COLONIAL U.S. GOVERNMENT FUND
Supplement to Prospectus
dated December 29, 1995
Effective January 1, 1997, the Fund no longer will be managed to qualify as an
eligible investment for Federal credit unions and national banks. The changes to
the Prospectus set forth below are effective as of such date:
The last sentence of the first paragraph under the caption How the Fund Pursues
its Objective is revised in its entirety as follows:
The Fund may invest in U.S. government securities including zero coupon
securities of any maturity.
The ninth paragraph under the caption How the Fund Pursues its Objective is
deleted in its entirety.
An additional paragraph under the caption How the Fund Pursues its Objective and
prior to the sub-caption Other is added as follows:
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) the possible absence of a liquid secondary market
at any point in time, and (3) if the Adviser's prediction on interest rates
is inaccurate, the Fund may be worse off than if it had not hedged.
UG-36/613C-0996 September 23, 1996
