an address change in
the preceding 30 days. The Adviser, the Transfer Agent and the Fund will not be
liable when following telephone instructions reasonably believed to be genuine,
and a shareholder may suffer a loss from unauthorized transactions. The Transfer
Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. All telephone transactions are recorded.
Shareholders and/or their financial advisers are required to provide their name,
address and account number. Financial advisers are also required to provide
their broker number. Shareholders and/or their financial advisers wishing to
redeem or exchange shares by telephone may experience difficulty in reaching the
Fund at its toll-free telephone number during periods of drastic economic or
market changes. In that event, shareholders and/or their financial advisers
should follow the procedures for redemption or exchange by mail as described
above under "How to Sell Shares." The Adviser, the Transfer Agent and the Fund
reserve the right to change, modify, or terminate the telephone redemption or
exchange services at any time upon prior written notice to shareholders.
Shareholders 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 0.30% 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, approximately eight years after the Class B shares were purchased. Class
D shares do not convert. The multiple class structure could be terminated should
certain Internal Revenue Service rulings be rescinded. See the Statement of
Additional Information for more information. The Distributor uses the fees to
defray the cost of commissions and service fees paid to financial service firms
which have sold Fund shares, and to defray other expenses such as sales
literature, prospectus printing and distribution, shareholder servicing costs
and compensation to wholesalers. Should the fees exceed the Distributor's
expenses in any year, the Distributor would realize a profit. The Plans also
authorize other payments to the Distributor and its affiliates (including the
Adviser) which may be construed to be indirect financing of sales of Fund
shares.
ORGANIZATION AND HISTORY
The 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. Shareholders receive one vote for each Fund share. Shares
of the Trust vote together except when required by law to vote separately by
fund or by class. Shareholders owning in the aggregate ten percent of Trust
shares may call meetings to consider removal of Trustees. Under certain
circumstances, the Trust will provide information to assist shareholders in
calling such a meeting. See the Statement of Additional Information for more
information.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust (Declaration) disclaims shareholder liability for acts or
obligations of the Fund and the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by the Fund or the Trust's Trustees. The Declaration provides for
indemnification out of Fund property for all loss and expense of any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances (which are considered remote) in which the Fund would
be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another
fund of the Trust is also believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the other fund was
unable to meet its obligations.
<PAGE>
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.
<PAGE>
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, 1996
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, 1996 Statement of Additional Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
[COLONIAL FLAG LOGO]
Colonial Mutual Funds
_________________________________________________________________
Please send your completed application to:
Colonial Mutual Funds
P.O. Box 1722
Boston, Massachusetts 02105-1722
New Account Application/Revision to Existing Account
To open a new account, complete sections 1, 2, 3, & 7.
To apply for special services for a new or existing account, complete sections
4, 5, 6, or 8 as appropriate.
___ Please check here if this is a revision.
1-----------Account Ownership--------------
Please choose one of the following.
__Individual: Print your name, Social Security #, U.S. citizen status.
__Joint Tenant: Print all names, the Social Security # for the first person,
and his/her U.S. citizen status.
__Uniform Gift to Minors: Name of custodian and minor, minor's Social Security
#, minor's U.S. citizen status.
__Corporation, Association, Partnership: Include full name, Taxpayer I.D. #.
__Trust: Name of trustee, trust title & date, and trust's Taxpayer I.D. #.
______________________________________
Name of account owner
______________________________________
Name of joint account owner
______________________________________
Street address
______________________________________
Street address
______________________________________
City, State, and Zip
______________________________________
Daytime phone number
______________________________________
Social Security # or Taxpayer I.D. #
Are you a U.S. citizen? Yes___ No___
______________________________________
If no, country of permanent residence
______________________________________
Owner's date of birth
______________________________________
Account number (if existing account)
2 -----Colonial Fund(s) You Are Purchasing--------
Your investment will be made in Class A shares if no class is indicated.
Certificates are not available for Class B or D shares. If no distribution
option is selected, distributions will be reinvested in additional Fund
shares. Please consult your financial adviser to determine which class of
shares best suits your needs.
Fund Fund Fund
1_______________ 2__________________ 3____________________
$_______________ $__________________ $____________________
Amount Amount Amount
Class
___ A Shares ___ B Shares (less than $250,000) ___ C Shares (Adjustable Rate
U.S. Government Fund only)
___ D Shares (less than $500,000, available on certain funds; see prospectus)
Method of Payment
Choose one
___Check payable to the Fund
___Bank wired on (Date) ____/____/____
Wire confirmation #
___Wire/Trade confirmation #___________________
Ways to Receive Your Distributions
Choose one
___Reinvest dividends and capital gains
___Dividends and capital gains in cash
___Dividends in cash; reinvest capital gains
___Automatic Dividend Diversification See section 5A, inside
___Direct Deposit via Colonial Cash Connection Complete Bank Information
in section 4B. I understand that my bank must be a member of the
Automated Clearing House (ACH).
Distributions of $10.00 or less will automatically be reinvested in additional
fund shares.
3---Your Signature & Taxpayer I.D. Number Certification----
Each person signing on behalf of an entity represents that his/her actions are
authorized.
I have received and read each appropriate Fund prospectus and understand that
its terms are incorporated by reference into this application. I understand
that this application is subject to acceptance. I understand that certain
redemptions may be subject to a contingent deferred sales charge. I certify,
under penalties of perjury, that:
1. The Social Security # or Taxpayer I.D. # provided is correct.
You must cross out item 2a, b or c below only if you have been notified by the
Internal Revenue Service (IRS) that you are currently subject to back-up
withholding because of under-reporting interest or dividends on you tax return.
2. I am not subject to back-up withholding because: (a) I am exempt from back-
up withholding, or (b) I have not been notified by the IRS that I am
subject to back-up withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that I am no longer
subject to back-up withholding. It is agreed that the Fund, all Colonial
companies and their officers, directors, agents, and employees will not be
liable for any loss, liability, damage, or expense for relying upon this
application or any instruction believed genuine.
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
4--------Ways to Withdraw from Your Fund-------
It may take up to 30 days to activate the following features. Complete only
the section(s) that apply to the features you would like.
A. Systematic Withdrawal Plan (SWP)
You can receive monthly, quarterly, or semiannual checks from your account in
any amount you select, with certain limitations. Your redemption checks can
be sent to you at the address of record for your account, to your bank
account, or to another person you choose. The value of the shares in your
account must be at least $5,000 and you must reinvest all of your
distributions. Checks will be processed on the 10th calendar day of the month
or the following business day. If you receive your SWP payment via ACH, you
may request it to be processed any day of the month. Withdrawals in excess of
12% annually of your current account value will not be accepted. Redemptions
made in addition to SWP payments may be subject to a contingent deferred sales
charge for Class B or Class D shares. Please consult your financial or tax
adviser before electing this option.
Funds for Withdrawal:
1___________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _____/_____ (day/month).
2___________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _____/_____ (day/month).
Payment Instructions
Send the payment to (choose one):
__My address of record.
__My bank account via Colonial Cash Connection (through electronic funds
transfer). Please complete the Bank Information section below. All ACH
transactions will be made two business days after the processing date
My bank must be a member of the Automated Clearing House (ACH) system.
__The payee listed at right. If more than one payee, provide the name,
address, payment amount, and frequency for other payees (maximum of 5) on
a separate sheet. If you are adding this service to an existing account,
please sign below and have your signature(s) guaranteed.
______________________________________________
Name of payee
______________________________________________
Address of payee
______________________________________________
City
______________________________________________
State Zip
______________________________________________
Payee's bank account number, if applicable
B. Telephone Withdrawal Options
All telephone transaction calls are recorded. These options are not available
for retirement accounts. Please sign below and have your signature(s)
guaranteed.
1. Fast Cash
You are automatically eligible for this service. You or your financial
adviser can withdraw up to $50,000 from your account and have it sent to your
address of record. For your protection, this service is only available on
accounts that have not had an address change within 30 days of the redemption
request.
2. Telephone Redemption
__I would like the Telephone Redemption privilege either by federal fund wire
or ACH. Telephone redemptions over $1,000 will be sent via federal fund wire,
usually on hte next business day ($7.50 will be deducted). Redemptions of
$1,000 or less will be sent by check to your designated bank.
3. On-Demand ACH Redemption
__I would like the On-Demand ACH Redemption Privilege. Proceeds paid via ACH
will be credited to your bank account two business days after the process
date. You or your financial adviser may withdraw shares from you fund acount
by telephone and send your money to your bank account. If you are adding
this service to an existing account, complete the Bank Information section
below and have all shareholder signatures guaranteed.
Colonial's and the Fund's liability is limited when following telephone
instructions; a shareholder may suffer a loss from an unauthorized transaction
reasonably believed by Colonial to have been authorized.
Bank Information (For Sections A and B Above)
I authorize deposits to the following bank account:
____________________________________________________________
Bank name City Bank account number
____________________________________________________________
Bank street address State Zip Bank routing # (your bank
can provide this)
X__________________________________
Signature of account owner(s)
X__________________________________
Signature of account owner(s) Place signature guarantee here.
5-----Ways to Make Additional Investments--------
These services involve continuous investments regardless of varying share
prices. Please consider your ability to continue purchases through periods of
price fluctuations. Dollar cost averaging does not assure a profit or protect
against loss in declining markets.
A. Automatic Dividend Diversification
Please diversify my portfolio by investing fund distributions in another
Colonial fund. These investments will be made in the same share class and
without sales charges. Accounts must be identically registered. I have
carefully read the prospectus for the fund(s) listed below.
1____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
2____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
B. Automated Dollar Cost Averaging
This program allows you to automatically have money from any Colonial fund in
which you have a balance of at least $5,000 exchanged into the same share
class of up to four other identically registered Colonial accounts, on a
monthly basis. The minimum amount for each exchange is $100. Please complete
the section below.
____________________________________
Fund from which shares will be sold
$_________________________
Amount to redeem monthly
1____________________________________
Fund to invest shares in
$_________________________
Amount to invest monthly
2____________________________________
Fund to invest shares in
$_________________________
Amount to invest monthly
C. Fundamatic/On-Demand ACH Purchase
Fundamatic automatically transfers the specified amount from your bank
checking account to your Colonial fund account. The On-Demand ACH Purchase
program moves money from you bank checking account to your Colonial Fund
account by electronic funds transfer on any specified day of the month.
You will receive the applicable price two business days after the receipt
of your request. Your bank needs to be a member of the Automated Clearing
House system. Please attach a blank check marked "VOID." Also, complete the
section below.
1____________________________________
Fund name
_________________________________
Account number
$_____________________ _________________
Amount to transfer Month to start
2___________________________________
Fund name
$_____________________ _________________
Amount to transfer Month to start
Frequency
__Monthly or __Quarterly
Check one:
__ACH (Any day of the month)
__Paper Draft
(Choose either the 5th__ or 20th__ day of the month)
Authorization to honor checks drawn by Colonial Investors Service Center,
Inc. Do Not Detach. Make sure all depositors on the bank account sign to
the far right. Please attach a blank check marked "VOID" here. See reverse
for bank instructions.
I authorize Colonial to draw on my bank account, by check or electronic funds
transfer, for an investment in a Colonial fund. Colonial and my bank are not
liable for any loss arising from delays or dishonored draws. If a draw is not
honored, I understand that notice may not be given and Colonial may reverse
the purchase and charge my account $15.
______________________________________
Bank name
______________________________________
Bank street address
______________________________________
Bank street address
______________________________________
City State Zip
______________________________________
Bank account number
______________________________________
Bank routing #
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
6------------Ways to Reduce Your Sales Charges------------
These services can help you reduce your sales charge while increasing your
share balance over the long term.
A. Right of Accumulation
If you, your spouse or your children own any other shares in other
Colonial funds, you may be eligible for a reduced sales charge. The combined
value of your accounts must be $50,000 or more. Class A shares of money market
funds are not eligible unless purchased by exchange from another Colonial fund.
The sales charge for your purchase will be based on the sum of the purchase
added to the value of all shares in other Colonial funds at the previous
day's public offering price.
__Please link the accounts listed below for Right of Accumulation privileges,
so that this and future purchases will receive any discount for which they
are eligible.
1_____________________________________
Name on account
_____________________________________
Account number
2_____________________________________
Name on account
_____________________________________
Account number
B. Statement of Intent
If you agree in advance to invest at least $50,000 within 13 months, you'll
pay a lower sales charge on every dollar you invest. If you sign a Statement
of Intent within 90 days after you establish your account, you can receive a
retroactive discount on prior investments. The amount required to receive a
discount varies by fund; see the sales charge table in the "How to Buy Shares"
section of your fund prospectus.
__I want to reduce my sales charge.
I agree to invest $ _______________ over a 13-month period starting
______/______/ 19______ (not more than 90 days prior to this application). I
understand an additional sales charge must be paid if I do not complete this
Statement of Intent.
7-------------Financial Service Firm---------------------
To be completed by a Representative of your financial service firm.
This application is submitted in accordance with our selling agreement with
Colonial Investment Services, Inc. (CISI), the Fund's prospectus, and this
application. We will notify CISI, Inc., of any purchase made under a Statement
of Intent, Right of Accumulation, or Sponsored Arrangement. We guarantee the
signatures on this application and the legal capacity of the signers.
_____________________________________
Representative's name
_____________________________________
Representative's number
_____________________________________
Representative's phone number
_____________________________________
Account # for client at financial
service firm
_____________________________________
Branch office address
_____________________________________
City
_____________________________________
State Zip
_____________________________________
Branch office number
_____________________________________
Name of financial service firm
_____________________________________
Main office address
_____________________________________
Main office address
_____________________________________
City
_____________________________________
State Zip
X____________________________________
Authorized signature
8----------Request for a Combined Quarterly Statement Mailing-----------
Colonial can mail all of your quarterly statements in one envelope. This
option simplifies your record keeping and helps reduce fund expenses.
__I want to receive a combined quarterly mailing for all my accounts. Please
indicate accounts to be linked.______________________
Fundamatic (See Reverse Side)
Applications must be received before the start date for processing.
This program's deposit privilege can be revoked by Colonial without prior
notice if any check is not paid upon presentation. Colonial has no obligation
to notify the shareholder of non-payment of any draw. This program may be
discontinued by Colonial by written notice at least 30 business days prior
to the due date of any draw or by the shareholder at any time.
To the Bank Named on the Reverse Side:
Your depositor has authorized Colonial Investors Service Center, Inc. to
collect amounts due under an investment program from his/her personal checking
account. When you pay and charge the draws to the account of your depositor
executing the authorization payable to the order of Colonial Investors
Service Center, Inc., Colonial Investment Services, Inc., hereby indemnifies
and holds you harmless from any loss (including reasonable expenses) you may
suffer from honoring such draw, except any losses due to your payment of any
draw against insufficient funds.
D-224B-1295
COLONIAL TRUST III
Cross Reference Sheet (Colonial Growth Shares 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 Meetings
19. How to Buy Shares; Determination
of Net Asset Value; Suspension of
Redemptions; Special Purchase
Programs/Investor Services;
Programs for Reducing or
Eliminating Sales Charge; How to
Sell Shares; How to Exchange
Shares
20. Taxes
21. Fund Charges and Expenses;
Management of the Colonial Funds
22. Fund Charges and Expenses;
Investment Performance;
Performance Measures
23. Independent Accountants
COLONIAL GROWTH SHARES FUND
Statement of Additional Information
February 28, 1996
This Statement of Additional Information (SAI) contains information which
may be useful to investors but which is not included in the Prospectus of
Colonial Growth Shares 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, 1996. This SAI should be read
together with the Prospectus. Investors may obtain a free copy of the
Prospectus from Colonial Investment Services, Inc., One Financial Center,
Boston, MA 02111-2621.
Part 1 of this SAI contains specific information about the Fund. Part 2
includes information about the Colonial funds generally and additional
information about certain securities and investment techniques described in
the Fund's Prospectus.
TABLE OF CONTENTS
Part 1 Page
Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Portfolio Turnover
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountants
Part 2
Miscellaneous Investment Practices
Taxes
Management of the Colonial Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sales Charges
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Meetings
Performance Measures
Appendix I
Appendix II
GS-16/738B-0196
Part 1
COLONIAL GROWTH SHARES FUND
Statement of Additional Information
February 28, 1996
DEFINITIONS
"Trust" Colonial Trust III
"Fund" Colonial Growth Shares Fund
"Adviser" Colonial Management Associates, Inc., the
Fund's investment adviser
"CISI" Colonial Investment Services, Inc., the Fund's
distributor
"CISC" Colonial Investors Service Center, Inc., the
Fund's shareholder services and transfer agent
INVESTMENT OBJECTIVE AND POLICIES
The Fund's Prospectus describes its investment objective and policies.
Part 1 of this SAI includes additional information concerning, among other
things, the fundamental investment policies of the Fund. Part 2 contains
additional information about the following securities and investment
techniques that are described or referred to in the Prospectus:
Short-Term Trading
High Yield Bonds
Foreign Securities
Foreign Currency Options
Foreign Currency Transactions
Securities Loans
Repurchase Agreements
Except as described below under "Fundamental Investment Policies," the
Fund's investment policies are not fundamental, and the Trustees may change
the policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a
majority of the outstanding voting securities" means the affirmative vote
of the lesser of (1) more than 50% of the outstanding shares of the Fund,
or (2) 67% or more of the shares present at a meeting if more than 50% of
the outstanding shares are represented at the meeting in person or by
proxy. The following fundamental investment policies cannot 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; 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 securities of any company if the Fund knows that officers and
Trustees of the Trust or officers and directors of the Adviser who
individually own more than 0.5% of such securities together own more
than 5% of such securities;
4. Invest in interests in oil, gas or other mineral exploration or
development programs, including leases;
5. Purchase any security resulting in the Fund having more than 5% of
its total assets invested in securities of companies (including
predecessors) less than three years old;
6. Pledge more than 33% of its total assets;
7. Purchase any security if, as a result of such purchase, more than 10%
of its total assets would be invested in the securities of issuers
which are restricted as to disposition; and
8. 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.
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.
PORTFOLIO TURNOVER
Year ended October 31
1995 1994
92% 121%
FUND CHARGES AND EXPENSES
The Fund pays the Adviser a monthly management fee of 1/12 of 0.60% of Fund
average daily net assets, adjusted upward or downward by 0.02% for each
percentage point that the Fund's performance during the prior 12 months
exceeds or lags the performance of the S&P 500 Index, subject to a maximum
adjustment of 1/12 of 0.20% of such assets.
The following hypothetical example of the performance adjustment assumes
that the net asset value of the Fund and the level of the Index were $10
and $100, respectively, on the first day of the twelve-month performance
period.
Investment Performance Cumulative Change
First Day Last Day Absolute Percentage
Fund $ 10 $ 13 + $ 3 + 30%
Index 100 123 + 23 + 23%
Relative Performance + 7%
Since the difference in performance is +7 percentage points, the monthly
fee rate for the month would be 1/12 of 0.60% plus a performance adjustment
of 1/12 of 7 x 0.02%, or 1/12 of 0.74%.
Recent Fees paid to the Adviser, CISI and CISC (dollars in thousands)
Years ended October 31
1995 1994 1993
Management fee $1,148 $1,265 $1,168
Bookkeeping fee 89 83 79
Shareholder service and 682 614 601
transfer agent fee
12b-1 fees:
Service fee (Class A) 376 343 266
(Class B) 149 111 90
Distribution fee (Class B) 450 344 270
Brokerage Commissions (dollars in thousands)
Years ended October 31
1995 1994 1993
Total commissions $ 497 $ 608 $ 283
Directed transactions(a) 29,850 48,482 64,098
Commissions on directed
transactions 37 76 93
(a) See "Management of the Colonial Funds - Portfolio Transactions -
Brokerage and Research Services" in Part 2 of this SAI.
Trustees Fees
For fiscal year ended October 31, 1995, and the calendar year ended
December 31, 1995, the Trustees received the following compensation for
serving as Trustees:
Total
Compensation
From Trust
and Fund
Complex Paid
Aggregate Pension or To The
Compensation Retirement Estimated Trustees For
From Fund For Benefits Annual The Calendar
The Fiscal Accrued As Benefits Year Ended
Year Ended Part of Fund Upon December 31,
Trustee October 31, 1995 Expense Retirement 1995(b)
Robert J. Birnbaum(i) $1,248 0 0 $71,250
Tom Bleasdale $ 1,933(c) $0 $0 $98,000(d)
Lora S. Collins 1,916 0 0 91,000
James E. Grinnell (i) 1,245 0 0 71,250
William D. Ireland,Jr. 2,128 0 0 113,000
Richard w. Lowry (i) 1,250 0 0 71,250
William E. Mayer 1,798 0 0 91,000
John A. McNeice, Jr. 0 0 0 0
James L. Moody, Jr. 2,092(e) 0 0 94,500(f)
John J. Neuhauser 1,796 0 0 91,000
George L. Shinn 1,999 0 0 102,500
Robert L. Sullivan 1,984 0 0 101,000
Sinclair Weeks, Jr. 2,208 0 0 112,000
(b) At December 31, 1995, the Colonial Funds complex consisted of 33 open-
end and 5 closed-end management investment portfolios.
(c) Includes $954 payable in later years as deferred compensation.
(d) Includes $49,000 payable in later years as deferred compensation.
(e) Includes $1,569 payable in later years as deferred compensation.
(f) Total compensation of $94,500 for the calendar year ended December 31,
1995, will be payable in later years as deferredcompensation.
The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees of the Liberty
All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (formerly known
as The Charles Allmon Trust, Inc.) (together, Liberty Funds I) for service
during the calendar year ended December 31, 1995, and of Liberty Financial
Trust (now known as Colonial Trust VII) and LFC Utilities Trust (together,
Liberty Funds II) for the period January 1, 1995 through March 26, 1995(g):
Total Compensation From Total Compensation From
Liberty Funds II For Liberty Funds I For The
Trustee The Period January 1, Calendar Year Ended
1995 Through March 26, 1995 December 31, 1995 (h)
Robert J. Birnbaum(i) $2,900 $16,675
James E. Grinnell (i) 2,900 22,900
Richard W. Lowry(i) 2,900 26,250 (j)
(g) On March 27, 1995, four of the portfolios in the Liberty
Financial Trust (now known as Colonial Trust VII) were merged
into existing Colonial funds and a fifth was reorganized as a new
portfolio of Colonial Trust III. Prior to their election as
Trustees of the Colonial Funds, Messrs. Birnbaum, Grinnell and
Lowry served as Trustees of Liberty Funds II and continue to
serve as Trustees of Liberty Funds I.
(h) At December 31, 1995, the Liberty Funds I were advised by Liberty
Asset Management Company (LAMCO). LAMCO is an indirect wholly-
owned subsidiary of Liberty Financial Companies, Inc. (an
intermediate parent of the Adviser).
(i) Elected as a Trustee of the Colonial Funds complex on April 21,
1995.
(j) Includes $3,500 paid to Mr. Lowry for service as Trustee of Liberty
Newport World Portfolio (formerly known as Liberty All-Star World
Portfolio) (Liberty Newport) during the calendar year ended
December 31, 1995. At December 31, 1995, Liberty Newport was
managed by Newport Pacific Management, Inc. and Stein Roe and
Farnham Incorporated, each an affiliate of the Adviser.
Ownership of the Fund
At January 31, 1996, the officers and Trustees of the Trust as a group
beneficially owned 238,160.590 shares of the Fund representing 1.82% of the
then outstanding Class A shares. Messrs. Scoon and Stern, who are officers
of the Fund, held 215,693.733 shares of the Fund, representing 1.65% 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.
At January 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Attn:
Book Entry, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, FL 32216,
owned % of the Fund's outstanding Class B shares.
At January 31, 1996, there were 13,672 Class A and 7,950 Class B record
holders of the Fund.
Sales Charges (dollars in thousands)
Class A Shares
Years ended October 31
1995 1994 1993
Aggregate initial sales
charges on Fund share sales $238 $288 $337
Initial sales charges
retained by CISI 48 63 86
Class B Shares
Years ended October 31
1995 1994 1993
Aggregate contingent deferred sales
charges (CDSC) on Fund redemptions
retined by CISI $170 $127 $96
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 0.15% of average net
assets attributed to shares outstanding prior to April 1, 1989, and 0.25%
of average net assets attributed to outstanding shares issued thereafter.
The Fund also pays CISI 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 the Adviser) 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 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 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
and are 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 or on 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.
Approximately eight years after the end of the month in which a Class B
share is purchased, such share and a pro rata portion of any shares issued
on the reinvestment of distributions will be automatically converted into
Class A shares having an equal value, which are not subject to the
distribution fee.
Sales-related expenses (dollars in thousands) of CISI relating to the Fund
for the year ended October 31, 1995, were:
Class A Shares Class B Shares
Fees to FSFs $374 $455
Cost of sales material relating
to the Fund (including printing
and mailing expenses) 24 37
Allocated travel, entertainment
and other promotional expenses
(including advertising) 43 57
INVESTMENT PERFORMANCE
The Fund's Class A and Class B yields for the month ended October 31, 1995,
were 0.67% and (0.04)%, respectively.
The Fund's average annual total returns at October 31, 1995, were:
Class A Shares
1 Year 5 Years 10 Years
With sales charge of 5.75% 21.13% 17.64% 14.96%
Without sales charge 28.44% 19.04% 15.64%
Class B Shares
Period June 8, 1992
(commencement of
investment operations)
1 Year through October 31, 1995
With applicable CDSC 22.50% (5.00% CDSC) 13.04% (3.00% CDSC)
Without CDSC 27.50% 13.69%
The Fund's Class A and Class B distribution rates at October 31, 1995,
which are based on the last twelve months' distributions, annualized, and
the maximum offering price at the end of the twelve month period were 0.96%
and 0.42%, 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 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 6 through 20 of the October 31, 1995 Annual Report, are incorporated
in this SAI by reference.
<PAGE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCKS - 91.1% SHARES VALUE
- -------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION - 0.4%
BUILDING CONSTRUCTION
Pulte Corp. 37 $1,157
------
- -------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 16.9%
DEPOSITORY INSTITUTIONS - 3.2%
Citicorp 32 2,095
H.F. Ahmanson & Co. 43 1,080
MBNA Corp. 77 2,821
Norwest Corp. 91 2,671
------
8,667
------
INSURANCE CARRIERS - 6.7%
Ace Ltd. 31 1,054
American Bankers Insurance Group, Inc. 22 782
CNA Financial Corp.(a) 25 2,793
Geico Corp. 21 1,421
Loews Corp. 55 8,050
MGIC Investment Corp. 31 1,735
Oxford Health Plans, Inc.(a) 13 1,002
Sunamerica, Inc. 21 1,320
------
18,157
------
NONDEPOSITORY CREDIT INSTITUTIONS - 4.7%
Countrywide Credit Industries, Inc. 63 1,383
Dean Witter Discover & Co.(a) 35 1,736
Finova Group, Inc. 53 2,380
Green Tree Financial Corp. 43 1,156
ITT Corp.(a) 35 4,251
The Money Store, Inc. 42 1,665
------
12,571
------
SECURITY BROKERS & DEALERS - 2.3%
Bear Stearns Co., Inc. 177 3,516
Lehman Brothers Holdings, Inc. 108 2,356
United Asset Management Corp. 7 254
------
6,126
------
- -------------------------------------------------------------
MANUFACTURING - 49.5%
APPAREL - 0.5%
Warnaco Group, Inc. 59 1,362
------
</TABLE>
6
<PAGE>
Investment Portfolio/October 31, 1995
- -----------------------------------------------------
<TABLE>
<S> <C> <C>
CHEMICALS - 8.0%
ARCO Chemical Co. 13 $ 657
Amgen, Inc. (a) 67 3,226
Avon Products, Inc. 21 1,487
Cabot Corp. 52 2,456
Colgate-Palmolive Co. 17 1,191
Goodrich (B.F.) Co. 36 2,398
ICN Pharmaceuticals, Inc.(a) 118 2,413
Mylan Laboratories, Inc. 22 415
Pfizer, Inc. 51 2,949
Smith International, Inc. 107 1,709
Vigoro Corp. 48 2,073
Wellman, Inc. 20 470
-------
21,444
-------
ELECTRONIC & ELECTRICAL EQUIPMENT - 8.8%
Integrated Circuit Systems, Inc. (a) 69 930
Intel Corp. 90 6,303
Methode Electronics, Inc. Class A 71 1,635
Micron Technology, Inc. 66 4,661
Motorola, Inc. 51 3,314
Park Electrochemical Corp. 43 1,337
Pittway Corp. 22 1,299
Tellabs, Inc. (a) 16 547
Texas Instruments, Inc. 55 3,726
-------
23,752
-------
FABRICATED METAL - 0.6%
Crane Co. 20 722
Harsco Corp. 20 1,034
-------
1,756
-------
FOOD & KINDRED PRODUCTS - 4.8%
Archer Daniels Midland Co. 47 766
IBP, Inc. 95 5,682
Phillip Morris Co., Inc. 77 6,464
-------
12,912
-------
FURNITURE & FIXTURES - 0.9%
Leggett & Platt, Inc. 102 2,443
-------
MACHINERY & COMPUTER EQUIPMENT - 4.3%
Applied Materials, Inc. (a) 15 772
Briggs and Stratton Corp. 47 1,890
Cisco Systems, Inc. (a) 12 953
Gateway 2000, Inc. (a) 34 1,128
Harnischfeger Industries, Inc. 95 2,992
Kysor Industrial Corp. 41 963
Sun Microsystems, Inc. (a) 28 2,207
Toro Co. 20 583
-------
11,488
-------
</TABLE>
7
<PAGE>
Investment Portfolio/October 31, 1995
- -------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS - CONT. SHARES VALUE
- -------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - CONT.
MEASURING & ANALYZING INSTRUMENTS - 7.6%
Boston Scientific Corp., (a) 43 $ 1,799
Eastman Kodak Co. 57 3,576
Measurex Corp. 37 1,128
Medtronic, Inc. 141 8,154
Mentor Corp. 30 660
St. Jude Medical, Inc. 27 1,422
Xerox Corp. 29 3,776
--------
20,515
--------
MISCELLANEOUS MANUFACTURING - 0.6%
Callaway Golf Co. 95 1,559
--------
PAPER & PAPER MILLS - 1.2%
Mead Corp. 56 3,227
--------
PETROLEUM REFINING - 0.9%
Atlantic Richfield Co. 7 769
Kerr-McGee Corp. 31 1,720
--------
2,489
--------
PRIMARY METAL - 2.0%
Aluminum Company of America 27 1,367
Carpenter Technology Corp. 51 1,916
Texas Industries, Inc. 38 2,015
--------
5,298
--------
PRINTING & PUBLISHING - 1.6%
Central Newspapers, Inc. 19 555
New England Business Service, Inc. 27 514
Reynolds & Reynolds Co. 92 3,277
--------
4,346
--------
RUBBER & PLASTIC - 3.3%
Nike, Inc., Class B 145 8,217
Wynn's International, Inc. 28 781
--------
8,998
--------
TOBACCO PRODUCTS - 0.6%
UST, Inc. 53 1,590
--------
TRANSPORTATION EQUIPMENT - 3.8%
Dana Corp. 96 2,450
Polaris Industries, Inc. 70 1,957
Sundstrand Corp. 70 4,312
Varlen Corp. 54 1,439
--------
10,158
--------
8
<PAGE>
Investment Portfolio/October 31, 1995
- -------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
MINING & ENERGY - 0.4%
METAL MINING
Cleveland-Cliffs, Inc. 29 $ 1,073
-------
- -------------------------------------------------------
RETAIL TRADE - 5.7%
APPAREL & ACCESSORY STORES - 0.2%
Claire's Stores, Inc. 28 548
-------
FOOD STORES - 1.3%
General Nutrition Companies, Inc.(a) 143 3,552
-------
GENERAL MERCHANDISE STORES - 1.1%
Federated Department Stores, Inc.(a) 59 1,502
Staples, Inc.(a) 52 1,387
-------
2,889
-------
HOME FURNISHINGS & EQUIPMENT - 1.4%
Circuit City Stores, Inc. 115 3,841
-------
MISCELLANEOUS RETAIL - 0.4%
Arbor Drugs, Inc. 56 1,013
-------
RESTAURANTS - 1.3%
Buffets, Inc.(a) 46 577
Daka International, Inc.(a) 29 881
Marriott International, Inc. 36 1,339
McDonald's Corp. 16 668
-------
3,465
-------
- -------------------------------------------------------
SERVICES - 7.5%
BUSINESS SERVICES - 6.3%
CUC International Inc.(a) 36 1,257
Computer Associates International, Inc. 39 2,170
HBO & Co. 13 941
National Data Corp. 29 771
Omnicom Group, Inc. 62 3,973
Peoplesoft, Inc.(a) 16 1,342
Sterling Software, Inc.(a) 78 3,575
System Software Associates, Inc. 99 3,063
-------
17,092
-------
HEALTH SERVICES - 0.3%
Surgical Care Affiliates, Inc. 26 770
-------
PERSONAL SERVICES - 0.9%
Service Corp. International 60 2,416
-------
- -------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 7.7%
AIR TRANSPORTATION - 3.0%
Federal Express Corp.(a) 97 7,966
-------
</TABLE>
9
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
COMMON STOCKS - CONT. SHARES VALUE
- -----------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
COMMUNICATIONS - 1.3%
Century Telephone Enterprises, Inc. 26 $ 763
Cincinnati Bell, Inc. 74 2,171
Citicasters, Inc. (a) 17 522
--------
3,456
--------
ELECTRIC SERVICES - 1.6%
Unicom Corp. 133 4,369
--------
GAS SERVICES - 0.2%
Enron Corp. 14 495
--------
TRANSPORTATION SERVICES - 1.6%
GATX Corp. 94 4,446
--------
- -----------------------------------------------------------------------------
WHOLESALE TRADE - 3.0%
DURABLE GOODS - 1.8%
Anixter International, Inc. (a) 32 604
Marshall Industries (a) 31 1,103
Pioneer Standard Electronics, Inc. 221 3,064
Ultramed, Inc. (a)(b) 450 104
--------
4,875
--------
NONDURABLE GOODS - 1.2%
Bergen Brunswig Corp., Class A 95 1,970
Foxmeyer Corp. (a) 59 1,341
--------
3,311
--------
TOTAL INVESTMENTS (cost of $193,564)(c) 245,592
--------
SHORT-TERM OBLIGATIONS - 11.0% PAR
----------------------------------------------------------------------------
Repurchase agreement with Bankers Trust Securities
Corp., dated 10/31/95, due 11/01/95 at 5.875% collateralized by
U.S. Treasury notes with various maturities to 1997, market
value $30,219 (purchase proceeds $29,598) $29,593 29,593
-------
OTHER ASSETS & LIABILITIES, NET - (2.1)% (5,509)
----------------------------------------------------------------------------
NET ASSETS - 100.0% $269,676
--------
NOTES TO INVESTMENT PORTFOLIO:
----------------------------------------------------------------------------
</TABLE>
(a) Non-income producing.
(b) Ultramed, Inc. is a restricted security which was acquired
on August 14, 1987 at a cost of $450. The fair value is determined
under the direction of the Trustees. This security represents
0.0% of the Fund's net assets at October 31, 1995.
(c) Cost for federal income tax purposes is $193,724.
See notes to financial statements.
10
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1995
(In thousands except for per share amounts and footnotes)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $193,564) $245,592
Short-term obligations 29,593
--------
275,185
Receivable for:
Fund shares sold $ 686
Investments sold 216
Dividends 163
Interest 5
Foreign tax reclaims 4
Other 8 1,082
------ --------
Total Assets 276,267
LIABILITIES
Payable for:
Investments purchased 5,553
Fund shares repurchased 1,004
Accrued:
Deferred Trustees fees 2
Other 32
------
Total Liabilities 6,591
--------
NET ASSETS $269,676
========
Net asset value & redemption price per share -
Class A ($194,393/12,041) $ 16.14
========
Maximum offering price per share - Class A
($16.14/0.9425) $ 17.12(a)
========
Net asset value & offering price per share -
Class B ($75,283/4,694) $ 16.04(b)
========
COMPOSITION OF NET ASSETS
Capital paid in $196,319
Undistributed net investment income 582
Accumulated net realized gain 20,750
Net unrealized appreciation (depreciation)
during the period on:
Investments 52,028
Foreign currency transactions (3)
--------
$269,676
========
</TABLE>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements.
11
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<S> <C> <C>
(in thousands)
INVESTMENT INCOME
Dividends $ 4,525
Interest 890
-------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $18) 5,415
EXPENSES
Management fee $ 1,148
Service fee -- Class A 376
Service fee -- Class B 149
Distribution fee -- Class B 450
Transfer agent 682
Bookkeeping fee 89
Trustees fee 20
Custodian fee 14
Audit fee 40
Legal fee 10
Registration fee 23
Reports to shareholders 13
Other 29 3,043
------- -------
Net Investment Income 2,372
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 20,785
Foreign currency transactions (2)
-------
Net Realized Gain 20,783
Net unrealized appreciation during the
period on:
Investments 34,829
Foreign currency transactions 2
-------
Net Unrealized Gain 34,831
-------
Net Gain 55,614
-------
Net Increase in Net Assets From Operations $57,986
=======
</TABLE>
See notes to financial statements.
12
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended
(in thousands) October 31
--------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
Operations:
<S> <C> <C>
Net investment income $ 2,372 $ 1,094
Net realized gain 20,783 18,261
Net unrealized appreciation (depreciation) 34,831 (13,720)
-------- --------
Net Increease from Operations 57,986 5,635
Distributions:
From net investment income - Class A (1,927) (811)
From net realized gains - Class A (13,715) (16,747)
From net investment income - Class B (276) -
From net realized gains - Class B (4,637) (4,174)
-------- --------
37,431 (16,097)
-------- --------
Fund Share Transactions:
Receipts for shares sold - Class A 83,053 67,549
Value of distributions reinvested - Class A 13,678 15,244
Cost of shares repurchased - Class A (90,175) (79,333)
-------- --------
6,556 3,460
-------- --------
Receipts for shares sold - Class B 27,663 37,440
Value of distributions reinvested - Class B 4,705 3,963
Cost of shares repurchased - Class B (20,392) (26,955)
-------- --------
11,976 14,448
-------- --------
Net Increase from Fund Share Transactions 18,532 17,908
-------- --------
Total Increase 55,963 1,811
NET ASSETS:
Beginning of period 213,713 211,902
-------- --------
End of period (including undistributed net
invesetment income of $582 and $413,
respectively) $269,676 $213,713
======== ========
NUMBER OF FUND SHARES
Sold - Class A 5,863 4,866
Issued for distribution reinvested - Class A 1,139 1,120
Repurchased - Class A (6,410) (5,688)
-------- --------
592 298
-------- --------
Sold - Class B 1,988 2,708
Isued for distributions reinvested - Class B 395 292
Repurchased - Class B (1,507) (1,947)
-------- --------
876 1,053
-------- --------
</TABLE>
See notes to financial statements.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE 1. ACCOUNTING POLICIES
ORGANIZATION: Colonial Growth Shares Fund (the Fund), a series of Colonial
Trust III, is a diversified portfolio of a Massachusetts business trust,
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund may issue an unlimited number of
shares. The Fund offers 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.
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, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses, (other than the Class A and Class B service fee and 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, net investment income per share data reflects the
service fee applicable to both Class A and Class B shares and the distribution
fee applicable to Class B shares only.
Class A and Class B ratios are calculated by adjusting the expense and net
investment income ratios for the Fund for the entire period by the service fee
applicable to both Class A and Class B and 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.
14
<PAGE>
Notes to Financial Statements/October 31, 1995
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 character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital
accounts to reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations.
FOREIGN CURRENCY TRANSACTIONS: The Fund has adopted Statement of Position
93-4, Foreign Currency Accounting and Financial Statement Presentation for
Investment Companies. Accordingly, net realized and unrealized gain (loss) on
foreign currency transactions includes the fluctuation in exchange rates on
gains (losses) between trade and settlement dates on securities transactions,
gains (losses) arising from the disposition of foreign currency and currency
gains (losses) between the accrual and payment dates on dividend and interest
income and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included
with the net realized and unrealized gains (losses) on investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency
contracts to purchase or sell foreign currencies at predetermined exchange
rates in connection with the settlement of purchases and sales of securities.
The Fund may also enter into forward currency contracts to hedge certain other
foreign currency denominated assets. The contracts are used to minimize the
exposure to foreign exchange rate fluctuations during the period between trade
and settlement date of the contracts. All contracts are marked-to-market
daily, resulting in unrealized gains (losses) which become realized at the time
the forward currency contracts are closed or mature. Realized and unrealized
gains (losses) arising from such transactions are included in net realized and
unrealized gains (losses) on foreign currency transactions. Forward currency
contracts do not eliminate fluctuations in the prices of the Fund's portfolio
securities. While the maximum potential loss from such contracts is the
aggregate face value in U.S. dollars at the time the contract was opened,
exposure is typically limited to the change in value of the contract (in U.S.
dollars) over the period it remains open. Risks may also arise if
counterparties fail to perform their obligations under the contracts.
OTHER: Corporate actions are recorded on the ex-date (except for certain
foreign securities which are recorded as soon after ex-date as the Fund becomes
aware of such), net of nonrebatable tax withholdings. Where a high level of
uncertainty as to collection exists, income on securities is recorded net of
all tax withholdings with any rebates recorded when received.
15
<PAGE>
Notes to Financial Statements/October 31, 1995
- -------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- -------------------------------------------------------------------------------
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 in-
vestment Adviser of the Fund and furnishes accounting and other services and
office facilities for a monthly fee equal to 0.60% annually of the Fund's
average net assets during the preceding twelve months. The fee is subject to a
maximum performance adjustment, determined monthly, of +/- 1/12 of 0.20%
based on the comparative experience of the Fund and the Standard and Poor's
Index of 500 common stocks during the preceding twelve months. For the year
ended October 31, 1995, the total fee included a downward performance
adjustment of $128,408.
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: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. For the year ended October 31, 1995, the Fund has been
advised that the Distributor retained net underwriting discounts of $48,107 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $169,878 on Class B share redemptions.
The Fund has adopted a 12b-1 plan which requires the payment of a distribution
fee to the Distributor equal to 0.75% annually of the average net assets
attributable to Class B shares. The plan also requires the payment of a
service fee to to the Distributor as follows:
<TABLE>
<CAPTION>
Value of shares outstanding on the
20th of each month which were issued Annual Fee Rate
------------------------------------ ---------------
<S> <C>
Prior to April 1, 1989....................... 0.15%
On or after April 1, 1989.................... 0.25%
</TABLE>
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. Obligations of the plan will be paid solely out of
the the Fund's assets.
16
<PAGE>
Notes to Financial Statements/October 31, 1995
- -------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION
- -------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended October 31, 1995, purchases and
sales of investments, other than short-term obligations, were $195,666,326 and
$211,123,404, respectively.
Unrealized appreciation (depreciation) at October 31, 1995, based on cost of
investments for federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 55,213,059
Gross unrealized depreciation (3,344,807)
--------------
Net unrealized appreciation $ 51,868,252
==============
</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 foreign
currency exchange or the imposition of other foreign governmental laws or
restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
17
<PAGE>
FINANCIAL HIGHLIGHTS (a)
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended October 31
-------------------------------------------
1995 1994
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $14.020 $13.940 $15.240 $15.180
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.174 0.065 0.096 (0.008)
Net realized and
unrealized gain 3.326 3.317 0.275 0.288
------- ------- ------- -------
Total from Investment
Operations 3.500 3.382 0.371 0.280
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.165) (0.067) (0.071) ---
From net realized gains (1.215) (1.215) (1.520) (1.520)
------- ------- ------- -------
Total Distributions
Declared to Shareholders (1.380) (1.282) (1.591) (1.520)
------- ------- ------- -------
Net asset value -
End of period $16.140 $16.040 $14.020 $13.940
------- ------- ------- -------
Total return (d) 28.44% 27.50% 2.78% 2.12%
------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.12%(e) 1.90%(e) 1.22% 1.97%
Net investment income 1.24%(e) 0.46%(e) 0.69% (0.06)%
Portfolio turnover 92% 92% 121% 121%
Net assets at end
of period (000's) $194,393 $75,283 $160,495 $53,218
</TABLE>
(a) Per share data was calculated using average shares outstanding
during the period. For the years ended 1992 and 1991 per share data
was calculated using the SEC method.
(b) The Fund changed its fiscal year end from March 31 to October 31
in 1992.
(c) Class B shares were initially offered on June 8, 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 contingent deferred sales charge.
(e) The benefits derived from custody credits and directed brokerage
arrangements, if any, had no impact on the Fund's gross expense ratio.
(f) Not annualized.
(g) Annualized.
18
<PAGE>
FINANCIAL HIGHLIGHTS (a) - continued
<TABLE>
<CAPTION>
Year ended October 31 Period ended October 31 Year ended March 31
- --------------------- ----------------------- -------------------
1993 1992 (b) 1992 1991
Class A Class B Class A Class B (c) Class A Class A
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 13.830 $13.780 $ 14.240 $13.570 $ 12.800 $ 12.010
- -------- ------- -------- ------- -------- --------
0.110 0.001 0.066 (0.002) 0.168 0.221
2.240 2.244 0.074 0.212 1.502 1.059
- -------- ------- -------- ------- -------- --------
2.350 2.245 0.140 0.210 1.670 1.280
- -------- ------- -------- ------- -------- --------
(0.095) --- (0.093) --- (0.183) (0.210)
(0.845) (0.845) (0.457) --- (0.047) (0.280)
- -------- ------- -------- ------- -------- --------
(0.940) (0.845) (0.550) --- (0.230) (0.490)
$ 15.240 $15.180 $ 13.830 $13.780 $ 14.240 $ 12.800
- -------- ------- -------- ------- -------- --------
17.79% 16.99% 1.02% (f) 1.55%(f) 13.24% 10.95%
- -------- ------- -------- ------- -------- --------
1.19% 1.94% 1.19% (g) 1.94%(g) 1.18% 1.03%
0.64% (0.11)% 0.83% (g) 0.08%(g) 1.24% 1.94%
66% 66% 68% (g) 68%(g) 38% 37%
$169,913 $41,989 $150,260 $26,364 $149,341 $134,055
</TABLE>
Federal Income Tax Information (unaudited)
100% of the distributions paid by the Fund from investment income earned in the
year ended October 31, 1995 qualify for the corporate dividends received
deduction.
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST III AND THE SHAREHOLDERS OF
COLONIAL GROWTH SHARES 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 Growth Shares Fund (a
series of Colonial Trust III) at October 31, 1995, the results of its
operations the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and the financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of portfolio positions at October 31,
1995 by correspondence with the custodian and brokers, 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 11, 1995
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 Meetings
19. How to Buy Shares; Determination
of Net Asset Value; Suspension of
Redemptions; Special Purchase
Programs/Investor Services;
Programs for Reducing or
Eliminating Sales Charge; How to
Sell Shares; How to Exchange
Shares
20. Taxes
21. Fund Charges and Expenses;
Management of the Colonial Funds
22. Fund Charges and Expenses;
Investment Performance;
Performance Measures
23. Independent Accountants
COLONIAL FEDERAL SECURITIES FUND
Statement of Additional Information
February 28, 1996
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
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, 1996. This SAI should be read together with the Prospectus.
Investors may obtain a free copy of the Prospectus from Colonial Investment
Services, Inc., One Financial Center, Boston, MA 02111-2621.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes
information about the Colonial funds generally and additional information about
certain securities and investment techniques described in the Fund's Prospectus.
TABLE OF CONTENTS
Part 1 Page
Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Portfolio Turnover
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountants
Part 2
Miscellaneous Investment Practices
Taxes
Management of the Colonial Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sales Charges
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Meetings
Performance Measures
Appendix I
Appendix II
FS--16/760B-0296
<PAGE>
Part 1
COLONIAL FEDERAL SECURITIES FUND
Statement of Additional Information
February 28, 1996
DEFINITIONS
"Trust" Colonial Trust III
"Fund" Colonial Federal Securities Fund
"Adviser" Colonial Management Associates, Inc., the Fund's investment
adviser
"CISI" Colonial Investment Services, Inc., the Fund's distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's
shareholder services and transfer agent
INVESTMENT OBJECTIVE AND POLICIES
The Fund's Prospectus describes its investment objective and investment
policies. Part 1 of this SAI includes additional information concerning, among
other things, the fundamental investment policies of the Fund. Part 2 contains
additional information about the following securities and investment techniques
that are described or referred to in the Prospectus:
Short-Term Trading
Zero Coupon Securities
Money Market Instruments
Forward Commitments
Mortgage Dollar Rolls
Repurchase Agreements
Options on Securities (excluding purchasing call options)
Futures Contracts and Related Options (financial futures only)
Except as described under "Fundamental Investment Policies," the Fund's
investment policies are not fundamental and the Trustees may change the policies
without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. The following fundamental
investment policies can not be changed without such a vote.
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;
<PAGE>
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 securities of any company if the Fund knows that officers and Trustees
of the Trust or officers and directors of the Adviser who individually own
more than 0.5% of such securities together own more than 5% of such
securities;
4. Invest in interests in oil, gas or other mineral exploration or development
programs, including leases;
5. Purchase any security resulting in the Fund having more than 5% of its
total assets invested in securities of companies (including predecessors)
less than three years old;
6. Pledge more than 33% of its total assets;
7. Purchase any security, if, as a result of such purchase, more than 10% of
its total assets would be invested in 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
Year ended October 31
1995 1994
171% 121%
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays the Adviser a monthly fee
based on the average daily net assets of the Fund, as follows:
Average Daily Net Assets Annual Fee Rate
First $1 billion 0.65%
Next $1 billion 0.60%
Next $1 billion 0.50%
Over $3 billion 0.40%
Recent Fees paid to the Adviser, CISI and CISC (in thousands)
<TABLE>
<CAPTION>
Year ended October 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Management fee $8,424 $9,805 $11,421
Bookkeeping fee 440 497 564
Shareholder service and transfer agent fee 2,881 3,322 4,181
12b-1 fees:
Service fee 3,298 3,870 4,550
Distribution fee (Class B) 558 543 367
</TABLE>
Brokerage Commissions (in thousands)
<TABLE>
<CAPTION>
Year ended October 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Total commissions $52 $115 $96
Directed transactions( a) 0 0 0
Commissions on directed transactions 0 0 0
</TABLE>
(a) See "Management of the Colonial Funds-Portfolio Transactions-Brokerage
and research services" in Part 2 of this SAI.
Trustees Fees
For the fiscal year ended October 31, 1995, and the calendar year ended December
31, 1995, the Trustees received the following compensation for serving as
Trustees:
<TABLE>
<CAPTION>
Total Compensation
Aggregate From Trust and
Compensation Pension or Fund Complex Paid To
From Fund For The Retirement Benefits Estimated Annual The Trustees For The
Fiscal Year Ended Accrued As Part of Benefits Upon Calendar Year Ended
Trustee October 31, 1995 Fund Expense Retirement December 31, 1995(b)
- ------- ---------------- ------------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Robert J. Birnbaum $4,488 $ 71,250
Tom Bleasdale 7,124 (c) ----- ----- $ 98,000 (d)
Lora S. Collins 7,084 ----- ----- $ 91,000
James E. Grinnell 4,485 $ 71,250
William D. Ireland, Jr. 7,841 ----- ----- $113,000
Richard W. Lowry 4,489 $ 71,250
William E. Mayer 6,618 ----- ----- $ 91,000
John A. McNeice, Jr. 0 ----- ----- -----
James L. Moody, Jr. 7,721 (e) ----- ----- $94,500 (f)
John J. Neuhauser 6,618 ----- ----- $91,000
George L. Shinn 7,433 ----- ----- $102,500
Robert L. Sullivan 7,291 ----- ----- $101,000
Sinclair Weeks, Jr. 8,104 ----- ----- $112,000
</TABLE>
(b) At December 31, 1995, the Colonial Funds complex consisted of 33 open-end
and 5 closed-end management investment company portfolios.
(c) Includes $3,499 payable in later years as deferred compensation.
(d) Includes $49,000 payable in later years as deferred compensation.
(e) Includes $5,688 payable in later years as deferred compensation.
(f) Total compensation of $94,500 for the calendar year ended December 31,
1995, will be payable in later years as deferred compensation.
The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees of the Liberty
All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (formerly known as
The Charles Allmon Trust, Inc.) (together, Liberty Funds I) for service during
the calendar year ended December 31, 1995, and of Liberty Financial Trust (now
known as Colonial Trust VII) and LFC Utilities Trust (together, Liberty Funds
II) for the period January 1, 1995 through March 26, 1995 (g):
Total Compensation From Total Compensation
Liberty Funds II For The From Liberty Funds I For
Period January 1, 1995 The Calendar Year Ended
Trustee through March 26, 1995 December 31, 1995 (h)
- ------- ---------------------- ---------------------
Robert J. Birnbaum(i) $2,900 $16,675
James E. Grinnell (i) 2,900 22,900
Richard W. Lowry(i) 2,900 26,250 (j)
(g) On March 27, 1995, four of the portfolios in the Liberty Financial Trust
(now known as Colonial Trust VII) were merged into existing Colonial funds
and a fifth was reorganized as a new portfolio of Colonial Trust III. Prior
to their election as Trustees of the Colonial Funds, Messrs. Birnbaum,
Grinnell and Lowry served as Trustees of Liberty Funds II and continue to
serve as Trustees of Liberty Funds I.
(h) At December 31, 1995, the Liberty Funds I were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned subsidiary of
Liberty Financial Companies, Inc. (an intermediate parent of the Adviser).
(i) Elected as a Trustee of the Colonial Funds complex on April 21, 1995.
(j) Includes $3,500 paid to Mr. Lowry for service as Trustee of Liberty Newport
World Portfolio (formerly known as Liberty All-Star World Portfolio)
(Liberty Newport) during the calendar year ended December 31, 1995. At
December 31, 1995, Liberty Newport was managed by Newport Pacific
Management, Inc. and Stein Roe & Farnham Incorporated, each an affiliate of
the Adviser.
Ownership of the Fund
At January 31, 1996, the officers and Trustees of the Trust as a group owned
less than 1% of the outstanding shares of the Fund.
At January 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., P.O. Box
30561, New Brunswick, NJ 08989-0561 owned XXX% of the Fund's outstanding Class A
shares and Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800 Deer Lake Drive E.,
Jacksonville, FL 32216 owned XXX% of the Fund's outstanding Class B shares.
At January 31, 1996, there were 56,193 Class A and 3,291 Class B recordholders
of the Fund.
Sales Charges (for the fiscal year ended October 31)(in thousands)
Class A Shares
1995 1994 1993
---- ---- ----
Aggregate initial sales charges on Fund share sales $425 $691 $1,229
Initial sales charges retained by CISI $ 49 $ 80 $141
Class B Shares
Aggregate contingent deferred sales charges (CDSC)
on Fund redemptions retained by CISI $316 $273 $126
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 pursuant to Rule 12b-1 under the Act. Under the Plans, the Fund pays
CISI a service fee at an annual rate of 0.25% of average net assets attributed
to each Class of shares and a distribution fee at an annual rate of 0.75% of
average net assets attributed to Class B and Class D shares. CISI may use the
entire amount of such fees to defray the cost of commissions and service fees
paid to financial service firms (FSFs) and for certain other purposes. Since the
distribution and service fees are payable regardless of CISI's expenses, CISI
may realize a profit from the fees. The Plans authorize any other payments by
the Fund to CISI and its affiliates (including the Adviser) to the extent that
such payments might be construed to be 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 and are
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 are 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.
Approximately 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 relating to the Fund, were:
<TABLE>
<CAPTION>
Year ended October 31, 1995
Class A Shares Class B Shares
<S> <C> <C>
Fees to FSFs $3,171 $616
Cost of sales material relating to the Fund (including printing and mailing $ 101 $ 43
expenses)
Allocated travel, entertainment and other promotional expenses (including $ 306 $ 78
advertising)
</TABLE>
INVESTMENT PERFORMANCE
The Fund's Class A and Class B yields for the month ended October 31, 1995, were
5.84% and 5.38%, respectively.
The Fund's average annual total returns at October 31, 1995 were:
<TABLE>
<CAPTION>
Class A Shares
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
With sales charge of 4.75% 11.27% 8.51% 8.70%
Without sales charge 16.82% 9.57% 9.23%
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
Period June 8, 1992
(commencement of
investment operations)
1 year through October 31, 1995
------ -------------------------
<S> <C> <C>
With applicable CDSC 10.96% (5.00% CDSC) 6.55% (3.00% CDSC)
Without CDSC 15.96% 7.30%
</TABLE>
The Fund's Class A and Class B distribution rates at October 31, 1995, based on
the latest month's distributions, annualized, and the maximum offering price at
the end of the period, were 6.12% and 5.68%, 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 6 through 20 of the October 31, 1995 Annual Report are incorporated in
this SAI by reference.
<PAGE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS - 134.6% PAR VALUE
- --------------------------------------------------------------------------------
GOVERNMENT AGENCIES - 85.0%
MATURITIES
COUPON FROM/TO
------ ----------
<S> <C> <C>
Federal Home Loan Mortgage Corp.:
7.500% 2016 $ 1,450 $ 1,462
8.000% 2003-2016 5,748 5,918
8.500% 2007-2010 4,812 5,009
8.750% 2004-2010 2,022 2,089
9.000% 2001-2022(a) 9,248 9,695
9.250% 2008-2016 7,175 7,480
9.500% 2004-2016 3,008 3,196
9.750% 2008-2016 1,188 1,244
10.000% 2019 3,526 3,833
10.250% 2009-2010 793 858
10.500% 2017-2020 2,875 3,165
11.250% 2003-2016 2,830 3,145
11.500% 2015 159 178
12.000% 2013 128 143
--------
47,415
--------
Collateralized Mortgage Obligation:
5.000% 2013 10,558 9,839
6.500% 2014 18,550 17,819
6.750% 2020-2021 26,878 26,303
8.500% 2021 2,775 2,833
8.750% 2020(a) 15,900 16,606
--------
73,400
--------
Federal National Mortgage Association:
6.000% 2024-2025(b) 39,631 37,612
6.240% 2000 19,600 19,806
6.500% 2003-2024(b) 379,362 373,601
7.000% 2010-2025(a)(b) 277,529 275,740
7.500% 2006-2011 19,266 19,664
8.000% 2008-2009 4,239 4,384
8.250% 2008-2011(a) 1,987 2,036
8.500% 2008-2017 8,130 8,504
9.000% 2002-2021(a) 30,528 32,061
9.500% 2008-2018 2,669 2,823
10.500% 2004 126 139
--------
776,370
--------
</TABLE>
6
<PAGE>
Investment Portfolio/October 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITIES
COUPON FROM/TO
------ ----------
<S> <C> <C>
Government National Mortgage Association:
6.500% 2023-2024(a) $103,148 $ 100,312
7.500% 2006-2007(a) 1,481 1,522
8.000% 2005-2008 115 120
9.000% 2008-2017(a) 11,076 11,758
9.500% 2009-2019(a) 32,934 35,513
10.000% 2000-2003(a) 681 715
10.500% 2013-2021 22,339 24,747
11.000% 2010 6 7
11.500% 2013-2015(a) 75 85
11.750% 2013-2015 395 443
12.000% 2012-2015(a) 1,242 1,432
12.500% 2010-2015(a) 8,487 9,924
13.000% 2011-2015(a) 3,505 4,129
----------
190,707
----------
TOTAL GOVERNMENT AGENCIES (cost of $1,043,137) 1,087,892
----------
GOVERNMENT OBLIGATIONS - 49.6%
U.S. Treasury bonds:
7.125% 02/15/23(a) 64,058 69,743
7.625% 02/15/25(a) 1,864 2,164
12.000% 08/15/13(a) 129,678 194,538
12.750% 11/15/10(a) 46,873 69,811
----------
336,256
----------
U.S. Treasury notes:
6.125% 07/31/00 57,000 57,695
6.125% 09/30/00 47,103 47,684
6.500% 08/15/05 56,859 58,884
7.500% 11/15/24(a) 8,436 9,638
7.875% 11/15/04(a) 24,860 28,018
10.375% 11/15/12(a) 71,994 96,820
----------
298,739
----------
TOTAL GOVERNMENT OBLIGATIONS (cost of $643,419) 634,995
----------
TOTAL INVESTMENTS (cost of $1,686,556)(c) 1,722,887
----------
SHORT-TERM OBLIGATIONS - 1.1%
- --------------------------------------------------------------------------------
Repurchase agreement with Bankers Trust Securities
Corp. dated 10/31/95, due 11/01/95 at 5.875%,
collateralized by U.S. Treasury notes with various
maturities to 1997, market value $15,150
(repurchase proceeds $14,838) 14,836 14,836
----------
</TABLE>
7
<PAGE>
Investment Portfolio/October 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
OTHER ASSETS & LIABILITIES, NET - (35.7%) $ (457,628)
- -------------------------------------------------------------------------------
NET ASSETS - 100.0% $1,280,095
----------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- -------------------------------------------------------------------------------
(a) These securities, or a portion thereof, with a total market value of
$697,656, are being used to collateralize the delayed delivery purchases
indicated in note (b) below and open futures contracts shown below.
(b) These securities, or a portion thereof, 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.
(c) Cost for federal income tax purposes is $1,686,703.
Short futures contracts open at October 31, 1995 are as follows:
<TABLE>
<CAPTION>
Par value Unrealized
covered by Expiration depreciation
Type contracts month at 10/31/95
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury bonds $ 59,600 December $3,258
</TABLE>
See notes to financial statements.
8
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1995
<TABLE>
<CAPTION>
(in thousands except for per share amounts and footnotes)
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments at value (cost $1,686,556) $1,722,887
Short-term obligations 14,836
----------
1,737,723
Receivable for:
Interest $ 17,871
Investments sold 881
Fund shares sold 773
Other 917 20,442
-------- ----------
Total Assets 1,758,165
LIABILITIES
Payable for:
Investments purchased 467,343
Distributions 6,932
Fund shares repurchased 3,540
Variation margin on futures 168
Accrued:
Deferred Trustees fees 18
Other 69
--------
Total Liabilities 478,070
----------
NET ASSETS $1,280,095
==========
Net asset value & redemption price per share -
Class A ($1,201,126/110,901) $ 10.83
==========
Maximum offering price per share - Class A
($10.830/0.9525) $ 11.37(a)
==========
Net asset value & offering price per share -
Class B ($78,969/7,292) $ 10.83(b)
==========
COMPOSITION OF NET ASSETS
Capital paid in $1,486,883
Overdistributed net investment income (6,970)
Accumulated net realized loss (232,891)
Net unrealized appreciation (depreciation) on:
Investments 36,331
Open futures contracts (3,258)
----------
$1,280,095
==========
</TABLE>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements.
9
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
(in thousands)
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest $101,503
Dollar roll fee income 6,974
--------
108,477
EXPENSES
Management fee $ 8,424
Service fee 3,298
Distribution fee - Class B 558
Transfer agent 2,881
Bookkeeping fee 440
Trustees fee 65
Custodian fee 101
Audit fee 56
Legal fee 12
Registration fee 23
Reports to shareholders 22
Other 155 16,035
-------- --------
Net Investment Income 92,442
--------
NET REALIZED & UNREALIZED GAIN (LOSS)
ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 31,009
Closed futures contracts (8,662)
--------
Net Realized Gain 22,347
Net unrealized appreciation (depreciation)
during the period on:
Investments 101,733
Open futures contracts (10,276)
--------
Net Unrealized Appreciation 91,457
--------
Net Gain 113,804
--------
Net Increase in Net Assets From Operations $206,246
========
</TABLE>
See notes to financial statements.
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(in thousands)
- --------------------------------------------------------------------------------
Year ended
October 31
---------------------
1995 1994
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 92,442 120,333
Net realized gain (loss) 22,347 (44,423)
Net unrealized appreciation (depreciation) 91,457 (186,929)
---------- ----------
Net Increase (Decrease) from Operations 206,246 (111,019)
Distributions:
From net investment income - Class A (85,675) (107,338)
From net realized gains - Class A (3,434) --
From net investment income - Class B (4,557) (4,701)
From net realized gains - Class B (183) --
---------- ----------
112,397 (223,058)
---------- ----------
Fund Share Transactions:
Receipts for shares sold - Class A 94,460 59,031
Value of distributions reinvested - Class A 41,805 48,833
Cost of shares repurchased - Class A (319,215) (352,589)
---------- ----------
(182,950) (244,725)
---------- ----------
Receipts for shares sold - Class B 18,308 28,089
Value of distributions reinvested - Class B 2,478 2,451
Cost of shares repurchased - Class B (17,867) (18,610)
---------- ----------
2,919 11,930
---------- ----------
Net Decrease from Fund Share Transactions (180,031) (232,795)
---------- ----------
Total Decrease (67,634) (455,853)
NET ASSETS
Beginning of period 1,347,729 1,803,582
---------- ----------
End of period (net of overdistributed net
investment income of $6,970 and $8,191,
respectively) $1,280,095 $1,347,729
========== ==========
NUMBER OF FUND SHARES
Sold - Class A 9,160 5,589
Issued for distributions reinvested - Class A 4,058 4,598
Repurchased - Class A (30,800) (33,079)
---------- ----------
(17,582) (22,892)
---------- ----------
Sold - Class B 1,772 2,600
Issued for distributions reinvested - Class B 240 232
Repurchased - Class B (1,727) (1,768)
---------- ----------
285 1,064
---------- ----------
</TABLE>
See notes to financial statements.
11
<PAGE>
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands) Year ended October 31, 1995
---------------------------
<S> <C> <C>
NET CHANGE IN CASH
Cash flows from operating activities:
Interest received $ 107,603
Operating expenses paid 8,121
Dollar roll fee income received (16,028)
-----------
Net cash provided by operating act $ 99,696
Cash flows from investing activities:
Purchases of securities and short-term obligations (6,028,562)
Proceeds from sales of securities and short-term
obligations 6,225,441
Futures contracts (18,770)
-----------
Net cash provided by investing activities 178,109
---------
NET CASH PROVIDED BY OPERATING AND
INVESTING ACTIVITIES 277,805
Cash flows from financing activities:
Proceeds from shares sold 112,555
Cost of shares repurchased (339,020)
Cash dividends paid (51,340)
-----------
Net cash used by financing activities (277,805)
---------
Net change in cash 0
Cash - beginning of period 0
---------
Cash - end of period $ 0
=========
RECONCILIATION OF NET INCREASE IN NET ASSETS TO NET
CASH PROVIDED BY OPERATING AND INVESTING ACTIVITIES:
Net increase in net
assets resulting from operations $ 206,246
Decrease in investments $ 119,004
Decrease in interest and fees receivable 6,714
Decrease in receivable from investment
securities sold and futures contracts 180,287
Decrease in payable for
investment securities purchased (234,453)
Decrease in other assets 50
Decrease in accrued expenses and liabilities (43)
-----------
Total 71,559
---------
Net cash provided by operating
and investing activities $ 277,805
=========
</TABLE>
See notes to financial statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE 1. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION: Colonial Federal Securities Fund (the Fund), a series of
Colonial Trust III, is a diversified portfolio of a Massachusetts business
trust registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Fund may issue an unlimited
number of shares. The Fund offers 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: 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.
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, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
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. 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 or with respect to 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.
The Fund maintains U.S. government securities or other liquid high grade
debt obligations as collateral with respect to dollar roll transactions and
securities traded on other than normal settlement terms.
13
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
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.
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 annualized 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.
STATEMENT OF CASH FLOWS: Information on financial transactions which have
been settled through the receipt or disbursement of cash is presented in the
Statement of Cash Flows. The cash amount shown in the Statement of Cash
Flows is the amount included in other assets in the Fund's Statement of
Assets and Liabilities and represents cash on hand at its custodian bank
account and does not include any short-term investments as of October 31,
1995.
INTEREST INCOME, FEE INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is
recorded on the accrual basis. Fee income attributable to mortgage dollar
roll transactions is recorded on the accrual basis over the term of the
transaction. 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. These differences are primarily
due to differing treatments for mortgage backed securities for book and
tax purposes. Permanent book and tax basis differences will result in
reclassifications to capital accounts.
OTHER: 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 based on the Fund's average net
assets as follows:
14
<PAGE>
Notes to Financial Statements/October 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<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>
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:
<TABLE>
<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 for 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: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. During the year ended October 31, 1995, the Fund has
been advised that the Distributor retained net underwriting discounts of
$48,872 on sales of the Fund's Class A shares and received contingent
deferred sales charges (CDSC) of $315,596 on Class B share redemptions.
The Fund has adopted a 12b-1 plan which requires the payment of a service
fee to the Distributor equal to 0.25% annually of the Fund's net assets as
of the 20th of each month. The plan also requires the payment of a
distribution fee to the Distributor equal to 0.75% annually of the average
net assets attributable to Class B shares only.
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to
dealers who sold such shares.
OTHER: The Fund pays no compensation to its officers, all of whom are
employees of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which
may be terminated at any time. Obligations of the plan will be paid solely
out of the Fund's assets.
15
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended October 31, 1995, purchases and
sales of investments, other than short-term obligations and mortgage dollar
roll transactions, were $1,990,117,930 and $2,070,205,578, respectively.
Unrealized appreciation (depreciation) at October 31, 1995, based on cost of
investments for federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $46,267,118
Gross unrealized depreciation (10,083,383)
-----------
Net unrealized appreciation $36,183,735
===========
</TABLE>
Information regarding dollar roll transactions that are not in accordance
with standard industry practices for settling purchases of investments are
included in the debt table:
<TABLE>
<S> <C>
Maximum amount outstanding during the period $ 472,837,031
Average amount outstanding during the period $ 274,217,477
Amount outstanding at October 31, 1995 $ 232,096,875
</TABLE>
The average amount outstanding during the period was calculated by summing
borrowings at the end of each day and dividing the sum by the number of days
in the period ended October 31, 1995.
CAPITAL LOSS CARRYFORWARDS: At October 31, 1995, capital loss
carryforwards available (to the extent provided in regulations) to offset
future realized gains were approximately as follows:
<TABLE>
<CAPTION>
Year of Capital loss
expiration carryforward
---------- ------------
<S> <C>
1997............... $ 84,080,000
1998............... 22,515,000
1999............... 36,282,000
2000............... 595,000
2002............... 84,302,000
------------
$227,774,000
============
</TABLE>
Expired capital loss carryforwards, if any, are recorded as a reduction of
capital paid in.
Loss carryforwards are available to offset any future realized gains. 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 shareholder.
16
<PAGE>
Notes to Financial Statements/October 31, 1995
- -------------------------------------------------------------------------------
OTHER: The Fund sells Treasury bond futures contracts to manage overall
portfolio interest rate exposure and not for trading purposes. The use of
futures contracts involves certain risks, which include (1) imperfect
correlation between the price movement of the contracts and the underlying
securities, (2) inability to close out positions due to different trading
hours, or the temporary absence of a liquid market, for either the contract
or the underlying securities, or (3) an inaccurate prediction by the Adviser
of the future direction of interest rates. Any of these risks may involve
amounts exceeding the variation margin recorded in the Fund's Statement of
Assets and Liabilities at any given time.
17
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended October 31
------------------------------------------------------------
1995 1994
Class A Class B Class A Class B
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 9.950 $ 9.950 $11.460 $11.460
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.710 0.633 0.821 0.741
Net realized and
unrealized gain (loss) 0.907 0.907 (1.560) (1.560)
------- ------- ------- -------
Total from Investment
Operations 1.617 1.540 (0.739) (0.819)
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.709) (0.632) (0.771) (0.691)
From net realized gains (0.028) (0.028) --- ---
From capital paid in (b) --- --- --- ---
------- ------- ------- -------
Total Distributions
Declared to Shareholders (0.737) (0.660) (0.771) (0.691)
------- ------- ------- -------
Net asset value -
End of period $10.830 $10.830 $ 9.950 $ 9.950
======= ======= ======= =======
Total return (c) 16.82% 15.96% (6.57)% (7.28)%
======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.17% 1.92% 1.16% 1.91%
Net investment income 7.04% 6.29% 7.80% 7.05%
Portfolio turnover 171% 171% 121% 121%
Net assets at end
of period (in millions) $ 1,201 $ 79 $ 1,278 $ 70
</TABLE>
(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 and $0.315, respectively, 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 contingent deferred sales charge.
(d) Not annualized.
(e) Annualized.
18
<PAGE>
FINANCIAL HIGHLIGHTS - CONTINUED
<TABLE>
<CAPTION>
Year ended October 31
----------------------------------------------------------------------------
1993 1992 1991
Class A Class B Class A Class B (a) Class A
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$10.750 $10.750 $10.800 $10.730 $10.420
------- ------- ------- ------- -------
0.819 0.737 0.796 0.286 0.854
0.739 0.739 0.157 0.095 0.671
------- ------- ------- ------- -------
1.558 1.476 0.953 0.381 1.525
------- ------- ------- ------- -------
(0.781) (0.706) (0.796) (0.286) (0.854)
(0.067) (0.060) --- --- ---
--- --- (0.207) (0.075) (0.291)
------- ------- ------- ------- -------
(0.848) (0.766) (1.003) (0.361) (1.145)
------- ------- ------- ------- -------
$11.460 $11.460 $10.750 $10.750 $10.800
======= ======= ======= ======= =======
14.94% 14.11% 9.15% 3.47% (d) 15.33%
======= ======= ======= ======= =======
1.17% 1.92% 1.24% 1.99% (e) 1.21%
7.37% 6.62% 7.36% 6.61% (e) 8.05%
252% 252% 18% 18% 11%
$ 1,736 $ 68 $ 1,809 $ 28 $ 2,028
</TABLE>
- -------------------------------------------------------------------------------
State Tax Information (unaudited)
An average of 35% of the Fund's investments as of the end of each quarter were
in direct obligations of the U.S. Treasury.
Approximately 50% of the Fund's distributions (44% of
gross income) was derived from interest on direct
investments in U.S. Treasury bonds, notes, and bills.
- -------------------------------------------------------------------------------
19
<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 financial highlights present
fairly, in all material respects, the financial position of Colonial Federal
Securities Fund (a series of Colonial Trust III) at October 31, 1995, the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and the financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of portfolio positions at October 31, 1995 by correspondence with
the custodian and brokers 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 11, 1995
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 Objective and Policies;
Fundamental Investment Policies;
Other Investment Policies;
Portfolio Turnover; Miscellaneous
Investment Practices
14. Fund Charges and Expenses;
Management of the Funds
15. Fund Charges and Expenses
16. Fund Charges and Expenses;
Management of the Funds
17. Fund Charges and Expenses;
Management of the Funds
18. Shareholder Meetings
19. How to Buy Shares; Determination
of Net Asset Value; Suspension of
Redemptions; Special Purchase
Programs/Investor Services;
Programs for Reducing or
Eliminating Sales Charge; How to
Sell Shares; How to Exchange
Shares
20. Taxes
21. Fund Charges and Expenses;
Management of the Colonial Funds
22. Fund Charges and Expenses;
Investment Performance;
Performance Measures
23. Independent Accountants
THE COLONIAL FUND
Statement of Additional Information
February 28, 1996
This Statement of Additional Information (SAI) contains
information which may be useful to investors but which is not
included in the Prospectus of 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, 1996. 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 02111-2621.
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 Colonial Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sales
Charges
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Meetings
Performance Measures
Appendix I
Appendix II
TF-16/728B-0196
Part 1
THE COLONIAL FUND
Statement of Additional Information
February 28, 1996
DEFINITIONS
"Trust" Colonial Trust III
"Fund" The Colonial Fund
"Adviser" Colonial Management Associates, Inc., the
Fund's investment adviser
"CISI" Colonial Investment Services Inc., the
Fund's distributor
"CISC" Colonial Investors Service Center, Inc., the
Fund's investor services and transfer agent
INVESTMENT OBJECTIVES AND POLICIES
The Fund's Prospectus describes its investment objectives and
investment policies. Part 1 of this SAI includes additional
information concerning, among other things, the fundamental
investment policies of the Fund. Part 2 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
Fund's investment policies are not fundamental, and the Trustees
may change the policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of
a majority of the outstanding voting securities" means the
affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, or (2) 67% or more of the shares
present at a meeting if more than 50% of the outstanding shares
are represented at the meeting in person or by proxy. The
following fundamental investment policies 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;
Own securities of any company if the Fund knows that
3. officers and Trustees of the Trust or officers and
directors of the Adviser who individually own more than
0.5% of such securities together own more than 5% of such
securities;
4. Invest in interests in oil, gas or other mineral
exploration or development programs, including leases;
5. Purchase any security resulting in the Fund having more
than 5% of its total assets invested in securities of
companies (including predecessors) less than three years
old;
6. Pledge more than 33% of its total assets;
7. Purchase any security if, as a result of such purchase,
more than 10% of its total assets would 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
Years ended
October 31
1995 1994
66% 54%
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays the Adviser
a monthly fee based on the average daily net assets of the Fund
at the annual rate of 0.55%.
Recent Fees paid to the Adviser, CISI and CISC (in thousands)
Years Ended October 31
1995 1994 1993
Management fee $5,006 $4,102 $2,957
Bookkeeping fee 328 270 198
Shareholder service
and transfer agent
fee 2,685 2,143 1,556
12b-1 fees:
Service fee(Class A) 1,379 1,661 963
Service fee (Class B) 749
Distribution fee
(Class B) 2,254 1,528 470
Brokerage Commissions (in thousands)
1995 1994 1993
Total commissions $ 1,471 $1,080 $ 329
Directed
transactions(a) $19,414 $66,091 $68,445
Commissions on
directed
transactions $ 29 $ 90 $ 101
(a) See "Management of the Colonial Funds-Portfolio
Transactions-Brokerage and Research Services" in Part 2
of this SAI.
Trustees Fees
For the fiscal year ended October 31, 1995, and the calendar year
ended December 31, 1995, the Trustees received the following
compensation for serving as Trustees:
Total
Compensation
From Trust
Aggregate Pension or and Fund Complex
Compensation Retirement Paid To The
From Fund Benefits Estimated Trustees For
for Fiscal Accrued As Annual Calendar
Year Ended Part of Benefits Year Ended
October Fund Upon December 31,
Trustee 31, 1995 Expense Retirement 1995(b)
Robert J. Birnbaum $3,233 $ 71,250
Tom Bleasdale 4,945 (c) ----- ----- 98,000 (d)
Lora S. Collins 4,883 ----- ----- 91,000
James E. Grinnell 3,229 71,250
William D. Ireland, Jr. 5,453 ----- ----- 113,000
Richard W. Lowry 3,230 71,250
William E. Mayer 4,598 ----- ----- 91,000
John A. McNeice, Jr. 0 ----- ----- ----
James L. Moody, Jr. 5,340(e) ----- ----- 94,500 (f)
John J. Neuhauser 4,598 ----- ----- 91,000
George L. Shinn 5,102 ----- ----- 102,500
Robert L. Sullivan 5,081 ----- ----- 101,000
Sinclair Weeks, Jr. 5,663 ----- ----- 112,000
(b) At December 31, 1995, the Colonial Funds complex
consisted of 33 open-end and 5 closed-end
management investment company portfolios.
(c) Includes $2,456 payable in later years as deferred
compensation.
(d) Includes $49,000 payable in later years as
deferred compensation.
(e) Includes $4,054 payable in later years as deferred
compensation.
(f) Total compensation of $94,500 for the calendar
year ended December 31, 1995 will be payable in
later years as deferred compensation.
The following table sets forth the amount of compensation paid to
Messrs. Birnbaum, Grinnell and Lowry in their capacities as
Trustees of the Liberty All-Star Equity Fund and Liberty All-Star
Growth Fund, Inc. (formerly known as The Charles Allmon Trust,
Inc.) (together, Liberty Funds I) for service during the calendar
year ended December 31, 1995, and of Liberty Financial Trust (now
known as Colonial Trust VII) and LFC Utilities Trust (together,
Liberty Funds II) for the period January 1, 1995 through March
26, 1995 (g):
Total
Compensation
From Liberty
Total Compensation Funds I For
From Liberty Funds The Calendar
II For The Period Year Ended
January 1, 1995 December 31,
Trustee through March 26, 1995 1995 (h)
Robert J. Birnbaum(i) $2,900 $16,675
James E. Grinnell(i) 2,900 22,900
Richard W. Lowry(i) 2,900 26,250 (j)
(g) On March 27, 1995, four of the portfolios in the
Liberty Financial Trust (now known as Colonial
Trust VII) were merged into existing Colonial funds
and a fifth was reorganized as a new portfolio of
the Trust. Prior to their election as Trustees of
the Colonial Funds, Messrs. Birnbaum, Grinnell and
Lowry served as Trustees of Liberty Funds II and
continue to serve as Trustees of Liberty Funds I.
(h) At December 31, 1995, the Liberty Funds I were
advised by Liberty Asset Management Company (LAMCO).
LAMCO is an indirect wholly-owned subsidiary of
Liberty Financial Companies, Inc. (an intermediate
parent of the Adviser).
(i) Elected as a Trustee of the Colonial Funds complex
on April 21, 1995.
(j) Includes $3,500 paid to Mr. Lowry for service as
Trustee of Liberty Newport World Portfolio (formerly
known as Liberty All-Star World Portfolio) (Liberty
Newport) during the calendar year ended December 31,
1995. At December 31, 1995, Liberty Newport was
managed by Newport Pacific Management, Inc. and
Stein Roe & Farnham Incorporated, each an affiliate
of the Adviser.
Ownership of the Fund
At January 31, 1996, the officers and Trustees of the Trust as a
group beneficially owned less than 1% of the Class A and Class B
shares then outstanding. Also on January 31, 1996 the officers
and Trustees of the Trust as a group beneficially owned 658,817
Class Z shares representing 54.87% of the then outstanding shares.
Messrs. Scoon and Stern, who are officers of the Trust, held
646,488 Class Z shares, representing 53.84% 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.
At January 31, 1996, the officers and Trustees of the Trust as a
group beneficially owned less than 1% of the Class B shares.
At January 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, 4800
Deer Lake Drive, Jacksonville, FL 32216 owned of record 2,568,157
Class B shares representing 5.77% of the then outstanding shares
of such Class.
At January 31, 1996, Liberty Northwest Insurance Corporation, 825
N.E. Multnomah Street, Suite 2000, Portland, OR 97232 owned of
record 541,939 Class Z shares representing 45.13% of the then
outstanding shares of such Class.
At January 31, 1996 there were 45,439 Class A, 33,155 Class B and
3 Class Z and no Class D shareholders of record of the Fund.
Sales Charges (in thousands)
Class A Shares
Years ended October 31
1995 1994 1993
Aggregate initial
sales charges on Fund
share sales $1,202 $2,500 $2,382
Initial sales charges
retained by CISI $ 190 $ 255 $ 378
Class B Shares
1995 1994 1993
Aggregate contingent
deferred sales
charges (CDSC)on Fund
redemptions
retained by CISI $878 $513 $66
12b-1 Plans, CDSCs and Conversion of Shares
The Fund offers four classes of shares - Class A, Class B, Class D
and Class Z. 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 for Classes A, B and D. Under the
Plans, the Fund pays CISI an annual service fee of 0.15% of the
Fund's average net assets attributable to Class A 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 CISI's expenses, CISI may
realize a profit from the fees.
The Plans authorize any other payments by the Fund to CISI and its
affiliates (including the Adviser) to the extent that such
payments might be construed to be indirectly financing the
distribution of Fund shares.
The Trustees believe the Plans could be a significant factor in
the growth and retention of 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 and are 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 are subject to a 1.00% CDSC
on redemptions within one year after purchase. Class Z shares are
offered at net asset value and are not subject to a CDSC. The
CDSCs are described in the Prospectus.
No CDSC will be imposed on shares derived from reinvestment of
distributions or on 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.
Approximately 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 fiscal year ended October 31, 1995, were as
follows:
Class A Class B
Fees to FSFs $1,337 $2,513
Cost of sales
material relating to
the Fund (including
printing and mailing
expenses) $ 107 $ 171
Allocated travel,
entertainment and
other promotional
expenses (including
advertising) $ 220 $ 333
INVESTMENT PERFORMANCE
The Fund's Class A, Class B and Class Z yields for the month ended
October 31, 1995 were 1.92%, 1.29% and 0.00%, respectively.
The Fund's Class A average annual total returns at October 31,
1995 were as follows:
1 year 5 years 10 years
With sales charge of
5.75% 14.72% 14.86% 12.80%
Without sales charge 21.72% 16.23% 13.47%
The Fund's Class B total returns at October 31, 1995 were as
follows:
May 5, 1992
(Class B shares
initially offered)
1 year through October 31, 1995
With applicable
CDSC 15.84% (5.00% CDSC) 10.28% (3.00% CDSC)
Without CDSC 20.84% 10.95%
The Funds Class Z total return at October 31, 1995 was as follows:
July 31, 1995 (Class Z
shares initially
offered)
through October 31, 1995
2.02%
The Fund's Class A, Class B and Class Z distribution rates at
October 31, 1995, based on the previous calendar quarter's
distributions, annualized, and the maximum offering price at the
end of the quarter, were 1.90%, 1.27% and 2.17%, 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 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 6 through 25 of the October 31, 1995 Annual
Report, are incorporated in this SAI by reference.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1995 (IN THOUSANDS)
<CAPTION>
COMMON STOCKS - 83.4% COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION - 0.7%
BUILDING CONSTRUCTION - 0.5%
Koninklijke Volker Stevin NV Ne 74 $ 4,772
Lennar Corp. 32 736
------
5,508
------
HEAVY CONSTRUCTION - NON BUILDING CONSTRUCTION - 0.2%
Cubiertas y Mzov SA Sp 20 1,169
Enterprise Jean Lefebvre SA Fr 7 451
------
1,620
------
- -------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 15.3%
DEPOSITORY INSTITUTIONS - 3.9%
Banco de Santander SA Sp 18 785
Bank of Boston Corp. 56 2,492
Bank of Montreal Ca 398 8,815
Banque Nationale de Belgique Be 1 1,582
Canadian Imperial Bank of Commerce Ca 273 7,400
First Empire State Corp. 4 787
J.P. Morgan & Co., Inc. 93 7,157
National Australia Bank Ltd. Au 1,000 8,545
NationsBank Corp. 24 1,591
Toronto Dominion Bank Ca 50 889
------
40,043
------
HOLDING & OTHER INVESTMENT COMPANIES - 1.2%
Amev NV Ne 99 6,191
Avalon Properties, Inc. 59 1,141
Manufactured Home Communities, Inc. 63 1,031
Sofina SA Be 8 4,082
------
12,445
------
INSURANCE AGENTS & BROKERS - 0.1%
Acordia, Inc. 30 825
------
INSURANCE CARRIERS - 7.4%
AFLAC, Inc. 67 2,714
Allstate Corp. 365 13,427
American Bankers Insurance Group, Inc. 151 5,403
American General Corp. 38 1,262
CNA Financial Corp. (a) 25 2,804
Capitol American Financial Corp. 88 1,725
Cigna Corp. 235 23,275
</TABLE>
6
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Conseco, Inc. 117 $ 6,054
Excel Ltd. 5 283
Loews Corp. 62 9,032
Mercury General Corp. 6 231
Orion Capital Corp. 20 839
Providian Corp. 41 1,625
Reinsurance Group of America 2 52
Reliaster Financial Corp. 56 2,355
US Life Corp. 181 5,170
---------
76,251
---------
NONDEPOSITORY CREDIT INSTITUTIONS - 1.0%
American Express Co. 50 2,031
Green Tree Financial Corp. 288 7,679
---------
9,710
---------
REAL ESTATE - 0.2%
New World Development Co. Ltd. HK 500 1,947
Societe Francaise d'Investissements
Immobiliers et de Gestion Fr 4 286
---------
2,233
---------
SECURITY BROKERS & DEALERS - 1.5%
A.G. Edwards, Inc. 216 5,499
Alex Brown, Inc. 169 8,275
John Nuveen & Co., Inc. Class A 9 205
Quick & Reilly Group, Inc. 44 1,045
---------
15,024
---------
- ---------------------------------------------------------------------------
MANUFACTURING - 42.5%
CHEMICALS - 4.8%
ARCO Chemical Co. 13 617
Akzo Nobel NV Ne 63 3,621
American Home Products Corp. 60 5,318
Bristol-Myers Squibb Co. 19 1,479
Eastman Chemical Co. 111 6,593
Norsk Hydro A.S. ADR No 30 1,184
Rhone-Poulenc Rorer, Inc. Fr 96 4,515
Sherwin-Williams Co. 34 1,294
Union Carbide Corp. 533 20,176
Upjohn Co. 75 3,791
Wellman, Inc. 30 714
---------
49,302
---------
ELECTRONIC & ELECTRICAL EQUIPMENT - 2.8%
CTS Corp. 31 1,031
General Electric Co. 15 949
Helen of Troy Ltd. 17 305
</TABLE>
7
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
<CAPTION>
- -------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- -------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING - CONT.
Electronic & Electrical Equipment - Cont.
National Semiconductor Corp. (a) 297 $ 7,232
Texas Instruments, Inc. 268 18,284
United Industrial Corp. 140 717
---------
28,518
---------
FABRICATED METAL - 0.2%
Amcast Industrial Corp. 20 347
Harsco Corp. 39 2,036
---------
2,383
---------
FOOD & KINDRED PRODUCTS - 5.0%
Archer Daniels Midland Co. 279 4,492
Bongrain SA Fr (b) 212
CPC International, Inc. 16 1,049
Golden Enterprises, Inc. 5 47
H.J. Heinz Co. 26 1,209
IBP, Inc. 413 24,728
Korn-OG Foderstof Kompagniet AS (a) De 45 2,060
Seagrams Co. Ltd. 431 15,520
---------
50,831
---------
FURNITURE & FIXTURES - 0.0%
Kimball International, Class B 4 102
---------
LEATHER - 0.1%
Justin Industries, Inc. 95 952
---------
LUMBER & WOOD PRODUCTS - 0.8%
Weyerhaeuser Co. 190 8,384
---------
MACHINERY & COMPUTER EQUIPMENT - 6.9%
Bucher Holdings AG Sz 6 3,951
Diebold, Inc. 29 1,537
Dresser Industries, Inc. 50 1,040
Hewlett-Packard Co. 117 10,856
International Business Machines Corp. 164 15,949
Kaydon Corp. 22 644
Seagate Technology, Inc. (a) 510 22,840
Sun Microsystems, Inc. (a) 175 13,681
Tecumseh Products Co., Class A 8 367
---------
70,865
---------
MEASURING & ANALYZING INSTRUMENTS - 2.6%
Baxter International, Inc. 447 17,269
Emerson Electric Co. 22 1,582
</TABLE>
8
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Litton Industries, Inc. (a) 26 $ 1,042
Raytheon Co. 155 6,762
------
26,655
------
MISCELLANEOUS MANUFACTURING - 0.1%
Callaway Golf Co. 33 544
------
PAPER & PAPER MILLS - 0.6%
Chesapeake Corp. 18 554
Kimberly Clark Corp. 24 1,714
Willamette Industries, Inc. 75 4,321
------
6,589
------
PETROLEUM REFINING - 2.3%
British Petroleum Co. ADR UK 13 1,138
Elcor Corp. 59 1,245
Exxon Corp. 203 15,504
Mobil Corp. 58 5,793
------
23,680
------
PRIMARY METAL - 1.5%
Asarco, Inc. 153 4,918
Carpenter Technology Corp. 58 2,185
J&L Specialty Steel, Inc. 77 1,264
Magma Copper Co., Class B 385 6,454
------
14,821
------
PRIMARY SMELTING - 1.8%
National Power PLC ADR UK 34 1,080
Phelps Dodge Corp. 272 17,206
------
18,286
------
PRINTING & PUBLISHING - 0.6%
CSS Industries, Inc. (a) 25 566
E.W. Scripps Co. 7 249
New York Times Co., Class A 126 3,499
Standard Register Co. 84 1,895
------
6,209
------
RUBBER & PLASTIC - 2.1%
Goodyear Tire & Rubber Co. 473 17,959
Myers Industries, Inc. 22 316
Wynn's International, Inc. 129 3,535
------
21,810
------
TEXTILE MILL PRODUCTS - 0.1%
Interface, Inc., Class A 10 151
Springs Industries, Inc. 17 729
------
880
------
</TABLE>
9
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995"
<CAPTION>
- ----------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- ----------------------------------------------------------------
MANUFACTURING - CONT.
<C> <C> <C>
Tobacco Products - 2.3%
American Brands, Inc. 553 $ 23,718
---------
TRANSPORTATION EQUIPMENT - 7.9%
A.O. Smith Corp. 9 191
General Dynamics Corp. 228 12,636
McDonnell Douglas Corp. 188 15,353
Modine Manufacturing Co. 20 550
Paccar, Inc. 74 3,073
Peugeot SA Fr 20 2,610
Simpson Industries, Inc. 107 897
Societe Europeane de Propulsion SA Fr 2 119
TRW, Inc. 120 7,883
Textron, Inc. 401 27,555
Thiokol Corp. 265 9,169
Toyota Motor Corp. ADR Ja 27 1,002
---------
81,038
---------
- ----------------------------------------------------------------
MINING - 0.9%
METAL MINING
Cleveland-Cliffs, Inc. 42 1,562
Cyprus Amax Minerals Co. 282 7,354
---------
8,916
---------
- ----------------------------------------------------------------
RETAIL TRADE - 3.5%
APPAREL & ACCESSORY STORES - 0.0%
DEB Shops, Inc. 25 92
---------
GENERAL MERCHANDISE STORES - 3.1%
Dillard Department Stores, Inc., Class A 409 11,086
May Department Stores Co. 274 10,766
Waban, Inc. (a)" 625 9,759
---------
31,611
---------
HOME FURNISHINGS & EQUIPMENT - 0.1%
Sun Television and Appliances 164 901
---------
MISCELLANEOUS RETAIL - 0.3%
Rite Aid Corp. 98 2,638
---------
- ----------------------------------------------------------------
SERVICES - 0.3%
ENGINEERING, ACCOUNTING, RESEARCH & MANAGEMENT - 0.3%
Enron Global Power & Pipelines 30 729
International-Muller NV Ne 36 2,606
---------
3,335
---------
</TABLE>
10
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Hotels, Camps & Lodging - 0.0%
Harbour Centre Development HK 416 $ 465
------
- -------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 18.4%
AIR TRANSPORTATION - 1.2%
British Airways PLC ADR UK 7 479
Federal Express Corp. (a) 140 11,522
------
12,001
------
COMMUNICATIONS - 2.7%
Ameritech Corp. 105 5,670
NYNEX Corp. 124 5,804
Southern New England Telecommunications Corp. 30 1,084
Southwestern Bell Corp. Communications Inc. 262 14,662
Telefonos de Mexico Class L ADR Mx 30 825
------
28,045
------
ELECTRIC, GAS & SANITARY SERVICES - 1.4%
Gas y Electrica Series 2 SA Sp 224 11,016
Illinova Corp. 97 2,744
Teco Energy, Inc. 36 855
------
14,615
------
ELECTRIC SERVICES - 4.8%
Boston Edison Co. 48 1,319
DQE, Inc. 42 1,160
Detroit Edison Co. 34 1,131
Empresa Nacional De Electrica ADR Sp 23 1,141
Florida Progress Corp. 72 2,395
Houston Industries, Inc. 193 8,960
NIPSCO Industries, Inc. 35 1,274
New England Electric System 57 2,227
New York State Electric & Gas Corp. 180 4,545
Northern States Power Co. 26 1,224
Pinnacle West Capital Corp. 126 3,459
Portland General Corp. 75 2,024
Unicom Corp. 528 17,276
Union Electrica Fenosa SA Sp 177 824
Wisconsin Energy Corp. 25 735
------
49,694
------
GAS SERVICES - 0.5%
Consolidated Natural Gas Co. 69 2,633
Energen Corp. 78 1,756
Laclede Gas Co. 47 947
------
5,336
------
</TABLE>
11
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
<CAPTION>
- ------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- ------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
RAILROAD - 4.6%
Burlington Northern Santa Fe Co. 83 $ 6,978
CSX Corp. 68 5,695
Conrail, Inc. 454 31,206
Norfolk Southern Corp. 47 3,631
--------
47,510
--------
SANITARY SERVICES - 2.3%
North West Water PLC UK 1,096 10,297
Northumbrian Water Group PLC UK 352 5,522
Severn Trent Water PLC UK 403 4,080
Yorkshire Water PLC UK 412 3,992
--------
23,891
--------
TRANSPORTATION SERVICES - 0.1%
Cross Harbour Tunnel Co. HK 307 586
--------
WATER TRANSPORTATION - 0.8%
American Presidents Co. Ltd. 292 7,079
Overseas Shipholding Group, Inc. 45 760
--------
7,839
--------
- ------------------------------------------------------------------
WHOLESALE TRADE - 1.8%
Durable Goods - 1.3%
Beers N.V. (a) Ne 43 6,762
Pioneer Standard Electronics, Inc. 480 6,655
--------
13,417
--------
NONDURABLE GOODS - 0.5%
Bergen Brunswig Corp., Class A 120 2,484
International Multifoods Corp. 58 1,179
Nash Finch Co. 60 1,064
--------
4,727
--------
TOTAL COMMON STOCKS (cost of $686,892) 854,845
--------
</TABLE>
<TABLE>
<CAPTION>
MATURITIES
BONDS AND NOTES - 9.9% COUPON FROM/TO PAR
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 9.9%
GOVERNMENT AGENCIES - 6.3%
Federal National Mortgage Association,
6.500% 2007-2009 $ 65,061 64,532
------
GOVERNMENT OBLIGATIONS - 3.6%
U.S. Treasury Notes, 7.875% 4/15/98 35,085 36,823
------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/October 31, 1995
- -------------------------------------------------------------------------
<C> <C> <C> <C>
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (cost of $101,934) $ 101,355
----------
CORPORATE FIXED-INCOME BONDS & NOTES - 0.1%
- -------------------------------------------------------------------------
MANUFACTURING - 0.1%
PRINTING & PUBLISHING
Time Warner, Inc.
(cost of $619) 8.750% 1/10/15 $ 603 $ 603
----------
CORPORATE ADJUSTABLE RATE BONDS & NOTES - 0.1%
- -------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.1%
PIPELINES
SFP Pipeline Holdings (c)
(cost of $720) 11.163% 08/15/10 600 756
----------
TOTAL BONDS & NOTES (cost of $103,273) 102,741
----------
PREFERRED STOCKS - 0.1% SHARES
- ---------------------------------------------------------------------------
SERVICES - 0.1%
BUSINESS SERVICES
General Motors Corp., $3.25 (cost of $1,148) 21 1,386
----------
TOTAL INVESTMENTS - 93.6% (cost of $791,313)(d) 958,972
----------
SHORT-TERM OBLIGATIONS - 5.5% PAR
- ---------------------------------------------------------------------------
Repurchase agreement with Bankers Trust
Securities Corp., dated 10/31/95, due 11/01/95
at 5.875% collateralized by U.S. Treasury
notes with various maturities to 1997, market
value $57,590 (repurchase proceeds $56,406) $ 56,397 56,397
----------
OTHER ASSETS & LIABILITIES, NET - 0.9% 9,732
- ---------------------------------------------------------------------------
NET ASSETS- 100% $1,025,101
----------
<FN>
NOTES TO INVESTMENT PORTFOLIO:
- ---------------------------------------------------------------------------
(a) Non-income producing.
(b) Rounds to less than one.
(c) Interest rates change quarterly. The rate listed is as of October 31,
1995.
(d) Cost for federal income tax purposes is $791,338.
</TABLE>
13
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
- -------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO - CONT.
===============================================================================
<CAPTION>
Summary of Securities by Country Country Value % of Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ $ 841,972 87.8
United Kingdom UK 26,588 2.8
Netherlands Ne 23,952 2.5
Canada Ca 17,104 1.8
Spain Sp 14,935 1.6
Australia Au 8,545 0.9
France Fr 8,193 0.9
Belgium Be 5,664 0.6
Switzerland Sz 3,950 0.4
Hong Kong HK 2,998 0.3
Denmark De 2,060 0.2
Norway No 1,184 0.1
Japan Ja 1,002 0.1
Mexico Mx 825 0.0
-------- -----
$ 958,972 100.0
======== =====
</Table
Certain securities are listed by country of underlying exposure but may
trade predominantly on other exchanges.
See notes to financial statements.
14
<PAGE>
</TABLE>
<TABLE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1995
(in thousands except for per share amounts and footnotes)
<CAPTION>
<S> <C> <C>
ASSETS
Investments at value (cost $791,313) $ 958,972
Short-term obligations 56,397
-----------
1,015,369
Cash held in foreign banks (cost $167) $ 168
Receivable for:
Investments sold 29,494
Fund shares sold 2,000
Dividends 1,128
Interest 508
Foreign tax reclaims 173
Other 78 33,549
---------- -----------
Total Assets 1,048,918
LIABILITIES
Payable for:
Investments purchased 22,583
Fund shares repurchased 1,144
Accrued:
Deferred Trustees fees 4
Other 86
Total Liabilities ----------
23,817
-----------
NET ASSETS $ 1,025,101
===========
Net asset value & redemption price per share -
Class A ($667,611/74,693) $ 8.94
===========
Maximum offering price per share - Class A
($8.94/0.9425) $ 9.49 (a)
===========
Net asset value & offering price per share -
Class B ($353,831/39,635) $ 8.93 (b)
===========
Net asset value price per share - Class Z
($3,659/409) $ 8.94
===========
COMPOSITION OF NET ASSETS
Capital paid in $ 783,284
Undistributed net investment income 136
Accumulated net realized gain 74,039
Net unrealized appreciation (depreciation) on:
Investments 167,659
Foreign currency transactions (17)
-----------
$ 1,025,101
===========
<FN>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
See notes to financial statements.
</TABLE>
15
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<CAPTION>
(in thousands)
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 22,620
Interest 10,055
-------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $616) 32,675
EXPENSES
Management fee $ 5,006
Service fee - Class A 1,379
Service fee - Class B 749
Distribution fee - Class B 2,254
Transfer agent 2,685
Bookkeeping fee 328
Trustees fee 40
Custodian fee 127
Audit fee 44
Legal fee 9
Registration fee 72
Reports to shareholders 28
Other 107 12,828
------ -------
Net Investment Income 19,847
-------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain on:
Investments 73,755
Foreign currency transactions 46
------
Net Realized Gain 73,801
Net unrealized appreciation (depreciation) during
the period on:
Investments 85,116
Foreign currency transactions (17)
------
Net Unrealized Appreciation 85,099
-------
Net Gain 158,900
-------
Net Increase in Net Assets from Operations $178,747
=======
</TABLE>
See notes to financial statements.
16
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(in thousands) Year ended October 31
---------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS 1995 1994
Operations:
Net investment income $ 19,847 $ 13,905
Net realized gain 73,801 50,974
Net unrealized appreciation (depreciation) 85,099 (61,930)
---------- ---------
Net Increase from Operations 178,747 2,949
Distributions:
From net investment income - Class A (15,424) (10,658)
From net realized gains - Class A (34,321) (15,320)
From net investment income - Class B (5,439) (2,687)
From net realized gains - Class B (16,631) (4,145)
From net investment income - Class Z (15) -
---------- ---------
106,917 (29,861)
---------- ---------
Fund Share Transactions (a):
Receipts for shares sold - Class A 73,553 96,683
Receipts for shares issued in the
acquisition of Liberty Financial
Growth and Income Fund 36,806 -
Value of distributions reinvested - Class A 44,428 22,779
Cost of shares repurchased - Class A (114,120) (62,378)
---------- ---------
40,667 57,084
---------- ---------
Receipts for shares sold - Class B 76,326 169,110
Value of distributions reinvested - Class B 20,808 6,421
Cost of shares repurchased - Class B (42,629) (28,224)
---------- ---------
54,505 147,307
---------- ---------
Receipts for shares sold - Class Z 3,600 -
Value of distributions reinvested - Class Z 15 -
3,615 -
---------- ---------
Net Increase from Fund Share
Transactions 98,787 204,391
---------- ---------
Total Increase 205,704 174,530
NET ASSETS
Beginning of period 819,397 644,867
---------- ---------
End of period (including undistributed net
investment income of $136 and $1,133,
respectively) $1,025,101 $819,397
========== =========
<FN>
(a) Class Z shares were initially offered on July 31, 1995.
Statement of Changes in Net Assets continued on following page.
See notes to financial statements.
</TABLE>
17
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS - CONT.
<CAPTION>
(in thousands) Year ended October 31
--------------------------
NUMBER OF FUND SHARES (a) 1995 1994
<S> <C> <C>
Sold - Class A 8,868 11,383
Issued in acquisition of Liberty Financial
Growth and Income Fund 4,730 -
Issued for distributions reinvested - Class A 5,968 2,821
Repurchased - Class A (13,808) (7,202)
------ ------
5,758 7,002
------ ------
Sold - Class B 9,250 20,623
Issued for distributions reinvested - Class B 2,814 794
Repurchased - Class B (5,252) (3,371)
------ ------
6,812 18,046
------ ------
Sold - Class Z 407 -
Issued for distributions reinvested - Class Z 2 -
------ ------
409 -
------ ------
</TABLE>
(a) Class Z shares were initially offered on July 31, 1995.
See notes to financial statements.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE 1. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION: The Colonial Fund (the Fund), a series of Colonial Trust III,
is a diversified portfolio of a Massachusetts business trust registered under
the Investment Company Act of 1940, as amended, as an open-end, management
investment company. The Fund may issue an unlimited number of shares. The
Fund offers three classes of shares: Class A, Class B and Class Z. Class A
shares are sold with a front-end sales charge; 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 Z shares are offered continuously at net asset value.
There are certain restrictions on the purchase of Class Z shares please refer
to a prospectus. 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. Whe management deems it appropriate, an over-the-counter or
exchange bid quotation is is used.
Forward currency contracts are valued based on the weighted value of the
exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
The values of all assets and liabilities quoted in foreign currencies are
translated U.S. dollars at that day's exchange rates.
Portfolio positions which cannot be valued as set forth above are valued at
fair valu under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
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 A and Class B service fee and 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.
19
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
Class A, Class B and Class Z per share data was calculated using the average
shares outstanding during the period. In addition, net investment income per
share data reflects the service fee applicable to both Class A and Class B
shares and the distribution fee applicable to Class B shares only.
Class A and Class B ratios are calculated by adjusting the expense and net
invest- ment income ratios for the Fund for the entire period by the service
fee applicable to both Class A and Class B shares and by the distribution fee
applicable to Class B shares only.
FEDERAL INCOME TAXES: Consistent with the Funds policy to qualify as a
regulated investment company and to distribute all of its taxable income,
no federal income tax has been accrued.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is recorded on
the accrual basis. Original issue discount is accreted to interest income over
the life of a security with a corresponding increase in the cost basis, premium
and market discount are not amortized or accreted.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders are recorded on
the ex-date.
The character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Reclassifications are made to the Fund's
capital accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
FOREIGN CURRENCY CONTRACTS: The Fund has adopted Statement of Position 93-4,
Foreign Currency Accounting and Financial Statement Presentation for Investment
Companies. Accordingly, net realized and unrealized gains(losses) on foreign
currency transactions includes the fluctuation in exchange rates on
gains(losses) between trade and settlement dates on securities transactions,
gains(losses) arising from the disposition of foreign currency and currency
gains(losses) between the accrual and payment dates on dividends and interest
income and foreign withholding taxes.
The Fund does not distinguish that portion of gains(losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included
with the net realized and unrealized gains(losses) on investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency
contracts to purchase or sell foreign currencies at predetermined exchange
rates in connection with the settlement of purchases and sales of securities.
The Fund may also enter into forward currency contracts to hedge certain other
foreign currency denominated assets. The contracts are used to minimize the
exposure to foreign exchange rate fluctuations during the period between trade
and settlement date of the contracts. All contracts are marked-to-market
daily, resulting in unrealized gains or losses which become realized at the
time the forward currency contracts are closed or mature. Realized and
unrealized
20
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
gains (losses) arising from such transactions are included in net
realized and unrealized gains (losses) on foreign currency transactions.
Forward currency contracts do not eliminate fluctuations in the prices of the
Funds portfolio securities. While the maximum potential loss from such
contracts is the aggregate face value in U.S. dollars at the time the contract
was opened, exposure is typically limited to the change in value of the
contract (in U.S. dollars) over the period it remains open. Risks may also
arise if counterparties fail to perform their obligations under the contracts.
OTHER: Corporate actions are recorded on the ex-date (except for
certain foreign securities which are recorded as soon after ex-date as the Fund
becomes aware of such), net of nonrebatable tax withholdings. Where a high
level of uncertainty as to collection exists, income on securities is recorded
net of all tax withholdings with any rebates recorded when received.
The Fund'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: Colonial
Investment Services, Inc. (the Distributor), an affiliate of the Adviser, is
the Fund's principal underwriter. For the year ended October 31, 1995, the Fund
has been advised that the Distributor retained net underwriting discounts of
$189,833 on sales of the Fund's Class A shares and received contingent
deferred sales charges (CDSC) of $878,329 on Class B share redemptions.
<TABLE>
The Fund has adopted a 12b-1 plan which requires the payment of a
distribution fee to the Distributor equal to 0.75% annually of the average net
assets attributable to Class B shares. The plan also requires the payment to
the Distributor of a service fee on Class A and Class B shares as follows:
<CAPTION>
Value of shares Annual
outstanding on the 20th of Fee
each month which were issued Rate
- ----------------------------------- --------
<S> <C>
Prior to April 1, 1989 0.15%
On or after April 1, 1989 0.25%
</TABLE>
21
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES - CONT.
- --------------------------------------------------------------------------------
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. Obligations of the plan will be paid solely out of
the the Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended October 31, 1995, purchases and
sales of investments, other than short-term obligations, were $599,989,639 and
$566,203,192, respectively, of which $4,583,079 and $9,987,472, respectively,
were U.S. government securities.
<TABLE>
<CAPTION>
Unrealized appreciation (depreciation) at October 31, 1995, based on cost of
investments for federal income tax purposes was:
<S> <C>
Gross unrealized appreciation $184,647,924
Gross unrealized depreciation (17,014,421)
------------
Net unrealized appreciation $167,633,503
------------
</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 foreign
currency exchange or the imposition of other foreign governmental laws or
restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 4. MERGER INFORMATION
- --------------------------------------------------------------------------------
On March 24, 1995, Liberty Financial Growth and Income Fund (LFGIF) was merged
into the Fund by a non-taxable exchange of 4,730,303 shares of the Fund (valued
at $36,806,337) for the 3,433,000 of LFGIF shares then outstanding. The assets
of LFGIF acquired included unrealized appreciation of $1,319,964. The
aggregate net assets of the Fund and LFGIF immediately after the merger were
$879,529,274.
22
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (a)
Selected data for a share of each class outstanding throughout each period are
as follows:
<CAPTION>
Year ended October 31
-----------------------------------------------------
1995 1994
Class A Class B Class Z(b) Class A Class B
-------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 8.060 $ 8.050 $ 8.780 $ 8.410 $ 8.400
-------- -------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.200 0.137 0.041 0.171 0.109
Net realized and
unrealized gain (loss) 1.393 1.395 0.167 (0.116) (0.111)
-------- -------- ------- -------- --------
Total from Investment
Operations 1.593 1.532 0.208 0.055 (0.002)
-------- -------- ------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.212) (0.151) (0.048) (0.160) (0.103)
From net realized gains (0.501) (0.501) - (0.245) (0.245)
-------- -------- ------- -------- --------
Total Distributions
Declared to
Shareholders (0.713) (0.652) (0.048) (0.405) (0.348)
-------- -------- ------- -------- --------
Net asset value -
End of period $ 8.940 $ 8.930 $ 8.940 $ 8.060 $ 8.050
======== ======== ======= ======== ========
Total return (c) 21.72% 20.84% 2.02% (d) 0.74% (0.04)%
======== ======== ======= ======== ========
RATIOS TO AVERAGE NET ASSETS
Expenses 1.16% 1.93% 0.93% 1.14% 1.89%
Net investment income 2.43% 1.66% 2.66% (e) 2.07% 1.32%
Portfolio turnover 66% 66% 66% 54% 54%
Net assets at end of
period (000) $667,611 $353,831 $ 3,659 $555,275 $264,122
<FN>
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Class Z shares were initially offered on July 31, 1995. Per share amounts
reflect activity from that date.
(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>
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
85% of the distributions paid by the Fund from investment income earned in the
year ended October 31, 1995, qualify for the corporate dividends received
deduction.
23
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (a)
Selected data for a share of each class outstanding throughout each period
are as follows:
<CAPTION>
Year ended October 31
----------------------------------------------------
1993(b) 1992(b) 1991(b)
Class A Class B Class A Class B(c) Class A
------------------- ---------------------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 7.390 $ 7.390 $ 7.050 $ 7.440 $ 5.700
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.156 0.104 0.173 0.052 0.218
Net realized and
unrealized gain (loss) 1.293 1.282 0.489 (0.044) 1.509
------- ------- ------- ------- -------
Total from Investment
Operations 1.449 1.386 0.662 0.008 1.727
------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.147) (0.094) (0.185) (0.058) (0.222)
From net realized gains (0.282) (0.282) (0.137) - (0.155)
------- ------- ------- ------- -------
Total Distributions
Declared to
Shareholders (0.429) (0.376) (0.322) (0.058) (0.377)
------- ------- ------- ------- -------
Net asset value -
End of period $ 8.410 $ 8.400 $ 7.390 $ 7.390 $ 7.050
======= ======= ======= ======= =======
Total return (d) 20.21% 19.38% 9.65% (0.31)% 31.23%
======= ======= ======= ======= =======
RATIO OF AVERAGE NET ASSETS
Expenses 1.10% 1.85% 1.09% 1.84%(f) 1.06%
Net investment income 1.94% 1.19% 2.52% 1.77%(f) 3.35%
Portfolio turnover 14% 14% 37% 37% 36%
Net assets at end
of period (000) $520,706 $124,161 $413,228 $ 15,582 $366,808
<FN>
(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 contingent deferred sales charge.
(e) Not annualized.
(f) Annualized.
</TABLE>
24
<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, 1995, the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated in conformity with generally accepted accounting principles. These
financial statements and the financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of portfolio positions at October 31, 1995 by correspondence with
the custodian and brokers, 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 11, 1995
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 Meetings
19. How to Buy Shares; Determination
of Net Asset Value; Suspension of
Redemptions; Special Purchase
Programs/Investor Services;
Programs for Reducing or
Eliminating Sales Charge; How to
Sell Shares; How to Exchange
Shares
20. Taxes
21. Fund Charges and Expenses;
Management of the Colonial Funds
22. Fund Charges and Expenses;
Investment Performance;
Performance Measures
23. Independent Accountants
COLONIAL GLOBAL NATURAL RESOURCES FUND
Statement of Additional Information
February 28, 1996
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
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, 1996. This SAI should be read together with the
Prospectus. Investors may obtain a free copy of the Prospectus from Colonial
Investment Services, Inc., One Financial Center, Boston, MA 02111.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes
information about the Colonial funds generally and additional information about
certain securities and investment techniques described in the Fund's Prospectus.
TABLE OF CONTENTS
Part 1 Page
Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Portfolio Turnover
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountants
Part 2
Miscellaneous Investment Practices
Taxes
Management of the Colonial Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sales Charges
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Meetings
Performance Measures
Appendix I
Appendix II
NR-16/740B-0196
Part 1
COLONIAL GLOBAL NATURAL RESOURCES FUND
Statement of Additional Information
February 28, 1996
DEFINITIONS
"Trust" Colonial Trust III
"Fund" Colonial Global Natural Resources Fund
"Adviser" Colonial Management Associates, Inc., the
Fund's investment adviser
"CISI" Colonial Investment Services, Inc., the
Fund's distributor
"CISC" Colonial Investors Service Center, Inc., the
Fund's shareholder services and transfer
agent
"Natural Resources Securities" Companies which in the Adviser's opinion have
substantial natural resource assets or have
substantial business activity related to
natural resources.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's Prospectus describes its investment objective and policies. Part 1 of
this SAI includes additional information concerning, among other things, the
fundamental investment policies of the Fund. Part 2 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 Fund's
investment policies are not fundamental, and the Trustees may change the
policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. The following fundamental
investment policies 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 securities of any company if the Trust knows that officers and
Trustees of the Trust or officers and directors of the Adviser who
individually own more than 0.5% of such securities together own more than
5% of such securities;
4. Invest in interests in oil, gas or other mineral exploration or development
programs, including leases;
5. Purchase any security resulting in the Fund having more than 5% of its
total assets invested in securities of companies (including predecessors)
less than three years old;
6. Pledge more than 33% of its total assets;
7. Purchase any security if, as a result of such purchase, more than 10% of
its total assets would be invested in 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. The Adviser will monitor on an ongoing basis the
creditworthiness of the issuer or the standby broker. A standby broker might be
a securities broker-dealer, 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 resource-indexed 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
1995 1994
---- ----
65% 15%
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays the Adviser a monthly fee
based on the average daily net assets of the Fund at the annual rate of 0.75%.
Recent Fees paid to the Adviser, CISI and CISC (dollars in thousands)
Year ended October 31
1995 1994 1993
---- ---- ----
Management fee $ 421 $ 349 $ 254
Bookkeeping fee 29 27 27
Shareholder service and transfer agent fee 188 154 154
12b-1 fees:
Service fee 140 117 85
Distribution fee (Class B) 169 98 41
Brokerage Commissions (dollars in thousands)
Year ended October 31
1995 1994 1993
---- ---- ----
Total commissions $ 190 $ 78 $ 17
Directed transactions (a) 2,631 3,401 2,014
Commissions on directed transactions 10 11 5
(a) See "Management of the Colonial Funds - Portfolio Transactions - Brokerage
and research services" in Part 2 of this SAI.
Trustees Fees
For fiscal year ended October 31, 1995, and the calendar year ended December 31,
1995, the Trustees received the following compensation for serving as Trustees:
Aggregate Total Compensation
Compensation Pension or From Trust and Fund
From Fund For Retirement Estimated Complex Paid To The
The Fiscal Benefits Annual Trustees For The
Year Ended Accrued As Benefits Calendar Year
October 31, Part of Upon Ended December 31,
Trustee 1995 Fund Expense Retirement 1995( b)
- ------- -------------- ------------ ---------- ------------------
Robert J. Birnbaum (i) $ 751 $ 0 $ 0 $ 71,250
Tom Bleasdale 1,181 (c) 0 0 98,000(d)
Lora S. Collins 1,165 0 0 91,000
James E. Grinnell (i) 753 0 0 71,250
William D. Ireland, Jr. 1,302 0 0 113,000
Richard W. Lowry (i) 752 0 0 71,250
William E. Mayer 1,102 0 0 91,000
John A. McNeice, Jr. 0 0 0 0
James L. Moody, Jr. 1,273(e) 0 0 94,500(f)
John J. Neuhauser 1,097 0 0 91,000
George L. Shinn 1,227 0 0 102,500
Robert L. Sullivan 1,207 0 0 101,000
Sinclair Weeks, Jr. 1,346 0 0 112,000
(b) At December 31, 1995, the Colonial Funds complex consisted of 33 open-end
and 5 closed-end management investment company portfolios.
(c) Includes $583 payable in later years as deferred compensation.
(d) Includes $49,000 payable in later years as deferred compensation.
(e) Includes $950 payable in later years as deferred compensation.
(f) Total compensation of $94,500 for the calendar year ended December 31,
1995, will be payable in later years as deferred compensation.
The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees of the Liberty
All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (formerly known as
The Charles Allmon Trust, Inc.) (together, Liberty Funds I) for service during
the calendar year ended December 31, 1995, and of Liberty Financial Trust (now
known as Colonial Trust VII) and LFC Utilities Trust (together, Liberty Funds
II) for the period January 1, 1995 through March 26, 1995 (g):
Total Compensation From Total Compensation
Liberty Funds II For The From Liberty Funds I For
Period January 1, 1995 The Calendar Year Ended
Trustee Through March 26, 1995 December 31, 1995 (h)
- ------- ----------------------- ------------------------
Robert J. Birnbaum(i) $ 2,900 $16,675
James E. Grinnell (i) 2,900 22,900
Richard W. Lowry(i) 2,900 26,250 (j)
(g) On March 27, 1995, four of the portfolios in the Liberty Financial Trust
(now known as Colonial Trust VII) were merged into existing Colonial
funds and a fifth was organized as a new portfolio of Colonial Trust
III. Prior to their election as Trustees of the Colonial Funds, Messrs.
Birnbaum, Grinnell and Lowry served as Trustees of Liberty Funds II and
continue to serve as Trustees of Liberty Funds I.
(h) At December 31, 1995, the Liberty Funds I were advised by Liberty
Asset Management Company (LAMCO). LAMCO is an indirect wholly-owned
subsidiary of Liberty Financial Companies, Inc. (an intermediate
parent of the Adviser).
(i) Elected as a Trustee of the Colonial Funds complex on April 21, 1995.
(j) Includes $3,500 paid to Mr. Lowry for service as Trustee of Liberty
Newport World Portfolio (formerly known as Liberty All-Star World
Portfolio) (Liberty Newport) during the calendar year ended December 31,
1995. At December 31, 1995, Liberty Newport was managed by Newport
Pacific Management, Inc. and Stein Roe and Farnham Incorporated, each an
affiliate of the Adviser.
Ownership of the Fund
At January 31, 1996, the officers and Trustees of the Trust as a group owned
52,310.839 shares of the Fund, representing 2.05% of the then outstanding
Class A shares. Messrs. Scoon and Stern, who are officers of the Fund, held
36,826.620 shares of the Fund, representing 1.44% 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.
At January 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Attn: Book
Entry, 4800 Deer Lake Drive, 3rd Floor, Jacksonville, Florida 32216, owned %
and % of the then outstanding Class A and Class B shares, respectively.
At January 31, 1996, there were 5,393 Class A and 2,302 Class B record holders
of the Fund.
Sales Charges (dollars in thousands)
Class A Shares
Year ended October 31
1995 1994 1993
Aggregate initial sales charges on Fund
share sales $ 91 $ 177 $ 47
Initial sales charges retained by CISI 79 25 8
Class B Shares
Year ended October 31
1995 1994 1993
Aggregate contingent deferred sales charges
(CDSC) on Fund redemptions retained by CISI $125 $ 41 $ 12
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 of shares 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 the Adviser) 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 and are
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 or
on 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.
Approximately eight years after the end of the month in which a Class B share is
purchased, such share and a pro rata portion of any shares issued on the
reinvestment of distributions will be automatically converted into Class A
shares having an equal value, which are not subject to the distribution fee.
Sales-related expenses (dollars in thousands) of CISI relating to the Fund for
the year ended October 31, 1995, were:
Class A Shares Class B Shares
Fees to FSFs $82 $204
Cost of sales material relating to the Fund
(including printing and mailing expenses) 29 47
Allocated travel, entertainment and other
promotional expenses (including advertising) 25 32
INVESTMENT PERFORMANCE
The Fund's Class A and Class B yields for the month ended October 31, 1995, were
0.73% and 0.02%, respectively.
The Fund's average annual total returns at October 31, 1995, were:
Class A Shares
Period June 8, 1992
(commencement of investment operations)
1 Year through October 31, 1995
------ ------------------------
With sales charge of 5.75% (8.46)% 6.54%
Without sales charge (2.88)% 8.42%
Class B Shares
Period June 8, 1992
(commencement of investment operations)
1 Year through October 31, 1995
------ ------------------------
With applicable CDSC (8.29)%(4.73% CDSC) 6.87% (3.00% CDSC)
Without CDSC (3.56)% 7.62%
The Fund's Class A and Class B distribution rates at October 31, 1995, which are
based on the last twelve months' distributions, annualized, and the maximum
offering price at the end of the twelve month period were 0.81% and 0.16%,
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 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 6 through 20 of the October 31, 1995 Annual Report, are incorporated
in this SAI by reference.
<PAGE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCKS - 94.4% COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE, INSURANCE & REAL ESTATE - 0.7%
REAL ESTATE - 0.7%
DBS Land Ltd. Si 121 $ 358
------
- -----------------------------------------------------------------------------
MANUFACTURING - 51.8%
CHEMICALS - 7.5%
Dow Chemical Co. 11 748
E.I. DuPont De Nemours & Co., Inc. 10 642
Norsk Hydro AS No 15 613
OM Group, Inc. 20 566
PPG Industries, Inc. 7 306
Smith International, Inc. 25 394
Sterling Chemicals, Inc. (a) 25 200
Wellman, Inc. 19 446
------
3,915
------
LUMBER & WOOD PRODUCTS - 4.3%
Georgia Pacific Corp. 7 561
Pacific Forest Products Ltd. (a) Ca 32 340
Quno Corp. (a) Ca 14 285
West Fraser Timber Co. Ltd. Ca 17 379
Weyerhaeuser Co. 15 671
------
2,236
------
MACHINERY & COMPUTER EQUIPMENT - 2.4%
KM Europa Metal AG (a) G 3 248
NN Ball and Roller, Inc. 27 558
Varco International, Inc. (a) 50 458
------
1,264
------
PAPER & PAPER MILLS - 7.8%
ACX Technologies, Inc. (a) 16 245
Abitibi Price, Inc. Ca 9 152
Asia Pacific Resources International
Holdings Ltd. (a) Id 31 227
Bowater, Inc. 9 407
Carter Holt Harvey NZ 191 456
Champion International Corp. 9 498
Emin Leydier Fr 2 184
Enso-Gutzeit Oy Fr 62 482
International Paper Co. 8 311
Longview Fibre Co. 32 458
Mead Corp. 4 248
Republic Gypsum Co. 23 264
Willamette Industries, Inc. 3 156
------
4,088
------
</TABLE>
6
<PAGE>
Investment Portfolio/October 31, 1995
- -----------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
PETROLEUM REFINING - 14.5%
Amoco Corp. 8 $ 511
Atlantic Richfield Co. 4 443
British Petroleum Co. PLC ADR UK 8 669
Burmah Castrol PLC UK 22 348
Diamond Shamrock, Inc. 18 463
Exxon Corp. 15 1,146
Imperial Oil Ltd. Ca 14 507
Lyondell Petrochemical Co. 5 115
Mobil Corp. 7 695
OMV Handels AG Au 6 481
Phillips Petroleum Co. 17 555
Repsol SA ADS Sp 19 554
Royal Dutch Petroleum Co. Ne 5 553
Shell Transport & Trading Co. PLC UK 44 511
------
7,551
------
PRIMARY METAL - 9.6%
AK Steel Holdings Corp. 13 412
Acerinox SA Sp 6 621
Alcan Aluminum Ltd. Ca 22 696
Aluminum Company of America 14 693
Asarco, Inc. 14 455
Brush Wellman, Inc. 18 300
Cominco Ltd. (a) Ca 25 485
J&L Specialty Steel, Inc. 23 375
Magma Copper Co., Class B 30 504
Quanex Corp. 12 233
Reynolds Metals Co. 5 247
------
5,021
------
PRIMARY SMELTING - 1.4%
Capral Aluminum Ltd. (a) Au 71 161
RTZ Corp., ADR UK 10 576
------
737
------
RUBBER & PLASTIC - 1.3%
AEP Industries, Inc. 14 313
Goodyear Tire & Rubber Co. 9 349
------
662
------
STONE, CLAY, GLASS & CONCRETE - 3.0%
Global Industrial Technologies, Inc. (a) 51 867
Holderbank Financiere Glarus-BR Sz 1 401
Medusa Corp. 13 320
------
1,588
------
- -----------------------------------------------------------------------------
MINING & ENERGY - 36.1%
CRUDE PETROLEUM & NATURAL GAS - 6.6%
Anadarko Petroleum Corp. 13 560
Apache Corp. 11 283
Occidental Petroleum Corp. 35 755
Ranger Oil Ltd. Ca 52 299
</TABLE>
7
<PAGE>
Investment Portfolio/October 31, 1995
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
COMMON STOCKS - cont. COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
MINING & ENERGY - CONT.
CRUDE PETROLEUM & NATURAL GAS - CONT.
Saga Petroleum A.S. No 44 $ 546
Triton Energy Corp. (a) 22 1,030
------
3,473
------
GOLD & SILVER MINING - 6.8%
Agnico-Eagle Mines, Ltd. Ca 25 276
American Barrick Resources Corp. Ca 23 529
Ashanti Goldfields Company Ltd. GDS (c) Gh 10 174
Gold Mines of Kalgoorlie Ltd. Au 652 520
Newmont Mining Corp. 16 598
Placer Dome, Inc. Ca 26 575
Sons of Gwalia Ltd. Au 126 625
TVX Gold, Inc. Ca 39 255
------
3,552
------
METAL MINING - 9.2%
Acacia Resources Ltd. (a) Au 130 212
Battle Mountain Gold Co. 52 396
Cyprus Amax Minerals Co. 24 630
Freeport-McMoRan Copper & Gold, Inc. 27 606
Goldfields Ltd. (a) Au 123 304
Kinross Gold Corp. (a) Ca 66 488
Mount Edon Gold Mines Au 156 372
Newcrest Mining Ltd. Au 114 469
Noranda, Inc. Ca 30 592
Santa Fe Pacific Gold Corp. 52 512
Western Mining Corporation Holdings
Ltd. Au 34 215
------
4,796
------
MISCELLANEOUS METAL ORES - 0.7%
Pasminco Ltd. Au 309 340
------
NONMETALLIC, EXCEPT FUELS - 1.8%
De Beers Construction Mines (a) 16 437
Vulcan Materials Co. 9 512
------
949
------
OIL & GAS EXTRACTION - 10.4%
Alberta Energy Co. Ltd. Ca 31 480
Canadian Natural Resources Ltd. (a) Ca 23 273
Elan Energy, Inc. (a) Ca 20 177
Energy Service Co., Inc. (a) 16 270
Global Marine, Inc. (a) 73 473
Lasmo PLC ADR UK 53 378
Oryx Energy Co. 46 532
Petro Canada Ca 48 512
Pioneer International Ltd. Au 192 469
</TABLE>
8
<PAGE>
Investment Portfolio/October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Santos Ltd. Au 234 $ 630
Sonat Offshore Drilling Co., Inc. 18 562
Talisman Energy, Inc. (a) Ca 15 263
Union Texas Petroleum Holdings, Inc. 23 421
-------
5,440
-------
OIL & GAS FIELD SERVICES - 0.6%
Schlumberger Ltd. 5 293
-------
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 5.8%
ELECTRIC, GAS & SANITARY SERVICES - 0.7%
Welsh Water UK 27 325
Welsh Water PLC UK 30 49
-------
374
-------
ELECTRIC SERVICES - 0.8%
EVN Energie-Versorgung
Niederoesterreich AG Aus 4 431
-------
GAS SERVICES - 2.7%
Aquila Gas Pipeline Corp. 30 330
Eastern Enterprises 2 48
MCN Corp. 4 85
New Jersey Resources Corp. 10 260
Panhandle Eastern Corp. 27 676
-------
1,399
-------
RAILROAD - 1.6%
Burlington Northern, Inc. 10 828
-------
TOTAL COMMON STOCKS (cost of $45,155) 49,295
-------
WARRANTS (a)
- --------------------------------------------------------------------------------
MANUFACTURING - 0.0%
STONE, CLAY, GLASS & CONCRETE - 0.0%
Holderbank Financiere Glarus (cost of $3) Sz 3 3
-------
TOTAL INVESTMENTS - (cost of $45,158) (b) 49,298
-------
<CAPTION>
SHORT TERM OBLIGATIONS - 3.5% PAR
- --------------------------------------------------------------------------------
<S> <C> <C>
Repurchase agreement with Bankers Trust
Securities Corp., dated 10/31/95, due 11/01/95
at 5.875%, collateralized by U.S. Treasury notes
with various maturities to 1997, market value $1,886
(repurchase proceeds $1,847) $1,847 1,847
-------
OTHER ASSETS & LIABILITIES, NET - 2.1% 1,083
- --------------------------------------------------------------------------------
NET ASSETS - 100% $52,228
-------
</TABLE>
9
<PAGE>
Investment Portfolio/October 31, 1995
- --------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing.
(b) Cost for federal income taxes is the same.
(c) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At year end, the
value of this security amounted to $174 or 0.33% of net assets.
<TABLE>
<CAPTION>
Summary of Securities by Country Country Value % of Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $28,230 57.3
Canada Ca 7,563 15.3
Australia Au 4,798 9.7
United Kingdom UK 2,856 5.8
Spain Sp 1,175 2.4
Norway No 1,159 2.4
France Fr 666 1.4
Netherlands Ne 553 1.1
New Zealand NZ 456 0.9
Austria Aus 431 0.9
Switzerland Sz 404 0.8
Singapore Si 358 0.7
Germany G 248 0.5
Indonesia Id 227 0.4
Ghana Gh 174 0.4
------- -----
$49,298 100.0
------- -----
</TABLE>
<TABLE>
<CAPTION>
ACRONYM NAME
------- ---------------------------
<S> <C>
ADR American Depository Receipt
ADS American Depository Shares
GDS Global Depository Shares
</TABLE>
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
See notes to financial statements.
10
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1995
<TABLE>
<CAPTION>
(in thousands except for per share amounts and footnotes)
<S> <C> <C>
ASSETS
Investments at value (cost $45,158) $49,298
Short-term obligations 1,847
-------
51,145
Cash held in foreign banks (cost $1,519) $1,527
Receivable for:
Investments sold 228
Dividends 76
Fund shares sold 74
Foreign tax reclaims 6
Deferred organization expenses 23
Other 7 1,941
------ -------
Total Assets 53,086
LIABILITIES
Payable for:
Investments purchased 490
Fund shares repurchased 349
Accrued:
Deferred Trustees fees 1
Other 18
------
Total Liabilities 858
-------
NET ASSETS $52,228
-------
Net asset value & redemption price per share -
Class A ($31,297/2,518) $12.43
-------
Maximum offering price per share - Class A
($12.43/0.9425) $13.19 (a)
-------
Net asset value & offering price per share -
Class B ($20,931/1,691) $12.38 (b)
-------
COMPOSITION OF NET ASSETS
Capital paid in $44,982
Undistributed net investment income 73
Accumulated net realized gain 3,027
Net unrealized appreciation on:
Investments 4,140
Foreign currency transactions 6
-------
$52,228
-------
</TABLE>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements.
11
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
(in thousands)
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 1,181
Interest 213
-------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $40) 1,394
EXPENSES
Management fee $ 421
Service fee 140
Distribution fee - Class B 169
Transfer agent 188
Bookkeeping fee 29
Trustees fee 11
Custodian fee 33
Audit fee 38
Legal fee 6
Registration fee 28
Reports to shareholders 7
Amortization of deferred
organization expenses 14
Other 17 1,101
------- -------
Net Investment Income 293
-------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITION
Net realized gain (loss) on:
Investments 2,583
Foreign currency transactions (5)
-------
Net Realized Gain 2,578
Net unrealized appreciation (depreciation) during
the period on:
Investments (4,710)
Forward currency transactions 6
-------
Net Unrealized Depreciation (4,704)
-------
Net Loss (2,126)
-------
Net Decrease in Net Assets from Operations $(1,833)
-------
</TABLE>
See notes to financial statements.
12
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(in thousands) Year ended October 31
---------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
<S> <C> <C>
Operations:
Net investment income $ 293 $ 321
Net realized gain 2,578 1,152
Net unrealized appreciation (depreciation) (4,704) 2,748
-------- --------
Net Increase (Decrease) from Operations (1,833) 4,221
Distributions:
From net investment income - Class A (289) (308)
From net realized gains - Class A (642) (256)
From net investment income - Class B (38) (34)
From net realized gains - Class B (424) (63)
-------- --------
(3,226) 3,560
-------- --------
Fund Share Transactions:
Receipts for shares sold - Class A 5,815 16,099
Value of distributions reinvested - Class A 807 491
Cost of shares repurchased - Class A (10,146) (13,429)
-------- --------
(3,524) 3,161
-------- --------
Receipts for shares sold - Class B 7,844 18,207
Value of distributions reinvested - Class B 413 91
Cost of shares repurchased - Class B (8,567) (4,008)
-------- --------
(310) 14,290
-------- --------
Net Increase (Decrease) from Fund Share
Transactions (3,834) 17,451
-------- --------
Total Increase (Decrease) (7,060) 21,011
NET ASSETS
Beginning of period 59,288 38,277
-------- --------
End of period (including undistributed net investment
income of $73 and $56, respectively) $ 52,228 $ 59,288
-------- --------
NUMBER OF FUND SHARES
Sold - Class A 463 1,268
Issued for distributions reinvested - Class A 73 40
Repurchased - Class A (816) (1,066)
-------- --------
(280) 242
-------- --------
Sold - Class B 635 1,431
Issued for distributions reinvested - Class B 35 7
Repurchased - Class B (692) (317)
-------- --------
(22) 1,121
-------- --------
</TABLE>
See notes to financial statements.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE 1. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION: Colonial Global Natural Resources Fund (formerly Colonial Natural
Resources Fund), (the Fund), a series of Colonial Trust III, is a non-
diversified portfolio of a Massachusetts business trust registered under the
Investment Company Act of 1940, as amended, as an open-end, management
investment company. The Fund 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, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class B 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 reflects
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.
14
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
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 expenses of $71,295 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 character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. Reclassifications are made to the Fund's capital accounts to
reflect income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
FOREIGN CURRENCY TRANSACTIONS: The Fund has adopted Statement of Position 93-4,
Foreign Currency Accounting and Financial Statement Presentation for Investment
Companies. Accordingly, net realized and unrealized gains (losses) on foreign
currency transactions includes the fluctuation in exchange rates on gains
(losses) between trade and settlement dates on securities transactions, gains
(losses) arising from the disposition of foreign currency and currency gains
(losses) between the accrual and payment dates on dividends and interest income
and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included
with the net realized and unrealized gains (losses) on investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities. The Fund
may also enter into forward currency contracts to hedge certain other foreign
currency denominated assets. The contracts are used to minimize the exposure to
foreign exchange rate fluctuations during the period between trade and
settlement date of the contracts. All contracts are marked-to-market daily,
resulting in unrealized gains or losses which become realized at the time the
forward currency contracts are closed or mature. Realized and unrealized gains
(losses) arising from such transactions are included in net realized and
unrealized gains (losses) on foreign currency transactions. Forward currency
contracts do not eliminate fluctuations in the prices of the Fund's portfolio
securities. While the maximum potential loss from such contracts is the
aggregate face value in U.S. dollars at the
15
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
time the contract was opened, exposure is typically limited to the change in
value of the contract (in U.S. dollars) over the period it remains open. Risks
may also arise if counterparties fail to perform their obligations under the
contracts.
OTHER: Corporate actions are recorded on ex-date (except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware of
such), net of nonrebatable tax withholdings. Where a high level of uncertainty
as to collection exists, income on securities is recorded net of all tax
withholdings with any rebates recorded when received.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is
marked-to-market daily to ensure that the market value of the underlying assets
remains sufficient to protect the Fund. The Fund may experience costs and
delays in liquidating the collateral if the issuer defaults or enters
bankruptcy.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
- --------------------------------------------------------------------------------
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser) is the in-
vestment 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 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: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. For the year ended October 31, 1995, the Fund has been
advised that the Distributor retained net underwriting discounts of $79,048 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $125,348 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 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. Obligations of the plan will be paid solely out of the
the Fund's assets.
16
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended October 31, 1995, purchases and
sales of investments, other than short-term obligations, were $34,072,177 and
$37,490,683, respectively.
Unrealized appreciation (depreciation) at October 31, 1995, based on cost of
invest- ments for federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 6,481,481
Gross unrealized depreciation (2,341,765)
-----------
Net unrealized appreciation $ 4,139,716
===========
</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
the imposition of other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
17
<PAGE>
FINANCIAL HIGHLIGHTS (a)
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended October 31
-----------------------------------------
1995 1994
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $13.160 $13.110 $12.160 $12.130
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.102 0.009 0.114 0.019
Net realized and
unrealized gain (loss) (0.496) (0.489) 1.104 1.097
------- ------- ------- -------
Total from Investment
Operations (0.394) (0.480) 1.218 1.116
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net
investment income (0.106) (0.020) (0.118) (0.036)
From net
realized gains (0.230) (0.230) (0.100) (0.100)
------- ------- ------- -------
Total Distributions
Declared to Shareholders (0.336) (0.250) (0.218) (0.136)
------- ------- ------- -------
Net asset value -
End of period $12.430 $12.380 $13.160 $13.110
======= ======= ======= =======
Total return (c) (2.88)% (3.56)% 10.14% 9.28%
======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.66%(d) 2.41%(d) 1.70% 2.45%
Net investment income 0.82%(d) 0.07%(d) 0.90% 0.15%
Portfolio turnover 65% 65% 15% 15%
Net assets at end
of period (000) $31,297 $20,931 $36,830 $22,458
</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 contingent deferred sales charge.
(d) The benefits derived from custody credits and direct brokerage arrangements,
if any, had no impact on the Fund's gross expense ratio.
(e) Not annualized.
(f) Annualized.
18
<PAGE>
FINANCIAL HIGHLIGHTS (a) - CONTINUED
<TABLE>
<CAPTION>
Year ended Period ended
October 31 October 31
- ------------------ -------------------
1993 1992 (b)
Class A Class B Class A Class B
- ------- -------- ------- -------
<S> <C> <C> <C>
$ 9.750 $ 9.720 $10.000 $10.000
- ------- -------- ------- -------
0.099 0.018 0.042 0.012
2.429 2.431 (0.292) (0.292)
- ------- ------- ------- -------
2.528 2.449 (0.250) (0.280)
- ------- ------- ------- -------
(0.118) (0.039) -- --
-- -- -- --
- ------- ------- ------- -------
(0.118) (0.039) -- --
- ------- ------- ------- -------
$12.160 $12.130 $ 9.750 $ 9.720
======= ======= ======= =======
26.20% 25.30% (2.50)%(e) (2.80)%(e)
======= ======= ======= =======
1.88% 2.63% 2.45%(f) 3.20%(f)
0.92% 0.17% 1.07%(f) 0.32%(f)
14% 14% 89%(f) 89%(f)
$31,098 $ 7,179 $27,790 $ 4,444
</TABLE>
- --------------------------------------------------------------------------------
Federal Income Tax Information (unaudited)
100% of the distributions paid by the Fund from investment income earned in the
year ended October 31, 1995 qualify for the corporate dividends received
deduction.
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
T0 THE TRUSTEES OF COLONIAL TRUST III AND THE SHAREHOLDERS OF
COLONIAL GLOBAL 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 Global Natural Resources
Fund (a series of Colonial Trust III) at October 31, 1995, the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated in conformity with generally accepted accounting principles.
These financial statements and the financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of portfolio positions
at October 31, 1995 by correspondence with the custodian and brokers, 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 11, 1995
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 Meetings
19. How to Buy Shares; Determination
of Net Asset Value; Suspension of
Redemptions; Special Purchase
Programs/Investor Services;
Programs for Reducing or
Eliminating Sales Charge; How to
Sell Shares; How to Exchange
Shares
20. Taxes
21. Fund Charges and Expenses;
Management of the Colonial Funds
22. Fund Charges and Expenses;
Investment Performance;
Performance Measures
23. Independent Accountants
COLONIAL GLOBAL EQUITY FUND
Statement of Additional Information
February 28, 1996
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
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, 1996. This SAI should be read together with the Prospectus.
Investors may obtain a free copy of the Prospectus from Colonial Investment
Services, Inc., One Financial Center, Boston, MA 02111.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes
information about the Colonial funds generally and additional information about
certain securities and investment techniques described in the Fund's prospectus.
TABLE OF CONTENTS
Part 1 Page
Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Portfolio Turnover
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountants
Part 2
Miscellaneous Investment Practices
Taxes
Management of the Colonial Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sale Charge
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Meetings
Performance Measures
Appendix I
Appendix II
COLONIAL GLOBAL EQUITY FUND
Statement of Additional Information
February 28, 1996
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
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, 6. 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 Colonial Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sale Charges
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Meetings
Performance Measures
Appendix I
Appendix II
GE-16/577A-0295
<PAGE>
Part 1
COLONIAL GLOBAL EQUITY FUND
Statement of Additional Information
February 28, 1996
DEFINITIONS
"Trust" Colonial Trust III
"Fund" Colonial Global Equity Fund
"Adviser" Colonial Management Associates, Inc., the Fund's
investment adviser
"CISI" Colonial Investment Services, Inc., the Fund's
distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's
shareholder services and transfer agent
INVESTMENT OBJECTIVE AND POLICIES
The Fund's Prospectus describes the Fund's investment objective and policies.
Part 1 of this SAI includes additional information concerning, among other
things, the fundamental investment policies of the Fund. Part 2 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 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 Fund's
investment policies are not fundamental, and the Trustees may change the
policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. The following fundamental
investment policies 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 securities of any company if the Trust knows that officers and
Trustees of the Trust or officers and directors of the Adviser who
individually own more than 0.5% of such securities together own more than
5% of such securities;
4. Invest in interests in oil, gas or other mineral exploration or
development programs, including leases;
5. Purchase any security resulting in the Fund having more than 5% of
its total assets invested in securities of companies (including
predecessors) less than three years old;
6. Pledge more than 33% of its total assets;
7. Purchase any security if, as a result of such purchase, more than 10% of
its total assets would be
invested in 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
1995 1994
---- ----
74% 52%
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays the Adviser a monthly fee
based on the average daily net assets of the Fund at the annual rate of 0.75%.
<PAGE>
Recent Fees paid to the Adviser, CISI and CISC (dollars in thousands)
Years ended October 31
1995 1994 1993
---- ---- ----
Management fee $535 $465 $257
Bookkeeping fee 34 32 27
Shareholder service and
transfer agent fee 223 182 109
12b-1 fees:
Service fee 177 156 86
Distribution fee (Class B
only) 453 414 253
only)
Fees and expenses waived
by the Adviser (184) (224) (176)
Brokerage Commissions (dollars in thousands)
Years ended October 31
1995 1994 1993
---- ---- ----
Total commissions $ 226 $ 203 $109
Directed transactions ( a) 3,496 9,557 0
Commissions on directed transactions 6 18 13
( a) See "Management of the Colonial Funds - Portfolio Transactions Brokerage
and research services" in Part 2 of this SAI.
Trustees Fees
For the fiscal year ended October 31, 1995 and the calendar year ended December
31, 1995, the Trustees received the following compensation for serving as
Trustees:
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation From Trust and
From Fund for Fund Complex Paid To
The Fiscal Pension or The Trustees For The
Year Ended Retirement Benefits Estimated Annual Calendar Year Ended
October 31, 1995 Accrued As Part of Benefits Upon December 31, 1995(b)
Trustee Fund Expense Retirement
- ------- ------------ ------------------ ---------------- --------------------
<S> <C> <C> <C> <C>
Robert J. Birnbaum $ 794 $0 $0 $71,250
Tom Bleasdale 1,251(c) 0 0 98,000(d)
Lora S. Collins 1, 235 0 0 91,000
James E. Grinnell 795 0 0 71,250
William D. Ireland, Jr. 1,377 0 0 113,000
Richard W. Lowry 795 0 0 71,250
William E. Mayer 1,163 0 0 91,000
John A. McNeice, Jr. 0 0 0 0
James L. Moody, Jr. 1,348 (e) 0 0 94,500(f)
John J. Neuhauser 1,160 0 0 91,000
George L. Shinn 1,297 0 0 102,500
Robert L. Sullivan 1,278 0 0 101,000
Sinclair Weeks, Jr. 1,424 0 0 112,000
(b) At December 31, 1995, the Colonial Funds complex consisted of 33 open-end
and 5 closed-end management investment company portfolios.
(c) Includes $618 payable in later years as deferred compensation.
(d) Includes $49,000 payable in later years as deferred compensation.
(e) Includes $1,005 payable in later years as deferred compensation.
(f) Total compensation of $94,000 for the calendar year ended
December 31, 1995 will be payable in later years as deferred compensation.
</TABLE>
The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees of the Liberty
All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (formerly known as
The Charles Allmon Trust, Inc.) (together, Liberty Funds I) for service during
the calendar year ended December 31, 1995, and of Liberty Financial Trust (now
known as Colonial Trust VII) and LFC Utilities Trust (together, Liberty Funds
II) for the period January 1, 1995 through March 26, 1995 (g):
Total Compensation Total Compensation From
From Liberty Funds II For Liberty Funds I For The
The Period January 1, 1995 Calendar Year Ended December
Trustee through March 26, 1995 31, 1995 (h)
- ------- ---------------------- -----------------------------
Robert J. Birnbaum(i) $2,900 $16,675
James E. Grinnell(i) 2,900 22,900
Richard W. Lowry(i) 2,900 26,250(j)
(g) On March 27, 1995, four of the portfolios in the Liberty Financial Trust
(now known as Colonial Trust VII) were merged into existing Colonial
funds and a fifth was reorganized into a new portfolio of Colonial Trust
III. Prior to their election as Trustees of the Colonial Funds, Messrs.
Birnbaum, Grinnell and Lowry served as Trustees of Liberty Funds II and
continue to serve as Trustees of Liberty Funds I.
(h) At December 31, 1995, the Liberty Funds I were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned
subsidiary of Liberty Financial Companies, Inc. (an
intermediate parent of the Adviser).
(i) Elected as a Trustee of the Colonial Funds complex on April 21, 1995.
(j) Includes $3,500 paid to Mr. Lowry for service as Trustee of Liberty
Newport World Portfolio (formerly known as Liberty All-Star World
Portfolio) (Liberty Newport) during the calendar year ended December 31,
1995. At December 31, 1995, Liberty Newport was managed by Newport
Pacific Management, Inc. and Stein Roe and Farnham Incorporated, each an
affiliate of the Adviser.
Ownership of the Fund
At January 31, 1996, the officers and Trustees of the Trust as a group
beneficially owned shares of the Fund representing 6.88% of the then outstanding
Class A shares. Of the beneficial shares owned, Messrs. Scoon and Stern, who are
officers of the Fund, held shares of the Fund, representing 5.30% 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.
At January 31, 1996, Merrill Lynch Pierce Fenner & Smith Inc., Attn: Book Entry,
Mutual Fund Operations, 4800 Deer Lake Dr., E 3rd Fl, Jacksonville, FL 32216,
owned 6.50% of the Fund's outstanding Class A shares.
At January 31, 1996, Merrill Lynch Pierce Fenner & Smith Inc., Attn: Book Entry,
Mutual Fund Operations, 4800 Deer Lake Dr., E 3rd Fl, Jacksonville, FL 32216,
owned 13.00% of the Fund's outstanding Class B Shares.
At January 31, 1996, there were 1,489 Class A and 6,265 Class B record holders
of the Fund.
Sales Charges (dollars in thousands)
Class A Shares
Years ended October 31
1995 1994 1993
---- ---- ----
Aggregate initial sales
charges on Fund share sales $44 $36 $32
Initial sales charges retained
by CISI 7 17 5
Class B Shares
Years ended October 31
1995 1994 1993
---- ---- ----
Aggregate contingent deferred
sales charges (CDSC)
on Fund redemptions retained
by CISI $175 $111 $85
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 the Adviser) 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 and are
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.
Approximately 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, 1995, were:
Class A Shares Class B Shares
Fees to FSFs $24 $284
Cost of sales material
relating to the Fund
(including printing and
mailing expenses) 12 34
Allocated travel,
entertainment and other
promotional expenses
expenses (including
advertising) 12 30
INVESTMENT PERFORMANCE
The Fund's Class A and Class B yields for the month ended October 31, 1995,
were:
Class A Class B
Yield Adjusted Yield Yield Adjusted Yield
0.82% 0.70% 0.12% (0.01)%
The Fund's average annual total returns at October 31, 1995, were:
Class A Shares
Period June 8, 1992
(commencement of
investment operations)
1 year through October 31, 1995
------ -------------------------
With sales charge of 5.75% 2.00% 9.15%
Without sales charge 8.23% 11.06%
Class B Shares
Period June 8, 1992
(commencement of )
investment operations
1 year through October 31, 1995
------ -------------------------
With applicable CDSC 2.52% (4.91% CDSC) 9.48% (3.00% CDSC)
Without CDSC 7.43% 10.18%
The Fund's Class A and Class B distribution rates at October 31, 1995, which are
based on the latest month's distributions annualized and the maximum offering
price at the end of the period, were 1.50% and 0.87%, 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 schedule of financial highlights
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 6 through 22 of the October 31, 1995 Annual Report, are incorporated in
this SAI by reference.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1995 (IN THOUSANDS)
<CAPTION>
COMMON STOCKS - 90.4% COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
AGRICULTURE, FORESTRY & FISHING - 0.7%
AGRICULTURE - CROPS - 0.1%
Perlis Plantations Berhad Ma 35 $ 104
------
FISHING, HUNTING & TRAPPING - 0.6%
Pescanova SA Sp 11 169
Sanford Ltd. NZ 110 247
------
416
------
- --------------------------------------------------------------------------------
CONSTRUCTION - 3.6%
BUILDING CONSTRUCTION - 2.4%
Daikyo, Inc. Ja 133 890
Hollandsche Beton Groep NV Ne 1 211
Koninklijke Volker Stevin NV Ne 9 579
------
1,680
------
HEAVY CONSTRUCTION - NON BUILDING CONSTRUCTION - 0.9%
Dyckerhoff und Widmann AG G 1 148
Granite Construction, Inc. 6 170
Koninklijke Boskalis Westminster NV Ne 4 43
Strabag Oesterreich AG Aus 2 161
Yondenko Corp. Ja 16 138
------
660
------
SPECIAL TRADE CONTRACTORS - 0.3%
Kyudenko Company Ja 16 214
------
- --------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 20.2%
DEPOSITORY INSTITUTIONS - 5.0%
Bank of Montreal Ca 7 164
Bank of Nova Scotia Ca 5 107
Credito Fondiario e Industrustiale It 19 29
Deposit Guaranty Corp. 6 267
HSBC Holdings PLC HK (a) 1
Jyske Bank De 12 768
Krung Thai Bank Pub Co Ltd. Th 50 197
N.S. Bancorp, Inc. 4 145
National Westminster Bank PLC UK 28 274
SFFed Corp. 5 156
Thai Military Bank Ltd. Th 90 354
United Overseas Bank Si (a) 2
Westpac Banking Corp. Au 264 1,083
------
3,547
------
HOLDING & OTHER INVESTMENT COMPANIES - 6.2%
Clemente Global Growth Fund, Inc. (b) 40 330
Emerging Germany Fund, Inc. G 24 177
Emerging Tiger Fund, Inc. (b) 18 218
First Australia Fund, Inc. Au 58 476
</TABLE>
6
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
First Philippine Fund, Inc. Ph 41 $ 627
France Growth Fund, Inc. Fr 14 139
Irish Investment Fund, Inc. Ir 46 522
Korean Investment Fund, Inc. (c) Ko (a) 4
Pakistan Investment Fund, Inc. (c) Pa 53 318
Templeton Dragon Fund, Inc. (b) 63 755
Thai Fund Th 8 193
Thai Investment & Securities Co. Ltd. Th 5 137
The Asia Tiger Fund, Inc. (b) 21 213
The India Fund, Inc. (c) Id 35 293
------
4,402
------
INSURANCE CARRIERS - 5.5%
Cigna Corp. 21 2,072
Fremont General Corp. 13 370
International Nederlanden Groep Ne 13 775
Maxicare Health Plan, Inc. (c) 13 217
Mercury General Corp. 4 177
Schweizerische Lebensversicherungs und
Rentenanstalt Sz 1 269
------
3,880
------
NONDEPOSITORY CREDIT INSTITUTIONS - 0.6%
Orient Corp. Ja 88 400
------
REAL ESTATE - 2.3%
Cheung Kong (Holdings) Ltd. HK 142 801
New World Development Co., Ltd. HK 203 790
Sun Hung Kai Properties Ltd. HK 1 7
------
1,598
------
SECURITY BROKERS & DEALERS - 0.6%
Inter-Regional Financial Group, Inc. 7 228
Lehman Brothers Holdings, Inc. 9 205
------
433
------
- --------------------------------------------------------------------------------
MANUFACTURING - 48.4%
APPAREL - 0.0%
Stefanel SPA It 17 27
------
CHEMICALS - 7.4%
BASF AG G 5 1,171
Bayer AG G 3 793
DSM NV Ne 7 492
Dow Chemical Co. 14 974
Eastman Chemical Co. 12 720
Helene Curtis Industries, Inc. 1 30
Shiseido Co. Ltd. Ja 40 404
Union Carbide Corp. 12 454
Wellman, Inc. 8 193
------
5,231
------
</TABLE>
7
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCKS - 90.4% COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING - CONT.
ELECTRONIC & ELECTRICAL EQUIPMENT - 3.1%
Harman International Industries, Inc. 14 $ 627
Matsushita Electric Industrial Co. Ja 41 583
Philips Electronics NV Ne 24 947
-----
2,157
-----
FABRICATED METAL - 2.1%
Compagnie Generale D'Industrie
et de Participations Fr 2 423
Elco Looser Holdings AG (c) Sz (a) 154
GFI Industries SA Fr 4 351
Kitz Corp. Ja 64 276
Oerlikon-Buehrle Holdings AG (c) Sz 1 71
Oriental Holdings Berhad Ma 43 198
-----
1,473
-----
FOOD & KINDRED PRODUCTS - 6.0%
Associated British Foods PLC UK 38 422
Eridania Beghin-Say SA It 1 116
Fraser & Neave Ltd. Si 30 354
IBP, Inc. 37 2,191
Kinki Coca Cola Bottling Ja 55 663
Kulim (Malaysia) Berhad Ma 1 1
Oesterreichische Brau-Beteiligungs AG Au 2 97
Tate & Lyle PLC UK 52 370
-----
4,214
-----
MACHINERY & COMPUTER EQUIPMENT - 5.5%
Cummins Engine Co., Inc. 4 137
Hewlett-Packard Co. 2 222
Hitachi Ltd. Ja 122 1,255
International Business Machines Corp. 13 1,235
Kaydon Corp. 11 312
Seagate Technology, Inc. (c) 16 721
-----
3,882
-----
MEASURING & ANALYZING INSTRUMENTS - 2.7%
Amsco International, Inc. (c) 20 320
Avimo Singapore Ltd. Si 1 1
Fuji Photo Film Co. Ltd. Ja 64 1,586
-----
1,907
-----
PAPER & PAPER MILLS - 4.6%
Boise Cascade Corp. 7 268
Champion International Corp. 33 1,771
Emin Leydier Fr 2 171
Empresa Nacional de Cellulosa SA (c) Sp 15 275
Papierwerke Waldhof PWA G 3 487
Willamette Industries, Inc. 5 261
-----
3,233
-----
PETROLEUM REFINING - 0.2%
YPF Sociedad Anonima ADR Ar 10 163
-----
</TABLE>
8
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY METAL - 4.9%
Acerinox SA Sp 19 $1,955
Interprovincial Steel Ca 14 271
Texas Industries, Inc. 8 421
Thyssen AG G 4 677
Titan Wheel International, Inc. 8 109
------
3,433
------
PRIMARY SMELTING - 1.7%
Phelps Dodge Corp. 19 1,217
------
RUBBER & PLASTIC - 1.1%
Nike, Inc., Class B 14 772
------
STONE, CLAY, GLASS & CONCRETE - 2.2%
Cementos de Mexico SA (c) Mx 14 43
Indresco, Inc. (c) 48 824
Industrie Zignago S. Margherita SPA It 36 170
Radex Heraklith Industriebeteiligungs AG Au 4 122
Semen Cibinong In 72 187
Wienerberger Baustoffindustrie AG Au 1 181
------
1,527
------
TEXTILE MILL PRODUCTS - 0.0%
Winsor Industrial Corp. Ltd. HK (a) (a)
------
TOBACCO PRODUCTS - 0.6%
B.A.T. Industries PLC UK 51 421
------
TRANSPORTATION EQUIPMENT - 6.3%
Equipements et Composants pour
l'Industrie Automobile Fr 2 276
Futaba Industrial Ja 19 287
Honda Motor Co. Ltd. Ja 40 697
McDonnell Douglas Corp. 26 2,134
Montupet Fr 2 219
Peugeot SA Fr 6 804
------
4,417
------
- --------------------------------------------------------------------------------
MINING & ENERGY - 1.3%
NONMETALLIC, EXCEPT FUELS - 0.8%
Potash Corp. of Saskatchewan, Inc. Ca 3 174
Sungei Way Holdings Berhad Ma 115 385
------
559
------
OIL & GAS EXTRACTION - 0.5%
Goal Petroleum Group PLC UK 140 150
Santos Ltd. Au 85 230
------
380
------
- --------------------------------------------------------------------------------
RETAIL TRADE - 4.4%
Apparel & Accessory Stores - 3.0%
Aoyama Trading Ja 78 2,112
------
</TABLE>
9
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCKS - 90.4% COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
RETAIL TRADE - CONT.
AUTO DEALERS & GAS STATIONS - 0.0%
Sime Darby (Hong Kong) Ltd. HK 32 $ 35
------
GENERAL MERCHANDISE STORES - 0.7%
Fuji Ja 10 218
Jardine Strategic Holdings Ltd. Si 90 241
------
459
------
OTHER RETAIL - 0.7%
Imasco Ltd. Ca 29 522
------
- --------------------------------------------------------------------------------
SERVICES - 1.2%
AMUSEMENT & RECREATION - 0.1%
Furama Hotel Entertainment HK 50 57
Genting International Ltd. Si (a) (a)
------
57
------
BUSINESS SERVICES - 1.1%
Central Security Patrols Ja 37 334
News Corp. Ltd. Au 30 135
System Software Associates, Inc. 11 333
------
802
------
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 9.1%
AIR TRANSPORTATION - 2.4%
Air Canada Corp. (c) Ca 22 83
British Airways PLC UK 17 119
Crossair AG Sz (a) 175
Det Danske Luftfarts (c) De 7 620
Lufthansa AG G 4 541
Malaysian Airline System Berhad Ma 55 150
------
1,688
------
COMMUNICATIONS - 0.6%
PT Voksel Electric In 90 99
Southern New England
Telecommunications Corp. 10 343
------
442
------
ELECTRIC SERVICES - 1.3%
China Light & Power Co. Ltd. HK (a) 1
Lech-Elektrizitaetswerke G (a) 71
Pinnacle West Capital Corp. 17 462
Union Electrica Fenosa SA Sp 79 370
------
904
------
GAS SERVICES - 0.2%
BC Gas, Inc. Ca 10 110
------
SANITARY SERVICES - 4.0%
North West Water PLC UK 40 374
Northumbrian Water Group PLC UK 80 1,252
</TABLE>
10
<PAGE>
<TABLE>
Investment Portfolio/October 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Severn Trent Water PLC UK 40 $ 401
Southern Water PLC UK 37 412
Yorkshire Water PLC UK 40 386
-------
2,825
-------
TRANSPORTATION SERVICES - 0.5%
GATX Corp. 8 366
-------
WATER TRANSPORTATION - 0.1%
Neptune Orient Lines Ltd. Si 77 86
-------
- --------------------------------------------------------------------------------
WHOLESALE TRADE - 1.5%
DURABLE GOODS
SA D'ieteren NV Be 3 244
Wyle Electronics Co. 18 810
-------
1,054
-------
TOTAL COMMON STOCKS (cost of $56,630) (d) 63,809
SHORT-TERM OBLIGATIONS - 6.3% PAR
- --------------------------------------------------------------------------------
Repurchase agreement with Bankers Trust
Securities Corp., dated 10/31/95, due 11/01/95
at 5.875% collateralized by U.S. Treasury
notes with various maturities to 1997, market
value $4,568 (repurchase proceeds $4,474) $4,473 4,473
-------
OTHER ASSETS & LIABILITIES, NET - 3.3% 2,350
- --------------------------------------------------------------------------------
NET ASSETS - 100.0% $70,632
=======
</TABLE>
11
<PAGE>
Investment Portfolio/October 31, 1995
- --------------------------------------------------------------------------------
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) Cost for federal income tax purposes is $56,632.
<TABLE>
<CAPTION>
Summary of Securities by Country Country Value % of Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 22,234 34.8
Japan Ja 10,057 15.8
United Kingdom UK 4,581 7.2
Germany G 4,065 6.4
Netherlands Ne 3,047 4.8
Spain Sp 2,769 4.3
France Fr 2,383 3.7
Australia Au 1,924 3.0
Hong Kong HK 1,692 2.6
Multi-national (b) 1,516 2.4
Canada Ca 1,431 2.2
Denmark De 1,388 2.2
Thailand Th 881 1.4
Malaysia Ma 838 1.3
Singapore Si 684 1.1
Switzerland Sz 669 1.0
Philippines Ph 627 1.0
Austria Au 561 0.9
Ireland Ir 522 0.8
Italy It 342 0.5
Pakistan Pa 318 0.5
India Id 293 0.5
Indonesia In 286 0.4
New Zealand NZ 247 0.4
Belgium Be 244 0.4
Argentina Ar 163 0.3
Mexico Mx 43 0.1
Korea Ko 4 0.0
======== =====
$ 63,809 100.0
======== =====
</TABLE>
Certain securities are listed by country of underlying exposure but may
trade predominantly on other exchanges.
See notes to financial statements.
12
<PAGE>
<TABLE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1995
(in thousands except for per share amounts and footnotes)
<S> <C> <C>
ASSETS
Investments at value (cost $56,630) $ 63,809
Short-term obligations 4,473
---------
68,282
Cash held in foreign banks (cost $323) $ 323
Receivable for:
Investments sold 1,983
Dividends 74
Foreign tax reclaims 69
Fund shares sold 36
Expense reimbursement due from Adviser 10
Interest 1
Deferred organization expenses 14
Other 3 2,513
-------- ---------
Total Assets 70,795
LIABILITIES
Payable for:
Fund shares repurchased 92
Capital gains tax 51
Accrued:
Deferred Trustees fees 1
Other 19
Total Liabilities -------- 163
NET ASSETS $ 70,632
=========
Net asset value & redemption price per share -
Class A ($11,501/924) $ 12.45
=========
Maximum offering price per share - Class A
($12.45/0.9425) $ 13.21(a)
=========
Net asset value & offering price per share -
Class B ($59,131/4,773) $ 12.39(b)
=========
COMPOSITION OF NET ASSETS
Capital paid in $ 59,820
Overdistributed net investment income (129)
Accumulated net realized gain 3,754
Net unrealized appreciation on:
Investments 7,179
Foreign currency transactions 8
---------
$ 70,632
=========
<FN>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
See notes to financial statements.
</TABLE>
13
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
(in thousands)
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 1,721
Interest 240
-------
Total investment income (net of nonrebatable
foreign taxes withheld at source which
amounted to $160) 1,961
EXPENSES
Management fee $ 535
Service fee 177
Distribution fee - Class B 453
Transfer agent 223
Bookkeeping fee 34
Trustees fee 11
Custodian fee 56
Audit fee 38
Legal fee 7
Registration fee 27
Reports to shareholders 9
Amortization of deferred
organization expenses 9
Other 21
-------
1,600
Fees waived by the Adviser (184) 1,416
Net Investment Income ------- --------
545
--------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 3,978
Foreign currency transactions (146)
-------
Net Realized Gain 3,832
Net unrealized appreciation (depreciation) during
the period on:
Investments 653
Foreign currency transactions (16)
-------
Net Unrealized Appreciation 637
--------
Net Gain 4,469
--------
Net Increase in Net Assets from Operations $ 5,014
========
</TABLE>
See notes to financial statements.
14
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
(in thousands) Year ended October 31
---------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
<S> <C> <C>
Operations:
Net investment income $ 545 $ 439
Net realized gain 3,832 5,468
Net unrealized appreciation (depreciation) 637 (1,535)
-------- --------
Net Increase from Operations 5,014 4,372
Distributions:
From net investment income - Class A (175) (80)
From net realized gains - Class A (809) (11)
From net investment income - Class B (533) (361)
From net realized gains - Class B (4,674) (163)
-------- --------
(1,177) 3,757
-------- --------
Fund Share Transactions:
Receipts for shares sold - Class A 3,736 11,660
Value of distributions reinvested - Class A 915 79
Cost of shares repurchased - Class A (3,545) (3,294)
-------- --------
1,106 8,445
-------- --------
Receipts for shares sold - Class B 9,028 32,682
Value of distributions reinvested - Class B 4,883 485
Cost of shares repurchased - Class B (16,872) (14,311)
-------- --------
(2,961) 18,856
-------- --------
Net Increase (Decrease) from Fund Share Transactions (1,855) 27,301
-------- --------
Total Increase (Decrease) (3,032) 31,058
NET ASSETS
Beginning of period 73,664 42,606
-------- --------
End of period (net of overdistributed and including
undistributed net investment income of $129 and $96, $ 70,632 $ 73,664
respectively) ======== ========
NUMBER OF FUND SHARES
Sold - Class A 310 937
Issued for distributions reinvested - Class A 82 7
Repurchased - Class A (297) (265)
-------- --------
95 679
-------- --------
Sold - Class B 754 2,643
Issued for distributions reinvested - Class B 440 40
Repurchased - Class B (1,419) (1,170)
-------- --------
(225) 1,513
-------- --------
</TABLE>
See notes to financial statements.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE 1. ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
ORGANIZATION: Colonial Global Equity Fund (the Fund), a series of Colonial
Trust III, is a diversified portfolio of a Massachusetts business trust
registered under the Investment Company Act of 1940, as amended, as an
open-end, management investment company. The Fund may issue an unlimited
number of shares. The Fund offers 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, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class B 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
reflects 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.
16
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
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 expenses of $43,895 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 character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Reclassifications are made to the Fund's
capital accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
FOREIGN CURRENCY TRANSACTIONS: The Fund has adopted Statement of Position
93-4, Foreign Currency Accounting and Financial Statement Presentation for
Investment Companies. Accordingly, net realized and unrealized gains (losses)
on foreign currency transactions includes the fluctuation in exchange rates on
gains (losses) between trade and settlement dates on securities transactions,
gains (losses) arising from the disposition of foreign currency and currency
gains (losses) between the accrual and payment dates on dividends and interest
income and foreign withholding taxes.
The Fund does not distinguish that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included
with the net realized and unrealized gains (losses) on investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency
contracts to purchase or sell foreign currencies at predetermined exchange
rates in connection with the settlement of purchases and sales of securities.
The Fund may also enter into forward currency contracts to hedge certain other
foreign currency denominated assets. The contracts are used to minimize the
exposure to foreign exchange rate fluctuations during the period between trade
and settlement date of the contracts. All contracts are marked-to-market
daily, resulting in unrealized gains or losses which become realized at the
time the forward currency contracts are closed or mature. Realized and
unrealized gains (losses) arising from such transactions are included in net
realized and unrealized gains (losses)
17
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
on foreign currency transactions. Forward currency contracts do not eliminate
fluctuations in the prices of the Fund's portfolio securities. While the
maximum potential loss from such contracts is the aggregate face value in U.S.
dollars at the time the contract was opened, exposure is typically limited to
the change in value of the contract (in U.S. dollars) over the period it
remains open. Risks may also arise if counterparties fail to perform their
obligations under the contracts.
OTHER: Corporate actions are recorded on ex-date (except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware
of such), net of nonrebatable tax withholdings. Where a high level of
uncertainty as to collection exists, income on securities is recorded net of
all tax withholdings with any rebates recorded when received. The Fund may be
subject to foreign taxes on income, gains on investments, or foreign currency
repatriation. The Fund accrues foreign taxes as applicable based upon its
current interpretation of the tax rules and regulations that exist in the
markets in which it invests.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is
marked-to-market daily to ensure that the market value of the underlying
assets remains sufficient to protect the Fund. The Fund may experience costs
and delays in liquidating the collateral if the issuer defaults or enters
bankruptcy.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
- --------------------------------------------------------------------------------
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser) is the
investment Adviser of the Fund and furnishes accounting and other services and
office facilities for a monthly fee equal to 0.75% 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 shareholder services and receives a
monthly fee equal to 0.25% annually of the Fund's average net assets and
receives a reimburse- ment for certain out of pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Colonial Investment
Services Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. For the year ended October 31, 1995, the Fund has been
advised that the Distributor retained net underwriting discounts of $7,204 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $174,737 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 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.
18
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
EXPENSE LIMITS: Effective August 1, 1995 and until further notice, the
Adviser has agreed to bear certain Fund expenses to the extent that total
expenses (exclusive of service and distribution fees, brokerage commissions,
interest, taxes and extraordinary expenses, if any) exceed 1.40% annually of
the Fund's average net assets.
Prior to August 1, 1995 the expense limit was 1.00% 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. Obligations of the plan will be paid solely out of
the the Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended October 31, 1995, purchases and
sales of investments, other than short-term obligations, were $49,483,788 and
$58,162,376, respectively.
Unrealized appreciation (depreciation) at October 31, 1995, based on cost of
invest- ments for federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $10,530,824
Gross unrealized depreciation (3,353,598)
-----------
Net unrealized appreciation $ 7,177,226
===========
</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 the imposition of other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
19
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (b)
Selected data for a share of each class outstanding throughout each
period are as follows:
<CAPTION>
Year ended October 31
----------------------------------------------------
1995 1994
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 12.690 $ 12.630 $ 11.760 $ 11.720
======== ======== ======== ========
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.167 0.076 0.170 0.077
Net realized and
unrealized gain (loss) 0.735 0.735 0.969 0.959
-------- -------- -------- --------
Total from Investment
Operations 0.902 0.811 1.139 1.036
-------- -------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net
investment income (0.198) (0.107) (0.166) (0.083)
From net
realized gains (0.944) (0.944) (0.043) (0.043)
-------- -------- -------- --------
Total Distributions
Declared to Shareholders (1.142) (1.051) (0.209) (0.126)
-------- -------- -------- --------
Net asset value -
End of period $ 12.45 $ 12.39 $ 12.69 $ 12.630
======== ======== ======== ========
Total return (d)(e) 8.23% 7.43% 9.76% 8.88%
======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS
Operating expenses 1.36%(f) 2.11%(f) 1.25% 2.00%
Interest expense -- -- -- --
Fees waived by the Adviser 0.26%(f) 0.26%(f) 0.36% 0.36%
Net investment income 1.40% 0.65% 1.38% 0.63%
Portfolio turnover 74% 74% 52% 52%
Net assets at end
of period (000) $ 11,501 $ 59,131 $ 10,525 $ 63,139
<FN>
(a) Net of fees and expenses waived
or borne by the Adviser
which amounted to $ 0.031 $ 0.031 $ 0.045 $ 0.045
(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 aset 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) The benefits derived from custody credits and direct brokerage arrangements, if any, had no
impact on the Fund's gross expense ratios.
(g) Not annualized.
(h) Annualized.
</TABLE>
20
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (b) - continued
<CAPTION>
Year ended Period ended
October 31 October 31
------------------- -------------------
1993 1992 (c)
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C>
$ 9.340 $ 9.310 $10.000 $10.000
======= ======= ======= =======
0.182 0.104 0.088 0.059
2.461 2.447 (0.748) (0.749)
------- ------- ------- -------
2.643 2.551 (0.660) (0.690)
------- ------- ------- -------
(0.223) (0.141) -- --
-- -- -- --
------- ------- ------- -------
(0.223) (0.141) -- --
------- ------- ------- -------
$11.760 $11.720 $ 9.340 $ 9.310
======= ======= ======= =======
28.77% 27.70% (6.59)%(g) (6.90)%(g)
======= ======= ======= =======
1.25% 2.00% 1.25%(h) 2.00%(h)
0.01% 0.01% -- --
0.51% 0.51% 0.67%(h) 0.67%(h)
1.75% 1.00% 2.25%(h) 1.50%(h)
58% 58% 14%(h) 14%(h)
$ 1,769 $40,837 $ 164 $32,099
$ 0.053 $ 0.053 $ 0.053 $ 0.026
- --------------------------------------------------------------------------------
Federal Income Tax Information (unaudited)
99.9% of the gain distribution paid by the Fund in December 1994
was derived from long-term gains.
67% of the distributions paid by the Fund from investment income
earned in the year ended October 31, 1995 qualify for the corporate
dividends received deduction.
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
T0 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, 1995, the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated in conformity with generally accepted accounting principles.
These financial statements and the financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund#s management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of portfolio positions at October 31, 1995 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 11, 1995
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 Meetings
19. How to Buy Shares; Determination
of Net Asset Value; Suspension of
Redemptions; Special Purchase
Programs/Investor Services;
Programs for Reducing or
Eliminating Sales Charge; How to
Sell Shares; How to Exchange
Shares
20. Taxes
21. Fund Charges and Expenses;
Management of the Colonial Funds
22. Fund Charges and Expenses;
Investment Performance;
Performance Measures
23. Independent Accountants
COLONIAL STRATEGIC BALANCED FUND
Statement of Additional Information
February 28, 1996
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
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, 1996. This SAI should be read together with the Prospectus.
Investors may obtain a free copy of the Prospectus from Colonial Investment
Services, Inc., One Financial Center, Boston, MA 02111-2621.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes
information about the Colonial funds generally and additional information about
certain securities and investment techniques described in the Fund's prospectus.
TABLE OF CONTENTS
Part 1 Page
Definitions
Investment 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 Colonial Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sales Charge
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Meetings
Performance Measures
Appendix I
Appendix II
<PAGE>
COLONIAL STRATEGIC BALANCED FUND
Statement of Additional Information
February 28, 1996
DEFINITIONS
"Fund" Colonial Strategic Balanced Fund
"Trust" Colonial Trust III
"Adviser" Colonial Management Associates, Inc., the Fund's
investment adviser
"CISI" Colonial Investment Services, Inc., the Fund's distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's
shareholder services and transfer agent
INVESTMENT OBJECTIVES AND POLICIES
The Fund's Prospectus describes its investment objectives and policies. Part 1
of this SAI includes additional information concerning, among other things, the
fundamental investment policies of the Fund. Part 2 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 Fund's
investment policies are not fundamental, and the Trustees may change the
policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. The following fundamental
investment policies can not be changed without such a vote.
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.
<PAGE>
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 securities of any company if the Trust knows that officers and
Trustees of the Trust or officers and directors of the Adviser who
individually own more than 0.5% of such securities together own more
than 5% of such securities;
4. Invest in interests in oil, gas or other mineral exploration or
development programs, including leases;
5. Purchase any security resulting in the Fund having more than 5% of
its total assets invested in securities
of companies (including predecessors) less than three years old;
6. Pledge more than 33% of its total assets;
7. Purchase any security if, as a result of such purchase, more than 10%
of its total assets would be invested in 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)
Year ended October 31, 1995 through October 31, 1994
49% 0% (annualized)
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays the Adviser a monthly fee
based on the average daily net assets of the Fund at the annual rate of 0.70%.
Recent Fees paid to the Adviser, CISI and CISC (dollars in thousands)
Period September 19, 1994
(commencement of
investment operations)
Year ended October 31 through October 31
1995 1994
---- ------------------------
Management fee $196 $9
Bookkeeping fee 27 3
Shareholder service and
transfer agent fee 86 4
12b-1 fees:
Service fee 70 3
Distribution fee (Class A) 36 2
Distribution fee (Class B) 95 4
Distribution fee (Class D) 25 2
Fees and expenses waived or
borne by the Adviser (122) (5)
<PAGE>
Brokerage Commissions (dollars in thousands)
Period September 19, 1994
(commencement of
Year ended October 31 investment operations)
1995 through October 31, 1994
---- ------------------------
Total commissions $ 20 $ 12
Directed transactions(a) 302 500
Commissions on
directed transactions 1 1
(a) See "Management of the Colonial Funds - Portfolio Transactions -
Brokerage and research services" in Part 2 of this SAI.
Trustees Fees
For the fiscal year ended October 31, 1995 and calendar year ended
December 31, 1995 , the Trustees received the following compensation
for serving as Trustees:
</TABLE>
<TABLE>
<CAPTION>
Aggregate Pension or Total Compensation
Compensation Retirement Estimated From Trust and Fund
From Fund For The Benefits Annual Complex Paid To The Trustees
Fiscal Year Ended Accrued As Part Benefits Upon For The Calendar Year Ended
Trustee October 31, 1995 of Fund Expense Retirement December 31, 1995 (b)
- ------- ---------------- ------------ ---------- -----------------------------
<S> <C> <C> <C> <C>
Robert J. Birnbaum $471 $0 $0 $ 71,250
Tom Bleasdale 566(c) 0 0 98,000(d)
Lora S. Collins 526 0 0 91,000
James E. Grinnell 471 0 0 71,250
William D. Ireland, Jr. 635 0 0 113,000
Richard W. Lowry 468 0 0 71,250
William E. Mayer 524 0 0 91,000
John A. McNeice, Jr. 0 0 0 0
James L. Moody, Jr. 593(e) 0 0 94,500(f)
John J. Neuhauser 526 0 0 91,000
George L. Shinn 556 0 0 102,500
Robert L. Sullivan 594 0 0 101,000
Sinclair Weeks, Jr. 671 0 0 112,000
(b) At December 31, 1995, the Colonial Funds complex consisted of 33 open-end and 5 closed-end management
investment company portfolios.
(c) Includes $313 payable in later years as deferred compensation.
(d) Includes $49,000 payable in later years as deferred compensation.
(e) Includes $559 payable in later years as deferred compensation.
(f) Total compensation of $94,500 for the calendar year ended December 31, 1995 will be payable in later
years as deferred compensation.
</TABLE>
The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees of the Liberty
All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (formerly known as
The Charles Allmon Trust, Inc.) (together, Liberty Funds I) for service during
the calendar year ended December 31, 1995, and of Liberty Financial Trust (now
known as Colonial Trust VII) and LFC Utilities Trust (together, Liberty Funds
II) for the period January 1, 1995 through March 26, 1995 (g):
Total Compensation Total Compensation
From Liberty Funds II For From Liberty Funds I For
The Period January 1, 1995 The Calendar Year Ended
Trustee through March 26, 1995 December 31, 1995 (h)
- ------- ---------------------- ---------------------
Robert J. Birnbaum(i) $2,900 $16,675
James E. Grinnell(i) 2,900 22,900
Richard W. Lowry(i) 2,900 26,250 (j)
(g) On March 27, 1995, four of the portfolios in the Liberty Financial Trust
(now known as Colonial Trust VII) were merged into existing Colonial
funds and a fifth was reorganized into a new portfolio of Colonial Trust
III. Prior to their election as Trustees of the Colonial Funds, Messrs.
Birnbaum, Grinnell and Lowry served as Trustees of Liberty Funds II and
continue to serve as Trustees of Liberty Funds I.
(h) At December 31, 1995, the Liberty Funds I were advised by Liberty
Asset Management Company (LAMCO). LAMCO is an indirect wholly-owned
subsidiary of Liberty Financial Companies, Inc. (an
intermediate parent of the Adviser).
(i) Elected as a Trustee of the Colonial Funds complex on April 21, 1995.
(j) Includes $3,500 paid to Mr. Lowry for service as Trustee of Liberty
Newport World Portfolio (formerly known as Liberty All-Star World
Portfolio) (Liberty Newport) during the calendar year ended December 31,
1995. At December 31, 1995, Liberty Newport was managed by Newport
Pacific Management, Inc. and Stein Roe & Farnham Incorporated, each an
affiliate of the Adviser.
Ownership of the Fund
At January 31, 1996, the officers and Trustees of the Trust as a group owned
417,905.711shares of the Fund representing 27.04% of the then outstanding Class
A shares. The largest single holding was by the Adviser (26.99%).
At January 31, 1996, the officers and Trustees of the Trust as a group owned
207,501.215shares of the Fund representing 10.98% of the then outstanding Class
B shares. The total ownership was held by the Adviser (10.98%)..
At January 31, 1996, the officers and Trustees of the Trust as a group owned
207,387.808shares of the Fund representing 51.48% of the then outstanding Class
D shares. The total ownership was held by the Adviser (51.48%).
At January 31, 1996, Sales Marketing Services Inc., P.O. Box 516, Metairie, LA
70004-0516, owned 6.50% of the Fund's outstanding Class A shares.
At January 31, 1996, there were 1,119 Class A, 2,913 Class B and 199 Class D
record holders of the Fund.
Sales Charges (dollars in thousands)
Class A Shares
Period September 19, 1994
(commencement of
Year ended October 31 investment operations)
1995 through October 31, 1994
Aggregate initial
sales charges on
Fund share sales $186 $66
Initial sales charges
retained by CISI 13 0
<PAGE>
Class B Shares
Period September 19, 1994
(commencement of
Year ended October 31 investment operations)
1995 through October 31, 1994
Aggregate contingent
deferred sales
charges (CDSC)
on Fund redemptions
retained by CISI $29 $0
<PAGE>
Class D Shares
Period September 19, 1994
(commencement of
Year ended October 31 investment operations)
1995 through October 31, 1994
CDSC on Fund redemptions
retained by CISI $1 $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 the Adviser) to the extent that such payments might be construed to
be indirectly financing the distribution of Fund shares.
The Trustees believe the Plans could be a significant factor in the growth and
retention of 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 and are
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 are 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.
Approximately 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 relating to the
Fund for the fiscal year ended October 31, 1995 , were:
Class A Shares Class B Shares Class D Shares
Fees to FSFs $ 31 $ 448 $ 18
Cost of sales material
relating to the Fund
(including printing
and mailing expenses) 21 32 6
Allocated travel,
entertainment and other
promotional expenses
(including advertising) 36 59 11
INVESTMENT PERFORMANCE
The Fund's Class A, Class B and Class D yields for the month ended October 31,
1995, were:
Class A Class B Class D
Yield Adjusted Yield Yield Adjusted Yield Yield Adjusted Yield
2.94% 2.70% 2.34% 2.08% 2.31% 2.05%
The Fund's average annual total returns at October 31, 1995, were:
Class A Shares
Period September 19, 1994
(commencement of investment
operations)
1 year through October 31, 1995
------ -------------------------
With sales charge of 4.75% 15.70% 13.02%
Without sales charge 21.47% 18.04%
Class B Shares
Period September 19, 1994
(commencement of investment
operations)
1 year through October 31, 1995
------ -------------------------
With applicable CDSC 16.00% (5.00% CDSC) 14.01% (4.00% CDSC)
Without CDSC 21.00% 17.53%
Class D Shares
Period September 19, 1994
(commencement of investment
operations)
1 year through October 31, 1995
------ -------------------------
With CDSC of 1.00% 18.83% 16.52%
Without CDSC 21.04% 17.57%
The Fund's Class A, Class B and Class D distribution rates at October 31, 1995,
which are based on the most recent quarter's distributions and the maximum
offering price at the end of the quarter, were 4.25%, 4.04% and 3.98%,
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 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 7 through 27 of the October 31, 1995 Annual Report, are incorporated in
this SAI by reference.
<PAGE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCKS - 54.6% COUNTRY SHARES VALUE
-------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION - 0.2%
HEAVY CONSTRUCTION - NON BUILDING CONSTRUCTION
Yondenko Corp. Ja 9 $ 78
-------
-------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 9.9%
DEPOSITORY INSTITUTIONS - 4.0%
Bank of Boston Corp. 7 312
Bank of Montreal Ca 4 89
Bank of New York Co., Inc. 4 155
BayBanks, Inc. 2 162
Citicorp 5 311
HSBC Holdings PLC HK 6 81
Kredietbank NV Be (a) 50
National Westminster Bank PLC UK 9 85
Norwest Corp. 4 109
TCF Financial Corp. 3 182
-------
1,536
-------
HOLDING & OTHER INVESTMENT COMPANIES - 0.1%
First Australia Fund, Inc. Au 3 20
First Phillipine Fund, Inc. Ph 2 31
--------
51
--------
INSURANCE CARRIERS - 3.9%
Allstate Corp. 3 102
American Bankers Insurance Group, Inc. 3 108
Cigna Corp. 4 377
Fremont General Corp. 3 83
Life Re Corp. 3 64
Loews Corp. 2 337
Maxicare Health Plans, Inc. (b) 4 70
Pacificare Health Systems, Inc. (b) 1 95
Protective Life Corp. (b) 3 91
Selective Insurance Group, Inc. (a) 11
US Facilities Corp. 8 151
--------
1,489
--------
NONDEPOSITORY CREDIT INSTITUTIONS - 1.6%
Aplus Co. Ltd. Ja 42 163
Green Tree Financial Corp. 10 266
The Money Store, Inc. 5 180
--------
609
--------
</TABLE>
7
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE, INSURANCE & REAL ESTATE - CONT.
SECURITY BROKERS & DEALERS - 0.3%
Alex Brown, Inc. 2 $ 112
-----------
------------------------------------------------------------------------------
MANUFACTURING - 33.6%
APPAREL - 0.6%
Nautica Enterprises, Inc. (b) 4 144
Norton McNaughton, Inc. (b) 5 99
----------
243
----------
CHEMICALS - 3.4%
BASF AG G 1 133
DSM NV Ne 1 52
E.I. DuPont De Nemours & Co. 1 87
Eastman Chemical Co. 4 226
Eli Lilly & Co. 1 97
Helene Curtis Industries, Inc. 2 45
Johnson & Johnson 2 163
Merck KGAA G 4 169
Norsk Hydro A.S. ADR (b) No 2 60
Union Carbide Corp. 8 288
-----------
1,320
-----------
ELECTRONIC & ELECTRICAL EQUIPMENT - 4.6%
Aspect Telecommunications Corp. (b) 4 137
Comverse Technology, Inc. (b) 4 95
Dovatron International, Inc. (b) 2 68
Duracraft Corp. (b) 2 44
HADCO Corp. (b) 7 196
Harman International Industries, Inc. 2 102
Haw Par Brothers International Ltd. Si 20 41
Hutchinson Technology, Inc. (b) 1 63
International Rectifier Corp. (b) 4 176
Micron Technology, Inc. 5 325
Motorola, Inc. 2 144
Park Electrochemical Corp. 4 113
Philips Electronics NV Ne 3 124
Radiotechnique Fr (a) 23
Sanmina Corp. (b) 2 130
-----------
1,781
-----------
FABRICATED METAL - 0.9%
Buderus AG G (a) 86
Bunka Shutter Co. Ltd. Ja 20 141
GFI Industries SA Fr 1 101
Oriental Holdings Berhad Ma 5 23
-----------
351
-----------
</TABLE>
8
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
------------------------------------------------------------------------------
<S> <C> <C> <C>
FOOD & KINDRED PRODUCTS - 2.4%
Archer Daniels Midland Co. 13 $ 212
Hudson Foods, Inc. 9 121
IBP, Inc. 4 209
Phillip Morris Co., Inc. 3 228
Smithfield Foods, Inc. (b) 2 61
Superfos AS De 1 89
-----------
920
-----------
LEATHER - 0.4%
Wolverine World Wide, Inc. 5 158
-----------
LUMBER & WOOD PRODUCTS - 0.3%
Oakwood Homes Corp. 3 98
-----------
MACHINERY & COMPUTER EQUIPMENT - 9.2%
AGCO Corp. 2 74
Applied Materials, Inc. (b) 3 140
Bay Networks, Inc. (b) 3 165
Brunswick Corp. 4 68
Caterpillar, Inc. 3 140
Compaq Computer Corp. (b) 4 223
Deere & Co. 1 80
EMC Corp. (b) 7 102
Exabyte Corp. (b) 3 39
Fujitsu Ltd. Ja 4 48
Hewlett-Packard Co. 4 352
Hitachi Ltd. Ja 14 144
International Business Machines Corp. 3 331
JLG Industries, Inc. 10 235
Lam Research Corp. (b) 2 91
Mylex Corp. (b) 8 149
NACCO Industries, Inc. 1 46
Outboard Marine Corp. 1 25
Proteon, Inc. (b) 9 65
S3, Inc. (b) 5 86
Seagate Technology, Inc. (b) 8 336
Silicon Graphics, Inc. (b) 3 100
Strattec Security Corp. (b) (a) 8
Sun Microsystems, Inc. (b) 6 437
Toro Co. 3 87
-----------
3,571
-----------
MEASURING & ANALYZING INSTRUMENTS - 2.1%
Bio-Rad Laboratories, Inc.
Class A (b) 4 160
Cordis Corp. (b) 1 155
Esterline Technologies Corp. (b) 6 127
Fuji Photo Film Co. Ltd. Ja 5 124
</TABLE>
9
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING - CONT.
Measuring & Analyzing Instruments - Cont.
Medtronic, Inc. 4 $219
Quickturn Design Systems, Inc. (b) 5 48
----
833
----
MISCELLANEOUS MANUFACTURING - 0.3%
Callaway Golf Co. 6 105
----
PAPER & PAPER MILLS - 1.8%
ACX Technologies, Inc. (b) 8 124
Chesapeake Corp. 3 92
Longview Fibre Co. 10 145
Norske Skogindustrier AS No 2 58
SCA Laakirchen AG Aus (a) 149
Saint Louis Bouchon Fr (a) 87
Shorewood Packaging Corp. (b) 3 52
----
707
----
PETROLEUM REFINING - 1.5%
British Petroleum Co. PLC ADR UK 1 97
Exxon Corp. 3 229
Lyondell Petrochemical Co. 9 190
Phillips Petroleum Co. 3 81
----
597
----
PRIMARY METAL - 2.4%
Acerinox SA Sp 2 211
Alcan Aluminum Ltd. 5 142
Aluminum Company of America 1 71
British Steel PLC UK 29 74
Magma Copper Co., Class B 6 101
National Steel Corp. (b) 6 83
Texas Industries, Inc. 2 110
Titan Wheel International, Inc. 8 120
----
912
----
PRIMARY SMELTING - 0.2%
Phelps Dodge Corp. 1 76
----
RUBBER & PLASTIC - 0.6%
Applied Extrusion Technologies, Inc. (b) 7 108
Continental AG G 8 106
----
214
----
STONE, CLAY, GLASS & CONCRETE - 1.0%
Desimpel Kortemark Co. NV Be 2 111
Indresco, Inc. (b) 8 137
Owens-Corning Fiberglas Corp. 3 127
</TABLE>
10
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Vitro S.A. Mx 12 $ 26
----
401
----
TEXTILE MILL PRODUCTS - 0.1%
Guilford Mills, Inc. 2 37
----
TRANSPORTATION EQUIPMENT - 1.8%
Borg-Warner Automotive, Inc. 6 165
Coachmen Industries, Inc. 4 64
Fleetwood Enterprises, Inc. 3 70
Ford Motor Co. 6 172
Honda Motor Co. Ltd. Ja 2 35
Varlen Corp. 3 88
Volvo AB ADR Sw 5 114
----
708
----
- --------------------------------------------------------------------------------
MINING & ENERGY - 0.7%
CRUDE PETROLEUM & NATURAL GAS - 0.5%
Occidental Petroleum Corp. 9 183
----
NONMETALLIC, EXCEPT FUELS - 0.2%
Potash Corp. of Saskatchewan, Inc. Ca 1 83
----
RETAIL TRADE - 2.8%
FOOD STORES - 0.6%
Safeway, Inc. (b) 5 222
----
GENERAL MERCHANDISE STORES - 1.2%
Dollar General Corp. 3 61
Federated Department Stores, Inc. (b) 6 150
Jardine Strategic Holdings Ltd. Si 22 59
Sears, Roebuck & Co. 3 102
Waban, Inc. (b) 6 91
----
463
----
HOME FURNISHINGS & EQUIPMENT - 0.3%
Circuit City Stores, Inc. 4 137
----
MISCELLANEOUS RETAIL - 0.7%
Blair Corp. 2 44
Imasco Ltd. Ca 7 125
Office Depot, Inc. (b) 4 115
----
284
----
- --------------------------------------------------------------------------------
SERVICES - 2.6%
AMUSEMENT & RECREATION - 0.3%
Grand Casinos, Inc. (b) 3 99
----
BUSINESS SERVICES - 1.1%
Computer Associates International, Inc. 2 124
</TABLE>
11
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
COMMON STOCKS - CONT. COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
SERVICES - CONT.
BUSINESS SERVICES - CONT.
FileNet Corp. (b) 3 $113
Manpower, Inc. 3 73
Norrell Corp. 4 108
----
418
----
ENGLISH, ACCOUNTING, RESEARCH & MANAGEMENT - 0.2%
International-Muller NV Ne 1 61
----
HEALTH SERVICES - 0.6%
Integrated Health Services, Inc. 3 69
Lincare Holdings, Inc. (b) 5 124
Rotech Medical Corp.(b) 3 57
----
250
----
HOTELS, CAMPS & LODGING - 0.4%
Hospitality Franchise Systems, Inc. (b) 3 184
----
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 2.7%
AIR TRANSPORTATION - 0.8%
British Airways PLC ADR UK 1 71
Comair Holdings, Inc. 6 168
Lufthansa AG G 1 69
----
308
----
COMMUNICATIONS - 0.6%
Southwestern Bell Corp. 2 129
Sprint Corp. 2 88
Telefonos de Mexico SA ADR Mx 1 30
----
247
----
ELECTRIC SERVICES - 0.8%
Duke Power Co. 2 89
Northeast Utilities 4 106
Unicom Corp. 3 98
----
293
----
SANITARY SERVICES - 0.2%
Yorkshire Water PLC UK 8 77
----
TRANSPORTATION SERVICES - 0.2%
Air Express International Corp. 4 81
----
Water Transportation - 0.1%
DFDS AS De (a) 57
----
</TABLE>
12
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
WHOLESALE TRADE - 2.1%
DURABLE GOODS - 1.9%
Arrow Electronics, Inc. (b) 2 $ 101
Beers NV Ne 1 80
Hanwa Co. Ltd. (b) Ja 56 169
Pioneer Standard Electronics, Inc. 8 104
Shelter Components Corp. 4 55
Software Spectrum, Inc. (b) 4 75
Wyle Electronics Co. 4 170
-------
754
-------
NONDURABLE GOODS - 0.2%
Dalgety PLC UK 11 70
-------
TOTAL COMMON STOCKS (cost of $16,823) 21,178
-------
<CAPTION>
BONDS & NOTES - 39.0% PAR
- -----------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - 15.1%
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSTRUCTION - 0.3%
BUILDING CONSTRUCTION
USG Corp.,
9.250% 09/15/01 $100 106
-------
- -----------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.3%
FINANCIAL SERVICES
Comdata Network, Inc.,
13.250% 12/15/02 100 118
-------
- -----------------------------------------------------------------------------------
MANUFACTURING - 4.7%
CHEMICALS - 0.8%
Agricultural Minerals Co., LP,
10.750% 09/30/03 100 106
Huntsman Corp.,
11.000% 04/15/04 100 111
N.L. Industries, Inc.,
11.750% 10/15/03 100 106
-------
323
-------
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.3%
Amphenol Corp.,
12.750% 12/15/02 100 113
-------
FOOD & KINDRED PRODUCTS - 0.6%
Doskocil Companies Inc.,
9.750% 07/15/00 100 97
Van De Kamps, Inc., (c)
12.000% 09/15/05 150 154
-------
251
-------
</TABLE>
13
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - CONT. PAR VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANUFACTURING - CONT.
LUMBER & WOOD PRODUCTS - 0.3%
Triangle Pacific Corp.,
10.500% 08/01/03 $100 $105
----
MISCELLANEOUS MANUFACTURING - 0.6%
American Standard Co., stepped coupon,
(10.500% 06/01/98) 06/01/05 (d) 150 126
Coleman Holdings Co., Series B,
(e) 05/27/98 150 119
----
245
----
PAPER PRODUCTS - 0.8%
Repap Wisconsin, Inc.,
9.250% 02/01/02 100 97
SD Warren Co.,
12.000% 12/15/04 100 111
Stone Container Corp.,
9.875% 02/01/01 100 99
----
307
----
PRIMARY METAL - 0.5%
A.K. Steel Corp.,
10.750% 04/01/04 100 109
Magma Copper Co.,
12.000% 12/15/01 100 110
----
219
----
STONE, CLAY, GLASS & CONCRETE - 0.3%
Owens-Illinois, Inc.,
10.500% 06/15/02 100 105
----
TRANSPORTATION EQUIPMENT - 0.5%
Aftermarket Technology Corp.,
Series B,
12.000% 08/01/04 100 106
Harvard Industries, Inc., (c)
11.125% 08/01/05 100 101
----
207
----
- ---------------------------------------------------------------------------------
MINING & ENERGY - 1.3%
Crude Petroleum & Natural Gas - 0.5%
Ferrellgas Finance Corp., LP,
10.000% 08/01/01 100 104
Triton Energy Corp.,
(e) 11/01/97 100 85
----
189
----
</TABLE>
14
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OIL & GAS EXTRACTION - 0.8%
Gulf Canada Resources Ltd.,
9.250% 01/15/04 $100 $100
Rowan Companies, Inc.,
11.875% 12/01/01 100 108
Santa Fe Energy Resources, Inc.,
11.000% 05/15/04 100 107
----
315
----
RETAIL TRADE - 1.2%
FOOD STORES - 0.7%
Dominick's Finer Foods, Inc.,
10.875% 05/01/05 150 158
Pathmark Stores, Inc.,
9.625% 05/01/03 100 99
----
257
----
MISCELLANEOUS RETAIL - 0.5%
Finlay Fine Jewelry Corp.,
10.625% 05/01/03 100 99
Thrifty Payless Holdings, Inc.,
11.750% 04/15/03 100 107
----
206
----
- ---------------------------------------------------------------------------------
SERVICES - 2.6%
AMUSEMENT & RECREATION - 1.0%
Bally's Grand, Inc., Series B,
10.375% 12/15/03 100 100
Boyd Gaming Corp.,
10.750% 09/01/03 100 105
Falcon Holdings, PIK,
11.000% 09/15/03 106 101
Trump Taj Mahal Funding, Inc., PIK,
11.350% 11/15/99 100 86
----
392
----
HEALTH SERVICES - 1.2%
GranCare, Inc.,
9.375% 09/15/05 150 149
Integrated Health Services, Inc.,
10.750% 07/15/04 100 106
OrNda Health Corp.,
11.375% 08/15/04 100 112
Tenet Healthcare Corp.,
10.125% 03/01/05 100 107
----
474
----
</TABLE>
15
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
CORPORATE FIXED-INCOME
BONDS & NOTES - CONT. PAR VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SERVICES - CONT.
HOTELS, CAMPS & LODGING - 0.4%
HMH Properties Inc., (c)
9.500% 05/15/05 $150 $ 151
------
- ----------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 4.4%
COMMUNICATIONS - 3.7%
Allbritton Communications Co.,
11.500% 08/15/04 100 107
Bell Cablemedia PLC, stepped coupon,
(11.950% 07/15/99) 07/15/04 (d) (f) UK 150 102
Cablevision Systems Corp.,
10.750% 04/01/04 100 105
Cellular Communications Units, (g)
(e) 08/15/00 100 58
Comcast Corp.,
9.125% 10/15/06 250 254
Continental Cablevision, Inc.,
11.000% 06/01/07 100 112
MFS Communications Company, Inc.,
stepped coupon, (9.375% 01/15/99) 01/15/04 (d) 100 78
NWCG Holding Corp.,
(e) 06/15/99 175 118
Paging Network, Inc.,
10.125% 08/01/07 100 106
SCI Television, Inc.,
11.000% 06/30/05 100 106
Sinclair Broadcast Group, Inc.,
10.000% 09/30/05 100 103
Videotron Holding PLC, stepped coupon,
(11.000% 08/15/00) 08/15/05 (d) 100 59
Young Broadcasting Corp.,
11.750% 11/15/04 100 112
------
1,420
------
GAS SERVICES - 0.4%
California Energy Co., Inc.,
9.875% 06/30/03 150 154
------
MOTOR FREIGHT & WAREHOUSING - 0.3%
Trism, Inc.,
10.750% 12/15/00 100 98
------
WHOLESALE TRADE - 0.3%
NONDURABLE GOODS
Revlon Worldwide Corp.,
(e) 03/15/98 150 112
------
</TABLE>
16
<PAGE>
Investment Portfolio/October 31, 1995
<TABLE>
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES (cost of $5,632) $ 5,867
-------
FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS - 13.2% CURRENCY
- -----------------------------------------------------------------------------------
Government of Finland Bond, FN
10.000% 09/15/01 4,000 1,057
Kingdom of Denmark, DK
8.000% 05/15/03 8,134 1,522
Republic of Poland (Brady), PL
Past Due Interest, stepped coupon,
(3.750% 04/27/96) 10/27/14 500 320
Treasury Corp. of Victoria, A$
12.000% 09/22/01 841 737
United Kingdom Treasury, BP
10.000% 09/08/03 569 1,007
Western Australia Treasury, A$
12.000% 08/01/01 550 482
-------
TOTAL FOREIGN GOVERNMENT & AGENCY
OBLIGATIONS (cost of $4,984) 5,125
-------
U.S. GOVERNMENT OBLIGATIONS - 10.7%
- -----------------------------------------------------------------------------------
U.S. Treasury Notes,
11.875% 11/15/03 (cost of $3,875) $3,020 4,135
TOTAL BONDS & NOTES (cost of $14,491) 15,127
-------
TOTAL INVESTMENTS - 93.4% (cost of $31,314) (h) 36,305
-------
SHORT-TERM OBLIGATIONS - 4.7%
Repurchase agreement with Bankers Trust Securities,
Corp. dated 10/31/95, due 11/01/95 at 5.875% collateralized
by U.S. Treasury notes with various maturities to 1997,
market value $1,870 (repurchase proceeds $1,831) 1,831 1,831
-------
OTHER ASSETS & LIABILITIES, NET - 1.7% 658
- -----------------------------------------------------------------------------------
NET ASSETS - 100.0% $38,794
-------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Rounds to less than one.
(b) Non-income producing.
(c) Security is exempt from registration under rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At year end, the
the value of these securities amounted to $406 or 1.0% of net assets.
17
<PAGE>
Investment Portfolio/October 31, 1995
- --------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO - CONT.
- --------------------------------------------------------------------------------
(d) Currently zero coupon. Shown parenthetically is the interest rate to be
paid and the date the Fund will begin accruing this rate.
(e) Zero coupon bond.
(f) This is a British security. Par amount is stated in U.S. dollars.
(g) Each unit consists of one bond and one warrant to purchase shares of
common stock.
(h) Cost for federal income tax purposes is the same.
<TABLE>
<CAPTION>
Summary of Securities
by Country/Currency Country/Currency Value % of Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $27,104 74.6
Denmark De/DK 1,668 4.6
United Kingdom UK/BP 1,583 4.4
Australia Au/A$ 1,239 3.4
Finland FN 1,057 2.9
Japan Ja 902 2.5
Germany G 563 1.5
Poland PL 320 0.9
Netherlands Ne 317 0.9
Canada Ca 297 0.8
Spain Sp 211 0.6
France Fr 211 0.6
Belgium Be 161 0.4
Austria Aus 149 0.4
Norway No 118 0.3
Sweden Sw 114 0.3
Singapore Si 100 0.3
Hong Kong HK 81 0.2
Mexico Mx 56 0.2
Phillipines Ph 31 0.1
Malaysia Ma 23 0.1
------- -----
$36,305 100.0
------- -----
</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
PIK Payment-In-Kind
</TABLE>
See notes to financial statements.
18
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1995
<TABLE>
<S> <C> <C>
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $31,314) $36,305
Short-term obligations 1,831
-------
38,136
Cash held in foreign banks (cost $1) $ 1
Receivable for:
Interest 400
Fund shares sold 181
Investments sold 107
Dividends 18
Expense reimbursement due from Adviser 12
Foreign tax reclaims 3
Deferred organization expenses 56
Other 1 779
---- -------
Total Assets 38,915
LIABILITIES
Payable for:
Fund shares repurchased 111
Accrued:
Deferred Trustees fees 1
Other 9
----
Total Liabilities 121
-------
NET ASSETS $38,794
-------
Net asset value & redemption price per share -
Class A ($16,346/1,403) $ 11.65
-------
Maximum offering price per share - Class A
($11.65/0.9525) $ 12.23 (a)
-------
Net asset value & offering price per share -
Class B ($18,284/1,570) $ 11.64 (b)
-------
Net asset value price per share -
Class D ($4,164/358) $ 11.65 (b)
-------
Maximum offering price per share - Class D
($11.65/0.9900) $ 11.77
--------
</TABLE>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements.
19
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<S> <C> <C>
(in thousands)
INVESTMENT INCOME
Interest $1,072
Dividends 246
------
Total investment income (net of nonrebatable foreign
taxes withheld at source which amounted to $12) 1,318
EXPENSES
Management fee $ 196
Service fee 70
Distribution fee - Class A 36
Distribution fee - Class B 95
Distribution fee - Class D 25
Transfer agent 86
Bookkeeping fee 27
Trustees fee 5
Custodian fee 11
Audit fee 16
Legal fee 35
Registration fee 28
Reports to shareholders 5
Amortization of deferred
organization expenses 14
Other 7
------
656
Fees waived by the Adviser (122) 534
------- ------
Net Investment Income 784
------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 189
Foreign currency transactions (6)
-------
Net Realized Gain 183
Net unrealized appreciation during
the period on:
Investments 5,069
Foreign currency transactions 3
------
Net Unrealized Appreciation 5,072
------
Net Gain 5,255
------
Net Increase in Net Assets From Operations $6,039
------
</TABLE>
See notes to financial statements.
20
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(in thousands) Year ended October 31
------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994(a)
<S> <C> <C>
Operations:
Net investment income $ 784 $ 37
Net realized gain (loss) 183 (2)
Net unrealized appreciation (depreciation) 5,072 (80)
-------- -------
Net Increase (Decrease) from Operations 6,039 (45)
Distributions:
From net investment income - Class A (409) -
From net investment income - Class B (382) -
From net investment income - Class D (97) -
------- -------
5,151 (45)
------- -------
Fund Share Transactions:
Receipts for shares sold - Class A 8,580 6,427
Value of distributions reinvested - Class A 381 -
Cost of shares repurchased - Class A (1,218) (5)
------- -------
7,743 6,422
------- -------
Receipts for shares sold - Class B 10,846 6,364
Value of distributions reinvested - Class B 351 -
Cost of shares repurchased - Class B (1,588) (33)
------- -------
9,609 6,331
------- -------
Receipts for shares sold - Class D 1,359 2,249
Value of distributions reinvested - Class D 95 -
Cost of shares repurchased - Class D (120) -
------- -------
1,334 2,249
------- -------
Net Increase from Fund Share Transactions 18,686 15,002
------- -------
Total Increase 23,837 14,957
NET ASSETS
Beginning of period 14,957 -
------- -------
End of period (including undistributed net investment
income of $27 and $35, respectively) $38,794 $14,957
------- -------
NUMBER OF FUND SHARES
Sold - Class A 836 646
Issued for distributions reinvested - Class A 36 -
Repurchased - Class A (114) (1)
------- -------
758 645
------- -------
Sold - Class B 1,047 643
Issued for distributions reinvested - Class B 32 -
Repurchased - Class B (149) (3)
------- -------
930 640
------- -------
Sold - Class D 135 225
Issued for distributions reinvested - Class D 9 -
Repurchased - Class D (11) -
------- -------
133 225
------- -------
</TABLE>
(a) The Fund commenced investment operations on September 19, 1994.
See notes to financial statements.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE 1. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION: Colonial Strategic Balanced Fund (the Fund), a series of Colonial
Trust III, is a diversified portfolio of a Massachusetts business trust,
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund may issue an unlimited number of shares.
The Fund offers three classes of shares: Class A, Class B and Class D. Class A
shares are sold with a front-end sales charge and a continuing distribution fee;
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 there were
no sales during the day, at current quoted bid prices.
Debt securities generally are valued by a pricing service based upon market
transactions for normal, institutional-size trading units of similar securities.
When management deems it appropriate, an over-the-counter or exchange bid
quotation is is used.
Forward currency contracts are valued based on the weighted value of the
exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
The value of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates.
Portfolio positions which cannot be valued as set forth above are valued at fair
value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
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 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.
22
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
The per share data was calculated using the average shares outstanding during
the period. In addition, Class 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.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders are recorded on the
ex-date.
The character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. Reclassifications are made to the Fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
DEFERRED ORGANIZATION EXPENSES: The Fund incurred expenses of $69,500 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.
FOREIGN CURRENCY TRANSACTIONS: The Fund has adopted Statement of Position 93-4,
Foreign Currency Accounting and Financial Statement Presentation for Investment
Companies. Accordingly, net realized and unrealized gains (losses) on foreign
currency transactions includes the fluctuation in exchange rates on gains
(losses) between trade and settlement dates on securities transactions, gains
(losses) arising from the disposition of foreign currency and currency gains
(losses) between the accrual and payment dates on dividends and interest income
and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) on investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities. The Fund
may also enter into forward currency contracts to hedge certain other foreign
currency denominated
23
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
assets. The contracts are used to minimize the exposure to foreign exchange rate
fluctuations during the period between trade and settlement date of the
contracts. All contracts are marked-to-market daily, resulting in unrealized
gains or losses which become realized at the time the forward currency contracts
are closed or mature. Realized and unrealized gains (losses) arising from such
tranactions are included in net realized and unrealized gains (losses) on
foreign currency transactions. Forward currency contracts do not eliminate
fluctuations in the prices of the Fund's portfolio securities. While the maximum
potential loss from such contracts is the aggregate face value in U.S. dollars
at the time the contract was opened, exposure is typically limited to the change
in value of the contract (in U.S. dollars) over the period it remains open.
Risks may also arise if counterparties fail to perform their obligations under
the contracts.
OTHER: Corporate actions are recorded on the ex-date (except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware of
such), net of nonrebatable tax withholdings. Where a high level of uncertainty
as to collection exists, income on securities is recorded net of all tax
withholdings with any rebates recorded when received.
The Fund'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 0.70% 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: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. For the year ended October 31, 1995, the Fund has been
advised that the Distributor retained net underwriting discounts of $12,522 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $29,074 and $802 , on Class B and Class D share redemptions,
respectively.
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
24
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
to 0.30% for Class A and 0.75% for Class B and Class D, annually, 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 and 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 a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
the Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended October 31, 1995, purchases and sales
of investments, other than short-term obligations, were $29,569,245 and
$12,819,167, respectively, of which $4,200,984 and $1,768,413, respectively,
were U.S. government securities.
Unrealized appreciation (depreciation) at October 31, 1995, based on cost of
investments for both financial statement and federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 5,758,206
Gross unrealized depreciation (767,303)
-----------
Net unrealized appreciation $ 4,990,903
-----------
</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 foreign currency
exchange or the imposition of other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 4. COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
At October 31, 1995, net assets consisted of:
Capital paid in $33,637
Undistributed net investment income 27
Accumulated net realized gain 138
Net unrealized appreciation on:
Investments 4,991
Foreign currency transactions 1
-------
$38,794
-------
</TABLE>
25
<PAGE>
FINANCIAL HIGHLIGHTS (b)
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended October 31 Period ended October 31
--------------------------------------- -----------------------------------------
1995 1994 (c)
Class A Class B Class D Class A Class B Class D
---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 9.910 $ 9.900 $ 9.900 $10.000 $10.000 $10.000
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (a) 0.325 0.277 0.277 0.035 0.029 0.029
Net realized and
unrealized gain (loss) 1.764 1.769 1.774 (0.125) (0.129) (0.129)
------- ------- ------- ------- ------- -------
Total from Investment
Operations 2.089 2.046 2.051 (0.090) (0.100) (0.100)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.349) (0.306) (0.301) -- -- --
------- ------- ------- ------- ------- -------
Net asset value -
End of period $11.650 $11.640 $11.650 $ 9.910 $ 9.900 $ 9.900
------- ------- ------- ------- ------- -------
Total return (d)(e) 21.47% 21.00% 21.04% (0.90)%(g) (1.00)%(g) (1.00)%(g)
------- ------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.65%(f) 2.10%(f) 2.10%(f) 1.65%(h) 2.10%(h) 2.10%(h)
Net investment
income 3.05%(f) 2.60%(f) 2.60%(f) 3.01%(h) 2.56%(h) 2.56%(h)
Fees waived or borne
by the Adviser 0.43% 0.43% 0.43% 0.35%(h) 0.35%(h) 0.35%(h)
Portfolio turnover 49% 49% 49% 0%(h) 0%(h) 0%(h)
Net assets at end
of period (000) $16,346 $18,284 $ 4,164 $ 6,394 $ 6,332 $ 2,231
(a) Net of fees and expenses waived or borne by the Adviser which amounted to:
$ 0.042 $ 0.042 $ 0.042 $ 0.004 $ 0.004 $ 0.004
</TABLE>
(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) The benefits derived from custody credits and directed brokerage
arrangements, if any, had no impact on the Fund's gross expense ratio.
(g) Not annualized.
(h) Annualized.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
18% of the distributions paid by the Fund from investment income earned in the
year ended October 31,1995, qualify for the corporate dividends received
deduction.
26
<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, 1995, the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated in conformity with generally accepted accounting principles.
These financial statements and the financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of portfolio positions
at October 31, 1995 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 11, 1995
COLONIAL TRUST III
Cross Reference Sheet (Colonial Global Utilities 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 Meetings
19. How to Buy Shares; Determination
of Net Asset Value; Suspension of
Redemptions; Special Purchase
Programs/Investor Services;
Programs for Reducing or
Eliminating Sales Charge; How to
Sell Shares; How to Exchange
Shares
20. Taxes
21. Fund Charges and Expenses;
Management of the Colonial Funds
22. Fund Charges and Expenses;
Investment Performance;
Performance Measures
23. Independent Accountants
COLONIAL GLOBAL UTILITIES FUND
Statement of Additional Information
February 28, 1996
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
Global Utilities 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, 1996. This SAI should be read together with the Prospectus.
Investors may obtain a free copy of the Prospectus from Colonial Investment
Services Inc., One Financial Center, Boston, MA 02111-2621.
The Fund is the successor by reorganization of the Liberty Financial Utilities
Fund. The reorganization occurred on March 24, 1995. All references to the Fund
as of a time prior to such date shall be deemed to refer to the Liberty
Financial Utilities Fund.
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
Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Portfolio Turnover
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountants
Certain Information Concerning the Portfolio
Part 2
Miscellaneous Investment Practices
Taxes
Management of the Colonial Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sales Charges
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Meetings
Performance Measures
Appendix I
Appendix II
GU-
<PAGE>
COLONIAL GLOBAL UTILITIES FUND
Statement of Additional Information
February 28, 1996
DEFINITIONS
"Fund" Colonial Global Utilities Fund
"Trust" Colonial Trust III
"Administrator" Colonial Management Associates, Inc., the
Fund's administrator
"CISI" Colonial Investment Services, Inc., the Fund's
distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's
shareholder services and transfer agent
"Portfolio" LFC Utilities Trust
"Adviser" Stein Roe & Farnham Incorporated, the Portfolio's
investment adviser
INVESTMENT OBJECTIVE AND POLICIES
As described in the Fund's Prospectus, the Fund currently seeks to achieve its
objective by investing all its assets in the Portfolio. Part 1 contains
additional information concerning the Fund and the Portfolio, including a
description of the Fund's and the Portfolio's fundamental investment practices.
Except where otherwise indicated, references to the "Fund" in connection with
descriptions of investment policies and practices shall include the Portfolio.
Part 2 of this SAI contains additional information about the following
securities and investment techniques:
Foreign Securities
Money Market Instruments
Forward Commitments
Repurchase Agreements
Futures Contracts and Related Options
Foreign Currency Transactions
Securities Lending
Zero Coupon Securities
Pay-in-Kind Securities
Options on Securities
Except as described below under "Fundamental Investment Policies," the Fund's
and the Portfolio's investment policies are not fundamental, and the Fund's
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's
diversification requirement, an issuer is the entity whose revenues support the
security.
As fundamental policies, neither the Fund nor the Portfolio may:
1. Issue senior securities (as defined in the Act and the rules thereunder) or
borrow money, except that as a temporary measure for extraordinary or
emergency purposes each of the Fund and the Portfolio may borrow from banks
in aggregate amounts at any one time outstanding not exceeding 33 1/3% of
the total assets (including the amount borrowed) of the Fund or Portfolio,
respectively, valued at market; and neither the Fund nor the Portfolio may
purchase any securities at any time when borrowings exceed 5% of the total
assets of the Fund or the Portfolio, respectively (taken at market value);
and except that the Fund and the Portfolio may enter into options and
futures transactions;
2. Purchase any security on margin, except that the Fund or the Portfolio may
obtain such short-term credit as may be necessary for the clearance of
purchases and sales of securities (this restriction does not apply to
securities purchased on a when-issued basis or to margin deposits in
connection with futures and options transactions);
3. Underwrite securities issued by other persons, except insofar as the Fund
or the Portfolio may technically be deemed an underwriter under the
Securities Act of 1933 in selling a security and except that the Fund may
invest all or substantially all of its assets in another registered
investment company having substantially the same investment objective as
the Fund;
4. Make loans to other persons except (a) through the lending of securities
held by the Fund or the Portfolio, but not in excess of 30% of the total
assets of the Fund or the Portfolio, respectively, or (b) through the
purchase of debt securities in accordance with the respective investment
policies of the Fund and the Portfolio;
5. Purchase the securities of any one issuer (except securities issued or
guaranteed by the U.S. Government and its agencies or instrumentality's, as
to which there are no percentage limits or restrictions) if immediately
after and as a result of such purchase (a) more than 5% of the value of its
assets would be invested in that issuer, or (b) the Fund or the Portfolio
would hold more than 10% of the outstanding voting securities of that
issuer and except that the Fund may invest all or substantially all of its
assets in another registered investment company having substantially the
same investment objective as the Fund;
6. Purchase or sell real estate or interests in real estate limited
partnerships (other than securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or commodity
contracts in the ordinary course of business (the Fund and the Portfolio
each reserves the freedom of action to hold and to sell real estate
acquired as a result of the ownership of securities and to enter into
futures and options transactions in accordance with its investment
policies); or
7. Invest more than 25% of its total assets in the securities of issuers whose
principal business activities are in the same industry (excluding
obligations of the U.S. Government and repurchase agreements collateralized
by obligations of the U.S. Government), except that the Fund and the
Portfolio may invest without limit (but may not invest less than 25% of its
total assets) in the securities of companies in the public utilities
industry and except that the Fund may invest all or substantially all of
its assets in another registered investment company having substantially
the same investment objective as the Fund.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed without a
shareholder vote, neither the Fund nor the Portfolio may:
1. Invest in illiquid securities, including repurchase agreements maturing in
more than seven days but excluding securities which may be resold pursuant
to Rule 144A under the Securities Act of 1933, if, as a result thereof,
more than 15% of the net assets (taken at market value at the time of each
investment of the Fund or the Portfolio, as the case may be) would be
invested in such securities and except that the Fund may invest all or
substantially all of its assets in another registered investment company
having substantially the same investment objective as the Fund;
2. Invest in companies for the purpose of exercising control or management
except that the Fund may invest all or substantially all its assets in
another registered investment company having substantially the same
investment restrictions as the Fund;
3. Invest in the voting securities of a public utility company if, as a
result, it would own 5% or more of the outstanding voting securities of
more than one public utility company;
4. Make investments in the securities of other investment companies except
that the Fund may invest all or substantially all its assets in another
registered investment company having substantially the same investment
restrictions as the Fund;
5. Invest in securities of issuers (other than U.S. Government Securities)
having a record of less than three years of continuous operation (for this
purpose, the period of operation of any issuer shall include the period of
operation of any predecessor or unconditional guarantor of such issuer) if
more than 5% of the total assets (taken at market value at the time of each
investment) of the Fund or the Portfolio, as the case may be, would be
invested in such securities except that the Fund may invest all or
substantially all its assets in another registered investment company
having substantially the same investment restrictions as the Fund;
6. Make short sales of securities or maintain a short position except in
connection with futures and options transactions;
7. Mortgage, pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned by the Fund or the Portfolio except (a)
as may be necessary in connection with borrowings mentioned in (1) above,
and (b) they may enter into futures and options transactions;
8. Invest more than 5% of its net assets (valued at the time of purchase) in
warrants, nor more than 2% of its net assets in warrants that are not
listed on the New York or American Stock Exchange or a recognized foreign
exchange;
9. Invest more than 5% of its total assets in puts, calls, straddles, spreads,
or any combination thereof (except that the Fund or the Portfolio may enter
into transactions in options, futures and options on futures);
10. Write secured puts if the aggregate value of the obligations underlying
such puts would exceed 50% of its net assets;
11. Purchase or hold securities of an issuer if 5% of the securities of such
issuer are owned by those officers, trustees or directors of the Fund or
the Portfolio or the investment adviser of the Portfolio, who each own more
than 1/2 of 1% of the securities of the issuer; or
12. Invest more than 10% of its total assets in securities (debt or equity)
which the Fund or the Portfolio would be restricted from selling without
registration under the Securities Act of 1933, excluding securities which
are eligible for resale pursuant to Rule 144A thereunder, or more than 5%
of its total assets in equity securities which are not readily marketable
except in either case, the Fund may invest all or substantially all its
assets in another registered investment company having substantially the
same investment restrictions as the Fund; .
PORTFOLIO TURNOVER
Year ended October 31
1995 1994
---- ----
46% 34%
Portfolio turnover is the lesser of the aggregate purchases or sales of
securities other than short-term securities divided by the average assets for
the period. The Portfolio turnover indicated above is that of the Portfolio.
FUND CHARGES AND EXPENSES
Aggregate Fund expenses include the expenses of the Portfolio, which are borne
indirectly by the Fund, and the Fund's direct expenses. The Portfolio's expenses
include (i) a management fee paid to the Adviser at an annual rate of 0.55% of
average daily net assets up to $400 million and 0.50% of average daily net
assets thereafter, (ii) an annual $7,500 accounting services fee paid to the
Administrator, and (iii) custody, legal and audit fees and other miscellaneous
expenses. The Fund's expenses include (i) an administrative fee paid to the
Administrator at the annual rate of 0.10% of average daily net assets, (ii) a
transfer agency and shareholder services fee paid to CISC at the annual rate of
0.20% of average daily net assets plus CISC's out-of-pocket expenses, (iii) the
Rule 12b-1 fees paid to CISI described below, (iv) a pricing and bookkeeping fee
paid to the Administrator in the amount of $18,000 per year plus 0.0233% of
average daily net assets in excess of $50 million and (v) custody, legal and
audit fees and other miscellaneous expenses.
Recent Fees paid to the Adviser, Administrator, CISI and CISC
(dollars in thousands)
1995 1994 1993
---- ---- ----
Management fee $1,282 $1,603 $1,061
Administration fee(a) 212(b) 292 193
Bookkeeping fee 42(c) 62 62
Shareholders services and
transfer agent fee 589(d) 776 541
12b-1 fees(e)(f)
Service fee 570(g) 471 0
Distribution fee (Class B) 2 0 0
Distribution fee (Class D) 1 0 0
(a) Liberty Investment Services, Inc, (Liberty Services) was the Fund's
Administrator prior to March 24, 1995, and provided the Fund with
bookkeeping, certain sub-transfer agency and investor accounting services.
(b) Includes $98,022 paid to Liberty Services for the period ended
March 24 1995.
(c) Includes $6,750 paid to Liberty Services for the period ended March 24,
1995.
(d) Includes $254,023 paid to Liberty Services for the period ended March 24,
1995.
(e) Liberty Securities Corporation (Liberty Securities) was the Fund's
distributor prior to March 24, 1995.
(f) Prior to March 1, 1994, no distribution fees had been paid pursuant to the
12b-1 Plan.
(g) Includes $245,055 paid to Liberty Securities for the period ended March 24,
1995.
Brokerage Commissions
The Fund does not pay brokerage commissions. Brokerage commissions are paid by
the Portfolio. For the fiscal years ended October 31, 1993, 1994 and 1995,the
Portfolio paid total brokerage commissions of $218,069, $228,144 and $287,806,
respectively.
Trustees Fees
For the fiscal year ended October 31, 1995 and the calendar year ended
December 31, 1995, the Trustees received the following compensation for
serving as Trustees:
<TABLE>
<CAPTION>
Total Compensation
Aggregate From Trust and
Compensation Fund Complex Paid To
From Fund For The Pension or Retirement Estimated Annual The Trustees For The
Fiscal Year Ended Benefits Accrued Benefits Upon Calendar Year Ended
Trustee October 31, 1995 As Part of Expense Retirement December 31, 1995(h)
- ------- ---------------- ---------- --------
<S> <C> <C> <C> <C>
Robert J. Birnbaum $259 ----- ----- $ 71,250
Tom Bleasdale 282(i) ----- ----- $ 98,000 (j)
Lora S. Collins 264 ----- ----- $ 91,000
James E. Grinnell 259 $ 71,250
William D. Ireland, Jr. 309 ----- ----- $ 113,000
Richard W. Lowry 259 $ 71,250
William E. Mayer 262 ----- ----- $ 91,000
John A. McNeice, Jr. 0 ----- ----- -----
James L. Moody, Jr. 295(k) ----- ----- $ 94,500 (l)
John J. Neuhauser 262 ----- ----- $ 91,000
George L. Shinn 233 ----- ----- $ 102,500
Robert L. Sullivan 302 ----- ----- $ 101,000
Sinclair Weeks, Jr. 345 ----- ----- $ 112,000
(h) At December 31, 1995, the Colonial Funds complex consisted of 33
open-end and 5 closed-end management investment company portfolios.
(i) Includes $170 payable in later years as deferred compensation.
(j) Includes $49,000 payable in later years as deferred compensation.
(k) Includes $218 payable in later years as deferred compensation.
(l) Total compensation of $94,500 for the calendar year ended December 31,
1995 will be payable in later years as deferred compensation.
</TABLE>
The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees of the Liberty
All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (formerly known as
The Charles Allmon Trust, Inc.) (together, Liberty Funds I) for service during
the calendar year ended December 31, 1995, and of Liberty Financial Trust (now
know as Colonial Trust VII) and the Portfolio (together, Liberty Funds II) for
the period January 1, 1995 through March 26, 1995 (m):
<TABLE>
<CAPTION>
Total Compensation Total Compensation
From Liberty Funds II For From Liberty Funds I For
The Period January 1, The Calendar Year Ended
Trustee 1995 Through March 26, 1995 December 31, 1995 (n)
- ------- --------------------- ------------------------
<S> <C> <C>
Robert J. Birnbaum(o) $2,900 $16,675
James E. Grinnell (o) 2,900 22,900
Richard W. Lowry(o) 2,900 26,250 (p)
(m) On March 27, 1995, four of the portfolios in the Liberty Financial Trust
(now known as Colonial Trust VII) were merged into existing Colonial
funds and a fifth was reorganized into the Fund. Prior to their election
as Trustees of the Colonial Funds, Messrs. Birnbaum, Grinnell and Lowry
served as Trustees of Liberty Funds II and continue to serve as Trustees
of Liberty Funds I.
(n) At December 31, 1995, the Liberty Funds I were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned subsidiary
of Liberty Financial Companies, Inc. (Liberty Financial) (an
intermediate parent of the Adviser).
(o) Elected as a Trustee of the Colonial Funds complex on April 21, 1995.
(p) Includes $3,500 paid to Mr. Lowry for service as Trustee of Liberty
Newport World Portfolio (formerly known as Liberty All-Star World
Portfolio) (Liberty Newport) during the calendar year ended December 31,
1995. At December 31, 1995, Liberty Newport was managed by the Adviser
and Newport Pacific Management, Inc., an affiliate of the Adviser.
</TABLE>
Ownership of the Fund
At January 31, 19965, the officers and Trustees of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Fund.
At January 31, 1996, Merrill Lynch Pierce Fenner & Smith Inc., Attn: Book Entry,
Mutual Fund Operations, 4800 Deer Lake Drive, E 3rd Fl, Jacksonville, FL 32246,
owned 24.37% of the Fund's outstanding Class B shares.
At January 31, 1996, there were 21,345 Class A, 101 Class B and 9 Class D record
holders of the Fund.
Sales Charges (in thousands)
Class A
Years ended October 31
1995 1994 1993
---- ---- ----
Aggregate initial sales
charges on Fund share sales $ 97(q) $1,566 $6,210
Initial sales charge
retained by CISI 13 0 0
Class B
Period March 27, 1995
(commencement of investment operations)
through October 31, 1995
Aggregate contingent
deferred sales charge (CDSC)
on Fund redemptions retained
by CISI $0(r)
Class D
Period March 27, 1995
(commencement of investment operations)
through October 31, 1995
Aggregate (CDSC) on Fund
redemptions retained by CISI $0(r)
(q) Includes $14,651 paid in aggregate commissions to Liberty Securities for
the period ended March 24, 1995.
(r) Rounds to less than one thousand.
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 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 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 the Administrator) 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 contingent deferred sales charge (CDSC). Class B shares are
offered at net asset value and are 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 are subject to a 1.00% CDSC on redemption's within one
year after purchase. The CDSCs are described in the Prospectus.
No CDSC will be imposed on shares derived from reinvestment of distributions or
on 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.
Approximately 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 March 27, 1995 through October 31, 1995 were:
Class A Class B Class D
----- ---- -----
Fees to FSFs $ 327 $ 16 $ (s)
Cost of sales material relating
to the Fund (including
printing and mailing expenses) 54 3 1
Allocated travel, entertainment
and other promotional
expenses (including advertising) 16 2 (s)
(s) Rounds to less than one thousand.
INVESTMENT PERFORMANCE
The Fund's average annual total returns at October 31, 1995 were:
Period October 15, 1991
(commencement of investment operations)
1 year through October 31, 1995
------ -------------------------
With sales charge of 5.75% 3.98% 6.97%
Without sales charge 10.32% 8.55%
Class B Shares
Period ended March 27, 1995
(commencement of investment operations)
through October 31, 1995
With applicable CDSC N/A
Without CDSC N/A
Class D Shares
Period ended March 27, 1995
(commencement of investment operations)
through October 31, 1995
With CDSC of 1.00% N/A
Without CDSC N/A
The Fund's Class A, Class B and Class D distribution rates at October 31, 1995,
which are based on the latest quarter's distributions, annualized, by the
maximum offering price at the end of the quarter were 4.39%, 3.90% and 3.86%,
respectively.
CUSTODIAN
State Street Bank and Trust Company (State Street Bank) 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 schedule of financial highlights
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. KPMG Peat Marwick LLP were the Fund's
independent auditors prior to March 24, 1995.
The Fund's financial statements and Report of Independent Accountants appearing
on pages 17 through 25 of the October 31, 1995 Annual Report, are incorporated
into the SAI by reference.
CERTAIN INFORMATION CONCERNING THE PORTFOLIO
Portfolio's Investment Adviser
Under its Management Agreement with the Portfolio, the Adviser provides the
Portfolio with discretionary investment services. Specifically, the Adviser is
responsible for supervising and directing the investments of the Portfolio in
accordance with the Portfolio's investment objective, program, and restrictions
as provided in the Fund's prospectus and this Statement of Additional
Information. The Adviser is also responsible for effecting all security
transactions on behalf of the Portfolio, including the allocation of principal
business and portfolio brokerage and the negotiation of commissions (See
"Portfolio Transactions" below). The Management Agreement provides for the
payment to the Adviser of the fee described above under "Fund Charges and
Expenses."
The Adviser is an indirect wholly-owned subsidiary of Liberty Financial which in
turn is an indirect subsidiary of Liberty Mutual Insurance Company.
The Adviser is the successor to an investment advisory business that was founded
in 1932. The Adviser acts as investment adviser to wealthy individuals,
trustees, pension and profit sharing plans, charitable organizations and other
institutional investors. As of December 31, 1995, the Adviser managed over $23
billion in net assets: over $5.3 billion in equities and over $17.7 billion in
fixed-income securities (including $4.9 billion in municipal securities). The
$23 billion in managed assets included over $5.8 billion held by open-end mutual
funds managed by the Adviser (approximately 20% of the mutual fund assets were
held by clients of the Adviser). These mutual funds were owned by over 151,000
shareholders. The $5.8 billion in mutual fund assets included over $578 million
in over 33,000 IRA accounts. In managing those assets, the Adviser utilizes a
proprietary computer-based information system that maintains and regularly
updates information for approximately 6,500 companies. The Adviser also monitors
over 1,400 issues via a proprietary credit analysis system. At December 31,
1995, the Adviser employed approximately 17 research analysts and 36 account
managers. The average investment-related experience of these individuals is 20
years.
The directors of the Adviser are Kenneth R. Leibler, C. Allen Merritt, Jr.,
Timothy K. Armour, N. Bruce Callow and Hans P. Ziegler.
Mr. Leibler is President and Chief Executive Officer of Liberty Financial;
Mr. Merritt is Senior Vice President and Treasurer of Liberty Financial; Mr.
Armour is President of the Adviser's Mutual Funds division; Mr. Callow is
President of the Adviser's Investment Counsel division; and Mr. Ziegler is
Chief Executive Officer of the Adviser. The business address of Messrs.
Leibler and Merritt is 600 Atlantic Avenue, Federal Reserve Plaza , Boston,
Massachusetts 02210; that of Messrs. Armour, Callow and Ziegler is One
South Wacker Drive, Chicago, Illinois 60606.
Under the Management Agreement, the Adviser is not liable for any error of
judgment or mistake of law or for any loss suffered by the Portfolio or the Fund
in connection with the matters to which such Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties or from reckless disregard of its obligations and
duties under the Agreement.
Portfolio Transactions
The Adviser places the orders for the purchase and sale of the Portfolio's
portfolio securities and options and futures contracts. The Adviser's overriding
objective in effecting portfolio transactions is to seek to obtain the best
combination of price and execution. The best net price, giving effect to
brokerage commissions, if any, and other transaction costs, normally is an
important factor in this decision, but a number of other judgmental factors may
also enter into the decision. These include: the Adviser's knowledge of
negotiated commission rates currently available and other current transaction
costs; the nature of the security being traded; the size of the transaction; the
desired timing of the trade; the activity existing and expected in the market
for the particular security; confidentiality; the execution, clearance and
settlement capabilities of the broker or dealer selected and others which are
considered; the Adviser's knowledge of the financial stability of the broker or
dealer selected and such other brokers or dealers; and the Adviser's knowledge
of actual or apparent operational problems of any broker or dealer. Recognizing
the value of these factors, the Portfolio may pay a brokerage commission in
excess of that which another broker or dealer may have charged for effecting the
same transaction. Evaluations of the reasonableness of brokerage commissions,
based on the foregoing factors, are made on an ongoing basis by the Adviser's
staff while effecting portfolio transactions. The general level of brokerage
commissions paid is reviewed by the Adviser, and reports are made annually to
the Board of Trustees of the Portfolio.
With respect to issues of securities involving brokerage commissions, when more
than one broker or dealer is believed to be capable of providing the best
combination of price and execution with respect to a particular portfolio
transaction for the Portfolio, the Adviser often selects a broker or dealer that
has furnished it with research products or services such as research reports,
subscriptions to financial publications and research compilations, compilations
of securities prices, earnings, dividends, and similar data, and computer data
bases, quotation equipment and services, research-oriented computer software and
services, and services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding with any of the
brokers or dealers; however, the Adviser uses an internal allocation procedure
to identify those brokers or dealers who provide it with research products or
services and the amount of research products or services they provide, and
endeavors to direct sufficient commissions generated by its clients' accounts in
the aggregate, including the Portfolio, to such brokers or dealers to ensure the
continued receipt of research products or services that the Adviser feels are
useful. In certain instances, the Adviser receives from brokers and dealers
products or services which are used both as investment research and for
administrative, marketing, or other non-research purposes. In such instances,
the Adviser makes a good faith effort to determine the relative proportions of
such products or services which may be considered as investment research. The
portion of the costs of such products or services attributable to research usage
may be defrayed by the Adviser (without prior agreement or understanding, as
noted above) through brokerage commissions generated by transactions by clients
(including the Portfolio), while the portions of the costs attributable to
non-research usage of such products or services is paid by the Adviser in cash.
No person acting on behalf of the Portfolio is authorized, in recognition of the
value of research products or services, to pay a commission in excess of that
which another broker or dealer might have charged for effecting the same
transaction. Research products or services furnished by brokers and dealers may
be used in servicing any or all of the clients of the Adviser and not all such
research products or services are used in connection with the management of the
Portfolio.
As stated above, the Adviser's overriding objective in effecting portfolio
transactions for the Portfolio is to seek to obtain the best combination of
price and execution. However, consistent with the provisions of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., the
Adviser may, in selecting broker dealers to effect portfolio transactions for
the Portfolio, and where more than one broker dealer is believed capable of
providing the best combination of price and execution with respect to a
particular transaction, select a broker dealer in recognition of its sales of
shares of the Fund. The Adviser maintains an internal procedure to identify
broker dealers which have sold shares of the Fund and the amount of such shares
sold by them. None of the Fund, the Portfolio or the Adviser has entered into
any agreement with, or made any commitment to, any broker dealer which would
bind the Adviser or the Portfolio to compensate any broker dealer, directly or
indirectly, for sales of shares of the Fund. The Adviser does not cause the
Portfolio to pay brokerage commissions higher than those obtainable from other
broker dealers in recognition of such sales. With respect to the Portfolio's
purchases and sales of portfolio securities transacted with a broker or dealer
on a net basis, the Adviser may also consider the part, if any, played by the
broker or dealer in bringing the security involved to the Adviser's attention,
including investment research related to the security and provided to the
Portfolio.
The Portfolio has arranged for its custodian to act as a soliciting dealer to
accept any fees available to the custodian as a soliciting dealer in connection
with any tender offer for the Portfolio's portfolio securities held by the
Portfolio. The custodian will credit any such fees received against its
custodial fees. In addition, the Board of Trustees has reviewed the legal
developments pertaining to and the practicability of attempting to recapture
underwriting discounts or selling concessions when portfolio securities are
purchased in underwritten offerings. However, the Board has been advised by
counsel that recapture by a mutual fund currently is not permitted under the
Rules of Fair Practice of the National Association of Securities Dealers.
Custodian
State Street Bank is the custodian for the securities and cash of the Portfolio,
but it does not participate in the investment decisions of the Portfolio. The
Portfolio has authorized State Street Bank to deposit certain portfolio
securities in central depository systems as allowed by federal law. State Street
Bank's main office is at 225 Franklin Street, Boston, Massachusetts 02107.
Portfolio securities purchased by the Portfolio in the U.S. are maintained in
the custody of the bank or of other domestic banks or depositories. Portfolio
securities purchased outside of the U.S. are maintained in the custody of
foreign banks and trust companies that are members of State Street Bank's Global
Custody Network or foreign depositories used by such foreign banks and trust
companies. Each of the domestic and foreign custodial institutions holding
portfolio securities has been approved by the Board of Trustees of the Portfolio
in accordance with regulations under the Investment Company Act of 1940.
The Portfolio may invest in obligations (including repurchase agreements) of
State Street Bank and may purchase or sell securities from or to State Street
Bank.
Independent Accountants
The independent auditor for the Portfolio is KPMG Peat Marwick LLP, One Boston
Place, Boston, Massachusetts 02108. KPMG Peat Marwick LLP audits and reports on
the annual financial statement of the Portfolio, reviews certain regulatory
reports of the Portfolio and their Federal income tax returns, and performs such
accounting, auditing, tax and advisory services as the Portfolio may engage them
to do so.
The Portfolio's financial statements and Report of Independent Auditors
appearing on pages 6 through 16 of the Fund's October 31, 1995 Annual Report,
are incorporated into this SAI by reference.
<PAGE>
LFC UTILITIES TRUST
INVESTMENT PORTFOLIO
OCTOBER 31, 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
COUNTRY
COMMON STOCKS - 67.8% ABBREV. SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE, INSURANCE & REAL ESTATE - 4.0%
HOLDINGS & OTHER INVESTMENT COMPANIES
Equity Residential 114 $ 3,192
Marks Centers Trust 214 2,300
National Health Investors, Inc. 110 2,984
--------
8,476
--------
- --------------------------------------------------------------------------------------------------------------------------
MANUFACTURING - 2.4%
AIR CONDITIONING & WARM AIR HEATING EQUIPMENT - 1.8%
York International Corp. 90 3,937
--------
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.6%
Kenetech Corp. 220 1,183
--------
- --------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 58.1%
COMMUNICATIONS - 16.2%
Ameritech Corp. 85 4,563
American Telephone & Telegraph Corp. 82 5,216
GTE Corp. 124 5,123
PacifiCorp 253 4,775
Tele Danamark ADS De 152 3,961
Telecom Italia (Mobile) (a) It 2,000 2,221
Telecom Italia (Saving Shares) (a) It 1,370 1,616
Telefonica de Argentina ADR Ar 156 3,243
Telefonica de Espana ADR Sp 101 3,804
--------
34,522
--------
ELECTRIC SERVICES - 24.8%
AES Corp. (a) 165 3,259
Cinergy Corp. 160 4,540
DPL, Inc. 140 3,325
Duke Power Co. 85 3,804
Empressa National ADR Sp 99 4,975
Entergy Corp 80 2,280
Hong Kong Electric ADR HK 1,200 4,082
Korea Electric Power ADR Ko 185 4,579
National Power PLC, ADR UK 133 1,656
NIPSCO Industries, Inc. 122 4,453
</TABLE>
6
<PAGE>
Investment Portfolio/October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
ELECTRIC SERVICES - CONT.
Powergen PLC, ADR UK 178 $ 6,590
Southern Co. 206 4,918
Utilicorp United, Inc. 153 4,418
--------
52,879
--------
GAS SERVICES - 13.2%
CMS Energy Corp. 150 4,144
MCN Corp. 200 4,350
Northwest Natural Gas Co. 90 2,880
Petronas Gas Berhad (a)(b) Ma 400 1,353
Questar Corp. 124 3,735
RWE (a) G 12 4,286
UGI Corp. 167 3,507
Westcoast Energy, Inc. 273 4,027
--------
28,282
--------
PIPELINES - 2.0%
Enron Global Power & Pipe 180 4,342
--------
TRANSPORTATION - 1.9%
Transportadora de Gas Del Sur ADS Ar 400 4,100
--------
----------------------------------------------------------------------------------------------------------------------------
SERVICES - 3.3%
BUSINESS SERVICES - 1.4%
Alcatel Alsthom ADR Fr 179 3,021
--------
ENERGY SERVICES - 1.9%
Veba AG (a) G 101 4,133
--------
TOTAL COMMON STOCKS (cost of $141,050) 144,875
--------
PREFERRED STOCKS - 6.0%
----------------------------------------------------------------------------------------------------------------------------
MANUFACTURING - 1.9%
PAPER & PAPER MILLS
James River 9.000% 130 3,965
--------
----------------------------------------------------------------------------------------------------------------------------
TELEPHONE - 1.7%
TELEPHONE
Telephonos de Mexico PRIDES, 11.250% Mx 126 3,625
--------
----------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 2.4%
ELECTRIC - 1.4%
Ericsson Cor 4.250% 1,000 3,000
--------
TRANSPORTATION SERVICES - 1.0%
GATX Corp., 3.875% 38 2,137
--------
TOTAL PREFERRED STOCKS (cost of $12,830) 12,727
--------
</TABLE>
7
<PAGE>
Investment Portfolio/October 31, 1995
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENCY
CORPORATE FIXED-INCOME BONDS - 18.6% ABBREV. PAR VALUE
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCE, INSURANCE & REAL ESTATE - 1.4%
NONDEPOSITORY CREDIT INSTITUTIONS
Financiera Energetica,
9.000% 11/08/99(c) Co $ 3,000 $ 3,068
--------
----------------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 17.2%
COMMUNICATIONS - 5.8%
Compania De Telefonos Chile,
4.500% 01/15/03 Ch 4,000 4,205
Telekom Malaysian Berhad,
7.125% 08/01/05 Ma 4,000 4,114
Telstra Corp. Ltd.,
6.500% 07/31/03(d) Au 4,000 4,011
--------
12,330
--------
ELECTRICAL SERVICES - 11.4%
Duquense II Funding Corp.,
8.700% 06/01/16 3,471 3,670
Hydro Quebec,
8.050% 07/07/24 Ca 4,000 4,426
Long Island Lighting Co.,
8.500% 05/15/06 2,000 2,033
New York State Electric & Gas Corp.,
9.875% 02/01/20 1,540 1,643
Niagara Mohawk Power Co.,
7.375% 08/01/03 3,625 3,302
Old Dominion Electric Coop.,
8.760% 12/01/22 2,000 2,233
RGS I+M Funding,
9.810% 12/07/22 1,749 2,178
Tenaga Nasional Berhad,
7.875% 06/15/04(e) Ma 4,500 4,817
--------
24,302
--------
TOTAL CORPORATE FIXED-INCOME BONDS (cost of $39,751) 39,700
--------
CORPORATE CONVERTIBLE BONDS - 4.6%
----------------------------------------------------------------------------------------------------------------
TRANSPORATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 4.6%
GAS SERVICES
Consolidated National Gas,
7.250% 12/15/15 4,500 4,641
SFP Pipeline,
10.410% 08/15/10 4,100 5,207
--------
TOTAL CORPORATE CONVERTIBLE BONDS (cost of $9,486) 9,848
--------
</TABLE>
8
<PAGE>
Investment Portfolio/October 31, 1995
-----------------------------------------------------------------------------
COMMERCIAL PAPER - 2.1%
-----------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
FINANCE, INSURANCE & REAL ESTATE - 2.1%
FINANCIAL SERVICES
Prudential Funding, (cost of $4,528)
0.000% 11/01/95 $ 4,528 $ 4,528
--------
TOTAL INVESTMENTS - 99.1% (cost of $207,645)(f)(g) 211,678
--------
OTHER ASSETS & LIABILITIES, NET - 0.9% 1,927
----------------------------------------------------------------------------------------------------------------
NET ASSETS - 100% $213,605
--------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Non-income producing.
(b) Petronas Gas Berhad is a restricted security which was acquired on
various dates in July of 1995 through September 1995 at a cost of
$1,361. The fair value is determined under the direction of the
Trustees. This security represents 0.6% of the Portfolio's net assets
at October 31, 1995.
(c) Financiera Energetica is a restricted security which was acquired on
June 1, 1995 at a cost of $3,081. The fair value is determined under
the direction of the Trustees. This security represents 1.4% of the
Portfolio's net assets at October 31, 1995.
(d) Telestra Corp. Ltd. is a restricted security which was acquired on June
1, 1995 at a cost of $3,942. The fair value is determined under the
direction of the Trustees. This security represents 1.9% of the
Portfolio's net assets at October 31, 1995.
(e) Tenega Nasional Berhad is a restricted security which was acquired on
May 22, 1995 at a cost of $4,656. The fair value is determined under
the direction of the Trustees. This security represents 2.3% of the
Portfolio's net assets at October 31, 1995.
(f) The sum of all restricted securities represents 6.2% of the Portfolio's
net assets at October 31, 1995.
(g) Cost for federal income tax purposes is $207,716.
9
<PAGE>
Investment Portfolio/October 31, 1995
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Summary of Securities by Country/
Country/Currency Currency Value % of Total
- --------------------------------------------------------------------
<S> <C> <C> <C>
United States $129,792 61.3%
Malaysia Ma 10,284 4.9%
Spain Sp 8,779 4.1%
Germany G 8,419 4.0%
United Kingdom UK 8,246 3.9%
Argentina Ar 7,343 3.5%
Korea Ko 4,579 2.2%
Canada Ca 4,426 2.1%
Chile Ch 4,205 2.0%
Hong Kong HK 4,082 1.9%
Australia Au 4,011 1.9%
Denmark De 3,961 1.9%
Italy It 3,837 1.8%
Mexico Mx 3,625 1.7%
Columbia Co 3,068 1.4%
France Fr 3,021 1.4%
-------- -----
$211,678 100.0%
======== =====
</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
ADS American Depository Shares
PRIDES Preferred Redeemable Increased Dividend Equity Securities
</TABLE>
See notes to financial statements.
10
<PAGE>
LFC UTILITIES TRUST
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1995
<TABLE>
<CAPTION>
(In thousands)
<S> <C> <C>
ASSETS
Investments at value (cost $207,645) $211,678
Receivable for:
Interest $ 1,122
Dividends 611
Investment sold 266
Deferred organization expenses 10
Cash and other assets 71 2,080
-------- --------
Total Assets 213,758
LIABILITIES
Payable for:
Management fee 101
Other 5
Accrued:
Accounting expenses 3
Other expenses 44
--------
Total Liabilities 153
--------
NET ASSETS applicable to investors' beneficial interests $213,605
========
</TABLE>
See notes to financial statements.
11
<PAGE>
LFC UTILITIES TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
(in thousands)
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 7,531
Interest 7,146
-------
Total Investment Income 14,677
EXPENSES
Management fee $ 1,282
Custodian & accounting fees 90
Audit & legal fees 12
Insurance expense 10
Trustees fees 6
Amortization of deferred organization expenses 10
-------
1,410
Fees waived by adviser (26) 1,384
------- -------
Net Investment Income 13,293
-------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized loss (3,801)
Net unrealized appreciation during the period 14,432
-------
Net Gain 10,631
-------
Net Increase in Net Assets From Operations $23,924
=======
</TABLE>
See notes to financial statements.
12
<PAGE>
LFC UTILITIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(in thousands) Year ended October 31
----------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
<S> <C> <C>
Operations:
Net investment income $ 13,293 $ 15,803
Net realized gain (loss) (3,801) 1,054
Net unrealized appreciation (depreciation) 14,432 (38,421)
-------- --------
Net Increase (Decrease) from Operations 23,924 (21,564)
-------- --------
Transactions in investors' beneficial interest
Contributions 7,023 46,602
Withdrawals (78,000) (69,379)
-------- --------
Net transactions in investors' beneficial interest (70,977) (22,777)
-------- --------
Total Decrease (47,053) (44,341)
-------- --------
NET ASSETS
Beginning of period 260,658 304,999
-------- --------
End of period $213,605 $260,658
======== ========
</TABLE>
See notes to financial statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Period
ended
Year ended October 31 October 31
-------------------------------------------------- -----------
1995 1994 1993 1992 1991(a)
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.63%(c) 0.61% 0.64% 0.72%(c) 0.58%(b)(c)
Net investment income 5.97%(d) 5.48% 5.29% 6.36%(d) 6.46%(b)(d)
Portfolio turnover 46% 34% 41% 31% 0%
</TABLE>
(a) The Portfolio commenced investment operations on August 23, 1991.
(b) Annualized.
(c) If the Portfolio had paid all of its expenses and there had been no
reimbursement from the Investment Adviser, as described in Note 3, these
these ratios would have been 0.64%, 0.86% and 4.54% (annualized),
respectively.
(d) Computed giving effect to the Investment Adviser's expense limitation
undertaking.
13
<PAGE>
LFC UTILITIES TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION: LFC Utilities Trust (the Portfolio) was organized on August 14,
1991 as a trust under Massachusetts law and is registered under the Investment
Company Act of 1940 as an open-end investment company. The Declaration of Trust
permits the Trustees to issue non-transferable interests in the Portfolio. The
Portfolio commenced operations on August 23, 1991.
The following is a summary of significant accounting policies followed by the
Portfolio in the preparation of its financial statements. The policies are in
conformity with the generally accepted accounting principles.
VALUATION OF INVESTMENTS: Equity securities listed on an exchange and
over-the-counter equity securities quoted on the NASDAQ system are valued on the
basis of the last sale on the date as of which the valuation is made, or,
lacking any sales, at the current bid prices. Over-the-counter equity securities
not quoted on the NASDAQ system are valued at the latest bid quotations.
Long-term debt securities are valued primarily on the basis of valuations
furnished by the independent pricing service which utilizes both dealer-supplied
quotations and electronic data processing techniques which take into account
various factors. Securities for which there are not such reliable quotations or
valuations are valued at fair value, as determined in good faith by, or under
the direction of, the Trustees of the Portfolio.
Short-term obligations with less than 60 days remaining to maturity are valued
on the amortized cost basis.
ORGANIZATION EXPENSES: Expenses incurred in connection with the organization of
the Portfolio have been deferred and are being amortized on a straight line
basis over five years.
FEDERAL INCOME TAXES: The Portfolio has complied and intends to comply with the
applicable provisions of the Internal Revenue Service Code. Accordingly, no
provisions for federal income taxes is considered necessary.
OTHER: Investment transactions are accounted for on the trade date. Interest
income and expenses are recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. Discounts are amortized on a yield to maturity
basis.
NOTE 2. INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
Realized gains and losses are computed on the identified cost basis for both
financial reporting and Federal income tax purposes. The cost of investments
purchased and proceeds from investment sold, excluding short-term investments,
for the year ended October 31, 1995 were $99,840,009 and $145,665,390,
respectively.
14
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
Unrealized appreciation (depreciation) at October 31, 1995, based on cost
of investments for federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 16,664,349
Gross unrealized depreciation (12,701,166)
------------
Net unrealized appreciation $ 3,963,183
============
</TABLE>
NOTE 3. TRANSACTIONS WITH AFFILIATES INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
The Portfolio has a managed agreement with Stein Roe & Farnham, Inc. (Stein
Roe), an indirect wholly-owned subsidiary of Liberty Financial Services, Inc.
(Liberty Financial) under which Stein Roe provides investment management
services. The investment management fee paid to Stein Roe is accrued daily and
paid monthly at an annual rate of 0.55 percent of the Portfolio's average daily
net assets up to $400 million and 0.50 percent of its average daily net assets
thereafter. Prior to March 24, 1995 Stein Roe delegated the performance of its
administrative duties to Liberty Investment Services, Inc. (Liberty Services),
also a wholly owned subsidiary of Liberty Financial. Stein Roe assumed those
duties on March 24, 1995.
EXPENSE LIMITATIONS: Stein Roe and Liberty Services had voluntarily agreed,
until March 24, 1995, not to impose their fees under their management and
administration agreements with the Colonial Global Utilities Fund (the Fund)
(formerly Liberty Financial Utilities Fund), which invests all its assets in the
Portfolio, and the Portfolio, to the extent those fees would cause the aggregate
expenses, as defined, of the Fund and the Portfolio to exceed the rate of 1.25
percent per annum of the Fund's average daily net assets and to guarantee
payments of expenses in excess of that rate.
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND INVESTORS
LFC UTILITIES TRUST:
We have audited the accompanying statement of assets and liabilities of LFC
Utilities Trust including the Investment Portfolio, as of October 31, 1995, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Trust' s
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of LFC
Utilities Trust as of October 31, 1995, the result of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
December 11, 1995
16
<PAGE>
COLONIAL GLOBAL UTILITIES FUND
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1995
<TABLE>
<CAPTION>
(In thousands except for per share amounts and footnotes)
<S> <C> <C>
ASSETS
Investments in LFC Utilities Trust, at value $213,604
Receivable for Fund shares sold $ 20
Deferred organization expenses 19 39
----- --------
Total Assets 213,643
LIABILITIES
Payable for:
Fund shares repurchased 414
Distributions 113
Accrued:
Administration fee 18
Bookkeeping fee 5
Service fee 45
Transfer Agent fee 36
Other 44
-----
Total Liabilities 675
--------
NET ASSETS $212,968
========
Net asset value & redemption price per share -
Class A ($211,916/19,124) $11.08
========
Maximum offering price per share - Class A
($11.08/0.9425) $11.76 (a)
========
Net asset value & offering price per share -
Class B ($745/67) $11.08 (b)
--------
Net asset value & offering price per share -
Class D ($307/28) $11.08 (b)
========
COMPOSITION OF NET ASSETS
Capital paid in $212,503
Undistributed net investment income 241
Accumulated net realized loss (3,809)
Net unrealized appreciation 4,033
--------
$212,968
========
</TABLE>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements.
17
<PAGE>
COLONIAL GLOBAL UTILITIES FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
(in thousands)
<S> <C> <C>
INVESTMENT INCOME
Dividend income from LFC Utilities Trust $ 7,531
Interest income from LFC Utilities Trust 7,146
Expenses allocated from LFC Utilities Trust (1,384) $13,293
------- -------
EXPENSES
Administration fee 212
Service fee 570
Distribution fee - Class B 2
Distribution fee - Class D 1
Transfer agent 589
Bookkeeping fee 42
Trustees fee 3
Custodian fee 4
Legal fee 2
Registration fee 67
Reports to shareholders 4
Amortization of deferred organization expenses 20
Other 79
-------
1,595
Fees waived by Liberty Securities and Stein Roe (33) 1,562
------- -------
Net Investment Income 11,731
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized loss (3,800)
Net unrealized appreciation during the period 14,432
-------
Net Gain 10,632
-------
Net Increase in Net Assets From Operations $22,363
=======
</TABLE>
See notes to financial statements.
18
<PAGE>
COLONIAL GLOBAL UTILITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(in thousands) Year ended October 31
----------------------------------
INCREASE (DECREASE) IN NET ASSETS 1995(a) 1994
<S> <C> <C>
Operations:
Net investment income $ 11,731 $ 14,120
Net realized gain (loss) (3,800) 1,054
Net unrealized appreciation (depreciation) 14,432 (38,421)
-------- --------
Net Increase (Decrease) from Operations 22,363 (23,247)
Distributions:
From net investment income - Class A (11,802) (12,796)
From net investment income - Class B (10) --
From net investment income - Class D (6) --
From net realized gains - Class A (1,042) (3,377)
In excess of net realized gains - Class A -- (802)
-------- --------
9,503 (40,222)
-------- --------
Fund Share Transactions:
Receipts for shares sold - Class A 5,919 45,864
Value of distributions reinvested - Class A 11,297 15,294
Cost of shares repurchased - Class A (75,218) (64,986)
-------- --------
(58,002) (3,828)
-------- --------
Receipts for shares sold - Class B 719 --
Value of distributions reinvested - Class B 8 --
-------- --------
727 --
-------- --------
Receipts for shares sold - Class D 294 --
Value of distributions reinvested - Class D 6 --
Cost of shares repurchased - Class D (10) --
-------- --------
290 --
-------- --------
Net Decrease from Fund Share Transactions (56,985) (3,828)
-------- --------
Total Decrease (47,482) (44,050)
NET ASSETS
Beginning of period 260,450 304,500
-------- --------
End of period (including undistributed net investment
income of $241 and $328, respectively) $212,968 $260,450
======== ========
NUMBER OF FUND SHARES (a)
Sold - Class A 556 4,028
Issued for distributions reinvested - Class A 1,064 1,370
Repurchased - Class A (7,047) (5,908)
-------- --------
(5,427) (510)
-------- --------
Sold - Class B 66 --
Issued for distributions reinvested - Class B 1 --
-------- --------
67 --
-------- --------
Sold - Class D 28 --
Issued for distributions reinvested - Class D 1 --
Repurchased - Class D (1) --
-------- --------
28 --
-------- --------
</TABLE>
(a) Class B and Class D shares were initially offered on March 27, 1995.
See notes to financial statements.
19
<PAGE>
COLONIAL GLOBAL UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE 1. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION: Colonial Global Utilities Fund (the Fund), formerly Liberty
Financial Utilities Fund, a series of Colonial Trust III, is a diversified
portfolio of a Massachusetts business trust registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company.
The Fund invests all of its investable assets in interests in the LFC Utilities
Trust (the Portfolio), a Massachusetts business trust, having the same
investment objective as the Fund. The value of the Fund's investment in the
Portfolio reflects the Fund's proportionate interest in the net assets of the
Portfolio (99.9% at October 31, 1995). The performance of the Fund is directly
affected by the performance of the Portfolio.
The financial statements of the Portfolio, including the portfolio of
investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements. 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: Valuation of securities by the Portfolio is
discussed in Note 1 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class B and Class D distribution fees), realized and
unrealized gains (losses) are allocated to each class proportionately on a daily
basis for purposes of determining the net asset value of each class.
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 per share applicable to Class B and Class D
shares only.
Class B and Class D ratios are calculated by adjusting the expense and net
investment income ratios for the Fund for the entire period by the distribution
fee applicable to Class B and Class D shares only.
FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a
regulated investment company and to distribute all of its taxable income, no
federal income tax has been accrued.
DEFERRED ORGANIZATION EXPENSES: The Fund incurred $99,000 of expenses in
connection with its organization, initial registration with the Securities and
Exchange
20
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
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 character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
- --------------------------------------------------------------------------------
ADMINISTRATOR FEE: Under an administration agreement, Liberty Investment
Services, Inc. (Liberty Services) provided certain administrative services to
the Fund for a fee accrued daily and paid monthly at an annual rate of 0.10% of
the Fund's average net assets. For the period ended March 24, 1995, the fee
amounted to $98,022. Effective March 27, 1995, Colonial Management Associates,
Inc. (the Administrator) became the administrator of the Fund and furnishes
accounting and other services and office facilities for a monthly fee equal to
0.10% annually of the Fund's average net assets.
BOOKKEEPING FEE: Liberty Services provided financial reporting and recordkeeping
services to the Fund pursuant to a service agreement with the Fund. Under
this agreement, for the period ended March 24, 1995, the fee amounted to $6,750.
Effective March 27, 1995, the Administrator provides bookkeeping and pricing
services for $18,000 per year plus 0.0233% of the Fund's average net assets over
$50 million.
TRANSFER AGENT FEE: Liberty Services provided certain sub-transfer agency
services to the Fund pursuant to a service agreement with the Fund. Under this
agreement, for the period ended March 24, 1995, the fee amounted to $254,023.
Effective March 27, 1995, Colonial Investors Service Center, Inc. (the Transfer
Agent), an affiliate of the Administrator, provides shareholder services and
receives a monthly fee equal to 0.20% annually of the Fund's average net assets,
and receives a reimbursement for certain out of pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Liberty Securities
Corporation (Liberty Securities) was the principal underwriter of the shares of
the Fund. Effective March 27, 1995, Colonial Investment Services, Inc. (the
Distributor), an affiliate of the Administrator, became the Fund's principal
underwriter. The Fund had been advised that for the period from November 1, 1994
through March 24, 1995, Liberty Securities received $14,651 in aggregate
commissions from the Fund. For the period from March 27, 1995 through October
31, 1995, the Fund has been advised that the Distributor retained net
underwriting discounts of $12,722 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 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.
Under the terms of an underwriting agreement between the Fund and Liberty
Securities, Liberty Securities received a service fee at an annual rate of 0.25%
of the Fund's average net assets, accrued daily and paid monthly. For the period
ended
21
<PAGE>
Notes to Financial Statements/October 31, 1995
- --------------------------------------------------------------------------------
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES - CONT.
- --------------------------------------------------------------------------------
March 24, 1995, the fee amounted to $245,055. Effective March 27, 1995, the Fund
has adopted a 12b-1 plan which requires the payment of a service fee to the
Distributor equal to 0.25% annually of the Fund's net assets as of the 20th of
each month. The plan also requires the payment of a distribution fee to the
Distributor equal to 0.75% for Class B and Class D of the average net assets
attributable to Class B and Class D shares.
EXPENSE LIMITATIONS: Liberty Securities voluntarily agreed, until February 28,
1995, not to impose their fees under their administration agreement to the
extent those fees would cause the expenses of the Fund to exceed 1.25% per annum
of the Fund's average net assets.
OTHER: The Fund pays no compensation to its officers, all of whom are employees
of the Administrator.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
CAPITAL LOSS CARRYFORWARDS: At October 31, 1995, capital loss carryforwards
available (to the extent provided in regulations) to offset future realized
gains were approximately as follows:
<TABLE>
<CAPTION>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
<S> <C>
2003 $3,730,530
==========
</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. FEDERAL INCOME TAX INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
50% of the distributions paid by the Fund from investment income earned in the
year ended October 31, 1995 qualify for the corporate dividends received
deduction. Approximately $0.069 per share of the gain distribution paid January
3, 1995 was derived from long term capital gains.
22
<PAGE>
COLONIAL GLOBAL UTILITIES FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended October 31(c)
--------------------------------------------
1995
Class A Class B(d) Class D(d)
------------ ---------- ----------
<S> <C> <C> <C>
Net asset value -
Beginning of period $10.610 $10.420 $10.420
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a)(b) 0.536 0.248 0.248
Net realized and
unrealized gain (loss) 0.520 0.665 0.665
------- ------- -------
Total from Investment
Operations 1.056 0.913 0.913
------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.517) (0.253) (0.253)
From net realized gains (0.069) -- --
------- ------- -------
Total Distributions
Declared to Shareholders (0.586) (0.253) (0.253)
------- ------- -------
Net asset value -
End of period $11.080 $11.080 $11.080
======= ======= =======
Total return (e)(f) 10.32% 8.82% (g) 8.82% (g)
======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses (b) 1.29% 2.05% (h) 2.05% (h)
Net investment income (b) 5.14% 3.73% (h) 3.73% (h)
Fees and expenses waived or
borne by Liberty Securities
and LFC Utilities Trust 0.03% 0.02% (h) 0.02% (h)
Net assets at end
of period (000) $211,916 $ 745 $ 307
(a) Net of fees and expenses waived or
borne by Liberty Securities
which amounted to........................... $ 0.002 -- --
(b) The per share amounts and ratios reflect income and expenses assuming inclusion
of the Fund's proportionate share of the income and expenses of LFC Utilities Trust.
(c) Calculated using the average shares method.
(d) Class B and Class D shares were initially offered on March 27, 1995. Per share
amounts reflect activity from that date.
(e) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(f) Total return would have been lower had Liberty Securities and LFC Utilities
Trust not waived certain expenses.
(g) Not annualized.
(h) Annualized.
</TABLE>
23
<PAGE>
COLONIAL GLOBAL UTILITIES FUND
FINANCIAL HIGHLIGHTS - CONT.
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 1991(b)
Class A Class A Class A Class A
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 12.150 $ 10.430 $ 9.990 $ 10.000
-------- -------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.550 0.570 0.590 (g) 0.020 (g)
Net realized and
unrealized gain (loss) (1.430) 1.790 0.460 (0.030)
-------- -------- -------- ---------
Total from Investment
Operations (0.880) 2.360 1.050 (0.010)
-------- -------- -------- ---------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income (0.500) (0.610) (0.610) --
From net realized gains (0.160) (0.030) -- --
-------- -------- -------- ---------
Total Distributions
Declared to Shareholders (0.660) (0.640) (0.610) --
-------- -------- -------- ---------
Net asset value -
End of period $ 10.610 $ 12.150 $ 10.430 $ 9.990
======== ======== ======== =========
Total return (c) (7.40)% 23.30% 10.80% (d) (2.10)% (d)(e)
======== ======== ======== =========
RATIOS TO AVERAGE NET ASSETS
Expenses (a) 1.20% 1.13% 1.25% (f) 1.25% (e)(f)
Net investment income (a) 4.90% 4.80% 5.81% (g) 5.75% (e)(g)
Net assets at end
of period (000) $260,450 $304,500 $118,977 $ 6,617
</TABLE>
(a) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
LFC Utilities Trust.
(b) The Fund commenced investment operations on August 23, 1991.
(c) Total return based on net asset value with all distributions reinvested.
(d) Total return would have been lower had the administrator not waived
certain expenses.
(e) Annualized.
(f) If the Fund had paid all of its expenses excluding distribution fees waived
and there had been no reimbursement from the Investment Adviser and the
Administrator, these ratios would have been 1.61% and 9.81% for the periods
ended October 31, 1992 and 1991, respectively.
(g) Computed giving effect to Investment Adviser's and Administrator's expense
limitation undertaking.
24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
T0 THE TRUSTEES OF COLONIAL TRUST III AND THE SHAREHOLDERS OF
COLONIAL GLOBAL UTILITIES FUND
In our opinion, the accompanying statement of assets and liabilities, 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 Utilities Fund (the "Fund") (a series of Colonial Trust III) at
October 31, 1995, the results of its operations, the changes in its net assets
and the financial highlights for the year then ended, 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 investments owned at October 31, 1995,
provides a reasonable basis for the opinion expressed above. The Statement of
Changes in Net Assets for the year ended October 31, 1994 and the Finanacial
Highlights for each of the periods then ended were audited by another
Independent Accountant whose report, dated December 15, 1994, expressed an
unqualified opinion on those statements.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 19, 1995
(Profile editor) s:\funds\edgar\saipart2.txt
COPY WITH REVISION TAGS
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most Colonial funds. "Colonial
funds" or "funds" include each series of Colonial Trust I, Colonial Trust II,
Colonial Trust III, Colonial Trust IV, Colonial Trust V, Colonial Trust VI and
Colonial Trust VII. In certain cases, the discussion applies to some but not all
of the Colonial funds, and you should refer to your Fund's Prospectus and to
Part 1 of this SAI to determine whether the matter is applicable to your Fund.
You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
Part 1 of this Statement lists on page b which of the following investment
practices are available to your Fund.
Short-Term Trading
In seeking the fund's investment objective, the Adviser will buy or sell
portfolio securities whenever it believes it is appropriate. The Adviser's
decision will not generally be influenced by how long the fund may have owned
the security. From time to time the fund will buy securities intending to seek
short-term trading profits. A change in the securities held by the fund is known
as "portfolio turnover" and generally involves some expense to the fund. These
expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the fund to
realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of other
mutual funds. The fund's portfolio turnover rate for a fiscal year is the ratio
of the lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The fund's portfolio turnover
rate is not a limiting factor when the Adviser considers a change in the fund's
portfolio.
Lower Rated Bonds
Lower rated bonds are those rated lower than Baa by Moody's, BBB by S&P, or
comparable unrated securities. Relative to comparable securities of higher
quality:
1. the market price is likely to be more volatile because:
a. an economic downturn or increased interest rates may
have a more significant effect on the yield, price and potential
for default;
b. the secondary market may at times become less liquid or respond
to adverse publicity or investor perceptions, increasing
the difficulty in valuing or disposing of the bonds;
c. existing or future legislation limits and may further limit
(i) investment by certain institutions or (ii) tax deductibility
of the interest by the issuer, which may adversely affect value; and
d. certain lower rated bonds do not pay interest in cash on a current
basis. However, the fund will accrue and distribute this interest
on a current basis, and may have to sell securities to generate
cash for distributions.
2. the fund's achievement of its investment objective is more
dependent on the Adviser's credit analysis.
3. lower rated bonds are less sensitive to interest rate changes, but are more
sensitive to adverse economic developments.
Small Companies
Smaller, less well established companies may offer greater opportunities for
capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.
Foreign Securities
The fund may invest in securities traded in markets outside the United States.
Foreign investments can be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. Securities
of some foreign companies are less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian fees may be
higher than in the United States. Investments in foreign securities can involve
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets
and imposition of withholding taxes on dividend or interest payments. Foreign
securities, like other assets of the fund, will be held by the fund's custodian
or by a subcustodian or depository. See also "Foreign Currency Transactions"
below.
The fund may invest in certain Passive Foreign Investment Companies (PFICs)
which may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain (PFIC tax) related to the investment. The PFIC tax is the
highest ordinary income rate and it could be increased by an interest charge on
the deemed tax deferral.
The fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the fund to recognize as income any
appreciation (but not depreciation) on its holdings of PFICs as of the end of
its fiscal year.
Zero Coupon Securities (Zeros)
The fund may invest in debt securities which do not pay interest, but instead
are issued at a deep discount from par. The value of the security increases over
time to reflect the interest accreted. The value of these securities may
fluctuate more than similar securities which are issued at par and pay interest
periodically. Although these securities pay no interest to holders prior to
maturity, interest on these securities is reported as income to the fund and
distributed to its shareholders. These distributions must be made from the
fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. The fund will not be able to purchase additional income producing
securities with cash used to make such distributions and its current income
ultimately may be reduced as a result.
Step Coupon Bonds (Steps)
The fund may invest in debt securities which do not pay interest for a stated
period of time and then pay interest at a series of different rates for a series
of periods. In addition to the risks associated with the credit rating of the
issuers, these securities are subject to the volatility risk of zero coupon
bonds for the period when no interest is paid.
Pay-In-Kind (PIK) Securities
The fund may invest in securities which pay interest either in cash or
additional securities at the issuer's option. These securities are generally
high yield securities and in addition to the other risks associated with
investing in high yield securities are subject to the risks that the interest
payments which consist of additional securities are also subject to the risks of
high yield securities.
Money Market Instruments
Government obligations are issued by the U.S. or foreign governments, their
subdivisions, agencies and instrumentalities. Supranational obligations are
issued by supranational entities and are generally designed to promote economic
improvements. Certificates of deposits are issued against deposits in a
commercial bank with a defined return and maturity. Banker's acceptances are
used to finance the import, export or storage of goods and are "accepted" when
guaranteed at maturity by a bank. Commercial paper are promissory notes issued
by businesses to finance short-term needs (including those with floating or
variable interest rates, or including a frequent interval put feature).
Short-term corporate obligations are bonds and notes (with one year or less to
maturity at the time of purchase) issued by businesses to finance long-term
needs. Participation Interests include the underlying securities and any related
guaranty, letter of credit, or collateralization arrangement which the fund
would be allowed to invest in directly.
Securities Loans
The fund may make secured loans of its portfolio securities amounting to not
more than the percentage of its total assets specified in Part 1 of this SAI,
thereby realizing additional income. The risks in lending portfolio securities,
as with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. As a matter of policy, securities loans are made to banks and
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities on loan. The borrower pays to the fund
fund an amount equal to any dividends or interest received on securities lent.
The fund retains all or a portion of the interest received on investment of the
cash collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The fund may also call such loans in order
to sell the securities involved.
Forward Commitments
The fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments" and "when
issued securities") if the fund holds until the settlement date, in a segregated
account, cash or high-grade debt obligations in an amount sufficient to meet the
purchase price, or if the fund enters into offsetting contracts for the forward
sale of other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Where such
purchases are made through dealers, the fund relies on the dealer to consummate
the sale. The dealer's failure to do so may result in the loss to the fund of an
advantageous yield or price. Although the fund will generally enter into forward
commitments with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the fund may dispose
of a commitment prior to settlement if the Adviser deems it appropriate to do
so. The fund may realize short-term profits or losses upon the sale of forward
commitments.
Mortgage Dollar Rolls
In a mortgage dollar roll, the fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The fund either will be paid a fee by the counterparty upon entering
into the transaction or will be entitled to purchase the similar security at a
discount. As with any forward commitment, mortgage dollar rolls involve the risk
that the counterparty will fail to deliver the new security on the settlement
date, which may deprive the fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. Also, the transaction
costs may not exceed the return earned by the fund from the transaction.
Repurchase Agreements
The fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the fund acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the fund to resell such security at a fixed time and price
(representing the fund's cost plus interest). It is a fund's present intention
to enter into repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S. government or
its agencies or instrumentalities. Repurchase agreements may also be viewed as
loans made by the fund which are collateralized by the securities subject to
repurchase. The Adviser will monitor such transactions to determine that the
value of the underlying securities is at least equal at all times to the total
amount of the repurchase obligation, including the interest factor. If the
seller defaults, the fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or insolvency
proceedings, the fund may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if the fund is treated
as an unsecured creditor and required to return the underlying collateral to the
seller's estate.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the fund sells a security and agrees to
repurchase the same security at a mutually agreed upon date and price. A reverse
repurchase agreement may also be viewed as the borrowing of money by the fund
and, therefore, as a form of leverage. The fund will invest the proceeds of
borrowings under reverse repurchase agreements. In addition, the fund will enter
into a reverse repurchase agreement only when the interest income expected to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction. The fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. The fund may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse repurchase
agreements. Each fund will establish and maintain with its custodian a separate
account with a segregated portfolio of securities in an amount at least equal to
its purchase obligations under its reverse repurchase agreements. If interest
rates rise during the term of a reverse repurchase agreement, entering into the
reverse repurchase agreement may have a negative impact on a money market fund's
ability to maintain a net asset value of $1.00 per share.
Options on Securities
Writing covered options. The fund may write covered call options and covered put
options on securities held in its portfolio when, in the opinion of the Adviser,
such transactions are consistent with the fund's investment objective and
policies. Call options written by the fund give the purchaser the right to buy
the underlying securities from the fund at a stated exercise price; put options
give the purchaser the right to sell the underlying securities to the fund at a
stated price.
The fund may write only covered options, which means that, so long as the fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The fund may
write combinations of covered puts and calls on the same underlying security.
The fund will receive a premium from writing a put or call option, which
increases the fund's return on the underlying security if the option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. By writing a call option, the fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option but continues to bear the risk
of a decline in the value of the underlying security. By writing a put option,
the fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current market value,
resulting in a potential capital loss unless the security subsequently
appreciates in value.
The fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an offsetting
option. The fund realizes a profit or loss from a closing transaction if the
cost of the transaction (option premium plus transaction costs) is less or more
than the premium received from writing the option. Because increases in the
market price of a call option generally reflect increases in the market price of
the security underlying the option, any loss resulting from a closing purchase
transaction may be offset in whole or in part by unrealized appreciation of the
underlying security.
If the fund writes a call option but does not own the underlying security, and
when it writes a put option, the fund may be required to deposit cash or
securities with its broker as "margin" or collateral for its obligation to buy
or sell the underlying security. As the value of the underlying security varies,
the fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
Purchasing put options. The fund may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such hedge protection is provided during the life of the put option since the
fund, as holder of the put option, is able to sell the underlying security at
the put exercise price regardless of any decline in the underlying security's
market price. For a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the fund
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.
Purchasing call options. The fund may purchase call options to hedge against an
increase in the price of securities that the fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the fund might
have realized had it bought the underlying security at the time it purchased the
call option.
Over-the-Counter (OTC) options. The Staff of the Division of Investment
Management of the Securities and Exchange Commission has taken the position that
OTC options purchased by the fund and assets held to cover OTC options written
by the fund are illiquid securities. Although the Staff has indicated that it is
continuing to evaluate this issue, pending further developments, the fund
intends to enter into OTC options transactions only with primary dealers in U.S.
Government Securities and, in the case of OTC options written by the fund, only
pursuant to agreements that will assure that the fund will at all times have the
right to repurchase the option written by it from the dealer at a specified
formula price. The fund will treat the amount by which such formula price
exceeds the amount, if any, by which the option may be "in-the-money" as an
illiquid investment. It is the present policy of the fund not to enter into any
OTC option transaction if, as a result, more than 15% (10% in some cases, refer
to your fund's Prospectus) of the fund's net assets would be invested in (i)
illiquid investments (determined under the foregoing formula) relating to OTC
options written by the fund, (ii) OTC options purchased by the fund, (iii)
securities which are not readily marketable, and (iv) repurchase agreements
maturing in more than seven days.
Risk factors in options transactions. The successful use of the fund's options
strategies depends on the ability of the Adviser to forecast interest rate and
market movements correctly.
When it purchases an option, the fund runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the fund
exercises the option or enters into a closing sale transaction with respect to
the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, the fund
will lose part or all of its investment in the option. This contrasts with an
investment by the fund in the underlying securities, since the fund may continue
to hold its investment in those securities notwithstanding the lack of a change
in price of those securities.
The effective use of options also depends on the fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so. Although
the fund will take an option position only if Colonialthe Adviser believes there
is a liquid secondary market for the option, there is no assurance that the fund
will be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, the fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A marketplace may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability -- were to
interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on
particular types of options transactions, which may limit the fund's ability to
realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or
sold by the fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the fund has
expired, the fund could lose the entire value of its option.
Special risks are presented by internationally-traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of the underlying
interest in the United States.
Futures Contracts and Related Options
Upon entering into futures contracts, in compliance with the SEC's requirements,
cash, cash equivalents or high-grade debt securities, equal in value to the
amount of the fund's obligation under the contract (less any applicable margin
deposits and any assets that constitute "cover" for such obligation), will be
segregated with the fund's custodian. For example, if a fund investing primarily
in foreign equity securities enters into a contract denominated in a foreign
currency, the fund will segregate cash, cash equivalents or high-grade debt
securities equal in value to the difference between the fund's obligation under
the contract and the aggregate value of all readily marketable equity securities
denominated in the applicable foreign currency held by the fund.
A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchange or boards of trade -- known as "contract markets"
- -approved for such trading by the Commodity Futures Trading Commission (CFTC),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.
Unlike when the fund purchases or sells a security, no price is paid or received
by the fund upon the purchase or sale of a futures contract, although the fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. Government Securities. This
amount is known as "initial margin". The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the fund to
finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin", to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."
The fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the fund. The fund may
close its positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
Options on futures contracts. The fund will enter into written options on
futures contracts only when, in compliance with the SEC's requirements, cash or
equivalents equal in value to the commodity value (less any applicable margin
deposits) have been deposited in a segregated account of the fund's custodian.
The fund may purchase and write call and put options on futures contracts it may
buy or sell and enter into closing transactions with respect to such options to
terminate existing positions. The fund may use such options on futures contracts
in lieu of writing options directly on the underlying securities or purchasing
and selling the underlying futures contracts. Such options generally operate in
the same manner as options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
Risks of transactions in futures contracts and related options. Successful use
of futures contracts by the fund is subject to the Adviser `s ability to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the fund, the fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain contracts or options; (ii) restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
Use by tax-exempt funds of U.S. Treasury security futures contracts and options.
The fund investing in tax-exempt securities issued by a governmental entity may
purchase and sell futures contracts and related options on U.S. Treasury
securities when, in the opinion of the Adviser, price movements in Treasury
security futures and related options will correlate closely with price movements
in the tax-exempt securities which are the subject of the hedge. U.S. Treasury
securities futures contracts require the seller to deliver, or the purchaser to
take delivery of, the type of U.S. Treasury security called for in the contract
at a specified date and price. Options on U.S. Treasury security futures
contracts give the purchaser the right in return for the premium paid to assume
a position in a U.S. Treasury futures contract at the specified option exercise
price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is
also a risk that price movements in U.S. Treasury security futures contracts and
related options will not correlate closely with price movements in markets for
tax-exempt securities.
Index futures contracts. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. The fund may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on index futures
contracts.
There are several risks in connection with the use by the fund of index futures
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. The Adviser will attempt to
reduce this risk by selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the fund's portfolio securities sought to be hedged.
Successful use of the index futures by the fund for hedging purposes is also
subject to the Adviser's ability to predict correctly movements in the direction
of the market. It is possible that, where the fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the fund's portfolio may
decline. If this occurs, the fund would lose money on the futures and also
experience a decline in the value in its portfolio securities. However, while
this could occur to a certain degree, the Adviser believes that over time the
value of the fund's portfolio will tend to move in the same direction as the
market indices which are intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also possible that, if the fund
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the fund will lose part or all of the benefit of the increased valued
of those securities that it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the securities of
the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result
the futures market may attract more speculators than the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Adviser may still not result in a
successful hedging transaction.
Options on index futures. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
Options on indices. As an alternative to purchasing call and put options on
index futures, the fund may purchase call and put options on the underlying
indices themselves. Such options could be used in a manner identical to the use
of options on index futures.
Foreign Currency Transactions
The fund may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.
The fund may engage in both "transaction hedging" and "position hedging". When
it engages in transaction hedging, the fund enters into foreign currency
transactions with respect to specific receivables or payables of the fund
generally arising in connection with the purchase or sale of its portfolio
securities. The fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the fund attempts to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
The fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. The fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. Over-the-counter options are considered to be illiquid by
the SEC staff. A put option on a futures contract gives the fund the right to
assume a short position in the futures contract until expiration of the option.
A put option on currency gives the fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives the fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
fund the right to purchase a currency at the exercise price until the expiration
of the option.
When it engages in position hedging, the fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the value of currency for securities which the fund expects to purchase, when
the fund holds cash or short-term investments). In connection with position
hedging, the fund may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the fund is obligated to deliver and if a decision is made
to sell the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of foreign
currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the owns or intends to purchase or sell. They
simply establish a rate of exchange which one can achieve at some future point
in time. Additionally, although these techniques tend to minimize the risk of
loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.
Currency forward and futures contracts. Upon entering into such contracts, in
compliance with the SEC's requirements, cash, cash equivalents or high-grade
debt securities, equal in value to the amount of the fund's obligation under the
contract (less any applicable margin deposits and any assets that constitute
"cover" for such obligation), will be segregated with the fund's custodian. For
example, if a fund investing primarily in foreign equity securities enters into
a contract denominated in a foreign currency, the fund will segregate cash, cash
equivalents or high-grade debt securities equal in value to the difference
between the fund's obligation under the contract and the aggregate value of all
readily marketable equity securities denominated in the applicable foreign
currency held by the fund.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market in such contracts. Although the
fund intends to purchase or sell currency futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may not
be possible to close a futures position and, in the event of adverse price
movements, the fund would continue to be required to make daily cash payments of
variation margin.
Currency options. In general, options on currencies operate similarly to options
on securities and are subject to many similar risks. Currency options are traded
primarily in the over-the-counter market, although options on currencies have
recently been listed on several exchanges. Options are traded not only on the
currencies of individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of currencies, and is the
official medium of exchange of the European Economic Community's European
Monetary System.
The fund will only purchase or write currency options when the Adviser believes
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specified time. Currency options are affected by all of those factors which
influence exchange rates and investments generally. To the extent that these
options are traded over the counter, they are considered to be illiquid by the
SEC staff.
The value of any currency, including the U.S. dollars, may be affected by
complex political and economic factors applicable to the issuing country. In
addition, the exchange rates of currencies (and therefore the values of currency
options) may be significantly affected, fixed, or supported directly or
indirectly by government actions. Government intervention may increase risks
involved in purchasing or selling currency options, since exchange rates may not
be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an odd lot market for the underlying currencies in connection with
options at prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot transactions in
the interbank market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable. The
interbank market in currencies is a global, around-the-clock market. To the
extent that options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets.
Settlement procedures. Settlement procedures relating to the fund's investments
in foreign securities and to the fund's foreign currency exchange transactions
may be more complex than settlements with respect to investments in debt or
equity securities of U.S. issuers, and may involve certain risks not present in
the fund's domestic investments, including foreign currency risks and local
custom and usage. Foreign currency transactions may also involve the risk that
an entity involved in the settlement may not meet its obligations.
Foreign currency conversion. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(spread) between prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the fund at one rate,
while offering a lesser rate of exchange should the fund desire to resell that
currency to the dealer. Foreign currency transactions may also involve the risk
that an entity involved in the settlement may not meet its obligation.
Participation Interests
The fund may invest in municipal obligations either by purchasing them directly
or by purchasing certificates of accrual or similar instruments evidencing
direct ownership of interest payments or principal payments, or both, on
municipal obligations, provided that, in the opinion of counsel to the initial
seller of each such certificate or instrument, any discount accruing on such
certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related municipal obligations will be exempt from
federal income tax to the same extent as interest on such municipal obligations.
The fund may also invest in tax-exempt obligations by purchasing from banks
participation interests in all or part of specific holdings of municipal
obligations. Such participations may be backed in whole or part by an
irrevocable letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from the fund in connection with the arrangement. The fund
will not purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned by it
on municipal obligations in which it holds such participation interests is
exempt from federal income tax.
Stand-by Commitments
When the fund purchases municipal obligations it may also acquire stand-by
commitments from banks and broker-dealers with respect to such municipal
obligations. A stand-by commitment is the equivalent of a put option acquired by
the fund with respect to a particular municipal obligation held in its
portfolio. A stand-by commitment is a security independent of the municipal
obligation to which it relates. The amount payable by a bank or dealer during
the time a stand-by commitment is exercisable, absent unusual circumstances
relating to a change in market value, would be substantially the same as the
value of the underlying municipal obligation. A stand-by commitment might not be
transferable by the fund, although it could sell the underlying municipal
obligation to a third party at any time.
The fund expects that stand-by commitments generally will be available without
the payment of direct or indirect consideration. However, if necessary and
advisable, the fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities.) The total amount paid in either manner for outstanding
stand-by commitments held in the fund portfolio will not exceed 10% of the value
of the fund's total assets calculated immediately after each stand-by commitment
is acquired. The fund will enter into stand-by commitments only with banks and
broker-dealers that, in the judgment of the Trust's Board of Trustees, present
minimal credit risks.
Inverse Floaters
Inverse floaters are derivative securities whose interest rates vary inversely
to changes in short-term interest rates and whose values fluctuate inversely to
changes in long-term interest rates. The value of certain inverse floaters will
fluctuate substantially more in response to a given change in long-term rates
than would a traditional debt security. These securities have investment
characteristics similar to leverage, in that interest rate changes have a
magnified effect on the value of inverse floaters.
TAXES
All discussions of taxation at the shareholder level relate to federal taxes
only. Consult your tax adviser for state and local tax considerations and for
information about special tax considerations that may apply to shareholders that
are not natural persons.
Dividends Received Deductions. Distributions will qualify for the corporate
dividends received deduction only to the extent that dividends earned by the
fund qualify. Any such dividends are, however, includable in adjusted current
earnings for purposes of computing corporate AMT.
Return of Capital Distributions. To the extent that a distribution is a return
of capital for federal tax purposes, it reduces the cost basis of the shares on
the record date and is similar to a partial return of the original investment
(on which a sales charge may have been paid). There is no recognition of a gain
or loss, however, unless the return of capital reduces the cost basis in the
shares to below zero.
Funds that invest in U.S. Government Securities. Many states grant tax-free
status to dividends paid to shareholders of mutual funds from interest income
earned by the fund from direct obligations of the U.S. government. Investments
in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. Shareholders should
consult with their own tax advisers about the applicability of state and local
intangible property, income or other taxes to their fund shares and
distributions and redemption proceeds received from the fund.
Distributions from Tax-Exempt Funds. Each tax-exempt fund will have at least 50%
of its total assets invested in tax-exempt bonds at the end of each quarter so
that dividends from net interest income on tax-exempt bonds will be exempt from
Federal income tax when received by a shareholder. The tax-exempt portion of
dividends paid will be designated within 60 days after year-end based upon the
ratio of net tax-exempt income to total net investment income earned during the
year. That ratio may be substantially different than the ratio of net tax-exempt
income to total net investment income earned during any particular portion of
the year. Thus, a shareholder who holds shares for only a part of the year may
be allocated more or less tax-exempt dividends than would be the case if the
allocation were based on the ratio of net tax-exempt income to total net
investment income actually earned while a shareholder.
The Tax Reform Act of 1986 makes income from certain "private activity bonds"
issued after August 7, 1986, a tax preference item for the alternative minimum
tax (AMT) at the maximum rate of 28% for individuals and 20% for corporations.
If the fund invests in private activity bonds, shareholders may be subject to
the AMT on that part of the distributions derived from interest income on such
bonds. Other provisions of the Tax Reform Act affect the tax treatment of
distributions for corporations, casualty insurance companies and financial
institutions; interest on all tax-exempt bonds is included in corporate adjusted
current earnings when computing the AMT applicable to corporations. Seventy-five
percent of the excess of adjusted current earnings over the amount of income
otherwise subject to the AMT is included in a corporation's alternative minimum
taxable income.
Dividends derived from any investments other than tax-exempt bonds and any
distributions of short-term capital gains are taxable to shareholders as
ordinary income. Any distributions of net long-term gains will in general be
taxable to shareholders as long-term capital gains regardless of the length of
time fund shares are held.
Shareholders receiving social security and certain retirement benefits may be
taxed on a portion of those benefits as a result of receiving tax-exempt income,
including tax-exempt dividends from a fund.
Special Tax Rules Applicable to Tax-Exempt Funds. Income distributions to
shareholders who are substantial users or related persons of substantial users
of facilities financed by industrial revenue bonds may not be excludable from
their gross income if such income is derived from such bonds. Income derived
from a fund's investments other than tax-exempt instruments may give rise to
taxable income. A fund's shares must be held for more than six months in order
to avoid the disallowance of a capital loss on the sale of fund shares to the
extent of tax-exempt dividends paid during that period. A shareholder that
borrows money to purchase a fund's shares will not be able to deduct the
interest paid with respect to such borrowed money.
Sales of Shares. In general, any gain or loss realized upon a taxable
disposition of shares by a shareholder will be treated as long-term capital gain
or loss if the shares have been held for more than twelve months, and otherwise
as short-term capital gain or loss assuming such shares are held as a capital
asset. However, any loss realized upon a taxable disposition of shares held for
six months or less will be treated as long-term, rather than short-term, capital
loss to the extent of any long-term capital gain distributions received by the
shareholder with respect to those shares. All or a portion of any loss realized
upon a taxable disposition of shares will be disallowed if other shares are
purchased within 30 days before or after the disposition. In such a case, the
basis of the newly purchased shares will be adjusted to reflect the disallowed
loss.
Backup Withholding. Certain distributions and redemptions may be subject to a
31% backup withholding unless a taxpayer identification number and certification
that the shareholder is not subject to the withholding is provided to the Ffund.
This number and form may be provided by either a Form W-9 or the accompanying
application. In certain instances, CISC may be notified by the Internal Revenue
Service that a shareholder is subject to backup withholding.
Excise Tax. To the extent that the Fund does not annually distribute
substantially all taxable income and realized gains, it is subject to an excise
tax. The Adviser, intends to avoid this tax except when the cost of processing
the distribution is greater than the tax.
Tax Accounting Principles. To qualify as a "regulated investment company," the
fund must (a) derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of securities or foreign currencies or other income (including but
not limited to gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities or currencies; (b)
derive less than 30% of its gross income from the sale or other disposition of
certain assets held less than three months; (c) diversify its holdings so that,
at the close of each quarter of its taxable year, (i) at least 50% of the value
of its total assets consists of cash, cash items, U.S. Government securities,
and other securities limited generally with respect to any one issuer to not
more than 5% of the total assets of the fund and not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any issuer (other than U.S.
Government securities).
Futures Contracts. Accounting for futures contracts will be in accordance with
generally accepted accounting principles. The amount of any realized gain or
loss on the closing out of a futures contract will result in a capital gain or
loss for tax purposes. In addition, certain futures contracts held by the fund
(so-called "Section 1256 contracts") will be required to be "marked-to-market"
(deemed sold) for federal income tax purposes at the end of each fiscal year.
Sixty percent of any net gain or loss recognized on such deemed sales or on
actual sales will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss.
However, if a futures contract is part of a "mixed straddle" (i.e., a straddle
comprised in part of Section 1256 contracts), a fund may be able to make an
election which will affect the character arising from such contracts as
long-term or short-term and the timing of the recognition of such gains or
losses. In any event, the straddle provisions described below will be applicable
to such mixed straddles.
Special Tax Rules Applicable to "Straddles". The straddle provisions of the Code
may affect the taxation of the fund's options and futures transactions and
transactions in securities to which they relate. A "straddle" is made up of two
or more offsetting positions in "personal property," including debt securities,
related options and futures, equity securities, related index futures and, in
certain circumstances, options relating to equity securities, and foreign
currencies and related options and futures.
The straddle rules may operate to defer losses realized or deemed realized on
the disposition of a position in a straddle, may suspend or terminate the fund's
holding period in such positions, and may convert short-term losses to long-term
losses in certain circumstances.
Foreign Currency-Denominated Securities and Related Hedging Transactions. The
fund's transactions in foreign currency-denominated debt securities, certain
foreign currency options, futures contracts and forward contracts may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
If more than 50% of the fund's total assets at the end of its fiscal year are
invested in securities of foreign corporate issuers, the fund may make an
election permitting its shareholders to take a deduction or credit for federal
tax purposes for their portion of certain foreign taxes paid by the fund. The
Adviser, will consider the value of the benefit to a typical shareholder, the
cost to the fund of compliance with the election, and incidental costs to
shareholders in deciding whether to make the election. A shareholder's ability
to claim such a foreign tax credit will be subject to certain limitations
imposed by the Code, as a result of which a shareholder may not get a full
credit for the amount of foreign taxes so paid by the fund. Shareholders who do
not itemize on their federal income tax returns may claim a credit (but no
deduction) for such foreign taxes.
Certain securities are considered to be Passive Foreign Investment Companies
(PFICS) under the Code, and the fund is liable for any PFIC-related taxes.
MANAGEMENT OF THE COLONIAL FUNDS
The Adviser is the investment adviser to each of the Colonial funds (except for
Colonial Municipal Money Market Fund, Colonial Global Utilities Fund and
Colonial Newport Tiger Fund-see Part I of each fund's respective SAI for a
description of the investment adviser). The Adviser is a subsidiary of The
Colonial Group, Inc. (TCG), One Financial Center, Boston, MA 02111. TCG is a
direct subsidiary of Liberty Financial Companies, Inc. (Liberty Financial),
which in turn is a direct subsidiary of LFC Holdings, Inc., which in turn is a
direct subsidiary of Liberty Mutual Equity Corporation, which in turn is a
wholly-owned subsidiary of Liberty Mutual Insurance Company (Liberty Mutual).
Liberty Mutual is an underwriter of workers' compensation insurance and a
property and casualty insurer in the U.S. Liberty Financial's address is 600
Atlantic Avenue, Boston, MA 02210. Liberty Mutual's address is 175 Berkeley
Street, Boston, MA 02117.
Trustees and Officers (this section applies to all of the Colonial funds)
Robert J. Birnbaum (1), (Age 68), Retired, is a Trustee of all Colonial funds
since April, 1995 (2), is a Trustee of LFC Utilities Trust in which Colonial
Global Utilities Fund is invested (LFC Portfolio) since November, 1994, is a
Trustee of certain charitable and non-charitable organizations since December,
1993 (formerly Special Counsel, Dechert Price & Rhoads from September, 1988 to
December, 1993; President and Chief Operating Officer, New York Stock Exchange,
Inc. from May, 1985 to June, 1988), 313 Bedford Road, Ridgewood, NJ 07450
Tom Bleasdale, (Age 65), Retired, is a Trustee of all Colonial funds since
November, 1987, is a Trustee of LFC Portfolio since March, 1995 (3), is a
Director of The Empire Company since 1995 (formerly
Chairman of the Board and Chief Executive Officer, Shore Bank & Trust
Company from 1992-1993), 1508 Ferncroft Tower, Danvers, MA 01923
Lora S. Collins, (Age 59), Trustee of all Colonial funds since August, 1980,
is a Trustee of LFC Portfolio since March, 1995 (3), is an Attorney with Kramer,
Levin, Naftalis, Nessen, Kamin & Frankel since September, 1986, 919 Third
Avenue, New York, NY 10022
James E. Grinnell (1), (Age 66), Private Investor, is a Trustee of all
Colonial funds since April, 1995 (2), is a Trustee of the LFC Portfolio since
August, 1991, (formerly Senior Vice President-Operations, The Rockport Company
from May, 1986 to November, 1988), 22 Harbor Avenue, Marblehead, MA 01945
William D. Ireland, Jr. (Age 71), Retired, is a Trustee of all Colonial funds
since November, 1969, is a Trustee of LFC Portfolio since March, 1995 (3),
is a Trustee of certain charitable and non-charitable organizations since
February, 1990 (formerly Chairman of the Board, Bank of New England,-
Worcester from August, 1987 to February, 1990), 103 Springline Drive,
Vero Beach, FL 32963
Richard W. Lowry (1), (Age 59), Private Investor, is a Trustee of all Colonial
funds since April, 1995 (2), is a Trustee of the LFC Portfolio since August,
1991, is a Private Investor since August, 1987 (formerly Chairman and Chief
Executive Officer, U.S. Plywood Corporation from 1985 to August, 1987),
10701 Charleston Drive, Vero Beach, FL 32963
William E. Mayer, (Age 55) (4), Trustee of all Colonial funds since February,
1994, is a Trustee of LFC Portfolio since March, 1995 (3), is Dean, College
of Business and Management, University of Maryland since October, 1992
(formerly Dean, Simon Graduate School of Business, University of Rochester
from October, 1991 to July, 1992; formerly Chairman and Chief Executive
Officer, C.S. First Boston Merchant Bank from January, 1990 to January,
1991; and formerly President and Chief Executive Officer, The First Boston
Corporation from September, 1988 to January, 1990), College Park, MD 20742
John A. McNeice, Jr., (Age 63), President of all Colonial funds since February,
1975, is Chairman of the Board and Director, TCG since November, 1984 ,and of
the Adviser since November, 1983, Director, Liberty Financial since March, 1995
(formerly Chief Executive Officer of the Adviser and TCG from November, 1983 to
March, 1995)
James L. Moody, Jr., (Age 63), Trustee of all Colonial funds since May,
1986, is a Trustee of LFC Portfolio since March, 1995 (3), is Chairman
of the Board, Hannaford Bros., Co. since May, 1984 (formerly Chief
Executive Officer, Hannaford Bros. Co. from May, 1984 to May, 1992),
P.O. Box 1000, Portland, ME 04104
John J. Neuhauser, (Age 51), Trustee of all Colonial funds since January, 1984,
is a Trustee of LFC Portfolio since March, 1995 (3), is Dean, Boston College
School of Management since 1978, 140 Commonwealth Avenue, Chestnut Hill, MA
02167
George L. Shinn, (Age 72), Trustee of all Colonial funds since May, 1984, is a
Trustee of LFC Portfolio since March, 1995 (3), is a Financial Consultant since
1989 (formerly Chairman, Chief Executive Officer and Consultant, The First
Boston Corporation from 1983 to July, 1991), The First Boston Corporation, Tower
Forty Nine, 12 East 49th Street, New York, NY 10017
Robert L. Sullivan, (Age 67), Trustee of all Colonial funds since September,
1987, is a Trustee of LFC Portfolio since March, 1995 (3), is a self-employed
Management Consultant since January, 1989 (formerly Management Consultant,
Saatchi and Saatchi Consulting Ltd. from December, 1987 to January, 1989 and
formerly Principal and International Practice Director, Management Consulting,
Peat Marwick Main & Co. over five years), 7121 Natelli Woods Lane, Bethesda, MD
20817
Sinclair Weeks, Jr., (Age 72), Trustee of all Colonial funds since October,
1968, is a Trustee of LFC Portfolio since March, 1995 (3), is Chairman of the
Board, Reed & Barton Corporation since 1987, Bay Colony Corporate Center, Suite
4550, 1000 Winter Street, Waltham, MA 02154
Harold W. Cogger, (Age 59), Vice President of all Colonial funds since July,
1993, is Vice President of LFC Portfolio since March, 1995 (3), is President
since July, 1993, Chief Executive Officer since March, 1995 and Director since
March, 1984, of the Adviser (formerly Executive Vice President of the Adviser
from October, 1989 to July, 1993); President since October, 1994, Chief
Executive Officer since March, 1995 and Director since October, 1981, TCG;
Executive Vice President and Director, Liberty Financial since March, 1995
Peter L. Lydecker, (Age 41), Controller of all Colonial funds since June, 1993
(formerly Assistant Controller from March, 1985 to June, 1993), is Controller of
LFC Portfolio since March, 1995 (3), is Vice President of the Adviser since
June, 1993 (formerly Assistant Vice President of the Adviser from August, 1988
to June, 1993)
Davey S. Scoon, (Age 48), Vice President of all Colonial funds since June, 1993,
is Vice President of LFC Portfolio since March, 1995 (3), is Executive Vice
President since July, 1993 and Director since March, 1985 of the Adviser
(formerly Senior Vice President and Treasurer from March, 1985 to July, 1993 of
the Adviser ); Executive Vice President and Chief Operating Officer, TCG since
March, 1995 (formerly Vice President - Finance and Administration, TCG from
November, 1985 to March, 1995)
Richard A. Silver, (Age 48), Treasurer and Chief Financial Officer of all
Colonial funds since July, 1993 (formerly Controller from July, 1980 to June,
1993), is Treasurer and Chief Financial Officer of LFC Portfolio since March,
1995 (3), is Senior Vice President and Director since April, 1988, Treasurer and
Chief Financial Officer since July, 1993 of the Adviser; Treasurer and Chief
Financial Officer, TCG since July, 1993 (formerly Assistant Treasurer, TCG from
January, 1985 to July, 1993)
Arthur O. Stern, (Age 56), Secretary of all Colonial funds since 1985, is
Secretary of LFC Portfolio since March, 1995 (3), is Director since 1985,
Executive Vice President since July, 1993, General Counsel, Clerk and Secretary
since March, 1985 of the Adviser ; Executive Vice President, Legal and
Compliance since March, 1995 and Clerk since March, 1985, TCG (formerly Vice
President - Legal, TCG from March, 1985 to March, 1995)
(1) Elected to the Colonial Funds Complex on April 21, 1995.
(2) On April 3, 1995, and in connection with the merger of TCG into Liberty
Financial which occurred on March 27, 1995, Liberty Financial Trust (LFT)
changed its name to Colonial Trust VII. Prior to the merger, each of
Messrs. Birnbaum, Grinnell, and Lowry was a Trustee of LFT. Mr. Birnbaum
has been a Trustee of LFT since November, 1994. Each of Messrs. Grinnell
and Lowry has been a Trustee of LFT since August, 1991. Each of Messrs.
Grinnell and Lowry continue to serve as Trustees under the new name,
Colonial Trust VII, along with each of the other Colonial Trustees named
above. The Colonial Trustees were elected as Trustees of Colonial Trust VII
effective April 3, 1995.
(3) Elected as a Trustee or officer of the LFC Portfolio on March 27, 1995 in
connection with the merger of TCG into Liberty Financial.
(4) Trustees who are "interested persons" (as defined in the 1940 Act) of the
fund or the Adviser.
The address of the officers of each Colonial Fund is One Financial Center,
Boston, MA 02111.
The Trustees serve as trustees of all Colonial funds for which each Trustee will
receive an annual retainer of $45,000 and attendance fees of $7,500 for each
regular joint meeting and $1,000 for each special joint meeting. Committee
chairs receive an annual retainer of $5,000. Committee members receive an annual
retainer of $1,000 and $1,000 for each special meeting attended. Two-thirds of
the Trustee fees are allocated among the Colonial funds based on the fund's
relative net assets and one-third of the fees are divided equally among the
Colonial funds. The Adviser and/or its affiliate, Colonial Advisory
Services, Inc. (CASI), has rendered investment advisory services to investment
company, institutional and other clients since 1931. The Adviser currently
serves as investment adviser and administrator for 30 open-end and 5 closed-end
management investment company portfolios, and is the administrator for 3
open-end management investment company portfolios (collectively, Colonial
funds). Trustees and officers of the Trust, who are also officers of the Adviser
or its affiliates will benefit from the advisory fees, sales commissions and
agency fees paid or allowed by the Trust. More than 30,000 financial advisers
have recommended Colonial funds to over 800,000 clients worldwide, representing
more than $15.5 billion in assets.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that
the Trust will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust but that such indemnification will not
relieve any officer or Trustee of any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense, provides liability
insurance for the benefit of its Trustees and officers.
The Management Agreement (this section does not apply to the Colonial Municipal
Money Market Fund, Colonial Global Utilities Fund or Colonial Newport Tiger
Fund) Under a Management Agreement (Agreement), the Adviser has contracted to
furnish each fund with investment research and recommendations or fund
management, respectively, and accounting and administrative personnel and
services, and with office space, equipment and other facilities. For these
services and facilities, each Colonial fund pays a monthly fee based on the
average of the daily closing value of the total net assets of each fund for such
month.
The Adviser's compensation under the Agreement is subject to reduction in any
fiscal year to the extent that the total expenses of each fund for such year
(subject to applicable exclusions) exceed the most restrictive applicable
expense limitation prescribed by any state statute or regulatory authority in
which the Trust's shares are qualified for sale. The most restrictive expense
limitation applicable to a Colonial fund is 2.5% of the first $30 million of the
Trust's average net assets for such year, 2% of the next $70 million and 1.5% of
any excess over $100 million.
Under the Agreement, any liability of the Adviser to the fund and its
shareholders is limited to situations involving the Adviser's own willful
misfeasance, bad faith, gross negligence or reckless disregard of duties.
The Agreement may be terminated with respect to the fund at any time on 60 days'
written notice by the or by the Trustees of the Trust or by a vote of a majority
of the outstanding voting securities of the fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Adviser pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Adviser including, but not limited to, auditing,
legal, custodial, investor servicing and shareholder reporting expenses. The
Trust pays the cost of typesetting for its Prospectuses and the cost of printing
and mailing any Prospectuses sent to shareholders. CISI pays the cost of
printing and distributing all other Prospectuses.
The Agreement provides that the Adviser shall not be subject to any liability to
the Trust or to any shareholder of the Trust for any act or omission in the
course of or connected with rendering services to the Trust in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties on the part of the Adviser.
Administration Agreement (this section applies only to the Colonial Municipal
Money Market Fund, Colonial Global Utilities Fund and Colonial Newport Tiger
Fund and their respective Trusts) Under an Administration Agreement with each
Fund, the Adviser , in its capacity as the Administrator to each Fund, has
contracted to perform the following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its Directors, officers
and employees to serve as Trustees, officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents required for compliance
by each Fund with applicable laws and regulations;
(d) preparation of agendas and supporting documents for and minutes of meetings
of Trustees, committees of Trustees and shareholders;
(e) coordinating and overseeing the activities of each Fund's other third-party
service providers; and
(f) maintaining certain books and records of each Fund.
With respect to the Colonial Municipal Money Market Fund, the Administration
Agreement for this Fund provides for the following services in addition to the
services referenced above:
(g) monitoring compliance by the Fund (only applicable to Colonial Municipal
Money Market Fund) with Rule 2a-7 under the Investment Company Act of 1940
(the "1940 Act") and reporting to the Trustees from time to time with
respect thereto; and
(h) monitoring the investments and operations of the SR&F Municipal Money
Market Portfolio (Municipal Money Market Portfolio) in which Colonial
Municipal Money Market Fund is invested and the LFC Portfolio and reporting
to the Trustees from time to time with respect thereto.
The Pricing and Bookkeeping Agreement
The Adviser provides pricing and bookkeeping services to each Colonial fund
pursuant to a Pricing and Bookkeeping Agreement. The Pricing and Bookkeeping
Agreement has a one-year term. The Adviser, in its capacity as the Administrator
to each of Colonial Municipal Money Market Fund and Colonial Global Utilities
Fund, is paid an annual fee of $18,000, plus 0.0233% of average daily net assets
in excess of $50 million. For each of the other Colonial funds (except for
Colonial Newport Tiger Fund), the Adviser is paid monthly a fee of $2,250 by
each fund, plus a monthly percentage fee based on net assets of the fund equal
to the following:
1/12 of 0.000% of the first $50 million; 1/12 of
0.035% of the next $950 million; 1/12 of 0.025%
of the next $1 billion; 1/12 of 0.015% of the
next $1 billion; and 1/12 of 0.001% on the excess
over $3 billion
The Adviser provides pricing and bookkeeping services to Colonial Newport Tiger
Fund for an annual fee of $27,000, plus 0.035% of Colonial Newport Tiger Fund's
average net assets over $50 million.
The Adviser of each of the Municipal Money Market Portfolio and LFC Portfolio
provides pricing and bookkeeping services to each Portfolio for a fee of $25,000
plus 0.0025% annually of average daily net assets of each Portfolio over $50
million.
Portfolio Transactions
The following sections entitled "Investment decisions" and Brokerage and
research services" do not apply to Colonial Municipal Money Market Fund,
Colonial U.S. Fund for Growth, Colonial Newport Tiger Fund or Colonial Global
Utilities Fund. For each of these funds, see Part 1 of its respective SAI.
Investment decisions. The Adviser acts as investment adviser to each of the
Colonial funds (except for the Colonial Municipal Money Market Fund, Colonial
Global Utilities Fund and Colonial Newport Tiger Fund, each of which is
administered by the Adviser, and Colonial U.S. Fund for Growth for which
investment decisions have been delegated by the Adviser to State Street Bank and
Trust Company, the fund's sub-adviser) (as defined under Management of the Fund
herein).The Adviser's affiliate, CASI, advises other institutional, corporate,
fiduciary and individual clients for which CASI performs various services.
Various officers and Trustees of the Trust also serve as officers or Trustees of
other Colonial funds and the other corporate or fiduciary clients of the
Adviser. The Colonial funds and clients advised by the Adviser or the funds
administered by the Adviser sometimes invest in securities in which the Fund
also invests and sometimes engage in covered option writing programs and enter
into transactions utilizing stock index options and stock index and financial
futures and related options ("other instruments"). If the Fund, such other
Colonial funds and such other clients desire to buy or sell the same portfolio
securities, options or other instruments at about the same time, the purchases
and sales are normally made as nearly as practicable on a pro rata basis in
proportion to the amounts desired to be purchased or sold by each. Although in
some cases these practices could have a detrimental effect on the price or
volume of the securities, options or other instruments as far as the Fund is
concerned, in most cases it is believed that these practices should produce
better executions. It is the opinion of the Trustees that the desirability of
retaining the Adviser as investment adviser to the Colonial funds outweighs the
disadvantages, if any, which might result from these practices.
The portfolio managers of Colonial International Fund for Growth, a series of
Colonial Trust III, will use the trading facilities of Stein Roe & Farnham
Incorporated, an affiliate of the Adviser, to place all orders for the purchase
and sale of this fund's portfolio securities, futures contracts and foreign
currencies.
Brokerage and research services. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., and subject to seeking
"best execution" (as defined below) and such other policies as the Trustees may
determine, the Adviser may consider sales of shares of the Colonial funds as a
factor in the selection of broker-dealers to execute securities transactions for
a Colonial fund.
The Adviser places the transactions of the Colonial funds with broker-dealers
selected by the Adviser and, if applicable, negotiates commissions.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including the purchase and writing of options, the effecting of closing purchase
and sale transactions, and the purchase and sale of underlying securities upon
the exercise of options and the purchase or sale of other instruments. The
Colonial funds from time to time also execute portfolio transactions with such
broker-dealers acting as principals. The Colonial funds do not intend to deal
exclusively with any particular broker-dealer or group of broker-dealers.
Except as described below in connection with commissions paid to a clearing
agent on sales of securities, it is Colonialthe Adviser's policy always to seek
best execution, which is to place the Colonial funds' transactions where the
Colonial funds can obtain the most favorable combination of price and execution
services in particular transactions or provided on a continuing basis by a
broker-dealer, and to deal directly with a principal market maker in connection
with over-the-counter transactions, except when it is believed that best
execution is obtainable elsewhere. In evaluating the execution services of,
including the overall reasonableness of brokerage commissions paid to, a
broker-dealer, consideration is given to, among other things, the firm's general
execution and operational capabilities, and to its reliability, integrity and
financial condition.
Subject to such practice of always seeking best execution, securities
transactions of the Colonial funds may be executed by broker-dealers who also
provide research services (as defined below) to the Adviser and the Colonial
funds. The Adviser may use all, some or none of such research services in
providing investment advisory services to each of its investment company and
other clients, including the fund. To the extent that such services are used by
the Adviser, they tend to reduce the Adviser's expenses. In the Adviser's
opinion, it is impossible to assign an exact dollar value for such services.
Subject to such policies as the Trustees may determine, the Adviser may cause
the Colonial funds to pay a broker-dealer which provides brokerage and research
services to the Adviser an amount of commission for effecting a securities
transaction, including the sale of an option or a closing purchase transaction,
for the Colonial funds in excess of the amount of commission which another
broker-dealer would have charged for effecting that transaction. As provided in
Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research
services" include advice as to the value of securities, the advisability of
investing in, purchasing or selling securities and the availability of
securities or purchasers or sellers of securities; furnishing analyses and
reports concerning issues, industries, securities, economic factors and trends
and portfolio strategy and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance and
settlement). The Adviser must determine in good faith that such greater
commission is reasonable in relation to the value of the brokerage and research
services provided by the executing broker-dealer viewed in terms of that
particular transaction or the Adviser's overall responsibilities to the Colonial
funds and all its other clients.
The Trustees have authorized the Adviser to utilize the services of a clearing
agent with respect to all call options written by Colonial funds that write
options and to pay such clearing agent commissions of a fixed amount per share
(currently 1.25 cents) on the sale of the underlying security upon the exercise
of an option written by a fund. The Trustees may further authorize the Adviser
to depart from the present policy of always seeking best execution and to pay
higher brokerage commissions from time to time for other brokerage and research
services as described above in the future if developments in the securities
markets indicate that such would be in the interests of the shareholders of the
Colonial funds.
Principal Underwriter
CISI is the principal underwriter of the Trust's shares. CISI has no obligation
to buy the Colonial funds' shares, and purchases the Colonial funds shares only
upon receipt of orders from authorized FSFs or investors.
<PAGE>
Investor Servicing and Transfer Agent
CISC is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Trust. The fee paid to CISC is based on the average daily net assets of each
Colonial fund plus reimbursement for certain out-of-pocket expenses. See "Fund
Charges and Expenses" in Part 1 of this SAI for information on fees received by
CISC. The agreement continues indefinitely but may be terminated by 90 days'
notice by the Fund or Colonial funds to CISC or generally by 6 months' notice by
CISC to the Fund or Colonial funds. The agreement limits the liability of CISC
to the Fund or Colonial funds for loss or damage incurred by the Fund or
Colonial funds to situations involving a failure of CISC to use reasonable care
or to act in good faith in performing its duties under the agreement. It also
provides that the Fund or Colonial funds will indemnify CISC against, among
other things, loss or damage incurred by CISC on account of any claim, demand,
action or suit made on or against CISC not resulting from CISC's bad faith or
negligence and arising out of, or in connection with, its duties under the
agreement.
DETERMINATION OF NET ASSET VALUE
Each Colonial fund determines net asset value (NAV) per share for each Class as
of the close of the New York Stock Exchange (Exchange)(generally 4:00 p.m.
Eastern time, 3:00 p.m. Chicago time) each day the Exchange is open. Currently,
the Exchange is closed Saturdays, Sundays and the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day,
Thanksgiving and Christmas. The net asset value of the Municipal Money Market
Portfolio will not be determined on days when the Exchange is closed unless, in
the judgment of the Municipal Money Market Portfolio's Board of Trustees, the
net asset value of the Municipal Money Market Portfolio should be determined on
any such day, in which case the determination will be made at 3:00 p.m., Chicago
time. Debt securities generally are valued by a pricing service which determines
valuations based upon market transactions for normal, institutional-size trading
units of similar securities. However, in circumstances where such prices are not
available or where the Adviser deems it appropriate to do so, an
over-the-counter or exchange bid quotation is used. Securities listed on an
exchange or on NASDAQ are valued at the last sale price. Listed securities for
which there were no sales during the day and unlisted securities are valued at
the last quoted bid price. Options are valued at the last sale price or in the
absence of a sale, the mean between the last quoted bid and offering prices.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost pursuant to procedures adopted by the Trustees. The values of
foreign securities quoted in foreign currencies are translated into U.S. dollars
at the exchange rate for that day. Portfolio positions for which there are no
such valuations and other assets are valued at fair value as determined in good
faith under the direction of the Trust's Trustees.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the NAV are
computed as of such times. Also, because of the amount of time required to
collect and process trading information as to large numbers of securities
issues, the values of certain securities (such as convertible bonds, U.S.
government securities, and tax-exempt securities) are determined based on market
quotations collected earlier in the day at the latest practicable time prior to
the close of the Exchange. Occasionally, events affecting the value of such
securities may occur between such times and the close of the Exchange which will
not be reflected in the computation of each Colonial fund's NAV. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value following procedures
approved by the Trust's Trustees.
Amortized Cost for Money Market Funds (this section currently applies only to
Colonial Government Money Market Fund, a series of Colonial Trust II- see
"Amortized Cost for Money Market Funds" under "Other Information Concerning the
Portfolio" in Part 1 of the SAI of Colonial Municipal Money Market Fund for
information relating to the Municipal Money Market Portfolio)
Money market funds generally value their portfolio securities at amortized cost
according to Rule 2a-7 under the 1940 Act.
Portfolio instruments are valued under the amortized cost method, whereby the
instrument is recorded at cost and thereafter amortized to maturity. This method
assures a constant NAV but may result in a yield different than that of the same
portfolio under the market value method. The Trust's Trustees have adopted
procedures intended to stabilize a fund's NAV per share at $1.00. When a money
market fund's market value deviates from the amortized cost of $1.00, and
results in a material dilution to existing shareholders, the Trust's Trustees
will take corrective action to: realize gains or losses; shorten the portfolio's
maturity; withhold distributions; redeem shares in kind; or convert to the
market value method (in which case the NAV per share may differ from $1.00). All
investments will be determined pursuant to procedures approved by the Trust's
Trustees to present minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the
Colonial Government Money Market Fund for a specimen price sheet showing the
computation of maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of
the Fund and tables of charges. This SAI contains additional information which
may be of interest to investors.
The Fund will accept unconditional orders for shares to be executed at the
public offering price based on the NAV per share next determined after the order
is placed in good order. The public offering price is the NAV plus the
applicable sales charge, if any. In the case of orders for purchase of shares
placed through FSFs, the public offering price will be determined on the day the
order is placed in good order, but only if the FSF receives the order prior to
the time at which shares are valued and transmits it to the Fund before the Fund
processes that day's transactions. If the FSF fails to transmit before the Fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF. If the FSF
receives the order after the time at which the Fund values its shares, the price
will be based on the NAV determined as of the close of the Exchange on the next
day it is open. If funds for the purchase of shares are sent directly to CISC,
they will be invested at the public offering price next determined after receipt
in good order. Payment for shares of the Fund must be in U.S. dollars; if made
by check, the check must be drawn on a U.S. bank.
The Fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, CISI's commission is the sales charge shown in the Fund's
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that CISI retains the entire sales charge on any sales made to
a shareholder who does not specify an FSF on the Investment Account Application
("Application"). CISI generally retains 100% of any asset-based sales charge
(distribution fee) or contingent deferred sales charge. Such charges generally
reimburse CISI for an up-front and/or ongoing commission paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by
the purchaser's bank or checkwriting privilege checks for which there are
insufficient funds in a shareholder's account to cover redemption will subject
such purchaser or shareholder to a $15 service fee for each check returned.
Checks must be drawn on a U.S. bank and must be payable in U.S. dollars.
CISC acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to CISC, provided the new FSF has a sales agreement
with CISI.
Shares credited to an account are transferable upon written instructions in good
order to CISC and may be redeemed as described under "How to Sell Shares" in the
Prospectus. Certificates will not be issued for Class A shares unless
specifically requested and no certificates will be issued for Class B, C, D, T
or Z shares. The Colonial money market funds will not issue certificates.
Shareholders may send any certificates which have been previously acquired to
CISC for deposit to their account.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
Fundamatic Program. As a convenience to investors, shares of most Colonial funds
may be purchased through the Colonial Fundamatic Program. Preauthorized monthly
bank drafts or electronic funds transfer for a fixed amount of at least $50 are
used to purchase a Colonial fund's shares at the public offering price next
determined after CISI receives the proceeds from the draft (normally the 5th or
the 20th of each month, or the next business day thereafter). If your
fFundamatic purchase is by electronic funds transfer, you may request the
Fundamatic purchase for any day. Further information and application forms are
available from FSFs or from CISI.
Automated Dollar Cost Averaging (Classes A, B and D). Colonial's Automated
Dollar Cost Averaging program allows you to exchange $100 or more on a monthly
basis from any Colonial fund in which you have a current balance of at least
$5,000 into the same class of shares of up to four other Colonial funds.
Complete the Automated Dollar Cost Averaging section of the Application. The
designated amount will be exchanged on the third Tuesday of each month. There is
no charge for exchanges made pursuant to the Automated Dollar Cost Averaging
program. Exchanges will continue so long as your Colonial fund balance is
sufficient to complete the transfers. Your normal rights and privileges as a
shareholder remain in full force and effect. Thus you can: buy any fund,
exchange between the same Class of shares of funds by written instruction or by
telephone exchange if you have so elected and withdraw amounts from any fund,
subject to the imposition of any applicable CDSC.
Any additional payments or exchanges into your Colonial fund will extend the
time of the Automated Dollar Cost Averaging program.
An exchange is a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to
the $100 minimum), or change your selection of funds, by telephone or in
writing; if in writing by mailing your instructions to Colonial Investors
Service Center, Inc. P.O. Box 1722, Boston, MA 02105-1722.
You should consult your FSF or investment adviser to determine whether or not
the Automated Dollar Cost Averaging program is appropriate for you.
CISI offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges . These plans may be altered or discontinued
at any time. See "Programs For Reducing or Eliminating Sales Charges" for more
information.
Tax-Sheltered Retirement Plans. CISI offers prototype tax-qualified plans,
including Individual Retirement Accounts, and Pension and Profit-Sharing Plans
for individuals, corporations, employees and the self-employed. The minimum
initial Retirement Plan investment in these funds is $25. The First National
Bank of Boston is the Trustee and charges a $10 annual fee. Detailed information
concerning these Retirement Plans and copies of the Retirement Plans are
available from CISI.
Consultation with a competent financial and tax adviser regarding these Plans
and consideration of the suitability of fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise is recommended.
Telephone Address Change Services. By calling CISC, shareholders or their FSF of
record may change an address on a recorded telephone line. Confirmations of
address change will be sent to both the old and the new addresses. The Telephone
redemption privileges are suspended for 30 days after an address change is
effected.
Colonial cash connection. Dividends and any other distributions, including
Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
Automatic dividend diversification. The automatic dividend diversification
reinvestment program (ADD) generally allows shareholders to have all
distributions from a fund automatically invested in the same class of shares of
another Colonial fund. An ADD account must be in the same name as the
shareholder's existing Open Account with the particular fund. Call CISC for more
information at 1-800- 422-3737.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
Right of Accumulation and Statement of Intent (Class A and Class T shares only)
(Class T shares can only be purchased by the shareholders of Colonial Newport
Tiger Fund who already own Class T shares). Reduced sales charges on Class A and
T shares can be effected by combining a current purchase with prior purchases of
Class A, B, C, D, T and Z shares of the Colonial funds. The applicable sales
charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on
the previous day of all Colonial funds' Class A shares held by the
shareholder (except shares of any Colonial money market fund, unless
such shares were acquired by exchange from Class A shares of another
Colonial fund other than a money market fund and Class B, C, D, T
and Z shares).
CISI must be promptly notified of each purchase which entitles a shareholder to
a reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by CISC. A Colonial fund may
terminate or amend this Right of Accumulation.
Any person may qualify for reduced sales charges on purchases of Class A and T
shares made within a thirteen-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C D, T and Z shares
held by the shareholder on the date of the Statement in Colonial funds (except
shares of any Colonial money market fund, unless such shares were acquired by
exchange from Class A shares of another non-money market Colonial fund). The
value is determined at the public offering price on the date of the Statement.
Purchases made through reinvestment of distributions do not count toward
satisfaction of the Statement.
During the term of a Statement, CISC will hold shares in escrow to secure
payment of the higher sales charge applicable to Class A or T shares actually
purchased. Dividends and capital gains will be paid on all escrowed shares and
these shares will be released when the amount indicated has been purchased. A
Statement does not obligate the investor to buy or a fund to sell the amount of
the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to CISI the excess commission previously paid
during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to
CISI an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, CISC will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from CISC at 1-800- 345-6611.
Colonial Asset Builder Investment Program (this section currently applies only
to the Class A shares of Colonial Growth Shares Fund and The Colonial Fund, each
a series of Colonial Trust III). A reduced sales charge applies to a purchase of
certain Colonial funds' Class A shares under a statement of intent for the
Colonial Asset Builder Investment Program. The Program offer may be withdrawn at
any time without notice. A completed Program may serve as the initial investment
for a new Program, subject to the maximum of $4,000 in initial investments per
investor. Shareholders in this program are subject to a 5% sales charge. CISC
will escrow shares to secure payment of the additional sales charge on amounts
invested if the Program is not completed. Escrowed shares are credited with
distributions and will be released when the Program has ended. Shareholders are
subject to a 1% fee on the amount invested if they do not complete the Program.
Prior to completion of the Program, only scheduled Program investments may be
made in a Colonial fund in which an investor has a Program account. The
following services are not available to Program accounts until a Program has
ended:
Systematic Withdrawal Plan Share Certificates
Sponsored Arrangements Exchange Privilege
$50,000 Fast Cash Colonial Cash Connection
Right of Accumulation Automatic Dividend Diversification
Telephone Redemption Reduced Sales Charges for any "person"
Statement of Intent
*Exchanges may be made to other Colonial funds offering the Program.
Because of the unavailability of certain services, this Program may not be
suitable for all investors.
The FSF receives 3% of the investor's intended purchases under a Program at the
time of initial investment and 1% after the 24th monthly payment. CISI may
require the FSF to return all applicable commissions paid with respect to a
Program terminated within six months of inception, and thereafter to return
commissions in excess of the FSF discount applicable to shares actually
purchased.
Since the Asset Builder plan involves continuous investment regardless of the
fluctuating prices of funds shares, investors should consult their FSF to
determine whether it is appropriate. The Plan does not assure a profit nor
against loss in declining markets.
Reinstatement Privilege. An investor who has redeemed Class A, B, or D shares
may, upon request, reinstate within one year a portion or all of the proceeds of
such sale in shares of the same Class of any Colonial fund at the NAV next
determined after CISC receives a written reinstatement request and payment. Any
CDSC paid at the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for purposes of calculating any CDSC
or conversion date. Investors who desire to exercise this privilege should
contact their FSF or CISC. Shareholders may exercise this Privilege an unlimited
number of times. Exercise of this privilege does not alter the Federal income
tax treatment of any capital gains realized on the prior sale of fund shares,
but to the extent any such shares were sold at a loss, some or all of the loss
may be disallowed for tax purposes. Consult your tax adviser.
Privileges of Colonial Employees or Financial Service Firms. Class A shares of
certain funds may be sold at NAV to the following individuals whether currently
employed or retired: Trustees of funds advised or administered by the Adviser ;
directors, officers and employees of the the Adviser , CISI and other companies
affiliated with the Adviser l; registered representatives and employees of FSFs
(including their affiliates) that are parties to dealer agreements or other
sales arrangements with CISI; and such persons' families and their beneficial
accounts.
Sponsored Arrangements. Class A and Class T shares (Class T shares can only be
purchased by the shareholders of Colonial Newport Tiger Fund who already own
Class T shares) of certain funds may be purchased at reduced or no sales charge
pursuant to sponsored arrangements, which include programs under which an
organization makes recommendations to, or permits group solicitation of, its
employees, members or participants in connection with the purchase of shares of
the fund on an individual basis. The amount of the sales charge reduction will
reflect the anticipated reduction in sales expense associated with sponsored
arrangements. The reduction in sales expense, and therefore the reduction in
sales charge will vary depending on factors such as the size and stability of
the organizations group, the term of the organization's existence and certain
characteristics of the members of its group. The Colonial funds reserve the
right to revise the terms of or to suspend or discontinue sales pursuant to
sponsored plans at any time.
Class A and Class T shares (Class T shares can only be purchased by the
shareholders of Colonial Newport Tiger Fund who already own Class T shares) of
certain funds may also be purchased at reduced or no sales charge by clients of
dealers, brokers or registered investment advisers that have entered into
agreements with CISI pursuant to which the Colonial funds are included as
investment options in programs involving fee-based compensation arrangements.
Net Asset Value Exchange Privilege. Class A shares of certain funds may also be
purchased at reduced or no sales charge by investors moving from another mutual
fund complex or a discretionary account and by participants in certain
retirement plans. In lieu of the commissions described in the Prospectus, the
Adviser l will pay the FSF a quarterly service fee which is the service fee
established for each applicable Colonial fund .
Waiver of Contingent Deferred Sales Charges (CDSCs) (Classes A, B, and D). CDSCs
may be waived on redemptions in the following situations with the proper
documentation:
1. Death. CDSCs may be waived on redemptions within one year following the
death of (i) the sole shareholder on an individual account, (ii) a
joint tenant where the surviving joint tenant is the deceased's spouse, or
(iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform
Transfers to Minors Act (UTMA) or other custodial account. If, upon the
occurrence of one of the foregoing, the account is transferred to an
account registered in the name of the deceased's estate, the CDSC will be
waived on any redemption from the estate account occurring within one year
after the death. If the Class B shares are not redeemed within one year of
the death, they will remain subject to the applicable CDSC, when redeemed
from the transferee's account. If the account is transferred to a new
registration and then a redemption is requested, the applicable CDSC will
be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions
occurring pursuant to a monthly, quarterly
or semi-annual SWP established with the Adviser , to the extent the
redemptions do not exceed, on an annual basis, 12% of the account's value,
so long as at the time of the first SWP redemption the account had had
distributions reinvested for a period at least equal to the period of the
SWP (e.g., if it is a quarterly SWP, distributions must have been
reinvested at least for the three month period prior to the first SWP
redemption); otherwise CDSCs will be charged on SWP redemptions until this
requirement is met; this requirement does not apply if the SWP is set-up at
the time the account is established, and distributions are being
reinvested). See below under "Investors Services" - Systematic Withdrawal
Plan.
3. Disability. CDSCs may be waived on redemptions occurring within one year
after the sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section
72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i)
the disability must arise after the purchase of shares and (ii) the
disabled shareholder must have been under age 65 at the time of the initial
determination of disability. If the account is transferred to a new
registration and then a redemption is requested, the applicable CDSC will
be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase and
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be
charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions
required to return excess contributions made to retirement plans or
individual retirement accounts, so long as the FSF agrees to return the
applicable portion of any commission paid by Colonial.
6. Qualified Retirement Plans. CDSCs may be waived on redemptions required to
make distributions from qualified retirement plans following (i) normal
retirement (as stated in the Plan document) or (ii) separation from
service. CDSCs also will be waived on SWP redemptions made to make required
minimum distributions from qualified retirement plans that have invested in
Colonial funds for at least two years.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's . Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund will send
proceeds only after the check has cleared (which may take up to 15 days).
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to CISC, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor institution. Stock power forms are
available from FSFs, CISC, and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call CISC for more information
1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to CISC and may charge for this service.
Systematic Withdrawal Plan
If a shareholder's Account Balance is at least $5,000, the shareholder may
establish a (SWP). A specified dollar amount or percentage of the then current
net asset value of the shareholder's investment in any Colonial fund designated
by the shareholder will be paid monthly, quarterly or semi-annually to a
designated payee. The amount or percentage the shareholder specifies generally
may not, on an annualized basis, exceed 12% of the value, as of the time the
shareholder makes the election of the shareholder's investment. Withdrawals from
Class B and Class D shares of the fund under a SWP will be treated as
redemptions of shares purchased through the reinvestment of fund distributions,
or, to the extent such shares in the shareholder's account are insufficient to
cover Plan payments, as redemptions from the earliest purchased shares of such
fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a
SWP of 12% or less, even if, after giving effect to the redemption, the
shareholder's Account Balance is less than the shareholder's base amount.
Qualified plan participants who are required by Internal Revenue Code regulation
to withdraw more than 12%, on an annual basis, of the value of their Class B and
Class D share account may do so but will be subject to a CDSC ranging from 1% to
5% of the amount withdrawn. If a shareholder wishes to participate in a SWP, the
shareholder must elect to have all of the shareholder's income dividends and
other fund distributions payable in shares of the fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by
telephone on a recorded line. However, SWP checks will be payable only to the
shareholder and sent to the address of record. SWPs from retirement accounts
cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in
certificate form. Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the fund
(other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or
loss for tax purposes, may involve the use of principal and may eventually use
up all of the shares in a shareholder's account.
A fund may terminate a shareholder's SWP if the shareholder's Account Balance
falls below $5,000 due to any transfer or liquidation of shares other than
pursuant to the SWP. SWP payments will be terminated on receiving satisfactory
evidence of the death or incapacity of a shareholder. Until this evidence is
received, CISC will not be liable for any payment made in accordance with the
provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name", the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.
Telephone Redemptions. All shareholders and/or their financial advisers are
automatically eligible to redeem up to $50,000 of the fund's shares by calling
1-800-422-3737 toll free any business day between 9:00 a.m. and the close of
trading of the Exchange (normally 4:00 p.m. Eastern time). Telephone redemption
privileges for larger amounts may be elected on the Application. CISC will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Telephone redemptions are not available on accounts with
an address change in the preceding 30 days and proceeds and confirmations will
only be mailed or sent to the address of record. Shareholders and/or their
financial advisers will be required to provide their name, address and account
number. Financial advisers will also be required to provide their broker number.
All telephone transactions are recorded. A loss to a shareholder may result from
an unauthorized transaction reasonably believed to have been authorized. No
shareholder is obligated to execute the telephone authorization form or to use
the telephone to execute transactions.
Checkwriting (Available only on the Class A and Class C shares of certain
Colonial funds) Shares may be redeemed by check if a shareholder completed an
Application and Signature Card. the Adviser will provide checks to be drawn on
The First National Bank of Boston (the "Bank"). These checks may be made payable
to the order of any person in the amount of not less than $500 nor more than
$100,000. The shareholder will continue to earn dividends on shares until a
check is presented to the Bank for payment. At such time a sufficient number of
full and fractional shares will be redeemed at the next determined net asset
value to cover the amount of the check. Certificate shares may not be redeemed
in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules
governing checking accounts. There is currently no charge to the shareholder for
the use of checks. The shareholder should make sure that there are sufficient
shares in his or her Open Account to cover the amount of any check drawn since
the net asset value of shares will fluctuate. If insufficient shares are in the
shareholder's Open Account, the check will be returned marked "insufficient
funds" and no shares will be redeemed; the shareholder will be charged a $15
service fee for each check returned. It is not possible to determine in advance
the total value of an Open Account because prior redemptions and possible
changes in net asset value may cause the value of an Open Account to change.
Accordingly, a check redemption should not be used to close an Open Account.
Non cash Redemptions. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of a Colonial fund's net
asset value, a Colonial fund may make the payment or a portion of the payment
with portfolio securities held by that Colonial fund instead of cash, in which
case the redeeming shareholder may incur brokerage and other costs in selling
the securities received.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash,
but will be invested in additional shares of the same Class of the Fund at net
asset value. Undelivered distribution checks returned by the post office will be
invested in your account.
Shareholders may reinvest all or a portion of a recent cash distribution without
a sales charge. A shareholder request must be received within 30 calendar days
of the distribution. A shareholder may exercise this privilege only once. No
charge is currently made for reinvestment.
Shares of most funds that pay daily dividends will normally earn dividends
starting with the date the fund receives payment for the shares and will
continue through the day before the shares are redeemed, transferred or
exchanged. The daily dividends for Colonial Municipal Money Market Fund will be
earned starting with the day after that fund receives payments for the shares.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other
continuously offered Colonial funds (with certain exceptions) on the basis of
the NAVs per share at the time of exchange. The prospectus of each Colonial fund
describes its investment objective and policies, and shareholders should obtain
a prospectus and consider these objectives and policies carefully before
requesting an exchange. Shares of certain Colonial funds are not available to
residents of all states. Consult CISC before requesting an exchange.
By calling CISC, shareholders or their FSF of record may exchange among accounts
with identical registrations, provided that the shares are held on deposit.
During periods of unusual market changes and shareholder activity, shareholders
may experience delays in contacting CISC by telephone to exercise the telephone
exchange privilege. Because an exchange involves a redemption and reinvestment
in another Colonial fund, completion of an exchange may be delayed under unusual
circumstances, such as if the fund suspends repurchases or postpones payment for
the fund shares being exchanged in accordance with federal securities law. CISC
will also make exchanges upon receipt of a written exchange request and, share
certificates, if any. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, CISC will require customary additional documentation.
Prospectuses of the other Colonial funds are available from the Colonial
Literature Department by calling 1-800-248-2828.
A loss to a shareholder may result from an unauthorized transaction reasonably
believed to have been authorized. No shareholder is obligated to use the
telephone to execute transactions.
You need to hold your Class A shares for five months before exchanging to
certain funds having a higher maximum sales charge. Consult your FSF or CISC. In
all cases, the shares to be exchanged must be registered on the records of the
fund in the name of the shareholder desiring to exchange.
Shareholders of the other Colonial open-end funds generally may exchange their
shares at NAV for the same class of shares of the fund.
An exchange is a capital sale transaction for federal income tax purposes. The
exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Colonial fund may not suspend shareholders' right of redemption or postpone
payment for more than seven days unless the Exchange is closed for other than
customary weekends or holidays, or if permitted by the rules of the SEC during
periods when trading on the Exchange is restricted or during any emergency which
makes it impracticable for the fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by
order of the SEC for protection of investors.
SHAREHOLDER MEETINGS
As described under the caption "Organization and history" in the Prospectus of
each Colonial fund, the fund will not hold annual shareholders' meetings. The
Trustees may fill any vacancies in the Board of Trustees except that the
Trustees may not fill a vacancy if, immediately after filling such vacancy, less
than two-thirds of the Trustees then in office would have been elected to such
office by the shareholders. In addition, at such times as less than a majority
of the Trustees then in office have been elected to such office by the
shareholders, the Trustees must call a meeting of shareholders. Trustees may be
removed from office by a written consent signed by a majority of the outstanding
shares of the Trust or by a vote of the holders of a majority of the outstanding
shares at a meeting duly called for the purpose, which meeting shall be held
upon written request of the holders of not less than 10% of the outstanding
shares of the Trust. Upon written request by the holders of 1% of the
outstanding shares of the Trust stating that such shareholders of the Trust, for
the purpose of obtaining the signatures necessary to demand a shareholder's
meeting to consider removal of a Trustee, request information regarding the
Trust's shareholders the Trust will provide appropriate materials (at the
expense of the requesting shareholders). Except as otherwise disclosed in the
Prospectus and this SAI, the Trustees shall continue to hold office and may
appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would
vote together, irrespective of series, on the election of Trustees or the
selection of independent accountants, but each series would vote separately from
the others on other matters, such as changes in the investment policies of that
series or the approval of the management agreement for that series.
PERFORMANCE MEASURES
Total Return
Standardized average annual total return. Average annual total return is the
actual return on a $1,000 investment in a particular class of shares of the
fund, made at the beginning of a stated period, adjusted for the maximum sales
charge or applicable CDSC for the class of shares of the fund and assuming that
all distributions were reinvested at NAV, converted to an average annual return
assuming annual compounding.
Nonstandardized total return. Nonstandardized total returns differ from
standardized average annual total returns only in that they may relate to
nonstandardized periods, represent aggregate rather than average annual total
returns or in that the sales charge or CDSC is not deducted.
Yield
Money market. A money market fund's yield and effective yield is computed in
accordance with the SEC's formula for money market fund yields.
Non money market. The yield for each class of shares is determined by (i)
calculating the income (as defined by the SEC for purposes of advertising yield)
during the base period and subtracting actual expenses for the period (net of
any reimbursements), and (ii) dividing the result by the product of the average
daily number of shares of the a Colonial fund entitled to dividends for the
period and the maximum offering price of the fund on the last day of the period,
(iii) then annualizing the result assuming semi-annual compounding.
Tax-equivalent yield is calculated by taking that portion of the yield which is
exempt from income tax and determining the equivalent taxable yield which would
produce the same after tax yield for any given federal and state tax rate, and
adding to that the portion of the yield which is fully taxable. Adjusted yield
is calculated in the same manner as yield except that expenses voluntarily borne
or waived by Colonial have been added back to actual expenses.
Distribution rate. The distribution rate for each class of shares is calculated
by annualizing the most current period's distributions and dividing by the
maximum offering price on the last day of the period. Generally, the fund 's
distribution rate reflects total amounts actually paid to shareholders, while
yield reflects the current earning power of the fund's portfolio securities (net
of the fund's expenses). The fund's yield for any period may be more or less
than the amount actually distributed in respect of such period.
The fund may compare its performance to various unmanaged indices published by
such sources as listed in Appendix II.
The fund may also refer to quotations, graphs and electronically transmitted
data from sources believed by Colonialthe Adviser to be reputable, and
publications in the press pertaining to a fund's performance or to the Adviser
or its affiliates , including comparisons with competitors and matters of
national and global economic and financial interest. Examples include Forbes,
Business Week, MONEY Magazine, The Wall Street Journal, The New York Times, The
Boston Globe, Barron's National Business & Financial Weekly, Financial Planning,
Changing Times, Reuters Information Services, Wiesenberger Mutual Funds
Investment Report, Lipper Analytical Services Corporation, Morningstar, Inc.,
Sylvia Porter's Personal Finance Magazine, Money Market Directory, SEI Funds
Evaluation Services, FTA World Index and Disclosure Incorporated.
All data is based on past performance and does not predict future results.
<PAGE>
35
APPENDIX I
DESCRIPTION OF BOND RATINGS
S&P
AAA The highest rating assigned by S&P indicates an extremely strong capacity to
repay principal and interest. AA bonds also qualify as high quality. Capacity to
repay principal and pay interest is very strong, and in the majority of
instances, they differ from AAA only in small degree. A bonds have a strong
capacity to repay principal and interest, although they are somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions. BBB bonds are regarded as having an adequate capacity to repay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to repay principal and interest than for bonds in the A
category. BB, B, CCC, and CC bonds are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and principal in accordance
with the terms of the obligation. BB indicates the lowest degree of speculation
and CC the highest degree. While likely to have some quality and protection
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. C ratings are reserved for income bonds on
which no interest is being paid. D bonds are in default, and payment of interest
and/or principal is in arrears. Plus(+) or minus (-) are modifiers relative to
the standing within the major rating categories.
Provisional Ratings. The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, although addressing credit
quality subsequent to completion of the project, makes no comments on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
Municipal Notes:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be rated as a note).
Demand Feature of Variable Rate Demand Securities:
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1+/A-1+).
Commercial Paper:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designed A-1+.
Corporate Bonds:
The description of the applicable rating symbols and their meanings is
substantially the same as its Municipal Bond ratings set forth above.
<PAGE>
MOODY'S
Aaa bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair a fundamentally
strong position of such issues. Aa bonds are judged to be of high quality by all
standards. Together with Aaa bonds they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities. Those bonds in the Aa through B groups that Moody's believes possess
the strongest investment attributes are designated by the symbol Aa1, A1 and
Baa1. A bonds possess many of the favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future. Baa bonds are
considered as medium grade, neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact, have speculative characteristics as well. Ba bonds
are judged to have speculative elements: their future cannot be considered as
well secured. Often, the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes these bonds. B bonds
generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. Caa bonds are of poor standing. They
may be in default or there may be present elements of danger with respect to
principal or interest. Ca bonds are speculative in a high degree, often in
default or having other marked shortcomings. C bonds are the lowest rated class
of bonds and can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Conditional Ratings. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
conditions attach. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1, and B 1.
Municipal Notes:
MIG 1. This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Demand Feature of Variable Rate Demand Securities:
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Commercial Paper:
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
Corporate Bonds:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings
is identical to that of its Municipal Bond ratings as set forth above, except
for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in
the Aa and A classifications of its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
<PAGE>
APPENDIX II
1994
SOURCE CATEGORY RETURN (%)
Donoghue Tax-Free Funds 2.25
Donoghue U.S. Treasury Funds 3.34
Dow Jones Industrials 5.03
Morgan Stanley Capital
International EAFE Index 8.06
Morgan Stanley Capital
International EAFE GDP Index 8.21
Libor Six-month Libor 6.9375
Lipper Adjustable Rate Mortgage -2.20
Lipper California Municipal Bond Funds -7.52
Lipper Connecticut Municipal Bond Funds -7.04
Lipper Closed End Bond Funds -6.86
Lipper Florida Municipal Bond Funds -7.76
Lipper General Bond Fund -5.98
Lipper General Municipal Bonds -6.53
Lipper General Short-Term Tax-Exempt Bonds -0.28
Lipper Global Flexible Portfolio Funds -3.03
Lipper Growth Funds -2.15
Lipper Growth & Income Funds -0.94
Lipper High Current Yield Bond Funds -3.83
Lipper High Yield Municipal Bond Debt -4.99
Lipper Fixed Income Funds -3.62
Lipper Insured Municipal Bond Average -6.47
Lipper Intermediate Muni Bonds -3.53
Lipper Intermediate (5-10) U.S. Government Funds-3.72
Lipper Massachusetts Municipal Bond Funds -6.35
Lipper Michigan Municipal Bond Funds -5.89
Lipper Mid Cap Funds -2.05
Lipper Minnesota Municipal Bond Funds -5.87
Lipper U.S. Government Money Market Funds 3.58
Lipper Natural Resources -4.20
Lipper New York Municipal Bond Funds -7.54
Lipper North Carolina Municipal Bond Funds -7.48
Lipper Ohio Municipal Bond Funds -6.08
Lipper Small Company Growth Funds -0.73
Lipper Specialty/Miscellaneous Funds -2.29
Lipper U.S. Government Funds -4.63
Shearson Lehman Composite
Goverment Index -3.37
Shearson Lehman Government/
Corporate Index -3.51
Shearson Lehman Long-term
Government Index -7.73
S&P 500 S&P 1.32
S&P Utility Index S&P -7.94
Bond Buyer Bond Buyer Price Index -18.10
First Boston High Yield Index -0.97
Swiss Bank 10 Year U.S. Government (Corporate Bond) -6.39
Swiss Bank 10 Year United Kingdom (Corporate Bond) -5.29
Swiss Bank 10 Year France (Corporate Bond) -1.37
Swiss Bank 10 Year Germany (Corporate Bond) 4.09
Swiss Bank 10 Year Japan (Corporate Bond) 7.95
Swiss Bank 10 Year Canada (Corporate Bond) -14.10
Swiss Bank 10 Year Australia (Corporate Bond) 0.52
Morgan Stanley Capital
International 10 Year Hong Kong (Equity) -28.90
Morgan Stanley Capital
International 10 Year Belgium (Equity) 9.43
Morgan Stanley Capital
International 10 Year Spain (Equity) -3.93
SOURCE CATEGORY RETURN (%)
Morgan Stanley Capital
International 10 Year Austria (Equity) -6.05
Morgan Stanley Capital
International 10 Year France (Equity) -4.70
Morgan Stanley Capital
International 10 Year Netherlands (Equity) 12.66
Morgan Stanley Capital
International 10 Year Japan (Equity) 21.62
Morgan Stanley Capital
International 10 Year Switzerland (Equity) 4.18
Morgan Stanley Capital
International 10 Year United Kingdom (Equity) -1.63
Morgan Stanley Capital
International 10 Year Germany (Equity) 5.11
Morgan Stanley Capital
International 10 Year Italy (Equity) 12.13
Morgan Stanley Capital
International 10 Year Sweden (Equity) 18.80
Morgan Stanley Capital
International 10 Year United States (Equity) 2.00
Morgan Stanley Capital
International 10 Year Australia (Equity) 6.48
Morgan Stanley Capital
International 10 Year Norway (Equity) 24.07
Inflation Consumer Price Index 2.67
FHLB-San Francisco 11th District Cost-of-Funds Index 4.367
Federal Reserve Six-Month Treasury Bill 6.49
Federal Reserve One-Year Constant-Maturity
Treasury Rate 7.14
Federal Reserve Five-Year Constant-Maturity
Treasury Rate 7.78
Bloomberg NA NA
Credit Lyonnais NA NA
Lipper Pacific Region Funds -12.07
Statistical Abstract
of the U.S. NA NA
World Economic Outlook NA NA
*in U.S. currency
Part B of Post-Effective Amendment No. 95 filed with the
Commission on December 29, 1995 (Colonial International Fund for
Growth), 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,
The Colonial Fund, Colonial Global Natural Resources
Fund, Colonial Federal Securities Fund, Colonial Global
Equity Fund, Colonial Global Utilities Fund and Colonial
Strategic Balanced Fund)
Summary of Expenses (for Colonial International Fund for
Growth incorporated herein by reference to Part A of
Post-Effective Amendment No. 95 filed with the
Commission on December 29, 1995)
The Fund's Financial History (for Colonial Growth Shares
Fund, The Colonial Fund, Colonial Global Natural
Resources Fund, Colonial Federal Securities Fund,
Colonial Global Equity Fund, Colonial Global Utilities
Fund and Colonial Strategic Balanced Fund)
The Fund's Financial History (Colonial International
Fund for Growth incorporated by reference to Part A of
Post-Effective Amendment No. 95 filed with the
Commission on December 29, 1995)
Included in Part B
Colonial Global Utilities Fund (CGUF)
Investment portfolio, October 31, 1995
Statement of assets and liabilities, October 31, 1995
Statement of operations, Year ended October 31, 1995
Statement of changes in net assets, Year ended October
31, 1995 and
Period ended October 31, 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
LFC Utilites Trust (Hub of CGUF)
Investment portfolio, October 31, 1995
Statement of assets and liabilities, October 31, 1995
Statement of operations, Year ended October 31, 1995
Statement of changes in net assets, Years ended October 31,
1995 and 1994
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
Colonial International Fund for Growth (CIFfG)
(incorporated herein by reference to Part B of Post-
Effective Amendment No. 95 filed with the Commission on
December 29, 1995)
Investment portfolio, October 31, 1995
Statement of assets and liabilities, October 31, 1995
Statement of operations, Year ended October 31, 1994
Statement of changes in net assets, Year ended October
31, 1995 and Period ended October 31, 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial Growth Shares Fund (CGSF)
Investment portfolio, October 31, 1995
Statement of assets and liabilities, October 31, 1995
Statement of operations, Year ended October 31, 1995
Statement of changes in net assets, Years ended October
31, 1995 and 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
The Colonial Fund (TCF)
Investment portfolio, October 31, 1995
Statement of assets and liabilities, October 31, 1995
Statement of operations, Year ended October 31, 1995
Statement of changes in net assets, Years ended October
31, 1995 and 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial Federal Securities Fund (CFSF)
Investment portfolio, October 31, 1995
Statement of assets and liabilities, October 31, 1995
Statement of operations, Year ended October 31, 1995
Statement of changes in net assets, Years ended October
31, 1995 and 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial Global Equity Fund (CGEF)
Investment portfolio, October 31, 1995
Statement of assets and liabilities, October 31, 1995
Statement of operations, Year ended October 31, 1995
Statement of changes in net assets, Year ended October
31, 1995 and 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial Global Natural Resources Fund (CGNRF)
Investment portfolio, October 31, 1995
Statement of assets and liabilities, October 31, 1995
Statement of operations, Year ended October 31, 1995
Statement of changes in net assets, Years ended October
31, 1995 and 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial Strategic Balanced Fund (CSBF)
Investment portfolio, October 31, 1995
Statement of assets and liabilities, October 31, 1995
Statement of operations, Period ended October 31, 1995
Statement of changes in net assets, Year ended October
31, 1995 and Period ended October 31, 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
(b) Exhibits:
1 Amendment No. 3 to the Agreement and Declaration
of Trust (3)
2 By-Laws (3)
2(a) By-Laws as amended (10/9/92) (6)
3 Not Applicable
4 Form of Specimen of share certificate (3)
5(a) Form of Management Agreement (TCF) (10)
5(b) Form of Management Agreement (CGSF, CIFFG, CFSF,
CGNRF, CGEF and CSBF)
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 (8)
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. (5)
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) (4)
9(g) Form of Colonial Asset Builder Account Application
(TCF, CGSF) (7)
9(h) Form of Administration Agreement between Colonial
Trust III, with respect to CGUF, and Colonial
Management Associates, Inc. (9)
10 Opinion and Consent of Counsel (CGSF)(2)
10(a) Opinion and Consent of Counsel (incorporated
herein by reference to Exhibit 10 to Pre-Effective
Amendment No. 1 to the Registration Statement of
Colonial Government Securities Plus Trust,
Registration File Nos. 2-87530 and 811-3895, filed
with the Commission on January 6, 1984) (CFSF)
10(b) Opinion and Consent of Counsel (incorporated
herein by reference to Exhibit 10 to Post-
Effective Amendment No. 67 to the Registration
Statement of The Colonial Fund, Registration File
Nos. 2-15392 and 811-895, filed with the
Commission on February 26, 1987) (TCF)
11(a) Consent of Independent Accountants (TCF, CFSF,
CGEF, CSBF, CGNRF and CGSF)
11(b) Consent of Independent Accountants (CGUF)
11(c) Consent of Independent Auditors (Hub of CGUF)
11(d) Consent of Independent Accountants (CIFFG) (11)
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)
16(b) Calculation of Yield (CGSF)
16(c) Calculation of Performance Information (CFSF)
16(d) Calculation of Yield (CFSF)
16(e) Calculation of Performance Information at (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)(14)
16(n) Calculation of Yield (CIFFG)(14)
16(o) Calculation of Performance Information (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 Z)(TCF)
17(h) Financial Data Schedule (Class A)(CGEF)
17(i) Financial Data Schedule (Class B)(CGEF)
17(j) Financial Data Schedule (Class A)(CGNRF)
17(k) Financial Data Schedule (Class B)(CGNRF)
17(l) Financial Data Schedule (Class A)(CSBF)
17(m) Financial Data Schedule (Class B)(CSBF)
17(n) Financial Data Schedule (Class D)(CSBF)
17(o) Financial Data Schedule (Class A)(CIFFG)(11)
17(p) Financial Data Schedule (Class B)(CIFFG)(11)
17(q) Financial Data Schedule (Class D)(CIFFG)(11)
17(r) Financial Data Schedule (Class A)(CGSF)
17(s) Financial Data Schedule (Class B)(CGSF)
17(t) Financial Data Schedule (Class A)(CGUF)
17(u) Financial Data Schedule (Class B)(CGUF)
17(v) Financial Data Schedule (Class D)(CGUF)
17(w) Financial Data Schedule (Hub of 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)
18(a) Power of Attorney for: Robert J. Birnbaum, James E.
Grinnell and Richard W. Lowry (incorporated herein by
reference to Exhibit 18(a) to Post-Effective Amendment
No. 18 to the Registration Statement of Colonial Trust
V, Registration Nos. 811-5030 and 33-12109, filed with
the Commission on May 22, 1995)
(1) Incorporated by reference to Post-Effective Amendment
No. 70 to Form N-1A filed on or about June 2, 1986
(2) Incorporated by reference to Post-Effective Amendment
No. 71 to Form N-1A filed on or about August 27, 1986
(3) Incorporated by reference to Post-Effective Amendment
No. 78 to Form N-1A filed on or about December 17,
1991.
(4) Incorporated by reference to Post-Effective Amendment
No. 79 to Form N-1A filed on or about February 11,
1992.
(5) Incorporated by reference to Post-Effective Amendment
No. 80 to Form N-1A filed on or about July 13, 1992.
(6) Incorporated by reference to Post-Effective Amendment
No. 81 to Form N-1A filed on or about November 19,
1992.
(7) Incorporated by reference to Post-Effective Amendment
No. 85 to Form N-1A filed on or about July 30, 1993.
(8) Incorporated by reference to Post-Effective Amendment
No. 87 to Form N-1A filed on or about February 9,
1994.
(9) Incorporated by reference to Post-Effective Amendment
No. 90 to Form N-1A filed on or about December 21,
1994.
(10) Incorporated by reference to Post-Effective Amendment
No. 94 to Form N-1A filed on or about July 28, 1995.
(11) Incorporated by reference to Post-Effective Amendment
NO. 95 to Form N-1A filed on or about December 29,
1995.
Item 25. Persons Controlled by or under Common Group Control
with
Registrant
None
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders
Title of Class as of January 31, 1996
Shares of Beneficial 13,672 - Class A record holders
Interest 7,950 - Class B record holders
(CGSF)
Shares of Beneficial 56,193 - Class A record holders
Interest 3,291 - Class B record holders
(CFSF)
Shares of Beneficial 45,439 - Class A record holders
Interest 33,155 - Class B record holders
0 - Class D record holders
3 - Class Z record holders
(TCF)
Shares of Beneficial 5,393 - Class A record holders
Interest 2,302 - Class B record holders
(CGNRF)
Shares of Beneficial 1,489 - Class A record holders
Interest 6,265 - Class B record holders
(CGEF)
Shares of Beneficial 1,119 - Class A record holders
Interest 2,193 - Class B record holders
199 - Class D record holders
(CSBF)
Shares of Beneficial 5,422 - Class A record holders
Interest 10,073 - Class B record holders
96 - Class D record
holders(CIFfG)
Shares of Beneficial 21,345 - Class A record holders
Interest 101 - Class B record holders
9 - 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.
- --------
Registrant's investment adviser, Colonial Management Associates, Inc., is
registered as an investment adviser under the Investment Advisers Act of 1940
(1940 Act). Colonial Advisory Services, Inc. (CASI), an affiliate of Colonial
Management Associates, Inc., is also registered as an investment adviser under
the 1940 Act. As of the end of its fiscal year, December 31, 1995, CASI had
one institutional, corporate or other accounts under management or supervision,
the market value of which was approximately $31.4 million. As of the end of
its fiscal year, December 31, 1995, Colonial Management Associates, Inc. was
the investment adviser and/or administrator to 38 mutual funds in the Colonial
Group of Funds, the market value of which investment companies was
approximately $16,439.3 million. Colonial Investment Services, Inc., a
subsidiary of Colonial Management Associates, Inc., is the principal
underwriter and the national distributor of all of the funds in the Colonial
Group of Funds, including the Registrant.
The following sets forth the business and other connections of each
director and officer of Colonial Management Associates, Inc.:
(1) (2) (3) (4)
Name and principal
business
addresses* Affiliation
of officers and with Period is through 2/28/96. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ---------- -------------------------------- -----------
Archer, Joseph A. V.P.
Berliant, Allan V.P.
Bertelson, Lisa V.P.
Bertocci, Bruno V.P.
Bissonette, Michael V.P. Colonial Advisory Services, V.P.
Inc.
Boatman, Bonny E. Dir.;
Sr.V.P.;
IPC Mbr.
Carnabucci,
Dominick V.P.
Carroll, Sheila A. Sr.V.P.;
Dir.
Citrone, Frank V.P.
Cogger, Harold W. Dir.;Pres.; The Colonial Group, Inc. Dir.; Pres.;
CEO
CEO;IPC Mbr. Colonial Trusts I through VII V.P.
Exe. Cmte. Colonial High Income
Municipal Trust V.P.
Colonial InterMarket Income
Trust I V.P.
Colonial Intermediate High
Income Fund V.P.
Colonial Investment Grade
Municipal Trust V.P.
Colonial Municipal Income
Trust V.P.
Liberty Financial Exec V.P.;
Companies, Inc. Dir.
Colonial Advisory Services, Dir. Chrm.,
Inc. CEO & Pres.
Colonial Investors Service
Center, Inc. Dir.
Collins, Anne V.P.
Conlin, Nancy V.P.; Colonial Investors Service
Asst. Center, Inc. Asst. Clerk
Sec.; The Colonial Group, Inc. Asst. Clerk
Asst Colonial Advisory Services,
Clerk and Inc. Asst. Clerk
Counsel Colonial Investment Services,
Inc. Asst. Clerk
Colonial Trusts I through VII Asst. Sec.
Colonial High Income
Municipal Trust Asst. Sec.
Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Cordes, Susan V.P.
Daniszewski, V.P. Colonial Investment Services,
Joseph J. Inc. V.P.
DiSilva, Linda V.P.
Ericson, Carl C. V.P. Colonial Intermediate High
Income Fund V.P.
Colonial Advisory Services,
Inc. V.P.
Evans, C. Frazier Dir.; Colonial Investment Services,
Sr.V.P. Inc. Sr. V.P.
Feingold, Andrea S. V.P. Colonial Intermediate High
Income Fund V.P.
Colonial Advisory Services,
Inc. V.P.
Finnemore, V.P. Colonial Advisory Services,
Leslie W. Inc. V.P.
Gerokoulis, V.P. Colonial Investment Services,
Stephen A. Inc. Sr. V.P.
Harasimowicz, V.P.
Stephen
Harris, David V.P.
Hartford, Brian V.P.
Haynie, James P. V.P. Colonial Advisory Services,
Inc. V.P.
Johnson, Gordon A. V.P.
Koonce, Michael H. V.P.; Colonial Trusts I through VII Asst. Sec.
Asst. Colonial High Income
Sec.; Municipal Trust Asst. Sec.
Asst. Colonial InterMarket Income
Clerk & Trust I Asst. Sec.
Counsel Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Colonial Investment Services,
Inc. Asst. Clerk
Colonial Investors Service
Center, Inc. Asst. Clerk
The Colonial Group, Inc. Asst. Clerk
Colonial Advisory Services,
Inc. Asst. Clerk
Lennon, John E. V.P. Colonial Advisory Services,
Inc. V.P.
Lenzi, Sharon V.P.
Lilienfeld, V.P.
Jonathan
Loring, William C. V.P.
Lydecker, Peter L. V.P.; Colonial Trusts I through VII Controller
Asst. Colonial High Income
Treasurer Municipal Trust Controller
Colonial InterMarket Income
Trust I Controller
Colonial Intermediate High
Income Fund Controller
Colonial Investment Grade
Municipal Trust Controller
Colonial Municipal Income
Trust Controller
MacKinnon, Dir.;
Donald S. Sr.V.P.
McCue, Gerard A. V.P. Colonial Advisory Services,
Inc. V.P.
McGregor, Dir.; Colonial Investment Services, Pres.; CEO;
Jeffrey L. Sr.V.P. Inc. Dir.
McNeice, Jr., Chrmn.; Boston College Trustee
John A. Dir.; Boston College High School Trustee
Exe. Carney Hospital Foundation Mbr. of the
Cmte. Chm.; Carney Fund
Colonial Advisory Services, Dir.; Chm.;
Inc. CEO & Pres.
Colonial High Income
Municipal Trust Pres.
Colonial InterMarket
Income I Pres.
Colonial Intermediate High
Income Fund Pres.
Colonial Investment Grade
Municipal Trust Pres.
Colonial Municipal Income
Trust Pres.
The Colonial Group, Inc. Pres.
Colonial Trusts I through VII Pres.
Nativity Preparatory School Chm., Bd. of
Trustees
Northeastern University Corp. Bd.
Mbr.
Wentworth Institute of Corp. Bd.
Technology Mbr.
Board of Visitors - Peter
Drucker Graduate Center Board Member
St. John's Seminary Board Member
Third Century Foundation Trustee;
Pres.
Peter F. Drucker Foundation Dir.
United Way of Mass Bay Board Member
American Ireland Fund Board Member
Catholic Charities -
Archdiocese of Boston Board Member
Liberty Financial Companies,
Inc. Dir.
O'Neill, Charles A. Sr.V.P.; Colonial Investment Services,
Dir. Inc. Exec. V.P.
Peters, Helen F. Dir.; Colonial Advisory Services,
Sr.V.P.; Inc. Sr. V.P.
IPC Mbr.
Rao, Gita V.P.
Rie, Daniel Sr.V.P.; Colonial Advisory Services,
IPC Mbr.; Inc. Sr. V.P.
Dir.
Scoon, Davey S. Dir.; Colonial Advisory Services,
Exe.V.P.; Inc. Dir.
IPC Mbr. Colonial High Income
Municipal Trust V.P.
Colonial InterMarket Income
Trust I V.P.
Colonial Intermediate High
Income Fund V.P.
Colonial Investment Grade
Municipal Trust V.P.
Colonial Municipal Income
Trust V.P.
Colonial Trusts I through VII V.P.
Colonial Investors Service Dir; Pres.
Center, Inc.
The Colonial Group, Inc. COO; Ex. V.P.
Seibel, Sandra L. V.P.
Shore, Janet V.P. and Colonial High Income
Compliance Municipal Trust Asst. Sec.
Offr.; Colonial InterMarket Income
IPC Mbr. Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Colonial Trusts I through VII Asst. Sec.
Colonial Investment Services,
Inc. Asst. Clerk
Silver, Richard A. Dir.; Colonial Advisory Services,
Sr.V.P.; Inc. Treasurer
Treasurer Colonial High Income Treasurer &
& CFO Municipal Trust CFO
Colonial InterMarket Income Treasurer &
Trust I CFO
Colonial Intermediate High Treasurer &
Income Fund CFO
Colonial Investment Grade Treasurer &
Municipal Trust CFO
Colonial Municipal Income Treasurer &
Trust CFO
Colonial Trusts I through VII Treasurer &
CFO
Colonial Investors Service Treasurer
Center, Inc.
The Colonial Group, Inc. Treasurer &
CFO
Colonial Investment Services, Treasurer,
Inc. CFO & Dir.
Stern, Arthur O. Exe.V.P.; Colonial Advisory Services,
Dir.; Inc. Clerk
Sec.; Colonial High Income
Clrk. & Municipal Trust Secretary
Gnrl. Colonial InterMarket Income
Counsel; Trust I Secretary
IPC Mbr. Colonial Intermediate High
Income Fund Secretary
Colonial Investment Grade
Municipal Trust Secretary
Colonial Municipal Income
Trust Secretary
Colonial Trusts I through VII Secretary
Colonial Investors Service
Center, Inc. Clerk
The Colonial Group, Inc. Exec. V.P.;
Clerk
Colonial Investment Services, Dir., Chrmn.
Inc. Counsel; Clrk.
Waas, Robert S. V.P.
Wallace, John V.P.- Corp. Colonial Advisory Services,
Finance and Inc. Controller
Controller
- ------------------------------------------------
*The Principal address of all of the officers and
directors of the investment adviser is One Financial
Center, Boston, MA 02111.
Item 28. Business and Other Connections of Investment Adviser
(only with respect to Colonial Global Utilities Fund,
which is the successor by merger to the Liberty
Financial Utilities Fund (LFUF), and which invests all
of its assets in the LFC Utilities Trust (Portfolio),
which is managed by Stein Roe & Farnham Incorporated).
The LFUF was a series of the Liberty Financial Trust
(LFT).
Stein Roe & Farnham Incorporated (Manager), the investment
manager of the Portfolio, is a wholly owned subsidiary of
SteinRoe Services Inc. (SSI), which in turn is a wholly owned
subsidiary of Liberty Financial Companies, Inc., which in turn is
a subsidiary of Liberty Mutual Equity Corporation, which in turn
is a subsidiary of Liberty Mutual Insurance Company (LMIC). The
Manager acts as investment adviser to individuals, trustees,
pension and profit-sharing plans, charitable organizations, and
other investors. In addition to the Portfolio, it also acts as
investment adviser to other investment companies having different
investment policies.
During the past two years, neither the Manager nor any of its
directors or officers, except for Kenneth R. Leibler, C. Allen
Merritt, Jr. and N. Bruce Callow, have been engaged in any
business, profession, vocation, or employment of a substantial
nature either on their own account or in the capacity of
director, officer, partner or trustee, other than as an officer
or associate of the Manager. Mr. Leibler is President and Chief
Operating Officer of Liberty Financial Companies, Inc.; Mr.
Merritt is Senior Vice President and Treasurer of Liberty
Financial Companies, Inc.; Mr. Callow was Senior Vice President
of the Trust and Financial Services for The Northern Trust prior
to June 1994.
Certain directors and officers of the Manager also serve and have
during the past two years served in various capacities as
officers, directors or trustees of SSI, the LFT or investment
companies managed by the Manager, as shown below. (The listed
entities, except for LFT, are all located at One South Wacker
Drive, Chicago, IL 60606; the address of SteinRoe Variable
Investment Trust and LFT is Federal Reserve Plaza, 600 Atlantic
Avenue, Boston, MA 02110).
Position
Current Position Formerly
Held Within
Past
Two Years
SteinRoe Services Inc.
Gary A. Anetsberger Vice President
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President; Secretary
Kenneth J. Kozanda Vice President; Treasurer
Kenneth R. Leibler Director
Hans P. Ziegler Director; President; Chairman Vice Chairman
Stephen P. Lautz Vice President
C. Allen Merritt, Jr. Director; Vice President
SR&F Base Trust
Gary A. Anetsberger Sr. V.P. Controller
Timothy K. Armour Pres.; Trustee
Jilaine Hummel Bauer Executive Vice President;
Secretary
Ann H. Benjamin Vice President
N. Bruce Callow Executive Vice President
Stephen P. Lautz Vice President
Hans P. Ziegler Executive Vice President
Stein Roe Income Trust
Gary A. Anetsberger Sr. V.P. Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice President;
Secretary
Ann H. Benjamin Vice President
Thomas W. Butch Vice President
N. Bruce Callow Executive Vice President
Michael T. Kennedy Vice President
Stephen P. Lautz Vice President
Steven P. Luetger Vice President
Lynn C. Maddox Vice President
Jane M. Naeseth Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice President
Anthony G. Zulfer, Jr. Trustee Ementus Trustee
Stein Roe Investment
Trust
Gary A. Anetsberger Sr. V.P. Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice President;
Secretary
Thomas W. Butch Vice President
N. Bruce Callow Executive Vice President
Daniel K. Cantor Vice President
Robert A. Christensen Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Alfred F. Kugel Emeritus Trustee Trustee
Stephen P. Lautz Vice President
Lynn C. Maddox Vice President
Richard B. Peterson Vice President
Gloria J. Santella Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice President
Bruno Bertocci Vice President
David P. Harris Vice President
Harvey B. Hirschhorn Vice President
Stein Roe Municipal
Trust
Gary A. Anetsberger Sr. V.P. Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice President;
Secretary
Thomas W. Butch Vice President
N. Bruce Callow Executive Vice President
Joanne T. Costopoulos Vice President
Stephen P. Lautz Vice President
Lynn C. Maddox Vice President
M. Jane McCart Vice President
Thomas P. Sorbo Vice President
Shary Risting Stadler Vice President
Hans P. Ziegler Executive Vice President
Anthony G. Zulfer, Jr. Trustee Emeritus Trustee
SteinRoe Variable
Investment Trust
Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President
Ann H. Benjamin Vice President
Robert A. Christensen Vice President
E. Bruce Dunn Vice President
Eric P. Gustafson Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
Richard B. Peterson Vice President
LFC Utilities Trust
Robert A. Christensen Vice President
Gary A. Anetsberger Vice President
Ophelia L. Barsketis Vice President
Item 28. Business and Other Connections of Investment Adviser
The following sets forth business and other
connections of each director and officer of Colonial
Management Associates, Inc. (see next page):
Item 29 Principal Underwriter
- ------- ---------------------
(a) Colonial Investment Services, Inc. a subsidiary of Colonial
Management Associates, Inc., Registrant's principal
underwriter, also acts in the same capacity to Colonial Trust I,
Colonial Trust II, Colonial Trust IV, Colonial Trust V,
Colonial Trust VI and Colonial Trust VII:
sponsor for Colony Growth Plans (public offering of which were
discontinued June 14, 1971).
(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.
(1) (2) (3)
Name and Principal Position and Offices Positions and
Business Address* with Principal Offices with
Underwriter Registrant
- ------------------ ------------------- --------------
Ballou, Rich Regional V.P. None
Balzano, Christine R. V.P. None
Barsokas, David Regional V.P. None
Cairns, David Regional V.P. None
Chrzanowski, Regional V.P. None
Daniel
Clapp, Elizabeth A. V.P. None
Daniszewski, V.P. None
Joseph J.
Davey, Cynthia Sr. V.P. None
Eckelman, Bryan Sr. V.P. None
Eldridge, Kenneth Sr. V.P. None
Emerson, Kim P. Regional V.P. None
Erickson, Cynthia G. V.P. None
Evans, C. Frazier Sr. V.P. None
Feldman, David Regional V.P. None
Flaherty, Michael Regional V.P. None
Gerokoulis, Sr. V.P. None
Stephen A.
Goldberg, Matthew Regional V.P. None
Harasimowicz, V.P. None
Stephen
Hayes, Mary V.P. None
Elizabeth
Hodgkins, Joseph Regional V.P. None
Howard, Craig Sr. V.P. None
Karagiannis, Sr. V.P. None
Marilyn
Kelley, Terry M. Regional V.P. None
Kelson, David W. Sr. V.P. None
Kilkenny Ann R. Sr. V.P. None
Lloyd, Judith H. Sr. V.P. None
Mahoney, D. Scott Sr. V.P. None
McCabe, Joanne Regional V.P. None
McGregor, Jeffrey L. Director, CEO, None
President, COO
Meriwether, Jan V.P.
Meyer, Wayne Regional V.P. None
Murphy, Robert F. Sr. V.P. None
O'Neill, Charles A. Exec. V.P. None
Penitsch, Marilyn L. Regional V.P. None
Potter, Cheryl Regional V.P. None
Reed, Christopher B. Regional V.P. None
Ross, Gary J. Regional V.P. None
Scott, Michael W. Sr. V.P. None
Silver, Richard A. Director, Treasurer, Treasurer, CFO
CFO
Sorrells, Sr. V.P. None
Elizabeth
Stern, Arthur O. Clerk and Secretary
Counsel,Dir.,
Chairman
VanEtten, Keith H. V.P. None
Villanova, Paul Regional V.P. None
Wallace, John V.P. None
- --------------------------
* The address for each individual is One Financial Center, Boston, MA
02111.
Item 30. Location of Accounts and Records
Registrant's accounts and records required to be
maintained by Section 31(a) of the Investment Company
Act of 1940 and the Rules thereunder are in the
physical possession of the following:
Registrant
Rule 31a-1 (b) (4)
Rule 31a-2 (a) (1)
Colonial Management Associates, Inc.
One Financial Center, Boston, Massachusetts 02111
Rule 31a-1 (b) (1), (2), (3), (5), (6),
(7), (8), (9), (10), (11), (12)
Rule 31a-1 (d), (f)
Rule 31a-2 (a) (1), (2), (c), (e)
Colonial Investment Services, Inc.
One Financial Center, Boston, Massachusetts 02111
Rule 31a-1 (d)
Rule 31a-2 (c)
Boston Safe Deposit and Trust Company
One Boston Place, Boston, Massachusetts 02108
Rule 31a-1 (b), (2), (3)
Rule 31a-2 (a) (2)
Colonial Investors Service Center, Inc.
P. O. Box 1722, Boston, Massachusetts 02105-1722
Rule 31a-1 (b) (2)
Rule 31a-1 (a) (2)
Item 31. Management Services
See Item 5, Part A and Item 16, Part B
Item 32. Undertakings
(a) Not Applicable
(b) The Registrant hereby undertakes to
promptly call a meeting of shareholders for the
purpose of voting upon the question of removal of
any trustee when requested in writing to do so by
the record holders of not less than 10 per cent of
the Registrant's outstanding shares and to assist
its shareholders in the communicating with other
shareholders in accordance with the requirements of
Section 16(c) of the Investment Company Act of
1940.
(c) The Registrant hereby undertakes to
furnish free of charge to each person to whom a
prospectus is delivered, a copy of the applicable
series' annual report to shareholders containing
the information required by Item 5A of Form N-1A.
Part C of Post-Effective Amendment No. 95 filed with the
Commission on December 29, 1995 (Colonial International Fund for
Growth), 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 of the requirements for effectiveness of the
Registration Statement pursuant to Rule 485(b) and has duly
caused this Post-Effective Amendment No. 96 to its Registration
Statement under the Securities Act of 1933 and the Post-Effective
Amendment No. 37 under the Investment Company Act of 1940, to be
signed in this City of Boston, and The Commonwealth of
Massachusetts on this 13th day of February, 1996.
COLONIAL TRUST III
By: JOHN A. MCNEICE, JR.
--------------------
John A. McNeice, Jr.
President
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, LFC Utilities Trust has duly
caused this Post-Effective Amendment No. 96 to the Registration
Statement on Form N-1A of Colonial Trust III, insofar as it
relates to the Global Utilities Fund, a series of said Trust, to
be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, and the Commonwealth of
Massachusetts on this 13th day of February, 1996.
LFC UTILITIES TRUST
By: JOHN A. MCNEICE, JR.
--------------------
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 as
officers and Trustees of Colonial Trust III, and of LFC Utilities
Trust, the master fund in Colonial Global Utilities Fund, and on
the date indicated.
SIGNATURES TITLE DATE
JOHN A. MCNEICE, JR. President (chief February 13, 1996
- -------------------- executive officer)
John A. McNeice, Jr.
RICHARD A. SILVER Treasurer (principal February 13, 1996
- -------------------- financial officer)
Richard A. Silver
PETER L. LYDECKER Controller (principal February 13, 1996
- -------------------- accounting officer)
Peter L. Lydecker
ROBERT J. BIRNBAUM
- --------------------- Trustee
Robert J. Birnbaum
TOM BLEASDALE
- --------------------- Trustee
Tom Bleasdale
LORA S. COLLINS
- --------------------- Trustee
Lora S. Collins
JAMES E. GRINNELL
- --------------------- Trustee
James E. Grinnell
WILLIAM D. IRELAND, JR.
- ----------------------- Trustee
William D. Ireland, Jr.
RICHARD W. LOWRY
- --------------------- Trustee
Richard W. Lowry
WILLIAM E. MAYER
- --------------------- Trustee
William E. Mayer
JAMES L. MOODY, JR.
- --------------------- Trustee MICHAEL H. KOONCE
James L. Moody, Jr. ------------------
Michael H. Koonce
Attorney-in-fact
For each Trustee
JOHN J. NEUHAUSER
- --------------------- Trustee February 13, 1996
John J. Neuhauser
GEORGE L. SHINN
- --------------------- Trustee
George L. Shinn
ROBERT L. SULLIVAN
- --------------------- Trustee
Robert L. Sullivan
SINCLAIR WEEKS, JR.
- --------------------- Trustee
Sinclair Weeks, Jr.
EXHIBIT INDEX
Exhibit
5(b) Form of Management Agreement (CGSF, CIFFG, CFSF,
CGNRF, CGEF and CSBF)
11(a) Consent of Independent Accountants (CGSF, CFSF, CGNRF,
TCF, CGEF and CSBF)
11(b) Consent of Independent Accountants (CGUF)
11(c) Consent of Independent Auditors (Hub of CGUF)
16(a) Calculation of Performance Information (CGSF)
16(b) Calculation of Yield (CGSF)
16(c) Calculation of Performance Information (CFSF)
16(d) Calculation of Yield (CFSF)
16(e) Calculation of Performance Information at (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 (CGUF)
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 Z)(TCF)
17(h) Financial Data Schedule (Class A)(CGEF)
17(i) Financial Data Schedule (Class B)(CGEF)
17(j) Financial Data Schedule (Class A)(CGNRF)
17(k) Financial Data Schedule (Class B)(CGNRF)
17(l) Financial Data Schedule (Class A)(CSBF)
17(m) Financial Data Schedule (Class B)(CSBF)
17(n) Financial Data Schedule (Class D)(CSBF)
17(r) Financial Data Schedule(Class A)(CGSF)
17(s) Financial Data Schedule(Class B)(CGSF)
17(t) Financial Data Schedule (Class A)(CGUF)
17(u) Financial Data Schedule (Class B)(CGUF)
17(v) Financial Data Schedule (Class D)(CGUF)
17(w) Financial Data Schedule (Hub of CGUF)
MANAGEMENT AGREEMENT
AGREEMENT dated as of March 27, 1995, between COLONIAL TRUST III,
a Massachusetts business trust (Trust), with respect to (NAME OF
FUND) (Fund), and COLONIAL MANAGEMENT ASSOCIATES, INC., a
Massachusetts corporation (Adviser).
In consideration of the promises and covenants herein, the
parties agree as follows:
1. The Adviser will manage the investment of the assets of the
Fund in accordance with its prospectus and statement of
additional information and will perform the other services
herein set forth, subject to the supervision of the Board of
Trustees of the Trust. The Adviser may delegate its
investment responsibilities to a sub-adviser.
2. In carrying out its investment management obligations, the
Adviser shall:
(a) evaluate such economic, statistical and financial
information and undertake such investment research as it
shall believe advisable; (b) purchase and sell securities and
other investments for the Fund in accordance with the
procedures described in its prospectus and statement of
additional information; and (c) report results to the Board
of Trustees of the Trust.
3. The Adviser shall furnish at its expense the following:
(a) office space, supplies, facilities and equipment; (b)
executive and other personnel for managing the affairs of the
Fund (including preparing financial information of the Fund
and reports and tax returns required to be filed with public
authorities, but exclusive of those related to custodial,
transfer, dividend and plan agency services, determination of
net asset value and maintenance of records required by
Section 31(a) of the Investment Company Act of 1940, as
amended, and the rules thereunder (1940 Act)); and (c)
compensation of Trustees who are directors, officers,
partners or employees of the Adviser or its affiliated
persons (other than a registered investment company).
4. The Adviser shall be free to render similar services to
others so long as its services hereunder are not impaired
thereby.
5. The Fund shall pay the Adviser monthly a fee at the annual
rate of 0.65% of the first $1 billion of the average daily
net assets of the Fund, 0.60% in excess of $1 billion, 0.50%
in excess of $2 billion and 0.40% in excess of $3 billion.
6. If the operating expenses of the Fund for any fiscal year
exceed the most restrictive applicable expense limitation for
any state in which shares are sold, the Adviser's fee shall
be reduced by the excess but not to less than zero.
Operating expenses shall not include brokerage, interest,
taxes, deferred organization expenses, Rule 12b-1
distribution fees, service fees and extraordinary expenses,
if any. The Adviser may waive its compensation (and bear
expenses of the Fund) to the extent that expenses of the Fund
exceed any expense limitation the Adviser declares to be
effective.
7. This Agreement shall become effective as of the date of its
execution, and
(a) unless otherwise terminated, shall continue until two
years from its date of execution and from year to year
thereafter so long as approved annually in accordance with
the 1940 Act; (b) may be terminated without penalty on
sixty days' written notice to the Adviser either by vote of
the Board of Trustees of the Trust or by vote of a majority
of the outstanding shares of the Fund; (c) shall
automatically terminate in the event of its assignment; and
(d) may be terminated without penalty by the Adviser on
sixty days' written notice to the Trust.
8. This Agreement may be amended in accordance with the 1940
Act.
9. For the purpose of the Agreement, the terms "vote of a
majority of the outstanding shares", "affiliated person" and
"assignment" shall have their respective meanings defined in
the 1940 Act and exemptions and interpretations issued by the
Securities and Exchange Commission under the 1940 Act.
10 In the absence of willful misfeasance, bad faith or gross
. negligence on the part of the Adviser, or reckless disregard
of its obligations and duties hereunder, the Adviser shall
not be subject to any liability to the Trust or the Fund, to
any shareholder of the Trust or the Fund or to any other
person, firm or organization, for any act or omission in the
course of, or connected with, rendering services hereunder.
COLONIAL TRUST III on behalf of
(NAME OF FUND)
By: __________________________
Title: Controller
COLONIAL MANAGEMENT ASSOCIATES, INC.
By: __________________________
Title: Executive Vice President
A copy of the document establishing the Trust is filed with the
Secretary of The Commonwealth of Massachusetts. This Agreement
is executed by officers not as individuals and is not binding
upon any of the Trustees, officers or shareholders of the Trust
individually but only upon the assets of the Fund.
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. 96
to the registration statement on Form N-1A (the
"Registration Statement") of our reports dated December 11,
1995, relating to the financial statements and financial
highlights appearing in the October 31, 1995 Annual Report
to Shareholders of Colonial Growth Shares Fund, The
;colonial Fund, Colonial Federal Securities Fund, Colonial
Global Equity Fund, Colonial Global Natural Resources Fund
and Colonial Strategic Balanced Fund, each a series of
Colonial Trust III, which are also incorporated by reference
in to the Registration Statement. We also consent to the
references to us under the Heading "The Fund's Financial
History" in the Prospectuses and under the heading
"Independent Accountants" in the Statements of Additional
Information.
PRICE WATERHOUSE LLP
- --------------------
Price Waterhouse LLP
Boston, Massachusetts
February 12, 1996
S:\FUNDS\EDGAR\TRUSTIII\PWCON1.DOC
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus and Statement of Additional Information
constituting parts of this Post-Effective Amendment No. 96
to the registration statement on Form N-1A (the
"Registration Statement") of our report dated December 19,
1995, relating to the financial statements and financial
highlights, for the year ended October 31, 1995, appearing
in the October 31, 1995 Annual Report to Shareholders of
Colonial Global Utilities Fund, a series of Colonial Trust
III, which is also incorporated by reference into the
Registration Statement. We also consent to the references
to us under the Heading "The Fund's Financial History" in
the Prospectus and under the heading "Independent
Accountants of the Fund" in the Statement of Additional
Information.
PRICE WATERHOUSE LLP
- -----------------------
Price Waterhouse LLP
Boston, Massachusetts
February 12, 1996
S:\FUNDS\TRUSTIII\N-1A_DOC\PWCON2.DOC
KPMG LETTERHEAD
CONSENT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders
of the LFC Utilities Trust:
We consent to the use of our report (incorporated by
reference) and to the reference to our Firm under the
heading "Certain Information Concerning the Portfolio-
Independent Auditors of the Portfolio" in the Statement of
Additional Information.
KPMG PEAT MARWICK LLP
- ---------------------
KPMG PEAT MARWICK LLP
Chicago, IL
February 12, 1996
S:\FUNDS\EDGAR\TRUSTIII\CONSENT.ASC
WLK/ 1/31/96 PERFORMANCE CALCULATION
COLONIAL GROWTH SHARES FUND - CLASS A
Fiscal Year End: 10/31/95
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
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 $14.02 $14.02 $9.63 $9.63 $10.24 $10.24
Initial Shares 67.225 71.327 97.871 103.842 92.041 97.656
Shares From Dis 7.825 8.252 41.710 44.258 157.750 167.375
End of Period N $16.14 $16.14 $16.14 $16.14 $16.14 $16.14
Total Return 21.13% 28.44% 125.28% 139. 303.16% 327.76%
Average Annual
Total Return 21.13% 28.44% 17.64% 19.0 14.96% 15.64%
</TABLE>
PERFORMANCE CALCULATION
COLONIAL GROWTH SHARES FUND - CLASS B
Fiscal Year End: 10/31/95
Inception Date: 6/8/92
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 10/31/95 6/8/92 TO 10/31/95
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 $13.94 $13.94 $13.57 $13.57
Initial Shares 71.736 71.736 73.692 73.692
Shares From Dist. 7.753 7.753 22.742 22.742
End of Period NAV $16.04 $16.04 $16.04 $16.04
CDSC 5.00% 3.00%
Total Return 22.50% 27.50% 51.68% 54.68%
Average Annual
Total Return 22.50% 27.50% 13.04% 13.69%
</TABLE>
WLK/ 1/7/96
COLONIAL GROWTH SHARES FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 10/31/95
a-b 6
FUND YIELD = 2 ----- +1 -1
c-d
a = dividends and interest earned during
the month ................................ $410,687
b = expenses (exclusive of distribution fee)
accrued during the month.................. 252,495
c = average dividend shares outstanding
during the month ......................... 16,680,249
d = class A maximum offering price per share
on the last day of the month ............. $17.12
CLASS A YIELD ........................... 0.67%
========
Class A yield/(1-Load)
ie: .67%/(1-.0575)=yield on NAV= 0.71%
Less: Distribution fee (.75)
-----
CLASS B YIELD ........................... -0.04%
========
WLK/ 04-Jan-96 PERFORMANCE CALCULATION
COLONIAL FEDERAL SECURITIES FUND - CLASS A
Fiscal Year End: 10/31/95
Inception Date: 3/30/84
<TABLE>
<CAPTION>
1 YEAR ENDED 10/31/95 5 YEARS ENDED 10/31/95 10 YEARS ENDED 10/31/95
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 $9.95 $9.95 $10.42 $10.42 $11.95 $11.95
Initial Shares 95.729 100.503 91.411 95.969 79.707 83.682
Shares From Dist. 7.010 7.360 47.496 49.862 132.957 139.592
End of Period NAV $10.83 $10.83 $10.83 $10.83 $10.83 $10.83
Total Return 11.27% 16.82% 50.44% 57.94% 130.32% 141.81%
Average Annual
Total Return 11.27% 16.82% 8.51% 9.57% 8.70% 9.23%
</TABLE>
WLK/ 04-Jan-96 PERFORMANCE CALCULATION
COLONIAL FEDERAL SECURITIES FUND - CLASS B
Fiscal Year End: 10/31/95
Inception Date: 6/8/92
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 10/31/95 6/8/92 TO 10/31/95
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 $9.95 $9.95 $10.73 $10.73
Initial Shares 100.503 100.503 93.197 93.197
Shares From Dist. 6.570 6.570 24.140 24.140
End of Period NAV $10.83 $10.83 $10.83 $10.83
CDSC 5.00% 3.00%
Total Return 10.96% 15.96% 24.08% 27.08%
Average Annual
Total Return 10.96% 15.96% 6.55% 7.30%
</TABLE>
04-Jan-96 /WLK
COLONIAL FEDERAL SECURITIES FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 10/31/95
a-b 6
FUND YIELD = 2 ----- +1 -1
c-d
a = dividends and interest earned during
the month ................................ $7,866,366
b = expenses (exclusive of distribution fee)
accrued during the month.................. 1,282,555
c = average dividend shares outstanding
during the month ......................... 120,527,866
d = class A maximum offering price per share
on the last day of the month ............. $11.37
CLASS A YIELD ........................... 5.84%
=======
Class A yield/(1-Load)
ie: 5.84%/(1-.0475)=yield on NAV= 6.13%
Less: Distribution fee (.75)
----
CLASS B YIELD ........................... 5.38%
=======
WLK 1/5/96 PERFORMANCE CALCULATION
THE COLONIAL FUND - CLASS A
Year End: 10/31/95
<TABLE>
<CAPTION>
1 YEAR ENDED 10/31/195 5 YEARS ENDED 10/31/9 10 YEARS ENDED 10/31/95
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 $8.06 $8.06 $5.70 $5.70 $5.22 $5.22
Initial Shares 116.935 124.069 165.254 175.336 180.556 191.571
Shares From Dist. 11.389 12.084 58.368 61.930 192.569 204.318
End of Period NAV $8.94 $8.94 $8.94 $8.94 $8.94 $8.94
Total Return 14.72% 21.72% 99.92% 112.12% 233.57% 253.92%
Average Annual
Total Return 14.72% 21.72% 14.86% 16.23% 12.80% 13.47%
</TABLE>
WLK/ 1/5/96 PERFORMANCE CALCULATION
THE COLONIAL FUND - CLASS B
Year End: 10/31/95
Inception Date: 5/5/92
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 10/31/195 5/5/92 to 10/31/95
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 $8.05 $8.05 $7.47 $7.47
Initial Shares 124.224 124.224 133.869 133.869
Shares From Dist. 11.101 11.101 27.116 27.116
End of Period NAV $8.93 $8.93 $8.93 $8.93
CDSC 5.00% 3.00%
Total Return 15.84% 20.84% 40.76% 43.76%
Average Annual
Total Return 15.84% 20.84% 10.28% 10.95%
</TABLE>
WLK/ 1/5/96 PERFORMANCE CALCULATION
THE COLONIAL FUND - CLASS Z
Year End: 10/31/95
Inception Date: 7/28/95
<TABLE>
<CAPTION>
SINCE INCEPTION
5/5/92 to 10/31/95
Non-Standard
--------------------
<S> <C>
Initial Inv. $1,000.00
Amt. Invested $1,000.00
Initial NAV $8.81
Initial Shares 113.507
Shares From Dist. 0.608
End of Period NAV $8.94
CDSC
Total Return 2.02%
Average Annual
Total Return N/A
</TABLE>
05-Jan-96 /WLK
THE COLONIAL FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 10/31/95
a - b 6
FUND YIELD = 2 ------- + 1 - 1
cd
a = dividends and interest earned during
the month ................................ $2,728,417
b = expenses (exclusive of distribution fee)
accrued during the month.................. 994,550
c = average dividend shares outstanding
during the month ......................... 114,688,965
d = class A maximum offering price per share
on the last day of the month ............. $9.49
CLASS A YIELD ........................... 1.92%
======
Class A yield/(1-Load)
ie: 1.92%/(1-.0575)=yield on NAV= 2.04%
Less: Distribution fee (.75)
-----
CLASS B YIELD ........................... 1.29%
======
08-Jan-96 /WLK PERFORMANCE CALCULATION
COLONIAL GLOBAL EQUITY FUND - CLASS A
Fiscal Year End: 10/31/95
Inception Date: 6/8/92
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 10/31/95 6/8/92 TO 10/31/95
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 $12.69 $12.69 $10.00 $10.00
Initial Shares 74.271 78.802 94.250 100.000
Shares From Dist. 7.659 8.126 13.907 14.756
End of Period NAV $12.45 $12.45 $12.45 $12.45
Total Return 2.00% 8.23% 34.66% 42.87%
Average Annual
Total Return 2.00% 8.23% 9.15% 11.06%
</TABLE>
08-Jan-96 /WLK PERFORMANCE CALCULATION
COLONIAL GLOBAL EQUITY FUND - CLASS B
Fiscal Year End: 10/31/95
Inception Date: 6/8/92
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 10/31/95 6/8/92 TO 10/31/95
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 $12.63 $12.63 $10.00 $10.00
Initial Shares 79.177 79.177 100.000 100.000
Shares From Dist. 7.529 7.529 12.237 12.237
End of Period NAV $12.39 $12.39 $12.39 $12.39
CDSC 4.91% 3.00%
Total Return 2.52% 7.43% 36.06% 39.06%
Average Annual
Total Return 2.52% 7.43% 9.48% 10.18%
</TABLE>
07-Jan-96 /WLK
COLONIAL GLOBAL EQUITY FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 10/31/95
a-b 6
FUND YIELD = 2 ----- +1 -1
c-d
ADJUSTED
YIELD YIELD*
a = dividends and interest earned during --------- ---------
the month ................................ $149,462 $149,462
b = expenses (exclusive of distribution fee)
accrued during the month.................. 97,712 105,351
c = average dividend shares outstanding
during the month ......................... 5,740,002 5,740,002
d = class A maximum offering price per share
on the last day of the month ............. $13.21 $13.21
CLASS A YIELD ........................... 0.82% 0.70%
===== =====
Class A yield/(1-Load)
ie: .82%/(1-.0575)=yield on NAV= 0.87%
Less: Distribution fee (.75)
-----
CLASS B YIELD ........................... 0.12% -0.01%
===== =====
* Without voluntary expense limit.
08-Jan-96 /WLK PERFORMANCE CALCULATION
COLONIAL GLOBAL NATURAL RESOURCES FUND - CLASS A
Fiscal Year End: 10/31/95
Inception Date: 6/8/92
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 10/31/95 6/8/92 TO 10/31/95
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 $13.16 $13.16 $10.00 $10.00
Initial Shares 71.619 75.988 94.250 100.000
Shares From Dist. 2.024 2.147 5.549 5.887
End of Period NAV $12.43 $12.43 $12.43 $12.43
Total Return -8.46% -2.88% 24.05% 31.62%
Average Annual
Total Return -8.46% -2.88% 6.54% 8.42%
</TABLE>
08-Jan-96 /WLK PERFORMANCE CALCULATION
COLONIAL GLOBAL NATURAL RESOURCES FUND - CLASS B
Fiscal Year End: 10/31/95
Inception Date: 6/8/92
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 10/31/95 6/8/92 TO 10/31/95
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 $13.11 $13.11 $10.00 $10.00
Initial Shares 76.278 76.278 100.000 100.000
Shares From Dist. 1.619 1.619 3.674 3.674
End of Period NAV $12.38 $12.38 $12.38 $12.38
CDSC 4.73% 3.00%
Total Return -8.29% -3.56% 25.35% 28.35%
Average Annual
Total Return -8.29% -3.56% 6.87% 7.62%
</TABLE>
07-Jan-96 /WLK
COLONIAL GLOBAL NATURAL RESOURCES FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 10/31/95
a-b 6
FUND YIELD = 2 ----- +1 -1
c-d
a = dividends and interest earned during
the month ............................. $106,840
b = expenses (exclusive of distribution fee)
accrued during the month.............. 72,725
c = average dividend shares outstanding
during the month ...................... 4,264,856
d = class A maximum offering price per share
on the last day of the month .......... $13.19
CLASS A YIELD ....................... 0.73%
========
Class A yield/(1-Load)
ie: .73%/(1-.0575)=yield on NAV0.77%
Less: Distribution fee (.75)
-----
CLASS B YIELD ....................... 0.02%
========
09-Jan-96 /WLK PERFORMANCE CALCULATION
COLONIAL STRATEGIC BALANCE FUND - CLASS A
Year End: 10/31/95
Inception Date: 9/19/94
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 10/31/95 9/19/94 TO 10/31/95
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 4.75% 4.75%
Amt. Invested $952.50 $1,000.00 $952.50 $1,000.00
Initial NAV $9.91 $9.91 $10.00 $10.00
Initial Shares 96.115 100.908 95.250 100.000
Shares From Dist. 3.196 3.355 3.167 3.325
End of Period NAV $11.65 $11.65 $11.65 $11.65
Total Return 15.70% 21.47% 14.66% 20.37%
Average Annual
Total Return 15.70% 21.47% 13.02% 18.04%
</TABLE>
09-Jan-96 /WLK PERFORMANCE CALCULATION
COLONIAL STRATEGIC BALANCE FUND - CLASS B
Year End: 10/31/95
Inception Date: 9/19/94
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 10/31/95 9/19/94 TO 10/31/95
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 $9.90 $9.90 $10.00 $10.00
Initial Shares 101.010 101.010 100.000 100.000
Shares From Dist. 2.941 2.941 2.912 2.912
End of Period NAV $11.64 $11.64 $11.64 $11.64
CDSC 5.00% 4.00%
Total Return 16.00% 21.00% 15.79% 19.79%
Average Annual
Total Return 16.00% 21.00% 14.01% 17.53%
</TABLE>
09-Jan-96 /WLK PERFORMANCE CALCULATION
COLONIAL STRATEGIC BALANCED FUND - CLASS D
Year End: 10/31/95
Inception Date: 9/19/94
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 10/31/95 9/19/94 TO 10/31/95
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 1.00% 1.00%
Amt. Invested $990.00 $1,000.00 $990.00 $1,000.00
Initial NAV $9.90 $9.90 $10.00 $10.00
Initial Shares 100.000 101.010 99.000 100.000
Shares From Dist. 2.004 2.891 2.839 2.862
End of Period NAV $11.65 $11.65 $11.65 $11.65
CDSC 1.00%
Total Return 18.83% 21.04% 18.64% 19.83%
Average Annual
Total Return 18.83% 21.04% 16.52% 17.57%
</TABLE>
WLK/ 1/8/96
COLONIAL STRATEGIC BALANCE FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 10/31/95
a-b 6
FUND YIELD = 2 ----- +1 -1
c-d
ADJUSTED
YIELD YIELD*
a = dividends and interest earned during -------------- ------------
the month ............................... $137,855 $137,855
b = expenses (exclusive of distribution fee)
accrued during the month................. 40,204 48,338
c = average dividend shares outstanding
during the month ........................ 3,281,226 3,281,226
d = class A maximum offering price per share
on the last day of the month ............ $12.23 $12.23
CLASS A YIELD ......................... 2.94% 2.70%
====== ======
Class A yield/(1-Load)
ie: 2.94%/(1-.0475)=yield on NAV= 3.09%
Less: Distribution fee (.75)
----
CLASS B YIELD .......................... 2.34% 2.08%
====== ======
CLASS D YIELD .......................... 2.31% 2.05%
====== ======
* Without voluntary expense limit.
09-Jan-96 /WLK PERFORMANCE CALCULATION
COLONIAL GLOBAL UTILITIES FUND - CLASS A
Fiscal Year End: 10/31/95
Inception Date: 10/15/91
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 10/31/95 10/15/91 TO 10/31/95
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 $10.61 $10.61 $10.00 $10.00
Initial Shares 88.831 94.251 94.250 100.000
Shares From Dist. 5.013 5.320 24.319 25.806
End of Period NAV $11.08 $11.08 $11.08 $11.08
Total Return 3.98% 10.32% 31.37% 39.39%
Average Annual
Total Return 3.98% 10.32% 6.97% 8.55%
</TABLE>
09-Jan-96 /WLK PERFORMANCE CALCULATION
COLONIAL GLOBAL UTILITIES FUND - CLASS B
Fiscal Year End: 10/31/95
Inception Date: 3/27/95
<TABLE>
<CAPTION>
SINCE INCEPTION
3/27/95 TO 10/31/95
Standard Non-Standard
------------- --------------------
<S> <C> <C>
Initial Inv. $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00
Initial NAV $10.42 $10.42
Initial Shares 95.969 95.969
Shares From Dist. 2.248 2.248
End of Period NAV $11.08 $11.08
CDSC 5.00%
Total Return 3.82% 8.82%
Average Annual
Total Return N/A N/A
</TABLE>
09-Jan-96 /WLK PERFORMANCE CALCULATION
COLONIAL GLOBAL UTILITIES FUND - CLASS D
Fiscal Year End: 10/31/95
Inception Date: 3/27/95
<TABLE>
<CAPTION>
SINCE INCEPTION
3/27/95 TO 10/31/95
Standard Non-Standard
------------ -------------------
<S> <C> <C>
Initial Inv. $1,000.00 $1,000.00
Max. Load 1.00%
Amt. Invested $990.00 $1,000.00
Initial NAV $10.42 $10.42
Initial Shares 95.010 95.969
Shares From Dist. 2.232 2.248
End of Period NAV $11.08 $11.08
CDSC 1.00%
Total Return 6.74% 8.82%
Average Annual
Total Return N/A N/A
</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 FEDERAL SECURITIES FUND, CLASS A YEAR END OCT-31-1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL FEDERAL SECURITIES FUND, CLASS A YEAR END OCT-31-1995.
</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-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 1701392
<INVESTMENTS-AT-VALUE> 1737723
<RECEIVABLES> 19525
<ASSETS-OTHER> 917
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1758165
<PAYABLE-FOR-SECURITIES> 467343
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10727
<TOTAL-LIABILITIES> 478070
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1406396
<SHARES-COMMON-STOCK> 110901
<SHARES-COMMON-PRIOR> 128483
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (6970)
<ACCUMULATED-NET-GAINS> (232891)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33073
<NET-ASSETS> 1280095
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 101503
<OTHER-INCOME> 6974
<EXPENSES-NET> 16035
<NET-INVESTMENT-INCOME> 92442
<REALIZED-GAINS-CURRENT> 22347
<APPREC-INCREASE-CURRENT> 91457
<NET-CHANGE-FROM-OPS> 206246
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 85675
<DISTRIBUTIONS-OF-GAINS> 3434
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9160
<NUMBER-OF-SHARES-REDEEMED> (30800)
<SHARES-REINVESTED> 4058
<NET-CHANGE-IN-ASSETS> (67634)
<ACCUMULATED-NII-PRIOR> (8191)
<ACCUMULATED-GAINS-PRIOR> (259853)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8424
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16035
<AVERAGE-NET-ASSETS> 1246093
<PER-SHARE-NAV-BEGIN> 9.950
<PER-SHARE-NII> 0.716
<PER-SHARE-GAIN-APPREC> 0.901
<PER-SHARE-DIVIDEND> 0.709
<PER-SHARE-DISTRIBUTIONS> 0.028
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.83
<EXPENSE-RATIO> 1.17
<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, CLASS B YEAR END OCT-31-1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL FEDERAL SECURITIES FUND, CLASS B.
</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-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 1701392
<INVESTMENTS-AT-VALUE> 1737723
<RECEIVABLES> 19525
<ASSETS-OTHER> 917
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1758165
<PAYABLE-FOR-SECURITIES> 467343
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10727
<TOTAL-LIABILITIES> 478070
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 80487
<SHARES-COMMON-STOCK> 7292
<SHARES-COMMON-PRIOR> 7007
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (6970)
<ACCUMULATED-NET-GAINS> (232891)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33073
<NET-ASSETS> 1280095
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 101503
<OTHER-INCOME> 6974
<EXPENSES-NET> 16035
<NET-INVESTMENT-INCOME> 92442
<REALIZED-GAINS-CURRENT> 22347
<APPREC-INCREASE-CURRENT> 91457
<NET-CHANGE-FROM-OPS> 206246
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4557
<DISTRIBUTIONS-OF-GAINS> 183
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1772
<NUMBER-OF-SHARES-REDEEMED> (1727)
<SHARES-REINVESTED> 240
<NET-CHANGE-IN-ASSETS> (67634)
<ACCUMULATED-NII-PRIOR> (8191)
<ACCUMULATED-GAINS-PRIOR> (259853)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8424
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16035
<AVERAGE-NET-ASSETS> 74442
<PER-SHARE-NAV-BEGIN> 9.950
<PER-SHARE-NII> 0.639
<PER-SHARE-GAIN-APPREC> 0.901
<PER-SHARE-DIVIDEND> 0.632
<PER-SHARE-DISTRIBUTIONS> 0.028
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.83
<EXPENSE-RATIO> 1.92
<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, CLASS A YEAR END OCT-31-1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT OF THE COLONIAL FUND,
CLASS A YEAR END OCT-31-1995.
</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-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 847710
<INVESTMENTS-AT-VALUE> 1015369
<RECEIVABLES> 33303
<ASSETS-OTHER> 78
<OTHER-ITEMS-ASSETS> 168
<TOTAL-ASSETS> 1048918
<PAYABLE-FOR-SECURITIES> 22583
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1234
<TOTAL-LIABILITIES> 23817
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 461103
<SHARES-COMMON-STOCK> 74693
<SHARES-COMMON-PRIOR> 68935
<ACCUMULATED-NII-CURRENT> 136
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 74039
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 167642
<NET-ASSETS> 1025101
<DIVIDEND-INCOME> 22620
<INTEREST-INCOME> 10055
<OTHER-INCOME> 0
<EXPENSES-NET> 12828
<NET-INVESTMENT-INCOME> 19847
<REALIZED-GAINS-CURRENT> 73801
<APPREC-INCREASE-CURRENT> 85099
<NET-CHANGE-FROM-OPS> 178747
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15424
<DISTRIBUTIONS-OF-GAINS> 34321
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8868
<NUMBER-OF-SHARES-REDEEMED> 13808
<SHARES-REINVESTED> 5968
<NET-CHANGE-IN-ASSETS> 205704
<ACCUMULATED-NII-PRIOR> 1133
<ACCUMULATED-GAINS-PRIOR> 51187
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5006
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12828
<AVERAGE-NET-ASSETS> 609380
<PER-SHARE-NAV-BEGIN> 8.06
<PER-SHARE-NII> 0.200
<PER-SHARE-GAIN-APPREC> 1.393
<PER-SHARE-DIVIDEND> 0.212
<PER-SHARE-DISTRIBUTIONS> 0.501
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.94
<EXPENSE-RATIO> 1.16
<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, CLASS B YEAR END OCT-31-1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF THE COLONIAL FUND,
CLASS B YEAR END OCT-31-1995.
</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-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 847710
<INVESTMENTS-AT-VALUE> 1015369
<RECEIVABLES> 33303
<ASSETS-OTHER> 78
<OTHER-ITEMS-ASSETS> 168
<TOTAL-ASSETS> 1048918
<PAYABLE-FOR-SECURITIES> 22583
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1234
<TOTAL-LIABILITIES> 23817
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 318566
<SHARES-COMMON-STOCK> 39635
<SHARES-COMMON-PRIOR> 32823
<ACCUMULATED-NII-CURRENT> 136
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 74039
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 167642
<NET-ASSETS> 1025101
<DIVIDEND-INCOME> 22620
<INTEREST-INCOME> 10055
<OTHER-INCOME> 0
<EXPENSES-NET> 12828
<NET-INVESTMENT-INCOME> 19847
<REALIZED-GAINS-CURRENT> 73801
<APPREC-INCREASE-CURRENT> 85099
<NET-CHANGE-FROM-OPS> 178747
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5439
<DISTRIBUTIONS-OF-GAINS> 16631
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9250
<NUMBER-OF-SHARES-REDEEMED> 5252
<SHARES-REINVESTED> 2814
<NET-CHANGE-IN-ASSETS> 205704
<ACCUMULATED-NII-PRIOR> 1133
<ACCUMULATED-GAINS-PRIOR> 51187
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5006
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12828
<AVERAGE-NET-ASSETS> 300913
<PER-SHARE-NAV-BEGIN> 8.05
<PER-SHARE-NII> 0.137
<PER-SHARE-GAIN-APPREC> 1.395
<PER-SHARE-DIVIDEND> 0.151
<PER-SHARE-DISTRIBUTIONS> 0.501
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.93
<EXPENSE-RATIO> 1.93
<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, CLASS Z YEAR END OCT-31-1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF THE COLONIAL FUND,
CLASS Z YEAR END OCT-31-1995.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 5
<NAME> THE COLONIAL FUND, CLASS Z
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 847710
<INVESTMENTS-AT-VALUE> 1015369
<RECEIVABLES> 33303
<ASSETS-OTHER> 78
<OTHER-ITEMS-ASSETS> 168
<TOTAL-ASSETS> 1048918
<PAYABLE-FOR-SECURITIES> 22583
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1234
<TOTAL-LIABILITIES> 23817
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3615
<SHARES-COMMON-STOCK> 409
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 136
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 74039
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 167642
<NET-ASSETS> 1025101
<DIVIDEND-INCOME> 22620
<INTEREST-INCOME> 10055
<OTHER-INCOME> 0
<EXPENSES-NET> 12828
<NET-INVESTMENT-INCOME> 19847
<REALIZED-GAINS-CURRENT> 73801
<APPREC-INCREASE-CURRENT> 85099
<NET-CHANGE-FROM-OPS> 178747
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 407
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 205704
<ACCUMULATED-NII-PRIOR> 1133
<ACCUMULATED-GAINS-PRIOR> 51187
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5006
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12828
<AVERAGE-NET-ASSETS> 683
<PER-SHARE-NAV-BEGIN> 8.78
<PER-SHARE-NII> 0.219
<PER-SHARE-GAIN-APPREC> (0.011)
<PER-SHARE-DIVIDEND> 0.048
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.94
<EXPENSE-RATIO> 0.93
<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, CLASS A YEAR END OCT-31-1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL GLOBAL EQUITY FUND, CLASS A YEAR END OCT-31-1995.
</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-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 61103
<INVESTMENTS-AT-VALUE> 68282
<RECEIVABLES> 2173
<ASSETS-OTHER> 337
<OTHER-ITEMS-ASSETS> 3
<TOTAL-ASSETS> 70795
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 163
<TOTAL-LIABILITIES> 163
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11194
<SHARES-COMMON-STOCK> 924
<SHARES-COMMON-PRIOR> 829
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (129)
<ACCUMULATED-NET-GAINS> 3754
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7187
<NET-ASSETS> 70632
<DIVIDEND-INCOME> 1721
<INTEREST-INCOME> 240
<OTHER-INCOME> 0
<EXPENSES-NET> 1416
<NET-INVESTMENT-INCOME> 545
<REALIZED-GAINS-CURRENT> 3832
<APPREC-INCREASE-CURRENT> 637
<NET-CHANGE-FROM-OPS> 5014
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 175
<DISTRIBUTIONS-OF-GAINS> 809
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 310
<NUMBER-OF-SHARES-REDEEMED> (297)
<SHARES-REINVESTED> 82
<NET-CHANGE-IN-ASSETS> (3032)
<ACCUMULATED-NII-PRIOR> 96
<ACCUMULATED-GAINS-PRIOR> 5472
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 535
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1600
<AVERAGE-NET-ASSETS> 10954
<PER-SHARE-NAV-BEGIN> 12.690
<PER-SHARE-NII> 0.167
<PER-SHARE-GAIN-APPREC> 0.735
<PER-SHARE-DIVIDEND> (0.198)
<PER-SHARE-DISTRIBUTIONS> (0.944)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.45
<EXPENSE-RATIO> 1.36
<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, CLASS B YEAR END OCT-31-1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
GLOBAL EQUITY FUND, CLASS B YEAR END OCT-31-1995.
</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-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 61103
<INVESTMENTS-AT-VALUE> 68282
<RECEIVABLES> 2173
<ASSETS-OTHER> 337
<OTHER-ITEMS-ASSETS> 3
<TOTAL-ASSETS> 70795
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 163
<TOTAL-LIABILITIES> 163
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48626
<SHARES-COMMON-STOCK> 4473
<SHARES-COMMON-PRIOR> 4998
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (129)
<ACCUMULATED-NET-GAINS> 3754
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7187
<NET-ASSETS> 70632
<DIVIDEND-INCOME> 1721
<INTEREST-INCOME> 240
<OTHER-INCOME> 0
<EXPENSES-NET> 1416
<NET-INVESTMENT-INCOME> 545
<REALIZED-GAINS-CURRENT> 3832
<APPREC-INCREASE-CURRENT> 637
<NET-CHANGE-FROM-OPS> 5014
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 533
<DISTRIBUTIONS-OF-GAINS> 4674
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 754
<NUMBER-OF-SHARES-REDEEMED> (1419)
<SHARES-REINVESTED> 440
<NET-CHANGE-IN-ASSETS> (3032)
<ACCUMULATED-NII-PRIOR> 96
<ACCUMULATED-GAINS-PRIOR> 5472
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 535
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1600
<AVERAGE-NET-ASSETS> 60383
<PER-SHARE-NAV-BEGIN> 12.630
<PER-SHARE-NII> 0.076
<PER-SHARE-GAIN-APPREC> 0.735
<PER-SHARE-DIVIDEND> (0.107)
<PER-SHARE-DISTRIBUTIONS> (0.944)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.39
<EXPENSE-RATIO> 2.11
<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 FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS
OF COLONIAL GLOBAL NATURAL RESOURCES FUND, CLASS A YEAR END OCT-31-1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
GLOBAL NATURAL RESOURCES FUND, CLASS A YEAR END OCT-31-1995.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 2
<NAME> COLONIAL GLOBAL NATURAL RESOURCES FUND, CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 47005
<INVESTMENTS-AT-VALUE> 51145
<RECEIVABLES> 384
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 1550
<TOTAL-ASSETS> 53086
<PAYABLE-FOR-SECURITIES> 490
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 368
<TOTAL-LIABILITIES> 858
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25062
<SHARES-COMMON-STOCK> 2518
<SHARES-COMMON-PRIOR> 2798
<ACCUMULATED-NII-CURRENT> 73
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3027
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4146
<NET-ASSETS> 52228
<DIVIDEND-INCOME> 1181
<INTEREST-INCOME> 213
<OTHER-INCOME> 0
<EXPENSES-NET> 1101
<NET-INVESTMENT-INCOME> 293
<REALIZED-GAINS-CURRENT> 2578
<APPREC-INCREASE-CURRENT> (4704)
<NET-CHANGE-FROM-OPS> (1833)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (289)
<DISTRIBUTIONS-OF-GAINS> (642)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 463
<NUMBER-OF-SHARES-REDEEMED> (816)
<SHARES-REINVESTED> 73
<NET-CHANGE-IN-ASSETS> (7060)
<ACCUMULATED-NII-PRIOR> 56
<ACCUMULATED-GAINS-PRIOR> 1552
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 421
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1101
<AVERAGE-NET-ASSETS> 33533
<PER-SHARE-NAV-BEGIN> 13.16
<PER-SHARE-NII> 0.102
<PER-SHARE-GAIN-APPREC> (0.496)
<PER-SHARE-DIVIDEND> (0.106)
<PER-SHARE-DISTRIBUTIONS> (0.230)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.43
<EXPENSE-RATIO> 1.66
<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 NATURAL RESOURCES FUND, CLASS B YEAR END
OCT-31-1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS OF COLONIAL GLOBAL NATURAL RESOURCES FUND, CLASS B YEAR END
OCT-31-1995.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 2
<NAME> COLONIAL GLOBAL NATURAL RESOURCES FUND, CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 47005
<INVESTMENTS-AT-VALUE> 511475
<RECEIVABLES> 384
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 1550
<TOTAL-ASSETS> 53086
<PAYABLE-FOR-SECURITIES> 490
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 368
<TOTAL-LIABILITIES> 858
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19920
<SHARES-COMMON-STOCK> 1691
<SHARES-COMMON-PRIOR> 1713
<ACCUMULATED-NII-CURRENT> 73
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3027
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4146
<NET-ASSETS> 52228
<DIVIDEND-INCOME> 1181
<INTEREST-INCOME> 213
<OTHER-INCOME> 0
<EXPENSES-NET> 1101
<NET-INVESTMENT-INCOME> 293
<REALIZED-GAINS-CURRENT> 2578
<APPREC-INCREASE-CURRENT> (4704)
<NET-CHANGE-FROM-OPS> (1833)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (38)
<DISTRIBUTIONS-OF-GAINS> (424)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 635
<NUMBER-OF-SHARES-REDEEMED> (692)
<SHARES-REINVESTED> 35
<NET-CHANGE-IN-ASSETS> (7060)
<ACCUMULATED-NII-PRIOR> 56
<ACCUMULATED-GAINS-PRIOR> 1552
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 421
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1101
<AVERAGE-NET-ASSETS> 22597
<PER-SHARE-NAV-BEGIN> 13.11
<PER-SHARE-NII> 0.009
<PER-SHARE-GAIN-APPREC> (0.489)
<PER-SHARE-DIVIDEND> (0.020)
<PER-SHARE-DISTRIBUTIONS> (0.230)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.38
<EXPENSE-RATIO> 2.41
<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 STRATEGIC BALANCED FUND, CLASS A YEAR END OCT-31-1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL STRATEGIC BALANCED FUND, CLASS A YEAR END OCT-31-1995.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 6
<NAME> COLONIAL STRATEGIC BALANCED FUND, CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 33145
<INVESTMENTS-AT-VALUE> 38136
<RECEIVABLES> 721
<ASSETS-OTHER> 1
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<PAYABLE-FOR-SECURITIES> 0
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<PAID-IN-CAPITAL-COMMON> 14114
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<ACCUMULATED-NII-CURRENT> 27
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 38794
<DIVIDEND-INCOME> 246
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<NET-INVESTMENT-INCOME> 784
<REALIZED-GAINS-CURRENT> 183
<APPREC-INCREASE-CURRENT> 5072
<NET-CHANGE-FROM-OPS> 6039
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 409
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 836
<NUMBER-OF-SHARES-REDEEMED> 114
<SHARES-REINVESTED> 36
<NET-CHANGE-IN-ASSETS> 23837
<ACCUMULATED-NII-PRIOR> 35
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 196
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 656
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<PER-SHARE-NAV-BEGIN> 9.91
<PER-SHARE-NII> 0.325
<PER-SHARE-GAIN-APPREC> 1.764
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<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 11.65
<EXPENSE-RATIO> 1.65
<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 STRATEGIC BALANCED FUND, CLASS B YEAR END OCT-31-1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL STRATEGIC BALANCED FUND, CLASS B YEAR END OCT-31-1995.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 6
<NAME> COLONIAL STRATEGIC BALANCED FUND, CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 33145
<INVESTMENTS-AT-VALUE> 38136
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<OTHER-ITEMS-ASSETS> 57
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<PAYABLE-FOR-SECURITIES> 0
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<ACCUMULATED-NII-CURRENT> 27
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<ACCUMULATED-NET-GAINS> 138
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4992
<NET-ASSETS> 38794
<DIVIDEND-INCOME> 246
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<EXPENSES-NET> 534
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<REALIZED-GAINS-CURRENT> 183
<APPREC-INCREASE-CURRENT> 5072
<NET-CHANGE-FROM-OPS> 6039
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 382
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<NUMBER-OF-SHARES-SOLD> 1047
<NUMBER-OF-SHARES-REDEEMED> 149
<SHARES-REINVESTED> 32
<NET-CHANGE-IN-ASSETS> 23837
<ACCUMULATED-NII-PRIOR> 35
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 196
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 656
<AVERAGE-NET-ASSETS> 12715
<PER-SHARE-NAV-BEGIN> 9.90
<PER-SHARE-NII> 0.277
<PER-SHARE-GAIN-APPREC> 1.769
<PER-SHARE-DIVIDEND> 0.306
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.64
<EXPENSE-RATIO> 2.10
<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 STRATEGIC BALANCED FUND, CLASS D YEAR END OCT-31-1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL STRATEGIC BALANCED FUND, CLASS D YEAR END OCT-31-1995
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 6
<NAME> COLONIAL STRATEGIC BALANCED FUND, CLASS D
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 33145
<INVESTMENTS-AT-VALUE> 38136
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<TOTAL-ASSETS> 38915
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 121
<TOTAL-LIABILITIES> 121
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3582
<SHARES-COMMON-STOCK> 358
<SHARES-COMMON-PRIOR> 225
<ACCUMULATED-NII-CURRENT> 27
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 138
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4992
<NET-ASSETS> 38794
<DIVIDEND-INCOME> 246
<INTEREST-INCOME> 1072
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<EXPENSES-NET> 534
<NET-INVESTMENT-INCOME> 784
<REALIZED-GAINS-CURRENT> 183
<APPREC-INCREASE-CURRENT> 5072
<NET-CHANGE-FROM-OPS> 6039
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 135
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<SHARES-REINVESTED> 9
<NET-CHANGE-IN-ASSETS> 23837
<ACCUMULATED-NII-PRIOR> 35
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 196
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 656
<AVERAGE-NET-ASSETS> 3355
<PER-SHARE-NAV-BEGIN> 9.90
<PER-SHARE-NII> 0.277
<PER-SHARE-GAIN-APPREC> 1.774
<PER-SHARE-DIVIDEND> 0.301
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.65
<EXPENSE-RATIO> 2.10
<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 GROWTH SHARES FUND, CLASS A YEAR END OCT-31-1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
GROWTH SHARES FUND, CLASS A YEAR END OCT-31-1995.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 1
<NAME> COLONIAL GROWTH SHARES FUND, CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 223157
<INVESTMENTS-AT-VALUE> 275185
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<PAYABLE-FOR-SECURITIES> 5553
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 6591
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 134306
<SHARES-COMMON-STOCK> 12041
<SHARES-COMMON-PRIOR> 11449
<ACCUMULATED-NII-CURRENT> 582
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20750
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 52025
<NET-ASSETS> 269676
<DIVIDEND-INCOME> 4525
<INTEREST-INCOME> 890
<OTHER-INCOME> 0
<EXPENSES-NET> 3043
<NET-INVESTMENT-INCOME> 2372
<REALIZED-GAINS-CURRENT> 20783
<APPREC-INCREASE-CURRENT> 34831
<NET-CHANGE-FROM-OPS> 57986
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1927
<DISTRIBUTIONS-OF-GAINS> 13715
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5863
<NUMBER-OF-SHARES-REDEEMED> 6410
<SHARES-REINVESTED> 1139
<NET-CHANGE-IN-ASSETS> 55963
<ACCUMULATED-NII-PRIOR> 413
<ACCUMULATED-GAINS-PRIOR> 18319
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1148
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3043
<AVERAGE-NET-ASSETS> 168614
<PER-SHARE-NAV-BEGIN> 14.020
<PER-SHARE-NII> 0.174
<PER-SHARE-GAIN-APPREC> 3.326
<PER-SHARE-DIVIDEND> 0.165
<PER-SHARE-DISTRIBUTIONS> 1.215
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.140
<EXPENSE-RATIO> 1.12
<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 GROWTH SHARES FUND, CLASS B YEAR END OCT-31-1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
GROWTH SHARES FUND, CLASS B YEAR END OCT-31-1995.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 1
<NAME> COLONIAL GROWTH SHARES FUND, CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 223157
<INVESTMENTS-AT-VALUE> 275185
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<OTHER-ITEMS-LIABILITIES> 1038
<TOTAL-LIABILITIES> 6591
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<PAID-IN-CAPITAL-COMMON> 62014
<SHARES-COMMON-STOCK> 4694
<SHARES-COMMON-PRIOR> 3818
<ACCUMULATED-NII-CURRENT> 582
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20750
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 52025
<NET-ASSETS> 269676
<DIVIDEND-INCOME> 4525
<INTEREST-INCOME> 890
<OTHER-INCOME> 0
<EXPENSES-NET> 3043
<NET-INVESTMENT-INCOME> 2372
<REALIZED-GAINS-CURRENT> 20783
<APPREC-INCREASE-CURRENT> 34831
<NET-CHANGE-FROM-OPS> 57986
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 276
<DISTRIBUTIONS-OF-GAINS> 4637
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1988
<NUMBER-OF-SHARES-REDEEMED> 1507
<SHARES-REINVESTED> 395
<NET-CHANGE-IN-ASSETS> 55963
<ACCUMULATED-NII-PRIOR> 413
<ACCUMULATED-GAINS-PRIOR> 18319
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1148
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3043
<AVERAGE-NET-ASSETS> 60166
<PER-SHARE-NAV-BEGIN> 13.940
<PER-SHARE-NII> 0.065
<PER-SHARE-GAIN-APPREC> 3.317
<PER-SHARE-DIVIDEND> 0.067
<PER-SHARE-DISTRIBUTIONS> 1.215
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.040
<EXPENSE-RATIO> 1.90
<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 UTILITIES FUND, CLASS A YEAR END OCT-31-1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL GLOBAL EQUITY FUND, CLASS A YEAR END OCT-31-1995
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 8
<NAME> COLONIAL GLOBAL UTILITIES FUND, CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 209570
<INVESTMENTS-AT-VALUE> 213604
<RECEIVABLES> 20
<ASSETS-OTHER> 19
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 213643
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 675
<TOTAL-LIABILITIES> 675
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 211485
<SHARES-COMMON-STOCK> 19124
<SHARES-COMMON-PRIOR> 24551
<ACCUMULATED-NII-CURRENT> 241
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3810)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4034
<NET-ASSETS> 212968
<DIVIDEND-INCOME> 7531
<INTEREST-INCOME> 7146
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<EXPENSES-NET> 2946
<NET-INVESTMENT-INCOME> 11731
<REALIZED-GAINS-CURRENT> (3800)
<APPREC-INCREASE-CURRENT> 14432
<NET-CHANGE-FROM-OPS> 22363
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11802
<DISTRIBUTIONS-OF-GAINS> 1042
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 556
<NUMBER-OF-SHARES-REDEEMED> 7047
<SHARES-REINVESTED> 1064
<NET-CHANGE-IN-ASSETS> (47482)
<ACCUMULATED-NII-PRIOR> 328
<ACCUMULATED-GAINS-PRIOR> 1033
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2946
<AVERAGE-NET-ASSETS> 228079
<PER-SHARE-NAV-BEGIN> 10.610
<PER-SHARE-NII> 0.536
<PER-SHARE-GAIN-APPREC> 0.520
<PER-SHARE-DIVIDEND> 0.517
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.080
<EXPENSE-RATIO> 1.29
<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 UTILITIES FUND, CLASS B YEAR END OCT-31-1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL GLOBAL UTILITIES FUND, CLASS B YEAR END OCT-31-1995.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 8
<NAME> COLONIAL GLOBAL UTILITIES FUND, CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
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<INVESTMENTS-AT-COST> 209570
<INVESTMENTS-AT-VALUE> 213604
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<TOTAL-ASSETS> 213643
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 675
<TOTAL-LIABILITIES> 675
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<PAID-IN-CAPITAL-COMMON> 727
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<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 241
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<ACCUMULATED-NET-GAINS> (3810)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4034
<NET-ASSETS> 212968
<DIVIDEND-INCOME> 7531
<INTEREST-INCOME> 7146
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<EXPENSES-NET> 2946
<NET-INVESTMENT-INCOME> 11731
<REALIZED-GAINS-CURRENT> (3800)
<APPREC-INCREASE-CURRENT> 14432
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10
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<NUMBER-OF-SHARES-SOLD> 66
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<NET-CHANGE-IN-ASSETS> (47482)
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<ACCUMULATED-GAINS-PRIOR> 1033
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2946
<AVERAGE-NET-ASSETS> 429
<PER-SHARE-NAV-BEGIN> 10.420
<PER-SHARE-NII> 0.248
<PER-SHARE-GAIN-APPREC> 0.665
<PER-SHARE-DIVIDEND> 0.253
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.080
<EXPENSE-RATIO> 2.05
<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 UTILITIES FUND, CLASS D YEAR END OCT-31-1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL GLOBAL UTILITIES FUND, CLASS D YEAR END OCT-31-1995.
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 8
<NAME> COLONIAL GLOBAL UTILITIES FUND, CLASS D
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
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<TOTAL-LIABILITIES> 675
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<PAID-IN-CAPITAL-COMMON> 291
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<ACCUMULATED-NET-GAINS> (3810)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4034
<NET-ASSETS> 212968
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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 GLOBAL UTILITIES FUND YEAR END OCT-31-1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
GLOBAL UTILITIES FUND YEAR END OCT-31-1995
</LEGEND>
<CIK> 0000878606
<NAME> LFC UTILITIES TRUST
<SERIES>
<NUMBER> 8
<NAME> COLONIAL GLOBAL UTILITIES FUND
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<S> <C>
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</TABLE>
