COLONIAL TAX-EXEMPT INSURED FUND
Supplement to Prospectus dated March 30, 1994
(Supplanting Supplement dated June 24, 1994)
On February 17, 1995, the Trustees approved modifications to the
wording of the Fund's investment objective. The Fund's current
objective is to seek, primarily, as high a yield exempt from
federal income taxes as is possible by investing primarily in high
quality, insured tax-exempt bonds and, secondarily, reduction of
risk to principal from downward movements in the market value of
its portfolio securities during periods of generally declining bond
prices. Effective May 31, 1995, the Fund's objective will be to
seek as high a level of after-tax total return, as is consistent
with prudent risk, by pursuing current income exempt from federal
income tax and opportunities for long-term appreciation from a
portfolio primarily invested in insured municipal bonds.
This modification is intended to reflect the Fund's emphasis on
after-tax total return, a major component of which will continue to
be current tax-exempt income.
The sixth and seventh paragraphs under the caption HOW THE FUND
PURSUES ITS OBJECTIVES are deleted in their entirety and replaced
with the following:
Options and Futures. The Fund may write covered call and put
options on securities held in its portfolio and purchase call and
put options on debt securities. A call option gives the purchaser
the right to buy a security from, and a put option the right to
sell a security to, the option writer at a specified price, on or
before a specified date. The Fund will pay a premium when
purchasing an option, which reduces the Fund's return on the
underlying security if the option is exercised and results in a
loss if the option expires unexercised. The Fund will receive a
premium from writing an option, which may increase its return if
the option expires or is closed out at a profit. So long as the
Fund is the writer of a call option it will own the underlying
security subject to the option (or comparable securities satisfying
the cover requirements of securities exchanges). So long as the
Fund is a writer of a put option it will hold cash and/or high-
grade debt obligations equal to the price to be paid if the option
is exercised. If the Fund is unable to close out an unexpired option,
the Fund must continue to hold the underlying security until the option
expires. Trading hours for options may differ from the trading hours for the
underlying securities. Thus significant price movements may occur in the
securities markets that are not reflected in the options market.
This may limit the effectiveness of options as hedging devices.
The Fund may buy or write options that are not traded on national
securities exchanges and not protected by the Option Clearing
Corporation. These transactions are effected directly with a
broker-dealer, and the Fund bears the risk that the broker-dealer
will fail to meet its obligations. The market value of such
options and other illiquid assets will not exceed 10% of the Fund's
total assets.
For hedging purposes the Fund may purchase or sell (1) interest
rate and tax-exempt bond index futures contracts, and (2) put and
call options on such contracts and on such indices. 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 initial sale price 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 securities,
except that the position assumed is in the futures contracts rather
than in the security. The Fund may not purchase or sell futures
contracts or purchase related options if immediately thereafter the
sum of the amount of deposits for initial margin or premiums on 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.
TI-36/720A-0395 March 6, 1995
