COLONIAL TRUST III, 485BPOS, 1997-02-19

COLONIAL TRUST III
485BPOS, 1997-02-19

Previous: COLLAGEN CORP /DE, SC 13G/A, 1997-02-19

Next: COMPOSITE INCOME FUND INC, N-30D, 1997-02-19

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. 97 | X |

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | X |

Amendment No. 38 | 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, 1997 pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a)(1)

[ ] on (date) 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 23, 1996, the
Registrant filed the Rule 24f-2 Notice for the Registrant's most recent fiscal
year ended October 31, 1996.

<PAGE>

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.

<PAGE>

COLONIAL TRUST III
------------------

Cross Reference Sheet (Colonial International Fund for Growth)
--------------------------------------------------------------

<TABLE>
<CAPTION>
Item Number of Form N-1A Prospectus Location or Caption
- ------------------------ ------------------------------

Part A
- ------

<S> <C>
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 and Certain Risk Factors

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

</TABLE>

<PAGE>

February 28, 1997

COLONIAL INTERNATIONAL
FUND FOR GROWTH

PROSPECTUS

BEFORE YOU INVEST

Colonial Management Associates, Inc. (Adviser) and your full-service financial
adviser want you to understand both the risks and benefits of mutual fund
investing.

While mutual funds offer significant opportunities and are professionally
managed, they also carry risks including possible loss of principal. Unlike
savings accounts and certificates of deposit, mutual funds are not insured or
guaranteed by any financial institution or government agency.

Please consult your full-service financial adviser to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.

Colonial International Fund for Growth (Fund), a non-diversified portfolio of
Colonial Trust III (Trust), an open-end management investment company, seeks
long-term growth by investing primarily in non U.S. equities.

The Fund is managed by the Adviser, an investment adviser since 1931.

This Prospectus explains concisely what you should know before investing in the
Fund. Read it carefully and retain it for future reference.

More detailed information about the Fund is in the February 28, 1997 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
1-800-426-3750. The Statement of Additional Information is incorporated by
reference in (which means it is considered a part of) this Prospectus.

The Fund offers three classes of shares. Class A shares are offered at net asset
value plus a sales charge imposed at the time of purchase; Class B shares are
offered at net asset value and 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 an annual distribution fee and a
contingent deferred sales charge on redemptions made within one year 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

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

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.

1
<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 Sales Charge (as a % of offering price)(3) 5.75% 5.00%(5) 1.99%(5)
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 1.00%(4) 5.00% 0.99%
price)(3)
</TABLE>

(1) For accounts less than $1,000 an annual fee of $10 may be deducted.
See "How to Buy Shares."

(2) Redemption proceeds exceeding $5,000 sent via federal funds wire will
be subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.

(4) Only with respect to any portion of purchases of $1 million to $5
million redeemed within approximately 18 months after purchase.
See "How to Buy Shares."

(5) Because of the 0.75% distribution fee applicable to Class B and Class D
shares, long-term Class B and Class D shareholders may pay more in
aggregate sales charges than the maximum initial sales charge permitted
by the National Association of Securities Dealers, Inc. However, because
the Fund's Class B shares automatically convert to Class A shares after
approximately 8 years, this is less likely for Class B shares than for a
class without a conversion feature.

Annual Operating Expenses
(as a % of average net assets)

<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Management fee (after expense waiver or reimbursement) 0.86% 0.86% 0.86%
12b-1 fees 0.25 1.00 1.00
Other expenses 0.64 0.64 0.64
---- ---- ----
Total operating expenses (after expense waiver or 1.75% 2.50% 2.50%
reimbursement) ==== ==== ====
</TABLE>

Total operating expenses, excluding brokerage, interest, taxes, 12b-1 fees and
extraordinary expenses, are, until further notice, voluntarily limited by the
Adviser to 1.50%. Absent such fee limitation, the "Management fee" would have
been 0.90% for each class of shares and "Total operating expenses" would have
been 1.79% for Class A shares and 2.54% for each of Class B and Class D shares,
respectively.

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:

<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C> <C> <C>
Period: (6) (7) (6) (7)
1 year $ 74 $ 75 $ 25 $ 45 $ 35
3 years $109 $108 $ 78 $ 87 $ 87(9)
5 years $147 $153 $133 $142 $142
10 years $252 $265(8) $265(8) $291 $291
</TABLE>

<PAGE>

Without voluntary fee reductions, amounts in the Example would be as follows:
<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C> <C> <C>
Period: (6) (7) (6) (7)
1 year $ 75 $ 76 $ 26 $ 45 $ 35
3 years $110 $109 $ 79 $ 88 $ 88(9)
5 years $149 $155 $135 $143 $143
10 years $255 $269(8) $269(8) $294 $294
</TABLE>

(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.

2
<PAGE>

THE FUND'S FINANCIAL HISTORY (b)

The following is derived from the financial highlights for a share outstanding
throughout each period which have been audited by Price Waterhouse LLP,
independent accountants. Their unqualified report is included in the Fund's 1996
Annual Report and is incorporated by reference into the Statement of Additional
Information. The following data reflects, in part, performance of the Fund while
its portfolio was being managed by a former sub-adviser whose services were
terminated on December 31, 1995.

<TABLE>
<CAPTION>
Year ended
October 31
-------------------------------------------------------------------------------------
1996 1995
-------------------------------------------------------------------------------------
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 $9.760 $9.620 $9.670 $10.370 $10.300 $10.350
------ ------ ------ ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.044 (a) (0.032) (a) (0.032) (a) 0.019 (0.052) (0.052)
Net realized and unrealized
gain (loss) 0.456 0.452 0.452 (0.629) (0.628) (0.628)
------ ------ ------ ------- ------- -------
Total from investment operations 0.500 0.420 0.420 (0.610) (0.680) (0.680)
------ ------ ------ ------- ------- -------
Net asset value - End of period $10.260 $10.040 $10.090 $9.760 $9.620 $9.670
======= ======= ======= ======= ======= ======
Total return(e) 5.12%(f) 4.37% (f) 4.34% (f) (5.88)% (6.60)% (6.57)%
------ ------ ------ ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.75%(i) 2.50% (i) 2.50% (i) 1.74% (i) 2.49% (i) 2.49% (i)
Net investment income (loss) 0.43%(i) (0.32)%(i) (0.32)% (i) 0.20% (i) (0.55)%(i) (0.55)%(i)
Fees waived or borne by the Adviser 0.04% 0.04% 0.04% -- -- --
Portfolio turnover 129% 129% 129% 35% 35% 35%
Average commission rate(j) $0.0011 $0.0011 $0.0011 -- -- --
Net assets at end of period (000) $32,912 $62,578 $957 $43,354 $76,376 $684
(a) Net of fees and expenses waived or borne
by the Adviser which amounted to $0.002 $0.002 $0.002 -- -- --
</TABLE>

<TABLE>
<CAPTION>
Period ended
October 31
---------------------------------------------------
1994(c)
---------------------------------------------------
Class A Class B Class D(d)
---------- --------- ------------
<S> <C> <C> <C>
Net asset value - Beginning of period $10.000 $10.000 $10.060
-------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.013 (0.058) (0.037)
Net realized and unrealized
gain (loss) 0.357 0.358 0.327
-------- ----- -------
Total from investment operations 0.370 0.300 0.290
-------- ----- -------
Net asset value - End of period $10.370 $10.300 $10.350
======== ======== =======
Total return(e) 3.70%(g) 3.00%(g) 2.88%(g)
-------- -------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.71%(h) 2.46%(h) 2.46%(h)
Net investment income (loss) 0.14%(h) (0.61)%(h) (0.61)%(h)
Fees waived or borne by the Adviser -- -- -------
Portfolio turnover 51%(h) 51%(h) 51%(h)
Average commission rate(j) -- -- -------
Net assets at end of period (000) $62,251 $103,450 $570
(a) Net of fees and expenses waived or borne
by the Adviser which amounted to -- -- --
</TABLE>

- ---------------------------------

(b) Per share data was calculated using average shares outstanding during
the period.
(c) The Fund commenced investment operations on December 1, 1993.
(d) Class D shares were initially offered on July 1, 1994. Per share amounts
reflect activity from that date.
(e) Total return at net asset value assuming no initial or contingent
deferred sales charge.
(f) Had the Adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
(g) Not annualized.
(h) Annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(j) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.

Further performance information is contained in the Fund's Annual Report to
shareholders, which may be obtained without charge by calling 1-800-426-3750.

<PAGE>

THE FUND'S INVESTMENT OBJECTIVE

The Fund seeks long-term growth by investing primarily in non U.S. equities.

HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS

The Fund seeks to achieve its investment objective by investing primarily in
equity securities of companies located in at least three countries other than
the U.S. Normally at least 65% of the Fund's assets will be invested in equity
securities of non-U.S. issuers. The Fund also may invest up to 35% of its assets
in high quality foreign government debt securities.

The Fund is non-diversified and may invest more than 5% of its total assets in
the securities of a single issuer, increasing the risk of loss compared to a
diversified fund.

Equity Securities Generally. 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 Fund may invest in foreign government debt
securities of any maturity that pay fixed, floating or adjustable interest
rates. The values of debt securities generally fluctuate inversely with changes
in interest rates in the countries where the securities are issued.

Foreign Investments. Investments in foreign securities (both debt and equity)
and sponsored and unsponsored 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.

Emerging Markets. The Fund's investments will consist of securities issued by
companies located in countries whose economies or securities markets are not yet
highly developed. Special risks associated with these investments (in addition
to the conditions regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
highly limited numbers of potential buyers for such securities, heightened
volatility of security prices, restrictions on repatriation of capital invested
abroad and delays and disruptions in securities settlement procedures. Normally,
no more than 40% of the Fund's assets will be invested in such securities.

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. 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.

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 Futures. The Fund may purchase and sell foreign stock index futures
contracts. Such transactions will be entered into to gain exposure to a
particular market pending investment in individual securities, but not to hedge
against market declines. 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. Transactions in futures may not precisely achieve the goal of
gaining market exposure to the extent there is an imperfect correlation between
the price movements of the contracts and of the underlying securities. The Fund
will not make additional investments in index futures at times when net Fund
obligations under index futures exceed 5% of the Fund's net assets.

Temporary/Defensive Investments. Temporarily available cash may be invested in
certificates of deposit, bankers' acceptances, high quality commercial paper,
treasury bills, short-term debt instruments, U.S. government securities 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 right to the collateral in a bankruptcy proceeding. No more
than 15% 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 borrow 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. 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 not
always achieve its investment objective. The Fund's investment objective and
non-fundamental investment policies may be changed without shareholder approval.
The Fund will notify investors in connection with 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 investment objective. The Fund's fundamental investment policies listed in
the Statement of Additional Information cannot be changed without the approval
of a majority of the Fund's outstanding voting securities. Additional
information concerning certain of the securities and investment techniques
described above is contained in the Statement of Additional Information.

HOW THE FUND MEASURES ITS PERFORMANCE

Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula and assume the reinvestment of all
distributions, the maximum initial sales charge of 5.75% on Class A shares and
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 twelve months' distributions by the maximum offering
price of that Class at the end of the month. Each Class's performance may be
compared to various indices. Quotations from various publications may be
included in sales literature and advertisements. See "Performance Measures" in
the Statement of Additional Information for more information.

All performance information is historical and does not predict future results.

HOW THE FUND IS MANAGED

The Trustees formulate the Fund's general policies and oversee the Fund's
affairs as conducted by the Adviser.

Colonial Investment Services, Inc. (Distributor), a subsidiary of the Adviser,
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. Each of the Adviser, the
Distributor and the Transfer Agent is an indirect 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
0.86% of the Fund's average net assets in fiscal year 1996. The fee is higher
than that of most mutual funds.

Bruno Bertocci and David Harris, each of whom is jointly employed by the Adviser
and Stein Roe & Farnham Incorporated (Stein Roe), an affiliate of the Adviser,
have co-managed the Fund since January 1, 1996. Prior to joining Stein Roe in
May, 1995, each of Messrs. Bertocci and Harris was employed by Rockefeller &
Co., Inc. -- Mr. Bertocci as Managing Director and Mr. Harris as Portfolio
Manager.

The Adviser also provides pricing and bookkeeping services to the Fund for a
monthly fee of $2,250 plus a percentage of the Fund's net assets over $50
million. The Transfer Agent provides transfer agency and shareholder services to
the Fund 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 utilizes the trading facilities of Stein Roe to place all orders for
the purchase and sale of portfolio securities, futures contracts and foreign
currencies. In selecting broker-dealers, the Adviser may direct Stein Roe to
consider research and brokerage services furnished by such broker-dealers to the
Adviser and its affiliates. In recognition of the research and brokerage
services provided, the Adviser may direct Stein Roe to cause the Fund to pay the
selected broker-dealer a higher commission than would have been charged by
another broker-dealer not providing such services. Subject to seeking best
execution, the Adviser may direct Stein Roe to consider sales of shares of the
Fund (and of certain other Colonial funds) in selecting broker-dealers for
portfolio security transactions.

HOW THE FUND VALUES ITS SHARES

Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares are valued as of
the close of the New York Stock Exchange (Exchange)(normally 4:00 p.m. Eastern
time) each day the Exchange is open. Portfolio securities for which market
quotations are readily available are valued at current market value. Short-term
investments maturing in 60 days or less are valued at amortized cost when the
Adviser determines, pursuant to procedures adopted by the Trustees, that such
cost approximates current 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 net income semi-annually
and any net realized gain at least 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 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

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
share certificates. The Fund may refuse any purchase order for its shares. See
the Statement of Additional Information for more information.

Class A Shares. Class A shares are offered at net asset value plus an initial
sales charge as follows:

<PAGE>

Initial Sales Charge
---------------------------------
Retained
by
Financial
Service
as % of Firm
--------------------- as % of
Amount Offering Offering
Amount Purchased Invested Price Price

Less than $50,000 6.10% 5.75% 5.00%
$50,000 to less than
$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 and are subject to a 0.75% annual distribution fee for
approximately eight years (at which time they automatically convert to Class A
shares not bearing a distribution fee) and a declining contingent deferred sales
charge if redeemed within six years after purchase. As shown below, the amount
of the contingent deferred sales charge depends on the number of years after
purchase that the redemption occurs:

Contingent
Years Deferred
After Purchase Sales Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%

Year one ends one year after the end of the month in which the purchase was
accepted and so on. The Distributor pays the financial service firm a
commission of 4.00% on Class B share purchases.

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. In addition, the ongoing
commission is payable only for periods after the shares purchased have been
outstanding for one year. The commission may be reduced or eliminated if the
distribution fee paid by the Fund is reduced or eliminated for any reason.

General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments (including initial sales charge, if any) in the account
reduced by prior redemptions on which a contingent deferred sales charge was
paid and any exempt redemptions.) See the Statement of Additional Information
for more information.

Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Large investments, qualifying for a reduced Class A
sales charge, avoid the distribution fee. Investments in Class B shares have
100% of the purchase invested immediately. Investors investing for a relatively
short period of time might consider Class D shares. Purchases of $250,000 or
more must be for Class A or Class D shares. Purchases of $500,000 or more must
be for Class A shares. Consult your financial service firm.

Financial service firms may receive different compensation rates for selling
different classes. The Distributor may pay additional compensation to financial
service firms who have made or may make significant sales. See the Statement of
Additional Information for more information.

Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares with reduced, or without , initial or contingent
deferred sales charges. The programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges."

Shareholder Services and Account Fees. A variety of shareholder services are
available. For information about these services or your account, call
1-800-345-6611. Some services are described in the attached account application.
A shareholder's manual explaining all available services will be provided upon
request. 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. The Fund may also deduct annual maintenance and
processing fees (payable to the Transfer Agent) in connection with certain
retirement plan accounts. See "Special Purchase Programs/Investor Services" in
the Statement of Additional Information for more information.

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.

HOW TO EXCHANGE SHARES

Exchanges at net asset value may be made among shares of the same class 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 1-800-426-3750 to receive a prospectus and an
exchange form. Call 1-800-422-3737 to exchange shares by telephone. An exchange
is a taxable capital transaction. The exchange service may be changed, suspended
or eliminated on 60 days' written notice.

Class A Shares. An exchange from a money market fund into a non-money market
fund will be at the applicable offering price next determined (including sales
charge), except for amounts on which an initial sales charge was paid. Non-money
market fund shares must be held for five months before qualifying for exchange
to a fund with a higher sales charge, after which exchanges are made at the net
asset value next determined.

Class B Shares. Exchanges of Class B shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within six years after
the original purchase, a contingent deferred sales charge will be assessed using
the schedule of the fund into which the original investment was made.

Class D Shares. Exchanges of Class D shares are not 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. The Transfer Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine and may be liable for losses related to unauthorized
transactions in the event reasonable procedures are not employed. Such
procedures include restrictions on where proceeds of telephone redemptions may
be sent, limitations on the ability to redeem by telephone shortly after an
address change, recording of telephone lines and requirements that the redeeming
shareholder and/or their financial adviser provide certain identifying
information. 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 monthly a service fee at an
annual rate of 0.25% of the Fund's net assets attributed to each Class of
shares. The Fund also pays the Distributor monthly a distribution fee at an
annual rate of 0.75% of the average daily 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.

<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 02108-2621

Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611

Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624

Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624

Your financial service firm is:

Printed in U.S.A.

February 28, 1997

COLONIAL INTERNATIONAL
FUND FOR GROWTH

PROSPECTUS

Colonial International Fund for Growth seeks long-term growth by investing
primarily in non U.S. equities.

For more detailed information about the Fund, call 1-800-426-3750 for the
February 28, 1997 Statement of Additional Information.

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

<PAGE>
[COLONIAL FLAG LOGO]

Colonial Mutual Funds
_________________________________________________________________
Please send your completed application to:

Colonial Investors Service Center, Inc.
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: Names 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

______________________________________
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

________________ ___________________ _____________________

$_______________ $__________________ $____________________
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/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. 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.

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.

The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholdings.
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 electronic
funds transfer (EFT), 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:

___________________
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, if indicating EFT,month).

___________________
Name of fund

Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________

Frequency (choose one)
__Monthly __Quarterly __Semiannually

I would like payments to begin _____/_____ (day,if indicating EFT,month).

Payment Instructions
Send the payment to (choose one):
__My address of record.
__My bank account via EFT. Please complete the Bank Information section below.
All EFT transactions will be made two business days after the processing date.
Your bank must be a member of the Automated Clearing House 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 EFT. Telephone redemptions over $1,000 will be sent via federal fund wire,
usually on the 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 EFT Redemption
__I would like the On-Demand EFT Redemption Privilege. Proceeds paid via EFT
will be credited to your bank account two business days after the process
date. You or your financial adviser may withdraw shares from your fund account
by telephone and send your money to your bank account. If you are adding this
service to an existing account, complete the Bank Information section below
and have all shareholder signatures guaranteed.

Colonial's and the Fund's liability is limited when following telephone
instructions; a shareholder may suffer a loss from an unauthorized transaction
reasonably believed by Colonial to have been authorized.

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 distributions from one fund into
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.

____________________________
From fund

____________________________
Account number (if existing)

____________________________
To fund

____________________________
Account number (if existing)

____________________________
From fund

____________________________
Account number (if existing)

____________________________
To fund

____________________________
Account number (if existing)

B. Automated Dollar Cost Averaging
This program allows you to automatically have money from any Colonial fund in
which you have a balance of at least $5,000 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 EFT Purchase
Fundamatic automatically transfers the specified amount from your 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

________________________________
Account number
$_____________________ _________________
Amount to transfer Month to start
__On-Demand Purchase (will be automatically established if you choose
Fundamatic)
__Fundamatic Frequency
__Monthly or __Quarterly

Check one:

__EFT- Choose any day of the month_____________________
__Paper Draft-Choose either the:
__5th day of the month
__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

______________________________________
City State Zip

______________________________________
Bank account number

______________________________________
Bank routing #

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(s)
added to the value of all shares in other Colonial funds at the previous
day's public offering price.

__Please link the accounts listed below for Right of Accumulation privileges,
so that this and future purchases will receive any discount for which they
are eligible.

_____________________________________
Name on account

_____________________________________
Account number

_____________________________________
Name on account

_____________________________________
Account number

B. Statement of Intent
If you agree in advance to invest at least $50,000 within 13 months, you'll
pay a lower sales charge on every dollar you invest. If you sign a Statement
of Intent within 90 days after you establish your account, you can receive a
retroactive discount on prior investments. The amount required to receive a
discount varies by fund; see the sales charge table in the "How to Buy Shares"
section of your fund prospectus.

__I want to reduce my sales charge.
I agree to invest $ _______________ over a 13-month period starting
______/______/ 19______ (not more than 90 days prior to this application). I
understand an additional sales charge must be paid if I do not complete this
Statement of Intent.

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

_____________________________________
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.

SH-938B-0396

COLONIAL TRUST III
------------------

Cross Reference Sheet (Colonial Select Value Fund,
formerly known as Colonial Growth Shares Fund)
--------------------------------------------------

<TABLE>
<CAPTION>
Item Number of Form N-1A Prospectus Location or Caption
- ------------------------ ------------------------------

Part A
- ------

<S> <C>
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 and Certain Risk Factors

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
</TABLE>

<PAGE>

February 28, 1997

COLONIAL SELECT VALUE

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.

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 Select Value 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, 1997 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 1-800-426-3750.

SV-01/292D-0197

The Statement of Additional Information is incorporated by reference in (which
means it is considered to be a part of) this Prospectus.

The Fund offers two classes of shares. Class A shares are offered at net asset
value plus a sales charge imposed at the time of purchase; and Class B shares
are offered at net asset value and 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

- ----------------------------- --------------------------

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- ----------------------------- --------------------------

<PAGE>

SUMMARY OF EXPENSES

Shareholder Transaction Expenses(1)(2)
<TABLE>
<CAPTION>
Class A Class B
------- -------

<S> <C> <C>
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%

</TABLE>

(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy 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)

<TABLE>
<CAPTION>
Class A Class B
------- -------

<S> <C> <C>
Management fee 0.60% 0.60%
12b-1 fees (6) 0.24(6) 0.99
Other expenses 0.38 0.38
---- ----
Total operating expenses(7) 1.22% 1.97%
==== ====
</TABLE>

(6) Service fee rate will fluctuate but will not exceed 0.25%.
(7) Excludes management fee performance adjustment. See "How the Fund is
Managed."

<TABLE>
<CAPTION>
Class A Class B
------- -------

<S> <C> <C> <C>
Period: (7) (8)
1 year $ 69 $ 70 $ 20
3 years 94 92 62
5 years 121 126 106
10 years 197 210(9) 210(9)
</TABLE>

(7) Assumes redemption at period end.

(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.

<PAGE>

THE FUND'S FINANCIAL HISTORY (a)

The following 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 1996 Annual Report and is
incorporated by reference into the Statement of Additional Information.

<TABLE>
<CAPTION>
Year ended October 31
-------------------------------------------------------
1996 1995
--------------------------- -------------------------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $16.140 $16.040 $14.020 $13.940
-------- -------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(loss) 0.043 (0.081) 0.174 0.065
Net realized and unrealized gain 3.162 3.129 3.326 3.317
------ ------ ------ -----
Total from Investment Operations 3.205 3.048 3.500 3.382
------ ------ ------ -----
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.042) (0.005) (0.165) (0.067)
In excess of net investment income (0.023) (0.003) --- ---
From net realized gains (1.240) (1.240) (1.215) (1.215)
------- ------- ------- -------
Total Distributions Declared to Shareholders (1.305) (1.248) (1.380) (1.282)
------- ------- ------- -------
Net asset value - End of period $18.040 $17.840 $16.140 $16.040
======== ======== ======== =======
Total return(d) 21.28% 20.31% 28.44% 27.50%
====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.17%(e) 1.92%(e) 1.12%(e) 1.90%
Net investment income 0.25%(e) (0.50%)(e)% 1.24%(e) 0.46%
Portfolio turnover 100% 100% 92% 92%
Average commission rate(f) $0.0392 $0.0392 --- ---
Net assets at end of period (000) $255,911 $128,283 $194,393 $75,283
</TABLE>

<TABLE>

Period ended
October 31
-----------------------------------------------------------------------------
1994 1993 1992(b)
--------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B(c)

<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $15.240 $15.180 $13.830 $13.780 $14.240 $13.570
-------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(loss) 0.096 (0.008) 0.110 0.001 0.066 (0.002)
Net realized and unrealized gain 0.275 0.288 2.240 2.244 0.074 0.212
------ ------ ------ ------ ------ -----
Total from Investment Operations 0.371 0.280 2.350 2.245 0.140 0.210
------ ------ ------ ------ ------ -----
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.071) --- (0.095) --- (0.093) ---
In excess of net investment income --- --- --- --- --- ---
From net realized gains (1.520) (1.520) (0.845) (0.845) (0.457) ---
------- ------- ------- ------- ------- ---
Total Distributions Declared to Shareholders (1.591) (1.520) (0.940) (0.845) (0.550) ---
------- ------- ------- ------- ------- ---
Net asset value - End of period $14.020 $13.940 $15.240 $15.180 $13.830 $13.780
======== ======== ======== ======== ======== =======
Total return(d) 2.78% 2.12% 17.79% 16.99% 1.02%(g) 1.55%(g)
===== ===== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.22% 1.97% 1.19% 1.94% 1.19%(h) 1.94%(h)
Net investment income 0.69% (0.06)% 0.64% (0.11)% 0.83%(h) 0.08%(h)
Portfolio turnover 121% 121% 66% 66% 68%(h) 68%(h)
Average commission rate(f) --- --- --- --- --- ---
Net assets at end of period (000) $160,495 $53,218 $169,913 $41,989 $150,260 $26,364
</TABLE>

(a) Per share data was calculated using the average shares outstanding
during the period. For the period ended 1992, the per share data was
calculated using the Securities and Exchange Commission 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) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades
on which commissions are charged.

(g) Not annualized.

(h) Annualized.

THE FUND'S FINANCIAL HISTORY CONT'D(a)

<TABLE>
<CAPTION>
Year ended March 31
------------------------------------------------------------------------------------
1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ----
Class A Class A Class A Class A Class A Class A
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $12.800 $12.010 $12.410 $12.050 $15.960 $13.860
-------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.168 0.221 0.192 0.251(b) 0.186 0.083
Net realized and unrealized gain (loss) 1.502 1.059 1.718 1.677 (0.727) 2.643
------ ------ ------ ------ ------- -----
Total from Investment Operations 1.670 1.280 1.910 1.928 (0.541) 2.726
------ ------ ------ ------ ------- -----
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.183) (0.210) (0.220) (0.230) (0.195) (0.090)
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)
------- ------- ------- ------- ------- -------
Net asset value - End of period $14.240 $12.800 $12.010 $12.410 $12.050 $15.960
======== ======== ======== ======== ======== =======
Total return(c) 13.24% 10.95% 15.57% 17.46%(d) (2.27)% 20.(d)
====== ====== ====== === ======= ===
RATIOS TO AVERAGE NET ASSETS
Expenses 1.18% 1.03% 1.07% 1.(b) 1.00% 1.34%
Net investment income 1.24% 1.94% 1.45% 2.(b) 1.41% 0.72%
Portfolio turnover 38% 37% 88% 86% 108% 37%
Net assets at end of period (000) $149,341 $134,055 $129,244 $93,477 $91,926 $93,896
</TABLE>

(a) Per share data was calculated using the average shares outstanding
method during the period. For the years ended 1987, 1989 and 1991, per
share data was calculated using the Securities and Exchange Commission
method.

(b) Net of fees and expenses waived or borne by the Adviser which amounted
to $0.007 per share and 0.55% of average net assets in 1989.

(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.

Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-426-3750.

<PAGE>

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
equity market 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 seeks to achieve its objective by investing primarily in middle
capitalization U.S. equity securities. The Fund also may invest in equity
securities of foreign issuers and in U.S. and foreign corporate debt securities.
Normally, no more than 15% of the Fund's total assets will be invested in U.S.
and foreign non-convertible debt and preferred stock, and no more than 25% will
be invested in foreign securities (equity and debt).

Equity Securities Generally. 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. The Adviser must determine that any non-U.S. equity 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.

Debt Securities Generally. The Fund may invest in debt securities of any
maturity that pay fixed, floating or adjustable interest rates. Up to 5% of the
Fund's net assets may be invested in lower rated debt securities (i.e.,
securities rated lower than Baa by Moody's Investors Service (Moody's) or BBB by
Standard & Poor's Corporation (S&P)) or comparable unrated securities. The
values of debt securities generally fluctuate inversely with changes in interest
rates.

Foreign Investments. Investments in foreign securities (both debt and equity)
and sponsored and unsponsored 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

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.

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.

Other. 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 not
always achieve its investment objective. The Fund's investment objective and
non-fundamental investment policies may be changed without shareholder approval.
The Fund will notify investors in connection with 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 the investment objective. The Fund's fundamental investment policies listed
in the Statement of Additional Information cannot be changed without the
approval of a majority of the Fund's outstanding voting securities. Additional
information concerning certain of the securities and investment techniques
described above is contained in the Statement of Additional Information.

HOW THE FUND MEASURES ITS PERFORMANCE

Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula and assume the reinvestment of all
distributions, the maximum initial sales charge of 5.75% on Class A shares, and
the contingent deferred sales charge applicable to the time period quoted on
Class B 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 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 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
1/12 of 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 1/12 of 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 0.55% of the Fund's average daily
net assets for fiscal year 1996.

Daniel Rie, Senior Vice President and Director of the Adviser and head of the
Equity Group, has managed the Fund since 1986 and has co-managed the Fund since
1997 and various other Colonial equity funds since 1986.

Peter Wiley, Vice President of the Adviser, has co-managed the Fund since 1997
and has co-managed various other Colonial equity funds since 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.

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 by such broker-dealers to the Adviser and its affiliates. In
recognition of the research and brokerage services provided, the Adviser may
cause the Fund to pay the selected broker-dealer a higher commission than would
have been charged by another broker-dealer not providing such services. 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) (normally 4:00
p.m. Eastern time) each day the Exchange is open. Short-term investments
maturing in 60 days or less are valued at amortized cost when the Adviser
determines, pursuant to procedures adopted by the Trustees, that such cost
approximates current 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 net income semi-annually
and any net realized gain, at least 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 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 share certificates. The Fund may refuse
any purchase order for its shares. See the Statement of Additional Information
for more information.

Class A Shares. Class A shares are offered at net asset value plus an initial
sales charge as follows:

<PAGE>

<TABLE>
<CAPTION>
Initial Sales Charge
------------------------------------------

Retained
by Financial
Service
as % of Firm
------------------------- as % of
Amount Purchased Amount Offering Offering
Invested Price Price
<S> <C> <C> <C>
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%
</TABLE>

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.

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, and are subject to a 0.75% annual distribution fee for
approximately eight years (at which time they automatically convert to Class A
shares not bearing a distribution 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.

Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares with reduced or without initial or contingent
deferred sales charges. The programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges."

Shareholder Services and Account Fees. 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.

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. The Fund may also deduct annual maintenance and processing fees
(payable to the Transfer Agent) in connection with certain retirement plan
accounts. See "Special Purchase Programs/Investor Services" in the Statement of
Additional Information for more information.

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

HOW TO EXCHANGE SHARES

Exchanges at net asset value may be made among shares of the same class 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 1-800-426-3750 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 it shares. Telephone redemption privileges for larger
amounts may be elected on the account application. The Transfer Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine and may be liable for losses related to unauthorized
transactions in the event reasonable procedures are not employed. Such
procedures include restrictions on where proceeds of telephone redemptions may
be sent, limitations on the ability to redeem by telephone shortly after an
address change, recording of telephone lines and requirements that the redeeming
shareholder and/or financial adviser provide certain identifying information.
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 monthly a service fee at the
annual rate of 0.15% of the Fund's net assets attributed to shares outstanding
prior to April 1, 1989 and 0.25% of the Fund's net assets attributed to
outstanding shares issued thereafter.

The Fund also pays the Distributor monthly a distribution fee at the annual rate
of 0.75% of the average daily 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.

<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, 1997

COLONIAL SELECT VALUE FUND

PROSPECTUS

Colonial Select Value Fund seeks long-term growth by investing primarily in
middle capitalization equities.

For more detailed information about the Fund, call the Adviser at 1-800-426-3750
for the February 28, 1997 Statement of Additional Information.

- ----------------------------- --------------------------

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- ----------------------------- --------------------------

<PAGE>

COLONIAL TRUST III
------------------

Cross Reference Sheet (Colonial Federal Securities Fund)
--------------------------------------------------------

<TABLE>
<CAPTION>
Item Number of Form N-1A Prospectus Location or Caption
- ------------------------ ------------------------------

Part A
- ------

<S> <C>
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 and Certain Risk Factors

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
</TABLE>

<PAGE>

February 28, 1997

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.

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.

FS-01/350D-0297

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 are subject to an annual
distribution fee and a declining contingent deferred sales charge on redemptions
made within six years after purchase. Class D shares are offered at net asset
value plus a small initial sales charge and are subject to an annual
distribution fee and a contingent deferred sales charge on redemptions made
within one year 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

- --------------------------------------------------------

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- --------------------------------------------------------

<PAGE>

SUMMARY OF EXPENSES

Shareholder Transaction Expenses(1) (2)

<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Maximum Sales Charge (as a % of offering price) (3) 4.75% 5.00%(5) 1.99%(5)
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% 0.99%
</TABLE>

(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy Shares."
(2) Redemption proceeds exceeding $5,000 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to $5 million
redeemed within approximately 18 months after purchase. See "How to Buy
Shares."
(5) Because of the 0.75% distribution fee applicable to Class B and Class D
shares, long-term Class B and Class D shareholders may pay more in
aggregate sales charges than the maximum initial sales charge permitted by
the National Association of Securities Dealers, Inc. However, because the
Fund's Class B shares automatically convert to Class A shares after
approximately 8 years, this is less likely for Class B shares than for a
class without a conversion feature.

Annual Operating Expenses (as a % of average net assets)

<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Management fee 0.64% 0.64% 0.64%
12b-1 fees 0.25 1.00 1.00
Other expenses 0.29 0.29 0.29
---- ---- ----
Total operating expenses 1.18% 1.93% 1.93%
==== ==== =====
</TABLE>

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:

<TABLE>
<CAPTION>
Class A Class B Class D
Period: (6) (7) (6) (7)
<S> <C> <C> <C> <C> <C>
1 year $ 59 $ 70 $ 20 $ 39 $ 29
3 years 83 90 60 70 70(9)
5 years 109 124 104 113 113
10 years 183 205(8) 205(8) 233 233
</TABLE>

(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.

<PAGE>

THE FUND'S FINANCIAL HISTORY

The following 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 1996 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, represent operations under an earlier
investment objective and policies.

<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------
Year ended
October 31
------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $10.830 $9.950 $11.460 $10.750 $10.800 $10.420
-------- ------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.696 0.710 0.821 0.819 0.796 0.854
Net realized and unrealized gain (loss) (0.300) 0.907 (1.560) 0.739 0.157 0.671
------- ------ ------- ------ ------ -----
Total from Investment Operations 0.396 1.617 (0.739) 1.558 0.953 1.525
------ ------ ------- ------ ------ -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.684) (0.709) (0.771) (0.781) (0.796) (0.854)
From net realized gains --- (0.028) --- (0.067) --- ---
From capital paid in (0.012) --- --- --- (0.207)(b) (0.291)(b)
------- ------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (0.696) (0.737) (0.771) (0.848) (1.003) (1.145)
------- ------- ------- ------- ------- -------
Net asset value - End of period $10.530 $10.830 $9.950 $11.460 $10.750 $10.800
======== ======== ======= ======== ======== =======
Total return(c) 3.88% 16.82% (6.57)% 14.94% 9.15% 15.33%
===== ====== ======= ====== ===== ======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.18%(e) 1.17% 1.16% 1.17% 1.24% 1.21%
---
Net investment income 6.62%(e) 7.04% 7.80% 7.37% 7.36% 8.05%
Portfolio turnover 125% 171% 121% 252% 18% 11%
Net assets at end of period (in millions) $1,026 $1,201 $1,278 $1,736 $1,809 $2,028
</TABLE>

<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------
Period
Year ended ended Year ended
October 31 Oct. 31 Sept. 30
------------------------------------------------------------------------------
1990 1989 1988 1987(a) 1987
---- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $11.330 $11.220 $11.130 $10.820 $12.660
-------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.917 0.958 0.882 0.075 0.844
Net realized and unrealized gain (loss) (0.627) 0.352 0.407 0.365 (1.204)
------- ------ ------ ------ -------
Total from Investment Operations 0.290 1.310 1.289 0.440 (0.360)
------ ------ ------ ------ -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.917) (0.958) (0.916) (0.070) (0.830)
From net realized gains --- --- (0.129) (0.060) (0.650)
From capital paid in (0.283)(b) (0.242)(b) (0.154)(b) --- ---
------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (1.200) (1.200) (1.199) (0.130) (1.480)
------- ------- ------- ------- -------
Net asset value - End of period $10.420 $11.330 $11.220 $11.130 $10.820
======== ======== ======== ======== =======
Total return(c) 2.85% 12.42% 12.17% (1.17)% (3.52)%
===== ====== ====== ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.16% 1.14% 1.13% 1.13%(d) 1.09%
Net investment income 8.55% 8.56% 7.90% 8.05%(d) 7.06%
Portfolio turnover 6% 55% 66% 87%(d) 140%
Net assets at end of period (in millions) $2,186 $2,675 $3,079 $3,640 $3,624
</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.
(e) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.

THE FUND'S FINANCIAL HISTORY (CONT'D)
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------
Year ended
October 31
----------------------------------------------------------------------------
1996 1995 1994 1993 1992(a)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $10.830 $9.950 $11.460 $10.750 $10.730
-------- ------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.617 0.633 0.741 0.737 0.286
Net realized and unrealized gain (loss) (0.300) 0.907 (1.560) 0.739 0.095
------- ------ ------- ------ -----
Total from Investment Operations 0.317 1.540 (0.819) 1.476 0.381
------ ------ ------- ------ -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.606) (0.632) (0.691) (0.706) (0.286)
From net realized gains --- (0.028) --- (0.060) ---
From capital paid in (0.011) --- --- --- (0.075)(b)
------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (0.617) (0.660) (0.691) (0.766) (0.361)
------- ------- ------- ------- -------
Net asset value - End of period $10.530 $10.830 $9.950 $11.460 $10.750
======== ======== ======= ======== =======
Total return(c) 3.11% 15.96% (7.28)% 14.11% 3.47%(d)
===== ====== ======= ====== =====
RATIOS TO AVERAGE NET ASSETS
Expenses 1.93%(f) 1.92% 1.91% 1.92% 1.99%(e)
Net investment income 5.87%(f) 6.29% 7.05% 6.62% 6.61%(e)
Portfolio turnover 125% 171% 121% 252% 18%
Net assets at end of period (in millions) $73 $79 $70 $68 $28
</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.
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.

Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-426-3750.

<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
and (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 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), and "real estate mortgage investment conduits" (REMICs).

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. Also, the principal on pass-through mortgages, REMICs or CMOs may be
prepaid if the underlying mortgages are prepaid. Prepayment rates for mortgage-
backed securities tend to increase as interest rates decline (effectively
shortening the security's maturity) and decreases as interest rates rise
(effectively lengthening the security's maturity). Because of the prepayment
feature, mortgage-backed securities 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 premium may result in
losses equal to the premium.

The Fund may invest up to 35% of its total assets in: (i) 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; (ii) similar
non-agency "investment-grade" mortgage-backed securities for which the
underlying mortgages are not guaranteed by an agency (such as residental
mortgage loans, manufactured housing loans, home equity loans or commercial
loans); or (iii) "investment-grade" corporate debt securities. In determining
whether a security is "investment-grade," the Fund will rely on the ratings
published by Moody's Investors Services, Inc., Standard & Poor's Corporation,
Fitch Investors Services, and Duff & Phelps Corporation (the "rating services").
The Fund will not purchase a security unless at the time of purchase (i) the
security is rated "investment-grade" by each rating service that has assigned a
rating to the security, or (ii) if a rating service has assigned the security
a rating lower than "investment-grade," at least two other rating services have
assigned an "investment-grade" rating. The minimum "investment-grade" ratings
of t'e rating services are: Moody's Investors Services, Inc.: Baa3; Standard &
Poor's Corporation: BBB-; Fitch Investors Services: BBB-; Duff & Phelps
Corporation: BBB-. Certain non-agency mortgage-backed or corporate debt
securities in the lowest investment grade may be considered to have
"speculative characteristics." For a description of the rating systems of the
four rating services, see Part 2 of the Statement of Additional Information.

If the Fund purchases non-agency securities backed by underlying mortgages and
the issuer defaults or enters bankruptcy, the Fund may experience costs and
delays in liquidating the collateral and may experience a loss.

The market values of U.S. government securities and corporate debt securities
will fluctuate with changing interest rates as will the Fund's net asset value
per share. The Fund will limit its investments in corporate debt securities so
that not more than 25% of its assets are invested in any one "industry."

Mortgage-Backed Securities. Mortgage-backed securities evidence ownership in a
pool of mortgage loans made by certain financial institutions that may be
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 (residual
class) is in the nature of equity. The Fund will not invest in any residual
class.

Zero Coupons. 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 in
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 and certificates on a current basis and may have to sell
securities to generate cash for distributions.

When-Issued Securities. "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 the
intended settlement date.

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.

Mortgage Dollar Rolls. 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.

Financial Futures; Options. 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 borrow 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 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 not
always achieve its investment objective. The Fund's investment objective and
non-fundamental investment policies may be changed without shareholder approval.
The Fund will notify investors in connection with 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 the investment objective. The Fund's fundamental investment policies listed
in the Statement of Additional Information cannot be changed without the
approval of a majority of the Fund's outstanding voting securities. Additional
information concerning certain of the securities and investment techniques
described above is contained in the Statement of Additional Information.

HOW THE FUND MEASURES ITS PERFORMANCE

Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula and assume the reinvestment of all
distributions, the maximum initial sales charge of 4.75% on Class A shares, the
maximum initial sales charge of 1.00% on Class D shares and the contingent
deferred sales charge applicable to the time period quoted on Class B and Class
D shares. Other total returns differ from the average annual total return only
in that they may relate to different time periods, may represent aggregate as
opposed to average annual total returns, and may not reflect the initial or
contingent deferred sales charges.

Each Class's yield, which differs from total return because it does not consider
changes in net asset value, is calculated in accordance with the Securities and
Exchange Commission's formula. Each Class's distribution rate is calculated by
dividing the most recent month's distributions, annualized, by the maximum
offering price of that Class 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.

Colonial Investment Services, Inc. (Distributor), a subsidiary of the Adviser,
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. Each of the Adviser,
Distributor and the Transfer Agent is an indirect 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.

Leslie W. Finnemore, Vice President of the Adviser, has managed the Fund since
1993 and has 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.

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) (normally 4:00
p.m. Eastern time) each day the exchange is open. Portfolio securities for which
market quotations are readily available are valued at current market value.
Short-term investments maturing in 60 days or less are valued at amortized cost
when the Adviser determines, pursuant to procedures adopted by the Trustees,
that such cost approximates current 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 net income monthly and
any net realized gain at least annually.

The Fund generally declares distributions daily. 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.

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 which, if any, qualifies for exemption.

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 share certificates. The Fund may
refuse any purchase order for its shares. See the Statement of Additional
Information for more information.

Class A Shares. Class A shares are offered at net asset value plus an initial
sales charge as follows:

<TABLE>
<CAPTION>
Initial Sales Charge
----------------------------------
Retained by
Financial
Service
Firm as
as % of % of
---------------------
Amount Offering Offering
Amount Purchased Invested Price Price
<S> <C> <C> <C>
Less than $50,000 4.99% 4.75% 4.25%
$50,000 to less than 4.71% 4.50% 4.00%
$100,000
$100,000 to less than 3.63% 3.50% 3.00%
$250,000
$250,000 to less than 2.56% 2.50% 2.00%
$500,000
$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%
</TABLE>

On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:

<TABLE>
<CAPTION>
Amount Purchased Commission
<S> <C>
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)
</TABLE>

(1) Paid over 12 months but only to the extent the shares remain outstanding.

Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge and are subject to a 0.75% annual distribution fee for
approximately eight years (at which time they automatically convert to Class A
shares not bearing a distribution 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 and are subject to a 0.75% annual distribution fee and a
1.00% contingent deferred sales charge (0.99% of the offering price) 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. In addition, the ongoing
commission is payable only for periods after the shares purchased have been
outstanding for one year. The commission may be reduced or eliminated if the
distribution fee paid by the Fund is reduced or eliminated for any reason.

General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments (including initial sales charge, if any) in the account
reduced by prior redemptions on which a contingent deferred sales charge was
paid and any exempt redemptions). See the Statement of Additional Information
for more information.

Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares with reduced or without initial or contingent
deferred sales charges. These programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges" and "How to Sell Shares."

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).

Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611

HOW TO EXCHANGE SHARES

Exchanges at net asset value may be made among shares of the same class 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 1-800-426-3750 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

12B-1 PLANS

Under 12b-1 Plans, the Fund pays the Distributor monthly a service fee at an
annual rate of 0.25% of the Fund's net assets attributed to each Class of
shares. The Fund also pays the Distributor monthly a distribution fee at an
annual rate of 0.75% of the average daily 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.

<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, 1997

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
primarily in U.S. government securities.

For more detailed information about the Fund, call the Adviser at 1-800-426-3750
for the February 28, 1997 Statement of Additional Information.

- --------------------------------------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- --------------------------------------------------------

<PAGE>

COLONIAL TRUST III
------------------

Cross Reference Sheet (The Colonial Fund-Classes A, B and D)
------------------------------------------------------------

<TABLE>
<CAPTION>
Item Number of Form N-1A Prospectus Location or Caption
- ------------------------ ------------------------------

Part A
- ------

<S> <C>
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 and Certain Risk Factors

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
</TABLE>

<PAGE>

February 28, 1997

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.

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--

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 an annual distribution fee and a contingent deferred sales
charge on redemptions made within one year 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 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

- ----------------------------- --------------------------

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- ----------------------------- --------------------------

<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 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)

<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Maximum Sales Charge (as a % of offering price)(3) 5.75% 5.00%(5) 1.99%(5)
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% 0.99%
</TABLE>

(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy 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)

<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Management fee 0.55% 0.55% 0.55%
12b-1 fees (6) 0.24 0.99 0.99
Other expenses 0.36 0.36 0.36
---- ---- ----
Total operating expenses 1.15% 1.90% 1.90%
==== ==== =====
</TABLE>

(6) 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 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.

<TABLE>
<CAPTION>
Class A Class B Class D
Period: (7) (8) (7) (8)
<C> <C> <C> <C> <C> <C>
1 year $ 69 $ 69 $ 19 $ 39 $ 29
3 years $ 92 $ 90 $ 60 $ 69 $ 69(10)
5 years $ 117 $123 $103 $112 $112
10 years $ 190 $203(9) $203(9) $230 $230
</TABLE>

(7) Assumes redemption at period end.
(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.

(10) 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 is derived from the financial highlights for a share outstanding
throughout each period which have been audited by Price Waterhouse LLP,
independent accountants. Their unqualified report is included in the Fund's 1996
Annual Report and is incorporated by reference into the Statement of Additional
Information. The financial highlights for years prior to 1994 have been restated
to reflect the 3:1 split which occurred on December 10, 1993. No Class D shares
had been issued as of October 31, 1996.

<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------
Year Ended October 31
--------------------------------------------------------------------
1996(a) 1995(a) 1994(a) 1993(a)(b) 1992(a)(b)
------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $8.940 $8.060 $8.410 $7.390 $7.050
------- ------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.165 0.200 0.171 0.156 0.173
Net realized and unrealized gain (loss) 1.183 1.393 (0.116) 1.293 0.489
------ ------ ------- ------ -----
Total from Investment Operations 1.348 1.593 0.055 1.449 0.662
------ ------ ------ ------ -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.162) (0.212) (0.160) (0.147) (0.185)
From net realized gain on investments (0.636) (0.501) (0.245) (0.282) (0.137)
------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (0.798) (0.713) (0.405) (0.429) (0.322)
------- ------- ------- ------- -------
Net asset value - End of period $9.490 $8.940 $8.060 $8.410 $7.390
======= ======= ======= ======= ======
Total return(c) 16.11% 21.72% 0.74% 20.21% 9.65%
====== ====== ===== ====== =====
RATIOS TO AVERAGE NET ASSETS
Expenses 1.15%(d) 1.16%(d) 1.14% 1.10% 1.09%
Net investment income 1.82%(d) 2.43%(d) 2.07% 1.94% 2.52%
Portfolio turnover 38% 66% 54% 14% 37%
Average commission rate(e) $0.0347 ----- ----- ----- -----
Net assets at end of period (000) $759,409 $667,611 $555,275 $520,706 $413,228
</TABLE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------
1991(a)(b) 1990(b) 1989(b) 1988(b) 1987(b)
---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $5.700 $6.850 $6.320 $5.530 $6.450
------- ------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.218 0.256 0.270 0.299 0.216
Net realized and unrealized gain (loss) 1.509 (0.979) 0.768 0.944 (0.387)
------ ------- ------ ------ -------
Total from Investment Operations 1.727 (0.723) 1.038 1.243 (0.171)
------ ------- ------ ------ -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.222) (0.276) (0.305) (0.263) (0.310)
From net realized gain on investments (0.155) (0.151) (0.203) (0.190) (0.439)
------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (0.377) (0.427) (0.508) (0.453) (0.749)
------- ------- ------- ------- -------
Net asset value - End of period $7.050 $5.700 $6.850 $6.320 $5.530
======= ======= ======= ======= ======
Total return(c) 31.23% (11.17)% 17.16% 23.60% (3.49)%
====== ======== ====== ====== =======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.06% 1.04% 0.97% 0.92% 0.97%
Net investment income 3.35% 4.05% 4.34% 4.92% 3.99%
Portfolio turnover 36% 41% 27% 27% 47%
Average commission rate(e) ----- ----- ----- ----- -----
Net assets at end of period (000) $366,808 $285,265 $319,419 $258,178 $240,971
</TABLE>

(a) Per share data was calculated using average shares outstanding during
the period.
(b) All per share amounts have been restated to reflect the 3-for-1 stock
split effective December 10, 1993.
(c) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(e) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.

<PAGE>

THE FUND'S FINANCIAL HISTORY (CONT'D)

<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------------
Year ended October 31
----------------------------------------------------------------------------------
1996(a) 1995(a) 1994(a) 1993(a)(b) 1992(a)(b)(c)
------- ------- ------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $8.930 $8.050 $8.400 $7.390 $7.440
------- ------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.097 0.137 0.109 0.104 0.052
Net realized and unrealized gain (loss) 1.182 1.395 (0.111) 1.282 (0.044)
------ ------ ------- ------ -------
Total from Investment Operations 1.279 1.532 (0.002) 1.386 0.008
------ ------ ------- ------ -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.093) (0.151) (0.103) (0.094) (0.058)
From net realized gain on investments (0.636) (0.501) (0.245) (0.282) ----
------- ------- ------- -------- ----
Total Distributions Declared to Shareholders (0.729) (0.652) (0.348) (0.376) (0.058)
------- ------- ------- ------- -------
Net asset value - End of period $9.480 $8.930 $8.050 $8.400 $7.390
======= ======= ======= ======= ======
Total return(d) 15.27% 20.84% (0.04)% 19.38% (0.31)%(f)
====== ====== ======= ====== =======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.90%(e) 1.93%(e) 1.89% 1.85% 1.84%(g)
Net investment income 1.07%(e) 1.66%(e) 1.32% 1.19% 1.77%(g)
Portfolio turnover 38% 66% 54% 14% 37%
Average commission rate(h) $0.0347 ---- ---- ---- ----
Net assets at end of period (000) $453,468 $353,831 $264,122 $124,161 $15,582
</TABLE>

(a) Per share data was calculated using average shares outstanding during
the period.
(b) All per share amounts have been restated to reflect the 3-for-1 stock
split effective December 10, 1993.
(c) Class B shares were initially offered on May 5, 1992. Per share amounts
reflect activity from that date.
(d) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(e) The benefits derived from custody credits and directed brokerage
arrangements had not impact. Prior years' ratios are net of benefits
received, if any.
(f) Not annualized.
(g) Annualized.
(h) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.

Further performance information is contained in the Fund's Annual Report to
shareholders, which may be obtained without charge by calling 1-800-426-3750.

<PAGE>

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 seeks to achieve its objectives by investing in both equity securities
and U.S. government debt securities. The allocation at any given time will be
based on the availability of common stocks meeting the criteria described below
and on the Adviser's assessment of the relative risk and expected performance of
each market. Normally, the Fund will invest primarily in equity securities.

Equity Securities Generally. The Fund may invest without limit in U.S. stock
exchange or NASDAQ National Market System listed common stocks and foreign
common stocks which, when purchased, meet quantitative standards which in the
Adviser's judgment indicate above average financial soundness and high intrinsic
value relative to price. Companies in which the Fund invests will fall into one
of the following three categories:

1. Companies whose current business activities provide earnings, dividends
or assets that represent above average value for each dollar invested;
or

2. Companies whose business activities are concentrated in industries or
business strategies which are expected to provide above average
stability or value in turbulent markets; or

3. Companies with anticipated business growth prospects that represent
above average value for each dollar invested.

For this purpose, "average" will not be pegged to a specific index but rather
determined in the Adviser's judgment based on an eligible universe of securities
of appropriate market capitalization for which sufficient data is available.
Such average may also be qualified by industry group or sector.

Up to 5% of the Fund's net assets may be invested in common stocks not meeting
any of the foregoing conditions at the time of purchase.

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) and "real estate mortgage investment conduits" (REMICs). The
Fund will not invest in residual classes of CMOs. The Fund may invest in U.S.
government securities of any maturity that pay fixed, floating or adjustable
interest rates.

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.

Adjustable or floating rate securities will not fluctuate in value as much as
fixed 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.

Foreign Investments. Investments in foreign securities 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.

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 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 e 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.

Other. The Fund may not always achieve its investment objectives. The Fund's
investment objectives and non-fundamental investment policies may be changed
without shareholder approval. The Fund will notify investors in connection with
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 investment objectives. The Fund's fundamental
investment policies listed in the Statement of Additional Information cannot be
changed without the approval of a majority of the Fund's outstanding voting
securities. Additional information concerning certain of the securities and
investment techniques described above is contained in the Statement of
Additional Information.

HOW THE FUND MEASURES ITS PERFORMANCE

Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula and assume the reinvestment of all
distributions, the maximum initial sales charge of 5.75% on Class A shares, 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
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.

Colonial Investment Services, Inc. (Distributor), a subsidiary of the Adviser,
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. Each of the Adviser, the
Distributor and the Transfer Agent is an indirect 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.

Daniel Rie, Director and Senior Vice President of the Adviser and head of the
Equity Group, has either managed or co-managed the Fund since 1993 and has
managed various other Colonial equity funds since 1986.

James P. Haynie, Vice President of the Adviser, has co-managed the Fund since
1997. Prior to joining the Adviser in 1993, Mr. Haynie was a Vice President at
Massachusetts Financial Services Company and a Portfolio Manager at Trinity
Investment Management.

Gordon Johnson, Vice President of the Adviser, has co-managed the Fund since
1997 and has served as Senior Equity Analyst since 1993. Prior to joining the
Adviser in 1993, Mr. Johnson was a Doctoral candidate in Finance at the
University of Massachusetts.

Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser may agree.

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)(normally 4:00 p.m. Eastern
time) each day the Exchange is open. Portfolio securities for which market
quotations are readily available are valued at current market value. Short-term
investments maturing in 60 days or less are valued at amortized cost when the
Adviser determines, pursuant to procedures adopted by the Trustees, that such
cost approximates current 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 net income quarterly and
any net realized gain at least 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 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 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 share certificates. The Fund may refuse any purchase
order for its shares. See the Statement of Additional Information for more
information.

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) the Adviser and its
affiliates.

Class A Shares. Class A shares are offered at net asset value plus an initial
sales charge as follows:

Initial Sales Charge
Retained
by
Financial
Service
Firm as %
as a % of of
Amount Offering Offering
Amount Purchased Invested Price Price
Less than $50,000 6.10% 5.75% 5.00%
$50,000 to less than
$100,000 4.71% 4.50% 3.75%
$100,000 to less than
$250,000 3.63% 3.50% 2.75%
$250,000 to less than
$500,000 2.56% 2.50% 2.00%
$500,000 to less than
$1,000,000 2.04% 2.00% 1.75%
$1,000,000 or more 0.00% 0.00% 0.00%

On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:

Amount Purchased Commission
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25% (1)

(1) Paid over 12 months but only to the extent the shares remain
outstanding.

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.

Years After Purchase Contingent Deferred
Sales Charge

0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%

Year one ends one year after the end of the month in which the purchase was
accepted and so on. The Distributor pays financial service firms a commission of
4.00% on Class B share purchases.

General. All contingent deferred sales charges are deducted from the 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.

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.
The Fund may also deduct annual maintenance and processing fees (payable to the
Transfer Agent) in connection with certain retirement plan accounts. See
"Special Purchase Programs/Investor Services" in the Statement of Additional
Information.

HOW TO SELL SHARES

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

HOW TO EXCHANGE SHARES

Exchanges at net asset value may be made among shares of the same class of most
Colonial funds. Shares will continue to age without regard to the exchange for
purposes of conversion and in determining the contingent deferred sales charge,
if any, upon redemption. Carefully read the prospectus of the fund into which
the exchange will go before submitting the request. Call 1-800-426-3750 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. The Transfer Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine and may be liable for losses related to unauthorized
transactions in the event reasonable procedures are not employed. Such
procedures include restrictions on where proceeds of telephone redemptions may
be sent, limitations on the ability to redeem by telephone shortly after an
address change, recording of telephone lines and requirements that the redeeming
shareholder and/or their financial adviser provide certain identifying
information. 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 monthly a service fee at the
annual rate of 0.15% of the Fund's net assets attributed to shares outstanding
prior to April 1, 1989, and 0.25% of the Fund's net assets attributed to
outstanding shares issued thereafter.

The Fund also pays the Distributor monthly a distribution fee at the annual rate
of 0.75% of the average daily 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

<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

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, 1997

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 1-800-426-3750
for the February 28, 1997 Statement of Additional Information.

- ----------------------------- --------------------------

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- ----------------------------- --------------------------

COLONIAL TRUST III
------------------

Cross Reference Sheet (The Colonial Fund-Class Z)
-------------------------------------------------

<TABLE>
<CAPTION>
Item Number of Form N-1A Prospectus Location or Caption
- ------------------------ ------------------------------

Part A
- ------

<S> <C>
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 and Certain Risk Factors

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
</TABLE>

<PAGE>

February 28, 1997

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 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.

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) the
Adviser and its affiliates.

TF--0197

Read this Prospectus carefully and retain it for future reference. More detailed
information about the Fund is in the February 28, 1997 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 1-800-426-3750. 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

- ----------------------------- --------------------------

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- ----------------------------- --------------------------
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 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)

<TABLE>
<S> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as a % of offering price) 0.00%
Maximum Contingent Deferred Sales Charge (as a % of offering price) 0.00%
</TABLE>

(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy 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 0.36
----
Total operating expenses 0.91%
====

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 $ 29
5 years $ 51
10 years $ 112

<PAGE>

THE FUND'S FINANCIAL HISTORY (a)

The following is derived from the financial highlights for a Class Z share
outstanding throughout each period which have been audited by Price Waterhouse
LLP, independent accountants. Their unqualified report is included in the Fund's
1996 Annual Report and is incorporated by reference into the Statement of
Additional Information.

<TABLE>
<CAPTION>
Class Z
---------------------------------------
Year
ended
October 31
---------------------------------------
1996 1995(b)
---- -------
<S> <C> <C>
Net asset value - Beginning of period $8.940 $8.780
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.186 0.041
Net realized and unrealized gain (loss) 1.192 0.167
------ -----
Total from Investment Operations 1.378 0.208
------ -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.182) (0.048)
From net realized gain on investments (0.636) ---
------- -----
Total Distributions Declared to Shareholders (0.818) (0.048)
------- -------
Net asset value - End of period $9.500 $8.940
======= ======
Total return(c) 16.50% 2.02%(d)
====== ======
RATIOS TO AVERAGE NET ASSETS
Expenses(e) 0.91% 0.93%(f)
Net investment income(e) 2.06% 2.66%(f)
Portfolio turnover 38% 66%
Average commission rate(g) $0.0347 -----
Net assets at end of period (000) $13,555 $3,659
</TABLE>

(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) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(f) Annualized.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.

Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable without charge by calling 1-800-426-3750.

<PAGE>

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

1. Companies whose current business activities provide earnings, dividends or
assets that represent above average value for each dollar invested; or

2. Companies whose business activities are concentrated in industries or
business strategies which are expected to provide above average stability
or value in turbulent markets; or

3. Companies with anticipated business growth prospects that represent above
average value for each dollar invested.

Up to 5% of the Fund's net assets may be invested in common stocks not meeting
any of the foregoing conditions at the time of purchase.

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 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 e 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.

Other. The Fund may not always achieve its investment objectives. The Fund's
investment objectives and non-fundamental investment policies may be changed
without shareholder approval. The Fund will notify investors in connection with
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 the 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.

Colonial Investment Services, Inc. (Distributor), a subsidiary of the Adviser,
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. Each of the Adviser, the
Distributor and the Transfer Agent is an indirect 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.

Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser may agree.

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)(normally 4:00 p.m. Eastern time) each day the Exchange is open.
Portfolio securities for which market quotations are readily available are
valued at current market value. Short-term investments maturing in 60 days or
less are valued at amortized cost when the Adviser determines, pursuant to
procedures adopted by the Trustees, that such cost approximates current 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 net income quarterly and
any net realized gain at least annually.

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 and Account Fees. A variety of shareholder services are
available. For more information about these services or your account, call
1-800-345-6611. 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. The Fund may also deduct annual maintenance and processing fees
(payable to the Transfer Agent) in connection with certain retirement plan
accounts. See "Special Purchase Programs/Investor Services" in the Statement of
Additional Information. 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, Classes A, B and D, through a separate Prospectus.

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, which do not bear 12b-1 fees or contingent deferred sales charges,
should do so in preference over other classes.

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

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

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.

HOW TO EXCHANGE SHARES

Class Z shares may be exchanged at net asset value into the Class A shares of
any other Colonial fund. Carefully read the prospectus of the fund into which
you are exchanging before submitting the request. Call 1-800-426-3750 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. The Transfer Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine and may be liable for losses related to unauthorized
transactions in the event reasonable procedures are not employed. Such
procedures include restrictions on where proceeds of telephone redemptions may
be sent, limitations on the ability to redeem by telephone shortly after an
address change, recording of telephone lines and requirements that the redeeming
shareholder and/or their financial adviser provide certain identifying
information. 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.

ORGANIZATION AND HISTORY

<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

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, 1997

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 1-800-426-3750
for the February 28, 1997 Statement of Additional Information.

- --------------------------------------------------------

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- --------------------------------------------------------

<PAGE>

[LOGO] COLONIAL
Mutual Funds

One Financial Center
Boston, Massachusetts
02111-2621
617-426-3750

<PAGE>

COLONIAL TRUST III
------------------

Cross Reference Sheet (Colonial International Horizons Fund
formerly known as Colonial Global Natural Resources Fund)
------------------------------------------------------------

<TABLE>
<CAPTION>
Item Number of Form N-1A Prospectus Location or Caption
- ------------------------ ------------------------------

Part A
- ------

<S> <C>
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 and Certain Risk Factors

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
</TABLE>

<PAGE>

February 28, 1997

COLONIAL

INTERNATIONAL HORIZONS 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.

Please consult your full-service financial adviser to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.

Colonial International Horizons 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.

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

- -------------------------------------------------------

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- -------------------------------------------------------
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

Shareholder Transaction Expenses(1)(2)
<TABLE>
<CAPTION>
Class A Class B
<S> <C> <C>
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%
</TABLE>

(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy 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)

<TABLE>
<CAPTION>
Class A Class B

<S> <C> <C>
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%
=====
</TABLE>

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:

<TABLE>
<CAPTION>
Class A Class B

Period: (6) (7)
<C> <C> <C> <C>
1 year 73 74 24
3 years 105 104 74
5 years 140 146 126
10 years 237 251(8) 251(8)

</TABLE>

(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.

<PAGE>

THE FUND'S FINANCIAL HISTORY (a)

<TABLE>
<CAPTION>
Year ended October 31
------------------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $12.430 $12.380 $13.160 $13.110 $12.160 $12.130
-------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.075 (0.026) 0.102 0.009 0.114 0.019
Net realized and unrealized gain (loss) 2.525 2.506 (0.496) (0.489) 1.104 1.097
------ ------ ------- ------- ------ -----
Total from Investment Operations 2.600 2.480 (0.394) (0.480) 1.218 1.116
------ ------ ------- ------- ------ -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.080) ---- (0.106) (0.020) (0.118) (0.036)
From net realized gains (0.630) (0.630) (0.230) (0.230) (0.100) (0.100)
------- ------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (0.710) (0.630) (0.336) (0.250) (0.218) (0.136)
------- ------- ------- ------- ------- -------
Net asset value - End of period $14.320 $14.230 $12.430 $12.380 $13.160 $13.110
-------- -------- ======== ======== ======== =======
Total return(c) 21.69% 20.70% (2.88)% (3.56)% 10.14% 9.28%
------ ------ ------- ------- ------ -----
RATIOS TO AVERAGE NET ASSETS
Expenses 1.61%(d) 2.36%(d) 1.66%(d) 2.41%(d) 1.70% 2.45%
Net investment income 0.56%(d) (0.19)%(d) 0.82%(d) 0.07%(d) 0.90% 0.15%
Portfolio turnover 84% 84% 65% 65% 15% 15%
Average commission rate(e) $0.0268 $0.0268 --- --- --- ---
Net assets at end of period (000) $36,655 $25,482 $31,297 $20,931 $36,830 $22,458
</TABLE>

<TABLE>
<CAPTION>
Period ended
Year ended October 31 October 31
-------------------------------------------------------------
1993 1992(b)
----------------------------- ----------------------------
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $9.750 $9.720 $10.000 $10.000
------- ------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.099 0.018 0.042 0.012
Net realized and unrealized gain (loss) 2.429 2.431 (0.292) (0.292)
------ ------ ------- -------
Total from Investment Operations 2.528 2.449 (0.250) (0.280)
------ ------ ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.118) (0.039) --- ---
From net realized gains --- --- --- ---
------ ------ ------- -------
Total Distributions Declared to Shareholders (0.118) (0.039) --- ---
------ ------ ------- -------
Net asset value - End of period $12.160 $12.130 $9.750 $9.720
======== ======== ======= ======
Total return(c) 26.20% 25.30% (2.50)%(f) (2.80)%(f)
-------- -------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.88% 2.63% 2.45%(g) 3.20%(g)
Net investment income 0.92% 0.17% 1.07%(g) 0.32%(g)
Portfolio turnover 14% 14% 89%(g) 89%(g)
Average commission rate(e) --- --- --- ---
Net assets at end of period (000) $31,098 $7,179 $27,790 $4,444
</TABLE>

(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 years' ratios are net of benefits
received, if any.

(e) For fiscal years beginning on or after september 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.

(f) Not annualized.

(g) Annualized.

Further performance information is contained in the fund's annual report to
shareholders, which is obtainable free of charge by calling 1-800-426-3750.

<PAGE>

THE FUND'S INVESTMENT OBJECTIVE

The Fund seeks preservation of capital purchasing power and long-term growth.

HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS

The Fund seeks to achieve its objective by investing primarily in equity
securities of companies in industries and markets which the Adviser believes
will have favorable sensitivity to inflation in the U.S. economy and by
investing in equity securities of companies which the Adviser believes will
provide superior long-term growth. Inflation sensitive companies may include,
but need not be limited to, companies engaged in the development and processing
of natural resources and companies engaged in consumer-oriented businesses.
Normally at least 65% of the Fund's total assets will be invested in securities
of companies that are located or traded outside the U.S.

The Fund may invest in securities issued by smaller, less well established
companies, possibly traded over-the-counter, as well as those of larger, more
established companies traded on exchanges. The Fund's foreign investments may
include securities issued by companies located in less developed countries
(so-called "emerging markets"). 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.

Equity Securities Generally. The equity securities in which the Fund invests may
include common and preferred stock, warrants (rights) to purchase such stock,
debt 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. The debt securities in which the Fund may invest
include investment grade, lower-rated (including bonds in the lowest rating
categories) and unrated securities that pay fixed, floating or adjustable
interest rates.

Foreign Investments. Investments in foreign securities
and sponsored and unsponsored 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.

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 interest rates than higher quality securities.

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: (i) an economic downturn may more significantly impact their potential
for default, and (ii) 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. During the
fiscal period ended October 31, 1996, the Fund had less than 2.00% of its total
average annual assets invested in lower rated bonds.

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.

Index and Interest Rate Futures; Options. 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. The Fund also may purchase and write options on individual
securities. 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 generally gives the option holder the right, but not the obligation, to
purchase or sell the underlying instrument 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. The total market value of securities
to be acquired or delivered pursuant to options contracts entered into by the
Fund will not exceed 5% of the Fund's total assets. In addition, 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 Fund's total assets.

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 may
be invested in such instruments and U.S. Government securities during 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.

Other. The Fund may not always achieve its investment objective. The Fund's
investment objective and non-fundamental investment policies may be changed
without shareholder approval. The Fund will notify investors in connection with
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 the investment objective. The Fund's fundamental
investment policies listed in the Statement of Additional information cannot be
changed without the approval of a majority of the Fund's outstanding voting
securities. Additional information concerning certain of the securities and
investment techniques described above is contained in the Statement of
Additional Information.

HOW THE FUND MEASURES ITS PERFORMANCE

Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula and assume the reinvestment of all
distributions, the maximum initial sales charge of 5.75% on Class A shares, and
the contingent deferred sales charge applicable to the time period quoted on
Class B 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 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.

Gita Rao, Vice President of the Adviser, manages the Fund. Ms. Rao has managed
various other Colonial funds since 1996. Prior to joining the Adviser in 1995,
she was a Quantitative Research Analyst at Fidelity Management & Research
Company, and a Vice President in the equity research group at Kidder, Peabody
and Company.

Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser may agree.

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) (normally 4:00
p.m. Eastern time) each day the Exchange is open. Portfolio securities for which
market quotations are readily available are valued at current market value.
Short-term investments maturing in 60 days or less are valued at amortized cost
when the Adviser determines, pursuant to procedures adopted by the Trustees,
that such cost approximates current market value. All other securities and
assets are valued at their fair value following procedures adopted by the
Trustees.

DISTRIBUTIONS AND TAXES

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

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 share certificates. The Fund may refuse
any purchase order for its shares. See the Statement of Additional Information
for more information.

Class A Shares. Class A shares are offered at net asset value plus an initial
sales charge as follows:

<TABLE>
<CAPTION>
Initial Sales Charge
-------------------------------------
Retained by
Financial Service
Firm as
as % of % of
-------------------------
Amount Offering Offering
Amount Purchased Invested Price Price
<S> <C> <C> <C>
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%
</TABLE>

On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:

<TABLE>
<CAPTION>
Amount Purchased Commission
<S> <C>
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25% (1)
</TABLE>

(1) Paid over 12 months but only to the extent the shares remain outstanding.

<TABLE>
<CAPTION>
Years Contingent Deferred
After Purchase Sales Charge
<C> <C>
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%
</TABLE>

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.

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. The Fund may also deduct annual maintenance and processing
fees (payable to the Transfer Agent) in connection with certain retirement plan
accounts. See "Special Purchase Programs/Investor Services" in the Statement of
Additional Information for more information.

HOW TO SELL SHARES

Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611

HOW TO EXCHANGE SHARES

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.

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. The Transfer Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine and may be liable for losses related to unauthorized
transactions in the event reasonable procedures are not employed. Such
procedures include restrictions on where proceeds of telephone redemptions may
be sent, limitations on the ability to redeem by telephone shortly after an
address change, recording of telephone lines and requirements that the redeeming
shareholder and/or financial adviser provide certain identifying information.
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 monthly a service fee at an
annual rate of 0.25% of the Fund's net assets attributed to each Class of
shares. The Fund also pays the Distributor monthly a distribution fee at an
annual rate of 0.75% of the average daily 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.

<PAGE>

APPENDIX

DESCRIPTION OF BOND RATINGS

S&P

AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.

AA bonds have a very strongcapacity to pay interest and repay principal, and
they differ from AAA only in small degree.

A bonds have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB bonds are regarded as having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal 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 repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of speculation and
CC the highest degree. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or large
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 protection may not be as large as
in Aaa securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risks
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 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 obligations, i.e., they are 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 bonds in
this class.

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. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.

Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.

C bonds are the lowest rated class of bonds and issues so rated 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

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, 1997

COLONIAL

INTERNATIONAL HORIZONS FUND

PROSPECTUS

Colonial International Horizons Fund seeks preservation of capital purchasing
power and long-term growth.

For more detailed information about the Fund, call the Adviser at 1-800-426-3750
for the February 28, 1997 Statement of Additional Information.

- -------------------------------------------------------

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- -------------------------------------------------------

<PAGE>

COLONIAL TRUST III
------------------

Cross Reference Sheet (Colonial Global Equity Fund)
---------------------------------------------------

<TABLE>
<CAPTION>
Item Number of Form N-1A Prospectus Location or Caption
- ------------------------ ------------------------------

Part A
- ------

<S> <C>
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 and Certain Risk Factors

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
</TABLE>

<PAGE>

February 28, 1997

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.

Please consult your full-service financial adviser to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.

Colonial Global Equity Fund (Fund), a diversified portfolio of Colonial Trust
III (Trust), seeks long-term growth by investing primarily in global equities.

The Fund is managed by the Adviser, an investment adviser since 1931.

GE-01/345D-0297

The Fund offers two classes of shares. Class A shares are offered at net asset
value plus a sales charge imposed at the time of purchase; and Class B shares
are offered at net asset value 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

- --------------------------------------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- --------------------------------------------------------

<PAGE>

SUMMARY OF EXPENSES

Shareholder Transaction Expenses(1)(2)
<TABLE>
<CAPTION>
Class A Class B
<S> <C> <C>

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%
</TABLE>

(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy 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)

<TABLE>
<CAPTION>
Class A Class B
<S> <C> <C>

Management fee 0.75% 0.75%
12b-1 fees 0.25 1.00
Other expenses 0.58 0.58
Total operating expenses(6) 1.58% 2.33%
</TABLE>

(6) Total operating expenses, excluding brokerage, interest, taxes, 12b-1
distribution and service fees and extraordinary expenses, are until further
notice, voluntarily limited by the Adviser to 1.40% of the Fund's average
net assets.

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.

<TABLE>
<CAPTION>
Class A Class B
Period: (7) (8)
<S> <C> <C> <C>
1 year $ 73 $ 74 $ 24
3 years 104 103 73
5 years 138 144 124
10 years 234 248(9) 248(9)
</TABLE>

(7) Assumes redemption at period end.
(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.

<PAGE>

THE FUND'S FINANCIAL HISTORY (b)

<TABLE>
<CAPTION>
Year ended October 31
-----------------------------------------------------------------------------
1996 1995 1994
-----------------------------------------------------------------------------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $12.450 $12.390 $12.690 $12.630 $11.760 $11.720
-------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.123 0.027 0.167 0.076 0.170 0.077
Net realized and unrealized gain (loss) 1.664 1.634 0.735 0.735 0.969 0.959
------ ------ ------ ------ ------ -----
Total from Investment Operations 1.787 1.661 0.902 0.811 1.139 1.036
------ ------ ------ ------ ------ -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.098) (0.027) (0.198) (0.107) (0.166) (0.083)
In excess of net investment income (0.035) (0.010) ---- ---- ---- ----
From net realized gains (0.664) (0.664) (0.944) (0.944) (0.043) (0.043)
------- ------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (0.797) (0.701) (1.142) (1.051) (0.209) (0.126)
------- ------- ------- ------- ------- -------
Net asset value - End of period $13.440 $13.350 $12.450 $12.390 $12.690 $12.630
======== ======== ======== ======== ======== =======
Total return(d) 15.10% 14.04% 8.23%(e) 7.43%(e) 9.76%(e) 8.88%(e)
====== ====== ===== ===== ===== =====
RATIOS TO AVERAGE NET ASSETS
Operating expenses 1.58%(f) 2.33%(f) 1.36%(f) 2.11%(f) 1.25% 2.00%
Interest expense --- --- --- --- --- ---
Fees and expenses waived or borne by the Adviser --- --- 0.26%(f) 0.26%(f) 0.36% 0.36%
Net investment income 0.96%(f) 0.21%(f) 1.40%(f) 0.65%(f) 1.38% 0.63%
Portfolio turnover 125% 125% 74% 74% 52% 52%
Average commission rate (i) $0.0261 $0.0261 --- --- --- ---
Net assets at end of period (000) $19,092 $65,714 $11,501 $59,131 $10,525 $63,139

(a) Net of fees and expenses waived or borne
by the Adviser which amounted to: --- --- $0.031 $0.031 $0.045 $0.045
</TABLE>

<TABLE>
<CAPTION>
Period ended
October 31
-----------------------------------------------------------------------
1993 1992(c)
-----------------------------------------------------------------------
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $9.340 $9.310 $10.000 $10.000
------- ------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.182 0.104 0.088 0.059
Net realized and unrealized gain (loss) 2.461 2.447 (0.748) (0.749)
------ ------ ------- -------
Total from Investment Operations 2.643 2.551 (0.660) (0.690)
------ ------ ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.223) (0.141) --- ---
In excess of net investment income --- --- --- ---
From net realized gains --- --- --- ---
------- ------- ----- -----
Total Distributions Declared to Shareholders (0.223) (0.141) --- ---
------- ------- ----- -----
Net asset value - End of period $11.760 $11.720 $9.340 $9.310
======== ======== ======= ======
Total return(d) 28.77%(e) 27.70%(e) (6.59)%(e)(g) (6.90)%(e)(g)
====== ====== ======= =======
RATIOS TO AVERAGE NET ASSETS
Operating expenses 1.25% 2.00% 1.25%(h) 2.00%(h)
Interest expense 0.01% 0.01% --- ---
Fees and expenses waived or borne by the Adviser 0.51% 0.51% 0.67%(h) 0.67%(h)
Net investment income 1.75% 1.00% 2.25%(h) 1.50%(h)
Portfolio turnover 58% 58% 14%(h) 14%(h)
Average commission rate (i) --- --- --- ---
Net assets at end of period (000) $1,769 $40,837 $164 $32,099

(a) Net of fees and expenses waived or borne
by the Adviser which amounted to: $0.053 $0.053 $0.026 $0.026
</TABLE>

(b) Per share data was calculated using average shares outstanding during the
period.
(c) The Fund commenced investment operations on June 8, 1992.
(d) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or 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 years' ratios are net of benefits
received, if any.
(g) Not annualized.
(h) Annualized.
(i) For the fiscal years)beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.

Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-426-3750.

<PAGE>

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 seeks to achieve its objective by investing primarily in equity
securities of companies and governments of any nation. The Fund may also invest
in debt securities of companies and governments of any nation. Normally (i) at
least 65% of the Fund's total assets will be in equity securities; and (ii) the
Fund will be invested in equity securities of issuers in at least three
countries including the U.S.

Equity Securities Generally. 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 (receipts issued in the U.S. by banks or trust companies evidencing
ownership of underlying foreign securities). Equity securities also include
shares issued by closed-end investment companies that invest primarily in the
foregoing securities.

Debt Securities Generally. Debt securities generally include U.S. and foreign
government debt securities and corporate debt securities, including Samurai and
Yankee bonds, Eurobonds and American Depository Receipts, investment grade
obligations (i.e., securities rated Baa or better by Moody's Investors Service
(Moody's) or similarly rated by other rating services) or non-rated debt
obligations that the Adviser considers to be of comparable quality. The Fund may
invest in debt securities of any maturity that pay fixed, floating and
adjustable interest rates. The values of debt securities generally fluctuate
inversely with changes in interest rates in the countries where the securities
are issued.

Foreign Investments. Investments in foreign securities (both debt and equity)
and sponsored and unsponsored 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 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.
The total market value of securities to be acquired or delivered pursuant to
options contracts entered into by the Fund, will not exceed 5% of the Fund's
total assets. In addition, 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 Fund's total assets.

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 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 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.

Short Sales. The Fund may sell securities short against the box (i.e., against
securities that the Fund already holds) but will not do so if, as a result, more
than 15% of its total assets is committed as collateral.

Other. The Fund may trade portfolio securities for short-term profits to take
advantage of price differentials. These trades are 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 not always achieve its investment objective. The Fund's investment
objective and non-fundamental investment policies may be changed without
shareholder approval. The Fund will notify investors in connection with any
material change in the Fund's investment objective. If there is a change in the
investment objective, shareholders should consider whether the Fund remains an
appropriate investment in light of their current financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares are redeemed
in response to a change in investment objective. The Fund's fundamental
investment policies listed in the Statement of Additional Information cannot be
changed without the approval of a majority of the Fund's outstanding voting
securities. Additional information concerning certain of the securities and
investment techniques described above is contained in the Statement of
Additional Information.

HOW THE FUND MEASURES ITS PERFORMANCE

Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula and assume the reinvestment of all
distributions, the maximum initial sales charge of 5.75% on Class A shares, and
the contingent deferred sales charge applicable to the time period quoted on
Class B shares. Other total returns differ from the average annual total return
only in that they may relate to different time periods, may represent aggregate
as opposed to average annual total returns, and may not reflect the initial or
contingent deferred sales charges.

Each Class's yield, which differs from total return because it does not consider
changes in net asset value, is calculated in accordance with the Securities and
Exchange Commission's formula. Each Class's distribution rate is calculated by
dividing the most recent month's distributions, annualized, by the maximum
offering price of that Class 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.

Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser may agree.

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) (normally 4:00
p.m. Eastern time) each day the Exchange is open. Portfolio securities for which
market quotations are readily available are valued at current market value.
Short-term investments maturing in 60 days or less are valued at amortized cost
when the Adviser determines, 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

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

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 share certificates. The Fund may refuse
any purchase order for its shares. See the Statement of Additional Information
for more information.

Class A Shares. Class A shares are offered at net asset value plus an initial
sales charge as follows:

<TABLE>
<CAPTION>
Initial Sales Charge
--------------------

Retained
by
Financial
Service
as % of Firm as
------------------- % of
Amount Offering Offering
Invested Price Price
<S> <C> <C> <C>
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%
</TABLE>

On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:

<TABLE>
<CAPTION>
Amount Purchased Commission
<S> <C> <C>
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)
</TABLE>

(1) Paid over 12 months but only to the extent the shares remain outstanding.

<TABLE>
<CAPTION>
Years Contingent Deferred
After Purchase Sales Charge
<C> <C>
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%
</TABLE>

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.

HOW TO SELL SHARES

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

HOW TO EXCHANGE SHARES

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. The Transfer Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine and may be liable for losses related to unauthorized
transactions in the event reasonable procedures are not employed. Such
procedures include restrictions on where proceeds of telephone redemptions may
be sent, limitations on the ability to redeem by telephone shortly after an
address change, recording of telephone lines and requirements that the redeeming
shareholder and/or their financial adviser provide certain identifying
information. 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 monthly a service fee at an
annual rate of 0.25% of the Fund's net assets attributed to each Class of
shares. The Fund also pays the Distributor monthly a distribution fee at an
annual rate of 0.75% of the average daily 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 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.

<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK)

<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, 1997

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 1-800-426-3750
for the February 28, 1997 Statement of Additional Information.

- ----------------------------- --------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------------------- --------------------------

<PAGE>

COLONIAL TRUST III
------------------

Cross Reference Sheet (Colonial Global Utilities Fund)
------------------------------------------------------

<TABLE>
<CAPTION>
Item Number of Form N-1A Prospectus Location or Caption
- ------------------------ ------------------------------

Part A
- ------

<S> <C>
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 and Certain Risk Factors

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
</TABLE>

<PAGE>

February 28, 1997

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.

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.

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 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 an annual
distribution fee and a contingent deferred sales charge on redemptions made
within one year 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
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 Shares
How to Exchange Shares
Telephone Transactions
12b-1 Plans
Organization and History
Appendix

- ----------------------------- --------------------------

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- ----------------------------- --------------------------

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
<S> <C> <C> <C>
Maximum Sales Charge (as a % of offering price)(3) 5.75% 5.00% 1.99%(5)
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% 0.99%
</TABLE>

(1) For accounts less than $1,000 an annual fee of $10 may be deducted.
See "How to Buy 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

<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Management and administration fees 0.65% 0.65% 0.65%
12b-1 fees 0.25 1.00 1.00
Other expenses of the
Fund.................................. 0.43 0.43 0.43
Other expenses of the
Portfolio........................... 0.05 0.05 0.05
---- ---- ----
Total operating expenses 1.38% 2.13% 2.13%
==== ==== ====
</TABLE>

Amounts in the table reflect the aggregate operating expenses incurred by the
Fund and the Portfolio during the fiscal year ended October 31, 1996.

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
<S> <C> <C> <C> <C> <C>
Period (6) (7) (6) (7)
1 year $ 71 $ 72 $ 22 $ 41 $ 31
3 years 99 97 67 76 76(9)
5 years 129 135 115 123 123
10 years 214 228 228(8) 254 254
</TABLE>

(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.

<PAGE>

- --------------------------------------------------------
THE FUND'S FINANCIAL HISTORY
- --------------------------------------------------------

The following financial highlights for a share outstanding throughout the year
ended October 31, 1996, have been audited by Price Waterhouse LLP, independent
accountants. Their unqualified report is included in the Fund's 1996 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.

CLASS A
------------------------------------------------------------------------------
Period ended
Year ended October 31 October 31
--------------------------------------------------------- -------------------
1996(b) 1995(b) 1994(b) 1993 1992 1991(g)
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $11.080 $10.610 $12.150 $10.430 $9.990 $10.000
-------- -------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)(c) 0.427 0.536 0.550 0.570 0.590 0.020
Net realized and unrealized gain (loss) 0.878 0.520 (1.430) 1.790 0.460 (0.030)
------ ------ ------- ------ ------ -------
Total from Investment Operations 1.305 1.056 (0.880) 2.360 1.050 (0.010)
------ ------ ------- ------ ------ -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.385) (0.517) (0.500) (0.610) (0.610) ---
From net realized gains --- (0.069) (0.160) (0.030) --- ---
------ ----- ------- ------- --------- -----
Total Distributions Declared to Shareholders (0.385) (0.586) (0.660) (0.640) (0.610) ---
------- ------- ------- ------- ------- ---
Net asset value - End of period $12.000 $11.080 $10.610 $12.150 $10.430 $9.990
======= ======== ======== ======== ======== ======
Total return(d) 11.99% 10.32%(e) (7.40)% 23.30% 10.80%(e) (2.10%)(e)(f)
====== === ======= ====== === ===
RATIOS TO AVERAGE NET ASSETS
Expenses 1.38(c) 1.29(c) 1.20% 1.13% 1.25% 1.25%(f)
Net investment income 3.70(c) 5.14(c) 4.90% 4.80% 5.81% 5.75%(f)
Fees and expenses waived or borne by Liberty
Securities Corporation (Liberty Securities)
and the Portfolio --- 0.03% --- --- --- ---
Net assets at end of period (000) $169,840 $211,916 $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 --- --- --- ---
</TABLE>

(b) Per share data was calculated using average shares outstanding during
the period.
(c) 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.
(d) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(e) Total return would have been lower had certain expenses not been waived.
(f) Annualized.
(g) The Fund commenced investment operations on August 23, 1991.

<PAGE>

THE FUND'S FINANCIAL HISTORY(b) (CONT'D)

Year ended October 31
-----------------------------------------------------------------------
1996 1995(c) 1996 1995
---- ---- ---- ----
Class B Class B (d) Class D Class D (d)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $11.080 $10.420 $11.080 $10.420
-------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a)(c) 0.340 0.248 0.340 0.248
Net realized and unrealized gain (loss) 0.889 0.665 0.879 0.665
------ ------ ------ -----
Total from Investment Operations 1.229 0.913 1.219 0.913
------ ------ -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.299) (0.253) (0.299) (0.253)
From net realized gains --- --- --- ---
----- ----- ----- ---
Total Distributions Declared to Shareholders (0.299) (0.253) (0.299) (0.253)
------- ------- -------
Net asset value - End of period $12.010 $11.080 $12.000 $11.080
-------- -------- -------- -------
Total return(e) 11.25% 8.82%(f) 11.16% 8.82%(f)
====== ==== ====== ====
RATIOS TO AVERAGE NET ASSETS
Expenses(c) 2.13% 2.05%(g) 2.13% 2.05%(g)
Net investment income(c) 2.95% 3.73%(g) 2.95% 3.73%(g)
Fees and expenses waived or borne by Liberty
Securities Corporation (Liberty Securities)
and the Portfolio --- 0.02%(g) --- 0.02%(g)
Net assets at end of period (000) $1,538 $745 $584 $307
- ---------------------------------
(a) Net of fees and expenses waived or
borne by Liberty Securities which
amounted to --- --- --- ---
</TABLE>

(b) Per share data was calculated using average shares outstanding during
the period.
(c) 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.
(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) Not annualized.
(g) Annualized.

Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-426-3750.

<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 1-800-426-3750.

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 that other investors had invested directly in the
Portfolio, at the time any such action were to be taken, 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.

<PAGE>

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

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 Portfolio normally invests at least 65% of its total assets in U.S. and
foreign equity and debt securities of 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, print media or cable television) (Utility
Companies). The Portfolio will invest primarily in securities of large,
established Utility Companies located in developed countries, including the U.S.
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. Because the Portfolio concentrates its investments
in securities of Utility Companies, an investment in the Fund may entail more
risk than an investment in a more diversified portfolio. See "Utility Companies"
below.

Equity Securities Generally. 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 (receipts issued in the U.S. by banks or trust companies evidencing
ownership of underlying foreign securities). At least 20% of the Portfolio's
total assets will be invested in equity securities of Utility Companies 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 issued by Utility
Companies.

Debt Securities Generally. Debt securities generally include securities of any
maturity that pay fixed, floating or adjustable interest rates.

The Portfolio 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 debt securities in which the Portfolio invests will be rated at
the time of investment at least Baa by Moody's Investors Service (Moody's) or
BBB by Standard & Poor's Corporation (S&P) or will be unrated but considered by
the Adviser to be of comparable credit quality. 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. 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.

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 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.
<PAGE>

The Portfolio may invest in equity and debt securities 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.

Utility Companies. The values of securities issued by Utility Companies are
especially affected by changes in prevailing interest rate levels (as interest
rates increase, the values of Utility Company securities tend to decrease, and
vice versa), as well as by 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.

Foreign Investments. Investments in foreign securities (both debt and equity)
and sponsored and unsponsored 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 Currency Transactions. In connection with its investments in foreign
securities, the Portfolio 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
Portfolio, 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
Portfolio are denominated. The Portfolio 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 Portfolio's obligations in entering into such
transactions.

Index and Interest Rate Futures; Options. The Portfolio 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. The Portfolio also may purchase and sell
options on individual securities. 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 generally gives the option holder the
right, but not the obligation, to purchase or sell 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
Portfolio may be worse off than if it had not hedged.

<PAGE>

Securities Loans. 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 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 Portfolio 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, high
quality liquid debt securities, or equity securities denominated in the
particular foreign currency, equal in value to the Portfolio's obligations under
such transactions.

Temporary/Defensive Investments. Temporarily available cash may be invested in
U.S. dollar or foreign currency denominated demand deposits, certificates of
deposit, bankers' acceptances, high quality commercial paper, short-term debt
securities, 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 Portfolio 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 Portfolio's custodian, and
constitutes the Portfolio'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 Portfolio 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
Portfolio's net assets will be invested in repurchase agreements maturing in
more than 7 days and other illiquid securities.

Borrowing of Money. The Fund or the Portfolio may borrow money from banks for
temporary or emergency purposes up to 33 1/3% of total assets of the Fund or the
Portfolio; however, they will not purchase additional portfolio securities while
borrowings exceed 5% of total assets of the Fund or the Portfolio.

Other. The Portfolio and, therefore, the Fund may not always achieve its
investment objective. The Fund's and the Portfolio's non-fundamental investment
policies may be changed without shareholder approval. The Fund will notify
investors in connection with any material change in the Fund's or the
Portfolio's investment objective. The Fund's and the Portfolio's investment
objectives and fundamental investment 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. 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 investment objective. Additional information
concerning certain of the securities and investment techniques described above
is contained in the Statement of Additional Information.

<PAGE>

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 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 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 considered to be the controlling
entity of the Adviser. 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.

Ophelia Barsketis, Senior Vice President of the Adviser, has co-managed the
Portfolio since September 1993. Ms Barsketis joined the Adviser in 1983 and
progressed through a variety of equity analyst positions before assuming her
current responsibilities.

Deborah A. Jansen, Vice President and Senior Research Analyst for global and
domestic equities and global economic forecasting for the Adviser, has
co-managed the Portfolio since April 1996. Ms. Jansen joined the Adviser in 1987
and served as an associate economist and senior economist before assuming her
current responsibilities. Ms. Jansen left the Adviser in January, 1995 and
returned to her position as Vice President in March, 1996. From June 5, 1995
through June 30, 1995, Ms. Jansen was a Senior Equity Research Analyst for
BancOne Investment Advisers Corporation.

<PAGE>

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 by such broker-dealers to the Adviser and its affiliates. In
recognition of the research and brokerage services provided, the Adviser may
cause the Portfolio to pay the selected broker-dealer a higher commission than
would have been charged by another broker-dealer not providing such services.
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.

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 in fiscal year 1996.

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 (normally 4:00 p.m. Eastern time, 3:00 p.m. Central time)
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 current market value. Short-term investments maturing in 60 days or
less are valued at amortized cost when the Adviser determines, pursuant to
procedures adopted by the Trustees, that such cost approximates current market
value. All other securities and assets are valued at their fair value following
procedures adopted by the Trustees.

<PAGE>

DISTRIBUTIONS AND TAXES

The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders net income quarterly and
any net realized gain, at least annually.

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 A Shares. Class A shares are offered at net asset value plus an initial
sales charge as follows:

Initial Sales Charge
----------------------------------
Retained
by Financial
Service
Firm
_____as % of______ as % of
Amount Offering Offering
Amount Purchased Invested Price Price

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.

Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, are subject to a 0.75% annual distribution fee for
approximately eight years (at which time they automatically convert to Class A
shares not bearing a distribution fee), and are subject to 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 (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.

Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares with reduced, or without, initial or contingent
deferred sales charges. The programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges" and "How to Sell Shares".

HOW TO SELL SHARES

Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611

<PAGE>

HOW TO EXCHANGE SHARES

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.. The Transfer Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine and may be liable for losses related to unauthorized
transactions in the event reasonable procedures are not employed. Such
procedures include restrictions on where proceeds of telephone redemptions may
be sent, limitations on the ability to redeem by telephone shortly after an
address change, recording of telephone lines and requirements that the redeeming
shareholder and/or their financial adviser provide certain identifying
information.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.

<PAGE>

12B-1 PLANS

Under 12b-1 Plans, the Fund pays the Distributor monthly a service fee at an
annual rate of 0.25% of the Fund's net assets attributed to each Class of
shares. The Fund also pays the Distributor monthly a distribution fee at an
annual rate of 0.75% of the average daily 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.

<PAGE>

APPENDIX

DESCRIPTION OF BOND RATINGS

S&P

AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.

AA bonds have a very strongcapacity to pay interest and repay principal, and
they differ from AAA only in small degree.

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

Caa bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.

Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.

C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.

<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

<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

Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611

Custodian of Fund
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02108

Custodian of Portfolio
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02108

Independent Accountants of Fund
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624

Independent Auditors of Portfolio
KPMG Peat Marwick LLP
303 East Wacker Drive
Chicago, IL 60601-9973

Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624

Your financial service firm is:

Printed in U.S.A.

February 28, 1997

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
1-800-426-3750 for the February 28, 1997 Statement of Additional Information.

- ----------------------------- --------------------------

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- ----------------------------- --------------------------

<PAGE>

COLONIAL TRUST III
------------------

Cross Reference Sheet (Colonial Strategic Balanced Fund)
--------------------------------------------------------

<TABLE>
<CAPTION>
Item Number of Form N-1A Prospectus Location or Caption
- ------------------------ ------------------------------

Part A
- ------

<S> <C>
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 and Certain Risk Factors

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
</TABLE>

<PAGE>

February 28, 1997

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.

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.

SB-01/351D-0297

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
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 an annual distribution fee and a contingent deferred sales
charge on redemptions made within one year 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

- -------------------------------------------------------

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- -------------------------------------------------------
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

Shareholder Transaction Expenses (1)(2)

<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Maximum Sales Charge (as a % of offering price)(3) 4.75%(5) 5.00%(5) 1.99%(5)
Maximum Initial Sales Charge Imposed on a purchase (as a % of offering price)(3) 4.75%(5) 0.00%(5) 1.00%(5)
Maximum Contingent Deferred Sales Charge (as a % of offering price)(3) 1.00%(4) 5.00% 0.99%

</TABLE>

(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy Shares."

Annual Operating Expenses (as a % of average net assets)

<TABLE>
<CAPTION>
Class A Class B Class D

<S> <C> <C> <C>
Management fee (after fee waiver) 0.51% 0.51% 0.51%
12b-1 fees 0.55 1.00 1.00
Other expenses 0.59 0.59 0.59
---- ---- ----
Total operating expenses (after fee waiver) 1.65% 2.10% 2.10%
===== ===== =====
</TABLE>

Total expenses, excluding brokerage, interest, taxes, 12b-1 distribution and
service fees and extraordinary expenses, are, until further notice, voluntarily
limited by the Adviser to 1.10% of average net assets. Absent such limit, the
"Management fee" would have been 0.70% for each Class of shares and "Total
operating expenses" would have been 1.84% for Class A shares and 2.29% 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
<S> <C> <C> <C> <C> <C>
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

</TABLE>

(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 $65, $103, $142 and $253 for Class A shares for
1, 3, 5 and 10 years, respectively; $73, $102, $143 and $251 for Class B shares
assuming redemptions for 1, 3, 5 and 10 years, respectively; $23, $72, $123 and
$251 for Class B shares assuming no redemptions for 1, 3, 5 and 10 years,
respectively; $43, $81, $131 and $270 for Class D shares assuming redemptions
for 1, 3, 5 and 10 years, respectively; $33, $81, $131 and $270 for Class D
shares assuming no redemptions for 1, 3, 5 and 10 years, respectively.

<PAGE>

THE FUND'S FINANCIAL HISTORY(b)

The following 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 1996 Annual Report and is
incorporated by reference into the Statement of Additional Information.

<TABLE>
<CAPTION>
Year ended October 31
--------------------------------------- -----------------------------------------
1996 1995
--------------------------------------- -----------------------------------------
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 $11.650 $11.640 $11.650 $9.910 $9.900 $9.900
-------- -------- -------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.369 0.314 0.314 0.325 0.277 0.277
Net realized and unrealized gain (loss) 1.264 1.260 1.258 1.764 1.769 1.774
------ ------ ------ ------ ------ -----
Total from Investment Operations 1.633 1.574 1.572 2.089 2.046 2.051
------ ------ ------ ------ ------ -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.333) (0.284) (0.272) (0.349) (0.306) (0.301)
From net realized gains (0.040) (0.040) (0.040) --- --- ---
------ ------ ------ ------ ------ -----
Total Distributions Declared
to Shareholders (0.373) (0.324) (0.312) --- --- ---
------ ------ ------ ------ ------ -----
Net asset value - End of period $12.910 $12.890 $12.910 $11.650 $11.640 $11.650
======== ======== ======== ======== ======== =======
Total return(d)(e) 14.24% 13.71% 13.68% 21.47% 21.00% 21.04%
====== ====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.65%(f) 2.10%(f) 2.10%(f) 1.65%(f) 2.10%(f) 2.10%(f)
Net investment income 2.99%(f) 2.54%(f) 2.54%(f) 3.05%(f) 2.60%(f) 2.60%(f)
Fees and expenses waived or borne
by the Adviser 0.19% 0.19% 0.19% 0.43% 0.43% 0.43%
Portfolio turnover 59% 59% 59% 49% 49% 49%
Average commission rate(g) $0.0299 $0.0299 $0.0299 --- --- ---
Net assets at end of period (000) $25,580 $40,065 $3,554 $16,346 $18,284 $4,164

(a) Net of fees and expenses waived or borne by the Adviser
which amounted to: $0.023 $0.023 $0.023 $0.042 $0.042 $0.042

</TABLE>

<TABLE>
<CAPTION>
Period ended October 31
-------------------------------------------------
1994 (c)
-------------------------------------------------
Class A Class B Class D
<S> <C> <C> <C>
Net asset value - Beginning of period $10.000 $10.000 $10.000
-------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.035 0.029 0.029
Net realized and unrealized gain (loss) (0.125) (0.129) (0.129)
------- ------- -------
Total from Investment Operations (0.090) (0.100) (0.100)
------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income --- --- ---
From net realized gains --- --- ---
------- ------- -------
Total Distributions Declared
to Shareholders --- --- ---
------- ------- -------
Net asset value - End of period $9.910 $9.900 $9.900
======= ======= ======
Total return(d)(e) (0.90)%(h) (1.00)%(h) (1.00)%(h)
======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.65%(i) 2.10%(i) 2.10%(i)
Net investment income 3.01%(i) 2.56%(i) 2.56%(i)
Fees and expenses waived or borne
by the Adviser 0.35%(i) 0.35%(i) 0.35%(i)
Portfolio turnover 0%(i) 0%(i) 0%(i)
Average commission rate(g) --- --- ---
Net assets at end of period (000) $6,394 $6,332 $2,231

(a) Net of fees and expenses waived or borne by the Adviser
which amounted to: $0.004 $0.004 $0.004
</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 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. Prior years' ratios are net of benefits
received, if any.

(g) For fiscal years beginning on or after September 1,
1995, a fund is required to disclose its average commission rate per share
for trades on which commissions are charged.

(h) Not annualized.

(i) Annualized.

Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by
calling 1-800-426-3750.

<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 (i.e., companies with $1 billion or more in market
capitalization at the time of purchase), securities issued by small U.S.
companies (i.e., companies with $1 billion or less 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 (receipts issued in the
U.S. by banks or trust companies evidencing ownership of underlying foreign
securities). 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.

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 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.

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.

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.

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 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 15% 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 investment policies may be changed
without shareholder approval. The Fund will notify investors in connection with
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 the investment objective. The Fund's fundamental
investment policies listed in the Statement of Additional Information cannot be
changed without the approval of a majority of the Fund's outstanding voting
securities. Additional information concerning certain of the securities and
investment techniques described above is contained in the Statement of
Additional Information.

HOW THE FUND MEASURES ITS PERFORMANCE

Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula and assume the reinvestment of all
distributions, the maximum initial sales charge of 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.

Carl C. Ericson, Senior Vice President and Director 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.

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 by such broker-dealers to the Adviser and its affiliates. In
recognition of the research and brokerage services provided, the Adviser may
cause the Fund to pay the selected broker-dealer a higher commission than would
have been charged by another broker-dealer not providing such services.. 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) (normally 4:00
p.m. Eastern time) each day the Exchange is open. Portfolio securities for which
market quotations are readily available are valued at current market value.
Short-term investments maturing in 60 days or less are valued at amortized cost
when the Adviser determines, pursuant to procedures adopted by the Trustees,
that such cost approximates current 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 net income quarterly and
any net realized gain at least 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 net asset
value. To change your election, call the Transfer Agent for information.

HOW TO BUY SHARES

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 share 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
0.30% annual distribution fee plus an initial sales charge as follows:

<PAGE>

<TABLE>
<CAPTION>
Initial Sales Charge
---------------------------------
Retained
by
Financial
Service
Firm
as % of as % of
---------------------
Amount Offering Offering
Amount Purchased Invested Price Price
<S> <C> <C> <C>
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%
</TABLE>

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 commencing one year after the
purchase is made. 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.

Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, and are subject to a 0.75% annual distribution fee for
eight years (at which time they automatically convert to Class A shares) 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 feeand a contingent
deferred sales charge of 1.00% (0.99% of the offering price) 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. In addition, the ongoing
commission is payable only for periods after shares purchased have been
outstanding for one year. 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.

HOW TO SELL SHARES

Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611

HOW TO EXCHANGE SHARES

Exchanges at net asset value may be made among shares of the same class 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 1-800-426-3750 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 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

12B-1 PLANS

Under 12b-1 Plans, the Fund pays the Distributor monthly a service fee at an
annual rate of 0.25% of the Fund's net assets attributed to each Class of
shares. The Fund also pays the Distributor monthly a distribution fee at an
annual rate of 0.30% of the average daily net assets attributed to its Class A
shares and 0.75% of the average daily 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.

<PAGE>

APPENDIX

DESCRIPTION OF BOND RATINGS

S&P

AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.

AA bonds have a very strongcapacity to pay interest and repay principal, and
they differ from AAA only in small degree.

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

Caa bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.

Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.

C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.

<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

<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, 1997

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 1-800-426-3750
for the February 28, 1997 Statement of Additional Information.

- -------------------------------------------------------

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- -------------------------------------------------------

<PAGE>

COLONIAL TRUST III
------------------

Cross Reference Sheet (Colonial International Fund for Growth)
--------------------------------------------------------------

<TABLE>
<CAPTION>
Item Number of Form N-1A Location or Caption in the Statement of Additional
- ------------------------ --------------------------------------------------
Information
-----------
Part B
- ------

<S> <C>
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; Shareholder Liability

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
</TABLE>

<PAGE>

COLONIAL INTERNATIONAL FUND FOR GROWTH
Statement of Additional Information

February 28, 1997

This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
International Fund for Growth (Fund). This SAI is not a prospectus and is
authorized for distribution only when accompanied or preceded by the Prospectus
of the Fund dated February 28, 1997. 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 Liability
Shareholder Meetings
Performance Measures

Appendix I
Appendix II

<PAGE>

Part 1

COLONIAL INTERNATIONAL FUND FOR GROWTH
Statement of Additional Information

February 28, 1997

DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
"Trust" Colonial Trust III
"Fund" Colonial International Fund for Growth
"Adviser" Colonial Management Associates, Inc., the Fund's investment adviser
"CISI" Colonial Investment Services, Inc., the Fund's distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's shareholder services and
transfer agent
</TABLE>

INVESTMENT OBJECTIVE AND POLICIES
The Fund's Prospectus describes its investment objective and investment
policies. Part 1 of this SAI includes additional information concerning, among
other things, the fundamental investment policies of the Fund. Part 2 of this
SAI contains additional information about the following securities and
investment techniques that are described or referred to in the Prospectus :

Foreign Securities
Foreign Currency Transactions
Small Companies
Money Market Instruments
Short-Term Trading
Futures Contracts and Related Options
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 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 (other than
short-term securities) while borrowings exceed 5% of net assets;
2. Only own real estate acquired as the result of owning securities,
the value of such real estate may not exceed 5% of total assets;
3. Purchase and sell futures contracts and related options so long as the
total initial margin and premiums on the contracts do not exceed 5% of
its total assets;
4. Underwrite securities issued by others only when disposing of portfolio
securities;
5. Make loans (i) through lending of securities not exceeding 30% of total
assets, (ii) through the purchase of debt instruments or similar evidences
of indebtedness typically sold privately to financial institutions and
(iii) through repurchase agreements;
6. Not concentrate more than 25% of its total assets in any single industry;
and
7. Not purchase any security issued by another investment company if
immediately after such purchase the Fund would own in the aggregate (i)
more than 3% of the total outstanding voting securities of such other
investment company, (ii) securities issued by such other investment
company having an aggregate value in excess of 5% of the Fund's total
assets, or (iii) securities issued by investment companies having an
aggregate value in excess of 10% of the Fund's total assets.

OTHER INVESTMENT POLICIES

As non-fundamental investment policies which may be changed without a
shareholder vote, the Fund may not:
1. Purchase securities on margin, but the Fund may receive short-term
credit to clear securities transactions and may make initial or
maintenance margin deposits in connection with futures transactions;
2. Have a short securities position, unless the Fund owns, or owns
rights (exercisable without payment) to acquire, an equal amount of
such securities;

3. Invest more than 15% of its net assets in illiquid assets (i.e.,
assets which may not be sold in the ordinary course at approximately
the price at which they are valued by the Fund);

4. With respect to 75% of total assets, purchase any voting security
of an issuer if, as a result of such purchase, the Fund would own more
than 10% of the outstanding voting securities of such issuer;
5. Purchase puts, calls, straddles, spreads, or any combination
thereof if as a result of such purchase the Fund's aggregate investment
in such securities would exceed 5% of total assets; and

6. Acquire any security issued by a person that, in its most recent fiscal
year, derived more than 15% of its gross revenues from securities related
activities (as so defined) unless (i) immediately after such acquisition
of any equity security, the Fund owns 5% or less of the outstanding
securities of that class of the issuer's equity securities, (ii)
immediately after such acquisition of a debt security, the Fund owns 10%
or less of the outstanding principal amount of the issuer's debt
securities, and (iii) immediately after such acquisition, the Fund has
invested not more than 5% of its total assets in the securities of the
issuer.

Total assets and net assets are determined at current value for purposes of
compliance with investment restrictions and policies. All percentage limitations
will apply at the time of investment and are not violated unless an excess or
deficiency occurs as a result of such investment. For the purpose of the Act's
diversification requirement, an issuer is the entity whose revenues support the
security.

Investments in Less Developed Countries

The Fund's investments in foreign securities may include investments in
countries whose economies or securities markets are not yet highly developed,
referred to herein as "emerging market countries." Normally no more than 40% of
the Fund's assets will be invested in such countries. As of February 28, 1997,
the following countries in which the Fund may invest were considered by the
Adviser to be emerging market countries:

<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Africa Asia Latin America Europe and the Middle East

South Africa India Argentina Czech Republic
Indonesia Brazil Egypt
Korea Chile Greece
Pakistan Colombia Hungary
Philippines Mexico Israel
Sri Lanka Peru Jordan
Taiwan Venezuela Poland
Thailand Portugal
Russia
Turkey
</TABLE>

PORTFOLIO TURNOVER

Portfolio turnover for the last two fiscal years is included in the Prospectus
under "The Fund's Financial History." High portfolio turnover may cause the Fund
to realize capital gains which, if realized and distributed by the Fund, may be
taxable to shareholders as ordinary income. High portfolio turnover may result
in correspondingly greater brokerage commission and other transaction costs,
which will be borne directly by the Fund.

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 an annual rate of 0.90%
(subject to reductions that the Adviser may agree to periodically). Effective
December 31, 1995, the sub-advisory agreement among the Trust, the Adviser and
Gartmore Capital Management, Ltd. (Gartmore) was terminated. During the fiscal
years ended October 31, 1994, 1995 and 1996 and the period from November 1, 1995
through December 31, 1995, Gartmore received from the Adviser $________,
$_________, $________ and $________, respectively.

Recent fees paid to the Adviser, CISI and CISC (dollars in thousands)

<TABLE>
<CAPTION>
Period December 1, 1993
Year ended October 31 (commencement of investment
operations)
1996 1995 through October 31, 1994
---- ---- ------------------------
<S> <C> <C> <C>
Management fee $993 $1,232 $988
Bookkeeping fee 48 57 48
Shareholder service and transfer agent 377 453 325
fee
12b-1 fees:
Service fee 276 341 275
Distribution fee (Class B) 503 531 646 503
Distribution fee (Class D) 7 5 1
</TABLE>

Brokerage Commissions (dollars in thousands)

<TABLE>
<CAPTION>
Period December 1, 1993
Year ended October 31 (commencement of investment operations)
1996 1995 through October 31, 1994
---- ---- ------------------------
<S> <C> <C> <C>
Total commissions $431 $312 $736
Directed transactions(a) --- --- ---
Commissions on directed transactions --- --- ---
</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, 1996 and the calendar year ended
December 31, 1996, the Trustees received the following compensation for
serving as Trustees:

Total Compensation
Aggregate From Trust and
Compensation Fund Complex Paid To
From Fund For The Trustees
Fiscal Year Ended For Year Ended
Trustee October 31, 1996 December 31, 1996(b)
- ------- ---------------- --------------------
Robert J. Birnbaum $1,330 $ 92,000
Tom Bleasdale $1,511 (c) $ 104,500(d)
Lora S. Collins $1,329 $ 92,000
James E. Grinnell $1,340 $ 93,000
William D. Ireland, Jr. $1,630 $ 109,000
Richard W. Lowry $1,368 $ 95,000
William E. Mayer $1,314 $ 91,000

James L. Moody, Jr. $1,541(e) $ 106,500(f)
John J. Neuhauser $1,364 $ 94,500
George L. Shinn $1,528 $ 105,500
Robert L. Sullivan $1,468 $ 102,000
Sinclair Weeks, Jr. $1,579 $ 110,000

(b) At December 31, 1996, the Colonial Funds Complex consisted of 38
open-end and 5 closed-end management investment company portfolios.
(c) Includes $685 payable in later years as deferred compensation.
(d) Includes $51,500 payable in later years as deferred compensation.
(e) Total compensation of $1,541 will be payable in later years as deferred
compensation.
(f) Total compensation of $106,500 for the calendar year ended December 31,
1996 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 or Directors of the
Liberty All-Star Equity Fund and of the Liberty All-Star Growth Fund, Inc.
(formerly known as The Charles Allmon Trust, Inc.) (together, Liberty Funds) for
service during the calendar year ended December 31, 1996:

Total Compensation From Liberty Funds For
Trustee The Calendar Year Ended December 31, 1996 (g)
- ------- ----------------------------------------------
Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000

(g) At December 31, 1996, the Liberty Funds were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned
subsidiary of Liberty Financial Companies, Inc. (an intermediate parent
of the Adviser).

Ownership of the Fund

The following information is as of January 31, 1997:

The Trustees and officers of the Fund as a group owned approximately Class A
shares representing % of the outstanding Class A shares of the Fund. Mr. Stern,
an officer of the Trust, held approximately Class A shares representing % of the
then outstanding shares. This holding consisted entirely of shares held by
him as aTrustee of The Colonial Group, Inc. Profit Sharing Plan with respect to
which he shares voting and investment power with three other Trustees.

The Trustees and officers of the Fund as a group owned less than 1% of the
outstanding Class B shares of the Fund.

The Trustees and officers of the Fund as a group owned Class D shares
representing % of the outstanding Class D shares of the Fund. This holding
consisted entirely of shares held by the Adviser.

Merrill Lynch, Pierce, Fenner & Smith, 4800 Deer Lake Drive, East, Jacksonville,
FL 32216 owned Class A shares representing % of the total outstanding.

Merrill Lynch, Pierce, Fenner & Smith, 4800 Deer Lake Drive, East, Jacksonville,
FL 32216 owned 1,498,779 Class B shares representing 20.27% of the total
outstanding.

There were 4,118 shareholders of record of the Class A shares, 9,497
shareholders of record of the Class B shares and 118 shareholders of record of
the Class D shares.

Sales Charges (dollars in thousands)

<TABLE>
<CAPTION>
Class A Shares
Period December 1, 1993
Year ended October 31 (commencement of investment operations)
1996 1995 through October 31, 1994
---- ---- ------------------------
<S> <C> <C> <C>
Aggregate initial sales charges on Fund shares $113 $160 $2,371
sales
Initial sales charges retained by CISI 17 24 30

Class B Shares
Period December 1, 1993
Year ended October 31 (commencement of investment operations)
1996 1995 through October 31, 1994
---- ---- ------------------------
Aggregate contingent deferred sales charge (CDSC)
on Fund redemptions retained by CISI $392 $569 $198

Class D Shares
Period July 1, 1994
Year ended October 31 (commencement of investment operations)
1996 1995 through October 31, 1994
---- ---- ------------------------
Aggregate CDSC
on Fund redemptions retained by CISI -- --(h) --
</TABLE>

(h) Rounds to less than one.

<PAGE>

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 (Plans) pursuant to Rule 12b-1 under the Act. Under the Plans, the
Fund pays CISI monthly 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 average daily net assets attributed to Class B and Class D shares. CISI
may use the entire amount of such fees to defray the cost of commissions and
service fees paid to financial service firms (FSFs) and for certain other
purposes. Since the distribution and service fees are payable regardless of
CISI's expenses, CISI may realize a profit from the fees.

The Plans authorize any other payments by the Fund to CISI and its affiliates
(including the Adviser) to the extent that such payments might be construed to
be indirectly financing the distribution of Fund shares.

The Trustees believe the Plans could be a significant factor in the growth and
retention of assets resulting in a more advantageous expense ratio and increased
investment flexibility which could benefit shareholders of each class of Fund
shareholders. The Plans will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the
Trustees, including the Trustees who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of the Plans or
in any agreements related to the Plans (Independent Trustees), cast in person at
a meeting called for the purpose of voting on the Plans. The Plans may not be
amended to increase the fee materially without approval by vote of a majority of
the outstanding voting securities of the relevant class of shares and all
material amendments of the Plans must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plans may be terminated at any time by
vote of a majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the relevant class of shares. The continuance
of the Plans will only be effective if the selection and nomination of the
Trustees who are non-interested Trustees is effected by such non-interested
Trustees.

Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value subject to a
CDSC if redeemed within six years after purchase. Class D shares are offered at
net asset value plus a 1.00% initial sales charge and subject to a 1.00% CDSC on
redemptions within one year after purchase. The CDSCs are described in the
Prospectus.

No CDSC will be imposed on distributions or on amounts which represents an
increase in the value of the shareholder's account resulting from capital
appreciation. In determining the applicability and rate of any CDSC, it will be
assumed that a redemption is made first of shares representing capital
appreciation, next of shares representing reinvestment of distributions and
finally of other shares held by the shareholder for the longest period of time.

Eight years after the end of the month in which a Class B share is purchased,
such share and a pro rata portion of any shares issued on the reinvestment of
distributions will be automatically converted into Class A shares having an
equal value, which are not subject to the distribution fee.

Sales related expenses (dollars in thousands) of CISI relating to the Fund for
the fiscal year ended October 31, 1996 were:

<TABLE>
<CAPTION>
Class A Shares Class B Shares Class D Shares
<S> <C> <C> <C>
Fees to FSFs $90 $400 $6
Cost of sales material relating to the Fund
(including printing and mailing expenses) 14 23 1
Allocated travel, entertainment and other
promotional 11 18 1
expenses (including advertising)
</TABLE>

INVESTMENT PERFORMANCE (k)

The Fund's yields for the month ended October 31, 1996, were:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class D Shares
<S> <C> <C> <C>
0.25% -0.50% -0.49%
</TABLE>

The Fund's average annual total returns at October 31, 1996 were:

<PAGE>

<TABLE>
<CAPTION>
Class A Shares
Since inception
1 year 12/1/93 through 10/31/96
<S> <C> <C>
With sales charge of 5.75% -0.92% -1.14%
Without sales charge 5.12% 0.88%

Class B Shares
Since inception
1 year 12/1/93 through 10/31/96
With applicable CDSC -0.63%(5.00% CDSC) -0.90%(3.00% CDSC)
Without CDSC 4.37% 0.14%

Class D Shares
7/1/94
(Class D shares initially offered)
1 year through 10/31/96
With sales charge of 1.00%
and applicable CDSC 2.30%(1.00% CDSC) -0.30%
Without sales charge or CDSC 4.34% 0.13%
</TABLE>

(k) The data presented in the foregoing tables reflects performance of the
Fund, in part, while its portfolio was being managed by a former
sub-adviser whose services terminated on December 31, 1995.

No distributions were declared during the fiscal year ended October 31, 1996.
See Part 2 of this SAI "Performance Measures" for how calculations are made.

CUSTODIAN

Boston Safe Deposit and Trust Company is the Fund's custodian. The custodian is
responsible for safeguarding and controlling the Fund's cash and securities,
receiving and delivering securities and collecting the Fund's interest and
dividends.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP are the Fund's independent accountants providing audit
services, tax return preparation services and assistance and consultation in
connection with the review of various Securities and Exchange Commission
filings. The financial statements incorporated by reference in this SAI have
been so incorporated, and the financial highlights included in the Prospectus
have been so included, in reliance upon the report of Price Waterhouse LLP given
on the authority of said firm as experts in accounting and auditing.

The financial statements of the Fund and the Report of Independent
Accountants appearing on pages 7 through 25 of the October 31, 1996 Annual
Report are incorporated in this SAI by reference.

<PAGE>

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. If an investment practice is not listed in
Part 1 of this SAI, it is not applicable 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 legislation limits and future legislation 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 accrued. 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.

Tender Option Bonds

A tender option bond is a Municipal Security (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax-exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such institution
grants the security holders the option, at periodic intervals, to tender their
securities to the institution and receive the face value thereof. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the Municipal Security's fixed
coupon rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities, coupled
with the tender option, to trade at par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt rate. The
Adviser will consider on an ongoing basis the creditworthiness of the issuer of
the underlying Municipal Securities, of any custodian, and of the third-party
provider of the tender option. In certain instances and for certain tender
option bonds, the option may be terminable in the event of a default in payment
of principal or interest on the underlying Municipal Securities and for other
reasons.

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 is 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
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 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 the fund's present intention
to enter into repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S. government or
its agencies or instrumentalities. Repurchase agreements may also be viewed as
loans made by the fund which are collateralized by the securities subject to
repurchase. 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 the 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 Securities and
Exchange Commission'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 funds 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 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 values
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 fund owns or intends to purchase or sell.
They simply establish a rate of exchange which one can achieve at some future
point in time. Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.

Currency forward and futures contracts. 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.

Municipal Lease Obligations

Although a municipal lease obligation does not constitute a general obligation
of the municipality for which the municipality's taxing power is pledged, a
municipal lease obligation is ordinarily backed by the municipality's covenant
to budget for, appropriate and make the payments due under the municipal lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. In addition, the tax treatment of such
obligations in the event of non-appropriation is unclear.

Determinations concerning the liquidity and appropriate valuation of a municipal
lease obligation, as with any other municipal security, are made based on all
relevant factors. These factors include, among others: (1) the frequency of
trades and quotes for the obligation; (2) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of the
transfer.

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.

Rule 144A Securities

The fund may purchase securities that have been privately placed but that are
eligible for purchase and sale under Rule 144A under the 1933 Act. That Rule
permits certain qualified institutional buyers, such as the fund, to trade in
privately placed securities that have not been registered for sale under the
1933 Act. The Adviser, under the supervision of the Board of Trustees, will
consider whether securities purchased under Rule 144A are illiquid and thus
subject to the fund's investment restriction on illiquid securities. A
determination of whether a Rule 144A security is liquid or not is a question of
fact. In making this determination, the Adviser will consider the trading
markets for the specific security, taking into account the unregistered nature
of a Rule 144A security. In addition, the Adviser could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and, if as a result of changed conditions, it is
determined by the Adviser that a Rule 144A security is no longer liquid, the
fund's holdings of illiquid securities would be reviewed to determine what, if
any, steps are required to assure that the fund does not invest more than its
investment restriction on illiquid securities allows. Investing in Rule 144A
securities could have the effect of increasing the amount of the fund's assets
invested in illiquid securities if qualified institutional buyers are unwilling
to purchase such securities.

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 alternative minimum tax (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 from 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 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 the 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 the fund's investments other than tax-exempt instruments may give rise to
taxable income. The 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 who
borrows money to purchase the 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 fund.
This number and form may be provided by either a Form W-9 or the accompanying
application. In certain instances, CISC may be notified by the Internal Revenue
Service that a shareholder is subject to backup withholding.

Excise Tax. To the extent that the Fund does not annually distribute
substantially all taxable income and realized gains, it is subject to an excise
tax. The Adviser intends to avoid this tax except when the cost of processing
the distribution is greater than the tax.

Tax Accounting Principles. To qualify as a "regulated investment company," the
fund must (a) derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of securities or foreign currencies or other income (including but
not limited to gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities or currencies; (b)
derive less than 30% of its gross income from the sale or other disposition of
certain assets held less than three months; (c) diversify its holdings so that,
at the close of each quarter of its taxable year, (i) at least 50% of the value
of its total assets consists of cash, cash items, U.S. Government securities,
and other securities limited generally with respect to any one issuer to not
more than 5% of the total assets of the fund and not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any issuer (other than U.S.
Government securities).

Futures Contracts. Accounting for futures contracts will be in accordance with
generally accepted accounting principles. The amount of any realized gain or
loss on the closing out of a futures contract will result in a capital gain or
loss for tax purposes. In addition, certain futures contracts held by the fund
(so-called "Section 1256 contracts") will be required to be "marked-to-market"
(deemed sold) for federal income tax purposes at the end of each fiscal year.
Sixty percent of any net gain or loss recognized on such deemed sales or on
actual sales will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss.

However, if a futures contract is part of a "mixed straddle" (i.e., a straddle
comprised in part of Section 1256 contracts), a fund may be able to make an
election which will affect the character arising from such contracts as
long-term or short-term and the timing of the recognition of such gains or
losses. In any event, the straddle provisions described below will be applicable
to such mixed straddles.

Special Tax Rules Applicable to "Straddles". The straddle provisions of the Code
may affect the taxation of the fund's options and futures transactions and
transactions in securities to which they relate. A "straddle" is made up of two
or more offsetting positions in "personal property," including debt securities,
related options and futures, equity securities, related index futures and, in
certain circumstances, options relating to equity securities, and foreign
currencies and related options and futures.

The straddle rules may operate to defer losses realized or deemed realized on
the disposition of a position in a straddle, may suspend or terminate the fund's
holding period in such positions, and may convert short-term losses to long-term
losses in certain circumstances.

Foreign Currency-Denominated Securities and Related Hedging Transactions. The
fund's transactions in foreign currency-denominated debt securities, certain
foreign currency options, futures contracts and forward contracts may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.

If more than 50% of the fund's total assets at the end of its fiscal year are
invested in securities of foreign corporate issuers, the fund may make an
election permitting its shareholders to take a deduction or credit for federal
tax purposes for their portion of certain foreign taxes paid by the fund. The
Adviser will consider the value of the benefit to a typical shareholder, the
cost to the fund of compliance with the election, and incidental costs to
shareholders in deciding whether to make the election. A shareholder's ability
to claim such a foreign tax credit will be subject to certain limitations
imposed by the Code, as a result of which a shareholder may not get a full
credit for the amount of foreign taxes so paid by the fund. Shareholders who do
not itemize on their federal income tax returns may claim a credit (but no
deduction) for such foreign taxes.

Certain securities are considered to be Passive Foreign Investment Companies
(PFICS) under the Code, and the fund is liable for any PFIC-related taxes.

MANAGEMENT OF THE COLONIAL FUNDS (in this section, and the following sections
entitled "Trustees and Officers," "The Management Agreement," "Administration
Agreement," "The Pricing and Bookkeeping Agreement," "Portfolio Transactions,"
"Investment decisions," and "Brokerage and research services," the "Adviser"
refers to Colonial Management Associates, Inc.)

The Adviser is the investment adviser to each of the Colonial funds (except for
Colonial Municipal Money Market Fund, Colonial Global Utilities Fund, Colonial
Newport Tiger Fund, Colonial Newport Tiger Cub Fund and Colonial Newport Japan
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)

Position with
Name and Address Age Fund Principal Occupation
- ---------------- --- ------------- --------------------
<S> <C> <C> <C>
Robert J. Birnbaum 69 Trustee Retired (formerly Special Counsel, Dechert Price & Rhoads
313 Bedford Road from September, 1988 to December, 1993)
Ridgewood, NJ 07450

Tom Bleasdale 66 Trustee Retired (formerly Chairman of the Board and Chief
102 Clubhouse Drive #275 Executive Officer, Shore Bank & Trust Company from
Naples, FL 34105 1992-1993), is a Director of The Empire Company since
June, 1995

Lora S. Collins 61 Trustee Attorney (formerly Attorney, Kramer, Levin, Naftalis,
1175 Hill Road Nessen, Kamin & Frankel from September, 1986 to
Southold, NY 11971 November, 1996)

James E. Grinnell 67 Trustee Private Investor since November, 1988
22 Harbor Avenue
Marblehead, MA 01945

William D. Ireland, Jr. 72 Trustee Retired, is a Trustee of certain charitable and
103 Springline Drive non-charitable organizations since February, 1990
Vero Beach, FL 32963

Richard W. Lowry 60 Trustee Private Investor since August, 1987
10701 Charleston Drive
Vero Beach, FL 32963

William E. Mayer* 56 Trustee Partner, Development Capital, L.L.C. (formerly Dean,
500 Park Avenue, 5th Floor College of Business and Management, University of
New York, NY 10022 Maryland from October, 1992 to November, 1996, Dean,
Simon Graduate School of Business, University of
Rochester from October, 1991 to July, 1992)

James L. Moody, Jr. 65 Trustee Chairman of the Board and Director, Hannaford Bros., Co.
P.O. Box 1000 since May, 1984 (formerly Chief Executive Officer,
Portland, ME 04104 Hannaford Bros. Co. from May, 1973 to May, 1992)

John J. Neuhauser 53 Trustee Dean, Boston College School of Management since 1978
140 Commonwealth Avenue
Chestnut Hill, MA 02167

George L. Shinn 73 Trustee Financial Consultant since 1989
Credit Suisse First Boston
Corp.
Eleven Madison Avenue, 25th
Floor

New York, NY 10010-3629

Robert L. Sullivan 69 Trustee Self-employed Management Consultant since January, 1989
7121 Natelli Woods Lane
Bethesda, MD 20817

Sinclair Weeks, Jr. 73 Trustee Chairman of the Board, Reed & Barton Corporation since
Bay Colony Corporate Ctr. 1987
Suite 4550
1000 Winter Street
Waltham, MA 02154

Harold W. Cogger 61 President President of Colonial funds since March, 1996 (formerly
(formerly Vice Vice President from July, 1993 to March, 1996); is
President) Director, since March, 1984 and Chairman of the Board
since March, 1996 of the Adviser (formerly President
from July, 1993 to December, 1996, Chief Executive
Officer from March, 1995 to December, 1996 and Executive
Vice President from October, 1989 to July, 1993);
Director since October, 1991 and Chairman of the
Board since March, 1996 of TCG (formerly President
from October, 1994 to December, 1996 and Chief Executive
Officer from March, 1995 to December, 1996); Executive
Vice President and Director since March, 1995, Liberty
Financial; Director since November, 1996 of Stein Roe &
Farnham Incorporated

Timothy J. Jacoby 44 Treasurer and Treasurer and Chief Financial Officer of Colonial funds
Chief Financial since October, 1996, is Senior Vice President of the
Officer Adviser since September, 1996 (formerly Senior Vice
President, Fidelity Accounting and Custody Services
from September, 1993 to September, 1996 and Assistant
Treasurer to the Fidelity Group of Funds from August,
1990 to September, 1993).

Peter L. Lydecker 43 Chief Accounting Chief Accounting Officer and Controller of Colonial
Officer and funds since June, 1993 (formerly Assistant Controller
Controller from March, 1985 to June, 1993); is Vice President of
(formerly the Adviser since June, 1993 (formerly Assistant Vice
Assistant President of the Adviser from August, 1988 to June,
Controller) 1993)

Davey S. Scoon 50 Vice President Vice President of Colonial funds since June, 1993, is
Executive Vice President since July, 1993 and Director
since March, 1985 of the Adviser (formerly Senior Vice
President and Treasurer of the Adviser from March, 1985
to July, 1993); Executive Vice President and Chief
Operating Officer, TCG since March, 1995 (formerly Vice
President - Finance and Administration of TCG from
November, 1985 to March, 1995)

Arthur O. Stern 58 Secretary Secretary of Colonial funds since 1985, 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 since
March, 1995 and Clerk since March, 1985 of TCG
(formerly Executive Vice President, Compliance from
March, 1995 to March, 1996 and Vice President - Legal
of TCG from March, 1985 to March, 1995)
</TABLE>

* A Trustee who is an "interested person" (as defined in the Investment
Company Act of 1940) 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 each 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 38 open-end and 5 closed-end management investment company
portfolios, and is the administrator for 5 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 $16.3. 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, Colonial Newport Tiger Fund,
Colonial Newport Japan Fund or Colonial Newport Tiger Cub 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. 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 Adviser 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 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, Colonial Newport Tiger Fund,
Colonial Newport Japan Fund and Colonial Newport Tiger Cub 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 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 Adviser is paid a monthly fee at the annual rate of average daily net assets
set forth in Part 1 of this Statement of Additional Information.

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, Colonial Newport Japan Fund and Colonial Newport
Tiger Cub 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, Colonial Newport Japan Fund and Colonial Newport Tiger Cub Fund for an
annual fee of $27,000, plus 0.035% of Colonial Newport Tiger Fund's average
daily net assets over $50 million.

Stein Roe & Farnham Incorporated, the investment 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, and
Colonial Global Utilities Fund. For each of these funds, see Part 1 of its
respective SAI. The Adviser of Colonial Newport Tiger Fund, Colonial Newport
Japan Fund and Colonial Newport Tiger Cub Fund follows the same procedures as
those set forth under "Brokerage and research services."

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, Colonial Newport Tiger Fund, Colonial Newport Japan Fund
and Colonial Newport Tiger Cub Fund, each of which is administered by the
Adviser. 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.

It is the Adviser's policy generally 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.

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.

The Trustees have authorized the Adviser to 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.

Principal Underwriter

CISI is the principal underwriter of the Trust's shares. CISI has no obligation
to buy the Colonial funds' shares, and purchases the Colonial funds' shares only
upon receipt of orders from authorized FSFs or investors.

Investor Servicing and Transfer Agent

CISC is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Trust. The fee paid to CISC is based on the average daily net assets of each
Colonial fund plus reimbursement for 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. Funds with portfolio securities which are primarily
listed on foreign exchanges may experience trading and changes in NAV on days on
which such Fund does not determine NAV due to differences in closing policies
among exchanges. This may significantly affect the NAV of the Fund's redeemable
securities on days when an investor cannot redeem such securities. 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 by the Adviser 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. Trading on certain foreign securities markets may not take place on
all business days in New York, and trading on some foreign securities markets
takes place on days which are not business days in New York and on which the
Fund's NAV is not calculated. 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.

(The following two paragraphs are applicable only to Colonial Newport Tiger
Fund, Colonial Newport Japan Fund and Colonial Newport Tiger Cub Fund -
"Adviser" in these two paragraphs refers to each fund's Adviser which is Newport
Fund Management, Inc.)

Trading in securities on stock exchanges and over-the-counter markets in the Far
East is normally completed well before the close of the business day in New
York. Trading on Far Eastern securities markets may not take place on all
business days in New York, and trading on some Far Eastern securities markets
does take place on days which are not business days in New York and on which the
Fund's NAV is not calculated.

The calculation of the Fund's NAV accordingly may not take place
contemporaneously with the determination of the prices of the Fund's portfolio
securities used in such calculations. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the close
of the Exchange (when the Fund's NAV is calculated) will not be reflected in the
Fund's calculation of NAV unless the Adviser, acting under procedures
established by the Board of Trustees of the Trust, deems that the particular
event would materially affect the Fund's NAV, in which case an adjustment will
be made. Assets or liabilities initially expressed in terms of foreign
currencies are translated prior to the next determination of the NAV of the
Fund's shares into U.S. dollars at prevailing market rates.

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 from that of the same
portfolio under the market value method. The Trust's Trustees have adopted
procedures intended to stabilize a money market 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 that may include: realizing gains or
losses; shortening the portfolio's maturity; withholding distributions;
redeeming shares in kind; or converting 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 a 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 any up-front and/or ongoing commissions paid to FSFs.

Checks presented for the purchase of shares of the Fund which are returned by
the purchaser's bank or checkwriting privilege checks for which there are
insufficient funds in a shareholder's account to cover redemption will subject
such purchaser or shareholder to a $15 service fee for each check returned.
Checks must be drawn on a U.S. bank and must be payable in U.S. dollars.

CISC acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to CISC, provided the new FSF has a sales agreement
with CISI.

Shares credited to an account are transferable upon written instructions in good
order to CISC and may be redeemed as described under "How to Sell Shares" in the
Prospectus. Certificates will not be issued for Class A shares unless
specifically requested and no certificates will be issued for Class B, C, D, T
or Z shares. The Colonial money market funds will not issue certificates.
Shareholders may send any certificates which have been previously acquired to
CISC for deposit to their account.

SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES

The following special purchase programs/investor services may be changed or
eliminated at any time.

Fundamatic Program. As a convenience to investors, shares of most Colonial funds
may be purchased through the Colonial Fundamatic Program. Preauthorized monthly
bank drafts or electronic funds transfer for a fixed amount of at least $50 are
used to purchase a Colonial fund's shares at the public offering price next
determined after CISI receives the proceeds from the draft (normally the 5th or
the 20th of each month, or the next business day thereafter). If your Fundamatic
purchase is by electronic funds transfer, you may request the Fundamatic
purchase for any day. Further information and application forms are available
from FSFs or from CISI.

Automated Dollar Cost Averaging (Classes A, B and D). Colonial's Automated
Dollar Cost Averaging program allows you to exchange $100 or more on a monthly
basis from any Colonial fund in which you have a current balance of at least
$5,000 into the same class of shares of up to four other Colonial funds.
Complete the Automated Dollar Cost Averaging section of the Application. The
designated amount will be exchanged on the third Tuesday of each month. There is
no charge for exchanges made pursuant to the Automated Dollar Cost Averaging
program. Exchanges will continue so long as your Colonial fund balance is
sufficient to complete the transfers. Your normal rights and privileges as a
shareholder remain in full force and effect. Thus you can buy any fund, exchange
between the same Class of shares of funds by written instruction or by telephone
exchange if you have so elected and withdraw amounts from any fund, subject to
the imposition of any applicable CDSC.

Any additional payments or exchanges into your Colonial fund will extend the
time of the Automated Dollar Cost Averaging program.

An exchange is a capital sale transaction for federal income tax purposes.

You may terminate your program, change the amount of the exchange (subject to
the $100 minimum), or change your selection of funds, by telephone or in
writing; if in writing by mailing your instructions to Colonial Investors
Service Center, Inc. P.O. Box 1722, Boston, MA 02105-1722.

You should consult your FSF or investment adviser to determine whether or not
the Automated Dollar Cost Averaging program is appropriate for you.

CISI offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges . These plans may be altered or discontinued
at any time. See "Programs For Reducing or Eliminating Sales Charges" for more
information.

Tax-Sheltered Retirement Plans. CISI offers prototype tax-qualified plans,
including Individual Retirement Accounts (IRAs), and Pension and Profit-Sharing
Plans for individuals, corporations, employees and the self-employed. The
minimum initial Retirement Plan investment is $25. The First National Bank of
Boston is the Trustee of CISI prototype plans and charges a $10 annual fee.
Detailed information concerning these Retirement Plans and copies of the
Retirement Plans are available from CISI.

Participants in non-Colonial prototype Retirement Plans (other than IRAs) also
are charged a $10 annual fee unless the plan maintains an omnibus account with
CISC. Participants in Colonial prototype Plans (other than IRAs) who liquidate
the total value of their account will also be charged a $15 close-out processing
fee payable to CISC. The fee is in addition to any applicable CDSC. The fee will
not apply if the participant uses the proceeds to open a Colonial IRA Rollover
account in any fund, or if the Plan maintains an omnibus account.

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. 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
protect against loss in declining markets.

Reinstatement Privilege. An investor who has redeemed Class A, B, D or T 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 (in this section,
the "Adviser" refers to Colonial Management Associates, Inc. in its capacity as
the Adviser or Administrator to the Colonial Funds). 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 Adviser, CISI and other companies affiliated with
the Adviser; 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 organization's 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,
and by participants in certain retirement plans.

Waiver of Contingent Deferred Sales Charges (CDSCs) (in this section, the
"Adviser" refers to Colonial Management Associates, Inc. in its capacity as the
Adviser or Administrator to the Colonial Funds) (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 CISC, 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 "Investor 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 FSF. 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 Service 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 Colonial fund shareholders and/or their financial
advisers (except for Colonial Newport Tiger Cub Fund and Colonial Newport Japan
Fund) 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). Transactions
received after 4:00 p.m. Eastern time will receive the next business day's
closing price. Telephone redemption privileges for larger amounts and for the
Colonial Newport Tiger Cub Fund and the Colonial Newport Japan Fund 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 unless the redemption proceeds are being sent to a pre-designated bank
account. 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 (in this section, the "Adviser" refers to Colonial Management
Associates, Inc. in its capacity as the Adviser or Administrator of the Colonial
Funds) (Available only on the Class A and Class C shares of certain Colonial
funds) Shares may be redeemed by check if a shareholder has previously completed
an Application and Signature Card. CISCwill 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. In
addition, a check redemption, like any other redemption, may give rise to
taxable capital gains.

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
reinvested 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. Class T and Z shares may be
exchanged for Class A shares of the other Colonial funds. 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 or 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 1-800-426-3750.

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 and Class T 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 the protection of investors.

SHAREHOLDER LIABILITY

Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
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.

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 shareholders'
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 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 the 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 are based on past performance and do not predict future results.

<PAGE>

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 the Municipal Bond ratings set forth above.

<PAGE>

MOODY'S

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.

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 the 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
1995
<TABLE>
<CAPTION>

SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
<S> <C> <C>
Donoghue Tax-Free Funds 3.39
Donoghue U.S. Treasury Funds 5.19
Dow Jones & Company Industrial Index 36.95
Morgan Stanley Capital International EAFE Index 11.22
Morgan Stanley Capital International EAFE GDP Index 11.16
Libor Six-month Libor N/A
Lipper Adjustable Rate Mortgage 4.73
Lipper California Municipal Bond Funds 18.32
Lipper Connecticut Municipal Bond Funds 16.58
Lipper Closed End Bond Funds 20.83
Lipper Florida Municipal Bond Funds 17.84
Lipper General Bond Fund 20.83
Lipper General Municipal Bonds 16.84
Lipper General Short-Term Tax-Exempt Bonds 7.43
Lipper Global Funds 16.05
Lipper Growth Funds 30.79
Lipper Growth & Income Funds 30.82
Lipper High Current Yield Bond Funds 16.44
Lipper High Yield Municipal Bond Debt 15.98
Lipper Fixed Income Funds 15.19
Lipper Insured Municipal Bond Average 17.59
Lipper Intermediate Muni Bonds 12.89
Lipper Intermediate (5-10) U.S. Government Funds 15.75
Lipper Massachusetts Municipal Bond Funds 16.82
Lipper Michigan Municipal Bond Funds 16.89
Lipper Mid Cap Funds 32.04
Lipper Minnesota Municipal Bond Funds 15.39
Lipper U.S. Government Money Market Funds 5.26
Lipper Natural Resources 18.80
Lipper New York Municipal Bond Funds 16.73
Lipper North Carolina Municipal Bond Funds 17.51
Lipper Ohio Municipal Bond Funds 16.81
Lipper Small Company Growth Funds 31.55
Lipper U.S. Government Funds 17.34
Lipper Pacific Region Funds-Ex-Japan 1.95
Shearson Lehman Composite Government Index 18.33
Shearson Lehman Government/Corporate Index 19.25
Shearson Lehman Long-term Government Index 30.90
S&P S&P 500 37.54
S&P Utility Index 42.39
S&P Barra Growth 38.13
S&P Barra Value 37.00
S&P Midcap 400 28.56
First Boston High Yield Index 17.38
Swiss Bank 10 Year U.S. Government (Corporate Bond) 22.24
Swiss Bank 10 Year United Kingdom (Corporate Bond) 16.19
Swiss Bank 10 Year France (Corporate Bond) 26.72
Swiss Bank 10 Year Germany (Corporate Bond) 25.74
Swiss Bank 10 Year Japan (Corporate Bond) 17.83
Swiss Bank 10 Year Canada (Corporate Bond) 25.04
Swiss Bank 10 Year Australia (Corporate Bond) 19.42
Morgan Stanley Capital International 10 Year Hong Kong (Equity) 23.83
Morgan Stanley Capital International 10 Year Belgium (Equity) 20.67
<PAGE>

SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
Morgan Stanley Capital International 10 Year Austria (Equity) 10.85
Morgan Stanley Capital International 10 Year France (Equity) 15.30
Morgan Stanley Capital International 10 Year Netherlands (Equity) 19.33
Morgan Stanley Capital International 10 Year Japan (Equity) 12.82
Morgan Stanley Capital International 10 Year Switzerland (Equity) 17.06
Morgan Stanley Capital International 10 Year United Kingdom (Equity) 15.02
Morgan Stanley Capital International 10 Year Germany (Equity) 10.66
Morgan Stanley Capital International 10 Year Italy (Equity) 7.78
Morgan Stanley Capital International 10 Year Sweden (Equity) 19.43
Morgan Stanley Capital International 10 Year United States (Equity) 14.82
Morgan Stanley Capital International 10 Year Australia (Equity) 15.13
Morgan Stanley Capital International 10 Year Norway (Equity) 10.72
Morgan Stanley Capital International 10 Year Spain (Equity) 17.91
Morgan Stanley Capital International World GDP Index 18.14
Morgan Stanley Capital International Pacific Region Funds Ex-Japan 12.95
Bureau of Labor Statistics Consumer Price Index (Inflation) N/A
FHLB-San Francisco 11th District Cost-of-Funds Index N/A
Federal Reserve Six-Month Treasury Bill N/A
Federal Reserve One-Year Constant-Maturity Treasury Rate N/A
Federal Reserve Five-Year Constant-Maturity Treasury Rate N/A
Frank Russell & Co. Russell 2000 28.45
Frank Russell & Co. Russell 1000 Value 38.35
Frank Russell & Co. Russell 1000 Growth 37.19
Bloomberg NA NA
Credit Lyonnais NA NA
Statistical Abstract of the U.S. NA NA
World Economic Outlook NA NA

</TABLE>

*in U.S. currency

<PAGE>

COLONIAL TRUST III
------------------

Cross Reference Sheet (Colonial Select Value Fund)
--------------------------------------------------

<S> <C>
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; Shareholder Liability

20. Taxes

21. Fund Charges and Expenses; Management of the Colonial Funds

22. Fund Charges and Expenses; Investment Performance;
Performance Measures

23. Independent Accountants
</TABLE>

<PAGE>

COLONIAL SELECT VALUE FUND

Statement of Additional Information

February 28, 1997

This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
Select Value 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, 1997. 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.

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 Liability
Shareholder Meetings
Performance Measures
Appendix I
Appendix II

SV-16/370D-0297

<PAGE>

Part 1

COLONIAL SELECT VALUE FUND

Statement of Additional Information

February 28, 1997

DEFINITIONS

"Trust" Colonial Trust III

"Fund" Colonial Select Value 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 indicated 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
in debtedness 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 ob
ligations 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; and
2. Have a short securities position, unless the Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of such
securities.

<PAGE>

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

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.

<TABLE>
<CAPTION>
Investment Performance Cumulative Change
First Day Last Day Absolute Percentage
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
Fund $ 10 $ 13 + $ 3 + 30%
Index 100 123 + 23 + 23%
-----
Relative Performance + 7%
====
</TABLE>

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)

<TABLE>
<CAPTION>
Years ended October 31
----------------------

1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Management fee $1,743 $1,148 $1,265
Bookkeeping fee 121 89 83
Shareholder service and transfer agent fee 926 682 614

12b-1 fees:

Service fee 749 525 454
Distribution fee (Class B) 727 450 344

</TABLE>

<PAGE>

Brokerage Commissions (dollars in thousands)

<TABLE>
<CAPTION>
Years ended October 31
----------------------

1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Total commissions $ 526 $ 497 $ 608
Directed transactions(a) 27,347 29,850 48,482
Commissions on directed transactions 32 37 76

</TABLE>

(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, 1996 and the calendar year ended December 31,
1996 the Trustees received the following compensation for serving as Trustees:

<TABLE>
<CAPTION>
Aggregate Total Compensation From
Compensation Trust and Fund Complex
From Fund For The Paid To The Trustees For
Fiscal Year Ended The Calendar Year Ended
Trustee October 31, 1996 December 31, 1996 (b)
------- ----------------- --------------------
<S> <C> <C>
Robert J. Birnbaum $2,100 92,000
Tom Bleasdale 2,393(c) 104,500(d)
Lora S. Collins 2,104 92,000
James E. Grinnell 2,126 93,000
William D. Ireland, Jr. 2,565 109,000
Richard w. Lowry 2,166 95,000
William E. Mayer 2,083 91,000
James L. Moody, Jr. 2,435(e) 106,500(f)
John J. Neuhauser 2,161 94,500
George L. Shinn 2,395 105,500
Robert L. Sullivan 2,314 102,000
Sinclair Weeks, Jr. 2,497 110,000
</TABLE>

(b) At December 31, 1996 , the Colonial Funds complex consisted of 37
open-end and 5 closed-end management investment portfolios.
(c) Includes $1,091 payable in later years as deferred compensation.
(d) Includes $51,500 payable in later years as deferred compensation.
(e) Total compensation of $2,435 will be payable in later years as deferred
compensation.
(f) Total compensation of $106,500 for the calendar year ended December 31,
1996 will be payable in later years as deferred compensation.

<TABLE>
<CAPTION>
Total Compensation
From Liberty Funds For
The Calendar Year Ended
Trustee December 31, 1996(h)
<S> <C>
Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000

</TABLE>

(h) At December 31, 1996 , the Liberty Funds were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned subsidiary
of Liberty Financial Companies, Inc. (an intermediate parent of the
Adviser).

Ownership of the Fund

The following information is as of January 31, 1997:

The officers and Trustees of the Trust as a group beneficially owned shares of
the Fund representing % of the then outstanding Class A shares. Mr. Stern, who
is an officer of the Trust, held shares of the Fund, representing % of the then
outstanding shares. This holding consisted entirely of shares held by him and
certain employees of the Adviser as co-Trustees of The Colonial Group, Inc.
Profit-Sharing Plan with respect to which they share investment and voting
power.

Merrill Lynch, Pierce, Fenner & Smith, Inc., Attn: Mutual Funds Operations, 4800
Deer Lake Drive East, 3rd Floor, Jacksonville, FL 32216, owned % of the Fund's
outstanding Class B shares.

There were 17,603 Class A and 17,238 Class B record holders of the Fund.

Sales Charges (dollars in thousands)

<TABLE>
<CAPTION>
Class A Shares
Years ended October 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges
on Fund share sales $749 $238 $288
Initial sales charges retained by CISI 112 48 63
</TABLE>

<TABLE>
<CAPTION>
Class B Shares
Years ended October 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Aggregate contingent deferred sales
charges (CDSC) on Fund redemptions retained
by CISI $160 $170 $127
</TABLE>

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
(Plans) pursuant to Rule 12b-1 under the Act. Under the Plans, the Fund pays
CISI monthly a service fee at an annual rate of 0.15% of net assets attributed
to shares outstanding prior to April 1, 1989 and 0.25% of net assets attributed
to outstanding shares issued thereafter. The Fund also pays CISI monthly a
distribution fee at an annual rate of 0.75% of the average daily 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.

<PAGE>

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.

No CDSC will be imposed on shares derived from reinvestment of distributions 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.

Sales-related expenses (dollars in thousands) of CISI relating to the Fund were:

<TABLE>
<CAPTION>
Year ended October 31, 1996
Class A Shares Class B Shares
<S> <C> <C>
Fees to FSFs $496 $1,396
Cost of sales material relating to the Fund
(including printing and mailing expenses) 78 133
Allocated travel, entertainment and other
promotional expenses (including advertising) 65 99
</TABLE>

INVESTMENT PERFORMANCE

The Fund's Class A and Class B yields for the month ended October 31, 1996 were
(0.12)% and (0.90)%, respectively.

The Fund's average annual total returns at October 31, 1996 were:

<TABLE>
<CAPTION>
Class A Shares
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With sales charge of 5.75% 14.31% 13.99% 13.72%
Without sales charge 21.28% 15.34% 14.39%
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Class B Shares
Period June 8, 1992
(commencement of investment operations)
1 Year through October 31, 1996
------ -------------------------
<S> <C> <C>
With applicable CDSC 15.31% (5.00% CDSC) 14.87% (2.00% CDSC)
Without CDSC 20.31% 15.15%
</TABLE>

The Fund's Class A and Class B distribution rates at October 31, 1996, which are
based on the last twelve months' distributions, annualized, and the maximum
offering price at the end of the twelve month period, were 0.84% and 0.31%,
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 Securities and Exchange Commission 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 through of the October 31, 1996 Annual Report, are incorporated in this
SAI by reference.

<PAGE>

COLONIAL TRUST III
------------------

Cross Reference Sheet (Colonial Federal Securities Fund)
--------------------------------------------------------

<S> <C>
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; Shareholder Liability

20. Taxes

21. Fund Charges and Expenses; Management of the Colonial Funds

22. Fund Charges and Expenses; Investment Performance;
Performance Measures

23. Independent Accountants
</TABLE>

<PAGE>

COLONIAL FEDERAL SECURITIES FUND

Statement of Additional Information
February 28, 1997

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, 1997. 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.

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

FS-16/360D-0297

<PAGE>

Part 1
COLONIAL FEDERAL SECURITIES FUND

Statement of Additional Information
February 28, 1997

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

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.

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:

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:

2. Have a short securities position, unless the Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of such
securities.

<PAGE>

PORTFOLIO TURNOVER

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 (dollars in thousands)

<TABLE>
<CAPTION>
Years ended October 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Management fee $7,614 $8,424 $9,805
Bookkeeping fee 406 440 497
Shareholder service and transfer agent fee 2,576 2,881 3,322
12b-1 fees:
Service fee (Class A and Class B) 2,959 3,298 3,870
Distribution fee (Class B) 573 558 543
</TABLE>

<PAGE>

Brokerage Commissions (dollars in thousands)

<TABLE>
<CAPTION>
Year ended October 31
---------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Total commissions $11 $52 $115
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, 1996, and the calendar year ended December
31, 1996, 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 The Trustees For The
Fiscal Year Ended Calendar Year Ended
Trustee October 31, 1996 December 31, 1996(b)
- ------- ---------------- --------------------
<S> <C> <C>
Robert J. Birnbaum $5,874 $ 92,000
Tom Bleasdale $6,562 (c) $104,500(d)
Lora S. Collins $5,834 $92,000
James E. Grinnell $5,894 $93,000
William D. Ireland, Jr. $7,159 $109,000
Richard W. Lowry $5,998 $95,000
William E. Mayer $5,776 $ 91,000
James L. Moody, Jr. $6,728 (e) $106,500(f)
John J. Neuhauser $5,971 $94,500
George L. Shinn $6,723 $105,500
Robert L. Sullivan $6,407 $102,000
Sinclair Weeks, Jr. $6,949 $110,000
</TABLE>

(b) At December 31, 1996, the Colonial Funds complex consisted of 37 open-end
and 5 closed-end management investment company portfolios.
(c) Includes $2,962 payable in later years as deferred compensation.
(d) Includes $51,500 payable in later years as deferred compensation.
(e) Total compensation of $6,728 for the fiscal year ended October 31, 1996
will be payable in later years as deferred compensation.
(f) Total compensation of $106,500 for the calendar year ended December 31,
1996, will be payable in later years as deferred compensation.

<TABLE>
<CAPTION>
Total Compensation
From Liberty Funds For
The Calendar Year Ended
Trustee December 31, 1996 (g)
- ------- ---------------------
<S> <C>
Robert J. Birnbaum $25,000
James E. Grinnell $25,000
Richard W. Lowry $25,000
</TABLE>

(g) At December 31, 1996, the Liberty Funds were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned subsidiary of
Liberty Financial Companies, Inc. (an intermediate parent of the Adviser).

Ownership of the Fund

The following information is as of January 31, 1997:

The officers and Trustees of the Trust as a group owned less than 1% of the
outstanding shares of the Fund.

Merrill Lynch, Pierce, Fenner & Smith, Inc. for the Sole Benefit of its
Customers, Attn: Fund Administration, 4800 Deer Lake Drive East 3rd,
Jacksonville, FL 32216 owned 7.02% of the Fund's outstanding Class A shares and
owned 13.14% of the Fund's outstanding Class B shares.

There were 48,017 Class A and 3,810 Class B shareholders of record of the Fund.

Sales Charges (dollars in thousands)

<TABLE>
<CAPTION>
Class A Shares
Years Ended October 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund share sales $389 $425 $691
Initial sales charges retained by CISI $ 46 $ 49 $ 80

</TABLE>
<TABLE>
<CAPTION>
Class B Shares
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Aggregate contingent deferred sales charges (CDSC)
on Fund redemptions retained by CISI $274 $316 $273
</TABLE>

12b-1 Plans, CDSCs and Conversion of Shares

The Fund offers three classes of shares - Class A, Class B and Class D. The Fund
may in the future offer other classes of shares. The Trustees have approved
12b-1 Plans (Plans) pursuant to Rule 12b-1 under the Act. Under the Plans, the
Fund pays CISI monthly a service fee at an annual rate of 0.25% of net assets
attributed to each Class of shares. The Fund also pays CISI monthly a
distribution fee at an annual rate of 0.75% of the average daily 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 Independent Trustees is effected by such Independent 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.

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,
were:

<TABLE>
<CAPTION>
Year ended October 31, 1996
---------------------------
Class A Shares Class B Shares
-------------- --------------
<S> <C> <C>
Fees to FSFs $2,779 $558
Cost of sales material relating to the Fund (including printing and mailing
expenses) $73 $25
Allocated travel, entertainment and other promotional expenses (including
advertising) $50 $29
</TABLE>

INVESTMENT PERFORMANCE

The Fund's Class A and Class B yields for the month ended October 31, 1996, were
5.62% and 5.15%, respectively.

The Fund's average annual total returns at October 31, 1996 were:

<TABLE>
<CAPTION>
Class A Shares
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C> <C>
With sales charge of 4.75% (1.05)% 6.26% 7.19%
Without sales charge 3.88% 7.30% 7.72%
</TABLE>

<TABLE>
<CAPTION>
Class B Shares
Period June 8, 1992
(commencement of
investment operations)
1 year through October 31, 1996
------ ------------------------
<S> <C> <C>
With applicable CDSC (1.76)% (4.87% CDSC) 5.96% (1.96% CDSC)(g)
Without CDSC 3.11% 6.33%
</TABLE>

(g) Due to the decrease in net asset value from the commencement of investment
operations, the CDSC is adjusted. See "How to Buy Shares" in the
Prospectus.

The Fund's Class A and Class B distribution rates at October 31, 1996, based on
the latest month's distributions, annualized, and the maximum offering price at
the end of the period, were 6.30% and 5.89%, respectively.

See Part 2 of this SAI, "Performance Measures," for how calculations are made.

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 Securities and Exchange Commission filings. The
financial statements incorporated by reference in this SAI have been so
incorporated, 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 20 of the October 31, 1996 Annual Report are incorporated in
this SAI by reference.

<PAGE>

COLONIAL TRUST III
------------------

Cross Reference Sheet (The Colonial Fund)
-----------------------------------------

<S> <C>
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; Shareholder Liability

20. Taxes

21. Fund Charges and Expenses; Management of the Colonial Funds

22. Fund Charges and Expenses; Investment Performance;
Performance Measures

23. Independent Accountants
</TABLE>

<PAGE>

THE COLONIAL FUND

Statement of Additional Information
February 28, 1997

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, 1997. 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.

TABLE OF CONTENTS

Part 1 Page
Definitions
Investment Objectives and Policies
Fundamental Investment Policies
Other Investment Policies
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountants

Part 2

TF--0197

<PAGE>

Part 1
THE COLONIAL FUND

Statement of Additional Information
February 28, 1997

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
Rule 144A Securities
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. 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.

<PAGE>

OTHER INVESTMENT POLICIES

As non-fundamental investment policies which may be changed without a
shareholder vote, the Fund may not:

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 (dollars in thousands)

<TABLE>
<CAPTION>
Year ended October 31
1996 1995 1994
<S> <C> <C> <C>
Management fee $6,256 $5,006 $4,102
Bookkeeping fee 394 328 270
Shareholder service
and transfer agent fee 3,330 2,685 2,143
12b-1 fees:
Service fee (Class A and B) 2,678 2,128 1,661
Distribution fee (Class B) 3,075 2,254 1,528
</TABLE>

Brokerage Commissions (dollars in thousands)

<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Total commissions $ 649 $ 1,471 $ 1,080
Directed transactions(a) $22,526 $19,414 $ 66,091
Commissions on directed transactions $ 35 $ 29 $ 90
</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, 1996, and the calendar year ended December
31, 1996, 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 Trustees For
Fiscal Year Ended Calendar Year Ended
Trustee October 31, 1996 December 31, 1996(b)
- ------- ---------------- --------------------
<S> <C> <C>
Robert J. Birnbaum $5,409 $ 92,000
Tom Bleasdale 6,154(c) 104,500(d)
Lora S. Collins 5,414 92,000
James E. Grinnell 5,463 93,000
William D. Ireland, Jr. 6,601 109,000
Richard W. Lowry 5,574 95,000
William E. Mayer 5,358 91,000
James L. Moody, Jr. 6,257(e) 106,500(f)
John J. Neuhauser 5,553 94,500
George L. Shinn 6,186 105,500
Robert L. Sullivan 5,953 102,000
Sinclair Weeks, Jr. 6,443 110,000
</TABLE>

(b) At December 31, 1996, the Colonial Funds complex consisted of 38 open-end
and 5 closed-end management investment company portfolios.
(c) Includes $2,802 payable in later years as deferred compensation.
(d) Includes $51,500 payable in later years as deferred compensation.
(e) Total compensation of $6,257 will be payable in later years as deferred
compensation.
(f) Total compensation of $106,500 for the calendar year ended December 31,
1996 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 or Directors of the
Liberty All-Star Equity Fund and of the Liberty All-Star Growth Fund, Inc.
(formerly known as The Charles Allmon Trust, Inc.)(together, Liberty Funds) for
service during the calendar year ended December 31, 1996:

Total Compensation
From Liberty Funds For
The Calendar Year Ended
December 31, 1996 (g)
Trustee
Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000

(g) At December 31, 1996 , the Liberty Funds were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned subsidiary of
Liberty Financial Companies, Inc. (an intermediate parent of the Adviser).

Ownership of the Fund

The following information is as of January 31, 1997:

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. In addition, the officers
and Trustees of the Trust as a group beneficially owned xClass Z shares
representing % of the then outstanding shares. Mr. Stern, an officer of the
Trust, held Class Z shares, representing % of the then outstanding shares. This
holding consisted entirely of shares held by him as a co-Trustee of The Colonial
Group, Inc. Profit-Sharing Plan Trust with respect to which he shares investment
and voting power with three other Trustees.

Merrill Lynch, Pierce, Fenner & Smith, 4800 Deer Lake Drive, Jacksonville, FL
32216 owned of record Class B shares representing % of the then outstanding
shares of such Class.

Liberty Northwest Insurance Corporation, 825 N.E. Multnomah Street, Suite 2000,
Portland, OR 97232 owned of record Class Z shares representing % of the then
outstanding shares of such Class.

There were 46,337 Class A, 40,932 Class B and 3 Class Z shareholders of record
of the Fund.

Sales Charges (dollars in thousands)

<TABLE>
<CAPTION>
Class A Shares
Year ended October 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on
Fund share sales $1,711 $1,202 $2,500
Initial sales charges retained by CISI $ 254 $ 190 $ 255
</TABLE>

<TABLE>
<CAPTION>
Class B Shares
Year ended October 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Aggregate contingent deferred sales
charges (CDSC) on Fund redemptions
retained by CISI $787 $878 $513
</TABLE>

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 monthly a service fee at an annual
rate of 0.15% of the Fund's net assets attributable to Class A shares
outstanding prior to April 1, 1989, and a service fee at an annual rate of 0.25%
of the Fund's net assets attributable to shares of each Class issued thereafter.
The Fund also pays CISI monthly a distribution fee at an annual rate of 0.75% of
the average daily 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 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 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.

Sales-related expenses (dollars in thousands) of CISI relating to the Fund for
the fiscal year ended October 31, 1996, were as follows:

<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Fees to FSFs $ 1,615 $3,689
Cost of sales material relating to the Fund (including
printing and mailing expenses) $ 128 $ 194
Allocated travel, entertainment and other
promotional expenses (including advertising) $ 120 $ 170
</TABLE>

INVESTMENT PERFORMANCE

The Fund's Class A, Class B and Class Z yields for the month ended October 31,
1996 were 1.44%, 0.78% and 1.53%, respectively.

The Fund's Class A average annual total returns at October 31, 1996 were as
follows:

<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
With sales charge of 5.75% 9.43% 12.08% 11.20%
Without sales charge 16.11% 13.42% 11.87%
</TABLE>

<PAGE>

The Fund's Class B total returns at October 31, 1996 were as follows:

<TABLE>
<CAPTION>
May 5, 1992
(Class B shares initially offered)
1 year through October 31, 1996
------ -------------------------
<S> <C> <C>
With applicable CDSC 10.27% (5.00% CDSC) 11.59% ( 2.00% CDSC)
Without CDSC 15.27% 11.89%
</TABLE>

The Funds Class Z total returns at October 31, 1996 were as follows:

July 31, 1995 (Class Z shares initially offered)
1 year through October 31, 1996
16.50% 14.62%

The Fund's Class A, Class B and Class Z distribution rates at October 31, 1996,
based on the previous calendar quarter's distributions, annualized, and the
maximum offering price at the end of the quarter, were 1.19%, 0.97% and 1.90%,
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 Securities and Exchange Commission filings. The
financial statements incorporated by reference in this SAI have been so
incorporated, 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 27 of the October 31, 1996 Annual Report, are incorporated in
this SAI by reference.

<PAGE>

COLONIAL TRUST III
------------------

Cross Reference Sheet (Colonial International Horizons Fund)
------------------------------------------------------------

<S> <C>
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; Shareholder Liability

20. Taxes

21. Fund Charges and Expenses; Management of the Colonial Funds

22. Fund Charges and Expenses; Investment Performance;
Performance Measures

23. Independent Accountants
</TABLE>

<PAGE>

COLONIAL INTERNATIONAL HORIZONS FUND

Statement of Additional Information

February 28, 1997

This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
International Horizons 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, 1997. 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.

TABLE OF CONTENTS

Part 1 Page

Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountants

Part 2

NR--0197

<PAGE>

Part 1

COLONIAL INTERNATIONAL HORIZONS FUND

Statement of Additional Information

February 28, 1997

DEFINITIONS

"Trust" Colonial Trust III
"Fund" Colonial International Horizons 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 indicated 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.

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; and
3. 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.

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)

<TABLE>
<CAPTION>
Year ended October 31
---------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Management fee $434 $ 421 $ 349
Bookkeeping fee 30 29 27
Shareholder service and transfer agent 190 188 154
fee
12b-1 fees:
Service fee 145 140 117
Distribution fee (Class B) 180 169 98
</TABLE>

Brokerage Commissions (dollars in thousands)

<TABLE>
<CAPTION>
Year ended October 31
---------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Total commissions $ 155 $ 190 $ 78
Directed transactions (a) 1,924 2,631 3,401
Commissions on directed transactions 5 10 11
</TABLE>

(a) See "Management of the Colonial Funds - Portfolio Transactions - Brokerage
and research services" in Part 2 of this SAI.

<PAGE>

Trustees Fees

For fiscal year ended October 31, 1996 and the calendar year ended December 31,
1996 the Trustees received the following compensation for serving as Trustees:

Aggregate Total Compensation
Compensation From Trust and Fund
From Fund For The Complex Paid To The
Fiscal Trustees For The
Year Ended Calendar Year Ended
Trustee October 31, 1996 December 31, 1996(b)
- ------- ---------------- --------------------
<S> <C> <C>
Robert J. Birnbaum $ 1,098 92,000
Tom Bleasdale 1,245(c) 104,500(d)
Lora S. Collins 1,095 92,000
James E. Grinnell 1,111 93,000
William D. Ireland, Jr. 1,343 109,000
Richard W. Lowry 1,128 95,000
William E. Mayer 1,088 91,000
James L. Moody, Jr. 1,268(e) 106,500(f)
John J. Neuhauser 1,124 94,500
George L. Shinn 1,257 105,500
Robert L. Sullivan 1,212 102,000
Sinclair Weeks, Jr. 1,308 110,000
</TABLE>

(b) At December 31, 1996, the Colonial Funds complex consisted of 37 open-end
and 5 closed-end management investment company portfolios.
(c) Includes $565 payable in later years as deferred compensation.
(d) Includes $51,500 payable in later years as deferred compensation.
(e) Total compensation of $1,268 will be payable in later years as deferred
compensation.
(f) Total compensation of $106,500 for the calendar year ended December 31,
1996 will be payable in later years as deferred compensation.

<TABLE>
<CAPTION>
Total Compensation
From Liberty Funds For
The Calendar Year Ended
Trustee December 31, 1996 (h)
<S> <C>
Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000
</TABLE>

(h) At December 31, 1996, the Liberty Funds were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned subsidiary of
Liberty Financial Companies, Inc. (an intermediate parent of the Adviser).

Ownership of the Fund

The following information is as of January 31, 1997:

The officers and Trustees of the Trust as a group owned shares of the Fund,
representing % of the then outstanding Class A shares. Mr. Stern, who is an
officer of the Fund, held shares of the Fund, representing % of the then
outstanding shares. This holding consisted entirely of shares held by him and
certain employees of the Adviser as co-Trustees of The Colonial Group, Inc.
Profit-Sharing Plan with respect to which they share investment and voting
power.

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.

There were 5,160 Class A and 2,611 Class B record holders of the Fund.

Sales Charges (dollars in thousands)

<TABLE>
<CAPTION>
Class A Shares
Year ended October 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund $84 $ 91 $ 177
share sales
Initial sales charges retained by CISI 14 79 25
</TABLE>

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
(Plans) pursuant to Rule 12b-1 under the Act. Under the Plans, the Fund pays
CISI monthly a service fee at an annual rate of 0.25% of net assets attributed
to each class of shares. The Fund also pays CISI monthly a distribution fee at
an annual rate of 0.75% of the average daily 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 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.

Sales-related expenses (dollars in thousands) of CISI relating to the Fund were:

<TABLE>
<CAPTION>
Year ended October 31, 1996
Class A Shares Class B Shares
<S> <C> <C>
Fees to FSFs $79 $231
Cost of sales material relating to the Fund
(including printing and mailing expenses) 8 10
Allocated travel, entertainment and other promotional
expenses (including advertising) 12 14
</TABLE>

INVESTMENT PERFORMANCE

The Fund's Class A and Class B yields for the month ended October 31, 1996 were
0.28% and (0.45%), respectively.

The Fund's average annual total returns at October 31, 1996 were:

<TABLE>
<CAPTION>
Class A Shares
Period June 8, 1992
(commencement of investment operations)
1 Year through October 31, 1996
------ -----------------------
<S> <C> <C>
With sales charge of 5.75% 14.69% 9.80%
Without sales charge 21.69% 11.29%
</TABLE>

<TABLE>
<CAPTION>
Class B Shares

Period June 8, 1992
(commencement of investment operations)
1 Year through October 31, 1996
------ -----------------------
<S> <C> <C>
With applicable CDSC 15.70% (5.00% CDSC) 10.13% (2.00% CDSC)
Without CDSC 20.70% 10.45%
</TABLE>

See Part 2 of this SAI, "Performance Measures," for how calculations are made.

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 Securities and Exchange Commission 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 22 of the October 31, 1996 Annual Report, are incorporated in
this SAI by reference.

<PAGE>

COLONIAL TRUST III
------------------

Cross Reference Sheet (Colonial Global Equity Fund)
---------------------------------------------------

<S> <C>
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; Shareholder Liability

20. Taxes

21. Fund Charges and Expenses; Management of the Colonial Funds

22. Fund Charges and Expenses; Investment Performance;
Performance Measures

23. Independent Accountants

</TABLE>
COLONIAL GLOBAL EQUITY FUND
Statement of Additional Information

February 28, 1997

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, 1997. 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.

TABLE OF CONTENTS

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 Liability
Shareholder Meetings
Performance Measures
Appendix I
Appendix II

GE-16/349D-0297

<PAGE>

Part 1
COLONIAL GLOBAL EQUITY FUND
Statement of Additional Information

February 28, 1997

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 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:

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 indicated below under "Fundamental Investment Policies" the Fund's
investment policies are not fundamental, and the Trustees may change the
policies without shareholder approval.

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 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 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;

PORTFOLIO TURNOVER

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)

<TABLE>
<CAPTION>
Years ended October 31
1996 1995 1994
<S> <C> <C> <C>
Management fee $ 591 $535 $465
Bookkeeping fee 37 34 32
Shareholder service and transfer agent fee 244 223 182
12b-1 fees:
Service fee 198 177 156
Distribution fee (Class B only) 480 453 414
Fees and expenses waived by the Adviser --- (184) (224)
</TABLE>

Brokerage Commissions (dollars in thousands)

<TABLE>
<CAPTION>
Years ended October 31
1996 1995 1994
<S> <C> <C> <C>
Total commissions $ 267 $ 226 $ 203
Directed transactions (a) 4,670 3,496 9,557
Commissions on directed transactions 4 6 18
</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, 1996 and the calendar year ended December
31, 1996, 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 The Trustees For The
Fiscal Year Ended Calendar Year Ended
Trustee October 31, 1996 December 31, 1996(b)
- ------- ---------------- --------------------
<S> <C> <C>
Robert J. Birnbaum $ 1,093 $92,000
Tom Bleasdale 1,239(c) 104,500(d)
Lora S. Collins 1,093 92,000
James E. Grinnell 1,103 93,000
William D. Ireland, Jr. 1,344 109,000
Richard W. Lowry 1,115 95,000
William E. Mayer 1,082 91,000
James L. Moody, Jr. 1,263(e) 106,500(f)
John J. Neuhauser 1,121 94,500
George L. Shinn 1,250 105,500
Robert L. Sullivan 1,200 102,000
Sinclair Weeks, Jr. 1,305 110,000
</TABLE>

(b) At December 31, 1996, the Colonial Funds complex consisted of 37 open-end
and 5 closed-end management investment company portfolios.
(c) Includes $607 payable in later years as deferred compensation.
(d) Includes $51,500 payable in later years as deferred compensation.
(e) Total compensation of $1,263 for fiscal year ended October 31, 1996 will be
payable in later years as deferred compensation.
(f) Total compensation of $106,500 for the calendar year ended December 31,
1996 will be payable in later years as deferred compensation.

<PAGE>

<TABLE>
<CAPTION>
Total Compensation From
Liberty Funds For The
Calendar Year Ended
Trustee December 31, 1996 (g)
<S> <C>
Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000
</TABLE>

(g) At December 31, 1996, the Liberty Funds were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned subsidiary of
Liberty Financial Companies, Inc. (an intermediate parent of the Adviser).

Ownership of the Fund

The following information is as of February 7, 1997:

The officers and Trustees of the Trust as a group beneficially owned shares of
the Fund representing % of the then outstanding Class A shares. Of the
beneficial shares owned, Mr. Stern, who is an officer of the Fund, held shares
of the Fund, representing % of the then outstanding shares. This holding
consisted entirely of shares held by him and certain employees of the Adviser as
co-Trustees of The Colonial Group, Inc. Profit-Sharing Plan with respect to
which they share investment and voting power.

Merrill Lynch Pierce Fenner & Smith Inc., Attn: Book Entry, Mutual Funds
Operations, 4800 Deer Lake Dr., E 3rd Fl, Jacksonville, FL 32216, owned 5.58%
of the Fund's outstanding Class A shares.

Merrill Lynch Pierce Fenner & Smith Inc., Attn: Book Entry, Mutual Funds
Operations, 4800 Deer Lake Dr., E 3rd Fl, Jacksonville, FL 32216, owned 13.08%
of the Fund's outstanding Class B Shares.

There were 2,313 Class A and 7,774 Class B record holders of the Fund.

<PAGE>

Sales Charges (dollars in thousands)

<TABLE>
<CAPTION>
Class A Shares
Years ended October 31
1996 1995 1994
<S> <C> <C> <C>
Aggregate initial sales charges on Fund share sales $72 $44 $36
Initial sales charges retained by CISI 12 7 17
</TABLE>

<TABLE>
<CAPTION>
Class B Shares
Years ended October 31
1996 1995 1994
<S> <C> <C> <C>
Aggregate contingent deferred sales charges (CDSC)
on Fund redemptions retained by CISI $90 $175 $111
</TABLE>

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
(Plans) pursuant to Rule 12b-1 under the Act. Under the Plans, the Fund pays
CISI monthly a service fee at an annual rate of 0.25% of net assets attributed
to each Class of shares. The Fund also pays CISI monthly a distribution fee at
an annual rate of 0.75% of the average daily 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.

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 which are not
subject to the distribution fee ,having an equal value.

Sales-related expenses (dollars in thousands) of CISI relating to the Fund,
were:

<TABLE>
<CAPTION>
Year ended October 31, 1996
Class A Shares Class B Shares
<S> <C> <C>
Fees to FSFs $34 $374
Cost of sales material relating to the Fund
(including printing and mailing expenses) 12 35
Allocated travel, entertainment and other
promotional 6 18
expenses (including advertising)
</TABLE>

INVESTMENT PERFORMANCE

The Fund's Class A and Class B yields for the month ended October 31, 1996, were
1.28% and 0.60%, respectively.

The Fund's average annual total returns at October 31, 1996, were:

<TABLE>
<CAPTION>
Class A Shares

Period June 8, 1992
(commencement of investment operations)
1 year through October 31, 1996
------ ------------------------
<S> <C> <C>
With sales charge of 5.75% 8.48% 10.46%
Without sales charge 15.10% 11.96%
</TABLE>

<TABLE>
<CAPTION>
Class B Shares

Period June 8, 1992
(commencement of investment operations)
1 year through October 31, 1996
------ ------------------------
<S> <C> <C>
With applicable CDSC 9.04% (5.00% CDSC) 10.72% (2.00% CDSC)
Without CDSC 14.04% 11.04%
</TABLE>

The Fund's Class A and Class B distribution rates at October 31, 1996, which are
based on the latest month's distributions, annualized, and the maximum offering
price at the end of the period, were 0.94% and 0.28%, respectively.

See Part 2 of this SAI, "Performance Measures," for how calculations are made.

CUSTODIAN

<PAGE>

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 Securities and Exchange Commission filings. The
financial statements incorporated by reference in this SAI have been so
incorporated, 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 24 of the October 31, 1996 Annual Report are incorporated in
this SAI by reference.

<PAGE>

COLONIAL TRUST III
------------------

Cross Reference Sheet (Colonial Strategic Balanced Fund)
--------------------------------------------------------

<S> <C>
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; Shareholder Liability

20. Taxes

21. Fund Charges and Expenses; Management of the Colonial Funds

22. Fund Charges and Expenses; Investment Performance;
Performance Measures

23. Independent Accountants
</TABLE>

<PAGE>

COLONIAL STRATEGIC BALANCED FUND
Statement of Additional Information

February 28, 1997

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, 1997. 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.

TABLE OF CONTENTS

Part 1 Page

Part 2

SB--0197

<PAGE>

COLONIAL STRATEGIC BALANCED FUND
Statement of Additional Information

February 28, 1997

DEFINITIONS
"Trust" Colonial Trust III
"Fund" Colonial Strategic Balanced 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:

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.

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:

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; and
3. Invest more than 15% of its net assets in illiquid assets.

PORTFOLIO TURNOVER

Years ended October 31
1996 1995
59% 49%

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)

<TABLE>
<CAPTION>
Period September 19, 1994
(commencement of investment operations)
Years through October 31 October 31, 1994
1996 1995 1994
<S> <C> <C> <C>
Management fee $354 $ 196 $9
Bookkeeping fee 28 27 3
Shareholder service and transfer agent fee 155 86 4
12b-1 fees:
Service fee 126 70 3
Distribution fee (Class A) 57 36 2
Distribution fee (Class B) 207 95 4
Distribution fee (Class D) 30 25 2
Fees and expenses waived or borne by the Adviser (95) (122) 5
</TABLE>

Brokerage Commissions (dollars in thousands)

<TABLE>
<CAPTION>
Period September 19, 1994
(commencement of investment operations)
Years ended October 31 through October 31, 1994
---------------------- ------------------------
1996 1995
---- ----
<S> <C> <C> <C>
Total commissions $ 11 $ 20 $ 12
Directed transactions(a) 269 302 500
Commissions on directed transactions (b) 1 1
</TABLE>

(a) See "Management of the Colonial Funds - Portfolio Transactions - Brokerage
and research services" in Part 2 of this SAI.

(b) Rounds to less than one.

Trustees Fees

For the fiscal year ended October 31, 1996 and calendar year ended December 31,
1996 the Trustees received the following compensation for serving as Trustees:

<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation From Trust and Fund
From Fund For The Complex Paid To The Trustees
Fiscal Year Ended For The Calendar Year Ended
Trustee October 31, 1996 December 31, 1996 (c)
- ------- ---------------- ---------------------
<S> <C> <C>
Robert J. Birnbaum $1,056 $ 92,000
Tom Bleasdale 1,199(d) 104,500(e)
Lora S. Collins 1,056 92,000
James E. Grinnell 1,064 93,000
William D. Ireland, Jr. 1,289 109,000
Richard W. Lowry 1,089 95,000
William E. Mayer 1,044 91,000
James L. Moody, Jr. 1,222(f) 106,500(g)
John J. Neuhauser 1,085 94,500
George L. Shinn 1,207 105,500
Robert L. Sullivan 1,161 102,000
Sinclair Weeks, Jr. 1,258 110,000
</TABLE>

(c) At December 31, 1996, the Colonial Funds complex consisted of 37 open-end
and 5 closed-end management investment company portfolios.
(d) Includes $543 payable in later years as deferred compensation.
(e) Includes $51,500 payable in later years as deferred compensation.
(f) Total compensation of $1,222 will be payable in later years as deferred
compensation.
(g) Total compensation of $106,500 for the calendar year ended December 31,
1996 will be payable in later years as deferred compensation.

<TABLE>
<CAPTION>
Total Compensation
From Liberty Funds For
The Calendar Year Ended
True December 31, 1996 (i)
- ---- ---------------------
<S> <C>
Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000
</TABLE>

(i) At December 31, 1996, the Liberty Funds were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned subsidiary of
Liberty Financial Companies, Inc. (an intermediate parent of the Adviser).

Ownership of the Fund

The following information is as of January 31, 1997:

The officers and Trustees of the Trust as a group owned shares of the Fund
representing % of the then outstanding Class A shares. The largest single
holding was by the Adviser (%).

The officers and Trustees of the Trust as a group owned shares of the Fund
representing % of the then outstanding Class B shares. The total ownership was
held by the Adviser (%).

The officers and Trustees of the Trust as a group owned shares of the Fund
representing % of the then outstanding Class D shares. The total ownership was
held by the Adviser (%).

Sales Marketing Services Inc., P.O. Box 516, Metairie, LA 70004-0516, owned % of
the Fund's outstanding Class A shares.

There were 2,398 Class A, 6,991 Class B and 363 Class D record holders of the
Fund.

Sales Charges (dollars in thousands)

<TABLE>
<CAPTION>
Class A Shares
Period September 19, 1994
(commencement of
investment operations)
Years ended October 31 through October 31, 1994
---------------------- ------------------------
1996 1995
---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund
share sales $310 $186 $66
Initial sales charges retained by CISI 33 13 0
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Class B Shares
Period September 19, 1994
(commencement of
investment operations)
Years ended October 31 through October 31, 1994
---------------------- ------------------------
1996 1995
---- ----
<S> <C> <C> <C>
Aggregate contingent deferred sales
charges (CDSC) on Fund redemptions
retained by CISI $ 57 $29 $0

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Class D Shares
Period September 19, 1994
(commencement of
investment operations)
Years ended October 31 through October 31, 1994
---------------------- ------------------------
1996 1995
---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions
retained by CISI $1 $1 $0
</TABLE>

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 (Plans) pursuant to Rule 12b-1 under the Act. Under the Plans, the
Fund pays CISI monthly a service fee at an annual rate of 0.25% of net assets
attributed to each Class of shares. The Fund's Class A shares pay CISI monthly a
distribution fee at an annual rate of 0.30% of the average daily net assets and
Class B and Class D shares pay CISI monthly a distribution fee at an annual rate
of 0.75% of the average daily net assets. 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 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.

Sales-related expenses (dollars in thousands) of CISI relating to the Fund were:

<TABLE>
<CAPTION>
Years ended October 31, 1996
Class A Shares Class B Shares Class D Shares
<S> <C> <C> <C>
Fees to FSFs 57 746 30
Cost of sales material relating to the Fund
(including printing and mailing expenses) 37 79 7
Allocated travel, entertainment and other
promotional expenses (including advertising) 27 58 5
</TABLE>

<PAGE>

INVESTMENT PERFORMANCE

The Fund's Class A, Class B and Class D yields for the month ended October 31,
1996 were:

<TABLE>
<CAPTION>
Class A Shares Class B Shares Class D Shares
Yield Adjusted Yield Yield Adjusted Yield Yield Adjusted Yield
<C> <C> <C> <C> <C> <C>
2.74% 2.51% 2.42% 2.18% 2.39% 2.16%
</TABLE>

The Fund's average annual total returns at October 31, 1996 were:

<TABLE>
<CAPTION>
Class A Shares
Period September 19, 1994
(commencement of investment operations)
1 year through October 31, 1996
------ ------------------------
<S> <C> <C>
With sales charge of 4.75% 8.81% 13.57%
Without sales charge 14.24% 16.21%
</TABLE>

<TABLE>
<CAPTION>
Class B Shares
Period September 19, 1994
(commencement of investment operations)
1 year through October 31, 1996
------ ------------------------
<S> <C> <C>
With applicable CDSC 8.71%(5.00% CDSC) 14.48% (3.00% CDSC)
Without CDSC 13.71% 15.69%
</TABLE>

<TABLE>
<CAPTION>
Class D Shares
Period September 19, 1994
(commencement of investment
operations)
1 year through October 31, 1996
------ ------------------------
<S> <C> <C>
With sales charge of 1.00% and CDSC of 1.00% 11.54% 15.15%
Without CDSC 13.68% 15.69%
</TABLE>

The Fund's Class A, Class B and Class D distribution rates at October 31, 1996
which are based on the most recent quarter's distributions and the maximum
offering price at the end of the quarter, were 2.58%, 2.31% and 2.26%,
respectively.

See Part 2 of this SAI, "Performance Measures," for how calculations are made.

INDEPENDENT ACCOUNTANTS

The financial statements and Report of Independent Accountants appearing on
pages 7 through 34 of the October 31, 1996 Annual Report, are incorporated in
this SAI by reference.

<PAGE>

COLONIAL TRUST III
------------------

Cross Reference Sheet (Colonial Global Utilities Fund)
------------------------------------------------------

<S> <C>
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; Shareholder Liability

20. Taxes

21. Fund Charges and Expenses; Management of the Colonial Funds

22. Fund Charges and Expenses; Investment Performance;
Performance Measures

23. Independent Accountants
</TABLE>

<PAGE>

COLONIAL GLOBAL UTILITIES FUND

Statement of Additional Information
February 28, 1997

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, 1997. 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 to 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.

TABLE OF CONTENTS

Part 1 Page

Part 2

GU-16/354D-0297

<PAGE>

COLONIAL GLOBAL UTILITIES FUND

Statement of Additional Information
February 28, 1997

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 of this SAI
contains additional information concerning the Fund and the Portfolio, including
a description of the Fund's and the Portfolio's fundamental investment policies
and 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:

Lower Rated Bonds
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

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;

<PAGE>

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
instrumentalities, 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. 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; and
6. 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).

<PAGE>

PORTFOLIO TURNOVER

1996 1995
---- ----

34% 46%

Portfolio turnover is the lesser of the aggregate purchases or sales of
securities other than short-term divided by the average assets for the period.
The portfolio turnover indicated above is for the LFC Utilities Trust for the
fiscal year ended October 31.

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, (iii) an annual pricing and bookkeeping fee of $25,000 plus
0.0025% of the Portfolio's average daily net assets in excess of $50 million and
reimbursement of the Adviser's out-of-pocket expenses, and (iv) 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)

Years ended October 31
-----------------------
1996 1995 1994
---- ---- ----
Management fee $1,064 $1,282 $1,603
Administration fee(a) 193 212(b) 292
Bookkeeping fee 51 42(c) 62
Shareholders services and transfer agent fee 529 589(d) 776
12b-1 fees(e)(f)
Service fee (Class A, Class B, Class D) 480 570(g) 471
Distribution fee (Class B) 9 2 0
Distribution fee (Class D) 3 1 0

(a) Liberty Investment Services Inc, (Liberty Services) was the Fund's
Administrator prior to March 24, 1995, and provided the Fund with
bookkeeping and 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.

<PAGE>

Brokerage Commissions

The Fund does not pay brokerage commissions. Brokerage commissions are paid by
the Portfolio. For the fiscal years ended October 31, 1994, 1995 and 1996 the
Portfolio paid total brokerage commissions of $, $228,144, $287,806, and
$255,827, respectively.

Trustees Fees

For the fiscal year ended October 31, 1996 and the calendar year ended December
31, 1996, the Trustees received the following compensation for serving as
Trustees:

Total Compensation
Aggregate From Trust and
Compensation Fund Complex Paid To
From Fund For The The Trustees For The
Fiscal Year Ended Calendar Year Ended
Trustee October 31, 1996 December 31, 1996(h)
- ------- ---------------- --------------------
Robert J. Birnbaum $1,521 $ 92,000
Tom Bleasdale 1,730(i) $104,500 (j)
Lora S. Collins 1,520 $ 92,000
James E. Grinnell 1,536 $ 93,000
William D. Ireland, Jr. 1,826 $109,000
Richard W. Lowry 1,569 $ 95,000
William E. Mayer 1,502 $ 91,000
James L. Moody, Jr. 1,762(k) $106,500 (l)
John J. Neuhauser 1,561 $ 94,500
George L. Shinn 1,752 $105,500
Robert L. Sullivan 1,679 $102,000
Sinclair Weeks, Jr. 1,826 $110,000

(h) At December 31, 1996, the Colonial Funds complex consisted of 37 open-end
and 5 closed-end management investment company portfolios.
(i) Includes $807 payable in later years as deferred compensation.
(j) Includes $51,500 payable in later years as deferred compensation.
(k) Total compensation of $1,762 for the fiscal year ended October 31, 1996
will be payable in later years as deferred compensation.
(l) Total compensation of $106,500 for the calendar year ended December 31,
1996 will be payable in later years as deferred compensation.

Total Compensation
From Liberty Funds For
The Calendar Year Ended
Trustee December 31, 1996 (m)
- ------- ---------------------
Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000

(m) At December 31, 1996, the Liberty Funds 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).

<PAGE>

Ownership of the Fund

The following information is as of January 31, 1997:

The officers and Trustees of the Trust as a group beneficially owned less than
1% of the outstanding shares of the Fund.

Merrill Lynch Pierce Fenner & Smith Inc. for the Sole Benefit of its Customers,
Attn: Fund Administration, 4800 Deer Lake Drive, E 3rd Fl, Jacksonville,
FL 32246, owned 15.42% of the Fund's outstanding Class B shares.

Maxine A. Smith & S.M. Ciaramitaro Ttees, Ronald J. Smith Marital Trust u/a
7/9/84, 7115 Carriage Creek Drive, Washington, MI 48094-2808, owned 9.21% of
the Fund's outstanding Class B shares.

There were 16,450 Class A, 193 Class B and 20 Class D shareholders of record of
the Fund.

Sales Charges (dollars in thousands)

<TABLE>
<CAPTION>
Class A
Years ended October 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund share sales $137 $ 97(o) $1,566
Initial sales charge retained by CISI 20 13 0
</TABLE>

<TABLE>
<CAPTION>
Class B
Period March 27, 1995
Year ended October 31 (commencement of investment operations)
1996 through October 31, 1996
<S> <C> <C>
Aggregate contingent deferred sales charge (CDSC)
on Fund redemptions retained by CISI $2 (p)

Class D
Period March 27, 1995
Year ended October 31 (commencement of investment operations)
1996 through October 31, 1996

Aggregate (CDSC) on Fund redemptions retained by CISI (p) (p)
</TABLE>

(o) Includes $14,651 paid in aggregate commissions to Liberty Securities for
the period ended March 24, 1995.
(p) Rounds to less than one.

12b-1 Plans, CDSCs and Conversion of Shares

The Fund offers three classes of shares - Class A, Class B and Class D. The Fund
may in the future offer other classes of shares. The Trustees have approved
12b-1 Plans (Plans) pursuant to Rule 12b-1 under the Act. Under the Plans, the
Fund pays CISI monthly a service fee at an annual rate of 0.25% of net assets
attributed to each Class of shares. The Fund also pays CISI monthly a
distribution fee at an annual rate of 0.75% of the average daily 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.

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.

Sales Related Expenses (dollars in thousands) of CISI relating to the Fund for
the fiscal year ended October 31, 1996 were:

<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Fees to FSFs $ 471 $ 26 $ 4
Cost of sales material relating to the Fund
(including printing and mailing expenses) 12 2 2
Allocated travel, entertainment and other promotional
expenses
(including advertising) 12 2 1
</TABLE>

INVESTMENT PERFORMANCE

The Fund's average annual total returns at October 31, 1996 were:

<TABLE>
<CAPTION>
Class A
Period October 15, 1991
(commencement of investment operations)
1 year 5 years through October 31, 1996
------ ------- ------------------------
<S> <C> <C> <C>
With sales charge of 5.75% 5.55% 8.05% 7.94%
Without sales charge 11.99% 9.34% 9.22%
</TABLE>

<TABLE>
<CAPTION>
Class B
Period ended March 27, 1995
(commencement of investment operations)
1 year through October 31, 1996
------------------------
<S> <C> <C>
With applicable CDSC 6.25% (5.00% CDSC) 10.33% (4.00% CDSC)
Without CDSC 11.25% 12.67%

Class D
Period ended March 27, 1995
(commencement of investment operations)
1 year through October 31, 1996
------------------------

With sales charge of 1.00% and applicable CDSC 9.05% (1.00% CDSC) 11.91%
Without CDSC 11.16% 12.61%
</TABLE>

The Fund's Class A, Class B and Class D distribution rates at October 31, 1996,
which are based on the latest quarter's distributions, annualized, by the
maximum offering price at the end of the quarter, were 2.83%, 2.26% and 2.24%,
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 OF THE FUND

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 Securities and Exchange Commission filings. The of
financial statements incorporated by reference in this SAI have been so
incorporated, 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. 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 27 of the October 31, 1996 Annual Report, are incorporated
into this 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, 1996, the Adviser managed over $26.7
billion in net assets: over $8 billion in equities and over $18.7 billion in
fixed-income securities (including $1.6 billion in municipal securities). The
$26.7 billion in managed assets included over $7.5 billion held by open-end
mutual funds managed by the Adviser (approximately 16 of the mutual fund assets
were held by clients of the Adviser). These mutual funds were owned by over
227,000 shareholders. The $7.5 billion in mutual fund assets included over $743
million in over 47,000 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, 1996, the Adviser employed approximately 19 research analysts and
55 account managers. The average investment-related experience of these
individuals is 22 years.

The directors of the Adviser are Timothy K. Armour, Harold W. Cogger, Kenneth R.
Leibler, C. Allen Merritt, Jr., and Hans P. Ziegler. Mr. Armour is President of
the Adviser's Mutual Funds division; Mr. Cogger is a Director and Executive Vice
President of Liberty Financial; Mr. Leibler is a Director, President and Chief
Executive Officer of Liberty Financial; Mr. Merritt is Senior Vice President and
Treasurer of Liberty Financial; and Mr. Ziegler is Chief Executive Officer of
the Adviser. The business address of Messrs. Cogger, Leibler and Merritt is 600
Atlantic Avenue, Federal Reserve Plaza, Boston, Massachusetts 02210; that of
Messrs. Armour 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 Auditors of the Portfolio

KPMG Peat Marwick LLP are the Portfolio's independent auditors providing audit
and tax preparation services and assistance and consultation in connection with
the review of various Securities Exchange Commission filings.

The Portfolio's financial statements and Report of Independent Auditors
appearing on pages 6 through 16 of the Fund's October 31, 1996 Annual Report,
are incorporated into this SAI by reference.

<PAGE>

PART C OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements:

Included in Part A

Summary of Expenses (for Colonial International Fund for Growth,
Colonial Select Value Fund, The Colonial Fund, Colonial
International Horizons Fund, Colonial Federal Securities Fund,
Colonial Global Equity Fund, Colonial Global Utilities Fund and
Colonial Strategic Balanced Fund)

The Fund's Financial History (for Colonial International Fund
for Growth, Colonial Select Value Fund, The Colonial Fund,
Colonial International Horizons Fund, Colonial Federal
Securities Fund, Colonial Global Equity Fund, Colonial Global
Utilities Fund and Colonial Strategic Balanced Fund)

Incorporated by reference into Part B are the financial statements
contained in the Annual Reports for the Registrant's series, each dated October
31, 1996 (which were previously filed electronically pursuant to Section
30(b)(2) of the Investment Company Act of 1940):

<TABLE>
<CAPTION>
Fund Accession Number
---- ----------------
<S> <C>
Colonial International Fund for Growth 0000021847-97-000007
Colonial Select Value Fund 0000021847-96-000085
The Colonial Fund 0000021847-96-000086
Colonial International Horizons Fund 0000021847-97-000009
Colonial Federal Securities Fund 0000021847-97-000005
Colonial Global Equity Fund 0000021847-97-000008
Colonial Strategic Balanced Fund 0000021847-97-000006
Colonial Global Utilities Fund (including financial
statements of the LFC Utilities Trust) 0000021847-97-000004
</TABLE>

The Financial Statements contained in each series' Annual Report are as
follows:

Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report

(b) Exhibits:

1 Amendment No. 3 to the Agreement and Declaration of Trust

2 By-Laws

3 Not Applicable

4 Form of Specimen of share certificate (incorporated herein
by reference to Exhibit 4 to Post-Effective Amendment No. 25
to the Registration Statement of Colonial Trust II,
Registration Nos. 2-66976 and 811-3009, filed with the
Commission on March 20, 1996.)

5(a) Form of Management Agreement (TCF) (10)

5(b) Form of Management Agreement (CSVF, CIFFG, CFSF, CIHF, CGEF
and CSBF)(12)

6(a) Form of Distributor's Contract with Colonial Investment
Services

6(b) Form of Selling Agreement with Colonial Investment
Services(incorporated herein by reference to Exhibit 6(b) to
Post-Effective Amendment No. 10 to the Registration
Statement of Colonial Trust VI, Registration Nos. 33-45117
and 811-6529, filed with the Commission on September 27,
1996)

6(c) Form of Bank and Bank Affiliated Selling Agreement
(incorporated herein by reference to Exhibit 6(c) to
Post-Effective Amendment No. 10 to the Registration
Statement of Colonial Trust VI, Registration Nos. 33-45117
and 811-6529, filed with the Commission on September 27,
1996)

6(d) Form of Asset Retention Agreement (incorporated herein by
reference to Exhibit 6(d) to Post-Effective Amendment No. 10
to the Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529, filed with the
Commission on September 27, 1996)

7 Not Applicable

8(a) Custodian Agreement with Boston Safe Deposit and Trust
Company (incorporated herein by reference to Exhibit 8 to
Post-Effective Amendment No. 10 to the Registration
Statement of Colonial Trust VI, Registration Nos. 33-45117
and 811-6529, filed with the Commission on September 27,
1996)

8(b) Amendment to Custody Agreement with Boston Safe Deposit and
Trust Company (incorporated herein by reference to Exhibit
8(a) to Post-Effective Amendment No. 10 to the Registration
Statement of Colonial Trust VI, Registration Nos. 33-45117
and 811-6529, filed with the Commission on September 27,
1996) (TCF, CFSF, CGEF, CSVF, CIHF, CIFfG and CSBF)

9(a) Amended and Restated Shareholders' Servicing and Transfer
Agent Agreement as amended with Colonial Investors Service
Center, Inc. (formerly Citadel Service Company,
Inc.)(incorporated herein by reference to Exhibit 9.(a) to
Post-Effective Amendment No. 10 to the Registration
Statement of Colonial Trust VI, Registration Nos. 33-45117
and 811-6529, filed with the Commission on September 27,
1996)

9(a)(i) Amendment No. 8 to Schedule A of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement as
amended with Colonial Investors Service Center, Inc.
(formerly Citadel Service Company, Inc.)

<PAGE>

9(a)(ii) Amendment No. 14 to Appendix I of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement as
amended with Colonial Investors Service Center, Inc.
(formerly Citadel Service Company, Inc.)

9(b) Pricing and Bookkeeping Agreement with Colonial Management
Associates, Inc. (incorporated herein by reference to
Exhibit 9(b) to Post-Effective Amendment No. 10 to the
Registration Statement of Colonial Trust VI, Registration
Nos. 33-45117 and 811-6529, filed with the Commission on
September 27, 1996) (TCF, CFSF, CGEF, CSVF, CIHF, CIFfG and
CSBF)

9(b)(i) Amendment to Appendix I of Pricing and Bookkeeping Agreement
(TCF, CFSF, CGEF, CSVF, CIHF, CIFfG and CSBF)

9(b)(ii) Pricing and Bookkeeping Agreement with Colonial Management
Associates, Inc. (CGUF)

9(c) Investment Account Application (incorporated herein by
reference to Prospectus)

9(d) Form of proposed Agreement and Plan of Reorganization (TCF)

9(e) Form of Agreement and Plan of Reorganization (TCF, CFSF and
CSVF)

9(f) Form of Colonial Asset Builder Account Application (TCF,
CSVF)

9(g) Form of Administration Agreement with Colonial Management
Associates, Inc. (CGUF)

10(a) Opinion and Consent of Counsel (CSVF)

10(b) Opinion and Consent of Counsel (CFSF)

10(c) Opinion and Consent of Counsel (TCF)

11(a) Consent of Independent Accountants (CIFfG, TCF, CFSF, CGEF,
CSBF, CIHF, CGUF and CSVF)

11(b) Consent of Independent Auditors (Hub of CGUF)

12 Not Applicable

13 Not Applicable

14(a) Form of Colonial Mutual Funds Money Purchase Pension and
Profit Sharing Plan Document and Trust Agreement
(incorporated herein by reference to Exhibit 14(a) to
Post-Effective Amendment No. 5 to the Registration Statement
of Colonial Trust VI, Registration Nos. 33-45117 and
811-6529, filed with the Commission on October 11, 1994)

14(b) Form of Colonial Mutual Funds Money Purchase Pension and
Profit Sharing Plan Establishment Booklet (incorporated
herein by reference to Exhibit 14(b) to Post-Effective
Amendment No. 5 to the Registration Statement of Colonial
Trust VI, Registration Nos. 33-45117 and 811-6529, filed
with the Commission on October 11, 1994)

14(c) Form of Colonial Mutual Funds Individual Retirement Account
and Application (incorporated herein by reference to Exhibit
14(c) to Post-Effective Amendment No. 5 to the Registration
Statement of Colonial Trust VI, Registration Nos. 33-45117
and 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.(v) to Post-Effective Amendment No. 27 to the
Registration Statement of Colonial Trust II, Registration
Nos. 2-66976 and 811-3009, filed with the Commission on
November 18, 1996)

14(f) Form of Colonial Mutual Funds 401(k) Plan Establishment
Booklet (incorporated herein by reference to Exhibit 14.(vi)
to Post-Effective Amendment No. 27 to the Registration
Statement of Colonial Trust II, Registration Nos. 2-66976
and 811-3009, filed with the Commission on November 18,
1996)

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 (CSVF)(12)

16(b) Calculation of Yield (CSVF)(12)

16(c) Calculation of Performance Information (CFSF)(12)

16(d) Calculation of Yield (CFSF)(12)

16(e) Calculation of Performance Information at (TCF)(12)

16(f) Calculation of Yield (TCF)(12)

16(g) Calculation of Performance Information (CGEF)(12)

16(h) Calculation of Yield (CGEF)(12)

16(i) Calculation of Performance Information (CIHF)(12)

16(j) Calculation of Yield (CIHF)(12)

16(k) Calculation of Performance Information (CSBF)(12)

16(l) Calculation of Yield (CSBF)(12)

16(m) Calculation of Performance Information (CIFFG)(12)

16(n) Calculation of Yield (CIFFG)(12)

16(o) Calculation of Performance Information (CGUF)(12)

17(a) Financial Data Schedule (Class A)(CFSF)

17(b) Financial Data Schedule (Class B)(CFSF)

17(c) Financial Data Schedule (Class A)(TCF)

17(d) Financial Data Schedule (Class B)(TCF)

17(e) Financial Data Schedule (Class Z)(TCF)

17(f) Financial Data Schedule (Class A)(CGEF)

17(g) Financial Data Schedule (Class B)(CGEF)

17(h) Financial Data Schedule (Class A)(CIHF)

17(i) Financial Data Schedule (Class B)(CIHF)

17(j) Financial Data Schedule (Class A)(CSBF)

17(k) Financial Data Schedule (Class B)(CSBF)

17(l) Financial Data Schedule (Class D)(CSBF)

17(m) Financial Data Schedule (Class A)(CIFFG)

17(n) Financial Data Schedule (Class B)(CIFFG)

17(o) Financial Data Schedule (Class D)(CIFFG)

17(p) Financial Data Schedule (Class A)(CSVF)

17(q) Financial Data Schedule (Class B)(CSVF)

17(r) Financial Data Schedule (Class A)(CGUF)

17(s) Financial Data Schedule (Class B)(CGUF)

17(t) Financial Data Schedule (Class D)(CGUF)

17(u) Financial Data Schedule (Hub of CGUF)

<PAGE>

18(a) Power of Attorney for: Robert J. Birnbaum, Tom Bleasdale,
Lora S. Collins, James E. Grinnell, William D. Ireland, Jr.,
Richard W. Lowry, William E. Mayer, James L. Moody, Jr.,
John J. Neuhauser, George L. Shinn, Robert L. Sullivan and
Sinclair Weeks, Jr.

18(b) Plan pursuant to Rule 18f-3(d) under the Investment Company
Act of 1940
- ---------------

Note all footnotes may not be applicable to this filing.

(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.

(12) Incorporated by reference to Post-Effective Amendment No. 96
to Form N-1A filed on or about February 28, 1996.

<PAGE>

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, 1997
-------------- ----------------------
<S> <C>
Shares of Beneficial Interest 17,603 - Class A record holders
17,238 - Class B record holders
(CSVF)

Shares of Beneficial Interest 48,017 - Class A record holders
3,810 - Class B record holders
0 - Class D record holders
(CFSF)

Shares of Beneficial Interest 46,337 - Class A record holders
40,932 - Class B record holders
0 - Class D record holders
3 - Class Z record holders
(TCF)

Shares of Beneficial Interest 5,160 - Class A record holders
2,611 - Class B record holders
(CIHF)

Shares of Beneficial Interest 2,313 - Class A record holders
7,774 - Class B record holders
(CGEF)

Shares of Beneficial Interest 2,398 - Class A record holders
6,991 - Class B record holders
363 - Class D record holders
(CSBF)

Shares of Beneficial Interest 4,118 - Class A record holders
9,497 - Class B record holders
118 - Class D record
holders(CIFfG)

Shares of Beneficial Interest 16,450 - Class A record holders
193 - Class B record holders
20 - Class D record holders
(CGUF)
</TABLE>

Item 27. Indemnification

See Article VIII of Amendment No. 3 to the Agreement and
Declaration of Trust filed as Exhibit 1 hereto.

<PAGE>

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 is a wholly owned subsidiary of SteinRoe Services Inc. (SSI), which is
a wholly owned subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which is a majority owned subsidiary of LFC Holdings, Inc., which
is a wholly owned subsidiary of Liberty Mutual Equity Corporation, which is a
wholly owned subsidiary of Liberty Mutual Insurance Companies. Stein Roe acts as
investment adviser to individuals, trustees, pension and profit-sharing plans,
charitable organizations, and other investors. In addition to Registrant, it
also acts as investment adviser to other investment companies having different
investment policies.

For a two-year business history of the directors and officers of the Manager,
please refer to the Form ADV of Stein Roe & Farnham Incorporated and to Item 16
of Part B of this Registration Statement.

Certain directors and officers of Stein Roe also serve and have during the past
two years served in various capacities as officers, directors or trustees of SSI
and the Registrant, or investment companies managed by Stein Roe, as shown
below. (The listed entities are all located at One South Wacker Drive, Chicago,
IL 60606; except for SteinRoe Variable Investment Trust which is located at
Federal Reserve Plaza, 600 Atlantic Avenue, Boston, MA 02110).

Position Formerly
Held Within Past
Current Position Two Years
---------------- -----------------
<S> <C> <C>
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
C. Allen Merritt, Jr. Director;

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
Michael T. Kennedy Vice President
Lynn C. Maddox Vice President
Jane M. Naeseth Vice President
Thomas P. Sorbo 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 Vice President
Ann H. Benjamin Vice President
Thomas W. Butch Vice President
Philip J. Crosley Vice President
Michael T. Kennedy Vice President
Steven P. Luetger Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Jane M. Naeseth Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice President

Stein Roe Investment Trust

Gary A. Anetsberger Sr. V.P. Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice President; Secretary
David P. Brady Vice President
Thomas W. Butch Vice President
Daniel K. Cantor Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Alfred F. Kugel Trustee
Eric S. Maddix Vice President
Lynn C. Maddox Vice President
Anne E. Marcel 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
Joanne T. Costopoulos Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
M. Jane McCart Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice President

<PAGE>

SteinRoe Variable
Investment Trust

Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President
Ann H. Benjamin 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

Stein Roe Adviser Trust

Gary A. Antesberger Senior Vice President
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice President; Secretary
Bruno Bertocci Vice President
David P. Brady Vice President
Thomas W. Butch Vice President
Daniel K. Cantor Vice President
Philip J. Crosley Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
David P. Harris Vice President
Harvey B. Hirschhorn Vice President
Eric S. Maddix Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Richard B. Peterson Vice President
Gloria J. Santella Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice President

Stein Roe Institutional Trust

Gary A. Antesberger Senior Vice President
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice President; Secretary
Ann H. Benjamin Vice President
Thomas W. Butch Vice President
Philip J. Crosley Vice President
Michael T. Kennedy Vice President
Steven P. Luetger Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Jane M. Naeseth Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice President
</TABLE>

<PAGE>

Item 28. Business and Other Connections of Investment Adviser

The following sets forth business and other connections of
each director and officer of Colonial Management
Associates, Inc. (see next page):

ITEM 28.
- --------

Registrant's investment adviser, Colonial Management Associates, Inc., is
registered as an investment adviser under the Investment Advisers Act of 1940
(1940 Act). Colonial Advisory Services, Inc. (CASI), an affiliate of Colonial
Management Associates, Inc., is also registered as an investment adviser under
the 1940 Act. As of the end of its fiscal year, December 31, 1995, CASI had
one institutional, corporate or other account 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 10/31/96. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ---------- -------------------------------- -----------

Andersen, Peter V.P.

Archer, Joseph A. V.P.

Babbitt, Debra V.P.

Berliant, Allan V.P.

Bertocci, Bruno V.P. Stein Roe Global Capital Mngmt. Principal

Boatman, Bonny E. Dir.; Colonial Advisory Services, Inc. Exec. V.P.
Sr.V.P.;
IPC Mbr.

Campbell, Kimberly V.P.

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.;
Chairman; CEO; Chrm.
CEO;IPC Mbr. Colonial Trusts I through VII Pres.
Exe. Cmte. Colonial High Income
Municipal Trust Pres.
Colonial InterMarket Income
Trust I Pres.
Colonial Intermediate High
Income Fund Pres.
Colonial Investment Grade
Municipal Trust Pres.
Colonial Municipal Income
Trust Pres.
Liberty Financial Exec V.P.;
Companies, Inc. Dir.
Colonial Advisory Services, Dir. Chrm.,
Inc.
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. Colonial Advisory Services, Compliance
IPC Mbr. Inc. Officer

Ericson, Carl C. Dir; Sr. Colonial Intermediate High
V.P. Income Fund V.P.
IPC Mbr. Colonial Advisory Services,
Inc. Exec. 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. Sr. V.P.

Feloney, Joseph L. V.P. Colonial Investment Services,
Inc. A.V.P.

Finnemore, V.P. Colonial Advisory Services,
Leslie W. Inc. Sr. V.P.

Franklin, Sr. V.P.
Fred J.

Gauger, Richard V.P.

Gerokoulis, V.P. Colonial Investment Services,
Stephen A. Inc. Sr. V.P.

Gibson, Stephen E. Dir.; The Colonial Group, Inc. Exec. V.P.
Exec. V.P.

Harasimowicz, V.P. Colonial Investment Services,
Stephen Inc. V.P.

Harris, David V.P. Stein Roe Global Capital Mngmt Principal

Hartford, Brian V.P.

Haynie, James P. V.P. Colonial Advisory Services,
Inc. Sr. V.P.

Hill, William V.P.

Jacoby, Timothy J. Sr. V.P. Colonial Trusts I through VII Treasr.,CFO
Colonial High Income
Municipal Trust Treasr.,CFO
Colonial InterMarket Income
Trust I Treasr.,CFO
Colonial Intermediate High
Income Fund Treasr.,CFO
Colonial Investment Grade
Municipal Trust Treasr.,CFO
Colonial Municipal Income
Trust Treasr.,CFO

Johnson, Gordon V.P.

Kimball, Erik 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.

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.

McGregor, Dir.; Colonial Investment Services, Pres.; CEO;
Jeffrey L. Sr.V.P. Inc. Dir.

Newman, Maureen V.P.

O'Neill, Charles A. Sr.V.P.; Colonial Investment Services,
Dir. Inc. Exec. V.P.

Peters, Helen F. Dir.; Colonial Advisory Services, Dir. Pres.,
Sr.V.P.; Inc. CEO
IPC Mbr.

Peterson, Ann T. V.P. Colonial Advisory Services,
Inc. V.P.

Rao, Gita V.P.

Reading, John V.P.

Rega, Michael V.P.

Rie, Daniel Sr.V.P.; Colonial Advisory Services,
IPC Mbr.; Inc. Exec. V.P.
Dir.

Scoon, Davey S. Dir.; Colonial Advisory Services,
Exe.V.P.; Inc. Dir.
IPC Mbr.; Colonial High Income
Exec. Comm. Municipal Trust V.P.
Mbr. 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.
Colonial Investment Services,
Inc. Director

Seibel, Sandra L. V.P.

Shore, Janet V.P.

Spanos, Gregory Sr. V.P.

Stern, Arthur O. Exe.V.P.; Colonial Advisory Services,
Dir.; Inc. Clerk, Dir.
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; General
Counsel
Colonial Investment Services, Dir., Chrmn.
Inc. Counsel; Clrk.

Stevens, Richard V.P. Colonial Advisory Services,
Inc. V.P.

Stoeckle, Mark V.P.

Waas, Robert S. V.P.

Wallace, John V.P.- Corp. Colonial Advisory Services,
Finance and Inc. Controller
Controller

Welsh, Stephen Treasurer The Colonial Group, Inc. Controller, Chf
Acctng. Officer
Asst. Treasurer
Colonial Investment Services,
Inc. Treasurer
Colonial Advisory Service,
Inc. Treasurer
Colonial Investors Service
Center, Inc. Controller

Wiley, Peter V.P.

- ------------------------------------------------
*The Principal address of all of the officers and directors of the investment
adviser is One Financial Center, Boston, MA 02111.

Item 29 Principal Underwriter
- ------- ---------------------

(a) Colonial Investment Services, Inc. a subsidiary of Colonial
Management Associates, Inc., Registrant's principal
underwriter, also acts in the same capacity to
Colonial Trust I, Colonial Trust II, Colonial
Trust IV, Colonial Trust V, Colonial Trust VI and Colonial Trust
VII; and 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
- ------------------ ------------------- --------------

Babbitt, Debra V.P. None

Ballou, Rich Regional V.P. None

Balzano, Christine R. V.P. None

Bartsokas, David Regional V.P. None

Cairns, David Regional V.P. None

Chrzanowski, Regional V.P. None
Daniel

Clapp, Elizabeth A. V.P. None

Crossfield, Andrew Regional V.P. None

Daniszewski, V.P. None
Joseph J.

Davey, Cynthia Sr. V.P. None

Desilets, Marian V.P. None

Donovan, John Regional V.P. None

Eckelman, Bryan 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

Gerokoulis, Sr. V.P. None
Stephen A.

Goldberg, Matthew Regional V.P. None

Harasimowicz, V.P. None
Stephen

Hodgkins, Joseph Regional V.P. None

Karagiannis, Sr. V.P. None
Marilyn

Kavolius, Mark Regional V.P. None

Kelley, Terry M. Regional V.P. None

Kelson, David W. Sr. V.P. None

Lloyd, Judith H. Sr. V.P. None

McGregor, Jeffrey L. Director, CEO, None
President

Meriwether, Jan V.P.

Moberly, Ann R. Sr. V.P. None

Murphy, Robert F. Sr. V.P. None

O'Neill, Charles A. Exec. V.P. None

Palmer, Laura V.P. None

Reed, Christopher B. Regional V.P. None

Scoon, Davey Director V.P.

Scott, Michael W. Sr. V.P. None

Sorrells, Sr. V.P. None
Elizabeth

Spanos, Gregory J. Sr. V.P. None

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

Welsh, Stephen Treasurer Asst. Treasurer

Wess, Valerie Regional V.P. None

- --------------------------
* The address for each individual is One Financial Center, Boston, MA
02111.

<PAGE>

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.

<PAGE>

NOTICE

A copy of the Agreement and Declaration of Trust, as amended, of Colonial Trust
III is on file with the Secretary of The Commonwealth of Massachusetts and
notice is hereby given that the instrument has been executed on behalf of the
Trust by an officer of the Trust as an officer and by the Trust's Trustees as
trustees and not individually and the obligations of or arising out of the
instrument are not binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and property of the Trust.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant 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. 97 to its
Registration Statement under the Securities Act of 1933 and the Post-Effective
Amendment No. 38 under the Investment Company Act of 1940, to be signed in this
City of Boston, and The Commonwealth of Massachusetts on this 10th day of
February, 1997.

COLONIAL TRUST III

By:HAROLD W. COGGER
--------------------
Harold W. Cogger
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. 97 to the Registration Statement on Form N-1A of Colonial Trust
III, insofar as it relates to the Colonial 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
10th day of February, 1997.

LFC UTILITIES TRUST

By: HAROLD W. COGGER
--------------------
Harold W. Cogger
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 for Colonial Global Utilities Fund, and
on the date indicated.

SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
HAROLD W. COGGER President (chief February 10, 1997
- -------------------- executive officer)
Harold W. Cogger

TIMOTHY J. JACOBY Treasurer (principal February 10, 1997
- -------------------- financial officer)
Timothy J. Jacoby

PETER L. LYDECKER Controller (principal February 10, 1997
- -------------------- accounting officer)
Peter L. Lydecker

<PAGE>

ROBERT J. BIRNBAUM*(1)
- --------------------- Trustee
Robert J. Birnbaum

TOM BLEASDALE*(1)
- --------------------- Trustee
Tom Bleasdale

LORA S. COLLINS*(1)
- --------------------- Trustee
Lora S. Collins

JAMES E. GRINNELL*(1)
- --------------------- Trustee
James E. Grinnell

WILLIAM D. IRELAND, JR. *(1)
- ----------------------- Trustee
William D. Ireland, Jr.

RICHARD W. LOWRY*(1)
- --------------------- Trustee
Richard W. Lowry

WILLIAM E. MAYER*(1)
- --------------------- Trustee
William E. Mayer

JAMES L. MOODY, JR. *(1)
- --------------------- Trustee *MICHAEL H. KOONCE
James L. Moody, Jr. ------------------
Michael H. Koonce
Attorney-in-fact
February 10, 1997
JOHN J. NEUHAUSER*(1)
- --------------------- Trustee
John J. Neuhauser

GEORGE L. SHINN*(1)
- --------------------- Trustee
George L. Shinn

ROBERT L. SULLIVAN*(1)
- --------------------- Trustee
Robert L. Sullivan

SINCLAIR WEEKS, JR. *(1)
- --------------------- Trustee
Sinclair Weeks, Jr.
</TABLE>

(1) A Trustee of each of Colonial Trust III and LFC Utilities Trust.

<PAGE>

EXHIBIT INDEX

Exhibit

1 Amendment No. 3 to the Agreement and Declaration of Trust

2 By-Laws

6(a) Form of Distributor's Contract with Colonial Investment
Services

9(a)(ii) Amendment No. 14 to Apendix I of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement as
amended with Colonial Investors Service Center, Inc.
(formerly Citadel Service Company, Inc.)

9(b)(i) Amendment to Appendix I of Pricing and Bookkeeping Agreement
(TCF, CFSF, CGEF, CSVF, CIHF, CIFfG and CSBF)

9(b)(ii) Pricing and Bookkeeping Agreement with Colonial Management
Associates, Inc. (CGUF)

9(d) Form of proposed Agreement and Plan of Reorganization (TCF)

9(e) Form of Agreement and Plan of Reorganization (TCF, CFSF and
CSVF)

9(f) Form of Colonial Asset Builder Account Application (TCF,
CSVF)

9(g) Form of Administration Agreement with Colonial Management
Associates, Inc. (CGUF)

10(a) Opinion and Consent of Counsel (CSVF)

10(b) Opinion and Consent of Counsel (CFSF)

10(c) Opinion and Consent of Counsel (TCF)

11(a) Consent of Independent Accountants (CIFfG, TCF, CFSF, CGEF,
CSBF, CIHF, CGUF and CSVF)

11(b) Consent of Independent Auditors (Hub of CGUF)

17(a) Financial Data Schedule (Class A)(CFSF)

17(b) Financial Data Schedule (Class B)(CFSF)

17(c) Financial Data Schedule (Class A)(TCF)

17(d) Financial Data Schedule (Class B)(TCF)

17(e) Financial Data Schedule (Class Z)(TCF)

17(f) Financial Data Schedule (Class A)(CGEF)

17(g) Financial Data Schedule (Class B)(CGEF)

17(h) Financial Data Schedule (Class A)(CIHF)

17(i) Financial Data Schedule (Class B)(CIHF)

17(j) Financial Data Schedule (Class A)(CSBF)

17(k) Financial Data Schedule (Class B)(CSBF)

17(l) Financial Data Schedule (Class D)(CSBF)

17(m) Financial Data Schedule (Class A)(CIFfG)

17(n) Financial Data Schedule (Class B)(CIFfG)

17(o) Financial Data Schedule (Class D)(CIFfG)

17(p) Financial Data Schedule(Class A)(CSVF)

17(q) Financial Data Schedule(Class B)(CSVF)

17(r) Financial Data Schedule (Class A)(CGUF)

17(s) Financial Data Schedule (Class B)(CGUF)

17(t) Financial Data Schedule (Class D)(CGUF)

17(u) Financial Data Schedule (Hub of CGUF)

18(a) Power of Attorney for: Robert J. Birnbaum, Tom Bleasdale,
Lora S. Collins, James E. Grinnell, William D. Ireland, Jr.,
Richard W. Lowry, William E. Mayer, James L. Moody, Jr., John
J. Neuhauser, George L. Shinn, Robert L. Sullivan and
Sinclair Weeks, Jr.

18(b) Plan pursuant to Rule 18f-3(d) under the Investment Company
Act of 1940

<PAGE>

ADMINISTRATION AGREEMENT

AGREEMENT dated as of March 13, 1995, between COLONIAL TRUST III, a
Massachusetts business trust (the "Trust"), with respect to Colonial Global
Utilities Fund (the "Fund"), and COLONIAL MANAGEMENT ASSOCIATES, INC., a
Massachusetts corporation (the "Administrator").

In consideration of the promises and covenants herein, the parties agree as
follows:

1. Subject to the general direction and control of the Board of Trustees of
the Trust, the Administrator shall perform such administrative services as
may from time to time be reasonably requested by the Trust, which shall
include without limitation: (a) providing office space, equipment and
clerical personnel necessary for maintaining the organization of the Fund
and for performing the administrative functions herein set forth; (b)
arranging, if desired by the Trust, for Directors, officers and employees
of the Administrator to serve as Trustees, officers or agents of the Fund
if duly elected or appointed to such positions and subject to their
individual consent and to any limitations imposed by law; (c) preparing
and, if applicable, filing all documents required for compliance by the
Fund with applicable laws and regulations, including registration
statements, registration fee filings, semi-annual and annual reports to
shareholders, proxy statements and tax returns; (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 the Fund's other third-party service providers; and (f)
maintaining books and records of the Fund (exclusive of records required by
Section 31(a) of the 1940 Act). Notwithstanding the foregoing, the
Administrator shall not be deemed to have assumed or have any
responsibility with respect to functions specifically assumed by any
transfer agent or custodian of the Fund.

2. The Administrator shall be free to render similar services to others so
long as its services hereunder are not impaired thereby.

3. The Fund shall pay the Administrator monthly a fee at the annual rate of
0.10% of the average daily net assets of the Fund.

4. This Agreement shall become effective as of the date of its execution, and
may be terminated without penalty by the Board of Trustees of the Trust or
by the Administrator, in each case on sixty days' written notice to the
other party.

5. This Agreement may be amended only by a writing signed by both parties.

6. In the absence of willful misfeasance, bad faith or gross negligence on the
part of the Administrator, or reckless disregard of its obligations and
duties hereunder, the Administrator shall not be subject to any liability
to the Trust or 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 Colonial Global Utilities Fund

By: _____________________________
Title:

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.

AMENDMENT NO. 3 TO THE

AGREEMENT AND DECLARATION OF TRUST

OF COLONIAL TRUST III

AGREEMENT AND DECLARATION OF TRUST made at Boston,
Massachusetts, this 15th day of November, 1991 by the Trustees
hereunder, and by the holders of shares of beneficial interest to
be issued hereunder as hereinafter provided.

WITNESSETH that

WHEREAS, this Trust has been formed to carry on the business
of an investment company; and

WHEREAS, the Trustees have agreed to manage all property
coming into their hands as trustees of a Massachusetts business
trust in accordance with the provisions hereinafter set forth.

NOW, THEREFORE, the Trustees hereby declare that they will
hold all cash, securities and other assets, which they may from
time to time acquire in any manner as Trustees hereunder, IN
TRUST to manage and dispose of the same upon the following terms
and conditions for the pro rata benefit of the holders from time
to time of Shares in this Trust as hereinafter set forth.

ARTICLE I

NAME AND DEFINITIONS

Name

Section 1. This Trust shall be known as Colonial Trust III
and the Trustees shall conduct the business of the Trust under
that name or any other name as they may from time to time
determine.

Definitions

Section 2. Whenever used herein, unless otherwise required
by the context or specifically provided:

(a) The "Trust" refers to the Massachusetts business
trust established by this Agreement and Declaration of
Trust, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust
named herein or elected in accordance with Article IV;

(c) "Shares" means the equal proportionate
transferable units of interest into which the beneficial
interest in the Trust shall be divided from time to time or,
if more than one series of Shares is authorized by the
Trustees, the equal proportionate units into which each
series of Shares shall be divided from time to time or, if
more than one class of Shares of any series is authorized by
the Trustees, the equal proportionate units into which each
class of such series of Shares shall be divided from time to
time;

(d) "Shareholder" means a record owner of Shares;

(e) The "1940 Act" refers to the Investment Company
Act of 1940 and the Rules and Regulations thereunder, all as
amended from time to time;

(f) The terms "Affiliated Person," "Assignment,"
"Commission," "Interested Person," "Principal Underwriter"
and "Majority Shareholder Vote" (the 67% or 50% requirement
of the third sentence of Section 2(a)(42) of the 1940 Act,
whichever may be applicable) shall have the meanings given
them in the 1940 Act;

(g) "Declaration of Trust" shall mean this Agreement
and Declaration of Trust as amended or restated from time to
time; and

(h) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time.

ARTICLE II

PURPOSE

The purpose of the Trust is to provide investors a managed
investment primarily in securities, commodities and debt
instruments.

ARTICLE III

Division of Beneficial Interest

Section 1. The Shares of the Trust shall be issued in one
or more series as the Trustees may, without Shareholder approval,
authorize. The Trustees may, without Shareholder approval,
divide the Shares of any series into two or more classes, Shares
of each such class having such preferences or special or relative
rights or privileges (including conversion rights, if any) as the
Trustees may determine and as are not inconsistent with any
provision of this Declaration of Trust. Each series shall be
preferred over all other series in respect of the assets
allocated to that series. The beneficial interest in each series
shall at all times be divided into Shares, without par value,
each of which shall, except as the Trustees may otherwise
authorize in the case of any series that is divided into two or
more classes, represent an equal proportionate interest in the
series with each other Share of the same series, none having
priority or preference over another. The number of Shares
authorized shall be unlimited, and the Shares so authorized may
be represented in part by fractional shares. The Trustees may
from time to time divide or combine the Shares of any series or
class into a greater or lesser number without thereby changing
the proportionate beneficial interests in the series or class.

Ownership of Shares

Section 2. The ownership of Shares shall be recorded on the
books of the Trust or its transfer or similar agent. No
certificates certifying the ownership of Shares shall be issued
except as the Trustees may otherwise determine from time to time.
The Trustees may make such rules as they consider appropriate for
the issuance of Share certificates, the transfer of Shares and
similar matters. The record books of the Trust as kept by the
Trust or any transfer or similar agent of the Trust, as the case
may be, shall be conclusive as to who are the Shareholders of
each series and class and as to the number of Shares of each
series and class held from time to time by each Shareholder.

Investments in the Trust; Assets of the Series

Section 3. The Trustees shall accept investments in the
Trust from such persons and on such terms and, subject to any
requirements of law, for such consideration, which may consist of
cash or tangible or intangible property or a combination thereof,
as they from time to time authorize.

All consideration received by the Trust for the issue or
sale of Shares of each series, together with all income,
earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, and any
funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to the
series of Shares with respect to which the same were received by
the Trust for all purposes, subject only to the rights of
creditors, and shall be so handled upon the books of account of
the Trust and are herein referred to as "assets of" such series.

No Preemptive Rights

Section 4. Shareholders shall have no preemptive or other
right to receive, purchase or subscribe for any additional Shares
or other securities issued by the Trust.

Status of Shares and Limitation of Personal Liability

Section 5. Shares shall be deemed to be personal property
giving only the rights provided in this instrument. Every
Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof
and to have become a party hereto. The death of a Shareholder
during the continuance of the Trust shall not operate to
terminate the same nor entitle the representative of any deceased
Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust. Ownership of Shares
shall not entitle the Shareholder to any title in or to the whole
or any part of the Trust property or right to call for a
partition or division of the same or for an accounting, nor shall
the ownership of Shares constitute the Shareholders partners.
Neither the Trust nor the Trustees, nor any officer, employee or
agent of the Trust, shall have any power to bind personally any
Shareholder, nor except as specifically provided herein to call
upon any Shareholder for the payment of any sum of money or
assessment whatsoever other than such as the Shareholder may at
any time personally agree to pay.

ARTICLE IV

THE TRUSTEES

Election

Section 1. The number of Trustees shall be fixed by the
Trustees, except that, subsequent to any sale of Shares pursuant
to a public offering, there shall be not less than three
Trustees. Any vacancies occurring in the Board of Trustees may
be filled by the Trustees if, immediately after filling any such
vacancy, at least two-thirds of the Trustees then holding office
shall have been elected to such office by the Shareholders. In
the event that at any time less than a majority of the Trustees
then holding office were elected to such office by the
Shareholders, the Trustees shall call a meeting of Shareholders
for the purpose of electing Trustees. Each Trustee elected by
the Shareholders or by the Trustees shall serve until the next
meeting of Shareholders called for the purpose of electing
Trustees and until the election and qualification of his or her
successor, or until he or she sooner dies, resigns or is removed.
The initial Trustees, each of whom shall serve until the first
meeting of Shareholders at which Trustees are elected and until
his or her successor is elected and qualified, or until he or she
sooner dies, resigns or is removed, shall be John A. McNeice, Jr.
and such other persons as the Trustee or Trustees then in office
shall, prior to any sale of Shares pursuant to a public offering,
appoint. By vote of a majority of the Trustees then in office,
the Trustees may remove a Trustee with or without cause. At any
meeting called for the purpose, a Trustee may be removed, with or
without cause, by vote of the holders of two-thirds of the
outstanding Shares.

Effect of Death, Resignation, etc. of a Trustee

Section 2. The death, declination, resignation, retirement,
removal or incapacity of the Trustees, or any one of them, shall
not operate to annul the Trust or to revoke any existing agency
created pursuant to the terms of this Declaration of Trust.

Powers

Section 3. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient
to carry out that responsibility. Without limiting the
foregoing, the Trustees may adopt By-Laws not inconsistent with
this Declaration of Trust providing for the conduct of the
business of the Trust and may amend and repeal them to the extent
that such By-Laws do not reserve that right to the Shareholders;
they may fill vacancies in their number, including vacancies
resulting from increases in their number, and may elect and
remove such officers and appoint and terminate such agents as
they consider appropriate; they may appoint from their own
number, and terminate, any one or more committees consisting of
two or more Trustees, including an executive committee which may,
when the Trustees are not in session, exercise some or all of the
power and authority of the Trustees as the Trustees may
determine; they may appoint an advisory board, the members of
which shall not be Trustees and need not be Shareholders; they
may employ one or more custodians of the assets of the Trust and
may authorize such custodians to employ subcustodians and to
deposit all or any part of such assets in a system or systems for
the central handling of securities, retain a transfer agent or a
Shareholder services agent, or both, provide for the distribution
of Shares by the Trust, through one or more principal
underwriters or otherwise, set record dates for the determination
of Shareholders with respect to various matters, and in general
delegate such authority as they consider desirable to any officer
of the Trust, to any committee of the Trustees and to any agent
or employee of the Trust or to any such custodian or underwriter.

Without limiting the foregoing, the Trustees shall have
power and authority:

(a) To invest and reinvest cash, and to hold cash
uninvested;

(b) To sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the
assets of the Trust;

(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or
property; and to execute and deliver proxies or powers of
attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power
and discretion with relation to securities or property as
the Trustees shall deem proper;

(d) To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of
securities;

(e) To hold any security or property in a form not
indicating any trust, whether in bearer, unregistered or
other negotiable form, or in the name of the Trustees or of
the Trust or in the name of a custodian, subcustodian or
other depository or a nominee or nominees or otherwise;

(f) Subject to the provisions of Article III, Section
3, to allocate assets, liabilities and expenses of the Trust
to a particular series of Shares or to apportion the same
among two or more series, provided that any liabilities or
expenses incurred by a particular series of Shares shall be
payable solely out of the assets of that series; and to the
extent necessary or appropriate to give effect to the
preferences and special or relative rights and privileges of
any classes of Shares, to allocate assets, liabilities,
income and expenses of a series to a particular class of
Shares of that series or to apportion the same among two or
more classes of Shares of that series;

(g) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation
or issuer, any security of which is or was held in the
Trust; to consent to any contract, lease, mortgage, purchase
or sale of property by such corporation or issuer, and to
pay calls or subscriptions with respect to any security held
in the Trust;

(h) To join with other security holders in acting
through a committee, depositary, voting trustee or
otherwise, and in that connection to deposit any security
with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power
and authority with relation to any security (whether or not
so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the
expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;

(i) To compromise, arbitrate or otherwise adjust
claims in favor of or against the Trust on any matter in
controversy, including but not limited to claims for taxes;

(j) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;

(k) To borrow funds;

(l) To endorse or guarantee the payment of any notes
or other obligations of any person; to make contracts of
guaranty or suretyship, or otherwise assume liability for
payment thereof; and to mortgage and pledge the Trust
property or any part thereof to secure any of or all of such
obligations;
(m) To purchase and pay for entirely out of Trust
property such insurance as they may deem necessary or
appropriate for the conduct of the business, including,
without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on
its portfolio investments, and insurance policies insuring
the Shareholders, Trustees, officers, employees, agents,
investment advisers or managers, principal underwriters or
independent contractors of the Trust individually against
all claims and liabilities of every nature arising by reason
of holding, being or having held any such office or
position, or by reason of any action alleged to have been
taken or omitted by any such person as Shareholder, Trustee,
officer, employee, agent, investment adviser or manager,
principal underwriter or independent contractor, including
any action taken or omitted that may be determined to
constitute negligence, whether or not the Trust would have
the power to indemnify such person against such liability;
and

(n) To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and
carry out pension, profit-sharing, share bonus, share
purchase, savings, thrift and other retirement, incentive
and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a
means of providing such retirement and other benefits, for
any or all of the Trustees, officers, employees and agents
of the Trust.

The Trustees shall not in any way be bound or limited by any
present or future law or custom in regard to investments by
Trustees. Except as otherwise provided herein or from time to
time in the By-Laws, any action to be taken by the Trustees may
be taken by a majority of the Trustees present at a meeting of
the Trustees (a quorum being present), within or without
Massachusetts, including any meeting held by means of a
conference telephone or other communications equipment by means
of which all persons participating in the meeting can hear each
other at the same time, and participation by such means shall
constitute presence in person at a meeting, or by written
consents of a majority of the Trustees then in office.

Payment of Expenses by Trust

Section 4. The Trustees are authorized to pay or to cause
to be paid out of the principal or income of the Trust, or partly
out of principal and partly out of income, as they deem fair, all
expenses, fees, charges, taxes and liabilities incurred or
arising in connection with the Trust, or in connection with the
management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of
the Trust's officers, employees, investment adviser or manager,
principal underwriter, auditor, counsel, custodian, transfer
agent, Shareholder services agent and such other agents or
independent contractors, and such other expenses and charges, as
the Trustees may deem necessary or proper to incur, provided,
however, that all expenses, fees, charges, taxes and liabilities
incurred or arising in connection with a particular series of
Shares, as determined by the Trustees, shall be payable solely
out of the assets of that series.
Ownership of Assets of the Trust

Section 5. Title to all of the assets of each series of
Shares and of the Trust shall at all times be considered as
vested in the Trustees.

Advisory, Management and Distribution

Section 6. Subject to a favorable Majority Shareholder
Vote, the Trustees may, at any time and from time to time,
contract for exclusive or nonexclusive advisory and/or management
services with Colonial Management Associates, Inc., a
Massachusetts corporation, or any other corporation, trust,
association or other organization (the "Adviser"), every such
contract to comply with such requirements and restrictions as may
be set forth in the By-Laws; and any such contract may contain
such other terms interpretive of or in addition to said
requirements and restrictions as the Trustees may determine,
including, without limitation, authority to determine from time
to time what investments shall be purchased, held, sold or
exchanged and what portion, if any, of the assets of the Trust
shall be held uninvested, and to make changes in the Trust's
investments. The Trustees may also, at any time and from time to
time, contract with the Adviser or any other corporation, trust,
association or other organization, appointing it exclusive or
nonexclusive distributor or principal underwriter for the Shares,
every such contract to comply with such requirements and
restrictions as may be set forth in the By-Laws; and any such
contract may contain such other terms interpretive of or in
addition to said requirements and restrictions as the Trustees
may determine.

The fact that:

(i) any of the Shareholders, Trustees or officers of
the Trust is a shareholder, director, officer, partner,
trustee, employee, manager, adviser, principal underwriter
or distributor or agent of or for any corporation, trust,
association or other organization, or of or for any parent
or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or
distributor's contract, or transfer, shareholder services or
other agency contract may have been or may hereafter be
made, or that any organization, or any parent or affiliate
thereof, is a Shareholder or has an interest in the Trust,
or that

(ii) any corporation, trust, association or other
organization with which an advisory or management contract
or principal underwriter's or distributor's contract, or
transfer, Shareholder services or other agency contract may
have been or may hereafter be made also has an advisory or
management contract, or principal underwriter's or
distributor's contract, or transfer, shareholder services or
other agency contract with one or more other corporations,
trusts, associations or other organizations, or has other
business or interests

shall not affect the validity of any such contract or disqualify
any Shareholder, Trustee or officer of the Trust from voting upon
or executing the same or create any liability or accountability
to the Trust or its Shareholders.

ARTICLE V

SHAREHOLDERS' VOTING POWERS AND MEETINGS

Voting Powers

Section 1. The Shareholders shall have power to vote only
(i) for the election of Trustees as provided in Article IV,
Section 1, (ii) with respect to any Adviser as provided in
Article IV, Section 6, (iii) with respect to any termination of
this Trust to the extent and as provided in Article IX, Section
4, (iv) with respect to any amendment of this Declaration of
Trust to the extent and as provided in Article IX, Section 7, (v)
to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action,
proceeding or claim should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the
Shareholders, and (vi) with respect to such additional matters
relating to the Trust as may be required by law, this Declaration
of Trust, the By-Laws or any registration of the Trust with the
Securities and Exchange Commission (or any successor agency) or
any state, or as the Trustees may consider necessary or
desirable. Each whole Share shall be entitled to one vote as to
any matter on which it is entitled to vote and each fractional
Share shall be entitled to a proportionate fractional vote.
Notwithstanding any other provision of this Declaration of Trust,
on any matter submitted to a vote of Shareholders, all Shares of
the Trust then entitled to vote shall be voted in the aggregate
as a single class without regard to series or class; except (1)
when required by the 1940 Act or when the Trustees shall have
determined that the matter affects one or more series or classes
materially differently, Shares shall be voted by individual
series or class; and (2) when the Trustees have determined that
the matter affects only the interests of one or more series or
classes, then only Shareholders of such series or classes shall
be entitled to vote thereon. There shall be no cumulative voting
in the election of Trustees. Shares may be voted in person or by
proxy. A proxy with respect to Shares held in the name of two or
more persons shall be valid if executed by any one of them unless
at or prior to exercise of the proxy the Trust receives a
specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its
exercise and the burden of proving invalidity shall rest on the
challenger. Until Shares are issued, the Trustees may exercise
all rights of Shareholders and may take any action required by
law, this Declaration of Trust or the By-Laws to be taken by
Shareholders.

Voting Power and Meetings

Section 2. Meetings of Shareholders of the Trust or of any
series or class may be called by the Trustees or such other
person or persons as may be specified in the By-Laws and held
from time to time for the purpose of taking action upon any
matter requiring the vote or the authority of the Shareholders of
the Trust or any series or class as herein provided or upon any
other matter deemed by the Trustees to be necessary or desirable.
Meetings of Shareholders of the Trust or of any series or class
shall be called by the Trustees or such other person or persons
as may be specified in the By-Laws upon written application. The
Shareholders shall be entitled to at least seven days' written
notice of any meeting of the Shareholders.

Quorum and Required Vote

Section 3. Thirty per cent (30%) of the Shares entitled to
vote shall be a quorum for the transaction of business at a
Shareholders' meeting, except that where any provision of law or
of this Declaration of Trust permits or requires that holders of
any series or class shall vote as a series or class, then thirty
percent (30%) of the aggregate number of Shares of that series or
class entitled to vote shall be necessary to constitute a quorum
for the transaction of business by that series or class. Any
lesser number, however, shall be sufficient for adjournments.
Any adjourned session or sessions may be held within a reasonable
time after the date set for the original meeting without the
necessity of further notice. Except when a larger vote is
required by any provision of this Declaration of Trust or the By-
Laws, a majority of the Shares voted shall decide any questions
and a plurality shall elect a Trustee, provided that where any
provision of law or of this Declaration of Trust permits or
requires that the holders of any series or class shall vote as a
series or class, then a majority of the Shares of that series or
class voted on the matter (or a plurality with respect to the
election of a Trustee) shall decide that matter insofar as that
series or class is concerned.

Action by Written Consent

Section 4. Any action taken by Shareholders may be taken
without a meeting if a majority of Shareholders entitled to vote
on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust or
the By-Laws) consent to the action in writing and such written
consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.

Additional Provisions

Section 5. The By-Laws may include further provisions for
Shareholders' votes and meetings and related matters.

ARTICLE VI

DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES,
AND DETERMINATION OF NET ASSET VALUE

Distributions

Section 1. The Trustees may, but need not, each year
distribute to the Shareholders of each series or class such
income and gains, accrued or realized, as the Trustees may
determine, after providing for actual and accrued expenses and
liabilities (including such reserves as the Trustees may
establish) determined in accordance with good accounting
practices. The Trustees shall have full discretion to determine
which items shall be treated as income and which items as capital
and their determination shall be binding upon the Shareholders.
Distributions of each year's income of each series, if any be
made, may be made in one or more payments, which shall be in
Shares, in cash or otherwise and on a date or dates and as of a
record date or dates determined by the Trustees. At any time and
from time to time in their discretion, the Trustees may
distribute to the Shareholders of any one or more series or
classes as of a record date or dates determined by the Trustees,
in Shares, in cash or otherwise, all or part of any gains
realized on the sale or disposition of property of the series or
otherwise, or all or part of any other principal of the Trust
attributable to the series. In the case of any series not
divided into two or more classes of Shares, each distribution
pursuant to this Section 1 shall be made ratably according to the
number of Shares of the series held by the several Shareholders
on the applicable record date thereof, provided that no
distribution need be made on Shares purchased pursuant to orders
received, or for which payment is made, after such time or times
as the Trustees may determine. In the case of any series divided
into two or more classes, each distribution pursuant to this
Section 1 may be made in whole or in such parts as the Trustees
may determine to the Shareholders of any one or more classes, and
the distribution to the Shareholders of any class shall be made
ratably according to the number of Shares of the class (but need
not be made ratably according to the number of Shares of the
series, considered without regard to class) held by the several
Shareholders on the record date thereof, provided that no
distribution need be made on Shares purchased pursuant to orders
received, or for which payment is made, after such time or times
as the Trustees may determine. Any such distribution paid in
Shares will be paid at the net asset value thereof as determined
in accordance with Section 7 of this Article VI.

Redemptions and Repurchases

Section 2. Any holder of Shares of the Trust may by
presentation of a written request, together with his or her
certificates, if any, for such Shares, in proper form for
transfer, at the office of the Trust or at a principal office of
a transfer agent appointed by the Trust, redeem his or her Shares
for the net asset value thereof determined and computed in
accordance with the provisions of this Section 2 and the
provisions of Section 7 of this Article VI.

Upon receipt by the Trust or its transfer agent of such
written request for redemption of Shares, such Shares shall be
redeemed at the net asset value per share of the appropriate
series next determined after such Shares are tendered in proper
order for transfer to the Trust or determined as of such other
time fixed by the Trustees as may be permitted or required by the
1940 Act, provided that no such tender shall be required in the
case of Shares for which a certificate or certificates have not
been issued, and in such case such Shares shall be redeemed at
the net asset value per share of the appropriate series next
determined after such request has been received or determined at
such other time fixed by the Trustees as may be permitted or
required by the 1940 Act.

The obligation of the Trust to redeem its Shares of each
series or class as set forth above in this Section 2 shall be
subject to the conditions that during any time of emergency, as
hereinafter defined, such obligation may be suspended by the
Trust by or under authority of the Trustees for such period or
periods during such time of emergency as shall be determined by
or under authority of the Trustees. If there is such a
suspension, any Shareholder may withdraw any demand for
redemption and any tender of Shares which has been received by
the Trust during any such period and any tender of Shares, the
applicable net asset value of which would but for such suspension
be calculated as of a time during such period. Upon such
withdrawal, the Trust shall return to the Shareholder the
certificates therefor, if any. For the purposes of any such
suspension, "time of emergency" shall mean, either with respect
to all Shares or any series of Shares, any period during which:

a. the New York Stock Exchange is closed other than
for customary weekend and holiday closings; or

b. the Trustees or authorized officers of the Trust
shall have determined, in compliance with any applicable
rules and regulations of the Securities and Exchange
Commission, either that trading on the New York Stock
Exchange is restricted, or that an emergency exists as a
result of which (i) disposal by the Trust of securities
owned by it is not reasonably practicable or (ii) it is not
reasonably practicable for the Trust fairly to determine the
current value of its net assets; or

c. the suspension or postponement of such obligations
is permitted by order of the Securities and Exchange
Commission.

The Trust may also purchase, repurchase or redeem Shares in
accordance with such other methods, upon such other terms and
subject to such other conditions as the Trustees may from time to
time authorize at a price not exceeding the net asset value of
such Shares in effect when the purchase or repurchase or any
contract to purchase or repurchase is made.

Payment in Kind

Section 3. Subject to any generally applicable limitation
imposed by the Trustees, any payment on redemption of Shares may,
if authorized by the Trustees, be made wholly or partly in kind,
instead of in cash. Such payment in kind shall be made by
distributing securities or other property constituting, in the
opinion of the Trustees, a fair representation of the various
types of securities and other property then held by the series of
Shares being redeemed (but not necessarily involving a portion of
each of the series' holdings) and taken at their value used in
determining the net asset value of the Shares in respect of which
payment is made.

Redemptions at the Option of the Trust

Section 4. The Trust shall have the right at its option and
at any time to redeem Shares of any Shareholder at the net asset
value thereof as determined in accordance with Section 7 of
Article VI of this Declaration of Trust: (i) if at such time
such Shareholder owns fewer Shares than, or Shares having an
aggregate net asset value of less than, an amount determined from
time to time by the Trustees; or (ii) to the extent that such
Shareholder owns Shares of a particular series of Shares equal to
or in excess of a percentage of the outstanding Shares of that
series (determined without regard to class) determined from time
to time by the Trustees; or (iii) to the extent that such
Shareholder owns Shares of the Trust representing a percentage
equal to or in excess of such percentage of the aggregate number
of outstanding Shares of the Trust or the aggregate net asset
value of the Trust determined from time to time by the Trustees.

Dividends, Distributions, Redemptions and Repurchases

Section 5. No dividend or distribution (including, without
limitation, any distribution paid upon termination of the Trust
or of any series) with respect to, nor any redemption or
repurchase of, the Shares of any series (or of any class) shall
be effected by the Trust other than from the assets of such
series (or of the series of which such class is a part).

Additional Provisions Relating to Redemptions and Repurchases

Section 6. The completion of redemption of Shares shall
constitute a full discharge of the Trust and the Trustees with
respect to such shares, and the Trustees may require that any
certificate or certificates issued by the Trust to evidence the
ownership of such Shares shall be surrendered to the Trustees for
cancellation or notation.

Determination of Net Asset Value

Section 7. The term "net asset value" of the Shares of each
series or class shall mean: (i) the value of all the assets of
such series or class; (ii) less the total liabilities of such
series or class; (iii) divided by the number of Shares of such
series or class outstanding, in each case at the time of each
determination. The "number of Shares of such series or class
outstanding" for the purposes of such computation shall be
exclusive of any Shares of such series or class to be redeemed
and not then redeemed as to which the redemption price has been
determined, but shall include Shares of such series or class
presented for repurchase and not then repurchased and Shares of
such series or class to be redeemed and not then redeemed as to
which the redemption price has not been determined and Shares of
such series or class the sale of which has been confirmed. Any
fractions involved in the computation of net asset value per
share shall be adjusted to the nearer cent unless the Trustees
shall determine to adjust such fractions to a fraction of a cent.

The Trustees, or any officer or officers or agent of this
Trust designated for the purpose by the Trustees, shall determine
the net asset value of the Shares of each series or class, and
the Trustees shall fix the times as of which the net asset value
of the Shares of each series or class shall be determined and
shall fix the periods during which any such net asset value shall
be effective as to sales, redemptions and repurchases of, and
other transactions in, the Shares of such series or class, except
as such times and periods for any such transaction may be fixed
by other provisions of this Declaration of Trust or by the By-
Laws.

In valuing the portfolio investments of any series or class
for determination of net asset value per share of such series or
class, securities for which market quotations are readily
available shall be valued at prices which, in the opinion of the
Trustees, or any officer or officers or agent of the Trust
designated for the purpose by the Trustees, most nearly represent
the market value of such securities, which may, but need not, be
the most recent bid price obtained from one or more of the market
makers for such securities; other securities and assets shall be
valued at fair value as determined by or pursuant to the
direction of the Trustees. Notwithstanding the foregoing, short-
term debt obligations, commercial paper and repurchase agreements
may be, but need not be, valued on the basis of quoted yields for
securities of comparable maturity, quality and type, or on the
basis of amortized cost. In determination of net asset value of
any series or class, dividends receivable and accounts receivable
for investments sold and for Shares sold shall be stated at the
amounts to be received therefor; and income receivable accrued
daily on bonds and notes owned shall be stated at the amount to
be received. Any other assets shall be stated at fair value as
determined by the Trustees or such officer, officers or agent
pursuant to the Trustees' authority, except that no value shall
be assigned to good will, furniture, lists, reports, statistics
or other noncurrent assets other than real estate. Liabilities
of any series or class for accounts payable for investments
purchased and for Shares tendered for redemption and not then
redeemed as to which the redemption price has been determined
shall be stated at the amounts payable therefor. In determining
the net asset value of any series or class, the person or persons
making such determination on behalf of the Trust may include in
liabilities such reserves, estimated accrued expenses and
contingencies as such person or persons may in its, his or their
best judgment deem fair and reasonable under the circumstances.
Any income dividends and gains distributions payable by the Trust
shall be deducted as of such time or times on the record date
therefor as the Trustees shall determine.

The manner of determining the net assets of any series or
class or of determining the net asset value of the Shares of any
series or class may from time to time be altered as necessary or
desirable in the judgment of the Trustees to conform to any other
method prescribed or permitted by any applicable law or
regulation.

Determinations under this Section 7 made in good faith and
in accordance with the provisions of the 1940 Act shall be
binding on all parties concerned.

ARTICLE VII

COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES

Compensation

Section 1. The Trustees as such shall be entitled to
reasonable compensation from the Trust; they may fix the amount
of their compensation. Nothing herein shall in any way prevent
the employment of any Trustee for advisory, management, legal,
accounting, investment banking or other services and payment for
the same by the Trust.

Limitation of Liability

Section 2. The Trustees shall not be responsible or liable
in any event for any neglect or wrongdoing of any officer, agent,
employee, adviser or principal underwriter of the Trust, nor
shall any Trustee be responsible for the act or omission of any
other Trustee, but nothing herein contained shall protect any
Trustee against any liability to which he or she would otherwise
be subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his or her office.

Every note, bond, contract, instrument, certificate, Share
or undertaking and every other act or thing whatsoever executed
or done by or on behalf of the Trust or the Trustees or any of
them in connection with the Trust shall be conclusively deemed to
have been executed or done only in or with respect to their or
his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.

ARTICLE VIII

INDEMNIFICATION

Trustees, Officers, etc.
Section 1. The Trust shall indemnify each of its Trustees
and officers (including persons who serve at the Trust's request
as directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or
otherwise) (hereinafter referred to as a "Covered Person")
against all liabilities and expenses, including but not limited
to amounts paid in satisfaction of judgments, in compromise or as
fines and penalties, and counsel fees reasonably incurred by any
Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which
such Covered Person may be or may have been involved as a party
or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or
having been such a Trustee or officer, except that no Covered
Person shall be indemnified against any liability to the Trust or
its Shareholders to which such Covered Person would otherwise be
subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office. Expenses, including
counsel fees so incurred by any such Covered Person (but
excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to
time by the Trust in advance of the final disposition of any such
action, suit or proceeding upon receipt of an undertaking by or
on behalf of such Covered Person to repay amounts so paid to the
Trust if it is ultimately determined that indemnification of such
expenses is not authorized under this Article, provided that (a)
such Covered Person shall provide security for his undertaking,
(b) the Trust shall be insured against losses arising by reason
of such Covered Person's failure to fulfill his undertaking or
(c) a majority of the Trustees who are disinterested persons and
who are not Interested Persons (provided that a majority of such
Trustees then in office act on the matter), or independent legal
counsel in a written opinion, shall determine, based on a review
of readily available facts (but not a full trial-type inquiry),
that there is reason to believe such Covered Person ultimately
will be entitled to indemnification.

Compromise Payment

Section 2. As to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or otherwise)
without an adjudication in a decision on the merits by a court,
or by any other body before which the proceeding was brought,
that such Covered Person is liable to the Trust or its
Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office, indemnification shall be
provided if (a) approved as in the best interest of the Trust,
after notice that it involves such indemnification, by at least a
majority of the Trustees who are disinterested persons and are
not Interested Persons (provided that a majority of such Trustees
then in office act on the matter), upon a determination, based
upon a review of readily available facts (but not a full trial-
type inquiry) that such Covered Person is not liable to the Trust
or its Shareholders by reason of wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of such Covered Person's office, or (b) there has
been obtained an opinion in writing of independent legal counsel,
based upon a review of readily available facts (but not a full-
trial type inquiry) to the effect that such indemnification would
not protect such Covered Person against any liability to the
Trust to which such Covered Person would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office. Any approval pursuant to this Section shall not prevent
the recovery from any Covered Person of any amount paid to such
Covered Person in accordance with this Section as indemnification
if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction to have been liable to the Trust or its
Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.

Indemnification Not Exclusive

Section 3. The right of indemnification hereby provided
shall not be exclusive of or affect any other rights to which any
such Covered Person may be entitled. As used in this Article
VIII, the term "Covered Person" shall include such person's
heirs, executors and administrators, and a "disinterested person"
is a person against whom none of the actions, suits or other
proceedings in question or another action, suit or other
proceeding on the same or similar grounds is then or has been
pending. Nothing contained in this article shall affect any
rights to indemnification to which personnel of the Trust, other
than Trustees and officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to
purchase and maintain liability insurance on behalf of such
persons.

Shareholders

Section 4. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of his or
her being or having been a Shareholder and not because of his or
her acts or omissions or for some other reason, the Shareholder
or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or, in the case of
a corporation or other entity, its corporate or other general
successor) shall be entitled to be held harmless from and
indemnified against all loss and expense arising from such
liability, but only out of the assets of the particular series of
Shares of which he or she is or was a Shareholder.

ARTICLE IX

MISCELLANEOUS

Trustees, Shareholders, etc. Not Personally Liable; Notice

Section 1. All persons extending credit to, contracting
with or having any claim against the Trust or a particular series
of Shares shall look only to the assets of the Trust or the
assets of that particular series of Shares for payment under such
credit, contract or claim; and neither the Shareholders nor the
Trustees, nor any of the Trust's officers, employees or agents,
whether past, present or future, shall be personally liable
therefor. Nothing in this Declaration of Trust shall protect any
Trustee against any liability to which such Trustee would
otherwise be subject by reason of wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of the office of Trustee.

Every note, bond, contract, instrument, certificate or
undertaking made or issued by the Trustees or by any officers or
officer shall give notice that this Declaration of Trust is on
file with the Secretary of State of The Commonwealth of
Massachusetts and shall recite that the same was executed or made
by or on behalf of the Trust or by them as Trustees or Trustee or
as officers or officer and not individually and that the
obligations of such instrument are not binding upon any of them
or the Shareholders individually but are binding only upon the
assets and property of the Trust, and may contain such further
recital as he or she or they may deem appropriate, but the
omission thereof shall not operate to bind any Trustees or
Trustee or officers or officer or Shareholders or Shareholder
individually.

Trustee's Good Faith Action, Expert Advice, No Bond or Surety

Section 2. The exercise by the Trustees of their powers and
discretions hereunder shall be binding upon everyone interested.
A Trustee shall be liable for his or her own wilful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and for nothing
else, and shall not be liable for errors of judgment or mistakes
of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this
Declaration of Trust, and shall be under no liability for any act
or omission in accordance with such advice or for failing to
follow such advice. The Trustees shall not be required to give
any bond as such, nor any surety if a bond is required.

Liability of Third Persons Dealing with Trustees

Section 3. No person dealing with the Trustees shall be
bound to make any inquiry concerning the validity of any
transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the
Trust or upon its order.

Duration and Termination of Trust

Section 4. Unless terminated as provided herein, the Trust
shall continue without limitation of time. The Trust may be
terminated at any time by vote of Shareholders holding at least
two-thirds of the Shares of each series entitled to vote or by
the Trustees by written notice to the Shareholders. Any series
of Shares may be terminated at any time by vote of Shareholders
holding at least two-thirds of the Shares of such series entitled
to vote or by the Trustees by written notice to the Shareholders
of such series.

Upon termination of the Trust or of any one or more series
of Shares, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or
anticipated as may be determined by the Trustees, the Trust shall
in accordance with such procedures as the Trustees consider
appropriate reduce the remaining assets to distributable form in
cash or shares or other securities, or any combination thereof,
and distribute the proceeds to the Shareholders of the series
involved, ratably according to the number of Shares of such
series held by the several Shareholders of such series on the
date of termination, except to the extent otherwise required or
permitted by the preferences and special or relative rights and
privileges of any classes of Shares of that series, provided that
any distribution to the Shareholders of a particular class of
Shares shall be made to such Shareholders pro rata in proportion
to the number of Shares of such class held by each of them.

Filing of Copies, References, Headings

Section 5. The original or a copy of this instrument and of
each amendment hereto shall be kept at the office of the Trust
where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment hereto shall be filed by the
Trust with the Secretary of State of The Commonwealth of
Massachusetts and with the Clerk of the City of Boston, as well
as any other governmental office where such filing may from time
to time be required. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any
such amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as
if it were the original, may rely on a copy certified by an
officer of the Trust to be a copy of this instrument or of any
such amendments. In this instrument and in any such amendment,
references to this instrument, and all expressions such as
"herein," "hereof" and "hereunder," shall be deemed to refer to
this instrument as amended or affected by any such amendments.
Headings are placed herein for convenience of reference only and
shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this instrument. This
instrument may be executed in any number of counterparts, each of
which shall be deemed an original.

Applicable Law

Section 6. This Declaration of Trust is made in The
Commonwealth of Massachusetts, and it is created under and is to
be governed by and construed and administered according to the
laws of said Commonwealth. The Trust shall be of the type
commonly called a Massachusetts business trust, and without
limiting the provisions hereof, the Trust may exercise all powers
which are ordinarily exercised by such a trust.

Amendments

Section 7. This Declaration of Trust may be amended at any
time by an instrument in writing signed by a majority of the then
Trustees when authorized so to do by a vote of Shareholders
holding a majority of the Shares entitled to vote, except that an
amendment which shall affect the holders of one or more series or
classes of Shares but not the holders of all outstanding series
and classes shall be authorized by vote of the Shareholders
holding a majority of the Shares entitled to vote of each series
and class affected and no vote of Shareholders of a series or
class not affected shall be required. Amendments having the
purpose of changing the name of the Trust or of supplying any
omission, curing any ambiguity or curing, correcting or
supplementing any defective or inconsistent provision contained
herein shall not require authorization by Shareholder vote.
IN WITNESS WHEREOF, the undersigned have hereunto set their
hands in the City of Boston, Massahcusetts for themnselves and
their assigns, as of this 15th day of November, 1991.

/s/ Oliver F. Ames
Oliver F. Ames

/s/ Tom Bleasdale
Tom Bleasdale

/s/ Lora S. Collins
Lora S. Collins

/s/ J. Craig Hugg, Jr.
J. Craig Huff, Jr.

/s/ William D. Ireland, Jr.
William D. Ireland, Jr.

/s/ John A. McNeice, Jr.
John A. McNeice, Jr.

/s/ James L. Moody, Jr.
James L. Moody, Jr.

/s/ John J. Neuhauser, Jr.
John J. Neuhauser

/s/ George L. Shinn
George L. Shinn

/s/ Robert L. Sullivan
Robert L. Sullivan

/s/ Sinclair Weeks, Jr.
Sinclair Weeks, Jr.

THE COMMONWEALTH OF MASSACHUSETTS

Boston, ss. Novemver 15, 1991

Then personally appeared the above-named Trustees and
acknowledged the foregoing instrument to be their free act and
deed, before me,

/s/ Diane M. Joyce
Notary Public

My commission expires: 3-2-95

(Notary's Seal)

Amended 10/9/92 - Section 11

Amended 2/16/96 - Section 3.1, Paragraph 2

BY-LAWS

COLONIAL TRUST III

Section 1. Agreement and Declaration of Trust and Principal Office
------------------------------------------------------------------

1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to
the Agreement and Declaration of Trust, as from time to time in effect
(the "Declaration of Trust"), of Colonial Trust III, a Massachusetts
business trust established by the Declaration of Trust (the "Trust").

1.2 Principal Office of the Trust. The principal office of the Trust shall
be located in Boston,Massachusetts.

Section 2. Shareholders

2.1 Shareholder Meetings. A meeting of the shareholders of the Trust or of
any one or more series or classes of shares may be called at any time
by the Trustees, by the president or, if the Trustees and the president
shall fail to call any meeting of shareholders for a period of 30 days
after written application of one or more shareholders who hold at least
10% of all outstanding shares of the Trust, if shareholders of all
series are required under the Declaration of Trust to vote in the
aggregate and not by individual series at such meeting, or of any
series or class, if shareholders of such series or class are entitled
under the Declaration of Trust to vote by individual series or class at
such meeting, then such shareholders may call such meeting. If the
meeting is a meeting of the shareholders of one or more series or
classes of shares, but not a meeting of all shareholders of the Trust,
then only the shareholders of such one or more series or classes shall
be entitled to notice of and to vote at the meeting. Each call of a
meeting shall state the place, date, hour and purpose of the meeting.

2.2 Place of Meetings. All meetings of the shareholders shall be held at
the principal office of the Trust, or, to the extent permitted by the
Declaration of Trust, at such other place within the United States as
shall be designated by the Trustees or the president of the Trust.

2.3 Notice of Meetings. A written notice of each meeting of shareholders,
stating the place, date and hour and the purposes of the meeting, shall
be given at least seven days before the meeting to each shareholder
entitled to vote thereat by leaving such notice with him or her or at
his or her residence or usual place of business or by mailing it,
postage prepaid, and addressed to such shareholder at his or her
address as it appears in the records of the Trust. Such notice shall be
given by the secretary or an assistant secretary or by an officer
designated by the Trustees. No notice of any meeting of shareholders
need be given to a shareholder if a written waiver of notice, executed
before or after the meeting by

<PAGE>

such shareholder or his or her attorney thereunto duly authorized, is
filed with the records of the meeting.

2.4 Ballots. No ballot shall be required for any election unless requested
by a shareholder present or represented at the meeting and entitled to
vote in the election.

2.5 Proxies. Shareholders entitled to vote may vote either in person or by
proxy in writing dated not more than six months before the meeting
named therein, which proxies shall be filed with the secretary or other
person responsible to record the proceedings of the meeting before
being voted. Unless otherwise specifically limited by their terms, such
proxies shall entitle the holders thereof to vote at any adjournment of
such meeting but shall not be valid after the final adjournment of such
meeting. The placing of a shareholder's name on a proxy pursuant to
telephonic or electronically transmitted instructions obtained pursuant
to procedures reasonably designed to verify that such instructions have
been authorized by such shareholder shall constitute execution of such
proxy by or on behalf of such shareholder.

Section 3. Trustees

3.1 Committees and Advisory Board. The Trustees may appoint from their
number an executive committee and other committees. Except as the
Trustees may otherwise determine, any such committee may make rules for
conduct of its business. The Trustees may appoint an advisory board to
consist of not less than two nor more than five members. The members of
the advisory board shall be compensated in such manner as the Trustees
may determine and shall confer with and advise the Trustees regarding
the investments and other affairs of the Trust. Each member of the
advisory board shall hold office until the first meeting of the
Trustees following the next meeting of the shareholders and until his
or her successor is elected and qualified, or until he or she sooner
dies, resigns, is removed or becomes disqualified, or until the
advisory board is sooner abolished by the Trustees.

In addition, the Trustees may appoint a Dividend Committee of not less
than three persons, who may (but need not) be Trustees.

No special compensation shall be payable to members of the Dividend
Committee. Each member of the Dividend Committee will hold office until
the successors are elected and qualified or until the member dies,
resigns, is removed, becomes disqualified or until the Committee is
abolished by the Trustees.

3.2 Regular Meetings. Regular meetings of the Trustees may be held without
call or notice at such places and at such times as the Trustees may
from time to time determine, provided that notice of the first regular
meeting following any such determination shall be given to absent
Trustees.

3.3 Special Meetings. Special meetings of the Trustees may be held at any
time and at any place designated in the call of the meeting, when
called by the president or the treasurer or by two or more Trustees,
sufficient notice thereof being given to each Trustee by the secretary
or an assistant secretary or by the officer or one of the Trustees
calling the meeting.

3.4 Notice. It shall be sufficient notice to a Trustee to send notice by
mail at least forty-eight hours or by telegram at least twenty-four
hours before the meeting addressed to the Trustee at his or her usual
or last known business or residence address or to give notice

<PAGE>

to him or her in person or by telephone at least twenty-four hours
before the meeting. Notice of a meeting need not be given to any
Trustee if a written waiver of notice, executed by him or her before or
after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at
its commencement the lack of notice to him or her. Neither notice of a
meeting nor a waiver of a notice need specify the purposes of the
meeting.

3.5 Quorum. At any meeting of the Trustees one-third of the Trustees then
in office shall constitute a quorum; provided, however, a quorum shall
not be less than two. Any meeting may be adjourned from time to time by
a majority of the votes cast upon the question, whether or not a quorum
is present, and the meeting may be held as adjourned without further
notice.

Section 4. Officers and Agents

4.1 Enumeration; Qualification. The officers of the Trust shall be a
president, a treasurer, a secretary and such other officers, if any, as
the Trustees from time to time may in their discretion elect or
appoint. The Trust may also have such agents, if any, as the Trustees
from time to time may in their discretion appoint. Any officer may be
but none need be a Trustee or shareholder. Any two or more offices may
be held by the same person.

4.2 Powers. Subject to the other provisions of these By-Laws, each officer
shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly
incident to his or her office as if the Trust were organized as a
Massachusetts business corporation and such other duties and powers as
the Trustees may from time to time designate, including without
limitation the power to make purchases and sales of portfolio
securities of the Trust pursuant to recommendations of the Trust's
investment adviser in accordance with the policies and objectives of
that series of shares set forth in its prospectus and with such general
or specific instructions as the Trustees may from time to time have
issued.

4.3 Election. The president, the treasurer and the secretary shall be
elected annually by the Trustees. Other elected officers are elected by
the Trustees. Assistant officers are appointed by the elected officers.

4.4 Tenure. The president, the treasurer and the secretary shall hold
office until their respective successors are chosen and qualified, or
in each case until he or she sooner dies, resigns, is removed or
becomes disqualified. Each other officer shall hold office at the
pleasure of the Trustees. Each agent shall retain his or her authority
at the pleasure of the Trustees.

4.5 President and Vice Presidents. The president shall be the chief
executive officer of the Trust. The president shall preside at all
meetings of the shareholders and of the Trustees at which he or she is
present, except as otherwise voted by the Trustees. Any vice president
shall have such duties and powers as shall be designated from time to
time by the Trustees.

4.6 Treasurer and Controller. The treasurer shall be the chief financial
officer of the Trust and subject to any arrangement made by the
Trustees with a bank or trust company or other organization as
custodian or transfer or shareholder services agent, shall be in charge
of its valuable papers and shall have such other duties and powers as
may be designated

<PAGE>

from time to time by the Trustees or by the president. Any assistant
treasurer shall have such duties and powers as shall be designated from
time to time by the Trustees.

The controller shall be the chief accounting officer of the Trust and
shall be in charge of its books of account and accounting records. The
controller shall be responsible for preparation of financial statements
of the Trust and shall have such other duties and powers as may be
designated from time to time by the Trustees or the president.

4.7 Secretary and Assistant Secretaries. The secretary shall record all
proceedings of the shareholders and the Trustees in books to be kept
therefor, which books shall be kept at the principal office of the
Trust. In the absence of the secretary from any meeting of shareholders
or Trustees, an assistant secretary, or if there be none or he or she
is absent, a temporary clerk chosen at the meeting shall record the
proceedings thereof in the aforesaid books.

Section 5. Resignations and Removals

Any Trustee, officer or advisory board member may resign at any time by
delivering his or her resignation in writing to the president, the treasurer or
the secretary or to a meeting of the Trustees. The Trustees may remove any
officer elected by them with or without cause by the vote of a majority of the
Trustees then in office. Except to the extent expressly provided in a written
agreement with the Trust, no Trustee, officer, or advisory board member
resigning, and no officer or advisory board member removed shall have any right
to any compensation for any period following his or her resignation or removal,
or any right to damages on account of such removal.

Section 6. Vacancies

A vacancy in any office may be filled at any time. Each successor shall hold
office for the unexpired term, and in the case of the presidents, the treasurer
and the secretary, until his or her successor is chosen and qualified, or in
each case until he or she sooner dies, resigns, is removed or becomes
disqualified.

Section 7. Shares of Beneficial Interest

7.1 Share Certificates. No certificates certifying the ownership of shares
shall be issued except as the Trustees may otherwise authorize. In the
event that the Trustees authorize the issuance of share certificates,
subject to the provisions of Section 7.3, each shareholder shall be
entitled to a certificate stating the number of shares owned by him or
her, in such form as shall be prescribed from time to time by the
Trustees. Such certificate shall be signed by the president or a vice
president and by the treasurer or an assistant treasurer. Such
signatures may be facsimiles if the certificate is signed by a transfer
agent or by a registrar, other than a Trustee, officer or employee of
the Trust. In case any officer who has signed or whose facsimile
signature has been placed on such certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
Trust with the same effect as if he or she were such officer at the
time of its issue.

In lieu of issuing certificates for shares, the Trustees or the
transfer agent may either issue receipts therefor or keep accounts upon
the books of the Trust for the record holders of such shares, who shall
in either case be deemed, for all purposes hereunder, to be the holders
of certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to
the terms hereof.
<PAGE>

7.2 Loss of Certificates. In the case of the alleged loss or destruction or
the mutilation of a share certificate, a duplicate certificate may be
issued in place thereof, upon such terms as the Trustees may prescribe.

7.3 Discontinuance of Issuance of Certificates. The Trustees may at any
time discontinue the issuance of share certificates and may, by written
notice to each shareholder, require the surrender of share certificates
to the Trust for cancellation. Such surrender and cancellation shall
not affect the ownership of shares in the Trust.

Section 8. Record Date and Closing Transfer Books

The Trustees may fix in advance a time, which shall not be more than 90 days
before the date of any meeting of shareholders or the date for the payment of
any dividend or making of any other distribution to shareholders, as the record
date for determining the shareholders having the right to notice and to vote at
such meeting and any adjournment thereof or the right to receive such dividend
or distribution, and in such case only shareholders of record on such record
date shall have such right, notwithstanding any transfer of shares on the books
of the Trust after the record date; or without fixing such record date the
Trustees may for any of such purposes close the transfer books for all or any
part of such period.

Section 9. Seal

The seal of the Trust shall, subject to alteration by the Trustees, consist of a
flat-faced circular die with the word "Massachusetts" together with the name of
the Trust and the year of its organization, cut or engraved thereon; but, unless
otherwise required by the Trustees, the seal shall not be necessary to be placed
on, and its absence shall not impair the validity of, any document, instrument
or other paper executed and delivered by or on behalf of the Trust.

Section 10. Execution of Papers

Except as the Trustees may generally or in particular cases authorize the
execution thereof in some other manner, all deeds, leases, transfers, contracts,
bonds, notes, checks, drafts and other obligations made, accepted or endorsed by
the Trust shall be signed, and all transfers of securities standing in the name
of the Trust shall be executed, by the president or by one of the vice
presidents or by the treasurer or by whomsoever else shall be designated for
that purpose by the vote of the Trustees and need not bear the seal of the
Trust.

Section 11. Fiscal Year

Except as from time to time otherwise provided by the Trustees, President,
Secretary, Controller or Treasurer, the fiscal year of the Trust shall end on
October 31.

Section 12. Amendments

These By-Laws may be amended or repealed, in whole or in part, by a majority of
the Trustees then in office at any meeting of the Trustees, or by one or more
writings signed by such a majority.

DISTRIBUTOR'S CONTRACT

Each Massachusetts Business Trust (Trust) designated in Appendix 2 from
time to time, acting severally, and Colonial Investment Services, Inc. (CISI), a
Massachusetts corporation, agree effective December 30, 1996:

1. APPOINTMENT OF CISI. The Trust may offer an unlimited number of
separate investment series (Funds), each of which may have multiple classes of
shares (Shares). The Trust appoints CISI as the principal underwriter and
exclusive distributor of Shares of Funds designated in Appendix 2. The Contract
will apply to each Fund as set forth on Appendix 2 as it may be amended from
time to time with the latest effective date and signed.

2. SALE OF SHARES. CISI, acting as principal for its own account and not
as agent for the Trust, shall have the exclusive right to purchase Shares and
shall sell Shares in accordance with a Fund's prospectus on a "best efforts"
basis. CISI shall purchase Shares at a price equal to the net asset value only
as needed to fill orders. CISI will receive all sales charges. CISI will notify
the Trust at the end of each business day of the Shares of each Fund to be
purchased. The Trust may at any time refuse to sell Shares hereunder and may
issue Shares directly to shareholders as a stock split or dividend.

3. REDEMPTION OF SHARES. The Trust will redeem in accordance with a Fund's
prospectus all Shares tendered by CISI pursuant to shareholder redemption
requests. CISI will notify the Trust at the end of each business day of the
Shares of each Fund tendered.

4. COMPLIANCE. CISI will comply with applicable provisions of the
prospectus of a Fund and with applicable laws and rules relating to the sale of
Shares and indemnifies the Trust for any damage or expense from unlawful acts by
CISI and persons acting under its direction or authority.

5. EXPENSES. The Trust will pay all expenses associated with:

a. the registration and qualification of Shares for sale;

b. shareholder meetings and proxy solicitation;

c. Share certificates;

d. communications to shareholders; and

e. taxes payable upon the issuance of Shares to CISI.

CISI will pay all expenses associated with advertising and sales literature
including those of printing and distributing prospectuses and shareholder
reports, proxy materials and other shareholder communications used as sales
literature.

6. 12b-1 PLAN. Except as indicated in Appendix 1 which may be revised from
time to time, dated and signed, this Section 6 constitutes each Fund's
distribution plan (Plan) adopted pursuant to Rule 12b-1 (Rule) under the
Investment Company Act of 1940 (Act).

A. The Fund* shall pay CISI monthly a service fee at the annual
rate of 0.25% of the net assets of its Class A and B Shares on the 20th
of each month and a distribution fee at an annual rate of 0.75% of the
average daily net assets of its Class B Shares. Each of the Funds
identified on Appendix 1 as having a Class D share 12b-1 Plan shall pay
CISI monthly a service fee at the annual rate of 0.25% of the net
assets of its Class D shares on the 20th of each month and a
distribution fee at an annual rate of 0.75% of the average daily net
assets of its Class D shares. Each of the Funds identified on Appendix
1 as having a Class C share 12b-1 Plan shall pay CISI monthly a service
fee at the annual rate of 0.25% of the net assets of its Class C shares
on the 20th of each month and a distribution fee at an annual rate of
0.15% of the average daily net assets of its Class C shares. Each of
the Funds identified on Appendix 1 having a Class E share 12b-1 Plan
shall pay CISI monthly a service fee at the annual rate of 0.25% of the
net assets of its Class E shares on the 20th of each month and a
distribution fee at an annual rate of 0.10% of the average daily net
assets of its Class E shares. Each of the Funds identified on Appendix
1 having a Class F share 12b-1 Plan shall pay CISI monthly a service
fee at the annual rate of 0.25% of the net assets of its Class F shares
on the 20th of each month and a distribution fee at an annual rate of
0.75% of the average daily net assets of its Class F shares. Each of
the Funds identified on Appendix 1 having a Class G share 12b-1 Plan
shall pay CISI monthly a service fee at the annual rate of 0.25% of the
net assets of its Class G shares on the 20th of each month and a
distribution fee at an annual rate of 0.10% of the

- --------
* Except as indicated in Appendix 1.

<PAGE>

average daily net assets of its Class G shares outstanding less than
five years from the date of purchase and 0.25% of the average daily net
assets of its Class G shares outstanding for five years or more. Each
of the Funds identified on Appendix 1 having a Class H share 12b-1 Plan
shall pay CISI monthly a service fee at the annual rate of 0.25% of the
net assets of its Class H shares on the 20th of each month and a
distribution fee at an annual rate of 0.75% of the average daily net
assets of its Class H shares. CISI may use the service and distribution
fees received from the Fund as reimbursement for commissions and
service fees paid to financial service firms which sold Fund shares and
to defray other CISI distribution and shareholder servicing expenses,
including its expenses set forth in Paragraph 5. CISI shall provide to
the Trust's Trustees, and the Trustees shall review, at least
quarterly, reports setting forth all Plan expenditures, and the
purposes for those expenditures. Amounts payable under this paragraph
are subject to any limitations on such amounts prescribed by applicable
laws or rules.

B. Payments by the Trust to CISI and its affiliates (including
Colonial Management Associates, Inc.) other than any prescribed by
Section 6A which may be indirect financing of distribution costs are
authorized by this Plan.

C. The Plan shall continue in effect with respect to a Class of
shares only so long as specifically approved for that Class at least
annually as provided in the Rule. The Plan may not be amended to
increase materially the service fee or distribution fee with respect to
a Class of shares without such shareholder approval as is required by
the Rule and any applicable orders of the Securities and Exchange
Commission, and all material amendments of the Plan must be approved in
the manner described in the Rule. The Plan may be terminated with
respect to a Class of shares at any time as provided in the Rule
without payment of any penalty. The continuance of the Plan shall be
effective only if the selection and nomination of the Trust's Trustees
who are not interested persons (as defined under the Act) of the Trust
is effected by such non-interested Trustees as required by the Rule.

7. CONTINUATION, AMENDMENT OR TERMINATION. This Contract (a) supersedes
and replaces any contract or agreement relating to the subject matter hereof in
effect prior to the date hereof, (b) shall continue in effect only so long as
specifically approved at least annually by the Trustees or shareholders of the
Trust and (c) may be amended at any time by written agreement of the parties,
each in accordance with the Act. This Contract (a) shall terminate immediately
upon the effective date of any later dated agreement relating to the subject
matter hereof, and (b) may be terminated upon 60 days notice without penalty by
a vote of the Trustees or by CMAI or otherwise in accordance with the Act and
will terminate immediately in the event of assignment (as defined under the
Act). Upon termination the obligations of the parties under this Contract shall
cease except for unfulfilled obligations and liabilities arising prior to
termination. All notices shall be in writing and delivered to the office of the
other party.

8. AGREEMENT AND DECLARATION OF TRUST. A copy of the document establishing
the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This
Contract 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.

<PAGE>

Agreed:

EACH TRUST DESIGNATED IN APPENDIX 2

By:__________________________________________
Arthur O. Stern, Secretary For Each Trust

COLONIAL INVESTMENT SERVICES, INC.

By:_______________________________________
Marilyn Karagiannis, Senior Vice President

S:\FUNDS\GENERAL\CONTRACT\DISTCON2.DOC

<PAGE>

APPENDIX 1

THE FOLLOWING IS APPLICABLE TO THE DESIGNATED FUND'S 12b-1 PLAN:

1. For Colonial Government Money Market Fund and Colonial Municipal Money
Market Fund, the first sentence of Section 6A is replaced with: "The Fund
shall pay CISI monthly a service fee at an annual rate of 0.25% of the net
assets of its Class B Shares on the 20th of each month and a distribution
fee at an annual rate of 0.75% of the average daily net assets of its
Class B shares."

2. For Colonial California Tax-Exempt Fund, Colonial Connecticut Tax-Exempt
Fund, Colonial Florida Tax-Exempt Fund, Colonial Massachusetts Tax-Exempt
Fund, Colonial Michigan Tax-Exempt Fund, Colonial Minnesota Tax-Exempt
Fund, Colonial New York Tax-Exempt Fund, Colonial North Carolina
Tax-Exempt Fund and Colonial Ohio Tax-Exempt Fund the first sentence of
Section 6A is replaced with: "The Fund shall pay CISI monthly (i) a
service fee at the annual rate of (A) 0.10% of the net assets attributable
to its Class A and Class B shares outstanding as of the 20th day of each
month which were issued prior to December 1, 1994, and (B) 0.25% of the
net assets attributable to its Class A and Class B shares outstanding as
of the 20th day of each month which were issued on or after December 1,
1994, and (ii) a distribution fee at an annual rate of 0.75% of the
average daily net assets of its Class B shares."

3. For The Colonial Fund and Colonial Growth Shares Fund, the first sentence
of Section 6A is replaced with: "The Fund shall pay CISI monthly a service
fee at an annual rate of 0.15% of the net assets on the 20th of each month
of its Class A and B Shares outstanding which were issued prior to April
1, 1989, and 0.25% of the net assets on the 20th of each month of its
Class A and B Shares issued thereafter, and a distribution fee at an
annual rate of 0.75% of the average daily net assets of its Class B
Shares.

4. For Colonial Strategic Income Fund, the first sentence of Section 6A is
replaced with: "The Fund shall pay CISI monthly a service fee at an annual
rate of 0.15% of the net assets on the 20th of each month of its Class A
and B Shares outstanding which were issued prior to January 1, 1993, and
0.25% of the net assets on the 20th of each month of its Class A and B
Shares issued thereafter, and a distribution fee at an annual rate of
0.75% of the average daily net assets of its Class B Shares."

5. For Colonial Short Duration U.S. Government Fund and Colonial Intermediate
Tax-Exempt Fund, the first sentence of Section 6A is replaced with: "The
Fund shall pay CISI monthly a service fee at an annual rate of 0.20% of
the net assets on the 20th of each month of its Class A and B Shares and a
distribution fee at an annual rate of 0.65% of the average daily net
assets of its Class B Shares."

<PAGE>

6. For Colonial Strategic Balanced Fund, the following sentence is added as
the second sentence of Section 6A: " The Fund shall also pay CISI an
annual distribution fee not exceeding 0.30% of the average net assets
attributed to its Class A shares."

7. The Funds with Class D share 12b-1 Plans are as follows: Colonial Strategic
Balanced Fund, Colonial International Fund for Growth, Colonial Government
Money Market Fund, Colonial U.S. Fund for Growth, Colonial Global Utilities
Fund, Colonial Newport Tiger Fund, Colonial Small Stock Fund, Colonial High
Yield Securities Fund, Colonial Aggressive Growth Fund, Colonial Equity
Income Fund, Colonial International Equity Fund, Colonial Growth Fund,
Colonial Newport Tiger Cub Fund, Colonial Newport Japan Fund and Colonial
Tax-Managed Growth Fund.

8. The Funds with Class C share 12b-1 Plans are as follows: Colonial Short
Duration U.S. Government Fund.

9. Colonial Newport Tiger Fund does not offer a 12b-1 plan for Class T and
Class Z shares.

10. Colonial Small Stock Fund, The Colonial Fund, Colonial Newport Tiger Cub
Fund and Colonial Newport Japan Fund do not offer a 12b-1 plan for Class Z
shares.

11. The Funds with Class E, Class F, Class G and Class H share 12b-1 Plans are
as follows: Colonial Tax-Managed Growth Fund

By:_____________________________________________
Arthur O. Stern, Secretary For Each Trust

By:______________________________________________
Marilyn Karagiannis, Senior Vice President
Colonial Investment Services, Inc.

Dated: December 30, 1996

S:\FUNDS\GENERAL\CONTRACT\DISTCON2.DOC

<PAGE>

APPENDIX 2

Trust Series

Colonial Trust I
Colonial High Yield Securities Fund
Colonial Income Fund
Colonial Strategic Income Fund
Colonial Tax-Managed Growth Fund
Colonial Trust II
Colonial Government Money Market Fund
Colonial U.S. Government Fund
Colonial Short Duration U.S. Government Fund
Colonial Newport Tiger Cub Fund
Colonial Newport Japan Fund
Colonial Trust III
Colonial Growth Shares Fund The Colonial Fund Colonial Federal
Securities Fund Colonial Global Equity Fund Colonial Global
Natural Resources Fund Colonial International Fund for Growth
Colonial Strategic Balanced Fund Colonial Global Utilities
Fund
Colonial Trust IV
Colonial High Yield Municipal Fund
Colonial Intermediate Tax-Exempt Fund
Colonial Tax-Exempt Fund
Colonial Tax-Exempt Insured Fund
Colonial Municipal Money Market Fund
Colonial Utilities Fund
Colonial Trust V
Colonial Massachusetts Tax-Exempt Fund Colonial Connecticut
Tax-Exempt Fund Colonial California Tax-Exempt Fund Colonial
Michigan Tax-Exempt Fund Colonial Minnesota Tax-Exempt Fund
Colonial New York Tax-Exempt Fund Colonial North Carolina
Tax-Exempt Fund Colonial Ohio Tax-Exempt Fund Colonial Florida
Tax-Exempt Fund
Colonial Trust VI
Colonial U.S. Fund for Growth
Colonial Small Stock Fund
Colonial Aggressive Growth Fund
Colonial Equity Income Fund
Colonial International Equity Fund
Colonial Trust VII
Colonial Newport Tiger Fund

By:_____________________________________________
Arthur O. Stern, Secretary For Each Trust

By:______________________________________________
Marilyn Karagiannis, Senior Vice President
Colonial Investment Services, Inc.

Dated: December 30, 1996
S:\FUNDS\GENERAL\CONTRACT\DISTCON2.DOC

<PAGE>

AMENDMENT NO. 8 TO SCHEDULE A

Terms used in the Schedule and not defined herein shall have the
meaning specified in the AMENDED AND RESTATED SHAREHOLDERS' SERVICING AND
TRANSFER AGENT AGREEMENT dated July 1, 1991, and as amended from time to time
(the "Agreement"). Payments under the Agreement to CSC shall be made in the
first two weeks of the month following the month in which a service is rendered
or an expense incurred. This Amendment No. 8 to Schedule A shall be effective as
of January 1, 1997, and supersedes the original Schedule A and Amendment Nos. 1,
2, 3, 4, 5, 6 and 7 to Schedule A.

1. Each Fund that is a series of the Trust shall pay CSC for the
services to be provided by CSC under the Agreement an amount equal to the sum of
the following:

(a) The Fund's Share of CSC Compensation
PLUS
(b) The Fund's Allocated Share of CSC Reimbursable Out-of-Pocket
Expenses.

In addition, CSC shall be entitled to retain as additional compensation for its
services all CSC revenues for Distributor Fees, fees for wire, telephone,
redemption and exchange orders, IRA trustee agent fees and account transcripts
due CSC from shareholders of any Fund and interest (net of bank charges) earned
with respect to balances in the accounts referred to in paragraph 2 of the
Agreement.

2. All determinations hereunder shall be in accordance with generally
accepted accounting principles and subject to audit by the Fund's independent
accountants.

3. Definitions

"Allocated Share" for any month means that percentage of CSC
Reimbursable Out-of-Pocket Expenses which would be allocated
to the Fund for such month in accordance with the methodology
described in Exhibit 1 hereto.

"CSC Reimbursable Out-of-Pocket Expenses" means (i)
out-of-pocket expenses incurred on behalf of the Fund by CSC
for stationery, forms, postage and similar items, (ii)
networking account fees paid to dealer firms by CSC on
shareholder accounts established or maintained pursuant to the
National Securities Clearing Corporation's networking system,
which fees are approved by the Trustees from time to time and
(iii) fees paid by CSC or its affiliates to third-party dealer
firms or transfer agents that maintain omnibus accounts with a
Fund in respect of expenses similar to those referred to in
clause (i) above, to the extent the Trustees have approved the
reimbursement by the Fund of such fees.

"Distributor Fees" means the amount due CSC pursuant to any
agreement with the Fund's principal underwriter for
processing, accounting and reporting services in connection
with the sale of shares of the Fund.

"Fund" means each of the open-end investment companies advised
by CMA that are series of the Trusts which are parties to the
Agreement.

"Fund's Share of CSC Compensation" for any month means 1/12 of
the following applicable percentage of the average daily
closing value of the total net assets of such Fund for such
month:

Fund Percent

Equity Funds: 0.25
The Colonial Fund
Colonial Growth Shares Fund
Colonial U.S. Fund for Growth
Colonial Global Equity Fund
Colonial Global Natural Resources Fund
Colonial Small Stock Fund
Colonial International Fund for Growth
Colonial Aggressive Growth Fund
Colonial Equity Income Fund
Colonial International Equity Fund
Colonial Tax-Managed Growth Fund

Taxable Bond Funds: 0.18(1)
Colonial U.S. Government Fund
Colonial Short Duration U.S. Government Fund
Colonial Federal Securities Fund
Colonial Income Fund

Tax-Exempt Funds 0.14(2)
Colonial Tax-Exempt Insured Fund
Colonial Tax-Exempt Fund
Colonial High Yield Municipal Fund
Colonial California Tax-Exempt Fund
Colonial Connecticut Tax-Exempt Fund
Colonial Florida Tax-Exempt Fund
Colonial Intermediate Tax-Exempt Fund
Colonial Massachusetts Tax-Exempt Fund
Colonial Michigan Tax-Exempt Fund
Colonial Minnesota Tax-Exempt Fund
Colonial New York Tax-Exempt Fund
Colonial North Carolina Tax-Exempt Fund
Colonial Ohio Tax-Exempt Fund

- --------

1 The applicable percentage shall be reduced from 0.18% to 0.17% during
1997 through successive, cumulative monthly reductions of 0.01%/12.
Thereafter the applicable percentage shall remain at 0.17%.

2 The applicable percentage shall be reduced from 0.14% to 0.13% during
1997 through successive, cumulative monthly reductions of 0.01%/12.
Thereafter the applicable percentage shall remain at 0.13%.

Money Market Funds: 0.20
Colonial Government Money Market Fund
Colonial Municipal Money Market Fund

Others:
Colonial High Yield Securities Fund 0.25
Colonial Strategic Income Fund 0.20
Colonial Utilities Fund 0.20
Colonial Strategic Balanced Fund 0.25
Colonial Global Utilities Fund 0.20
Colonial Newport Tiger Fund 0.25
Colonial Newport Tiger Cub Fund 0.25
Colonial Newport Japan Fund 0.25

Agreed:

EACH TRUST ON BEHALF OF EACH FUND DESIGNATED
IN APPENDIX I FROM TIME TO TIME

By: __________________________________________
Arthur O. Stern, Secretary

COLONIAL INVESTORS SERVICE CENTER, INC.

By: ________________________________________
Davey S. Scoon, President

COLONIAL MANAGEMENT ASSOCIATES, INC.

By: ________________________________________
Arthur O. Stern, Executive Vice President

<PAGE>

EXHIBIT 1

METHODOLOGY OF ALLOCATING CSC
REIMBURSABLE OUT-OF-POCKET EXPENSES

1. CSC Reimbursable Out-of-Pocket Expenses are allocated to the Colonial
Funds as follows:

A. Identifiable Based on actual services performed and
invoiced to a Fund.

B. Unidentifiable Allocation will be based on three evenly
weighted factors.

- number of shareholder
accounts

- number of transactions

- average assets

AMENDMENT NO. 14 TO APPENDIX I
<TABLE>
<CAPTION>

Funds Custodian
<S> <C> <C>

Colonial Trust I
Colonial High Yield Securities Fund BSD&T
Colonial Income Fund BSD&T
Colonial Strategic Income Fund BSD&T
Colonial Tax-Managed Growth Fund BSD&T

Colonial Trust II
Colonial Government Money Market Fund BSD&T
Colonial U.S. Government Fund BSD&T
Colonial Short Duration U.S. Government Fund BSD&T
Colonial Newport Tiger Cub Fund BSD&T
Colonial Newport Japan Fund BSD&T

Colonial Trust III
Colonial Growth Shares Fund BSD&T
The Colonial Fund BSD&T
Colonial Federal Securities Fund BSD&T
Colonial Global Equity Fund BSD&T
Colonial Global Natural Resources Fund BSD&T
Colonial International Fund for Growth BSD&T
Colonial Strategic Balanced Fund BSD&T
Colonial Global Utilities Fund SSB&TC

Colonial Trust IV
Colonial High Yield Municipal Fund UMB
Colonial Intermediate Tax-Exempt Fund UMB
Colonial Tax-Exempt Fund UMB
Colonial Tax-Exempt Insured Fund UMB
Colonial Municipal Money Market Fund UMB
Colonial Utilities Fund BSD&T

Colonial Trust V
Colonial Massachusetts Tax-Exempt Fund UMB
Colonial Connecticut Tax-Exempt Fund UMB
Colonial California Tax-Exempt Fund UMB
Colonial Michigan Tax-Exempt Fund UMB
Colonial Minnesota Tax-Exempt Fund UMB
Colonial New York Tax-Exempt Fund UMB
Colonial North Carolina Tax-Exempt Fund UMB
Colonial Ohio Tax-Exempt Fund UMB
Colonial Florida Tax-Exempt Fund UMB

<PAGE>

Colonial Trust VI Colonial U.S. Fund for Growth BSD&T
Colonial Small Stock Fund BSD&T
Colonial Aggressive Growth Fund BSD&T
Colonial Equity Income Fund BSD&T
Colonial International Equity Fund BSD&T

Colonial Trust VII Colonial Newport Tiger Fund Brown Brothers
Harriman & Co.

</TABLE>

Effective Date: December 30, 1996

By: ____________________________________
Arthur O. Stern, Secretary for Each Fund

COLONIAL MANAGEMENT ASSOCIATES, INC.

By: ____________________________________
Arthur O. Stern, Executive Vice President

COLONIAL INVESTORS SERVICE CENTER, INC.

By: ____________________________________
Davey S. Scoon, President

S:\FUNDS\GENERAL\CONTRACT\TRANAMEN.DOC

APPENDIX I
<TABLE>
<CAPTION>

Trust Series Effective Date

<S> <C> <C>
Colonial Trust I Colonial High Yield Securities Fund 11/1/91
Colonial Income Fund 5/1/92
Colonial Strategic Income Fund 5/1/92
Colonial Tax-Managed Growth Fund 12/30/96

Colonial Trust II Colonial Government Money Market Fund 11/1/91
Colonial U.S. Government Fund 2/14/92
Colonial Short Duration U.S. Government Fund 10/1/92
Colonial Newport Tiger Cub Fund 6/3/96
Colonial Newport Japan Fund 6/3/96

Colonial Trust III Colonial Growth Shares Fund 11/1/91
The Colonial Fund 2/14/92
Colonial Federal Securities Fund 2/14/92
Colonial Global Equity Fund 2/14/92
Colonial Global Natural Resources Fund 2/14/92
Colonial International Fund for Growth 12/1/93
Colonial Strategic Balanced Fund 9/1/94

Colonial Trust IV Colonial High Yield Municipal Fund 6/5/92
Colonial Intermediate Tax-Exempt Fund 12/18/92
Colonial Tax-Exempt Fund 11/1/91
Colonial Tax-Exempt Insured Fund 11/1/91
Colonial Utilities Fund 2/14/92

Colonial Trust V Colonial Massachusetts Tax-Exempt Fund 11/1/91
Colonial Connecticut Tax-Exempt Fund 11/1/91
Colonial California Tax-Exempt Fund 8/3/92
Colonial Michigan Tax-Exempt Fund 8/3/92
Colonial Minnesota Tax-Exempt Fund 8/3/92
Colonial New York Tax-Exempt Fund 8/3/92
Colonial North Carolina Tax-Exempt Fund 8/6/93
Colonial Ohio Tax-Exempt Fund 8/3/92
Colonial Florida Tax-Exempt Fund 1/13/93

Colonial Trust VI Colonial U.S. Fund for Growth 7/1/92
Colonial Small Stock Fund 11/2/92
Colonial Aggressive Growth Fund 3/31/96
Colonial Equity Income Fund 3/31/96
Colonial International Equity Fund 3/31/96

Colonial Trust VII Colonial Newport Tiger Fund 5/1/95

</TABLE>

By:_______________________________
Peter L. Lydecker, Controller

By:__________________________________________
Timothy J. Jacoby, Senior Vice President
Colonial Management Associates, Inc.

Dated: December 30, 1996

S:\FUNDS\GENERAL\CONTRACT\PRICING.DOC

PRICING AND BOOKKEEPING AGREEMENT

AGREEMENT dated as of March 13, 1995, between each Massachusetts Business
Trust (Trust) designated in Appendix I from time to time, and Colonial
Management Associates, Inc. (Colonial), a Massachusetts corporation. This
Agreement replaces all Service Contracts relating to the performance of similar
services between Colonial and each Trust's predecessor in interest. The Trust
and Colonial agree as follows:

1. Appointment. The Trust may offer an unlimited number of series (Funds),
each of which may have multiple classes of shares (Shares). This Agreement will
apply to each Fund on the Effective Date set forth in Appendix I as amended from
time to time.

2. Services. Colonial shall (i) determine and timely communicate to
persons designated by the Trust the Fund's net asset values and offering prices
per Share; and (ii) maintain and preserve in a secure manner the accounting
records of the Fund. All records shall be the property of the Fund. Colonial
will provide disaster planning to minimize possible service interruption.

3. Audit, Use and Inspection. Colonial shall make available on its
premises during regular business hours all records of a Fund for reasonable
audit, use and inspection by the Trust, its agents and any regulatory agency
having authority over the Fund.

4. Compensation. The Trust will pay Colonial for each Fund a monthly fee
of $1,500, plus a percentage fee on assets equal to the following: 0% for the
first $50 million of Fund assets; a monthly fee of 1/12 of 0.0233% on the next
$950 million; 1/12 of 0.0167% on the next $1 billion; 1/12 of 0.0100% of the
next $1 billion; and 1/12 of 0.0007% on the excess over $3 billion of the
average weekly net assets of the Fund for such month.

5. Compliance. Colonial shall comply with applicable provisions relating
to pricing and bookkeeping of the prospectus and statement of additional
information of a Fund and applicable laws and rules in the provision of services
under this Agreement.

6. Limitation of Liability. In the absence of willful misfeasance, bad
faith or gross negligence on the part of Colonial, or reckless disregard of its
obligations and duties hereunder, Colonial shall not be subject to any liability
to the Trust or 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.

7. Amendments. The Trust shall submit to Colonial a reasonable time in
advance of filing with the Securities and Exchange Commission copies of any
changes in its Registration Statements. If a change in documents or procedures
materially increases the cost to Colonial of performing its obligations,
Colonial shall be entitled to receive reasonable additional compensation.

8. Duration and Termination, etc. This Agreement may be changed only by
writing executed by each party. This Agreement: (a) shall continue in effect
from year to year so long as approved annually by vote of a majority of the
Trustees who are not affiliated with Colonial; (b) may be terminated at any time
without penalty by sixty days' written notice to either party; and (c) may be
terminated at any time for cause by either party if such cause remains
unremedied for a reasonable period not to exceed ninety days after receipt of
written specification of such cause. Paragraph 6 of this Agreement shall survive
termination. If the Trust designates a successor to any of Colonial's
obligations, Colonial shall, at the expense and direction of the Trust, transfer
to the successor all Trust records maintained by Colonial.

9. Miscellaneous. This Agreement shall be governed by the laws of The
Commonwealth of Massachusetts.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above.
<PAGE>

EACH TRUST DESIGNATED IN APPENDIX I

By:______________________________
Peter L. Lydecker, Controller

COLONIAL MANAGEMENT ASSOCIATES, INC.

By:__________________________________________
Arthur O. Stern, Executive Vice President

l:\\funds\general\pricing1.doc

<PAGE>

APPENDIX I

Trust Series Effective Date

Colonial Trust III Colonial Global Utilities Fund March 13, 1995

By:__________________________________
Peter L. Lydecker, Controller

By:_____________________________________________
Richard A. Silver, Senior Vice President
Colonial Management Associates, Inc.

Dated: March 13, 1995

S:\FUNDS\GENERAL\CONTRACT\PRICCGUF.DOC

The Colonial Fund
Colonial Trust III
One Financial Center
Boston, Massachusetts 02111

February 14, 1992

Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624

Ladies and Gentlemen:

The Colonial Fund ("Transferor Trust") and Colonial Trust III, on
behalf of a series fund of Colonial Trust III, also The Colonial Fund
("Acquiring Fund"), hereby respectively represent and certify that each of the
following statements and each fact contained therein is true and accurate in all
respects. Such representations relate to the proposed transaction (the
"Transaction") described in the Agreement and Plan of Reorganization (the
"Agreement") dated as of February 13, 1992 between Transferor Trust and Colonial
Trust III, on behalf of Acquiring Fund.

1. The Acquiring Fund will acquire on the Closing Date all of the
assets of the Transferor Trust, and will assume all liabilities of the
Transferor Trust.

2. The purpose and effect of the Transaction is to change the form of
organization of the enterprise of the Transferor Trust from a stand-alone
Massachusetts business trust to a series of a Massachusetts business trust which
is a "series fund" under Rule 18f-2 of the 1940 Act. It is anticipated that such
a change in the form of organization will reduce certain expenses, principally
state and federal filing fees. In addition, unlike the trust agreement of the
Transferor Trust, the Colonial Trust III trust agreement allows for the issuance
of multiple classes of shares and allows each class to vote separately on issues
that relate exclusively to that class, such as 12b-1 plans.

3. The Acquiring Fund was formed for the purpose of effecting the
transaction and has not engaged in any business prior to the Transaction, and
neither the Acquiring Fund nor the Transferor Trust has ever held, directly or
indirectly, any shares in the other, except for the initial Acquiring Fund share
acquired by the Transferor Trust prior to the Transaction.

4. There is no plan or intention to liquidate the Acquiring Fund or to
merge the Acquiring Fund into any other corporation or business trust.

5. The fair market value of the shares of the Acquiring Fund to be
received by each shareholder of the Transferor Trust in the Transaction will be,
in each instance, equal to the fair market value of the shares of the Transferor
Trust to be surrendered in exchange therefor. The shareholders of Transferor
Trust will receive no consideration other than shares of the Acquiring Fund in
exchange for their Transferor Trust shares.

<PAGE>

6. Immediately following consummation of the Transaction, all of the
outstanding shares of the Acquiring Fund will be owned by the former
shareholders of the Transferor Trust, who will own such shares solely by reason
of their ownership of shares of the Transferor Trust immediately prior to the
Transaction.

7. There is no plan or intention by any shareholder of the Transferor
Trust who owns five percent or more of the outstanding Transferor Trust shares,
and neither the management of Colonial Trust III (on behalf of the Acquiring
Fund), nor the management of the Transferor Trust, is aware of any plan or
intention on the part of any other shareholder of the Transferor Trust, in
connection with or as a result of the Agreement or the Transaction, to sell,
exchange or otherwise dispose of any shares of the Acquiring Fund received by
them in the Transaction or to sell, exchange or otherwise dispose of any shares
of the Transferor Trust prior to the exchange of such shares for shares of the
Acquiring Fund.

8. The Acquiring Fund has no plan or intention to issue additional
shares following the Transaction, as part of the Transaction. However, it is
recognized that, as an open-end investment company, the Acquiring Fund will
issue additional shares in the ordinary course of its business.

9. The Acquiring Fund has no plan or intention to reacquire any of its
shares issued in the Transaction, except for Acquiring Fund shares reacquired in
the ordinary course of its business as an open-end investment company.

10. At the same shareholder meeting as that during which the
shareholders of Transferor Trust will vote on whether to permit the Transaction,
such shareholders will also vote on whether to modify the investment objectives,
policies and restrictions of Transferor Trust by (i) reclassifying as
nonfundamental or eliminating the investment objectives and policies which are
not required to be fundamental under the 1940 Act; (ii) allowing the ownership
of up to 5% of net assets in real estate as a result of owning securities; (iii)
increasing the limit on illiquid assets from 5% to 10% of net assets; (iv)
reducing permitted borrowings from 15% to 10% of assets; (v) replacing the
present 15% of assets limit on pledging with a nonfundamental 33% limit; and
(vi) changing the limitation on investing more than 5% of net assets in a single
issuer from applying to 100% of total assets to applying to 75% of total assets
and excluding cash items, including receivables, from the policy. Although voted
on during the same meeting as that during which the Transaction will be voted
on, the decision of whether to permit the proposed modification of investment
objectives, policies and restrictions is wholly unrelated to, separate from and
independent of the decision of whether to approve the Transaction, and, if
approved, the modification of investment objectives, policies, and restrictions
will be implemented regardless of whether the Transaction occurs. Likewise, if
approved, the Transaction will be effected without regard to whether the
modification of investment objectives, restrictions and policies is approved. If
both the modification of investment objectives, policies and restrictions and
the Transaction are approved by the Transferor Trust shareholders, the Acquiring
Fund will implement the modified investment objectives, policies and
restrictions.

11. Immediately following the consummation of the Transaction, the
Acquiring Fund will possess the same assets and liabilities as those possessed
by the Transferor Trust immediately prior to the Transaction, except for (i)
assets used to make payments in redemption of shares of the Transferor Trust or
the Acquiring Fund where such redemptions, if any, appear to be initiated by
shareholders in connection with or as a result of the Agreement or the
Transaction, (ii) assets used to pay expenses incurred in connection with the
Transaction, (iii) assets disposed of, if any, in connection with the
modification of investment objectives, policies and restrictions, as more fully
discussed in paragraph 10 above, and (iv) assets used to distribute dividends or
make redemptions in the ordinary course of Acquiring Fund's operation as an
open-end investment company, as more fully discussed in paragraph 12 below.
Payments of expenses of the Transaction, payments in redemption of shares of the
Transferor Trust or the Acquiring Fund where such redemptions, if any, appear to
be initiated by shareholders in connection with or as a result of the Agreement
or the Transaction, and assets disposed of by the Transferor Trust or the
Acquiring Fund, if any, in connection with the modification of investment
objectives, policies and restrictions, will in the aggregate be less than one
percent (1%) of the net assets of the Transferor Trust immediately prior to the
Closing Date.

12. Except for payments in redemption referred to in the preceding
paragraph, no payments will be made by the Transferor Trust or the Acquiring
Fund to its shareholders in connection with or as a result of the Agreement or
the Transaction. However, the Transferor Trust and the Acquiring Fund will, in
the ordinary course of business as open-end investment companies, make
distributions of regularly-declared dividends paying out investment income or
capital gains, and distributions in redemption of shares, but the Transferor
Trust, and Colonial Trust III, on behalf of the Acquiring Fund, have no reason
to believe that redemptions or possible future redemptions are occurring or will
occur on account of the Agreement or the Transaction (other than those referred
to in the preceding paragraph).

13. Colonial Trust III, on behalf of the Acquiring Fund, has no plan or
intention to sell or otherwise dispose of any of the assets received from the
Transferor Trust except for dispositions made in the ordinary course of the
Acquiring Fund's business as an open-end investment company (i.e., dispositions
resulting from investment decisions made after the Transaction on the basis of
investment considerations independent of the Transaction).

14. Following the Transaction, the Acquiring Fund will continue the
historic business of the Transferor Trust as an investment company which seeks
primarily income and capital appreciation and, secondarily, preservation of
capital, and will use a significant portion (in this case at least 99%) of the
Transferor Trust's historic business assets in its business. Specifically, the
Acquiring Fund will use such significant portion of the Transferor Trust's
historic business assets in its business by continuing to hold the assets
transferred to it by the Transferor Trust, except for dispositions made in the
ordinary course of its business as an open-end investment company (i.e.,
dispositions resulting from investment decisions made after the Transaction on
the basis of investment considerations independent of the Transaction).

15. The liabilities of the Transferor Trust to be assumed by the
Acquiring Fund were incurred by the Transferor Trust in the ordinary course of
its business and are associated with the assets of the Transferor Trust
transferred to the Acquiring Fund. For purposes of this paragraph, expenses of
the Transaction are not treated as liabilities.

16. The sum of the liabilities to be assumed by the Acquiring Fund will
not exceed the fair market value or the adjusted basis of the assets of the
Transferor Trust immediately prior to the Closing Date.

17. The Acquiring Fund will pay certain expenses of the Transaction
(excluding any expenses incurred by shareholders of the Transferor Trust), to
the extent they have not already been paid by the Transferor Trust. All fees and
expenses incurred and borne by either the Transferor Trust or the Acquiring Fund
shall be solely and directly related to the Transaction and shall be paid
directly by the Transferor Trust or the Acquiring Fund, as the case may be, to
the relevant providers of services or other payees, in accordance with the
principles set forth in Rev. Rul. 73-54, 1973-1 C.B. 187.

The shareholders of the Transferor Trust will pay their own expenses,
if any, related to the Transaction.

18. There is no indebtedness existing between the Acquiring Fund and
the Transferor Trust.

19. At the time of the Transaction, the Transferor Trust will not have
any outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire shares in the Transferor Trust.

20. At the time of the Transaction, the Acquiring Fund will not have
any outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire shares in the Acquiring Fund.

21. For federal income tax purposes, the Transferor Trust qualifies as
a regulated investment company, and the provisions of sections 851 through 855
of the Internal Revenue Code of 1986, as amended (the "Code") apply to the
Transferor Trust for its current taxable year beginning November 1, 1991, and
will continue to apply to it through the Closing Date.

In addition, as of the Closing Date, the Transferor Trust will be
diversified in the sense that it meets the requirements of section
368(a)(2)(F)(ii) of the Code, i.e., not more than twenty-five percent (25%) of
the value of its total assets (as defined) is invested in stock and securities
(as defined) of any one issuer and not more than fifty percent (50%) of such
total assets is invested in stock and securities of five or fewer issuers.

22. The Acquiring Fund was established by the Trustees of Colonial
Trust III in order to effect the Transaction. It has not yet filed its first
federal income tax return and, thus, has not yet elected to be a regulated
investment company for federal income tax purposes. However, upon filing its
first income tax return at the completion of its first taxable year, the
Acquiring Fund will elect to be a regulated investment company and until such
time will take all steps necessary to ensure that it qualifies as a regulated
investment company under the Code.

23. The Transferor Trust is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.

24. None of the compensation received by any shareholder-employees of
the Transferor Trust, if any, will be separate consideration for, or allocable
to, any of their Transferor Trust shares; none of the Acquiring Fund shares
received by the Transferor Trust shareholder-employees will be separate
consideration for, or allocable to, any employment; and the compensation paid to
Acquiring Fund or Transferor Trust shareholder-employees, if any, will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.

Very truly yours,

THE COLONIAL FUND

By: Arthur O. Stern
Secretary

COLONIAL TRUST III

By: Arthur O. Stern
Secretary

ROPES & GRAY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
(617) 423-6100

TELEX NUMBER 940519 ROPGRALOR BSN IN WASHINGTON
TELEX NUMBER 951973 ROPES GRAY BSN 1001 TWENTY-SECOND STREET, N.W.
TELECOPIERS: (617) 423-2377 WASHINGTON, D.C. 20037
(617) 423-7841 (202) 429-1600
INTERNATIONAL: (617) 423-6905 TELECOPIER: (202) 429-1629

August 26, 1986

Colonial Growth Shares Trust
One Financial Center
Boston, Massachusetts 02111

Gentlemen:

We are furnishing this opinion in connection with the proposed offer and
sale by Colonial Growth Shares Trust, a Massachusetts business trust (the
"Trust"), of its shares of beneficial interest (the "Shares") pursuant to
Registration Statement No. 2-15184 on Form N-1A under the Securities Act of
1933, which Registration Statement was initially filed by Colonial Growth
Shares, Inc., a Massachusetts corporation, and which is to be expressly adopted
by the Trust, as the successor in interest to such corporation, in accordance
with procedures approved by the staff of the Securities and Exchange Commission.

We are familiar with the action taken by the initial Trustee of the Trust
to authorize the issuance of the Shares. We have examined the Trust's records of
Trustee action, its By-Laws and its Agreement and Declaration of Trust on file
at the Office of the Secretary of State of The Commonwealth of Massachusetts. We
have examined copies of such Registration Statement, in the form filed or to be
filed with the Securities Exchange Commission, and such other documents as we
deem necessary for the purposes of this opinion.

We assume that upon sale of the Shares the Trust will receive the net
asset value thereof. We also assume that, in connection with any offer and sale
of the Shares, the Trust will take proper steps to effect compliance with
applicable federal and state laws regulating offerings and sales of securities.

Based upon the foregoing, we are of the opinion that the Trust is
authorized to issue an unlimited number of Shares, and that, when the Shares are
issued and sold, they will be validly issued, fully paid and nonassessable by
the Trust.

The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders could, under certain
circumstances, be

<PAGE>

ROPES & GRAY

Colonial Growth Shares Trust -2- August 26, 1986

held personally liable for the obligations of the Trust. However, the Agreement
and Declaration of Trust disclaims shareholder liability for acts or obligations
of the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the Trust or
the Trustees. The Agreement and Declaration of Trust provides for
indemnification out of the Trust property for all loss and expense of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations.

We consent to the filing of this opinion as an exhibit to the aforesaid
Registration Statement.

Very truly yours,

Ropes & Gray

s:/funds/trustiii/general/opinion.doc

ROPES & GRAY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
(617) 423-6100

CABLE ADDRESS ROPGRALOR IN WASHINGTON
TELEX NUMBER 940519 1001 TWENTY-SECOND STREET, N.W.
TELECOPIERS: (617) 423-7841 WASHINGTON, D.C. 20037
(202) 429-1600

January 5, 1984

Colonial Government Securities Plus Trust
75 Federal Street
Boston, Massachusetts 02110

Gentlemen:

We are furnishing this opinion with respect to the proposed offer and sale
from time to time of an indefinite number of shares of beneficial interest (the
"Shares") of Colonial Government Securities Plus Trust (the "Trust"), being
registered under the Securities Act of 1933 by Registration Statement on Form
N-1 No.
2-87530 of the Trust.

We have acted as counsel for the Trust since its organization and are
familiar with the action taken by its Trustees to authorize the issuance of the
Shares. We have examined its By-Laws and its Agreement and Declaration of Trust,
as amended, on file at the Office of the Secretary of The Commonwealth of
Massachusetts. We have examined a certificate of the Treasurer of the Trust
dated January 5, 1984 stating that there are issued and outstanding 8,800 shares
of beneficial interest, and that the Trust has received the appropriate
consideration for such outstanding shares. We have also examined such other
documents as we deem necessary for the purpose of this opinion.

We supervised the action taken by the Trust to effect registration with the
Securities and Exchange Commission as a management investment company by the
filing of a Notification of Registration on Form N-8A under the Investment
Company Act of 1940. We have examined copies of a Registration Statement, as
amended, under said Act and under the Securities Act of 1933 on Form N-1, in the
forms filed or to be filed with the Securities and Exchange Commission.

We assume that appropriate action will be taken to register or qualify the sale
of the Shares under any applicable state and federal laws regulating sales and
offerings of securities and that upon sales of the Shares the Trust will receive
the net asset value thereof.

Based upon the foregoing, we are of the opinion that:

<PAGE>

ROPES & GRAY

Colonial Government Securities -2- January 5, 1984
Plus Trust

1. The Trust is a legally organized and validly existing unincorporated
voluntary association under the laws of The Commonwealth of Massachusetts and is
authorized to issue an unlimited number of shares, of which 8,800 shares are
presently issued and outstanding.

2. Upon the issue of any of the Shares for cash at net asset value and
receipt by the Trust of the authorized consideration therefor, the Shares so
issued will be validly issued, fully paid and nonassessable by the Trust.

The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such disclaimer
be given in each agreement, obligation, or instrument entered into or executed
by the Trust or the Trustees. The Agreement and Declaration of Trust provides
for indemnification out of the Trust property for all loss and expense of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations.

We understand that this opinion is to be used in connection with the
registration of the Shares for offering and sale pursuant to the Securities Act
of 1933. We consent to the filing of this opinion with and as a part of said
Registration Statement on Form N-1 and amendments thereto and to our being named
as legal counsel on the cover of the Prospectus included in said Registration
Statement.

Very truly yours,

Ropes & Gray

s:/funds/trustiii/general/opinion3.doc

<TABLE>

ROPES & GRAY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
(617) 423-6100

<S> <C> <C>
IN PROVIDENCE TELEX NUMBER 940519 ROPGRALOR BSN IN WASHINGTON
30 KENNEDY PLAZA TELEX NUMBER 951973 ROPES GRAY BSN 1001 TWENTY-SECOND STREET, N.W.
PROVIDENCE, R.I. 02902 TELECOPIERS: (617) 423-2377 WASHINGTON, D.C. 20037
(401) 521-6400 (617) 423-7841 (202) 429-1600
TELECOPIER: (401) 521-0910 INTERNATIONAL: (617) 423-6905 TELECOPIER: (202) 429-1629

February 25, 1987
</TABLE>

The Colonial Fund
One Financial Center
Boston, Massachusetts 02111

Gentlemen:

We are furnishing this opinion in connection with the proposed offer and
sale by The Colonial Fund, a Massachusetts business trust (the "Trust"), of its
shares of beneficial interest (the "Shares") pursuant to Registration Statement
No. 2-15392 on Form N-1A under the Securities Act of 1933, which Registration
Statement was initially filed by The Colonial Fund, Inc., a Massachusetts
corporation, and which is to be expressly adopted by the Trust, as the successor
in interest to such corporation, in accordance with procedures approved by the
staff of the Securities and Exchange Commission.

We are familiar with the action taken by the initial Trustees of the Trust
to authorize the issuance of the Shares. We have examined the Trust's records of
Trustee and shareholder action, its By-Laws and its Agreement and Declaration of
Trust on file at the Office of the Secretary of State of The Commonwealth of
Massachusetts. We have examined copies of such Registration Statement, in the
form filed or to be filed with the Securities Exchange Commission, and such
other documents as we deem necessary for the purposes of this opinion.

The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders could, under certain
circumstances, be

ROPES & GRAY

The Colonial Fund -2- February 25, 1987

We consent to the filing of this opinion as an exhibit to the aforesaid
Registration Statement.

Very truly yours,

Ropes & Gray

s:/funds/trustiii/general/opinion2.doc

COLONIAL TRUST I-VII

Plan pursuant to Rule 18f-3(d) under the Investment Company Act of 1940

Effective April 22, 19961
Amended December 30, 1996

Each series ("Fund") of Colonial Trusts I-VII (the "Trusts") may from time to
time issue one or more of the following classes of shares: Class A shares, Class
B shares, Class C shares, Class D shares, Class E shares, Class F shares, Class
G shares, Class H shares, Class T shares and Class Z shares. Each class is
subject to such investment minimums and other conditions of eligibility as set
forth in the Funds' prospectuses as from time to time in effect. The differences
in expenses among these classes of shares, and the conversion and exchange
features of each class of shares, are set forth below in this Plan, which is
subject to change, to the extent permitted by law and by the Declaration of
Trust and By-laws of each Trust, by action of the Board of Trustees of each
Trust.

Class A shares

Class A shares are offered at net asset value ("NAV") plus the initial sales
charges described in the Funds' prospectuses as from time to time in effect.
Initial sales charges may not exceed 6.50%, and may be reduced or waived as
permitted by Rule 22d-1 under the Investment Company Act of 1940 (the "1940
Act") and as described in the Funds' prospectuses from time to time in effect.

Purchases of $1 million to $5 million of Class A shares that are redeemed within
18 months from purchase are subject to a contingent deferred sales charge
("CDSC") of 1% of either the purchase price or the NAV of the shares redeemed,
whichever is less. Class A shares are not otherwise subject to a CDSC. The CDSC
may be reduced or waived as permitted by Rule 6c-10 under the 1940 Act and as
described in the Funds' prospectuses as from time to time in effect.

Class A shares pay service fees pursuant to plans adopted pursuant to Rule 12b-1
under the 1940 Act ("12b-1 Plans") as described in the Funds' prospectuses in
effect from time to time. Such fees may not exceed 0.25% per annum of the
average daily net assets attributable to such class. Class A shares generally do
not pay distribution fees, except that Colonial Strategic Balanced Fund pays a
distribution fee of 0.30% per annum of average daily net assets attributable to
its Class A shares.

Class A shares of any Fund (except for Colonial Tax Managed-Growth Fund which
shares may not be exchanged for any other Fund) may be exchanged, at the
holder's option, for Class A shares of another Fund without the payment of a
sales charge, except that if shares of any other non-money market fund are
exchanged within five months after purchase for shares of a Fund with a higher
sales charge, then the difference in sales charges must be paid on the exchange.

- ------------
1 Colonial Trusts I-VII (the "Trusts") have been offering multiple classes of
shares, prior to the effectiveness of this Plan, pursuant to an exemptive order
of the Securities and Exchange Commission. This Plan is intended to permit the
Trusts to offer multiple classes of shares pursuant to Rule 18f-3 under the
Investment Company Act of 1940, without any change in the arrangements and
expense allocations that have been approved by the Board of Trustees of each
Trust under such order of exemption.

<PAGE>

Class B shares

Class B shares are offered at NAV, without an initial sales charge. Class B
shares that are redeemed within the period of time after purchase (not more than
6 years) specified in each Fund's prospectus as from time to time in effect are
subject to a CDSC of up to 5% of either the purchase price or the NAV of the
shares redeemed, whichever is less; such percentage may be lower for certain
Funds and declines the longer the shares are held, all as described in the
Funds' prospectuses as from time to time in effect. Class B shares purchased
with reinvested distributions are not subject to a CDSC. The CDSC is subject to
reduction or waiver in certain circumstances, as permitted by Rule 6c-10 under
the 1940 Act and as described in the Funds' prospectuses as from time to time in
effect.

Class B shares pay distribution and service fees pursuant to 12b-1 Plans as
described in the Funds' prospectuses in effect from time to time. Such fees may
be in amounts up to but may not exceed, respectively, 0.75% and 0.25% per annum
of the average daily net assets attributable to such class.

Class B shares automatically convert to Class A shares of the same Fund eight
years after purchase, except that Class B shares purchased through the
reinvestment of dividends and other distributions on Class B shares convert
proportionally to the amount of Class A shares being converted.

Class B shares of any Fund (except for Colonial Tax-Managed Growth Fund which
shares may not be exchanged for any other Fund) may be exchanged, at the
holder's option, for Class B shares of another Fund, without the payment of a
CDSC. The holding period for determining the CDSC and the conversion to Class A
shares will include the holding period of the shares exchanged. If the Class B
shares received in the exchange are subsequently redeemed, the amount of the
CDSC, if any, will be determined by the schedule of the Fund in which the
original investment was made.

Class C shares

Class C shares are offered at NAV, without an initial sales charge or CDSC.
Class C shares pay distribution and service fees pursuant to plans adopted
pursuant to Rule 12b-1 under the 1940 Act ("12b-1 Plans"), as described in the
Funds' prospectuses in effect from time to time. Such fees may not exceed,
respectively, 0.75% and 0.25% per annum of the average daily net assets
attributable to such class. Class C shares of any Fund may be exchanged for
Class C shares of any other Fund that offers Class C shares. Only one Fund
currently offers Class C shares.

Class D shares

Class D shares are offered at NAV plus an initial sales charge of 1%. Class D
shares that are redeemed within one year from purchase are subject to a CDSC of
1% of either the purchase price or the NAV of the shares redeemed, whichever is
less. Class D shares purchased with reinvested dividends or capital gain
distributions are not subject to a CDSC. The CDSC may be reduced or waived in
certain circumstances as permitted by Rule 6c-10 under the 1940 Act and as
described in the Funds' prospectuses as from time to time in effect.

Class D shares pay distribution and service fees pursuant to 12b-1 Plans, as
described in the Funds' prospectuses in effect from time to time. Such fees may
be in amounts up to but may not exceed, respectively, 0.75% and 0.25% per annum
of the average daily net assets attributable to such class.

Class D shares of any Fund may be exchanged for Class D shares of any other Fund
that offers Class D shares. The holding period for determining whether a CDSC
will be charged will include the holding period of the shares exchanged.
<PAGE>

Class E shares (applicable to Colonial Tax-Managed Growth Fund)

Class E shares are offered at NAV plus the initial sales charges described in
the Fund's prospectus as from time to time in effect. Initial sales charges may
not exceed 5.00%, and may be reduced or waived as permitted by Rule 22d-1 under
the 1940 Act and as described in the Fund's prospectus from time to time in
effect.

Purchases of $1 million to $5 million of Class E shares that are redeemed within
18 months from purchase are subject to the same CDSC on the same basis as Class
A shares. Class E shares are not otherwise subject to a CDSC. The CDSC may be
reduced or waived as permitted by Rule 6c-10 under the 1940 Act and as described
in the Fund's prospectus as from time to time in effect.

Class E shares pay distribution and service fees pursuant to 12b-1 Plans, as
described in the Fund's prospectus in effect from time to time. Such fees may be
in amounts up to but may not exceed, respectively, 0.10% and 0.25% per annum of
the average daily net assets attributable to such class.

Class E shares may not be exchanged for shares of any other Fund.

Class F shares (applicable to Colonial Tax-Managed Growth Fund)

Class F shares are offered at NAV without an initial sales charge and subject to
the same declining CDSC, distribution and service fees as Class B shares. Class
F shares automatically convert to Class E shares eight years after purchase,
except that Class F shares purchased through the reinvestment of dividends and
other distributions on Class F shares convert proportionally to the amount of
Class E shares being converted.

Class F shares may not be exchanged for shares of any other Fund.

Class G shares (applicable to Colonial Tax-Managed Growth Fund)

Class G shares are offered at NAV plus the initial sales charges described in
the Fund's prospectus as from time to time in effect. Initial sales charges may
not exceed 4.50%, and may be reduced or waived as permitted by Rule 22d-1 under
the 1940 Act and as described in the Fund's prospectus from time to time in
effect.

Purchases of $1 million to $5 million of Class G shares that are redeemed within
18 months from purchase are subject to the same CDSC on the same basis as Class
A shares. Class G shares are not otherwise subject to a CDSC. The CDSC may be
reduced or waived as permitted by Rule 6c-10 under the 1940 Act and as described
in the Fund's prospectus as from time to time in effect.

Class G shares may not be exchanged for shares of any other Fund.

Class H shares (applicable to Colonial Tax-Managed Growth Fund)

Class H shares are offered at NAV without an initial sales charge and subject to
the same declining CDSC, distribution and service fees as Class B shares. Class
H shares automatically convert to Class G shares eight years after purchase,
except that Class H shares purchased through the reinvestment of dividends and
other distributions on Class H shares convert proportionally to the amount of
Class G shares being converted.

<PAGE>

Class H shares pay distribution and service fees pursuant to 12b-1 Plans, as
described in the Fund's prospectus in effect from time to time. Such fees may be
in amounts up to but may not exceed, respectively, 0.25% and 0.25% per annum of
the average daily net assets attributable to such class.

Class H shares may not be exchanged for shares of any other Fund.

Class T shares

Class T shares are offered at NAV plus the initial sales charges described in
the Funds' prospectuses as from time to time in effect. The sales charge may not
exceed 6.50%, and may be reduced or waived as permitted by Rule 22d-1 under the
1940 Act and as described in the Funds' prospectuses from time to time in
effect.

Purchases of $1 million or more of Class T shares that are redeemed within 18
months from purchase are subject to a CDSC of 1% of either the purchase price or
the NAV of the shares redeemed, whichever is less. Class T shares are not
otherwise subject to a CDSC. The CDSC may be reduced or waived as permitted by
Rule 6c-10 under the 1940 Act and as described in the Funds' prospectuses as
from time to time in effect.

Class T shares do not pay fees pursuant to a 12b-1 Plan. Class T shares of a
Fund may only be exchanged for Class A shares of another Fund.

Class Z shares

Class Z shares are offered at NAV, without an initial sales charge or CDSC.
Class Z shares do not pay fees under a 12b-1 Plan. Class Z shares of a Fund may
only be exchanged for Class A shares of another Fund.

koonce/memos/ctrst1-7.doc

AGREEMENT AND PLAN OF REORGANIZATION

This Agreement and Plan of Reorganization (Agreement) made by and between each
Trust (Trust) listed in Appendix 1 and the Fund (Fund) listed opposite the name
of such Trust, as of the Agreement Date specified for such Trust and Fund in
Appendix 1.

1. Plan of Reorganization and Liquidation.

(a) The Trust shall transfer and deliver to the Fund at the closing
provided for in Section 2 (Closing) all of its then existing assets of
every kind and nature. The Fund shall at the Closing assume all of the
Trust's obligations and liabilities.

(b) At the Closing the Fund will issue to the Trust a number of shares of
the Fund equal to the number of Trust shares then outstanding. Such
Fund shares will be distributed pro rata to shareholders of the Trust
in complete liquidation. Open account share records and certificates
for shares of the Trust issued prior to the reorganization shall
represent outstanding shares of the Fund following the reorganization.
Certificates representing Fund Shares will be issued only if the
shareholder so requests and surrenders any outstanding certificates for
Trust shares.

2. Closing and Closing Date. The Closing shall occur at 5:00 p.m. on the
closing date specified in Appendix 1, or at such later time and date as the
Fund and the Trust may mutually agree (Closing Date).

3. Conditions Precedent. The obligations of the Trust and the Fund to effect
the transactions contemplated by this Agreement shall be subject to the
satisfaction of each of the following conditions:

(a) All filings shall have been made with, and all authority and orders
shall have been received from, the Securities and Exchange Commission
(SEC) and state securities commissions as may be necessary in the
opinion of Ropes & Gray to permit the parties to carry out the
transactions contemplated by this Agreement;

(b) Each party shall have received an opinion of Ropes & Gray to the effect
that for federal income tax purposes: (i) no gain or loss will
be recognized by the Trust upon the transfer of its assets and
liabilities to the Fund; (ii)the tax basis of the assets of the Trust
in the hands of the Fund will be the same as the tax basis of such
assets in the hands of the Trust immediately prior to the transfer;
(iii) the holding period of the assets of the Trust transferred to the
Fund will include the period during which such assets were held by
the Trust;(iv) no gain or loss will be recognized by the Fund upon
the receipt of the assets of the Trust and the assumption by the Fund
of the liabilities and obligations of the Trust; (v) no gain or loss
will be recognized by the shareholders of the Trust upon
consummation of the reorganization; (vi) the basis of the shares of
the Fund credited to the shareholders of the Trust upon consummation
of the reorganization will be the same as the basis of the Trust
shares; and (vii) the holding period of shares of the Fund credited to
the shareholders of the Trust upon consummation of the reorganization
will include the holding period of the shares of the Trust,
provided that at the time of the consummation the shares of the
Trust were held as capital assets; and as to such other matters as it
may reasonably request;

(c) The reorganization contemplated by this Agreement shall have been
adopted and approved by the affirmative vote of a majority of
the outstanding shares of the Trust;

(d) The Fund shall have entered into Investment Advisory, Distributor's and
Service Contracts, an Amended and Restated Shareholders' Servicing
and Transfer Agent Agreement, and a Custodian Agreement in accordance
with the requirements of the Investment Company Act of 1940 (Act)
containing terms that are in substance the same as those contained in
the similar contracts currently in effect for the Trust, and such
contracts shall have been approved by the Trustees on behalf of the
Fund and, to the extent required by law, by the Trustees who are not "
interested persons" as defined in the Investment Company Act of 1940
and by Fund shareholders; and

(e) The Trustees who are not "interested persons" shall have selected
auditors for the Fund and such selection shall have been ratified by
Fund shareholders.

4. Waiver, Amendment or Termination. At any time before the Closing, the
Trustees of the Trust and of the trust of which the Fund is a series (Series
Trust) may (1) waive any of the conditions set forth in Section 3, (2) amend
this Agreement, or (3) terminate this Agreement, provided that, in the case of
any such waiver or amendment, the relevant Trustees shall have determined that
such action will not have a material adverse effect on the interest of the
shareholders of the Trust or the Fund.

5. Multiple Agreements. This instrument represents a separate agreement between
each Trust and the Fund listed opposite that Trust's name in Appendix 1; other
Trusts and Funds listed on Appendix 1 are not parties to the Agreement between
that Trust and that Fund.

6. Limitation of Liability of the Trustees and Shareholders. A copy of the
documents establishing the Trust and the Series Trust are on file with the
Secretary of State of The Commonwealth of Massachusetts. This Agreement is
executed by officers as officers and not as individuals and is not binding upon
any of the Trustees, officers or shareholders of the Trust, Series Trust or the
Fund individually but are binding only upon the assets of the Trust and the
Fund.

AGREED:

The Trust The Series Trust, on behalf of the Fund

By: ARTHUR O. STERN, Secretary By: ARTHUR O. STERN, Secretary

APPENDIX 1

Trust Fund Closing Date

Colonial Trust II
Colonial U.S. Government Trust Colonial U.S. Government Fund 2/14/92

Colonial Trust III
The Colonial Fund The Colonial Fund 2/14/92

Colonial Trust IV
Colonial Corporate Cash Trust I Colonial Utilities Fund 2/14/92
Colonial Tax-Exempt Money Colonial Tax-Exempt Money 2/14/92
Market Trust Market Fund

Agreement Date: January 24, 1992

By: ARTHUR O. STERN, Secretary on behalf of each Fund

By: ARTHUR O. STERN, Secretary for each Trust

AMENDMENT NO. 1 TO APPENDIX 1

Trust Fund Closing Date

Colonial Trust I
Colonial Income Trust Colonial Income Fund 5/1/92
Colonial Strategic Income Trust Colonial Strategic Income Fund 5/1/92

greement Date: April 24, 1992

By: ARTHUR O. STERN, Secretary on behalf of each Fund

By: ARTHUR O. STERN, Secretary for each Trust

AMENDMENT NO. 2 TO APPENDIX 1

Trust Fund Closing Date

Colonial Trust III
Colonial Government Securities
Plus Trust Colonial Federal Securities Fund 6/5/92

greement Date: June 5, 1992

By: ARTHUR O. STERN, Secretary on behalf of each Fund

By: ARTHUR O. STERN, Secretary for each Trust

AMENDMENT NO. 3 TO APPENDIX 1

Trust Fund Closing Date

Colonial Trust V
Colonial California Tax-Exempt Trust Colonial California Tax-Exempt Fund 8/3/92
Colonial Michigan Tax-Exempt Trust Colonial Michigan Tax-Exempt Fund 8/3/92
Colonial Minnesota Tax-Exempt Trust Colonial Minnesota Tax-Exempt Fund 8/3/92
Colonial New York Tax-Exempt Trust Colonial New York Tax-Exempt Fund 8/3/92
Colonial Ohio Tax-Exempt Trust Colonial Ohio Tax-Exempt Fund 8/3/92

Agreement Date: July 27, 1992

By: ARTHUR O. STERN, Secretary on behalf of each Fund

By: ARTHUR O. STERN, Secretary for each Trust

AMENDMENT NO. 4 TO APPENDIX 1

Trust Fund Closing Date

Colonial Trust VI
Colonial Small Stock Index Trust Colonial Small Stock Fund 11/2/92

Agreement Date: October 30, 1992

By: ARTHUR O. STERN, Secretary on behalf of each Fund

By: ARTHUR O. STERN, Secretary for each Trust

______________________________________________________________________________
[COLONIAL FLAG LOGO]
Colonial All sections of this application Colonial Asset Builder
Mutual Funds must be filled out in order to Account Application
P.O. Box 1722 open a Colonial Asset Builder account.
Boston, Massachusetts
02105-1722 For personal service call 1-800-345-6611.

______________________________________________________________________________

Account Registration

Individual: Your name, Social Security Number, U.S. Citizen Status.
Joint Tenant: All names, One Social Security Number, One U.S. Citizen Status.
Uniform Gift to Minors: Names of Custodian and Minor, Minor's Social Security
Number, Minor's U.S. Citizen Status.
Trust: Trustee and Trust, including Date, Trust's Taxpayer I.D. Number.
Corporation, Association, Partnership: Full Name, Taxpayer I.D. Number.

I want to reduce my sales charge and set up a Colonial Asset Builder account.

Name of Fund

__The Colonial Fund ___Colonial Growth Shares Fund

______________________________________
Name of Account Owner

______________________________________
Street Address

______________________________________
City State Zip

______________________________________
Account Owner's Date of Birth
(optional)

______________________________________
Area Code Daytime phone number

Are you a U.S. citizen? ___Yes ___No

______________________________________
If no, specify country of permanent
residence

______________________________________
Social Security Number or Taxpayer I.D.
Number
______________________________________________________________________________
Initial Investment Amount

Initial Investment must be at least $1,000 and cannot exceed $4,000.

__ Check enclosed for $______________ payable to the designated Fund

______________________________________________________________________________
Statement of Intent

I intend to invest in the designated Fund by Fundamatic $________________ (25%
of Initial Investment Amount) per month for 48 consecutive months. An
additional sales charge of 1% will be assessed on Colonial Asset Builder
account purchases and the program will be terminated if I miss any four
monthly investments.

Example: If Initial Investment is $1,000, your monthly Fundamatic investment
would be $250.

_____________________________________________________________________________
Fundamatic/Bank Checking Account Information

With Fundamatic, the amount you specify is automatically transferred from your
bank checking account to a Colonial fund to help you save automatically. To
sign up for Fundamatic, attach a blank check marked "VOID" and complete the
sections below. It may take up to 30 days to establish this privilege.

___________________________________
Name on Bank Account

___________________________________
Bank's Name

___________________________________
City State Zip

___________________________________
Bank Account Number

___________________________________
Bank's Street Address

___________________________________
Correspondent Bank

Amount of Fundamatic (same as above) $________

Date of Withdrawal: __5th or __20th

_____________________________________________________________________________

Authorization to honor draws by Colonial Investors Service Center

___________________________________
Bank's Name

___________________________________
Bank's Street Address

___________________________________
City State Zip

___________________________________
Bank Account Number

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.

_________________________________________________________
Depositors Signature EXACTLY as Appearing on Bank Records

_________________________________________________________
If Joint Account, Joint Depositor's Signature

_______________________________________________________________________________
Signature and Certification

Each person signing on behalf of an entity represents that his or her actions
are authorized.

I have received and read the designated Fund prospectus and understand that
its terms are incorporated by reference into this application. I understand
that this application is subject to acceptance.

I certify, under penalties of perjury, that:

(1) The Social Security Number or Taxpayer I.D. Number provided is correct.

Note: Cross out 2(a) or 2(b) below if either are not true in your case.

(2) I am not subject to 20% backup withholding because (a) I have not been
notified that I am subject to back-up withholding or (b) the Internal
Revenue Service has notified me that I am no longer subject to backup
withholding.

If you are not signing as an individual, state your title or capacity. It is
agreed that the designated 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.

______________________________________________
Signature Date

_______________________________________________
Signature Date

_______________________________________________
Title or Capacity, if Applicable

_______________________________________________
Title or Capacity, if Applicable
_______________________________________________________________________________
Financial Service Firm Authorization and Information

For Financial Service Firm Only:

To be completed by a Representative of your financial service firm.

We submit this application is submitted in accordance with our selling agreement
with Colonial Investment Services, Inc., the Fund's prospectus, and this
application. This application has been completed in accordance with the
instructions of the applicant.

_____________________________________
Name of Financial Service Firm

_____________________________________
Main Office Address

_____________________________________
City State Zip

____________________________________
Authorized Signature

_____________________________________
Registered Representative's Name

_____________________________________
Representative's Number

_____________________________________
Branch Phone Number

_____________________________________
Financial Service Firm Account Number
for Client

_____________________________________
Branch Office Location

_____________________________________
Branch Office Number
_______________________________________________________________________________
Special Conditions

All distributions will be reinvested in the designated Fund without a sales
charge. The following services are not available on Colonial Asset Builder
accounts until the end of the program:

Statement of Intent Telephone Redemption
Automatic Dividend Diversification Right of Accumulation
Exchange Privilege* Systematic Withdrawal Plan
$25,000 Fast Cash Colonial Cash Connection
Share Certificates

*Exchanges may be made to other Colonial funds offering Colonial Asset Builder.

Additional deposits to your Colonial Asset Builder account will not be accepted
and will be returned to you. Colonial has no obligation to notify the
shareholder of non-payment of any draw. This program may be discontinued by
the shareholder by written notice of 30 business days prior to the due date of
any draw.
_______________________________________________________________________________

- -------------------------------------------------------------------------------
To the Bank Named on the Reverse Side:

Your depositor has authorized Colonial Investors Service Center to
collect amounts due under an investment program from his/her personal checking
account. When you pay and charge the draws to the account of your depositor
executing the authorization payable to the order of Colonial Investors
Service Center, Colonial Management Associates, Inc., hereby indemnifies
and holds you harmless from any loss (including reasonable expenses) you may
suffer from honoring such draw, except any losses due to your payment of any
draw against insufficient funds.

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting parts of this Post-Effective Amendment No.
97 to the registration statement on Form N-1A (the "Registration Statement") of
our reports dated December 10, 1996, relating to the financial statements and
financial highlights appearing in the October 31, 1996 Annual Report to
Shareholders of Colonial Federal Securities Fund, Colonial Global Equity Fund,
Colonial Global Natural Resources Fund, Colonial Growth Shares Fund, Colonial
International Fund for Growth, Colonial Strategic Balanced Fund and The Colonial
Fund, each a series of Colonial Trust III and our report dated December 18,
1996, relating to the financial statements and financial highlights appearing in
the October 31, 1996 Annual Report to Shareholders of Colonial Global Utilities
Fund, a series of Colonial Trust III, which are also incorporated by reference
into the Registration Statement. We also consent to the references to us under
the heading "The Fund's Financial History" in the Prospectuses and "Independent
Accountants" in the Statements of Additional Information.

Price Waterhouse LLP
Boston, Massachusetts
February 14, 1997

KPMG LETTERHEAD

CONSENT OF INDEPENDENT AUDITORS

To the Trustees and Investors
LFC Utilities Trust:

We consent to the use of our report incorporated by
reference in the Statement of Additional Information and to
the references to our Firm under the headings "The Fund's
Financial History" in the Prospectus and "Independent
Accountants of the Fund" and "Certain Information Concerning
the Portfolio-Independent Auditors of the Portfolio" in the
Statement of Additional Information.

KPMG Peat Marwick LLP

Chicago, IL
February 12, 1997

POWER OF ATTORNEY FOR SIGNATURE

The undersigned constitutes Truman S. Casner, Harold W. Cogger, Nancy L. Conlin,
Ellen Harrington, Timothy J. Jacoby, Peter L. Lydecker, Michael H. Koonce, Peter
MacDougall, John Reading and Arthur O. Stern individually, as my true and lawful
attorney, with full power to each of them to sign for me and in my name, any and
all registration statements and any and all amendments to the registration
statements filed under the Securities Act of 1933 or the Investment Company Act
of 1940 with the Securities and Exchange Commission for the purpose of complying
with such registration requirements in my capacity as a trustee or officer of
certain mutual funds for which Colonial Investment Services, Inc. serves as
principal underwriter or Colonial Management Associates, Inc. serves as
investment manager or administrator (Colonial Mutual Funds), or of the LFC
Utilities Trust (LFC Trust). This Power of Attorney supercedes any and all Power
of Attorney's previously executed by me, authorizes the above individuals to
sign my name and will remain in full force and effect until specifically
rescinded by me.

I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Colonial Mutual Funds or the LFC Trust, with the Securities and Exchange
Commission and I request that this Power of Attorney then constitute authority
to sign additional amendments and registration statements by virtue of its
incorporation by reference into the registration statements and amendments for
the Colonial Mutual Funds and the LFC Trust.

In witness, I have signed this Power of Attorney on this 4th day of February,
1997.

Robert J. Birnbaum

POWER OF ATTORNEY FOR SIGNATURE

In witness, I have signed this Power of Attorney on this 4th day of February,
1997.

Tom Bleasdale

POWER OF ATTORNEY FOR SIGNATURE

In witness, I have signed this Power of Attorney on this 4th day of February,
1997.

Lora S. Collins

POWER OF ATTORNEY FOR SIGNATURE

In witness, I have signed this Power of Attorney on this 4th day of February,
1997.
James E. Grinnell

POWER OF ATTORNEY FOR SIGNATURE

In witness, I have signed this Power of Attorney on this 4th day of February,
1997.

William D. Ireland, Jr.

POWER OF ATTORNEY FOR SIGNATURE

In witness, I have signed this Power of Attorney on this 4th day of February,
1997.

Richard W. Lowry

POWER OF ATTORNEY FOR SIGNATURE

In witness, I have signed this Power of Attorney on this 4th day of February,
1997.

William E. Mayer

POWER OF ATTORNEY FOR SIGNATURE

In witness, I have signed this Power of Attorney on this 4th day of February,
1997.

James L. Moody, Jr.

POWER OF ATTORNEY FOR SIGNATURE

In witness, I have signed this Power of Attorney on this 4th day of February,
1997.

John J. Neuhauser

POWER OF ATTORNEY FOR SIGNATURE

In witness, I have signed this Power of Attorney on this 5th day of February,
1997.

George L. Shinn

POWER OF ATTORNEY FOR SIGNATURE

In witness, I have signed this Power of Attorney on this 5th day of February,
1997.

Robert L. Sullivan

POWER OF ATTORNEY FOR SIGNATURE

In witness, I have signed this Power of Attorney on this 5th day of February,
1997.

Sinclair Weeks, Jr.

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF COLONIAL FEDERAL SECURITIES FUND, CLASS A YEAR END OCT-
31-1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS OF
COLONIAL FEDERAL SECURITIES FUND, CLASS A YEAR END OCT-31-1996
</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-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 1375935
<INVESTMENTS-AT-VALUE> 1393144
<RECEIVABLES> 14849
<ASSETS-OTHER> 485
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1408478
<PAYABLE-FOR-SECURITIES> 300929
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8391
<TOTAL-LIABILITIES> 309320
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1339688
<SHARES-COMMON-STOCK> 97444
<SHARES-COMMON-PRIOR> 110901
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (6119)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (251620)
<ACCUM-APPREC-OR-DEPREC> 17209
<NET-ASSETS> 1099158
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 84495
<OTHER-INCOME> 5858
<EXPENSES-NET> 14523
<NET-INVESTMENT-INCOME> 77830
<REALIZED-GAINS-CURRENT> (19569)
<APPREC-INCREASE-CURRENT> (15864)
<NET-CHANGE-FROM-OPS> 42397
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 73107
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7582
<NUMBER-OF-SHARES-REDEEMED> 24368
<SHARES-REINVESTED> 3329
<NET-CHANGE-IN-ASSETS> (180937)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 6970
<OVERDIST-NET-GAINS-PRIOR> 232891
<GROSS-ADVISORY-FEES> 7614
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14523
<AVERAGE-NET-ASSETS> 1184482
<PER-SHARE-NAV-BEGIN> 10.83
<PER-SHARE-NII> 0.696
<PER-SHARE-GAIN-APPREC> (0.300)
<PER-SHARE-DIVIDEND> (0.684)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.012)
<PER-SHARE-NAV-END> 10.53
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF COLONIAL FEDERAL SECURITIES FUND, CLASS B YEAR END OCT-
31-1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
OF
COLONIAL FEDERAL SECURITIES FUND, CLASS B YEAR END OCT-31-1996
</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-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 1375935
<INVESTMENTS-AT-VALUE> 1393144
<RECEIVABLES> 14849
<ASSETS-OTHER> 485
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1408478
<PAYABLE-FOR-SECURITIES> 300929
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8391
<TOTAL-LIABILITIES> 309320
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1339688
<SHARES-COMMON-STOCK> 6972
<SHARES-COMMON-PRIOR> 110901
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (6119)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (251620)
<ACCUM-APPREC-OR-DEPREC> 17209
<NET-ASSETS> 1099158
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 84495
<OTHER-INCOME> 5858
<EXPENSES-NET> 14523
<NET-INVESTMENT-INCOME> 77830
<REALIZED-GAINS-CURRENT> (19569)
<APPREC-INCREASE-CURRENT> (15864)
<NET-CHANGE-FROM-OPS> 42397
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 73107
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7582
<NUMBER-OF-SHARES-REDEEMED> 24368
<SHARES-REINVESTED> 3329
<NET-CHANGE-IN-ASSETS> (180937)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 6970
<OVERDIST-NET-GAINS-PRIOR> 232891
<GROSS-ADVISORY-FEES> 7614
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14523
<AVERAGE-NET-ASSETS> 1184482
<PER-SHARE-NAV-BEGIN> 10.83
<PER-SHARE-NII> 0.696
<PER-SHARE-GAIN-APPREC> (0.300)
<PER-SHARE-DIVIDEND> (0.684)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.012)
<PER-SHARE-NAV-END> 10.53
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF THE COLONIAL FUND, CLASS A YEAR END OCT-31-1996 AND IS
QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF THE
COLONIAL FUND,
CLASS A YEAR END OCT-31-1996
</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-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 978047
<INVESTMENTS-AT-VALUE> 1220131
<RECEIVABLES> 9802
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1229933
<PAYABLE-FOR-SECURITIES> 1973
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1528
<TOTAL-LIABILITIES> 3501
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 505838
<SHARES-COMMON-STOCK> 80016
<SHARES-COMMON-PRIOR> 74693
<ACCUMULATED-NII-CURRENT> 1641
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 73123
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 242064
<NET-ASSETS> 1226432
<DIVIDEND-INCOME> 23753
<INTEREST-INCOME> 10073
<OTHER-INCOME> 0
<EXPENSES-NET> 16156
<NET-INVESTMENT-INCOME> 17670
<REALIZED-GAINS-CURRENT> 72976
<APPREC-INCREASE-CURRENT> 74411
<NET-CHANGE-FROM-OPS> 165057
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12646
<DISTRIBUTIONS-OF-GAINS> 47071
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12023
<NUMBER-OF-SHARES-REDEEMED> 12967
<SHARES-REINVESTED> 6267
<NET-CHANGE-IN-ASSETS> 201331
<ACCUMULATED-NII-PRIOR> 136
<ACCUMULATED-GAINS-PRIOR> 74039
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6256
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16156
<AVERAGE-NET-ASSETS> 716292
<PER-SHARE-NAV-BEGIN> 8.94
<PER-SHARE-NII> 0.165
<PER-SHARE-GAIN-APPREC> 1.183
<PER-SHARE-DIVIDEND> 0.162
<PER-SHARE-DISTRIBUTIONS> 0.636
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.49
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF THE COLONIAL FUND, CLASS B YEAR END OCT-31-1996 AND IS
QUALIFIED
IN ITS ENTRIETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF THE
COLONIAL FUND,
CLASS B YEAR END OCT-31-1996.
</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-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 978047
<INVESTMENTS-AT-VALUE> 1220131
<RECEIVABLES> 9802
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1229933
<PAYABLE-FOR-SECURITIES> 1973
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1528
<TOTAL-LIABILITIES> 3501
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 391022
<SHARES-COMMON-STOCK> 47858
<SHARES-COMMON-PRIOR> 39635
<ACCUMULATED-NII-CURRENT> 1641
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 73123
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 242064
<NET-ASSETS> 1226432
<DIVIDEND-INCOME> 23753
<INTEREST-INCOME> 10073
<OTHER-INCOME> 0
<EXPENSES-NET> 16156
<NET-INVESTMENT-INCOME> 17670
<REALIZED-GAINS-CURRENT> 72976
<APPREC-INCREASE-CURRENT> 74411
<NET-CHANGE-FROM-OPS> 165057
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4191
<DISTRIBUTIONS-OF-GAINS> 25891
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11645
<NUMBER-OF-SHARES-REDEEMED> 6730
<SHARES-REINVESTED> 3308
<NET-CHANGE-IN-ASSETS> 201331
<ACCUMULATED-NII-PRIOR> 136
<ACCUMULATED-GAINS-PRIOR> 74039
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6256
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16156
<AVERAGE-NET-ASSETS> 410344
<PER-SHARE-NAV-BEGIN> 8.93
<PER-SHARE-NII> 0.097
<PER-SHARE-GAIN-APPREC> 1.182
<PER-SHARE-DIVIDEND> 0.093
<PER-SHARE-DISTRIBUTIONS> 0.636
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.48
<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF THE COLONIAL FUND, CLASS Z YEAR END OCT-31-1996 AND IS
QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF THE
COLONIAL FUND,
CLASS Z YEAR END OCT-31-1996.
</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-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 978047
<INVESTMENTS-AT-VALUE> 1220131
<RECEIVABLES> 9802
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1229933
<PAYABLE-FOR-SECURITIES> 1973
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1528
<TOTAL-LIABILITIES> 3501
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12744
<SHARES-COMMON-STOCK> 1427
<SHARES-COMMON-PRIOR> 409
<ACCUMULATED-NII-CURRENT> 1641
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 73123
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 242064
<NET-ASSETS> 1226432
<DIVIDEND-INCOME> 23753
<INTEREST-INCOME> 10073
<OTHER-INCOME> 0
<EXPENSES-NET> 16156
<NET-INVESTMENT-INCOME> 17670
<REALIZED-GAINS-CURRENT> 72976
<APPREC-INCREASE-CURRENT> 74411
<NET-CHANGE-FROM-OPS> 165057
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 232
<DISTRIBUTIONS-OF-GAINS> 684
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1084
<NUMBER-OF-SHARES-REDEEMED> 172
<SHARES-REINVESTED> 106
<NET-CHANGE-IN-ASSETS> 201331
<ACCUMULATED-NII-PRIOR> 136
<ACCUMULATED-GAINS-PRIOR> 74039
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6256
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16156
<AVERAGE-NET-ASSETS> 11532
<PER-SHARE-NAV-BEGIN> 8.94
<PER-SHARE-NII> 0.186
<PER-SHARE-GAIN-APPREC> 1.192
<PER-SHARE-DIVIDEND> 0.182
<PER-SHARE-DISTRIBUTIONS> 0.636
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.50
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF COLONIAL GLOBAL EQUITY FUND, CLASS A YEAR END OCT-31-
1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL
GLOBAL EQUITY FUND, CLASS A YEAR END OCT-31-1996
</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-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 76605
<INVESTMENTS-AT-VALUE> 84683
<RECEIVABLES> 210
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 84897
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 91
<TOTAL-LIABILITIES> 91
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17463
<SHARES-COMMON-STOCK> 1420
<SHARES-COMMON-PRIOR> 924
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 75
<ACCUMULATED-NET-GAINS> 9097
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8068
<NET-ASSETS> 84806
<DIVIDEND-INCOME> 1664
<INTEREST-INCOME> 338
<OTHER-INCOME> 0
<EXPENSES-NET> 1726
<NET-INVESTMENT-INCOME> 276
<REALIZED-GAINS-CURRENT> 9011
<APPREC-INCREASE-CURRENT> 881
<NET-CHANGE-FROM-OPS> 10168
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 105
<DISTRIBUTIONS-OF-GAINS> 618
<DISTRIBUTIONS-OTHER> 37
<NUMBER-OF-SHARES-SOLD> 658
<NUMBER-OF-SHARES-REDEEMED> 221
<SHARES-REINVESTED> 59
<NET-CHANGE-IN-ASSETS> 14174
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 3754
<OVERDISTRIB-NII-PRIOR> 129
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 591
<INTEREST-EXPENSE> 1
<GROSS-EXPENSE> 1726
<AVERAGE-NET-ASSETS> 15265
<PER-SHARE-NAV-BEGIN> 12.45
<PER-SHARE-NII> 0.124
<PER-SHARE-GAIN-APPREC> 1.663
<PER-SHARE-DIVIDEND> 0.098
<PER-SHARE-DISTRIBUTIONS> 0.664
<RETURNS-OF-CAPITAL> 0.035
<PER-SHARE-NAV-END> 13.44
<EXPENSE-RATIO> 15.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF COLONIAL GLOBAL EQUITY FUND, CLASS B YEAR END OCT-31-
1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS OF COLONIAL GLOBAL EQUITY FUND, CLASS B YEAR END OCT-31-
1996
</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-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 76605
<INVESTMENTS-AT-VALUE> 84643
<RECEIVABLES> 210
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 84897
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 91
<TOTAL-LIABILITIES> 91
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 50252
<SHARES-COMMON-STOCK> 4921
<SHARES-COMMON-PRIOR> 4773
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 75
<ACCUMULATED-NET-GAINS> 9097
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8068
<NET-ASSETS> 84806
<DIVIDEND-INCOME> 1664
<INTEREST-INCOME> 338
<OTHER-INCOME> 0
<EXPENSES-NET> 1726
<NET-INVESTMENT-INCOME> 276
<REALIZED-GAINS-CURRENT> 9011
<APPREC-INCREASE-CURRENT> 881
<NET-CHANGE-FROM-OPS> 10168
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 133
<DISTRIBUTIONS-OF-GAINS> 3141
<DISTRIBUTIONS-OTHER> 46
<NUMBER-OF-SHARES-SOLD> 1042
<NUMBER-OF-SHARES-REDEEMED> 1151
<SHARES-REINVESTED> 257
<NET-CHANGE-IN-ASSETS> 14174
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 3754
<OVERDISTRIB-NII-PRIOR> 129
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 591
<INTEREST-EXPENSE> 1
<GROSS-EXPENSE> 1726
<AVERAGE-NET-ASSETS> 64271
<PER-SHARE-NAV-BEGIN> 12.39
<PER-SHARE-NII> 0.027
<PER-SHARE-GAIN-APPREC> 1.634
<PER-SHARE-DIVIDEND> 0.027
<PER-SHARE-DISTRIBUTIONS> 0.664
<RETURNS-OF-CAPITAL> 0.010
<PER-SHARE-NAV-END> 13.35
<EXPENSE-RATIO> 14.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF COLONIAL INTERNATIONAL HORIZONS FUND, CLASS A YEAR END
OCT-31-1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL
STATEMENTS OF COLONIAL INTERNATIONAL HORIZONS FUND, CLASS A YEAR END
OCT-31-1996
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 2
<NAME> COLONIAL INTERNATIONAL HORIZONS FUND, CLASS A
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 52971
<INVESTMENTS-AT-VALUE> 61950
<RECEIVABLES> 1001
<ASSETS-OTHER> 14
<OTHER-ITEMS-ASSETS> 8
<TOTAL-ASSETS> 62987
<PAYABLE-FOR-SECURITIES> 487
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 363
<TOTAL-LIABILITIES> 850
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47383
<SHARES-COMMON-STOCK> 2560
<SHARES-COMMON-PRIOR> 2518
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1)
<ACCUMULATED-NET-GAINS> 5774
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8981
<NET-ASSETS> 62137
<DIVIDEND-INCOME> 1090
<INTEREST-INCOME> 163
<OTHER-INCOME> 0
<EXPENSES-NET> 1111
<NET-INVESTMENT-INCOME> 142
<REALIZED-GAINS-CURRENT> 5758
<APPREC-INCREASE-CURRENT> 4335
<NET-CHANGE-FROM-OPS> 10735
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 199
<DISTRIBUTIONS-OF-GAINS> 1554
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10375
<NUMBER-OF-SHARES-REDEEMED> 11267
<SHARES-REINVESTED> 1543
<NET-CHANGE-IN-ASSETS> 9909
<ACCUMULATED-NII-PRIOR> 73
<ACCUMULATED-GAINS-PRIOR> 3027
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 434
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1111
<AVERAGE-NET-ASSETS> 33901
<PER-SHARE-NAV-BEGIN> 12.43
<PER-SHARE-NII> 0.075
<PER-SHARE-GAIN-APPREC> 2.525
<PER-SHARE-DIVIDEND> (0.080)
<PER-SHARE-DISTRIBUTIONS> (0.63)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.32
<EXPENSE-RATIO> 1.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF COLONIAL INTERNATIONAL HORIZONS FUND, CLASS B YEAR END
OCT-31-1996 AND IS QUALIFIED IN ITS ENTRIETY BY REFERENCE TO SUCH
FINANCIAL
STATEMENTS OF COLONIAL INTERNATIONAL HORIZONS FUND, CLASS B YEAR END
OCT-31-1996
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 2
<NAME> COLONIAL INTERNATIONAL HORIZONS FUND, CLASS B
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 52971
<INVESTMENTS-AT-VALUE> 61950
<RECEIVABLES> 1001
<ASSETS-OTHER> 14
<OTHER-ITEMS-ASSETS> 8
<TOTAL-ASSETS> 62987
<PAYABLE-FOR-SECURITIES> 487
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 363
<TOTAL-LIABILITIES> 850
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47383
<SHARES-COMMON-STOCK> 1791
<SHARES-COMMON-PRIOR> 1691
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1)
<ACCUMULATED-NET-GAINS> 5774
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8981
<NET-ASSETS> 62137
<DIVIDEND-INCOME> 1090
<INTEREST-INCOME> 163
<OTHER-INCOME> 0
<EXPENSES-NET> 1111
<NET-INVESTMENT-INCOME> 142
<REALIZED-GAINS-CURRENT> 5758
<APPREC-INCREASE-CURRENT> 4835
<NET-CHANGE-FROM-OPS> 10735
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1048
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10576
<NUMBER-OF-SHARES-REDEEMED> 10149
<SHARES-REINVESTED> 897
<NET-CHANGE-IN-ASSETS> 9909
<ACCUMULATED-NII-PRIOR> 73
<ACCUMULATED-GAINS-PRIOR> 3027
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 434
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1111
<AVERAGE-NET-ASSETS> 23970
<PER-SHARE-NAV-BEGIN> 12.38
<PER-SHARE-NII> (0.026)
<PER-SHARE-GAIN-APPREC> 2506
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.63)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.23
<EXPENSE-RATIO> 2.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF COLONAIL STRATEGIC BALANCED FUND, CLASS A YEAR END OCT-
31-1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
OF
COLONIAL STRATEGIC BALANCED FUND, CLASS A YEAR END OCT-31-1996
</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-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 59547
<INVESTMENTS-AT-VALUE> 68390
<RECEIVABLES> 1189
<ASSETS-OTHER> 43
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69622
<PAYABLE-FOR-SECURITIES> 386
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37
<TOTAL-LIABILITIES> 423
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21352
<SHARES-COMMON-STOCK> 1981
<SHARES-COMMON-PRIOR> 1403
<ACCUMULATED-NII-CURRENT> 242
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1334
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8833
<NET-ASSETS> 69199
<DIVIDEND-INCOME> 1917
<INTEREST-INCOME> 434
<OTHER-INCOME> 0
<EXPENSES-NET> 977
<NET-INVESTMENT-INCOME> 1374
<REALIZED-GAINS-CURRENT> 1399
<APPREC-INCREASE-CURRENT> 3841
<NET-CHANGE-FROM-OPS> 6614
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 508
<DISTRIBUTIONS-OF-GAINS> 59
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1111
<NUMBER-OF-SHARES-REDEEMED> 575
<SHARES-REINVESTED> 42
<NET-CHANGE-IN-ASSETS> 30405
<ACCUMULATED-NII-PRIOR> 27
<ACCUMULATED-GAINS-PRIOR> 138
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 354
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1072
<AVERAGE-NET-ASSETS> 19076
<PER-SHARE-NAV-BEGIN> 9.91
<PER-SHARE-NII> 0.325
<PER-SHARE-GAIN-APPREC> 1.764
<PER-SHARE-DIVIDEND> 0.349
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<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.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF COLONIAL STRATEGIC BALANCED FUND, CLASS B YEAR END OCT-
31-1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
OF
COLONIAL STRATEGIC BALANCED FUND, CLASS B YEAR END OCT-31-1996
</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-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 59547
<INVESTMENTS-AT-VALUE> 68390
<RECEIVABLES> 1189
<ASSETS-OTHER> 43
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69622
<PAYABLE-FOR-SECURITIES> 386
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37
<TOTAL-LIABILITIES> 423
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34935
<SHARES-COMMON-STOCK> 3107
<SHARES-COMMON-PRIOR> 1570
<ACCUMULATED-NII-CURRENT> 242
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1334
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8833
<NET-ASSETS> 69199
<DIVIDEND-INCOME> 1917
<INTEREST-INCOME> 434
<OTHER-INCOME> 0
<EXPENSES-NET> 977
<NET-INVESTMENT-INCOME> 1374
<REALIZED-GAINS-CURRENT> 1399
<APPREC-INCREASE-CURRENT> 3841
<NET-CHANGE-FROM-OPS> 6614
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 650
<DISTRIBUTIONS-OF-GAINS> 69
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2088
<NUMBER-OF-SHARES-REDEEMED> 605
<SHARES-REINVESTED> 54
<NET-CHANGE-IN-ASSETS> 30405
<ACCUMULATED-NII-PRIOR> 27
<ACCUMULATED-GAINS-PRIOR> 138
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 354
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1072
<AVERAGE-NET-ASSETS> 27641
<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>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF COLONIAL STRATEGIC BALANCED FUND, CLASS D YEAR END OCT-
31-1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
OF
COLONIAL STRATEGIC BALANCED FUND, CLASS D YEAR END OCT-31-1996.
</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-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 59547
<INVESTMENTS-AT-VALUE> 68390
<RECEIVABLES> 1189
<ASSETS-OTHER> 43
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69622
<PAYABLE-FOR-SECURITIES> 386
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37
<TOTAL-LIABILITIES> 423
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2503
<SHARES-COMMON-STOCK> 275
<SHARES-COMMON-PRIOR> 358
<ACCUMULATED-NII-CURRENT> 242
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1334
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8833
<NET-ASSETS> 69199
<DIVIDEND-INCOME> 1917
<INTEREST-INCOME> 434
<OTHER-INCOME> 0
<EXPENSES-NET> 977
<NET-INVESTMENT-INCOME> 1374
<REALIZED-GAINS-CURRENT> 1399
<APPREC-INCREASE-CURRENT> 3841
<NET-CHANGE-FROM-OPS> 6614
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 85
<DISTRIBUTIONS-OF-GAINS> 14
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 157
<NUMBER-OF-SHARES-REDEEMED> 248
<SHARES-REINVESTED> 8
<NET-CHANGE-IN-ASSETS> 30405
<ACCUMULATED-NII-PRIOR> 27
<ACCUMULATED-GAINS-PRIOR> 138
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 354
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1072
<AVERAGE-NET-ASSETS> 3931
<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.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS A YEAR END
OCT-31-1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL
STATEMENTS OF COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS A YEAR END
OCT-31-1996
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 7
<NAME> COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS A
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 95005
<INVESTMENTS-AT-VALUE> 97061
<RECEIVABLES> 651
<ASSETS-OTHER> 35
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 97747
<PAYABLE-FOR-SECURITIES> 432
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 868
<TOTAL-LIABILITIES> 1300
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 88599
<SHARES-COMMON-STOCK> 3207
<SHARES-COMMON-PRIOR> 442
<ACCUMULATED-NII-CURRENT> 281
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5862
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1705
<NET-ASSETS> 96447
<DIVIDEND-INCOME> 2297
<INTEREST-INCOME> 103
<OTHER-INCOME> 0
<EXPENSES-NET> 2467
<NET-INVESTMENT-INCOME> (67)
<REALIZED-GAINS-CURRENT> 9394
<APPREC-INCREASE-CURRENT> (3824)
<NET-CHANGE-FROM-OPS> 5503
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 777
<NUMBER-OF-SHARES-REDEEMED> (2012)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (23967)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 582
<OVERDIST-NET-GAINS-PRIOR> 9806
<GROSS-ADVISORY-FEES> 993
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2508
<AVERAGE-NET-ASSETS> 70766
<PER-SHARE-NAV-BEGIN> 9.76
<PER-SHARE-NII> 0.044
<PER-SHARE-GAIN-APPREC> 0.456
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.26
<EXPENSE-RATIO> 41.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS B YEAR END
OCT-31-1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFRENCE TO SUCH
FINANCIAL
STATEMENTS OF COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS B YEAR END
OCT-31-1996
</LEGEND>
<CIK> 0000021874
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 7
<NAME> COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS B
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 95005
<INVESTMENTS-AT-VALUE> 97061
<RECEIVABLES> 651
<ASSETS-OTHER> 35
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 97747
<PAYABLE-FOR-SECURITIES> 432
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 868
<TOTAL-LIABILITIES> 1300
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 88599
<SHARES-COMMON-STOCK> 6232
<SHARES-COMMON-PRIOR> 7938
<ACCUMULATED-NII-CURRENT> 281
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5862
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1705
<NET-ASSETS> 964477
<DIVIDEND-INCOME> 2297
<INTEREST-INCOME> 103
<OTHER-INCOME> 0
<EXPENSES-NET> 2467
<NET-INVESTMENT-INCOME> (67)
<REALIZED-GAINS-CURRENT> 9394
<APPREC-INCREASE-CURRENT> (3824)
<NET-CHANGE-FROM-OPS> 5503
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1132
<NUMBER-OF-SHARES-REDEEMED> (2838)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (23967)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 582
<OVERDIST-NET-GAINS-PRIOR> 9806
<GROSS-ADVISORY-FEES> 993
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2508
<AVERAGE-NET-ASSETS> 110264
<PER-SHARE-NAV-BEGIN> 9.62
<PER-SHARE-NII> (0.032)
<PER-SHARE-GAIN-APPREC> 0.452
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS D YEAR END
OCT-31-1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL
STATEMENTS OF COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS D YEAR END
OCT-31-1996
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 7
<NAME> COLONIAL INTERNATIONAL FUND FOR GROWTH, CLASS D
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 95005
<INVESTMENTS-AT-VALUE> 97061
<RECEIVABLES> 651
<ASSETS-OTHER> 35
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 97747
<PAYABLE-FOR-SECURITIES> 432
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 868
<TOTAL-LIABILITIES> 1300
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 88599
<SHARES-COMMON-STOCK> 95
<SHARES-COMMON-PRIOR> 71
<ACCUMULATED-NII-CURRENT> 281
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5862
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1705
<NET-ASSETS> 96447
<DIVIDEND-INCOME> 2297
<INTEREST-INCOME> 103
<OTHER-INCOME> 0
<EXPENSES-NET> 2467
<NET-INVESTMENT-INCOME> 9394
<REALIZED-GAINS-CURRENT> (3824)
<APPREC-INCREASE-CURRENT> 5503
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 35
<NUMBER-OF-SHARES-SOLD> (11)
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> (23967)
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 582
<OVERDISTRIB-NII-PRIOR> 9806
<OVERDIST-NET-GAINS-PRIOR> 993
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 871
<GROSS-EXPENSE> 2508
<AVERAGE-NET-ASSETS> 871
<PER-SHARE-NAV-BEGIN> 9.67
<PER-SHARE-NII> (0.032)
<PER-SHARE-GAIN-APPREC> 0.452
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.09
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF COLONIAL SELECT VALUE FUND, CLASS A YEAR END OCT-31-
1996 AND IS
QUALFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL
SELECT VALUE FUND, CLASS A YEAR END OCT-31-1996
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 1
<NAME> COLONIAL SELECT VALUE FUND, CLASS A
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 319449
<INVESTMENTS-AT-VALUE> 382820
<RECEIVABLES> 1643
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 40
<TOTAL-ASSETS> 384512
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 318
<TOTAL-LIABILITIES> 318
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 273179
<SHARES-COMMON-STOCK> 14183
<SHARES-COMMON-PRIOR> 12041
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 296
<ACCUMULATED-NET-GAINS> 47942
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 63369
<NET-ASSETS> 384194
<DIVIDEND-INCOME> 3263
<INTEREST-INCOME> 1258
<OTHER-INCOME> 0
<EXPENSES-NET> 4437
<NET-INVESTMENT-INCOME> 84
<REALIZED-GAINS-CURRENT> 47958
<APPREC-INCREASE-CURRENT> 11344
<NET-CHANGE-FROM-OPS> 59386
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 501
<DISTRIBUTIONS-OF-GAINS> 14913
<DISTRIBUTIONS-OTHER> 281
<NUMBER-OF-SHARES-SOLD> 108391
<NUMBER-OF-SHARES-REDEEMED> 87207
<SHARES-REINVESTED> 13988
<NET-CHANGE-IN-ASSETS> 114518
<ACCUMULATED-NII-PRIOR> 582
<ACCUMULATED-GAINS-PRIOR> 20750
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1743
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4437
<AVERAGE-NET-ASSETS> 221121
<PER-SHARE-NAV-BEGIN> 16.14
<PER-SHARE-NII> 0.043
<PER-SHARE-GAIN-APPREC> 3.162
<PER-SHARE-DIVIDEND> 0.065
<PER-SHARE-DISTRIBUTIONS> 1.240
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.04
<EXPENSE-RATIO> 1.17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF COLONIAL SELECT VALUE FUND, CLASS B YEAR END OCT-31-
1996 AND IS
QUALIFIED IN ITS ENTRIETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL
SELECT VALUE FUND, CLASS B YEAR END OCT-31-1996
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 1
<NAME> COLONIAL SELECT VALUE FUND, CLASS B
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 319449
<INVESTMENTS-AT-VALUE> 382820
<RECEIVABLES> 1643
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 40
<TOTAL-ASSETS> 384512
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 318
<TOTAL-LIABILITIES> 318
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 273179
<SHARES-COMMON-STOCK> 7190
<SHARES-COMMON-PRIOR> 4694
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 296
<ACCUMULATED-NET-GAINS> 47942
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 63369
<NET-ASSETS> 384194
<DIVIDEND-INCOME> 3263
<INTEREST-INCOME> 1258
<OTHER-INCOME> 0
<EXPENSES-NET> 4437
<NET-INVESTMENT-INCOME> 84
<REALIZED-GAINS-CURRENT> 47958
<APPREC-INCREASE-CURRENT> 11344
<NET-CHANGE-FROM-OPS> 59386
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25
<DISTRIBUTIONS-OF-GAINS> 5989
<DISTRIBUTIONS-OTHER> 15
<NUMBER-OF-SHARES-SOLD> 76766
<NUMBER-OF-SHARES-REDEEMED> 40788
<SHARES-REINVESTED> 5706
<NET-CHANGE-IN-ASSETS> 114518
<ACCUMULATED-NII-PRIOR> 582
<ACCUMULATED-GAINS-PRIOR> 20750
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1743
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4437
<AVERAGE-NET-ASSETS> 97172
<PER-SHARE-NAV-BEGIN> 16.04
<PER-SHARE-NII> (0.081)
<PER-SHARE-GAIN-APPREC> 3.129
<PER-SHARE-DIVIDEND> 0.008
<PER-SHARE-DISTRIBUTIONS> 1.240
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.840
<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.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF COLONIAL GLOBAL UTILITIES FUND, CLASS A YEAR END OCT-31-
1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
OF
COLONIAL GLOBAL UTILITIES FUND, CLASS A YEAR END OCT-31-1996
</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-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 172321
<RECEIVABLES> 26
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 172347
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 385
<TOTAL-LIABILITIES> 385
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 155731
<SHARES-COMMON-STOCK> 14149
<SHARES-COMMON-PRIOR> 19124
<ACCUMULATED-NII-CURRENT> 865
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1451
<ACCUM-APPREC-OR-DEPREC> 16817
<NET-ASSETS> 171962
<DIVIDEND-INCOME> 6194
<INTEREST-INCOME> 3615
<OTHER-INCOME> (1165)
<EXPENSES-NET> 1523
<NET-INVESTMENT-INCOME> 7121
<REALIZED-GAINS-CURRENT> 2350
<APPREC-INCREASE-CURRENT> 12784
<NET-CHANGE-FROM-OPS> 22255
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6447
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 434
<NUMBER-OF-SHARES-REDEEMED> 5903
<SHARES-REINVESTED> 494
<NET-CHANGE-IN-ASSETS> (41006)
<ACCUMULATED-NII-PRIOR> 241
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3809)
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1523
<AVERAGE-NET-ASSETS> 191288
<PER-SHARE-NAV-BEGIN> 11.08
<PER-SHARE-NII> 0.427
<PER-SHARE-GAIN-APPREC> 0.878
<PER-SHARE-DIVIDEND> 0.385
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.00
<EXPENSE-RATIO> 1.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL
STATEMENTS OF COLONIAL GLOBAL UTILITIES FUND, CLASS B YEAR END OCT-31-
1996 ABD
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
OF
COLONIAL GLOBAL UTILITIES FUND, CLASS B YEAR END OCT-31-1996
</LEGEND>
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 8
<NAME> COLONIAL GLOBAL UTILTIES FUND, CLASS B
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 172321
<RECEIVABLES> 26
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 172347
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 385
<TOTAL-LIABILITIES> 385
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 155731
<SHARES-COMMON-STOCK> 128
<SHARES-COMMON-PRIOR> 67
<ACCUMULATED-NII-CURRENT> 865
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1451
<ACCUM-APPREC-OR-DEPREC> 16817
<NET-ASSETS> 171962
<DIVIDEND-INCOME> 6194
<INTEREST-INCOME> 3615
<OTHER-INCOME> (1165)
<EXPENSES-NET> 1523
<NET-INVESTMENT-INCOME> 7121
<REALIZED-GAINS-CURRENT> 2350
<APPREC-INCREASE-CURRENT> 12784
<NET-CHANGE-FROM-OPS> 22255
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 30
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 105
<NUMBER-OF-SHARES-REDEEMED> 46
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> (41006)
<ACCUMULATED-NII-PRIOR> 241
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3809)
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1523
<AVERAGE-NET-ASSETS> 1223
<PER-SHARE-NAV-BEGIN> 11.08
<PER-SHARE-NII> 0.340
<PER-SHARE-GAIN-APPREC> 0.889
<PER-SHARE-DIVIDEND> 0.299
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.01
<EXPENSE-RATIO> 2.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL GLOBAL UTILITIES FUND, CLASS D YEAR END OCT-31-1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONAIL GLOBAL UTILITIES FUND, CLASS D YEAR END OCT-31-1996
</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-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 172321
<RECEIVABLES> 26
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 172347
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 385
<TOTAL-LIABILITIES> 385
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 155731
<SHARES-COMMON-STOCK> 49
<SHARES-COMMON-PRIOR> 28
<ACCUMULATED-NII-CURRENT> 865
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1451
<ACCUM-APPREC-OR-DEPREC> 16817
<NET-ASSETS> 171962
<DIVIDEND-INCOME> 6194
<INTEREST-INCOME> 3615
<OTHER-INCOME> (1165)
<EXPENSES-NET> 1523
<NET-INVESTMENT-INCOME> 7121
<REALIZED-GAINS-CURRENT> 2350
<APPREC-INCREASE-CURRENT> 12784
<NET-CHANGE-FROM-OPS> 22255
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 31
<NUMBER-OF-SHARES-REDEEMED> 11
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> (41006)
<ACCUMULATED-NII-PRIOR> 241
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3809)
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1523
<AVERAGE-NET-ASSETS> 462
<PER-SHARE-NAV-BEGIN> 11.08
<PER-SHARE-NII> 0.340
<PER-SHARE-GAIN-APPREC> 0.879
<PER-SHARE-DIVIDEND> 0.299
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.00
<EXPENSE-RATIO> 2.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> LFC UTILITIES TRUST

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 153039
<INVESTMENTS-AT-VALUE> 169846
<RECEIVABLES> 2859
<ASSETS-OTHER> 14
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 172719
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 397
<TOTAL-LIABILITIES> 397
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 172322
<DIVIDEND-INCOME> 6195
<INTEREST-INCOME> 3615
<OTHER-INCOME> 0
<EXPENSES-NET> 1165
<NET-INVESTMENT-INCOME> 8645
<REALIZED-GAINS-CURRENT> 2350
<APPREC-INCREASE-CURRENT> 12784
<NET-CHANGE-FROM-OPS> 23779
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1064
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1165
<AVERAGE-NET-ASSETS> 193521
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>