March 31, 1996, Revised April 19, 1996
COLONIAL EQUITY INCOME FUND
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Adviser) and your full-service financial
adviser want you to understand both the risks and benefits of mutual fund
investing.
While mutual funds offer significant opportunities and are professionally
managed, they also carry risks including possible loss of principal. Unlike
savings accounts and certificates of deposit, mutual funds are not insured or
guaranteed by any financial institution or government agency.
Please consult your full-service financial adviser to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.
Colonial Equity Income Fund (Fund), a diversified portfolio of Colonial Trust VI
(Trust), an open-end management investment company, seeks current income and
long-term growth. The Fund is managed by the Adviser, an investment adviser
since 1931.
This Prospectus explains concisely what you should know before investing in the
Fund. Read it carefully and retain it for future reference. More detailed
information about the Fund is in the March 31, 1996 Statement of Additional
Information which has been filed with the Securities and Exchange Commission and
is obtainable free of charge by calling the Adviser at 1-800-248-2828. The
Statement of Additional Information is incorporated by reference in (which means
it is considered to be a part of) this Prospectus.
EI-01/047C-0496
The Fund offers three classes of shares. Class A shares are offered at net asset
value plus a sales charge imposed at the time of purchase; Class B shares are
offered at net asset value and, in addition, are subject to an annual
distribution fee and a declining contingent deferred sales charge on redemptions
made within six years after purchase; and Class D shares are offered at net
asset value plus a small initial sales charge and are subject to a contingent
deferred sales charge on redemptions made within one year after purchase and a
continuing distribution fee. Class B shares automatically convert to Class A
shares after approximately eight years. See "How to Buy Shares."
Contents Page
Summary of Expenses 2
The Fund's Investment Objective 3
How the Fund Pursues its Objective
and Certain Risk Factors 3
How the Fund Measures its
Performance 5
How the Fund is Managed 5
How the Fund Values its Shares 6
Distributions and Taxes 6
How to Buy Shares 6
How to Sell Shares 8
How to Exchange Shares 9
Telephone Transactions 9
12b-1 Plans 9
Organization and History 10
Appendix 11
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your estimated
annual expenses for an investment in each Class of the Fund's shares. "Other
expenses" are based on estimated amounts for the current fiscal year. See "How
the Fund is Managed" and "12b-1 Plans" for more complete descriptions of the
Fund's various costs and expenses.
Shareholder Transaction Expenses (1)(2)
<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as a % of offerin price) (3) 5.75% 0.00%(5) 1.00%(5)
Maximum Contingent Deferred Sales Charge (as a % of offering price)(3) 1.00%(4) 5.00% 1.00%
(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Sell Shares."
(2) Redemption proceeds exceeding $5,000 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to $5
million redeemed within approximately 18 months after purchase. See
"How to Buy Shares."
(5) Because of the distribution fee applicable to each 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.
</TABLE>
Estimated Annual Operating Expenses (as a % of average net assets)
<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Management fee 0.80% 0.80% 0.80%
12b-1 fees 0.25 1.00 1.00
Other expenses 0.42 0.42 0.42
---- ---- ----
Total operating expenses 1.47% 2.22% 2.22%
==== ==== ====
</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 Class D
Period: (6) (7) (6) (7)
<S> <C> <C> <C> <C> <C>
1 year $ 72 $ 73 $23 $42 $32
3 years 101 100 70 79 79(8)
(6) Assumes redemption at period end.
(7) Assumes no redemption.
(8) Class D shares do not incur a contingent deferred sales charge on
redemptions made after one year.
</TABLE>
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income 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 U.S. and
foreign income-producing equity securities. Normally at least 65% of the Fund's
assets will be invested in equity securities. The Fund also may invest up to 35%
of its assets in U.S. or foreign debt securities. In selecting investments, the
Adviser uses a disciplined process intended to create a diversified portfolio
whose performance (before expenses) will exceed that of the universe of income
and growth funds while maintaining risk characteristics that are generally
consistent with that universe. However, there is no assurance that the
portfolio's performance will exceed (or its risk characteristics will match)
that of the income and growth fund universe, or that the Fund will achieve its
objective.
Equity Securities Generally. Equity securities generally include common and
preferred stocks, warrants (rights) to purchase such stock, debt securities
convertible into stock, sponsored and unsponsored American Depository Receipts
and Global Depository Receipts. Stocks represent shares of ownership in a
company. Generally, preferred stock has a specified dividend and ranks after
debt securities and before common stocks in its claim on income for dividend
payments and on assets should the issuer be liquidated. Debt or preferred equity
securities convertible into or exchangeable for equity securities traditionally
pay dividends or interest at rates higher than common stock but lower than
non-convertible securities. Warrants are options to buy a stated of number of
shares of common stock at a specified price anytime during the life of the
warrants (generally two or more years).
Debt Securities Generally. The Fund may invest in debt securities, without
regard to quality or rating. Up to 20% of the Fund's assets may be invested in
lower rated debt securities (commonly referred to as "junk bonds"). Lower rated
debt securities are debt securities which, because of the greater possibility
that the issuers will default, are not investment grade (i.e., are rated below
BBB by Standard & Poors, Corporation or below Baa by Moody's Investors Service,
or are unrated but considered by the Adviser to be of comparable credit
quality). Because of the increased risk of default, these securities generally
have higher nominal or effective interest rates than higher quality securities.
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.
Foreign Investments. Investments in foreign securities (both equity and debt),
sponsored and unsponsored American Depository Receipts (receipts issued in the
U.S. by banks or trust companies evidencing ownership of underlying foreign
securities) and Global Depository Receipts (receipts issued by foreign banks or
trust companies) 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 movements in 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 (a) 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 (b) 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
U.S. or foreign currency-denominated cash equivalents and short-term debt
obligations, including certificates of deposit, time deposits, 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 right 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.
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 (other than short-term securities)
while borrowings exceed 5% of net assets.
Other. The Fund may not always achieve its objective. The Fund's investment
objective and non-fundamental policies may be changed without shareholder
approval. The Fund will notify investors at least 30 days prior to any material
change in the Fund's investment objective. If there is a change in the
investment objective, shareholders should consider whether the Fund remains an
appropriate investment in light of their financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares are redeemed
in response to a change in objective. The Fund's fundamental 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 average annual total return only in
that they may relate to different time periods, may represent aggregate as
opposed to average annual total returns, and may not reflect the initial or
contingent deferred sales charges.
Each Class's yield, which differs from total return because it does not consider
changes in net asset value, is calculated in accordance with the Securities and
Exchange Commission's formula. Each Class's distribution rate is calculated by
dividing the most recent quarter's distributions, annualized, by the maximum
offering price of that Class at the end of the quarter. Each Class's performance
may be compared to various indices. Quotations from various publications may be
included in sales literature and advertisements. See "Performance Measures" in
the Statement of Additional Information for more information. All performance
information is historical and does not predict future results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the Fund's
affairs as conducted by the Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc. Colonial Investment
Services, Inc. (Distributor) is a subsidiary of the Adviser and serves as the
distributor for the Fund's shares. Colonial Investors Service Center, Inc.
(Transfer Agent), an affiliate of the Adviser, serves as the shareholder
services and transfer agent for the Fund. The Colonial Group, Inc. is a direct
subsidiary of Liberty Financial Companies, Inc. which in turn is an indirect
subsidiary of Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual
is considered to be the controlling entity of the Adviser and its affiliates.
Liberty Mutual is an underwriter of workers' compensation insurance and a
property and casualty insurer in the U.S.
The Adviser furnishes the Fund with investment management, accounting and
administrative personnel and services, office space and other equipment and
services at the Adviser's expense. For these services, the Fund pays the Adviser
an annual rate of 0.80% of the Fund's average daily net assets.
John E. Lennon, Vice President of the Adviser, co-manages the Fund. He has
managed various other Colonial equity funds since 1982.
Peter Wiley, Assistant Vice President of the Adviser, co-manages the Fund 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 and an Assistant Technical Staff Member of the
Massachusetts Institute of Technology's Lincoln Laboratory.
The Adviser also provides pricing and bookkeeping services to the Fund for a
monthly fee of $2,250 plus a percentage of the Fund's average net assets over
$50 million. The Transfer Agent provides transfer agency and shareholder
services to the Fund for a fee of 0.25% annually of average net assets plus
certain out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser may agree.
The Adviser places all orders for the purchase and sale of portfolio securities.
In selecting broker-dealers, the Adviser may consider research and brokerage
services furnished to it and its affiliates. Subject to seeking best execution,
the Adviser may consider sales of shares of the Fund (and of certain other
Colonial funds) in selecting broker-dealers for portfolio security transactions.
Fund expenses consist of management, bookkeeping, shareholder service and
transfer agent fees discussed above, 12b-1 service and distribution fees
discussed under the caption "12b-1 Plans", and all other expenses, fees,
charges, taxes, organization costs and liabilities incurred or arising in
connection with the Fund or Trust or in connection with the management thereof,
including but not limited to, trustees' compensation and expenses and auditing,
counsel, custodian and other expenses deemed necessary and proper by the
Trustees.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares of the Fund are
valued as of the close of the New York Stock Exchange (Exchange) each day the
Exchange is open. Portfolio securities for which market quotations are readily
available are valued at market. Short-term investments maturing in 60 days or
less are valued at amortized cost when it is determined, pursuant to procedures
adopted by the Trustees, that such cost approximates market value. All other
securities and assets are valued at fair value following procedures adopted by
the Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders virtually all net income
and any net realized gain at least annually.
The Fund generally declares and pays distributions quarterly. Distributions are
invested in additional shares of the same Class of the Fund at net asset value
unless the shareholder elects to receive cash. To change your election, call the
Transfer Agent for information. 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. Whether you receive distributions in cash or in additional Fund shares,
you must report them as taxable income unless you are a tax-exempt institution.
If you buy shares shortly before a distribution is declared, the distribution
will be taxable although it is, in effect, a partial return of the amount
invested. Each January, information on the amount and nature of distributions
for the prior year is sent to shareholders.
HOW TO BUY SHARES
Shares of the Fund are offered continuously. Orders received in good form prior
to the time at which the Fund values its shares (or placed with a financial
service firm before such time and transmitted by the financial service firm
before the Fund processes that day's share transactions) will be processed based
on that day's closing net asset value, plus any applicable initial sales charge.
The minimum initial investment is $1,000; subsequent investments may be as small
as $50. The minimum initial investment for the Colonial Fundamatic program is
$50; and the minimum initial investment for a Colonial retirement account is
$25. Certificates will not be issued for Class B or Class D shares and there are
some limitations on the issuance of Class A 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
0.25% annual service fee, plus an initial or contingent deferred sales charge as
follows:
Initial Sales Charge
--------------------
Retained
by
Financial
Service
Firm
as % of as % of
--------
Amount Offering Offering
Amount Purchased Invested Price Price
Less than $50,000 6.10% 5.75% 5.00%
$50,000 to less than
$100,000 4.71% 4.50% 3.75%
$100,000 to less than
$250,000 3.63% 3.50% 2.75%
$250,000 to less than
$500,000 2.56% 2.50% 2.00%
$500,000 to less than
$1,000,000 2.04% 2.00% 1.75%
$1,000,000 or more 0.00% 0.00% 0.00%
On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:
Amount Purchased Commission
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)
(1) Paid over 12 months but only to the extent the
shares remain outstanding.
Purchases of $1 million to $5 million are subject to a 1.00% contingent deferred
sales charge payable to the Distributor on redemptions within 18 months from the
first day of the month following the purchase. The contingent deferred sales
charge does not apply to the excess of any purchase over $5 million.
Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, subject to a 0.75% annual distribution fee for
approximately eight years (at which time they automatically convert to Class A
shares not bearing a distribution fee), a 0.25% annual service fee and a
declining contingent deferred sales charge if redeemed within six years after
purchase. As shown below, the amount of the contingent deferred sales charge
depends on the number of years after purchase that the redemption occurs:
Years Contingent Deferred
After Purchase Sales Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the purchase was
accepted and so on. The Distributor pays financial service firms a commission of
4.00% on Class B share purchases.
Class D Shares. Class D shares are offered at net asset value plus a 1.00%
initial sales charge, subject to a 0.75% annual distribution fee, a 0.25% annual
service fee and a 1.00% contingent deferred sales charge on redemptions made
within one year from the first day of the month after purchase.
The Distributor pays financial service firms an initial commission of 1.85% on
purchases of Class D shares and an ongoing commission of 0.65% annually. Payment
of the ongoing commission is conditioned on receipt by the Distributor of the
0.75% annual distribution fee referred to above. The commission may be reduced
or eliminated if the distribution fee paid by the Fund is reduced or eliminated
for any reason.
General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments (including initial sales charges, if any) in the account
reduced by prior redemptions on which a contingent deferred sales charge was
paid and any exempt redemptions). See the Statement of Additional Information
for more information.
Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Large investments, qualifying for a reduced Class A
sales charge, avoid the distribution fee. Investments in Class B shares have
100% of the purchase invested immediately. Investors investing for a relatively
short period of time might consider Class D shares. Purchases of $250,000 or
more must be for Class A or Class D shares. Purchases of $500,000 or more must
be for Class A shares. Consult your financial service firm.
Financial service firms may receive different compensation rates for selling
different classes of shares. The Distributor may pay additional compensation to
financial service firms which have made or may make significant sales.
Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares at a reduced, or without an, initial or contingent
deferred sales charge. These programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges" and "How to Sell Shares."
Shareholder Services. A variety of shareholder services are available. For more
information about these services or your account, call 1-800-345-6611. Some
services are described in the attached account application. A shareholder's
manual explaining all available services will be provided upon request.
HOW TO SELL SHARES
Shares of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will send proceeds only after the check has cleared (which may take up to
15 days).
Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates for shares
to be sold. The sale price is the net asset value (less any applicable
contingent deferred sales charge) next calculated after the Fund receives the
request in proper form. Signatures must be guaranteed by a bank, a member firm
of a national stock exchange or another eligible guarantor institution. Stock
power forms are available from financial service firms, the Transfer Agent and
many banks. Additional documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual retirement account
holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which the Fund values its shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law. In June of any year, the Fund may deduct
$10 (payable to the Transfer Agent) from accounts valued at less than $1,000
unless the account value has dropped below $1,000 solely as a result of share
value depreciation. Shareholders will receive 60 days' written notice to
increase the account value before the fee is deducted.
HOW TO EXCHANGE SHARES
Exchanges at net asset value may be made among the same class of shares of most
Colonial funds. Not all Colonial funds offer Class D shares. Shares will
continue to age without regard to the exchange for purposes of conversion and
determining the contingent deferred sales charge, if any, upon redemption.
Carefully read the prospectus of the fund into which you are exchanging before
submitting the request. Call 1-800-248-2828 to receive a prospectus and an
exchange authorization form. Call 1-800-422-3737 to exchange shares by
telephone. An exchange is a taxable capital transaction. The exchange service
may be changed, suspended or eliminated on 60 days' written notice.
Class A Shares. An exchange from a money market fund into a non-money market
fund will be at the applicable offering price next determined (including sales
charge), except for amounts on which an initial sales charge was paid. Non-money
market fund shares must be held for five months before qualifying for exchange
to a fund with a higher sales charge, after which exchanges are made at the net
asset value next determined.
Class B Shares. Exchanges of Class B shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within six years after
the original purchase, a contingent deferred sales charge will be assessed using
the schedule of the fund in which the original investment was made.
Class D Shares. Exchanges of Class D shares will not be subject to the
contingent deferred sales charge. However, if shares are redeemed within one
year after the original purchase, a 1.00% contingent deferred sales charge will
be assessed.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically eligible to
exchange Fund shares and may redeem up to $50,000 of Fund shares by calling
1-800-422-3737 toll-free any business day between 9:00 a.m. and the time at
which the Fund values its shares. Telephone redemption privileges for larger
amounts may be elected on the account application. Proceeds and confirmations of
telephone transactions will be mailed or sent to the address of record.
Telephone redemptions are not available on accounts with an address change in
the preceding 30 days. The Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine and, if it does
not, may be liable for any losses due to unauthorized or fraudulent telephone
transactions. All telephone transactions are recorded. Shareholders and/or their
financial advisers are required to provide their name, address and account
number. Financial advisers are also required to provide their broker number.
Shareholders and/or their financial advisers wishing to redeem or exchange
shares by telephone may experience difficulty in reaching the Fund at its
toll-free telephone number during periods of drastic economic or market changes.
In that event, shareholders and/or their financial advisers should follow the
procedures for redemption or exchange by mail as described above under "How to
Sell Shares." The Adviser, the Transfer Agent and the Fund reserve the right to
change, modify, or terminate the telephone redemption or exchange services at
any time upon prior written notice to shareholders. Shareholders and/or their
financial advisers are not obligated to transact by telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual service fee of 0.25%
of the Fund's average net assets attributed to each Class of shares. The Fund
also pays the Distributor an annual distribution fee of 0.75% of the average net
assets attributed to its Class B and Class D shares. Because the Class B and
Class D shares bear the additional distribution 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. 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 1991. The Fund
commenced operations in 1996 as a separate portfolio of the Trust.
At inception, the Adviser owned 100% of each Class of shares of the Fund and,
therefore, may be deemed to "control" the Fund.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Trust vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the aggregate ten
percent of Trust shares may call meetings to consider removal of Trustees. Under
certain circumstances, the Trust will provide information to assist shareholders
in calling such a meeting. See the Statement of Additional Information for more
information.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust (Declaration) disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by the Fund
or the Trust's Trustees. The Declaration provides for indemnification out of
Fund property for all loss and expense of any shareholder held personally liable
for the obligations of the Fund. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
(which are considered remote) in which the Fund would be unable to meet its
obligations and the disclaimer was inoperative. The risk of a particular fund
incurring financial loss on account of another fund of the Trust is also
believed to be remote, because it would be limited to circumstances in which the
disclaimer was inoperative and the other fund was unable to meet its
obligations.
APPENDIX
DESCRIPTION OF BOND RATINGS
S&P
AAA The highest rating assigned by S&P indicates an extremely strong capacity to
repay principal and interest.
AA bonds also qualify as high quality. Capacity to repay principal and pay
interest is very strong, and in the majority of instances, they differ from AAA
only in small degree.
A bonds have a strong capacity to repay principal and interest, although they
are somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB bonds are regarded as having an adequate capacity to repay principal and
interest. Whereas they normally exhibit protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to repay principal and interest than for bonds in the A category.
BB, B, CCC and CC bonds are regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and CC
the highest degree. While likely to have some quality and protection
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C ratings are reserved for income bonds on which no interest is being paid.
D bonds are in default, and payment of interest and/or principal is in arrears.
Plus(+) or minus (-) are modifiers relative to the standing within the major
rating categories.
MOODY'S
Aaa bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities. Those bonds in the
Aa through B groups which Moody's believes possess the strongest investment
attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many of the favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa bonds are considered as medium grade, neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact, have speculative
characteristics as well.
Ba bonds are judged to have speculative elements; their future cannot be
considered as well secured. Often, the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes these
bonds.
B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa bonds are of poor standing. They may be in default or there may be present
elements of danger with respect to principal or interest.
Ca bonds are speculative in a high degree, often in default or having other
marked shortcomings.
C bonds are the lowest rated class of bonds and can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
Investment Adviser
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108-2624
Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A.
March 31, 1996, Revised April 19, 1996
COLONIAL EQUITY INCOME FUND
PROSPECTUS
Colonial Equity Income Fund seeks current income and long-term growth.
For more detailed information about the Fund, call the Adviser at 1-800-248-2828
for the March 31, 1996 Statement of Additional Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
