THE COLONIAL FUND
- - CLASS Z SHARES
PROSPECTUS, MARCH 1, 1999
Advised by Colonial Management Associates, Inc.
The following eligible institutional investors may purchase Class Z shares: (i)
any retirement plan with aggregate assets of at least $5 million at the time of
purchase of Class Z shares and which purchases shares directly from Liberty
Funds Distributor, Inc. (LFD) or through a third party broker-dealer; (ii) any
insurance company, trust company or bank purchasing shares for its own account;
and (iii) any endowment, investment company or foundation. In addition, Class Z
shares may be purchased directly or by exchange by any clients of investment
advisory affiliates of LFD provided that the clients meet certain criteria
established by LFD and its affiliates.
Although these securities have been registered with the Securities and Exchange
Commission, the Commission has not approved any shares offered in this
prospectus or determined whether this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
NOT FDIC-INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
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TABLE OF CONTENTS
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THE FUND 2
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Investment Goals .......................................................... 2
Primary Investment Strategies ............................................. 2
Primary Investment Risks .................................................. 3
Performance History ....................................................... 4
Your Expenses ............................................................. 5
YOUR ACCOUNT 6
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How to Buy Shares ......................................................... 6
Sales Charges ............................................................. 7
How to Exchange Shares .................................................... 7
How to Sell Shares ........................................................ 7
Other Information About Your Account ...................................... 8
MANAGING THE FUND 11
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Investment Advisor ........................................................ 11
Portfolio Managers ........................................................ 11
OTHER INVESTMENT
STRATEGIES AND RISKS 12
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Hedging Strategies ........................................................ 12
When-Issued Securities, Forward
Commitments and Dollar Rolls .............................................. 12
Year 2000 Compliance ...................................................... 12
FINANCIAL HIGHLIGHTS 13
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1
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THE FUND
THE COLONIAL FUND
STOCK SELECTION STRATEGY
In selecting stocks for the Fund, the advisor uses an investment strategy that
focuses on buying stocks with attractive values relative to other stocks within
their industries. This relative values approach allows the Fund to remain
diversified across a variety of industries. The advisor buys stocks that have
attractive current prices, consistent operating performance, and/or favorable
future growth prospects. The advisor's strategy uses fact-based quantitative
analysis supported by fundamental research.
INVESTMENT GOALS
The Fund seeks primarily income and capital growth and, secondarily, capital
preservation.
PRIMARY INVESTMENT STRATEGIES
The Fund invests in both stocks and bonds. The advisor adjusts the Fund's
allocation of stocks and bonds based on the advisor's assessment of the relative
risk and expected performance of the stock and bond markets. Under normal market
conditions, at least 25% of the Fund's assets will be invested in bonds and
other fixed income securities.
At times, the advisor may determine that adverse market conditions make it
desirable to suspend temporarily the Fund's normal investment activities. During
such times, the Fund may, but is not required to, invest in cash or high
quality, short-term debt securities, without limit.
In seeking to achieve its goals, the Fund may invest in various types of
securities and engage in various investment techniques which are not the
principal focus of the Fund and therefore are not described in this prospectus.
These types of securities and investment practices are identified and discussed
in the Fund's Statement of Additional Information (SAI), which you may obtain by
contacting Liberty Funds Distributor. (See back cover for address and phone
number). Approval by the Fund's shareholders is not required to modify or change
the Fund's goals or investment strategies.
Stocks
In selecting stocks for the Fund, the advisor invests primarily in "value"
stocks, but may also invest in "growth" stocks of medium and large capitalized
companies. The advisor generally selects stocks which fall into one of the
following categories at the time of purchase:
1. Companies whose current business activities provide earnings, dividends
or assets that represent above average value;
2. Companies which have a record of consistent earnings growth that may
provide above average stability or value in turbulent markets; or
3. Companies with anticipated business growth prospects that represent
above average value.
Bonds
In selecting bonds for the Fund, the advisor invests primarily in
U.S. government securities and investment grade securities. The U.S. government
securities may consist of U.S. Treasuries and mortgage-backed securities issued
or guaranteed by the U.S. government, its agents or instrumentalities. The
Fund's investment grade securities may consist of mortgage- or asset-backed
securities issued by a private entity or corporate bonds.
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2
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PRIMARY INVESTMENT RISKS
The primary risks of investing in the Fund are described below. There are many
circumstances that are not described here which could cause you to lose money by
investing in the Fund, or which could prevent the Fund from achieving its goals.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing economic, political or market conditions, or due to the
financial condition of the company which issued the security.
Value stocks are securities of companies that the advisor believes are
undervalued. These companies may have experienced adverse business or industry
developments or may be subject to special risks that have caused the stocks to
be out of favor. If the advisor's assessment of a company's prospects is wrong,
the price of its stock may fall or may not approach the value the advisor has
placed on it.
Interest rate risk is the risk of a decline or increase in the price of a bond
when interest rates increase or decline. In general, if interest rates rise,
bond prices fall, and if interest rates fall, bond prices rise. Changes in the
values of bonds usually will not affect the amount of income the Fund receives
from them but will affect the value of the Fund's shares. Interest rate risk is
generally greater for bonds with longer maturities.
Structure risk is the risk that an event will occur (such as a security being
prepaid or called) that alters the security's cashflows. Prepayment risk is a
particular type of structure risk that is present in the Fund because of its
investments in mortgage-backed securities. Prepayment risk is the possibility
that, as interest rates fall, homeowners are more likely to refinance their home
mortgages. When mortgages are refinanced, the principal on mortgage-backed
securities is paid earlier than expected. In an environment of declining
interest rates, mortgage-backed securities may offer less potential for gain
than other debt securities. During periods of rising interest rates,
mortgage-backed securities have a high risk of declining in price because the
declining prepayment rates effectively increase the maturity of the securities.
In addition, the potential impact of prepayment on the price of a
mortgage-backed security may be difficult to predict and result in greater
volatility.
Because the Fund may invest in fixed-income securities issued by private
entities, including certain types of mortgage-backed securities and corporate
bonds, the Fund is subject to issuer risk. Issuer risk is the possibility that
changes in the financial condition of the issuer of a security, changes in
general economic conditions or changes in economic conditions that affect the
issuer's industry may impact the issuer's ability to make timely payment of
interest or principal. This could result in decreases in the price of the
security.
Information on other securities and risks appears under "Other Investment
Strategies and Risks."
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3
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THE FUND
THE COLONIAL FUND
UNDERSTANDING PERFORMANCE
Calendar-year total return shows the Fund's Class Z share performance for each
complete calendar year since it commenced operations. It includes the effects of
Fund expenses.
AVERAGE ANNUAL TOTAL RETURN is a measure of the Fund's performance over the past
one-, five- and ten-year periods. It includes the effects of Fund expenses.
THE FUND'S RETURN IS COMPARED both to the Standard & Poor's Midland 400 Index
(S & P Index) an unmanaged index that tracks the performance of
middle-capitalization U.S. stocks, and the average return of the Funds included
in Lipper, Inc. Balanced Fund Average. Unlike the Fund, the index does not incur
fees or charges. It is not possible to invest in the index.
PERFORMANCE HISTORY
The bar chart below shows changes in the Fund's performance from year to year by
illustrating Funds calendar-year returns for Class Z shares. The performance
table following the bar chart shows how the Fund's average annual return
compared with those of a broad measure of market performance for 1 year 5 years
and 10 years. The chart and table are intended to illustrate some of the risks
of investing in the Fund by showing the changes in the Fund's performance. All
returns include the reinvestment of dividends and distributions. As with all
mutual funds, past performance does not predict the Fund's future performance.
CALENDAR-YEAR TOTAL RETURN (CLASS Z)
[BAR GRAPH]
1996 ......................... 17.16%
1997 ......................... 26.32%
1998 ......................... 13.28%
Best quarter: 2nd quarter 1997 +15.78%
Worst quarter: 3rd quarter 1998 -7.46%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1998
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1 YEAR 5 YEARS 10 YEARS
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Class Z (%) 13.28 16.19(1) 14.38(1)
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S & P Index (%) 19.11 18.84 19.29
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Lipper Average (%) 13.48 13.84 12.97
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(1) Class Z shares (a newer class of shares) performance information
includes returns of the Fund's Class A shares (the oldest existing fund
Class) for periods prior to the inception of the newer class of shares.
If differences in expenses between the two Classes were reflected, the
returns for periods prior to the inception of the newer class of shares
would be higher, since Class Z shares are not subject to sales charges
or services fees.
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4
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THE FUND
THE COLONIAL FUND
UNDERSTANDING EXPENSES
SHAREHOLDER FEES are paid directly by shareholders to the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management fees, brokerage costs and administrative costs, including pricing and
custody services.
EXAMPLE EXPENSES helps you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. It uses the following hypothetical
conditions:
- - $10,000 initial investment
- - 5% total return for each year
- - Fund operating expenses remain the same
- - No expense reductions in effect
YOUR EXPENSES
Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Fund.
SHAREHOLDER FEES(1)(2) (PAID DIRECTLY FROM YOUR INVESTMENT)
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CLASS Z
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Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 0.00
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Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the offering price) 0.00
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Redemption fee(1) (as a percentage of
amount redeemed, if applicable) None
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ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM THE FUND)
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Class Z
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Management fee (%) 0.54
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Distribution and service (12b-1) fees (%) 0.00
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Other expenses (%) 0.34
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Total annual fund operating expenses (%) 0.88
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EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
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1 Year 3 Years 5 Years 10 Years
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Class Z $90 $282 $490 $1,090
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(1) There is a $7.50 charge for wiring sale proceeds to your bank.
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YOUR ACCOUNT
HOW TO BUY SHARES
Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When the Fund receives your
purchase request in "good form," your shares will be bought at the next
calculated price. In "good form" means that you placed your order with your
brokerage firm or your payment has been received and your application is
complete, including all necessary signatures.
OUTLINED BELOW ARE VARIOUS WAYS YOU CAN PURCHASE SHARES:
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METHOD INSTRUCTIONS
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Through your Your financial advisor can help you establish your account and buy Fund shares
financial advisor on your behalf.
By check For new accounts, send a completed application and check made payable
(new account) to the Fund to the transfer agent, Liberty Funds Services, Inc., P.O. Box 1722,
Boston, MA 02105-1722.
By check For existing accounts, fill out and return the additional investment stub
(existing account) included in your quarterly statement, or send a letter of instruction including
your Fund name and account number with a check made payable to the Fund to
Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722.
By exchange You may acquire shares by exchanging shares you own in one fund for shares of
the same share class of the Fund or Class A of another fund at no additional
cost. To exchange by telephone, call 1-800-422-3737.
By wire You may purchase shares by wiring money from your bank account to your fund
account. To wire funds to your fund account, call 1-800-422-3737 to obtain a
control number and the wiring instructions.
By electronic funds You may purchase shares by electronically transferring money from your bank
transfer (EFT) account to your fund account by calling 1-800-422-3737. Your money may take up
to two business days to to be invested. You must set up this feature prior to
your telephone request. Be sure to complete the appropriate section of the
application.
Automatic You can make monthly or quarterly investments automatically from your bank
investment plan account to your fund account. You can select a pre-authorized amount to be sent
via EFT. Be sure to complete the appropriate section of the application for this
feature.
By dividend You may automatically invest dividends distributed by one fund into the same
diversification class of shares of another fund at no additional sales charge. To invest your
dividends in another fund, call 1-800-345-6611.
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YOUR ACCOUNT
CHOOSING A SHARE CLASS
The Fund Offers one class of shares in this prospectus -- CLASS Z.
The Fund also offers three additional classes of shares -- Class A, B and C are
available through a separate prospectus. Each share class has its own sales
charge and expense structure. Determining which share class is best for you
depends on the dollar amount you are investing and the number of years for which
you are willing to invest. Based on your personal situation, your investment
advisor can help you decide which class of shares makes the most sense for you.
SALES CHARGES
Your purchases of Class Z shares generally are at net asset value (NAV), which
is the value of a Fund share excluding any sales charge and are not subject to
an initial sales charge when you purchase, or a contingent deferred sales charge
when you sell, shares of the Fund. The following eligible institutional
investors may purchase Class Z shares: (i) any retirement plan with aggregate
assets of at least $5 million at the time of purchase of Class Z shares and
which purchases shares directly from LFD or through a third party broker-dealer;
(ii) any insurance company, trust company or bank purchasing shares for its own
account; and (iii) any endowment, investment company or foundation. In addition,
Class Z shares may be purchased directly or by exchange by any clients of
investment advisory affiliates of LFD, provided that the clients meet certain
criteria established by LFD and its affiliates.
HOW TO EXCHANGE SHARES
You may exchange your shares for shares of the same share class of another fund
distributed by LFD or Class A shares of another fund at NAV. Unless your account
is part of a tax-deferred retirement plan, an exchange is a taxable event.
Therefore, you may realize a gain or a loss for tax purposes. The Fund may
terminate your exchange privilege if the advisor determines that your exchange
activity is likely to adversely impact the advisor's ability to manage the Fund.
To exchange by telephone, call 1-800-422-3737.
HOW TO SELL SHARES
Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of the Fund on any regular business day that the New
York Stock Exchange (NYSE) is open.
When the Fund receives your sales request in "good form," shares will be sold at
the next calculated price. In "good form" means that money used to purchase your
shares is fully collected. When selling shares by letter of instruction, "good
form" means (i) your letter has complete instructions, the proper signatures and
signature guarantees and (ii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries and
surviving joint owners, please call 1-800-345-6611. Retirement Plan accounts
have special requirements, please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days.
However, if you purchased your shares by check, the Fund may delay sending the
proceeds for up to 15 days after your initial purchase to protect against checks
that are returned.
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YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
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METHOD INSTRUCTIONS
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Through your You may call your financial advisor to place your sell order. To receive the
financial advisor current trading day's price, your financial advisor firm must receive your
request prior to the close of the New York Stock Exchange (NYSE), usually 4:00
p.m. Eastern time.
By exchange You or your financial advisor may sell shares by exchanging from the Fund into
Class Z shares or Class A shares of another fund at no additional cost. To
exchange by telephone, call 1-800-422-3737.
By telephone You or your financial advisor may sell shares by telephone and request that a
check be sent to your address of record by calling 1-800-422-3737. The dollar
limit for telephone sales is $100,000 in a 30-day period. You do not need to set
up this feature in advance of your call.
By mail You may send a signed letter of instruction (LOI) or stock power form to the
address below. In your LOI, note your fund's name, share class, account number,
and the dollar value or number of shares you wish to sell. All account owners
must sign the letter, and signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible guarantor
institution. Additional documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual retirement account
(IRA) owners. For details, call 1-800-345-6611.
By wire Mail your LOI to Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722.
You may sell shares and request that the proceeds be wired to your bank. You
must set up this feature prior to your telephone request. Be sure to complete
the appropriate section of the account application for this feature.
By electronic You may sell shares and request that the proceeds be electronically
funds transfer transferred to your bank. Proceeds may take up to two business days to be
received by your bank. You must set up this feature prior to your request.
Be sure to complete the appropriate section of the account application
for this feature.
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OTHER INFORMATION ABOUT YOUR ACCOUNT
HOW THE FUND'S SHARE PRICE IS DETERMINED The price of the Fund's Class Z shares
is based on its NAV. The NAV is determined at the close of the NYSE, usually
4:00 p.m. Eastern time, on each business day that the NYSE is open (typically
Monday through Friday).
When you request a transaction, it will be processed at the NAV next determined
after your request is received in good form by LFD. In most cases, in order to
receive that day's price, LFD must receive your order before that day's
transactions are processed. If you request a transaction through your financial
advisor's firm, the firm must receive your order by the close of trading on the
NYSE to receive that day's price.
The Fund determines its NAV for its Class Z shares by dividing total net assets
attributable to Class Z Shares by the number of shares outstanding. In
determining the NAV, the Fund must determine the price of each security in its
portfolio at the close of each trading day. Securities for which market
quotations are available are valued each day at the current market value.
However, where market quotations are unavailable, or when the advisor believes
that subsequent events have made them unreliable, the Fund may use other data to
determine the fair value of the securities.
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YOUR ACCOUNT
UNDERSTANDING FUND DISTRIBUTIONS
The Fund earns income from the securities it holds. The Fund also may experience
capital gains and losses on sales of its securities. The Fund distributes
substantially all of its net investment income and capital gains to
shareholders. As a shareholder, you are entitled to a portion of the Fund's
income and capital gains based on the number of shares you own at the time these
distributions are declared.
You can find the daily prices of many share classes for the Fund in most major
daily newspapers. You can find daily prices for all share classes by visiting
the Fund's web site at www.libertyfunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of
depreciation in share value), you may be subject to an annual account fee of
$10. This fee is deducted from the account in June each year. Approximately 60
days prior to the fee date, the Fund's transfer agent will send you written
notification of the upcoming fee. If you add money to your account and bring the
value above $1,000 prior to the fee date, the fee will not be deducted.
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
DIVIDENDS, DISTRIBUTION AND TAXES The Fund has the potential to make the
following distributions:
TYPES OF DISTRIBUTIONS
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Dividend/ordinary income Represents interest and dividends earned from
securities held by the Fund.
Capital gains Represents capital gains on sales of securities.
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DISTRIBUTION OPTIONS The Fund distributes any dividends quarterly and capital
gains at least annually. You can choose one of following options for these
distributions when you open your account.(1) To change your distribution option
call 1-800-345-6611.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your current fund
Reinvest all distributions in shares of another fund
Receive dividends in cash and reinvest capital gains(2)
Receive all distributions in cash(2) (with one of the following options):
- - send the check to your address of record
- - send the check to a third party address
- - transfer the money to your bank via electronic funds transfer (EFT)
TAX CONSEQUENCES Regardless of whether you receive your distributions in cash or
reinvest them in additional Fund shares, all Fund distributions are subject to
federal income tax. Depending on the state where you live, distributions may
also be subject to state and local income taxes.
(1) If you do not indicate on your application your preference for handling
distributions, the Fund will automatically reinvest all distributions
in additional shares of the Fund.
(2) Distributions of $10 or less will automatically be reinvested in
additional Fund shares. If you elect to receive distributions by check
and the check is returned as undeliverable, or if you do not cash a
distribution check within six months of the check date, the
distribution will be reinvested in additional shares of the Fund.
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9
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YOUR ACCOUNT
In general, any dividends and short-term capital gains distributions are taxable
as ordinary income. Distributions of long-term capital gains are generally
taxable as capital gains. You will be provided with information each year
regarding the amount of ordinary income and capital gains distributed to you for
the previous year and any portion of your distributions which is exempt from
state and local taxes. Your investment in the Fund may have additional personal
tax implications. Please consult your tax advisor on state, local or other
applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund,
you may realize a capital gain or loss when selling and exchanging shares of the
Fund. Such transactions may be subject to federal income tax.
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MANAGING THE FUND
INVESTMENT ADVISOR
Colonial Management Associates, Inc. (Colonial), located at One Financial
Center, Boston, MA 02111-2621, is the Fund's investment advisor. In its duties
as investment advisor, Colonial runs the Fund's day-to-day business, including
placing all orders for the purchase and sale of the Fund's portfolio securities.
Colonial has been an investment advisor since 1931. As of January 31, 1998,
Colonial managed over $17 billion in assets.
Colonial's investment advisory business is managed together with the mutual
funds and institutional investment advisory business of its affiliate, Stein Roe
& Farnham Incorporated (Stein Roe), by a combined management team of employees
from both companies. Stein Roe also shares personnel, facilities and systems
with Colonial that may be used in providing administrative services to the Fund.
Both Colonial and Stein Roe are subsidiaries of Liberty Financial Companies,
Inc.
For the 1998 fiscal year, aggregate advisory fees paid to Colonial by the Fund
amounted to 0.54% of average daily net assets of the Fund.
Colonial can use the services of AlphaTrade Inc., an affiliate broker-dealer
when buying or selling equity securities for the Fund's portfolio, pursuant to
procedures adopted by the Board of Trustees.
PORTFOLIO MANAGERS
The portfolio managers of the Fund's equity investments are as follows:
JOHN E. LENNON, a Chartered Financial Analyst and Vice President of Colonial,
has co-managed the Fund since October, 1997 and has managed various other
Colonial equity funds since 1982.
GORDON A. JOHNSON Ph.D, a Chartered Financial Analyst and Vice President of
Colonial, has co-managed the Fund since February, 1997 and has served as
associate portfolio manager of the Fund since June 1995. Prior to 1995, Mr.
Johnson was a senior equity analyst with Colonial.
The portfolio managers of the Fund's fixed income investments are as follows:
LESLIE W. FINNEMORE, Vice President of Colonial, has co-managed the Fund since
December, 1997 and managed various other Colonial taxable fixed-income funds
since 1987.
WILLIAM C. HILL, Vice President of Colonial, has co-managed the Fund since
December, 1997 and has served as a member of the portfolio management team in
Colonial's mortgage group since November 1996. Prior to joining Colonial, Mr.
Hill was a mortgage analyst with Putnam Investments, Inc.
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11
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OTHER INVESTMENT STRATEGIES AND RISKS
UNDERSTANDING THE FUND'S
OTHER INVESTMENTS AND RISKS
The Fund's primary investments and its risks are described under "The Fund --
Primary Investment Strategies and Primary Risks." In seeking to meet its
investment goals, the Fund may also invest in other securities and investment
techniques. These securities and investment techniques offer certain
opportunities and carry various risks.
The Fund may elect not to buy all of these securities or use all of these
techniques to the fullest extent permitted, unless it believes that doing so
will help the Fund achieve its investment goals.
HEDGING STRATEGIES
The Fund may enter into a number of hedging strategies, including those that
employ futures and options, to gain or reduce exposure to particular securities
or markets. These strategies, may involve the use of financial instruments who
depends on, or is derived from, value derives from the value of an underlying
security, an index or a currency. The Fund may use these strategies for hedging
purposes (attempting to offset a potential loss in one position by establishing
an interest in an opposite position) in connection with the Fund's bond holdings
or to adjust the duration of the Fund's bond holdings. Hedging strategies
involve the risk that they may exaggerate a loss, potentially losing more money
than the actual cost of the security, or limit a potential gain. Also, with some
hedging strategies there is the risk that the other party to the transaction may
fail to honor its contract terms, causing a loss to the Fund.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DOLLAR ROLLS
When-issued securities and forward commitments are securities which are
purchased prior to the date they are actually issued or delivered. These
securities involve the risk that they may fall in value by the time they are
actually issued or that the other party may fail to honor the contract terms. In
a dollar roll, the Fund sells a mortgage-backed security and simultaneously
enters into a commitment to purchase a similar security at a later date. Dollar
rolls also involve the risk that the other party may not honor the contract
terms.
YEAR 2000 COMPLIANCE
Like other investment companies, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the advisor and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's advisor,
distributor and transfer agent "Liberty Companies" are taking steps that they
believe are reasonably designed to address the Year 2000 Problem, including
communicating with vendors who furnish services, software and systems to the
Fund, to provide that date-related information and data can be properly
processed after January 1, 2000. Many Fund service providers and vendors,
including the Liberty Companies, are in the process of making Year 2000
modifications to their software and systems and believe that such modifications
will be completed on a timely basis prior to January 1, 2000. However, no
assurances can be given that all modifications required to ensure proper data
processing and calculation on and after January 1, 2000 will be timely made or
that services to the Fund will not be adversely affected.
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12
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FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance. Information is shown for the Fund's last three fiscal
years, which run from November 1 to October 31 and the period July 31, 1995
(commencement of the investment operations) to October 31, 1995. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that in you would have earned (or lost)
on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the Fund's financial
statements, is included in the Fund's annual report. You can request a free
annual report by calling 1-800-426-3750.
THE COLONIAL FUND
<TABLE>
<CAPTION>
Years ended October 31
1998 1997 1996 1995 (a)
Class Z Class Z Class Z Class Z
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 11.170 9.500 8.940 8.780
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INCOME FROM INVESTMENT OPERATIONS ($)
Net investment income (b) 0.261 0.184 0.186 0.041
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Net realized and unrealized gain
(loss) 0.685 2.225 1.192 0.167
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Total from Investment Operations 0.946 2.409 1.378 0.208
- --------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS
From net investment income (0.276) (0.171) (0.182) (0.048)
- --------------------------------------------------------------------------------------------------------------------
From net realized gains (1.450) (0.568) (0.636) --
- --------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to
Shareholders (1.726) (0.739) (0.818) (0.048)
- --------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.390 11.170 9.500 8.940
- --------------------------------------------------------------------------------------------------------------------
Total return (c) (%) 9.35 27.10 16.50 2.02 (d)
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%)
Expenses (e) 0.88 0.90 0.91 0.93 (f)
- --------------------------------------------------------------------------------------------------------------------
Net investment income (e) 2.46 1.80 2.06 2.66 (f)
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 69 71 38 66
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 22,235 16,158 13,555 3,659
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Class Z shares were initially offered on July 31, 1995. Per share
amounts reflect activity from that date.
(b) Per share data was calculated using average shares outstanding during
the period.
(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.
(f) Annualized
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13
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14
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15
<PAGE>
FOR MORE INFORMATION
You can get more information about the Fund's investments in the Fund's
semi-annual and annual reports to shareholders. The annual report contains a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance over its last fiscal year.
You may wish to read the SAI for more information on the Fund and the securities
in which it invests. The SAI is incorporated into this prospectus by reference,
which means that it is considered to be part of this prospectus.
You can get free copies of reports and the SAI, request other information and
discuss your questions about the Fund by contacting the Fund's Distributor at:
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.libertyfunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from
the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the following
location, and you can also obtain copies, upon payment of a duplicating fee, by
writing or calling the following:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
INVESTMENT COMPANY ACT FILE NUMBERS:
Colonial Trust III: 811-00881
- - The Colonial Fund
[LIBERTY FUNDS LOGO] LIBERTY
COLONIAL - CRABBE HUSON - NEWPORT - STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)1999
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
Visit us at www.libertyfunds.com
TF-O1/854G-0399
